<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
MEDICAL MANAGER CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required. A total fee of $339,735.00 was paid by Healtheon/WebMD
Corporation in connection with the filing of its S-4 Registration Statement
(Registration No. 333-39592) on June 19, 2000 and August 1, 2000 which
includes this proxy material.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MEDICAL MANAGER CORPORATION
669 RIVER DRIVE, CENTER 2
ELMWOOD PARK, NEW JERSEY 07407-1361
August 4, 2000
Dear Medical Manager Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Medical Manager Corporation to be held at the St. Regis Hotel, Fontainbleau
Room, Two East 55th Street, New York, New York 10022, on September 12, 2000, at
9:30 a.m., Eastern time. At the special meeting, you will be asked to consider
and vote upon a proposal to approve a merger of Medical Manager into
Healtheon/WebMD Corporation. In the merger, each outstanding share of common
stock of Medical Manager will be converted into 2.5 shares of common stock of
Healtheon/WebMD.
CareInsite, Inc., a majority owned subsidiary of Medical Manager, has also
agreed to be acquired by Healtheon/WebMD. CareInsite will merge with a wholly
owned subsidiary of Healtheon/WebMD, and each outstanding share of common stock
of CareInsite not indirectly or directly owned by Medical Manager will be
converted into 1.3 shares of common stock of Healtheon/WebMD. The Medical
Manager merger is conditioned upon all of the conditions of the CareInsite
merger being satisfied.
The transactions will bring together companies with complementary strengths
and with the shared goals of reducing healthcare costs and improving the quality
of care through innovative healthcare network and e-commerce services.
THE BOARD OF DIRECTORS OF MEDICAL MANAGER BELIEVES THAT THE MERGER IS IN
THE BEST INTERESTS OF OUR STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE MERGER.
All stockholders are invited to attend the special meeting in person. Your
participation at the special meeting, in person or by proxy, is important. The
merger of Medical Manager and Healtheon/WebMD cannot be completed without the
approval of the holders of a majority of the outstanding common stock of Medical
Manager. Whether or not you expect to attend the special meeting in person,
please complete, sign, date and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope. Each proxy is revocable and will not affect
your right to vote in person in the event you attend the special meeting.
The proxy statement/prospectus that accompanies this letter presents the
details of the proposed merger. We encourage you to read the entire document
carefully.
Thank you and I look forward to seeing you at the meeting.
Sincerely,
MARTIN J. WYGOD
Martin J. Wygod
Chairman of the Board
<PAGE> 3
MEDICAL MANAGER CORPORATION
669 RIVER DRIVE, CENTER 2
ELMWOOD PARK, NEW JERSEY 07407-1361
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 12, 2000
To the Stockholders of Medical Manager Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Medical
Manager Corporation will be held at the St. Regis Hotel, Fontainbleau Room, Two
East 55th Street, New York, New York 10022 on September 12, 2000, at 9:30 a.m.,
Eastern time, to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of February 13, 2000, between Medical
Manager and Healtheon/WebMD Corporation, as amended on June 18, 2000, which
provides for the merger of Medical Manager and Healtheon/WebMD. Under the terms
of the merger agreement, each issued and outstanding share of common stock of
Medical Manager will be converted into the right to receive 2.5 shares of common
stock of Healtheon/WebMD. As a result of this transaction, Medical Manager will
merge with and into Healtheon/WebMD, and Healtheon/WebMD will be the surviving
corporation.
A copy of the merger agreement between Medical Manager and Healtheon/WebMD
is attached as Annex A to the accompanying proxy statement/prospectus.
Only stockholders of record at the close of business on August 3, 2000 will
be entitled to vote at the special meeting. The stock transfer books will not be
closed.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS DETERMINED THAT
THE MERGER IS IN THE BEST INTERESTS OF OUR STOCKHOLDERS AND HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
All stockholders are cordially invited to attend the special meeting in
person. However, to ensure your representation at the special meeting, you are
urged to complete, sign, date and return the enclosed proxy card in the enclosed
postage-prepaid envelope as promptly as possible.
By Order of the Board of Directors
of Medical Manager Corporation,
CHARLES A. MELE
Charles A. Mele
Executive Vice President -- General
Counsel and Secretary
Elmwood Park, New Jersey
August 4, 2000
YOUR VOTE IS IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE> 4
PROXY STATEMENT/PROSPECTUS
HEALTHEON/WEBMD CORPORATION
MEDICAL MANAGER CORPORATION
CAREINSITE, INC.
PROPOSED MERGERS
The boards of directors of Healtheon/WebMD Corporation and Medical Manager
Corporation have approved an amended merger agreement pursuant to which Medical
Manager will merge with and into Healtheon/WebMD. Upon completion of the Medical
Manager merger, Medical Manager stockholders will receive 2.5 shares of
Healtheon/WebMD common stock for each share of Medical Manager common stock held
by them.
The boards of directors of Healtheon/WebMD and CareInsite, Inc. have
approved an amended merger agreement pursuant to which CareInsite will merge
with and into Avicenna Systems Corporation, a wholly owned subsidiary of Medical
Manager. As a result of the Medical Manager merger, Avicenna will become a
wholly owned subsidiary of Healtheon/WebMD. Upon completion of the CareInsite
merger, holders of CareInsite common stock other than Avicenna will receive 1.3
shares of Healtheon/WebMD common stock for each share of CareInsite common stock
held by them, and the holder of CareInsite preferred stock will receive one
share of Healtheon/WebMD preferred stock with terms substantially identical to
those of the CareInsite preferred stock for each share of CareInsite preferred
stock held by it.
If only one of the mergers receives the required stockholder approvals,
neither merger will be completed.
This proxy statement/prospectus is also the prospectus of Healtheon/WebMD
regarding its common stock to be issued to stockholders of Medical Manager and
CareInsite in exchange for their shares in connection with the Medical Manager
merger and the CareInsite merger. The shares of common stock to be issued in
connection with the mergers or upon the exercise of converted options will be
listed, subject to official notice of issuance, on the Nasdaq National Market
under the symbol "HLTH."
FOR A DISCUSSION OF RISK FACTORS WHICH YOU SHOULD CONSIDER IN EVALUATING
THE MERGERS, SEE "RISK FACTORS" ON PAGE 18.
The date of this proxy statement/prospectus is August 4, 2000, and it and a
form of proxy are first being mailed or otherwise delivered to stockholders on
or about August 7, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS FOR STOCKHOLDERS...................... 1
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS................... 4
The companies.......................................... 4
Structure of the companies............................. 5
Summary of the mergers................................. 6
Summary selected historical and summary selected
unaudited pro forma condensed combined financial
data.................................................. 12
Comparative historical and unaudited pro forma per
share data............................................ 16
RISK FACTORS................................................ 18
Risks relating to the proposed mergers................. 18
Risks relating to the combined company's business...... 21
Risks relating to Medical Manager's and CareInsite's
businesses............................................ 35
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 37
THE HEALTHEON/WEBMD ANNUAL MEETING.......................... 38
THE MEDICAL MANAGER SPECIAL MEETING......................... 41
THE CAREINSITE SPECIAL MEETING.............................. 43
THE MERGERS................................................. 46
Background of the mergers.............................. 46
Reasons for the mergers and recommendations of the
boards of directors................................... 52
Opinion of Healtheon/WebMD's financial advisor......... 59
Opinions of Medical Manager's financial advisors....... 68
Opinion of financial advisor to the special committee
of CareInsite's board................................. 79
Interests of directors, executive officers, affiliates
and significant stockholders in the mergers........... 82
Completion and effectiveness of the mergers............ 86
Structure of the mergers and conversion of Medical
Manager and CareInsite capital stock.................. 86
Exchange of Medical Manager and CareInsite stock
certificates for Healtheon/WebMD stock certificates... 86
Material U.S. federal income tax considerations of the
mergers............................................... 87
Accounting treatment of the mergers.................... 91
Regulatory filings and approvals required to complete
the mergers........................................... 91
Restrictions on sales of securities by affiliates of
Healtheon/WebMD....................................... 91
Integration committee.................................. 93
Stockholder litigation................................. 94
Amendment of Healtheon/WebMD's bylaws.................. 95
Listing on the Nasdaq National Market of
Healtheon/WebMD common stock to be issued in the
mergers............................................... 95
Delisting and deregistration of Medical Manager and
CareInsite common stock after the mergers............. 95
THE MERGER AGREEMENTS....................................... 96
RELATED AGREEMENTS.......................................... 105
OPERATIONS OF HEALTHEON/WEBMD AFTER THE MERGERS............. 110
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 113
HEALTHEON/WEBMD UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION..................................... 115
COMPARISON OF RIGHTS OF HOLDERS OF HEALTHEON/WEBMD CAPITAL
STOCK, MEDICAL MANAGER CAPITAL STOCK AND CAREINSITE
CAPITAL STOCK............................................. 130
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INFORMATION REGARDING HEALTHEON/WEBMD....................... 138
Healtheon/WebMD's business............................. 138
Healtheon/WebMD's management........................... 139
Share ownership by Healtheon/WebMD's principal
stockholders, management and directors................ 152
Healtheon/WebMD's related party transactions........... 156
INFORMATION REGARDING MEDICAL MANAGER....................... 160
Medical Manager's business............................. 160
Medical Manager selected consolidated financial data... 162
Share ownership by Medical Manager's principal
stockholders, management and directors................ 164
INFORMATION REGARDING CAREINSITE............................ 167
CareInsite's business.................................. 167
CareInsite selected consolidated financial data........ 168
CareInsite's management................................ 170
Share ownership by CareInsite's principal stockholders,
management and directors.............................. 184
LEGAL OPINIONS.............................................. 187
EXPERTS..................................................... 187
ADDITIONAL MATTERS FOR CONSIDERATION BY ONLY HEALTHEON/WEBMD
STOCKHOLDERS.............................................. 188
ADDITIONAL MATTERS FOR CONSIDERATION BY ONLY CAREINSITE
STOCKHOLDERS.............................................. 197
STOCKHOLDER PROPOSALS....................................... 200
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 201
WHERE YOU CAN FIND MORE INFORMATION......................... 202
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<TABLE>
<S> <C>
ANNEX A The Medical Manager Merger Agreement, together with
amendment thereto
ANNEX B The CareInsite Merger Agreement, together with amendment
thereto
ANNEX C Opinion of Morgan Stanley & Co. Incorporated, financial
advisor to Healtheon/WebMD
ANNEX D Opinion of Merrill Lynch & Co., financial advisor to Medical
Manager
ANNEX E Opinion of UBS Warburg LLC, financial advisor to Medical
Manager
ANNEX F Opinion of Banc of America Securities LLC, financial advisor
to the special committee of CareInsite's board of directors
ANNEX G Healtheon/WebMD Corporation 2000 Long-Term Incentive Plan
ANNEX H CareInsite, Inc. 1999 Director Stock Option Plan
ANNEX I Charter of the Audit Committee of the Board of Directors of
Healtheon/WebMD Corporation
</TABLE>
The Medical Manager(TM), CareInsite(TM), Porex(R), MEDPOR(R),
Squeeze-Mark(R) and TLS(R) are registered, pending or licensed trademarks of
Medical Manager.
WebMD(SM), Web-MD(SM), Health has a Homepage(SM), WebMD Practice(SM), WebMD
Health(SM), Healtheon(SM) and WebMD OnCall(SM) are service marks of
Healtheon/WebMD for which federal registration is pending.
ii
<PAGE> 7
QUESTIONS AND ANSWERS FOR STOCKHOLDERS
Q. WHAT ARE THE BENEFITS OF THE MEDICAL MANAGER MERGER AND THE CAREINSITE
MERGER?
A. We expect to use the combined resources and skills of the companies to
leverage the Internet to better serve the needs of patients, providers,
payers and other healthcare industry participants for healthcare content,
connectivity and administrative transaction services.
- Currently, only a small portion of healthcare transactions are conducted
electronically. We believe that a significant opportunity exists for the
combined company to replace paper-based inefficiencies with streamlined
electronic communications.
- In addition, we believe that the combined company will be able to provide
expanded services to healthcare payers that will help them reduce
administrative inefficiencies and better manage medical costs.
- We also intend to enhance the relationships between providers and
patients and between payers and patients with Internet-based healthcare
management and information services for consumers.
For more information regarding the expected benefits of the mergers, see
"Reasons for the mergers and recommendations of the boards of directors" on
page 52 and "Operations of Healtheon/WebMD After the Mergers" on page 110.
Q. HOW WILL THE MERGERS BE STRUCTURED?
A. To combine the companies, Medical Manager will merge with and into
Healtheon/WebMD and CareInsite will merge with and into Avicenna, a wholly
owned subsidiary of Medical Manager, which as a result of the Medical
Manager merger will become a wholly owned subsidiary of Healtheon/WebMD. For
diagrams illustrating the structure of the companies prior to and after the
mergers, see "Structure of the companies" on page 5.
After the Medical Manager merger and the CareInsite merger, the
stockholders of Healtheon/WebMD will own approximately 64%, the former
stockholders of Medical Manager will own approximately 27% and the former
stockholders of CareInsite will own approximately 9% of Healtheon/WebMD's
common stock.
Q. WHAT WILL I RECEIVE IN THE MERGERS?
A. Healtheon/WebMD stockholders: When the Medical Manager merger and the
CareInsite merger are completed, stockholders of Healtheon/WebMD will
continue to own Healtheon/WebMD stock.
Medical Manager stockholders: When the Medical Manager merger is
completed, Medical Manager stockholders will receive 2.5 shares of
Healtheon/WebMD common stock for each share of Medical Manager common
stock. Healtheon/WebMD will not issue fractional shares. Instead, Medical
Manager stockholders will receive a cash payment equal to the sale proceeds
of any fractional share.
CareInsite stockholders: When the CareInsite merger is completed, holders
of CareInsite common stock other than Avicenna will receive 1.3 shares of
Healtheon/WebMD common stock for each share of CareInsite common stock.
Healtheon/WebMD will not issue fractional shares. Instead, CareInsite
stockholders will receive a cash payment equal to the sale proceeds of any
fractional share. The holder of CareInsite preferred stock will receive one
share of Healtheon/WebMD preferred stock with terms that are substantially
identical to those of the CareInsite preferred stock for each share of
CareInsite preferred stock.
Example:
- If you own shares of Healtheon/WebMD common stock or preferred stock at
the time of the mergers, your shares will be unchanged.
- If you own 100 shares of Medical Manager common stock at the time of the
Medical Manager merger, then after the mergers you will receive 250
shares of Healtheon/WebMD common stock.
- If you own 100 shares of CareInsite common stock at the time of the
CareInsite merger, then after the mergers you will receive 130 shares of
Healtheon/WebMD common stock.
1
<PAGE> 8
Q. HOLDERS OF WHAT PERCENTAGE OF THE SHARES HAVE AGREED TO VOTE IN FAVOR OF THE
MERGERS?
A. Healtheon/WebMD. Executive officers, directors and major stockholders of
Healtheon/WebMD, holding approximately 40.9% of the shares outstanding and
entitled to vote as of the record date, have entered into a voting agreement
with Medical Manager and CareInsite that obligates them to vote in favor of
all of the Healtheon/WebMD proposals relating to the Medical Manager merger
and the CareInsite merger. Throughout this proxy statement/ prospectus,
references to the shares of Healtheon/WebMD entitled to vote at the annual
meeting are to shares of the common stock and the preferred stock of
Healtheon/WebMD, which votes together as a single class with the common
stock on an as if converted to common stock basis.
Medical Manager. Executive officers and directors of Medical Manager,
holding approximately 26.4% of the shares entitled to vote as of the record
date, have entered into a voting agreement with Healtheon/WebMD that
obligates them to vote in favor of the Medical Manager merger.
CareInsite. Major stockholders of CareInsite and their affiliates, holding
approximately 84.8% of the shares entitled to vote as of the record date,
have entered into voting agreements with Healtheon/WebMD that obligate them
to vote in favor of the CareInsite merger.
Q. WHAT WILL HAPPEN IF ONLY ONE OF THE MERGERS RECEIVES THE REQUIRED
STOCKHOLDER APPROVALS?
A. If only one of the mergers receives the required stockholder approvals,
neither merger will be completed. The Medical Manager merger is conditioned
upon, among other things, the approval of the Medical Manager merger by the
stockholders of Healtheon/WebMD and the stockholders of Medical Manager, the
approval of the CareInsite merger by the CareInsite stockholders and the
approval of the related issuance of shares of Healtheon/WebMD common stock
by the Healtheon/WebMD stockholders. The CareInsite merger is conditioned
upon, among other things, the completion of the Medical Manager merger.
Therefore, both mergers must be approved or neither merger will be
completed.
As a result of the CareInsite voting agreements described above, we expect
that the CareInsite merger will be approved even if no stockholder of
CareInsite other than those who have entered into voting agreements votes in
favor of it.
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGERS?
A. Yes. In evaluating the mergers, you should carefully consider the factors
discussed in "Risk Factors" on page 18.
Q. WHAT DO I NEED TO DO NOW?
A. After you read and consider carefully the information contained in this
document, please fill out and sign your proxy card. Then, mail your signed
proxy card in the enclosed return envelope as soon as possible so that your
shares may be represented at your stockholders' meeting. If you sign and
send in your proxy but do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the mergers and the other proposals.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. You should instruct your broker to vote your shares by following the
directions provided to you by your broker. If you do not instruct your
broker, your shares will not be voted with respect to the mergers but may be
voted with respect to the election of directors and other matters to be
voted upon at your meeting.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. If you want to change your vote, send a later-dated, signed proxy card
before your stockholders' meeting to your company or attend your meeting in
person and vote in person. Simply attending the meeting, however, will not
revoke your proxy. You may also revoke your proxy by sending written notice
to your company before the meeting. If you have instructed a broker to vote
your shares, you must follow instructions from your broker to change your
vote. Stockholders who have signed voting agreements may not revoke the
proxies given by them in the voting agreement.
2
<PAGE> 9
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. Healtheon/WebMD stockholders: No. You will keep the certificates you own.
Medical Manager stockholders and CareInsite stockholders: No. After we
have completed the mergers, we will send you written instructions informing
you how to exchange your stock certificates.
Q. WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
A. We are working toward completing the mergers as quickly as possible. We hope
to complete the mergers in the third calendar quarter of 2000. However, if
all applicable antitrust waiting periods have not expired or if other
conditions to the mergers have not been satisfied by then, the mergers may
be completed later.
Q. WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE MERGERS?
A. We expect that the mergers will generally be tax-free to you for federal
income tax purposes, other than with respect to cash that Medical Manager
and CareInsite stockholders may receive instead of fractional shares.
Q. WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE MERGERS?
A. If you are a Healtheon/WebMD stockholder, please contact Healtheon/WebMD's
investor relations department by telephone at 1-877-469-3263 or by e-mail at
[email protected].
If you are a Medical Manager stockholder or a CareInsite stockholder,
please contact Risa Fisher, investor relations, at 1-201-703-3415.
3
<PAGE> 10
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and does not contain all of the information that may be
important to you. To understand the mergers fully and for a more complete
description of the legal terms of the mergers, you should read carefully this
entire document and the documents to which we have referred you. We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary. For information regarding
other sources of information about Healtheon/WebMD, Medical Manager and
CareInsite, see "Where You Can Find More Information" on page 202.
THE COMPANIES
HEALTHEON/WEBMD CORPORATION (PAGES 138 THROUGH 159)
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
(404) 495-7600
http://www.webmd.com
Healtheon/WebMD provides web-based healthcare information and services to
facilitate connectivity and transactions among physicians, patients, payers and
other healthcare industry participants. Healtheon/WebMD's Internet-based
information and transaction platform allows for the secure exchange of
information among the disparate information systems used by healthcare industry
participants and supports Healtheon/WebMD's administrative transaction services,
including patient enrollment, eligibility determination, referrals and
authorizations, laboratory and diagnostic test orders and results, clinical data
retrieval and claims processing. Healtheon/WebMD's web site, WebMD.com, offers a
single destination for the exchange of healthcare information and supports a
broad range of healthcare transactions delivered over Healtheon/WebMD's secure,
Internet-based platform. Healtheon/WebMD designs its service offerings to help
integrate and manage administrative, clinical, research and information needs of
healthcare industry participants.
MEDICAL MANAGER CORPORATION (PAGES 160 THROUGH 166)
669 River Drive, Center 2
Elmwood Park, New Jersey 07407
(201) 703-3400
http://www.medicalmanager.com
Medical Manager operates three principal lines of business: physician
practice management through Medical Manager Health Systems, healthcare
electronic commerce, or e-commerce, services through CareInsite and plastics and
filtration technologies through Porex Corporation. Medical Manager Health
Systems is a leading provider of integrated healthcare automation solutions. The
company develops, markets, implements and supports The Medical Manager(R)
physician practice management system, which addresses the financial,
administrative, clinical and practice management needs of healthcare providers.
Medical Manager indirectly owns approximately 67.4% of CareInsite, the business
of which is described below. Porex designs, manufactures and distributes porous
and solid plastic components and products. These products are used in life
sciences, healthcare, industrial and consumer applications.
CAREINSITE, INC. (PAGES 167 THROUGH 186)
669 River Drive, Center 2
Elmwood Park, New Jersey 07407
(201) 703-3400
http://www.careinsite.com
CareInsite is developing and provides innovative healthcare network and
clinical communications services that leverage Internet technology to enable the
confidential exchange of clinical, administrative and financial information
among physicians and their patients, and affiliated health plans, providers and
suppliers. CareInsite's services are designed to improve the quality of patient
care and reduce the administrative and clinical costs of healthcare. CareInsite
is an approximately 67.4% owned subsidiary of Medical Manager.
4
<PAGE> 11
STRUCTURE OF THE COMPANIES
The diagrams below illustrate ownership of Healtheon/WebMD, Medical Manager
and CareInsite prior to and after the mergers.
PRIOR TO THE MERGERS
(DIAGRAM)
AFTER THE MERGERS
(DIAGRAM)
5
<PAGE> 12
SUMMARY OF THE MERGERS
OUR REASONS FOR THE MERGERS AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
(PAGES 52 THROUGH 59)
Healtheon/WebMD: The Healtheon/WebMD board of directors concluded that the
Medical Manager merger and CareInsite merger were in the best interests of the
stockholders of Healtheon/WebMD after considering the potential benefits and
potential negative effects of the mergers described in "Reasons for the mergers
and recommendations of the boards of directors -- Healtheon/WebMD" on page 52.
The Healtheon/WebMD board has unanimously approved and adopted the Medical
Manager merger and the Medical Manager merger agreement and the CareInsite
merger and the CareInsite merger agreement and recommends a vote FOR approval of
the proposal relating to the Medical Manager merger and FOR approval of the
proposal relating to the CareInsite merger.
The Healtheon/WebMD board of directors also recommends a vote FOR the
election of U. Bertram Ellis, Jr., Dennis B. Gillings and Charles G.V. Stevens
as directors. The board has also adopted an amendment to Healtheon/WebMD's
certificate of incorporation to change the corporate name of Healtheon/WebMD to
WebMD Corporation. The Healtheon/WebMD board recommends a vote FOR adoption of
this amendment. The board also approved Healtheon/WebMD's 2000 long-term
incentive plan and recommends a vote FOR this plan. The board also approved an
amendment to Healtheon/WebMD's 1998 employee stock purchase plan to increase the
number of shares of common stock reserved for issuance under this plan and to
change the formula for annually increasing the number of shares available to be
issued under this plan and recommends a vote FOR the amendment to this plan.
Medical Manager: The Medical Manager board of directors concluded that the
terms of the Medical Manager merger were fair to and in the best interests of
Medical Manager and its stockholders. In reaching this conclusion, the Medical
Manager board considered various factors described in "Reasons for the mergers
and recommendations of the boards of directors -- Medical Manager" on page 54.
The Medical Manager board has unanimously approved the Medical Manager
merger and recommends a vote FOR approval of the Medical Manager merger
agreement.
CareInsite: The CareInsite board of directors, after receiving the
unanimous recommendation of a special committee of the board comprised entirely
of independent directors, concluded that the terms of the CareInsite merger were
fair to and in the best interests of CareInsite and its stockholders other than
Medical Manager and its subsidiaries. In reaching this conclusion, the special
committee considered various factors described in "Reasons for the mergers and
recommendations of the boards of directors -- CareInsite" on page 56.
The CareInsite board, upon the recommendation of the special committee of
the board, has unanimously approved the CareInsite merger and recommends a vote
FOR approval of the CareInsite merger agreement.
The CareInsite board has also unanimously approved the CareInsite, Inc.
1999 Director Stock Option Plan and recommends a vote FOR approval of this plan.
THE STOCKHOLDERS' MEETINGS
(PAGES 38 THROUGH 45)
Healtheon/WebMD: The Healtheon/WebMD annual stockholders' meeting will be
held at the law offices of Alston & Bird LLP, One Atlantic Center, The Gaines
Room, 42nd Floor, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424 at
9:30 a.m., Eastern time, on September 12, 2000. At the annual meeting
Healtheon/WebMD stockholders will be asked:
- to consider and vote on the approval and adoption of the Medical Manager
merger and the Medical Manager merger agreement
- to consider and vote on the issuance of shares of Healtheon/WebMD common
stock to CareInsite stockholders pursuant to the CareInsite merger
- to consider and vote on an amendment to Healtheon/WebMD's certificate of
incorporation to change the corporate name of Healtheon/WebMD to WebMD
Corporation
- to elect three directors
- to consider and vote on Healtheon/WebMD's 2000 long-term incentive plan
6
<PAGE> 13
- to consider and vote on an amendment to Healtheon/WebMD's 1998 employee
stock purchase plan, if the Medical Manager and CareInsite mergers are
completed, to increase the number of shares of common stock reserved for
issuance under this plan and to change the formula for annually
increasing the number of shares available to be issued under this plan.
Medical Manager and CareInsite: The Medical Manager and CareInsite special
stockholders' meetings will be held at the St. Regis Hotel, Fontainbleau Room,
Two East 55th Street, New York, New York 10022, at 9:30 a.m. and 10:00, Eastern
time, respectively, on September 12, 2000. At the Medical Manager special
meeting, Medical Manager stockholders will be asked to consider and vote on the
Medical Manager merger agreement.
At the CareInsite special meeting, the CareInsite stockholders will be
asked:
- to consider and vote on the CareInsite merger agreement
- to consider and vote on the CareInsite, Inc. 1999 Director Stock Option
Plan.
STOCKHOLDERS ENTITLED TO VOTE AT THE MEETINGS
(PAGES 39, 41 AND 43)
Healtheon/WebMD: Holders of record of Healtheon/WebMD common stock and
preferred stock at the close of business on August 3, 2000, the record date, are
entitled to vote at the meeting.
Medical Manager: Holders of record of Medical Manager common stock at the
close of business on August 3, 2000, the record date, are entitled to vote at
the meeting.
CareInsite: Holders of record of CareInsite common stock at the close of
business on August 3, 2000, the record date, are entitled to vote at the
meeting.
VOTES REQUIRED FOR APPROVAL
(PAGES 39, 41 AND 43 THROUGH 44)
Healtheon/WebMD: A majority vote of the outstanding shares of
Healtheon/WebMD is required to approve and adopt the proposals relating to the
Medical Manager merger and the amendment to the certificate of incorporation. A
majority vote of the outstanding shares present in person or represented by
proxy at the meeting is required to approve and adopt the proposals relating to
the CareInsite merger, the 2000 long-term incentive plan and the amendment to
the 1998 employee stock purchase plan. Election of directors is by a plurality
of the shares present in person or represented by proxy at the meeting.
Executive officers, directors and major stockholders of Healtheon/WebMD holding
approximately 40.9% of the shares outstanding and entitled to vote have agreed
to vote in favor of the proposal relating to the Medical Manager merger and the
proposal relating to the CareInsite merger. Healtheon/WebMD stockholders are
entitled to cast one vote per share of Healtheon/WebMD common stock owned, or
issuable upon conversion of Healtheon/WebMD preferred stock owned, as of August
3, 2000, the record date.
Medical Manager: A majority vote of the outstanding shares of Medical
Manager common stock is required to approve and adopt the Medical Manager merger
agreement and the Medical Manager merger. Executive officers and directors of
Medical Manager holding approximately 26.4% of the outstanding Medical Manager
common stock as of the record date have agreed to vote in favor of this
proposal. Medical Manager stockholders are entitled to cast one vote per share
of Medical Manager common stock owned as of August 3, 2000, the record date.
CareInsite: A majority vote of the outstanding shares of CareInsite common
stock is required to approve and adopt the CareInsite merger agreement and the
CareInsite merger. Major stockholders of CareInsite and their affiliates holding
approximately 84.8% of the outstanding CareInsite common stock as of the record
date have agreed to vote in favor of this proposal. A majority vote of the
outstanding shares present in person or represented by proxy at the meeting is
required to approve the 1999 Director Stock Option Plan proposal. CareInsite
stockholders are entitled to cast one vote per share of CareInsite common stock
owned as of August 3, 2000, the record date.
INTERESTS OF DIRECTORS, EXECUTIVE OFFICERS, AFFILIATES AND SIGNIFICANT
STOCKHOLDERS IN THE MERGERS
(PAGES 82 THROUGH 85)
When considering the recommendations of Medical Manager's and CareInsite's
boards, you should be aware that some of Medical Manager's and CareInsite's
directors, executive officers, affiliates and significant stockholders have
interests in the mergers and other proposals that are different from, or are in
addition to, yours. These interests include:
- Options granted to directors and executive officers of Medical Manager
and CareInsite will
7
<PAGE> 14
be assumed by Healtheon/WebMD and will become options to purchase common
stock of Healtheon/WebMD.
- Options granted to non-employee directors of Medical Manager pursuant to
the Medical Manager 1991 Director Stock Option Plan, subject to some
exceptions, options granted to directors of Medical Manager pursuant to
the Amended and Restated 1989 Class A Stock Option Plan and options
granted to non-employee directors of CareInsite pursuant to the
CareInsite 1999 Director Stock Option Plan will become fully vested and
immediately exercisable upon the completion of the mergers.
- Letter agreements entered into between Healtheon/WebMD and each of Martin
J. Wygod, Medical Manager's and CareInsite's current Chairman, and
Charles A. Mele, a member of Medical Manager's and CareInsite's boards of
directors and Medical Manager's Executive Vice President, General Counsel
and Secretary, provide benefits to Mr. Wygod and Mr. Mele in the event
their employment is terminated following the mergers.
- Letter agreements entered into between Healtheon/WebMD and Medical
Manager and CareInsite provide benefits to certain key employees of
Medical Manager and CareInsite, including two executive officers of
CareInsite, in the event their employment is terminated following the
completion of the mergers.
- Employment agreements between Medical Manager or CareInsite and some of
their executive officers provide benefits to the executive officer that
could be triggered as a result of the completion of the mergers.
- Immediately preceding the mergers, but effective only upon completion of
the mergers, the number of members of the board of directors of
Healtheon/WebMD will be increased from nine to 15 and the Healtheon/WebMD
board will appoint seven individuals selected by the board of directors
of Medical Manager to be directors of Healtheon/WebMD.
- Effective upon completion of the mergers, Mr. Wygod shall be appointed
Co-Chief Executive Officer of Healtheon/WebMD and Marvin P. Rich will be
appointed President of Healtheon/ WebMD.
- After the mergers, Healtheon/WebMD will indemnify the officers and
directors of Medical Manager and CareInsite.
A majority of the members of CareInsite's board of directors are also
members of Medical Manager's board of directors. A special committee, consisting
of three directors who are not employed by or affiliated with CareInsite,
Medical Manager or Healtheon/WebMD, other than as directors of CareInsite, was
created to act solely on behalf of the CareInsite stockholders other than
Medical Manager and its subsidiaries for the purposes of negotiating and
determining whether to recommend the CareInsite merger.
Cerner Corporation, a publicly traded company which owns approximately
17.4% of CareInsite's outstanding common stock, has agreed to vote in favor of
the CareInsite merger agreement and the CareInsite merger. CareInsite and Cerner
are parties to a number of commercial agreements which will remain in effect
following the mergers. In addition, Healtheon/WebMD has agreed to negotiate a
marketing agreement with Cerner and to evaluate specified Cerner solutions to be
integrated with Healtheon/WebMD's service offerings. For more information
regarding CareInsite's relationship with Cerner, see "Related
Agreements -- Agreements regarding Cerner," on page 109.
OPINIONS OF FINANCIAL ADVISORS
(PAGES 59 THROUGH 82)
Healtheon/WebMD: In deciding to approve the Medical Manager merger and the
CareInsite merger, Healtheon/WebMD's board of directors considered an opinion
from its financial advisor, Morgan Stanley & Co. Incorporated, as to the
fairness, as of June 18, 2000, of the exchange ratios, taken together and not
separately, from a financial point of view to Healtheon/WebMD.
Medical Manager: In connection with the Medical Manager merger, Medical
Manager's board received separate opinions from Medical Manager's financial
advisors, Merrill Lynch & Co. and UBS Warburg LLC, as to the fairness from a
financial point of view of the exchange ratio to the holders of Medical Manager
common stock.
CareInsite: In connection with the CareInsite merger, the special
committee of CareInsite's board considered the opinion of its financial advisor,
Banc of America Securities LLC, as to the fairness from a financial point of
view of the exchange ratio to the
8
<PAGE> 15
stockholders of CareInsite other than Medical
Manager.
The full text of the written opinions of the financial advisors are
attached to the back of this document as Annex C, Annex D, Annex E and Annex F,
respectively. THE OPINIONS OF THE FINANCIAL ADVISORS DO NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF HEALTHEON/WEBMD COMMON STOCK, MEDICAL MANAGER
COMMON STOCK OR CAREINSITE COMMON STOCK AS TO HOW TO VOTE WITH RESPECT TO ANY
MATTER RELATING TO THE PROPOSED MERGERS. WE ENCOURAGE YOU TO READ THESE OPINIONS
CAREFULLY.
MANAGEMENT OF HEALTHEON/WEBMD FOLLOWING THE MERGERS
(PAGE 111)
Immediately preceding the mergers, but effective only upon completion of
the mergers, the number of members of the board of directors of Healtheon/WebMD
will be increased from nine to 15 and the Healtheon/WebMD board will appoint
seven individuals selected by the board of directors of Medical Manager to be
directors of Healtheon/WebMD.
Effective upon completion of the mergers, Martin J. Wygod will be appointed
Co-Chief Executive Officer of Healtheon/WebMD and Marvin P. Rich will be
appointed President of Healtheon/WebMD. W. Michael Long will remain Chairman of
Healtheon/WebMD, and Jeffrey T. Arnold will continue as Co-Chief Executive
Officer.
CONDITIONS TO COMPLETION OF THE MERGERS
(PAGES 99 THROUGH 101)
Healtheon/WebMD's and Medical Manager's respective obligations to complete
the Medical Manager merger are subject to the satisfaction or waiver of closing
conditions, including all conditions to completion of the CareInsite merger
being satisfied. Healtheon/WebMD's and CareInsite's respective obligations to
complete the CareInsite merger are subject to the satisfaction or waiver of
closing conditions, including the completion of the Medical Manager merger.
If any party waives any conditions, the parties to the applicable merger
agreement will each consider the facts and circumstances at that time and make a
determination as to whether a resolicitation of proxies from stockholders is
appropriate.
TERMINATION OF THE MERGER AGREEMENTS
(PAGE 101)
Either of the merger agreements may be terminated at any time prior to
completion of the applicable merger, whether before or after the stockholders'
meetings:
- by mutual consent of the parties
- by either party, if the merger is not completed before November 30, 2000,
unless that party is the cause of the failure of the merger to occur on
or before that date
- by either party, if there is any order of a court or governmental
authority permanently enjoining, restraining or prohibiting the
completion of the merger or if any court or governmental authority fails
to take action necessary to fulfill the conditions to completion of the
merger
- by Medical Manager or CareInsite, as the case may be, if the board of
directors of Healtheon/WebMD withdraws, modifies or changes its
recommendation regarding the proposals relating to the merger in a manner
adverse to that party or recommends to the stockholders of
Healtheon/WebMD an alternate acquisition proposal
- by either party, if the proposals relating to the merger fail to receive
the requisite vote of the stockholders of Medical Manager or CareInsite,
as the case may be, unless that party is the cause of the failure of
these proposals to receive approval
- by either party, if the proposals relating to the merger fail to receive
the requisite vote of the stockholders of Healtheon/WebMD, except that
Healtheon/WebMD may not terminate the merger agreement if it is the cause
of the failure of these proposals to receive approval
- by either party, if the other merger agreement has been terminated in
accordance with its terms.
In addition, the Medical Manager merger agreement may be terminated by
Healtheon/WebMD if the board of directors of Medical Manager withdraws, modifies
or changes its recommendation regarding the approval of the Medical Manager
merger in a manner adverse to Healtheon/WebMD or recommends to the stockholders
of Medical Manager an alternate acquisition proposal.
9
<PAGE> 16
TERMINATION FEES
(PAGES 102 THROUGH 103)
If the Medical Manager merger agreement is terminated by Healtheon/WebMD
because the board of directors of Medical Manager withdraws, modifies or changes
its recommendation of the Medical Manager merger or recommends to the
stockholders of Medical Manager an alternate acquisition proposal or by
Healtheon/WebMD or Medical Manager because the Medical Manager stockholders do
not approve and adopt the Medical Manager merger agreement and the Medical
Manager merger, Medical Manager may be obligated to pay Healtheon/WebMD a
termination fee of $100 million. For Medical Manager to become obligated to pay
Healtheon/WebMD the termination fee, an alternate acquisition proposal involving
Medical Manager and a party other than Healtheon/WebMD must exist before the
termination of the Medical Manager merger agreement.
If the Medical Manager merger agreement is terminated by Medical Manager
because the board of directors of Healtheon/WebMD withdraws, modifies or changes
its recommendation of the Medical Manager merger or recommends to the
stockholders of Healtheon/WebMD an alternate acquisition proposal or by
Healtheon/WebMD or Medical Manager because the Healtheon/WebMD stockholders do
not approve and adopt the Medical Manager merger agreement and the Medical
Manager merger, Healtheon/WebMD may be obligated to pay Medical Manager a
termination fee of $65 million. For Healtheon/WebMD to become obligated to pay
Medical Manager the termination fee, an alternate acquisition proposal involving
Healtheon/WebMD and a party other than Medical Manager must exist before the
termination of the Medical Manager merger agreement.
If the CareInsite merger agreement is terminated by CareInsite because the
board of directors of Healtheon/WebMD withdraws, modifies or changes its
recommendation of the issuance of shares of Healtheon/WebMD common stock to the
stockholders of CareInsite pursuant to the CareInsite merger or recommends to
the stockholders of Healtheon/WebMD an alternate acquisition proposal or if the
CareInsite merger agreement is terminated by CareInsite or Healtheon/WebMD
because the Healtheon/WebMD stockholders do not approve the issuance of
Healtheon/WebMD common stock to the stockholders of CareInsite in the CareInsite
merger, Healtheon/WebMD may be obligated to pay CareInsite a termination fee of
$35 million. For Healtheon/WebMD to become obligated to pay CareInsite the
termination fee, an alternate acquisition proposal involving Healtheon/WebMD and
a party other than CareInsite must exist before the termination of the
CareInsite merger agreement.
OTHER AGREEMENTS
(PAGES 107 THROUGH 109)
In a transaction unrelated to the mergers, Healtheon/WebMD has acquired
Envoy Corporation from Quintiles Transnational Corp. Envoy provides electronic
data interchange, or EDI, healthcare transaction processing services to its
customers, including Medical Manager Health Systems, a wholly owned subsidiary
of Medical Manager.
In connection with the mergers, Healtheon/WebMD, Medical Manager Health
Systems and CareInsite agreed that:
- upon completion of the Envoy acquisition, Healtheon/WebMD would cause
Envoy:
- to modify the agreement pursuant to which Envoy provides services to
Medical Manager Health Systems and to extend the term of the
agreement for three years from its current expiration date of
September 1, 2000
- to enter into an agreement with CareInsite regarding the interchange
of administrative claims.
- Healtheon/WebMD would pay each of CareInsite and Medical Manager on each
of November 30, 2000, February 28, 2001, May 31, 2001 and August 31, 2000
an amount equal to $12.5 million payable at Healtheon/WebMD's option in
cash or common stock of Healtheon/WebMD. In limited circumstances
Healtheon/WebMD's obligation to make these payments will be terminated
with all payments previously made repaid to Healtheon/WebMD.
An addendum extending the agreement and implementing the required
modifications has been executed by Envoy and Medical Manager Health Systems and
Envoy entered into the agreement with CareInsite.
In a separate agreement, Healtheon/WebMD, Medical Manager and CareInsite
have agreed to use their commercially reasonable efforts to make
10
<PAGE> 17
Healtheon/WebMD's physician portal, WebMD Practice, available to five beta test
sites using the Medical Manager physician practice management software. The
agreement may be terminated by any party upon 30 days notice given at any time
after October 31, 2000.
ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGERS (PAGES 90 THROUGH 91)
The mergers are subject to antitrust laws. On April 24, 2000,
Healtheon/WebMD, Medical Manager, CareInsite and related parties made the
required filings with the Department of Justice, or DOJ, and the Federal Trade
Commission, or FTC. We are not permitted to complete the mergers until the
applicable waiting period has expired or terminated. The DOJ or the FTC, as well
as a foreign regulatory agency or government, state or private person, may
challenge the mergers at any time before or after completion. On May 24, 2000,
each of Healtheon/WebMD, Medical Manager and CareInsite received a second
request from the DOJ for additional documents and information with respect to
the mergers. The mergers may not be completed until 20 days after the parties
have substantially complied with this request, unless this waiting period is
terminated earlier by the DOJ. Each of the parties substantially complied with
the second request on July 28, 2000. The final waiting period will expire at
11:59 p.m. on August 17, 2000.
We cannot predict whether we will obtain all required regulatory approvals
to complete the mergers, or whether any approvals will include conditions that
would be detrimental to the businesses of Healtheon/WebMD, Medical Manager or
CareInsite.
ACCOUNTING TREATMENT OF THE MERGERS
(PAGE 91)
We intend to account for each of the Medical Manager merger and the
CareInsite merger as a purchase for financial accounting purposes, in accordance
with generally accepted accounting principles.
APPRAISAL RIGHTS
(PAGES 40, 42 AND 45)
Holders of Healtheon/WebMD common stock and preferred stock, Medical
Manager common stock and CareInsite common stock are not entitled to dissenters'
rights or appraisal rights with respect to the mergers. Holders of CareInsite
preferred stock are entitled to appraisal rights under Delaware law.
COMPARATIVE MARKET PRICE INFORMATION
(PAGES 113 THROUGH 114)
Shares of Healtheon/WebMD common stock, Medical Manager common stock and
CareInsite common stock are listed on the Nasdaq National Market. On February
11, 2000, the last full trading day prior to the public announcement of the
mergers, Healtheon/WebMD's common stock closed at $55.00 per share, Medical
Manager's common stock closed at $65.00 per share and CareInsite's common stock
closed at $67.875 per share.
On June 16, 2000, the last full trading day prior to the public
announcement of the amendment of the merger agreements, Healtheon/WebMD's common
stock closed at $16.875 per share, Medical Manager's common stock closed at
$26.875 per share, and CareInsite's common stock closed at $20.625 per share.
On August 3, 2000, the last practicable trading day prior to the printing
of this proxy statement/prospectus, Healtheon/WebMD's common stock closed at
$12.4375 per share, Medical Manager's common stock closed at $30.00 per share,
and CareInsite's common stock closed at $15.4375 per share. We urge you to
obtain current market quotations.
11
<PAGE> 18
SUMMARY SELECTED HISTORICAL AND SUMMARY SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following summary selected historical financial data of
Healtheon/WebMD, Medical Manager and CareInsite have been derived from their
respective historical financial statements and should be read in conjunction
with the financial statements and the related notes, which are incorporated by
reference in this proxy statement/ prospectus. The selected unaudited pro forma
condensed combined financial data of Healtheon/WebMD, Medical Manager and
CareInsite are derived from the unaudited pro forma condensed combined financial
information, which gives effect to the transactions as purchases, and should be
read in conjunction with the unaudited pro forma condensed combined financial
information and related notes, which are included elsewhere in or incorporated
by reference into this prospectus/proxy statement.
Healtheon/WebMD's fiscal year ends on December 31, while Medical Manager's
and CareInsite's fiscal years end on June 30. Medical Manager's consolidated
financial statements include its wholly owned subsidiaries and its majority
owned consolidated subsidiary, CareInsite. The unaudited pro forma statement of
operations for the year ended December 31, 1999 combines the statements of
operations of Healtheon/WebMD and Medical Manager and gives effect to
Healtheon/WebMD's mergers with WebMD, Inc., MedE America Corporation, Greenberg
News Networks, Inc., which is referred to as Medcast, Kinetra LLC and Envoy and
its strategic alliance with The News Corporation Limited and to Medical
Manager's acquisition of Physician Computer Network, Inc. as if these
transactions had occurred as of January 1, 1999. The unaudited pro forma
statement of operations for the three months ended March 31, 2000 combines the
statements of operations of Healtheon/WebMD and Medical Manager and gives effect
to Healtheon/WebMD's mergers with Kinetra and Envoy and its strategic alliance
with News Corporation and to Medical Manager's acquisition of Physician Computer
Network as if these transactions had occurred as of January 1, 1999.
The unaudited pro forma condensed combined balance sheet data assumes that
the Medical Manager and CareInsite mergers took place as of March 31, 2000 and
combine Healtheon/WebMD's balance sheet, after giving effect to the acquisition
of Envoy, and Medical Manager's balance sheet at that date.
The total estimated purchase prices of the Medical Manager and CareInsite
mergers have been allocated on a preliminary basis to assets and liabilities
based on management's best estimates of their fair value with the excess over
the net tangible assets acquired allocated to goodwill and other intangible
assets. These allocations are subject to change pending a final determination
and analysis of the total purchase prices and the fair value of the assets
acquired and liabilities assumed. The impact of any of these changes could be
material.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not indicative of the operating results or
financial positions that would have actually occurred if the mergers, either
individually or combined, had been consummated as of the dates indicated, nor is
it necessarily indicative of future operating results or financial condition of
the combined company.
12
<PAGE> 19
HEALTHEON/WEBMD'S SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Revenue............................................ $ 2,175 $ 11,013 $ 13,390 $ 48,838 $ 102,149 $ 17,555 $ 65,881
Cost of operations................................. 1,916 6,669 10,446 43,014 88,576 15,518 59,365
Development and engineering........................ 2,446 8,332 12,267 19,002 29,669 7,041 11,574
Sales, general and administrative.................. 1,749 8,400 10,096 24,715 82,315 8,901 100,526
Depreciation and amortization...................... -- 4,153 6,004 16,055 193,067 5,225 338,710
------- -------- -------- -------- --------- -------- ---------
Total operating costs and expenses................. 6,111 27,554 38,813 102,786 393,627 36,685 510,175
------- -------- -------- -------- --------- -------- ---------
Loss from operations............................... (3,936) (16,541) (25,423) (53,948) (291,478) (19,130) (444,294)
Other income (expense), net........................ (522) (2,065) (2,582) (100) 3,486 561 12,829
Net loss........................................... $(4,458) $(18,606) $(28,005) $(54,048) $(287,992) $(18,569) $(431,465)
======= ======== ======== ======== ========= ======== =========
Basic and diluted net loss per common share........ $ (0.85) $ (2.83) $ (3.88) $ (1.54) $ (3.58) $ (0.30) $ (2.47)
======= ======== ======== ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- ----------
1995 1996 1997 1998 1999 2000
-------- -------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 9,386 $ 7,539 $21,804 $36,817 $ 291,286 $1,160,682
Working capital............................................. 7,244 2,505 14,790 27,934 216,304 1,108,479
Total assets................................................ 10,801 34,407 53,747 79,940 4,242,462 5,748,267
Long-term obligations, net of current portion............... -- 1,210 932 2,984 121,489 121,409
Convertible redeemable preferred stock...................... 16,029 39,578 50,948 -- -- --
Stockholders' equity (net capital deficiency)............... (7,698) (14,553) (9,930) 59,413 3,973,672 5,487,166
</TABLE>
MEDICAL MANAGER'S SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Net revenues $91,779 $116,063 $135,623 $216,609 $296,096 $213,007 $264,808
Income (loss) from continuing operations before
provision for income taxes.......................... 6,734 19,569 (18,516) 36,626 30,955 23,024 11,136
Provision for income taxes............................ 483 4,862 2,844 13,706 12,311 8,661 12,742
------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations.............. 6,251 14,707 (21,360) 22,920 18,644 $ 14,363 $ (1,606)
Income from discontinued operations................... 15,459 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. $21,710 $ 14,707 $(21,360) $ 22,920 $ 18,644 $ 14,363 $ (1,606)
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share -- basic
Continuing operations............................... $ 0.28 $ 0.64 $ (0.90) $ 0.72 $ 0.54 $ 0.42 $ (0.04)
Discontinued operations............................. 0.68 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) per share -- basic.......... $ 0.96 $ 0.64 $ (0.90) $ 0.72 $ 0.54 $ 0.42 $ (0.04)
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share -- diluted
Continuing operations............................... $ 0.26 $ 0.60 $ (0.90) $ 0.67 $ 0.50 $ 0.39 $ (0.04)
Discontinued operations............................. 0.66 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) per share -- diluted................ $ 0.92 $ 0.60 $ (0.90) $ 0.67 $ 0.50 $ 0.39 $ (0.04)
======= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
---------------------------------------------------- ----------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Working capital............................................. $104,478 $166,241 $ 89,769 $160,465 $235,029 $ 147,054
Total assets................................................ 204,655 221,375 407,004 517,646 818,196 1,061,906
Long term debt, net of current portion...................... 2,315 2,634 168,119 162,960 170,041 14,241
Stockholders' equity........................................ 170,724 185,762 190,374 291,677 485,343 756,614
</TABLE>
13
<PAGE> 20
CAREINSITE'S SELECTED FINANCIAL DATA
(A DEVELOPMENT STAGE COMPANY)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AVICENNA SYSTEMS CORPORATION
PREDECESSOR BUSINESS CAREINSITE
-------------------------------------------- -------------------------------------
PERIOD FROM
INCEPTION PERIOD FROM
(SEPTEMBER 20, JANUARY 1, INCEPTION
1994) THROUGH YEAR ENDED 1996 THROUGH (DECEMBER 24, YEARS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, DECEMBER 23, 1996) THROUGH ---------------------
1994 1995 1996 JUNE 30, 1997 1998 1999
-------------- ------------ ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Revenue.................. $ -- $ -- $ 20 $ -- $ -- $ 1,364
Loss from operations..... (32) (167) (3,298) (42,366) (10,382) (23,061)
Net loss applicable to
common stockholders.... (32) (167) (3,539) (42,357) (10,335) (22,798)
Basic and diluted net
loss per common
share.................. $(0.08) $(0.44) $ (9.34) $ (0.85) $ (0.21) $ (0.40)
<CAPTION>
CAREINSITE
------------------------------------
CUMULATIVE
FROM INCEPTION
NINE MONTHS ENDED (DECEMBER 24,
MARCH 31, 1996) THROUGH
------------------- MARCH 31,
1999 2000 2000
-------- -------- --------------
<S> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Revenue.................. $ 213 $ 4,809 $ 6,173
Loss from operations..... (15,591) (49,303) (125,112)
Net loss applicable to
common stockholders.... (15,481) (19,857) (95,347)
Basic and diluted net
loss per common
share.................. $ (0.29) $ (0.28) $ (1.69)
</TABLE>
<TABLE>
<CAPTION>
AVICENNA SYSTEMS CORPORATION CAREINSITE
PREDECESSOR BUSINESS ----------------------------------------
----------------------------- JUNE 30,
DECEMBER 31, DECEMBER 23, ---------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
------------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Working capital........................................ $ 998 $(1,257) $(1,592) $ 775 $114,837 $ 62,265
Total assets........................................... 1,201 1,263 3,476 10,883 179,953 289,437
Long-term obligations, net of current portion.......... -- -- -- -- -- 3,644
Redeemable securities.................................. -- -- -- -- -- 41,342
Total stockholders' equity (net capital deficiency).... (206) (3,744) 1,566 7,798 173,424 219,482
</TABLE>
14
<PAGE> 21
HEALTHEON/WEBMD SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
1999 MARCH 31, 2000
------------ ------------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS DATA:
Revenue..................................................... $ 811,168 $ 224,451
Loss from operations........................................ (3,408,900) (875,195)
Net loss applicable to common stockholders.................. (3,527,814) (856,527)
Basic and diluted net loss per common share................. $ (10.84) $ (2.47)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
2000
-----------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 874,527
Working capital............................................. 804,819
Total assets................................................ 11,121,659
Long-term obligations, net of current portion............... 200,503
Total stockholders' equity.................................. 10,537,146
</TABLE>
------------------
(1) For detailed information see "Healtheon/WebMD Corporation Unaudited Pro
Forma Condensed Combined Financial Information" on page 115.
15
<PAGE> 22
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
MEDICAL MANAGER MERGER:
The following table sets forth:
- historical net loss per share and historical net tangible book value per
share data of Healtheon/WebMD
- historical net income (loss) per share and historical net tangible book
value per share of Medical Manager
- unaudited pro forma combined net loss per share and unaudited pro forma
combined net tangible book value per share data of Healtheon/WebMD after
giving effect to the Medical Manager and CareInsite mergers.
The information in the table should be read in conjunction with the
historical financial statements of Healtheon/WebMD, Medical Manager and
CareInsite and the related notes incorporated by reference in this proxy
statement/prospectus and the unaudited pro forma condensed combined financial
information and related notes included elsewhere in this proxy
statement/prospectus. The unaudited pro forma condensed combined financial
information is not necessarily indicative of the net loss per share or book
value per share that would have been achieved had the mergers been consummated
as of the beginning of the periods presented and should not be construed as
representative of these amounts for any future dates or periods.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED OF
HISTORICAL ------------------
--------------------------------- HEALTHEON/WEBMD
HEALTHEON/WEBMD MEDICAL MANAGER MEDICAL MANAGER(4)
--------------- --------------- ------------------
<S> <C> <C> <C>
Net income (loss) per share for the year ended December 31,
1999 and June 30, 1999 for Healtheon/WebMD and Medical
Manager, respectively:
Basic..................................................... $(3.58) $ 0.54 $(10.84)
Diluted................................................... (3.58) 0.50 (10.84)
Equivalent pro forma net loss per share for the year ended
December 31, 1999......................................... (27.10)(3)
Net loss per share for the three months ended March 31,
2000:
Basic and diluted......................................... (2.47) (0.25) (2.47)
Equivalent pro forma net loss per share for the three months
ended March 31, 2000...................................... (6.18)(3)
Book value per share at March 31, 2000:..................... 9.47(1) 7.21(1) 4.85(2)
Equivalent pro forma book value per share at March 31,
2000...................................................... 12.13(3)
</TABLE>
---------------
(1) Historical net tangible book value per share is computed by dividing
stockholders' equity less goodwill and other intangible assets by the number
of shares of common stock outstanding at the end of each period.
(2) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity less goodwill and other intangible assets,
including the effect of pro forma adjustments, by the pro forma number of
shares of Healtheon/WebMD common stock which would have been outstanding had
the mergers been consummated as of March 31, 2000.
(3) The Medical Manager equivalent pro forma combined per share amounts are
calculated by multiplying the pro forma condensed combined per share amounts
by the exchange ratio of 2.5 shares of Healtheon/WebMD common stock for each
share of Medical Manager common stock.
(4) Medical Manager's consolidated financial statements include the financial
information of CareInsite.
For detailed information see Healtheon/WebMD Corporation Unaudited Pro Forma
Condensed Combined Financial Information on page 115.
16
<PAGE> 23
CAREINSITE MERGER:
The following table sets forth:
- historical net loss per share and historical net tangible book value per
share data of Healtheon/WebMD
- historical net loss per share and historical net tangible book value per
share of CareInsite
- unaudited pro forma combined net loss per share and unaudited pro forma
combined net tangible book value per share data of Healtheon/WebMD after
giving effect to the Medical Manager and CareInsite mergers.
The information in the table should be read in conjunction with the
historical financial statements of Healtheon/WebMD, Medical Manager and
CareInsite and the related notes incorporated by reference in this proxy
statement/prospectus and the unaudited pro forma condensed combined financial
information and related notes included elsewhere in this proxy
statement/prospectus. The unaudited pro forma condensed combined financial
information is not necessarily indicative of the net loss per share or book
value per share that would have been achieved had the mergers been consummated
as of the beginning of the periods presented and should not be construed as
representative of these amounts for any future dates or periods.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED OF
HISTORICAL ------------------
---------------------------- HEALTHEON/WEBMD
HEALTHEON/WEBMD CAREINSITE MEDICAL MANAGER(4)
--------------- ---------- ------------------
<S> <C> <C> <C>
Net loss per share for the year ended December 31, 1999 and
June 30, 1999 for Healtheon/WebMD and CareInsite,
respectively:
Basic and diluted......................................... $(3.58) $(0.40) $(10.84)
Equivalent pro forma net loss per share for the year ended
December 31, 1999......................................... (14.09)(3)
Net loss per share for the three months ended March 31,
2000:
Basic and diluted......................................... (2.47) (0.34) (2.47)
Equivalent pro forma net loss per share for the three months
ended March 31, 2000...................................... (3.21)(3)
Book value per share at March 31, 2000:..................... 9.47(1) 0.49(1) 4.85(2)
Equivalent pro forma book value per share at March 31,
2000...................................................... 6.31(3)
</TABLE>
---------------
(1) Historical net tangible book value per share is computed by dividing
stockholders' equity less goodwill and other intangible assets by the number
of shares of common stock outstanding at the end of each period.
(2) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity less goodwill and other intangible assets,
including the effect of pro forma adjustments, by the pro forma number of
shares of Healtheon/WebMD common stock which would have been outstanding had
the mergers been consummated as of March 31, 2000.
(3) The CareInsite equivalent pro forma combined per share amounts are
calculated by multiplying the pro forma condensed combined per share amounts
by the exchange ratio of 1.3 shares of Healtheon/WebMD common stock for each
share of CareInsite common stock not owned directly or indirectly by Medical
Manager.
(4) Medical Manager's consolidated financial statements include the financial
information of CareInsite.
For detailed information see Healtheon/WebMD Corporation Unaudited Pro Forma
Condensed Combined Financial Information on page 115.
17
<PAGE> 24
RISK FACTORS
Stockholders of Medical Manager voting in favor of the Medical Manager
merger and stockholders of CareInsite voting in favor of the CareInsite merger
will be choosing to invest in Healtheon/WebMD common stock. An investment in
Healtheon/WebMD common stock involves a high degree of risk. Stockholders of
Healtheon/WebMD voting in favor of the proposals related to the mergers will be
choosing to combine the businesses of Medical Manager and CareInsite with the
business of Healtheon/WebMD. This combination involves a high degree of risk. In
addition to the other information contained or incorporated by reference in this
proxy statement/prospectus, you should carefully consider the following risk
factors in deciding whether to vote for the mergers.
RISKS RELATING TO THE PROPOSED MERGERS
THE MARKET VALUE OF THE MERGER CONSIDERATION MAY FLUCTUATE PRIOR TO AND
FOLLOWING THE MERGERS AND HEALTHEON/WEBMD'S STOCK PRICE COULD BE VOLATILE
FOLLOWING THE MERGERS
Medical Manager and CareInsite stockholders are not assured of receiving
consideration in the mergers with a set market value or a maximum or minimum
market value. If the Medical Manager merger is completed, each share of Medical
Manager common stock will be converted into 2.5 shares of Healtheon/WebMD common
stock. If the CareInsite merger is completed, each share of CareInsite common
stock will be converted into 1.3 shares of Healtheon/WebMD common stock. No
adjustment will be made to the number of shares of Healtheon/WebMD common stock
to be received by Medical Manager stockholders or CareInsite stockholders in the
event of any increase or decrease in the market prices per share of
Healtheon/WebMD common stock or Medical Manager common stock or CareInsite
common stock, respectively.
The market prices of Healtheon/WebMD common stock, Medical Manager common
stock and CareInsite common stock when the mergers take place may vary from the
market prices at the date of this proxy statements/prospectus or the date of the
stockholders' meetings.
- On February 11, 2000, the last trading day prior to the execution of the
merger agreements, the closing market prices per share of Healtheon/WebMD
common stock, Medical Manager common stock and CareInsite common stock
were $55.00, $65.00 and $67.875, respectively.
- On June 16, 2000, the last full trading day prior to the public
announcement of the amendment of the merger agreements, Healtheon/WebMD's
common stock closed at $16.875 per share, Medical Manager's common stock
closed at $26.875 per share, and CareInsite's common stock closed at
$20.625 per share.
- On August 3, 2000, the last practicable date prior to the printing of
this proxy statement/prospectus, the closing market prices per share of
Healtheon/WebMD common stock, Medical Manager common stock and CareInsite
common stock were $12.4375, $30.00 and $15.4375, respectively.
- During the twelve-month period ending on August 3, 2000, the last
practicable date prior to the printing of this proxy
statement/prospectus, the closing market price of Healtheon/WebMD common
stock varied from a low of $12.4375 per share to a high of $71.0625 per
share, the closing market price of Medical Manager common stock varied
from a low of $19.75 per share to a high of $100.125 per share and the
closing market price of CareInsite common stock varied from a low of
$15.00 per share to a high of $83.375 per share.
Changes in market prices of Healtheon/WebMD, Medical Manager or CareInsite
common stock may result from, among other things:
- quarter-to-quarter variations in operating results
- operating results being less than analysts' estimates
- changes in analysts' earnings estimates
- announcements of new technologies, products and services or pricing
policies by Healtheon/WebMD or its competitors
- announcements of acquisitions or strategic partnerships by
Healtheon/WebMD or its competitors
18
<PAGE> 25
- developments in existing customer or strategic relationships
- actual or perceived changes in Healtheon/WebMD's business strategy
- sales of large amounts of the common stock of Healtheon/WebMD, Medical
Manager or CareInsite
- changes in market conditions in the Internet and healthcare industries
- changes in prospects for healthcare reform
- changes in general economic conditions
- fluctuations in the securities markets in general.
The market value of the Healtheon/WebMD common stock may be volatile after
the mergers are completed for the reasons described above.
In addition, the trading price of Internet and healthcare information
technology stocks in general, and Healtheon/WebMD in particular, has experienced
extreme price and volume fluctuations in recent months. These fluctuations often
may be unrelated or disproportionate to the operating performance of these
companies. Any negative change in the public's perception of the prospects of
these companies, as well as other broad market and industry factors, may result
in decreases in the price of Healtheon/WebMD common stock.
HEALTHEON/WEBMD WILL FACE TECHNICAL AND OPERATIONAL CHALLENGES THAT MAY PREVENT
IT FROM SUCCESSFULLY INTEGRATING MEDICAL MANAGER AND CAREINSITE
The mergers involve risks related to the integration and management of
acquired technology, operations and personnel. The integration of
Healtheon/WebMD, Medical Manager and CareInsite will be a complex, time
consuming and expensive process and may disrupt Healtheon/WebMD's business if
not completed in a timely and efficient manner. Following the mergers,
Healtheon/WebMD must operate as a combined organization utilizing common
information and communication systems, operating procedures, financial controls
and human resources practices. Healtheon/WebMD may encounter substantial
difficulties, costs and delays involved in integrating the operations of
Healtheon/WebMD, Medical Manager and CareInsite, including as a result of:
- potential incompatibility of business cultures
- potential conflicts among or loss of sponsor, advertising or strategic
relationships
- the loss of key employees
- diversion of management's attention from other ongoing business concerns.
HEALTHEON/WEBMD'S BUSINESS MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE
MERGERS
The success of the mergers will depend, in part, on the ability of
Healtheon/WebMD to realize the anticipated synergies and growth opportunities
from combining the businesses of Healtheon/WebMD with the businesses of Medical
Manager and CareInsite. Even if Healtheon/WebMD is able to integrate the
business operations of the companies successfully, Healtheon/WebMD cannot assure
you that this integration will result in the realization of the full benefits of
the revenue enhancements, operating efficiencies and cost savings that we
currently expect to result from this integration or that these benefits will be
achieved within the time frame that we currently expect. For example,
- revenue enhancements from cross-selling complementary services may not
materialize as expected
- the elimination of duplicative costs may not be possible or may take
longer than anticipated
- the benefits from the combination may be offset by costs incurred in
integrating the companies
- the benefits of the combination may also be offset by operating losses or
by problems in the business unrelated to the transactions.
19
<PAGE> 26
In particular, anticipated growth in revenue and earnings before interest,
taxes, depreciation and amortization, or EBITDA, may not be realized, which
could have an adverse impact on Healtheon/WebMD and the market price of its
common stock.
HEALTHEON/WEBMD'S ALLOCATION OF THE PURCHASE PRICE FOR THE MERGERS MAY
MATERIALLY DIFFER FROM THAT IN THE PRO FORMA ACCOUNTING PRESENTATION
Healtheon/WebMD has allocated the total estimated purchase price for
Medical Manager and CareInsite on a preliminary basis to assets and liabilities
based on Healtheon/WebMD's best estimates of the fair value of these assets and
liabilities, with the excess costs over the net assets acquired allocated to
goodwill and other intangible assets. This allocation is subject to change
pending a final determination and analysis of the total purchase price and the
fair value of the assets acquired and liabilities assumed. The impact of these
changes could be material to Healtheon/WebMD's future results of operations.
COMPLYING WITH ANTITRUST REGULATIONS MAY DELAY COMPLETION OF THE MERGERS
The FTC, DOJ or other federal or state regulatory agencies charged with
enforcement of the antitrust laws may review Healtheon/WebMD's acquisitions or
business activities, including its mergers with Medical Manager and CareInsite.
Healtheon/WebMD believes that its business activities, contractual relationships
and pending acquisitions comply with all applicable antitrust laws. In the
course of reviewing Healtheon/WebMD's pending acquisitions and strategic
relationships, it is possible that government agencies may seek to require
Healtheon/WebMD to modify its pending acquisitions or business activities. If
governmental agencies seek any modifications, Healtheon/WebMD's completion of
these pending transactions could be delayed. If the governmental agencies were
successful in requiring modifications of these transactions, Healtheon/WebMD's
operations could be adversely affected.
On May 24, 2000, Healtheon/WebMD, Medical Manager and CareInsite each
received a request from the DOJ for additional information in connection with
the pre-merger notification filings under the HSR Act with respect to these
mergers. The mergers may not be completed until 20 days after each of the
parties has substantially complied with the request for additional information,
unless this waiting period is terminated earlier by the DOJ. Each of the parties
substantially complied with the second request on July 28, 2000. The final
waiting period will expire at 11:59 p.m. on August 17, 2000.
SALES OF LARGE AMOUNTS OF HEALTHEON/WEBMD SHARES FOLLOWING THE MERGERS AND THE
LAPSE OF TRANSFER RESTRICTIONS COULD ADVERSELY AFFECT PREVAILING STOCK PRICES
The market price of the Healtheon/WebMD common stock could fall if
stockholders sell large amounts of stock in the public market following the
mergers and the lapse of contractual and legal transfer restrictions. These
sales, or the possibility that these sales may occur, could result in Medical
Manager and CareInsite stockholders being unable to realize the value of the
Healtheon/WebMD common stock received as consideration in the mergers, as
measured prior to completion of the mergers, and may make it more difficult for
Healtheon/WebMD to raise capital through the sale of equity or equity-related
securities in the future. A significant amount of the common stock of
Healtheon/WebMD is subject to restrictions on transfer under federal securities
law and contractual restrictions. For details regarding these restrictions on
transfer, see "Restrictions on sales of securities of Healtheon/WebMD" on page
91.
20
<PAGE> 27
RISKS RELATING TO THE COMBINED COMPANY'S BUSINESS
HEALTHEON/WEBMD AND CAREINSITE HAVE INCURRED AND HEALTHEON/WEBMD MAY CONTINUE TO
INCUR SUBSTANTIAL LOSSES
Healtheon/WebMD began operations in January 1996 and has incurred net
losses from operations in each fiscal period since its inception. CareInsite
began operations in December 1996 and has incurred net losses from operations in
each fiscal period since its inception. As of March 31, 2000, Healtheon/WebMD,
Medical Manager and CareInsite combined had accumulated net losses of
approximately $759 million. In addition, Healtheon/WebMD currently intends to
invest heavily in infrastructure development, applications development and sales
and marketing in order to deploy its services to a growing number of potential
customers and strategic partners. Moreover, if the Medical Manager merger and
the CareInsite merger occur, the purchase price of these acquisitions will be
amortized over the useful life of the tangible and intangible assets. As of
March 31, 2000, Healtheon/WebMD had approximately $3.8 billion of unamortized
goodwill and other intangible assets reflected on its financial statements as a
result of previous acquisitions.
Although Healtheon/WebMD anticipates significant synergies and growth
opportunities resulting from the mergers and elimination of significant
duplicative costs currently being incurred by it and CareInsite, Healtheon/WebMD
cannot give you assurances that these synergies, growth opportunities or cost
savings will be achieved in the amounts or time frames currently anticipated.
Failure to realize these benefits may adversely affect Healtheon/WebMD's ability
to achieve profitability.
HEALTHEON/WEBMD'S BUSINESS MODEL IS UNPROVEN, AND HEALTHEON/WEBMD MAY NOT
ACHIEVE FAVORABLE OPERATING RESULTS
Healtheon/WebMD's business model is evolving, and Healtheon/WebMD's revenue
and profit potential is unproven. Healtheon/WebMD currently derives a
significant portion of its revenue from non-Internet network services,
management and consulting services and management and operation of some of its
customers' information technology infrastructures. Healtheon/WebMD's
profitability depends upon its ability to migrate provider and payer customers
to its Internet-based transaction services, building its online physician
subscriber base, increasing traffic to its web site and generating e-commerce
revenue from the sale of healthcare products or services over the Internet.
The provision of services over the Internet to the healthcare industry is a
developing business that is inherently riskier than businesses in industries
where companies have established operating histories. If Healtheon/WebMD's
Internet-based services do not achieve or sustain broad market acceptance among
participants in the healthcare industry, its business, results of operations and
financial condition will be significantly harmed, and Healtheon/WebMD may never
achieve favorable operating results.
HEALTHEON/WEBMD'S QUARTERLY OPERATING RESULTS MAY VARY, WHICH COULD AFFECT THE
MARKET PRICE OF HEALTHEON/WEBMD'S COMMON STOCK
Healtheon/WebMD's operating results have varied on a quarterly basis during
its limited operating history, and Healtheon/WebMD expects to experience
significant fluctuations in future quarterly operating results. These
fluctuations have been and may in the future be caused by numerous factors, many
of which are outside of Healtheon/WebMD's control, including, but not limited
to:
- market acceptance of and demand for Healtheon/WebMD's products and
services
- Healtheon/WebMD's ability to attract and retain payer and provider
customers and subscribers
- expenses relating to acquisitions and strategic partnerships
- usage of the Internet and Healtheon/WebMD's ability to maintain and
increase traffic on its web site
- Healtheon/WebMD's ability to continue to develop and extend its brand
21
<PAGE> 28
- Healtheon/WebMD's ability to effectively integrate the operations and
technologies of acquired businesses with its operations
- introduction and timing of new products and services or enhancements by
Healtheon/WebMD or its competitors
- capacity constraints and dependencies on computer infrastructure
- economic conditions affecting the Internet or healthcare industries
- general economic conditions.
Fluctuations in Healtheon/WebMD's quarterly results could adversely affect
the market price of its common stock in a manner unrelated to its long-term
operating performance. Healtheon/WebMD will base its expense levels in part upon
its expectations concerning future revenue, and these expense levels will be
relatively fixed in the short term. If Healtheon/WebMD has lower revenue, it may
not be able to reduce spending in the short term in response. Any shortfall in
revenue would have a direct impact on Healtheon/WebMD's results of operations.
As a result, Healtheon/WebMD believes that period-to-period comparisons of its
results of operations will not necessarily be meaningful and should not be
relied upon as an indicator of future performance. For these and other reasons,
it is likely that in some future quarter or quarters Healtheon/WebMD may not
meet the earnings estimates of securities analysts or investors, which would
materially and adversely affect its stock price.
HEALTHEON/WEBMD'S BUSINESS WILL SUFFER IF IT FAILS TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES AND TECHNOLOGIES
Healtheon/WebMD has in the past acquired, and, in addition to the pending
Medical Manager and CareInsite mergers, may in the future acquire, businesses,
technologies, services, product lines or content databases. For example,
Healtheon/WebMD completed its mergers with WebMD, MedE America and Medcast in
November 1999 and its acquisitions of Kinetra in January 2000 and Envoy in May
2000. In addition, Healtheon/WebMD entered into an agreement in the first
quarter of 2000 to acquire OnHealth Network Company, as well as agreements to
acquire Medical Manager and CareInsite. The completion of the OnHealth merger is
subject to customary closing conditions, including the registration statement
filed by Healtheon/WebMD to register the shares of its common stock to be issued
to the stockholders of OnHealth in the OnHealth merger being declared effective
by the SEC. Healtheon/WebMD expects to complete the OnHealth merger in the third
quarter of 2000. We cannot assure you that any of the pending mergers will be
completed in a timely manner, if at all.
Healtheon/WebMD is in the process of completing the integration and
consolidation of the operations, products and services, technologies and
personnel of WebMD, MedE America, Medcast, Kinetra and Envoy. Healtheon/WebMD
will need to integrate and consolidate the operations, products and services,
technologies and personnel of Medical Manager, CareInsite and OnHealth upon its
completion of these pending mergers. Healtheon/WebMD cannot guarantee that any
acquired businesses will be successfully integrated with its operations in a
timely manner, or at all. The successful integration of the acquired businesses
into Healtheon/WebMD's operations is critical to its future performance. Failure
to successfully integrate acquired businesses or to achieve operating synergies
could have a material adverse effect on Healtheon/WebMD's business, financial
condition and results of operation.
Integrating any newly acquired organizations and technologies in the future
could be expensive, time consuming and may strain Healtheon/WebMD's resources.
Healtheon/WebMD's pending and any future acquisitions could divert management's
attention from other business concerns and expose Healtheon/WebMD to unforeseen
liabilities or risks associated with entering new markets. In addition,
Healtheon/WebMD may lose key employees while integrating these new companies.
Healtheon/WebMD may also lose its relationships with payers, providers and
strategic partners if any acquired companies have relationships with competitors
of these payers, providers and strategic partners.
Challenges to the successful integration of acquired businesses include,
but are not limited to:
- centralization and consolidation of financial, operational and
administrative functions
- integration of platforms, networks and service centers
22
<PAGE> 29
- ability to cross-sell products and services to payers and providers with
which Healtheon/WebMD has established relationships and those with which
acquired companies have established relationships
- integration of healthcare transaction processing services not currently
offered via the Internet with Healtheon/WebMD's Internet-based platform
- integration and retention of personnel
- potential conflicts in payer, provider, strategic partner, sponsor or
advertising relationships
- coordination of geographically diverse organizations
- compliance with regulatory requirements.
Consequently, Healtheon/WebMD may not be successful in integrating acquired
businesses or technologies and may not achieve anticipated revenue and cost
benefits. Healtheon/WebMD also cannot guarantee that these acquisitions will
result in sufficient revenues or earnings to justify its investment in, or
expenses related to, these acquisitions or that any synergies will develop.
ACQUISITIONS AND STRATEGIC RELATIONSHIPS COULD RESULT IN THE DILUTION OF
HEALTHEON/WEBMD'S STOCKHOLDERS
Healtheon/WebMD intends to pay for some of its acquisitions and strategic
relationships by issuing additional common stock, which could dilute its
stockholders. Future acquisitions could also result in the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could harm Healtheon/WebMD's business. Future
acquisitions may require Healtheon/WebMD to obtain additional equity or debt
financing, which may not be available on favorable terms or at all. Even if
available, the financing may be dilutive. Healtheon/WebMD cannot guarantee that
these acquisitions or strategic relationships will generate or result in
sufficient revenues or earnings to justify the dilution which could occur.
HEALTHEON/WEBMD EXPECTS TO DEVOTE SIGNIFICANT RESOURCES TO INTEGRATING
APPLICATIONS THAT ARE NOT INTERNET-ENABLED
Some of Healtheon/WebMD's applications, including Envoy's EDI transaction
processing services, were acquired by Healtheon/WebMD and are not
Internet-enabled. Healtheon/WebMD intends to integrate many of these
applications, as well as the applications that it will acquire upon completion
of the Medical Manager and CareInsite mergers, with its Internet-based platform
and WebMD Practice product and to consolidate its transaction networks.
Integrating these applications and platforms may be expensive and may divert
Healtheon/WebMD's attention from other activities.
MANAGING HEALTHEON/WEBMD'S GROWTH MAY STRAIN ADMINISTRATIVE, TECHNICAL AND
FINANCIAL RESOURCES
Healtheon/WebMD has rapidly and significantly expanded its operations
recently and expects to continue to do so. Healtheon/WebMD's growth has been
accomplished primarily through acquisitions, including Healtheon/WebMD's mergers
with WebMD, MedE America, Medcast and Envoy. Healtheon/WebMD expects that future
growth may also be accomplished through internal expansion. This past and future
growth has placed and will continue to place a significant strain on
Healtheon/WebMD's managerial, operational, financial and other resources. If
Healtheon/WebMD is unable to respond to and manage this expected growth, then
the quality of its services and its results of operations could be materially
adversely affected.
Healtheon/WebMD's current information systems, procedures and controls may
not continue to support its operations, and may hinder its ability to exploit
the market for healthcare applications and services. Healtheon/WebMD is in the
process of completing the integration of its accounting and management
information systems following the mergers of Healtheon, WebMD, MedE America and
Medcast in November 1999 and Healtheon/WebMD's acquisitions of Kinetra in
January 2000 and Envoy in May 2000 and will integrate the systems of Medical
Manager, CareInsite and OnHealth if those mergers are completed. Healtheon/WebMD
could experience interruptions to its internal information systems while
Healtheon/WebMD transitions to new systems. Healtheon/WebMD cannot guarantee
that its systems, procedures and controls will be adequate to support expansion
of its operations.
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HEALTHEON/WEBMD'S ABILITY TO GENERATE REVENUE WILL SUFFER IF IT DOES NOT QUICKLY
EXPAND ITS SUITE OF APPLICATIONS AND SERVICE OFFERINGS
Healtheon/WebMD currently offers a limited number of applications on its
Internet-based platform and some of its service offerings are not fully
developed or launched. Healtheon/WebMD must quickly introduce new applications
and services and improve the functionality of its existing services in a timely
manner in order to attract and retain subscribers and consumers and payer and
provider customers. Healtheon/WebMD expects that its advertising revenue will be
dependent on the level of usage of its services by subscribers and consumers,
and believes that levels of usage will not increase unless it improves
functionality of its service offerings and increases payer connectivity.
Healtheon/WebMD relies on a combination of internal development, strategic
relationships, licensing and acquisitions to develop these applications and
services. Each of Healtheon/WebMD's applications, regardless of how it was
developed, must be integrated and customized to operate with the existing legacy
computer systems of payer and provider customers and Healtheon/WebMD's platform.
Healtheon/WebMD is currently in the process of migrating many of its acquired
applications and products and services to its Internet-based platform.
Developing, integrating and customizing these applications and services will be
time consuming, and these applications and services may never achieve market
acceptance, which could also cause Healtheon/WebMD's business to suffer.
HEALTHEON/WEBMD IS DEPENDENT ON STRATEGIC RELATIONSHIPS TO GENERATE SOME OF ITS
REVENUE
Healtheon/WebMD's ability to generate revenue will suffer if it cannot
establish and maintain strategic relationships
Healtheon/WebMD must establish and maintain strategic relationships with
leaders in a number of healthcare and Internet industry segments.
Healtheon/WebMD has entered into strategic relationships with leading online and
media distribution and healthcare partners. Healtheon/WebMD's strategic
relationships are critical to its success because Healtheon/WebMD believes that
these relationships will enable Healtheon/WebMD to enhance its brand, increase
the number of transactions processed over its platform, generate traffic on its
web site and capitalize on additional distribution and revenue opportunities.
Healtheon/WebMD expects that it will face intensified competition for strategic
relationships. Healtheon/WebMD may not be able to establish commercial
acceptance of its platform, applications and services unless it maintains its
existing strategic relationships and establishes and maintains additional
strategic relationships in the future.
Healtheon/WebMD shares revenue with its strategic partners and will incur
significant expense in connection with its strategic relationships, and this
expense may exceed the net revenue these relationships generate
Healtheon/WebMD intends to use a significant amount of cash to fund
branding and advertising, including promotional arrangements with its strategic
partners. At March 31, 2000, Healtheon/WebMD estimated that it will make the
following aggregate guaranteed payments under its current relationships with its
strategic partners in the calendar years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- -------------
<S> <C>
2000........................................................ $78.3 million
2001........................................................ 82.6 million
2002........................................................ 51.4 million
2003........................................................ 34.4 million
2004........................................................ 8.8 million
</TABLE>
Healtheon/WebMD has agreed to share some of its transaction processing,
advertising, carriage fee and e-commerce revenues, net of specified costs
applicable to the particular revenue category, with Microsoft Corporation and
DuPont for their sponsorship of physician subscriptions to WebMD Practice and
with several physician practice management system vendors who have agreed to
promote Healtheon/WebMD's services to their physician customers. This revenue
sharing applies only to the extent the revenues are derived from Microsoft- or
DuPont-sponsored physicians or from physicians subscribing to the particular
vendor's practice management
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<PAGE> 31
system. The percentage of revenue shared varies from contract to contract and
based on the type of revenue generated.
Healtheon/WebMD may enter into additional promotional arrangements with
current and future strategic partners that may require it to pay consideration
in amounts that significantly exceed the amounts Healtheon/WebMD is required to
pay under its current arrangements. These guaranteed payments and promotional
and other arrangements may require Healtheon/WebMD to share revenue or incur
significant expenses. Healtheon/WebMD cannot give you assurances that it will
generate sufficient revenue from these arrangements to offset these expenses, in
particular after Healtheon/WebMD shares some of its net revenue with its
strategic partners. Failure to do so could have a material adverse effect on
Healtheon/WebMD.
Healtheon/WebMD invests in some of its strategic partners, many of which
are in early stages of development
Healtheon/WebMD has made equity investments in some of its strategic
partners. In many instances, these investments are in the form of illiquid
securities of private companies engaged in e-Health and are made in conjunction
with the parties entering into a strategic agreement. Typically, these strategic
partners enter into agreements that obligate them to purchase advertising or
other services from Healtheon/WebMD. These companies are typically in an early
stage of development and may be expected to incur substantial losses and may not
generate sufficient revenue to pay the advertising and e-commerce fees due
Healtheon/WebMD. In addition, due to recent market volatility, some of these
companies may alter any plans to go public, and others that have gone public may
experience significant decreases in the trading prices of their common stock
adversely affecting the value of Healtheon/WebMD's investments.
Healtheon/WebMD has granted exclusive rights to strategic partners
Healtheon/WebMD has agreed that some of its strategic partners will be its
exclusive providers of some of its applications and content. For example,
Healtheon/WebMD has entered into strategic agreements with e-commerce companies
to be its exclusive partners supplying online pharmacy services and medical
supplies and to be its exclusive providers of various categories of content and
services. These agreements may limit Healtheon/WebMD's access to other
applications and content it might otherwise be able to make available to
subscribers and consumers or to payer and provider customers. Healtheon/WebMD's
inability to offer other applications and content could cause its business to
suffer.
In addition, Healtheon/WebMD has granted exclusive rights to strategic
partners which restrict its ability to pursue some business opportunities. For
example, in connection with the acquisition of Envoy from Quintiles,
Healtheon/WebMD granted to Quintiles the exclusive license to use some of the
de-identified data available to Healtheon/WebMD by virtue of Healtheon/WebMD's
transaction services and some exclusive rights in the pharmaceutical market.
RELATIONSHIPS WITH CUSTOMERS AND STRATEGIC PARTNERS MAY CONFLICT
Each of Healtheon/WebMD, Medical Manager and CareInsite has developed and
relies upon important relationships with payers, providers, practice management
system vendors and strategic partners, some of which may involve conflicting
contractual rights, including conflicts which may result from the mergers. For
example, in January and February 2000, Healtheon/WebMD entered into strategic
alliances with three practice management system vendors that compete with
Medical Manager. As a result of the mergers, the combined company may lose
relationships with some customers and strategic partners, who may then establish
relationships with Healtheon/WebMD's competitors. In addition, Healtheon/WebMD
may not be able to maintain or establish relationships with key participants in
the healthcare and Internet industries if Healtheon/WebMD, Medical Manager or
CareInsite has already established relationships with competitors of these key
participants.
For example, Healtheon/WebMD has entered into a five-year strategic
alliance with Microsoft pursuant to which Healtheon/WebMD develops, hosts,
maintains on its servers and provides content for the health channels on MSN,
MSNBC and WebTV. Similarly, CareInsite has entered into a strategic alliance
with America Online, Inc., pursuant to which CareInsite is AOL's exclusive
provider of a comprehensive suite of services that connect AOL and CompuServe
members and visitors to AOL's web-based brands Netscape, AOL.COM and Digital
City, to
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physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. As a result of the completion of the Medical Manager merger and the
CareInsite merger, Microsoft will be able to terminate its strategic alliance
with Healtheon/WebMD for a limited period of time if Microsoft and
Healtheon/WebMD are unable to resolve conflicts that may arise as a result of
the mergers. Healtheon/WebMD and Microsoft have agreed that for a 60-day period
following the completion of the mergers, they will work together to identify and
resolve any conflicts that result from the mergers. If these potential conflicts
cannot be resolved, however, Microsoft could terminate the strategic alliance.
Similarly, as a result of the mergers, AOL will be able to terminate its
strategic alliance with CareInsite, as a result of which guaranteed payments of
approximately $20 million due to AOL will accelerate. Healtheon/WebMD, Medical
Manager and CareInsite cannot assure you that the conflicts arising under either
of these strategic alliances as a result of the mergers will be resolved. If
either or both strategic alliances are terminated, and Healtheon/WebMD is unable
to replace the terminated alliance with a comparable one, Healtheon/WebMD could
experience a material decrease in revenue.
If contractual or relationship conflicts cannot be resolved, the combined
company could lose the benefits of some of its relationships with payers,
providers or strategic partners. Losses of any significant relationships could
harm the combined company's business or results of operations.
HEALTHEON/WEBMD'S ABILITY TO GENERATE REVENUE WILL SUFFER IF IT CANNOT ATTRACT
AND RETAIN SUBSCRIBERS
Healtheon/WebMD must attract and retain subscribers to WebMD Practice, its
physician portal, in order to generate subscription revenue. In addition,
Healtheon/WebMD's ability to generate advertising revenue and transaction
revenue will be dependent on the number of subscribers and level of usage by
those subscribers of Healtheon/WebMD's Internet-based services, including its
administrative transaction and clinical information services. Healtheon/WebMD
cannot guarantee that it will be able to attract new or retain existing
subscribers. In particular, Healtheon/WebMD cannot guarantee that it will retain
subscribers whose subscriptions are initially paid for by Healtheon/WebMD's
strategic partners once those subscribers are required to pay for their
subscriptions themselves or that these subscribers will actually use its
services.
IF HEALTHEON/WEBMD IS UNABLE TO GENERATE SIGNIFICANT ADVERTISING REVENUE, ITS
FUTURE RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED
Healtheon/WebMD derives a portion of its revenue from advertising
activities. Advertising revenue is generally derived from short-term advertising
contracts in which Healtheon/WebMD typically guarantees a minimum number of
impressions or pages to be delivered over a specified period of time for a fixed
fee. Advertising revenue may also include barter transactions, which are
exchanges by Healtheon/WebMD of advertising space on its web site for goods and
services from strategic partners and which might not generate any cash receipts.
The Internet advertising market is new and rapidly evolving, and no
standards have been widely accepted to measure its effectiveness as compared to
traditional media advertising. If no standards develop, existing advertisers may
not continue their current level of Internet advertising, and advertisers that
have traditionally relied on other advertising media may be reluctant to
advertise on the Internet. 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 Internet advertising. Healtheon/WebMD's business would be adversely
affected if the market for Internet advertising fails to develop or develops
more slowly than expected.
Various pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project Healtheon/WebMD's future advertising
rates and revenues. The level of traffic on Healtheon/WebMD's web site is likely
to be a factor in determining advertising rates. Healtheon/WebMD cannot predict
whether those of its subscribers whose subscriptions are paid for by its
strategic partners will actually use Healtheon/WebMD's services. In addition,
there can be no assurances that Healtheon/WebMD will continue to generate
significant revenue from its advertising activities.
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<PAGE> 33
LENGTHY SALES AND IMPLEMENTATION CYCLES FOR HEALTHEON/WEBMD'S APPLICATIONS COULD
ADVERSELY AFFECT ITS ABILITY TO GENERATE REVENUE
A key element of Healtheon/WebMD's strategy is to market its solutions
directly to large healthcare organizations. Healtheon/WebMD will be unable to
control many of the factors that will influence the buying decisions of these
organizations. Healtheon/WebMD expects that the sales and implementation process
will be lengthy and will involve a significant technical evaluation and
commitment of capital and other resources by its customers. The sale and
implementation of Healtheon/WebMD's solutions are subject to delays due to its
payer and provider customers' internal budgets and procedures for approving
large capital expenditures and deploying new technologies within their networks.
Healtheon/WebMD will need to expend substantial resources to integrate its
applications with the existing legacy and client-server architectures of large
healthcare organizations. Healtheon/WebMD has limited experience in integrating
its applications with large, complex architectures, and it may experience delays
in the integration process. These delays would, in turn, delay Healtheon/WebMD's
ability to generate revenue from these applications and could adversely affect
its results of operations.
HEALTHEON/WEBMD'S BUSINESS WILL SUFFER IF HEALTHCARE INDUSTRY PARTICIPANTS DO
NOT ACCEPT INTERNET SOLUTIONS
Healtheon/WebMD's business model depends on the adoption of Internet
solutions by providers, patients, payers and other healthcare industry
participants. Healtheon/WebMD's ability to generate revenues could suffer
dramatically if Internet solutions are not accepted or not perceived to be
effective.
The adoption of Internet solutions by healthcare participants will require
the acceptance of a new way of conducting business and exchanging information.
To maximize the benefits of Healtheon/WebMD's platform, healthcare participants
must be willing to allow sensitive information to be stored in Healtheon/WebMD's
databases and to conduct healthcare transactions over the Internet. There can be
no assurance that healthcare participants will accept Internet solutions in a
timely manner or at all.
FAILURE TO CONTINUE TO EXPAND AND ADAPT HEALTHEON/WEBMD'S PLATFORM TO
ACCOMMODATE INCREASED USAGE COULD MAKE IT DIFFICULT TO SUCCESSFULLY IMPLEMENT
ITS INTERNET-BASED SERVICES
To successfully implement its Internet-based services, Healtheon/WebMD must
continue to expand and adapt its platform and transaction networks to
accommodate additional users, increased transaction volumes and changing
customer requirements. Healtheon/WebMD's infrastructure may not accommodate
increased use while maintaining acceptable overall performance. To date,
Healtheon/WebMD has processed a limited number and variety of Internet-based
transactions. In addition, Healtheon/WebMD's Internet-based products and
services have only been used by a limited number of physicians and healthcare
consumers. An unexpectedly large increase in the volume of traffic on
Healtheon/WebMD's web site, the number of physicians using WebMD Practice or
transactions processed over Healtheon/WebMD's networks may require
Healtheon/WebMD to expand and further upgrade its platform. This expansion could
be expensive and could divert our attention from other activities.
PERFORMANCE PROBLEMS WITH HEALTHEON/WEBMD'S SYSTEMS COULD DAMAGE ITS BUSINESS
Healtheon/WebMD's payer and provider customer satisfaction and its business
could be harmed if Healtheon/WebMD or its customers experience system delays,
failures or loss of data. Healtheon/WebMD currently processes its payer and
provider transactions and data at its facilities and relies on a data center
operated by a third party to perform transaction processing for Envoy's EDI
business, other than real-time EDI transaction processing. This data center is
located in Tampa, Florida and is operated by GTE Data Services Incorporated,
with whom Envoy has contracted for such processing services. Healtheon/WebMD
assumed this contract upon its acquisition of Envoy. Envoy relies primarily on
this facility to process batch claims and other medical EDI transaction sets.
Envoy's contract with GTE requires GTE to maintain continuous processing
capability and a "hot site" disaster recovery system. Healtheon/WebMD has a
contingency plan for emergencies with its systems; however, it has limited
backup facilities to process information if these facilities are not
functioning. The occurrence of a major catastrophic event or other system
failure at any of Healtheon/WebMD's facilities or at the GTE facility could
interrupt data processing or result in the loss of stored data, which could have
an adverse
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impact on Healtheon/WebMD's business. While Healtheon/WebMD has general
liability insurance that it believes is adequate, including coverage for errors
and omissions, Healtheon/WebMD may not be able to maintain this insurance on
reasonable terms in the future. In addition, Healtheon/WebMD's insurance may not
be sufficient to cover large claims and its insurer could deny coverage on
claims. If Healtheon/WebMD is liable for an uninsured or underinsured claim or
if Healtheon/WebMD's premiums increase significantly, its financial condition
could be materially harmed.
PERFORMANCE PROBLEMS WITH THE SYSTEMS OF HEALTHEON/WEBMD'S SERVICE AND CONTENT
PROVIDERS COULD HARM HEALTHEON/WEBMD'S BUSINESS
Healtheon/WebMD depends on service and content providers to provide
information and data feeds on a timely basis. Healtheon/WebMD's web sites could
experience disruptions or interruptions in service due to the failure or delay
in the transmission or receipt of this information. In addition,
Healtheon/WebMD's customers who utilize its web-based services depend on
Internet service providers, online service providers and other web site
operators for access to its web sites. All of these providers have experienced
significant outages in the past and could experience outages, delays and other
difficulties in the future due to system failures unrelated to Healtheon/WebMD's
systems. Any significant interruptions in Healtheon/WebMD's services or
increases in response time could result in a loss of potential or existing users
of and advertisers and sponsors on its web site and, if sustained or repeated,
could reduce the attractiveness of Healtheon/WebMD's services.
IF HEALTHEON/WEBMD'S SYSTEMS EXPERIENCE SECURITY BREACHES OR ARE OTHERWISE
PERCEIVED TO BE INSECURE, HEALTHEON/WEBMD'S REPUTATION WILL SUFFER
A material security breach could damage Healtheon/WebMD's reputation or
result in liability. Healtheon/WebMD retains confidential information, including
patient health information in its processing centers. Healtheon/WebMD may be
required to expend significant capital and other resources to protect against
security breaches or to alleviate problems caused by breaches. Any
well-publicized compromise of Internet security could deter people from using
the Internet or from conducting transactions that involve transmitting
confidential information, including confidential healthcare information.
Therefore, it is critical that these facilities and infrastructure remain secure
and are perceived by the marketplace to be secure. Despite the implementation of
security measures, this infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors, attacks by third parties or similar
disruptive problems.
HEALTHEON/WEBMD'S BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF
THE INTERNET INFRASTRUCTURE
Healtheon/WebMD's ability to deliver its Internet-based services is
dependent on the development and maintenance of the infrastructure of the
Internet by third parties. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity and security, as well as timely
development of complimentary products such as high-speed modems, for providing
reliable Internet access and services. The Internet has experienced, and is
likely to continue to experience, significant growth in the number of users and
the amount of traffic. If the Internet continues to experience increased numbers
of users, increased frequency of use, or more complex requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
the performance of the Internet may be harmed by increased users or more complex
requirements.
The Internet has experienced a variety of outages and other delays as a
result of damages to portions of its infrastructure, and it could face outages
and delays in the future. These outages and delays could reduce the level of
Internet usage as well as the availability of the Internet to Healtheon/WebMD
for delivery of its Internet-based services. In addition, the Internet could
lose its viability due to delays in the development or adoption of new standards
and protocols to handle increased levels of activity or due to increased
governmental regulation. The infrastructure and complimentary products or
services necessary to make the Internet a viable commercial marketplace for the
long-term may not be developed successfully or in a timely manner.
Healtheon/WebMD's financial condition could be materially harmed if the Internet
is not available to it for the delivery of its services and products.
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<PAGE> 35
HEALTHEON/WEBMD'S BUSINESS WILL BE HARMED IF IT IS UNSUCCESSFUL IN RESPONDING TO
RAPID TECHNOLOGY CHANGES IN ITS MARKETS
Healthcare information exchange and transaction processing is a relatively
new and evolving market. The pace of change in Healtheon/WebMD's markets is
rapid and there are frequent new product introductions and evolving industry
standards. Healtheon/WebMD may be unsuccessful in responding to technological
developments and changing customer needs. In addition, Healtheon/WebMD's
applications and services offerings may become obsolete due to the adoption of
new technologies or standards.
HEALTHEON/WEBMD'S PLATFORM INFRASTRUCTURE AND SCALABILITY ARE NOT PROVEN AND IT
MAY NOT BE ABLE TO ADEQUATELY ACCOMMODATE INCREASED FUNCTIONALITY OR USAGE
To date, Healtheon/WebMD has processed a limited number and variety of
transactions over its platforms. Similarly, a limited number of healthcare
participants use these platforms. Healtheon/WebMD's systems may not accommodate
increased use while maintaining acceptable overall performance. Healtheon/WebMD
must continue to expand and adapt its network infrastructure to accommodate
additional users, increased transaction volumes and changing payer and provider
customer requirements. This expansion and adaptation will be expensive and will
divert Healtheon/WebMD's attention from other activities.
THE COMBINED COMPANY WILL FACE SIGNIFICANT COMPETITION
Healtheon/WebMD faces, and will continue to face upon completion of the
mergers, significant competition for its products and services.
Healthcare transaction and information services
The market for healthcare transaction and information services is intensely
competitive, rapidly evolving and subject to rapid technological change. Many of
Healtheon/WebMD's competitors have greater financial, technical, product
development, marketing and other resources than Healtheon/WebMD. These
organizations may be better known and have more customers than Healtheon/WebMD.
Many of Healtheon/WebMD's competitors have also announced or introduced Internet
strategies that will compete with Healtheon/WebMD's applications and services.
Healtheon/WebMD may be unable to compete successfully against these
organizations.
Healtheon/WebMD has many competitors, including:
- healthcare information software vendors
- healthcare EDI companies
- large information technology consulting service providers
- online services or web sites targeted to the healthcare industry,
physicians and healthcare consumers generally
- publishers and distributors of traditional offline media, including those
targeted to healthcare professionals, many of which have established or
may establish web sites
- general purpose consumer online services and portals and other
high-traffic web sites which provide access to healthcare-related content
and services
- public sector and non-profit web sites that provide healthcare
information without advertising or commercial sponsorships
- vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging.
Healtheon/WebMD expects that major software information systems companies
and others specializing in the healthcare industry will offer competitive
applications or services. In addition, some of Healtheon/WebMD's existing and
potential payer and provider customers and strategic partners may also compete
with Healtheon/WebMD. For example, in April 2000, it was reported that a
consortium of six health insurance
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<PAGE> 36
companies may join together to develop an online project which links insurers,
doctors and patients. If this consortium decides to proceed with its plans to
allow patients to enroll in health plans and choose doctors online while also
taking care of administrative tasks such as processing payment claims, it could
compete with Healtheon/WebMD.
In addition, some payers currently offer electronic data transmission
services to healthcare providers that establish a direct link between the
provider and the payer, bypassing third-party EDI service providers such as
Healtheon/WebMD and CareInsite. Any significant increase in the utilization of
direct links between healthcare providers and payers could have a material
adverse effect on the combined company's business and results of operations.
Practice management information systems business
The market for practice management systems such as The Medical Manager
practice management system is highly competitive. Medical Manager Health
Systems' competitors vary in size and in the scope and breadth of the products
and services that they offer. Medical Manager Health Systems competes with
different companies in each of its target markets. Many of Medical Manager
Health Systems' competitors have greater financial, development, technical,
marketing and sales resources than Medical Manager Health Systems. In addition,
other entities not currently offering products and services similar to those
offered by Medical Manager Health Systems, including claims processing
organizations, hospitals, third-party administrators, insurers, healthcare
organizations and others, may enter markets in which Medical Manager Health
Systems competes. We cannot assure you that future competition will not have a
material adverse effect on Medical Manager Health Systems', and thus
Healtheon/WebMD's, results of operations, financial condition or business.
Plastics and filtration technologies business
Competition in Porex's plastic products business is characterized by the
introduction of competitive products at lower prices. We believe that Porex's
principal competitive strengths are its manufacturing processes, quality
control, relationships with its customers and distribution of its proprietary
health care products.
In the porous plastics area, Porex's competitors include other producers of
porous plastic materials as well as companies that manufacture and sell products
made from materials other than porous plastics which can be used for the same
purposes as Porex's products. In this field, Porex has several direct
competitors in the United States, Europe and Asia. Porex's porous plastic pen
nibs compete with felt and fiber tips manufactured by a variety of suppliers
worldwide. Other Porex industrial products made of porous plastic compete,
depending on the industrial application, with porous metals, metal screens,
fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other
substances and devices.
The market for Porex's injection molded solid plastic components and
products, including its medical products, is highly competitive and highly
fragmented. Porex's pipette tips and racks also compete with similar products
manufactured by domestic and foreign manufacturers. Porex's injection molding
and mold making services compete with services offered by several foreign and
domestic companies. The MEDPOR(R) Biomaterial products compete for surgical use
against autogenous and allograph materials and alloplastic biomaterials. Porex's
surgical drains and markers compete against a variety of products from several
manufacturers.
HEALTHCARE REGULATION COULD ADVERSELY AFFECT HEALTHEON/WEBMD'S BUSINESS
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in Healtheon/WebMD's applications and services. Healtheon/WebMD does
not know what effect any proposals would have on its business.
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Regulation regarding patient confidentiality
Numerous state and federal laws govern the collection, dissemination, use,
access to and confidentiality of patient health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the federal Department of Health and Human
Services has proposed regulations implementing the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, concerning standards for electronic
transactions, security and electronic signatures and privacy of individually
identifiable health information. The proposed regulations, among other things,
would require companies to develop security standards for all health information
that is used electronically. The proposed regulations would impose significant
obligations on companies that send or receive electronic health information. The
application of these laws to the personal information Healtheon/WebMD collects
could create potential liability under these laws. Healtheon/WebMD has designed
its services to comply with these proposed regulations. However, Healtheon/WebMD
cannot predict when these proposed regulations will be finalized and whether
they will be changed before they are finalized. Any changes could cause
Healtheon/WebMD to use additional resources to revise its platform and services.
Additional legislation governing the distribution of medical records exists
and has been proposed at both the state and federal levels. Healtheon/WebMD will
be subject to extensive regulation relating to the confidentiality and release
of patient records, and it may be expensive to implement security or other
measures to comply with new legislation and final regulations. Further,
Healtheon/WebMD may be restricted or prevented from maintaining or delivering
patient records electronically, which would have an adverse effect on
Healtheon/WebMD's business.
For additional information, see "Regulation of the Internet could adversely
affect Healtheon/WebMD's business" on page 33.
Regulation of healthcare relationships
There are federal and state laws that govern patient referrals, physician
financial relationships and inducements to beneficiaries of federal healthcare
programs. The federal anti-kickback law prohibits any person or entity from
offering, paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare, Medicaid and other
federal healthcare programs or the leasing, purchasing, ordering or arranging
for or recommending the lease, purchase or order of any item, good, facility or
service covered by these programs. The anti-kickback law is broad and may apply
to some of our activities. Penalties for violating the anti-kickback law include
imprisonment, fines and exclusion from participating, directly or indirectly, in
Medicare, Medicaid and other federal healthcare programs. Many states also have
similar anti-kickback laws that are not necessarily limited to items or services
for which payment is made by a federal healthcare program. Healtheon/WebMD
carefully reviews its practices with regulatory experts to ensure that
Healtheon/WebMD complies with all applicable laws. However, the laws in this
area are both broad and vague and it is often difficult or impossible to
determine precisely how the laws will be applied, particularly to new services
similar to those of Healtheon/WebMD. Any determination by a state or federal
regulatory agency that any of Healtheon/WebMD's practices violate any of these
laws could subject Healtheon/WebMD to civil or criminal penalties and require
Healtheon/WebMD to change or terminate certain portions of its business.
Healtheon/WebMD currently provides billing services and intends to provide
repricing services to providers and, therefore, may be subject to state and
federal laws that govern the submission of claims for medical expense
reimbursement. These laws generally prohibit an individual or entity from
knowingly presenting or causing to be presented a claim for payment from
Medicare, Medicaid or other third party payers that is false or fraudulent, or
is for an item or service that was not provided as claimed. These laws also
provide civil and criminal penalties for noncompliance. Healtheon/WebMD has
designed its current transaction services and will design any future services to
place the responsibility for compliance with these laws on provider customers.
However, Healtheon/WebMD cannot guarantee that state and federal agencies will
regard billing errors processed by Healtheon/WebMD as inadvertent and not in
violation of these laws. In addition, changes in current healthcare financing
and reimbursement systems could cause Healtheon/WebMD to make unplanned
modifications of applications or services, or result in delays or cancellations
of orders or in the revocation of endorsement of Healtheon/WebMD's applications
and services by healthcare participants.
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Regulation by the U.S. Food and Drug Administration
The Food and Drug Administration has jurisdiction under the 1976 Medical
Device Amendments to the Federal Food, Drug and Cosmetic Act, which is referred
to herein as the FDA Act, to regulate computer products and software as medical
devices if they are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans. The FDA has issued a final rule
under which manufacturers of medical image storage devices and related software
are required to submit to the FDA premarket notification applications, which are
each referred to in this document as a 510(k) Application, and otherwise comply
with the requirements of the FDA Act applicable to medical devices.
Healtheon/WebMD has attempted to design its services so that its computer
applications and software are not considered to be medical devices. However, the
FDA may take the position that Healtheon/WebMD's services are subject to FDA
regulation. In addition, Healtheon/WebMD may expand its services in the future
to areas that subject it to FDA regulation. For example, Medical Manager Health
Systems is distributing in the United States a medical image management device,
which is referred to in this document as the "image module," which was cleared
by the FDA on April 4, 1997 and is manufactured by a third party in accordance
with specifications set forth in the cleared 510(k) Application. Medical Manager
Health Systems has created an interface between The Medical Manager practice
management system and the image module and is marketing the interface and the
image module as the Document Image Module System. Medical Manager Health Systems
believes that the addition of its practice management system to the image module
does not change the image module's intended use or significantly change the
safety or efficacy of the product to the extent that a new 510(k) Application is
required. The FDA is currently reviewing its policy for the regulation of
computer software, and there is a risk that The Medical Manager software could
in the future become subject to some or all of the above requirements.
Healtheon/WebMD has no experience in complying with FDA regulations.
Healtheon/WebMD believes that complying with FDA regulations may be
time-consuming, burdensome and expensive and could delay its introduction of new
applications or services.
Regulation of transaction services
State and federal statutes and regulations governing transmission of claims
may affect Healtheon/WebMD's operations. For example, Medicaid rules require
certain processing services and eligibility verification to be maintained as
separate and distinct operations. Healtheon/WebMD believes that its practices
are in compliance with applicable state and federal laws. These laws, though,
are complex and changing, and the government may take positions that are
inconsistent with Healtheon/WebMD's practices.
Professional regulation
The practice of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states prohibit business
entities from practicing medicine, which is referred to as the prohibition
against the corporate practice of medicine. Healtheon/WebMD has attempted to
structure its web site, strategic relationships and other operations to avoid
violating these state licensing and professional practice laws. A state,
however, may determine that some portion of Healtheon/WebMD's business violates
these laws and may seek to have Healtheon/WebMD discontinue those portions or
subject it to penalties or licensure requirements. Healtheon/WebMD employs and
contracts with physicians who provide only medical information to consumers, and
Healtheon/WebMD has no intent to provide medical care or advice. Healtheon/WebMD
does not maintain professional liability insurance because it believes it is not
a healthcare provider. Any determination that Healtheon/WebMD is a healthcare
provider and acted improperly as a healthcare provider may result in liability
for which Healtheon/WebMD is not insured.
Plastics and filtration technologies business
Porex manufactures and distributes medical/surgical devices, such as
plastic and reconstructive surgical implants and tissue expanders, which are
subject to government regulations, under the FDA Act and additional regulations
promulgated by the FDA. Future healthcare products may also be subject to these
regulations and approval processes. Compliance with these regulations and the
process of obtaining approvals can be costly, complicated and time-consuming,
and Medical Manager cannot assure you that these approvals will be granted on a
timely basis, if ever.
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REGULATION OF THE INTERNET COULD ADVERSELY AFFECT HEALTHEON/WEBMD'S BUSINESS
Laws and regulations may be adopted with respect to the Internet or other
online services covering user privacy, patient confidentiality and other issues,
including:
- pricing
- content
- copyrights and patents
- distribution
- characteristics and quality of products and services.
Healtheon/WebMD cannot predict whether these laws will be adopted and how
they will affect its business.
Internet user privacy has become an issue both in the U.S. and abroad.
Whether and how existing privacy or consumer protection laws in various
jurisdictions apply to the Internet is uncertain and may take years to resolve.
Any legislation or regulations of this nature could affect the way
Healtheon/WebMD conducts its business, particularly in its collection or use of
personal information, and could harm its business. Further, activities on or
using the Internet have come under increased scrutiny, including increased
investigation in the healthcare arena by the FTC and heightened media attention.
Similar to many other Internet healthcare companies, Healtheon/WebMD has
recently received a request for information from the FTC concerning its web site
privacy policies and practices. While Healtheon/WebMD believes it is in
compliance with all applicable laws, all third party contractual commitments and
its published privacy commitments, government inquiries like this inquiry can
divert management's attention from other matters and create unfavorable
publicity.
THIRD PARTIES MAY BRING CLAIMS AGAINST HEALTHEON/WEBMD AS A RESULT OF CONTENT
PROVIDED ON ITS WEB SITE, WHICH MAY BE EXPENSIVE AND TIME CONSUMING TO DEFEND
Healtheon/WebMD could be subject to third party claims based on the nature
and content of information supplied on its web site by Healtheon/WebMD or third
parties, including content providers, medical advisors or users. Healtheon/WebMD
could also be subject to liability for content that may be accessible through
its web sites or third party web sites linked from its web sites or through
content and information that may be posted by users in chat rooms or bulletin
boards. Even if these claims do not result in liability to Healtheon/WebMD,
investigating and defending against these claims could be expensive and time
consuming and could divert management's attention away from operating the
business.
HEALTHEON/WEBMD'S INTELLECTUAL PROPERTY MAY BE SUBJECTED TO INFRINGEMENT CLAIMS
OR MAY BE INFRINGED UPON
Healtheon/WebMD's intellectual property is important to its business.
Healtheon/WebMD could be subject to intellectual property infringement claims as
the number of its competitors grows and the functionality of its applications
overlaps with competitive offerings. These claims, even if not meritorious,
could be expensive and divert management's attention from Healtheon/WebMD's
operations. If Healtheon/WebMD becomes liable to third parties for infringing
their intellectual property rights, it could be required to pay a substantial
damage award and to develop noninfringing technology, obtain a license or cease
selling the applications that contain the infringing intellectual property.
Healtheon/WebMD may be unable to develop noninfringing technology or obtain a
license on commercially reasonable terms, or at all. In addition,
Healtheon/WebMD may not be able to protect against misappropriation of its
intellectual property. Third parties may infringe upon Healtheon/WebMD's
intellectual property rights. If Healtheon/WebMD does not detect any
unauthorized use, it may be unable to enforce its rights.
HEALTHEON/WEBMD'S BUSINESS WILL BE ADVERSELY AFFECTED IF IT CANNOT ATTRACT AND
RETAIN KEY PERSONNEL
Healtheon/WebMD's future operating results will substantially depend on the
ability of its officers and key employees to manage changing business conditions
and to implement and improve its technical, administrative,
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financial control and reporting systems. Healtheon/WebMD needs to attract,
integrate, motivate and retain additional highly skilled technical people. In
particular, Healtheon/WebMD needs to attract experienced professionals capable
of developing, selling and installing complex healthcare information systems.
Healtheon/WebMD faces intense competition for these people. If the Medical
Manager merger and the CareInsite merger occur, Healtheon/WebMD's executive
management team, including W. Michael Long, Healtheon/WebMD's Chairman, Jeffrey
T. Arnold, its Chief Executive Officer who will become Co-Chief Executive
Officer upon completion of the mergers, Martin J. Wygod, its designated Co-Chief
Executive Officer, and Marvin P. Rich, its designated President, will be
important to Healtheon/WebMD's success.
HEALTHEON/WEBMD'S BUSINESS COULD BE ADVERSELY AFFECTED AS A RESULT OF ITS
INTERNATIONAL EXPANSION
One element of Healtheon/WebMD's strategic alliance with News Corporation
is the formation of WebMD International as a joint venture with News Corporation
to launch Healtheon/WebMD's services worldwide, other than in the U.S. and
Japan. In addition, Healtheon/WebMD has entered into an agreement with one of
its strategic partners to form an international joint venture in Japan.
Healtheon/WebMD has extremely limited experience in developing localized
versions of its products and services. WebMD International and any future
international ventures may not be successful in launching Healtheon/WebMD's
services into foreign markets.
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RISKS RELATING TO MEDICAL MANAGER'S AND CAREINSITE'S BUSINESSES
MEDICAL MANAGER
MEDICAL MANAGER'S PRACTICE MANAGEMENT SYSTEMS BUSINESS IS DEPENDENT ON MEDICAL
MANAGER HEALTH SYSTEMS' PRINCIPAL PRODUCTS AND MEDICAL MANAGER IS EXPOSED TO
RISKS RELATED TO PROBLEMS WITH ANY OF THESE PRODUCTS
Medical Manager Health Systems currently derives a significant percentage
of its revenue from sales of The Medical Manager core physician practice
management system. As a result, any event adversely affecting its core product
could have a material adverse effect on Medical Manager's results of operations,
financial condition or business. Although Medical Manager Health Systems has
experienced increasing annual sales, on a pro forma basis, revenue associated
with existing products could decline as a result of several factors, including
price competition. Beginning in calendar year 2000, the physician practice
management system industry began to experience a slowdown in demand. This trend
has impacted Medical Manager Health Systems' operating results for the three
months ended March 31, 2000, and Medical Manager expects the trend towards lower
operating results to continue for the near term resulting, in part, from lower
margin service revenues replacing higher margin software upgrades, and from the
acquisition by Medical Manager of Physician Computer Network, which business
historically has experienced lower margins. Medical Manager Health Systems
intends to introduce new software products at the end of calendar year 2000, and
Medical Manager anticipates that demand for software products will increase.
Medical Manager cannot assure you that Medical Manager Health Systems will
continue to be successful in marketing its current products or any new or
enhanced products.
THE NATURE OF POREX'S PRODUCTS EXPOSE IT TO PRODUCT LIABILITY CLAIMS AND MAY
MAKE IT DIFFICULT TO GET ADEQUATE INSURANCE COVERAGE
The products sold by Porex expose it to potential risk for product
liability claims, particularly with respect to Porex's life sciences, clinical,
surgical and medical products. Medical Manager believes that Porex carries
adequate insurance coverage against product liability claims and other risks.
Healtheon/WebMD cannot assure you, however, that claims in excess of Porex's
insurance coverage will not arise. In addition, Porex's insurance policies must
be renewed annually. Although Porex has been able to obtain adequate insurance
coverage at an acceptable cost in the past and believes that it is adequately
indemnified for products manufactured by others and distributed by it,
Healtheon/WebMD cannot assure you that in the future Porex will be able to
obtain this insurance at an acceptable cost or be adequately protected by this
indemnification.
CAREINSITE
Both CareInsite and Healtheon/WebMD provide innovative healthcare network
and clinical communications services that leverage Internet technology to enable
the confidential exchange of clinical, administrative and financial information
among physicians and their patients, and affiliated health plans, providers and
suppliers. As a result, the businesses of CareInsite are subject to the same
risks as Healtheon/WebMD described above, as well as the risks described below.
The market for CareInsite's services is unproven
CareInsite is a development stage company. CareInsite is developing and
intends to deploy an Internet-based network for interactive use by physicians,
payers, suppliers and patients. CareInsite only recently began to generate
revenue. CareInsite's business model contemplates generating a significant
portion of its revenue from payers and suppliers who are expected to pay initial
set-up and ongoing maintenance fees associated with organizing, loading and
maintaining their content and transaction fees associated with the processing of
healthcare transactions. CareInsite also expects to generate revenue from
physicians who are expected to pay a monthly fee for access to a range of
services. However, the market for CareInsite's services is unproven. These
factors make it difficult to evaluate CareInsite's business and prospects.
CareInsite has incurred substantial operating losses since its inception and
there can be no assurance that CareInsite's business will generate significant
revenues or profitability in the future.
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Achieving market acceptance for CareInsite's services will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by participants in the healthcare industry. There can be no
assurances that CareInsite will be able to succeed in positioning its services
as a preferred method for healthcare e-commerce or that any pricing strategy
that CareInsite develops will be economically viable or acceptable to the
market.
CareInsite will not become profitable unless it achieves sufficient levels
of physician penetration
CareInsite's business model depends on its ability to generate usage by a
large number of physicians with a high volume of healthcare transactions and to
sell healthcare e-commerce services to payers and other healthcare constituents.
The acceptance by physicians of CareInsite's transaction, messaging and content
services will require adoption of new methods of conducting business and
exchanging information. CareInsite cannot assure you that physicians will
integrate CareInsite's services into their office workflow, or that the
healthcare market will accept its services as a replacement for traditional
methods of conducting healthcare transactions. Failure to achieve broad
physician penetration or to successfully contract with healthcare participants
would have a material adverse effect on CareInsite's business prospects.
Development and deployment of CareInsite services will take longer and cost
more than previously expected
In connection with the agreements with respect to the mergers entered into
in February 2000, CareInsite made strategic decisions, in light of the pending
merger with Healtheon/WebMD, including decisions to delay deployment of some of
its healthcare e-commerce services and decisions not to develop or acquire
additional clearinghouse capabilities and technologies that would be duplicative
of assets at Healtheon/WebMD. During the period of delay, CareInsite has been
conducting a review of its systems and applications to determine, among other
things, what additional efforts are required to fully develop services for broad
deployment to customers. As part of this review, CareInsite is also evaluating
- the possible integration of its technology with Healtheon/WebMD's
technology if the mergers are completed
- the recently acquired technology assets of Provider Technology Group
from Blue Cross Blue Shield of Massachusetts and the possible
integration of those assets into CareInsite's overall technology
platform
- the unique requirements of existing customers and potential customers
with whom CareInsite is currently in discussions
- the limited availability of cost-effective, high-speed Internet
connections into physicians' offices in CareInsite's target geographic
markets
to assess any potential impact that any of these factors may have on its
development efforts. As a result of these factors and risks and uncertainties
described herein and in CareInsite's annual report on Form 10-K for the fiscal
year ended June 30, 1999, CareInsite believes that the development and
deployment of some of its services will take longer and cost more than
previously expected.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements within the meaning of section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are not based
on historical facts, but rather reflect management's current expectations
concerning future results and events. These forward-looking statements generally
can be identified by use of statements that include phrases such as "believe,"
"expect," "anticipate," "intend," "plan," "foresee," "likely," "will" or other
similar words or phrases. Similarly, statements that describe our objectives,
plans or goals are or may be forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of
Healtheon/WebMD, Medical Manager or CareInsite to be different from any future
results, performance and achievements expressed or implied by these statements.
You should review carefully all information, including the financial statements
and the notes to the financial statements, included or incorporated by reference
into this proxy statement/prospectus.
In addition to the risk factors described in the preceding section, the
following important risks and uncertainties could affect future results, causing
these results to differ materially from those expressed in our forward-looking
statements:
- the mergers not being completed
- expected benefits from the mergers not being fully realized or not being
realized within the expected time frames
- the failure to achieve sufficient levels of physician utilization and
market acceptance of the combined company's services
- the inability to quickly and successfully deploy the combined company's
applications
- general economic or business conditions affecting the Internet and
healthcare communications industries being less favorable than expected
- regulatory authorities making adverse determinations regarding the
mergers.
These factors and the risk factors described in the preceding section are
not necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could have material adverse effects
on our future results. The forward-looking statements included in the proxy
statement/prospectus are made only as of the date of this proxy
statements/prospectus and under section 27A of the Securities Act and section
21E of the Exchange Act. We do not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances. We
cannot assure you that projected results will be achieved.
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THE HEALTHEON/WEBMD ANNUAL MEETING
DATE, TIME AND PLACE OF HEALTHEON/WEBMD'S ANNUAL MEETING
September 12, 2000
9:30 a.m., Eastern time
Alston & Bird LLP
One Atlantic Center
The Gaines Room, 42nd Floor
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
PURPOSE OF THE ANNUAL MEETING
The purpose of the Healtheon/WebMD annual meeting is:
1. To consider and vote on a proposal to approve and adopt the Medical
Manager merger agreement, as amended, and the Medical Manager merger,
pursuant to which Medical Manager will be merged with and into
Healtheon/WebMD and 2.5 shares of Healtheon/WebMD common stock will be
exchanged for each outstanding share of Medical Manager common stock.
2. To consider and vote on the issuance of 1.3 shares of Healtheon/WebMD
common stock for each outstanding share of CareInsite common stock not
owned by Avicenna in the merger of CareInsite with and into Avicenna, a
wholly owned subsidiary of Medical Manager which, as a result of the
Medical Manager merger, will become a wholly owned subsidiary of
Healtheon/WebMD.
3. To elect the following three Class II directors of Healtheon/WebMD, each
to serve a three-year term, or until his or her successor has been
elected and qualified or until his or her earlier resignation or
removal:
U. Bertram Ellis, Jr.
Dennis B. Gillings
Charles G.V. Stevens
4. To consider and vote on an amendment to Healtheon/WebMD's certificate of
incorporation to change the corporate name of Healtheon/WebMD to WebMD
Corporation.
5. To consider and vote on Healtheon/WebMD's 2000 long-term incentive plan,
pursuant to which 5,000,000 shares of common stock will be reserved for
issuance, which number will be increased to 10,000,000 if the Medical
Manager and CareInsite mergers are completed on or prior to December 31,
2000.
6. To consider and vote upon an amendment to Healtheon/WebMD's 1998
employee stock purchase plan, if the Medical Manager and CareInsite
mergers are completed, to:
- increase the number of shares of common stock reserved for issuance
under the plan by 1,000,000 shares
- change the formula for annually increasing the number of shares
available to be issued under the plan.
7. To transact any other business that properly comes before the meeting or
any adjournments or postponements thereof.
The Medical Manager merger and the issuance of common stock pursuant to the
CareInsite merger are conditioned upon, among other things, the approval of the
related proposals by the stockholders of Medical Manager, CareInsite and
Healtheon/WebMD. Healtheon/WebMD will not increase the number of shares
available for issuance under the 1998 employee stock purchase plan or change the
formula for annually increasing the number of shares available under that plan
unless the mergers are approved. The other proposals are independent and not
conditioned upon one another or the proposals related to the mergers.
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RECOMMENDATIONS OF THE HEALTHEON/WEBMD BOARD OF DIRECTORS
Healtheon/WebMD's board of directors unanimously recommends a vote FOR the
Medical Manager merger and FOR the issuance of shares of Healtheon/WebMD common
stock to the stockholders of CareInsite pursuant to the CareInsite merger.
Healtheon/WebMD's board also recommends a vote FOR the election of each of the
nominees as directors, FOR the amendment to the certificate of incorporation,
FOR the 2000 long-term incentive plan and FOR the amendment to the 1998 employee
stock purchase plan.
RECORD DATE AND OUTSTANDING SHARES
The Healtheon/WebMD board of directors has fixed the close of business on
August 3, 2000 as the record date for the determination of the Healtheon/WebMD
stockholders entitled to notice of and to vote at the Healtheon/WebMD annual
meeting. Only holders of record of Healtheon/WebMD common stock and preferred
stock at the close of business on the record date are entitled to notice of and
to vote at the meeting. As of the close of business on the record date, there
were 240,192,793 shares of Healtheon/WebMD common stock outstanding and entitled
to vote, including shares issuable upon conversion of Healtheon/WebMD preferred
stock, held of record by approximately 1,260 stockholders, although
Healtheon/WebMD has been informed that there are in excess of 118,000 beneficial
owners of its common stock. The holders of the shares of Healtheon/WebMD
preferred stock vote together as a single class on an as if converted to common
stock basis with the holders of the common stock.
VOTE AND QUORUM REQUIRED
Holders of Healtheon/WebMD's common stock are entitled to one vote for each
share held as of the record date. Holders of Healtheon/WebMD's preferred stock
are entitled to one vote for each share of common stock into which the preferred
stock they hold is convertible as of the record date. Votes may be cast either
in person or by properly executed proxy.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Healtheon/WebMD entitled to vote at the
Healtheon/WebMD annual meeting is necessary to constitute a quorum at the annual
meeting. Shares of holders that vote or abstain from voting, in person or by
proxy, and broker non-votes will all be treated as shares that are present at
the Healtheon/WebMD annual meeting for purposes of determining whether a quorum
exists.
Approval of the proposal relating to the Medical Manager merger and of the
amendment to the certificate of incorporation requires the affirmative vote of a
majority of the shares of common stock and preferred stock of Healtheon/WebMD,
voting together as a single class with the preferred stock voting on an as if
converted to common stock basis, outstanding as of the record date. The failure
to vote, abstentions and broker non-votes will have the same effect as a vote
against the merger proposal.
Approval of the proposals relating to the CareInsite merger, the 2000
long-term incentive plan and the amendment to the 1998 employee stock purchase
plan requires the affirmative vote of a majority of the outstanding shares of
Healtheon/WebMD present in person or by proxy and entitled to vote at the
meeting. Abstentions will be treated as shares that are present and entitled to
vote, but will not be counted as a vote in favor of either of these proposals.
Accordingly, an abstention will have the same effect as a vote against that
proposal. Broker non-votes will not be considered as present with respect to
either proposal and, thus, will have no impact on the outcome of the vote with
respect to either proposal. Election of directors is by a plurality of the
shares present in person or represented by proxy and entitled to vote at the
meeting. Abstentions and broker non-votes will not be counted in favor of any
nominee and instructions to withhold authority for any nominee will not be
counted in favor of any nominee.
On the record date, directors and executive officers of Healtheon/WebMD as
a group beneficially owned 29,850,249 shares of the Healtheon/WebMD common stock
outstanding. Executive officers, directors and major stockholders of
Healtheon/WebMD holding approximately 40.9% of the shares outstanding and
entitled to vote have entered into voting agreements with Medical Manager and
CareInsite that obligate them to vote in favor of the approval of the
Healtheon/WebMD proposals relating to the Medical Manager merger and the
CareInsite merger.
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PROXIES
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Healtheon/WebMD board of directors for use at the annual meeting.
Please complete, date and sign the accompanying proxy and promptly return it in
the enclosed envelope or otherwise mail it to Healtheon/WebMD. All properly
signed proxies that Healtheon/WebMD receives prior to the vote at the meeting
and that are not revoked will be voted at the meeting according to the
instructions indicated on the proxies or, if no direction is indicated, to
approve the proposals relating to the Medical Manager merger and the CareInsite
merger and the other proposals to be voted upon at the annual meeting.
Healtheon/WebMD stockholders may revoke their proxy at any time before it is
exercised at the meeting by taking any of the following actions:
- delivering to the secretary of Healtheon/WebMD, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked
- signing and so delivering a proxy relating to the same shares and bearing
a later date prior to the vote at the meeting, or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if a Healtheon/WebMD stockholder's shares are
held of record by a broker, bank or other nominee and that stockholder wishes to
vote at the meeting, the stockholder must bring to the meeting a letter from the
broker, bank or other nominee confirming the stockholder's beneficial ownership
of the shares.
Healtheon/WebMD's board of directors does not know of any matter that is
not referred to herein to be presented for action at the meeting. If any other
matters are properly brought before the meeting, the persons named in the
proxies will have discretion to vote on these matters in accordance with their
best judgment.
EXPENSES OF PROXY SOLICITATION
Healtheon/WebMD will pay the expenses of soliciting proxies from its
stockholders to be voted at the annual meeting. The cost of preparing and
mailing this proxy statement/prospectus to Healtheon/WebMD stockholders, Medical
Manager stockholders and CareInsite stockholders will be paid one-half by
Healtheon/WebMD and one-half by Medical Manager and CareInsite. Following the
original mailing of the proxies and other soliciting materials, Healtheon/WebMD
and its agents also may solicit proxies by mail, telephone, facsimile or in
person. In addition, proxies may be solicited from Healtheon/WebMD stockholders
by directors, officers and employees of Healtheon/WebMD in person or by
telephone, facsimile or other means of communication. These officers, directors
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with the solicitation. Following
the original mailing of the proxies and other soliciting materials,
Healtheon/WebMD will request brokers, custodians, nominees and other record
holders of Healtheon/WebMD common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Healtheon/WebMD
common stock and to request authority for the exercise of proxies. In these
cases, Healtheon/WebMD, upon the request of the record holders, will reimburse
these holders for their reasonable expenses. Healtheon/WebMD has retained
Georgeson Shareholder Communications Inc., a proxy solicitation firm, for
assistance in connection with the solicitation of proxies for the
Healtheon/WebMD annual meeting at a cost of approximately $8,000 plus
reimbursement of out-of-pocket expenses.
NO APPRAISAL RIGHTS
Holders of Healtheon/WebMD common stock and preferred stock are not
entitled to dissenters' rights or appraisal rights with respect to the proposals
to be considered at the meeting.
INDEPENDENT AUDITORS
Healtheon/WebMD's board of directors has selected the firm of Ernst & Young
LLP, independent auditors, to audit the financial statements of Healtheon/WebMD
for the fiscal year ending December 31, 2000. Representatives of Ernst & Young
will be present at the annual meeting with the opportunity to make a statement
if they desire to do so, and will be available to respond to appropriate
questions.
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THE MEDICAL MANAGER SPECIAL MEETING
DATE, TIME AND PLACE OF MEDICAL MANAGER'S SPECIAL MEETING
September 12, 2000
9:30 a.m., Eastern time
The St. Regis Hotel
Fontainbleau Room
Two East 55th Street
New York, New York 10022
PURPOSE OF THE SPECIAL MEETING
The purpose of the Medical Manager stockholders' special meeting is to
consider and vote upon a proposal to approve the merger of Medical Manager with
and into Healtheon/WebMD and to adopt the Agreement and Plan of Merger, dated as
of February 13, 2000, between Medical Manager and Healtheon/WebMD, as amended on
June 18, 2000.
RECOMMENDATION OF THE MEDICAL MANAGER BOARD OF DIRECTORS
The Medical Manager board of directors has unanimously approved the Medical
Manager merger and recommends a vote FOR approval of the Medical Manager merger
agreement.
RECORD DATE AND OUTSTANDING SHARES
The Medical Manager board of directors has fixed the close of business on
August 3, 2000 as the record date for the determination of the Medical Manager
stockholders entitled to notice of and to vote at the Medical Manager special
meeting. Accordingly, only holders of record of Medical Manager common stock at
the close of business on the record date are entitled to notice of and to vote
at the special meeting. As of the close of business on the record date, there
were 40,806,343 shares of Medical Manager common stock outstanding and entitled
to vote, held by approximately 320 holders of record.
VOTE AND QUORUM REQUIRED
Holders of Medical Manager's common stock are entitled to one vote for each
share held as of the record date, which may be cast either in person or by
properly executed proxy.
The presence, in person or by properly executed proxy, of the holders of a
majority of the shares of Medical Manager common stock entitled to vote at the
Medical Manager special meeting is necessary to constitute a quorum at the
special meeting. Shares of Medical Manager common stock that vote or abstain
from voting, in person or by proxy, and broker non-votes will all be treated as
shares that are present at the Medical Manager special meeting for purposes of
determining whether a quorum exists.
Approval of the proposal to be voted upon by Medical Manager stockholders
requires the affirmative vote of a majority of the outstanding shares of common
stock of Medical Manager as of the record date. The failure to vote, abstentions
and broker non-votes will have the same effect as a vote against the merger
proposal.
On the record date, directors and executive officers of Medical Manager as
a group beneficially owned 10,798,795 shares of Medical Manager common stock
entitled to vote at the special meeting. Executive officers and directors of
Medical Manager holding approximately 26.4% of the shares entitled to vote at
the special meeting have entered into voting agreements with Healtheon/WebMD
that obligate them to vote in favor of approval of the merger proposal.
PROXIES
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Medical Manager board of directors for use at the special meeting.
Please complete, date and sign the accompanying proxy and promptly return it in
the enclosed envelope or otherwise mail it to Medical Manager. All properly
signed proxies that
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<PAGE> 48
Medical Manager receives prior to the vote at the special meeting and that are
not revoked will be voted at the special meeting according to the instructions
indicated on the proxies or, if no direction is indicated, to approve the
Medical Manager merger.
You may revoke your proxy at any time before it is exercised at the meeting
by taking any of the following actions:
- delivering to the secretary of Medical Manager, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting
- attending the meeting and voting in person, although attendance at the
special meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the special meeting, you must
bring to the special meeting a letter from the broker, bank or other nominee
confirming your beneficial ownership of the shares.
Medical Manager's board of directors does not know of any matter that is
not referred to herein to be presented for action at the special meeting. If any
other matters are properly presented at the Medical Manager special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the special meeting to another time and/or place, including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Medical Manager
merger, the persons named in the enclosed form of proxy and acting thereunder
will have discretion to vote on these matters in accordance with their best
judgment.
EXPENSES OF PROXY SOLICITATION
Medical Manager will pay the expenses of soliciting proxies from its
stockholders to be voted at the special meeting. The cost of preparing and
mailing this proxy statement/prospectus to Medical Manager stockholders,
CareInsite stockholders and Healtheon/WebMD stockholders will be paid one-half
by Medical Manager and CareInsite and one-half by Healtheon/WebMD. Following the
original mailing of the proxies and other soliciting materials, Medical Manager
and its agents also may solicit proxies by mail, telephone, facsimile or in
person. In addition, proxies may be solicited from Medical Manager stockholders
by directors, officers and employees of Medical Manager in person or by
telephone, telegram or other means of communication. These officers, directors
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with the solicitation. Following
the original mailing of the proxies and other soliciting materials, Medical
Manager may request brokers, custodians, nominees and other record holders of
Medical Manager common stock to forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of Medical Manager common stock
and to request authority for the exercise of proxies. In these cases, Medical
Manager upon the request of the record holders, will reimburse these holders for
their reasonable expenses. Medical Manager has retained Innisfree M&A
Incorporated, a proxy solicitation firm, for assistance in connection with the
solicitation of proxies for the Medical Manager special meeting at a cost of
approximately $9,000 plus reimbursement of out-of-pocket expenses.
NO APPRAISAL RIGHTS
Holders of Medical Manager common stock are not entitled to dissenters'
rights or appraisal rights with respect to the proposal to be considered at the
special meeting.
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THE CAREINSITE SPECIAL MEETING
DATE, TIME AND PLACE OF CAREINSITE'S SPECIAL MEETING
September 12, 2000
10:00 a.m., Eastern time
The St. Regis Hotel
Fontainbleau Room
Two East 55th Street
New York, New York 10022
PURPOSE OF THE SPECIAL MEETING
The purpose of the CareInsite stockholders' special meeting is to consider
and vote upon a proposal to approve the merger of CareInsite with and into
Avicenna, which, as a result of the Medical Manager merger, will have become a
wholly owned subsidiary of Healtheon/WebMD, and to adopt the Agreement and Plan
of Merger, dated as of February 13, 2000, among CareInsite, Avicenna and
Healtheon/WebMD, as amended on June 18, 2000, and to ratify and approve the
CareInsite, Inc. 1999 Director Stock Option Plan. The proposal to approve the
CareInsite merger and merger agreement and the proposal to ratify and approve
the CareInsite, Inc. 1999 Director Stock Option Plan are independent and not
conditioned upon one another.
RECOMMENDATIONS OF THE CAREINSITE BOARD OF DIRECTORS AND SPECIAL COMMITTEE
The CareInsite board of directors, after receiving the unanimous
recommendation of a special committee of the board of directors comprised
entirely of independent directors, has unanimously approved the CareInsite
merger and recommends a vote FOR approval of the CareInsite merger agreement.
CareInsite's board of directors created the special committee, which
consists of three directors who are not employed by or affiliated with
CareInsite, Medical Manager or Healtheon/WebMD, other than as directors of
CareInsite, to act solely on behalf of the CareInsite stockholders other than
Medical Manager and its subsidiaries for the purposes of negotiating and
determining whether to recommend the CareInsite merger. For more information
regarding the special committee, see "The Mergers -- Background of the mergers"
and "The Mergers -- Reasons for the mergers and recommendations of the boards of
directors -- CareInsite" on page 46 and page 56, respectively.
The CareInsite board of directors has unanimously approved the CareInsite,
Inc. 1999 Director Stock Option Plan and recommends a vote FOR ratification and
approval of this proposal.
RECORD DATE AND OUTSTANDING SHARES
The CareInsite board of directors has fixed the close of business on August
3, 2000 as the record date for the determination of the CareInsite stockholders
entitled to notice of and to vote at the CareInsite special meeting.
Accordingly, only holders of record of CareInsite common stock at the close of
business on the record date are entitled to notice of and to vote at the special
meeting. As of the close of business on the record date, there were 75,605,837
shares of CareInsite common stock outstanding and entitled to vote, held by
approximately 30 holders of record.
VOTE AND QUORUM REQUIRED
Holders of CareInsite's common stock are entitled to one vote for each
share held as of the record date, which may be cast either in person or by
properly executed proxy.
The presence, in person or by properly executed proxy, of the holders of a
majority of the shares of CareInsite common stock entitled to vote at the
CareInsite special meeting is necessary to constitute a quorum at the special
meeting. Shares of CareInsite common stock that vote or abstain from voting, in
person or by proxy, and broker non-votes will all be treated as shares that are
present at the CareInsite special meeting for purposes of determining whether a
quorum exists.
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Approval of the merger and adoption of the merger agreement by CareInsite
stockholders requires the affirmative vote of a majority of the outstanding
shares of common stock of CareInsite as of the record date. The failure to vote,
abstentions and broker non-votes will have the same effect as a vote against
this proposal.
Approval of the CareInsite, Inc. 1999 Director Stock Option Plan by
CareInsite stockholders requires the affirmative vote of a majority of the
shares of CareInsite common stock present, in person or by proxy, and entitled
to vote. Abstentions will be treated as shares that are present and entitled to
vote, but will not be counted as a vote in favor of this proposal. Accordingly,
an abstention will have the same effect as a vote against this proposal. Broker
non-votes will not be considered as present with respect to this proposal and,
thus, will have no impact on the outcome of the vote with respect to this
proposal. Medical Manager, in its capacity as majority stockholder of
CareInsite, agreed to vote in favor of this plan. Accordingly, we expect that
this proposal will be approved by the stockholders of CareInsite even if no
other stockholder of CareInsite votes in favor of it.
On the record date, directors and executive officers of CareInsite as a
group may be deemed to have beneficially owned 241,900 shares of CareInsite
common stock. Major stockholders of CareInsite holding approximately 84.8% of
the shares entitled to vote have entered into voting agreements with
Healtheon/WebMD that obligate them to vote in favor of approval of CareInsite
proposals relating to the merger.
Medical Manager and Avicenna, a wholly owned subsidiary of Medical Manager,
which own approximately 67.4% of CareInsite's common stock, have agreed to vote
in favor of the CareInsite merger. Cerner, which owns approximately 17.4% of
CareInsite's common stock, has also agreed to vote in favor of the CareInsite
merger. Therefore, we expect that the CareInsite merger will be approved by the
stockholders of CareInsite even if no other stockholder of CareInsite votes in
favor of it.
PROXIES
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the CareInsite board of directors for use at the special meeting.
Please complete, date and sign the accompanying proxy and promptly return it in
the enclosed envelope or otherwise mail it to CareInsite. All properly signed
proxies that CareInsite receives prior to the vote at the special meeting and
that are not revoked will be voted at the special meeting according to the
instructions indicated on the proxies or, if no direction is indicated, to
approve the CareInsite merger and the director stock option plan.
You may revoke your proxy at any time before it is exercised at the meeting
by taking any of the following actions:
- delivering to the secretary of CareInsite, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting
- attending the meeting and voting in person, although attendance at the
special meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the special meeting, you must
bring to the meeting a letter from the broker, bank or other nominee confirming
your beneficial ownership of the shares.
CareInsite's board of directors does not know of any matter that is not
referred to herein to be presented for action at the special meeting. If any
other matters are properly presented at the CareInsite special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place, including, without limitation,
for the purposes of soliciting additional proxies or allowing additional time
for the satisfaction of conditions to the merger, the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
these matters in accordance with their best judgment.
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EXPENSES OF PROXY SOLICITATION
CareInsite will pay the expenses of soliciting proxies from its
stockholders to be voted at the special meeting. The cost of preparing and
mailing this proxy statement/prospectus to CareInsite stockholders, Medical
Manager stockholders and Healtheon/WebMD stockholders will be paid one-half by
CareInsite and Medical Manager and one-half by Healtheon/WebMD. Following the
original mailing of the proxies and other soliciting materials, CareInsite and
its agents also may solicit proxies by mail, telephone, facsimile or in person.
In addition, proxies may be solicited from CareInsite stockholders by directors,
officers and employees of CareInsite in person or by telephone, telegram or
other means of communication. These officers, directors and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with the solicitation. Following the original mailing of
the proxies and other soliciting materials, CareInsite may request brokers,
custodians, nominees and other record holders of CareInsite common stock to
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of CareInsite common stock and to request authority for the
exercise of proxies. In these cases, CareInsite, upon the request of the record
holders, will reimburse these holders for their reasonable expenses.
APPRAISAL RIGHTS
Holders of CareInsite common stock are not entitled to dissenters' rights
or appraisal rights with respect to the proposals to be considered at the
special meeting. The holder of CareInsite preferred stock is entitled to
appraisal rights under Delaware law.
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THE MERGERS
This section of the proxy statement/prospectus describes the proposed
mergers. While we believe that the description covers the material terms of the
mergers and the related transactions, this summary may not contain all of the
information that is important to you. You should carefully read this entire
document and the other documents we refer to for a more complete understanding
of the mergers.
BACKGROUND OF THE MERGERS
In the spring of 1999, Mr. Jeffrey T. Arnold, WebMD's Chief Executive
Officer, called Mr. Martin J. Wygod, Chairman of Medical Manager, then called
Synetic, Inc., to discuss the possibility of a business combination between
WebMD and Medical Manager. On May 3, 1999, WebMD and Medical Manager entered
into a confidentiality agreement prior to further discussions between the
parties. Healtheon Corporation and MedE America later executed letter agreements
pursuant to which they each agreed to be bound by the terms of the
confidentiality agreement between WebMD and Medical Manager to the same extent
as WebMD. On May 20, 1999, Healtheon and WebMD entered into a merger agreement
that was closed on November 11, 1999, along with the business combinations with
MedE America and Medcast. Healtheon was the surviving corporation and changed
its name to Healtheon/WebMD Corporation. On July 29, 1999, Synetic completed its
acquisition of Medical Manager, and changed its name to Medical Manager
Corporation.
In late July through early August 1999, senior management of WebMD,
Healtheon and Medical Manager, together with their legal advisors and
Healtheon/WebMD's financial advisors, held a series of meetings and began
preliminary due diligence investigations of one another concerning a potential
business combination among the companies. These discussions and other activities
were terminated by mid-August 1999 due to the inability of the parties to reach
any preliminary understanding on the financial terms of a business combination
and the desire of Healtheon and WebMD to focus on the consummation of their
merger.
Following the closing of the merger of Healtheon and WebMD and several
subsequent transactions by Healtheon/WebMD, including its agreement on January
22, 2000 to acquire Envoy and its private placement on January 26, 2000 to Janus
Capital Corporation of 15 million shares of common stock for $930 million, Mr.
Arnold, Healtheon/WebMD's Chief Executive Officer, called Mr. Wygod, Medical
Manager's Chairman, on February 3, 2000, to determine whether Medical Manager
would be interested in commencing discussions regarding a possible business
combination between Healtheon/WebMD and Medical Manager. On February 7, 2000,
Medical Manager and Healtheon/WebMD entered into a letter agreement pursuant to
which they agreed that the confidentiality agreement executed by WebMD and
Medical Manager in May 1999, as extended by the letter agreements with Healtheon
and MedE America, would remain in full force and effect and apply to the
confidential disclosure of information between the parties during any current
discussions regarding a possible combination. On February 8, 2000, Mr. Arnold,
together with Mr. W. Michael Long, Healtheon/WebMD's Chairman, and other members
of Healtheon/WebMD's senior management, met in New York with Mr. Wygod and other
members of Medical Manager's and CareInsite's senior management to discuss a
possible business combination. At this meeting, the parties discussed a general
outline of possible financial terms of the acquisition of Medical Manager by
Healtheon/WebMD at a fixed exchange ratio in the range of 1.6 to 1.7 shares of
Healtheon/WebMD common stock for each share of Medical Manager common stock.
On February 9, 2000, senior management of Healtheon/WebMD, Medical Manager
and CareInsite met in New York together with their legal and financial advisors
to conduct due diligence and begin the process of negotiating the terms of the
transaction. The negotiations and due diligence process, which included review
of documents, both in New York and in Charlotte, North Carolina, and meetings
with executives and professional advisors of Healtheon/WebMD, Medical Manager
and CareInsite, continued through the signing of the merger agreements.
On February 10, 2000, Mr. Arnold informed Mr. Wygod that Healtheon/WebMD
would not be interested in acquiring Medical Manager unless it could
concurrently acquire all of the capital stock of CareInsite not owned by Medical
Manager, and that Healtheon/WebMD was prepared to make a proposal to acquire
CareInsite. That evening, Mr. Wygod informed the board of directors of
CareInsite that Healtheon/WebMD would not acquire Medical Manager unless it
could also acquire CareInsite. The board of directors of CareInsite then
appointed a
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special committee consisting of outside directors Dr. Mark J. Adler, Mr.
Lawrence A. Rader and Mr. Joseph E. Smith to consider any acquisition proposal
submitted by Healtheon/WebMD. On Friday, February 11, 2000, senior management of
Healtheon/WebMD, Medical Manager and CareInsite and their respective financial
and legal advisors continued their discussions and due diligence reviews
concerning the proposed transactions. Early in the afternoon, the special
committee engaged Davis Polk & Wardwell as its counsel and selected Banc of
America Securities to advise it on any Healtheon/WebMD acquisition proposal.
Also on February 11, 2000, Medical Manager executed an engagement letter with
Merrill Lynch, Pierce, Fenner & Smith to act as its financial advisor.
Later in the afternoon on February 11, 2000, the special committee's
financial and legal advisors began the review of drafts of the merger agreement
and commenced their due diligence reviews. That evening the senior management of
each of Healtheon/WebMD, Medical Manager and CareInsite made presentations
concerning their respective businesses and the rationale for the proposed
transactions to the members of the special committee and representatives of its
financial and legal advisors.
The due diligence reviews and negotiations concerning the merger agreement
and other documentation for the proposed transactions continued throughout the
day on Saturday, February 12, 2000. The special committee held a meeting shortly
before noon at with its financial and legal advisors which Davis Polk & Wardwell
described to the special committee the principal terms of the draft merger
agreement and the special committee instructed Davis Polk & Wardwell to begin to
negotiate the terms of the agreements. Early in the afternoon, Healtheon/WebMD
made proposals to each of the Medical Manager board and the CareInsite special
committee that Healtheon/WebMD was prepared to enter into definitive merger
agreements with each of Medical Manager and CareInsite pursuant to which
Healtheon/WebMD would concurrently acquire Medical Manager in exchange for 1.65
shares of Healtheon/WebMD common stock for each share of Medical Manager common
stock and acquire CareInsite in exchange for 1.25 shares of Healtheon/WebMD
common stock for each share of CareInsite common stock not owned by Medical
Manager or a subsidiary of Medical Manager.
After receiving the offer from Healtheon/WebMD, the special committee met
with its financial and legal advisors and discussed the offer. Representatives
of Davis Polk & Wardwell then reviewed with the members of the special committee
their duties under Delaware law with respect to the offer. Later that evening
the special committee held a meeting at which Davis Polk & Wardwell updated the
special committee on the negotiations concerning the merger agreements and Banc
of America presented its preliminary financial analysis of the offer received
from Healtheon/WebMD. Over the course of the evening representatives of Banc of
America Securities had a number of conversations with Healtheon/WebMD's
financial advisor, the result of which was that Healtheon/WebMD offered to
increase the exchange ratio in the CareInsite merger from 1.25 to 1.265.
The next morning the special committee met with its financial and legal
advisors and discussed Healtheon/WebMD's revised offer. After this discussion, a
representative of the special committee's legal advisors proposed an exchange
ratio of 1.35 to Healtheon/WebMD's counsel. Shortly thereafter, a member of the
special committee and a representative of Davis Polk & Wardwell met with
representatives of Healtheon/WebMD and its legal advisors and discussed the
exchange ratio. In the course of this conversation, Healtheon/WebMD revised its
offer by increasing the exchange ratio in the CareInsite merger from 1.265 to
1.3. Healtheon/WebMD informed the special committee that it was not prepared to
recommend to its board an exchange ratio greater than 1.3, and its proposal of
an exchange ratio of 1.3 in the CareInsite merger was contingent on Medical
Manager agreeing to the exchange ratio of 1.65 being offered by Healtheon/WebMD
in the Medical Manager merger. Throughout the day the parties and their
respective financial and legal advisors continued to perform due diligence and
negotiate the terms of the merger agreements and related documents.
On February 13, 2000, Medical Manager executed engagement letters with
Donaldson, Lufkin & Jenrette and UBS Warburg to act as its financial advisors
and CareInsite executed an engagement letter with Banc of America. That
afternoon, Medical Manager's board of directors and CareInsite's board of
directors, including the members of the special committee, held a joint special
meeting to discuss the proposed business combination with Healtheon/WebMD. At
this meeting, Medical Manager's senior management and legal advisors and Merrill
Lynch and DLJ made detailed presentations to the boards concerning their due
diligence review of and negotiations with Healtheon/WebMD and Mr. Wygod and
other members of Medical Manager's senior management discussed with the boards
their views of various aspects of the proposed mergers. A representative of
Shearman & Sterling
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reviewed legal matters with the Medical Manager board and the CareInsite board,
including the terms and conditions of the proposed merger agreements and other
transaction agreements.
After a discussion, the Medical Manager and CareInsite boards both recessed
and the special committee met with its legal counsel and financial advisor and
discussed the results of the negotiations with Healtheon/WebMD and the terms of
the proposed merger agreements, voting agreements and other transaction
agreements. At this meeting, representatives of Banc of America Securities
presented an analysis of the financial terms of the proposed CareInsite merger
and delivered its written opinion that the exchange ratio of 1.3 shares of
common stock of Healtheon/WebMD for each outstanding share of common stock of
CareInsite not held by Medical Manager and its subsidiaries was fair from a
financial point of view to those holders of CareInsite common stock.
Following these presentations and other discussions, the special committee
by unanimous vote:
- resolved that the CareInsite merger is consistent with and in furtherance
of the long-term business strategy of CareInsite
- resolved that the CareInsite merger and the other transactions
contemplated by the CareInsite merger agreement are advisable
- recommended that the stockholders of CareInsite approve and adopt the
CareInsite merger agreement and the CareInsite merger
- recommended that the board of directors of CareInsite approve the
CareInsite merger agreement, the CareInsite merger and the other
transactions contemplated by the CareInsite merger agreement.
After the conclusion of the special committee meeting, the meeting of the
CareInsite board of directors reconvened and upon the unanimous recommendation
of the special committee, the board of CareInsite by unanimous vote:
- resolved to recommend that CareInsite's stockholders approve the
CareInsite merger and merger agreement
- approved the terms of the CareInsite merger
- approved the CareInsite merger agreement, the voting agreements and
related transaction agreements substantially in the form presented.
After the conclusion of the CareInsite board of directors' meeting, the
board of directors of Medical Manager reconvened. At that time, Merrill Lynch
delivered to the Medical Manager board an oral opinion, subsequently confirmed
in writing, to the effect that, as of February 13, 2000, the exchange ratio set
forth in the Medical Manager merger agreement was fair from a financial point of
view to the holders of Medical Manager common stock. Also at this time, DLJ
delivered to the Medical Manager board its written opinion dated February 13,
2000, to the effect that as of that date, based upon and subject to the
assumptions, limitations and qualifications set forth in the opinion, the
consideration to be received by the stockholders of Medical Manager pursuant to
the Medical Manager merger agreement was fair to the stockholders of Medical
Manager from a financial point of view.
Following these presentations and other discussions, the Medical Manager
board by unanimous vote:
- resolved to recommend to the Medical Manager stockholders that they
approve the Medical Manager merger and merger agreement
- approved the terms of the Medical Manager merger
- approved the Medical Manager merger agreement and related voting
agreements and other transaction agreements substantially in the forms
presented.
On the evening of February 13, 2000, following the meetings of the board of
directors of Medical Manager and CareInsite, the board of directors of
Healtheon/WebMD met to consider the Medical Manager merger and the CareInsite
merger. At the meeting, members of Healtheon/WebMD's senior management and
financial and legal advisors discussed the results of the business, financial
and legal due diligence performed by Healtheon/WebMD and its advisors on Medical
Manager and CareInsite, the negotiations with these companies and terms of the
proposed Medical Manager merger agreement, the CareInsite merger agreement, the
voting agreements and the other related transaction agreements. At this meeting,
representatives of Morgan Stanley
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presented its financial analysis of the proposed transactions and gave their
opinions, which opinions have been superceded and withdrawn in their entirety
and shall not be relied upon for any purpose, that the exchange ratio of 1.65
shares of Healtheon/WebMD common stock for each outstanding share of common
stock of Medical Manager provided for by the Medical Manager merger agreement
was fair from a financial point of view to Healtheon/WebMD, and that the
exchange ratio of 1.3 shares of Healtheon/WebMD common stock for each
outstanding share of common stock of CareInsite not owned by Medical Manager
provided for by the CareInsite merger agreement was fair from a financial point
of view to Healtheon/WebMD. Healtheon/WebMD's board of directors reviewed drafts
of the merger agreements, voting agreements and related transaction agreements
and posed questions to representatives of management, Morgan Stanley and legal
counsel regarding terms of the transaction. Following discussions,
Healtheon/WebMD's board:
- approved the Medical Manager merger and merger agreement
- approved the CareInsite merger and merger agreement
- approved the voting agreements and the other transaction agreements
- approved the issuance of shares of Healtheon/WebMD common stock to
stockholders of Medical Manager and CareInsite in the mergers
- resolved to recommend to the Healtheon/WebMD stockholders approval of the
Medical Manager merger, the CareInsite merger, the merger agreements and
the issuance of Healtheon/WebMD common stock in the mergers
- authorized the company's chairman to call a meeting of the
Healtheon/WebMD stockholders as soon as reasonably possible following the
effectiveness of the registration statement for the purpose of voting on
the mergers.
The Medical Manager merger agreement and the CareInsite merger agreement
were executed following the board meetings. On the morning of February 14, 2000,
the parties issued a joint press release announcing the Medical Manager and
CareInsite mergers with Healtheon/WebMD.
Commencing in March 2000, there occurred a broad decline in technology
stocks, including stocks of Internet companies. The decline in the Internet
healthcare sector was even more pronounced, as evidenced by the 61% decline in
the price of Healtheon/WebMD from $59 per share on March 1, 2000 to $23 per
share on March 31, 2000. As a result of the significant decline in
Healtheon/WebMD stock price, from time to time since the decline commenced in
March 2000, Mr. Wygod expressed concern to Messrs. Long and Arnold that despite
having voting agreements from the holders of approximately 26% of the
outstanding shares of common stock of Medical Manager, the stockholders of
Medical Manager might not approve the Medical Manager merger by the majority
vote required under Delaware law. During this time, additional due diligence was
conducted and inconclusive discussions were held concerning the appropriateness
of a change in the terms of the mergers. At its meeting on May 12, 2000, the
board of directors of Healtheon/WebMD appointed a special committee, consisting
of Messrs. Clark, Doerr and Gleacher, to advise management in addressing the
continuing concerns raised by Mr. Wygod in order to make the consummation of the
mergers more certain. Representatives of Medical Manager and CareInsite from
time to time updated the CareInsite special committee, its counsel and its
financial advisor regarding the status of these ongoing discussions and related
developments and the CareInsite special committee held a number of meetings
during this period to discuss these developments.
On May 18 and 19, Messrs. Long and Arnold, other senior executives of
Healtheon/WebMD, and representatives from its financial and legal advisors met
with Mr. Wygod, other senior executives of Medical Manager and CareInsite, and
representatives from their financial and legal advisors and the CareInsite
special committee's financial advisor at the offices of Morgan Stanley in New
York City. During this meeting the parties updated their financial, business and
legal due diligence. On May 19, 2000, Mr. Wygod proposed to Messrs. Long and
Arnold that the Medical Manager merger agreement be amended to provide for:
- an increase in the exchange ratio from 1.65 to 3.0 shares of
Healtheon/WebMD common stock for each share of Medical Manager common
stock
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- an initial board consisting of an equal number of Healtheon/WebMD
designees and Medical Manager designees, plus Dennis B. Gillings, the
Chairman and Chief Executive Officer of Quintiles
- Mr. Long to serve as Chairman, Mr. Arnold and Mr. Wygod to serve as
Co-Chief Executive Officers, and Mr. Rich to serve as President of the
combined company.
Messrs. Long and Arnold agreed that Healtheon/WebMD and its financial advisor,
Morgan Stanley, would consider this proposal and develop a separate proposal to
present to CareInsite's special committee.
Discussions and due diligence continued over the next several weeks. On
June 10, 2000, Messrs. Long and Arnold agreed with Mr. Wygod, subject to
negotiation of the terms of definitive amendments to the Medical Manager merger
agreement and CareInsite merger agreement and related transaction documents,
that they would recommend to their respective boards an amendment to the Medical
Manager merger agreement that would provide for an exchange ratio of 2.5 shares
of Healtheon/WebMD common stock for each share of Medical Manager common stock
and the board composition and executive positions proposed by Mr. Wygod on May
19, 2000. On June 11, 2000, Healtheon/WebMD's management proposed to the
CareInsite special committee that the exchange ratio for the CareInsite merger
be reduced from 1.3 to 1.1 shares of Healtheon/WebMD common stock for each share
of CareInsite common stock not owned by Medical Manager.
The CareInsite special committee met with its financial and legal advisors
on June 11, 2000 and counsel for the CareInsite special committee reviewed the
terms of the written proposal made by Healtheon/WebMD. The CareInsite special
committee directed its advisors to obtain additional information from
Healtheon/WebMD and its advisors regarding the proposal. After the advisors to
the CareInsite special committee obtained additional information, on the evening
of June 12, 2000, the CareInsite special committee considered the
Healtheon/WebMD proposal and directed its advisors to negotiate specified
changes to the proposal, including that the CareInsite exchange ratio be
increased from 1.3 to 1.6. After discussions with the advisors to the CareInsite
special committee, on June 13, 2000, representatives of Healtheon/WebMD made a
revised proposal to the CareInsite special committee that included a 1.3
exchange ratio, but proposed to eliminate the $50 million aggregate payments due
to CareInsite from Healtheon/WebMD under limited circumstances. The CareInsite
special committee, after meeting with its financial and legal advisors,
requested a 1.35 exchange ratio or, in the alternative, a 1.3 exchange ratio
with the payments continuing without modification. On June 15, 2000,
Healtheon/WebMD responded that an exchange ratio of 1.3 would be acceptable and
that the payments could remain in effect, but had to be deferred until November
30, 2000, and the subsequent quarterly payments delayed until February 28, 2001,
May 31, 2001 and August 31, 2001.
The CareInsite special committee met with its legal counsel and financial
advisor to discuss Healtheon/WebMD's response and requested that senior
management of CareInsite meet with the CareInsite special committee to discuss
the proposed amendment to the payment schedule. The next day, the CareInsite
special committee held a meeting to further discuss Healtheon/WebMD's response.
Mr. Wygod attended this meeting and participated in a discussion of the proposed
amendment to the payment schedule.
On June 18, 2000, Medical Manager's board of directors held a special
meeting to discuss the proposed amendment to the terms of the business
combination with Healtheon/WebMD. At this meeting, Medical Manager's senior
management and legal advisors made detailed presentations to the board
concerning their due diligence review of Healtheon/WebMD and their negotiations
with Healtheon/WebMD. Mr. Wygod and other members of Medical Manager's senior
management also discussed with the board their view of the various aspects of
the proposed Medical Manager merger. Merrill Lynch then reviewed with the
Medical Manager board its financial analysis of the exchange ratio provided for
in the Medical Manager merger agreement and delivered to the Medical Manager
board its opinion, which opinion was subsequently confirmed by delivery of a
written opinion dated June 18, 2000, to the effect that, as of the date of the
opinion and based on and subject to the factors and assumptions set forth in the
opinion, the exchange ratio set forth in the Medical Manager merger agreement
was fair from a financial point of view to the holders of Medical Manager common
stock. UBS Warburg then reviewed with the Medical Manager board its financial
analysis of the exchange ratio provided for in the Medical Manager merger
agreement and delivered to the Medical Manager board its oral opinion, which
opinion was subsequently confirmed by delivery of a written opinion dated June
18, 2000, to the effect that, as of the date of the opinion and based on and
subject to the matters described in the opinion, the exchange ratio provided for
in the Medical
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Manager merger agreement was fair from a financial point of view to the holders
of Medical Manager common stock.
Following these presentations and other discussions, the Medical Manager
board by unanimous vote:
- resolved to recommend to the Medical Manager stockholders that they
approve the Medical Manager merger and merger agreement
- approved the amended terms of the Medical Manager merger
- approved the Medical Manager merger agreement, as amended, and related
voting agreements and other transaction agreements substantially in the
forms presented.
While the Medical Manager board meeting was in progress, the CareInsite
special committee met with its financial and legal advisors and discussed the
results of the negotiations with Healtheon/WebMD and the terms of the proposed
amendments to the merger agreements and the agreement providing for the $50
million payment from Healtheon/WebMD to CareInsite. At this meeting,
representatives of Banc of America Securities presented an analysis of the
financial terms of the proposed CareInsite merger and delivered its oral
opinion, subsequently confirmed in writing, that the exchange ratio of 1.3
shares of common stock of Healtheon/WebMD for each outstanding share of common
stock of CareInsite not held by Medical Manager and its subsidiaries was fair
from a financial point of view to those holders of CareInsite common stock.
Immediately after the special committee meeting, CareInsite's board of
directors held a meeting to discuss the proposed amendment to the terms of the
business combination with Healtheon/WebMD. At this meeting, CareInsite's senior
management and financial and legal advisors made detailed presentations to the
board concerning their updated due diligence review of Healtheon/WebMD and their
negotiations with Healtheon/WebMD. Mr. Wygod and other members of CareInsite's
senior management also discussed with the board their view of the various
aspects of the proposed merger. The CareInsite board meeting then recessed and a
meeting of the special committee was convened. After discussion, the special
committee by unanimous vote:
- resolved that the CareInsite merger is consistent with and in furtherance
of the long-term business strategy of CareInsite
- resolved that the CareInsite merger and the other transactions
contemplated by the CareInsite merger agreement are advisable
- recommended that the stockholders of CareInsite approve and adopt the
CareInsite merger agreement and the CareInsite merger
- recommended that the board of directors of CareInsite approve the
CareInsite merger agreement, the CareInsite merger and the other
transactions contemplated by the CareInsite merger agreement.
The CareInsite board meeting then reconvened and the board then received
the recommendation of the special committee. Banc of America Securities then
summarized for the board the analysis of the financial terms of the CareInsite
merger that it had presented earlier in the evening to the special committee.
Following these presentations and other discussions, the CareInsite board
by unanimous vote:
- resolved to recommend to the CareInsite stockholders that they approve
the CareInsite merger and merger agreement, as amended
- approved the amended terms of the CareInsite merger
- approved the CareInsite merger agreement, as amended, and related voting
agreements and other transaction agreements substantially in the forms
presented.
On June 18, 2000, Healtheon/WebMD's board of directors held a special
meeting to discuss the proposed amendments to the terms of its acquisitions of
Medical Manager and CareInsite. At this meeting, Healtheon/WebMD's senior
management and financial and legal advisors made detailed presentations to the
board concerning their due diligence review of Medical Manager and CareInsite
and their negotiations with Medical Manager and CareInsite. Morgan Stanley then
gave to the Healtheon/WebMD board its opinion that, as of
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June 18, 2000 and based on and subject to the assumptions, limitations and
qualifications contained in its written opinion, the exchange ratios in the
Medical Manager merger and CareInsite merger, taken together and not separately,
were fair from a financial point of view to Healtheon/WebMD.
Following these presentations and discussions and questions from the board,
the Healtheon/WebMD board:
- approved the amendments to the Medical Manager merger and merger
agreement
- approved the amendments to the CareInsite merger and merger agreement
- approved the amendment to Healtheon/WebMD's certificate of incorporation
to change the corporate name to WebMD Corporation
- approved the amendments to Healtheon/WebMD's bylaws contemplated by the
amendment to the Medical Manager merger agreement to be effective at the
effective time of the mergers
- ratified its approval of the issuance of shares of Healtheon/WebMD common
stock to stockholders of Medical Manager and CareInsite in the mergers,
as amended
- ratified its resolution to recommend to the Healtheon/WebMD stockholders
that they approve the Medical Manager merger and merger agreement and the
CareInsite merger and merger agreement, each as amended
- approved the registration statement/proxy statement, voting agreements
and other transaction agreements substantially in the forms presented to
the meeting.
REASONS FOR THE MERGERS AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Healtheon/WebMD
At a meeting held on June 18, 2000, the Healtheon/WebMD board of directors
considered presentations made by management and the opinion of Morgan Stanley to
the effect that, as of June 18, 2000 and based on and subject to the
assumptions, limitations and qualifications contained in its written opinion,
the exchange ratios in the Medical Manager and CareInsite mergers, taken
together and not separately, were fair from a financial point of view to
Healtheon/WebMD. This opinion was considered together with the financial and
other analyses presented to the Healtheon/WebMD board by Morgan Stanley. A
description of the Morgan Stanley opinion and the material financial analyses
considered by it in connection with its opinion are set forth in "Opinion of
Morgan Stanley" on page 59. The board of directors of Healtheon/WebMD concluded
that both the Medical Manager merger and the CareInsite merger were in the best
interests of the stockholders of Healtheon/WebMD and resolved to recommend that
the stockholders approve both of the mergers. The decision of the board of
Healtheon/WebMD was based upon several potential benefits of the mergers,
including the following, the order of which does not necessarily reflect their
relative significance.
- ACCELERATION OF PHYSICIAN ADOPTION OF THE HEALTHEON/WEBMD INTERNET-BASED
PLATFORM. Healtheon/WebMD provides web-based healthcare information and
services to facilitate connectivity among physicians, patients, payers
and other healthcare industry participants. Medical Manager provides
physician practice management information systems to approximately
185,000 physicians nationwide, giving effect to its acquisition of
Physician Computer Network. Healtheon/WebMD believes that direct access
to the approximately 185,000 physicians currently served by Medical
Manager will accelerate physician adoption of its web-based healthcare
services. Healtheon/WebMD intends to integrate its physician services
with Medical Manager's practice management system because Healtheon/WebMD
believes that physicians are more likely to adopt web-based services
accessible in connection with the installed practice management system
that they are currently using. Healtheon/WebMD expects to utilize the
approximately 2,500 sales representatives of Medical Manager to migrate
Medical Manager's existing physician customer base to Healtheon/WebMD's
provider portal, WebMD Practice, to solicit new physician subscribers to
WebMD Practice and to take advantage of cross-selling opportunities.
- ENHANCEMENT OF PHYSICIAN PRODUCT AND SERVICE OFFERINGS. Healtheon/WebMD
offers physicians online access to its provider portal, WebMD Practice,
which provides physicians with administrative transaction services,
medical news and research, continuing medical education credits,
customized web sites and e-mail
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accounts, among other services. Healtheon/WebMD believes the clinical,
administrative, financial and practice management services offered by
Medical Manager and CareInsite will enhance its services offered through
WebMD Practice and will attract and maintain a much broader range of
physician subscribers.
- ENHANCEMENT OF CONSUMER HEALTHCARE PORTAL. Healtheon/WebMD, through its
consumer portal, WebMD Health, provides consumers with free health and
wellness news and information, support communities, interactive tools and
opportunities to purchase health-related products and services.
CareInsite is currently developing Internet-based transaction, messaging
and content services for consumers that Healtheon/WebMD believes will be
complementary to WebMD Health and will allow Healtheon/WebMD to enhance
its current consumer content and services and increase traffic on its
consumer portal.
- INCREASED TRANSACTION VOLUME. Healtheon/WebMD provides administrative
transaction services to participants in the healthcare industry through
Envoy and MedE America. Healtheon/WebMD expects its transaction volume to
increase through its access to the physician practice management systems
used by the approximately 185,000 physicians currently served by Medical
Manager, some of whom may already be utilizing Healtheon/WebMD's or
Envoy's services. Healtheon/WebMD intends to migrate these transactions
to its web-based platform.
- DIVERSIFICATION OF REVENUE STREAMS. Healtheon/WebMD's primary sources of
revenues are anticipated to be derived from its network- and
Internet-based administrative transaction services from healthcare payers
and providers and from advertising, subscriptions, e-commerce, content
license fees and carriage fees generated from its web site and co-branded
web sites. A business combination with Medical Manager would create
revenues from licensing of physician practice management systems and
contribute to the achievement of profitability for the combined company.
- ACCELERATION OF ACHIEVEMENT OF PROFITABILITY. Healtheon/WebMD has
incurred significant net losses from operations since its inception.
Healtheon/WebMD believes that the mergers will provide revenue growth
opportunities by combining the companies' products and services while
achieving significant expense savings and operating efficiencies through,
among other things, the elimination of duplicative functions.
- GREATER DEPTH OF MANAGEMENT TALENT. Healtheon/WebMD believes that the
combined company will have a greater depth of management talent than any
of the companies on its own.
The Healtheon/WebMD board of directors also identified and considered a
variety of potentially negative factors in its deliberations concerning the
mergers, including:
- the risk to Healtheon/WebMD's stockholders that the market value of
Healtheon/WebMD's common stock, which has been volatile since
Healtheon/WebMD's initial public offering, could decline significantly as
a result of the mergers
- the challenges of integrating the businesses of Healtheon/WebMD, Medical
Manager and CareInsite and the attendant risk that the potential benefits
sought in the mergers might not be fully realized
- the possibility that the mergers might not be consummated
- the effect of public announcement of the mergers on:
-- Healtheon/WebMD's ability to expand its existing strategic
relationships and attract new strategic partners and distribution
channels
-- Healtheon/WebMD's ability to attract and retain key management, sales
and marketing and technical personnel.
- the other risks associated with the mergers and with the businesses of
the combined company described in "Risk Factors" on page 18.
The above discussion of the information and factors considered by the
Healtheon/WebMD board is not intended to be exhaustive but is believed to
include all material factors considered by the board. In view of the complexity
and wide variety of information and factors, both positive and negative,
considered by the Healtheon/WebMD board, it did not find it practical to
quantify, rank or otherwise assign relative or specific
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weights to the factors considered. In addition, the Healtheon/WebMD board did
not reach any specific conclusion with respect to each of the factors
considered, or any aspect of any particular factor, but, rather, conducted an
overall analysis of the factors described above, including discussions with
Healtheon/WebMD's management and legal, financial and accounting advisors. In
considering the factors described above, individual members of the
Healtheon/WebMD board may have given different weight to different factors. The
Healtheon/WebMD board considered all these factors as a whole and believed the
factors supported its determination to approve the mergers. After taking into
consideration all of the factors set forth above, Healtheon/WebMD's board
concluded that each of the Medical Manager merger and the CareInsite merger was
fair to, and in the best interests of Healtheon/WebMD and that Healtheon/WebMD
should proceed with the mergers.
AFTER CAREFULLY EVALUATING THESE FACTORS, BOTH POSITIVE AND NEGATIVE, THE
BOARD OF DIRECTORS OF HEALTHEON/WEBMD DETERMINED AT ITS MEETING ON JUNE 18, 2000
THAT THE MEDICAL MANAGER MERGER AND THE CAREINSITE MERGER ARE IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF HEALTHEON/WEBMD AND CONSISTENT WITH AND IN
FURTHERANCE OF THE LONG-TERM BUSINESS STRATEGY OF HEALTHEON/WEBMD AND RECOMMENDS
THAT THE STOCKHOLDERS OF HEALTHEON/WEBMD VOTE FOR APPROVAL AND ADOPTION OF THE
MEDICAL MANAGER MERGER AGREEMENT AND THE MEDICAL MANAGER MERGER AND FOR APPROVAL
OF THE ISSUANCE OF SHARES OF HEALTHEON/WEBMD COMMON STOCK TO THE STOCKHOLDERS OF
CAREINSITE PURSUANT TO THE CAREINSITE MERGER.
Medical Manager
At a special meeting held on June 18, 2000, the Medical Manager board of
directors unanimously concluded that the terms of the Medical Manager merger
were fair to and in the best interests of Medical Manager and its stockholders.
As a result, the Medical Manager board declared that the merger was advisable,
unanimously approved the amended merger agreement and unanimously resolved to
recommend that Medical Manager stockholders vote to approve the adoption of the
merger agreement. In reaching this determination, the Medical Manager board of
directors concluded that being a stockholder of a combination of
Healtheon/WebMD, Medical Manager and CareInsite, on the terms provided under the
amended Medical Manager merger agreement and the CareInsite merger agreement,
represented a more favorable investment opportunity than being a stockholder of
Medical Manager alone, after taking into account the risks inherent in each
investment. In evaluating this investment opportunity, and in reaching its
decision to recommend that Medical Manager's stockholders vote to approve and
adopt the amended Medical Manager merger agreement, the Medical Manager board of
directors considered the following:
- historical and prospective information concerning Medical Manager's,
CareInsite's and Healtheon/WebMD's respective businesses, financial
performance and condition, operations, technology and management,
including with respect to recently completed and pending acquisitions,
including the acquisition of Envoy, and other transactions
- the views of senior management of Medical Manager as to prospective
information concerning Healtheon/WebMD's business, financial performance
and condition, operations, technology and management, based upon Medical
Manager's senior management's discussions with senior management and
representatives of Healtheon/WebMD
- the cash proceeds available to Healtheon/WebMD following the $930 million
investment by Janus Capital Corporation, through its managed mutual
funds, in Healtheon/WebMD common stock in January 2000
- that the combined company's resources, technology, management and
strategic relationships were expected to position the combined company to
accomplish the shared goals of Medical Manager, CareInsite and
Healtheon/WebMD of using the Internet to transform the information
infrastructure of the U.S. healthcare system and to revolutionize the
ways that physicians, payers, suppliers and patients communicate with
each other
- that the combined company was expected to be able to use more efficiently
the resources that each party planned to allocate to development of
services, to entry into strategic relationships and to marketing, with
the potential for accelerating the achievement of the shared goals of the
parties while reducing the total cost
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- that in addition to its significant healthcare transaction processing
capabilities through Envoy and MedE America, Healtheon/WebMD had already
achieved success in delivering healthcare content and online communities
to consumers on the Internet through WebMD Health and that the combined
company would benefit, in its other service offerings, from the brand
recognition achieved by these content services and online communities
- that the combination of Healtheon/WebMD, Medical Manager and CareInsite
was expected to provide revenue growth opportunities by combining all of
the companies' products and services while achieving significant expense
savings through, among other things, the elimination of duplicative
functions
- the ability of CareInsite to implement its business plan and the risks
and the uncertainties facing CareInsite, including the rapidly changing
competitive landscape of the industry in which CareInsite operates and
risks associated with CareInsite's future financial performance
- the appointment of Martin J. Wygod as Co-Chief Executive Officer and
Marvin P. Rich as President of the combined company and the structure of
the board of directors of the combined company contemplated by the
amended merger agreement, with an equal number of directors from
Healtheon/WebMD and Medical Manager and one director from Quintiles
- the fact that, after completion of the mergers, stockholders of Medical
Manager would own 27%, stockholders of CareInsite, other than Medical
Manager, would own 9%, and stockholders of Healtheon/WebMD would own 64%
of the combined company's common stock
- the June 18, 2000 opinion of Merrill Lynch that, as of the date of that
opinion, the amended exchange ratio was fair from a financial point of
view to the holders of Medical Manager's common stock and the financial
analyses presented to the board by Merrill Lynch on June 18, 2000 in
connection with the delivery of its opinion, see "Opinions of Medical
Manager's financial advisors -- Opinion of Merrill Lynch" on page 68
- the June 18, 2000 financial presentation of UBS Warburg to the Medical
Manager board of directors, including its opinion as to the fairness from
a financial point of view to the holders of Medical Manager common stock
of the exchange ratio provided for in the Medical Manager merger
agreement, as more fully described below in "Opinions of Medical
Manager's financial advisors -- Opinion of UBS Warburg" on page 73
- the interchange agreement entered into between Envoy and CareInsite and
the amendment of the networked partner agreement entered into between
Envoy and Medical Manager Health Systems, each of which would survive the
termination of the CareInsite merger agreement or the Medical Manager
merger agreement, see "Related Agreements -- Agreements regarding Envoy"
on page 107
- the obligation of Healtheon/WebMD to make payments aggregating
$50,000,000 to each of Medical Manager and CareInsite, which would, under
specified circumstances, survive the termination of the CareInsite merger
agreement or the Medical Manager merger agreement, see "Related
Agreements -- Agreements regarding Envoy" on page 107
- the terms and conditions of the merger agreement, including termination
fees and closing conditions
- the expected treatment of the merger as a tax-free reorganization.
In its deliberations concerning the mergers, the Medical Manager board of
directors also considered certain potentially negative factors concerning the
merger, including the following:
- the possibility that the mergers may not be consummated and the potential
adverse effect on Medical Manager's and CareInsite's business, operations
and financial condition should it not be possible to consummate the
mergers following the public announcement that the merger agreements had
been entered into
- that, in connection with the agreements with respect to the mergers
entered into in February 2000, CareInsite made some strategic decisions
in light of the pending mergers, including decisions to delay deployment
of some of its healthcare e-commerce services and decisions not to
develop or acquire additional
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clearinghouse capabilities and technologies that would be duplicative of
assets at Healtheon/WebMD, which decisions would be continued following
the amendment of the merger agreement
- the volatility of the price of Healtheon/WebMD common stock in the past
and the likelihood that it would continue, both before and after the
completion of the mergers, to be volatile
- the risk that the potential benefits of the mergers may not be realized
- the risk that, notwithstanding the efforts of management of the combined
company to retain them, key employees might not remain with the combined
company
- the other risks associated with the mergers and with the businesses of
the combined company described in "Risk Factors" on page 18.
The Medical Manager board also considered the existence of a special
committee of the CareInsite board of directors, comprised entirely of
independent directors, to act solely on behalf of the CareInsite stockholders
other than Medical Manager and its subsidiaries for the purposes of negotiating
and determining whether to recommend the CareInsite merger. See "Background of
the mergers" on page 46.
Based on the consideration of the factors enumerated above and other
relevant matters, Medical Manager's board of directors unanimously determined
that the merger, upon the terms and conditions set forth in the merger
agreement, is in the best interests of Medical Manager and its stockholders.
Because of the variety of factors considered in connection with its
evaluation of the merger, the Medical Manager board of directors did not find in
practicable to, and did not quantify or assign any relative weights to the
factors considered, and individual directors may have given different weights to
different factors. The Medical Manager board of directors also considered
presentations by, and consulted with, members of Medical Manager's management as
well as its financial advisors and outside and inside legal counsel. The above
discussion of the factors considered by Medical Manager's board of directors is
not intended to be exhaustive, but is believed to include all material factors
considered by the Medical Manager board of directors.
THE MEDICAL MANAGER BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF MEDICAL MANAGER AND ITS STOCKHOLDERS, HAS DECLARED THE
MERGER ADVISABLE, AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER. ACCORDINGLY, THE MEDICAL MANAGER BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT MEDICAL MANAGER STOCKHOLDERS VOTE TO APPROVE THE ADOPTION OF THE
MERGER AGREEMENT.
CareInsite
At a special meeting held on June 18, 2000, the CareInsite board of
directors, after receiving the unanimous recommendation of a special committee
of the board of directors comprised entirely of independent directors,
unanimously concluded that the terms of the CareInsite merger, as amended, were
fair to and in the best interests of CareInsite and its stockholders other than
Medical Manager and its subsidiaries. As a result, the CareInsite board declared
that the merger was advisable, unanimously approved the amended merger agreement
and unanimously recommends that CareInsite stockholders vote to approve the
adoption of the amended merger agreement.
Special committee. In determining that the amended CareInsite merger
agreement and the CareInsite merger are consistent with and in furtherance of
the long-term business strategy of CareInsite and are advisable and that the
special committee would recommend that the board of directors approve the
amended CareInsite merger agreement and the CareInsite merger, the special
committee concluded that being a stockholder of a combination of
Healtheon/WebMD, CareInsite and Medical Manager, on the terms provided under the
amended CareInsite merger agreement and the amended Medical Manager merger
agreement, represented a more favorable investment opportunity than being a
stockholder of CareInsite alone, after taking into account the risks inherent in
each investment.
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In evaluating this investment opportunity, and in reaching its decision to
recommend the CareInsite merger to the full CareInsite board of directors, the
members of the special committee relied upon their knowledge of the business,
financial condition and prospects of CareInsite as well as the advice of the
special committee's financial and legal advisors. In particular, the special
committee considered a number of factors, including the following:
- historical and prospective information concerning CareInsite's, Medical
Manager's and Healtheon/WebMD's respective businesses, financial
performance and condition, operations, technology and management,
including with respect to recently completed and pending acquisitions,
including the acquisition of Envoy, and other transactions
- the views of senior management of CareInsite as to certain prospective
information concerning Healtheon/WebMD's business, financial performance
and condition, operations, technology and management, based upon
CareInsite's senior management's discussions with senior management and
representatives of Healtheon/WebMD
- the cash proceeds available to Healtheon/WebMD following the $930 million
investment by Janus, through its managed mutual funds, in Healtheon/WebMD
common stock in January 2000
- that the combined company's resources, technology, management and
strategic relationships were expected to position the combined company to
accomplish the shared goals of CareInsite, Medical Manager and
Healtheon/WebMD of using the Internet to transform the information
infrastructure of the U.S. healthcare system and to revolutionize the
ways that physicians, payers, suppliers and patients communicate with
each other
- that the combined company was expected to be able to use more efficiently
the resources that each party planned to allocate to developing services,
to entering into strategic relationships and to marketing, with the
potential for accelerating the achievement of the shared goals of the
parties while reducing the total cost
- that in addition to its significant healthcare transaction processing
capabilities through Envoy and MedE America, Healtheon/WebMD had already
achieved success in delivering healthcare content and online communities
to consumers on the Internet through WebMD Health and that the combined
company would benefit, in its other service offerings, from the brand
recognition achieved by these content services and online communities
- that the combination of Healtheon/WebMD, Medical Manager and CareInsite
was expected to provide revenue growth opportunities by combining all of
the companies' products and services while achieving significant expense
savings through, among other things, the elimination of duplicative
functions
- the ability of CareInsite to implement its business plan and the risks
and uncertainties facing CareInsite, including the rapidly changing
competitive landscape of the industry in which CareInsite operates and
risks associated with CareInsite's future financial performance
- the fact that the CareInsite merger agreement and the CareInsite merger
were the product of arm's-length negotiation between Healtheon/WebMD and
the special committee, and their respective advisors, and that no member
of the special committee was employed by or affiliated with CareInsite,
Medical Manager or Healtheon/WebMD, except as a director of CareInsite
- the special committee's conclusion that, based on the negotiations
between Healtheon/WebMD and the special committee and their respective
advisors, the exchange ratio of 1.3 represented the highest exchange
ratio that Healtheon/WebMD would be willing to pay in acquiring the
CareInsite common stock not owned by Medical Manager and its subsidiaries
- the appointment of Martin J. Wygod as Co-Chief Executive Officer and
Marvin P. Rich as President of the combined company and the structure of
the board of directors of the combined company contemplated by the merger
agreements, with an equal number of directors from Healtheon/WebMD and
Medical Manager and one director from Quintiles
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<PAGE> 64
- the fact that, after completion of the mergers, stockholders of
CareInsite, other than Medical Manager and its subsidiaries, would own
9%, stockholders of Medical Manager would own 27%, and stockholders of
Healtheon/WebMD would own 64% of the combined company's common stock
- the financial presentations by Banc of America Securities, the special
committee's financial advisor, and Banc of America Securities' oral
opinion delivered at the June 18, 2000 meeting of the special committee,
subsequently confirmed in writing, that as of the date of the opinion and
based upon and subject to the factors, assumptions and limitations set
forth in the opinion, the exchange ratio of 1.3 shares of Healtheon/WebMD
common stock for each share of CareInsite common stock was fair from a
financial point of view to CareInsite's stockholders, other than Medical
Manager or its subsidiaries, see "Opinion of financial advisor to the
special committee of CareInsite's board" on page 79
- the interchange agreement entered into between Envoy and CareInsite and
the amendment of the networked partner agreement entered into between
Envoy and Medical Manager Health Systems, each of which would survive the
termination of the CareInsite merger agreement or the Medical Manager
merger agreement, see "Related Agreements -- Agreements regarding Envoy"
on page 107
- the obligation of Healtheon/WebMD to make payments aggregating
$50,000,000 to CareInsite, which would, under specified circumstances,
survive the termination of the CareInsite merger agreement or the Medical
Manager merger agreement, see "Related Agreements -- Agreements regarding
Envoy" on page 107
- the terms and conditions of the amended merger agreement, including
termination fees and closing conditions
- the expected treatment of the merger as a tax-free reorganization.
In its deliberations concerning the mergers, the special committee also
considered certain potentially negative factors concerning the merger, including
the following:
- the possibility that the mergers may not be consummated and the potential
adverse effect on CareInsite's business, operations and financial
condition should it not be possible to consummate the mergers following
the public announcement that the merger agreements had been entered into
- that, in connection with the agreements with respect to the mergers
entered into in February 2000, CareInsite made some strategic decisions
in light of the pending mergers, including decisions to delay deployment
of some of its healthcare e-commerce services and decisions not to
develop or acquire additional clearinghouse capabilities and technologies
that would be duplicative of assets at Healtheon/WebMD, which decisions
would be continued following the amendment of the merger agreement
- the volatility of the price of Healtheon/WebMD common stock in the past
and the likelihood that it would continue, both before and after the
completion of the mergers, to be volatile
- the risk that the potential benefits of the mergers may not be realized
- the risk that, notwithstanding the efforts of management of the combined
company to retain them, key employees might not remain with the combined
company
- the other risks associated with the mergers and with the businesses of
the combined company described in "Risk Factors" on page 18.
CareInsite's board of directors. In reaching its determination to approve
the amended merger agreement and recommend that the CareInsite stockholders vote
to approve the adoption of the amended CareInsite merger agreement, the full
CareInsite board considered and relied upon the conclusions and unanimous
recommendation of the special committee that the full board approve the merger
agreement, the merger and the transactions contemplated by the merger agreement,
and the considerations referred to above as having been taken into account by
the special committee, as well as the board's own familiarity with CareInsite's
business, financial condition, results of operations and prospects and the
nature of the industry in which CareInsite operates.
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<PAGE> 65
Because of the variety of factors considered in connection with its
evaluation of the merger, neither the CareInsite special committee nor the full
board of directors found it practicable to quantify or assign any relative
weights to the factors considered, and accordingly, neither the special
committee nor the board did so. In addition, individual directors may have given
different weights to different factors. The foregoing discussion of the factors
considered by CareInsite's special committee and its full board of directors is
not intended to be exhaustive, but is believed to include all material factors
considered by the special committee and the CareInsite board of directors.
THE CAREINSITE BOARD OF DIRECTORS, AFTER RECEIVING THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF CAREINSITE AND ITS STOCKHOLDERS, HAS DECLARED THE MERGER
ADVISABLE, AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER.
ACCORDINGLY, THE CAREINSITE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
CAREINSITE STOCKHOLDERS VOTE TO APPROVE THE ADOPTION OF THE MERGER AGREEMENT.
OPINION OF HEALTHEON/WEBMD'S FINANCIAL ADVISOR
Opinion of Morgan Stanley
Under an engagement letter dated April 19, 1999, as subsequently
supplemented, Healtheon/WebMD retained Morgan Stanley to provide financial
advisory services and a financial fairness opinion in connection with the
mergers. The Healtheon/WebMD board of directors selected Morgan Stanley to act
as Healtheon/WebMD's financial advisor based on Morgan Stanley's qualifications,
expertise and reputation and its knowledge of the business and affairs of
Healtheon/WebMD. At a telephonic meeting of the Healtheon/WebMD board of
directors on June 18, 2000, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, that, as of June 18, 2000, based upon and
subject to the various considerations set forth in the opinion, the exchange
ratios in the mergers, taken together, and not separately, were fair from a
financial point of view to Healtheon/WebMD.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED JUNE 18, 2000
IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS AND SETS FORTH, AMONG
OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING
ITS OPINION. HEALTHEON/WEBMD STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO
THE HEALTHEON/WEBMD BOARD OF DIRECTORS AND IS LIMITED TO THE FAIRNESS OF THE
EXCHANGE RATIOS IN THE MERGERS, TAKEN TOGETHER, AND NOT SEPARATELY, FROM A
FINANCIAL POINT OF VIEW TO HEALTHEON/WEBMD. THE OPINION DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGERS, DOES NOT IN ANY MANNER ADDRESS THE PRICES AT WHICH
THE COMMON STOCK OF HEALTHEON/WEBMD WILL TRADE AT ANY TIME PRIOR TO OR FOLLOWING
THE CONSUMMATION OF THE MERGERS, AND DOES NOT CONSTITUTE ANY RECOMMENDATION AS
TO HOW STOCKHOLDERS OF HEALTHEON/WEBMD SHOULD VOTE AT ANY STOCKHOLDERS' MEETING
HELD IN CONNECTION WITH THE MERGERS.
THE MORGAN STANLEY OPINION DATED JUNE 18, 2000 SUPERCEDES IN ITS ENTIRETY
THE SEPARATE PRIOR OPINIONS DATED FEBRUARY 13, 2000, RENDERED WITH RESPECT TO
EACH OF THE MEDICAL MANAGER MERGER ON ITS ORIGINAL TERMS AND THE CAREINSITE
MERGER, AND THESE PRIOR OPINIONS ARE HEREBY WITHDRAWN AND SHALL NOT BE RELIED
UPON OR USED FOR ANY PURPOSE. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET
FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed publicly available financial statements and other information of
Medical Manager, CareInsite and Healtheon/WebMD
- reviewed internal financial statements and other financial and operating
data concerning Medical Manager, CareInsite and Healtheon/WebMD prepared
by the managements of Medical Manager, CareInsite and Healtheon/WebMD,
respectively
- reviewed financial projections prepared by the managements of Medical
Manager, CareInsite and Healtheon/WebMD
- reviewed the past and current operations and financial condition and the
prospects of Medical Manager, CareInsite and Healtheon/WebMD, including
information relating to certain strategic, financial and
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<PAGE> 66
operational benefits, including revenue and expense synergies,
anticipated from the mergers, with senior executives of Medical Manager,
CareInsite and Healtheon/WebMD, respectively
- discussed the strategic benefits, including revenue and expense
synergies, expected to result from the mergers with the managements of
Medical Manager, CareInsite and Healtheon/WebMD
- reviewed the pro forma impact of the mergers on Healtheon/WebMD's
financial performance, including revenue per share and gross profit per
share
- reviewed the reported prices and trading activity for the common stock of
Medical Manager, CareInsite and Healtheon/WebMD
- compared the financial performance of Medical Manager, CareInsite and
Healtheon/WebMD with that of other publicly-traded companies comparable
to Medical Manager, CareInsite and Healtheon/WebMD, respectively
- reviewed the financial terms, to the extent publicly available, of some
comparable acquisition transactions
- discussed the strategic rationale of the mergers, and the strategic
implications of the mergers not occurring, with the management of
Healtheon/WebMD
- participated in discussions and negotiations among representatives of
Medical Manager, CareInsite and Healtheon/WebMD and their financial and
legal advisors
- reviewed the Medical Manager merger agreement, the CareInsite merger
agreement and some related documents
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without any obligation for
independent verification, the accuracy and completeness of the information
reviewed for the purposes of the opinion. With respect to the financial
projections provided by the managements of Medical Manager, CareInsite and
Healtheon/WebMD, including information relating to strategic, financial and
operational benefits, including revenue and expense synergies, anticipated from
the mergers, Morgan Stanley assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of Medical Manager, CareInsite and Healtheon/WebMD,
respectively. In addition, Morgan Stanley assumed that each of the mergers will
be consummated in accordance with the terms set forth in the Medical Manager
merger agreement and the CareInsite merger agreement, respectively, including
that each of the Medical Manager merger and the CareInsite merger will be
treated as a tax-free reorganization and/or exchange pursuant to the tax code.
In addition, Morgan Stanley assumed that in connection with the receipt of any
necessary regulatory approvals for the mergers, no restrictions will be imposed
that would have a material adverse effect on Healtheon/WebMD, Medical Manager or
CareInsite, or the contemplated benefits expected to be derived in the mergers.
Morgan Stanley relied upon, without any obligation for independent
verification, the assessment by the managements of Medical Manager, CareInsite
and Healtheon/WebMD of the strategic benefits, including revenue and expense
synergies, expected to result from the mergers, and the strategic implications
of the mergers not occurring. Morgan Stanley also relied upon, without any
obligation for independent verification, the assessment by the managements of
Medical Manager, CareInsite and Healtheon/WebMD of the technologies and products
of Medical Manager, CareInsite and Healtheon/WebMD, the assessment by the
management of Healtheon/WebMD of the strategic benefits of, and the ability to
retain, key employees of Medical Manager and CareInsite, the timing and risks
associated with the integration of Medical Manager, CareInsite and
Healtheon/WebMD and the validity of, and risks associated with, Medical
Manager's, CareInsite's and Healtheon/WebMD's existing and future products and
technologies.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities of Medical Manager, CareInsite or Healtheon/WebMD, nor was
Morgan Stanley furnished with any appraisals. Morgan Stanley's opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to Morgan Stanley as of, the date
of the opinion.
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<PAGE> 67
The following is a brief summary of the material analyses presented to the
board of directors of Healtheon/ WebMD by Morgan Stanley in connection with its
oral opinion and its written opinion letter dated June 18, 2000. Some of these
summaries of financial analyses include information presented in tabular format.
In order to understand fully the financial analyses used by Morgan Stanley, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses.
Indicated transaction value analysis. Morgan Stanley reviewed the recent
stock price performance of Healtheon/WebMD common stock over various time
periods ending June 16, 2000 to calculate the indicated combined equity value of
the mergers, taken together and not separately. Morgan Stanley observed the
following:
<TABLE>
<CAPTION>
AVERAGE INDICATED
HEALTHEON/WEBMD TRANSACTION VALUE
PERIOD ENDING JUNE 16, 2000 PRICE ($MM)
--------------------------- --------------- -----------------
<S> <C> <C>
Current..................................... $16.88 $2,410
20-day average.............................. 16.45 2,346
45-day average.............................. 17.87 2,561
Since 3/10/00............................... 21.64 3,130
</TABLE>
Comparable company trading analysis. Morgan Stanley compared financial
information of Medical Manager and CareInsite with publicly available
information for selected companies identified by Morgan Stanley as being
comparable to the business or businesses of Medical Manager and CareInsite.
Morgan Stanley selected comparable companies for each of the two primary
business segments of Medical Manager: Medical Manager Health Systems practice
management software business and the Porex plastics business. Morgan Stanley
also selected comparable companies for CareInsite. The following table lists the
relevant comparable companies analyzed by Morgan Stanley:
SELECTED COMPARABLE COMPANIES
<TABLE>
<CAPTION>
INTERNET LEADERS EHEALTH
---------------- -------
<S> <C>
Yahoo! Inc. Allscripts, Inc.
AOL drugstore.com, inc.
Amazon.com Inc. MedicaLogic, Inc.
Ariba, Inc. planetRx.com, Inc.
eBay Inc. Insweb Corporation
At Home Corporation, referred to as Mediconsult.com, Inc.
Excite@Home
priceline.com Incorporated Claimsnet.com Inc.
CNET, Inc.
HEALTHCARE INFORMATION TECHNOLOGY, OR HIT PLASTICS
----------------------------------------- --------
Misys plc Spartech Corporation
Cerner M.A. Hanna Company
IDX Systems Corporation A. Schulman, Inc.
InfoCure Corporation Millipore Corporation
Eclipsys Corporation Pall Corporation
National Data Corporation Donaldson Company, Inc.
Cuno Incorporated
Clarcor Inc.
</TABLE>
In conducting its analysis, Morgan Stanley applied the financial multiples
from the comparable companies to management estimates of various financial
performance metrics for CareInsite and for the corresponding business segments
of Medical Manager, excluding synergies. Morgan Stanley then calculated the
implied equity value for
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<PAGE> 68
CareInsite and for each of the business segments of Medical Manager. Finally,
Morgan Stanley estimated the value of Medical Manager using a "sum-of-parts"
methodology, which involves calculating and aggregating the equity value of each
of the three business segments of Medical Manager: the practice management
software business of Medical Manager, the plastics business of Medical Manager
and the ownership holdings of Medical Manager in CareInsite. Morgan Stanley
undertook the comparable companies analysis both without and with a control
premium. Based on its comparable company analyses, Morgan Stanley estimated the
following:
<TABLE>
<CAPTION>
MULTIPLE
BUSINESS SEGMENT RANGE
---------------- ----------------
<S> <C> <C> <C>
CareInsite
Calendar year 2001 estimated revenue...................... 1.0x - 5.0x
Medical Manager Health Systems
Calendar year 2000 estimated revenue...................... 1.0x - 2.5x
Calendar year 2000 estimated net income................... 20.0 - 40.0
Calendar year 2000 estimated P/E to growth................ 0.5 - 1.0
Porex Plastics
Calendar year 2000 estimated earnings before interest and
taxes, or EBIT......................................... 6.0x - 14.0x
Calendar year 2001 estimated EBIT......................... 5.0 - 12.0
Calendar year 2000 estimated net income................... 10.0 - 22.0
Calendar year 2001 estimated net income................... 9.0 - 18.0
</TABLE>
<TABLE>
<CAPTION>
COMBINED VALUATION OF
MEDICAL MANAGER & CAREINSITE, IMPLIED EQUITY VALUE
WITHOUT SYNERGIES ($MM)
----------------------------- --------------------
<S> <C>
Medical Manager,............................................ $ 723 - $1,645
with 40% control premium.................................. 1,012 - 2,304
CareInsite minority interest,............................... $ 67 - $ 245
with 40% control premium.................................. 94 - 343
Total implied value range,.................................. $ 790 - $1,890
with 40% control premium.................................. 1,106 - 2,647
</TABLE>
Morgan Stanley observed that the implied combined equity transaction value
of the two mergers of $2,410 million as of June 18, 2000 was within the range of
comparable companies with a 40% control premium applied.
No company utilized in the comparable company analysis is identical to
Medical Manager or any of its primary business segments, or to CareInsite. In
evaluating the comparable companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Medical Manager, CareInsite or Healtheon/WebMD, such as the impact of
competition on the businesses of Medical Manager and CareInsite and the industry
in general, industry growth and the absence of any adverse material change in
the financial condition and prospects of the businesses of Medical Manager or
CareInsite or the industry or in the financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using comparable company data.
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<PAGE> 69
Analysis of selected precedent transactions. Based on publicly available
information, Morgan Stanley compared the multiples paid in selected precedent
merger and acquisition transactions to the relevant financial performance
metrics for CareInsite and the business segments of Medical Manager. The
following table presents the precedent transactions analyzed by Morgan Stanley.
SELECTED PRECEDENT TRANSACTIONS
<TABLE>
<CAPTION>
INTERNET SOFTWARE
-------- --------
<S> <C>
Target/Acquiror Target/Acquiror
Lycos, Inc./Terra Networks, S.A. Harbinger Corporation/Peregrine Systems, Inc.
Verio Inc./NTT Communications Aspect Development, Inc./i2 Technologies, Inc.
Spyglass, Inc./OpenTV, Inc. Sterling Commerce/SBC Communications, Inc.
Network Solutions, Inc./VeriSign, Inc. Sterling Software/Computer Associates
MapQuest.com, Inc./AOL International,
Flycast Communications Corporation/CMGI, Inc. Inc.
Earthlink Network, Inc./Mindspring Enterprises, InterVU Inc./Akamai Technologies, Inc.
Inc. Silknet Software, Inc./Kana Communications, Inc.
iMall, Inc./Excite@Home Clarify Inc./Nortel Networks Corporation
AltaVista Company/CMGI Visio Corporation/Microsoft
Abacus Direct Corporation/DoubleClick Inc. PLATINUM technology, inc./Computer Associates
Telebanc Financial Corporation/E*Trade Group, Kenan Systems Corporation/Lucent Technologies
Inc. Inc.
WebMD/Healtheon The Learning Company/Mattel, Inc.
broadcast.com inc./Yahoo! HBO & Company/McKesson Corporation
Go2Net, Inc./Vulcan Ventures Incorporated Seagate Technology, Inc./Veritas Software
Lycos/TicketMaster Online -- City Search, Inc./ Corporation
USA Networks, Inc. Lotus Development Corporation/International
GeoCities/Yahoo! Business
Excite, Inc./At Home Corporation Machines Corporation
Netscape Communications Corporation/AOL Legent Corporation/Computer Associates
CompuServe Corporation/WorldCom, Inc.
BBN Corp./GTE
VeriFone, Inc./Hewlett-Packard Company
</TABLE>
SELECTED PRECEDENT TRANSACTIONS
<TABLE>
<CAPTION>
HIT PLASTICS
--- --------
<S> <C>
Shared Medical Systems Corporation/ United States Filter Corporation/Vivendi SA
Siemens Corporation Safeskin Corporation/Kimberly-Clark Corporation
Envoy/Healtheon/WebMD Furon Company/Cie de Saint-Gobain SA
MedE America/Healtheon/WebMD First Brands Corporation/The Clorox Company
Envoy/Quintiles Point Plastics, Inc./Synetic
HBOC/McKesson Maxxim Medical, Inc./Maxxim Investment
Access Health, Inc./HBOC Management, Inc.
Imnet Systems, Inc./HBOC Ballard Medical Products/Kimberly-Clark
Medic Computer Systems, Inc./Misys Arterial Vascular Engineering, Inc./Medtronic
AMISYS Managed Care Systems, Inc./HBOC Inc.
Avecor Cardiovascular Inc./Medtronic
United States Surgical Corporation/Tyco
International
LTD.
Tecnol Medical Products, Inc./Kimberly-Clark
</TABLE>
Based on its analysis of the foregoing precedent transactions, Morgan
Stanley applied the following multiples to management estimates of the relevant
financial performance metrics of CareInsite and of each of the business segments
of Medical Manager, exclusive of any potential synergies. Morgan Stanley then
estimated the implied
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<PAGE> 70
equity value of CareInsite and each of the business segments of Medical Manager.
Finally, Morgan Stanley estimated the value Medical Manager using a
"sum-of-parts" methodology.
<TABLE>
<CAPTION>
BUSINESS SEGMENT MULTIPLE RANGE
---------------- --------------
<S> <C>
CAREINSITE
Next 12 months revenue.................................... 20.0x- 25.0x
MEDICAL MANAGER HEALTH SYSTEMS
Last 12 months revenue.................................... 5.0x- 10.0x
Last 12 months net income................................. 40.0- 65.0
Next 12 months net income................................. 25.0- 35.0
POREX PLASTICS
Last 12 months revenue.................................... 1.5x- 4.0x
Last 12 months EBIT....................................... 10.0- 20.0
Last 12 months net income................................. 25.0- 35.0
Next 12 months net income................................. 15.0- 25.0
</TABLE>
<TABLE>
<CAPTION>
COMBINED VALUATION OF
MEDICAL MANAGER & CAREINSITE, IMPLIED EQUITY VALUE
WITHOUT SYNERGIES ($MM)
----------------------------- --------------------
<S> <C>
Medical Manager............................................. $1,940 - $2,910
CareInsite minority interest................................ 568 - 703
Total implied value range................................... $2,508 - $3,613
</TABLE>
Morgan Stanley observed that the implied combined equity transaction value
of both mergers, taken together, of $2,410 million as of June 18, 2000 was below
the estimated value range based on precedent transactions.
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the mergers. In evaluating the transactions listed
above, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Healtheon/WebMD, Medical
Manager and CareInsite, such as the impact of competition on the businesses of
Medical Manager and CareInsite and the industry generally, industry growth and
the absence of any adverse material change in the financial condition and
prospects of Healtheon/WebMD, Medical Manager or CareInsite or the industry or
in the financial markets in general. Mathematical analysis, such as determining
the average or median, is not in itself a meaningful method of using comparable
transaction data.
Discounted equity value and discounted cash flow. Morgan Stanley performed
a discounted equity value analysis of the present value of CareInsite and the
healthcare services business of Medical Manager. For the plastics business,
Morgan Stanley undertook a discounted cash flow analysis. The projections of
financial performance for each business segment were based on Healtheon/WebMD,
Medical Manager and CareInsite management estimates.
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<PAGE> 71
The following table presents the multiples and discount rates applied to
CareInsite and each of the business segments of Medical Manager. Based of these
multiples and discount rates, Morgan Stanley estimated the implied equity value
for CareInsite and each of the business segments of Medical Manager, exclusive
of any potential synergies. Morgan Stanley then estimated the total value of
Medical Manager using a "sum-of-parts" methodology. Morgan Stanley undertook the
valuation analysis both without and with a control premium:
<TABLE>
<CAPTION>
BUSINESS SEGMENT DISCOUNT RATE MULTIPLE RANGE
---------------- ------------- --------------
<S> <C> <C>
CareInsite
Calendar year 2001 estimated revenue............. 40% 2.0x - 7.0x
Calendar year 2002 estimated revenue............. 40 1.0 5.0
Medical Manager Health Systems
Calendar year 2001 estimated revenue............. 25% 1.0x - 2.5x
Calendar year 2002 estimated revenue............. 25 1.0 - 2.5
Calendar year 2001 estimated net income.......... 25 20.0 - 40.0
Calendar year 2002 estimated net income.......... 25 20.0 - 40.0
Porex Plastics
Calendar year 2005 estimated EBIT multiple....... 10% - 14% 6.0x - 10.0x
</TABLE>
<TABLE>
<CAPTION>
COMBINED VALUATION OF
MEDICAL MANAGER & CAREINSITE, IMPLIED EQUITY VALUE
WITHOUT SYNERGIES ($MM)
----------------------------- --------------------
<S> <C>
Medical Manager,............................................ $ 686 - $1,587
with 40% control premium.................................. 960 - 2,223
CareInsite minority interest,............................... 64 - 263
with 40% control premium.................................. 90 - 368
Total implied value range,.................................. 750 - 1,850
with 40% control premium.................................. 1,050 - 2,591
</TABLE>
Morgan Stanley observed that the implied combined transaction equity value
of both mergers of $2,410 million as of June 18, 200 was at the high end of the
implied value range with a control premium.
Relative contribution. Morgan Stanley performed an analysis of the
relative contribution of Medical Manager and CareInsite, on a combined basis, to
the pro forma calendar year 2000, 2001 and 2002 revenue and gross profit of the
combined company. Based on the estimates of the managements of Healtheon/WebMD,
Medical Manager and CareInsite, Morgan Stanley calculated an implied value range
of $2,400 million to $3,200 million for Medical Manager and CareInsite on a
combined basis, exclusive of any potential synergies.
Estimated synergies valuation. Morgan Stanley performed an analysis and
valuation of the projected synergies resulting from the mergers, taken together.
The synergy estimates were prepared by the management of Healtheon/WebMD and
consisted of revenue synergies and cost reduction synergies. Morgan Stanley
first discounted the synergies estimated by Healtheon/WebMD management. Morgan
Stanley then applied various valuation methodologies to the discounted
synergies, including comparable companies analysis, discounted equity value
analysis, relative contribution analysis and discounted cash flow analysis. In
all cases, Morgan Stanley analyzed management's estimates of the impact of total
synergies on the projected earnings before interest, taxes, depreciation and
amortization, or EBITDA, of Healtheon/WebMD on a pro forma basis for the mergers
with Medical Manager and CareInsite. The discounted cash flow analysis consisted
of valuing the after-tax cash flows resulting from the perpetuity stream of
EBITDA synergy benefits as provided to Morgan Stanley by Healtheon/ WebMD
management. The perpetuity stream of EBITDA synergies beyond calendar year 2002
was discounted at a range of discount rates from 8% to 12% to arrive at a value
in calendar year 2002. This value was then
65
<PAGE> 72
discounted two years at 30% to arrive at a net present value. Calendar year 2001
and 2002 synergies were also discounted at a 30% discount rate. The following
table summarizes Morgan Stanley's analysis:
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE
VALUATION METHODOLOGY MULTIPLE RANGE ($MM)
--------------------- -------------- --------------------
<S> <C> <C>
Comparable companies
Calendar year 2002 estimated EBITDA
synergies............................... 30.0x -- 40.0x $3,552 -- $4,736
Value range................................ $3,600 -- $4,700
Discounted equity value
Calendar year 2002 estimated EBITDA
synergies............................... 50.0x -- 60.0x $3,503 -- $4,204
Value range................................ $3,500 -- $4,200
Relative contribution
Calendar year 2002 estimated EBITDA
synergies............................... N/A $2,745
Value range................................ $2,700
Perpetuity value
EBITDA synergies in perpetuity............. $551 -- $1,102
Value range................................ $600 -- $1,000
</TABLE>
Morgan Stanley noted that the estimated value of the synergies resulting
from the various valuation methodologies described above contributes
substantially to the estimated value range for the combined Medical Manager and
CareInsite under each of the valuation analysis. Morgan Stanley determined that
the estimated total value of the synergies resulting from the perpetuity
analysis serves as the low end of the overall estimated synergies value range,
with the high end of the synergies value range being determined by the each of
the other valuation methodologies.
Pro forma merger analysis. Morgan Stanley analyzed the pro forma impact of
the mergers, taken together and not separately, on Healtheon/WebMD's combined
projected revenue per share and gross profit per share for calendar year 2000
and 2001, excluding the effect of any potential synergies. These analyses were
based on projections provided to Morgan Stanley by the managements of
Healtheon/WebMD, Medical Manager and CareInsite. Morgan Stanley observed the
following:
<TABLE>
<CAPTION>
ACCRETION/(DILUTION)
------------------------------
CALENDAR YEAR CALENDAR YEAR
FINANCIAL STATISTIC 2000 2001
------------------- ------------- -------------
<S> <C> <C>
Revenues per share.................................. (9%) (3%)
Gross profit per share.............................. (5%) (6%)
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Medical Manager, CareInsite or
Healtheon/WebMD. In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
Healtheon/WebMD, Medical Manager or CareInsite. Any estimates contained in
Morgan Stanley's analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by these estimates.
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The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness from a financial point of view to Healtheon/WebMD of
the exchange ratios in the mergers, taken together, and not separately, pursuant
to the Medical Manager merger agreement and the CareInsite merger agreement, and
were conducted in connection with the delivery of Morgan Stanley's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which
Medical Manager, CareInsite or Healtheon/WebMD might actually be sold.
The exchange ratios pursuant to the Medical Manager merger agreement and
the CareInsite merger agreement were determined through arm's-length
negotiations between Healtheon/WebMD, Medical Manager and CareInsite and were
approved by the Healtheon/WebMD Board of Directors. Morgan Stanley provided
advice to Healtheon/WebMD during such negotiations; however, Morgan Stanley did
not recommend any specific form or amount of consideration to Healtheon/WebMD or
that any specific form or amount of consideration constituted the only
appropriate form or amount of consideration in connection with the mergers.
In addition, Morgan Stanley's opinion and presentation to the
Healtheon/WebMD board of directors was one of many factors taken into
consideration by Healtheon/WebMD's board of directors in making its decision to
approve the mergers. Consequently, the Morgan Stanley analyses as described
above should not be viewed as determinative of the opinion of the
Healtheon/WebMD board of directors with respect to the mergers or of whether the
Healtheon/WebMD board of directors would have been willing to agree to a
transaction with a different form or amount of consideration.
The Healtheon/WebMD board of directors retained Morgan Stanley based upon
Morgan Stanley's qualifications, experience and expertise and its knowledge of
the business and affairs of Healtheon/WebMD. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan Stanley
and its affiliates have provided financing and advisory services for
Healtheon/WebMD and, prior to its merger with Synetic, Medical Manager and have
received customary fees for the rendering of these services. In the ordinary
course of Morgan Stanley's trading and brokerage activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, may trade or
otherwise effect transactions, for its own account or for the account of
customers in the equity securities of Healtheon/WebMD, Medical Manager,
CareInsite or any of the other parties to the transaction.
Under its engagement letter with Healtheon/WebMD, Morgan Stanley provided
financial advisory services and its financial fairness opinion in connection
with the mergers, and Healtheon/WebMD agreed to pay Morgan Stanley a fee of
approximately $24 million, with the exact amount to be determined by a formula
using the average of the average price of Healtheon/WebMD common stock over a
period of time before the original date of announcement of the mergers and
before the date of closing of the mergers. In addition, Healtheon/WebMD has
agreed to indemnify Morgan Stanley and its affiliates, their respective
directions, officers, agents and employees and each person, if any controlling
Morgan Stanley or any of its affiliates against specified liabilities and
expenses, including specified liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement.
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Other financial advisors
Robertson Stephens. Healtheon/WebMD also retained Robertson Stephens in
August 1999, which engagement was memorialized in writing in May 2000, to
provide financial advisory services in connection with the Medical Manager and
CareInsite mergers and agreed to pay Roberston Stephens a customary fee.
Healtheon/WebMD's board of directors selected Robertson Stephens to act as
Healtheon/WebMD's financial advisor based on Robertson Stephens' qualifications,
expertise and reputation and its knowledge of the business and affairs of
Healtheon/WebMD. In the past, Robertson Stephens and its affiliates have
provided financing and advisory services for Healtheon/WebMD and have received
customary fees for rendering these services. In the ordinary course of Robertson
Stephens' trading and brokerage activities, Robertson Stephens or its affiliates
may at any time hold long or short positions, may trade or otherwise effect
transactions, for its own account of for the account of customers in the equity
securities of Healtheon/WebMD, Medical Manager or CareInsite.
Robertson Stephens did not issue a fairness opinion in connection with the
Medical Manager and CareInsite mergers. However, Healtheon/WebMD has agreed to
indemnify Robertson Stephens and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Robertson
Stephens and any of its affiliates against liabilities and expenses, including
liabilities resulting under the federal securities laws, related to or arising
out of Robertson Stephens' engagement.
Gleacher & Co. Gleacher & Co. also acted as a financial advisor to
Healtheon/WebMD in connection with the Medical Manager and CareInsite mergers.
Gleacher & Co. did not issue a fairness opinion in connection with the Medical
Manager and CareInsite mergers. Gleacher & Co. is an internationally recognized
investment banking and advisory firm that regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions. In
the past, Gleacher & Co. and its affiliates have provided financial advisory
services to Healtheon/WebMD. Pursuant to an engagement letter dated January 27,
1999, WebMD agreed to grant Gleacher & Co. warrants to purchase 1,038,450 shares
of Healtheon/WebMD common stock for strategic and advisory services over a
two-year period, which Healtheon/WebMD assumed in connection with the WebMD
merger. In addition, Healtheon/WebMD has agreed, among other things, to
reimburse Gleacher & Co. for all reasonable out-of-pocket expenses incurred in
connection with the services provided by Gleacher & Co., and to indemnify and
hold harmless Gleacher & Co. and related parties from and against specified
liabilities and expenses, including liabilities under the federal securities
laws, in connection with its engagement.
OPINIONS OF MEDICAL MANAGER'S FINANCIAL ADVISORS
Opinion of Merrill Lynch
Medical Manager retained Merrill Lynch, Pierce, Fenner & Smith Incorporated
to act as its financial advisor in connection with the Medical Manager merger.
On June 18, 2000, Merrill Lynch delivered to the Medical Manager board of
directors an oral opinion, subsequently confirmed by delivery of a written
opinion dated June 18, 2000, to the effect that, as of that date, and based upon
and subject to the factors and assumptions set forth in the opinion, the revised
exchange ratio was fair from a financial point of view to the holders of Medical
Manager shares.
THE FULL TEXT OF MERRILL LYNCH'S OPINION, DATED JUNE 18, 2000, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS ANNEX D TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED INTO THIS PROXY
STATEMENT/PROSPECTUS BY REFERENCE. THE SUMMARY OF MERRILL LYNCH'S OPINION SET
FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. MEDICAL MANAGER STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN
ITS ENTIRETY.
Merrill Lynch's opinion was delivered to the Medical Manager board of
directors for its information and is directed only to the fairness from a
financial point of view of the revised exchange ratio to the holders of Medical
Manager shares, does not address any other aspect of the Medical Manager merger,
including the merits of the underlying decision by Medical Manager to engage in
the Medical Manager merger, and does not constitute a recommendation to any
Medical Manager stockholder as to how to vote on the Medical Manager merger or
as to any other matter relating to the Medical Manager merger.
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<PAGE> 75
In preparing its opinion to the Medical Manager board of directors, Merrill
Lynch performed a variety of financial and comparative analyses, including those
described below. The summary set forth below does not purport to be a complete
description of the analyses underlying Merrill Lynch's opinion or the
presentation made by Merrill Lynch to the Medical Manager board of directors.
The preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Merrill
Lynch did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors, or focusing on information presented in tabular
format, without considering all of the analyses and factors of the narrative
description of the analyses, would create a misleading or incomplete view of the
process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Merrill Lynch, Healtheon/WebMD or Medical Manager. Any estimates contained in
the analyses performed by Merrill Lynch are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by these analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
these businesses or securities might actually be sold. Accordingly, these
analyses and estimates are inherently subject to substantial uncertainty. In
addition, as described above, Merrill Lynch's opinion was among several factors
taken into consideration by the Medical Manager board of directors in making its
determination to approve the merger agreement and the Medical Manager merger.
Consequently, Merrill Lynch's analyses should not be viewed as determinative of
the decision of the Medical Manger board of directors or Medical Manager's
management with respect to the fairness of the revised exchange ratio set forth
in the Medical Manager merger agreement.
In arriving at its opinion, Merrill Lynch, among other things, did the
following:
- reviewed publicly available business and financial information relating
to Medical Manager and Healtheon/WebMD that Merrill Lynch deemed to be
relevant
- reviewed financial forecasts of Medical Manager, relating to the
business, financial performance and prospects of Medical Manager
furnished to Merrill Lynch by Medical Manager
- reviewed financial forecasts of Healtheon/WebMD, relating to the
business, financial performance and prospects of Healtheon/WebMD
furnished to Merrill Lynch by Healtheon/WebMD
- conducted discussions with members of management and representatives of
Medical Manager and Healtheon/WebMD concerning their respective
businesses, prospects and strategic relationships before and after giving
effect to the Medical Manager merger
- reviewed the market prices and valuation multiples for Medical Manager's
shares and Healtheon/WebMD's shares and compared them with those of
publicly traded companies that Merrill Lynch deemed to be relevant
- reviewed the results of operations of Medical Manager and Healtheon/WebMD
and compared them with those of publicly traded companies that Merrill
Lynch deemed to be relevant
- compared the proposed financial terms of the merger with the financial
terms of other transactions that Merrill Lynch deemed to be relevant
- participated in discussions among representatives of Medical Manager and
Healtheon/WebMD and their financial and legal advisors
- reviewed the merger agreement and a draft dated June 18, 2000 of the
amendment to the merger agreement
- reviewed other financial studies and analyses and took into account other
matters as Merrill Lynch deemed necessary, including Merrill Lynch's
assessment of general economic, market and monetary conditions.
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In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch or publicly
available, and did not assume any responsibility for independently verifying
this information. Merrill Lynch did not undertake an independent evaluation or
appraisal of any of the assets or liabilities of Medical Manager or
Healtheon/WebMD nor was Merrill Lynch furnished with an evaluation or appraisal.
In addition, Merrill Lynch did not assume any obligation to conduct, nor did it
conduct, any physical inspection of the properties or facilities of Medical
Manager or Healtheon/WebMD. With respect to the financial forecast information
furnished to or discussed with Merrill Lynch by Medical Manager and
Healtheon/WebMD, Merrill Lynch assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
respective managements of Medical Manager and Healtheon/WebMD as to the expected
future financial performance of Medical Manager and Healtheon/WebMD. Merrill
Lynch further assumed that the merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and that the final form of the amendment to
the merger agreement would be substantially similar to the last draft reviewed
by Merrill Lynch.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they existed on, and on the information made available to
Merrill Lynch as of the date of the opinion. Merrill Lynch assumed that in the
course of obtaining the necessary regulatory or other consents or approvals,
contractual or otherwise, for the merger, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on Medical Manager, Healtheon/WebMD or the
contemplated benefits of the Medical Manager merger. Merrill Lynch did not
express any opinion as to the prices at which the Healtheon/ WebMD common stock
will trade following the announcement or consummation of the Medical Manager
merger. Although Merrill Lynch evaluated the fairness from a financial point of
view to the holders of Medical Manager shares of the revised exchange ratio,
Merrill Lynch was not requested to, and did not, recommend the specific
consideration payable in the Medical Manager merger, which consideration was
determined through negotiations between Healtheon/WebMD and Medical Manager and
approved by the Medical Manager board of directors. In connection with the
preparation of its opinion, Merrill Lynch was not authorized by Medical Manager
or its board of directors to solicit, and Merrill Lynch has not solicited, third
party indications of interest for the acquisition of all or any part of Medical
Manager. No other limitation was imposed on Merrill Lynch with respect to the
investigations made or procedures followed by Merrill Lynch in rendering its
opinion.
FINANCIAL ANALYSIS
The following is a summary of the material analyses performed by Merrill
Lynch in connection with its opinion to the Medical Manager board of directors
dated June 18, 2000. Some of the financial analyses summarized below include
information presented in tabular format. In order to understand fully Merrill
Lynch's financial analyses, the tables must be read together with the text of
the summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth below without considering the
full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of Merrill Lynch's financial analyses.
Relative comparable public companies analysis. Merrill Lynch compared
financial, operating and stock market data of Healtheon/WebMD and Medical
Manager to corresponding data of the following publicly traded HIT and
Internet-based connectivity companies:
<TABLE>
<CAPTION>
HIT CONNECTIVITY CONTENT PLASTICS
--- ------------ ------- --------
<S> <C> <C> <C>
- Cerner - Allscripts - drKoop.com, Inc. - Millipore
- Eclipsys - CyBear, Inc. - Healthcentral - Pall
- IDX Systems - eBenX, Inc. - Mediconsult.com, Inc. - Donaldson Company
- Infocure - Medical Logic - HealthGate Data Corp. - Spartech
- Shared Medical Systems - The TriZetto Group, Inc. - M.A. Hanna
- Clarcor
- Cuno
- A. Schulman
</TABLE>
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Merrill Lynch reviewed, among other things, each company's equity value on
a fully diluted basis as a multiple of its estimated revenues for calendar years
1999, 2000 and 2001. All multiples were based on closing stock prices on June
15, 2000 except for Shared Medical Systems, which was based on a closing stock
price on April 28, 2000, one day prior to the acquisition of Shared Medical
Systems by Siemens AG. Estimated financial data for the selected companies were
based on publicly available research analysts' estimates, and the estimated
financial data for Healtheon/WebMD for calendar years 2000 and 2001 were
provided by the management of Healtheon/WebMD. Merrill Lynch then applied a
range of multiples derived from the selected Internet-based connectivity
companies to corresponding revenues of Healtheon/WebMD before and after giving
effect to the acquisition of shares of CareInsite not owned by Medical Manager
and this analysis indicated an implied equity range for Healtheon/WebMD of
approximately $9.75 to $28.25 per share before giving effect to the acquisition
of shares of CareInsite not owned by Medical Manager and $8.75 to $25.75 per
share after giving effect to the CareInsite merger.
Merrill Lynch also applied a range of selected multiples from relevant
comparable company universes to revenues for corresponding business segments of
Medical Manager. Merrill Lynch derived the multiple ranges applied to Medical
Manager's ownership of CareInsite revenues, Porex and Medical Manager revenues
from Internet-based connectivity companies, disposable plastic companies, and
HIT companies, respectively. This analysis indicated an implied equity range for
Medical Manager of approximately $17.50 to $34.50 per share for a case that
assumes organic growth of CareInsite's business, which is referred to in this
proxy statement/prospectus as Scenario 1, and a range of $20.25 to $46.50 based
on projections provided by Medical Manager management that incorporated
assumptions to the effect that CareInsite will roll out a physician portal, a
consumer/AOL portal and various other strategic transactions, all of which
Merrill Lynch was advised that CareInsite had determined not to pursue at the
time of the execution of the Merger Agreement, which is referred to in this
proxy statement/ prospectus as Scenario 2, which was then compared to the
implied offer price of $40.63 based on a revised exchange ratio of 2.50x.
Merrill Lynch compared the implied per share equity reference range for
Medical Manager and Healtheon WebMD described above, before giving effect to the
acquisition of all of the shares of CareInsite not owned by Medical Manager
pursuant to the CareInsite merger, in order to derive an implied exchange ratio
reference range for Medical Manager and Healtheon WebMD. This analysis indicated
implied exchange ratio ranges of 0.62x to 3.54x in Scenario 1, and 0.72x to
4.77x in Scenario 2, which was then compared to the revised exchange ratio of
2.50x.
None of the selected companies is identical to Medical Manager or
Healtheon/WebMD. Accordingly, an analysis of the results of the relative
comparable public companies analysis involves complex considerations of the
selected companies and other factors that could affect the public trading value
of Medical Manager, Healtheon/WebMD and the selected companies.
Relative contribution analysis. Using estimated financial data for Medical
Manager and Healtheon/WebMD, Merrill Lynch analyzed the relative contributions
of Medical Manager and Healtheon/WebMD to the combined company's estimated
revenue for calendar years 2000 and 2001. In determining Medical Manager's
contribution to the combined company, Merrill Lynch weighted the revenues
derived from the Porex and the Medical Manager businesses at 21% and 26%,
respectively, to reflect the relative public market valuation of disposable
medical products and HIT companies to Internet-based connectivity companies such
as CareInsite.
This relative contribution analysis indicated the following:
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2
---------- ----------
MEDICAL HEALTHEON/ MEDICAL HEALTHEON/
REVENUES MANAGER WEBMD MANAGER WEBMD
-------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
2000 18% 82% 18% 82%
2001 14% 86% 20% 80%
</TABLE>
The results described above indicated an implied exchange ratio range for
the merger of 1.35x to 1.61x, in Scenario 1, and 1.61x to 1.71x, in Scenario 2,
which was then compared to the revised exchange ratio of 2.50x.
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Selected comparable acquisition transactions analysis. Merrill Lynch
performed a selected comparable acquisition transactions analysis based on
transaction values expressed as multiples of revenues in selected acquisition
transactions analysis. Using publicly available information, Merrill Lynch
reviewed and analyzed certain financial and operating data relating to selected
transactions which included but were not limited to the following transactions:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C> <C> <C>
- Siemens Aktiengesellschaft - Shared Medical Systems
- Medical Manager - Physician Computer Network
- Synetic - Medical Manager
- Infocure - Healthcare Systems Div. of
The Reynolds & Reynolds
Company
- Misys - Medic Computer Systems
</TABLE>
Merrill Lynch applied a range of selected multiples obtained from selected
comparable acquisition transactions to the relevant estimated revenues of
Medical Manager's three principal lines of business. This analysis indicated an
implied equity range for Medical Manager of $30.00 to $69.75 in Scenario 1 and
$39.50 to $82.00 in Scenario 2, which was then compared to the implied offer
price of $40.63 based on a revised exchange ratio of 2.50x.
No company or transaction used in the selected comparable acquisition
transactions analysis is identical to Healtheon/WebMD, Medical Manager or the
Medical Manager merger. Accordingly, an analysis of the results of the selected
comparable acquisition transactions analysis involves complex considerations of
the companies involved and the transactions and other factors that could affect
the acquisition value of the companies and Healtheon/WebMD.
Other factors. In the course of preparing its opinion, Merrill Lynch also
reviewed and considered other information and data, including the following:
- the trading characteristics of Healtheon/WebMD common stock and Medical
Manager common stock
- historical market prices for Healtheon/WebMD common stock and Medical
Manager common stock
- the relative revised exchange ratio of Healtheon/WebMD and Medical
Manager over the period from June 15, 1999 to June 15, 2000.
MISCELLANEOUS
Pursuant to the terms of Merrill Lynch's engagement, Medical Manager has
agreed to pay Merrill Lynch for its financial advisory services in connection
with the merger a fee of $400,000 payable in cash on the date that Merrill Lynch
initially indicates that it is prepared to deliver its opinion and has been
requested by the Medical Manager board of directors to do so, and $3,000,000,
minus the amount of any fees previously paid pursuant to the letter agreement
dated April 3, 2000 and the letter agreement dated February 10, 2000 between
Medical Manager and Merrill Lynch if, during the period Merrill Lynch is
retained by Medical Manager or within one year thereafter, a business
combination is consummated with Healtheon/WebMD. Medical Manager also has agreed
to reimburse Merrill Lynch for reasonable out-of-pocket expenses incurred by
Merrill Lynch in performing its services, including the fees and expenses for
legal counsel, and to indemnify Merrill Lynch and related persons and entities
against liabilities, including liabilities under the federal securities laws,
arising out of Merrill Lynch's engagement.
Medical Manager retained Merrill Lynch based upon Merrill Lynch's
experience and expertise. Merrill Lynch is an internationally recognized
investment banking and advisory firm. Merrill Lynch, as part of its investment
banking business, is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
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Merrill Lynch and its affiliates have in the past provided financing
services to Medical Manager and may continue to do so and have received, and may
receive, compensation for the rendering of these services. In the ordinary
course of business, Merrill Lynch and its affiliates may actively trade in the
securities of Medical Manager and Healtheon/WebMD for their own accounts and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in these securities.
Opinion of UBS Warburg
On June 18, 2000, at a meeting of the Medical Manager board held to
evaluate the revised terms of the proposed Medical Manager merger, UBS Warburg
delivered to the Medical Manager board an oral opinion, which opinion was
confirmed by delivery of a written opinion dated June 18, 2000, to the effect
that, as of that date and based on and subject to various assumptions, matters
considered and limitations described in the opinion, the exchange ratio provided
for in the Medical Manager merger was fair from a financial point of view to the
holders of Medical Manager common stock.
The full text of UBS Warburg's opinion describes the assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by UBS Warburg. This opinion is attached as Annex E and is incorporated into
this proxy statement/prospectus by reference. UBS WARBURG'S OPINION IS DIRECTED
ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO
PROVIDED FOR IN THE MEDICAL MANAGER MERGER AND DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MEDICAL MANAGER MERGER OR ANY RELATED TRANSACTION. THE OPINION DOES NOT
ADDRESS MEDICAL MANAGER'S UNDERLYING BUSINESS DECISION TO EFFECT THE MEDICAL
MANAGER MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF MEDICAL MANAGER
COMMON STOCK AS TO HOW TO VOTE WITH RESPECT TO ANY MATTERS RELATING TO THE
PROPOSED MEDICAL MANAGER MERGER. HOLDERS OF MEDICAL MANAGER COMMON STOCK ARE
ENCOURAGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. The summary of UBS
Warburg's opinion described below is qualified in its entirety by reference to
the full text of its opinion.
In arriving at its opinion, UBS Warburg:
- reviewed current and historical market prices and trading volumes of
Medical Manager common stock and Healtheon/WebMD common stock
- reviewed publicly available business and historical financial information
relating to Medical Manager and Healtheon/WebMD
- reviewed internal financial information and other data relating to
Medical Manager's and Healtheon/ WebMD's businesses and financial
prospects, both before and after giving effect to the CareInsite merger
and other acquisitions of Healtheon/WebMD, including estimates and
financial forecasts relating to Medical Manager and Healtheon/WebMD, that
Medical Manager and Healtheon/WebMD provided to or discussed with UBS
Warburg and were not publicly available
- conducted discussions with members of Medical Manager's and
Healtheon/WebMD's senior managements
- reviewed publicly available financial and stock market data with respect
to other companies in lines of business that UBS Warburg believed to be
generally comparable to those of Medical Manager and Healtheon/WebMD
- compared the financial terms of the Medical Manager merger with the
publicly available financial terms of other transactions which UBS
Warburg believed to be generally relevant
- reviewed the Medical Manager merger agreement
- conducted other financial studies, analyses and investigations, and
considered other information, as UBS Warburg deemed necessary or
appropriate.
In connection with its review, at Medical Manager's direction, UBS Warburg
did not assume any responsibility for independent verification of any of the
information that UBS Warburg was provided or reviewed for the purpose of its
opinion and, with Medical Manager's consent, UBS Warburg relied on that
information being complete and accurate in all material respects. In addition,
at Medical Manager's direction, UBS Warburg did not
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make any independent evaluation or appraisal of any of the assets or
liabilities, contingent or otherwise, of Medical Manager or Healtheon/WebMD, and
was not furnished with any evaluation or appraisal.
With respect to the financial forecasts and estimates that it reviewed, UBS
Warburg assumed, at the direction of Medical Manager regarding the financial
forecasts and estimates relating to Medical Manager and at the direction of
Healtheon/WebMD regarding the financial forecasts and estimates relating to
Healtheon/WebMD, that they were reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the managements of Medical
Manager and Healtheon/WebMD as to the future financial performance of each of
their companies. UBS Warburg also assumed, with Medical Manager's consent, that
the Medical Manager merger will be treated as a tax-free organization for
federal income tax purposes and will be accounted for as a purchase for
financial accounting purposes. UBS Warburg's opinion is necessarily based on
economic, monetary, market and other conditions existing, and information
available to UBS Warburg, on the date of its opinion.
At Medical Manager's direction, UBS Warburg was not asked to, and it did
not, offer any opinion, other than with respect to the exchange ratio provided
for in the Medical Manager merger agreement to the extent expressly provided for
in UBS Warburg's opinion, as to the material terms of, or the obligations under,
the Medical Manager merger agreement or the form of the Medical Manager merger.
UBS Warburg expressed no opinion as to the value of Healtheon/WebMD common stock
when issued in the Medical Manager merger or the prices at which Healtheon/WebMD
common stock will trade or otherwise be transferable after the announcement or
consummation of the Medical Manager merger.
In connection with its engagement, UBS Warburg was not requested to, and it
did not, solicit third party indications of interest in the acquisition of all
or a part of Medical Manager. UBS Warburg was not requested to, and it did not,
express any opinion as to the exchange ratio provided for in the Medical Manager
merger agreement as originally executed on February 13, 2000. UBS Warburg also
was not requested to, and it did not, express any opinion as to the CareInsite
merger or any other transactions related to the Medical Manager merger or the
effect of any other transaction in which Medical Manager might engage.
In rendering its opinion, UBS Warburg assumed, at Medical Manager's
direction, that each of Medical Manager and Healtheon/WebMD would comply with
all material covenants and agreements set forth in, and other material terms of,
the Medical Manager merger agreement and that the Medical Manager merger would
be validly consummated in accordance with its terms. At Medical Manager's
direction, UBS Warburg assumed, to the extent material to UBS Warburg's
analysis, that the CareInsite merger would be validly consummated in accordance
with its terms. Medical Manager imposed no other instructions or limitations on
UBS Warburg with respect to the investigations made or the procedures followed
by UBS Warburg in rendering its opinion.
In connection with rendering its opinion to Medical Manager's board of
directors, UBS Warburg performed a variety of financial analyses which are
summarized below. The following summary is not a complete description of all of
the analyses performed and factors considered by UBS Warburg in connection with
its opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. With respect to the analysis of selected
publicly traded companies and the analysis of selected transactions summarized
below, no company or transaction used as a comparison is either identical or
directly comparable to Medical Manager, Healtheon/WebMD or the Medical Manager
merger. These analyses necessarily involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the public trading or acquisition values of the companies concerned.
UBS Warburg believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors or
focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying UBS Warburg's
analyses and opinion. None of the analyses performed by UBS Warburg was assigned
greater significance by UBS Warburg than any other. UBS Warburg arrived at its
ultimate opinion based on the results of all the analyses undertaken by it and
assessed as a whole. UBS Warburg did not draw, in isolation, conclusions from or
with regard to any one factor or method of analysis.
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<PAGE> 81
The estimates of Medical Manager's and Healtheon/WebMD's future performance
provided by Medical Manager's and Healtheon/WebMD's managements in or underlying
UBS Warburg's analyses are not necessarily indicative of future results of
values, which may be significantly more or less favorable than those estimates.
In performing its analyses, UBS Warburg considered industry performance, general
business and economic conditions and other matters, many of which are beyond
Medical Manager's and Healtheon/WebMD's control. Estimates of the financial
value of companies do not necessarily purport to be appraisals or reflect the
prices at which companies actually may be sold.
The exchange ratio provided for in the Medical Manager merger was
determined through negotiation between Medical Manager and Healtheon/WebMD and
the decision to enter into the Medical Manager merger was solely that of Medical
Manager's board of directors. UBS Warburg's opinion and financial analyses were
only one of many factors considered by Medical Manager's board of directors in
its evaluation of the Medical Manager merger and should not be viewed as
determinative of the views of Medical Manager's board of directors or management
with respect to the Medical Manager merger or the exchange ratio provided for in
the Medical Manager merger.
The following is a brief summary of the material financial analyses
performed by UBS Warburg and reviewed with Medical Manager's board of directors
in connection with its opinion dated June 18, 2000. THE FINANCIAL ANALYSES
SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO
FULLY UNDERSTAND UBS WARBURG'S FINANCIAL ANALYSES, THE TABLES MUST BE READ
TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A
COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA IN THE
TABLES BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL
ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES,
COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF UBS WARBURG'S FINANCIAL
ANALYSES.
Analysis of selected public companies
Medical Manager. UBS Warburg compared selected financial information and
operating statistics for Medical Manager with corresponding financial
information and operating statistics of the following six selected publicly held
companies in the healthcare information technology and specialty filter and
specialty plastic molding industries:
<TABLE>
<CAPTION>
HIT SPECIALTY FILTER AND SPECIALTY PLASTIC MOLDING
--- ----------------------------------------------
<S> <C>
- Cerner - Pall
- Eclipsys - West Pharmaceutical Services, Inc.
- IDX Systems
- InfoCure
</TABLE>
UBS Warburg reviewed enterprise values, calculated as equity value, plus debt,
less cash, as multiples of latest 12 months, latest quarter annualized and
estimated calendar years 2000 and 2001 revenues, and latest 12 months earnings
before interest, taxes, depreciation and amortization, commonly known as EBITDA.
UBS Warburg then compared the multiples derived from the selected companies with
corresponding multiples for Medical Manager based on the closing price of
Medical Manager common stock on June 16, 2000, as well as the multiples implied
for Medical Manager based on the exchange ratio provided for in the Medical
Manager merger and the closing price of Healtheon/WebMD common stock on June 16,
2000. Multiples for the selected companies also were based on closing stock
prices on June 16, 2000. Estimated financial data for the selected companies
were based on publicly available research analysts' estimates and estimated
financial data for Medical Manager were based on internal estimates of Medical
Manager's management. This analysis indicated the following implied low, mean,
median and high enterprise value multiples for the selected companies, as
compared to the multiples implied for Medical Manager based on the closing price
of Medical Manager common stock on June 16, 2000 and the
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<PAGE> 82
multiples implied for Medical Manager based on the exchange ratio provided for
in the Medical Manager merger and the closing price of Healtheon/WebMD common
stock on June 16, 2000:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF
SELECTED HIT IMPLIED MULTIPLES OF MEDICAL MANAGER BASED
COMPANIES MEDICAL MANAGER BASED ON EXCHANGE RATIO IN
ENTERPRISE VALUES -------------------------- ON CLOSING MEDICAL MANAGER
AS MULTIPLES OF: LOW MEAN MEDIAN HIGH PRICE ON 6/16/00 MERGER
----------------- --- ---- ------ ---- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Latest 12 months revenue....... 0.7x 1.4x 1.1x 2.6x 2.4x 4.4x
Latest quarter annualized
revenue...................... 0.7 1.5 1.4 2.5 2.2 4.0
Estimated calendar year 2000
revenue...................... 0.6 1.2 1.0 2.3 1.9 3.5
Latest 12 months EBITDA........ 4.0 17.7 19.1 28.6 34.8 62.4
</TABLE>
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF
SELECTED SPECIALTY IMPLIED MULTIPLES OF
FILTER AND SPECIALTY IMPLIED MULTIPLES OF MEDICAL MANAGER BASED
PLASTIC MOLDING COMPANIES MEDICAL MANAGER ON EXCHANGE RATIO IN
ENTERPRISE VALUES -------------------------- BASED ON MEDICAL MANAGER
AS MULTIPLES OF: LOW MEAN HIGH CLOSING PRICE ON 6/16/00 MERGER
----------------- ---- ----- ----- ------------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Latest 12 months revenue........ 1.0x 1.7x 2.4x 2.4x 4.4x
Latest quarter annualized
revenue....................... 1.1 1.8 2.4 2.2 4.0
Estimated calendar year 2000
revenue....................... 0.9 1.6 2.3 1.9 3.5
Latest 12 months EBITDA......... 5.1 8.2 11.3 34.8 62.4
</TABLE>
Healtheon/WebMD. UBS Warburg also compared selected financial information
and operating statistics for Healtheon/WebMD to corresponding financial
information and operating statistics of the following 10 selected publicly held
companies in the connectivity and E-business sector and the electronic data
interchange and related sectors of the information technology and data
management industry:
<TABLE>
<CAPTION>
CONNECTIVITY AND E-BUSINESS SECTOR EDI AND RELATED SECTORS
---------------------------------- -----------------------------------------------
<S> <C>
- Allscripts - Automatic Data Processing, Inc.
- Cybear - ChoicePoint Inc.
- eBenX - First Data Corporation
- MedicaLogic - IMS Health Incorporated
- The TriZetto Group - National Data
</TABLE>
UBS Warburg reviewed, among other things, enterprise values as a multiple of
estimated calendar year 2000 revenue. UBS Warburg then compared the multiples
derived from the selected companies with the multiples implied for
Healtheon/WebMD based on the closing price of Healtheon/WebMD common stock on
June 16, 2000, both before and after giving effect to the proposed mergers with
Medical Manager and CareInsite. Multiples for the selected companies also were
based on closing stock prices on June 16, 2000. Estimated financial data for the
selected companies were based on publicly available research analysts' estimates
and estimated financial data for Healtheon/WebMD were based on internal
estimates of Healtheon/WebMD's management. This analysis indicated the following
implied low, mean, median and high enterprise value multiples for the selected
companies, as compared to the multiples for Healtheon/WebMD implied by the
closing price of Healtheon/WebMD common stock on June 16, 2000, both before and
after giving effect to the proposed mergers with Medical Manager and CareInsite:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES
IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF IMPLIED MULTIPLES OF HEALTHEON/
SELECTED CONNECTIVITY AND SELECTED EDI AND OF HEALTHEON/ WEBMD BASED ON
E-BUSINESS COMPANIES RELATED COMPANIES WEBMD BASED ON CLOSING PRICE ON
ENTERPRISE VALUES -------------------------- -------------------------- CLOSING PRICE ON 6/16/00 POST
AS A MULTIPLE OF: LOW MEAN MEDIAN HIGH LOW MEAN MEDIAN HIGH 6/16/00 MERGERS
----------------- --- ---- ------ ---- --- ---- ------ ---- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated calendar year 2000
revenue....................... 4.7x 7.5x 5.3x 11.4x 1.0x 3.3x 3.3x 5.2x 5.4x 5.1x
</TABLE>
76
<PAGE> 83
Analysis of selected precedent transactions
UBS Warburg reviewed implied enterprise values in the following eight
selected transactions in the healthcare information technology and specialty
filter and specialty plastic molding industries:
HIT
<TABLE>
<CAPTION>
ACQUIROR TARGET
------------------------------------------------------- ------
<S> <C>
- Siemens Corporation Shared Medical Systems
- GE Medical Systems (business unit of GE) MECON, Inc.
- Computer Sciences Corporation Nichols Research Corporation
- Synetic Medical Manager
- Eclipsys Transition Systems, Inc.
- McKesson HBOC
</TABLE>
Specialty Filter and Specialty Plastic Molding
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
- Pall Gelman Sciences Inc.
- Vivendi United States Filter
</TABLE>
UBS Warburg reviewed enterprise values as multiples of latest 12 months sales
and EBITDA. UBS Warburg then compared the implied multiples derived from the
selected transactions with corresponding multiples for Medical Manager based on
the exchange ratio provided for in the Medical Manager merger and the closing
price of Healtheon/WebMD common stock on June 16, 2000. All multiples were based
on publicly available information at the time of announcement of the relevant
transaction. This analysis indicated the following implied low, mean, median and
high enterprise value multiples for the selected transactions, as compared to
the multiples implied for Medical Manager based on the exchange ratio provided
for in the Medical Manager merger and the closing price of Healtheon/WebMD
common stock on June 16, 2000:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF
SELECTED TRANSACTIONS
IMPLIED MULTIPLES OF IN SPECIALTY FILTER
SELECTED TRANSACTIONS IN AND SPECIALTY PLASTIC IMPLIED MULTIPLES OF
HIT INDUSTRY MOLDING INDUSTRY MEDICAL MANAGER BASED
ENTERPRISE VALUES ------------------------------ ---------------------- ON EXCHANGE RATIO IN
AS MULTIPLES OF: LOW MEAN MEDIAN HIGH LOW HIGH MEDICAL MANAGER MERGER
----------------- ----- ----- ------ ----- ------- ------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Latest 12 months sales..... 0.9x 5.1x 4.0x 10.4x 1.7x 2.5x 4.4x
Latest 12 months EBITDA.... 10.6x 20.0x 14.0x 44.6x 13.6x 20.5x 62.4x
</TABLE>
Exchange ratio analyses
Sum-of-the-parts exchange ratio analysis. UBS Warburg calculated an
implied exchange ratio for Medical Manager common stock and Healtheon/WebMD
common stock based on a sum-of-the-parts analysis of each of Medical Manager's
and Healtheon WebMD's separate businesses and, in the case of Medical Manager,
its approximate 68% equity interest in CareInsite. In arriving at an implied
exchange ratio, UBS Warburg derived implied equity reference ranges for Medical
Manager and Healtheon/WebMD by applying to various financial statistics of their
businesses and, in the case of Medical Manager, CareInsite, ranges of selected
multiples derived from corresponding financial statistics of selected companies
in similar industries. UBS Warburg then divided the resulting implied equity
reference range for Medical Manager by the resulting implied equity reference
range for Healtheon/WebMB. This analysis indicated the following implied
exchange ratio reference range, as compared to the exchange ratio provided for
in the Medical Manager merger:
<TABLE>
<CAPTION>
IMPLIED SUM-OF-THE-PARTS EXCHANGE RATIO IN
EXCHANGE RATIO RANGE MEDICAL MANAGER MERGER
------------------------ ----------------------
<S> <C>
1.37 - 1.51 2.5
</TABLE>
77
<PAGE> 84
Historical exchange ratio analysis. UBS Warburg also compared the exchange
ratio provided for in the Medical Manager merger with the exchange ratio implied
for Medical Manager and Healtheon/WebMD based on the daily closing prices of
Medical Manager common stock and Healtheon/WebMD common stock over the one year
period ended February 11, 2000 and the average exchange ratio derived from the
"Sum-of-the-parts analysis" described above. This analysis indicated the
following implied average exchange ratios, as compared to the exchange ratio
provided for in the Medical Manager merger:
<TABLE>
<CAPTION>
AVERAGE EXCHANGE RATIO OVER AVERAGE EXCHANGE RATIO BASED ON EXCHANGE RATIO IN
ONE-YEAR PERIOD ENDED 2/11/00 SUM-OF-THE-PARTS ANALYSIS MEDICAL MANAGER MERGER
----------------------------- ------------------------------- ----------------------
<S> <C> <C>
1.65 1.44 2.5
</TABLE>
Contribution analysis
UBS Warburg reviewed the contributions of Medical Manager and
Healtheon/WebMD to the combined company's estimated calendar year 2000 revenue,
based on internal estimates of Medical Manager's and Healtheon/WebMD's
managements. Based on the exchange ratio provided for in the Medical Manager
merger and the closing price of Healtheon/WebMD common stock on June 16, 2000,
this analysis indicated the following relative contributions of Medical Manager
and Healtheon/WebMD, as compared to the percentages that Medical Manager and
Healtheon/WebMD would each constitute of the combined company's enterprise
value:
<TABLE>
<CAPTION>
PERCENTAGE CONTRIBUTION TO PERCENTAGE OF COMBINED
COMBINED COMPANY'S ESTIMATED COMPANY'S ESTIMATED
CALENDAR YEAR 2000 REVENUE ENTERPRISE VALUE
---------------------------- ----------------------
<S> <C> <C>
Medical Manager................................. 41.4% 37.8%
Healtheon/WebMD................................. 58.6% 62.2%
</TABLE>
Other factors
In rendering its opinion, UBS Warburg also reviewed and considered other
factors, including:
- historical market prices for Medical Manager common stock and
Healtheon/WebMD common stock and the relationship between movements in
Medical Manager common stock, movements in Healtheon/ WebMD common stock
and movements in the common stock of selected companies in the
information technology and data management industry
- publicly available financial terms of selected transactions in the
healthcare online and electronic data interchange sectors of the
information technology and data management industry
- the premium/discount implied by the exchange ratio provided for in the
Medical Manager merger relative to the market price of Medical Manager
common stock on June 16, 2000 and potential market price fluctuations in
Healtheon/WebMD common stock.
Miscellaneous
Medical Manager has agreed to pay UBS Warburg for its financial advisory
services upon completion of the Medical Manager merger an aggregate fee of $5.0
million. In addition, Medical Manager has agreed to reimburse UBS Warburg for
its reasonable expenses, including reasonable fees and disbursements of its
counsel, and to indemnify UBS Warburg and related parties against liabilities,
including liabilities under federal securities laws, relating to, or arising out
of, its engagement.
Medical Manager selected UBS Warburg as its financial advisor in connection
with the Medical Manager merger because UBS Warburg is an internationally
recognized investment banking firm with substantial experience in similar
transactions. UBS Warburg is continually engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, leveraged
buyouts, negotiated underwritings, competitive bids, secondary distributions of
listed and unlisted securities and private placements.
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<PAGE> 85
In the ordinary course of business, UBS Warburg, its successors and
affiliates may actively trade the securities of Medical Manager and its
affiliates and Healtheon/WebMD for their own accounts and the accounts of their
customers and, accordingly, may at any time hold a long or short position in
these securities.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE OF CAREINSITE'S BOARD
Banc of America Securities was retained to act as the financial advisor to
the special committee with respect to the proposed CareInsite merger. On June
18, 2000, Banc of America Securities made a presentation to the special
committee and a summary presentation to CareInsite's board of directors and
delivered its opinion, subsequently confirmed in writing, that, as of that date
and based upon and subject to the factors, assumptions and limitations set forth
in the opinion, the exchange ratio of 1.30 Healtheon/WebMD shares for each
CareInsite share was fair, from a financial point of view, to CareInsite's
common stockholders, other than Medical Manager, the holder of approximately 68%
of CareInsite common stock, or its subsidiaries, as to which Banc of America
Securities expressed no opinion.
Previously, on February 13, 2000, Banc of America Securities had made a
presentation to the special committee and delivered its opinion, subsequently
confirmed in writing, that, as of that date and based upon and subject to the
factors, assumptions and limitations set forth in the opinion, the exchange
ratio of 1.30 Healtheon/ WebMD shares for each CareInsite share was fair, from a
financial point of view, to CareInsite's common stockholders, other than Medical
Manager or its subsidiaries, as to which Banc of America Securities expressed no
opinion.
The exchange ratio provided for in the CareInsite merger was determined
through negotiations between CareInsite and Healtheon/WebMD and was approved by
the CareInsite special committee. Although Banc of America Securities provided
advice to the special committee during such negotiations, Banc of America
Securities did not recommend any specific form or amount of consideration, or
that any specific form or amount of consideration constituted the only
appropriate form or amount of consideration, in connection with the CareInsite
merger.
THE FULL TEXT OF THE BANC OF AMERICA SECURITIES JUNE 18, 2000 OPINION IS
ATTACHED TO THIS DOCUMENT AS ANNEX F AND SETS FORTH THE INFORMATION REVIEWED,
PROCEDURES UNDERTAKEN AND ASSUMPTIONS MADE BY BANC OF AMERICA SECURITIES IN
ARRIVING AT ITS OPINION, AS WELL AS LIMITATIONS AND QUALIFICATIONS TO THE
OPINION. HOLDERS OF CAREINSITE COMMON STOCK ARE URGED TO READ CAREFULLY THE
ENTIRE BANC OF AMERICA SECURITIES OPINION, WHICH, AMONG OTHER THINGS, SETS FORTH
THIS INFORMATION.
The Banc of America Securities opinion does not constitute a recommendation
to any CareInsite stockholder as to how to vote at the CareInsite special
meeting.
The following is a summary of the material financial analyses presented by
Banc of America Securities to the special committee in connection with its
opinion:
Historical stock trading analysis. Banc of America Securities reviewed the
average trading price for shares of CareInsite common stock from CareInsite's
initial public offering on June 16, 1999, through June 16, 2000, the last day of
trading activity prior to the announcement of the amendment of the CareInsite
merger agreement. In addition, Banc of America Securities analyzed the
consideration to be received by the holders of CareInsite common stock, other
than Medical Manager or its subsidiaries, based on the 1.30 exchange ratio and
the closing prices of Healtheon/WebMD common stock and CareInsite common stock
of $16.88 per share and $20.63 per share, respectively, on June 16, 2000. This
analysis indicated that the consideration per share of CareInsite common stock
to be received by holders of CareInsite common stock pursuant to the CareInsite
merger, other than Medical Manager or its subsidiaries:
- represented a premium of 6.4% to the closing price of CareInsite common
stock on June 16, 2000
- represented a discount of 54.1% from the average closing price of
CareInsite common stock for the period following its initial public
offering through June 16, 2000.
Exchange ratio analysis. Banc of America Securities calculated the median
of the daily exchange ratios of CareInsite common stock to Healtheon/WebMD
common stock based on the closing prices of CareInsite common
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<PAGE> 86
stock and Healtheon/WebMD common stock for the period following CareInsite's
initial public offering through June 16, 2000. This analysis indicated:
- that the median exchange ratio over this period was 1.22 compared to the
merger exchange ratio of 1.30
- that the exchange ratio based on the 10-day average closing stock prices
for the period ending June 16, 2000 was 1.21 compared to the merger
exchange ratio of 1.30.
Contribution analysis. Banc of America Securities analyzed historical
operating and financial information and financial forecasts prepared by the
managements of Healtheon/WebMD and of CareInsite. From the information provided
by CareInsite's management, Banc of America Securities developed two projection
scenarios for the pro forma combined company resulting from the CareInsite
merger, one assuming organic growth of CareInsite's business, which is referred
to in this proxy statement/prospectus as Scenario 1, and the second assuming
CareInsite will roll out a physician portal, a consumer/AOL portal and various
other strategic transactions, all of which Banc of America Securities was
advised that CareInsite had determined not to pursue at the time of the
execution of the Merger Agreement in February 2000, which is referred to in this
proxy statement/prospectus as Scenario 2. This analysis indicated that,
excluding shares of CareInsite common stock held by Medical Manager or its
subsidiaries, holders of CareInsite common stock would receive 8.4% of the
outstanding common equity of the pro forma combined company, and would
contribute 0.7% of the projected calendar year 2000 revenues of the pro forma
combined company and 0.9% under Scenario 1 and 3.0% under Scenario 2 of the
projected calendar year 2001 revenues of the pro forma combined company.
Diluted equity market value exchange analysis. Banc of America Securities
also calculated the equity market value on a diluted basis of CareInsite and the
pro forma combined company based upon the closing per share common stock prices
on June 16, 2000, of CareInsite and of Healtheon/WebMD. This analysis indicated
that, excluding shares of CareInsite common stock held by Medical Manager or its
subsidiaries, holders of CareInsite common stock would receive $544 million in
aggregate equity market value of the pro forma combined company, or 8.4% of the
pro forma combined equity value, in exchange for $511 million of aggregate
equity market value of CareInsite, or 8.8% of the stand-alone total equity value
of the separate companies.
Comparable companies analysis. Banc of America Securities reviewed and
compared publicly available financial information, ratios and public market
revenue multiples relating to CareInsite to corresponding financial information,
ratios and public market multiples for the following 18 publicly traded
companies:
<TABLE>
<CAPTION>
EHEALTH INTERNET
------- --------
<S> <C>
Allscripts Amazon.com
Ventro Corporation Ariba
CyBear Commerce One, Inc.
eBenX Digex, Incorporated
MedicaLogic eBay
Neoforma.com, Inc. Exodus Communications, Inc.
SciQuest.com, Inc. priceline.com
The TriZetto Group Purchase Pro.com, Inc.
USInternetworking, Inc.
Yahoo!
</TABLE>
The selected companies were chosen because they are eHealth or Internet
companies that, for purposes of this analysis, Banc of America Securities
considered generally comparable to CareInsite. Set forth below are the combined
range of revenue multiples for the selected companies for the calendar year
2001, the separate median revenue multiple of the eHealth and Internet
companies, and the calculated implied valuation for CareInsite under Scenarios 1
and 2 based on the separate median revenue multiples. In addition, the revenue
multiple of Healtheon/WebMD and the calculated implied valuation for CareInsite
under Scenarios 1 and 2 based thereon are shown separately below.
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<PAGE> 87
<TABLE>
<CAPTION>
SELECTED COMPANIES
----------------------------------------
MEDIAN REVENUE IMPLIED VALUE OF
MULTIPLE CAREINSITE PER SHARE
COMBINED RANGE OF ------------------- ---------------------
SCENARIO 1 REVENUE MULTIPLES EHEALTH INTERNET EHEALTH INTERNET
---------- ----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Projected 2001 revenue........................ 1.3x-55.5x 3.3x 17.9x $1.53 $8.28
Healtheon/WebMD 2001 revenue.................. 5.3x 5.3x $2.44
</TABLE>
<TABLE>
<CAPTION>
SCENARIO 2
----------
<S> <C> <C> <C> <C> <C>
Projected 2001 revenue........................ 1.3x-55.5x 3.3x 17.9x $5.47 $29.65
Healtheon/WebMD 2001 revenue.................. 5.3x 5.3x $8.74
</TABLE>
Selected precedent transaction analysis. Banc of America Securities
analyzed the financial terms of the CareInsite merger in relation to the
publicly available information for the following 26 transactions:
<TABLE>
<CAPTION>
ANNOUNCEMENT
ACQUIROR TARGET DATE
-------- ------ ------------
<S> <C> <C>
Allscripts MasterChart, Inc. 03/14/00
Allscripts Medifor Inc. 04/13/00
BroadVision Inc. Interleaf, Inc. 01/26/00
Chemdex Corporation
(Ventro) Promedix.com 09/21/99
Chemdex (Ventro) SpecialityMD.com Corporation 12/13/99
drugstore.com Beauty.com 01/12/00
HealthCentral.com Vitamins.com, Inc. 03/17/00
Healtheon Medcast 07/01/99
Healtheon MedE America 04/21/99
Healtheon WebMD 05/14/99
Healtheon/WebMD Envoy 01/24/00
Healtheon/WebMD OnHealth 02/16/00
InfoCure Datamedic Holdings, Inc. 09/08/99
MedicaLogic Medscape, Inc. 02/22/00
MedicaLogic Total eMed, Inc. 02/22/00
Medical Manager Corp. Physician Computer Network 12/07/99
Mediconsult.com Northstar Interactive, Inc. 03/07/00
Mediconsult.com Physician's Online Inc. 09/07/99
Medscape Dialog Medical, Inc. 03/08/00
Neoforma.com EquipMD, Inc. 03/27/00
Quintiles Envoy 12/16/98
SciQuest.com EMAX Solution Partners, Inc. 03/14/00
Siemens AG Shared Medical Systems 05/01/00
Synetic Medical Manager 05/17/99
Yahoo! broadcast.com 04/01/99
Yahoo! GeoCities.com 01/28/99
</TABLE>
The selected transactions were chosen because the target companies were
eHealth or Internet companies that, for purposes of this analysis, Banc of
America Securities considered generally comparable to CareInsite. The combined
range of revenue multiples of the target companies, the separate median revenue
multiple of the eHealth and Internet target companies after eliminating five
transactions where the target company had minimal or no
81
<PAGE> 88
revenues and 11 transactions where information was not available, and the
calculated implied valuation of CareInsite based on the separate median revenue
multiples are set forth below.
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS
-----------------------------------------------------------------
MEDIAN REVENUE IMPLIED VALUE OF
MULTIPLES CAREINSITE PER SHARE
COMBINED RANGE OF ------------------- ---------------------
REVENUE MULTIPLES EHEALTH INTERNET EHEALTH INTERNET
----------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Latest quarter annualized revenue............. 1.3x* 8.9x 61.5x $0.78 $5.36
</TABLE>
---------------
* Upper range not meaningful as five of the companies had minimal or no
revenues.
This summary is not a complete description of Banc of America Securities'
analyses. Rather, it summarizes the material elements of the presentation made
by Banc of America Securities to the special committee on June 18, 2000. The
preparation of Banc of America Securities' opinion involved various
determinations as to the most appropriate and relevant methods to the particular
circumstances. Therefore, Banc of America Securities' opinion is not readily
susceptible to partial analysis or summary description.
Each of Banc of America Securities' analyses was carried out in order to
provide a different perspective on the transaction and to add to the total mix
of information available. In arriving at its opinion, Banc of America Securities
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it. Furthermore,
selecting any portion of its analyses, without considering all analyses, would
create an incomplete view of the process underlying Banc of America Securities'
opinion. The analyses performed are not intended to be appraisals or to reflect
the prices at which CareInsite or Healtheon/ WebMD might actually be sold or the
price at which their securities may trade.
Banc of America Securities was retained as the financial advisor to the
special committee based upon Banc of America Securities' qualifications,
experience and expertise. Banc of America Securities, as a part of its
investment banking business, is continuously engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the ordinary course of its businesses, Banc of America
Securities and its affiliates may actively trade the debt and equity securities
of CareInsite, Medical Manager and Healtheon/WebMD for their own separate
accounts or for the accounts of customers and, accordingly, Banc of America
Securities or its affiliates may at any time hold long or short positions in
these securities. Banc of America Securities has not been engaged by or
performed any services for any of Healtheon/WebMD, Medical Manager or Cerner
during the period it has been serving as the financial advisor to the CareInsite
special committee.
Under the engagement letter dated February 13, 2000, CareInsite agreed to
pay Banc of America Securities a fee of $4,250,000, one-half of which was paid
upon rendering its first written opinion on February 13, 2000, and one-half of
which is contingent upon consummation of the CareInsite merger or a comparable
transaction. CareInsite also agreed to reimburse Banc of America Securities for
its out-of-pocket expenses and to pay the fees and disbursements of its counsel.
CareInsite also agreed to indemnify Banc of America Securities and related
persons against various liabilities in connection with this engagement,
including liabilities under Federal securities laws.
INTERESTS OF DIRECTORS, EXECUTIVE OFFICERS, AFFILIATES AND SIGNIFICANT
STOCKHOLDERS IN THE MERGERS
Healtheon/WebMD
In considering the recommendation of the Healtheon/WebMD board of directors
with regard to the mergers, you should be aware that executive officers and
directors participate in arrangements and have continuing indemnification
against liabilities that provide them with interests in the merger that are
different from, or in addition to, your interests.
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Medical Manager
In considering the recommendation of the Medical Manager board of directors
with regard to the Medical Manager merger, you should be aware that, as
described below, several executive officers and members of the board of
directors of Medical Manager may have interests in the merger that are different
from, or in addition to, your interests, and that may create potential conflicts
of interest.
Stock options. As of the record date, approximately 7,605,228 shares of
Medical Manager common stock were subject to options granted to executive
officers and directors under Medical Manager's stock option plans and
arrangements. At the effective time of the Medical Manager merger, all
outstanding options to purchase Medical Manager common stock under Medical
Manager's plans will be assumed by Healtheon/WebMD and will become options to
purchase Healtheon/WebMD common stock, with appropriate adjustments to be made
to the number of shares and the exercise price under these options to reflect
the exchange ratio. Healtheon/WebMD will assume Medical Manager's obligations
with respect to each option and the related Medical Manager stock option plans
in accordance with their terms. For details, see "Treatment of Medical Manager
and CareInsite stock options and warrants" on page 99.
All 740,000 options granted pursuant to the Medical Manager 1991 Director
Stock Option Plan and options to purchase 760,000 shares of Medical Manager
common stock granted pursuant to the Amended and Restated 1989 Class A Stock
Option Plan will become fully vested and immediately exercisable upon the
completion of the mergers.
Letter agreements. On June 18, 2000, Healtheon/WebMD entered into a letter
agreement with Martin J. Wygod, Medical Manager's and CareInsite's current
Chairman, effective upon the consummation of the mergers. The letter agreement
provides for Mr. Wygod's appointment as Co-Chief Executive Officer of
Healtheon/WebMD following the mergers. In the event Mr. Wygod's employment with
Healtheon/WebMD, Medical Manager or CareInsite terminates for any reason, or Mr.
Wygod ceases to serve as Co-Chief Executive Officer or Chief Executive Officer
of Healtheon/WebMD for any reason, each option held by Mr. Wygod at the
effective time of the mergers will continue to vest in accordance with the
applicable schedule, and will otherwise be treated for purposes of the terms and
conditions thereof, as if he remained employed through the earlier of the first
anniversary of the last scheduled vesting date for his options or the material
breach by him of the restrictive covenants contained in the letter agreement,
which are described below.
The letter agreement provides that at the effective time of the mergers,
except as otherwise permitted, for a period ending on the earlier of the second
anniversary of the date Mr. Wygod is neither a director on Healtheon/WebMD's
board nor its Co-Chief Executive Officer or Chief Executive Officer or the third
anniversary of the effective time of the mergers, Mr. Wygod will not engage in a
business or business activities that are either substantially similar to, or
competitive with, the businesses engaged in by Medical Manager and CareInsite at
the effective time of the mergers. The letter agreement also provides that
during the period beginning at the effective time of the mergers and ending upon
the later of the end of Mr. Wygod's noncompete period, as described above, and
the first anniversary of the date of his resignation or removal as a
Healtheon/WebMD director, Mr. Wygod will keep confidential the proprietary
information of Healtheon/WebMD, Medical Manager and CareInsite.
In addition, during the period beginning at the effective time of the
mergers and ceasing at the end of Mr. Wygod's noncompete period, Mr. Wygod is
prohibited from:
- directly or indirectly soliciting any customer, or any person or entity
who is reasonably expected to become a customer, of Healtheon/WebMD,
Medical Manager, CareInsite or specified affiliates for any commercial
pursuit which is a competitive business
- directly or indirectly solicit or induce, or attempt to induce, any
employees, agents, or consultants of Healtheon/WebMD, Medical Manager,
CareInsite or specified affiliates to leave the employ of
Healtheon/WebMD, Medical Manager, CareInsite or these affiliates or to
offer employment to or interfere or attempt to interfere with any of
these employees, agents or consultants.
In the event Mr. Wygod materially breaches any of the foregoing covenants
the letter agreement provides that further vesting of Mr. Wygod's options will
cease and Healtheon/WebMD will be entitled to seek injunctive relief.
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In addition, in the case of a willful material breach by Mr. Wygod of these
covenants, Healtheon/WebMD will also be entitled to pursue other legal and
equitable remedies including recovery of damages from Mr. Wygod.
On June 18, 2000, Healtheon/WebMD entered into a letter agreement with
Charles A. Mele, a member of Medical Manager's and CareInsite's board of
directors and Medical Manager's Executive Vice President, General Counsel and
Secretary, effective upon the consummation of the mergers. The letter agreement
provides that in the event Mr. Wygod ceases to be Co-Chief Executive Officer or
Chief Executive Officer of Healtheon/WebMD and Mr. Mele's employment with
Healtheon/WebMD or Medical Manager terminates for any reason, each option held
by Mr. Mele at the effective time of the mergers will continue to vest in
accordance with the applicable schedule, and will otherwise be treated for
purposes of the terms and conditions thereof, as if he remained employed through
the earlier of the first anniversary of the last scheduled vesting date for his
options or the material breach by him of the restrictive covenants contained in
the letter agreement. These restrictive covenants are substantially similar to
the provisions provided for in the letter agreement with Mr. Wygod, as described
above. The letter agreement provides that in the event Mr. Mele materially
breaches any covenant or agreement in the letter agreement further vesting of
Mr. Mele's options will cease and Healtheon/WebMD will be entitled to seek
injunctive relief.
In addition, upon completion of the mergers, the vesting schedule
applicable to options to purchase 250,000 shares of Medical Manager common stock
granted to Mr. Mele on June 5, 2000 will be shortened from four years to three
years in the same manner as options granted to Mr. Rich.
Employment agreements. Under the amended and restated employment agreement
that Medical Manager and CareInsite entered into with Marvin P. Rich, Mr. Rich
will receive, immediately prior to the completion of the mergers, an option to
purchase 300,000 shares of Medical Manager common stock at an exercise price of
$15.00 per share. In addition, upon the completion of the mergers, loans made by
Medical Manager and CareInsite to Mr. Rich, each in the principal amount of
$300,000, will be forgiven and the vesting schedule applicable to some options
held by Mr. Rich will be shortened from four years to three years.
Under the employment agreements entered into between Medical Manager and
each of Michael A. Singer and John H. Kang, if the executive resigns after six
months, or one year in the case of Mr. Kang, following a change in control, as
defined in each employment agreement, the executive will receive the following:
- continuation of his base salary and benefits for the remainder of the
term under his employment agreement
- accelerated vesting of outstanding stock options granted under his
employment agreement which are not yet vested on the date of termination
In addition, in the case of Mr. Kang only, his $2.4 million loan from
Medical Manager will be forgiven on the first anniversary of the completion of
the mergers provided he remains employed by Medical Manager on that date unless
his employment is terminated earlier without cause or he resigns for good
reason, in which case the loan will be forgiven on the date of such termination.
Indemnification arrangements. Under the Medical Manager merger agreement,
Healtheon/WebMD has agreed to indemnify the officers and directors of Medical
Manager after the completion of the mergers to the extent permitted by law. In
addition, Healtheon/WebMD agreed to continue in effect for a period of six years
after the mergers the rights to indemnification provided by Medical Manager's
certificate of incorporation and bylaws.
CareInsite
In considering the recommendation of the CareInsite board of directors with
regard to the CareInsite merger, you should be aware that, as described below,
several executive officers and members of the board of directors of CareInsite
may have interests in the merger that are different from, or in addition to,
your interests, and that may create potential conflicts of interests. You should
also know that Medical Manager is the owner of approximately 67.4% of CareInsite
common stock and that a majority of the members of the CareInsite board of
directors are also members of the Medical Manager board of directors. In order
to ensure that the interests of the stockholders of CareInsite were properly
represented, CareInsite's board of directors created the special committee for
the purposes of negotiating and determining whether to recommend the CareInsite
Merger. For more information about the special committee, see "Background of the
mergers" on page 46.
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Stock options. As of the record date, approximately 2,755,000 shares of
CareInsite common stock were subject to options granted to executive officers
and directors under CareInsite's stock option plans and arrangements. At the
effective time of the CareInsite merger all outstanding options to purchase
CareInsite common stock under CareInsite's plans will be assumed by
Healtheon/WebMD and will become options to purchase Healtheon/WebMD common
stock, with appropriate adjustments to be made to the number of shares and the
exercise price under these options to reflect the exchange ratio.
Healtheon/WebMD will assume CareInsite's obligations with respect to each option
and the related CareInsite stock option plans in accordance with their terms.
For details, see "Treatment of Medical Manager and CareInsite stock options and
warrants" on page 99.
Options granted to non-employee directors of CareInsite pursuant to the
CareInsite 1999 Director Stock Option Plan will become fully vested and
immediately exercisable upon the completion of the mergers.
Letter agreements. Martin J. Wygod, CareInsite's and Medical Manager's
current Chairman, and Charles A. Mele, a member of CareInsite's and Medical
Manager's board of directors and Medical Manager's Executive Vice President,
General Counsel and Secretary, have entered into letter agreements with
Healtheon/WebMD described in "Interests of directors, executive officers,
affiliates and significant stockholders in the mergers -- Medical
Manager -- Letter agreements" on page 83.
In addition, upon completion of the mergers, the vesting schedule
applicable to options to purchase 250,000 shares of Medical Manager common stock
granted to Mr. Mele on June 5, 2000 will be shortened from four years to three
years in the same manner as options granted to Mr. Rich.
Stock option letter agreement. In addition to the acceleration of vesting
of options under the circumstances described above, Healtheon/WebMD has entered
into letter agreements with CareInsite and Medical Manager for the benefit of
some of their key employees, including David Amburgey, Senior Vice
President -- General Counsel of CareInsite, and Steven Zatz, Senior Vice
President -- Development of CareInsite. The letter agreements provide that in
the event:
- Mr. Wygod ceases to hold the position of Co-Chief Executive Officer or
Chief Executive Officer of Healtheon/WebMD for any reason, and
- Healtheon/WebMD terminates the employee without "cause," as defined in
the merger agreements, or such employee terminates his employment under
specified circumstances, in either case, on or following the second
anniversary of the effective time of the mergers,
all outstanding CareInsite and Medical Manager options held by the employee will
become fully exercisable upon the date of termination.
Employment agreements. Under the amended and restated employment agreement
that Medical Manager and CareInsite entered into with Marvin P. Rich, President
of Medical Manager and Chief Executive Officer of CareInsite, Mr. Rich will
receive, immediately prior to the completion of the mergers, an option to
purchase 300,000 shares of Medical Manager common stock at an exercise price of
$15.00 per share. In addition, upon the completion of the mergers, loans made by
Medical Manager and CareInsite to Mr. Rich, each in the principal amount of
$300,000, will be forgiven and the vesting schedule applicable to some options
held by Mr. Rich will be shortened from four years to three years.
In the event that Martin J. Wygod ceases to be the Chairman of the Board of
Directors or Chief Executive Officer of Medical Manager or a senior officer of
Healtheon/WebMD following the completion of the mergers and Roger C. Holstein,
CareInsite's Executive Vice President, Marketing and Sales, resigns after
remaining employed for an additional one-year period, Mr. Holstein's stock
options will remain outstanding and continue to vest as though Mr. Holstein had
remained employed through the earlier of:
- the later of November 6, 2002 and the last date on which these options
actually vest
- an occurrence of an event that would constitute "cause," as defined in
his employment agreement.
Indemnification arrangements. Under the CareInsite merger agreement,
Healtheon/WebMD has agreed to indemnify the officers and directors of CareInsite
after the completion of the mergers to the extent permitted by
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law. In addition, Healtheon/WebMD agreed to continue in effect for a period of
six years after the mergers the rights to indemnification provided by
CareInsite's certificate of incorporation and bylaws.
Strategic relationships. Cerner, which owns approximately 17.4% of
CareInsite's outstanding common stock, has agreed to vote in favor of the
CareInsite merger agreement and the CareInsite merger. CareInsite and Cerner are
parties to a number of commercial agreements which will remain in effect
following the mergers. In addition, Healtheon/WebMD has agreed to negotiate a
marketing agreement with Cerner and to evaluate specified Cerner solutions to be
integrated with Healtheon/WebMD's service offerings.
COMPLETION AND EFFECTIVENESS OF THE MERGERS
The mergers will be completed when all of the conditions to completion of
the mergers are satisfied or waived. In the case of the Medical Manager merger,
these conditions include approval and adoption of the Medical Manager merger
agreement and the Medical Manager merger by the stockholders of Healtheon/WebMD
and Medical Manager. In the case of the CareInsite merger, these conditions
include approval of the issuance of shares of Healtheon/WebMD common stock to
the stockholders of CareInsite pursuant to the CareInsite merger by the
stockholders of Healtheon/WebMD, approval and adoption of the CareInsite merger
agreement and the CareInsite merger by the stockholders of CareInsite and
consummation of the Medical Manager merger. The Medical Manager merger will
become effective upon the filing of a certificate of merger with the State of
Delaware, and the CareInsite merger will become effective upon the filing of a
certificate of merger with the State of Delaware and the filing of articles of
merger with the State of Massachusetts.
STRUCTURE OF THE MERGERS AND CONVERSION OF MEDICAL MANAGER AND CAREINSITE
CAPITAL STOCK
Pursuant to the Medical Manager merger, Medical Manager will be merged with
and into Healtheon/WebMD. As a result of the Medical Manager merger, the
separate corporate existence of Medical Manager will cease and Healtheon/WebMD
will continue as the surviving corporation. Pursuant to the CareInsite merger,
CareInsite will be merged with and into Avicenna, a wholly owned subsidiary of
Medical Manager. As a result of the CareInsite merger, the separate corporate
existence of CareInsite will cease and Avicenna will survive as a wholly owned
subsidiary of Healtheon/WebMD. Following the mergers, Healtheon/WebMD common
stock will continue to be traded on the Nasdaq National Market and will be held
by the stockholders of Healtheon/WebMD and the former stockholders of Medical
Manager and CareInsite, other than Avicenna.
Upon completion of the mergers, each outstanding share of Medical Manager
common stock and each outstanding share of CareInsite common stock, other than
shares of CareInsite common stock held by Avicenna, will be converted into a
right to receive 2.5 shares and 1.3 shares of Healtheon/WebMD common stock,
respectively. No fractional shares of Healtheon/WebMD common stock will be
issued pursuant to the mergers. In lieu of the issuance of any fractional shares
of Healtheon/WebMD common stock, any stockholder who would otherwise receive a
fractional share will receive a cash payment equal to the proceeds of sale of
the aggregate fractional shares of Healtheon/WebMD common stock at prevailing
prices on the Nasdaq National Market System as promptly as practicable following
the effective time of the mergers, multiplied by a fraction the numerator of
which is the amount of fractional share interest held by that holder of Medical
Manager or CareInsite common stock and the denominator which is the aggregate
amount of fractional share interests sold.
Upon completion of the CareInsite merger, each outstanding share of
CareInsite Series A preferred stock will be converted into a right to receive
one share of newly issued preferred stock of Healtheon/WebMD with terms that are
substantially identical to the CareInsite preferred stock.
EXCHANGE OF MEDICAL MANAGER AND CAREINSITE STOCK CERTIFICATES FOR
HEALTHEON/WEBMD STOCK CERTIFICATES
When the mergers are completed, Healtheon/WebMD's exchange agent will mail
to Medical Manager stockholders and CareInsite stockholders a letter of
transmittal and instructions for use in surrendering Medical Manager or
CareInsite stock certificates in exchange for Healtheon/WebMD stock
certificates. When a Medical Manager or CareInsite stockholder delivers a
Medical Manager or CareInsite stock certificate to the exchange agent along with
an executed letter of transmittal and any other required documents, their
Medical Manager or CareInsite stock certificate will be canceled and that
stockholder will receive Healtheon/WebMD stock certificates
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representing the number of full shares of Healtheon/WebMD common stock to which
the stockholder is entitled under the applicable merger agreement. A Medical
Manager or CareInsite stockholder will receive payment in cash, without
interest, in lieu of any fractional shares of Healtheon/WebMD common stock which
would have been otherwise issuable to the stockholder in the Medical Manager
merger or the CareInsite merger equal to the sale proceeds of the fractional
share.
MEDICAL MANAGER STOCKHOLDERS AND CAREINSITE STOCKHOLDERS SHOULD NOT SUBMIT
THEIR MEDICAL MANAGER OR CAREINSITE STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY
RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT.
Medical Manager stockholders and CareInsite stockholders are not entitled
to receive any dividends or other distributions on Healtheon/WebMD common stock
until the mergers are completed and they have surrendered their Medical Manager
or CareInsite stock certificates in exchange for Healtheon/WebMD stock
certificates.
Subject to the effect of applicable laws, promptly following surrender of
Medical Manager or CareInsite stock certificates and the issuance of the
corresponding Healtheon/WebMD certificates, Medical Manager stockholders and
CareInsite stockholders will be paid the amount of dividends or other
distributions, without interest, with a record date after the completion of the
mergers which were previously paid with respect to their whole shares of
Healtheon/WebMD common stock. At the appropriate payment date, Medical Manager
and CareInsite stockholders will also receive the amount of dividends or other
distributions, without interest, with a record date after the completion of the
mergers and a payment date after they exchange their Medical Manager or
CareInsite stock certificates for Healtheon/WebMD stock certificates.
Healtheon/WebMD will only issue a Healtheon/WebMD stock certificate or
direct its exchange agent to issue a check in lieu of a fractional share to
Medical Manager stockholders and CareInsite stockholders in a name in which the
surrendered Medical Manager or CareInsite stock certificate is registered. If
Medical Manager stockholders or CareInsite stockholders wish to have their
certificates issued in another name they must present the exchange agent with
all documents required to show and effect the unrecorded transfer of ownership
and show that they paid any applicable stock transfer taxes.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGERS
Material U.S. federal income tax considerations of the Medical Manager
merger
This section summarizes material U.S. federal income tax considerations
relevant to the Medical Manager merger that apply to Medical Manager
stockholders. This discussion is based on existing provisions of the Internal
Revenue Code of 1986, as amended, or the tax code, existing treasury regulations
and current administrative rulings and court decisions, all of which are subject
to change. Any change, which may or may not be retroactive, could alter the tax
consequences of the Medical Manager merger to you. The Internal Revenue Service
may adopt a position contrary to the consequences described below.
We do not discuss all U.S. federal income tax considerations that may be
relevant to you in light of your particular circumstances. Factors that could
alter the tax consequences of the Medical Manager merger to you include:
- if you are a dealer or broker in securities
- if you are a tax-exempt organization
- if you are subject to the alternative minimum tax provisions of the tax
code
- if you are a foreign person or entity
- if you are a financial institution or insurance company
- if you do not hold your Medical Manager shares as capital assets
- if you acquired your shares in connection with stock option or stock
purchase plans, in exchange for services
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- in other compensatory transactions, or
- if you hold Medical Manager shares as part of an integrated investment,
including a straddle, hedge, appreciated financial position or conversion
transaction.
In addition, we do not discuss the tax consequences of the Medical Manager
merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
Medical Manager merger, whether or not any transactions are undertaken in
connection with the Medical Manager merger, including without limitation any
transaction in which Medical Manager shares are acquired or shares of
Healtheon/WebMD common stock are disposed of, or the tax consequences to holders
of options, warrants or similar rights to acquire Medical Manager capital stock.
ACCORDINGLY, WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MEDICAL MANAGER MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE MEDICAL MANAGER MERGER.
Tax implications for Medical Manager stockholders. Counsel to
Healtheon/WebMD, Alston & Bird LLP, and counsel to Medical Manager, Shearman &
Sterling, are of the opinion that as of the date of this proxy
statement/prospectus and based on law as of such date the merger of Medical
Manager with and into Healtheon/WebMD will be a "reorganization" for U.S.
federal income tax purposes within the meaning of section 368(a) of the tax code
and that Healtheon/WebMD and Medical Manager will each be a party to the
reorganization within the meaning of section 368(b) of the tax code. This means
that:
- Medical Manager stockholders will not recognize gain or loss when they
receive Healtheon/WebMD common stock solely in exchange for their shares
of Medical Manager common stock in the Medical Manager merger, except for
cash received for a fractional share of Healtheon/WebMD common stock.
- Cash payments received by Medical Manager stockholders for a fractional
share of Healtheon/WebMD common stock should be treated as if the
fractional share had been issued in the Medical Manager merger and then
redeemed by Healtheon/WebMD. The Medical Manager stockholders should
recognize gain or loss with respect to these cash payments, measured by
the difference, if any, between the amount of cash received and the basis
of the Medical Manager common stock allocable to the fractional share.
- The aggregate tax basis of the Healtheon/WebMD common stock received,
excluding any fractional shares, by holders of Medical Manager common
stock will be the same as the aggregate tax basis of the Medical Manager
common stock surrendered in exchange for the Healtheon/WebMD common stock
reduced by the amount of tax basis allocable to a fractional share for
which cash is received.
- The holding period of the Healtheon/WebMD common stock received by
holders of Medical Manager stock in the Medical Manager merger will
include the period the exchanged Medical Manager common stock was
considered to be held, provided that the Medical Manager common stock
surrendered is held as a capital asset at the time of the Medical Manager
merger.
Limitation on the tax opinions. Neither Healtheon/WebMD nor Medical
Manager has requested a ruling from the Internal Revenue Service with regard to
any of the federal income tax consequences of the Medical Manager merger.
The opinions described above do not bind the Internal Revenue Service or
the courts and do not preclude either from adopting a contrary position. These
opinions are subject to qualifications and are conditioned upon assumptions,
including the truth and accuracy of representations and the compliance with
covenants as to future actions made by the parties to the Medical Manager merger
agreement. The opinions may not be relied upon if any of these representations
is incorrect or incomplete or any of these covenants is not complied with.
Information reporting and backup withholding. Some non-corporate Medical
Manager stockholders may be subject to information reporting and to backup
withholding at a rate of 31% on any cash received pursuant to the Medical
Manager merger. Backup withholding will not apply to a stockholder who furnishes
his or her taxpayer identification number and certifies that he or she is not
subject to backup withholding on an Internal Revenue Service Form W-9 or who is
otherwise exempt from backup withholding.
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Consequences of a contrary Internal Revenue Service determination. A
successful Internal Revenue Service challenge to the status of the Medical
Manager merger as a reorganization would result in a Medical Manager stockholder
recognizing gain or loss with respect to each share of Medical Manager common
stock surrendered. This gain or loss would equal the difference between the
stockholder's basis in the shares and the fair market value, at the time of the
Medical Manager merger, of the Healtheon/WebMD common stock received. In this
event, a stockholder's aggregate basis in the Healtheon/WebMD common stock
received would equal its fair market value, and the stockholder's holding period
for the Healtheon/WebMD stock would begin the day after the Medical Manager
merger.
Even if the Medical Manager merger qualifies as a reorganization, a
stockholder who receives shares of Healtheon/WebMD common stock would recognize
gain to the extent that those shares were considered received in exchange for
services. Gain would also have to be recognized to the extent that a holder of
Medical Manager common stock was treated as receiving, directly or indirectly,
consideration other than Healtheon/WebMD common stock in exchange for the
holder's Medical Manager common stock. All or a portion of those gain amounts
may be taxable as ordinary income.
Material U.S. federal income tax considerations of the CareInsite merger
This section summarizes material U.S. federal income tax considerations
relevant to the CareInsite merger that apply to CareInsite stockholders, other
than Avicenna. This discussion is based on existing provisions of the tax code,
existing treasury regulations and current administrative rulings and court
decisions, all of which are subject to change. Any change, which may or may not
be retroactive, could alter the tax consequences of the CareInsite merger to
you. The Internal Revenue Service may adopt a position contrary to the
consequences described below.
We do not discuss all U.S. federal income tax considerations that may be
relevant to you in light of your particular circumstances. Factors that could
alter the tax consequences of the CareInsite merger to you include:
- if you are a dealer or broker in securities
- if you are a tax-exempt organization
- if you are subject to the alternative minimum tax provisions of the tax
code
- if you are a foreign person or entity
- if you are a financial institution or insurance company
- if you do not hold your CareInsite shares as capital assets
- if you acquired your shares in connection with stock option or stock
purchase plans, in exchange for services or in other compensatory
transactions, or
- if you hold CareInsite shares as part of an integrated investment,
including a straddle, hedge, appreciated financial position or conversion
transaction.
In addition, we do not discuss the tax consequences of the CareInsite
merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
CareInsite merger, whether or not any of these transactions are undertaken in
connection with the CareInsite merger, including without limitation any
transaction in which CareInsite shares are acquired or shares of Healtheon/WebMD
capital stock are disposed of, or the tax consequences to holders of options,
warrants or similar rights to acquire CareInsite capital stock. ACCORDINGLY, WE
URGE YOU TO CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE CAREINSITE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO YOU OF THE CAREINSITE MERGER.
Tax implications for CareInsite stockholders. Counsel to Healtheon/WebMD,
Alston & Bird LLP, and counsel to CareInsite's special committee, Davis Polk &
Wardwell, are of the opinion that as of the date of this proxy
statement/prospectus and based on law as of such date the merger of CareInsite
with and into Avicenna will be a "reorganization" for U.S. federal income tax
purposes within the meaning of section 368(a) of the tax code
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and that Healtheon/WebMD, CareInsite and Avicenna will each be a party to the
reorganization within the meaning of section 368(b) of the tax code. This means
that:
- Holders of CareInsite common stock, including the former holder of
CareInsite preferred stock if it elects to convert its preferred stock
into CareInsite common stock immediately prior to and conditioned upon
the CareInsite merger, will not recognize gain or loss when they receive
Healtheon/WebMD common stock solely in exchange for their shares of
CareInsite common stock in the CareInsite merger, except for cash
received for a fractional share of Healtheon/WebMD common stock.
- If the holder of CareInsite preferred stock elects not to convert its
preferred stock into CareInsite common stock, it will not recognize gain
or loss when it receives Healtheon/WebMD preferred stock solely in
exchange for its shares of CareInsite preferred stock, and will not
recognize gain or loss when it converts its Healtheon/WebMD preferred
stock into Healtheon/WebMD common stock, except for cash received for a
fractional share of Healtheon/WebMD common stock.
- Cash payments received by holders of CareInsite common stock for a
fractional share of Healtheon/WebMD common stock should be treated as if
the fractional share had been issued in the CareInsite merger and then
redeemed by Healtheon/WebMD. The CareInsite common stockholders should
recognize gain or loss with respect to these cash payments, measured by
the difference, if any, between the amount of cash received and the basis
of the CareInsite common stock allocable to the fractional share.
- The aggregate tax basis of the Healtheon/WebMD capital stock received,
excluding any fractional shares, by holders of CareInsite capital stock
will be the same as the aggregate tax basis of the CareInsite capital
stock surrendered in exchange for the Healtheon/WebMD capital stock
reduced by the amount of tax basis allocable to a fractional share for
which cash is received.
- The holding period of the Healtheon/WebMD capital stock received by
holders of CareInsite capital stock in the CareInsite merger will include
the period the exchanged CareInsite stock was considered to be held,
provided that the CareInsite capital stock surrendered is held as a
capital asset at the time of the CareInsite merger.
- If the holder of CareInsite preferred stock exercises dissenters' rights
with respect to the preferred stock and receives payment for the
preferred stock in cash, it will generally recognize capital gain or
loss, measured by the difference between its tax basis in the stock and
the amount of cash received.
Limitation on the tax opinions. Neither Healtheon/WebMD nor CareInsite has
requested a ruling from the Internal Revenue Service with regard to any of the
federal income tax consequences of the CareInsite merger.
The opinions described above do not bind the Internal Revenue Service or
the courts and do not preclude either from adopting a contrary position. These
opinions are subject to qualifications and are conditioned upon assumptions,
including the truth and accuracy of representations and the compliance with
covenants as to future actions made by the parties to the CareInsite merger
agreement. The opinions may not be relied upon if any of these representations
is incorrect or incomplete or if any of these covenants is not complied with.
Information reporting and backup withholding. Some non-corporate
CareInsite stockholders may be subject to information reporting and to backup
withholding at a rate of 31% on any cash received pursuant to the CareInsite
merger. Backup withholding will not apply to a stockholder who furnishes his or
her taxpayer identification number and certifies that he or she is not subject
to backup withholding on an Internal Revenue Service Form W-9 or who is
otherwise exempt from backup withholding.
Consequences of a contrary Internal Revenue Service determination. A
successful Internal Revenue Service challenge to the status of the CareInsite
merger as a reorganization would result in a CareInsite stockholder recognizing
gain or loss with respect to each share of CareInsite capital stock surrendered.
This gain or loss would equal the difference between the stockholder's basis in
the shares and the fair market value, at the time of the CareInsite merger, of
the Healtheon/WebMD capital stock received. In this event, a stockholder's
aggregate basis in the Healtheon/WebMD capital stock received would equal its
fair market value, and the stockholder's holding period for the Healtheon/WebMD
stock would begin the day after the CareInsite merger.
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Even if the CareInsite merger qualifies as a reorganization, a stockholder
who receives shares of Healtheon/WebMD capital stock would recognize gain to the
extent that those shares were considered received in exchange for services. Gain
would also have to be recognized to the extent that a holder of CareInsite
capital stock was treated as receiving, directly or indirectly, consideration
other than Healtheon/WebMD capital stock in exchange for the holder's CareInsite
capital stock. All or a portion of those gain amounts may be taxable as ordinary
income.
ACCOUNTING TREATMENT OF THE MERGERS
We intend to account for each of the mergers as a purchase for financial
reporting and accounting purposes, under generally accepted accounting
principles. After the mergers, the results of operations of Medical Manager and
CareInsite will be included in the consolidated financial statements of
Healtheon/WebMD. The purchase prices will be allocated based on the fair values
of the assets acquired and the liabilities assumed. Any excess of cost over fair
value of the net tangible assets of Medical Manager or CareInsite acquired will
be recorded as goodwill and other intangible assets and will be amortized by
charges to operations in accordance with generally accepted accounting
principles. These allocations will be made based upon valuations and other
studies that have not yet been finalized.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGERS
The mergers are subject to the requirements of the HSR Act, which prevents
transactions from being completed until required information and materials are
furnished to the Antitrust Division of the DOJ and the FTC and the appropriate
waiting periods end or expire. On April 24, 2000, Healtheon/WebMD, Medical
Manager and CareInsite filed Pre-Merger Notification and Report Forms under the
HSR Act with the FTC and the DOJ. On May 24, 2000, the DOJ issued a request for
additional information. The mergers may not be completed until 20 days after the
parties have substantially complied with this request, unless this waiting
period is terminated earlier by the DOJ. Each of the parties substantially
complied with the second request on July 28, 2000. The final waiting period will
expire on 11:59 p.m. on August 17, 2000. The waiting period may be extended only
by court order or the consent of the parties. Consummation of each of the
mergers is subject to the expiration or termination of all applicable waiting
periods under the HSR Act and no action having been instituted by the DOJ or the
FTC that is not withdrawn or terminated prior to each merger's effective time.
The Antitrust Division of the DOJ or the FTC may challenge the mergers on
antitrust grounds either before or after expiration of the waiting period.
Accordingly, at any time before or after the completion of the mergers, either
the Antitrust Division of the DOJ or the FTC could take action under the
antitrust laws. Other persons could take action under the antitrust laws,
including seeking to enjoin either or both of the mergers. Additionally, at any
time before or after the completion of the mergers, notwithstanding that the
applicable waiting period expired or ended, any state could take action under
the antitrust laws. A challenge to either or both of the mergers could be made
and if a challenge is made we may not prevail.
None of the parties is aware of any other material governmental or
regulatory approval required for completion of the mergers, other than the
effectiveness of the registration statement of which this proxy
statement/prospectus is a part, and compliance with applicable corporate law of
the State of Delaware and, in the case of the CareInsite merger, the State of
Massachusetts.
RESTRICTIONS ON SALES OF SECURITIES BY AFFILIATES OF HEALTHEON/WEBMD
Substantial amounts of Healtheon/WebMD common stock outstanding after the
mergers will become freely transferable after contractual and legal transfer
restrictions lapse. Sales of substantial amounts of Healtheon/WebMD's common
stock in the public market, or the perception that these sales may occur, could
materially and adversely affect the prevailing market prices for the common
stock of Healtheon/WebMD.
After completion of the mergers, Healtheon/WebMD will have an aggregate of
approximately 373 million shares of common stock outstanding, including the
approximately 21.3 million shares issuable upon conversion of the shares of
Healtheon/WebMD Series A preferred stock outstanding as of May 31, 2000. Of
these shares, approximately 281 million shares will be freely tradeable without
restrictions or further registration under the
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Securities Act, unless owned by "affiliates" of Healtheon/WebMD, as that term is
defined in Rule 144 under the Securities Act. The remaining approximately 92
million shares of common stock outstanding after the mergers are subject to
contractual restrictions on transfer as described below.
As a result of the contractual restrictions, and subject to the provisions
of Rule 144 and 144(k), each described below, additional shares will be
available for sale in the public market as follows:
- 35.0 million shares of common stock of Healtheon/WebMD held by Quintiles
as a result of the acquisition of Envoy will be subject to contractual
transfer restrictions until May 26, 2002, except that up to one-third of
these shares may be sold in the public market without contractual
restriction at any time after May 26, 2001 and up to two-thirds of these
shares may be sold in the public market without contractual restriction
at any time after November 26, 2001.
- 155,951 shares of Series A preferred stock of Healtheon/WebMD held by
affiliates of News Corporation, and the 21,282,645 shares of common stock
into which the shares of Series A preferred stock are convertible, are
subject to contractual transfer restrictions until the earlier of one
year after a change of control of Healtheon/WebMD, the liquidation,
dissolution or winding up of Healtheon/WebMD, or January 26, 2003. Upon
the lapse of these contractual restrictions, the shares would be
transferable pursuant to Rule 144 or upon exercise of News Corporation's
registration rights. An additional 2.0 million shares of common stock
owned by affiliates of News Corporation are not subject to contractual
transfer restrictions and will be eligible for sale, subject to the
volume, manner of sale and reporting requirements of Rule 144, after
January 26, 2001. These 2.0 million shares of common stock and, after the
lapse of the contractual restrictions, the 21,282,645 shares of common
stock underlying the Series A preferred stock may also be sold pursuant
to News Corporation's registration rights after June 30, 2000, if not
previously sold pursuant to Rule 144 or another exemption from
registration under the Securities Act, which would result in these shares
becoming eligible for sale in the public market without restriction
immediately upon the effectiveness of such registration.
- 15.0 million shares of the approximately 24.6 million shares of common
stock of Healtheon/WebMD which were purchased directly from
Healtheon/WebMD by Janus will be eligible for sale, subject to the
volume, manner of sale and reporting requirements of Rule 144 after
January 26, 2001. These shares may also be sold pursuant to Janus'
registration rights after June 11, 2000, which would result in such
shares becoming eligible for sale in the public market without
restriction immediately upon the effectiveness of registration.
- 13,149,259 shares of common stock of CareInsite held by Cerner will be
converted in the CareInsite merger into 17,094,037 shares of
Healtheon/WebMD common stock. These shares will be subject to the
contractual restrictions on transfer described in "Cerner voting
agreement" on page 106.
- Approximately 1.7 million shares of common stock of Healtheon/WebMD to be
issued to other holders of CareInsite common stock in the CareInsite
merger are subject to contractual restrictions on transfer. Approximately
1.1 million of these shares will no longer be subject to these
restrictions after November 2000 and the balance will no longer be
subject to these restrictions after May 2001.
- 100 shares of Series A preferred stock of CareInsite held by AOL are
convertible into shares of common stock of CareInsite after March 2002.
These shares will be converted in the CareInsite merger into the right to
receive 100 shares of Series A preferred stock of Healtheon/WebMD. In the
event that AOL elects to convert the 100 shares of Series A preferred
stock of Healtheon/WebMD, it would receive 263,960 shares of common stock
of Healtheon/WebMD and a warrant exercisable for an additional 263,960
shares at $37.88 per share. None of these shares of Healtheon/WebMD
common stock will be eligible for sale prior to March 2002.
The shares of Healtheon/WebMD common stock to be issued in the mergers will
be registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares of Healtheon/WebMD common stock
issued to or held by any person who is an affiliate of Healtheon/WebMD or of
Medical Manager, in the case of the stock issued in the Medical Manager merger,
or CareInsite, in the case of stock issued in the CareInsite merger. Persons who
may be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control with Healtheon/WebMD, Medical Manager
or
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CareInsite and may include some of their respective officers and directors, as
well as their respective principal stockholders. Affiliates may not sell their
shares of Healtheon/WebMD common stock acquired in the mergers except pursuant
to:
- an effective registration statement under the Securities Act covering the
resale of those shares,
- an exemption under paragraph (d) of Rule 145 under the Securities Act, or
- any other applicable exemption under the Securities Act.
The registration statement on Form S-4 of which this proxy
statement/prospectus forms a part does not cover the resale of shares of
Healtheon/WebMD common stock to be received by affiliates in the mergers.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares of Healtheon/WebMD common stock for at
least one year, or an affiliate who beneficially owns shares of Healtheon/WebMD
common stock, would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which
immediately after the mergers will equal approximately 3.5 million shares
based on the approximately 352 million shares that will be outstanding at
that time, or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Healtheon/WebMD.
Under Rule 144(k), a person who is not an affiliate of Healtheon/WebMD at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years including the
holding period of any prior owner other than an affiliate, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, these may be sold immediately.
In addition, after the mergers Healtheon/WebMD will have outstanding
warrants exercisable for approximately 43 million shares of the common stock of
Healtheon/WebMD, of which warrants to acquire 7.7 million shares are subject to
vesting conditions. Generally, the shares of Healtheon/WebMD common stock issued
upon exercise of these warrants will also be restricted securities and may not
be sold in the absence of registration other than in accordance with Rule 144 or
another exemption from registration under the Securities Act. Approximately 26.5
million shares of common stock issuable upon the exercise of these warrants may
also be sold pursuant to registration rights, which would result in such shares
becoming eligible for sale in the public market without restriction immediately
upon the effectiveness of a registration.
Healtheon/WebMD has filed registration statements registering 50,415,370
shares of common stock reserved for issuance under stock option plans of
Healtheon/WebMD, in addition to the warrants described above. Healtheon/WebMD
will file a registration statement to register approximately 72,050,000 shares
of common stock reserved for issuance under stock option plans of Medical
Manager and CareInsite which will be assumed by Healtheon/WebMD in the mergers.
Persons acquiring these shares upon exercise of their options, whether or not
they are affiliates, will be permitted to resell their shares in the public
market without regard to the Rule 144 holding period.
INTEGRATION COMMITTEE
Healtheon/WebMD, Medical Manager and CareInsite have established an
integration committee, consisting of members of Healtheon/WebMD's, Medical
Manager's and CareInsite's senior management teams. The purpose of this
committee is to plan for the integration of Healtheon/WebMD, Medical Manager and
CareInsite and to develop an expense reduction program following the completion
of the mergers. The committee will make recommendations to each of
Healtheon/WebMD's and Medical Manager's board of directors in order to
facilitate the efforts of each company's management teams to integrate their
respective businesses effectively and efficiently.
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STOCKHOLDER LITIGATION
On March 14, 2000, Medical Manager was served with a summons in a lawsuit
filed on February 17, 2000, against Medical Manager, CareInsite and specified
officers and directors of Medical Manager and CareInsite, among other parties,
in the New Jersey Superior Court, Chancery Division, in Bergen County. The
plaintiff purports to be a holder of CareInsite common stock. The lawsuit,
captioned Ina Levy, et al. vs. Martin J. Wygod, et al., C-59-00, purports to
bring an action on behalf of the plaintiff and others similarly situated to
enjoin the defendants from consummating the Medical Manager merger and the
CareInsite merger. The plaintiff alleges that the defendants have breached their
fiduciary duties in that the proposed Medical Manager merger favors the
interests of Medical Manager and its stockholders over the interests of
CareInsite's minority stockholders. The plaintiff also alleges that the proposed
mergers provide the defendants and other Medical Manager stockholders with a
premium which exceeds the premium provided to CareInsite's minority
stockholders. The lawsuit seeks, among other things, injunctive relief and
unspecified damages. The plaintiff, by her counsel, has entered into a
memorandum of understanding, dated July 31, 2000, with the defendants, by their
counsel, pursuant to which the parties have agreed to settle the lawsuit. The
proposed settlement is subject to, among other things, the approval of the
settlement by the New Jersey Superior Court, Chancery Division.
The memorandum of understanding provides for the following: (1) the
certification of the action as a class action under the rules of the Court,
which class would consist of all holders of the shares of CareInsite common
stock from and including February 13, 2000 through and including the effective
time of the CareInsite merger; (2) the complete and final dismissal with
prejudice, settlement, discharge and release of all claims, demands, rights,
actions, causes of action, liabilities, damages, losses, obligations, judgments,
suits, matters and issues of any kind or nature whatsoever, whether known or
unknown, contingent or absolute, suspected or unsuspected, disclosed or
undisclosed, hidden or concealed, matured or unmatured, arising under federal,
state or any other law, that have been, could have been, or in the future can or
might be asserted in the action or in any court, tribunal or proceeding by or on
behalf of any member of the class, whether individual, class, derivative,
representative, legal, equitable or any other type in any other capacity,
against the defendants, Healtheon/WebMD or any of their respective past, present
or future officers, directors, associates, stockholders, representatives,
families, parent entities, affiliates, subsidiaries, employees, attorneys,
financial or investment advisors, consultants, accountants, investment bankers,
engineers, advisors or agents, heirs, executors, trustees, general or limited
partners or partnerships, personal representatives, estates or administrators,
predecessors, successors and assigns (collectively, the "Released Persons"),
which have arisen, could have arisen, or will arise out of, or which are related
in any manner to, the allegations, facts, events, transactions, acts,
occurrences, statements, representations, misrepresentations, omissions or any
other matter, set forth or otherwise related, directly or indirectly, to the
complaint filed in the action, the CareInsite merger, the Medical Manager
merger, public filings or statements by any of the defendants or their
representatives in connection with the CareInsite merger, the Medical Manager
merger or any other actions of the defendants relating in any way to the
CareInsite merger or the Medical Manager merger (subject to certain limited
exceptions); (3) the defendants have denied, and continue to deny, that they
have committed or attempted to commit any violation of law or breaches of duty
of any kind; and (4) the defendants are entering into the memorandum of
understanding and will be entering into the proposed settlement documentation
solely because the proposed settlement would eliminate the burden, risk and
expense of further litigation and is in the best interests of CareInsite,
Medical Manager and all of their respective stockholders. In addition, counsel
to the plaintiff provided comments to Medical Manager and CareInsite in
connection with the preparation of this proxy statement/prospectus.
In addition, the parties have agreed in the memorandum of understanding
that plaintiff's counsel in the action will apply to the Court for a total award
of attorney's fees and expenses in an amount not to exceed $600,000, which the
defendants have agreed not to oppose; provided, however, that such amount shall
be payable only after Final Court Approval (as defined below) and only if the
CareInsite merger and the Medical Manager merger close.
In addition, (1) Medical Manager has waived any right it may at any time
have under the Medical Manager merger agreement to collect from Healtheon/WebMD
a termination fee in excess of $65 million, (2) CareInsite has waived any right
it may at any time have under the CareInsite merger agreement to collect from
Healtheon/WebMD a termination fee in excess of $35 million and (3)
Healtheon/WebMD has waived any right it
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may at any time have under the Medical Manager merger agreement to collect from
Medical Manager a termination fee in excess of $100 million.
Pursuant to the terms of the memorandum of understanding, any of the
defendants shall have the right to withdraw from the proposed settlement in the
event that any of the conditions to the consummation of the settlement described
below shall not have been satisfied. The consummation of the settlement is
subject to (1) the drafting and execution of the settlement documents and the
other agreements necessary to effectuate the terms of the proposed settlement,
(2) Final Court Approval of the settlement, (3) dismissal of the action by the
Court with prejudice and without awarding fees or costs to any party (other than
as described above) and (4) the closings of the CareInsite merger and the
Medical Manager merger.
For purposes hereof, "Final Court Approval" of the settlement means an
order entered by the Court approving the settlement and awarding plaintiff's
counsel's fees and expenses and such order is finally affirmed, without
modification of any substantive right of any party to the memorandum of
understanding, on appeal or is no longer subject to appeal and time for any
petition for reargument, appeal or review, by certiorari or otherwise, has
expired, provided that any modification of the order approving the settlement
with respect to the amount of attorney's fees and expenses awarded and/or any
additional supplemental disclosure required shall not be considered a
modification of a substantive right affecting Final Court Approval.
AMENDMENT OF HEALTHEON/WEBMD'S BYLAWS
Effective only upon completion of the mergers, Healtheon/WebMD's board of
directors will amend the bylaws of Healtheon/WebMD to create the office of
Co-Chief Executive Officer. The bylaws will also be amended to provide that the
number of directors of Healtheon/WebMD will be 15 and that this number may be
changed exclusively by a resolution duly adopted by the vote of a majority of
the directors then authorized by the bylaws.
LISTING ON THE NASDAQ NATIONAL MARKET OF HEALTHEON/WEBMD COMMON STOCK TO BE
ISSUED IN THE MERGERS
It is a condition to the closing of each of the mergers that
Healtheon/WebMD has used reasonable efforts to have the shares of
Healtheon/WebMD common stock to be issued in the merger approved for listing on
the Nasdaq National Market, subject to official notice of issuance. An
application will be filed by Healtheon/WebMD to list the shares in the Nasdaq
National Market.
DELISTING AND DEREGISTRATION OF MEDICAL MANAGER AND CAREINSITE COMMON STOCK
AFTER THE MERGERS
If the mergers are completed, Medical Manager common stock and CareInsite
common stock will be delisted from the Nasdaq National Market and will be
deregistered under the Securities Exchange Act.
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THE MERGER AGREEMENTS
This section contains a summary of the merger agreements for the Medical
Manager merger and the CareInsite merger. The provisions of the merger
agreements are complicated and not easily summarized. The Medical Manager merger
agreement and the amendment thereto and the CareInsite merger agreement and the
amendment thereto are attached to this proxy statement/prospectus as Annex A and
Annex B, respectively, and incorporated by reference into this proxy
statement/prospectus. We urge you to read these documents carefully. The terms
"party" and "parties" used throughout this section refer, with respect to the
Medical Manager merger agreement, to Medical Manager and Healtheon/WebMD and,
with respect to the CareInsite merger agreement, to CareInsite, Avicenna and
Healtheon/WebMD. Differences between the merger agreements are noted in the
summary below and, in describing those differences, we refer to the companies by
name.
REPRESENTATIONS AND WARRANTIES
The parties each made representations and warranties regarding aspects of
their businesses, financial condition, structure and other facts pertinent to
the applicable merger, including:
- capitalization
- changes in business since December 31, 1999
- intellectual property
- opinions received from financial advisors
- financial statements
- filings with the SEC
- litigation
- employee benefit plans
- taxes.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGERS
Each party agreed that until the completion of the applicable merger, in
each case unless the other party consents in writing, it will use all reasonable
efforts to:
- preserve intact its present lines of business
- maintain its rights and franchises
- preserve its relationships with employees, customers, suppliers and
others with which it has business dealings.
Each party also agreed that until the completion of the applicable merger
or unless the other party consents in writing, it would conduct its business in
compliance with specific restrictions relating to:
- the issuance of securities
- intellectual property
- dividends or other distributions
- the modification of certificate of incorporation and bylaws
- the acquisition of assets or other entities
- the disposition of assets
- the incurrence of indebtedness
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- the material modification or termination of contracts
- accounting policies and procedures
- actions which would jeopardize the tax treatment of the merger
- tax elections.
Healtheon/WebMD has also agreed to use its reasonable best efforts to
consummate its pending transaction with OnHealth.
All of the restrictions on Medical Manager described above apply to the
subsidiaries of Medical Manager, including CareInsite, and all of the
restrictions on CareInsite described above apply to the subsidiaries of
CareInsite. However, none of the restrictions on Medical Manager and its
subsidiaries prohibit CareInsite from taking any action which the CareInsite
board determines is consistent with its fiduciary duties to the stockholders of
CareInsite.
The parties to each merger agreement agreed to give written notice to the
other party upon becoming aware of any event or circumstance which would be
reasonably likely to have a material adverse effect on it or cause a breach of
any of its representations, warranties, agreements or covenants in a manner that
would cause the conditions to the merger not to be satisfied at the time. Each
party also agreed to use reasonable efforts to prevent or promptly remedy the
same.
NO SOLICITATION OF AN ALTERNATE ACQUISITION PROPOSAL
Until the applicable merger is completed or the until the applicable merger
agreement is terminated, each of the parties has agreed not to directly or
indirectly take any of the following actions without the consent of the other:
- initiate, solicit or encourage any alternate "acquisition proposal," as
defined below
- participate in any discussions or negotiations regarding any alternate
acquisition proposal
- provide any confidential information with respect to any alternate
acquisition proposal
- take any other action to facilitate any effort or attempt to make or
implement any alternate acquisition proposal
- accept any alternate acquisition proposal.
Each of the parties has also agreed to keep the other informed, on a
current basis, of the status and terms of any proposals or offers and the status
of any discussions or negotiations.
An "acquisition proposal" is any offer or proposal relating to any of the
following, except that, with respect to Healtheon/WebMD and its subsidiaries,
the transactions must be ones that could reasonably be expected to preclude the
completion of the applicable merger or the other transactions contemplated by
the applicable merger agreement:
- the purchase or sale of all or any significant portion of the assets or
20% or more of the equity securities of any of the parties or any of
their subsidiaries
- any merger, reorganization, share exchange, consolidation, business
combination, recapitalization or similar transaction involving any of the
parties or any of their subsidiaries
- any liquidation or dissolution of any of the parties or any of their
subsidiaries.
The foregoing shall not prohibit any party or its board of directors or the
special committee of CareInsite's board of directors from complying with SEC
rules regarding communications about tender offers for its securities by third
parties. In addition, any party and its board of directors and the special
committee of CareInsite's board of directors may engage in discussions or
negotiations with, or provide information to, any person in response to an
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unsolicited written alternate acquisition proposal by that person or recommend
the unsolicited written alternate acquisition proposal to the holders of its
common stock if, in each case:
- with respect to the Medical Manager merger only, the Medical Manager
board or the Healtheon/WebMD board concludes in good faith, after
consultation with its financial advisors, that the alternate acquisition
proposal would, if consummated, result in a transaction more favorable to
holders of its common stock than the Medical Manager merger
- its board of directors or, in the case of CareInsite, the special
committee, determines in good faith after consultation with outside legal
counsel that the action could reasonably be deemed to be necessary for it
to act in a manner consistent with its fiduciary duties under applicable
law
- prior to providing any information or data to any person in connection
with the alternate acquisition proposal, it receives from the person an
executed confidentiality agreement
- prior to providing any information or data to any person or entering into
discussions or negotiations with any person in connection with the
alternate acquisition proposal, it notifies the other party promptly of
the receipt of the alternate acquisition proposal indicating, in
connection with the notice, the name of the person making the alternate
acquisition proposal and attaching a copy of the proposal or offer or
providing a complete written summary thereof
- it has not breached its obligation, as described above, not to initiate,
solicit or encourage an alternate acquisition proposal.
MEDICAL MANAGER'S AND CAREINSITE'S EMPLOYEE BENEFIT PLANS
Healtheon/WebMD has agreed that, for a period of two years following the
mergers, it will maintain, or will cause to be maintained, employee benefit
plans, programs and arrangements for the benefit of active and retired employees
of Medical Manager, CareInsite and their subsidiaries that in the aggregate will
provide compensation and benefits that are substantially equivalent to the
compensation and benefits provided to these active and retired employees under
the employee benefit plans, programs and arrangements of Medical Manager,
CareInsite and their subsidiaries immediately prior to the mergers, except that
changes may be made to these employee benefit plans and arrangements to the
extent necessary in light of applicable law. Under the merger agreements,
following the mergers, Healtheon/WebMD will honor, and cause to be honored, in
accordance with their terms, all existing employment and severance agreements
and arrangements and severance, termination protection and bonus plans which are
applicable to any current or former employees or directors of Medical Manager,
CareInsite or any of their subsidiaries.
Employees of Medical Manager, CareInsite and their subsidiaries will
receive credit for purposes of eligibility to participate, vesting credit and
entitlement for benefits and benefit accrual under any employee benefit plan in
which the employee may be eligible to participate after the mergers for service
accrued prior to the mergers with Medical Manager, CareInsite or any of their
subsidiaries, except that crediting of service will not result in duplicate
accrual of benefits for the same period of service. Healtheon/WebMD will use or
cause to be used reasonable efforts to waive any limitations as to pre-existing
conditions, exclusions and waiting periods with respect to participation and
coverage requirements under any welfare plan in which the employee may be
eligible to participate after the mergers and will provide credit for any
co-payments and deductibles paid under a welfare plan prior to the effective
time of the mergers.
Following the Medical Manager merger, Healtheon/WebMD will continue to
maintain the Porex 401(k) Savings Plan and related trust for at least a period
of time necessary to allocate a surplus account transferred from a terminated
pension plan to the Porex 401(k) Savings Plan. All allocations from the surplus
account will be fully vested and nonforfeitable to each participant.
If, prior to two years following the mergers, Healtheon/WebMD terminates
any employee of Medical Manager, CareInsite or any of their subsidiaries without
"cause," as defined below, or any of these employees terminates his employment
with Healtheon/WebMD, Medical Manager, CareInsite or of their subsidiaries
following a "material reduction in the duties," as defined below, or material
reduction in compensation of the
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employee or the relocation of the employee to a location more than 25 miles from
the employee's existing work location, without the employee's consent, all
Medical Manager options and CareInsite options granted to the employee will
become fully exercisable upon termination.
For purposes of this provision, employment with Medical Manager also
constitutes employment with CareInsite.
"Cause" means
- repeated failure by an employee to perform his duties in any material
respect following notice and a reasonable period of time to correct
the failure
- an employee engaging in an act of dishonesty that is materially and
demonstrably injurious to Healtheon/WebMD, Medical Manager or
CareInsite, or
- the conviction of an employee of a felony in respect of a dishonest or
fraudulent act or other crime of moral turpitude involving
Healtheon/WebMD, Medical Manager or CareInsite.
A "material reduction in the duties" of an employee means a substantive
reduction in duties, not a change in title or reporting hierarchy occurring as a
result of the applicable merger.
In the event of a sale of a Medical Manager subsidiary or CareInsite
subsidiary that is treated as a termination of employment of an employee of the
subsidiary for purposes of the employee's Medical Manager options or CareInsite
options, respectively, the acceleration of vesting described above will be
subject to additional terms and conditions which will be determined by
Healtheon/WebMD's board of directors.
TREATMENT OF MEDICAL MANAGER AND CAREINSITE STOCK OPTIONS AND WARRANTS
At the effective time of the applicable merger, all options then
outstanding under Medical Manager's and CareInsite's stock option plans and all
warrants to purchase Medical Manager or CareInsite common stock will be assumed
by Healtheon/WebMD and will be exercisable upon the same terms and conditions as
under the applicable Medical Manager or CareInsite stock option plan or warrant,
except that:
- each assumed option or warrant will be exercisable for, and represent the
right to acquire, a number of shares of Healtheon/WebMD common stock,
rounded to the nearest whole share, equal to the number of shares of
Medical Manager or CareInsite common stock subject to the option or
warrant multiplied by the applicable exchange ratio
- the per share exercise price of the assumed option or warrant will be an
amount equal to the per share exercise price of the Medical Manager or
CareInsite option or warrant divided by the applicable exchange ratio,
rounded to the nearest whole cent.
Healtheon/WebMD has agreed to take all corporate action necessary to
reserve for issuance a sufficient number of shares of Healtheon/WebMD common
stock for delivery upon the exercise of the options under the Medical Manager
and CareInsite stock option plans, to file a registration statement on Form S-8
for the shares of Healtheon/WebMD common stock issuable with respect to options
under these Medical Manager and CareInsite stock option plans and to maintain
the effectiveness of that registration statement for as long as any of the
options remain outstanding.
CONDITIONS TO COMPLETION OF THE MERGERS
The parties' respective obligations to complete the applicable merger are
subject in each case to the satisfaction or, if permitted, waiver of each of the
following conditions before completion of the merger:
- this proxy statement/prospectus must have been declared effective by the
SEC and no stop order suspending the effectiveness of this proxy
statement/prospectus will have been issued by the SEC and no proceeding
for that purpose will have been initiated
- in the case of the Medical Manager merger, the Medical Manager merger
agreement and the Medical Manager merger must be approved and adopted by
the requisite vote of Healtheon/WebMD's and Medical Manager's
stockholders
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- in the case of the CareInsite merger, the issuance of shares of
Healtheon/WebMD common stock to the stockholders of CareInsite pursuant
to the CareInsite merger must be approved by the requisite vote of
Healtheon/WebMD's stockholders and the CareInsite merger agreement and
the CareInsite merger must be approved by the requisite vote of
CareInsite's stockholders
- no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated
- each party must receive from its respective tax counsel an opinion to the
effect that the merger will constitute a reorganization within the
meaning of Section 368(a) of the tax code, however, if counsel to that
party does not render this opinion, this condition will be satisfied if
counsel to the other party renders the opinion to that party
- in the case of the Medical Manager merger, all conditions to the closing
of the CareInsite merger shall have been satisfied or waived as provided
in the CareInsite merger agreement
- in the case of the CareInsite merger, the Medical Manager merger shall
have been consummated.
Medical Manager's and CareInsite's obligations to complete the applicable
merger are subject to the satisfaction or, if permitted, waiver of each of the
following additional conditions before completion of the applicable merger:
- Healtheon/WebMD's representations and warranties must be true and correct
as of the date the merger is to be completed as if made as of that time
except:
- where the failure to be true and correct would not have a "material
adverse effect," as defined below, on Healtheon/WebMD
- to the extent Healtheon/WebMD's representations and warranties address
matters only as of a particular date or period of time, they must be
true and correct as of that date or period of time, except where the
failure to be so true and correct would not have a material adverse
effect on Healtheon/WebMD.
- Healtheon/WebMD must perform or comply in all material respects with all
of its agreements and covenants required by the merger agreement to be
performed or complied with by it at or before completion of the merger.
- Healtheon/WebMD must have taken all actions as shall be necessary to
effect the changes to the Healtheon/WebMD board of directors, the
amendments to the Healtheon/WebMD bylaws and the appointments to senior
management as provided in the Medical Manager merger agreement.
Healtheon/WebMD's obligations to complete each of the mergers are subject
to the satisfaction or, if permitted, waiver of each of the following additional
conditions before completion of the applicable merger:
- Medical Manager's or CareInsite's representations and warranties must be
true and correct as of the date the merger is to be completed as if made
as of that time except:
-- where the failure to be true and correct would not have a material
adverse effect on the party
-- to the extent Medical Manager's or CareInsite's representations and
warranties address matters only as of a particular date or period of
time, they must be true and correct as of that date or period of
time, except where the failure to be true and correct would not have
a material adverse on the party making the representation.
- Medical Manager or CareInsite must perform or comply in all material
respects with all of its agreements and covenants required by the merger
agreement to be performed or complied with by it at or before completion
of the merger.
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A "material adverse effect" on a party is defined in the merger agreements
as an event, change or occurrence which, individually or together with any other
event, change or occurrence, has a material adverse effect on the financial
position, business, or results of operations of that party and its subsidiaries,
taken as a whole, or the ability of that party to perform its obligations under
the applicable merger agreement or to consummate the merger or the other
transactions contemplated by the merger agreement, but does not include:
- any adverse effect due to changes in conditions generally affecting the
healthcare or electronic commerce industries or the U.S. economy as a
whole
- any change or adverse effect caused by, or relating to, the announcement
of the merger agreement or the transactions contemplated by the
agreement, or
- any adverse effect due to legal or regulatory changes, except that, with
respect to Medical Manager or CareInsite, an order or regulatory action
specifically related to that party may be considered in determining the
existence of a material adverse effect.
In connection with the amendment of the merger agreements, each of the
parties waived all rights it had to not consummate the applicable merger as a
result of any facts or circumstances of which it had actual knowledge as of June
18, 2000.
TERMINATION OF THE MERGER AGREEMENTS
Each of the merger agreements may be terminated at any time prior to
completion of the applicable merger, whether before or after approval of the
proposals relating to the merger by the stockholders of any party:
- by mutual consent of the parties
- by either party, if the merger is not completed before November 30, 2000,
except that this termination right is not available to any party whose
failure to fulfill any obligation has been the cause of or resulted in
the failure of the merger to occur on or before November 30, 2000
- by either party, if there is any order of a court or governmental
authority having jurisdiction over either of them permanently enjoining,
restraining or prohibiting the completion of the merger which is final
and nonappealable or if any court or governmental authority fails to
issue an order or take other action necessary to fulfill the conditions
to completion of the merger
- by Medical Manager or CareInsite, as the case may be, if the board of
directors of Healtheon/WebMD withdraws, modifies or changes its
recommendation of the adoption and approval of the proposals relating to
the merger in a manner adverse to that party or recommends to the
stockholders of Healtheon/WebMD an alternate acquisition proposal
- by either party, if the proposals relating to the merger fail to receive
the requisite vote of the stockholders of Medical Manager or CareInsite,
as the case may be, except that neither Medical Manager nor CareInsite
may terminate the merger agreement for this reason if the failure is
caused by its action or failure to act and the action or failure to act
constitutes a material breach by it of the merger agreement
- by either party, if the proposals relating to the merger fail to receive
the requisite vote of the stockholders of Healtheon/WebMD, except that
Healtheon/WebMD may not terminate the merger agreement for this reason if
the failure is caused by the action or failure to act of Healtheon/WebMD
and the action or failure to act constitutes a material breach by
Healtheon/WebMD of the merger agreement
- by either party, if the other merger agreement is terminated in
accordance with its terms.
In addition, the Medical Manager merger agreement may be terminated by
Healtheon/WebMD, if the board of directors of Medical Manager withdraws,
modifies or changes its recommendation of the adoption and approval of the
Medical Manager merger agreement and the Medical Manager merger in a manner
adverse to Healtheon/WebMD or recommends to the stockholders of Medical Manager
an alternate acquisition proposal.
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PAYMENT OF TERMINATION FEES
Medical Manager merger agreement
Medical Manager will pay Healtheon/WebMD a termination fee of $200 million
not later than two days after the Medical Manager merger agreement is terminated
if the termination is:
- by Healtheon/WebMD because, at a time when an alternate acquisition
proposal with respect to Medical Manager exists, the board of directors
of Medical Manager has withdrawn, modified or changed its recommendation
of the adoption and approval of the Medical Manager merger agreement and
the Medical Manager merger in a manner adverse to Healtheon/WebMD or
recommended to the stockholders of Medical Manager the alternate
acquisition proposal, or
- by Healtheon/WebMD or Medical Manager because, at a time when an
alternate acquisition proposal with respect to Medical Manager exists,
the Medical Manager merger agreement and the Medical Manager merger fail
to receive the requisite vote of the stockholders of Medical Manager at
the Medical Manager special meeting.
Healtheon/WebMD will not be entitled to receive the termination fee if,
prior to termination, the board of directors of Medical Manager withdraws,
modifies or changes its recommendation of the Medical Manager merger agreement
or the transactions contemplated thereby in a manner adverse to Healtheon/WebMD
due solely to:
- a breach by Healtheon/WebMD of any representation or warranty contained
in the Medical Manager merger agreement the failure of which to be true
and correct would have a material adverse effect on Healtheon/WebMD,
which breach is not cured by Healtheon/WebMD within ten days following
notice of the breach, or
- a breach by Healtheon/WebMD of any covenant or agreement contained in the
Medical Manager merger agreement which breach prevents Healtheon/WebMD
from performing the covenant or agreement in all material respects, which
breach is not cured by Healtheon/WebMD within ten days following notice
of the breach.
Healtheon/WebMD will pay Medical Manager a termination fee of $130 million
not later than two days after the Medical Manager merger agreement is terminated
if the termination is:
- by Medical Manager because, at a time when an alternate acquisition
proposal with respect to Healtheon/WebMD exists, the board of directors
of Healtheon/WebMD has withdrawn, modified or changed its recommendation
of the adoption and approval of the Medical Manager merger agreement and
the Medical Manager merger in a manner adverse to Medical Manager or
recommended to the stockholders of Healtheon/WebMD the alternate
acquisition proposal, or
- by Healtheon/WebMD or Medical Manager because, at a time when an
alternate acquisition proposal with respect to Healtheon/WebMD exists,
the Medical Manager merger agreement and the Medical Manager merger fail
to receive the requisite vote of the stockholders of Healtheon/WebMD at
the Healtheon/WebMD meeting.
Medical Manager will not be entitled to receive the termination fee if,
prior to termination, the board of directors of Healtheon/WebMD withdraws,
modifies or changes its recommendation of the Medical Manager merger agreement
or the transactions contemplated thereby in a manner adverse to Medical Manager
due solely to:
- a breach by Medical Manager of any representation or warranty contained
in the Medical Manager merger agreement the failure of which to be true
and correct would have a material adverse effect on Medical Manager,
which breach is not cured by Medical Manager within ten days following
notice of the breach, or
- a breach by Medical Manager of any covenant or agreement contained in the
Medical Manager merger agreement which breach prevents Medical Manager
from performing the covenant or agreement in all material respects, which
breach is not cured by Medical Manager within ten days following notice
of the breach.
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In connection with the proposed settlement of a lawsuit filed against
Medical Manager, CareInsite and specified officers and directors of Medical
Manager and CareInsite, among other parties, (1) Healtheon/WebMD has waived
Medical Manager's obligation to pay to Healtheon/WebMD a termination fee in
excess of $100 million and (2) Medical Manager has waived Healtheon/WebMD's
obligation to pay to Medical Manager a termination fee in excess of $65 million.
For details, see "Stockholder litigation" on page 94.
CareInsite merger agreement
Healtheon/WebMD will pay CareInsite a termination fee of $70 million not
later than two days after the CareInsite merger agreement is terminated if the
termination is:
- by CareInsite because, at a time when an alternate acquisition proposal
with respect to Healtheon/WebMD exists, the board of directors of
Healtheon/WebMD has withdrawn, modified or changed its recommendation of
the issuance of shares of Healtheon/WebMD common stock to the
stockholders of CareInsite pursuant to the CareInsite merger in a manner
adverse to CareInsite or recommended to the stockholders of
Healtheon/WebMD the alternate acquisition proposal, or
- by Healtheon/WebMD or CareInsite because, at a time when an alternate
acquisition proposal with respect to Healtheon/WebMD exists, the issuance
of shares of Healtheon/WebMD common stock to the stockholders of
CareInsite pursuant to the CareInsite merger fails to receive the
requisite vote of the stockholders of Healtheon/WebMD at the
Healtheon/WebMD meeting.
CareInsite will not be entitled to receive the termination fee if, prior to
termination, the board of directors of Healtheon/WebMD withdraws, modifies or
changes its recommendation of the CareInsite merger agreement or the
transactions contemplated by the CareInsite merger agreement in a manner adverse
to CareInsite due solely to:
- a breach by CareInsite of any representation or warranty contained in the
CareInsite merger agreement the failure of which to be true and correct
would have a material adverse effect on CareInsite, which breach is not
cured by CareInsite within ten days following notice of the breach
- a breach by CareInsite of any covenant or agreement contained in the
CareInsite merger agreement which breach prevents CareInsite from
performing the covenant or agreement in all material respects, which
breach is not cured by CareInsite within ten days following notice of the
breach
- a breach by Medical Manager of any representation or warranty contained
in the Medical Manager merger agreement the failure of which to be true
and correct would have a material adverse effect on Medical Manager,
which breach is not cured by Medical Manager within ten days following
notice of the breach, or
- a breach by Medical Manager of any covenant or agreement contained in the
Medical Manager merger agreement which breach prevents Medical Manager
from performing the covenant or agreement in all material respects, which
breach is not cured by Medical Manager within ten days following notice
of the breach.
In connection with the proposed settlement of a lawsuit filed against
Medical Manager, CareInsite and specified officers and directors of Medical
Manger and CareInsite, among other parties, CareInsite has waived
Healtheon/WebMD's obligation to pay to Medical Manager a termination fee in
excess of $35 million. For details, see "Stockholder litigation" on page 94.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENTS
The parties may amend the applicable merger agreement before completion of
the applicable merger except that, after approval of the Medical Manager merger
agreement and the Medical Manager merger by Medical Manager's stockholders or
the approval of the CareInsite merger agreement and the CareInsite merger by the
CareInsite stockholders, no amendment may be made that would reduce the amount
or change the type of consideration into which each common share of Medical
Manager or CareInsite, respectively, will be converted upon completion of the
applicable merger. In addition, no amendment may be made without the prior
written consent of the CareInsite special committee if the amendment could
reasonably be expected to delay the
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consummation of the CareInsite merger or adversely affect CareInsite or
CareInsite's stockholders or would change the applicable exchange ratio.
The parties may extend each other's time for the performance of any of the
obligations under the applicable merger agreement, waive any inaccuracies in the
other party's representations and warranties and waive compliance by the other
party with any of the agreements or conditions contained in the applicable
merger agreement. No extension or waiver may be granted without the prior
written consent of the CareInsite special committee if the extension or waiver
could reasonably be expected to delay the consummation of the CareInsite merger
or adversely affect CareInsite or CareInsite's stockholders or would change the
applicable exchange ratio.
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RELATED AGREEMENTS
HEALTHEON/WEBMD VOTING AGREEMENT
Jeffrey T. Arnold, James H. Clark, Kleiner Perkins Caufield & Byers, W.
Michael Long, Microsoft, News Corporation and Quintiles, each of which are
directors, executive officers or affiliates of Healtheon/WebMD, have entered
into a voting agreement with Medical Manager and CareInsite. The voting
agreement requires these Healtheon/WebMD stockholders to vote all of the shares
of Healtheon/WebMD common stock beneficially owned by them in favor of the
proposals related to the Medical Manager merger and the CareInsite merger. The
affirmative vote of a majority of the outstanding shares of Healtheon/WebMD
common stock and preferred stock, voting together as a single class with the
preferred stock voting on an as if converted to common stock basis, is required
to approve the proposals relating to the Medical Manager merger. The affirmative
vote of a majority of the outstanding shares of Healtheon/WebMD in person or
represented by proxy at the meeting is required to approve the proposal relating
to the CareInsite merger. As of the record date, the executive officers,
directors and major stockholders of Healtheon/WebMD who entered into the voting
agreement collectively beneficially owned 96,730,184 shares of Healtheon/WebMD
outstanding stock entitled to vote, representing approximately 40.9% of the
shares entitled to vote at the annual meeting.
Each Healtheon/WebMD stockholder who is a party to the voting agreement
agreed not to, directly or indirectly, sell or otherwise transfer the
Healtheon/WebMD common stock and options or warrants to purchase Healtheon/WebMD
common stock owned, controlled or acquired by the stockholder prior to the
termination of the voting agreement without the written consent of Medical
Manager and CareInsite, except that Quintiles may transfer shares to any of its
affiliates who agree to be bound by the voting agreement.
The voting agreement will terminate upon the earlier to occur of:
- the completion of the Medical Manager merger, or
- the termination of the Medical Manager merger agreement in accordance
with its terms.
The voting agreement will also terminate with respect to Quintiles in the
event that the Medical Manager merger agreement is further amended or if the
mergers are not completed by January 23, 2001.
MEDICAL MANAGER VOTING AGREEMENT
Some Medical Manager stockholders have entered into a voting agreement with
Healtheon/WebMD. The voting agreement requires these Medical Manager
stockholders to vote all of the shares of Medical Manager common stock
beneficially owned by them in favor of the Medical Manager merger. The
affirmative vote of a majority of the outstanding shares of Medical Manager
common stock is required to approve and adopt the Medical Manager merger and the
Medical Manager merger agreement. As of the record date, the executive officers
and directors of Medical Manager who entered into the voting agreement
collectively beneficially owned 10,769,764 shares of Medical Manager common
stock, representing approximately 26.4% of the shares entitled to vote at the
special meeting.
Each Medical Manager stockholder who is a party to the voting agreement
agreed not to, directly or indirectly, sell or otherwise transfer the Medical
Manager common stock and options or warrants to purchase Medical Manager common
stock owned, controlled or acquired by the stockholder prior to the termination
of the voting agreement without the written consent of Healtheon/WebMD.
The voting agreement will terminate upon the earlier to occur of:
- the completion of the Medical Manager merger, or
- the termination of the Medical Manager merger agreement in accordance
with its terms.
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CAREINSITE VOTING AGREEMENTS
Some CareInsite stockholders have entered into voting agreements with
Healtheon/WebMD. The affirmative vote of a majority of the outstanding shares of
CareInsite common stock is required to approve and adopt the CareInsite merger
and the CareInsite merger agreement.
Medical Manager and Avicenna voting agreements
Each of Medical Manager and Avicenna has entered into a voting agreement
with Healtheon/WebMD. The Medical Manager voting agreement requires Medical
Manager to vote all of the shares of Avicenna common stock beneficially owned by
it and to cause Avicenna to vote all shares of CareInsite common stock
beneficially owned by it in favor of the CareInsite merger. The Avicenna voting
agreement requires Avicenna to vote all of the shares of CareInsite common stock
beneficially owned by it in favor of the CareInsite merger. As of the record
date, Medical Manager beneficially owned all of the shares of Avicenna common
stock and Avicenna beneficially owned 50,945,572 shares of CareInsite common
stock, representing approximately 67.4% of the shares entitled to vote at the
special meeting.
Medical Manager agreed not to, directly or indirectly, sell or otherwise
transfer the Avicenna common stock owned, controlled or acquired by it prior to
the termination of the Medical Manager voting agreement without the written
consent of Healtheon/WebMD. Similarly, Avicenna agreed not to, directly or
indirectly, sell or otherwise transfer the CareInsite common stock owned,
controlled or acquired by it prior to the termination of the Avicenna voting
agreement without the consent of Healtheon/WebMD.
Each voting agreement will terminate upon the earlier to occur of:
- the completion of the CareInsite merger, or
- the termination of the CareInsite merger agreement in accordance with its
terms.
Cerner voting agreement
Cerner has also entered into a voting agreement with Healtheon/WebMD. The
Cerner voting agreement requires Cerner to vote all of the shares of CareInsite
common stock beneficially owned by Cerner in favor of the CareInsite merger. As
of the record date, Cerner beneficially owned 13,149,259 shares of CareInsite
common stock, representing approximately 17.4% of the shares entitled to vote at
the special meeting.
Cerner agreed not to, directly or indirectly, sell or otherwise transfer
the CareInsite common stock owned, controlled or acquired by it prior to the
termination of the Cerner voting agreement without the written consent of
Healtheon/WebMD.
The Cerner voting agreement will terminate upon the earlier to occur of:
- the completion of the CareInsite merger, except that the restrictions on
transfer described below and related provisions survive completion of the
CareInsite merger
- the termination of the CareInsite merger agreement in accordance with its
terms
- any amendment to the CareInsite merger agreement entered into without the
prior consent of Cerner if the amendment
-- could reasonably be expected to materially and adversely affect
Cerner
-- would decrease the exchange ratio for the CareInsite merger
-- would amend the provisions relating to Healtheon's assumption of
warrants issued by CareInsite to Cerner.
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In the Cerner voting agreement, Cerner also agreed not to transfer any
Healtheon/WebMD common stock received in the CareInsite merger or otherwise
acquired from Healtheon/WebMD after the date of the voting agreement until
September 15, 2001, except that Cerner may effect:
- transfers in connection with a merger, consolidation or sale of all or
substantially all of Cerner's assets in which the surviving corporation
or purchaser agrees to be bound by the provisions of the voting agreement
- sales of up to 25% of the shares subject to transfer restrictions
beginning 90 days after completion of the CareInsite merger
- sales of up to an additional 25% of the shares subject to transfer
restrictions commencing on March 15, 2001.
As a result of the Medical Manager, CareInsite, Avicenna and Cerner voting
agreements, we expect that the proposal to approve the CareInsite merger will be
approved at the CareInsite special meeting, even if no other stockholders of
CareInsite vote in favor of it.
AGREEMENTS REGARDING ENVOY
In May, 2000, Healtheon/WebMD acquired Envoy from Quintiles and its
subsidiary QFinance. Envoy provides EDI and transaction processing services to
participants in the healthcare market.
In connection with the execution of the Medical Manager merger agreement
and the CareInsite merger agreement, Healtheon/WebMD, Medical Manager Health
Systems, a wholly owned subsidiary of Medical Manager, and CareInsite entered
into an agreement which as amended provides that:
- Upon completion of the acquisition of Envoy by Healtheon/WebMD, Medical
Manager Health Systems would modify, and Healtheon/WebMD would cause
Envoy to modify, the networked partner agreement dated as of August 29,
1997 between Medical Manager Health Systems and Envoy, as amended as of
June 29, 1998 and March 24, 2000.
- Upon completion of the acquisition of Envoy by Healtheon/WebMD,
Healtheon/WebMD would cause Envoy to enter into an agreement with
CareInsite concerning the interchange of administrative claims.
- Healtheon/WebMD will pay to each of CareInsite and Medical Manager Health
Systems on November 30, 2000, February 28, 2001, May 31, 2001 and August
31, 2001 an amount equal to $12.5 million payable at Healtheon/WebMD's
option in cash or common stock of Healtheon/WebMD.
- Healtheon/WebMD's obligation to make these payments will be terminated
if:
-- CareInsite or Medical Manager Health Systems acquires or enters
into an agreement to acquire a material clearinghouse entity or its
assets, or
-- the Medical Manager merger agreement is terminated by
Healtheon/WebMD because:
- the Medical Manager merger is not completed by November 30, 2000
and at the time:
-- there exists a breach by Medical Manager of any representation
or warranty contained in the Medical Manager merger agreement
the failure of which to be true and correct would have a
material adverse effect on Medical Manager or of any covenant
or agreement contained in the Medical Manager merger agreement
which breach prevents Medical Manager from performing the
covenant or agreement in all material respects, or
-- all applicable waiting periods under applicable antitrust laws
have not expired or been terminated solely as a result of
Medical Manager's decision not to take, or agree to allow
Healtheon/WebMD to take, specified actions that may be
required by the DOJ as a condition to the granting of the
approval required under the HSR Act as permitted by the
Medical Manager merger agreement, which actions
Healtheon/WebMD is otherwise willing to take or agree to allow
to be taken
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- unless at the time there exists a breach by Healtheon/WebMD of
any representation or warranty contained in the Medical Manager
merger agreement the failure of which to be true and correct
would have a material adverse effect on Healtheon/WebMD or a
breach of any covenant or agreement contained in the Medical
Manager merger agreement which breach prevents Healtheon/WebMD
from performing the covenant or agreement in all material
respects,
-- the board of directors of Medical Manager withdraws, modifies
or changes its recommendation of the adoption and approval of
the Medical Manager merger agreement in a manner adverse to
Healtheon/WebMD
-- the Medical Manager merger agreement and the Medical Manager
merger fail to receive the requisite vote of the stockholders
of Medical Manager at the Medical Manager meeting, or
- the Medical Manager board of directors recommends to the
stockholders of Medical Manager an alternate acquisition
proposal.
If Healtheon/WebMD's obligation to make payments is terminated due
to the termination of the Medical Manager merger agreement, all
payments previously made by Healtheon/WebMD shall be repaid to
Healtheon/WebMD.
-- the CareInsite merger agreement is terminated by Healtheon/WebMD
because:
- the CareInsite merger is not completed by November 30, 2000 and
at the time:
-- there exists a breach by CareInsite of any representation or
warranty contained in the CareInsite merger agreement the
failure of which to be true and correct would have a material
adverse effect on CareInsite or of any covenant or agreement
contained in the CareInsite merger agreement which breach
prevents CareInsite from performing the covenant or agreement
in all material respects, or
-- all applicable waiting periods under applicable antitrust laws
have not expired or been terminated solely as a result of
CareInsite's decision not to take, or agree to allow
Healtheon/WebMD to take, specified actions that may be required
by the DOJ as a condition to the granting of the approval
required under the HSR Act as permitted by the CareInsite
merger agreement, which actions Healtheon/WebMD is otherwise
willing to take or agree to allow to be taken
- unless at the time there exists a breach by Healtheon/WebMD of
any representation or warranty contained in the CareInsite merger
agreement the failure of which to be true and correct would have
a material adverse effect on Healtheon/WebMD or a breach of any
covenant or agreement contained in the CareInsite merger
agreement which breach prevents Healtheon/WebMD from performing
the covenant or agreement in all material respects, the
CareInsite merger agreement and the CareInsite merger fail to
receive the requisite vote of the stockholders of CareInsite at
the CareInsite meeting.
If Healtheon/WebMD's obligation to make payments is terminated
due to the termination of the CareInsite merger agreement, all
payments previously made by Healtheon/WebMD shall be repaid to
Healtheon/WebMD.
Medical Manager Health Systems and Envoy have entered into an addendum to
their networked partner agreement implementing the modifications required by the
agreement among Healtheon/WebMD, Medical Manager Health Systems and CareInsite,
including the extension of the term of the agreement to September 1, 2003.
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<PAGE> 115
CareInsite and Envoy have entered into the interchange agreement
contemplated by the agreement among Healtheon/WebMD, Medical Manager Health
Systems and CareInsite. The interchange agreement governs the transmission of
certain electronic transactions by Envoy and CareInsite and provides that:
- Electronic transmissions for administrative transactions by the provider
customers of CareInsite or Envoy to the payer customers of the other may,
at the election of the party whose provider customer initiated the
transaction, be routed through the services of the other party
- Each of CareInsite and Envoy will accept all transactions from the other
for payers who use its services exclusively
- Each of CareInsite and Envoy will send to the other all transactions
received from payers who use the other's services exclusively
- Each party is granted a license to sublicense to their provider customers
the right to use the other party's services through the system of the
sublicensing party
- Each party will pay to the other a percentage of the fee collected for
batch claims and encounter transactions and a percentage of the fee
collected for real time transactions that are routed through the other.
The interchange agreement will terminate upon the consummation of the
CareInsite merger. If the CareInsite merger does not occur, the term of the
agreement will extend until September 1, 2003 and will renew automatically until
terminated by either party upon six months written notice.
PORTAL AGREEMENT
Healtheon/WebMD, Medical Manager and CareInsite have entered into a portal
agreement dated June 18, 2000, that provides that they will use their
commercially reasonable efforts to make Healtheon/WebMD's physician portal,
WebMD Practice, available at five beta test sites using the Medical Manager
physician practice management software. Healtheon/WebMD will be responsible for
the registration for and access to WebMD Practice. The portal agreement may be
terminated by any party upon 30 days' notice given at any time after October 31,
2000.
AGREEMENTS REGARDING CERNER
In January 1999, CareInsite entered into a strategic relationship with
Cerner, a leading supplier of clinical and management information systems to
more than 1,000 healthcare organizations worldwide. Through this relationship,
CareInsite has a perpetual, royalty-free license to certain of Cerner's
technology, which was obtained by CareInsite in exchange for 12,437,500 shares
of CareInsite's common stock. Cerner's technology consists of the clinical and
administrative information technology contained in Cerner's Health Network
Architecture, or HNA, including their HNA Millennium Architecture, for use in
the CareInsite system. Cerner has agreed that CareInsite will be its exclusive
vehicle for providing a full suite of healthcare e-commerce services that
connect physicians' offices with managed care organizations, pharmacy benefit
managers, clinical laboratories, pharmacies and other providers. Cerner has also
agreed to market CareInsite's services to its customers. As of July 15, 2000,
Cerner owned approximately 17.4% of CareInsite's outstanding common stock.
As a result of the CareInsite merger, substantially all agreements between
CareInsite and Cerner will, upon consummation of the CareInsite merger, remain
in full force and effect. In addition, Cerner, Healtheon/WebMD and CareInsite
have agreed to negotiate in good faith a marketing agreement pursuant to which
Cerner will market to its customers the combined company's Internet services for
physicians and consumers. Further, Healtheon/WebMD has agreed to evaluate Cerner
solutions that could be used as the basis for a personal electronic medical
record and other Internet components and applet solutions to be integrated with
Healtheon/WebMD's service offerings. Cerner has agreed that for a period of
three years, it will not license or sell technology to any entity whose
principal business activities include providing unaffiliated third parties
national or regional transaction and messaging services to connect payers to
physician offices, clinics, pharmacies or medical laboratories. After the
Medical Manager merger and the CareInsite merger, Cerner will own approximately
6.0% of Healtheon/WebMD's outstanding common stock.
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<PAGE> 116
OPERATIONS OF HEALTHEON/WEBMD AFTER THE MERGERS
Statements in "Operations of Healtheon/WebMD After the Mergers" that are
not historical facts are forward-looking statements. These statements are based
largely on management's expectations in light of their experience in the
industry and are not guarantees of performance or results. The factors set forth
in "Cautionary Statement Concerning Forward-Looking Statements" could cause the
actual results, performance or achievements of Healtheon/WebMD to be materially
different from any future results, performance or achievements expressed in or
implied by these forward-looking statements. Healtheon/WebMD, Medical Manager
and CareInsite make no commitments to disclose any revisions to forward-looking
statements, or any facts, events or circumstances after the date of this proxy
statement/prospectus that may bear upon forward-looking statements.
BUSINESS OF HEALTHEON/WEBMD
Healtheon/WebMD believes that the combined company will be distinguished by
its ability to integrate the web-based products and services offered by
Healtheon/WebMD with those of CareInsite and with the practice management
information systems of Medical Manager into a suite of services that can
comprehensively address all of the needs of physician practices and connect
physicians and their patients to the entire healthcare industry. Healtheon/WebMD
also believes that by leveraging Internet technology the combined company will
be uniquely positioned to streamline the disparate information systems used by
the healthcare industry, enabling improved workflows, better decision-making
and, ultimately, higher quality patient care at a lower cost.
Following the completion of the Medical Manager and CareInsite mergers,
Healtheon/WebMD will be engaged in three principal businesses:
- the provision of web-based healthcare information and e-commerce services
to facilitate connectivity and transactions among physicians, patients,
payers and other healthcare industry participants
- the provision of comprehensive physician practice management information
systems to independent physicians, independent practice associations,
management service organizations, physician practice management
organizations and other providers of healthcare services in the U.S.
through Medical Manager Health Systems
- the design, manufacture and distribution of porous and solid plastic
components and products for use in life sciences, healthcare, industrial
and consumer applications through Porex.
For more detailed information regarding the products and services that each of
Healtheon/WebMD, Medical Manager and CareInsite will provide to the combined
company, see "Information Regarding Healtheon/WebMD," "Information Regarding
Medical Manager" and "Information Regarding CareInsite" on pages 138, 160 and
167, respectively.
Healtheon/WebMD intends to integrate its physician portal, WebMD Practice,
with The Medical Manager practice management system. Healtheon/WebMD, Medical
Manager and CareInsite have entered into a portal agreement under which
Healtheon/WebMD will provide WebMD Practice to five beta test sites using The
Medical Manager practice management system. These integrated services will
enable more effective and efficient exchanges of confidential clinical,
administrative and financial information between physicians and their patients,
payers and suppliers. Healtheon/WebMD believes that physicians are more likely
to adopt web-based services which are accessible in connection with a practice
management information system and which are designed to complement, rather than
compete with, their installed software systems. In addition, Healtheon/WebMD
intends to provide expanded services to healthcare payers that will help them
reduce administrative inefficiencies and better manage medical costs.
As a result of the mergers, the combined company will gain direct access to
Medical Manager's installed customer base of approximately 185,000 physicians
nationwide, some of whom may already be using Healtheon/WebMD services,
including Envoy's services. Healtheon/WebMD expects its transaction volume to
increase as a result of the deployment of integrated services to these
physicians and intends to migrate these administrative healthcare transactions
to its web-based platform.
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<PAGE> 117
The combined company will also be able to utilize the approximately 2,500
sales representatives that distribute the Medical Manager software and provide
service, training and support to physician offices nationwide to migrate Medical
Manager's installed physician base to WebMD Practice, to solicit new physician
subscribers and to take advantage of cross-selling opportunities.
Healtheon/WebMD intends to build upon Medical Manager's national presence and
CareInsite's significant regional presence in New York, New Jersey, Ohio and
Massachusetts to maximize distribution of its physician products and services,
thereby accelerating physician adoption of WebMD Practice and increasing its
utilization.
Healtheon/WebMD also intends to integrate the consumer transaction,
messaging and content services currently in development by CareInsite into
Healtheon/WebMD's consumer portal, WebMD Health, in order to enhance
relationships between physicians and patients and payers and patients. In
addition to WebMD Health's existing health and wellness information, support
communities, interactive tools and opportunities to purchase health-related
products and services, these integrated services will include the ability to
schedule appointments with physicians, request prescription refills and renewals
and manage their personal health records. In addition, patients will be able to
obtain referrals, check their benefits, co-pay levels and status of claims and
deductibles online.
In May 2000, Healtheon/WebMD completed its acquisition of Envoy, a leading
provider of EDI and transaction processing services to participants in the
healthcare market. In 1999, Envoy's network processed more than 1.4 billion
medical, pharmacy and dental transactions involving approximately 250,000
physicians, 35,000 pharmacies, 47,000 dentists, 4,500 hospitals and 900 payers.
Healtheon/WebMD intends to integrate payers with connectivity to Envoy with
WebMD Practice beginning in the third quarter of 2000 and to consolidate
transaction networks.
Healtheon/WebMD has also entered into an agreement to acquire OnHealth, a
leading source of consumer-oriented health and wellness information and services
on the web. The completion of the OnHealth merger is subject to customary
closing conditions, including the registration statement filed by
Healtheon/WebMD to register the shares of its common stock to be issued to the
stockholders of OnHealth in the OnHealth merger being declared effective by the
SEC. Healtheon/WebMD expects to complete the OnHealth merger in the third
quarter of 2000. If this merger occurs, Healtheon/WebMD's business will include
the current business of OnHealth. Healtheon/WebMD believes that its pending
merger with OnHealth will enhance its consumer healthcare content and services
and increase traffic on WebMD Health. OnHealth was the number one health web
site attracting approximately 5.2 million unique users in May 2000, according to
Media Metrix. Healtheon/WebMD intends to integrate OnHealth's online health and
wellness information and services with WebMD Health.
The Envoy merger is reflected in "Healtheon/WebMD Corporation Unaudited Pro
Forma Condensed Combined Financial Information" beginning on page 115, and the
OnHealth merger is not reflected in accordance with applicable SEC regulations.
MANAGEMENT OF HEALTHEON/WEBMD
Immediately preceding the mergers, but effective only upon completion of
the mergers, the number of members of the board of directors of Healtheon/WebMD
will be increased from nine to 15 and the Healtheon/WebMD board of directors
will appoint seven individuals selected by the board of directors of Medical
Manager to be directors of Healtheon/WebMD.
Following completion of the mergers, W. Michael Long will continue to serve
as Healtheon/WebMD's Chairman. Effective upon completion of the mergers, Jeffrey
T. Arnold, the current Chief Executive Officer of Healtheon/WebMD, and Martin J.
Wygod, the current Chairman of the Board of each of Medical Manager and
CareInsite, will be appointed Co-Chief Executive Officers of Healtheon/WebMD,
and Marvin P. Rich, the current President of Medical Manager and Chief Executive
Officer of CareInsite, will be appointed President of Healtheon/WebMD.
STRUCTURE AFTER THE MERGERS
Following the Medical Manager merger, Medical Manager will cease its
separate corporate existence and its assets, consisting principally of stock in
its operating subsidiaries, will be wholly owned by Healtheon/WebMD.
111
<PAGE> 118
Following the CareInsite merger, CareInsite will cease its separate corporate
existence and its business will be operated by Healtheon/WebMD through Avicenna,
which, as a result of the Medical Manager merger, will be a wholly owned
subsidiary of Healtheon/WebMD. The stockholders of Medical Manager and
CareInsite will become stockholders of Healtheon/WebMD, and their rights as
stockholders will be governed by the Healtheon/WebMD certificate of
incorporation and bylaws, in each case as amended as described in this proxy
statement/prospectus, and the laws of the State of Delaware. For information
about these rights, see "Comparison of rights of holders of Healtheon/WebMD
capital stock, Medical Manager capital stock and CareInsite capital stock" on
page 130.
NAME CHANGE
Subject to stockholder approval of a proposal which is not conditioned on
the closing of the mergers, Healtheon/WebMD's certificate of incorporation will
be amended to change the corporate name to WebMD Corporation.
LISTING OF HEALTHEON/WEBMD COMMON STOCK
Applications will be made for quotation of all Healtheon/WebMD common stock
on the Nasdaq National Market under the symbol "HLTH."
TRANSFER AGENT
The transfer agent and registrar for Healtheon/WebMD common stock will be
American Stock Transfer & Trust Company.
DIVIDENDS
None of Healtheon/WebMD, Medical Manager or CareInsite have declared or
paid any cash or other dividends on their common stock, and Healtheon/WebMD does
not expect to pay dividends in the foreseeable future. Instead Healtheon/WebMD
intends to retain earnings to fund operations and to support its growth
strategy. Any future determination to pay dividends will be at the discretion of
the Healtheon/WebMD board of directors and will depend upon, among other
factors, Healtheon/WebMD's results of operations, financial condition, capital
requirements and contractual restrictions.
FISCAL YEAR
Healtheon/WebMD will maintain its current fiscal year end of December 31,
and the businesses of Medical Manager and CareInsite will change their fiscal
year ends from June 30 to December 31.
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<PAGE> 119
COMPARATIVE PER SHARE MARKET PRICE DATA
Healtheon/WebMD common stock has been traded on the Nasdaq National Market
under the symbol HLTH since February 11, 1999, the date of Healtheon/WebMD's
initial public offering. Medical Manager common stock traded on the Nasdaq
National Market under the symbol SNTC from June 28, 1989, the date of its
initial public offering, to June 23, 1999, when Medical Manager changed its name
from Synetic, Inc. following its acquisition of Medical Manager Corporation.
Since June 23, 1999, Medical Manager has been traded on the Nasdaq National
Market under the symbol MMGR. CareInsite common stock has been traded on the
Nasdaq National Market under the symbol CARI since June 16, 1999, the date of
CareInsite's initial public offering.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Healtheon/WebMD common stock, Medical
Manager common stock and CareInsite common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
COMMON STOCK COMMON STOCK COMMON STOCK
------------------ ----------------- ----------------
HIGH LOW HIGH LOW HIGH LOW
------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Year Ending December 31, 1998:
First Quarter.............................. $ -- $ -- $ 55.00 $36.00 $ -- $ --
Second Quarter............................. -- -- 65.25 51.00 -- --
Third Quarter.............................. -- -- 59.00 30.25 -- --
Fourth Quarter............................. -- -- 47.63 33.00 -- --
Year Ending December 31, 1999:
First Quarter.............................. 49.38 21.75 62.00 37.50 -- --
Second Quarter............................. 126.19 37.50 112.75 52.44 50.00 26.75
Third Quarter.............................. 82.63 28.25 92.00 45.13 62.25 27.25
Fourth Quarter............................. 51.50 31.50 87.00 45.50 85.25 42.50
Year Ending December 31, 2000:
First Quarter.............................. 75.19 21.06 100.13 33.50 88.00 23.25
Second Quarter............................. 30.88 12.06 46.19 18.25 35.25 14.38
Third Quarter (through August 3, 2000)..... 18.75 12.25 44.56 29.75 22.88 15.31
</TABLE>
The following table sets forth the closing prices per share of
Healtheon/WebMD common stock, Medical Manager common stock and CareInsite common
stock as reported on the Nasdaq National Market on:
- June 16, 2000, the last full trading day prior to the public announcement
of the amendment of the merger agreements
- August 3, 2000, the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/prospectus.
This table also sets forth the equivalent price per share of Medical
Manager and CareInsite common stock on those dates. The equivalent price per
share for Medical Manager common stock is equal to the closing price of a share
of Healtheon/WebMD common stock on that date multiplied by 2.5, the number of
shares of Healtheon/WebMD common stock to be issued in exchange for each share
of Medical Manager common stock. The equivalent price per share for CareInsite
common stock is equal to the closing price of a share of Healtheon/WebMD common
stock on that date multiplied by 1.3, the number of shares of Healtheon/WebMD
common stock to be issued in exchange for each share of CareInsite common stock.
<TABLE>
<CAPTION>
MEDICAL MANAGER CAREINSITE
HEALTHEON/WEBMD MEDICAL MANAGER EQUIVALENT PER CAREINSITE EQUIVALENT PER
COMMON STOCK COMMON STOCK SHARE PRICE COMMON STOCK SHARE PRICE
--------------- --------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
June 16, 2000............. 16.88 26.88 42.20 20.63 21.94
August 3, 2000............ 12.44 30.00 31.10 15.44 16.17
</TABLE>
Medical Manager stockholders and CareInsite stockholders are advised to
obtain current market quotations for Healtheon/WebMD common stock and Medical
Manager common stock and CareInsite common stock,
113
<PAGE> 120
respectively. No assurance can be given as to the market prices of
Healtheon/WebMD common stock, Medical Manager common stock or CareInsite common
stock at any time before the consummation of the mergers or as to the market
price of Healtheon/WebMD common stock at any time after the mergers.
Healtheon/WebMD, Medical Manager and CareInsite have never paid cash
dividends on their respective shares of capital stock. Pursuant to the merger
agreements, both Medical Manager and CareInsite have agreed not to pay cash
dividends pending the consummation of each merger, in either case without the
written consent of Healtheon/WebMD. Pursuant to the merger agreements,
Healtheon/WebMD has agreed not to pay cash dividends pending consummation of the
mergers without the written consent of Medical Manager and CareInsite.
114
<PAGE> 121
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
is presented herein:
- unaudited pro forma condensed combined balance sheet as of March 31, 2000
reflecting the acquisition by Healtheon/WebMD of Envoy and the proposed
Medical Manager and CareInsite mergers, and unaudited pro forma condensed
combined statements of operations for the year ended December 31, 1999
and three months ended March 31, 2000 reflecting the proposed Medical
Manager and CareInsite mergers
- unaudited pro forma condensed combined statements of operations of
Healtheon/WebMD for the year ended December 31, 1999 and three months
ended March 31, 2000 reflecting the November 1999 acquisitions of WebMD,
MedE America and Medcast, the January 2000 acquisition of Kinetra, the
May 2000 acquisition of Envoy and the strategic alliance with News
Corporation
- unaudited pro forma condensed combined statements of operations of
Medical Manager and CareInsite for the year ended December 31, 1999 and
three months ended March 31, 2000 reflecting the March 30, 2000
acquisition of certain assets of Physician Computer Network.
The historical financial information has been derived from the respective
historical financial statements of Healtheon/WebMD and Medical Manager, which
contains the historical financial information of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite, and should be read
in conjunction with the financial statements and the related notes included in
or incorporated by reference into this proxy statement/prospectus.
The unaudited pro forma condensed combined balance sheet has been prepared
assuming the mergers with Medical Manager and CareInsite took place as of March
31, 2000 and combine the unaudited pro forma balance sheet of Healtheon/WebMD,
after giving effect to the May 2000 acquisition of Envoy as of March 31, 2000,
and the unaudited historical balance sheet of Medical Manager as of March 31,
2000, which contains the balance sheets of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite.
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of Healtheon/WebMD and Medical Manager,
which contains the statements of operations of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite, and give effect to
the mergers, including the amortization of goodwill and other intangible assets
resulting from the mergers, as if they occurred on January 1, 1999. Medical
Manager's fiscal year end is June 30, and its financial information has been
presented on a December 31 calendar-year basis to conform to Healtheon/WebMD's
December 31 fiscal year end. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1999 combines the
unaudited pro forma consolidated statement of operations of Healtheon/WebMD for
the year ended December 31, 1999, after giving effect to the November 1999
mergers with WebMD, MedE America and Medcast, the January 2000 acquisition of
Kinetra and strategic alliance with News Corporation and the May 2000
acquisition of Envoy, and the unaudited pro forma consolidated statement of
operations of Medical Manager for the twelve months ended December 31, 1999,
after giving effect to the March 2000 acquisition of certain assets of Physician
Computer Network. The unaudited pro forma condensed combined statement of
operations for the three months ended March 31, 2000 combines the unaudited pro
forma combined condensed statement of operations of Healtheon/WebMD for the
three months ended March 31, 2000, after giving effect to the January 2000
acquisition of Kinetra and strategic alliance with News Corporation and the May
2000 acquisition of Envoy, and the unaudited pro forma consolidated statement of
operations of Medical Manager for the three months ended March 31, 2000, after
giving effect to the March 2000 acquisition of certain assets of Physician
Computer Network.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not indicative of the operating results or
financial position that would have actually occurred if the mergers, either
individually or combined, had been consummated as of the dates indicated, nor is
it necessarily indicative of the future operating results or financial position
of the combined company. The pro forma adjustments are based on the information
available at the time of the printing of this proxy statement/prospectus.
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<PAGE> 122
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH ENVOY, MEDICAL MANAGER AND CAREINSITE
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------------------------------------------------------------
HEALTHEON/WEBMD
-------------------------------------------------- MEDICAL
PRO FORMA PRO FORMA MANAGER PRO FORMA PRO FORMA
HISTORICAL ENVOY(5) ADJUSTMENTS COMBINED (I)(13) ADJUSTMENTS COMBINED
---------- -------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..... $1,160,682 $ 23,148 $ (400,000)(2) $ 783,830 $ 90,697 $ -- $ 874,527
Marketable securities......... -- -- -- -- 50,436 -- 50,436
Accounts and notes receivable,
net......................... 71,925 48,823 -- 120,748 75,859 -- 196,607
Inventories................... -- -- -- -- 20,041 -- 20,041
Other current assets.......... 15,564 6,138 -- 21,702 25,516 -- 47,218
---------- -------- ---------- ---------- ---------- ----------- -----------
Total current assets.... 1,248,171 78,109 (400,000) 926,280 262,549 -- 1,188,829
Property and equipment........ 65,103 15,852 -- 80,955 73,792 -- 154,747
Marketable securities......... -- -- -- -- 245,000 -- 245,000
Prepaid content and
services.................... 616,875 -- -- 616,875 -- -- 616,875
Goodwill and other intangible
assets, net................. 3,763,748 62,512 (62,512)(4) 6,145,964 463,594 (463,594)(4) 8,831,144
2,382,216(2) 2,685,180(1)
Other assets.................. 54,370 13,723 -- 68,093 16,971 -- 85,064
---------- -------- ---------- ---------- ---------- ----------- -----------
Total assets............ $5,748,267 $170,196 $1,919,704 $7,838,167 $1,061,906 $ 2,221,586 $11,121,659
========== ======== ========== ========== ========== =========== ===========
Current liabilities:
Accounts payable.............. $ 45,186 $ 4,991 $ -- $ 50,177 $ 20,941 $ -- $ 71,118
Other accrued liabilities..... 81,770 26,891 31,924(2) 140,585 62,574 64,860(1) 268,019
Deferred revenue.............. 10,532 -- -- 10,532 27,741 -- 38,273
Current portion of long-term
obligations................. 2,204 157 -- 2,361 4,239 -- 6,600
---------- -------- ---------- ---------- ---------- ----------- -----------
Total current
liabilities........... 139,692 32,039 31,924 203,655 115,495 64,860 384,010
Deferred tax liabilities........ 118,794 -- -- 118,794 35,959 -- 154,753
Long-term obligations........... 2,615 3,146 -- 5,761 29,989 -- 35,750
Minority interest............... -- -- -- -- 123,849 (123,849)(3) --
Convertible redeemable preferred
stock......................... -- -- -- -- -- 10,000(1) 10,000
Stockholders' equity:
Preferred stock............... 629,000 -- -- 629,000 -- -- 629,000
Common stock.................. 18 -- 4(2) 22 459 (459)(3) 35
13(1)
Paid in capital............... 5,684,964 191,525 (191,525)(3) 7,707,751 732,706 (732,706)(3) 10,734,927
2,022,787(2) 3,027,176(1)
Deferred compensation......... (3,931) -- -- (3,931) -- -- (3,931)
Retained earnings (accumulated
deficit).................... (822,885) (56,514) 56,514(3) (822,885) 61,736 (61,736)(3) (822,885)
Treasury stock................ -- -- -- -- (38,287) 38,287(3) --
---------- -------- ---------- ---------- ---------- ----------- -----------
Total stockholders'
equity................ 5,487,166 135,011 1,887,780 7,509,957 756,614 2,270,575 10,537,146
---------- -------- ---------- ---------- ---------- ----------- -----------
Total liabilities and
stockholders'
equity................ $5,748,267 $170,196 $1,919,704 $7,838,167 $1,061,906 $ 2,221,586 $11,121,659
========== ======== ========== ========== ========== =========== ===========
</TABLE>
------------------
(i) Includes the consolidated balance sheets of Medical Manager, its wholly
owned subsidiaries and its majority-owned subsidiary, CareInsite.
See accompanying notes.
116
<PAGE> 123
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH MEDICAL MANAGER AND CAREINSITE
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
HEALTHEON/WEBMD MEDICAL MANAGER
PRO FORMA PRO FORMA
COMBINED COMBINED PRO FORMA PRO FORMA
(I) (II)(13) ADJUSTMENTS COMBINED
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................................. $ 416,014 $ 401,328 $ (6,174)(9) $ 811,168
Operating costs and expenses:
Cost of operations.................... 271,673 217,795 (6,174)(9) 483,294
Development and engineering........... 81,507 27,153 -- 108,660
Sales and marketing................... 211,237 58,672 -- 269,909
General and administrative............ 98,674 66,770 -- 165,444
Litigation expenses................... -- 5,400 -- 5,400
Merger and related costs.............. 10,563 17,991 -- 28,554
Non-cash stock compensation........... 29,216 -- -- 29,216
Depreciation and amortization......... 2,221,059 36,485 (23,013)(8) 3,129,591
895,060(6)
----------- ---------- --------- -----------
Total operating costs and
expenses.................... 2,923,929 430,266 865,873 4,220,068
----------- ---------- --------- -----------
Loss from operations.................... (2,507,915) (28,938) (872,047) (3,408,900)
Interest and other income, net.......... 7,865 17,107 (1,001)(12) 23,971
Gain (loss) on sale of investments...... -- 24,887 (25,511)(11) (624)
Income taxes............................ -- (9,956) 9,956(10) --
Dividends on preferred stock............ (139,525) -- -- (139,525)
Extraordinary loss...................... (2,198) -- -- (2,198)
Accretion of redeemable warrants to
redemption value...................... (538) -- -- (538)
----------- ---------- --------- -----------
Net loss applicable to common
stockholders.......................... $(2,642,311) $ 3,100 $(888,603) $(3,527,814)
=========== ========== ========= ===========
Basic and diluted net loss per common
share................................. $ (13.81) $ (10.84)
=========== ===========
Weighted-average shares outstanding used
in computing basic and diluted net
loss per common share................. 191,350 134,074(7) 325,424
=========== ========= ===========
</TABLE>
------------------
(i) Reflects the mergers of WebMD, MedE America and Medcast with
Healtheon/WebMD in November 1999, Healtheon/WebMD's January 2000
acquisition of Kinetra and strategic alliance with News Corporation, the
May 2000 acquisition of Envoy, and all pro forma adjustments associated
with these transactions. See page 122 for detailed information on
Healtheon/WebMD pro forma condensed combined statement of operations.
(ii) Includes the consolidated statements of operations of Medical Manager, its
wholly owned subsidiaries and its majority-owned subsidiary, CareInsite,
the acquisition by Medical Manager of Physician Computer Network on March
30, 2000 and all pro forma adjustments associated with this transaction.
See page 126 for detailed information on Medical Manager pro forma
condensed combined statement of operations.
See accompanying notes.
117
<PAGE> 124
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH MEDICAL MANAGER AND CAREINSITE
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------
HEALTHEON/WEBMD MEDICAL MANAGER
PRO FORMA PRO FORMA
COMBINED COMBINED PRO FORMA PRO FORMA
(I) (II)(13) ADJUSTMENTS COMBINED
--------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue................................ $ 126,082 $ 100,729 $ (2,360)(9) $ 224,451
Operating costs and expenses:
Cost of operations................... 90,357 55,280 (2,360)(9) 143,277
Development and engineering.......... 12,879 12,526 -- 25,405
Sales and marketing.................. 91,722 17,261 -- 108,983
General and administrative........... 21,772 20,531 -- 42,303
Litigation expenses.................. -- 350 -- 350
Depreciation and amortization........ 551,384 17,958 (13,779)(8) 779,328
223,765(6)
--------- --------- ------------ -----------
Total operating costs and
expenses................... 768,114 123,906 207,626 1,099,646
--------- --------- ------------ -----------
Loss from operations................... (642,032) (23,177) (209,986) (875,195)
Interest and other income, net......... 12,970 12,900 (7,202)(12) 18,668
Income taxes........................... -- (2,617) 2,617(10) --
--------- --------- ------------ -----------
Net loss applicable to common
stockholders......................... $(629,062) $ (12,894) $ (214,571) $ (856,527)
========= ========= ============ ===========
Basic and diluted net loss per common
share................................ $ (2.95) $ (2.47)
========= ===========
Weighted-average shares outstanding
used in computing basic and diluted
net loss per common share............ 213,187 134,074(7) 347,261
========= ============ ===========
</TABLE>
------------------
(i) Reflects Healtheon/WebMD's January 2000 acquisition of Kinetra and
strategic alliance with News Corporation and its May 2000 acquisition of
Envoy and all pro forma adjustments associated with these transactions. See
page 122 for detailed information on Healtheon/WebMD pro forma condensed
combined statement of operations.
(ii) Includes the consolidated statements of operations of Medical Manager, its
wholly owned subsidiaries and its majority-owned subsidiary, CareInsite,
the acquisition by Medical Manager of Physician Computer Network on March
30, 2000 and all pro forma adjustments associated with this transaction.
See page 126 for detailed information on Medical Manager pro forma
condensed combined statement of operations.
See accompanying notes.
118
<PAGE> 125
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The total estimated purchase prices of the acquisition of Envoy and the
Medical Manager and CareInsite proposed mergers have been allocated on a
preliminary basis to assets and liabilities based on management's estimate of
their fair values. The excess of the purchase prices over the fair value of the
net assets acquired has been allocated to goodwill and other intangible assets.
Although the purchase prices and their allocation are not final, it is
anticipated that a portion of the purchase prices will be allocated to assembled
workforce, strategic relationships, contracts, trademarks, customer lists and
relationships and technology. These allocations are subject to change pending
the completion of the final analysis of the total purchase prices and fair
values of the assets acquired and liabilities assumed. The impact of any of
these changes could be material.
Reclassifications have been made to the historical financial statements to
conform to the presentation of the merged companies.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of March 31, 2000 have been calculated as if the mergers occurred on March
31, 2000 and are as follows:
(1) To reflect the acquisition of all of the outstanding capital stock of
Medical Manager and CareInsite by exchanging shares of Healtheon/WebMD
common stock for each outstanding share of Medical Manager and
CareInsite common stock for a total estimated combined purchase price
of approximately $3.1 billion. The purchase consideration consists of
the issuance of an estimated 134.1 million shares of Healtheon/WebMD's
common stock with a fair value of approximately $2.1 billion, the
issuance of $10 million of convertible redeemable preferred stock, the
assumption of options and warrants to purchase 78.0 million shares of
Healtheon/WebMD common stock with a fair value of approximately $886.2
million, and other related merger costs of approximately $64.9 million,
consisting primarily of approximately $50.5 million in investment
banking, legal, accounting and regulatory filing fees, and
approximately $14.4 million in costs anticipated to be incurred for
employee retention, work force reduction, facility consolidation and
other merger-related costs.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
MEDICAL MANAGER CAREINSITE
---------------------------- --------------------------- TOTAL AGGREGATE
EQUIVALENT FAIR VALUE EQUIVALENT FAIR VALUE HEALTHEON/WEBMD FAIR VALUE
SHARES (IN THOUSANDS) SHARES (IN THOUSANDS) SHARES (IN THOUSANDS)
----------- -------------- ---------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares............... 102,015,858 $1,629,066 32,058,345 $511,931 134,074,203 $2,140,997
Stock Options........ 61,261,153 727,766 13,642,070 137,784 74,903,223 865,550
Convertible
Redeemable
Preferred Stock.... -- -- 263,900 10,000 263,900 10,000
Warrants............. 207,983 522 2,896,400 20,120 3,104,383 20,642
----------- ---------- ---------- -------- ----------- ----------
163,484,994 $2,357,354 48,860,715 $679,835 212,345,709 3,037,189
=========== ========== ========== ======== ===========
Merger Costs......... 64,860
----------
$3,102,049
==========
</TABLE>
The fair value of common stock to be issued was calculated using an
estimated per-share value of $16.50. The estimated fair value of the
options and warrants to be assumed is based on the Black-Scholes model
using the following assumptions:
- expected lives of 0.5 to 5.5 years
- expected volatility factor of 1.0
- risk-free interest rates ranging from 5.5% to 6.6%
- expected dividend rate of 0.0%.
119
<PAGE> 126
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION -- (CONTINUED)
The excess purchase price of approximately $2.7 billion over the fair
value of net tangible assets acquired has been recorded as goodwill and
other intangible assets.
(2) To reflect the acquisition of Envoy in exchange for 35 million shares
of Healtheon/WebMD common stock and $400 million in cash for a total
estimated combined purchase price of $2.5 billion and to reflect
merger costs related to the Envoy transaction of approximately $31.9
million, consisting primarily of investment banking fees, legal,
accounting and other merger-related costs. The excess purchase price
of approximately $2.4 billion over the fair value of net tangible
assets acquired has been recorded as goodwill and other intangible
assets.
(3) To reflect the elimination of the historical stockholders' equity
accounts of Envoy and Medical Manager and to eliminate the stockholder
interest in CareInsite not owned by Medical Manager.
(4) To reflect the elimination of the historical goodwill and other
intangible assets on the balance sheets of Envoy and Medical Manager
as of the acquisition date.
(5) Excludes the balance sheet of Envoy's subsidiary, Synergy Health Care,
Inc., which was not acquired by Healtheon/WebMD. The following
financial information combines Envoy's pro forma financial information
with Synergy's historical financial information to reconcile to
Envoy's historical financial information, which is included elsewhere
in this proxy statement/prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------------------
(IN THOUSANDS)
ENVOY
ENVOY SYNERGY CONSOLIDATED
-------- ------- ------------
<S> <C> <C> <C>
Total current assets........................... $ 78,109 $ 1,319 $ 79,428
Total assets................................... 170,196 13,396 183,592
Total current liabilities...................... 32,039 357 32,396
Long-term obligations.......................... 3,146 66 3,212
Total stockholders' equity..................... 135,011 12,973 147,984
</TABLE>
The adjustments to the unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1999 and the three
months ended March 31, 2000 assume the mergers occurred as of January 1,
1999 and are as follows:
(6) To reflect the amortization of goodwill and other intangible assets
resulting from the mergers. The goodwill and other intangible assets
are being amortized over periods of approximately three years.
Currently, management does not anticipate that any significant value
will be attributed to purchased in-process research and development.
(7) Basic and diluted net loss per share have been adjusted to reflect the
issuance of approximately 134.1 million shares of Healtheon/WebMD's
common stock as if the shares had been outstanding for the entire
periods presented. Stock options and warrants assumed in the mergers
have not been included as their inclusion would be anti-dilutive.
(8) To eliminate amortization related to historical intangible assets of
the acquired companies.
(9) To eliminate intercompany revenue and cost of operations.
(10) To eliminate income tax expense as a result of pro forma consolidated
loss.
(11) To eliminate the gain on sale of Healtheon/WebMD common stock by
Medical Manager.
(12) To eliminate the minority interest in CareInsite's net loss.
120
<PAGE> 127
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION -- (CONTINUED)
(13) The Medical Manager pro forma combined financial information includes
its majority-owned subsidiary CareInsite. Following financial
information is derived from CareInsite's stand alone financial
statements (in thousands):
Balance sheet information:
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
<S> <C>
Cash and cash equivalents................................... $ 19,064
Current assets.............................................. 83,752
Total assets................................................ 289,437
Current liabilities......................................... 21,487
Total liabilities and stockholders' equity.................. 289,437
</TABLE>
Statement of operations information:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
------------------- ------------------
<S> <C> <C>
Revenue.................................... $ 4,522 $ 1,651
Loss from operations....................... (37,655) (25,811)
Net loss applicable to common
stockholders............................. (9,138) (24,710)
</TABLE>
121
<PAGE> 128
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS FOR HEALTHEON/WEBMD
COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST,
THE NEWS CORPORATION STRATEGIC ALLIANCE, KINETRA AND ENVOY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1999 and three months ended March 31,
2000 reflect Healtheon/WebMD's acquisitions of WebMD, MedE America, Medcast,
Kinetra and Envoy and the completion of its strategic alliance with News
Corporation as if the acquisitions and strategic alliance had been completed on
January 1, 1999. The following unaudited pro forma condensed combined statements
of operations also give effect to reclassifications to the unaudited historical
financial statements to conform the presentation of the historical operations of
the merged companies. The following is a brief description of the acquisitions
and strategic alliance:
- In November 1999, Healtheon merged with WebMD, exchanging 1.796 shares of
its common stock valued at $34.48 per share for each share of WebMD
outstanding capital stock in a transaction accounted for as a purchase.
The total purchase consideration was approximately $3,659,921 and
resulted in goodwill of $2,944,804, which is being amortized over three
years, and approximately $196,307 of intangible assets related to WebMD's
acquired technology, customer lists, trademarks and other intangibles.
- In November 1999, Healtheon acquired MedE America, exchanging 0.7494
shares of its common stock valued at $37.31 per share for each share of
MedE America outstanding capital stock in a transaction accounted for as
a purchase. The total purchase consideration was approximately $417,292
and resulted in goodwill of $324,983, which is being amortized over four
years, and approximately $105,545 of intangible assets related to MedE
America's customer lists, trademarks and acquired technology.
- In November 1999, Healtheon acquired Medcast, exchanging 2,692,501 shares
or options to purchase shares of its common stock valued at $40.10 per
share and approximately $2,336 in cash for all Medcast outstanding
capital stock in a transaction accounted for as a purchase. The total
purchase consideration was approximately $112,953 and resulted in
goodwill of approximately $109,755, which is being amortized over three
years, and intangible assets of approximately $17,700 related to
Medcast's customer lists, trademarks and acquired technology.
- In January 2000, Healtheon/WebMD completed the transactions contemplated
by its strategic alliance agreement with News Corporation, Fox
Entertainment Group and some of their affiliates, which are collectively
referred to in this proxy statement/prospectus as News Corporation. The
alliance included the transfer to Healtheon/WebMD of a 50% interest in
The Health Network and thehealthnetwork.com, a $100 million cash
investment commitment by News Corporation in an international joint
venture, a $300 million commitment to provide media branding services
over a ten year term, and a commitment by News Corporation to provide to
Healtheon/WebMD $400 million in media branding services over a ten-year
period in exchange for 155,951 shares of Healtheon/WebMD's Series A
preferred stock. The Series A preferred stock is convertible into an
aggregate of 21,282,645 shares of Healtheon/WebMD's common stock valued
at $629,000. Also in connection with this alliance, News Corporation
purchased 2,000,000 shares of Healtheon/WebMD's common stock at $50.00
per share for an aggregate purchase price of $100 million in cash. As a
result of the alliance, Healtheon/WebMD recorded goodwill of $185
million, which is being amortized over five years, and approximately $74
million of intangible assets related to The Health Network's trademarks,
acquired technology and other intangible assets.
- In January 2000, Healtheon/WebMD acquired Kinetra, exchanging 7,437,248
shares of Healtheon/WebMD's common stock valued at $38.49 per share for
all of Kinetra's membership interests in a transaction accounted for as a
purchase. The total purchase consideration was approximately $290 million
and resulted in goodwill and other intangibles of $270 million, which is
being amortized over three years.
- In May 2000, Healtheon/WebMD acquired Envoy, a subsidiary of Quintiles,
for 35,000,000 shares of Healtheon/WebMD's common stock valued at $57.79
per share and $400 million in cash in a transaction accounted for as a
purchase. The total purchase consideration was approximately $2.5 billion
and resulted in goodwill and other intangibles of $2.4 billion, which are
being amortized over three years.
122
<PAGE> 129
HEALTHEON/WEBMD CORPORATION
HEALTHEON/WEBMD UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST, THE NEWS CORPORATION STRATEGIC
ALLIANCE,
KINETRA AND ENVOY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------
HEALTHEON/ MEDE NEWS
WEBMD WEBMD AMERICA MEDCAST CORPORATION KINETRA ENVOY(6)
---------- --------- ------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue......................................... $ 102,149 $ 16,579 $51,662 $ 211 $ 7,967 $ 18,661 $219,909
Operating costs and expenses:
Cost of operations............................. 88,576 3,362 20,050 13,016 26,055 22,969 98,769
Development and engineering.................... 29,669 36,676 4,189 1,130 -- 8,675 1,168
Sales and marketing expense.................... 54,556 104,853 12,409 12,041 8,001 4,024 15,353
General and administrative..................... 27,759 25,015 6,039 5,184 3,319 3,276 28,082
Merger and related costs....................... -- -- 1,507 -- -- -- 9,056
Non-cash stock compensation.................... -- 29,216 -- -- -- -- --
Depreciation and amortization.................. 193,067 16,257 8,034 795 2,513 3,236 19,237
--------- --------- ------- -------- -------- -------- --------
Total operating costs and expenses........ 393,627 215,379 52,228 32,166 39,888 42,180 171,665
--------- --------- ------- -------- -------- -------- --------
Income (loss) from operations................... (291,478) (198,800) (566) (31,955) (31,921) (23,519) 48,244
Interest and other income, net.................. 3,486 4,407 (1,279) 230 (515) 1,472 64
Income taxes.................................... -- -- -- -- -- -- (23,640)
Dividends on preferred stock.................... -- (139,281) (244) -- -- -- --
Extraordinary loss.............................. -- -- (2,198) -- -- -- --
Accretion of redeemable warrants and preferred
stock to redemption value...................... -- (538) -- (58,539) -- -- --
--------- --------- ------- -------- -------- -------- -------
Net income (loss) applicable to common
stockholders................................... $(287,992) $(334,212) $(4,287) $(90,264) $(32,436) $(22,047) $24,668
========= ========= ======= ======== ======== ======== =======
Basic and diluted net loss per common share..... $ (3.58)
=========
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share.......................................... 80,367
=========
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------
WEBMD MEDE MEDCAST NEWS KINETRA
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $ (515)(7) $ -- $ -- $ --
Operating costs and expenses:
Cost of operations............................. -- (609)(7) -- -- --
Development and engineering.................... -- -- -- -- --
Sales and marketing expense.................... -- -- -- -- --
General and administrative..................... -- -- -- -- --
Merger and related costs....................... -- -- -- -- --
Non-cash stock compensation.................... -- -- -- -- --
Depreciation and amortization.................. (14,031)(2) (3,952)(2) 37,929(1) 51,745(1) (3,236)(2)
917,137(1) 120,021(1) 89,945(1)
---------- --------- -------- -------- --------
Total operating costs and expenses........ 903,106 115,460 37,929 51,745 86,709
---------- --------- -------- -------- --------
Income (loss) from operations................... (903,106) (115,975) (37,929) (51,745) (86,709)
Interest and other income, net.................. -- -- -- -- --
Income taxes.................................... -- -- -- -- --
Dividends on preferred stock.................... -- -- -- -- --
Extraordinary loss.............................. -- -- -- -- --
Accretion of redeemable warrants and preferred
stock to redemption value...................... -- -- 58,539(4) -- --
---------- --------- -------- -------- --------
Net income (loss) applicable to common
stockholders................................... $ (903,106) $(115,975) $ 20,610 $(51,745) $(86,709)
========== ========= ======== ======== ========
Basic and diluted net loss per common share.....
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share.......................................... 55,350(3) 9,007(3) 2,189(3) 2,000(3) 7,437(3)
========== ========= ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------
ENVOY
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- -----------
<S> <C> <C>
Revenue......................................... (609)(7) $ 416,014
Operating costs and expenses:
Cost of operations............................. (515)(7) 271,673
Development and engineering.................... -- 81,507
Sales and marketing expense.................... -- 211,237
General and administrative..................... -- 98,674
Merger and related costs....................... -- 10,563
Non-cash stock compensation.................... -- 29,216
Depreciation and amortization.................. (11,710)(2) 2,221,059
794,072(1)
--------- -----------
Total operating costs and expenses........ 781,847 2,923,929
--------- -----------
Income (loss) from operations................... (782,456) (2,507,915)
Interest and other income, net.................. -- 7,865
Income taxes.................................... 23,640(5) --
Dividends on preferred stock.................... -- (139,525)
Extraordinary loss.............................. -- (2,198)
Accretion of redeemable warrants and preferred
stock to redemption value...................... -- (538)
--------- -----------
Net income (loss) applicable to common
stockholders................................... $(758,816) $(2,642,311)
========= ===========
Basic and diluted net loss per common share..... $ (13.81)
===========
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share.......................................... 35,000(3) 191,350
========= ===========
</TABLE>
See accompanying notes.
123
<PAGE> 130
HEALTHEON/WEBMD CORPORATION
HEALTHEON/WEBMD UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST, THE NEWS CORPORATION STRATEGIC
ALLIANCE,
KINETRA AND ENVOY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------
NEWS
HEALTHEON/ NEWS PRO FORMA
WEBMD CORPORATION KINETRA ENVOY(6) ADJUSTMENTS
---------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenue............................ $ 65,881 $ 1,026 $ 1,432 $59,407 $ --
Operating costs and expenses:
Cost of operations............... 59,365 2,031 2,227 28,398 --
Development and engineering...... 11,574 -- 1,002 303 --
Sales and marketing.............. 86,715 676 371 3,960 --
General and administrative....... 13,811 322 261 7,378 --
Depreciation and amortization.... 338,710 21 649 3,870 4,312(1)
--------- -------- ------- ------- -------
Total operating costs and
expenses................. 510,175 3,050 4,510 43,909 4,312
--------- -------- ------- ------- -------
Income (loss) from operations...... (444,294) (2,024) (3,078) 15,498 (4,312)
Interest and other income, net..... 12,829 (12) 153 --
Income taxes....................... -- -- -- (6,179) --
--------- -------- ------- ------- -------
Net income (loss) applicable to
common stockholders.............. $(431,465) $ (2,024) $(3,090) $ 9,472 $(4,312)
========= ======== ======= ======= =======
Basic and diluted net loss per
common share..................... $ (2.47)
---------
Weighted-average shares outstanding
used in computing basic and
diluted net loss per common
share............................ 175,041 667(3)
========= =======
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------
KINETRA ENVOY
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS COMBINED
----------- ----------- ---------
<S> <C> <C> <C>
Revenue............................ $ -- $ (1,664)(7) $ 126,082
Operating costs and expenses:
Cost of operations............... -- (1,664)(7) 90,357
Development and engineering...... -- -- 12,879
Sales and marketing.............. -- -- 91,722
General and administrative....... -- -- 21,772
Depreciation and amortization.... (331)(2) (1,860)(2) 551,384
7,495(1) 198,518(1)
------- --------- ---------
Total operating costs and
expenses................. 7,164 194,994 768,114
------- --------- ---------
Income (loss) from operations...... (7,164) (196,658) (642,032)
Interest and other income, net..... -- -- 12,970
Income taxes....................... -- 6,179(5) --
------- --------- ---------
Net income (loss) applicable to
common stockholders.............. $(7,164) $(190,479) $(629,062)
======= ========= =========
Basic and diluted net loss per
common share..................... $ (2.95)
=========
Weighted-average shares outstanding
used in computing basic and
diluted net loss per common
share............................ 2,479(3) 35,000(3) 213,187
======= ========= =========
</TABLE>
See accompanying notes.
124
<PAGE> 131
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR HEALTHEON/WEBMD COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST,
THE NEWS CORPORATION STRATEGIC ALLIANCE, KINETRA AND ENVOY
The adjustments to the unaudited pro forma condensed combined statements of
operations for the three months ended March 31, 2000 and year ended December 31,
1999 assume the mergers occurred as of January 1, 1999 and are as follows:
(1) To reflect the amortization of goodwill and other intangible assets
resulting from the mergers. The goodwill and other intangible assets
are being amortized over periods of approximately three to five years.
Currently, management does not anticipate that any significant value
will be attributed to purchased in-process research and development.
(2) To reflect the elimination of amortization related to historical
intangible assets of the acquired companies.
(3) Basic and diluted net loss per share have been adjusted to reflect the
issuance of Healtheon/WebMD's common stock as if the shares had been
outstanding for the entire periods presented. The effects of stock
options and warrants assumed and preferred stock issued in the mergers
have not been included as their inclusion would be anti-dilutive.
(4) To reflect the reversal of accretion on redeemable preferred stock that
was forfeited by redeemable preferred stockholders upon the completion
of the Medcast merger.
(5) To eliminate income tax expense as a result of pro forma consolidated
loss.
(6) Excludes the statement of operations of Envoy's subsidiary, Synergy,
which was not acquired by Healtheon/WebMD. The following financial
information combines Envoy's pro forma financial information with
Synergy's historical financial information to reconcile to Envoy's
historical financial information which is included elsewhere within
this proxy statement/prospectus:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 THREE MONTHS ENDED MARCH 31, 2000
----------------------------------- ----------------------------------
(IN THOUSANDS) (IN THOUSANDS)
ENVOY ENVOY
ENVOY SYNERGY CONSOLIDATED ENVOY SYNERGY CONSOLIDATED
-------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $219,909 $ 2,547 $222,456 $59,407 $ 914 $60,321
Income (loss) from operations... 48,244 (1,557) 46,687 15,498 (1,444) 14,054
Net income (loss)............... 24,668 (1,664) 23,004 9,472 (881) 8,591
</TABLE>
(7) To eliminate intercompany revenue and cost of operations.
125
<PAGE> 132
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS OF MEDICAL MANAGER
AND CAREINSITE COMBINED WITH PHYSICIAN COMPUTER NETWORK
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1999 and three months ended March 31,
2000 reflect the acquisition of certain assets of Physician Computer Network on
March 30, 2000 for a purchase price of $60 million, including forgiveness of $7
million of outstanding loans made by Medical Manager to Physician Computer
Network, plus the assumption of certain liabilities. The acquisition is
considered a taxable transaction for federal, state and local income tax
purposes.
The Medical Manager unaudited pro forma combined condensed consolidated
statements of operations have been presented as if the Physician Computer
Network acquisition had been consummated on January 1, 1999. For purposes of
combining Medical Manager's historical financial data with Physician Computer
Network's historical financial data in the unaudited pro forma combined
condensed consolidated statement of operations, the unaudited financial data of
Medical Manager for the twelve months ended December 31, 1999 has been combined
with audited financial data of Physician Computer Network for the twelve months
ended December 31, 1999.
126
<PAGE> 133
MEDICAL MANAGER CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MANAGER PHYSICIAN COMPUTER
CORPORATION NETWORK PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
--------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue.................................. $333,045 $ 68,823 $ (540)(1) $401,328
Operating costs and expenses:
Cost of operations..................... 169,737 48,598 (540)(1) 217,795
Development and engineering............ 23,190 3,963 -- 27,153
Selling, general and administrative.... 105,969 19,473 -- 125,442
Litigation expenses.................... 5,400 23,400 (23,400)(2) 5,400
Merger and related costs............... 17,991 -- -- 17,991
Depreciation and amortization.......... 20,115 6,189 (4,719)(3) 36,485
14,900(4)
-------- -------- -------- --------
Total operating costs and
expenses..................... 342,402 101,623 (13,759) 430,266
-------- -------- -------- --------
Loss from operations..................... (9,357) (32,800) 13,219 (28,938)
Interest and other income, net........... 15,362 13,009 (1,426)(5) 17,107
(9,838)(6)
Gain on sale of investments.............. 24,887 -- -- 24,887
Income taxes............................. (14,474) (125) 4,643(7) (9,956)
-------- -------- -------- --------
Net income (loss) applicable to common
stockholders........................... $ 16,418 $(19,916) $ 6,598 $ 3,100
======== ======== ======== ========
Net income per share -- basic:
Net income per share................... $ 0.46 $ 0.08
======== ========
Weighted average shares outstanding.... 35,694 779(8) 36,473
======== ======== ========
Net income per share -- diluted:
Net income per share................... $ 0.43 $ 0.08
======== ========
Weighted average shares outstanding.... 38,414 779(8) 39,193
======== ======== ========
</TABLE>
See accompanying notes to financial statements
127
<PAGE> 134
MEDICAL MANAGER CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MANAGER PHYSICIAN COMPUTER PRO
CORPORATION NETWORK PRO FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
--------------- ------------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue................................... $88,401 $12,403 $ (75)(1) $100,729
Operating costs and expenses:
Cost of operations...................... 46,236 9,119 (75)(1) 55,280
Development and engineering............. 11,316 1,210 -- 12,526
Selling, general and administrative..... 34,982 2,810 -- 37,792
Litigation expenses..................... 350 -- -- 350
Depreciation and amortization........... 14,002 972 (741)(3) 17,958
3,725(4)
------- ------- ------- --------
Total operating costs and
expenses...................... 106,886 14,111 2,909 123,906
------- ------- ------- --------
Income (loss) from operations............. (18,485) (1,708) (2,984) (23,177)
Interest and other income, net............ 12,982 275 (357)(5) 12,900
Income taxes.............................. (3,953) -- 1,336(7) (2,617)
------- ------- ------- --------
Net loss applicable to common
stockholders............................ $(9,456) $(1,433) $(2,005) $(12,894)
======= ======= ======= ========
Basic and diluted net loss per common
share................................... $ (0.25) $ (0.33)
======= ========
Weighted-average shares outstanding used
in computing basic and diluted net loss
per common share........................ 37,981 779(8) 38,760
======= ======= ========
</TABLE>
See accompanying notes to financial statements
128
<PAGE> 135
MEDICAL MANAGER CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(UNAUDITED)
The total estimated purchase price of Physician Computer Network has been
allocated on a preliminary basis to the assets and liabilities based on
management's best estimates of their fair value with the excess over the net
tangible assets acquired allocated to goodwill. These allocations are subject to
change pending a final determination and analysis of the total purchase price
and the fair value of the assets acquired and liabilities assumed. The
acquisition will be accounted for under the purchase method of accounting. The
excess of the purchase price over the fair value of the net assets acquired is
being amortized over five years.
The following is a summary of the adjustments reflected in the unaudited
pro forma combined condensed consolidated statement of operations (in
thousands):
(1) Represents the elimination of intercompany revenue and cost of operations.
(2) Represents the elimination of the charge related to Physician Computer
Network's settlement of securities litigation, which resulted in
liabilities not assumed by Medical Manager in its acquisition of Physician
Computer Network.
(3) Represents the elimination of amortization related to historical intangible
assets of Physician Computer Network.
(4) Represents the amortization of the excess of the purchase price over the
net assets acquired of Physician Computer Network.
(5) Represents the decrease in interest income to reflect the payment of the
cash portion of the purchase price and the estimated expenses associated
with the acquisition.
(6) Represents the elimination of the gain on the sale of the Wismer Martin
division of Physician Computer Network to Medical Manager in July 1999.
(7) Represents the tax effect of the adjustments to the unaudited pro forma
combined condensed consolidated statement of operations, excluding the
elimination of the gain on the sale of the Wismer Martin division of
Physician Computer Network to Medical Manager in July 1999 and the charge
related to Physician Computer Network's settlement of securities
litigation, based on a combined federal and state effective tax rate of 40%
for all periods presented.
(8) Represents the increase in the number of outstanding shares of Medical
Manager common stock to reflect the payment of the stock portion of the
purchase price. The market price used in the calculation represents the
average of the average closing sale price during the ten trading days
ending on March 27, 2000 and the average closing sale price during the ten
trading days ending on March 28, 2000.
129
<PAGE> 136
COMPARISON OF RIGHTS OF HOLDERS OF HEALTHEON/WEBMD CAPITAL STOCK,
MEDICAL MANAGER CAPITAL STOCK AND CAREINSITE CAPITAL STOCK
The rights of stockholders of Medical Manager are currently governed by
Medical Manager's certificate of incorporation, which has been amended and
restated, and Medical Manager's bylaws. After the completion of the Medical
Manager merger, Medical Manager stockholders will become stockholders of
Healtheon/WebMD. Because Medical Manager and Healtheon/WebMD are both Delaware
corporations, after the Medical Manager merger the rights of Medical Manager
stockholders will continue to be governed by Delaware law.
The rights of stockholders of CareInsite are currently governed by
CareInsite's certificate of incorporation, which has been amended and restated,
and CareInsite's bylaws, which have been amended and restated. After the
completion of the CareInsite merger, CareInsite stockholders will become
stockholders of Healtheon/WebMD. Because CareInsite and Healtheon/WebMD are both
Delaware corporations, after the CareInsite merger the rights of CareInsite
stockholders will continue to be governed by Delaware law.
The following chart summarizes differences among the rights of the
stockholders of the three companies under their certificates of incorporation
and bylaws.
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Common stock One class, consisting of One class, consisting of One class, consisting of
600,000,000 authorized 300,000,000 authorized 300,000,000 authorized
shares shares shares
Preferred stock The Healtheon/WebMD The Medical Manager The CareInsite
certificate of certificate of certificate of
incorporation authorizes incorporation authorizes incorporation authorizes
the board of directors the board of directors the board of directors
to issue shares of to issue shares of to issue shares of
preferred stock in one preferred stock in one preferred stock in one
or more series and to or more series of equal or more series. The
fix the designations, rank. The board of board of directors is
preferences, powers and directors is authorized authorized to fix the
rights of the shares to to fix the designations, designations,
be included in each preferences and rights preferences and rights
series. The of the shares in each of the shares in each
Healtheon/WebMD series. The Medical series. The CareInsite
certificate of Manager certificate of certificate of
incorporation reserves incorporation reserves incorporation reserves
for issuance 5,000,000 for issuance 10,000,000 for issuance 30,000,000
shares of preferred shares of preferred shares of preferred
stock. Of the 5,000,000 stock. stock. Of the 30,000,000
shares of preferred shares of preferred
stock, 155,951 have been stock, 200 have been
designated as Series A designated as Series A
payment-in-kind convertible redeemable
convertible preferred preferred stock.
stock.
</TABLE>
130
<PAGE> 137
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Special meetings of Under Delaware law, a See the description of See the description of
stockholders special meeting of Delaware law contained Delaware law contained
stockholders may be under the "Healtheon/ under the "Healtheon/
called by the board of WebMD" heading. Medical WebMD" heading. The
directors or any other Manager's certificate of CareInsite bylaws
person authorized to do incorporation provides provide that special
so in the certificate of that special meetings of meetings of the
incorporation or the the stockholders may be stockholders may be
bylaws. Healtheon/ called by a majority called by the chairman
WebMD's bylaws authorize vote of the board of of the board of
the board of directors, directors, a duly directors, the chief
the president of designated committee of executive officer of the
Healtheon/WebMD, or one the board of directors, corporation, a majority
or more stockholders or a holder of record of vote of the board, or a
holding shares in the 10% of the outstanding duly appointed board
aggregate entitled to shares of stock entitled committee so empowered
cast no less than 10% of to vote at the meeting. to act.
the votes at that
meeting to call a
special meeting of
stockholders.
Action by written Under Delaware law, See the description of See the description of
consent in lieu of a stockholders may take Delaware law contained Delaware law contained
stockholders' meeting action by written under the "Healtheon/ under the "Healtheon/
consent in lieu of WebMD" heading. The WebMD" heading. The
voting at a Medical Manager bylaws CareInsite bylaws
stockholders' meeting. provide that any action provide that any action
Delaware law permits a required to be taken at required to be taken at
corporation, pursuant to an annual or special an annual or special
a provision in such meeting of the meeting of the
corporation's stockholders may be stockholders may be
certificate of taken without a meeting taken without a meeting
incorporation, to if a written consent if a written consent
eliminate the ability of setting forth the action setting forth the action
stockholders to act by to be taken is signed by to be taken is signed by
written consent. the holders of the holders of
Healtheon/WebMD's outstanding stock having outstanding stock having
certificate of not less than the not less than the
incorporation eliminates minimum number of votes minimum number of votes
the ability of that would be necessary that would be necessary
stockholders to act by to authorize or take to authorize or take
written consent. action at a meeting at action at a meeting at
which all shares which all shares
entitled to vote were entitled to vote were
present and voted. present and voted.
</TABLE>
131
<PAGE> 138
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Advance notice The Healtheon/WebMD The Medical Manager The CareInsite bylaws
provisions for board bylaws require that bylaws require that the require that the
nomination and other nominations of persons proposal of business to proposal of business to
stockholder for election to the be considered at an be considered at an
business -- annual board of directors and annual meeting of annual meeting of
meetings the proposal of business stockholders must be stockholders must be
to be considered at an made by: made by:
annual meeting of - the corporation's - the corporation's
stockholders must be notice of meeting notice of meeting
made by: - the board of - the board of
- the corporation's directors, or directors, or
notice of meeting - a stockholder who - a stockholder who
- the board of gives proper notice. gives proper notice
directors, or If made by a If made by a
- a stockholder who stockholder, the stockholder, the
gives proper notice. proposal must be made by proposal must be made by
If made by a advance written notice advance written notice
stockholder, the to Medical Manager to CareInsite between 60
proposal must be made by between 60 and 90 days and 90 days prior to the
advance written notice prior to the meeting of meetings of
given to Healtheon/WebMD stockholders. stockholders.
between 60 and 90 days
prior to the meeting of
stockholders.
Advance notice The Healtheon/WebMD The Medical Manager The CareInsite bylaws
provisions for board bylaws provide for the bylaws provide that the provide that the only
nomination and other same requirements for only business that can business that can be
stockholder raising business at be conducted at special conducted at special
business -- special special meetings of meetings will be the meetings will be the
meetings stockholders as for items of business set items of business set
raising business at forth in the notice of forth in the notice of
annual meetings. special meeting. special meeting.
</TABLE>
132
<PAGE> 139
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Number of directors The Healtheon/WebMD The Medical Manager The CareInsite bylaws
bylaws provide that the certificate of provide that the number
board of directors shall incorporation and bylaws of directors shall be
consist of not fewer provide that the number established by
than six and not more of directors shall be resolution of the board
than 11 directors. In established by of directors.
connection with the resolution of the board
mergers, the bylaws will of directors.
be amended to provide
that the board of
directors shall consist
of 15 directors and that
this number may be
changed exclusively by a
resolution duly adopted
by the affirmative vote
of a majority of the
members of the board of
directors then
authorized by the by-
laws, except as may
otherwise be provided by
the certificate of
incorporation or by law.
Classified board of Delaware law provides See the description of See the description of
directors that a corporation's Delaware law contained Delaware law contained
board of directors may under the "Healtheon/ under the "Healtheon/
be divided into various WebMD" heading. Medical WebMD" heading.
classes with staggered Manager's directors are CareInsite's directors
terms of office. The not divided into are not divided into
board of directors of classes. classes.
Healtheon/WebMD is
divided into three
classes, as nearly equal
in size as possible,
with one class being
elected annually.
Healtheon/WebMD
directors are elected to
a term of three years
and until their
successors are elected
and qualified.
</TABLE>
133
<PAGE> 140
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Removal of directors Except as otherwise See the description of See the description of
provided in the Delaware law contained Delaware law contained
corporation's under the "Healtheon/ under the "Healtheon/
certificate of WebMD" heading. The WebMD" heading. The
incorporation, a Medical Manager CareInsite bylaws
director of a Delaware certificate of provide that any
corporation that has a incorporation provides director may be removed,
classified board of that any director may be with or without cause,
directors may be removed removed, with or without by an affirmative vote
only with cause. The cause, by an affirmative of the holders of record
Healtheon/WebMD bylaws vote of the holders of of a majority of the
provide that any record of a majority of outstanding shares of
director or the entire the outstanding shares stock entitled to vote.
board of directors may of stock entitled to
be removed, with cause, vote.
by the holders of a
majority of the shares
then entitled to vote at
an election of
directors.
Board of director Under Delaware law, See the description of See the description of
vacancies vacancies and newly Delaware law contained Delaware law contained
created directorships under the "Healtheon/ under the "Healtheon/
may be filled by a WebMD" heading. The WebMD" heading. The
majority of the Medical Manager CareInsite certificate
directors then in certificate of of incorporation
office, even though less incorporation provides provides that the power
than a quorum, unless that the power to fill to fill vacancies on the
otherwise provided in vacancies on the board board is vested in the
the certificate of is vested in the board board of directors and
incorporation or bylaws. of directors and may be may be filled by
The Healtheon/WebMD filled by majority vote, majority vote, even in
bylaws provide that even in the absence of a the absence of a quorum,
vacancies on the board quorum, unless all unless all directorships
of directors may only be directorships are are vacant.
filled by the vote of vacant.
the majority of
directors remaining in
office.
Notice of special The Healtheon/WebMD The Medical Manager The CareInsite bylaws
meetings of the board of bylaws provide that the bylaws provide that provide that special
directors chief executive officer special meetings of the meetings of the board
may call special board may be called by may be called by any
meetings of the board of any three directors, by three directors, by the
directors upon three the chairman of the chairman of the board,
days notice of the board, by a chief by a chief executive
meeting. The president executive officer, or by officer, or by the chief
or secretary may call the chief financial financial officer of the
special meetings upon officer of the corporation.
the written request of corporation.
two directors and upon
three days notice of the
meeting.
</TABLE>
134
<PAGE> 141
<TABLE>
<CAPTION>
HEALTHEON/WEBMD MEDICAL MANAGER CAREINSITE
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Indemnification The Healtheon/WebMD The Medical Manager The CareInsite
certificate of certificate of certificate of
incorporation and bylaws incorporation and bylaws incorporation and bylaws
provide that the provide that the provide that the
directors and officers corporation shall corporation shall
shall be indemnified to indemnify to the fullest indemnify to the fullest
the fullest extent extent allowed by extent allowed by
authorized by law Delaware law any person Delaware law any person
against any action, whom it shall have the whom it shall have the
proceeding or suit power to indemnify from power to indemnify from
brought against such a and against all expenses and against all expenses
person by reason of the or liabilities resulting or liabilities resulting
fact that he or she is from any matter or from any matter or
or was a director or proceeding, whether proceeding, whether
officer of the civil, criminal, civil, criminal,
corporation or serves or administrative or administrative or
served at any other investigative, due to investigative, due to
enterprise as at the the fact that such the fact that such
request of the person is or was a person is or was a
corporation. The director, officer, director, officer,
Healtheon/WebMD bylaws employee, agent or employee, agent or
provide that the fiduciary of the fiduciary of the
corporation may pay all corporation. corporation.
expenses incurred by a
director or officer in
defending any proceeding
within the scope of the
indemnification
provisions.
</TABLE>
DESCRIPTION OF HEALTHEON/WEBMD'S PREFERRED STOCK
Healtheon/WebMD's Series A payment-in-kind preferred stock has a face
amount of $5,000 per share. This preferred stock is not subject to any sinking
fund or mandatory redemption provision. With respect to dividend rights, rights
on liquidation, winding up or dissolution, whether voluntary or involuntary, the
Series A preferred stock ranks on a parity with Healtheon/WebMD's common stock.
If directed by the board of directors, Healtheon/WebMD will pay quarterly
dividends to the holders of Series A preferred stock in the form of additional
shares of Series A preferred stock. Whether or not the dividends are paid,
dividends on each share of the Series A preferred stock accrue at a rate of 10%
per annum in respect of the face amount. Dividends are only payable by issuance
of additional shares of Series A preferred stock.
Each share of Series A preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which that share of preferred
stock would have been converted had the Series A preferred stock been converted
into common stock immediately before the date of determination of the
stockholders eligible to vote on any matter. Holders of Series A preferred stock
are entitled to vote on the same matters that the holders of common stock are
entitled to vote. Healtheon/WebMD cannot change the rights, preferences, or
privileges of the Series A preferred stock, or take any action which does so,
unless the action affects all capital stock of Healtheon/WebMD in a similar
manner, or authorize any additional Series A preferred stock without first
obtaining the consent of the holders of at least 90% of the outstanding shares
of Series A preferred stock.
Each outstanding share of Series A preferred stock will be automatically
converted into 100 shares of common stock plus the number of shares of common
stock equal to the dollar amount of the dividends accrued and declared through
the date of conversion divided by the share's face amount and multiplied by 100,
plus, if the date of conversion is not January 26, 2003, a premium amount equal
to the interest on $5,000 at 10.5% per annum compounded on each dividend date
from the date of conversion through January 26, 2003, divided by $5,000 and
135
<PAGE> 142
then multiplied by 100. The conversion rate is subject to adjustment for stock
splits, stock dividends and other distributions. A conversion occurs
automatically upon the earlier occurrence of:
- a liquidation, dissolution or winding up, whether voluntary or
involuntary, of Healtheon/WebMD
- the consummation of a transaction resulting in a change of control
- the next business day following written notice from Healtheon/WebMD that
its board of directors has resolved to cause a conversion
- January 26, 2003.
In connection with the mergers, Healtheon/WebMD will create a new series of
preferred stock with terms substantially identical to those of the CareInsite
Series A preferred stock.
DESCRIPTION OF CAREINSITE'S PREFERRED STOCK
CareInsite's Series A preferred stock ranks, with respect to the payment of
dividends and to distribution of assets upon liquidation, dissolution or winding
up of CareInsite, whether voluntary or involuntary, senior to all of
CareInsite's common stock and senior to all capital stock which is not expressly
ranked equally with the Series A preferred stock. No capital stock may be issued
which is senior to the Series A preferred stock. If CareInsite pays dividends in
cash or property, other than shares of common stock on the CareInsite common
stock, then the holders of the Series A preferred stock are entitled to share in
the dividends on a pro rata basis, as if their shares of Series A preferred
stock had been converted into shares of CareInsite common stock.
In the event of the liquidation, dissolution or winding up of CareInsite,
whether voluntary or involuntary, and before any payment is made to holders of
common stock or junior capital stock, holders of Series A preferred stock are
entitled to receive $100,000 per share of Series A preferred stock plus all
declared but unpaid dividends. If the liquidation, dissolution or winding up
occurs before March 16, 2002, holders of Series A preferred stock receive that
amount which would be received following conversion of a share of Series A
preferred stock into common stock if this amount would be greater than $100,000
per share plus all declared but unpaid dividends. If the corporate assets
available for distribution are not sufficient to pay these amounts, then the
corporate assets are to be distributed proportionally among the holders of the
Series A preferred stock and the holders of any equal ranking capital stock.
Liquidation, dissolution or winding up of CareInsite will not be considered to
have resulted from either a consolidation, merger or other business combination
of CareInsite with or into another corporation or other entity or a sale or
offer of all or part of the corporation's assets for cash, securities or other
property unless in connection with any action the liquidation of CareInsite is
specifically approved.
Holders of Series A preferred stock have the right to cause CareInsite to
redeem all, but not less than all, of the outstanding shares at $100,000 per
share plus all declared but unpaid dividends on either March 16, 2002 or the
30th day following CareInsite's receipt of proper and timely notice of a demand
to redeem the stock in connection with specified changes of control of
CareInsite, which would not include the mergers with Healtheon/WebMD. Shares of
Series A preferred stock which could be redeemed but are not will continue to
have dividend rights and other rights, preferences and privileges of the Series
A preferred stock until redemption. After March 16, 2002, CareInsite has the
option to redeem all, but not less than all, outstanding shares of Series A
preferred stock at $100,000 per share plus all declared but unpaid dividends.
The holders of Series A preferred stock generally have no voting rights. As
long as shares of Series A preferred stock are outstanding, however, CareInsite
may not, without the affirmative vote or consent of the majority of the holders
of Series A preferred stock voting separately as a class, directly or indirectly
or through merger or consolidation:
- amend, alter or change any provision of the certificate of incorporation
or corporate bylaws so as to adversely affect the rights, preferences,
privileges or powers of the Series A preferred stock
- authorize or issue any new class of shares of capital stock having a
preference with respect to the dividends, redemption and/or liquidation
over the Series A preferred stock
136
<PAGE> 143
- reclassify any capital stock into shares having a preference with respect
to the dividends, redemption and/or liquidation over the Series A
preferred stock.
On March 16, 2002, holders of Series A preferred stock have the right to
convert all, but not less than all, of the outstanding shares into a number of
shares of common stock. The number of shares of common stock into which each
share of Series A preferred stock would be convertible is obtained by dividing
$100,000 per share of Series A preferred stock plus all declared but unpaid
dividends by $49.25 per share and rounding the result to the nearest 1/100(th)
of a share. Each holder of Series A preferred stock is also entitled to receive
a warrant to purchase an additional number of shares of common stock equal to
the number of shares of common stock into which the shares of the holder's
Series A preferred stock are converted. The number of shares of common stock
into which the Series A preferred stock is convertible is subject to adjustment
upon the occurrence of specified events, including the corporation's payment of
dividends or distribution of additional shares of common stock, subdivision of
outstanding shares of common stock into a larger number of shares of common
stock, or combination of outstanding shares of common stock into a smaller
number of shares of common stock.
137
<PAGE> 144
INFORMATION REGARDING HEALTHEON/WEBMD
HEALTHEON/WEBMD'S BUSINESS
OVERVIEW
Healtheon/WebMD provides web-based healthcare information and services to
facilitate connectivity and transactions among physicians, patients, payers and
other healthcare industry participants. Healtheon/WebMD's Internet-based
information and transaction platform allows for the secure exchange of
information among the disparate information systems used by healthcare industry
participants and supports Healtheon/WebMD's administrative transaction services,
including patient enrollment, eligibility determination, referrals and
authorizations, laboratory and diagnostic test orders and results, clinical data
retrieval and claims processing.
Healtheon/WebMD's web site, WebMD.com, offers a single destination for the
exchange of healthcare information and supports a broad range of healthcare
transactions delivered over our secure, Internet-based platform. Healtheon/WebMD
designs its service offerings to help integrate and manage administrative,
clinical, research and information needs of healthcare industry participants.
Healtheon/WebMD believes that its web-based solution has the potential to create
significant improvements in the way that information is used by the healthcare
system, enabling improved workflow, better decision-making and, ultimately,
higher quality patient care at a lower cost.
Through WebMD.com, physician subscribers can access WebMD Practice,
Healtheon/WebMD's provider destination, and consumers can access WebMD Health,
Healtheon/WebMD's free consumer destination. WebMD Practice provides physicians
with administrative transaction services, medical news and research, continuing
medical education credits, customized web sites and e-mail accounts, among other
services. WebMD Health provides consumers with health and wellness news and
information, support communities, interactive tools and opportunities to
purchase health-related products and services. Healtheon/WebMD's communities
allow consumers to participate in real-time discussion and support networks over
the Internet.
Healtheon/WebMD currently provides services to over 250,000 physicians and
approximately 11,000 dentists, 4,500 hospitals, 46,000 pharmacies, 650 payers
and 8 laboratory companies. In addition, nearly 100,000 physicians have
subscriptions to WebMD Practice, and over 1,100,000 consumers are enrolled in
Healtheon/WebMD's support communities on WebMD Health. In May 2000, WebMD.com
attracted approximately 4.7 million unique users, according to Media Metrix, and
page views exceeded approximately 30.0 million, according to commercial software
that Healtheon/WebMD utilizes.
Healtheon/WebMD was incorporated in December 1995 and commenced operations
in January 1996. In November 1999, Healtheon Corporation merged with WebMD, MedE
America and Medcast and changed its name to Healtheon/WebMD Corporation.
Healtheon/WebMD launched its integrated web site in November 1999 following the
closing of these mergers.
The address of Healtheon/WebMD's principal executive office is 400 The
Lenox Building, 3399 Peachtree Road NE, Atlanta, Georgia 30324 and its telephone
number is (404) 495-7600. Healtheon/WebMD's web site is www.webmd.com. The
information on Healtheon/WebMD's web site is not a part of this proxy
statement/prospectus.
RECENT EVENTS
On May 26, 2000, Healtheon/WebMD completed its acquisition of Envoy from
Quintiles in exchange for 35 million shares of common stock and $400 million in
cash. Envoy is a leading provider of EDI transaction processing services to
participants in the healthcare market. Healtheon/WebMD accounted for the Envoy
acquisition as a purchase transaction. In connection with the acquisition of
Envoy, Healtheon/WebMD was also granted a warrant to purchase 10 million shares
of Quintiles common stock at an exercise price of $40.00 per share, which
warrant is exercisable for a period of four years.
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HEALTHEON/WEBMD'S MANAGEMENT
The following table sets forth information regarding Healtheon/WebMD's
current executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
W. Michael Long(1)........................ 48 Chairman of the Board of Directors
Jeffrey T. Arnold(1)...................... 30 Chief Executive Officer and Director
Steven C. Grant........................... 49 Chief Operating Officer
Reginald R. Bradford...................... 33 Executive Vice President, Chief Marketing
Officer
Jack D. Dennison.......................... 43 Executive Vice President, General Counsel
K. Robert Draughon........................ 40 Executive Vice President, Business
Development
W. Michael Heekin......................... 47 Executive Vice President, Strategic
Alliances
Pavan Nigam............................... 41... Executive Vice President, Chief Technology
Officer
John L. Westermann III.................... 54 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Patricia Fili-Krushel..................... 46 President and Chief Executive Officer of
WebMD Health
David B. Springer......................... 35 Senior Vice President, Sales
James H. Clark(2)......................... 56 Director
L. John Doerr(2).......................... 48 Director
U. Bertram Ellis, Jr.(3).................. 46 Director
Dennis B. Gillings........................ 56 Director
Eric J. Gleacher(2)....................... 60 Director
William P. Payne(3)....................... 52 Director
Charles G. V. Stevens..................... 42 Director
</TABLE>
------------------
(1) Member of the stock option committee
(2) Member of the compensation committee
(3) Member of the audit committee
W. Michael Long has served as the Chairman of Healtheon/WebMD's Board of
Directors since November 1999 and has served as a director since joining
Healtheon/WebMD in July 1997. Mr. Long served as Healtheon/WebMD's Chief
Operating Officer from November 1999 until April 2000. From July 1997 until
November 1999, Mr. Long was Healtheon/WebMD's Chief Executive Officer. Prior to
joining Healtheon/WebMD, Mr. Long was President and Chief Executive Officer of
CSC Continuum, Inc., a unit of Computer Sciences Corporation, from August 1996
to July 1997. For more than five years prior to its acquisition by CSC, he was
President and Chief Executive Officer of The Continuum Company, Inc., a provider
of information technology and consulting services to the financial industry.
Jeffrey T. Arnold has served as Healtheon/WebMD's Chief Executive Officer
and a director since November 1999. Mr. Arnold was the founder of WebMD and
served as Chairman of the Board and Chief Executive Officer of WebMD from its
inception in October 1996 until November 1999. In addition, Mr. Arnold served as
WebMD's President from its inception until September 1997. From April 1994 until
the merger of Endeavor Technologies, Inc. with WebMD in March 1997, Mr. Arnold
served in various capacities at Endeavor, including as Chairman and Chief
Executive Officer. Mr. Arnold also serves on the board of directors of iXL
Enterprises, Inc. and PTEK Holdings, Inc.
Steven C. Grant has served as Healtheon/WebMD's Chief Operating Officer
since April 2000. Mr. Grant joined American Express Company in May 1981 and has
served in various positions with American Express, including most recently as
Executive Vice President of Service Delivery for all card products in the U.S.
since 1998, and as Senior Vice President of Service Strategy from 1995 until
1998.
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Reginald R. Bradford has served as Healtheon/WebMD's Executive Vice
President, Chief Marketing Officer since November 1999. From September 1998
until November 1999, Mr. Bradford served as Chief Marketing Officer of WebMD.
Mr. Bradford joined Miller Brewing Company in 1990 and served in various
positions until August 1998, including in their marketing department and as a
business development manager.
Jack D. Dennison has served as Healtheon/WebMD's Executive Vice President,
General Counsel since November 1999. From July 1998, when he joined
Healtheon/WebMD, until November 1999, he served as Healtheon/WebMD's Vice
President and General Counsel. Mr. Dennison served as Deputy General Counsel of
CSC from August 1996 to July 1998. Prior to that time, Mr. Dennison served as
Vice President and General Counsel of Continuum. Prior to joining Continuum in
1989, he was a partner with Ford, Dennison & Byrne in Austin, Texas.
K. Robert Draughon has served as Healtheon/WebMD's Executive Vice
President, Business Development since November 1999. From February 1998 until
November 1999, he served as Chief Financial Officer of WebMD. From January 1988
to February 1998, he served as Chief Investment Officer for Fuqua Capital
Corporation, a private investment firm based in Atlanta, Georgia.
W. Michael Heekin has served as Healtheon/WebMD's Executive Vice President,
Strategic Relations since November 1999. From November 1998 to November 1999, he
served as an Executive Vice President of WebMD and from January 1999 until
November 1999 served as WebMD's General Counsel. Mr. Heekin served as Chief
Operating Officer of WebMD from August 1997 to November 1998. Mr. Heekin has
also served in various capacities at WebMD, including as one of WebMD's
directors and as Secretary. 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.
Pavan Nigam has served as Healtheon/WebMD's Executive Vice President, Chief
Technology Officer since November 1999. Mr. Nigam co-founded Healtheon and
served as Healtheon/WebMD's Vice President, Strategic Development and Chief
Technology Officer from February 1996 until November 1999. Prior to joining
Healtheon/WebMD, Mr. Nigam worked at Silicon Graphics, Inc. from August 1989 to
January 1996, where he served as the division manager for Silicon Graphic's
Interactive Media Group and was responsible for deploying Time Warner, Inc.'s
Interactive TV project in Orlando, Florida. From 1989 to 1993, he was director
of Silicon Graphics' Casevision products. Prior to 1989, Mr. Nigam was employed
by Atherton Technologies and Intel Corporation.
John L. Westermann III has served as Healtheon/WebMD's Executive Vice
President, Chief Financial Officer, Treasurer and Secretary since November 1999.
Mr. Westermann served as Healtheon/WebMD's Vice President, Chief Financial
Officer and Secretary from July 1998 until November 1999. From August 1996 to
July 1998, Mr. Westermann was Chief Financial Officer and Vice President of CSC
Continuum. For more than five years prior to its acquisition by CSC, Mr.
Westermann was Chief Financial Officer, Vice President, Secretary and Treasurer
of Continuum.
Patricia Fili-Krushel has served as President and Chief Executive Officer
of WebMD Health, Healtheon/WebMD's consumer portal, since April 2000. From June
1998 until April 2000, she served as the President of ABC Television Network, a
division of The Walt Disney Company. From 1993 until 1998, she served as
President of ABC Daytime.
David B. Springer has served as Healtheon/WebMD's Senior Vice President,
Sales since November 1999. From June 1998 until November 1999, Mr. Springer
served as Senior Vice President, Professional Sales of WebMD. From February 1997
until May 1998, Mr. Springer served in various capacities at Quality Diagnostic
Services, Inc., a subsidiary of WebMD. From January 1995 until January 1997, Mr.
Springer was the Vice President of Corporate Accounts at Sulzer Intermedics'
Pacemaker Division.
James H. Clark has served as Healtheon/WebMD's director from December 1995,
when he co-founded Healtheon. Mr. Clark was the Chairman of Healtheon/WebMD's
Board of Directors from December 1995 to November 1999. Dr. Clark co-founded
Netscape in April 1994 and served as the Chairman of the Board of Directors of
Netscape from its inception until it was acquired by AOL in March 1999. He
served as President and
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Chief Executive Officer of Netscape from its founding until December 1994. From
1981 until 1994, Dr. Clark served as Chairman of the Board of Directors of
Silicon Graphics, a company that he founded in 1981. Prior to founding Silicon
Graphics, Dr. Clark was an Associate Professor at Stanford University.
L. John Doerr has served as Healtheon/WebMD's director since July 1997. He
has been a general partner at Kleiner Perkins Caufield & Byers, or KPCB, a
venture capital firm, since 1980. Prior to joining KPCB, Mr. Doerr worked at
Intel Corporation for five years. He is also a director of Amazon.com,
Excite@Home, drugstore.com, Homestore.com, Intuit Inc. and Sun Microsystems,
Inc.
U. Bertram Ellis, Jr. has served as Healtheon/WebMD's director since
November 1999. Mr. Ellis served as a director of WebMD from June 1997 to
November 1999. Since April 1996, he has served as Chairman of the Board of
Directors and Chief Executive Officer of iXL Enterprises, Inc. Mr. Ellis founded
and served as President of Ellis Communications, Inc., an owner of television
and radio stations, from 1993 to 1996.
Dennis B. Gillings has served as a director of Healtheon/WebMD since May
2000 as the designee of Quintiles. Dr. Gillings founded Quintiles in 1982 and
has served as Chief Executive Officer and Chairman of the Board of Directors
since its inception. From 1972 to 1988, Dr. Gillings served as a professor in
the Department of Biostatistics at the University of North Carolina at Chapel
Hill. During his tenure as a professor, he was active in statistical consulting
for the pharmaceutical industry. Dr. Gillings currently serves on the Dean's
Advisory Council of the University of North Carolina School of Public Health.
Dr. Gillings also serves as a director of Triangle Pharmaceuticals, Inc., a
company engaged in the development of new drug candidates primarily in the
antiviral area.
Eric J. Gleacher has served as Healtheon/WebMD's director since November
1999. Mr. Gleacher is Chief Executive Officer and Chairman of the Board of
Gleacher & Co., a merchant banking and mergers and acquisitions advisory firm,
which he founded in 1990. Prior to founding Gleacher & Co., Mr. Gleacher served
as a Managing Director at Morgan Stanley from 1983 until 1990, and served as
Global Head of Mergers and Acquisitions from 1984 until 1990. From 1968 until
1983, Mr. Gleacher worked at Lehman Brothers, where he founded the Mergers and
Acquisitions Department and served as General Partner from 1973 until 1983. He
is a member of the Executive Committee and is Chairman of the Finance and
Investment Committees of the U.S. Golf Association and is a member of the Board
of Trustees of the University of Chicago and the Board of Trustees of New York
University.
William P. Payne has served as Healtheon/WebMD's director since November
1999. Mr. Payne was Vice Chairman of WebMD from September 1998 until November
1999. Mr. Payne also serves as Vice Chairman of PTEK Holdings and as Chairman of
Orchestrate.com, Inc., a subsidiary of PTEK Holdings. 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 Anheuser-Busch Companies, Inc.,
Jefferson-Pilot Corporation, ACSYS, Inc. and Cousins Properties, Inc.
Charles G. V. Stevens has served as Healtheon/WebMD's director since May
2000 as Microsoft's representative. Mr. Stevens joined Microsoft in 1984 and has
served as Vice President of Microsoft's Enterprise Partner Group since 1997.
From 1994 until 1997, he served as Vice President, Far East of Microsoft. He
served in various other capacities with Microsoft from 1984 until 1994.
BOARD MEETINGS AND COMMITTEES
The board met eight times, including telephone conference meetings, during
1999. In addition to meetings, the board and its committees review and act upon
matters by unanimous written consent. Each director attended 75% or more of the
total number of these meetings held during the period for which he served as a
director and 75% or more of the total number of meetings of those committees on
which he served during that period.
The board currently has audit, compensation and stock option committees.
The audit committee, which met one time during 1999, is currently comprised
of Messrs. Ellis and Payne. The audit committee is responsible for reviewing and
making recommendations regarding Healtheon/WebMD's
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independent auditors, the annual audit of Healtheon/WebMD's financial statements
and internal accounting practices and policies. The board of directors of
Healtheon/WebMD has adopted a written charter for its audit committee. A copy of
the charter is attached as Annex I to this proxy statement/prospectus.
The compensation committee, which met one time during 1999, is currently
comprised of Messrs. Clark, Doerr and Gleacher. Until his resignation in January
2000, Mr. McGuire also served on the compensation committee. The compensation
committee sets the compensation of the chief executive officer, reviews the
design, administration and effectiveness of compensation programs for other key
executives, and approves stock option grants to officers and directors. The
compensation committee exercises all authority under Healtheon/WebMD's employee
equity incentive plans and advises and consults with Healtheon/WebMD's officers
regarding managerial personnel policies. The stock option committee is currently
comprised of Messrs. Arnold and Long and oversees the stock option plans as they
relate to employees other than Healtheon/WebMD's officers and directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned for services rendered to Healtheon/WebMD in 1999 and 1998 by both
individuals who served as Healtheon/WebMD's chief executive officer during 1999
and 1998 and by Healtheon/WebMD's four other most highly compensated executive
officers who earned more than $100,000 in 1999 and were serving as executive
officers at the end of 1999, referred to in this section and the section
entitled "Share ownership by Healtheon/WebMD's principal stockholders,
management and directors" as the "named executive officers". Mr. Long was
Healtheon/WebMD's chief executive officer until November 1999 and was also one
of the four most highly compensated executive officers at the end of 1999. Under
the rules of the SEC, this table does not include certain perquisites and other
benefits received by the named executive officers which do not exceed the lesser
of $50,000 or 10% of any officer's salary and bonus disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION(1)
--------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
W. Michael Long(2)........................... 1999 $250,000 $-- 1,000,000 $ --
Chairman of the Board of Directors 1998 458,337 -- -- --
Jeffrey T. Arnold(3)......................... 1999 41,667 -- -- 1,000
Chief Executive Officer 1998 -- -- -- --
Pavan Nigam.................................. 1999 225,000 -- 300,000 122,356
Executive Vice President, 1998 225,000 -- 325,000 --
Chief Technology Officer
John L. Westermann III....................... 1999 175,000 -- 20,000 4,848
Executive Vice President, Chief Financial 1998 75,000 -- 500,000 --
Officer, Treasurer and Secretary
Steven E. Curd............................... 1999 206,558 -- 400,000 216,519
Executive Vice President, 1998 -- -- -- --
Chief Information Officer
</TABLE>
------------------
(1) For Mr. Arnold, consists of amount paid related to automobile allowance. For
Mr. Nigam, consists of forgiveness of principal and interest on a loan made
by Healtheon/WebMD to Mr. Nigam. For Mr. Westermann, consists of personal
travel expenses reimbursement. For Mr. Curd, consists of $107,591 of imputed
interest on an interest-free loan made by Healtheon/WebMD to Mr. Curd in
March 1999 to purchase his residence and an amount sufficient to pay the
taxes payable by him with respect to the loan and
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$108,928 of relocation expense reimbursement and an amount sufficient to pay
the taxes payable by him on his residence.
(2) Mr. Long served as Healtheon/WebMD's Chief Executive Officer until the WebMD
merger in November 1999.
(3) Mr. Arnold was named Healtheon/WebMD's Chief Executive Officer in connection
with the WebMD merger in November 1999 and was employed by WebMD prior to
that time.
OPTION GRANTS IN FISCAL 1999
The following table sets forth certain information for the year ended
December 31, 1999, with respect to grants of stock options to each of the named
executive officers. These options have a term of 10 years and generally vest
over four years, with 25% vesting at the end of one year and 1/48 per month
thereafter. Healtheon/WebMD granted options to purchase common stock and issued
shares of common stock under restricted stock purchase agreements equal to a
total of 7,407,738 shares during 1999. Options were granted at an exercise price
equal to the fair market value of Healtheon/WebMD common stock. Potential
realizable values are net of exercise price before taxes, and are based on the
assumption that Healtheon/WebMD common stock appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
ten-year term. These numbers are calculated based on SEC requirements and do not
reflect Healtheon/WebMD's projection or estimate of future stock price growth.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------------------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED 1999 PER SHARE DATE 5% 10%
---- ------------------ ------------------ -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
W. Michael Long................. 1,000,000 4.83% $5.40 01/28/09 $3,396,030 $8,606,209
Jeffrey T. Arnold(1)............ -- -- -- -- -- --
Pavan Nigam..................... 300,000 1.45 5.40 01/28/09 1,018,809 2,581,863
John L. Westermann III.......... 20,000 0.09 5.85 02/02/09 73,580 186,468
Steven E. Curd.................. 400,000 1.93 5.40 01/28/09 1,358,413 3,442,483
</TABLE>
------------------
(1) No options were issued by Healtheon/WebMD to Mr. Arnold in 1999. In the
WebMD merger, however, Healtheon/WebMD assumed options to purchase 1,384,600
shares of WebMD common stock, which options now represent options to
purchase 2,486,741 shares of Healtheon/WebMD common stock.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning exercisable and unexercisable options held as of
December 31, 1999. The values of in-the-money options are based on the fair
market value of Healtheon/WebMD common stock as of December 31, 1999 of $37.50
and are net of the option exercise price.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
ON VALUE --------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
---- ----------- ----------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
W. Michael Long..................... 400,000 $3,100,000 710,416 1,989,584 $26,462,996 $68,962,004
Jeffrey T. Arnold................... -- -- 1,243,369 1,243,372 39,116,389 39,116,483
Pavan Nigam......................... 10,000 436,250 172,812 567,188 5,939,774 18,647,726
John L. Westermann III.............. 50,000 2,012,840 20,833 149,167 687,489 4,895,511
Steven E. Curd...................... -- -- -- 400,000 -- 12,840,000
</TABLE>
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Except in the case of Messrs. Long and Arnold, options shown above were
granted under Healtheon/WebMD's 1996 stock plan and vest at a rate of 1/4 of the
shares on the first anniversary of the date of grant and 1/48 of the shares each
month thereafter. The options granted to Mr. Long were granted under
Healtheon/WebMD's 1996 plan and vested immediately as to 1/4 of the shares and
vest ratably each month during the second through fourth years of his employment
as to the remainder of the shares. The options granted to Mr. Arnold were
granted pursuant to his employment agreement with WebMD and outside of any stock
plan and were assumed by Healtheon/WebMD in connection with the WebMD merger.
These options vested as to 1/3 immediately and vest as to 1/6, 1/6 and 1/3 on
the first three anniversaries of the date of grant as to the remainder of the
shares.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the board or
any board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
board committee meetings. All board members are eligible to receive stock
options under the 1996 stock plan, and outside directors receive stock options
pursuant to automatic grants of stock options under the 1996 stock plan.
In January 1999, Healtheon/WebMD granted to each of Dr. Clark and Mr. Doerr
and three other persons who were serving as directors at that time an option to
purchase 20,000 shares of its common stock under the 1996 stock plan with an
exercise price equal to $3.55 per share. In February 1999, Healtheon/WebMD
granted to each of two persons who were serving as directors at such time an
option to purchase 30,000 shares of its common stock under the 1996 stock plan
with an exercise price equal to $5.85 per share. The board also determined that
under the 1996 stock plan each outside director will automatically receive an
option to purchase 20,000 shares of common stock annually on January 1.
COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS
In July 1997, Healtheon/WebMD entered into an employment agreement with Mr.
Long under which Mr. Long became Healtheon/WebMD's President and Chief Executive
Officer. Healtheon/WebMD granted Mr. Long an option to purchase 2,500,000 shares
of common stock under the 1996 stock plan, 1/4 of which vested immediately, and
the remainder of which vests ratably each month during the second through the
fourth years of his employment. In addition, Mr. Long purchased 250,000 shares
for $500,000, $499,750 of which was represented by a promissory note to
Healtheon/WebMD, and was issued a warrant to purchase an additional 750,000
shares at an exercise price of $2.00 per share. The shares issuable upon
exercise of this warrant are subject to a right of repurchase commencing on Mr.
Long's employment start date and lapsing as to 31,250 shares each month. The
employment agreement provides that should Mr. Long leave Healtheon/WebMD because
he is no longer offered a position with similar responsibility due to a change
of control of Healtheon/WebMD, Mr. Long's option vests immediately as to 625,000
shares and Healtheon/WebMD's repurchase right lapses. Additionally, if
Healtheon/WebMD terminates Mr. Long's employment without cause, he will receive
six months' salary in installments, his option will vest immediately as to
625,000 shares and Healtheon/WebMD's repurchase right will lapse.
In connection with the WebMD merger, Healtheon/WebMD became party to an
employment agreement effective September 30, 1998 with Jeffrey T. Arnold. His
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. Healtheon/WebMD pays Mr. Arnold an annual salary of $180,000, and
Healtheon/WebMD may pay him an annual bonus as determined by the board or
compensation committee. Mr. Arnold has agreed not to compete with
Healtheon/WebMD during the term of his employment and for one year after his
termination. If Healtheon/WebMD terminates Mr. Arnold without cause, Mr. Arnold
will be entitled to 12 months' salary as severance. WebMD granted Mr. Arnold
options to acquire 1,384,600 shares of common stock of WebMD which, in
connection with the WebMD merger, were assumed by Healtheon/WebMD and became
options to purchase 2,486,741 shares of Healtheon/WebMD common stock. These
options were granted pursuant to Mr. Arnold's employment agreement and outside
of any stock plan. His options vested 1/3 on the date of grant and vest 1/6,
1/6 and 1/3 on the first three anniversaries of the date of grant. In connection
with the WebMD merger, Mr. Arnold agreed
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to waive any change of control vesting which would occur as a result of the
merger. If Mr. Arnold is terminated after the merger for any reason other than
cause, all his options will immediately vest.
EMPLOYEE BENEFIT PLANS
1996 stock plan
In February 1996, Healtheon/WebMD's board adopted and the stockholders
approved the 1996 stock plan. Healtheon/WebMD initially reserved for issuance
9,000,000 shares of common stock under the 1996 stock plan. In March 1998,
Healtheon/WebMD's board and stockholders each approved an amendment to the 1996
stock plan to increase the number of shares of common stock reserved under the
plan to 10,000,000 shares. In July 1998, Healtheon/WebMD's board approved, and
in October 1998, Healtheon/WebMD's stockholders approved, an amendment to
increase the number of shares of common stock issuable under the 1996 stock plan
to 15,000,000 shares plus annual increases equal to the lesser of 5% of the
outstanding shares or a lesser amount determined by Healtheon/WebMD's board. In
January 1999, an additional 3,107,321 shares were reserved for issuance under
the 1996 plan under the annual increase provision. In February 1999,
Healtheon/WebMD's board and stockholders approved an amendment to limit the
automatic annual increase provision to a maximum of 9,000,000 shares. In
February 1999, Healtheon/WebMD's board and stockholders also approved an
amendment to increase the number of shares reserved for issuance under the 1996
stock plan by an additional 1,000,000 shares. In November 1999,
Healtheon/WebMD's board and stockholders approved an amendment to increase the
number of shares reserved for issuance under the 1996 stock plan to 29,107,321
shares. Unless terminated sooner, the 1996 stock plan will terminate
automatically in February 2006. The 1996 stock plan provides for the
discretionary grant of incentive stock options, within the meaning of Section
422 of the tax code to employees and for the grant of nonstatutory stock options
and stock purchase rights to employees, directors and consultants. The 1996
stock plan also provides for annual grants of options to purchase 20,000 shares
of common stock to each of Healtheon/WebMD's outside directors. In January 2000,
an additional 7,678,464 shares were reserved for issuance under the 1996 stock
plan under the plan's annual increase provision.
The 1996 stock plan may be administered by Healtheon/WebMD's board or a
committee of Healtheon/WebMD's board, which is referred to, as applicable, as
the administrator. The administrator has the power to determine the terms of the
options or stock purchase rights granted, including the exercise price of the
options or stock purchase rights, the number of shares subject to each option or
stock purchase right, the exercisability thereof, and the form of consideration
payable upon such exercise. In addition, the administrator has the authority to
amend, suspend or terminate the 1996 stock plan, provided that no share of
common stock previously issued and sold or any option previously granted under
the 1996 stock plan is affected.
The exercise price of all incentive stock options granted under the 1996
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 1996 stock plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the tax code, the exercise price must be at least equal to the fair market
value of the common stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
Healtheon/WebMD's outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal 110% of the fair market value on the
grant date and its term must not exceed five years. The term of all other
options granted under the 1996 stock plan may not exceed ten years. Options
generally vest as to 25% at the end of the first year and monthly thereafter
over a period of three years so that the entire option is vested after four
years, based upon the optionee's continued employment or consulting relationship
with Healtheon/WebMD.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement will grant Healtheon/WebMD a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment or consulting relationship with Healtheon/WebMD for
any reason, including death or disability. The purchase price for shares
repurchased pursuant to a restricted stock purchase agreement must be the
original price paid by the purchaser and may be paid by cancellation of any
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indebtedness of the purchaser to Healtheon/WebMD. The repurchase option will
lapse at a rate determined by the administrator.
Options and stock purchase rights granted under the 1996 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 1996 stock plan must generally be exercised within 30
to 90 days after the end of optionee's status as Healtheon/WebMD's employee,
director or consultant, or within one year after such optionee's termination by
disability or death, respectively, but in no event later than the expiration of
the option's term.
The 1996 stock plan provides that, in the event of Healtheon/WebMD's merger
with or into another corporation, each outstanding option and stock purchase
right must be assumed or an equivalent option substituted by the successor
corporation. If the outstanding options and stock purchase rights are not
assumed or substituted by the successor corporation, the optionee will become
fully vested in all outstanding options and stock purchase rights. These options
and stock purchase rights will remain exercisable for 15 days, after which the
outstanding options and stock purchase rights will terminate.
1998 employee stock purchase plan
Healtheon/WebMD's 1998 employee stock purchase plan, or the 1998 purchase
plan, was adopted by Healtheon/WebMD's board in September 1998, and approved by
Healtheon/WebMD's stockholders in October 1998. A total of 1,000,000 shares of
common stock was reserved for issuance under the 1998 purchase plan, plus annual
increases equal to the lesser of 500,000 shares, 0.5% of the outstanding shares
on such date, or a lesser amount determined by the board. In November 1999,
Healtheon/WebMD's board and stockholders approved an amendment to increase the
number of shares reserved for issuance under the 1998 purchase plan to 2,000,000
shares and to change the formula for annually increasing the number of shares
available to be issued under the 1998 purchase plan on the first day of each
fiscal year by the lesser of:
- 1,000,000 shares
- 0.5% of the outstanding shares on such date, or
- a lesser amount determined by the board of directors.
The 1998 purchase plan contains consecutive, overlapping, 24-month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 1 and
November 1 of each year, except for the first such offering period which
commenced on the first trading day after the effective date of Healtheon/WebMD's
initial public offering and will end on the last trading day on or before
October 31, 2000.
Employees are eligible to participate if they are employed by
Healtheon/WebMD or any participating subsidiary for at least 20 hours per week
and more than five months in any calendar year. However, an employee may not be
granted an option to purchase stock under the 1998 purchase plan if the employee
immediately after that grant would own stock possessing 5% or more of the total
combined voting power or value of all classes of Healtheon/WebMD's capital
stock, or holds rights to purchase stock under any of Healtheon/WebMD's employee
stock purchase plans that together accrue at a rate which exceeds $25,000 worth
of stock for each calendar year. The 1998 purchase plan permits each participant
to purchase common stock through payroll deductions of up to 15% of the
participant's compensation. Compensation for these purposes is defined as the
participant's base straight time gross earnings and commissions but excludes
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses and other compensation. The maximum number of shares a
participant may purchase during a single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of Healtheon/WebMD common stock at the end of each purchase period. The
price of stock purchased under the 1998 purchase plan is 85% of the lower of the
fair market value of the common stock at the beginning of the offering period or
at the end of the purchase period. In the event the fair market value at the end
of a purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
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<PAGE> 153
period following exercise and automatically re-enrolled in a new offering
period. The new offering period will use the lower fair market value as of the
first date of the new offering period to determine the purchase price for future
purchase periods. Participants may end their participation at any time during an
offering period, and they will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with
Healtheon/WebMD.
Rights granted under the 1998 purchase plan are not transferable by a
participant other than by will or the laws of descent and distribution. The 1998
purchase plan provides that, in the event of Healtheon/WebMD's merger with or
into another corporation or a sale of substantially all of Healtheon/WebMD's
assets, each outstanding option may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new exercise date will be set. The new exercise date
will be prior to the date of the proposed merger or sale. The 1998 purchase plan
will terminate in 2008. Healtheon/WebMD's board has the authority to amend or
terminate the 1998 purchase plan, except that no amendment or termination may
adversely affect any outstanding options under the 1998 purchase plan.
Healtheon/WebMD's board may alter the purchase price for any offering period or
shorten an offering period at any time without consent of Healtheon/WebMD's
stockholders or of any participants.
401(k) plan
Healtheon/WebMD participates in a tax-qualified employee savings and
retirement plan, or the 401(k) plan, which covers all of Healtheon/WebMD's
full-time employees who have completed three months of service. Under the 401(k)
plan, eligible employees may defer up to 20% of their pre-tax earnings, subject
to the Internal Revenue Service's annual contribution limit. The 401(k) plan
permits additional discretionary matching contributions by Healtheon/WebMD on
behalf of all participants in the 401(k) plan in such a percentage amount as may
be determined annually by Healtheon/WebMD's board. To date, Healtheon/WebMD has
made no matching contributions. The 401(k) plan is intended to qualify under
Section 401 of the tax code so that contributions by employees or by
Healtheon/WebMD to the 401(k) plan, and income earned on plan contributions, are
not taxable to employees until withdrawn from the 401(k) plan, and so that
contributions by Healtheon/WebMD, if any, will be deductible by Healtheon/WebMD
when made. The trustee under the 401(k) plan, at the direction of each
participant, invests the assets of the 401(k) plan in any of a number of
investment options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William W. McGuire, M.D., a member of the compensation committee until his
resignation from Healtheon/WebMD's board in January 2000, is the Chairman and
Chief Executive Officer of UnitedHealth Group, which, with its affiliates,
entered into service and license agreements with Healtheon/WebMD. Although
UnitedHealth Group was one of Healtheon/WebMD's principal shareholders, its
holdings no longer constitute more than 5% of its common stock. Eric J.
Gleacher, a member of Healtheon/WebMD's compensation committee, is the Chief
Executive Officer and Chairman of the Board of Gleacher & Co., which provides
financial advisory services to Healtheon/WebMD. For a more complete description
of these relationships, see "Healtheon/WebMD's related party transactions" on
page 156. No interlocking relationship exists between Healtheon/WebMD's board or
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Healtheon/WebMD's certificate of incorporation and bylaws limit or
eliminate the personal liability of Healtheon/WebMD's directors for monetary
damages for breach of the directors' fiduciary duty of care. The duty of care
generally requires that, when acting on Healtheon/WebMD's behalf, directors
exercise an informed business judgment based on all material information
reasonably available to them. Consequently, a director or
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<PAGE> 154
officer will not be personally liable to Healtheon/WebMD or Healtheon/WebMD's
stockholders for monetary damages for breach of fiduciary duty as a director,
except for
- any breach of the director's duty of loyalty to Healtheon/WebMD or
Healtheon/WebMD's stockholders
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions
- any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Healtheon/WebMD's certificate of incorporation also provides that
Healtheon/WebMD will indemnify, to the fullest extent permitted by law, any
person made or threatened to be made a party to any action or proceeding by
reason of the fact that they are or were a director or officer of
Healtheon/WebMD or serve or served at any other enterprise as a director,
officer or employee at Healtheon/WebMD's request.
Healtheon/WebMD's bylaws provide that Healtheon/WebMD will, to the maximum
extent and in the manner permitted by Delaware law, indemnify each of the
following persons against expenses, including attorneys' fees, judgments, fines,
settlements, and other amounts incurred in connection with any proceeding
arising by reason of the fact that they are or were Healtheon/WebMD's agent:
- a current or past director or officer of Healtheon/WebMD or any of
Healtheon/WebMD's subsidiaries
- a current or past director or officer of another company who served at
Healtheon/WebMD's request
- a current or past director or officer of a corporation that was a
predecessor corporation of Healtheon/WebMD or any of its subsidiaries or
of another company at the request of a predecessor corporation or
subsidiary.
Healtheon/WebMD enters into indemnification agreements with each of
Healtheon/WebMD's directors and executive officers to give them additional
contractual assurances regarding the scope of the indemnification described
above and to provide additional procedural protections. These agreements, among
other things, indemnify Healtheon/WebMD's directors and executive officers for
specified expenses, including attorneys' fees, judgments, fines, penalties and
settlement amounts incurred by them in any action or proceeding arising out of
their services to Healtheon/WebMD, Healtheon/WebMD's subsidiaries or any other
company to which they provide services at Healtheon/WebMD's request. In
addition, Healtheon/WebMD has obtained directors' and officers' insurance
providing indemnification for Healtheon/WebMD's directors, officers and some
employees for specified liabilities. Healtheon/WebMD believes that these
indemnification provisions and agreements are necessary to attract and retain
qualified directors and officers.
The limited liability and indemnification provisions in Healtheon/WebMD's
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty and may
reduce the likelihood of derivative litigation against directors and officers,
even though a derivative action, if successful, might otherwise benefit
Healtheon/WebMD and Healtheon/WebMD's stockholders. Furthermore, a stockholder's
investment in Healtheon/WebMD may be adversely affected to the extent
Healtheon/WebMD pays the costs of settlement and damage awards against
Healtheon/WebMD's directors and officers under these indemnification provisions.
At present, there is no pending or threatened litigation or proceeding
involving any of Healtheon/WebMD's directors, officers or employees where
indemnification is expected to be required or permitted, and Healtheon/WebMD is
not aware of any threatened litigation or proceeding that might result in a
claim for indemnification.
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee of Healtheon/WebMD's board of directors
administers Healtheon/WebMD's executive compensation program. The current
members of the compensation committee are James H. Clark, L. John Doerr and Eric
J. Gleacher. During 1999, William McGuire, who resigned as a member of the board
of
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directors in January 2000, was also a member of the compensation committee. Each
of these persons is a non-employee director within the meaning of Section 16 of
the Securities Exchange Act and an outside director within the meaning of
Section 162(m) of the tax code.
General compensation philosophy
The role of the compensation committee is to set the salaries and other
compensation of Healtheon/WebMD's executive officers and other key employees,
and to make grants under, and to administer, the stock option and other
executive officer equity and bonus plans. Healtheon/WebMD's compensation
philosophy for executive officers is to relate compensation to corporate
performance and increases in stockholder value, while providing a total
compensation package that is competitive and enables Healtheon/WebMD to attract,
motivate, reward and retain key executives and employees. Accordingly, each
executive officer's compensation package may, in one or more years, be comprised
of the following three elements:
- base salary that is designed primarily to be competitive with base salary
levels in effect at high technology companies that are of comparable size
to Healtheon/WebMD and with which Healtheon/WebMD competes for executive
personnel
- annual variable performance awards, such as bonuses, payable in cash and
tied to the achievement of performance goals, financial or otherwise,
established by the compensation committee
- long-term stock-based incentive awards which strengthen the mutuality of
interests between the executive officers and Healtheon/WebMD's
stockholders.
Executive compensation
Base salary. Salaries for executive officers for 1999 were generally
determined on an individual basis by evaluating each executive's scope of
responsibility, performance, prior experience and salary history, as well as the
salaries for similar positions at comparable companies. In addition,
Healtheon/WebMD's human resources department provided information to the
compensation committee regarding salary range guidelines for specific positions.
Annual incentive awards. Some employees, including executive officers, are
eligible to participate in Healtheon/WebMD's incentive plan. Annual target
bonuses are established based on a percentage of base salary and become payable
upon the achievement of specified total company financial goals and personal and
team objectives. The compensation committee administers this plan with regard to
the executive officers.
Long-term incentive awards. The compensation committee believes that
equity-based compensation in the form of stock options links the interests of
executive officers with the long-term interests of our stockholders and
encourages executive officers to remain in our employ. Stock options generally
have value for executive officers only if the price of our stock increases above
the fair market value on the grant date and the officer remains in our employ
for the period required for the shares to vest.
Healtheon/WebMD grants stock options in accordance with its 1996 stock
plan. In 1999, Healtheon/WebMD granted stock options to some executive officers
as incentives for them to become employees or to aid in the retention of
executive officers and to align their interests with those of the stockholders.
Stock options typically have been granted to executive officers when the
executive first joins us, in connection with a significant change in
responsibilities and, occasionally, to achieve equity within a peer group. The
compensation committee may, however, grant additional stock options to executive
officers for other reasons. The number of shares subject to each stock option
granted is within the discretion of the compensation committee and is based on
anticipated future contribution and ability to impact our results, past
performance or consistency within the officer's peer group. In 1999, the
compensation committee considered these factors, as well as the number of
unvested option shares held by the officer as of the date of grant. At the
discretion of the compensation committee, executive officers may also be granted
stock options to provide greater incentives to continue their employment with
Healtheon/WebMD and to strive to increase the value of Healtheon/WebMD's common
stock. The stock options generally become exercisable over a four-year period
and are granted at a price that is equal to the fair market value of
Healtheon/WebMD's common stock on the date of grant.
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<PAGE> 156
Chief executive officer compensation
Base salary and long-term incentive awards for W. Michael Long and Jeffrey
T. Arnold for 1999 were determined by the compensation committee in a manner
consistent with the factors described above. Messrs. Long and Arnold each agreed
to forego their bonuses for 1999.
Tax code section 162(m) limitation
Section 162(m) of the tax code limits the tax deduction to $1 million for
compensation paid to specified executives of public companies. Having considered
the requirements of Section 162(m), the compensation committee believes that
grants made pursuant to the 1996 stock plan meet the requirements that these
grants be performance based and are, therefore, exempt from the limitations on
deductibility. Historically, the combined salary and bonus of each executive
officer has been below the $1 million limit. The compensation committee's
present intention is to comply with Section 162(m) unless the compensation
committee feels that required changes would not be in the best interest of
Healtheon/WebMD or its stockholders.
Compensation Committee
James H. Clark
L. John Doerr
Eric J. Gleacher
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<PAGE> 157
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
Healtheon/WebMD common stock with that of the Nasdaq Stock Market Index (U.S.)
and the Morgan Stanley Internet Index over the period of time from February 11,
1999, the initial trading date of Healtheon/WebMD common stock, through December
31, 1999. The graph assumes that $100 was invested in Healtheon/WebMD common
stock and each index on February 11, 1999 and that all dividends were
reinvested. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
<TABLE>
<CAPTION>
[Stock price performance line graph appears here]
2/11/99 3/31/99 6/30/99 9/30/99 12/31/99
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Healtheon/WebMD.......................... $100 $136 $245 $118 $120
Nasdaq Stock Market Index (U.S.)......... 100 102 112 114 169
Morgan Stanley Internet Index............ 100 120 128 130 212
</TABLE>
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<PAGE> 158
SHARE OWNERSHIP BY HEALTHEON/WEBMD'S PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS
The following table sets forth information with respect to the beneficial
ownership of Healtheon/WebMD's common stock as of May 31, 2000 by:
- each person known by Healtheon/WebMD to own beneficially more than 5% of
Healtheon/WebMD's common stock
- each of Healtheon/WebMD's directors
- each of the named executive officers
- all of Healtheon/WebMD's directors and executive officers as a group.
The number and percentage of Healtheon/WebMD's shares of common stock owned
prior to the mergers is based on 239,175,953 shares outstanding, which includes
217,893,308 shares outstanding as of May 31, 2000 and 21,282,645 shares of
common stock issuable upon conversion of the shares of Series A preferred stock
outstanding as of May 31, 2000. Beneficial ownership is determined under the
rules and regulations of the SEC. Shares of common stock subject to options or
warrants that are currently exercisable or exercisable within 60 days of May 31,
2000 are deemed to be outstanding and beneficially owned by the person holding
the options or warrants for the purpose of computing the number of shares
beneficially owned and the percentage ownership of that person. The shares
subject to options or warrants held by a person are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, and subject to applicable
community property laws, these persons have sole voting and investment power
with respect to all shares of Healtheon/WebMD's common stock shown as
beneficially owned by them. Unless otherwise indicated, the address of each of
the beneficial owners identified is c/o Healtheon/WebMD Corporation, 400 The
Lenox Building, 3399 Peachtree Street NE, Atlanta, GA 30326.
Percentage of ownership is based on the following exchange ratios:
- 2.5 shares of Healtheon/WebMD common stock for each share of Medical
Manager common stock outstanding on May 31, 2000
- 1.3 shares of Healtheon/WebMD common stock for each share of CareInsite
common stock outstanding on May 31, 2000 not owed by Avicenna.
Further, percentage of ownership is based on an estimated 373,250,156
shares of Healtheon/WebMD common stock outstanding following the Medical Manager
and CareInsite mergers, which includes 21,282,645 shares of common stock
issuable upon conversion of the shares of Healtheon/WebMD Series A preferred
stock outstanding as of May 31, 2000.
<TABLE>
<CAPTION>
HEALTHEON/WEBMD SHARES PERCENT OF
BENEFICIALLY OWNED PRIOR HEALTHEON/WEBMD
TO THE MERGERS SHARES BENEFICIALLY
------------------------------------------------- OWNED AFTER THE
COMMON EXERCISABLE EXERCISABLE MEDICAL MANAGER AND
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK WARRANTS OPTIONS PERCENT CAREINSITE MERGERS(1)
------------------------------------ ----------- ----------- ----------- ------- ---------------------
<S> <C> <C> <C> <C> <C>
Quintiles Transnational Corp...................... 35,000,000 -- -- 14.6% 9.4%
4709 Creekstone Drive
Riverbirch Building, Suite 200
Durham, NC 27703-8411
Entities associated with Janus Capital
Corporation(2).................................. 24,597,765 -- -- 10.3 6.6
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Microsoft Corporation............................. 11,933,340 13,676,387 -- 10.1 6.6
One Microsoft Way -- Bldg. 8
North Office 2211
Redmond, WA 98052
</TABLE>
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<PAGE> 159
<TABLE>
<CAPTION>
HEALTHEON/WEBMD SHARES PERCENT OF
BENEFICIALLY OWNED PRIOR HEALTHEON/WEBMD
TO THE MERGERS SHARES BENEFICIALLY
------------------------------------------------- OWNED AFTER THE
COMMON EXERCISABLE EXERCISABLE MEDICAL MANAGER AND
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK WARRANTS OPTIONS PERCENT CAREINSITE MERGERS(1)
------------------------------------ ----------- ----------- ----------- ------- ---------------------
<S> <C> <C> <C> <C> <C>
Entities associated with The News Corporation
Limited(3)...................................... 23,282,645 -- -- 9.7 6.2
2 Holt Street
Sydney, New South Wales 2010
Australia
Entities associated with FMR Corp.(4)............. 15,334,467 -- -- 6.4 4.1
82 Devonshire Street
Boston, MA 02109
W. Michael Long(5)................................ 1,167,882 750,000 1,049,999 1.2 *
Jeffrey T. Arnold(6).............................. 6,503,458 -- 1,243,369 3.2 2.1
James H. Clark(7)................................. 12,214,260 -- 7,500 5.1 3.3
c/o Healtheon/WebMD Corporation
4600 Patrick Henry Drive
Santa Clara, CA 95054
L. John Doerr(8).................................. 8,360,459 29,359 7,500 3.5 2.2
c/o Kleiner, Perkins, Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
U. Bertram Ellis, Jr.............................. 493,207 -- -- * *
c/o iXL Enterprises, Inc.
2 Park Place
1888 Emery Street, NW
Atlanta, GA 31318
Dennis B. Gillings(9)............................. 35,000,000 -- -- 14.6 9.4
c/o Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 200
Durham, NC 27703-8411
Eric J. Gleacher(10).............................. 186,514 1,239,274 -- * *
c/o Gleacher & Co., LLC
660 Madison Avenue
New York, NY 10021-8405
William P. Payne.................................. -- -- 519,367 * *
c/o PTEK Holdings, Inc.
The Lenox Building, Suite 600
3399 Peachtree Road NE
Atlanta, GA 30326
Charles G. V. Stevens............................. -- -- -- * *
c/o Microsoft Corporation
One Microsoft Way -- Bldg. 8
North Office 2211
Redmond, WA 98052
John L. Westermann III............................ 433,699 -- 40,121 * *
Pavan Nigam(11)................................... 317,491 -- 319,687 * *
All executive officers and directors as a group
(18 persons)(12)................................ 29,838,799 2,018,633 4,589,352 14.8 9.6
</TABLE>
------------------
* Less than 1%.
(1) Represents the percentage of Healtheon/WebMD common stock outstanding after
the Medical Manager and CareInsite mergers based on the beneficial owner's
Healtheon/WebMD common stock prior to the mergers and does not include any
shares of Medical Manager common stock or CareInsite common stock owned by
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<PAGE> 160
the beneficial owner which would be converted into Healtheon/WebMD common
stock pursuant to the mergers.
(2) Represents:
- 6,986,475 shares held of record by Janus Capital Corporation
- 17,611,290 shares held of record by Janus Twenty Fund. As a result of its
role as investment advisor or sub-advisor to managed portfolios, Janus
Capital, a registered investment adviser furnishing investment advice to
investment companies and institutional clients, may be deemed a
beneficial owner of shares held by managed portfolios, including Janus
Twenty Fund. Janus Capital, however, has no right to receive dividends
from or proceeds from the sales of the securities and disclaims ownership
associated with these rights.
(3) Represents:
- 2,000,000 shares of common stock and an additional 7,383,168 shares of
common stock issuable upon conversion of 54,101 shares of Series A
preferred stock held of record by News America Incorporated, an entity
which is controlled through intermediaries by The News Corporation
Limited, approximately 30% of the voting stock of which is owned by
Rupert Murdoch, members of his family, companies owned by Mr. Murdoch or
trusts, the beneficiaries of which include Mr. Murdoch and his family
- 9,844,269 shares of common stock issuable upon conversion of 72,135
shares of Series A preferred stock held of record by Fox Broadcasting
Company, a wholly owned subsidiary of Fox Entertainment Group, Inc.
- 3,892,945 shares of common stock issuable upon conversion of 28,526
shares of Series A preferred stock held of record by AHN/FIT Cable LLC,
an entity 50% owned and managed through intermediaries by Fox
Entertainment
- 162,263 shares of common stock issuable upon conversion of 1,189 shares
of Series A preferred stock held of record by AHN/FIT Internet, LLC, an
entity 50% owned and managed through intermediaries by Fox Entertainment.
(4) Represents:
- 12,741,239 shares of record held by Fidelity Management & Research
Company, a wholly owned subsidiary of FMR Corp. Edward C. Johnson, III
and members of his family, are predominant owners of Class B shares of
common stock of FMR Corp., which represents approximately 49% of FMR
Corp.'s voting power. Mr. Johnson, Chairman of FMR Corp., owns 12% of FMR
Corp.'s aggregate outstanding voting stock, and Abigail Johnson owns
24.5%. Family members have a voting agreement requiring that all shares
of Class B common stock be voted in accordance with the majority vote of
Class B shareholders. As a result, the Johnson family may be deemed to
form a controlling group with respect to FMR Corp.
- 1,054,418 shares of record held by Fidelity Management Trust Company, a
wholly owned subsidiary of FMR Corp.
- 1,538,810 shares of record held by Fidelity International Limited, a
majority owned subsidiary of Fidelity Management & Research until June
30, 1980, when Fidelity International Limited's shares held by Fidelity
Management & Research were distributed as a dividend to the shareholders
of FMR Corp. A partnership controlled by Edward C. Johnson, III and
members of his family, own shares of voting stock of Fidelity Management
International entitled to cast 39.89% of the total votes which could be
cast by all Fidelity International stock. Mr. Johnson is Chairman of
Fidelity International.
(5) Represents:
- 1,096,344 shares held of record by Mr. Long
- 23,846 shares held of record by Christopher M. Long Trust
- 23,846 shares held of record by Mollie Burwell Long Trust
- 23,846 shares held of record by William M. Long Trust.
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<PAGE> 161
Mr. Long disclaims beneficial ownership of shares held by these entities.
(6) Represents:
- 5,057,812 shares held of record by Mr. Arnold
- 36,469 shares held of record by his wife
- 911,829 shares held of record by Arnold Family Irrevocable Trust
- 497,348 shares held of record by JT Arnold Enterprises LLLP, of which Mr.
Arnold is a general partner and in which he owns a 3% interest with his
wife
Mr. Arnold disclaims beneficial ownership of shares held by these entities
except to the extent of his pecuniary interest in these entities.
(7) Represents:
- 1,000,000 shares held of record by James H. Clark and Nancy Rutter Clark
1995 Revocable Trust
- 9,837,369 shares held of record by Monaco Partners, LP, which is wholly
controlled by Dr. Clark
- 166,667 shares held of record by Atherton Properties Partnership, which is
wholly controlled by Dr. Clark
- 1,017,227 shares held of record by Clark Ventures, Inc., which is wholly
controlled by Dr. Clark
- 192,997 shares held of record by JHC Investment, LLC, which is wholly
controlled by Dr. Clark.
(8) Represents:
- 214,677 shares held of record by Mr. Doerr
- 6,469,957 shares held of record and 26,423 in warrants held by Kleiner
Perkins Caufield & Byers VII L.P.
- 1,275,736 shares held of record by KPCB Java Fund
- 400,089 shares held of record and 2,936 shares issuable upon the exercise
of warrants held by KPCB Life Sciences Zaibatsu Fund II.
KPCB Life Sciences Zaibatsu Fund II and KPCB VII are wholly controlled by
KPCB VII Associates. KPCB Java Fund is controlled by KPCB VIII. Mr. Doerr
is a general partner of KPCB VIII and KPCB VII Associates. Mr. Doerr
disclaims beneficial ownership of shares held by these entities except to
the extent of his pecuniary interest in the entities.
(9) Represents 35,000,000 shares held of record by Quintiles. Dr. Gillings is
the Chairman of the Board and Chief Executive Officer of Quintiles. Dr.
Gillings disclaims beneficial ownership of these shares.
(10) Represents:
- 186,514 shares held of record by Mr. Gleacher
- 418,627 shares issuable upon the exercise of warrants held by Mr. Gleacher
- 144,231 shares issuable upon the exercise of warrants held by Luna I
Investors, LLC
- 676,416 shares issuable upon the exercise of warrants held by Gleacher &
Co. LLC.
Mr. Gleacher disclaims beneficial ownership of the warrants held by Luna I
Investors and Gleacher & Co. except to the extent of his pecuniary interest
in the entities.
(11) Represents:
- 43,751 shares held of record directly by Mr. Nigam
- 273,740 shares held of record by Nigam Living Trust.
(12) Does not include 35,000,000 shares held of record by Quintiles as to which
Dr. Gillings disclaims beneficial ownership.
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HEALTHEON/WEBMD'S RELATED PARTY TRANSACTIONS
Since January 1, 1999, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which Healtheon/WebMD or
any of Healtheon/WebMD's subsidiaries was or is to be a party in which the
amount involved exceeds $60,000 and in which any director, executive officer,
holder of more than 5% of Healtheon/WebMD's common stock or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest other than the transactions described below.
Microsoft. Healtheon/WebMD has entered into a five-year strategic alliance
with Microsoft, as described in Healtheon/WebMD's annual report on Form 10-K for
the year ended December 31, 1999 incorporated by reference into this proxy
statement/prospectus. For more information on locating this document, see "Where
You Can Find More Information" on page 202. Microsoft is one of
Healtheon/WebMD's principal stockholders. Charles G. V. Stevens has served on
Healtheon/WebMD's board of directors as Microsoft's designee since May 2000. In
May 1999, Microsoft purchased 184,604 shares of Series E preferred stock of
WebMD and a warrant to purchase 7,614,916 shares of Series D common stock of
WebMD. In June 1999, Microsoft purchased 202,930 shares of Series F preferred
stock of WebMD pursuant to an offer to purchase. In connection with the closing
of the WebMD merger, Microsoft acquired an additional 276,906 shares of Series E
preferred stock of WebMD. As a result of the WebMD merger, Microsoft owns
11,933,340 shares of Healtheon/WebMD's common stock and a warrant to purchase an
additional 13,676,387 shares of Healtheon/WebMD's common stock. Microsoft has
registration rights with respects to the shares which it owns and those which
are issuable upon exercise of its warrant.
Quintiles. Healtheon/WebMD has entered into a data rights agreement and an
Internet product development and marketing agreement with Quintiles. Pursuant to
the data rights agreement, Healtheon/WebMD licenses to Quintiles some of the
data available to Healtheon/WebMD by virtue of Healtheon/WebMD's transaction
services to develop and commercialize data products, except that Healtheon/WebMD
is not required to provide, and will not provide, data to Quintiles if
Healtheon/WebMD is prohibited from doing so by Healtheon/WebMD's contracts with
third parties or applicable law. All data licensed to Quintiles is de-identified
data in that all data elements that would make the licensed data individually
identifiable to a particular person will be removed. Healtheon/WebMD receives a
royalty from Quintiles based upon the operating income generated from these
products. Pursuant to the Internet product development and marketing agreement,
Healtheon/WebMD will engage in a collaborative effort with Quintiles to develop,
market and commercialize a portfolio of Internet-based products and services for
the pharmaceutical industry. Quintiles will pay the costs in connection with
Healtheon/WebMD's development activities and each will share revenue with the
other from the sale of these services. Quintiles owns 35.0 million shares of
Healtheon/WebMD common stock which represents approximately 14.6% of
Healtheon/WebMD's common stock and preferred stock, on an as if converted to
common stock basis, outstanding as of May 31, 2000.
News Corporation. Healtheon/WebMD has entered into various agreements in
connection with Healtheon/WebMD's strategic alliance with News Corporation and
its affiliates. Assuming conversion on May 31, 2000 of all of the shares of
Series A preferred stock of Healtheon/WebMD held by affiliates of News
Corporation, the holders of the Series A preferred stock would receive
21,282,645 shares of common stock which, together with the 2,000,000 shares of
common stock held by News America, would represent approximately 9.7% of
Healtheon/WebMD's common stock outstanding on that date. The affiliates of News
Corporation have registration rights with respect to the shares of common stock
which they own and those which are issuable upon conversion of the Series A
preferred stock which they own.
UnitedHealth Group. In April 1996, ActaMed, which Healtheon/WebMD acquired
in 1998, entered into a services and license agreement with UnitedHealth Group
that granted UnitedHealth Group a license to specified technology and granted
Healtheon/WebMD the responsibilities of managing the ProviderLink product and of
providing other information technology services to UnitedHealth Group.
UnitedHealth Group pays Healtheon/WebMD fees based on the number of ProviderLink
sites in use and transactions processed. Healtheon/WebMD is also obligated to
provide support and maintenance services to UnitedHealth Group. In October 1999,
Healtheon/WebMD entered into a new services and license agreement with
UnitedHealth Group pursuant to which UnitedHealth Group has agreed to utilize
Healtheon/WebMD as its preferred vendor of EDI
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<PAGE> 163
services through Healtheon/WebMD's ProviderLink and WebMD Practice products to
UnitedHealth Group's managed care providers and customers over the five-year
term of the agreement. Healtheon/WebMD receives a monthly fee for each user site
enrolled and a fee per transaction for EDI and transaction processing services.
In 1999, UnitedHealth Group paid Healtheon/WebMD an aggregate of approximately
$14.7 million related to services, transaction and license fees. This agreement
superceded Healtheon/WebMD's prior agreement with UnitedHealth Group. William W.
McGuire, M.D., Chief Executive Officer and Chairman of UnitedHealth Group, was
one of Healtheon/WebMD's directors until his resignation in January 2000.
SmithKline Labs. In December 1997, ActaMed entered into a series of
agreements with SmithKline Labs, which were assumed in connection with
Healtheon's merger with ActaMed in 1998. Under Healtheon/WebMD's December 1997
services agreement with SmithKline Labs, Healtheon/WebMD renders laboratory test
order and results services to providers utilizing SmithKline Labs' laboratory
services through Healtheon/WebMD's SCAN product. SmithKline Labs was obligated
to pay Healtheon/WebMD a minimum of approximately $9.1 million in 1999 for
laboratory test orders and results transactions and is obligated to pay
Healtheon/WebMD approximately $9.1 million in 2000. SmithKline Labs may be
required to pay Healtheon/WebMD additional fees for transactions Healtheon/WebMD
processes in the event the number of providers accessing SmithKline Labs'
laboratory services through SCAN increases. SmithKline Labs paid Healtheon/WebMD
an aggregate of approximately $11.7 million in service and transaction fees
during 1999 under this services agreement. This services agreement is effective
through December 2002 and provides for automatic, successive two-year renewals,
subject to each party's right to elect not to renew the agreement no later than
180 days, in the case of SmithKline Labs, or 360 days, in Healtheon/WebMD's
case, prior to the end of a term. In the event that Healtheon/WebMD gives notice
of non-renewal, SmithKline Labs will be entitled to continue to receive
long-term order entry and results reporting services from Healtheon/WebMD on a
per transaction pricing basis or, in the alternative, may require
Healtheon/WebMD to develop a service for SmithKline Labs that duplicates the
services Healtheon/WebMD has been providing under this services agreement.
Also under the December 1997 services agreement, SmithKline Labs is
entitled, no more than once in any three consecutive month period, to request
that Healtheon/WebMD engage in specified exclusive development work for
SmithKline Labs. In addition, SmithKline Labs has agreed to promote
Healtheon/WebMD as its preferred vendor for laboratory electronic connectivity.
This services agreement provides that the parties will negotiate new rates as of
January 1, 2001 and each two years after that date. This services agreement
states that the renegotiated rates must be competitive with the marketplace and
must be no higher than the lowest fees charged by Healtheon/WebMD to similarly
situated customers.
In January 1999, Healtheon/WebMD entered into a new services agreement with
SmithKline Labs under which Healtheon/WebMD will provide electronic laboratory
results delivery services to approximately 20,000 provider sites, in addition to
the sites currently served through Healtheon/WebMD's SCAN product. The new
services agreement has a five-year term. Healtheon/WebMD received revenue of
approximately $17.0 million during 1999 with respect to the January 1999
services agreement. Healtheon/WebMD does not expect this arrangement to
significantly contribute to earnings in the near term. In addition, in January
1999, Healtheon/WebMD purchased teleprinter assets used by SmithKline Labs to
provide laboratory results delivery services in exchange for $2.0 million in
cash and 1,833,333 shares of Healtheon/WebMD's common stock. Profitability will
depend on Healtheon/WebMD's ability to use these assets to provide results
delivery services for non-SmithKline labs and to transition these provider sites
to Healtheon/WebMD's Internet-based Dx product.
In August 1999, SmithKline Beecham Corporation sold SmithKline Labs to
Quest Diagnostics Incorporated. Although SmithKline Beecham was one of
Healtheon/WebMD's principal stockholders during 1999, it no longer beneficially
owns more than 5% of Healtheon/WebMD's common stock.
DuPont. DuPont has agreed to sponsor an aggregate of approximately 6.15
million subscriber months of WebMD Practice for physicians over the five-year
term of its agreement with Healtheon/WebMD. Healtheon/WebMD will share specified
advertising, carriage fees and e-commerce revenues with DuPont generated from
Healtheon/WebMD's web site. DuPont's share of revenues generally ranges from 15%
to 50%, depending on the type of revenue. Although DuPont was one of
Healtheon/WebMD's principal stockholders immediately after the WebMD merger, its
holdings no longer constitute more than 5% of Healtheon/WebMD's common stock.
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McKessonHBOC. In September 1999, Healtheon/WebMD entered into an
agreement with WebMD, McKessonHBOC and HBOC that terminated the prior strategic
agreements between WebMD and McKessonHBOC and its affiliates and provided for an
immediate cash payment by McKessonHBOC to WebMD of $3.6 million. In
consideration for this revised relationship, Healtheon/WebMD provided for the
issuance by WebMD of warrants to HBOC to acquire 4,688,049 shares of WebMD
nonvoting common stock, which Healtheon/WebMD assumed in connection with the
WebMD merger and are exercisable for shares of Healtheon/WebMD common stock at
the following per share exercise prices:
- 3,300,000 shares at $50.86
- 5,000,000 shares at $30.16
- 119,734 shares at $11.14.
HBOC has registration rights with respect to the shares issuable upon
exercise of its warrants. Although HBOC was one of Healtheon/WebMD's principal
stockholders immediately after the WebMD merger, its holdings no longer
constitute more than 5% of Healtheon/WebMD's common stock.
Gleacher & Co. Gleacher & Co., formerly Gleacher NatWest, Inc., provided
financial advisory services to WebMD prior to the WebMD merger and continues to
provide these services to Healtheon/WebMD. WebMD and Gleacher & Co. entered into
a two-year agreement relating to these services, and WebMD issued to Gleacher &
Co. a warrant to purchase 1,038,450 shares of WebMD Series D common stock, which
Healtheon/WebMD assumed in connection with the WebMD merger. As a result of
transfers of portions of the warrant, Gleacher & Co. currently holds a fully
vested warrant to purchase 676,416 shares of Healtheon/WebMD common stock, Luna
I Investors, LLC currently holds a fully vested warrant to purchase 144,231
shares of Healtheon/WebMD common stock, and Eric J. Gleacher currently holds a
fully vested warrant to purchase 418,627 shares of Healtheon/WebMD common stock,
in each case at an exercise price of $8.04 per share. Mr. Gleacher, a member of
Healtheon/WebMD's board of directors, is the Chairman and Chief Executive
Officer of Gleacher & Co. and a member of Luna I Investors.
iXL. In June 1998, WebMD entered into strategic agreements with iXL for
iXL's provision of web development services to WebMD, which agreements
Healtheon/WebMD assumed in connection with the WebMD merger. In 1999,
Healtheon/WebMD paid to iXL approximately $356,000 for web development services.
U. Bertram Ellis, Jr., a member of Healtheon/WebMD's board of directors, is the
Chairman, Chief Executive Officer and a stockholder of iXL. Jeffrey T. Arnold,
Healtheon/WebMD's Chief Executive Officer and a member of Healtheon/WebMD's
board of directors, serves on the board of iXL.
PTEK Holdings. Healtheon/WebMD leases the space for its corporate
headquarters located in Atlanta, Georgia from a subsidiary of PTEK Holdings.
These leases expire in February 2002 and November 2004 and require aggregate
monthly payments to PTEK Holdings of approximately $130,000. Healtheon/WebMD
also leases equipment and other personal property used in Healtheon/WebMD's call
center from a subsidiary of PTEK Holdings. This lease expires in February 2002
and requires monthly payments to PTEK Holdings of approximately $24,000.
Healtheon/WebMD provides its subscribers with the option of using PTEK
Holdings' enhanced communications services through Healtheon/WebMD's physician
portal. Healtheon/WebMD's agreement with PTEK Holdings is effective until
January 2001 and requires minimum payments to PTEK Holdings of $80,000 per
month. In addition, the agreement requires that Healtheon/WebMD spend an
aggregate of $750,000 for joint marketing efforts with PTEK Holdings. In
connection with obtaining PTEK Holdings' agreement to vote for the WebMD merger,
WebMD agreed to use its best efforts to cause Healtheon/WebMD to honor WebMD's
rights and obligations under this agreement, including provisions regarding
exclusivity of telecommunications services. William P. Payne, a member of
Healtheon/WebMD's board of directors, is the Vice Chairman of PTEK Holdings and
Chairman of a subsidiary of PTEK Holdings. Mr. Arnold, Healtheon/WebMD's Chief
Executive Officer and a member of its board of directors, serves on the board of
PTEK Holdings.
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William P. Payne, one of Healtheon/WebMD's directors, is an employee and
the Chairman of the Board of Orchestrate.com, a subsidiary of PTEK Holdings. As
Chairman of Orchestrate.com, one of Mr. Payne's principal duties is to assist
Healtheon/WebMD in the development of its business for the purpose of increasing
revenue opportunities for PTEK Holdings. In connection with the WebMD merger,
Healtheon/WebMD assumed an agreement between Mr. Payne and WebMD effective until
May 2000 pursuant to which, in consideration of Mr. Payne's devotion of up to
60% of his time directly to Healtheon/WebMD's business, Healtheon/WebMD
reimbursed PTEK Holdings $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. Healtheon/WebMD also reimbursed Mr. Payne for any expenses
he incurred prior to that time in discharging his duties to Healtheon/WebMD.
Officer loan. In March 1999, Healtheon/WebMD loaned Steven E. Curd,
Healtheon/WebMD's Chief Information Officer, $2.5 million for the purchase of a
residence upon his relocation to the San Francisco Bay area. The loan is
secured, bears no interest, and must be repaid by Mr. Curd upon the earlier of
the end of five years, the sale of the residence, or the discontinuation of his
employment with Healtheon/WebMD. Mr. Curd also must apply to the loan any
proceeds received by him from the sale of Healtheon/WebMD common stock resulting
from the exercise of his stock options. Healtheon/WebMD has agreed to repurchase
the residence from Mr. Curd upon his request at a price equal to Mr. Curd's
purchase price of the residence plus the cost of any improvements. Additionally,
Healtheon/WebMD will reimburse Mr. Curd for the amount of taxes payable by him
for his residence as well as resulting from the loan.
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INFORMATION REGARDING MEDICAL MANAGER
MEDICAL MANAGER'S BUSINESS
OVERVIEW
Medical Manager is a Delaware corporation and was incorporated in 1989.
Medical Manager changed its name from Synetic, Inc. to Medical Manager
Corporation on July 23, 1999, upon the completion of its acquisition of Medical
Manager Health Systems, Inc., formerly known as Medical Manager Corporation.
Medical Manager is engaged in three principal business activities:
- HEALTHCARE E-COMMERCE BUSINESS. This business involves the development
and provision of an Internet-based healthcare e-commerce network that
links physicians, payers, suppliers and patients, and is conducted
through Medical Manager's majority-owned subsidiary, CareInsite. This
network is designed to provide physicians with relevant clinical,
administrative and financial information from payers and suppliers.
Medical Manager believes CareInsite's integration of payer-specific rules
and healthcare guidelines with patient-specific information at the point
of care will improve the quality of patient care, lead to more
appropriate use of healthcare resources, gain compliance with benefit
plan guidelines and control healthcare costs.
- PHYSICIAN PRACTICE MANAGEMENT INFORMATION SYSTEMS BUSINESS. This
business involves the development and provision of comprehensive
physician practice management information systems to independent
physicians, independent practice associations, management service
organizations, physician practice management organizations and other
providers of healthcare services in the U.S., and is conducted through
Medical Manager Health Systems and its subsidiaries. Medical Manager
Health Systems develops, markets and supports The Medical Manager
practice management system, which addresses the financial,
administrative, clinical and practice management needs of physician
practices. The system has been implemented in a wide variety of practice
settings from small physician groups to multi-provider independent
practice associations and management service organizations. These
proprietary systems enable physicians and their administrative staffs to
efficiently manage their practices while delivering quality patient care
in a constantly changing health care environment. Since the development
of The Medical Manager software in 1982, Medical Manager Health Systems'
installed base has grown to over 130,000 providers in approximately
25,000 client sites, representing more than 80 practice specialties.
Medical Manager Health Systems believes that The Medical Manager system
is the most widely installed physician practice management system in the
U.S. On March 30, 2000, Medical Manager acquired substantially all of the
assets of Physician Computer Network for a purchase price of
approximately $60 million, including forgiveness of $7 million of
outstanding loans made by Medical Manager to Physician Computer Network,
plus the assumption of some liabilities. Physician Computer Network is
one of the nation's largest providers of physician practice management
information systems. Physician Computer Network provides physician
practice management information systems to more than 55,000 providers in
approximately 8,000 sites. Medical Manager believes that the acquisition
of Physician Computer Network will provide opportunities for more
comprehensive and efficient customer support as well as significant
cross-selling opportunities when combined into Medical Manager's
physician practice management information systems business. With the
acquisition of Physician Computer Network, Medical Manager will now
provide practice management systems to over 185,000 physicians throughout
the U.S.
- PLASTICS AND FILTRATION TECHNOLOGIES BUSINESS. This business involves
the design, manufacture and distribution of porous and solid plastic
components and products for use in life sciences, healthcare, industrial
and consumer applications, and is conducted through Porex Technologies
Corporation and Medical Manager's other plastic and filtration
technologies subsidiaries, which are referred to collectively in this
proxy statement/prospectus as Porex. Medical Manager believes that
Porex's principal competitive strengths are its manufacturing processes,
quality control, relationship with its customers and distribution of its
proprietary health care products.
Medical Manager believes that it will be distinguished by its ability to
integrate the products and services offered by its physician practice management
information systems business with those of its healthcare e-commerce business
into a suite of products that can comprehensively address all of the needs of a
medical practice. This
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integration will enable a medical practice to more effectively and efficiently
serve the needs of patients by utilizing innovative healthcare network and
e-commerce services that leverage Internet technology. Medical Manager's
services and network facilities more efficiently exchange confidential clinical,
administrative and financial information between physicians and their affiliated
patients, payers, providers and suppliers. Medical Manager also believes that
physicians are more likely to adopt the additional web-based services that will
be provided by its healthcare electronic commerce business as a result of its
cooperation with its physician practice management information systems business
and the efforts of its sales and support personnel.
The address of Medical Manager's principal executive office is River Drive
Center 2, 669 River Drive, Elmwood Park, New Jersey 07407 and its telephone
number is (201) 703-3400. Medical Manager's web site is www.medicalmanager.com.
The information on Medical Manager's web site is not a part of this proxy
statement/prospectus.
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MEDICAL MANAGER SELECTED CONSOLIDATED FINANCIAL DATA
Medical Manager's selected financial data as of and for the years ended
June 30, 1995, 1996, 1997, 1998 and 1999 as set forth below has been derived
from information included in the Medical Manager 8-K dated June 19, 2000, filed
for the year ended June 30, 1999. In connection with the acquisitions of
companies acquired by Medical Manager during the nine months ended March 31,
2000, accounted for by the pooling of interests method, Medical Manager filed a
Form 8-K on June 19, 2000 restating its historical consolidated financial
statements and data included in the Medical Manager annual report on Form 10-K
filed for the year ended June 30, 1999. The selected financial data for the year
ended June 30, 1995 has been restated to reflect the divestiture of Medical
Manager's institutional pharmacies business in December, 1994. Medical Manager's
selected financial data as of and for the nine months ended March 31, 1999 and
2000 as set forth below has been derived from the unaudited information included
in the Medical Manager quarterly report on Form 10-Q filed for the period ended
March 31, 2000. The selected financial data for the nine months ended March 31,
1999 and 2000 reflects all adjustments deemed necessary by Medical Manager's
management for a fair presentation of the results for these interim periods. You
should not expect the results for the nine months ended March 31, 2000 to be
necessarily indicative of Medical Manager's results that might be obtained for
the full year. The following historical financial information is only a summary
and should be read in conjunction with the information contained in the reports
on Form 8-K, Form 10-K and Form 10-Q as filed by Medical Manager and also in
conjunction with the other information incorporated by reference in this
document. For information regarding these documents, see "Where You Can Find
More Information" on page 202.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------------------- -------------------
1995 1996 1997(1) 1998 1999(2) 1999 2000(3)
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.......................................... $91,779 $116,063 $135,623 $216,609 $296,096 $213,007 $264,808
Income (loss) from continuing operations before
provision for income taxes.......................... 6,734 19,569 (18,516) 36,626 30,955 23,024 11,136
Provision for income taxes............................ 483 4,862 2,844 13,706 12,311 8,661 12,742
------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations.............. 6,251 14,707 (21,360) 22,920 18,644 14,363 (1,606)
Income from discontinued operations................... 15,459 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. $21,710 $ 14,707 $(21,360) $ 22,920 $ 18,644 14,363 (1,606)
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share -- basic
Continuing operations............................... $ 0.28 $ 0.64 $ (0.90) $ 0.72 $ 0.54 0.42 (0.04)
Discontinued operations............................. 0.68 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) per share -- basic.......... $ 0.96 $ 0.64 $ (0.90) $ 0.72 $ 0.54 $ 0.42 $ (0.04)
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share -- diluted
Continuing operations............................... $ 0.26 $ 0.60 $ (0.90) $ 0.67 $ 0.50 $ 0.39 $ (0.04)
Discontinued operations............................. 0.66 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) per share -- diluted................ $ 0.92 $ 0.60 $ (0.90) $ 0.67 $ 0.50 $ 0.39 $ (0.04)
======= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $104,478 $166,241 $ 89,769 $160,465 $235,029 $ 147,054
Total assets..................................... 204,655 221,375 407,004 517,646 818,196 1,061,906
Long term debt, less current portion............. 2,315 2,634 168,119 162,960 170,041 14,241
Stockholders' equity............................. $170,724 $185,762 $190,374 $291,677 $485,343 $ 756,614
</TABLE>
------------------
(1) Includes $32,185,000 write-off of acquired in-process research and
development costs in conjunction with the purchase of Avicenna Systems
Corporation and CareAgents, Inc.
(2) Includes a write-off of $2,381,000 of capitalized software costs which
relate to the abandonment of our development efforts with respect to certain
of our products and services. Those services were abandoned as a result of
encountering a high risk development issue associated with integrating those
products and services
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with the acquired Cerner technology. Also includes $4,300,000 ($2,586,000
after tax) in charges related to expenses incurred with the Merck litigation
and $2,366,000 ($1,400,000 after tax) in charges relating to the settlement
of a class action lawsuit alleging that versions of The Medical Manager
software prior to version 9.0 will not properly recognize and process
information relating to dates in and after the year 2000.
(3) Includes $17,991,000 of acquisition and related expenses primarily related
to the acquisition of Medical Manager Health Systems, Inc., a net gain on
the sale of investments of $24,887,000, $3,404,000 of expenses related to
the call of the convertible debentures and $1,450,000 in charges related to
expenses incurred with the Merck litigation.
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SHARE OWNERSHIP BY MEDICAL MANAGER'S PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS
PRINCIPAL STOCKHOLDERS OF MEDICAL MANAGER
The following table sets forth information as of May 31, 2000, except as
otherwise indicated, concerning the beneficial ownership of the Medical
Manager's common stock by each person known by the Medical Manager to own more
than 5% of its common stock.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
------------------------------------ -------------------- ----------
<S> <C> <C>
Martin J. Wygod 5,467,799(2)(3) 13.38%
P.O. Box 7188
Rancho Santa Fe, California 92067
SN Investors, L.P. 4,872,975(2) 11.96%
818 Washington Street
Wilmington, Delaware 19801
Michael A. Singer 3,811,250(4)(5) 9.32%
15151 Northwest 99th Street
Alachua, Florida 32615
MAS 1997 Family Limited Partnership 3,668,750(4) 9.00%
8989 Westheimer, Suite 228E
Houston, Texas 77063
</TABLE>
------------------
(1) The number of shares of Medical Manager's common stock deemed outstanding
includes:
- 40,749,623 shares of common stock outstanding as of May 31, 2000
- the number of shares, if any, of Medical Manager's common stock that the
respective persons named in the above table have the right to acquire
presently or within 60 days of May 31, 2000 upon exercise of stock
options.
(2) SN Investors, the general partner of which is controlled by Mr. Wygod, is
the record and beneficial owner of 4,872,975 shares of Medical Manager's
common stock. Mr. Wygod is an indirect beneficial owner of these shares and
they are included in the total of 5,459,799 shares listed as beneficially
owned by Mr. Wygod.
(3) Includes 124,000 shares of Medical Manager's common stock that Mr. Wygod has
the right to acquire presently or within 60 days of May 31, 2000 upon
exercise of stock options. Includes 2,000 shares of Medical Manager's common
stock beneficially owned by Mr. Wygod's spouse, as to which shares Mr. Wygod
disclaims beneficial ownership. Includes 28,499 shares of Medical Manager's
common stock owned by Synetic Foundation, Inc., a charitable foundation of
which Messrs. Manning, Suthern and Wygod are trustees and share voting and
dispositive power, and 192,794 shares of Medical Manager's common stock
owned by the Rose Foundation, a private charitable foundation of which
Messrs. Wygod and Mele are trustees and share voting and dispositive power.
(4) MAS 1997 Family Limited Partnership, the general partner of which is a
company controlled by Mr. Singer, and the sole limited partner of which is
Mr. Singer, is the record and beneficial owner of 3,668,750 shares of
Medical Manager's common stock. Mr. Singer is an indirect beneficial owner
of these shares and they are included in the total of 3,811,250 shares
listed as beneficially owned by Mr. Singer.
(5) Includes 12,500 shares of Medical Manager's common stock owned by MDDS
Partnership Ltd., the general partner of which is controlled by Mr. Singer
and the limited partners of which are Mr. Singer and certain of his family
members.
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SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth information, as of May 31, 2000, unless
otherwise noted, concerning the ownership of Medical Manager's and CareInsite's
common stock by each of the directors, each of the chief executive officer and
other named executive officers and by all directors and executive officers of
Medical Manager as a group.
<TABLE>
<CAPTION>
MEDICAL MANAGER CAREINSITE
--------------------------------------------- ----------------------------------
AMOUNT AND NATURE AMOUNT AND
OF BENEFICIAL PERCENT OF NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) CLASS(3) OWNERSHIP(1) CLASS(4)
------------------------ ----------------- ---------------------- -------------------- ----------
<S> <C> <C> <C> <C>
100,114 * 7,000 *
Kim A. Davis
134,116 * 6,000 *
Thomas R. Ferguson
132,716(5) * 9,900(6) *
Mervyn L. Goldstein
147,119 * 10,000 *
Ray E. Hannah
21,250 * 0 *
Courtney F. Jones
458,508 * 0 *
John H. Kang
15,000 1.12% 0 *
Raymond Kurzweil
90,185 * 5,000 *
Kirk G. Layman
92,333 * 3,000 *
Roger H. Licht
333,298(7) * 22,500 *
James V. Manning
408,001(16) 1.00% 22,500 *
Bernard A. Marden
401,718(8) * 10,000 *
Charles A. Mele
101,647(9) * 8,000 *
Chris A. Peifer
0 * 0 *
Marvin Rich
277,339(10) * 20,500 *
Herman Sarkowsky
3,811,250(11) 9.32% 15,000(11) *
Michael A. Singer
417,097(9)(12) 1.01% 22,500 *
Paul C. Suthern
238,663 * 10,000(13)(17) *
Anthony Vuolo
174,488(14) * 22,950 *
Albert M. Weis
5,467,799(7)(8)(15) 13.38% 38,000(15) *
Martin J. Wygod
12,865,987 30.01% 258,850 *
All directors and executive
officers as a group (22 persons)
</TABLE>
------------------
* Less than 1%.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
unless otherwise indicated in the following footnotes.
(2) Includes the following number of shares of Medical Manager's common stock
that the following persons have the right to acquire presently or within 60
days of May 31, 2000 upon exercise of stock options: Mr. Davis, 100,000;
Mr. Ferguson, 88,000; Dr. Goldstein, 88,000; Mr. Hannah, 54,000; Mr. Jones,
21,250; Mr. Kang, 136,250; Mr. Kurzweil, 15,000; Mr. Layman, 90,000; Mr.
Licht, 88,000; Mr. Manning, 150,000; Mr. Marden, 8,000; Mr. Mele, 181,000;
Mr. Peifer, 15,000; Mr. Sarkowsky, 88,000; Mr. Singer, 130,000; Mr.
Suthern, 379,600; Mr. Vuolo, 233,600; Mr. Weis, 58,000; Mr. Wygod, 124,000;
and all directors and executive officers as a group, 2,261,792. Includes
114 shares of Medical Manager's common stock allocated to the account of
Mr. Davis, 1,647 shares of Medical Manager's common stock allocated to the
account of Mr. Hannah, 185 shares of Medical Manager's common stock
allocated to the account of Mr. Layman, 334 shares of Medical Manager's
common stock allocated to the account of Mr. Mele and 329 shares of Medical
Manager's common stock allocated to the account of Mr. Vuolo under the
Porex 401(k) Plan as of January 31, 2000.
(3) The number of shares of Medical Manager's common stock deemed outstanding
includes:
- 40,749,623 shares of Medical Manager's common stock outstanding as of May
31, 2000
- the number of shares of Medical Manager's common stock that the
respective persons named in the above table have the right to acquire
presently or within 60 days of May 31, 2000 upon exercise of stock
options.
165
<PAGE> 172
(4) The number of shares of CareInsite's common stock deemed outstanding
includes 75,605,837 shares of CareInsite's common stock outstanding as of
May 31, 2000. As of May 31, 2000, none of the CareInsite stock options
granted to the respective persons named in the above table is exercisable
within 60 days.
(5) Includes 200 shares of Medical Manager's common stock owned by Dr.
Goldstein's spouse, as to which Dr. Goldstein disclaims beneficial
ownership.
(6) Includes 9,900 shares of CareInsite's common stock owned by Dr. Goldstein's
spouse, as to which Dr. Goldstein disclaims beneficial ownership.
(7) Includes 28,499 shares of Medical Manager's common stock owned by the
Synetic Foundation.
(8) Includes 192,794 shares of Medical Manager's common stock owned by the Rose
Foundation.
(9) Includes 25,974 shares of Medical Manager's common stock held in trust for
Mr. Peifer's family members.
(10) Includes 15,000 shares of Medical Manager's common stock owned by a
charitable foundation of which Mr. Sarkowsky is a director.
(11) Includes 3,668,750 shares of Medical Manager's common stock owned by MAS
Family Partnership and 12,500 shares of Medical Manager's common stock
owned by MDDS Ltd. MDDS Ltd. also owns 15,000 shares of CareInsite's common
stock.
(12) Includes 1,200 shares of Medical Manager's common stock held in custodial
accounts for Mr. Suthern's children.
(13) Includes 7,401 shares of CareInsite common stock held in Mr. Vuolo's
individual retirement account and 451 shares held in his spouse's
individual retirement account.
(14) Includes 3,250 shares of Medical Manager's common stock owned by a
corporation of which Mr. Weis is the sole stockholder, sole director and
president and 3,200 shares of Medical Manager's common stock held in trust
for Mr. Weis's children.
(15) Includes 4,872,975 shares of Medical Manager's common stock owned
beneficially and of record by SN Investors. Mr. Wygod is an indirect
beneficial owner of these shares. See "Footnote 2 to Security ownership of
management and directors." Includes 2,000 shares of Medical Manager's
common stock beneficially owned by Mr. Wygod's spouse, as to which shares
Mr. Wygod disclaims beneficial ownership. Mr. Wygod's spouse also
beneficially owns 2,000 shares of CareInsite's common stock which are in a
trust for Mr. Wygod's stepson, as to which shares Mr. Wygod disclaims
beneficial ownership.
(16) Includes 50,000 shares of Medical Manager's common stock owned by a
charitable foundation of which Mr. Marden is a director.
(17) Mr. Vuolo ceased being an executive officer of Medical Manager on April 4,
2000.
166
<PAGE> 173
INFORMATION REGARDING CAREINSITE
CAREINSITE'S BUSINESS
CareInsite is developing and intends to provide an Internet-based
healthcare e-commerce network for interactive use by physicians, payers,
suppliers and patients. CareInsite intends to market a comprehensive set of
transaction, messaging and content services to physicians, to payers such as
managed care organizations and pharmacy benefit managers, or PBMs, to suppliers
such as pharmacies and clinical laboratories, and to patients. CareInsite's
system is comprised of a network of computers, related equipment and application
software that uses the Internet to link the key participants in the healthcare
industry. CareInsite expects that the CareInsite system will facilitate a broad
range of healthcare transactions, such as enabling a physician to order
prescriptions and lab tests and to verify a particular patient's eligibility for
treatment under his or her healthcare plan, and will facilitate medical claims
processing, compiling medical data and informing physicians of particular
patient histories. Physicians and their patients will be able to use a web
browser to access relevant clinical, administrative and financial information of
payers and suppliers through the CareInsite system to make more informed
healthcare decisions. CareInsite believes its integration of payer-specific
rules and healthcare guidelines with patient-specific information at the point
of care will improve the quality of patient care, lead to more appropriate use
of healthcare resources, gain compliance with benefit plan guidelines and
control healthcare costs.
As of July 15, 2000, Medical Manager owned 67.4% of CareInsite's common
stock. CareInsite and Medical Manager share management and are parties to a
services agreement. CareInsite and Medical Manager Health Systems, a wholly
owned subsidiary of Medical Manager, also have a strategic relationship, under
which CareInsite will be the exclusive provider of certain network, web hosting
and transaction services to Medical Manager Health Systems.
CareInsite is a Delaware corporation and was incorporated in 1998. The
address of CareInsite's principal executive office is 669 River Drive, Center 2,
Elmwood Park, New Jersey 07407 and its telephone number is (201) 703-3400.
CareInsite's web site is www.careinsite.com. The information on CareInsite's web
site is not part of this proxy statement/prospectus.
167
<PAGE> 174
CAREINSITE SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data for CareInsite set forth below as of the period
from inception (December 24, 1996) through June 30, 1997, for the years ended
June 30, 1998 and 1999 have been derived from the audited consolidated financial
statements of CareInsite included in the CareInsite Form 10-K filed for the year
ended June 30, 1999 as amended by Form 10-K/A filed on October 28, 1999. The
selected financial data for the predecessor business of Avicenna set forth below
for the period from inception (September 20, 1994) through December 31, 1994,
for the year ended December 31, 1995 and for the period January 1, 1996 through
December 23, 1996 have been derived from the audited financial statements of
Avicenna not incorporated into this proxy statement/prospectus. The selected
financial data for CareInsite as of March 31, 2000, for the nine month periods
ended March 31, 1999 and 2000 and for the cumulative period from inception
(December 24, 1996) through March 31, 2000 are derived from its unaudited
consolidated financial statements included in CareInsite's quarterly report on
Form 10-Q filed for the period ended March 31, 2000. The selected financial data
for the nine months ended March 31, 1999 and 2000, in the opinion of
CareInsite's management, include all normal and recurring adjustments necessary
to present fairly the financial position and results of operations of CareInsite
for those periods. The operating results for the nine months ended March 31,
2000 are not necessarily indicative of the operating results to be expected for
the full year. The following historical selected financial data is only a
summary and should be read in conjunction with the information contained in the
reports on Form 8-K, Form 10-K and Form 10-Q as filed by CareInsite and also in
conjunction with the other information incorporated by reference in this
document. For information regarding these documents, see "Where You Can Find
More Information" on page 202.
<TABLE>
<CAPTION>
AVICENNA SYSTEMS CORPORATION
PREDECESSOR BUSINESS CAREINSITE
------------------------------------ ---------------------------------
PERIOD FROM PERIOD FROM
INCEPTION PERIOD FROM INCEPTION
(09/20/94) YEAR 01/01/96 (12/24/96) YEAR YEAR
THROUGH ENDED THROUGH THROUGH ENDED ENDED
12/31/94 12/31/95 12/23/96 06/30/97 06/30/98 06/30/99
----------- -------- ----------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................. $ -- $ -- $ 20 $ -- $ -- $ 371
Service revenue to
affiliates.................. -- -- -- -- -- 993
------ ------ ------- -------- -------- --------
Total revenues........ -- -- 20 -- -- 1,364
------ ------ ------- -------- -------- --------
Costs and Expenses
Cost of revenues............ -- -- -- -- -- 69
Cost of services to
affiliates................ -- -- -- -- -- 993
Research and development
expenses.................. 16 84 1,025 7,505 4,159 11,253(1)
Sales and marketing
expenses.................. 9 12 1,297 1,150 1,733 1,910
General and administrative
expenses.................. 7 69 860 937 2,840 4,205
Litigation costs............ -- -- -- -- -- 4,300(2)
Acquired in-process research
and development........... -- -- -- 32,185(3) -- --
Depreciation and
amortization.............. -- 2 136 589 1,650 1,695
------ ------ ------- -------- -------- --------
Total costs and
expenses............. 32 167 3,318 42,366 10,382 24,425
------ ------ ------- -------- -------- --------
Loss from operations......... (32) (167) (3,298) (42,366) (10,382) (23,061)
Other income, net............ -- -- -- 9 47 263
Gain on sale of investment... -- -- -- -- -- --
------ ------ ------- -------- -------- --------
Net loss..................... (32) (167) (3,298) (42,357) (10,335) (22,798)
Preferred stock dividends.... -- -- (241) -- -- --
Accretion on Series A
Preferred Stock............. -- -- -- -- -- --
------ ------ ------- -------- -------- --------
Net loss available to common
stockholders................ $ (32) $ (167) $(3,539) $(42,357) $(10,355) $(22,798)
====== ====== ======= ======== ======== ========
Net loss per share available
to common stockholders:
Basic and diluted........... $(0.08) $(0.44) $ (9.34) $ (0.85) $ (0.21) $ (0.40)
====== ====== ======= ======== ======== ========
Weighted average shares
outstanding
Basic and diluted........... 379 379 379 50,063 50,063 56,371
====== ====== ======= ======== ======== ========
<CAPTION>
CAREINSITE
-------------------------------------------
CUMULATIVE FROM
NINE NINE INCEPTION
MONTHS MONTHS (DEC. 24, 1996)
ENDED ENDED THROUGH
3/31/99 3/31/00 3/31/00
----------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenue.................. $ -- $ 3,236 $ 3,607
Service revenue to
affiliates.................. 213 1,573 2,566
-------- -------- ---------
Total revenues........ 213 4,809 6,173
-------- -------- ---------
Costs and Expenses
Cost of revenues............ -- 1,312 1,381
Cost of services to
affiliates................ 213 1,573 2,566
Research and development
expenses.................. 7,646 16,287 39,204
Sales and marketing
expenses.................. 1,428 12,076 16,869
General and administrative
expenses.................. 2,855 9,805 17,787
Litigation costs............ 2,500(2) 1,450(2) 5,750(2)
Acquired in-process research
and development........... -- -- 32,185
Depreciation and
amortization.............. 1,162 11,609 15,543
-------- -------- ---------
Total costs and
expenses............. 15,804 54,112 131,285
-------- -------- ---------
Loss from operations......... (15,591) (49,303) (125,112)
Other income, net............ 110 4,801 5,120
Gain on sale of investment... -- 25,511(4) 25,511
-------- -------- ---------
Net loss..................... (15,481) (18,991) (94,481)
Preferred stock dividends.... -- -- --
Accretion on Series A
Preferred Stock............. -- (866) (866)
-------- -------- ---------
Net loss available to common
stockholders................ $(15,481) $(19,857) $ (95,347)
======== ======== =========
Net loss per share available
to common stockholders:
Basic and diluted........... $ (0.29) $ (0.28) $ (1.69)
======== ======== =========
Weighted average shares
outstanding
Basic and diluted........... 54,208 71,436 56,504
======== ======== =========
</TABLE>
168
<PAGE> 175
<TABLE>
<CAPTION>
AVICENNA SYSTEMS CORPORATION
PREDECESSOR BUSINESS CAREINSITE
----------------------------- --------------------------------------------
12/31/95 12/23/96 06/30/97 06/30/98 06/30/99 3/31/00
------------- ------------- -------- -------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit)............... $ 998 $(1,257) $(1,592) $ 775 $114,837 $ 62,265
Total assets............. 1,201 1,263 3,476 10,833 179,953 289,437
Long-term obligations,
net of current
portion................. -- -- -- -- -- 3,644
Redeemable securities.... -- -- -- -- -- 41,342
Stockholders' equity
(deficit)............... (206) (3,744) 1,566 7,798 173,424 219,482
</TABLE>
------------------
(1) Includes a write-off of $2,381 of capitalized software costs which relate to
the abandonment of development efforts with respect to specified products
and services. Those efforts were abandoned as a result of encountering a
high risk development issue associated with integrating those products and
services with the acquired Cerner technology.
(2) Represents charges relating to expenses incurred in connection with the
Merck litigation.
(3) Represents a non-recurring charge related to the write-off of acquired
in-process research and development costs in conjunction with the purchase
of Avicenna and CareAgents, Inc.
(4) Represents gain on sale of an investment in a privately held company that
merged with a publicly traded company.
169
<PAGE> 176
CAREINSITE'S MANAGEMENT
The directors of CareInsite are as follows:
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL
NAME AGE SINCE OCCUPATION
---- --- -------- ----------
<S> <C> <C> <C>
Mark J. Adler, M.D.* 43 1999 Dr. Adler has been medical director and an oncologist
for the Oncology Medical Center of San Diego, since he
founded it in 1991. He is also currently President and
Chief Executive Officer of Medical Group of North
County's, internal medicine and oncology group, which
is based in San Diego, California.
Roger C. Holstein 47 1999 Mr. Holstein became Executive Vice President -- Sales &
Marketing and a Director of CareInsite in March 1999.
Mr. Holstein has been Executive Vice
President -- Marketing and Sales of Medical Manager
from 1997 to July 1999. He was a Special Consultant to
Merck-Medco from 1996 to 1998. Prior to that time, Mr.
Holstein acted as Senior Executive Vice
President -- Chief Marketing Officer of Merck-Medco
from 1994 to 1995 and Senior Executive Vice
President -- Marketing and Sales of Merck-Medco from
1991 to 1994.
James R. Love 44 1999 Mr. Love became the Executive Vice President -- Chief
Financial Officer and Treasurer of the Company in May
1999 and a Director of CareInsite in March 1999. Mr.
Love became Executive Vice President -- Finance and
Administration of Medical Manager in March 1999. Prior
to joining Medical Manager, Mr. Love was a Managing
Director, since 1993, in the investment banking group
of Merrill Lynch & Co. At Merrill Lynch, he was most
recently responsible for the diversified companies
group and the healthcare products group.
James V. Manning 53 1999 Mr. Manning was Vice Chairman of the Board of Medical
Manager from March 1998 to July 1999, was Chief
Executive Officer of Medical Manager from January 1995
to March 1998, was President of Medical Manager from
July 1996 to March 1998 and, until March 1998, was an
executive officer of Medical Manager for more than the
last five years. Until December 1994, Mr. Manning had
been an executive officer of Medco for more than five
years. Mr. Manning is also Chairman of the Board of
Group One Software, Inc., a computer software company.
David M. Margulies, M.D. 49 1999 Dr. Margulies became Executive Vice President -- Chief
Scientist and a Director of CareInsite in March 1999.
Dr. Margulies has been Executive Vice
President -- Chief Scientist of Medical Manager since
January 1997. He was founder and President from
November 1996 to January 1997 of CareAgents, Inc., a
company acquired by Medical Manager in January 1997.
From 1990 to mid-1996, Dr. Margulies was Executive Vice
President and Chief Scientist of the Cerner
Corporation, a leading supplier of enterprise-level
clinical applications. Prior to that time, he was Vice
President and Chief Information Officer at Boston
Children's Hospital and on the medical faculties of the
Harvard Medical School and Columbia College of
Physicians and Surgeons.
</TABLE>
170
<PAGE> 177
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL
NAME AGE SINCE OCCUPATION
---- --- -------- ----------
<S> <C> <C> <C>
Charles A. Mele 44 1998 Mr. Mele has been Executive Vice President -- General
Counsel of Medical Manager since March 1998 and was
Vice President -- General Counsel of Medical Manager
from July 1995 to March 1998. Mr. Mele was an executive
officer of Medical Manager from May 1989 to December
1994 and was an executive officer of Medco for more
than five years, until March 1995. Mr. Mele is also a
director of Group 1 Software, Inc., a computer software
company.
Lawrence A. Rader* 63 1999 Mr. Rader has been a General Partner of the Rader Fund
since May 1995. Prior to May 1995, Mr. Rader was a
Securities Analyst with Merrill Lynch for over 17
years.
Marvin P. Rich 55 2000 Mr. Rich became the Chief Executive Officer of the
Company in January 2000. Mr. Rich is also President of
Medical Manager. Mr. Rich was Chief Administrative
Officer for Oxford Health Plans, from 1998 to January
2000. Prior to such time, he served as the Executive
Vice President of Finance, Strategic Planning and
Administration for Kmart Corporation from 1994 to 1998.
Michael A. Singer 53 1999 Mr. Singer has been Vice Chairman and Co-Chief
Executive Officer of Medical Manager since July 1999.
Mr. Singer was Chairman of the Board of Medical Manager
Health Systems from February 1997 to July 1999, and has
been Chief Executive Officer of Medical Manager Health
Systems since February 1997. Mr. Singer is the founder
of Medical Manager Research & Development, Inc., and
the principal inventor of The Medical Manager software
program. From Medical Manager Research & Development's
inception in 1981, Mr. Singer has been a director and
its President and Chief Executive Officer.
Joseph E. Smith* 61 1999 Mr. Smith is a director of Boren, LePore and
Associates, Inc., Avanir Pharmaceuticals, Claneil
Enterprises, Inc., Shire Pharmaceuticals Group PLC,
Sensus Drug Development Corporation and VIVUS, Inc. He
also serves on the Board of Trustees of the
International Longevity Center, a non-profit
organization. Mr. Smith served in various positions
with Warner-Lambert Company from March 1989 to
September 1997. His last position at Warner-Lambert was
Corporate Vice President as well as a member of the
Office of the Chairman and the firm's Management
Committee.
</TABLE>
171
<PAGE> 178
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL
NAME AGE SINCE OCCUPATION
---- --- -------- ----------
<S> <C> <C> <C>
Paul C. Suthern 48 1998 Mr. Suthern became the Vice Chairman of the Board of
the Company in January 2000. Mr. Suthern had been the
Chief Executive Officer and President of CareInsite
from March 1999 until January 2000. Mr. Suthern was
President and Chief Executive Officer of Medical
Manager from March 1998 until June 1999 and was an
executive officer of Medical Manager from February 1993
until July 1996, Vice Chairman of Medical Manager from
July 1996 to March 1998 and also Chief Executive
Officer from October 1993 until January 1995. Mr.
Suthern was also President and Chief Operating Officer
of Medco from November 1992 through December 1994 and
Assistant to Medco's Chairman from December 1991 to
November 1992. Prior thereto, he was Executive Vice
President -- Operations for more than five years.
Martin J. Wygod 60 1999 Mr. Wygod became the Chairman of the Board of
CareInsite in March 1999. Mr. Wygod has been Chairman
of the Board of Medical Manager since May 1989. From
May 1989 to February 1993, Mr. Wygod also served as
Medical Manager's President and Chief Executive Officer
and until May 1994 was an executive officer of Medical
Manager. Until May 1994, Mr. Wygod was Chairman of the
Board of Medco for more than five years, and until
January 1993 he also served as Chief Executive Officer
of Medco. He is also engaged in the business of racing,
boarding and breeding thoroughbred horses, and is
President of River Edge Farm, Inc.
</TABLE>
------------------
* Member of the audit and compensation committees
Messrs. Manning, Mele, Rich, Singer, Suthern, and Wygod are also directors
of Medical Manager. No family relationship exists among any of the directors or
executive officers of CareInsite, except that Messrs. Wygod and Suthern are
brothers-in-law. Mr. Singer was elected to the board of directors of CareInsite
pursuant to the Agreement and Plan of Merger among Medical Manager's
predecessor, Synetic, Inc., Marlin Merger Sub, Inc. and Medical Manager dated as
of May 16, 1999. In addition, under the provisions of the employment agreement
entered into between CareInsite, Medical Manager and Mr. Rich, CareInsite has
agreed that during the term of the agreement CareInsite will, subject to its
fiduciary duties, use its best efforts to include Mr. Rich in management's
nominees for election, and recommend the election of Mr. Rich as a member of the
Board. No other arrangement or understanding exists between any director or
executive officer of CareInsite or any other person pursuant to which any
director or executive officer was selected as a director or executive officer of
CareInsite. All executive officers of CareInsite are elected annually by the
Board and serve at the discretion of the Board.
172
<PAGE> 179
EXECUTIVE COMPENSATION
The following table presents information concerning compensation paid for
services to CareInsite to its Chief Executive Officer and former Chief Executive
Officer and its five most highly compensated executive officers for the fiscal
year ended June 30, 2000, referred to in this section and the section entitled
"Share ownership by CareInsite's principal stockholders, management and
directors -- Share ownership by CareInsite's directors and officers" on page 184
as CareInsite's "named executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS/SARS ($)
--------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Marvin P. Rich............................ 2000 124,039(3) -- -- 900,000(1) 289,801(4)
Chief Executive Officer 900,000(2)
Paul C. Suthern(5)........................ 2000 200,000 -- -- -- --
Vice Chairman and former 1999 180,000(6) -- 237,750(7) 200,000(1) --
Chief Executive Officer 1998 87,923(6) -- -- 194,000(2) --
Richard S. Cohan 2000 175,000 -- -- -- 6,550(4)(12)
Executive Vice President 1999 175,000 -- -- 100,000(1) --
-- Operations 190,000(2)
Robert C. Dieterle........................ 2000 190,000 -- -- -- --
Executive Vice President 1999 7,308(8) -- -- 160,000(1) --
-- Chief Operating Officer 80,000(2)
Roger C. Holstein 2000 175,000 -- -- 300,000(2) 5,250(12)
Executive Vice President 1999 175,000 -- -- 180,000(1) 4,814(12)
-- Sales & Marketing 1998 112,404(9) 225,000(10) -- -- 1,750(12)
David M. Margulies........................ 2000 175,000 -- -- -- --
Executive Vice President 1999 175,000 -- -- 100,000(1) --
-- Chief Scientist 1998 175,000 -- -- 272,728(2) --
Steven L. Zatz............................ 2000 175,000 -- -- 100,000(2) --
Senior Vice President 1999 6,731(11) -- -- 160,000(1) --
-- Development
</TABLE>
---------------
(1) Represents options to purchase CareInsite common stock.
(2) Represents options to purchase Medical Manager common stock.
(3) Mr. Rich became an employee on January 4, 2000. Therefore, only
compensation paid subsequent to that date is reflected above. Mr. Rich
received additional compensation for services rendered to Medical Manager
during the fiscal year ended June 30, 2000 of $124,039.
(4) Represents reimbursement for relocation expenses, including amounts
necessary to gross up these payments for tax purposes.
(5) As of January 4, 2000, Mr. Suthern became the Vice Chairman of the Board of
CareInsite, and he remains an employee of CareInsite. As of that date, Mr.
Marvin P. Rich became the Chief Executive Officer of CareInsite.
(6) Mr. Suthern was President and Chief Executive Officer of Medical Manager
until July 23, 1999. Mr. Suthern received additional compensation for
services rendered to Medical Manager during fiscal years 1999 and 1998 of
$20,000 and $9,769, respectively.
(7) Comprised of income from the exercise of options to purchase shares of
Medical Manager's common stock, which is equal to the excess of the fair
market value on the date of exercise over the exercise price.
(8) Mr. Dieterle became an employee on June 11, 1999. Therefore, only
compensation paid subsequent to that date is reflected above.
(9) Mr. Holstein became an employee on November 6, 1997. Therefore, only
compensation paid subsequent to that date is reflected above.
173
<PAGE> 180
(10) Represents a one-time bonus paid to Mr. Holstein upon his execution of his
employment agreement with Medical Manager.
(11) Mr. Zatz became an employee on June 11, 1999. Therefore, only compensation
subsequent to that date is reflected above.
(12) Comprised of matching contributions to the Porex 401(k) plan, a tax
qualified retirement plan sponsored by a subsidiary of Medical Manager.
The following table presents information concerning the options to purchase
CareInsite's and Medical Manager's common stock, as applicable, granted during
the fiscal year ended June 30, 2000 to CareInsite's named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE GRANT DATE
UNDERLYING GRANTED TO OR BASE PRESENT
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED(#)(3) FISCAL YEAR(4) ($/SHARE) DATE ($)(5)
---- ------------- -------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Marvin P. Rich............................. 450,000 12.18% 68.1875 2/8/2010 19,297,395(1)
450,000 12.18% 21.8750 6/5/2010 6,190,731(1)
450,000 3.27% 64.5000 2/8/2010 15,913,116(2)
450,000 3.27% 28.8750 6/5/2010 7,123,896(2)
Roger C. Holstein.......................... 300,000 2.18% 28.8750 6/5/2010 4,749,264(2)
Steven L. Zatz............................. 100,000 0.73% 28.8750 6/5/2010 1,625,832(2)
</TABLE>
---------------
(1) Represents options to purchase shares of CareInsite common stock.
(2) Represents options to purchase shares of Medical Manager common stock.
(3) The options granted to Mr. Rich vest as follows:
- the grants made on February 8, 2000 vest in annual installments of 20%
per year commencing on the first anniversary of the date of grant, but,
subject to specified exceptions, the CareInsite option will not start to
vest prior to December 15, 2001
- the grants made on June 5, 2000 vest in annual installments of 25% per
year commencing on the first anniversary of the date of grant, but upon
the consummation of the merger the vesting will change as follows: 50% on
the first anniversary of the date of grant and an additional 25% on the
second and third anniversaries of the date of grant.
Mr. Holstein and Mr. Zatz's grants vest in annual installments of 25%
commencing on the first anniversary of the date of grant.
(4) With respect to CareInsite options, the percentage is based upon the total
number of stock options granted to all employees of CareInsite and its
affiliates in the last fiscal year. With respect to Medical Manager options,
the percentage is based upon the total number of stock options granted to
all employees of Medical Manager and its affiliates in the last fiscal year.
(5) The estimated grant date present value as of the most recent year-end
reflected in the above table is determined using the Black-Scholes model.
The material assumptions and adjustments incorporated in the Black-Scholes
model in estimating the value of the options reflected in the above table
include the following:
- the respective option exercise price, specified above, equal to the fair
market value of the underlying stock on the date of grant
- the exercise of options within one and one-half years of the date that
they become exercisable
- a risk-free interest rate of 6.3% per annum
- volatility of 0.6889 for CareInsite, calculated using a weighted
historical average of comparable companies and 0.6193 for Medical
Manager, calculated using weekly prices of Medical Manager common stock
during the period from the date of purchase of shares of common stock
from Merck & Co., Inc. by Medical
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Manager and SN Investors on December 14, 1994 to June 30, 2000. The
ultimate values of the options will depend on the future market price of
CareInsite's or Medical Manager's common stock, as applicable, which
cannot be forecast with reasonable accuracy. The actual value, if any, an
optionee will realize upon exercise of an option will depend on the
excess of the market value of CareInsite's or Medical Manager's common
stock, as applicable, over the exercise price on the date the option is
exercised. We cannot assure you that the value realized by an optionee
will be at or near the value estimated by the Black-Scholes model or any
other model applied to value the options.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents information concerning the fiscal year-end
value of options to purchase CareInsite and Medical Manager common stock held by
CareInsite's named executive officers. No options to purchase CareInsite or
Medical Manager common stock were exercised by any of CareInsite's named
executive officers during the fiscal year ended June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
FY-END (#) SARS AT FY-END ($)(1)
---------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marvin P. Rich........................................ -- 900,000 -- --(2)
-- 900,000 -- 2,334,375(3)
Paul C. Suthern....................................... -- 200,000 -- --(2)
377,600 116,400 5,838,750 --(3)
Richard S. Cohan...................................... -- 100,000 -- --(2)
38,000 152,000 11,875 47,500(3)
Robert C. Dieterle.................................... -- 160,000 -- --(2)
16,000 64,000 -- --(3)
Roger C. Holstein..................................... -- 180,000 -- --(2)
308,000 500,000 440,375 1,737,500(3)
David M. Margulies.................................... -- 100,000 -- --(2)
109,092(4) 163,636 -- --(3)
Steven L. Zatz........................................ -- 160,000 -- --(2)
-- 100,000 -- 518,750(3)
</TABLE>
---------------
(1) Based upon the fiscal year-end closing price of CareInsite common stock or
Medical Manager common stock, as applicable, of $17.8750 and $34.0625,
respectively.
(2) All information on this line relates to options to purchase shares of
CareInsite common stock.
(3) All information on this line relates to options to purchase shares of
Medical Manager common stock.
(4) Dr. Margulies transferred options to purchase 109,086 shares of Medical
Manager common stock to several trusts for the benefit of his family
members.
EMPLOYMENT AGREEMENTS
Rich employment agreement
On June 18, 2000, Medical Manager and CareInsite entered into an amended
and restated employment agreement with Marvin P. Rich, which replaced the prior
employment agreement entered into by Medical Manager, CareInsite and Mr. Rich.
The term of the agreement ends on January 4, 2005, subject to automatic monthly
renewal. The employment agreement provides for Mr. Rich's appointment as
President of Medical Manager and Chief Executive Officer of CareInsite. The
employment agreement also provides that during the term of his employment,
Medical Manager will use its best efforts to include Mr. Rich in management's
nominees for election, and recommend his election, as a member of the board. The
employment agreement provides for an annual aggregate base salary of $500,000,
$250,000 of which is to be paid by Medical Manager and $250,000 of
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<PAGE> 182
which is to be paid by CareInsite, subject to increase at the discretion of the
board or the compensation committee of the board, and an annual aggregate
performance bonus of up to $500,000, $250,000 of which would be paid by Medical
Manager and $250,000 of which would be paid by CareInsite. Each of Medical
Manager and CareInsite has made a full recourse loan to Mr. Rich in the
principal amount of $300,000, which shall be forgiven in full on the completion
of the mergers.
Mr. Rich's employment agreement may be terminated at any time by Medical
Manager or CareInsite for "cause," as defined in the employment agreement. Upon
termination for cause, Mr. Rich will receive only base salary that was earned
but unpaid as of the date of termination. "Cause" is defined in the employment
agreement to include a willful failure by Mr. Rich to perform his duties under
his employment agreement, Mr. Rich's willful misconduct relating, directly or
indirectly, to Medical Manager or CareInsite, a material breach by Mr. Rich of
the employment agreement, or his commission of a common law fraud against
Medical Manager or CareInsite or conviction of a felony. With respect to failure
to perform duties, willful misconduct or a material breach that is curable, Mr.
Rich must be provided with written notice and an opportunity to cure the alleged
failure, misconduct or breach.
If Mr. Rich's employment is terminated due to death or disability, he will
be entitled to the following benefits from Medical Manager and CareInsite:
- continuation of his base salary, at the rate in effect at the time of
termination, commencing on the date of termination and ending on the
fourth anniversary of the date of termination
- continued participation in Medical Manager's health and welfare benefit
plans until the fourth anniversary of the date of termination or until he
is offered comparable coverage with a subsequent employer
- the aggregate bonus that would have been payable for each year until the
fourth anniversary of the date of termination, based on the highest bonus
paid during the prior three years or, if shorter, during the term of his
employment
- all outstanding options granted to Mr. Rich prior to the completion of
the mergers will remain outstanding and continue to vest as if Mr. Rich
remained employed by Medical Manager or CareInsite until the fourth
anniversary of the date of termination.
If Mr. Rich's employment is terminated by Medical Manager or CareInsite
without cause, he will be entitled to the benefits described above, but only
until the third anniversary of the date of termination, and Mr. Rich's
outstanding options granted to him prior to the completion of the mergers will
become fully vested and immediately exercisable upon the date of such
termination and remain exercisable for a one-year period.
If Medical Manager terminates Mr. Rich's employment with Medical Manager
due to a corporate transaction or the potential for a conflict of interest with
CareInsite, termination shall not be without cause so long as CareInsite assumes
Medical Manager's obligations under the employment agreement. Following the
completion of the mergers, the employment agreement cannot be assigned to
CareInsite without Mr. Rich's consent.
In the event that Mr. Rich resigns for good reason, he will receive the
same severance benefits as if his employment had been terminated by Medical
Manager or CareInsite without "cause." "Good reason" generally consists of:
- a material breach by Medical Manager or CareInsite of the employment
agreement
- a diminution of Mr. Rich's responsibilities, title or reporting duties,
except that if Mr. Rich does not serve as President because Medical
Manager makes the determination described in the preceding sentence, the
determination is not a diminution of responsibility
- a reduction in Mr. Rich's base salary or material fringe benefits
- the occurrence of a "change in control," as defined in his employment
agreement, of Medical Manager or CareInsite, or
- a reduction in Mr. Rich's authority relating to certain targeted areas,
following the completion of the mergers.
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<PAGE> 183
Mr. Rich's appointment as President of Healtheon/WebMD and his reporting to
the Co-Chief Executive Officers of Healtheon/WebMD, if one of them is Mr. Wygod,
will not constitute "good reason." Notwithstanding the foregoing, if one of the
foregoing "good reason" events occurs during the first year following the
completion of the mergers, Mr. Rich has agreed to remain employed until the end
of such year, and he will be entitled to receive the severance benefits
described above upon his resignation following such one-year period, except that
his outstanding options will become fully vested and immediately exercisable at
the time such "good reason" event occurs. In the event that Mr. Rich is
terminated for cause or resigns prior to the end of the first year following the
completion of the mergers, he will forfeit his outstanding options and will be
required to disgorge any gains realized upon prior exercise of such options.
Prior to completion of the mergers, "change in control" is defined in the
employment agreement to include the following events:
- when any person becomes the beneficial owner of at least 50% of the
voting power of Medical Manager's outstanding voting securities and
following this transaction Martin J. Wygod is no longer Chairman of the
Board of Medical Manager or CareInsite or a senior executive officer of
the acquiring company
- in the event that CareInsite has assumed all the obligations under the
employment agreement, when any person becomes the beneficial owner of at
least 50% of the voting power of CareInsite's outstanding securities and
following this transaction Mr. Wygod is no longer Chairman of the Board
of CareInsite or a senior executive officer of the acquiring company
- with exceptions, where there is a sale of all or substantially all of
Medical Manager's assets, or in the event that CareInsite has assumed all
the obligations under the employment agreement, a sale of all or
substantially all of CareInsite's assets, and following this transaction
Mr. Wygod is no longer Chairman of the Board of Medical Manager or
CareInsite or a senior executive officer of the acquiring entity, or
- a complete liquidation or dissolution of Medical Manager or, if
CareInsite assumes all of the obligations under the employment agreement,
CareInsite, shall have occurred.
Following the completion of the mergers, the "change in control" definition
described above will be modified to delete any references to Mr. Wygod. The
employment agreement provides that the completion of the mergers will not be
considered a change in control.
The employment agreement contains confidentiality obligations that survive
indefinitely and non-solicitation and non-competition obligations that end on
the second anniversary of the date employment has ceased. The employment
agreement also contains provisions giving Medical Manager and CareInsite
exclusive ownership of any inventions, discoveries, improvements and the like
which were developed or conceived by Mr. Rich as a result of his employment with
Medical Manager and CareInsite.
Pursuant to his prior employment agreement, Mr. Rich was granted an option
to purchase 450,000 shares of Medical Manager's common stock and an option to
purchase 450,000 shares of CareInsite's common stock, at an exercise price equal
to the fair market value at the time of the grant. The Medical Manager option
generally vests in five equal installments, commencing on the first anniversary
of the date of grant. The CareInsite option generally vests in five equal
installments commencing on the first anniversary of the date of grant, except
that no portion of the CareInsite option will vest prior to December 15, 2001.
The options will not be exercisable following the tenth anniversary of the date
of grant and are subject to earlier termination under certain circumstances. The
employment agreement generally provides that Mr. Rich's outstanding and unvested
options will become fully vested and exercisable if a change in control occurs
and Mr. Rich is still employed by Medical Manager, CareInsite, or the acquiring
company on the one-year anniversary of the change in control, or Mr. Rich's
employment is terminated by Medical Manager, CareInsite, or the acquiring
company without cause or by Mr. Rich for good reason during the one-year period.
Mr. Rich was granted an option to purchase an additional 450,000 shares of
Medical Manager common stock and an additional 450,000 shares of CareInsite
common stock. The additional options generally vest in four equal installments
commencing on the first anniversary of the date of grant, except that, following
completion of the mergers, such additional options will instead vest 50% on the
first anniversary of the date of grant, and an additional 25% on the second and
third anniversaries of the date of grant.
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Mr. Rich will also be granted, immediately prior to the completion of the
mergers, an option to purchase 300,000 shares of Medical Manager common stock at
an exercise price of $15.00 per share. This option generally will vest 50% on
the first anniversary of the date of grant, and an additional 25% on the second
and third anniversaries of the date of grant.
The options granted or to be granted to Mr. Rich will not be exercisable
following the tenth anniversary of the date of grant and will be subject to
earlier termination under certain circumstances.
The employment agreement contains a tax gross-up provision relating to any
excise taxes that may be incurred by Mr. Rich under Section 280G of the tax
code.
Margulies employment agreement
Medical Manager entered into an employment agreement with David M.
Margulies, M.D. as of January 23, 1997 in connection with Medical Manager's
acquisition of CareAgents. Dr. Margulies' employment agreement provides for an
employment period of five years, subject to monthly renewal thereafter. Dr.
Margulies' base salary is $175,000, which may be increased by the board of
directors of Medical Manager in its sole discretion. Dr. Margulies' agreement
does not fix Dr. Margulies' responsibilities or title, other than to provide
that he will provide services to Medical Manager, CareAgents and their
respective affiliates and subsidiaries, as specified by the Chief Executive
Officer or the board of directors of Medical Manager from time to time.
If his employment is terminated:
- by Medical Manager for "cause," which is generally defined as a breach of
any material provision of the agreement, willful misconduct relating to
Medical Manager or its affiliates, failure to perform his duties in any
material respect, willful violation of laws applicable to the business of
Medical Manager or its affiliates, commission of a common law fraud or
conviction of a felony or crime involving moral turpitude, or
- due to the resignation of Dr. Margulies for any reason,
Medical Manager will have no obligation to Dr. Margulies other than the payment
of his earned and unpaid compensation to the effective date of termination.
If his employment is terminated:
- by Medical Manager as a result of Dr. Margulies' permanent disability
- as a result of Dr. Margulies' death, or
- by Medical Manager without cause,
Medical Manager will have no obligation to Dr. Margulies other than the payment
of his earned and unpaid compensation to the effective date of termination.
Pursuant to a stock option agreement between Medical Manager and Dr.
Margulies dated January 7, 1998 which replaced a previous stock option
agreement, Dr. Margulies has been granted nonqualified stock options to purchase
272,728 shares of Medical Manager common stock. The options become exercisable
in the following manner: 40% on January 7, 2000 and an additional 20% on each of
January 7, 2001, January 7, 2002 and January 7, 2003. Upon termination of his
employment, the options will terminate to the extent not vested.
Dr. Margulies' employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and non-competition obligations
which apply for a specified period of time following termination of employment.
All obligations of Medical Manager may be assigned to any of its affiliates
without the consent of Dr. Margulies.
Holstein employment agreement
Medical Manager entered into an employment agreement with Roger C. Holstein
as of November 6, 1997. Mr. Holstein's employment agreement provides for an
employment period of five years, subject to monthly renewal thereafter. Mr.
Holstein's base salary is $175,000, which may be increased by the Board of
Directors of Medical
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<PAGE> 185
Manager in its sole discretion, except that when revenues from the healthcare
communications business exceed $30,000,000, the Board of Directors will increase
Mr. Holstein's compensation to a level commensurate with his contribution, as
determined in its reasonable judgment. Mr. Holstein's employment agreement
provided for a one-time payment of $225,000 to Mr. Holstein upon the signing of
the agreement. Mr. Holstein's employment agreement fixes Mr. Holstein's title as
Executive Vice President of Medical Manager, and provides that his
responsibilities will be determined by the Chairman of the Board of Directors
and the Chief Executive Officer of Medical Manager from time to time.
If his employment is terminated:
- by Medical Manager for cause, which is substantially similar to the
definition contained in the Margulies employment agreement, or
- due to the resignation of Mr. Holstein for any reason other than cause,
which generally consists of a breach of any material provision, demotion
or relocation,
Medical Manager will have no obligation to Mr. Holstein other than the payment
of his earned and unpaid compensation to the effective date of termination.
If his employment is terminated:
- by Medical Manager as a result of Mr. Holstein's permanent disability, or
- as a result of Mr. Holstein's death,
Medical Manager will have no obligation to Mr. Holstein other than the payment
of his earned and unpaid compensation to the effective date of termination and
with respect to options, as specified in the following paragraph.
If his employment is terminated:
- by Medical Manager without cause, or
- by Mr. Holstein for cause,
Medical Manager will have an obligation:
- to pay Mr. Holstein his earned and unpaid compensation to the effective
date of termination and a monthly severance payment equal to one-twelfth
of his then applicable base salary, less required deductions, for a
period ending two years from the date of termination or until the
occurrence of a circumstance or event that would constitute cause
- with respect to options, as specified in the next paragraph.
In addition, Mr. Holstein has the right to terminate his employment upon 30
days' written notice to Medical Manager at any time after a 12-month period
following the occurrence of "change of control," which will occur if:
- any person, entity or group, excluding Martin J. Wygod, acquires at least
50% of the voting power of the outstanding voting securities of Medical
Manager and following an acquisition Mr. Wygod ceases to hold one or more
of the positions of the Chairman of the Board of Directors of Medical
Manager, Chief Executive Officer of Medical Manager or a senior executive
officer of the acquirer of the 50% voting power, in each case, with
duties and responsibilities substantially equivalent to those prior to an
acquisition
- there is a reorganization, merger or consolidation or sale of or other
disposition of all or substantially all of Medical Manager's assets and
following that event Mr. Wygod ceases to hold the positions described
above, or
- there is a complete liquidation or dissolution of Medical Manager.
In the event of a termination as described above, his options will be
treated in the manner described in the following paragraph.
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<PAGE> 186
In the event of termination of Mr. Holstein's employment agreement by
Medical Manager without cause or by Mr. Holstein for cause, the options held by
Mr. Holstein will remain outstanding and continue to vest as though Mr. Holstein
remained in the employ of Medical Manager through the earlier of the second
anniversary of the date of termination and the occurrence of a circumstance or
event that would constitute cause. In the event of termination of Mr. Holstein's
employment agreement by Mr. Holstein due to a change in control or as a result
of Mr. Holstein's death or permanent disability, the options will remain
outstanding and continue to vest as though Mr. Holstein remained in the employ
of Medical Manager through the earlier of:
- the later of November 6, 2002 and the last date on which the options
actually vest
- the occurrence of a circumstance or event that would constitute cause,
Mr. Holstein's employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and non-competition obligations
which apply for a specified period of time following termination of employment.
All obligations of Medical Manager may be assigned to any of its affiliates
without the consent of Mr. Holstein.
Cohan employment agreement
Medical Manager entered into an employment agreement with Richard S. Cohan
as of May 26, 1998. Mr. Cohan's employment agreement provides for an employment
term of five years, subject to renewal on a yearly basis. Mr. Cohan's base
salary is $175,000, which may be increased by the board of directors of Medical
Manager in it sole discretion. Mr. Cohan's employment agreement provides that
his responsibilities will be determined by the Chairman of the Board of
Directors and the Chief Executive Officer of Medical Manager from time-to-time.
If his employment is terminated:
- by Medical Manager for "cause," which is substantially similar to the
definition contained in the Margulies
- employment agreement, or
- due to the resignation of Mr. Cohan,
Medical Manager will have no obligation to Mr. Cohan other than the payment of
his earned and unpaid compensation to the effective date of termination.
If his employment is terminated:
- by Medical Manager as a result of Mr. Cohan's permanent disability, or
- as a result of Mr. Cohan's death,
Medical Manager will have no obligation to Mr. Cohan other than the payment of
his earned and unpaid compensation to the effective date of termination and his
option to purchase 190,000 shares of Medical Manager's common stock will remain
outstanding and continue to vest as if he remained in the employ of Medical
Manager until October 9, 2003.
If his employment is terminated:
- by Medical Manager without cause, or
- by Mr. Cohan for cause,
Medical Manager will have the following obligations:
- to pay Mr. Cohan his earned and unpaid compensation to the effective date
of termination and a monthly severance payment equal to one-twelfth of
his then applicable base salary, less required deductions, for a period
ending one year from the date of termination or until the occurrence of a
circumstance or event that would constitute cause
- with respect to his option to purchase 190,000 shares of Medical
Manager's common stock, it will remain outstanding and continue to vest
as if Mr. Cohan remained in the employ of Medical Manager through the
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<PAGE> 187
earlier of the first anniversary of the date of termination or the
occurrence of a circumstance or event that would constitute cause.
Mr. Cohan's employment agreement contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition obligations which
apply for a specified period of time following termination of employment. All
obligations of Medical Manager may be assigned to any of its affiliates without
the consent of Mr. Cohan.
Dieterle employment agreement
CareInsite entered into an employment agreement with Robert C. Dieterle as
of June 11, 1999. Mr. Dieterle's employment agreement provides for an employment
period of five years, subject to monthly renewal thereafter. Mr. Dieterle's base
salary is $190,000, which may be increased by the board of directors of
CareInsite in its sole discretion. Mr. Dieterle's employment agreement fixes Mr.
Dieterle's title initially as Chief Operating Officer of CareInsite. CareInsite
has made non-recourse loans to Mr. Dieterle in the aggregate principal amount of
$380,000 which is evidenced by a promissory note and is collateralized by a
first lien on Mr. Dieterle's options to purchase either CareInsite or Medical
Manager common stock.
If his employment is terminated:
- by CareInsite for "cause," which is generally defined as a breach of any
material provision of the employment agreement, willful misconduct
relating to CareInsite or its affiliates, failure to perform his duties
in any material respect, a breach by him of a material company policy or
his conviction of a felony or a crime involving moral turpitude
- due to the resignation of Mr. Dieterle without "good reason," as defined
below
- by CareInsite as a result of Mr. Dieterle's permanent disability, or
- as a result of Mr. Dieterle's death,
CareInsite will have no obligation to Mr. Dieterle other than the payment of his
earned and unpaid compensation to the effective date of termination.
If Mr. Dieterle's employment is terminated by CareInsite without cause,
including CareInsite's nonrenewal of the employment agreement, he will be
entitled to the following benefits from CareInsite:
- payment of his earned and unpaid compensation to the effective date of
termination
- continuation of his base salary, at the rate in effect at the time of
termination, commencing on the date of termination and ending on the
first anniversary of the date of termination
- with respect to stock options, as specified below.
In the event Mr. Dieterle resigns for good reason he will receive the same
severance benefits as if his employment had been terminated by CareInsite
without cause. "Good reason" is defined as a material demotion of Mr. Dieterle's
position as set forth in the employment agreement.
Pursuant to the employment agreement, Mr. Dieterle was granted an option to
purchase 160,000 shares of CareInsite common stock. The option vests 40% on the
30th month from the date of grant and an additional 20% on the 42nd, 54th, and
66th month from the date of grant. Mr. Dieterle was also granted an option to
purchase 80,000 shares of Medical Manager common stock. This option vests in
five equal installments commencing on the first anniversary of the date of
grant. In the event of the termination of Mr. Dieterle's employment agreement by
CareInsite without cause, including CareInsite's nonrenewal of the employment
agreement, or by Mr. Dieterle for good reason, 20% of the option, or, if the
termination occurs more than 12 but less than 30 months from the date of grant
of the option, 40% of the option, to purchase shares of CareInsite common stock
and 20% of the option to
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purchase shares of Medical Manager common stock will remain outstanding and
continue to vest as if Mr. Dieterle remained in the employ of CareInsite through
the earlier of:
- the next vesting date of the option
- any breach by Mr. Dieterle of any provision of the employment agreement.
Mr. Dieterle's employment agreement contains confidentiality obligations
that survive indefinitely and non-solicitation and non-competition obligations
which apply for a specified period of time following termination of employment.
All obligations of CareInsite may be assigned to any of its affiliates without
the consent of Mr. Dieterle.
Zatz employment agreement
CareInsite entered into an employment agreement with Steven L. Zatz as of
June 11, 1999. Mr. Zatz's employment agreement provides for an employment period
of five years, subject to monthly renewal thereafter. Mr. Zatz's base salary is
$175,000, which may be increased by the board of directors of CareInsite in its
sole discretion. Mr. Zatz's employment agreement fixes Mr. Zatz's title
initially as Senior Vice President of CareInsite.
The employment agreement provides that CareInsite will provide Mr. Zatz
with an allowance for temporary housing in the Elmwood Park, New Jersey area for
a period commencing on the effective date of the employment agreement and ending
on the earlier of:
- the relocation of his residence to the Elmwood Park, New Jersey area
- the 18 month anniversary of the employment agreement.
CareInsite will pay up to $50,000 in expenses related to Mr. Zatz's relocation.
If his employment is terminated:
- by CareInsite for "cause," which is substantially similar to the
definition contained in the Dieterle employment agreement
- due to the resignation of Mr. Zatz without "good reason," as defined
below
- by CareInsite as a result of Mr. Zatz's permanent disability, or
- as a result of Mr. Zatz's death,
CareInsite will have no obligation to Mr. Zatz other than the payment of his
earned and unpaid compensation to the effective date of termination.
If Mr. Zatz's employment is terminated by CareInsite without cause,
including a failure by CareInsite to renew this employment agreement, he will be
entitled to the following benefits from CareInsite:
- payment of his earned and unpaid compensation to the effective date of
termination
- continuation of his base salary, at the rate in effect at the time of
termination, commencing on the date of termination and ending on the six
month anniversary of the date of termination, which in CareInsite's sole
discretion may be extend for up to an additional six months, in which
case the non-solicitation and non-competition period will also be
extended
- with respect to stock options, as specified below.
In the event Mr. Zatz resigns for good reason, he will receive the same
severance benefits as if his employment had been terminated by CareInsite
without cause. "Good reason" is defined as a material reduction in Mr. Zatz's
title or responsibilities, a relocation of his principal place of work more than
30 miles from the Elmwood Park, New Jersey area or the New York metropolitan
area or any material breach by CareInsite of the employment agreement.
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Pursuant to the employment agreement, Mr. Zatz was granted an option to
purchase 160,000 shares of CareInsite common stock. The option vests 40% on the
30th month from the date of grant and an additional 20% on the 42nd, 54th, and
66th month from the date of grant.
In the event of termination of Mr. Zatz's employment agreement by
CareInsite without cause, including a nonrenewal of the employment agreement by
CareInsite, or by Mr. Zatz for good reason, 20% of the option, or, if such
termination occurs more than 12 but less than 30 months from the date of grant
of the option, 40% of the option, will remain outstanding and continue to vest
as if Mr. Zatz remained in the employ of CareInsite through the earlier of:
- the next vesting date of the option
- any breach by Mr. Zatz of any provision of the employment agreement.
Mr. Zatz's employment agreement contains confidentiality obligations that
survive indefinitely and non-solicitation and non-competition obligations which
apply for a certain period of time following termination of employment. All
obligations of CareInsite may be assigned to any of its affiliates without the
consent of Mr. Zatz.
COMPENSATION OF DIRECTORS
Directors who are employees of CareInsite or Medical Manager do not receive
additional compensation for serving as directors of CareInsite. A director who
is not an employee of either CareInsite or Medical Manager will receive a grant
of an option to purchase 10,000 shares of CareInsite's common stock on his
initial election or appointment to the board or, with respect to initial grants,
on the date the board approved the CareInsite, Inc. 1999 Director Stock Option
Plan, and thereafter an annual grant of options to purchase 10,000 shares of
CareInsite's common stock. These grants will be made pursuant to the CareInsite,
Inc. 1999 Director Stock Option Plan, which is being submitted to CareInsite's
stockholders for approval at the CareInsite special meeting. Non-employee
directors received a pro-rata payment of approximately $9,200 for services
rendered from their election date of July 23, 1999 through November 12, 1999,
the date the CareInsite, Inc. 1999 Director Stock Option Plan was approved. On
November 12, 1999, each non-employee director received the option grant
described above.
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SHARE OWNERSHIP BY CAREINSITE'S PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS
SHARE OWNERSHIP BY CAREINSITE'S PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of May 31, 2000,
except as otherwise indicated, concerning the beneficial ownership of
CareInsite's common stock by each person, not an officer or director of
CareInsite, known by CareInsite to own more than 5% of its common stock.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------------------------ -------------- ----------
<S> <C> <C>
Medical Manager Corporation................................. 50,945,572 67.38%
669 River Drive, Center 2
Elmwood Park, NJ 07407
Cerner Investment Corp.(2).................................. 13,956,015(3) 18.26%
2800 Rockcreek Parkway, Suite 701
Kansas City, MO 64117
</TABLE>
---------------
(1) The number of shares of CareInsite's common stock deemed outstanding
includes 75,605,837 shares of common stock outstanding as of May 31, 2000
and the number of shares, if any, of CareInsite's common stock that the
respective persons named in the above table have the right to acquire
presently or within 60 days of May 31, 2000 upon exercise of warrants.
(2) As of May 31, 2000, Cerner Investment Corp., a wholly owned subsidiary of
Cerner Corporation, was the record owner of the shares of CareInsite's
common stock.
(3) Includes a warrant to purchase up to 806,756 shares of common stock at $4.00
per share within 60 days of May 31, 2000.
SHARE OWNERSHIP BY CAREINSITE'S DIRECTORS AND OFFICERS
The following table sets forth certain information as of May 31, 2000,
unless otherwise noted, concerning the ownership of CareInsite's and Medical
Manager's common stock by each of CareInsite's directors, each of the CareInsite
named executive officers, and all directors and executive officers of CareInsite
as a group.
<TABLE>
<CAPTION>
CAREINSITE MEDICAL MANAGER
--------------------------------- ---------------------------------------
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY PERCENT STOCK BENEFICIALLY PERCENT
NAME OWNED(1) OF CLASS(2) OWNED(1)(3) OF CLASS(4)
---- ------------------ ----------- -------------------- -----------
<S> <C> <C> <C> <C>
Mark J. Adler, MD....................... 15,000(5) * 1,000(5) *
Richard S. Cohan........................ 7,000 * 38,000 *
Robert C. Dieterle...................... 20,000 * -- *
Roger C. Holstein....................... 10,000 * 259,497 *
James R. Love........................... 18,000(6) * 105,000 *
James V. Manning........................ 22,500 * 333,298(7) *
David M. Margulies...................... 18,000 * 138,009(8) *
Charles A. Mele......................... 10,000 * 401,718(9) *
Larry Rader............................. 22,500(10) * -- *
Marvin P. Rich.......................... -- * -- --
Michael A. Singer....................... 15,000(11) * 3,811,250(11) 9.32%
Joseph E. Smith......................... 22,500 * -- *
Paul C. Suthern......................... 22,500 * 417,097(7)(12) 1.01%
Martin J. Wygod......................... 38,000(13) * 5,467,799(7)(8)(13) 13.38%
Steven L. Zatz.......................... 500 * -- *
Directors and executive officers as a
group (16 persons).................... 241,900 * 11,027,668 25.17%
</TABLE>
------------------
* Less than 1%.
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<PAGE> 191
(1) The persons named in the above table have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by
them, unless otherwise indicated in the following footnotes.
(2) The number of shares of CareInsite's common stock deemed outstanding
includes 75,605,837 shares of CareInsite's common stock outstanding as of
May 31, 2000. As of May 31, 2000, none of the stock options granted to the
respective persons named in the above table is exercisable within 60 days.
(3) Includes the following number of shares of Medical Manager's common stock
that the following persons have the right to acquire presently or within 60
days of May 31, 2000 upon exercise of stock options:
- Mr. Cohan, 38,000
- Mr. Holstein, 258,000
- Mr. Love, 105,000
- Mr. Manning, 150,000
- Mr. Margulies, 109,092
- Mr. Mele, 181,000
- Mr. Suthern, 377,600
- Mr. Wygod, 116,000
- all directors and executive officers as a group, 1,389,692.
Includes 334 shares of Medical Manager's common stock allocated to the
account of Mr. Mele and 189 shares of Medical Manager's common stock
allocated to the account of Mr. Holstein under the Porex Technologies Corp.
401(k) plan, a tax qualified retirement plan sponsored by a subsidiary of
Medical Manager, as of January 31, 2000.
(4) The number of shares of Medical Manager's common stock deemed outstanding
includes:
- 40,749,623 of Medical Manager's common stock outstanding as of May 31,
2000
- the number of shares, if any, of Medical Manager's common stock that
the respective persons named in the above table have the right to
acquire presently or within 60 days of May 31, 2000 upon exercise of
stock options.
(5) All shares are owned by the Adler Family Trust.
(6) Includes the shares held in an investment retirement account of his spouse.
(7) Includes 28,499 shares of Medical Manager's common stock owned by Synetic
Foundation Inc., a charitable foundation of which Messrs. Manning, Suthern
and Wygod are trustees and share voting and dispositive power.
(8) On May 15, 2000, Dr. Margulies transferred options to purchase 109,086
shares of Medical Manager's common stock to several trusts for the benefit
of his family members.
(9) Includes 192,794 shares of Medical Manager's common stock owned by the Rose
Foundation, a private charitable foundation of which Messrs. Wygod and Mele
are trustees and share voting and dispositive power.
(10) All 22,500 shares of CareInsite's common stock are owned by Mr. Rader's
spouse. Mr. Rader disclaims beneficial ownership of these shares.
(11) All 15,000 shares of CareInsite's common stock are owned by MDDS
Partnership Ltd., the general partner of which is controlled by Mr. Singer
and the limited partners of which are Mr. Singer and certain of his family
members. MDDS also owns 12,500 shares of common stock in Medical Manager.
The remaining 3,668,750 shares of common stock of Medical Manager are owned
by MAS 1997 Family Limited Partnership, the general partner of which is a
company controlled by Mr. Singer, and the sole limited partner
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<PAGE> 192
of which is Mr. Singer. Mr. Singer is an indirect beneficial owner of these
shares and they are included in the total of 3,811,250 shares listed as
beneficially owned by Mr. Singer.
(12) Includes 1,200 shares of Medical Manager's common stock held in custodial
accounts for Mr. Suthern's children.
(13) Includes 2,000 shares of CareInsite's common stock beneficially owned by
Mr. Wygod's spouse, in a trust for Mr. Wygod's stepson, as to which shares
Mr. Wygod disclaims beneficial ownership. Includes 2,000 shares of Medical
Manager's common stock beneficially owned by Mr. Wygod's spouse, as to
which shares Mr. Wygod disclaims beneficial ownership. Also includes
4,872,975 shares of Medical Manager common stock for which SN Investors,
the general partner of which is controlled by Mr. Wygod, is the record and
beneficial owner. Mr. Wygod is an indirect beneficial owner of these shares
and they are included in the total of 5,459,799 shares listed as
beneficially owned by Mr. Wygod.
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<PAGE> 193
LEGAL OPINIONS
The validity of the shares of Healtheon/WebMD common stock offered by this
proxy statement/prospectus and the federal income tax consequences of the
mergers will be passed upon for Healtheon/WebMD by Alston & Bird LLP.
Certain legal matters in connection with the federal income tax
consequences of the Medical Manager merger will be passed upon for Medical
Manager by Shearman & Sterling. Shearman & Sterling is a limited partner in SN
Investors. For information regarding the beneficial ownership of Medical Manager
common stock by SN Investors, see "Share ownership by Medical Manager's
principal stockholders, management and directors -- Principal stockholders of
Medical Manager" on page 164.
Certain legal matters in connection with the federal income tax
consequences of the CareInsite merger will be passed upon for CareInsite by
Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements of Healtheon/WebMD Corporation
incorporated by reference from Healtheon/WebMD Corporation's annual report on
Form 10-K for the year ended December 31, 1999 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Provider Technology Group (a
division of Blue Cross and Blue Shield of Massachusetts) incorporated by
reference from CareInsite, Inc.'s Form 8-K/A, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of ENVOY Corporation and subsidiaries
as of December 31, 1998 and for the two years in the period ended December 31,
1998, appearing in this proxy statement/prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein which, as to the year ended
December 31, 1997, is based in part on the reports of other auditors. The
financial statements referred to above are included in reliance upon such
reports given on the authority of such firms as experts in accounting and
auditing.
The consolidated financial statements of Medical Manager Corporation,
formerly known as Synetic, Inc., as of June 30, 1999 and 1998 and for each of
the three years in the period ended June 30, 1999, the consolidated financial
statements of CareInsite, Inc. as of June 30, 1999 and 1998 and for each of the
two years in the period ended June 30, 1999 and for the period from inception
(December 24, 1996) through June 30, 1997, the consolidated financial statements
of The KippGroup as of December 31, 1998 and 1997 and for each of the two years
in the period ended December 31, 1998, the consolidated financial statements of
Physician Computer Network, Inc. as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999, the consolidated
financial statements of ENVOY Corporation as of December 31, 1999 and for the
year then ended, the financial statements for Professional Office Services, Inc.
as of December 31, 1997 and for the year then ended, and the financial
statements of XpiData, Inc. as of December 31, 1997 and for the year then ended,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated or
included herein in reliance upon the reports of said firm and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Point Plastics, Inc. and
subsidiaries that are incorporated herein by reference have been audited by
Linkenheimer LLP independent public accountants, indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
report of said firm and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of The Health Information Network Connection, LLC
that are incorporated herein by reference have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing.
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ADDITIONAL MATTERS FOR CONSIDERATION BY
ONLY HEALTHEON/WEBMD STOCKHOLDERS
PROPOSAL 3 -- ELECTION OF DIRECTORS
The board of directors of Healtheon/WebMD is divided into three classes,
with each class currently consisting of three directors whose terms expire at
successive annual meetings. Three directors will be elected at the annual
meeting to serve for a three-year term expiring at Healtheon/WebMD's annual
meeting in 2003 and until their successor is elected and has qualified or until
their earlier resignation or removal.
The nominees for election at the annual meeting are U. Bertram Ellis, Jr.,
Dennis B. Gillings and Charles G.V. Stevens. The terms of Healtheon/WebMD's
other directors will continue after the annual meeting. The terms of L. John
Doerr, Eric J. Gleacher and William P. Payne will expire at Healtheon/WebMD's
annual meeting in 2001 and the terms of W. Michael Long, Jeffrey T. Arnold and
James H. Clark will expire at Healtheon/WebMD's annual meeting in 2002. For
biographical information about each of these persons, see "Information Regarding
Healtheon/WebMD -- Healtheon/WebMD's management" on page 139.
The persons named in the enclosed proxy intend to vote for the election of
each of the three nominees, unless you indicate on the proxy card that your vote
should be withheld for any or all of the nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THESE
NOMINEES AS DIRECTORS.
Healtheon/WebMD has inquired of each nominee and has determined that each
will serve if elected. While the board of directors does not anticipate that any
of the nominees will be unable to serve, if any nominee is not able to serve
proxies will be voted for substitute nominees unless the board of directors
chooses to reduce the number of directors serving on the board.
PROPOSAL 4 -- ADOPTION OF AMENDMENT TO HEALTHEON/WEBMD'S CERTIFICATE OF
INCORPORATION
Healtheon/WebMD's board of directors has determined that is in the best
interests of Healtheon/WebMD to amend Healtheon/WebMD's certificate to change
the corporate name of Healtheon/WebMD to WebMD Corporation.
If the amendment to the certificate of incorporation is adopted,
Healtheon/WebMD stockholders will not be required to exchange outstanding stock
certificates for Healtheon/WebMD common stock or preferred stock for new WebMD
Corporation stock certificates.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT
TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL 5 -- ADOPTION OF HEALTHEON/WEBMD'S 2000 LONG-TERM INCENTIVE PLAN
Stockholders are being asked to approve Healtheon/WebMD's 2000 long-term
incentive plan. The board believes that adopting the 2000 long-term incentive
plan is in the best interests of Healtheon/WebMD because it will permit
Healtheon/WebMD to attract and retain employees by providing them with
appropriate equity incentives. The plan plays an important role in
Healtheon/WebMD's efforts to attract and retain employees of outstanding
ability.
On July 28, 2000, Healtheon/WebMD's board of directors adopted the 2000
long-term incentive plan. Healtheon/WebMD currently maintains the 1996 stock
plan for awards of options and restricted stock to its employees. As of June 30,
2000, there were 3,144,317 shares available for grant under that 1996 plan. If
the stockholders approve the 2000 plan, further awards will be granted under the
1996 plan until such time as no shares are available for grant under this plan.
Healtheon/WebMD will not, however, increase the number of shares available for
issuance pursuant to the annual increase provision. The 1996 plan will be
terminated as of the last day that an award granted thereunder has vested,
expired, lapsed or been exercised or forfeited.
Healtheon/WebMD has reserved 5,000,000 shares of the authorized but
unissued shares of its common stock for issuance under the 2000 plan, which
number of shares will be increased to 10,000,000 if the Medical Manager
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<PAGE> 195
merger and the CareInsite merger are completed on or prior to December 31, 2000.
The following summary is qualified by reference to the full text of the
2000 plan, which is included as Annex G to this proxy statement/prospectus.
SUMMARY OF THE 2000 LONG-TERM INCENTIVE PLAN
General. The purpose of the 2000 plan is to promote Healtheon/WebMD's
success by linking the personal interests of its employees, officers, directors
and consultants to those of its stockholders, and by providing participants with
an incentive for outstanding performance. As of June 30, 2000, there were
approximately 3,300 people eligible to participate in the 2000 plan.
The 2000 plan authorizes the granting of awards in any of the following
forms:
- options to purchase shares of Healtheon/WebMD's common stock, which may
be incentive stock options or non-qualified stock options
- stock appreciation rights
- performance shares
- restricted stock
- dividend equivalents
- other stock-based awards
- any other right or interest relating to Healtheon/WebMD's common stock,
or
- cash.
Not more than 10% of the shares authorized under the 2000 plan may be
granted as awards of restricted stock or unrestricted stock awards. The maximum
number of shares of Healtheon/WebMD's common stock with respect to one or more
options, stock appreciation rights or combinations of options and stock
appreciation rights that may be granted during any one calendar year under the
2000 plan to any one person is 2,000,000, except that that limit may be
increased by 2,000,000 for awards made in connection with a person's initial
hiring. The maximum fair market value of any awards, other than options and
stock appreciation rights, that may be received by a participant, less any
consideration paid by the participant for such award, during any one calendar
year under the 2000 plan is $5,000,000.
The 2000 plan is administered by the compensation committee of
Healtheon/WebMD's board of directors. The committee has the authority to:
- designate participants
- determine the type or types of awards to be granted to each participant
and the number, terms and conditions of award
- establish, adopt or revise any rules and regulations as it may deem
advisable to administer the 2000 plan
- make all other decisions and determinations that may be required under
the 2000 plan.
In the event that the stockholders of Healtheon/WebMD approve the proposal
to amend Healtheon/WebMD's certificate of incorporation to change
Healtheon/WebMD's corporate name to WebMD Corporation, the name of the 2000 plan
will automatically be changed from the Healtheon/WebMD Corporation 2000
long-term incentive plan to the WebMD Corporation 2000 long-term incentive plan
at the time the change of Healtheon/WebMD's name becomes effective.
Stock options. The committee is authorized under the 2000 plan to grant
options, which may be incentive stock options or non-qualified stock options.
All options will be evidenced by a written award agreement between us and the
participant, which will include any provisions specified by the committee. The
terms of an incentive stock option must meet the requirements of Section 422 of
the tax code.
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Stock appreciation rights. The committee may also grant stock appreciation
rights. Upon the exercise of a stock appreciation right, the holder has the
right to receive the excess, if any, of the fair market value of one share of
Healtheon/WebMD's common stock on the date of exercise, over the grant price of
the stock appreciation right as determined by the committee, which will not be
less than the fair market value of one share of Healtheon/WebMD's common stock
on the date of grant. All awards of stock appreciation rights will be evidenced
by an award agreement reflecting the terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other terms and
conditions of the stock appreciation right, as determined by the committee at
the time of grant.
Performance shares. The committee may grant performance shares to
participants on terms and conditions as may be selected by the committee. The
committee will have the complete discretion to determine the number of
performance shares granted to each participant and to set performance goals and
other terms or conditions to payment of the performance shares in its discretion
which, depending on the extent to which they are met, will determine the number
and value of performance shares that will be paid to the participant.
Restricted stock awards. The committee may make awards of restricted stock
to participants, which will be subject to restrictions on transferability and
other restrictions as the committee may impose, including, without limitation,
limitations on the right to vote restricted stock or the right to receive
dividends, if any, on the restricted stock.
Dividend equivalents. The committee is authorized to grant dividend
equivalents to participants subject to terms and conditions as may be selected
by the committee. Dividend equivalents entitle the participant to receive
payments equal to dividends with respect to all or a portion of the number of
shares of Healtheon/WebMD's common stock subject to an award.
Annual awards to non-employee directors. The 2000 plan provides for an
automatic grant on January 1 of each year of options to purchase 20,000 shares
to each member of the board of directors on that date who is not an employee of
Healtheon/WebMD. These options will have an exercise price equal to the fair
market value of Healtheon/WebMD's common stock on the date of grant and will
vest as to 25% on the first anniversary of the date of grant and monthly
thereafter for a period of three years. These options will expire, to the extent
not previously exercised, ten years after the date of grant.
Other stock-based awards. The committee may, subject to limitations under
applicable law, grant other awards that are payable in or valued relative to
shares of Healtheon/WebMD's common stock as deemed by the committee to be
consistent with the purposes of the 2000 plan, including without limitation
shares of common stock awarded purely as a bonus and not subject to any
restrictions or conditions. The committee will determine the terms and
conditions of any other stock-based awards.
Performance goals. In order to preserve full deductibility under Section
162(m) of the tax code, the committee may determine that any award will be
determined solely on the basis of:
- the achievement by Healtheon/WebMD or a parent or subsidiary of
Healtheon/WebMD of a specified target return, or target growth in return,
on equity or assets
- total stockholder return, described as Healtheon/WebMD's stock price
appreciation plus reinvested dividends, relative to a defined comparison
group or target over a specific performance period
- Healtheon/WebMD's stock price
- the achievement by an individual, Healtheon/WebMD or a business unit,
parent or subsidiary of Healtheon/WebMD, of a specified target, or target
growth in, revenues, net income, earnings per share, EBIT or EBITDA, or
- any combination of the above.
If an award is made on this basis, the committee must establish goals prior
to the beginning of the period for which the performance goal relates, or by a
later date as may be permitted under applicable tax regulations, and the
committee may for any reason reduce, but not increase, any award,
notwithstanding the achievement of a specified goal. Any payment of an award
granted with performance goals will be conditioned on the written
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<PAGE> 197
certification of the committee in each case that the performance goals and any
other material conditions were satisfied.
Limitations on transfer and beneficiaries. No award under the 2000 plan is
assignable or transferable other than by will or the laws of descent and
distribution or, except in the case of an incentive stock option, pursuant to a
qualified domestic relations order. However, the committee may permit other
transfers if it deems appropriate.
Acceleration upon certain events. Upon the participant's death or
disability, all outstanding options, stock appreciation rights, and other awards
in the nature of rights that may be exercised will become fully exercisable and
all restrictions on outstanding awards will lapse. Any options or stock
appreciation rights will thereafter continue or lapse in accordance with the
other provisions of the 2000 plan and the award agreement. In addition, the
committee may at any time in its discretion declare any or all awards to be
fully or partially vested and exercisable. The committee may discriminate among
participants or among awards in exercising such discretion.
Termination and amendment. The committee may at any time amend or
terminate the plan without stockholder approval, but it may condition any
amendment on the approval of Healtheon/WebMD's stockholders if such approval is
necessary or advisable under tax, securities or other applicable laws, policies
or regulations. The committee may amend or terminate any outstanding award
without approval of the participant, but an amendment or termination may not,
without the participant's consent, reduce or diminish the value of the award
determined as if it had been exercised, vested, cashed in or otherwise settled
on the date of the amendment or termination, but the original term of any option
may not be extended.
FEDERAL INCOME TAX INFORMATION
The following discussion is a summary of the federal income tax provisions
relating to the grant and exercise of awards under the 2000 plan and the
subsequent sale of common stock acquired under the 2000 plan. The tax effect of
exercising awards may vary depending upon the particular circumstances, and the
income tax laws and regulations change frequently.
Nonqualified stock options. There will be no federal income tax
consequences to a participant or to Healtheon/WebMD upon the grant of a
nonqualified stock option. When the participant exercises a nonqualified option,
however, he will realize ordinary income in an amount equal to the excess of the
fair market value of the option shares that he receives upon exercise of the
option at the time of exercise over the exercise price, and we will be allowed a
corresponding deduction, subject to limitations under Section 162(m) of the tax
code. Any gain that a participant realized when the participant later sells or
disposes of the option shares will be short-term or long-term capital gain,
depending on how long the participant held the shares.
Incentive stock options. There typically will be no federal income tax
consequences to a participant or to us upon the grant or exercise of an
incentive stock option. If the participant holds the option shares for the
required holding period of at least two years after the date the option was
granted or one year after exercise of the option, the difference between the
exercise price and the amount realized upon sale or disposition of the option
shares will be long-term capital gain or loss, and Healtheon/WebMD will not be
entitled to a federal income tax deduction. If the participant disposes of the
option shares in a sale, exchange, or other disqualifying disposition before the
required holding period ends, he will realize taxable ordinary income in an
amount equal to the excess of the fair market value of the option shares at the
time of exercise over the exercise price, and Healtheon/WebMD will be allowed a
federal income tax deduction equal to such amount, subject to certain
limitations under Section 162(m) of the tax code.
While the exercise of an incentive stock option does not result in current
taxable income, the excess of the fair market value of the option shares at the
time of exercise over the exercise price will be an item of adjustment for
purposes of determining the participant's alternative minimum tax income.
Stock appreciation rights. The participant will not recognize income, and
Healtheon/WebMD will not be allowed a tax deduction, at the time a stock
appreciation right is granted. When the participant exercises the stock
appreciation right, the amount of cash and the fair market value of any shares
of common stock received will be ordinary income, and Healtheon/WebMD will be
allowed a federal income tax deduction equal to such amount, subject to certain
limitations under Section 162(m) of the tax code.
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Restricted stock. Unless a participant makes an election to accelerate
recognition of the income to the date of grant as described below, the
participant will not recognize income, and Healtheon/WebMD will not be allowed a
tax deduction, at the time a restricted stock award is granted. When the
restrictions lapse, the participant will recognize ordinary income equal to the
fair market value of the common stock as of that date, less any amount he paid
for the stock, and Healtheon/WebMD will be allowed a corresponding tax deduction
at that time, subject to certain limitations under Section 162(m) of the tax
code.
If the participant files an election under Section 83(b) of the tax code
within 30 days after the date of grant of the restricted stock, he will
recognize ordinary income as of the date of grant equal to the fair market value
of the stock as of that date, less any amount a participant paid for the stock,
and Healtheon/WebMD will be allowed a corresponding tax deduction at that time,
subject to specified limitations under Section 162(m) of the tax code. Any
future appreciation in the stock will be taxable to the participant at capital
gains rates. However, if the stock is later forfeited, he will not be able to
recover the tax previously paid pursuant to his Section 83(b) election.
Performance shares. A participant will not recognize income, and
Healtheon/WebMD will not be allowed a tax deduction, at the time performance
shares are granted. When the participant receives payment under the performance
shares, the amount of cash and the fair market value of any shares of stock
received will be ordinary income to the participant, and Healtheon/WebMD will be
allowed a corresponding tax deduction at that time, subject to specified
limitations under Section 162(m) of the tax code.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
No awards have been granted or approved for grant under the 2000 plan. The
compensation committee currently is considering, and is expected to approve, the
following grants:
- to each of W. Michael Long, Healtheon/WebMD's Chairman of the Board of
Directors, and Jeffrey T. Arnold, Healtheon/WebMD's Chief Executive
Officer, options to purchase 1,500,000 shares of common stock at an
exercise price per share equal to the greater of $16.0625 and the fair
market value of a share of Healtheon/WebMD common stock on the date of
grant
- to Pavan Nigam, Healtheon/WebMD's Executive Vice President, Chief
Technology Officer, options to purchase 500,000 shares of common stock at
an exercise price per share equal to the fair market value of a share of
Healtheon/WebMD common stock on the date of grant
The dollar value of the options is dependent on the difference between the
exercise price and the fair market value of the underlying shares on the date of
exercise. The closing price per share of Healtheon/WebMD's common stock on
August 3, 2000, the last practicable date prior to the printing of this proxy
statement/prospectus, was $12.4375 per share.
Any further awards under the 2000 plan will be made at the discretion of
the committee. Therefore, it is not presently possible to determine benefits or
amounts in addition to those described above that will be received by any
particular person or group pursuant to the 2000 plan.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE 2000 PLAN
The affirmative vote of the holders of a majority of the shares of common
stock present or represented by proxy and entitled to vote at the annual meeting
on this proposal will constitute approval of the 2000 plan. If this approval is
obtained, Healtheon/WebMD will be able to deduct amounts deemed to be paid as
compensation that it would otherwise be prohibited from deducting by Section
162(m) of the tax code. In addition, Healtheon/WebMD will be able to grant
incentive stock options under the 2000 plan if it is approved by the
stockholders. In the event that the 2000 plan is not approved by the
stockholders, Healtheon/WebMD will continue to operate the 2000 plan as
permitted by laws and regulations applicable to Healtheon/WebMD for a plan which
has not been approved by stockholders. In that event, Healtheon/WebMD will not
be able to deduct amounts prohibited by Section 162(m) or the tax code and will
not be able to grant incentive stock options.
HEALTHEON/WEBMD'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF
THE 2000 PLAN.
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PROPOSAL 6 -- ADOPTION OF AMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN
Healtheon/WebMD's board of directors determined that it is in the best
interests of Healtheon/WebMD and its stockholders to amend Healtheon/WebMD's
1998 purchase plan, if the Medical Manager and CareInsite mergers are completed,
to:
- increase the number of shares reserved under the employee stock purchase
plan by 1,000,000 shares
- to change the formula for annually increasing the number of shares
available to be issued under the plan, as described below.
If Healtheon/WebMD's stockholders approve the amendment to the 1998
purchase plan, the total number of shares available to be issued under the plan
will be 1,865,660, plus annual increases on the first day of each fiscal year
equal to the least of:
- 1,500,000 shares
- 0.5% of the outstanding shares on such date, or
- a lesser amount determined by Healtheon/WebMD's board of directors.
As of June 30, 2000, 1,134,340 shares have been issued pursuant to the 1998
purchase plan and 865,660 shares are available for issuance. Healtheon/WebMD's
stockholders are being asked to approve the increase in the number of shares
reserved under the 1998 purchase plan. Healtheon/WebMD's board of directors
believes that the amendment to the 1998 purchase plan is needed to provide
Healtheon/WebMD with greater flexibility to attract and retain employees in the
future, which may include current and future employees of Healtheon/WebMD,
Medical Manager and CareInsite.
Set forth below is a summary of the principal features of the 1998 purchase
plan. Healtheon/WebMD will provide without charge, to each person to whom a
proxy statement/prospectus is delivered, upon request and by first class mail
within three days of receipt of the request, a copy of the employee stock
purchase plan. Any request should be directed as follows: Stock Plan
Administrator, Healtheon/WebMD Corporation, 400 The Lenox Building, 3399
Peachtree Road NE, Atlanta, Georgia 30326; telephone number (404) 495-7600.
SUMMARY OF THE 1998 PURCHASE PLAN
General. Healtheon/WebMD's 1998 purchase plan was adopted by its board of
directors and approved by its stockholders in September 1998. The purpose of the
1998 purchase plan is to provide employees with an opportunity to purchase
Healtheon/WebMD's common stock through payroll deductions.
Administration. The 1998 purchase plan may be administered by the board of
directors or a committee appointed by the board of directors. All questions of
interpretation or application of the employee stock purchase plan are determined
by the board of directors or its appointed committee, and its decisions are
final, conclusive and binding upon all participants.
Eligibility. Each employee of Healtheon/WebMD or its designated
subsidiaries, whose customary employment with Healtheon/WebMD or its designated
subsidiaries is at least 20 hours per week and more than five months in any
calendar year, is eligible to participate in the 1998 purchase plan, except that
no employee shall be granted an option under the 1998 purchase plan:
- to the extent that, immediately after the grant, such employee would own
5% of either the voting power or value of the stock of Healtheon/WebMD or
any of its subsidiaries, or
- to the extent that his or her rights to purchase stock under all employee
stock purchase plans of Healtheon/WebMD or its subsidiaries accrues at a
rate which exceeds $25,000 worth of stock, determined at the fair market
value of the shares at the time such option is granted, for each calendar
year.
- As of June 30, 2000, there were approximately 3,300 people eligible to
participate in the plan.
Offering period. The 1998 purchase plan has consecutive and overlapping
24-month offering periods that begin every six months. Each 24 month offering
period includes four six-month purchase periods, during which
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payroll deductions are accumulated and, at the end of which, shares of common
stock are purchased with a participant's accumulated payroll deductions. The
board of directors has the power to change the duration of future offering
periods, if any change is made at least five days prior to the scheduled
beginning of the first offering period to be affected. Special additional
offering periods also may be created to allow immediate participation in the
plan by individuals who become our employees due to a merger or other
acquisition by Healtheon/WebMD. To participate in the 1998 purchase plan, an
eligible employee must authorize payroll deductions pursuant to the 1998
purchase plan. Payroll deductions may not exceed 15% of a participant's
compensation during the offering period. Once an employee becomes a participant
in the 1998 purchase plan, the employee automatically will participate in each
successive offering period until the employee withdraws from the employee stock
purchase plan or the employee's employment with Healtheon/WebMD and its
designated subsidiaries terminates. At the beginning of each offering period,
each participant automatically is granted an option to purchase shares of
Healtheon/WebMD's common stock. The option expires at the end of the offering
period or upon termination of employment, whichever is earlier, but is exercised
at the end of each purchase period to the extent of the payroll deductions
accumulated during such purchase period.
Purchase price. Shares of Healtheon/WebMD's common stock may be purchased
under the 1998 purchase plan at a purchase price not less than 85% of the lesser
of the fair market value of our common stock on:
- the first day of the offering period, or
- the last day of the purchase period.
The fair market value of Healtheon/WebMD's common stock on any relevant
date will be the closing price per share as reported on the Nasdaq National
Market, or the mean of the closing bid and asked prices, if no sales were
reported, as quoted on such exchange or reported in The Wall Street Journal. The
number of shares of Healtheon/WebMD's common stock a participant purchases in
each offering period is determined by dividing the total amount of payroll
deductions withheld from the participant's compensation prior to the last day of
the purchase period by the purchase price.
Payment of purchase price and payroll deductions. The purchase price of
the shares is accumulated by payroll deductions throughout each purchase period.
The number of shares of our common stock a participant may purchase in each
purchase period during an offering period is determined by dividing the total
amount of payroll deductions withheld from the participant's compensation during
that purchase period by the purchase price; provided, however, that a
participant may not purchase more than 5,000 shares each purchase period. During
the offering period, a participant may discontinue his or her participation in
the 1998 purchase plan, and may decrease or increase the rate of payroll
deductions in an offering period within limits set by the administrator.
All payroll deductions made for a participant are credited to the
participant's account under the employee stock purchase plan, are withheld in
whole percentages only and are included with the general funds of
Healtheon/WebMD. Funds received by Healtheon/WebMD pursuant to exercises under
the 1998 purchase plan are also used for general corporate purposes. A
participant may not make any additional payments into his or her account.
Withdrawal. Generally, a participant may withdraw from an offering period
at any time by written notice without affecting his or her eligibility to
participate in future offering periods. However, once a participant withdraws
from a particular offering period, that participant may not participate again in
the same offering period. To participate in a subsequent offering period, the
participant must deliver to Healtheon/WebMD a new subscription agreement.
Termination of employment. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant to
remain in the continuous scheduled employ of Healtheon/WebMD or its designated
subscribers for at least 20 hours per week, cancels his or her option and
participation in the employee stock purchase plan immediately. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of death, to the person or persons entitled thereto
as provided in the 1998 purchase plan.
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Adjustments upon changes in capitalization, dissolution, liquidation,
merger or asset sale. Subject to any required action by the stockholders of
Healtheon/WebMD, the number of shares reserved under the 1998 purchase plan as
well as the price per share of common stock covered by each option under the
1998 purchase plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of common
stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the common stock, or any other increase or
decrease in the number of shares of common stock effected without receipt of
consideration by Healtheon/WebMD. Any adjustment shall be made by
Healtheon/WebMD's board of directors, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by Healtheon/WebMD of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of common stock subject to an option.
In the event of the proposed dissolution or liquidation of Healtheon/WebMD,
any offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by Healtheon/WebMD's board of
directors.
In the event of any merger, consolidation, acquisition of assets or like
occurrence involving Healtheon/WebMD, each option under the 1998 purchase plan
shall be assumed or an equivalent option shall be substituted by a successor
corporation or a parent or subsidiary of a successor corporation. In the event
the successor corporation refuses to assume or substitute for the options,
Healtheon/WebMD's board of directors shall shorten any purchase periods and
offering periods then in progress by setting a new exercise date and any
offering periods shall end on the new exercise date. The new exercise date shall
be prior to the merger, consolidation or asset sale. If Healtheon/WebMD's board
of directors shortens any purchase periods and offering periods then in
progress, the board shall notify each participant in writing, at least ten
business days prior to the new exercise date, that the exercise date has been
changed to the new exercise date and that the option will be exercised
automatically on the new exercise date, unless the participant has already
withdrawn from the offering period.
Healtheon/WebMD's board of directors may, if it so determines in the
exercise of its sole discretion, also make provision for adjusting the number of
shares reserved under the 1998 purchase plan, as well as the price per share of
common stock covered by each outstanding option, in the event Healtheon/WebMD
effects one or more reorganizations, recapitalization, rights offerings or other
increases or reductions of shares of its outstanding common stock, and in the
event of Healtheon/WebMD being consolidated with or merged into any other
corporation.
Amendment and termination of the plan. Healtheon/WebMD's board of
directors may at any time terminate or amend the 1998 purchase plan. An offering
period may be terminated by the board of directors at the end of any purchase
period if Healtheon/WebMD's board of directors determines that termination of
the 1998 purchase plan is in the best interests of Healtheon/WebMD and its
stockholders. Generally, a termination cannot affect options previously granted.
No amendment shall be effective unless it is approved by the holders of a
majority of the votes cast at a duly held stockholders' meeting, if the
amendment would require stockholder approval in order to comply with Section 423
of the tax code. The 1998 purchase plan will terminate in 2008.
Federal income tax information. The following brief summary of the effect
of federal income taxation upon the participant and Healtheon/WebMD with respect
to the shares purchased under the 1998 purchase plan does not purport to be
complete, and does not discuss the tax consequences of a participant's death or
the income tax laws of any state or foreign country in which the participant may
reside.
The 1998 purchase plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the tax code. Under these provisions, no income will be taxable to a
participant until the shares purchased under the employee stock purchase plan
are sold or otherwise disposed of. Upon sale or other disposition of the shares,
the participant will generally be subject to tax in an amount that depends upon
the holding period. If the shares are sold or otherwise disposed of more than
two years from the first day of the applicable offering period and one year from
the applicable date of purchase, the participant will recognize ordinary income
measured as the lesser of
- the excess of the fair market value of the shares at the time of such
sale or disposition over the purchase price, or
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- an amount equal to 15% of the fair market value of the shares as of the
first day of the applicable offering period.
Any additional gain will be treated as long-term capital gain. If the
shares are sold or otherwise disposed of before the expiration of these holding
periods, the participant will recognize ordinary income generally measured as
the excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. Healtheon/WebMD generally is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding periods described above.
HEALTHEON/WEBMD'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE AMENDMENT TO THE 1998 PURCHASE PLAN.
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ADDITIONAL MATTERS FOR CONSIDERATION BY
ONLY CAREINSITE STOCKHOLDERS
PROPOSAL -- ADOPTION OF CAREINSITE'S 1999 DIRECTOR STOCK OPTION PLAN
The proxy will be voted in accordance with the directions thereon with
respect to this proposal, or if no directions are indicated, FOR adoption of
this proposal.
The CareInsite board has unanimously adopted, subject to stockholder
approval, the CareInsite, Inc. 1999 Director Stock Option Plan. Concurrently
with its adoption by the board, Medical Manager, in its capacity as majority
stockholder of CareInsite, agreed to vote in favor of the director plan.
Stockholder approval of the director plan is recommended by the CareInsite
board. Since adoption of the director plan benefits the directors of CareInsite,
they have an interest in its approval.
The proposal is independent of, and not conditioned upon, the proposal to
approve the CareInsite merger and the CareInsite merger agreement.
As of August 3, 2000, the last practicable date prior to the printing of
this proxy statement/prospectus, the market value of the CareInsite common
stock, based upon the last sales price as reported on the Nasdaq National
Market, was $15.4375 per share.
RECOMMENDATION OF THE CAREINSITE BOARD CONCERNING THE APPROVAL OF THE DIRECTOR
PLAN
The affirmative vote of the holders of a majority of the shares of common
stock present or represented at the CareInsite special meeting and entitled to
vote is required for approval of the director plan. The CareInsite board
recommends that the stockholders vote FOR the adoption of the proposed director
plan so that, among other things, CareInsite may continue to use options as a
method of attracting, motivating and retaining highly qualified directors in a
competitive environment.
DESCRIPTION OF THE DIRECTOR PLAN
The purpose of the director plan is to provide incentives that will
attract, motivate and retain highly competent persons as non-employee directors
by providing them with opportunities to acquire a proprietary interest in
CareInsite. The director plan provides non-employee directors with stock option
grants determined on a non-discretionary basis according to a fixed formula. On
November 12, 1999, the effective date of the director plan, the grants of the
options shown in "New plan benefits" on page 199 were made under the director
plan. In addition, on July 1, 2000, the first day of CareInsite's fiscal year
grants were made in accordance with the director plan and are included in the
table below. It is anticipated that no further grants will be made under the
director plan following the completion of the merger.
The following description of the director plan is qualified by the full
text of the plan, which is set forth as Annex H to this proxy
statement/prospectus.
Under the director plan, the aggregate number of shares of common stock of
CareInsite which may be issued pursuant to options is 500,000 shares, subject to
adjustment in specified circumstances, including mergers, consolidations,
reorganizations, recapitalizations, stock dividends, stock splits, combinations
of shares, exchanges of shares, changes of corporate structure or other similar
transactions. The maximum number of shares of common stock available under the
director plan will be increased by the number of shares of common stock tendered
by the optionee to pay the exercise price of any option and by the number of
shares of common stock tendered by the optionee or withheld by CareInsite to
satisfy an optionee's tax withholding obligations arising upon the exercise of
an option.
The terms and conditions under which options will be granted under the
director plan are set forth in the director plan and described below. The
CareInsite board or any executive officer or officers designated by CareInsite
will have the authority to interpret the provisions of the director plan, to
establish rules and procedures as may be necessary or advisable to administer
the director plan and to make all determinations necessary or advisable for the
administration of the director plan.
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ELIGIBILITY
All non-employee directors of CareInsite are eligible to receive options
under the director plan. CareInsite currently has three non-employee directors
eligible to participate in the director plan.
GRANT OF OPTIONS TO NON-EMPLOYEE DIRECTORS
Subject to obtaining the approval of CareInsite's stockholders, on November
12, 1999, the date on which CareInsite's board approved the director plan and
Medical Manager agreed to vote in favor of the director plan, each non-employee
director was granted an option to purchase 10,000 shares of CareInsite common
stock. On the first day of each fiscal year of CareInsite, each non-employee
director then in office will be automatically granted an option to purchase
10,000 shares of common stock. In addition, each non-employee director whose
initial term commences after the effective date of the director plan will
receive an option to purchase 10,000 shares of common stock at the time the
director is first elected or appointed to the CareInsite board. Options will be
evidenced by a stock option agreement in the form as the CareInsite board or any
executive officer designated by the CareInsite board shall from time to time
determine consistent with the director plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted to non-employee directors become exercisable at a rate of
20% each successive year from the date of grant, but no option will vest prior
to December 15, 2001. On December 15, 2001, the portion that would have become
vested by virtue of the vesting schedule will become vested. The purchase price
of the common stock under each option will be the fair market value of the
common stock on the date of grant. For purposes of the director plan, fair
market value shall mean the last sales price of a share of common stock traded
on the over-the counter market, as reported on the Nasdaq National Market, or
the last closing price, if any, but if no shares of common stock were traded on
that date, then on the last previous date on which a share of common stock was
so traded, or, if none of the above is applicable, the value of a share of
common stock for that date as established by a nationally recognized appraisal
firm or investment bank, using any reasonable method of valuation.
All options expire on the earlier of the fifteenth anniversary of the date
of grant and, subject to some exceptions, the date on which such optionee's
status as a director terminates. If an optionee ceases to be a director of
CareInsite for any reason, the optionee would have one year following
termination to exercise the options to the extent exercisable as of termination.
In the event the status as a director terminates and the director is employed,
or if the director is retained as a consultant by CareInsite or a subsidiary,
and the CareInsite board so determines, then the director's options would remain
outstanding and continue to vest until the termination of the director's status
as an employee or consultant, at which time the director would have 30 days from
the date of termination to exercise the vested portion of his options. If an
optionee dies while a director of CareInsite or within one year following the
date of termination of the optionee's status as a director, the optionee's
personal representatives or heirs would have one year from the date of
optionee's death to exercise his options, to the extent the options were
exercisable as of the date of the optionee's death.
Under the director plan, an option becomes exercisable in full, whether or
not it is then exercisable, upon a change in control unless the applicable stock
option agreement provides otherwise. If CareInsite is merged or consolidated
with another corporation or in the event of a reorganization, separation or
liquidation of CareInsite, the options will be replaced by options to purchase
stock in the successor corporation and the exercise price will be appropriately
adjusted. For purposes of the director plan, a change in control will occur:
- if any person, entity or group, other than Medical Manager and Martin J.
Wygod, acquires at least 50% of the voting power of the voting securities
of CareInsite
- when during any period of 24 consecutive months during the existence of
the director plan, the individuals who, at the beginning of the period
constitute the CareInsite board, these individuals being referred to as
"incumbent directors," cease for any reason other than death to
constitute at least a majority of the CareInsite board
- when the stockholders of CareInsite approve a merger or consolidation of
CareInsite without the consent or approval of a majority of the incumbent
directors, or
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- upon the sale or disposition of all or substantially all of CareInsite's
assets or when CareInsite adopts a plan of complete liquidation.
However, in the event that any of the above-described events is triggered as a
result of a transaction with Medical Manager, the event will not constitute a
change in control for purposes of the director plan.
The consummation of the CareInsite merger will be a change in control for
purposes of the director plan.
The director plan may be terminated and may be modified or amended by the
board at any time; provided, however, that:
- no modification or amendment will be effective without stockholder
approval if approval is required by law or under the rules of Nasdaq or
the stock exchange on which the shares are listed
- no termination, modification or amendment of the director plan will
adversely alter or affect the terms of any then outstanding options
previously granted, without the consent of the holder thereof.
FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTOR PLAN
Under the director plan, an optionee will not recognize taxable income, and
CareInsite will not be entitled to tax deduction, upon the grant of an option.
Upon exercise, an optionee will recognize ordinary income in an amount equal to
the amount by which the fair market value of each share of common stock on the
date of exercise exceeds the option price. The amount so recognized as income
generally will be deductible by CareInsite.
Upon any subsequent sale of shares by an optionee, the optionee's basis in
the shares purchased for determining gain or loss will be the fair market value
on the date of exercise, if the shares were acquired for cash. If the exercise
of the option is made by delivery of shares of common stock in payment of the
option price, the shares delivered are deemed to be exchanged in a tax-free
transaction for the equivalent number of new shares of common stock. The
equivalent number of new shares has the same basis and holding period as the
shares exchanged. The number of shares received in excess of the number of
shares delivered is included in the optionee income at the fair market value
thereof at the time of exercise. If the shares are capital assets in the hands
of an optionee, any gain or loss recognized upon the sale or other disposition
of these shares will be capital gain or loss, either long-term or short-term
depending upon the holding period of the shares, which begins on the date the
optionee recognizes income with respect to the shares, except for the shares
deemed to be received in a tax-free transaction as described above.
NEW PLAN BENEFITS
On November 12, 1999, the effective date of the director plan, and July 1,
2000, CareInsite granted options under the director plan as set forth in the
table below.
<TABLE>
<CAPTION>
NAME AND POSITION DIRECTOR PLAN(1)
----------------- ----------------
<S> <C>
Non-executive director group................................ 70,000
</TABLE>
---------------
(1) Options granted under the director plan are granted automatically to
CareInsite's non-employee directors, as described above.
CAREINSITE'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION AND APPROVAL OF CAREINSITE'S 1999 DIRECTOR STOCK OPTION PLAN.
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STOCKHOLDER PROPOSALS
Proposals of stockholders of Healtheon/WebMD which are intended to be
presented by the stockholders at Healtheon/WebMD's next annual meeting of
stockholders to be held in 2001 must be received by Healtheon/WebMD in a
reasonable time before a solicitation is made, and in any event not later than
December 15, 2000, in order that they may be considered for possible inclusion
in the proxy statement and form of proxy relating to that meeting. In addition,
Healtheon/WebMD's bylaws establish an advance notice procedure with regard to
stockholder proposals not included in Healtheon/WebMD's proxy statement, to be
brought before an annual meeting of stockholders. For nominations or other
business to be properly brought before the meeting by a stockholder, that
stockholder must provide written notice delivered to the secretary of
Healtheon/WebMD at least 60 days and not more than 90 days in advance of the
annual meeting date, which notice must contain specified information concerning
the matters to be brought before the meeting and concerning the stockholder
proposing these matters. All notices of proposals by stockholders, whether or
not included in Healtheon/WebMD's proxy materials, should be sent to: Secretary,
Healtheon/WebMD Corporation, 400 The Lenox Building, 3399 Peachtree Road NE,
Atlanta, Georgia 30326. If a stockholder intends to submit a proposal at the
next annual meeting of stockholders which is not eligible for inclusion in the
proxy statement relating to that meeting, the stockholder must give notice to
Healtheon/WebMD in accordance with the requirements set forth in the Securities
Exchange Act of 1934 no later than March 1, 2001. If a stockholder does not
comply with the foregoing notice provision, the proxy holders will be allowed to
use their discretionary voting authority when and if the proposal is raised at
the next annual meeting of stockholders.
If the mergers are not consummated, Medical Manager and CareInsite will
each hold a 2000 annual meeting of stockholders. If such meetings are held,
stockholder proposals intended to be presented at either such meeting must be
received by Medical Manager or CareInsite, as the case may be, a reasonable time
before the solicitation of proxies for the respective meeting is made for
inclusion in such company's proxy materials for its meeting.
]
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INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows Healtheon/WebMD, Medical Manager and CareInsite to
incorporate by reference the information they file with the SEC, which means
that Healtheon/WebMD, Medical Manager and CareInsite can disclose important
information to you by referring you to documents they have previously filed with
the SEC. The information incorporated by reference is considered a part of this
proxy statement/prospectus, and any later information that they file with the
SEC will automatically update and supersede this information from the date of
filing of these documents.
Healtheon/WebMD, Medical Manager and CareInsite each incorporate by
reference the documents listed below, and any additional documents filed by
either of them with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until their respective meeting. This proxy
statement/prospectus is part of a registration statement on Form S-4 filed by
Healtheon/WebMD with the SEC with respect to the Healtheon/WebMD common stock to
be issued to Medical Manager stockholders in the Medical Manager merger and
CareInsite stockholders in the CareInsite merger. This proxy
statement/prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement are
omitted as provided by the rules and regulations of the SEC. You may obtain a
copy of the registration statement from the SEC as described in "Where You Can
Find More Information" on page 202.
The documents Healtheon/WebMD incorporates by reference are:
- Healtheon/WebMD's annual report on Form 10-K and Form 10-K/A for the
fiscal year ended December 31, 1999
- Healtheon/WebMD's quarterly report on Form 10-Q for the quarter ended
March 31, 2000
- Healtheon/WebMD's current reports on Form 8-K or Form 8-K/A filed January
27, 2000, January 28, 2000, February 8, 2000, February 10, 2000, February
14, 2000, February 16, 2000, February 22, 2000, February 24, 2000, March
23, 2000, May 2, 2000, June 1, 2000, June 5, 2000, June 19, 2000, July
24, 2000 and July 27, 2000.
- the description of Healtheon/WebMD's common stock contained in
Healtheon/WebMD's Registration Statement on Form 8-A filed on February 8,
1999 pursuant to Section 12(g) of the Exchange Act, and any amendment or
report filed for the purpose of updating this description.
The documents Medical Manager incorporates by reference are:
- Medical Manager's annual report on Form 10-K for the fiscal year ended
June 30, 1999, as amended by Form 10-K/A filed on October 28, 1999
- Medical Manager's quarterly reports on Form 10-Q for the quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000
- Medical Manager's current reports on Form 8-K or Form 8-K/A filed July
29, 1998, June 4, 1999, July 21, 1999, July 27, 1999, August 10, 1999,
August 24, 1999, September 20, 1999, December 8, 1999, January 25, 2000,
January 31, 2000 (three reports), February 14, 2000 (three reports),
February 17, 2000, March 23, 2000, March 29, 2000, April 19, 2000, June
19, 2000 (two reports) and June 29, 2000.
The documents CareInsite incorporates by reference are:
- CareInsite's annual report on Form 10-K for the fiscal year ended June
30, 1999, as amended by Form 10-K/A filed on October 28, 1999
- CareInsite's quarterly reports on Form 10-Q for the quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000.
- CareInsite's current reports on Form 8-K or Form 8-K/A filed August 24,
1999, February 4, 2000, February 14, 2000 (two reports), February 17,
2000, March 23, 2000, March 29, 2000, April 10, 2000, April 28, 2000,
June 19, 2000 and June 29, 2000.
201
<PAGE> 208
WHERE YOU CAN FIND MORE INFORMATION
Healtheon/WebMD, Medical Manager and CareInsite file annual, quarterly and
special reports, proxy and information statements and other information with the
SEC. You may read and copy any document filed by Healtheon/WebMD, Medical
Manager or CareInsite at the SEC's public reference facilities at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information about its public reference facilities.
The SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. The Healtheon/WebMD common stock, the Medical Manager common
stock and the CareInsite common stock are each quoted on the Nasdaq National
Market; their trading symbols are "HLTH," "MMGR" and "CARI," respectively.
Reports, proxy statements and other information concerning Healtheon/WebMD,
Medical Manager and CareInsite can also be inspected at the Nasdaq National
Market, Operations, 1735 K Street, N.W., Washington, D.C. 20006.
This proxy statement/prospectus incorporates certain documents by
reference. Documents incorporated by reference are available without charge,
excluding all exhibits unless the exhibit has been specifically incorporated by
reference in this proxy statement/prospectus. You can obtain copies of the
documents relating to Healtheon/WebMD by contacting the Healtheon/WebMD investor
relations department at:
Healtheon/WebMD Corporation
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
(404) 495-7600
http://www.webmd.com
You can obtain copies of the documents relating to Medical Manager by
contacting the Medical Manager investor relations department at:
Medical Manager Corporation
669 River Drive, Center 2
Elmwood Park, New Jersey 07407
(201) 703-3400
http://www.medicalmanager.com
You can obtain copies of the documents relating to CareInsite by contacting
the CareInsite investor relations department at:
CareInsite, Inc.
669 River Drive, Center 2
Elmwood Park, New Jersey 07407
(201) 703-3400
http://www.careinsite.com
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE
MADE BY SEPTEMBER 5, 2000.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE HEALTHEON/WEBMD COMMON STOCK OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE THE OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
THAT JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED IN THIS DOCUMENT BY
REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO HEALTHEON/WEBMD AND
ITS SUBSIDIARIES WAS PROVIDED BY HEALTHEON/WEBMD, THE INFORMATION CONTAINED IN
THIS DOCUMENT WITH RESPECT TO MEDICAL MANAGER AND ITS SUBSIDIARIES WAS PROVIDED
BY MEDICAL MANAGER AND THE INFORMATION IN THE DOCUMENT WITH RESPECT TO
CAREINSITE AND ITS SUBSIDIARIES WAS PROVIDED BY CAREINSITE.
202
<PAGE> 209
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENVOY CORPORATION
Reports of Independent Public Accountants................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999 and March 31, 2000 (Unaudited).................... F-6
Consolidated Statements of Operations for the years ended
December 31, 1997 through 1999 and for the three months
ended March 31, 1999 and 2000 (Unaudited).............. F-7
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997 through 1999............. F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 through 1999 and the three months
ended March 31, 1999 and 2000 (Unaudited).............. F-9
Notes to Consolidated Financial Statements................ F-10
</TABLE>
F-1
<PAGE> 210
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ENVOY Corporation:
We have audited the accompanying consolidated balance sheet of ENVOY
CORPORATION (a Tennessee corporation and a wholly-owned subsidiary of Quintiles
Transnational Corp.) and subsidiaries as of December 31, 1999 and the related
consolidated statement of operations, shareholders' equity, and cash flows for
the year then ended. 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.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ENVOY
Corporation and subsidiaries at December 31, 1999 and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 3, 2000
F-2
<PAGE> 211
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
ENVOY Corporation
We have audited the accompanying consolidated balance sheet of ENVOY
Corporation and subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 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 did not audit the financial statements of two wholly-owned
subsidiaries, Professional Office Services, Inc. and XpiData, Inc. for the year
ended December 31, 1997, which statements reflect total revenues constituting
18% of the related consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to data included for Professional Office Services, Inc. and XpiData,
Inc., is based solely on the reports of other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of ENVOY Corporation and subsidiaries at
December 31, 1998 and the consolidated results of their operations and their
cash flows for each of the two years in the period ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Nashville, Tennessee
January 29, 1999
F-3
<PAGE> 212
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Professional Office Services, Inc.:
We have audited the balance sheet of PROFESSIONAL OFFICE SERVICES, INC.,
not separately presented herein, as of December 31, 1997, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. 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.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 Professional Office
Services, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 11, 1998
F-4
<PAGE> 213
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To XpiData, Inc.:
We have audited the balance sheet of XPIDATA, INC., not separately
presented herein, as of December 31, 1997, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. 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.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 XpiData, Inc. as of December
31, 1997, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 30, 1998
F-5
<PAGE> 214
ENVOY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 30,297 $ 15,802 $ 23,148
Trade accounts receivable, less allowance for doubtful
accounts of $4,763, $4,778 and $5,167, in 1998, 1999
and 2000, respectively................................. 41,555 48,483 50,116
Inventories............................................... 2,588 3,326 2,929
Deferred income taxes..................................... 500 1,331 1,331
Other current assets...................................... 3,311 2,230 1,904
-------- -------- ---------
Total current assets.............................. 78,251 71,172 79,428
PROPERTY AND EQUIPMENT:
Equipment................................................. 41,984 52,656 52,845
Furniture and fixtures.................................... 3,003 2,934 2,931
Leasehold improvements.................................... 2,919 3,129 3,379
-------- -------- ---------
47,906 58,719 59,155
Less accumulated depreciation and amortization............ (28,599) (36,758) (38,848)
-------- -------- ---------
19,307 21,961 20,307
GOODWILL, NET OF AMORTIZATION............................... 53,509 49,371 48,445
INTANGIBLE ASSETS, NET OF AMORTIZATION...................... 27,399 22,696 21,649
DEFERRED INCOME TAXES....................................... -- 3,477 3,477
OTHER NON-CURRENT ASSETS.................................... 5,053 8,729 10,286
-------- -------- ---------
Total assets...................................... $183,519 $177,406 $ 183,592
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,825 $ 6,234 $ 4,991
Accrued expenses and other current liabilities............ 30,595 27,503 27,167
Current portion of long-term debt......................... 271 238 238
-------- -------- ---------
Total current liabilities......................... 33,691 33,975 32,396
LONG-TERM DEBT, LESS CURRENT PORTION........................ 366 165 145
DEFERRED INCOME TAXES....................................... 164 -- --
OTHER NON-CURRENT LIABILITIES............................... 7,402 3,966 3,067
SHAREHOLDERS' EQUITY:
Preferred stock--No par value; authorized, 12,000,000, 0
and 0 shares in 1998, 1999 and 2000, respectively;
issued, 2,800,000, 0, and 0 in 1998, 1999 and 2000,
respectively........................................... 41,300 -- --
Common stock--no par value in 1998 and $0.01 par value in
1999 and 2000, authorized, 48,000,000 shares in 1998,
1,000 shares in 1999 and 2000, issued, 21,587,895 in
1998 and 100 shares in 1999 and 2000................... 141,259 -- --
Additional paid-in capital................................ 8,485 191,525 191,525
Retained deficit.......................................... (49,148) (52,225) (43,541)
-------- -------- ---------
Total shareholders' equity........................ 141,896 139,300 147,984
-------- -------- ---------
Total liabilities and shareholders' equity........ $183,519 $177,406 $ 183,592
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 215
ENVOY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenue.......................................... $137,605 $184,773 $222,456 $54,468 $59,601
Costs and Expenses:
Direct............................................. 64,247 82,327 99,474 24,929 28,396
Selling, general and administrative................ 32,734 40,241 45,548 9,855 12,673
Research and development........................... 2,192 2,803 1,168 240 303
Depreciation and amortization...................... 34,432 36,156 20,523 7,796 4,175
Merger costs....................................... -- -- 9,056 8,652
Write-off of acquired in-process technology........ 6,600 -- -- -- --
-------- -------- -------- ------- -------
Operating Income (Loss).............................. (2,600) 23,246 46,687 2,996 14,054
Other Income (Expense):
Interest income.................................... 1,312 910 1,390 373 355
Interest expense................................... (1,577) (1,431) (1,347) (411) (202)
-------- -------- -------- ------- -------
(265) (521) 43 (38) 153
-------- -------- -------- ------- -------
Income (Loss) Before Income Taxes.................... (2,865) 22,725 46,730 2,958 14,207
Provision for Income Taxes........................... 6,333 18,481 23,726 6,274 5,616
-------- -------- -------- ------- -------
Net Income (Loss).................................... $ (9,198) $ 4,244 $ 23,004 $(3,316) $ 8,591
======== ======== ======== ======= =======
Pro Forma Net Income (Loss) Data (unaudited),
Reflecting Pro Forma Tax Provision on Income of
ExpressBill Companies (See Notes 4 and 11):
Historical income (loss) applicable to common
stock........................................... $ (9,198) $ 4,244 $ 23,004 $(3,316) $ 8,591
Pro forma adjustment to provision for income
taxes........................................... 1,032 259 -- -- --
-------- -------- -------- ------- -------
Pro forma net income (loss) applicable to common
stock........................................... $(10,230) $ 3,985 $ 23,004 $(3,316) $ 8,591
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 216
ENVOY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL ACCUMULATED TOTAL
------------------- ----------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME EQUITY
------- --------- ------ -------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996.... 18,855 $ 103,265 3,730 $ 55,021 $ 7,193 $(41,054) $ -- $124,425
Stock options exercised........ 437 1,844 -- -- -- -- -- 1,844
Income tax benefit realized on
exercise of stock options.... -- 1,249 -- -- -- -- -- 1,249
Conversion of debt to common
stock........................ 781 8,214 -- -- -- -- -- 8,214
Proceeds from issuance of
stock........................ 3 80 -- -- -- -- -- 80
Capital distributions of
ExpressBill.................. -- -- -- -- -- (1,547) -- (1,547)
Capital contributions of
ExpressBill.................. -- -- -- -- 15 -- -- 15
Net loss....................... -- -- -- -- -- (9,198) -- (9,198)
Other comprehensive income..... -- -- -- -- -- -- -- --
------- --------- ------ -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997.... 20,076 114,652 3,730 55,021 7,208 (51,799) -- 125,082
Stock options exercised........ 567 2,393 -- -- -- -- -- 2,393
Income tax benefit realized on
exercise of stock options.... -- 10,105 -- -- -- -- -- 10,105
Proceeds from issuance of
stock........................ 15 388 -- -- -- -- -- 388
Conversion of preferred
stock........................ 930 13,721 (930) (13,721) -- -- -- --
Capital distributions of
ExpressBill.................. -- -- -- -- -- (316) -- (316)
Capital contributions of
ExpressBill.................. -- -- -- -- 1,277 (1,277) -- --
Net income..................... -- -- -- -- -- 4,244 -- 4,244
Other comprehensive income..... -- -- -- -- -- -- -- --
------- --------- ------ -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998.... 21,588 141,259 2,800 41,300 8,485 (49,148) -- 141,896
Proceeds from issuance of
stock........................ 25 481 -- -- -- -- -- 481
Merger with Quintiles.......... (21,613) (141,740) (2,800) (41,300) 183,040 -- -- --
Dividend to Quintiles.......... -- -- -- -- -- (26,081) -- (26,081)
Net income..................... -- -- -- -- -- 23,004 -- 23,004
Other comprehensive income..... -- -- -- -- -- -- -- --
------- --------- ------ -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1999.... -- $ -- -- $ -- $191,525 $(52,225) $ -- $139,300
======= ========= ====== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 217
ENVOY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)......................................... $ (9,198) $ 4,244 $ 23,004 $ (3,316) $ 8,591
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 34,432 36,156 20,523 7,796 4,175
Provision for losses on accounts receivable............. 1,461 2,696 1,693 375 360
Deferred income tax benefit............................. (995) (118) (4,472) -- --
Write-off of acquired in-process technology............. 6,600 -- -- -- --
Changes in assets and liabilities, net of acquired
businesses:
Increase in accounts receivable....................... (9,782) (8,346) (8,621) (2,927) (1,993)
Decrease (increase) in inventories.................... 388 399 (738) 195 397
Decrease (increase) in other current assets........... 981 (1,294) 806 52 326
Increase (decrease) in accounts payable, accrued
expenses and other liabilities..................... (650) 10,311 (3,119) 10,060 (2,385)
-------- -------- -------- -------- -------
Net cash provided by operating activities.......... 23,237 44,048 29,076 12,235 9,471
-------- -------- -------- -------- -------
Investing Activities:
Payment received on notes receivable...................... -- -- 275 -- 190
Purchases of property and equipment....................... (8,744) (6,185) (10,668) (1,610) (548)
Decrease (increase) in other assets....................... (1,998) 517 (3,844) 327 (1,747)
Payments for businesses acquired, net of cash acquired of
$0, $750, $0, $0 and $0 in 1997, 1998, for the year
ended December 31, 1999, for the three months ended
March 31, 1999 and in 2000, respectively................ (40,412) (17,462) (3,500) (3,500) --
-------- -------- -------- -------- -------
Net cash used in investing activities.............. (51,154) (23,130) (17,737) (4,783) (2,105)
-------- -------- -------- -------- -------
Financing Activities:
Dividend paid to Quintiles................................ -- -- (26,081) -- --
Proceeds from issuance of common stock.................... 1,924 2,781 481 481 --
Capital distributions of ExpressBill...................... (1,391) (316) -- -- --
Capital contributions of ExpressBill...................... 15 -- -- -- --
Payments on long-term debt................................ (304) (369) (234) (89) (20)
Payments on short-term debt............................... (466) (1,315) -- -- --
-------- -------- -------- -------- -------
Net cash provided by (used in) financing
activities....................................... (222) 781 (25,834) 392 (20)
-------- -------- -------- -------- -------
Net increase (decrease) in cash and cash equivalents........ $(28,139) $ 21,699 $(14,495) $ 7,844 $ 7,346
Cash and cash equivalents at beginning of period............ 36,737 8,598 30,297 30,297 15,802
-------- -------- -------- -------- -------
Cash and cash equivalents at end of period.................. $ 8,598 $ 30,297 $ 15,802 $ 38,141 $23,148
======== ======== ======== ======== =======
Supplemental Cash Flow Information:
Interest paid............................................. $ (238) $ (141) $ (30) $ (14) $ (3)
Interest received......................................... 1,250 751 1,199 378 348
Income taxes paid......................................... (5,952) (5,906) (4,677) (4,000) (703)
Noncash Transactions:
Conversion of debt to common stock........................ $ 8,214 $ -- $ -- $ -- $ --
======== ======== ======== ======== =======
Conversion of preferred stock to common stock............. $ -- $ 13,721 $ -- $ -- $ --
======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE> 218
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. ORGANIZATION
ENVOY Corporation (the "Company"), was incorporated under the laws of the
state of Tennessee in August 1994. The Company provides electronic data
interchange ("EDI") and transaction processing services to participants in the
health care market, including pharmacies, physicians, hospitals, dentists,
billing services, commercial insurance companies, managed care organizations,
state and federal government agencies and others.
As more fully discussed in Note 3, the Company completed a business
combination with Quintiles Transnational Corp. ("Quintiles") on March 30, 1999,
pursuant to which the Company merged with and became a wholly-owned subsidiary
of Quintiles.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions between the Company and its wholly-owned subsidiaries have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount
approximates fair value because of the short maturity of those instruments.
CONCENTRATION OF CREDIT RISK
The Company has one customer that accounted for approximately 16%, 17% and
12% of the Company's consolidated net revenues for 1999, 1998 and 1997
respectively, and accounted for approximately 10% and 14% of consolidated
accounts receivable at December 31, 1999 and 1998, respectively.
INVENTORIES
Inventories consist primarily of point-of-service terminals and supplies
used in the patient statement business and are stated at the lower of cost
(first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided over
the estimated lives of the respective assets on the straight-line basis
principally over five to seven years. Depreciation expense totaled $8,125,000,
$7,067,000 and $6,141,000 for 1999, 1998 and 1997, respectively.
F-10
<PAGE> 219
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- AMORTIZATION
1999 1998 PERIOD
-------- -------- ------------
<S> <C> <C> <C>
Goodwill.................................................... $118,669 $115,212 3-15 years
Less accumulated amortization............................... (69,298) (61,703)
-------- --------
$ 49,371 $ 53,509
======== ========
Submitter and payor relationships........................... $ 12,700 $ 12,700 9 years
Customer contracts.......................................... 17,541 17,541 9-10 years
Developed technology........................................ 4,300 4,300 2 years
Covenants not to compete.................................... 6,237 6,237 2-5 years
Trademarks and tradenames................................... 350 350 3-7 years
Assembled work force........................................ 3,810 3,710 3-7 years
-------- --------
44,938 44,838
Less accumulated amortization............................... (22,242) (17,439)
-------- --------
$ 22,696 $ 27,399
======== ========
</TABLE>
Amortization expense related to goodwill and intangible assets for the
years ended December 31, 1999, 1998 and 1997 was $12,398,000, $29,089,000 and
$28,292,000, respectively. Amortization is provided using the straight line
method over periods ranging from two to fifteen years. In establishing the
amortization periods for intangible assets, the Company considers several
factors, including legal, regulatory, or contractual provisions; effects of
obsolescence, demand, competition and other economic factors; service life
expectancies of employees; and expected actions of competitors and others. The
Company reviews its long-lived and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flows of the acquired business or
from the use of the asset over the remaining amortization period is less than
the carrying amount of the asset. As of December 31, 1999, in the opinion of
management, there has been no such impairment.
REVENUE RECOGNITION
Transaction processing services revenue is recognized as the transactions
are processed. Effective January 1, 1998, the Company adopted American Institute
of Certified Public Accountants ("AICPA") Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). Revenue from software product arrangements
that include customization or modification of the software is recognized in
accordance with SOP 97-2, as amended by SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions". Revenues
from software product sales are recognized provided the collection of the sales
proceeds is deemed probable and no significant vendor obligations remain. Other
revenue, including hardware sales, maintenance, licensing, and support
activities, is generally recognized as hardware is shipped or as services are
provided. Receivables generally are due within 30 days and do not require
collateral.
INTERNAL USE SOFTWARE
Effective January 1, 1999, the Company adopted AICPA Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The Company
has capitalized $5,449,000 in 1999 related to software costs for certain
projects begun in 1999; these costs are included
F-11
<PAGE> 220
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in other non-current assets in the accompanying consolidated balance sheets.
Prior to adopting SOP 98-1, the Company recorded costs related to product
development as research and development expenses until technological feasibility
was established.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("SFAS
109"). Deferred income taxes are provided for temporary differences between the
financial statement and income tax basis of assets and liabilities. The Company
files a consolidated federal income tax return with Quintiles, and records its
tax provision based on its taxable income. The Company and Quintiles are parties
to an income tax sharing arrangement providing for the allocation of federal
income tax liabilities. Under this arrangement, the Company will pay to
Quintiles an amount equal to the income taxes that would be payable by the
Company if it were a corporation filing a separate return. The Company files
separate state income tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
EMPLOYEE STOCK COMPENSATION
Prior to the Quintiles Merger (see Note 3), the Company granted stock
options under various benefit plans for a fixed number of shares to employees
and directors with an exercise price which approximates the fair value of the
shares at the date of grant. The Company accounts for stock based compensation
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and, accordingly, has
recognized no compensation expense. Pursuant to the merger with Quintiles, all
unexercised ENVOY stock options were converted into Quintiles stock options, and
the Company's employees became covered by Quintiles' plans.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 and 1997 consolidated
financial statements to conform to the 1999 presentation.
INTERIM FINANCIAL STATEMENTS
The unaudited consolidated financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the accompanying
unaudited consolidated financial statements reflect all adjustments necessary to
present fairly the financial position as of March 31, 2000 and the results of
operations and cash flows for the three months ended March 31, 2000 and 1999.
3. QUINTILES MERGER
On December 15, 1998, the Company entered into an Agreement and Plan of
Merger (the "Quintiles Merger Agreement") with Quintiles pursuant to which the
Company merged with and become a wholly-owned subsidiary of Quintiles in a
transaction accounted for as a pooling of interests. Under the terms of the
Quintiles Merger Agreement, each issued and outstanding share of ENVOY Common
Stock (the "Common Stock"), and each
F-12
<PAGE> 221
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued and outstanding share of Series B Convertible Preferred Stock (the
"Series B Preferred Stock"), was exchanged for 1.166 shares of Quintiles common
stock. In addition, Quintiles converted unexercised ENVOY stock options into
Quintiles stock options on the same terms and conditions, except that the number
of shares and exercise price were adjusted for the effect of the exchange ratio.
The Quintiles Merger was completed on March 30, 1999.
In connection with the Quintiles Merger, ENVOY incurred expenses of
$9,056,000, consisting of $4,189,000 for investment and advisory fees,
$2,912,000 in severance costs, $1,441,000 for legal and accounting fees and
$514,000 in other related costs.
4. MERGERS AND ACQUISITIONS
BUSINESS COMBINATIONS ACCOUNTED FOR AS POOLINGS OF INTERESTS
On February 27, 1998, the Company completed business combinations with
Professional Office Services, Inc. ("POS"), XpiData, Inc. ("XpiData") and
Automatic Revenue Management ("ARM" and together with POS and XpiData sometimes
collectively referred to as the "ExpressBill Companies") for an aggregate of
3,500,000 shares of common stock. Shareholders of XpiData, based in Scottsdale,
Arizona, received 1,365,000 shares and shareholders of POS and its affiliated
company, ARM, both of which are based in Toledo, Ohio, received an aggregate of
2,135,000 shares. The ExpressBill patient statement services include electronic
data transmission and formatting, statement printing and mailing services for
health care providers and practice management system vendors. These transactions
have been accounted for as poolings of interests. Accordingly, the Company's
historical consolidated financial statements for 1997 have been restated to
include the accounts and results of operations of the ExpressBill Companies.
BUSINESS COMBINATIONS ACCOUNTED FOR AS PURCHASES
Each of the following acquisitions was accounted for under the purchase
method of accounting, applying the provisions of APB Opinion No. 16, "Business
Combinations" ("APB No. 16") and, as a result, the Company recorded the assets
and liabilities of the acquired companies at their estimated fair values with
the excess of the purchase price over these amounts being recorded as either
identified intangibles or goodwill. The consolidated financial statements
reflect the operations of the acquired businesses for the periods after their
respective dates of acquisition.
F-13
<PAGE> 222
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DIVERSE SOFTWARE SOLUTIONS, INC. ("DSS")
On March 11, 1997, the Company completed the acquisition of certain assets
of DSS for $4,000,000 in cash and payments of $2,325,000 based upon revenue
earned during a specified period following the acquisition, plus the assumption
of certain liabilities. The final allocation of purchase price is summarized as
follows (in thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $ 4,000
Add liabilities assumed:
Current liabilities....................................... 3,979
Less assets acquired:
Current assets............................................ (446)
Property and equipment, net............................... (80)
Identifiable intangibles:
Developed technology...................................... (600)
Assembled work force...................................... (340)
Submitter and payor relationships......................... (300)
Tradenames................................................ (100)
-------
(1,866)
Less write-off of acquired in-process technology............ (600)
-------
Goodwill.................................................... $ 5,513
=======
</TABLE>
Goodwill of $5,513,000 is being amortized over a period of 15 years.
Developed technology was amortized over two years; assembled work force is being
amortized over seven years; submitter and payor relationships are being
amortized over nine years; and tradenames are being amortized over seven years.
Also recorded as part of the DSS acquisition was a one-time write-off of
acquired in-process technology of $600,000. This amount represents an allocation
of purchase price to projects for the development of additional interfaces and
functionality for accounts receivable management service offerings provided by
DSS. This amount was charged to expense in 1997 because the projects related to
research and development that had not reached technological feasibility and for
which there was no alternative future use. Fair value of acquired in-process
technology was determined based on various factors, including estimates of
after-tax cash flows, the stage of completion of the in-process technology at
the date of acquisition and estimates of total project costs.
HEALTHCARE DATA INTERCHANGE CORPORATION ("HDIC")
On August 7, 1997, the Company acquired all the issued and outstanding
capital stock of HDIC, the EDI health care services subsidiary of Aetna U.S.
Healthcare, Inc. ("AUSHC"), for approximately $36,400,000 in cash, plus the
assumption of certain liabilities, summarized as follows (in thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $36,400
Add liabilities assumed:
Unfavorable contracts..................................... 14,570
Other liabilities......................................... 993
-------
15,563
</TABLE>
F-14
<PAGE> 223
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Less assets acquired:
Cash...................................................... (11)
Property and equipment, net............................... (52)
Identifiable intangibles:
Customer contract......................................... (5,000)
Developed technology...................................... (1,600)
Tradenames................................................ (250)
Assembled work force...................................... (200)
-------
(7,113)
Less write-off of acquired in-process technology............ (6,000)
-------
Goodwill.................................................... $38,850
=======
</TABLE>
Goodwill of $38,850,000 is being amortized over a period of 15 years;
developed technology was amortized over two years; tradenames and assembled work
force are being amortized over three years. In addition, the Company and AUSHC
simultaneously entered into a 10-year services agreement under which AUSHC has
agreed to use the Company as its single source clearinghouse and EDI network for
all AUSHC electronic health care transactions. The amount recorded for this
customer contract is being amortized over 10 years. Liabilities assumed include
approximately $14,570,000 relating to the assumption of unfavorable contracts.
At December 31, 1999, the remaining liability for unfavorable contracts was
$7,585,000 with $3,966,000 classified as a non-current liability, and $3,619,000
classified as a current liability in accrued expenses and other current
liabilities in the accompanying consolidated balance sheets. Also recorded as
part of the HDIC acquisition was a one-time write-off of acquired in-process
technology of $6,000,000. This amount represents an allocation of purchase price
to projects for the development of new transaction sets which would allow health
care providers to submit additional health care transactions electronically.
This amount was charged to expense in 1997 because the projects related to
research and development that had not reached technological feasibility and for
which there was no alternative future use. Fair value of acquired in-process
technology was determined based on various factors, including estimates of
after-tax cash flows, the stage of completion of the in-process technology at
the date of acquisition and estimates of total project costs.
SYNERGY HEALTH CARE, INC. ("SYNERGY")
On May 6, 1998, the Company acquired all the issued and outstanding capital
stock of Synergy, which provides health care information products and services
to participants in the health care market, for $10,200,000 in cash, including
amounts paid to certain selling stockholders for noncompete agreements, plus the
assumption of certain liabilities, summarized as follows (in thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $10,200
Add liabilities assumed:.................................... 441
Less assets acquired:
Cash...................................................... (550)
Accounts receivable and other............................. (917)
Property and equipment, net............................... (281)
Identifiable intangibles:
Customer contract......................................... (1,587)
Assembled work force...................................... (170)
Noncompete agreements..................................... (200)
-------
(3,705)
-------
Goodwill.................................................... $ 6,936
=======
</TABLE>
F-15
<PAGE> 224
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill of $6,936,000 is being amortized over a period of 15 years;
customer contracts are being amortized over nine years; assembled work force is
being amortized over seven years; and noncompete agreements are being amortized
over five years.
CONTROL-O-FAX CORPORATION
Effective October 1, 1998, the Company completed the acquisition of
substantially all of the assets of Control-O-Fax Corporation and its
wholly-owned subsidiary Control-O-Fax Systems, Inc. (collectively,
"Control-O-Fax"), which provides EDI patient statement and other printing and
processing services to participants in the health care market, for $8,250,000 in
cash, plus the assumption of certain liabilities, summarized as follows (in
thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $ 8,250
Add liabilities assumed:.................................... 1,468
Less assets acquired:
Cash...................................................... (200)
Accounts receivable and other............................. (2,589)
Property and equipment, net............................... (401)
Identifiable intangibles:
Customer contract......................................... (2,400)
Assembled work force...................................... (400)
Noncompete agreements..................................... (600)
-------
(6,590)
-------
Goodwill.................................................... $ 3,128
=======
</TABLE>
Goodwill of $3,128,000 is being amortized over a period of 15 years;
customer contracts are being amortized over nine years; assembled work force is
being amortized over seven years; and noncompete agreements are being amortized
over three years.
EPN, L.L.C. ("EPN")
In 1996, the Company purchased a 19% interest in EPN, an independent sales
and marketing agent in health care EDI services. Following the acquisition, the
Company accounted for its investment in EPN under the cost method. On March 8,
1999, the Company completed the acquisition of the remaining 81% interest of EPN
for $3,500,000 in cash, summarized as follows (in thousands):
<TABLE>
<S> <C>
Purchase price.............................................. $3,500
Less assets acquired:
Property and equipment, net............................... (111)
Assembled work force...................................... (100)
------
Goodwill.................................................... $3,289
======
</TABLE>
Goodwill of $3,289,000 is being amortized over a period of 15 years, and
assembled work force is being amortized over three years.
F-16
<PAGE> 225
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following presents unaudited pro forma results of operations (including
the one-time write-offs of acquired in-process technology) for the year ended
December 31, 1997, assuming the acquisitions accounted for as purchases, had
been consummated at the beginning of the period presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Revenues.................................................... $144,099
Net loss applicable to common stock......................... (13,985)
</TABLE>
Pro forma results of operations for 1999 and 1998 acquisitions have not
been presented because the results of operations of business combinations
accounted for as purchases completed during 1999 and 1998 are not material to
those of the Company.
5. SALE OF THE GOVERNMENT SERVICES BUSINESS
On September 16, 1997, the Company completed the sale of substantially all
of the assets related to the Company's hunting and fishing licenses and
electronic benefit transfer business (collectively "the Government Services
Business") for (i) $500,000 payable in the form of a promissory note due and
payable in full on August 31, 1999 and (ii) certain contingent payment amounts
based upon the achievement of specified future operating results of the
Government Services Business. The Company recorded a gain of $500,000 related to
the sale of the Government Services Business in 1997. The results of operations
of the Government Services Business are included in the Company's consolidated
statements of operations through the date of disposition. The Company received
consideration in full during 1999 for the note and contingent payment amounts.
The contingent payment amount received was not material to the Company's
operations.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consists of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Current portion of liability for unfavorable contracts...... $ 3,619 $ 2,895
Unearned income............................................. 2,758 2,153
Accrued communication expense............................... 2,515 3,710
Accrued income taxes........................................ -- 4,265
Accrued salaries and benefits............................... 4,181 3,614
Accrued vendor incentives................................... 3,480 4,097
Customer deposits........................................... 4,538 3,308
Other....................................................... 6,412 6,553
------- -------
$27,503 $30,595
======= =======
</TABLE>
The liability for unfavorable contracts is related to the HDIC acquisition
(see Note 4).
7. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists primarily of capital
lease obligations payable through the year 2003, at interest rates ranging from
9.25% to 22%. Annual long-term debt and capital lease obligation principal
requirements are $238,000 in 2000, $127,000 in 2001, $31,000 in 2002, $7,000 in
2003, and -0- in 2004, with none thereafter.
F-17
<PAGE> 226
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES
The Company leases certain equipment and office space under operating
leases. Rental expense incurred under the leases during the years ended December
31, 1999, 1998 and 1997 was approximately $4,627,000, $4,175,000 and $2,207,000,
respectively.
Future minimum rental payments at December 31, 1999 under operating lease
arrangements are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 3,672
2001........................................................ 3,497
2002........................................................ 2,427
2003........................................................ 1,785
2004........................................................ 1,778
Thereafter.................................................. 5,266
-------
$18,425
=======
</TABLE>
9. EMPLOYEE BENEFIT PLANS
STOCK INCENTIVE PLANS
The Company has issued stock options to employees under certain option
plans. Options granted have 10 year terms from the grant date and vest over
periods from one to five years from the date of grant. The Company has elected
to follow APB No. 25 and related interpretations in accounting for its stock
options issued to employees and directors. All options are granted with exercise
prices equal to or greater than the market value of the Company's common stock
on the date of grant. As a result, no compensation expense is recognized.
Following the Quintiles Merger, all outstanding stock options granted by
ENVOY were converted into Quintiles stock options on the same terms and
conditions, except that the number of shares and exercise prices were adjusted
for the effect of the exchange ratio. Accordingly, the following stock option
disclosures have been restated for all periods presented to give effect to the
exchange ratio used in the Quintiles Merger.
Summaries of stock options outstanding are as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding, December 31, 1996.............................. 3,765,014 $ 8.79
Granted................................................... 972,444 19.91
Exercised................................................. (509,542) 3.64
Canceled.................................................. (261,184) 17.08
--------- ------
Outstanding, December 31, 1997.............................. 3,966,732 11.65
Granted................................................... 970,112 31.84
Exercised................................................. (661,122) 3.62
Canceled.................................................. (262,350) 23.58
--------- ------
Outstanding, December 31, 1998.............................. 4,013,372 17.07
Granted................................................... 385,840 22.50
Exercised................................................. (110,795) 8.86
Canceled.................................................. (258,313) 32.52
--------- ------
Outstanding, December 31, 1999.............................. 4,030,104 $16.95
========= ======
</TABLE>
F-18
<PAGE> 227
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average remaining contractual life of outstanding options was
6 years and 5 years as of December 31, 1999 and 1998, respectively. The number
of stock options exercisable and the weighted average exercise price of these
options at December 31, 1999 and 1998 was 2,266,479 and 930,868 and $13.04 and
$7.12, respectively.
Pro forma information regarding net income (loss) is required by SFAS No.
123, "Accounting for Stock Based Compensation," which also requires that the
information be determined as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value method. The
weighted-average fair value of options granted during 1999, 1998 and 1997 was
$7.78, $15.19 and $10.96, respectively, using the Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield..................................... 0% 0 0%
Risk-free interest rate..................................... 5.8% 4.5 5.8%
Expected volatility......................................... 40.0% 47.0% 45.0%
Expected life (in years from vest).......................... 1.40 1.35 1.20
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and 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 stock
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- --------
<S> <C> <C> <C>
Pro forma net income (loss) applicable to common stock...... $17,562 $(794) $(12,435)
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until the
new rules are applied to all outstanding awards.
Selected information regarding stock options as of December 31, 1999
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------- ----------------------------
NUMBER WEIGHTED- WEIGHTED- WEIGHTED-
OF EXERCISE PRICE AVERAGE EXERCISE AVERAGE REMAINING NUMBER OF AVERAGE EXERCISE
OPTIONS RANGE PRICE LIFE OPTIONS PRICE
------- --------------- ---------------- ----------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
777,703 $3.00 - $6.65 $ 6.07 3.7 777,703 $ 6.07
931,638 $8.58 - $8.58 8.58 4.5 590,000 8.58
1,056,018 $15.44 - $18.94 18.02 6.8 435,696 17.38
778,824 $19.83 - $28.95 25.16 6.9 435,670 25.81
485,921 $30.02 - $39.13 34.85 8.3 27,410 35.14
--------- ------ --- --------- ------
4,030,104 $16.95 5.9 2,266,479 $13.04
========= ====== === ========= ======
</TABLE>
Pursuant to the terms of the Healtheon/WebMD Merger Agreement (see Note
15), Quintiles shall cause all outstanding stock options to vest in full and
shall allow the holders of such options up to three years from the closing of
the Healtheon/WebMD Merger to exercise such stock options.
F-19
<PAGE> 228
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan (the "ESPP"), which is
intended to provide eligible employees an opportunity to acquire the Company's
common stock. Participating employees have the option to purchase shares at 85%
of the lower of the closing price per share of common stock on the first or last
day of the calendar quarter. The ESPP is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. During 1999, 1998 and 1997, 32,067, 17,490 and 3,498 shares,
respectively, were purchased under the ESPP.
PROFIT-SHARING PLANS
Quintiles, the Company and its subsidiaries sponsor 401(k) profit-sharing
plans and other noncontributory plans covering all employees who meet certain
length of service and age requirements. Eligible employees may elect to reduce
their current compensation and contribute to the 401(k) plans through salary
deferral contributions. The Company matches employee contributions, generally up
to 25% of the first 6% of compensation deferred by the employee, and may make
additional discretionary contributions. The amount of expense for the Company
contribution for all plans was approximately $391,000, $674,000 and $613,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
10. SERIES B PREFERRED STOCK
In March 1996, the Company issued 3,730,233 shares of Series B Preferred
Stock in connection with an acquisition. The Series B Preferred Stock was
recorded in the accompanying consolidated balance sheets at the fair market
value of the underlying shares on the date of the related Stock Purchase
Agreement, $55,021,000 in the aggregate, or $14.75 per share. The difference
between the issuance price of $40,100,000 or $10.75 per share and the fair value
of the underlying shares on the date of the related Stock Purchase Agreement was
presented in the consolidated financial statements as a dividend of Series B
Preferred Stock for the year ended December 31, 1996. Each share of Series B
Preferred Stock was convertible into one share of common stock at any time. In
February 1998, 930,233 shares of Series B Preferred Stock were converted into an
equal number of shares of common stock. Pursuant to the Quintiles Merger, each
remaining outstanding share of Series B Preferred Stock was exchanged for 1.166
shares of Quintiles common stock and was canceled after the exchange.
11. INCOME TAXES
The provision for income taxes was comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $27,253 $15,121 $ 4,957
State..................................................... 945 3,478 2,429
------- ------- -------
Total current..................................... 28,198 18,599 7,386
Deferred benefit............................................ (4,472) (118) (1,053)
------- ------- -------
Provision for income taxes.................................. $23,726 $18,481 $ 6,333
======= ======= =======
</TABLE>
F-20
<PAGE> 229
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax computed by applying the U.S. federal
statutory rate to the actual income tax provision follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income tax provision (benefit) at U.S. federal statutory
rate...................................................... $16,356 $ 7,954 $(1,003)
Nondeductible merger costs.................................. 3,170 315 --
Nondeductible goodwill amortization......................... 1,832 7,242 7,066
State and local income taxes, net of federal benefit........ 614 2,252 630
Change in valuation allowance............................... -- -- 238
Other, net.................................................. 1,754 718 (598)
------- ------- -------
Income tax provision........................................ $23,726 $18,481 $ 6,333
======= ======= =======
</TABLE>
Deferred income taxes reflects 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 temporary differences are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $ (583) $(2,178)
Other..................................................... (1,270) (1,371)
------- -------
(1,853) (3,549)
------- -------
Deferred tax assets:
Amortization related to goodwill and other intangibles.... 2,753 474
Reserves not deductible................................... 2,601 2,003
Difference between book and tax basis of investments...... 915 915
Net operating losses...................................... 121 469
Other..................................................... 1,186 939
------- -------
7,576 4,800
Valuation allowance......................................... (915) (915)
------- -------
6,661 3,885
------- -------
Net deferred tax assets........................... $ 4,808 $ 336
======= =======
</TABLE>
At December 31, 1999, the Company had state net operating loss carry
forwards of approximately $3,000,000. These losses begin to expire in 2003.
The Company evaluates the amounts recorded for the valuation allowance for
deferred tax assets each year. The valuation allowance relates to the loss on
certain investments to certain tax credits that existed at December 31, 1997.
Management believes that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets as reduced by the valuation allowance.
POS and ARM operated under Subchapter S of the Code and were not subject to
corporate federal or state income taxes. Had POS and ARM filed federal and state
income tax returns as C corporations for 1998 and 1997, pro forma income tax
expense in the consolidated financial statements under the provisions of SFAS
No. 109 would have been $18,740,000 and $7,365,000, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivable, and accounts payable
approximate fair value based upon their relative short-term nature. The
F-21
<PAGE> 230
ENVOY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying amount reported in the balance sheet for long-term debt also
approximate fair value. The fair value of the Company's long-term debt is
estimated using discounted cash flows and the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
13. RELATED PARTY TRANSACTIONS
Quintiles provides certain administrative support service, primarily in the
areas of legal, information technology, human resources and finance. During
1999, the Company recorded an expense of $4,073,000 for such charges from
Quintiles. These expenses have been allocated to the Company based on estimated
incremental costs incurred by Quintiles which management believes to be
reasonable and are included in selling, general and administrative expenses in
the accompanying consolidated statements of operations.
During 1999, the Company recorded revenues of $458,000 for services
provided to Quintiles and its subsidiaries.
As a result of the business combinations with the ExpressBill Companies,
the Company leases office space from a partnership of a significant stockholder.
The related lease extends through February 2013, with annual rentals of $457,500
through February 2003, $503,250 through February 2008 and $553,575 through
February 2013. Rentals paid were approximately $457,500 in 1999, $397,000 in
1998 and $92,000 in 1997.
14. LITIGATION
Three class action complaints were filed in 1998, and later consolidated
into a single action against ENVOY and certain of its executive officers. The
complaint asserted claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder and also
asserted additional claims under Tennessee common law for fraud and negligent
misrepresentation. On September 15, 1999, the Federal Court for the Middle
District of Tennessee granted the Company's motion to dismiss each of the
complaints. The Court dismissed the complaints without prejudice. On November
23, 1999 the plaintiffs filed what they deemed to be an Amended Consolidated
Complaint. Defendants moved to strike the purported amended complaint on the
grounds that the September 1999 dismissed order did not grant plaintiff's leave
to file an amended complaint (but does allow them to file a new lawsuit), and
has refiled a motion to dismiss, which is now pending before the Court. The
defendants' motion to dismiss is expected to progress in administrative
proceedings through August 2000.
The Company also is a party in certain other pending litigation arising in
the course of its business. While the final outcome of such litigation cannot be
predicted with certainty, it is the opinion of the Company's management that the
outcome of these matters would not materially affect the consolidated financial
position or results of operations of the Company.
15. SUBSEQUENT EVENT
On January 22, 2000, Quintiles and Healtheon/WebMD Corporation
("Healtheon/WebMD") entered into an Agreement and Plan of Merger (the
"Healtheon/WebMD Merger Agreement") pursuant to which Healtheon/WebMD will
acquire the common stock of ENVOY. Pursuant to the Healtheon/WebMD Merger
Agreement, the outstanding shares of common stock of ENVOY will be converted
into the right to receive 35,000,000 shares of common stock of Healtheon/WebMD
(the "Stock Consideration") and $400,000,000 (the "Cash Consideration"). Unless
Quintiles objects, Healtheon/WebMD may increase the amount of the Cash
Consideration by up to an additional $100,000,000, in which case the Stock
Consideration would be reduced by a number of shares equal to the difference
between $1,800,000,000 and the Cash Consideration to be paid, divided by 40. The
closing of the Healtheon/WebMD Merger is subject to customary conditions,
including the expiration or early termination of all applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
F-22
<PAGE> 231
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 13, 2000
BETWEEN
HEALTHEON/WEBMD CORPORATION
AND
MEDICAL MANAGER CORPORATION
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I THE MERGER
SECTION 1.01. The Merger.................................................. A-2
SECTION 1.02. Effective Time; Closing..................................... A-2
SECTION 1.03. Effect of the Merger........................................ A-2
SECTION 1.04. Certificate of Incorporation; By-Laws....................... A-2
SECTION 1.05. Directors and Officers...................................... A-2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.................................... A-2
SECTION 2.02. Exchange of Certificates.................................... A-3
SECTION 2.03. Stock Transfer Books........................................ A-5
SECTION 2.04. Company Stock Options....................................... A-5
SECTION 2.05. Company Warrants............................................ A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification.............................. A-6
SECTION 3.02. Certificate of Incorporation and Bylaws..................... A-7
SECTION 3.03. Capitalization.............................................. A-7
SECTION 3.04. Authority Relative to This Agreement........................ A-8
SECTION 3.05. No Conflict; Required Filings and Consents.................. A-8
SECTION 3.06. Permits; Compliance......................................... A-9
SECTION 3.07. SEC Filings; Financial Statements; Absence of Liabilities... A-9
SECTION 3.08. Absence of Certain Changes or Events........................ A-10
SECTION 3.09. Absence of Litigation....................................... A-10
SECTION 3.10. Employee Benefit Plans...................................... A-10
SECTION 3.11. Tax Matters................................................. A-11
SECTION 3.12. Intellectual Property....................................... A-11
SECTION 3.13. Taxes....................................................... A-12
SECTION 3.14. Vote Required............................................... A-12
SECTION 3.15. Opinion of Financial Advisor................................ A-12
SECTION 3.16. Brokers..................................................... A-12
SECTION 3.17. Contracts................................................... A-13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 4.01. Organization and Qualification.............................. A-13
SECTION 4.02. Certificate of Incorporation and By-Laws.................... A-13
SECTION 4.03. Capitalization.............................................. A-13
SECTION 4.04. Authority Relative to This Agreement........................ A-14
SECTION 4.05. No Conflict; Required Filings and Consents.................. A-14
SECTION 4.06. Permits; Compliance......................................... A-15
SECTION 4.07. SEC Filings; Financial Statements; Absence of Liabilities... A-15
SECTION 4.08. Absence of Certain Changes or Events........................ A-16
SECTION 4.09. Absence of Litigation....................................... A-16
SECTION 4.10. Employee Benefit Plans...................................... A-16
SECTION 4.11. Tax Matters................................................. A-17
SECTION 4.12. Intellectual Property....................................... A-17
SECTION 4.13. Taxes....................................................... A-17
SECTION 4.14. Vote Required............................................... A-18
SECTION 4.15. Opinion of Financial Advisor................................ A-18
SECTION 4.16. Brokers..................................................... A-18
SECTION 4.17. Contracts................................................... A-18
</TABLE>
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ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger....... A-18
SECTION 5.02. Conduct of Business by Parent Pending the Merger............ A-20
SECTION 5.03. Adverse Changes in Condition................................ A-21
ARTICLE VI ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Joint Proxy Statement............... A-22
SECTION 6.02. Stockholders' Meetings...................................... A-23
SECTION 6.03. Access to Information; Confidentiality...................... A-24
SECTION 6.04. No Solicitation of Transactions............................. A-24
SECTION 6.05. Directors' and Officers' Indemnification and Insurance...... A-26
SECTION 6.06. Further Action; Consents; Filings........................... A-26
SECTION 6.07. Plan of Reorganization...................................... A-27
SECTION 6.08. Public Announcements........................................ A-27
SECTION 6.09. NASDAQ Listing.............................................. A-28
SECTION 6.10. Conveyance Taxes............................................ A-28
SECTION 6.11. Governance.................................................. A-28
SECTION 6.12. Employee Benefit Matters.................................... A-28
SECTION 6.13. Exemption From Liability Under Section 16(b)................ A-30
SECTION 6.14. Company Affiliates; Restrictive Legend; Restrictions on
Transfer.................................................... A-30
ARTICLE VII CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party................. A-30
SECTION 7.02. Conditions to the Obligations of Parent..................... A-31
SECTION 7.03. Conditions to the Obligations of the Company................ A-31
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination................................................. A-32
SECTION 8.02. Effect of Termination....................................... A-33
SECTION 8.03. Amendment................................................... A-33
SECTION 8.04. Waiver...................................................... A-33
SECTION 8.05. Expenses.................................................... A-33
ARTICLE IX GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements.................................................. A-35
SECTION 9.02. Notices..................................................... A-35
SECTION 9.03. Certain Definitions......................................... A-36
SECTION 9.04. Severability................................................ A-37
SECTION 9.05. Assignment; Binding Effect; Benefit......................... A-37
SECTION 9.06. Specific Performance........................................ A-37
SECTION 9.07. Governing Law; Forum........................................ A-38
SECTION 9.08. Interpretation.............................................. A-38
SECTION 9.09. Counterparts................................................ A-38
SECTION 9.10. Entire Agreement............................................ A-38
SECTION 9.11. WAIVER OF JURY TRIAL........................................ A-38
SECTION 9.12. Brokers and Finders......................................... A-39
</TABLE>
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINITION
------------ --------------------
<S> <C>
affiliate................................................... sec. 9.03
Agreement................................................... Preamble
beneficial owner............................................ sec. 9.03
Blue Sky Laws............................................... sec. 3.05(b)(i)
business day................................................ sec. 9.03
Certificates................................................ sec. 2.02(b)
Certificate of Merger....................................... sec. 1.02
CareInsite Merger........................................... Recitals
CareInsite Merger Agreement................................. Recitals
CareInsite SEC Reports...................................... sec. 3.07(a)
Claim....................................................... sec. 6.05(b)
Closing..................................................... sec. 1.02
Closing Date................................................ sec. 1.02
Code........................................................ Recitals
Combined SEC Reports........................................ 3.07(a)
Company..................................................... Preamble
Company Acquisition Proposal................................ sec. 6.04(a)
Company Alternative Transaction Fee......................... sec. 8.05(b)(ii)(B)
Company Benefit Plans....................................... sec. 3.10(a)
Company Board............................................... Recitals
Company Common Stock........................................ Recitals
Company Directors........................................... sec. 6.11(a)(ii)
Company Disclosure Letter................................... Article
Company Insiders............................................ sec. 6.13
Company Licensed Intellectual Property...................... sec. 3.12(b)(iii)
Company Material Adverse Effect............................. sec. 3.01
Company Owned Intellectual Property......................... sec. 3.12(b)(ii)
Company Permits............................................. sec. 3.06(a)
Company Preferred Stock..................................... sec. 3.03(a)
Company SEC Reports......................................... sec. 3.07(a)
Company Stock Option........................................ sec. 2.04(a)
Company Stock Option Plans.................................. sec. 2.04(a)
Company Stock Options....................................... sec. 2.04(a)
Company Stockholders' Meeting............................... sec. 6.01(a)(i)
Company Subsidiaries........................................ sec. 3.01
Company Superior Proposal................................... sec. 6.04(a)(iii)(A)
Company Systems............................................. sec. 3.12(c)
Company Voting Agreement.................................... Recitals
Company Warrants............................................ sec. 2.05(a)
Confidentiality Agreement................................... sec. 6.03(b)
Contract.................................................... sec. 9.03
control..................................................... sec. 9.03
controlled by............................................... sec. 9.03
Delaware Law................................................ Recitals
Effective Time.............................................. sec. 1.02
employee benefit plan....................................... sec. 3.10(a),
sec. 4.10(a)
ERISA....................................................... sec. 3.10(a)
Excess Shares............................................... sec. 2.02(e)(ii)
Exchange Act................................................ sec. 3.05(b)(i)
Exchange Agent.............................................. sec. 2.02(a)
</TABLE>
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<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINITION
------------ --------------------
<S> <C>
Exchange Fund............................................... sec. 2.02(a)
Exchange Ratio.............................................. sec. 2.01(a)
Expenses.................................................... sec. 8.05(a)
GAAP........................................................ sec. 3.07(b)
Governmental Entity......................................... sec. 3.05(b)
HSR Act..................................................... sec. 3.05(b)(i)
Indemnified Parties......................................... sec. 6.05(a)
Intellectual Property....................................... sec. 3.12(a)
Knowledge................................................... sec. 9.03
Law......................................................... sec. 3.05(a)(ii)
Merger...................................................... Recitals
Merger Consideration........................................ sec. 2.01(a)
NASD........................................................ sec. 3.05(b)(i)
NASDAQ...................................................... sec. 2.02(e)(ii)
Order....................................................... sec. 6.06(c),
sec. 7.01(d)
Parent...................................................... Preamble
Parent Acquisition Proposal................................. sec. 6.04(b)
Parent Alternative Transaction Fee.......................... sec. 8.05(c)(ii)(B)
Parent Benefit Plans........................................ sec. 4.10(a)
Parent Board................................................ Recitals
Parent By-Laws.............................................. sec. 4.03(d)
Parent Common Stock......................................... Recitals
Parent Disclosure Letter.................................... Article IV
Parent Licensed Intellectual Property....................... sec. 4.12(a)(iii)
Parent Material Adverse Effect.............................. sec. 4.01
Parent Options and Warrants................................. sec. 4.03(b)
Parent Owned Intellectual Property.......................... sec. 4.12(a)(ii)
Parent Permits.............................................. sec. 4.06(a)
Parent Proposal............................................. Recitals
Parent SEC Reports.......................................... sec. 4.07(a)
Parent Stockholders' Meeting................................ sec. 6.01(a)(i)
Parent Subsidiaries......................................... sec. 4.01
Parent Superior Proposal.................................... sec. 6.04(b)(iii)(A)
Parent Systems.............................................. sec. 4.12(b)
Parent Voting Agreement..................................... Recitals
Pension Plan................................................ sec. 6.12(c)
Permits..................................................... sec. 3.06(a)
Person...................................................... sec. 9.03
Porex Savings Plan.......................................... 6.12(c)
Proxy Statement............................................. sec. 6.01(a)(i)
Registration Statement...................................... sec. 6.01(a)(ii)
Representatives............................................. sec. 6.03(a)(i)
Rule 145 Affiliate.......................................... sec. 6.14
SEC......................................................... sec. 3.07(a)
Section 16 Information...................................... sec. 6.13
Securities Act.............................................. sec. 3.05(b)(i)
Stockholders' Meetings...................................... sec. 6.01(a)(i)
subsidiaries................................................ sec. 9.03
subsidiary.................................................. sec. 9.03
Surplus Account............................................. sec. 6.12(c)
Surviving Corporation....................................... sec. 1.01
</TABLE>
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<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINITION
------------ --------------------
<S> <C>
Taxes....................................................... sec. 3.13(a)(iv)
Termination Date............................................ sec. 8.01(b)
under common control with................................... sec. 9.03
Year 2000 Compliant......................................... sec. 3.12(c),
sec. 4.12(b)
</TABLE>
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<PAGE> 237
AGREEMENT AND PLAN OF MERGER dated as of February 13, 2000 (this
"AGREEMENT") between HEALTHEON/WEBMD CORPORATION, a Delaware corporation
("PARENT"), and MEDICAL MANAGER CORPORATION, a Delaware corporation (the
"COMPANY").
WITNESSETH
WHEREAS, the Boards of Directors of Parent and the Company have each
determined that it is in the best interests of their respective stockholders for
Parent and the Company to combine their respective businesses upon the terms and
conditions set forth herein;
WHEREAS, in furtherance of such business combination, upon the terms and
subject to the conditions of this Agreement and in accordance with the General
Corporation Law of the State of Delaware ("DELAWARE LAW") the Company will merge
with and into Parent (the "MERGER");
WHEREAS, the Company Board (the "COMPANY BOARD") (i) has determined that
the Merger is consistent with and in furtherance of the long-term business
strategy of the Company and has declared to be advisable this Agreement, the
Merger and the other transactions contemplated hereby and (ii) has recommended
that the stockholders of the Company approve and adopt this Agreement and the
Merger (the "COMPANY PROPOSAL");
WHEREAS, the Parent Board (the "PARENT BOARD") (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Parent and has declared to be advisable this Agreement, the Merger and the
other transactions contemplated hereby and (ii) has recommended that the
stockholders of Parent approve and adopt this Agreement and the Merger (the
"PARENT PROPOSAL");
WHEREAS, CareInsite, Inc., a majority-owned public subsidiary
("CAREINSITE") of Avicenna Systems Corporation ("ASC"), and ASC have agreed to a
merger (the "CAREINSITE MERGER") whereby CareInsite will merge with and into
ASC, with ASC as the surviving corporation, pursuant to an Agreement and Plan of
Merger dated as of the date hereof among Parent, ASC and CareInsite (the
"CAREINSITE MERGER AGREEMENT");
WHEREAS, the satisfaction or, if permissible, waiver of all of the
conditions precedent to the closing of the CareInsite Merger is a condition
precedent to the closing of the Merger;
WHEREAS, as a condition to the willingness of the parties to enter into
this Agreement, Parent will have entered into a voting agreement, dated as of
the date of this Agreement, with certain members of the Company Board, each a
holder of common stock, par value $.01 per share, of the Company ("COMPANY
COMMON STOCK"), pursuant to which each member has agreed, among other things, to
vote its shares of Company Common Stock in favor of the Company Proposal and to
take certain other actions in support of the Merger (the "COMPANY VOTING
AGREEMENT");
WHEREAS, as a condition to the willingness of the parties to enter into
this Agreement, the Company will have entered into a voting agreement, dated as
of the date of this Agreement, with certain members of the Parent Board and
certain significant holders of shares of common stock, par value $.0001 per
share, of the Parent (the "PARENT COMMON STOCK"), pursuant to which each of them
has entered into an agreement to, among other things, vote its shares of Parent
Common Stock in favor of the Parent Proposal and to take certain other actions
in support of the Merger and Parent hereby agrees to use its best efforts to
cause the Persons listed on Section 1.0 of the Parent Disclosure Letter (as
defined below) to execute counterparts of such agreements as soon as possible
following the date hereof (the "PARENT VOTING AGREEMENT");
WHEREAS, as a condition to the willingness of the parties to enter into
this Agreement, (i) Medical Manager Health Systems Inc., CareInsite and Parent
have entered into the Interchange Agreement, dated as of the date hereof and
(ii) CareInsite, Parent, and ASC have entered into the CareInsite Merger
Agreement; and
WHEREAS, for federal income tax purposes, the Merger is intended to qualify
as a reorganization under the provisions of section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "CODE").
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<PAGE> 238
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Section 251 of Delaware Law,
at the Effective Time (as defined below in Section 1.02), the Company shall be
merged with and into Parent. As a result of the Merger, the separate corporate
existence of the Company shall cease and Parent shall continue as the surviving
corporation of the Merger (the "SURVIVING CORPORATION").
SECTION 1.02. Effective Time; Closing. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place on the first business day
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (other than those that by their nature will be satisfied on the
Closing Date, as defined below) or on such other date as Parent and the Company
shall agree in writing (such date, the "CLOSING DATE"). On the Closing Date, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State
of Delaware, in such form as is required by, and executed and acknowledged in
accordance with, Section 251 of Delaware Law. The term "EFFECTIVE TIME" means
the date and time of the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware (or such later time as may be agreed by the
parties hereto and specified in the Certificate of Merger). The Closing will be
held at the offices of counsel to Parent (or such other place as the parties may
agree).
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Parent shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of each of the
Company and Parent shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. (a) At the Effective
Time, the Certificate of Incorporation of Parent, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by Delaware Law.
(b) At the Effective Time, the By-Laws of Parent, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by Delaware Law, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.05. Directors and Officers. The directors of Parent immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
By-Laws of the Surviving Corporation, and the officers of Parent immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, the Company or the
holders of any of the following securities:
(a) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be cancelled pursuant to Section 2.01(b)) shall be canceled and shall
be converted, subject to Section 2.02(e), into the right to receive 1.65 shares
(the "EXCHANGE RATIO") of Parent Common Stock; provided, however, that, if
between the date of this Agreement and the
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<PAGE> 239
Effective Time the outstanding shares of Parent Common Stock or of Company
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to the extent appropriate to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares; and
(b) each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent immediately prior to the Effective
Time shall be cancelled and extinguished without any conversion thereof and no
payment or distribution shall be made with respect thereto.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. Parent shall
deposit, or shall cause to be deposited, with a bank or trust company designated
by Parent and reasonably satisfactory to the Company (the "EXCHANGE AGENT"), for
the benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this Article II through the Exchange Agent, certificates
representing the shares of Parent Common Stock issuable pursuant to Section
2.01(a) as of the Effective Time, cash in lieu of any fractional shares pursuant
to Section 2.02(e) and any dividends or other distributions pursuant to Section
2.02(c) (such certificates for shares of Parent Common Stock, together with cash
in lieu of fractional shares and any dividends or distributions with respect
thereto, being hereinafter referred to as the "EXCHANGE FUND"). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver out of the Exchange
Fund the Parent Common Stock contemplated to be issued pursuant to Section
2.01(a), the cash in lieu of fractional shares of Parent Common Stock to be paid
pursuant to Section 2.02(e) and any dividends or other distributions pursuant to
Section 2.02(c). Except as contemplated by Section 2.02(f) hereof, the Exchange
Fund shall not be used for any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, and in any event not later than five business days, Parent shall cause the
Exchange Agent to mail to each holder of record (as of the Effective Time) of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES")
whose shares were converted into the right to receive shares of Parent Common
Stock pursuant to Section 2.01(a), cash in lieu of fractional shares of Parent
Common Stock to be paid pursuant to Section 2.02(e) and any dividends or other
distributions pursuant to Section 2.02(c), (i) a letter of transmittal (which
shall be in customary form and shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of any fractional
shares and any dividends or other distributions pursuant to Section 2.02(c).
Upon surrender to the Exchange Agent of a Certificate for cancellation, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock which such holder has the right to receive in
respect of the shares of Company Common Stock formerly represented by such
Certificate (after taking into account all shares of Company Common Stock then
held by such holder), cash in lieu of any fractional shares of Parent Common
Stock to which such holder is entitled pursuant to Section 2.02(e) and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.02(c), and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of shares of Company Common
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock,
cash in lieu of any fractional shares of Parent Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c) may
be issued to a transferee if the Certificate representing such shares of Company
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at all
times after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock, cash in
lieu of any fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 2.02(e) and any dividends or other distributions to
which such holder is entitled pursuant to Section 2.02(c).
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<PAGE> 240
(c) Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to the Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional shares shall be paid to any such holder
pursuant to Section 2.02(e), until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of escheat, tax or other
applicable Laws (as defined in Section 3.05), following surrender of any such
Certificate, there shall be paid to the holder of the certificates representing
whole shares of Parent Common Stock issued in exchange therefor, without
interest, (i) promptly, the amount of any cash payable with respect to a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e) and the amount of dividends or other distributions
with a record date after the Effective Time and theretofore paid with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions, with a record date after
the Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Parent Common Stock.
(d) No Further Rights in Company Common Stock. All shares of Parent
Common Stock issued upon conversion of shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.02(c) or (e)) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution with respect to Parent
Common Stock shall be payable on or with respect to any fractional share and
such fractional share interests will not entitle the owner thereof to any rights
of a stockholder of Parent.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full shares of
Parent Common Stock delivered to the Exchange Agent by Parent pursuant to
Section 2.02(a) over (y) the aggregate number of full shares of Parent Common
Stock to be distributed to holders of Company Common Stock pursuant to Section
2.02(b) (such excess being herein called the "EXCESS SHARES"). As soon after the
Effective Time as practicable, the Exchange Agent, as agent for such holders of
Parent Common Stock, shall sell the Excess Shares at then prevailing prices on
the National Market System of the Nasdaq Stock Market (the "NASDAQ"), all in the
manner provided in paragraph (iii) of this Section 2.02(e).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NASDAQ through one or more member firms of the NASDAQ and shall
be executed in round lots to the extent practicable. Until the net proceeds of
any such sale or sales have been distributed to such holders of Company Common
Stock, the Exchange Agent will hold such proceeds in trust for such holders of
Company Common Stock as part of the Exchange Fund. Parent shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs of the
Exchange Agent incurred in connection with such sale or sales of Excess Shares.
In addition, Parent shall pay the Exchange Agent's compensation and expenses in
connection with such sale or sales. The Exchange Agent shall determine the
portion of such net proceeds to which each holder of Company Common Stock shall
be entitled, if any, by multiplying the amount of the aggregate net proceeds by
a fraction the numerator of which is the amount of the fractional share interest
to which such holder of Company Common Stock is entitled (after taking into
account all shares of Company Common Stock then held by such holder) and the
denominator of which is the aggregate amount of fractional share interests to
which all holders of Certificates representing Company Common Stock are
entitled.
(iv) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Company Common Stock with respect to any
fractional share interests, the Exchange Agent shall promptly pay such amounts
to such holders of Company Common Stock subject to and in accordance with the
terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Company Common Stock for 180 days
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Company Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Parent for the shares of Parent Common
Stock, any cash in lieu of
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fractional shares of Parent Common Stock to which they are entitled pursuant to
Section 2.02(e) and any dividends or other distributions with respect to the
Parent Common Stock to which they are entitled pursuant to Section 2.02(c).
(g) No Liability. Neither Parent nor the Surviving Corporation shall
be liable to any holder of shares of Company Common Stock for any such shares of
Company Common Stock (or dividends or distributions with respect thereto), or
cash lawfully delivered to a public official pursuant to any abandoned property,
escheat or similar Law.
(h) Withholding Rights. Each of the Exchange Agent, the Surviving
Corporation and Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as it may be required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax Law. To the extent that amounts are so
withheld by the Exchange Agent, the Surviving Corporation or Parent, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Parent, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock, any cash in lieu of fractional
shares of Parent Common Stock to which the holders thereof are entitled pursuant
to Section 2.02(e) and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.02(c).
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
Certificates representing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Company Common Stock, except as otherwise provided in this Agreement
or by Law. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into shares of Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock to
which the holders thereof are entitled pursuant to Section 2.02(e) and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.02(c).
SECTION 2.04. Company Stock Options. (a) At the Effective Time, each
outstanding stock option (each a "COMPANY STOCK OPTION" and collectively, the
"COMPANY STOCK OPTIONS") granted pursuant to the terms and conditions of the
Company's stock option plans and arrangements (collectively, the "COMPANY STOCK
OPTION PLANS"), whether or not exercisable, shall be converted into and become
rights with respect to Parent Common Stock, and the Parent shall assume the
Company's obligations with respect to each Company Stock Option and the related
Company Stock Option Plan, in accordance with its terms, except that from and
after the Effective Time, (i) Parent and its compensation committee shall be
substituted for the Company and the committee of the Company's Board of
Directors (including, if applicable, the entire Company Board) administering the
Company Stock Option Plan, if any, under which such Company Stock Option was
granted or otherwise governed, (ii) each Company Stock Option assumed by Parent
may be exercised solely for shares of Parent Common Stock, (iii) the number of
shares of Parent Common Stock subject to such Company Stock Option shall be
equal to the number of whole shares (rounded to the nearest whole share) of
Company Common Stock subject to such Company Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, (iv) the per share exercise
price under each such Company Stock Option shall be adjusted by dividing the per
share exercise price under each such Company Stock Option by the Exchange Ratio
and rounding to the nearest whole cent, and (v) all references in the Company
Stock Option Plans and the stock option certificates and agreements to the
Company (or its predecessors) shall be deemed to refer to Parent.
Notwithstanding the provisions of clauses (iii) and (iv) of the first sentence
of this Section 2.04(a), each Company Stock Option which is an "incentive stock
option" shall be
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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
Company Stock Option, within the meaning of Section 424(h) of the Code.
(b) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Stock Options appropriate documentation
evidencing the foregoing assumption by Parent of such Company Stock Options and
the related Company Stock Option Plan and the agreements evidencing such Company
Stock Options shall continue in effect on the same terms and conditions (subject
to adjustments required by this Section 2.04 after giving effect to the Merger
and the provisions set forth above). Parent shall comply with the terms of the
Company Stock Option Plans and ensure, to the extent lawful, and subject to the
provisions of the applicable Company Stock Option Plan, that Company Stock
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.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
the exercise of Company Stock Options.
(d) Parent agrees to file, as of the Effective Time, a registration
statement on Form S-8 for the shares of Parent Common Stock issuable with
respect to the Company Stock Options and shall maintain the effectiveness of
such registration statement thereafter for so long as any such Company Stock
Options remain outstanding.
SECTION 2.05. Company Warrants. (a) At the Effective Time, Parent shall
assume the obligations of Company under any warrant or other rights to purchase
shares of Company Common Stock (the "COMPANY WARRANTS") outstanding at the
Effective Time, whether or not the Company Warrants are then exercisable.
Thereafter, the Company Warrants shall represent the right to receive upon
exercise the number of shares of Parent Common Stock equal to the product of (i)
the Exchange Ratio and (ii) the number of shares of Company Common Stock for
which such Company Warrant could be exercised at any time, with such product
rounded to the nearest whole share. The per share exercise price under each such
Company Warrant shall be adjusted by dividing the per share exercise price under
each such Company Warrant by the Exchange Ratio and rounding to the nearest
whole cent. At the Effective Time, (i) all references in the instruments
evidencing the Company Warrants to Company shall be deemed to refer to Parent
and (ii) Parent shall assume all of Company's obligations under such instruments
with respect to such Company Warrants as so amended.
(b) As soon as practicable after the Effective Time of the Merger,
Parent shall deliver to the holders of the Company Warrants documentation
evidencing the foregoing assumption by Parent of such Company Warrants.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Company Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Letter of even date herewith
delivered by the Company to Parent concurrently with the execution of this
Agreement (the "COMPANY DISCLOSURE LETTER") (it being agreed that disclosure of
an item or fact in any section of the Company Disclosure Letter shall not be
deemed disclosed with respect to any other section of the Company Disclosure
Letter), the Company hereby represents and warrants to Parent that:
SECTION 3.01. Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware. The Company has all corporate power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted. Each subsidiary of the Company (collectively, the "COMPANY
SUBSIDIARIES") is a corporation duly incorporated, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. Each of the Company
and the Company Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except
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for such failures to be so qualified or licensed and in good standing that would
not have a Company Material Adverse Effect (as defined below). The term "COMPANY
MATERIAL ADVERSE EFFECT" means an event, change or occurrence which,
individually or together with any other event, change or occurrence, has a
material adverse effect on (i) the financial position, business, or results of
operations of the Company and the Company Subsidiaries, taken as a whole, or
(ii) the ability of the Company to perform its obligations under this Agreement
or to consummate the Merger or the other transactions contemplated by this
Agreement, but shall not include (x) any adverse effect due to changes, after
the date of this Agreement, in conditions generally affecting (1) the healthcare
or electronic commerce industries or (2) the U.S. economy as a whole, (y) any
change or adverse effect caused by, or relating to, the announcement of this
Agreement or the transactions contemplated hereby, or (z) any adverse effect due
to legal or regulatory changes, effective after the date of this Agreement;
provided that any order or regulatory action specifically related to the Company
may be considered in determining the existence of a Company Material Adverse
Effect.
SECTION 3.02. Certificate of Incorporation and Bylaws. The Company has
heretofore furnished to Parent complete and correct copies of the Certificate of
Incorporation and the By-Laws, each as amended to the date of this Agreement, of
the Company. Such Certificate of Incorporation and By-Laws are in full force and
effect. Neither the Company nor any Company Subsidiary is in violation of any
provision of its Certificate of Incorporation, By-Laws or equivalent
organizational documents.
SECTION 3.03. Capitalization. (a) The authorized capital stock of the
Company consists of (a) 300,000,000 shares of Company Common Stock and (b)
10,000,000 shares of preferred stock, par value $.01 per share (the "Company
Preferred Stock"). As of the date hereof, (i) 35,704,665 shares of Company
Common Stock were issued and outstanding (plus any shares issued upon exercise
of Company Stock Options since February 11, 2000), all of which are validly
issued, fully paid and nonassessable and (ii) 5,268,463 shares of Company Common
Stock are held in the treasury of the Company. As of the date of this Agreement,
no shares of the Company Preferred Stock were issued and outstanding. The
Company has no other capital stock authorized, issued or outstanding.
(b) As of February 11, 2000, (i) 17,779,543 shares of Company Common
Stock were subject to issuance pursuant to outstanding Company Stock Options,
(ii) 170,911 shares of Company Common Stock were subject to issuance pursuant to
outstanding Company Warrants and (iii) 138,354 securities convertible into
2,305,900 shares of Company Common Stock were outstanding. The Company
Disclosure Letter sets forth, with respect to the Company Stock Options
outstanding as of February 11, 2000, the aggregate number of shares of Company
Common Stock subject to Company Stock Options under each Company Stock Option
Plan and the weighted average exercise price of such Company Stock Options. The
Company Disclosure Letter also lists the names of all individuals or entities
who own Company Warrants, together with the number of shares of Company Common
Stock subject to such Company Warrants and the exercise prices of such Company
Warrants. No options, warrants or other rights to acquire shares of Company
Common Stock have been granted from February 11, 2000 to the date of this
Agreement.
(c) Except for (i) Company Stock Options granted pursuant to the Company
Stock Option Plans, (ii) stock options granted pursuant to the CareInsite stock
option plans and arrangements described in Section 2.04 of the CareInsite Merger
Agreement, and (iii) the Company Warrants, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Company or any Company Subsidiary
or obligating the Company or any Company Subsidiary to issue or sell any shares
of capital stock of, or other equity interests in, the Company or any Company
Subsidiary. All shares of Company Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable. There are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
shares of Company Common Stock or any capital stock of any Company Subsidiary.
Each outstanding share of capital stock of each Company Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and each such share
owned by the Company or another Company Subsidiary is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Company Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever. There
are no outstanding contractual obligations of the Company or any
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Company Subsidiary to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, any Company Subsidiary, other than
a Company Subsidiary that is wholly owned by the Company and other Company
Subsidiaries, or any other Person.
(d) On a fully exercised and converted to Company Common Stock basis, the
number of shares of Company Common Stock outstanding on the date hereof would be
55,961,019.
SECTION 3.04. Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject to the terms and conditions of this Agreement and the approval of
this Agreement by the holders of a majority of then outstanding shares of
Company Common Stock, to perform its obligations hereunder and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the Merger
and the other transactions contemplated by this Agreement (other than, with
respect to the Merger, the approval of the Company Proposal by the holders of a
majority of then outstanding shares of Company Common Stock and the filing and
recordation of appropriate merger documents as required by Delaware Law and
subject to the terms and conditions of this Agreement). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
Laws now or hereafter in effect relating to creditors' rights and by general
equitable principles (regardless of whether enforceability is considered in a
proceeding in equity or at Law).
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws of the Company or any
equivalent organizational documents of any Company Subsidiary, (ii) assuming
that all consents, approvals, authorizations and other actions described in
Section 3.05(b) have been obtained and all filings and obligations described in
Section 3.05(b) have been made, conflict with or violate any federal, state or
local statute, law, ordinance, regulation, rule, code, order, judgment or decree
of the United States of America or any foreign, state or local regulatory agency
or other Governmental Entity (as defined below) or any other jurisdiction and
any enforceable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment (collectively, the
"LAW") applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is bound or affected,
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of the
Company or any Company Subsidiary pursuant to, any Contract, or (iv) result in
any drag along or tag along rights of any stockholder of any Company Subsidiary,
except, with respect to clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences that would not have a
Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any domestic or foreign governmental or regulatory authority ("GOVERNMENTAL
ENTITY"), except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "EXCHANGE ACT") and the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder, the
"SECURITIES ACT"), state securities or "blue sky" Laws ("BLUE SKY LAWS"), the
Rules of the National Association of Securities Dealers ("NASD"), state takeover
Laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR ACT"), filings or approvals required under the competition
Laws of foreign jurisdictions, and the filing and recordation of the Certificate
of Merger as required by the Delaware Law, and (ii) for such consents,
approvals, authorizations or permits, or such filings or
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notifications, the failure to obtain or to make as would not prevent
consummation of the Merger and would not have a Company Material Adverse Effect.
SECTION 3.06. Permits; Compliance. (a) Except as set forth in the
Combined SEC Reports (as defined in Section 3.07), the Company and the Company
Subsidiaries are in possession of, and is in compliance with the terms of, all
federal, state, local, and foreign governmental approval, authorization,
certificate, consent, easement, filing, franchise, letter of good standing,
license, notice, permit, qualification, registration or right of or from any
Governmental Entity (or any extension, modification, amendment or waiver of any
of these), or any notice, statement, filing or other communication to be filed
with or delivered to any Governmental Entity ("PERMITS") that are required for
the operation of the business of the Company and the Company Subsidiaries, taken
as a whole, as they are operated on the date hereof except for such Permits, the
absence of which would not have a Company Material Adverse Effect (collectively,
the "COMPANY PERMITS"). Except as set forth in the Combined SEC Reports, no
suspension or cancellation of any Company Permit is pending or, to the Knowledge
(as defined in Section 9.03) of the Company, threatened, except with respect to
Company Permits the suspension or cancellation of which would not have a Company
Material Adverse Effect.
(b) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, the business of the Company and the
Company Subsidiaries has been and is being conducted in compliance with all
applicable Laws. Except as set forth in the Combined SEC Reports and as would
not have a Company Material Adverse Effect, neither the Company nor any Company
Subsidiary is in conflict with, or has violated any provision of, or committed
or failed to perform any act which, with or without notice, lapse of time, or
both, would constitute a default under the provisions of (i) any Law applicable
to the Company or any Company Subsidiary or by which any property or asset of
the Company or any Company Subsidiary is bound or affected or (ii) any Company
Permit. Except as set forth in the Combined SEC Reports and those which would
not have a Company Material Adverse Effect, (i) no investigation or review by
any Governmental Entity with respect to the Company or the Company Subsidiaries
is pending or, to the Knowledge of the Company, threatened in writing; and (ii)
neither the Company nor any of the Company Subsidiaries has received any written
communication in the past two years from any Governmental Entity that alleges
that the Company or any of the Company Subsidiaries is not in compliance in any
material respect with any applicable Law.
SECTION 3.07. SEC Filings; Financial Statements; Absence of
Liabilities. (a) The Company has filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since July 1, 1998 (collectively, the "COMPANY SEC REPORTS"), and
CareInsite has filed all forms, reports and documents required to be filed by it
with the SEC since June 15, 1999 (collectively, the "CAREINSITE SEC REPORTS" and
together with the Company SEC Reports, the "COMBINED SEC REPORTS"). As of the
respective dates they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, on the date of such amending or superseding
filing), (i) the Combined SEC Reports complied in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) none of the Combined SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Except
for CareInsite, no Company Subsidiary is required to file any form, report or
other document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes and schedules thereto) contained in the Combined SEC Reports
complied as to form with the applicable accounting requirements and rules and
regulations of the SEC and was prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited financial statements, as permitted by Form
10-Q of the SEC), and each presented fairly, in all material respects, the
consolidated financial position of the Company and the consolidated Company
Subsidiaries as at the respective dates thereof and their results of operations
and cash flows for the respective periods indicated therein, all in accordance
with GAAP (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments which were not and are not expected to be material in
amount).
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(c) Except for liabilities and obligations reflected on the consolidated
balance sheet of the Company as of December 31, 1999 (including the notes
thereto), liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1999 and other
liabilities and obligations that would not have a Company Material Adverse
Effect, neither the Company nor any Company Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet prepared in
accordance with GAAP.
SECTION 3.08. Absence of Certain Changes or Events. During the period
commencing December 31, 1999 and ending on the date of this Agreement, there has
not been:
(a) a Company Material Adverse Effect;
(b) any event, condition or occurrence which is reasonably likely to
have a Company Material Adverse Effect; or
(c) except as set forth in the Combined SEC Reports or as disclosed in
connection with the other representations and warranties of the Company in this
Agreement, any event that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Sections
5.01(c) through (g) and (o) hereof.
SECTION 3.09. Absence of Litigation. (a) As of the date of this
Agreement, there is no litigation, suit, claim, action, proceeding or
investigation pending or, to the Knowledge of the Company, threatened against
the Company or any Company Subsidiary, or any property or asset of the Company
or any Company Subsidiary, by or before any court, arbitrator or Governmental
Entity, domestic or foreign, except as set forth in the Combined SEC Reports and
would not have a Company Material Adverse Effect.
(b) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, as of the date of this Agreement,
neither the Company nor any Company Subsidiary nor any property or asset of the
Company or any Company Subsidiary is subject to any continuing order of, consent
decree, settlement agreement or other similar written agreement with, or, to the
Knowledge of the Company, continuing investigation by, any Governmental Entity,
or any order, writ, judgment, injunction, decree, determination or award of any
Governmental Entity or arbitrator.
SECTION 3.10. Employee Benefit Plans. (a) With respect to each employee
benefit plan, program, arrangement and contract (including, without limitation,
any "EMPLOYEE BENEFIT PLAN", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), maintained or
contributed to by the Company or any Company Subsidiary with respect to any
current or former director, officer or employee of the Company or any Company
Subsidiary, or with respect to which the Company or any Company Subsidiary could
incur liability under Section 4069, 4201 or 4212(c) of ERISA (the "COMPANY
BENEFIT PLANS"), the Company has made available to Parent a true and correct
copy of (i) the most recent annual report (Form 5500) filed with the Internal
Revenue Service (the "IRS"), (ii) such Company Benefit Plan, (iii) each trust
agreement relating to such Company Benefit Plan, (iv) the most recent summary
plan description for each Company Benefit Plan for which a summary plan
description is required, (v) the most recent actuarial report or valuation
relating to a Company Benefit Plan subject to Title IV of ERISA, if any, and
(vi) the most recent determination letter, if any, issued by the IRS with
respect to any Company Benefit Plan qualified under Section 401(a) of the Code.
(b) With respect to the Company Benefit Plans, no event has occurred
and, to the knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company or any Company Subsidiary
could be subject to any liability under the terms of such Company Benefit Plans,
ERISA, the Code or any other applicable Law except as would not have a Company
Material Adverse Effect. Neither the Company nor any Company Subsidiary has any
actual or contingent material liability under Title IV of ERISA (other than the
payment of premiums to the Pension Benefit Guaranty Corporation). None of the
Company Benefit Plans is a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(c) The Company has made available to Parent (i) copies of all
employment agreements and severance agreements with executive officers of the
Company or CareInsite and (ii) copies of all plans, programs, agreements and
other arrangements of the Company or any Company Subsidiary with or relating to
its or such Company
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Subsidiary's employees which contain change in control provisions. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, "golden parachute" or
otherwise) becoming due to any director, officer or employee of the Company or
any Company Subsidiary under any Company Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Company Benefit Plan or (iii)
result in any acceleration of the time of payment or vesting of any benefits
(including under the Company Stock Option Plans).
(d) No Company Benefit Plan provides retiree medical or retiree life
insurance benefits to any person (except to the extent required by law).
SECTION 3.11. Tax Matters. To the Knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to take any action that
would prevent the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code. To the Knowledge of the
Company, there are no agreements, plans or other circumstances that would
prevent the Merger from qualifying under Section 368(a) of the Code.
SECTION 3.12. Intellectual Property. (a) "INTELLECTUAL PROPERTY" means
(i) patents, patent applications and statutory invention registrations, (ii)
trademarks, service marks, URLs, trade dress, logos, trade names, corporate
names, and other source identifiers, and registrations and applications for
registration thereof, (iii) copyrightable works, copyrights, and registrations
and applications for registration thereof, (iv) all computer programs, whether
in source code, object code or other form (including without limitation any
embedded in or otherwise constituting part of a computer hardware device) and
all databases and data collections, and (v) confidential and proprietary
information, including trade secrets and know-how.
(b) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, (i) to the Knowledge of the Company, the
conduct of the business of the Company and the Company Subsidiaries as currently
conducted does not infringe or misappropriate the Intellectual Property of any
third party, and to the Knowledge of the Company, no claim has been asserted to
the Company that the conduct of the business of the Company and the Company
Subsidiaries as currently conducted infringes or may infringe or misappropriates
the Intellectual Property of any third party, (ii) with respect to each item of
Intellectual Property owned by the Company and the Company Subsidiaries and
material to the businesses of the Company and the Company Subsidiaries as
currently conducted ("COMPANY OWNED INTELLECTUAL PROPERTY"), the Company or a
Company Subsidiary is the owner of the entire right, title and interest in and
to such Intellectual Property and is entitled to use such Intellectual Property
in the continued operation of its respective business, (iii) with respect to
each item of Intellectual Property licensed to the Company or a Company
Subsidiary that is material to the businesses of the Company and the Company
Subsidiaries as currently conducted ("COMPANY LICENSED INTELLECTUAL PROPERTY"),
the Company or a Company Subsidiary has the right to use such Company Licensed
Intellectual Property in the continued operation of its respective business in
accordance with the terms of the license agreement governing such Company
Licensed Intellectual Property, (iv) to the Knowledge of the Company, the
Company Owned Intellectual Property is valid and enforceable, and has not been
adjudged invalid or unenforceable in whole or part, (v) to the Knowledge of the
Company, no person is engaging in any activity that infringes the Company Owned
Intellectual Property, (vi) to the Knowledge of the Company, each license of
Company Licensed Intellectual Property is valid and enforceable, is binding on
all parties to such license, and is in full force and effect, except to the
extent expired in accordance with its terms, and (vii) to the Knowledge of the
Company, no party to any license of the Company Licensed Intellectual Property
is in breach thereof or default thereunder.
(c) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, to the Knowledge of the Company, all
Company Systems and Company Owned Intellectual Property are Year 2000 Compliant.
For purposes hereof, "Company Systems" shall mean all computer, hardware,
software, systems, and equipment (including embedded microcontrollers in
non-computer equipment) material to or necessary for the Company to carry on its
business as currently conducted. For purposes hereof, "Year 2000 Compliant"
means that the Company Systems and Company Owned Intellectual Property provide
uninterrupted millennium functionality in that the Company Systems and Company
Owned Intellectual Property will record,
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store, process and present calendar dates falling on or after January 1, 2000,
in the same manner and with the same functionality as the Company Systems and
Company Owned Intellectual Property record, store, process, and present calendar
dates falling on or before December 31, 1999.
SECTION 3.13. Taxes. (a) Except as would not have a Company Material
Adverse Effect, (i) the Company and each of the Company Subsidiaries have timely
filed or will timely file all returns and reports required to be filed by them
with any taxing authority with respect to Taxes for any period ending on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of the Company and the Company Subsidiaries,
(ii) all Taxes that are due prior to the Effective Time have been paid or will
be paid (other than Taxes which (A) are not yet delinquent or (B) are being
contested in good faith and have not been finally determined), (iii) as of the
date of this Agreement, no deficiency for any Tax has been asserted or assessed
by a taxing authority against the Company or any of the Company Subsidiaries and
(iv) the Company and each of the Company Subsidiaries have provided adequate
reserves in accordance with generally accepted accounting principles in their
financial statements for any Taxes that have not been paid, whether or not shown
as being due on any returns. As used in this Agreement, "TAXES" shall mean any
and all taxes, fees, levies, duties, tariffs, imposts and other charges of any
kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any government or
taxing authority, including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added or gains taxes; license, registration and documentation fees; and
customers' duties, tariffs and similar charges.
(b) To the Knowledge of the Company, there are no material disputes
pending, or claims asserted in writing for, Taxes or assessments upon the
Company or any of the Company Subsidiaries, nor has the Company or any of the
Company Subsidiaries been requested in writing to give any currently effective
waivers extending the statutory period of limitation applicable to any federal
or state income tax return for any period which disputes, claims, assessments or
waivers are reasonably likely to have a Company Material Adverse Effect.
(c) There are no Tax liens upon any property or assets of the Company or
any of the Company Subsidiaries except liens for current Taxes not yet due and
except for liens which have not had and are not reasonably likely to have a
Company Material Adverse Effect.
(d) Neither the Company nor any of the Company Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the Code
by reason of a voluntary change in accounting method initiated by the Company or
any of the Company Subsidiaries, and the IRS has not initiated or proposed any
such adjustment or change in accounting method, in either case which adjustment
or change has had or is reasonably likely to have a Company Material Adverse
Effect.
(e) Except as set forth in the financial statements described in Section
3.07, neither the Company nor any of the Company Subsidiaries has entered into a
transaction which is being accounted for under the installment method of Section
453 of the Code, which would be reasonably likely to have a Company Material
Adverse Effect.
SECTION 3.14. Vote Required. The only vote of the holders of any class or
series of capital stock of the Company necessary to approve the Company Proposal
is the affirmative vote of the holders of a majority of the outstanding shares
of Company Common Stock.
SECTION 3.15. Opinion of Financial Advisor. The Company has received the
opinions of Merrill Lynch & Co., Warburg Dillon Reed LLC and Donaldson, Lufkin &
Jenrette Securities Corporation dated February 13, 2000 that, as of such date,
the Exchange Ratio is fair, from a financial point of view, to the stockholders
of the Company.
SECTION 3.16 Brokers. No broker, finder or investment banker (other than
Merrill Lynch & Co., Warburg Dillon Reed LLC and Donaldson, Lufkin & Jenrette
Securities Corporation is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company.
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SECTION 3.17. Contracts. Except for agreements listed as exhibits to any
Combined SEC Reports, none of the Company or any of the Company Subsidiaries is
a party to any: (a) Contract which grants any person the exclusive right to any
of the material assets of the Company or any of the Company Subsidiaries or
purports to limit in any material respect the manner in which, or the localities
in which, the Company or any of the Company Subsidiaries is entitled to conduct
all or any material portion of the business of Company or any of the Company
Subsidiaries; (b) Contract that requires the consent of, or terminates or
becomes terminable by, any party other than the Company or any of the Company
Subsidiaries as a result of the transactions contemplated by this Agreement
where the failure to obtain such consent or the termination of such Contract
could be reasonably expected to have a Company Material Adverse Effect; or (c)
Contract of any sort, other than in the ordinary course of business, which
contemplates any joint venture, partnership, strategic alliance or similar
arrangement extending beyond six (6) months or involving equity or investments
of more than $20,000,000. There is not, under any of the aforesaid obligations,
any default by the Company or any of the Company Subsidiaries except for
defaults or other events which would not have a Company Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the Disclosure Letter of even date herewith
delivered by Parent to the Company concurrently with the execution of this
Agreement (the "PARENT DISCLOSURE LETTER") (it being agreed that disclosure of
an item or fact in any section of the Parent Disclosure Letter shall not be
deemed disclosed with respect to any other section of the Parent Disclosure
Letter), Parent hereby represents and warrants to the Company that:
SECTION 4.01. Organization and Qualification. Parent is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Delaware. Parent has all corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each subsidiary of Parent (collectively, the "PARENT SUBSIDIARIES")
is a corporation duly incorporated, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Each of Parent and the
Parent Subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not have a Parent
Material Adverse Effect (as defined below). The term "PARENT MATERIAL ADVERSE
EFFECT" means an event, change or occurrence which, individually or together
with any other event, change or occurrence, has a material adverse effect on (i)
the financial position, business, or results of operations of Parent and the
Parent Subsidiaries, taken as a whole, or (ii) the ability of Parent to perform
their respective obligations under this Agreement or to consummate the Merger or
the other transactions contemplated by this Agreement, but shall not include (x)
any adverse effect due to changes, after the date of this Agreement, in
conditions generally affecting (1) the healthcare or electronic commerce
industries or (2) the U.S. economy as a whole, (y) any change or adverse effect
caused by, or relating to, the entering into of this Agreement, the consummation
of the transactions contemplated hereby or the announcement thereof, or (z) any
adverse effect due to legal or regulatory changes, effective after the date of
this Agreement.
SECTION 4.02. Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company complete and correct copies of the Parent
Certificate of Incorporation and the Parent By-Laws (as defined below). Such
Certificate of Incorporation and By-Laws are in full force and effect. Neither
Parent nor any Parent Subsidiary is in violation of any provision of its
Certificate of Incorporation, By-Laws or equivalent organizational documents.
SECTION 4.03. Capitalization. (a) The authorized capital stock of Parent
consists of: (i) 600,000,000 shares of Parent Common Stock, of which 179,772,040
shares are issued and outstanding as of February 7, 2000 and (ii) 5,000,000
shares of Preferred Stock, $0.0001 par value per share, of which 155,951 shares
are issued and outstanding as of February 7, 2000. All of the outstanding shares
of Parent Common Stock have been duly authorized and validly issued, and are
fully paid and nonassessable.
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(b) As of February 7, 2000, an aggregate of 65,701,201 shares of Parent
Common Stock are subject to issuance pursuant to outstanding options to purchase
Parent Common Stock under Parent's stock option plans and outstanding warrants
to purchase Parent Common Stock. (Stock options granted by Parent pursuant to
its stock option plans and warrants are referred to in this Agreement as "PARENT
OPTIONS AND WARRANTS".) No options or warrants to acquire shares of Parent
Common Stock have been granted from February 7, 2000 to the date of this
Agreement.
(c) Except as set forth in Section 4.03(a) and (b) above, as of the date
of this Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Parent or any Parent Subsidiary or obligating Parent or any
Parent Subsidiary to issue or sell any shares of capital stock of, or other
equity interests in, Parent or any Parent Subsidiary. All shares of Parent
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There are
no outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any
capital stock of any Parent Subsidiary. Each outstanding share of capital stock
of each Parent Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Parent or another Parent Subsidiary
is free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's or such other
Parent Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever. There are no outstanding contractual obligations of Parent or any
Parent Subsidiary to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, any Parent Subsidiary, other than a
Parent Subsidiary that is wholly owned by Parent and other Parent Subsidiaries,
or any other Person.
(d) The shares of Parent Common Stock to be issued in the Merger
pursuant to Section 2.01(a) will be duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights created by Law, the
Certificate of Incorporation of Parent or Amended and Restated By-Laws of Parent
(the "PARENT BY-LAWS") or any agreement or arrangement to which the Parent is a
party or is bound.
SECTION 4.04. Authority Relative to This Agreement. Parent has all
necessary corporate power and authority to execute and deliver this Agreement,
and, subject to the terms and conditions of this Agreement and obtaining the
necessary approvals of Parent's stockholders, to perform its obligations
hereunder and to consummate the Merger and the other transactions contemplated
by this Agreement. The execution and delivery of this Agreement by Parent and
the consummation by Parent of the Merger and the other transactions contemplated
by this Agreement have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the Merger and the other
transactions contemplated by this Agreement (other than, with respect to the
Merger, the approval of the Parent Proposal by a majority of the outstanding
shares of Parent Common Stock, and the filing and recordation of the appropriate
merger documents as required by Delaware Law and subject to the terms and
conditions of this Agreement). This Agreement has been duly and validly executed
and delivered by Parent and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at Law).
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent does not, and the performance
of this Agreement by Parent will not, (i) conflict with or violate the
Certificate of Incorporation of Parent or the Parent By-Laws or any equivalent
organizational documents of any Parent Subsidiary, (ii) assuming that all
consents, approvals, authorizations and other actions described in Section
4.05(b) have been obtained and all filings and obligations described in Section
4.05(b) have been made, conflict with or violate any Law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Parent or any Parent Subsidiary pursuant
to, any Contract, except, with respect to clauses
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(ii) and (iii), for any such conflicts, violations, breaches, defaults, or other
occurrences that would not have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent does not, and
the performance of this Agreement by Parent will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for the applicable requirements, if any, of the
Exchange Act and the Securities Act, Blue Sky Laws, the NASD, state takeover
Laws, the HSR Act, filings or approvals required under the competition Laws of
foreign jurisdictions, and the filing and recordation of the Certificate of
Merger as required by Delaware Law, (ii) the request that the shares of Parent
Common Stock to be issued pursuant to this Agreement in the Merger be listed for
trading on the Nasdaq National Market, and (iii) for such consents, approvals,
authorizations or permits, or such filings or notifications, the failure to
obtain or make as would not prevent consummation of the Merger and would not
have a Parent Material Adverse Effect.
SECTION 4.06. Permits; Compliance. (a) Except as set forth in the Parent
SEC Reports (as defined in Section 4.07), Parent and the Parent Subsidiaries are
in possession and are in compliance with the terms of all Permits that are
required for the operation of the business except for such Permits, the absence
of which would not have a Parent Material Adverse Effect (collectively, the
"PARENT PERMITS"). Except as set forth in the Parent SEC Reports, no suspension
or cancellation of any Parent Permit is pending or, to the Knowledge of Parent,
threatened, except with respect to Parent Permits the suspension or cancellation
of which would not, individually or in the aggregate, have a Parent Material
Adverse Effect.
(b) Except as set forth in the Parent SEC Reports and as would not have
a Parent Material Adverse Effect, the business of Parent and the Parent
Subsidiaries has been and is being conducted in compliance with all applicable
Laws. Except as set forth in the Parent SEC Reports and as would not have a
Parent Material Adverse Effect, neither Parent nor any Parent Subsidiary is in
conflict with, or has violated any provision of, or committed or failed to
perform any act which, with or without notice, lapse of time, or both, would
constitute a default under the provisions of (i) any Law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected or (ii) any Parent Permit. Except as set forth
in the Parent SEC Reports, no investigation or review by any Governmental Entity
with respect to Parent or the Parent Subsidiaries is pending or, to the
Knowledge of Parent, threatened in writing, other than, in each case, those
which would not have a Parent Material Adverse Effect; and neither Parent nor
any of the Parent Subsidiaries has received any written communication in the
past two years from any Governmental Entity that alleges that Parent or any of
the Parent Subsidiaries is not in compliance in any material respect with any
applicable Law.
SECTION 4.07. SEC Filings; Financial Statements; Absence of
Liabilities. (a) Parent has filed all forms, reports and documents required to
be filed by it with the SEC since February 1, 1999 (collectively, the "PARENT
SEC REPORTS"). As of the respective dates they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, on the date of such
amending or superseding filing), (i) the Parent SEC Reports complied in all
material aspects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) none of the Parent SEC Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. No Parent Subsidiary is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes and schedules thereto) contained in the Parent SEC Reports
complied as to form with the applicable accounting requirements and rules and
regulations of the SEC and was prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto or, in the case of unaudited financial statements, as
permitted by Form 10-Q of the SEC), and each presented fairly, in all material
respects, the consolidated financial position of Parent and the consolidated
Parent Subsidiaries as at the respective dates thereof and their results of
operations and cash flows for the respective periods indicated therein, all in
accordance with GAAP (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not expected to be
material in amount).
(c) Except for liabilities and obligations reflected on the consolidated
balance sheet of Parent as of September 30, 1999 (including the notes thereto),
liabilities and obligations incurred in the ordinary course of
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business consistent with past practice since September 30, 1999 and liabilities
and obligations arising under this Agreement and the CareInsite Merger
Agreement, neither Parent nor any Parent Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet prepared in
accordance with GAAP.
SECTION 4.08. Absence of Certain Changes or Events. During the period
commencing September 30, 1999 and ending on the date of this Agreement, there
has not been:
(a) a Parent Material Adverse Effect;
(b) any event, condition or occurrence which is reasonably likely to
have a Parent Material Adverse Effect; or
(c) except as set forth in the Parent SEC Reports or as disclosed in
connection with the other representations and warranties of Parent in this
Agreement, any event that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Sections
5.02(c) through (f) and (i) hereof
SECTION 4.09. Absence of Litigation. (a) Except as set forth in the
Parent SEC Reports, as of the date of this Agreement, there is no litigation,
suit, claim, action, proceeding or investigation pending or, to the Knowledge of
Parent, threatened against Parent or any Parent Subsidiary, or any property or
asset of Parent or any Parent Subsidiary, by or before any court, arbitrator or
Governmental Entity, domestic or foreign, except as would not have a Parent
Material Adverse Effect.
(b) Except as set forth in the Parent SEC Reports and as would not have
a Parent Material Adverse Effect, as of the date of this Agreement neither
Parent nor any Parent Subsidiary nor any property or asset of Parent or any
Parent Subsidiary is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
Knowledge of Parent, continuing investigation by, any Governmental Entity, or
any order, writ, judgment, injunction, decree, determination or award of any
Governmental Entity or arbitrator.
SECTION 4.10. Employee Benefit Plans. (a) With respect to each employee
benefit plan, program, arrangement and contract (including, without limitation,
any "EMPLOYEE BENEFIT PLAN", as defined in Section 3(3) of ERISA), maintained or
contributed to by Parent or any Parent Subsidiary, or with respect to which
Parent or any Parent Subsidiary could incur liability under Section 4069, 4201
or 4212(c) of ERISA (the "PARENT BENEFIT PLANS"), Parent has made available to
the Company a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Parent Benefit Plan, (iii) each trust
agreement relating to such Parent Benefit Plan, (iv) the most recent summary
plan description for each Parent Benefit Plan for which a summary plan
description is required, (v) the most recent actuarial report or valuation
relating to a Parent Benefit Plan subject to Title IV of ERISA, if any, and (vi)
the most recent determination letter, if any, issued by the IRS with respect to
any Parent Benefit Plan qualified under Section 401(a) of the Code.
(b) With respect to the Parent Benefit Plans, no event has occurred and,
to the knowledge of Parent, there exists no condition or set of circumstances,
in connection with which Parent or any Parent Subsidiary could be subject to any
liability under the terms of such Parent Benefit Plans, ERISA, the Code or any
other applicable Law, except as would not have a Parent Material Adverse Effect.
Neither Parent nor any Parent Subsidiary has any actual or contingent material
liability under Title IV of ERISA (other than the payment of premiums to the
Pension Benefit Guaranty Corporation). None of the Parent Benefit Plans is a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA).
(c) Parent has made available to the Company (i) copies of all
employment agreements and severance agreements with executive officers of Parent
or any Parent Subsidiary and (ii) copies of all plans, programs, agreements and
other arrangements of Parent or any Parent Subsidiary with or relating to its or
such Parent Subsidiary's employees which contain change in control provisions.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, "golden parachute" or
otherwise) becoming due to any director, officer or employee of Parent or any
Parent Subsidiary under any Parent Benefit Plan or
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otherwise, (ii) increase any benefits otherwise payable under any Parent Benefit
Plan or (iii) result in any acceleration of the time of payment or vesting of
any benefits (including under the stock option plans of Parent).
(d) No Parent Benefit Plan provides retiree medical or retiree life
insurance benefits to any person (except to the extent required by Law).
SECTION 4.11. Tax Matters. To the Knowledge of Parent, neither Parent nor
any of its affiliates has taken or agreed to take any action that would prevent
the Merger from constituting a transaction qualifying as a reorganization under
Section 368(a) of the Code. To the Knowledge of Parent, there are no agreements,
plans or other circumstances that would prevent the Merger from qualifying under
Section 368(a) of the Code.
SECTION 4.12. Intellectual Property. (a) Except as set forth in the
Parent SEC Reports and as would not have a Parent Material Adverse Effect, (i)
to the Knowledge of Parent, the conduct of the business of Parent and the Parent
Subsidiaries as currently conducted does not infringe or misappropriate the
Intellectual Property of any third party, and to the Knowledge of Parent, no
claim has been asserted to Parent that the conduct of the business of Parent and
the Parent Subsidiaries as currently conducted infringes or may infringe or
misappropriates the Intellectual Property of any third party, (ii) with respect
to each item of Intellectual Property owned by Parent and the Parent
Subsidiaries and material to the businesses of Parent and the Parent
Subsidiaries as currently conducted ("PARENT OWNED INTELLECTUAL PROPERTY"),
Parent or a Parent Subsidiary is the owner of the entire right, title and
interest in and to such Intellectual Property and is entitled to use such
Intellectual Property in the continued operation of its respective business,
(iii) with respect to each item of Intellectual Property licensed to Parent or a
Parent Subsidiary that is material to the businesses of Parent and the Parent
Subsidiaries as currently conducted ("PARENT LICENSED INTELLECTUAL PROPERTY"),
Parent or a Parent Subsidiary has the right to use such Parent Licensed
Intellectual Property in the continued operation of its respective business in
accordance with the terms of the license agreement governing such Parent
Licensed Intellectual Property, (iv) to the Knowledge of Parent, the Parent
Owned Intellectual Property is valid and enforceable, and has not been adjudged
invalid or unenforceable in whole or part, (v) to the Knowledge of Parent, no
person is engaging in any activity that infringes the Parent Owned Intellectual
Property, (vi) to the Knowledge of Parent, each license of Parent Licensed
Intellectual Property is valid and enforceable, is binding on all parties to
such license, and is in full force and effect, except to the extent expired in
accordance with its terms, and (vii) to the Knowledge of Parent, no party to any
license of the Parent Licensed Intellectual Property is in breach thereof or
default thereunder.
(b) Except as set forth in the Parent SEC Reports and as would not have
a Parent Material Adverse Effect, to the Knowledge of Parent, all Parent Systems
and Parent Owned Intellectual Property are Year 2000 Compliant. For purposes
hereof, "Parent Systems" shall mean all computer, hardware, software, systems,
and equipment (including embedded microcontrollers in non-computer equipment)
material to or necessary for Parent to carry on its business as currently
conducted. For purposes hereof, "Year 2000 Compliant" means that the Parent
Systems and Parent Owned Intellectual Property provide uninterrupted millennium
functionality in that the Parent Systems and Parent Owned Intellectual Property
will record, store, process and present calendar dates falling on or after
January 1, 2000, in the same manner and with the same functionality as the
Parent Systems and Parent Owned Intellectual Property record, store, process,
and present calendar dates falling on or before December 31, 1999.
SECTION 4.13. Taxes. (a) Except as would not have a Parent Material
Adverse Effect, (i) Parent and each of the Parent Subsidiaries have timely filed
or will timely file all returns and reports required to be filed by them with
any taxing authority with respect to Taxes for any period ending on or before
the Effective Time, taking into account any extension of time to file granted to
or obtained on behalf of Parent and the Parent Subsidiaries, (ii) all Taxes that
are due prior to the Effective Time have been paid or will be paid (other than
Taxes which (1) are not yet delinquent or (2) are being contested in good faith
and have not been finally determined), (iii) as of the date of this Agreement,
no deficiency for any material amount of Tax has been asserted or assessed by a
taxing authority against Parent or any of the Parent Subsidiaries and (iv)
Parent and each of the Parent Subsidiaries have provided adequate reserves in
accordance with generally accepted accounting principles in their financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any returns.
(b) To the Knowledge of Parent, there are no material disputes pending,
or claims asserted in writing for, Taxes or assessments upon Parent or any of
the Parent Subsidiaries, nor has Parent or any of the Parent
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Subsidiaries been requested in writing to give any currently effective waivers
extending the statutory period of limitation applicable to any federal or state
income tax return for any period which disputes, claims, assessments or waivers
are reasonably likely to have a Parent Material Adverse Effect.
(c) There are no Tax liens upon any property or assets of Parent or any
of the Parent Subsidiaries except liens for current Taxes not yet due and except
for liens which have not had and are not reasonably likely to have a Parent
Material Adverse Effect.
(d) Neither Parent nor any of the Parent Subsidiaries has been required
to include in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by Parent or any of
the Parent Subsidiaries, and the IRS has not initiated or proposed any such
adjustment or change in accounting method, in either case which adjustment or
change has had or is reasonably likely to have a Parent Material Adverse Effect.
(e) Except as set forth in the financial statements described in Section
4.07, neither Parent nor any of the Parent Subsidiaries has entered into a
transaction which is being accounted for under the installment method of Section
453 of the Code, which would be reasonably likely to have a Parent Material
Adverse Effect.
SECTION 4.14. Vote Required. The affirmative vote of a majority of the
shares of Parent Common Stock at the Parent Stockholders' Meeting (as defined
below) is required to approve the Parent Proposal. No other vote of the
stockholders of Parent is required by Law, the Certificate of Incorporation of
Parent, the Parent By-Laws or otherwise in order for Parent to consummate the
Merger and the transactions contemplated hereby.
SECTION 4.15. Opinion of Financial Advisor. Parent has received the
opinion of Morgan Stanley & Co., Incorporated, dated February 13, 2000 that, as
of such date, the Exchange Ratio is fair, from a financial point of view, to
Parent.
SECTION 4.16. Brokers. No broker, finder or investment banker (other than
Morgan Stanley & Co., Incorporated and FleetBoston Robertson Stephens, Inc.) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the other transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Parent.
SECTION 4.17. Contracts. Except for agreements listed as exhibits to any
Parent SEC Reports, none of Parent or any of the Parent Subsidiaries is a party
to any: (a) Contract which grants any person the exclusive right to any of the
material assets of Parent or any of the Parent Subsidiaries or purports to limit
in any material respect the manner in which, or the localities in which, the
Parent or any of the Parent Subsidiaries is entitled to conduct all or any
material portion of the business of Parent or any of the Parent Subsidiaries;
(b) Contract that requires the consent of, or terminates or becomes terminable
by, any party other than the Parent or any of the Parent Subsidiaries as a
result of the transactions contemplated by this Agreement where the failure to
obtain such consent or the termination of such Contract could be reasonably
expected to have a Parent Material Adverse Effect; or (c) Contract of any sort,
other than in the ordinary course of business, which contemplates any joint
venture, partnership, strategic alliance or similar arrangement extending beyond
six (6) months or involving equity or investments of more than $20,000,000.
There is not, under any of the aforesaid obligations, any default by Parent or
any of the Parent Subsidiaries except for defaults or other events which would
not have a Parent Material Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, except as specifically contemplated by any other provision of
this Agreement or Section 5.01 of the Company Disclosure Letter, unless Parent
shall otherwise agree in writing (such agreement not to be unreasonably withheld
or delayed):
(a) the Company and the Company Subsidiaries shall use all reasonable
efforts to preserve intact their present lines of business, maintain their
rights and franchises and preserve their relationships with employees,
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customers, suppliers and others having business dealings with them; provided,
however, that no action by the Company or any Company Subsidiary with respect to
matters specifically addressed by any other provision of this Section 5.01 or
Section 6.07 shall be deemed a breach of this Section 5.01(a);
(b) neither the Company nor any Company Subsidiary shall amend or
otherwise change its Certificate of Incorporation or By-Laws or equivalent
organizational documents, except for the issuance of preferred stock in
connection with acquisitions permitted pursuant to Section 5.01(f)(i);
(c) neither the Company nor any Company Subsidiary shall issue, sell,
pledge, dispose of, grant or encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, any shares of capital stock of the Company
or any Company Subsidiary of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest (including, without limitation, any
phantom interest), of the Company or any Company Subsidiary, except for (i) the
issuance of any shares of Company Common Stock issuable pursuant to Company
Stock Options outstanding on the date hereof in accordance with the respective
terms thereof, (ii) the issuance, in the ordinary course of business and
consistent with past practice, of Company Stock Options to purchase a maximum of
450,000 shares of Company Common Stock pursuant to Company Stock Option Plans in
effect on the date of this Agreement in connection with the commencement of the
employment of any Person by the Company or any Company Subsidiary and the shares
of Company Common Stock issuable pursuant to such Company Stock Options, in
accordance with the terms of the Company Stock Option Plans, (iii) issuances by
a direct or indirect wholly owned subsidiary of the Company of capital stock to
such subsidiary's parent, and (iv) issuances of capital stock in acquisitions
permitted under Section 5.01(f);
(d) neither the Company nor any Company Subsidiary shall declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock, other than
dividends by a direct or indirect wholly owned subsidiary of the Company to such
subsidiary's parent;
(e) neither the Company nor any Company Subsidiary shall reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock, except for any such transaction by a
wholly owned subsidiary of the Company that remains a wholly owned subsidiary of
the Company after the consummation of such transaction;
(f) neither the Company nor any Company Subsidiary shall: (i) acquire or
dispose of (including, without limitation, by merger, consolidation, or
acquisition or disposition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof, (x) for or
with a fair market value in excess of $500,000,000 or (y) in the case of
acquisitions, as could reasonably be expected to result in any (A) delay in the
consummation of the Merger or the transactions contemplated herein or (B)
decrease in the likelihood that the conditions set forth in Sections 7.01(d) and
(e) would be satisfied, or (ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
loans or advances, except for (A) indebtedness incurred in the ordinary course
of business and consistent with past practice, (B) indebtedness of the Company
to a direct or indirect wholly owned Company Subsidiary or indebtedness of a
direct or indirect wholly owned Company Subsidiary to the Company or another
direct or indirect wholly owned Company Subsidiary, or (C) indebtedness that in
the aggregate does not exceed $100,000,000;
(g) neither the Company nor any Company Subsidiary shall change its
method of accounting in effect at December 31, 1999, except as required by
changes in GAAP or the accounting rules and regulations of the SEC;
(h) neither the Company nor any Company Subsidiary shall take any action
that would prevent the Merger from qualifying as a reorganization under Section
368(a) of the Internal Revenue Code;
(i) neither the Company nor any Company Subsidiary shall make any
material tax election or settle or compromise any material federal, state, local
or foreign income tax liability;
(j) neither the Company nor any Company Subsidiary shall enter into any
new employment Contract or make any material commitment to employees (including
any commitment to pay severance, retirement or other material benefits) except
in the ordinary course of business and consistent with past practice;
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(k) neither the Company nor any Company Subsidiary shall increase the
compensation (including material fringe benefits) payable or to become payable
to any officer, director, or employee, except (x) general hourly rate increases
and normal merit increases for employees other than executive officers made in
the ordinary course of business and consistent with past practice and (y) for
increases committed to prior to the date of this Agreement and not in
contemplation thereof;
(l) neither the Company nor any Company Subsidiary shall 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 or pursuant to commitments made prior to the date of
this Agreement and not in contemplation thereof;
(m) neither the Company nor any Company Subsidiary shall waive any stock
repurchase rights, accelerate, amend or change the period of exercisability of
outstanding options, reprice outstanding options granted under any Company Stock
Option Plans or authorize cash payments in exchange for any outstanding options
granted under any of such plans;
(n) neither the Company nor any Company Subsidiary shall grant any
severance or termination pay to any officer or employee except pursuant to
written agreements outstanding or policies existing on the date hereof or adopt
any new severance plan;
(o) neither the Company nor any Company Subsidiary shall transfer or
license to any Person or otherwise extend, amend or modify any rights to the
Intellectual Property of them, or enter into any grants of future patent rights,
other than in the ordinary course of business consistent with past practice;
(p) not materially modify or amend, or terminate any Contract referred
to in Section 3.17 of this Agreement (including any of the Company Stock Plans)
to which the Company or any Company Subsidiary is a party or waive, release, or
assign any material rights or claims thereunder, in any such case in a manner
materially adverse to Parent.
(q) neither the Company nor any Company Subsidiary shall authorize or
enter into any agreement to do anything prohibited by Sections 5.01(b) through
(p); and
(r) the Company will (i) use its reasonable best efforts to consummate
the transactions contemplated by the agreements listed in Section 5.02(r) of the
Company Disclosure Letter in accordance with the terms thereof, (ii) not take
any action which would materially adversely impact the timing of the closing of
such transactions or the ability of the Company to satisfy the conditions
precedent to the closing of such transactions, and (iii) not waive or amend any
material provision of such agreements without the prior written approval of
Parent;
provided, that CareInsite shall not be prohibited from taking any action under
this Section 5.01 which the board of directors of CareInsite determines is
consistent with its fiduciary duties to the stockholders of CareInsite (other
than the Company or any other Company Subsidiary).
SECTION 5.02. Conduct of Business by Parent Pending the Merger. Parent
agrees that, between the date of this Agreement and the Effective Time, except
as specifically contemplated by any other provision of this Agreement or Section
5.02 of the Parent Disclosure Letter, unless the Company shall otherwise agree
in writing (such agreement not to be unreasonably withheld or delayed):
(a) Parent and the Parent Subsidiaries shall use all reasonable efforts
to preserve intact their present lines of business, maintain their rights and
franchises and preserve their relationships with employees, customers, suppliers
and others having business dealings with them; provided, however, that no action
by Parent or any Parent Subsidiary with respect to matters specifically
addressed by any other provision of this Section 5.02 or Section 6.07 shall be
deemed a breach of this Section 5.02(a);
(b) neither Parent nor any Parent Subsidiary shall amend or otherwise
change its Certification of Incorporation or By-Laws or equivalent
organizational documents, except for the issuance of preferred stock in
connection with acquisitions permitted pursuant to Section 5.02(e);
(c) neither Parent nor any Parent Subsidiary shall issue, sell, pledge,
dispose of, grant or encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, any shares of capital stock of Parent or
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any Parent Subsidiary of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest (including, without limitation, any
phantom interest), of Parent or any Parent Subsidiary, except for (i) the
issuance of shares of Parent Common Stock issuable pursuant to Parent Stock
Options outstanding on the date hereof in accordance with the terms thereof,
(ii) the issuance, in the ordinary course of business and consistent with past
practice, of Parent Stock Options to purchase shares of Parent Common Stock
pursuant to Parent Stock Option Plans in effect on the date of this Agreement
and the shares of Parent Common Stock issuable pursuant to such Parent Stock
Options, in accordance with the terms of the Parent Stock Option Plans, (iii)
issuances for Parent's Employee Stock Purchase Plan, (iv) issuances by a direct
or indirect wholly owned subsidiary of Parent of capital stock to such
subsidiary's parent, and (v) issuances of capital stock in acquisitions
permitted under Section 5.02(e);
(d) neither Parent nor any Parent Subsidiary shall declare, set aside,
make or pay any dividend or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock, other than dividends by
a direct or indirect wholly owned subsidiary of Parent to such subsidiary's
parent;
(e) neither Parent nor any Parent Subsidiary shall: (i) acquire or
dispose of (including, without limitation, by merger, consolidation, or
acquisition or disposition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof, for or with a
fair market value in excess of $500,000,000 and, in the case of acquisitions, as
could reasonably be expected to result in any (A) delay in the consummation of
the Merger or the transactions contemplated herein or (B) decrease in the
likelihood that the conditions set forth in Sections 7.01(d) and (e) would be
satisfied, or (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any Person, or make any loans or
advances, except for (A) indebtedness incurred in the ordinary course of
business and consistent with past practice, (B) indebtedness of Parent to a
direct or indirect wholly owned Parent Subsidiary or indebtedness of a direct or
indirect wholly owned Parent Subsidiary to Parent or another direct or indirect
wholly owned Parent Subsidiary, or (C) indebtedness that in the aggregate does
not exceed $100,000,000;
(f) neither Parent nor any Parent Subsidiary shall change its methods of
accounting in effect at September 30, 1999, except as required by changes in
GAAP or the accounting rules and regulations of the SEC;
(g) neither Parent nor any Parent Subsidiary shall take any action that
would prevent the Merger from qualifying as a reorganization under Section
368(a) of the Internal Revenue Code;
(h) neither Parent nor any Parent Subsidiary shall make any material tax
election or settle or compromise any federal, state, local, or foreign income
tax liability;
(i) not materially modify or amend, or terminate any Contract referred
to in Section 4.17 of this Agreement (including Parent Stock Plans) to which
Parent or any Parent Subsidiary is a party or waive, release, or assign any
material rights or claims thereunder, in any such case in a manner materially
adverse to the Company;
(j) neither the Company nor any Company Subsidiary shall transfer or
license to any Person or otherwise extend, amend or modify any rights to the
Intellectual Property of them, or enter into any grants of future patent rights,
other than in the ordinary course of business consistent with past practice;
(k) neither Parent nor any Parent Subsidiary shall authorize or enter
into any agreement to do anything prohibited by Sections 5.02(b) through (j);
and
(l) Parent will (i) use its reasonable best efforts to consummate the
transactions contemplated by the agreements listed in Section 5.02(l) of the
Parent Disclosure Letter in accordance with the terms thereof, and (ii) not take
any action which would materially adversely delay the closing of such
transactions or the ability of Parent to satisfy the conditions precedent to the
closing of such transactions and (iii) not waive or amend any material provision
of such agreements without the prior written approval of the Company.
SECTION 5.03. Adverse Changes in Condition. Each party agrees (i) to give
written notice promptly to the other parties upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to it
or any of its Subsidiaries which (A) is reasonably likely to have a Parent
Material Adverse Effect or
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a Company Material Adverse Effect, or (B) would cause or constitute a breach of
any of its representations, warranties, agreements or covenants contained
herein, such that the conditions set forth in Section 7.02 or Section 7.03 with
respect to such party (as appropriate) would not be satisfied as of the time of
such breach or as of the time of such representation or warranty shall have
become untrue, and (ii) to use its reasonable efforts to prevent or promptly to
remedy the same.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Joint Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) Parent and
the Company shall prepare and file with the SEC a joint proxy statement
(together with any amendments thereof or supplements thereto, the "PROXY
STATEMENT") relating to the meetings of the Company's stockholders (the "COMPANY
STOCKHOLDERS' MEETING") and Parent's stockholders (the "PARENT STOCKHOLDERS'
MEETING" and, together with the Company Stockholders' Meeting, the
"STOCKHOLDERS' MEETINGS") to be held to consider approval and adoption of this
Agreement and the Merger by the Company's stockholders and the approval of the
Parent Proposal by Parent's stockholders and (ii) Parent shall prepare and file
with the SEC a registration statement on Form S-4 (together with all amendments
thereto, the "REGISTRATION STATEMENT") in which the Proxy Statement shall be
included as a prospectus, in connection with the registration under the
Securities Act of the shares of Parent Common Stock to be issued to the
stockholders of the Company pursuant to the Merger. Parent and the Company each
shall use their reasonable best efforts to cause the Registration Statement to
become effective as promptly as practicable, and, prior to the effective date of
the Registration Statement, Parent shall take all or any action required under
any applicable federal or state securities Laws in connection with the issuance
of shares of Parent Common Stock pursuant to the Merger. The Company shall
promptly furnish all information concerning the Company as Parent may reasonably
request in connection with such actions and the preparation of the Registration
Statement and Proxy Statement. As promptly as practicable after the Registration
Statement shall have become effective, each of Parent and the Company shall mail
the Proxy Statement to its stockholders.
(b) (i) The Proxy Statement shall include the recommendation of the
Company Board to the holders of Company Common Stock in favor of the Company
Proposal; provided, however, that the Company Board may, at any time prior to
the Effective Time, withdraw, modify or change any such recommendation to the
extent that the Company Board determines in good faith after consultation with
outside legal counsel (who may be the Company's regularly engaged outside legal
counsel) that the failure to so withdraw, modify or change its recommendation
could reasonably be deemed to cause the Company Board to breach its fiduciary
duties to the holders of Company Common Stock under applicable Law and,
notwithstanding anything to the contrary contained in this Agreement, such a
withdrawal, modification or change in such recommendation shall not constitute a
breach of this Agreement by the Company. Notwithstanding anything to the
contrary in this Agreement, such a withdrawal, modification or change, in such
recommendation shall not relieve the Company in any way whatsoever of its other
obligations under this Section 6.01 or its obligations under Section 6.02 of
this Agreement.
(ii) The Proxy Statement shall include the recommendation of the
Parent Board to the holders of Parent Common Stock in favor of approval of the
Parent Proposal; provided, however, that the Parent Board may, at any time prior
to the Effective Time, withdraw, modify or change any such recommendation to the
extent that the Parent Board determines in good faith after consultation with
outside legal counsel (who may be Parent's regularly engaged outside legal
counsel) that the failure to so withdraw, modify or change its recommendation
could reasonably be deemed to cause the Parent Board to breach its fiduciary
duties to the holders of Parent Common Stock under applicable Law and,
notwithstanding anything to the contrary contained in this Agreement, such a
withdrawal, modification or change in such recommendation shall not constitute a
breach of this Agreement by the Company. Notwithstanding anything to the
contrary in this Agreement, such a withdrawal, modification or change, in such
recommendation shall not relieve Parent in any way whatsoever of its other
obligations under this Section 6.01 or its obligations under Section 6.02 of
this Agreement.
(c) No amendment or supplement to the Proxy Statement or the
Registration Statement will be made by Parent or the Company without the
approval of the other party (such approval not to be unreasonably withheld
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or delayed). Parent and the Company shall each advise the other, promptly after
the receipt of notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, of the issuance
of any stop order, of the suspension of the qualification of the Parent Common
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or of any request by the SEC for amendment of the Proxy Statement
or the Registration Statement or comments thereon and responses thereto or
requests by the SEC for additional information.
(d) The information supplied by Parent for inclusion in the Registration
Statement and the Proxy Statement shall not, at (i) the time the Registration
Statement is declared effective, (ii) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders of
the Parent and the Company, (iii) the time of each of the Stockholders' Meetings
and (iv) the Effective Time, contain any untrue statement of a material fact or
fail to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. If, at any time prior to the Effective Time, any
event or circumstance relating to Parent or any Parent Subsidiary, or their
respective officers or directors, should be discovered by Parent which should be
set forth in an amendment or a supplement to the Registration Statement or Proxy
Statement, Parent shall promptly inform the Company. All documents that Parent
is responsible for filing with the SEC in connection with the Merger or the
other transactions contemplated by this Agreement will comply as to form in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(e) The information supplied by the Company for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of the Company and Parent, (iii) the time of each of the
Stockholders' Meetings and (iv) the Effective Time, contain any untrue statement
of a material fact or fail to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If, at any time prior
to the Effective Time, any event or circumstance relating to the Company or any
Company Subsidiary, or their respective officers or directors, should be
discovered by the Company which should be set forth in an amendment or a
supplement to the Registration Statement or Proxy Statement, the Company shall
promptly inform Parent. All documents that the Company is responsible for filing
with the SEC in connection with the Merger or the other transactions
contemplated by this Agreement will comply as to form in all material respects
with the applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
SECTION 6.02. Stockholders' Meetings. (a) The Company shall call and hold
the Company Stockholders' Meeting, and Parent shall call and hold the Parent
Stockholders' Meeting, as promptly as practicable for the purpose of voting upon
the approval of the Company Proposal by the Company's stockholders and the
approval of the Parent Proposals by Parent's stockholders, as the case may be,
and Parent and the Company shall use their reasonable best efforts to hold the
Stockholders' Meetings on the same day and as soon as practicable after the date
on which the Registration Statement becomes effective.
(b) Parent shall use its reasonable best efforts to solicit from holders
of Parent Common Stock proxies in favor of approval of the Parent Proposal, and
shall take all other action necessary or advisable to secure the vote or consent
of holders of Parent Common Stock required by the rules of the NASDAQ or
Delaware Law to obtain approval of the Parent Proposal, except to the extent
that the Parent Board determines in good faith after consultation with outside
legal counsel (who may be Parent's regularly engaged outside legal counsel) that
doing so could reasonably be deemed to cause the Parent Board to breach its
fiduciary duties to the holders of Parent Common Stock under applicable Law and
any such failure to solicit proxies or take other solicitation action under this
sentence to secure the vote or consent of holders of Parent Common Stock shall
not constitute a breach of this Agreement by Parent. Notwithstanding anything to
the contrary contained in this Agreement, such failure to solicit proxies in
favor of the approval of the Parent Proposal shall not relieve Parent in any way
whatsoever of its obligations under Section 6.01 of this Agreement or its other
obligations under this Section 6.02.
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(c) The Company shall use its reasonable best efforts to solicit from
holders of Company Common Stock proxies in favor of the Company Proposal, and
shall take all other action necessary or advisable to secure the vote or consent
of holders of Company Common Stock required by the rules of the NASDAQ or
Delaware Law to obtain the approval of the Company Proposal, except to the
extent that the Company Board determines in good faith after consultation with
outside legal counsel (who may be the Company's regularly engaged outside legal
counsel) that doing so could reasonably be deemed to cause the Company Board to
breach its fiduciary duties to the holders of Company Common Stock under
applicable Law and any such failure to solicit proxies or take other
solicitation action under this sentence to secure the vote or consent of holders
of Company Common Stock shall not constitute a breach of this Agreement by the
Company. Notwithstanding anything to the contrary contained in this Agreement,
such failure to solicit proxies in favor of the approval and adoption of the
Agreement and the Merger shall not relieve the Company in any way whatsoever of
its obligations under Section 6.01 of this Agreement or its other obligations
under this Section 6.02.
SECTION 6.03. Access to Information; Confidentiality. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which Parent or the Company or any of their respective
subsidiaries is a party or pursuant to applicable Law, from the date of this
Agreement to the Effective Time, Parent and the Company shall (and shall cause
their respective subsidiaries to): (i) provide to the other (and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives, collectively, "REPRESENTATIVES") access at reasonable times
upon prior notice to the officers, employees, agents, properties, offices and
other facilities of the other and its subsidiaries and to the books and records
thereof and (ii) furnish promptly such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects of the
other party and its subsidiaries as the other party or its Representatives may
reasonably request.
(b) With respect to information that is made available by one party to
another pursuant to Section 6.03(a) or pursuant to any other provision of this
Agreement, the receiving party shall comply with, and shall cause its
Representatives to comply with, the provisions relating to confidentiality
contained in the Confidentiality Agreement currently in existence between the
parties (the "CONFIDENTIALITY AGREEMENT").
(c) No investigation by either the Company or Parent shall affect the
representations and warranties of the other.
SECTION 6.04. No Solicitation of Transactions. (a) The Company agrees
that, from and after the date hereof until the earlier of the Effective Time or
the termination of this Agreement in accordance with Article VIII, it shall not,
and that it shall cause its Representatives not to, directly or indirectly,
initiate, solicit or encourage any inquiries or the making of any proposal, or
offer with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving, or any purchase or sale of all or any significant portion
of the assets or 20% or more of the equity securities of, the Company or any
Company Subsidiary (any such proposal or offer being hereinafter referred to as
a "COMPANY ACQUISITION PROPOSAL"). The Company further agrees that it shall not,
and that it shall cause its Representatives not to, directly or indirectly, have
any discussion with or provide any confidential information or data relating to
the Company or any Company Subsidiary to any Person relating to a Company
Acquisition Proposal or engage in any negotiations concerning a Company
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a Company Acquisition Proposal or accept a Company Acquisition
Proposal; provided, however, that nothing contained in this Section 6.04(a)
shall prevent the Company or the Company Board from (i) complying with Rule
14d-9 or Rule 14e-2 promulgated under the Exchange Act with regard to a Company
Acquisition Proposal; (ii) engaging in any discussions or negotiations with, or
providing any information to, any Person in response to an unsolicited written
Company Acquisition Proposal by any such Person; or (iii) recommending such an
unsolicited written Company Acquisition Proposal to the holders of Company
Common Stock if, in any such case as is referred to in clause (ii) or (iii), (A)
the Company Board concludes in good faith (after consultation with its financial
advisors) that such Company Acquisition Proposal would, if consummated, result
in a transaction more favorable to holders of Company Common Stock than the
transaction contemplated by this Agreement (any such more favorable Company
Acquisition Proposal being referred to in this Agreement as a "COMPANY SUPERIOR
PROPOSAL"), (B) the Company Board determines in good faith after consultation
with outside legal counsel (who may be the Company's regularly engaged outside
legal counsel) that such action could reasonably be deemed to be
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necessary for it to act in a manner consistent with its fiduciary duties under
applicable Law, (C) prior to providing any information or data regarding the
Company to any Person or any of such Person's Representatives in connection with
a Company Superior Proposal by such Person, the Company receives from such
Person an executed confidentiality agreement on terms at least as restrictive on
such Person as those contained in the Confidentiality Agreement, (D) prior to
providing any information or data to any Person or any of such Person's
Representatives or entering into discussions or negotiations with any Person or
any of such Person's Representatives in connection with a Company Superior
Proposal by such Person, the Company notifies Parent promptly of the receipt of
such Company Superior Proposal indicating, in connection with such notice, the
name of such Person and attaching a copy of the proposal or offer or providing a
complete written summary thereof, and (E) the Company has not breached its
obligations under the first sentence of this Section 6.04(a). The Company agrees
that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Company Acquisition Proposal. The Company agrees that it
shall keep Parent informed, on a current basis, of the status and terms of any
such proposals or offers and the status of any such discussions or negotiations.
The Company agrees that it will take the necessary steps to promptly inform each
Representative of the Company of the obligations undertaken in this Section
6.04(a).
(b) Parent agrees that, from and after the date hereof until the earlier
of the Effective Time or the termination of this Agreement in accordance with
Article VIII, it shall not, and that it shall cause its Representatives not to,
directly or indirectly, initiate, solicit or encourage any inquiries or the
making of any proposal, or offer with respect to a merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase or sale of all or
any significant portion of the assets or 20% or more of the equity securities
of, Parent or any Parent Subsidiary that, in any such case, could reasonably be
expected to preclude the completion of the Merger or the other transactions
contemplated by this Agreement (any such proposal or offer being hereinafter
referred to as an "PARENT ACQUISITION PROPOSAL"). Parent further agrees that it
shall not, and that it shall cause its Representatives not to, directly or
indirectly, have any discussion with or provide any confidential information or
data relating to Parent or any Parent Subsidiary to any Person relating to a
Parent Acquisition Proposal or engage in any negotiations concerning a Parent
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a Parent Acquisition Proposal or accept a Parent Acquisition Proposal;
provided, however, that nothing contained in this Section 6.04(b) shall prevent
Parent or the Parent Board from (i) complying with Rule 14d-9 or Rule 14e-2
promulgated under the Exchange Act with regard to a Parent Acquisition Proposal;
(ii) engaging in any discussions or negotiations with, or providing any
information to, any Person in response to an unsolicited written Parent
Acquisition Proposal by any such Person; or (iii) recommending such an
unsolicited written Parent Acquisition Proposal to the holders of Parent Common
Stock if, in any such case as is referred to in clause (ii) or (iii), (A) the
Parent Board concludes in good faith (after consultation with its financial
advisors) that such Parent Acquisition Proposal would, if consummated, result in
a transaction more favorable to holders of Parent Common Stock than the
transaction contemplated by this Agreement (any such more favorable Parent
Acquisition Proposal being referred to in this Agreement as a "PARENT SUPERIOR
PROPOSAL"), (B) the Parent Board determines in good faith after consultation
with outside legal counsel (who may be Parent's regularly engaged outside legal
counsel) that such action could reasonably be deemed to be necessary for it to
act in a manner consistent with its fiduciary duties under applicable Law, (C)
prior to providing any information or data regarding Parent or any Parent
Subsidiary to any Person or any of such Person's Representatives in connection
with a Parent Superior Proposal by such Person, Parent receives from such Person
an executed confidentiality agreement on terms at least as restrictive on such
Person as those contained in the Confidentiality Agreement, (D) prior to
providing any information or data to any Person or any of such Person's
Representatives or entering into discussions or negotiations with any Person or
any of such Person's Representatives in connection with a Parent Superior
Proposal by such Person, Parent notifies the Company promptly of the receipt of
such Parent Superior Proposal indicating, in connection with such notice, the
name of such Person and attaching a copy of the proposal or offer or providing a
complete written summary thereof, and (E) Parent has not breached its
obligations under the first sentence of this Section 6.04(b). Parent agrees that
it will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Parent Acquisition Proposal. Parent agrees that it shall keep the Company
informed, on a cur rent basis, of the status and terms of any such proposals or
offers and the status of any such discussions or negotiations. Parent agrees
that it will take
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the necessary steps to promptly inform each Representative of Parent of the
obligations undertaken in this Section 6.04(b).
SECTION 6.05. Directors' and Officers' Indemnification and Insurance. (a)
From and after the Effective Time, Parent shall, and shall cause the Surviving
Corporation to, indemnify and hold harmless each present and former director and
officer of the Company and each person who served at the request of the Company
as a director, officer or trustee of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or enterprise
(collectively, the "INDEMNIFIED PARTIES"), to the fullest extent permitted under
applicable Law, against all costs and expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee or fiduciary,
including, without limitation, the transactions contemplated by this Agreement
(and shall also advance, or cause to be advanced, expenses as incurred to the
fullest extent permitted under applicable Law). Parent agrees that all rights to
indemnification existing in favor of the Indemnified Parties as provided in the
Company's Certificate of Incorporation and By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time. From and after the Effective
Time, Parent shall assume the obligations of the Company to provide
indemnification to Indemnified Parties under indemnification agreements or
similar contracts.
(b) Without limiting or expanding the foregoing, in the event any claim,
action, suit, proceeding or investigation (a "CLAIM") that is subject to Section
6.05(a) is brought against any Indemnified Party at or after the Effective Time,
(i) the Indemnified Parties may retain counsel satisfactory to them and
reasonably satisfactory to Parent and the Surviving Corporation, (ii) Parent and
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received, and (iii) Parent and the Surviving Corporation will use all reasonable
efforts to assist in the vigorous defense of any such matter, provided that
neither Parent nor the Surviving Corporation shall be liable for any settlement
of any Claim effected without its written consent, which consent, however, shall
not be unreasonably withheld or delayed. Any Indemnified Party wishing to claim
indemnification under this Section 6.05, upon learning of any such Claim, shall
notify Parent (but the failure so to notify Parent shall not relieve Parent and
the Surviving Corporation from any liability that either may have under this
Section 6.05 except to the extent such failure materially prejudices them). The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless, under applicable standards of
professional conduct, there is or would reasonably be expected to be a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(c) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current directors' and officers' liability
insurance policies maintained by the Company (provided that Parent may
substitute therefor policies of at least the same coverage containing other
terms and conditions which are no less advantageous) with respect to claims
arising from facts or events that occurred prior to the Effective Time; provided
further that Parent shall not be required to maintain such policies to the
extent that the annual premiums (or incremental annual premiums in the case of
substitute policies that provide coverage to other Persons or for other matters)
exceed 200% of the most recent annual premium paid for such policies by he
Company.
SECTION 6.06. Further Action; Consents; Filings. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its best
efforts to (i) take, or cause to be taken, all actions necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger and the other transactions contemplated by this Agreement, (ii) obtain
from Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company or any of their subsidiaries, as the case may be, in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement and (iii)
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement, the Merger and the other transactions
contemplated by this Agreement required under (A) the Exchange Act and the
Securities Act and the rules and regulations thereunder and any other applicable
federal or state securities Laws, (B) the HSR Act and (C) any other applicable
Law. The parties hereto shall cooperate with each other in connection with the
making of all such filings, including by providing copies of all such documents
to
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the nonfiling party and its advisors prior to filing and, if requested, by
accepting all reasonable additions, deletions or changes suggested in connection
therewith. The parties hereto shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable Law (including all information required to be in the Proxy
Statement) in connection with the transactions contemplated by this Agreement.
(b) Parent and the Company shall file as soon as practicable (but not
later than five business days) after the date of this Agreement notifications
under the HSR Act and shall respond as promptly as practicable to all inquiries
or requests received from the Federal Trade Commission or the Antitrust Division
of the Department of Justice for additional information or documentation and
shall respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other Governmental Entity in connection with
antitrust matters. The parties shall cooperate with each other in connection
with the making of all such filings or responses, including providing copies of
all such documents to the other party and its advisors prior to filing or
responding.
(c) Each of the Company and Parent agree to cooperate and use their best
efforts vigorously to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "ORDER") that is in effect and that restricts,
prevents or prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal and all
available legislative action. Notwithstanding any other provision of this
Agreement to the contrary, each of the Company and Parent also agree, if
requested by the other, to take any and all actions as is or may be required by
Governmental Entities as a condition to the granting of any approvals required
in order to permit the consummation of the Merger or the other transactions
contemplated hereby or as may be required to avoid, lift, vacate or reverse any
legislative, administrative or judicial action which would otherwise cause any
condition to Closing not to be satisfied; provided, however, that Parent and the
Parent Subsidiary shall not be required to take any actions otherwise required
hereunder if the effect of such action would have a material adverse effect on
the financial position, business, or results of operations of the Parent, the
Parent Subsidiaries, the Company and the Company Subsidiaries, all taken as a
whole.
SECTION 6.07. Plan of Reorganization. (a) This Agreement is intended to
constitute a "plan of reorganization" within the meaning of section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Merger to qualify, and will not
knowingly take any action, cause any action to be taken, fail to take any action
or cause any action to fail to be taken which action or failure to act could
prevent the Merger from qualifying as a reorganization under the provisions of
section 368(a) of the Code. Following the Effective Time, neither the Surviving
Corporation, Parent nor any of their affiliates shall knowingly take any action,
cause any action to be taken, fail to take any action or cause any action to
fail to be taken, which action or failure to act could cause the Merger to fail
to qualify as a reorganization under section 368(a) of the Code.
(b) As of the date hereof, to the Company's Knowledge, there is no
reason (i) why it would not be able to deliver to Company's counsel or Parent's
counsel, at the date of the legal opinions referred to below, certificates
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the legal opinions contemplated by Section 7.01(f) or (ii) why Company's counsel
or Parent's counsel would not be able to deliver the opinions required by
Section 7.01(f).
(c) As of the date hereof, to Parent's Knowledge, there is no reason (i)
why it would not be able to deliver to Company's counsel or Parent's counsel, at
the date of the legal opinions referred to below, certificates substantially in
compliance with IRS published advance ruling guidelines, with customary
exceptions and modifications thereto, to enable such firms to deliver the legal
opinions contemplated by Section 7.01(f) or (ii) why Company's counsel or
Parent's counsel would not be able to deliver the opinions required by Section
7.01(f).
SECTION 6.08. Public Announcements. The initial press release relating to
this Agreement shall be a joint press release, the text of which has been agreed
to by each of Parent and the Company. Unless otherwise required by applicable
Law or by obligations pursuant to any listing agreement with or rules of any
securities exchange, the
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parties hereto shall consult with each other before issuing any press release or
otherwise making any public statement with respect to this Agreement, the
transactions contemplated hereby or the activities and operations of the other
party and shall not issue any such release or make any such statement without
the prior written consent of the other party (such consent not to be
unreasonably withheld or delayed).
SECTION 6.09. NASDAQ Listing. Parent shall promptly prepare and submit to
the NASDAQ a listing application covering the shares of Parent Common Stock to
be issued in the Merger, and shall use its reasonable efforts to obtain, prior
to the Effective Time, approval for the listing of such Parent Common Stock,
subject to official notice to the NASDAQ of issuance, and the Company shall
cooperate with Parent with respect to such listing.
SECTION 6.10. Conveyance Taxes. Parent shall be liable for and shall hold
the Company and the holders of shares of Company Common Stock who are holders of
the shares of Company Common Stock immediately prior to the Effective Time
harmless against any real property transfer or gains, sales, use, transfer,
value added, stock transfer or stamp taxes, any transfer, recording
registration, and other fees, and any similar Taxes which become payable in
connection with the transactions contemplated by this Agreement, but not
including income taxes. The parties acknowledge that this Section 6.10 is
specifically intended to benefit the holders of shares of Company Common Stock
who are holders of the shares of Company Common Stock immediately prior to the
Effective Time.
SECTION 6.11. Governance. (a) Immediately following the Effective Time,
Parent shall cause the following changes to the Parent Board, which changes
shall be effected as promptly as possible following the Effective Time:
(i) the appointment of Martin J. Wygod as a director of Parent Board
(ii) the appointment of 2 additional individuals, designated by the
Company Board, as in existence on the date hereof, to the Parent Board (such
directors and Martin J. Wygod being, the "INITIAL COMPANY DESIGNEES");
(iii) the appointment of at least one Initial Company Designee to each
committee of the Parent Board (including the compensation committee and the
governance or executive committee); and
(iv) the appointment of Martin J. Wygod as co-chairman of the Parent
Board.
(b) Parent shall cause the Parent Board to consist of 12 directors, out
of which three directorships shall be vacant, immediately prior to the Effective
Time.
(c) Parent shall cause each of the Initial Company Designees to be
appointed to serve as a director of the Parent Board. Martin J. Wygod shall
serve for an initial term of no less than three years. The other Initial Company
Designees shall serve as a director of the Parent Board for an initial term of
no less than 1 year. Thereafter, the Parent shall nominate such Initial Company
Designees to serve on the Parent Board to ensure that each of the Initial
Company Designees serve for at least 3 years from the Effective Time. In the
event of removal, resignation or other inability of an Initial Company Designee
to serve, the Company Board, as in existence on the date hereof, shall appoint
another individual to complete the term of such Initial Company Designee.
(d) KippGroup. Martin J. Wygod shall be the final arbiter on behalf of
Parent and the Company, with full authority, with respect to the matters
provided for in Sections 1.02(b) 1.02(c) 1.02(d), 2.02(f), 1.02(g),1.02(h),
2.06, 2.07, 2.08 and 2.09 of the Stock Purchase Agreement, dated January 13,
1999, among Synetic, Inc., David R, Kipp and James P. Kipp, until such time as
the matters referred to in such sections have been finally and fully resolved.
SECTION 6.12. Employee Benefit Matters. (a) Parent hereby agrees that,
for a period of two years immediately following the Effective Time the Surviving
Corporation shall, or shall cause the Company Subsidiaries to, maintain employee
benefit plans, programs and arrangements for the benefit of active and retired
employees of the Company and the Company Subsidiaries that in the aggregate will
provide compensation and benefits that are substantially equivalent to the
compensation and benefits provided to such active and retired employees under
the employee benefit plans, programs and arrangements of the Company and the
Company Subsidiaries as in effect
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immediately prior to the Effective Time; provided, however, that changes may be
made to such employee benefit plans and arrangements to the extent necessary in
light of applicable Law. From and after the Effective Time, the Surviving
Corporation shall honor, and shall cause the Company Subsidiaries to honor, in
accordance with their terms, all existing employment and severance agreements
and arrangements and severance, termination protection and bonus plans which are
applicable to any current or former employees or directors of the Company or any
of the Company Subsidiaries and that have been disclosed or made available to
Parent.
(b) With respect to any benefits plans of Parent or Parent Subsidiaries
in which the officers and employees of the Company and the Company Subsidiaries
participate after the Effective Time, the Surviving Corporation shall use
reasonable efforts to: (i) waive any limitations as to pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to such officers and employees under any welfare benefit
plan in which such employees may be eligible to participate after the Effective
Time (provided, however, that no such waiver shall apply to a pre-existing
condition of any such officer or employee who was, as of the Effective Time,
excluded from participation in a Company benefit plan by nature of such pre-
existing condition), (ii) provide each such officer and employee with credit for
any co-payments and deductibles paid prior to the Effective Time during the year
in which the Effective Time occurs in satisfying any applicable deductible or
out-of-pocket requirements under any welfare benefit plan in which such
employees may be eligible to participate after the Effective Time, and (iii)
other than with respect to vesting credit with respect to Parent options granted
to such officers and employees (other than pursuant to Section 2.04), recognize
all service of such officers and employees with the Company and the Company
Subsidiaries (and their respective predecessors) for all purposes (including
without limitation purposes of eligibility to participate, vesting credit,
entitlement for benefits, and benefit accrual) in any benefit plan in which such
employees may be eligible to participate after the Effective Time, except to the
extent such treatment would result in duplicative accrual of benefits for the
same period of service.
(c) Following the Effective Time, the Surviving Corporation shall or
shall cause the Company Subsidiaries, as applicable, to continue to maintain the
Porex 401(k) Savings Plan and related trust (the "POREX SAVINGS PLAN") for the
benefit of the employees of Porex Corporation and the participating employers
thereunder for a period of time which shall be not less than the number of plan
years necessary to allocate the "Surplus Account" transferred to the Porex
Savings Plan, as a qualified replacement plan, from the terminated Pension Plan
for Employees of Porex Technologies Corp. and its related trust (the "PENSION
PLAN"). For purposes of determining allocations of such contributions to
participants under the Porex Savings Plan each plan year, the level of employer
contributions in place immediately prior to the Effective Time shall continue in
effect during the time period necessary to allocate 100% of the "Surplus
Account", including any earnings thereon, to the accounts of such participants,
subject to the limitations of Section 415 of the Code. All allocations of
employer contributions from the "Surplus Account" shall be fully vested and
nonforfeitable for each participant. For purposes of this paragraph, "SURPLUS
ACCOUNT" shall mean the amount of the Pension Plan assets which represents 100%
of the full amount which Porex Corporation could receive as an employer
reversion from the terminated Pension Plan following complete distribution of
all liabilities under the Pension Plan and its related trust, plus any earnings
thereon.
(d) If at any time following the Effective Time but prior to the date
two (2) years following the Effective Time, (i) Parent shall terminate any
employee of the Company or any Company Subsidiary without "cause" (as defined
below) or (ii) any such employee shall terminate his or her employment with
Parent, the Company or any Company Subsidiary following a "material reduction in
the duties" or material reduction in compensation of such employee or the
relocation of such employee to a location more than 25 miles from such
employee's existing work location, without the employee's consent, Parent shall
cause all Company Stock Options granted to such employee to become fully
exercisable upon such termination. A "MATERIAL REDUCTION IN THE DUTIES" of an
employee means a substantive reduction in duties, not a change in title or
reporting hierarchy occurring as a result of the Merger (including as a result
of the Company being combined with Parent or becoming a subsidiary of Parent
following the Merger). "CAUSE" means (A) repeated failure by an employee to
perform his or her duties in any material respect following notice and a
reasonable period of time to correct such failure; (B) an employee engaging in
an act of dishonesty that is materially and demonstrably injurious to the
Company or Parent; or (C) the conviction of an employee of a felony in respect
of a dishonest or fraudulent act or other crime of moral
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turpitude involving Parent or the Company. In the case of any employee who is an
executive officer of Parent, the Company or a Company Subsidiary, any assertion
that "cause" exists shall be made only with the approval of the Parent Board.
Notwithstanding the foregoing, in the case of a sale of a Company Subsidiary (or
the assets thereof) that is treated, as a result of such sale, as a termination
of employment of an employee of such Company Subsidiary for purposes of this
Section 6.12(d), the acceleration of vesting provided for herein shall be made
subject to such further terms and conditions as the Parent Board may impose at
the time of such sale.
SECTION 6.13. Exemption From Liability Under Section 16(b). Assuming that
the Company delivers to Parent the Section 16 Information (defined below) in a
timely fashion, the Parent Board, or a committee of two or more Non-Employee
Directors thereof (as such item is defined for purposes of Rule 16b-3 under the
Exchange Act), shall adopt resolutions prior to the consummation of the Merger,
providing that the receipt by the Company Insiders (as defined below) of Parent
Common Stock in exchange for shares of the Company Common Stock, and of options
for Parent Common Stock upon conversion of options for the Company Common Stock,
in each case pursuant to the transactions contemplated hereby and to the extent
such securities are listed in the Section 16 Information, are intended to be
exempt from liability pursuant to Section 16(b) under the Exchange Act. Such
resolutions shall comply with the approval conditions of Rule 16b-3 under the
Exchange Act for purposes of such Section 16(b) exemption, including, but not
limited to, specifying the name of the Company Insiders, the number of
securities to be acquired or disposed of for each such person, the material
terms of any derivative securities, and that the approval is intended to make
the receipt of such securities exempt pursuant to Rule 16b-3(d). "SECTION 16
INFORMATION" shall mean information accurate in all respects regarding the
Company Insiders, the number of shares of the Company Common Stock held by each
such Company Insider and expected to be exchanged for Parent Common Stock in the
Merger, and the number and description of the options on the Company Common
Stock held by each such Company Insider that are expected to be converted into
options on Parent Common Stock in connection with the Merger. "COMPANY INSIDERS"
shall mean those officers and directors of the Company who will be subject to
the reporting requirements of Section 16(b) of the Exchange Act with respect to
Parent and who are listed in the Section 16 Information.
SECTION 6.14. Company Affiliates; Restrictive Legend; Restrictions on
Transfer. Not later than 30 days prior to the Company Stockholders Meeting, the
Company shall deliver to Parent a list of those Persons who may be deemed to be,
in the Company's reasonable judgment at the time this Agreement is submitted for
adoption by the Stockholders of the Company, affiliates of the Company within
the meaning of Rule 145 promulgated under the 1933 Act (each a "RULE 145
AFFILIATE"). The Company will provide Parent with such information and documents
as Parent reasonably requests for purposes of reviewing such list. Parent will
give stop transfer instructions to its transfer agent with respect to any Parent
Common Stock received pursuant to the Merger by the Company Stockholders who are
Rule 145 Affiliates and there will be placed on the certificates representing
such Parent Common Stock, or any substitution therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES AND MAY ONLY BE TRANSFERRED (A) IN CONFORMITY WITH RULE 145(d) UNDER
SUCH ACT, OR (B) IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The
obligations of the Company and Parent to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) the Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no proceeding
for that purpose shall have been initiated by the SEC;
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(b) the Company Proposal shall have been approved by the requisite
affirmative vote of the stockholders of the Company in accordance with Delaware
Law, the Certificate of Incorporation of the Company and the Company By-Laws;
(c) the Parent Proposal shall have been approved by the requisite
affirmative vote of the stockholders of Parent in accordance with Delaware Law,
the Certificate of Incorporation of Parent and the Parent By-Laws;
(d) no Governmental Entity or court of competent jurisdiction located or
having jurisdiction in the United States shall have enacted, issued,
promulgated, enforced or entered any Law, judgment, decree, executive order or
award (an "ORDER") or taken any other action permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement, and
such Order or other action shall have become final and nonappealable or shall
have failed to issue an Order or to take any other action necessary to fulfill
the conditions to the Closing of the Merger and such denial of a request to
issue such Order or take such other action shall have become final and
nonappealable, which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger;
(e) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; and
(f) all conditions to the closing of the CareInsite Merger (except for
the condition that the closing of the Merger shall have occurred) shall have
been satisfied or, if permissible, waived as provided in the CareInsite Merger
Agreement.
SECTION 7.02. Conditions to the Obligations of Parent. The obligations of
Parent to consummate the Merger are subject to the satisfaction of the following
additional conditions:
(a) Each of the representations and warranties of the Company contained
in this Agreement shall be true and correct as of the Effective Time as though
made on and as of the Effective Time, except where failure to be so true and
correct would not have a Company Material Adverse Effect, and except that those
representations and warranties which address matters only as of a particular
date or period of time shall remain true and correct as of such date or period
of time, except where failure to be so true and correct would not have a Company
Material Adverse Effect. Parent shall have received a certificate of the
President or Chief Financial Officer of the Company to such effect;
(b) The Company shall have performed or complied, in all material
respects, with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time. Parent shall
have received a certificate of the Chief Executive Officer or Chief Financial
Officer of the Company to such effect; and
(c) Parent shall have received a written opinion of Nelson Mullins Riley
& Scarborough, L.L.P., legal counsel to Parent, in form and substance reasonably
satisfactory to Parent, which shall be to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
that Parent and the Company will each be a party to the reorganization within
the meaning of Section 368(b) of the Code, and such opinion shall not have been
withdrawn; provided, that if counsel to Parent does not render such opinion,
this condition shall nonetheless be deemed to be satisfied with respect to
Parent if counsel to the Company renders such opinion to Parent, which opinion
shall be in form and substance reasonably satisfactory to Parent. In rendering
such opinion, legal counsel shall be entitled to rely upon, among other things,
reasonable and customary assumptions as well as representations of Parent, the
Company and others. In addition, in the event that legal counsel cannot deliver
tax opinions based on the Merger being structured as a merger of the Company
with and into Parent or the CareInsite Merger being structured as a merger of
CareInsite with and into ASC, the parties shall use their best efforts to
restructure either or both of such mergers in a manner upon which legal counsel
is able to deliver tax opinions.
SECTION 7.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following additional conditions:
(a) Each of the representations and warranties of Parent contained in
this Agreement shall be true and correct as of the Effective Time, as though
made on and as of the Effective Time except where the failure to be so
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true and correct would not have a Parent Material Adverse Effect, and except
that those representations and warranties which address matters only as of a
particular date or period of time shall remain true and correct as of such date
or period of time, except where the failure to be so true and correct would not
have a Parent Material Adverse Effect. The Company shall have received a
certificate of the President or Chief Financial Officer of Parent to such
effect;
(b) Parent shall have performed or complied, in all material respects,
with all agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Effective Time, and the Company shall
have received a certificate of the Chief Executive Officer or Chief Financial
Officer of Parent to such effect; and
(c) The Company shall have received a written opinion of Shearman &
Sterling, legal counsel to the Company, in form and substance reasonably
satisfactory to the Company, which shall be to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
that Parent and the Company will each be a party to the reorganization within
the meaning of Section 368(b) of the Code, and such opinion shall not have been
withdrawn; provided, that if counsel to the Company does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to such party if counsel to Parent renders such opinion to the Company, which
opinion shall be in form and substance reasonably satisfactory to the Company.
In rendering such opinion, legal counsel shall be entitled to rely upon, among
other things, reasonable and customary assumptions as well as representations of
Parent, the Company, and others. In addition, in the event that legal counsel
cannot deliver tax opinions based on the Merger being structured as a merger of
the Company with and into Parent or the CareInsite Merger being structured as a
merger of CareInsite with and into ASC, the parties shall use their best efforts
to restructure either or both of such mergers in a manner upon which legal
counsel is able to deliver tax opinions.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the transactions contemplated by
this Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards of Directors
of each of Parent and the Company;
(b) by either Parent or the Company if the Effective Time shall not have
occurred on or before September 30, 2000 (the "TERMINATION DATE"); provided,
however, that the right to terminate this Agreement under this Section 8.01(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) by either Parent or the Company, if any Governmental Entity (i)
shall have issued an Order or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such Order or other action shall have become final and
nonappealable or (ii) shall have failed to issue an Order or to take any other
action necessary to fulfill the conditions to the Closing of the Merger and such
denial of a request to issue such Order or take such other action shall have
become final and nonappealable;
(d) by Parent if (i) the Company Board withdraws, modifies or changes
its recommendation of the Company Proposal in a manner adverse to Parent or
shall have resolved to do so, or (ii) the Company Board shall have recommended
to the stockholders of the Company a Company Acquisition Proposal or shall have
resolved to do so;
(e) by the Company, if (i) the Parent Board withdraws, modifies or
changes its recommendation of the Parent Proposal in a manner adverse to the
Company or shall have resolved to do so or (ii) the Parent Board shall have
recommended to the stockholders of Parent a Parent Acquisition Proposal or shall
have resolved to do so;
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(f) by either Parent or the Company, if the Company Proposal shall fail
to receive the requisite vote at the Company Stockholders' Meeting; provided,
however, the right to terminate this Agreement under this Section 8.01(f) shall
not be available to the Company if the failure to obtain the requisite vote
shall have been caused by the action or failure to act of the Company and such
action or failure to act constitutes a material breach by the Company of this
Agreement;
(g) by either Parent or the Company, if the Parent Proposal shall fail
to receive the requisite vote at the Parent Stockholders' Meeting; provided,
however, the right to terminate this Agreement under this Section 8.01(g) shall
not be available to Parent if the failure to obtain the requisite vote shall
have been caused by the action or failure to act of Parent and such action or
failure to act constitutes a material breach by Parent of this Agreement; or
(h) by either Parent or the Company, if the CareInsite Merger Agreement
is terminated in accordance with its terms.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void
and there shall be no liability under this Agreement on the part of Parent or
the Company or any of their respective officers or directors and all rights and
obligations of each party hereto shall cease, except (a) as provided in Sections
8.05 and 9.01 and (b) nothing herein shall relieve any party from liability for
any willful breach of any representation, warranty, covenant or other agreement
in this Agreement occurring prior to termination.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval of the Company Proposal by the stockholders of the Company, no
amendment may be made which would reduce the amount or change the type of
consideration into which each share of Company Common Stock shall be converted
upon consummation of the Merger and provided, further that the parties shall not
amend any provision of this Agreement without the prior written consent of the
special committee of CareInsite (which shall not be unreasonably withheld or
delayed) if such amendment could reasonably be expected to delay the
consummation of the CareInsite Merger or adversely affect CareInsite or its
stockholders or would change the Exchange Ratio.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any agreement or condition contained herein; provided,
however, that no such extension or waiver may be granted without the prior
written consent of the special committee of CareInsite (which shall not be
unreasonably withheld or delayed) if such extension or waiver could reasonably
be expected to delay the consummation of the CareInsite Merger or adversely
affect CareInsite or its stockholders or would change the Exchange Ratio. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 8.05. Expenses. (a) Except as set forth in this Section 8.05, all
Expenses (as defined below) incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses, whether or not the Merger or any other transaction is
consummated, except that the Company and Parent each shall pay one-half of all
Expenses relating to printing, filing and mailing the Registration Statement and
the Proxy Statement, including all SEC and other regulatory filing fees incurred
in connection with the Registration Statement and the Proxy Statement.
"EXPENSES" as used in this Agreement shall include all reasonable out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Registration Statement and the Proxy Statement, the solicitation of
stockholder approvals, the filing of any required notices under the HSR Act or
other similar regulations and all other matters related to the closing of the
Merger and the other transactions contemplated by this Agreement.
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(b) The Company agrees that:
(i) if (A) Parent shall terminate this Agreement pursuant to Section
8.01(d) and (B) at the time of the occurrence of the circumstance permitting
termination pursuant to such Section, there shall exist a Company Acquisition
Proposal, or
(ii) if (A) Parent or the Company shall terminate this Agreement
pursuant to Section 8.01(f) due to the failure of the Company's stockholders to
approve this Agreement and (B) at the time of such failure to so approve this
Agreement there shall exist a Company Acquisition Proposal,
then the Company shall pay to Parent an amount equal to the sum of $200,000,000
(the "COMPANY ALTERNATIVE TRANSACTION FEE") and all of Parent's Expenses;
provided, however, that Parent shall not, upon a termination pursuant to Section
8.01(d) by Parent or pursuant to Section 8.01(f) by Parent or the Company, be
entitled to receive the Company Alternative Transaction Fee or any of Parent's
Expenses pursuant to this Section 8.05(b) if the Company Board shall, prior to
such termination, have withdrawn, modified or changed its recommendation of this
Agreement or the transactions contemplated hereby in a manner adverse to Parent
due solely to a breach by Parent of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, which breach is not
cured by Parent within 10 days following notice of such breach, and would cause
the conditions set forth in Sections 7.03(a) and 7.03(b) to not be satisfied.
(c) Parent agrees that:
(i) if (A) the Company shall terminate this Agreement pursuant to
Section 8.01(e) and (B) at the time of the occurrence of the circumstance
permitting termination pursuant to such Section, there shall exist a Parent
Acquisition Proposal, or
(ii) if (A) the Company or Parent shall terminate this Agreement
pursuant to Section 8.01(g) due to the failure of Parent's stockholders to
approve the Parent Proposal and (B) at the time of such failure to so approve
this Agreement there shall exist a Parent Acquisition Proposal, then Parent
shall pay to the Company an amount equal to the sum of $130,000,000 (the "PARENT
ALTERNATIVE TRANSACTION FEE") and all of the Company's Expenses; provided,
however, that the Company shall not, upon a termination pursuant to Section
8.01(e) by the Company or pursuant to Section 8.01(g) by the Company or Parent,
be entitled to receive the Parent Alternative Transaction Fee or any of the
Company's Expenses pursuant to this Section 8.05(c) if the Parent Board shall,
prior to such termination, have withdrawn, modified or changed its
recommendation of this Agreement or the transactions contemplated hereby in a
manner adverse to the Company due solely to a breach by the Company of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, which breach is not cured by the Company within 10 days
following notice of such breach, and would cause the conditions set forth in
Sections 7.02(a) and 7.02(b) to not be satisfied.
(d) Each of the Company and Parent agrees that the agreements contained
in Sections 8.05(b) and (c) are an integral part of the transactions
contemplated by this Agreement. Each of the Company and Parent agrees that the
payments provided for in Sections 8.05(b) and (c) shall be the sole and
exclusive remedies of the parties upon a termination of this Agreement pursuant
to Sections 8.01(d), (e), (f) and (g), as the case may be, and such remedies
shall be limited to the sums stipulated in Sections 8.05(b) and (c), regardless
of the circumstances giving rise to such termination; provided, however, that
nothing herein shall relieve any party from liability for any willful breach of
any representation, warranty, covenant or other agreement in this Agreement
occurring prior to termination.
(e) Any payment of a Company Alternative Transaction Fee required to be
made pursuant to Section 8.05(b) shall be made to Parent not later than two
business days after termination of this Agreement. Payment of Expenses pursuant
to Section 8.05(b) shall be made not later than two business days after delivery
to the Company by Parent of notice of demand for payment and an itemization
setting forth in reasonable detail all Expenses of Parent (which itemization may
be supplemented and updated from time to time by Parent until the 60th day after
Parent delivers such notice of demand for payment). All payments to Parent under
this Section 8.05 shall be made by wire transfer of immediately available funds
to an account designated by Parent.
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(f) Any payment of a Parent Alternative Transaction Fee required to be
made pursuant to Section 8.05(c) shall be made to the Company not later than two
business days after termination of this Agreement. Payment of Expenses pursuant
to Section 8.05(c) shall be made not later than two business days after delivery
to Parent by the Company of notice of demand for payment and an itemization
setting forth in reasonable detail all Expenses of the Company (which
itemization may be supplemented and updated from time to time by the Company
until the 60th day after the Company delivers such notice of demand for
payment). All payments to the Company under this Section 8.05 shall be made by
wire transfer of immediately available funds to an account designated by the
Company.
(g) In the event that the Company or Parent, as the case may be, shall
fail to pay any amount payable pursuant to this Section 8.05 when due, the other
party's "Expenses" shall be deemed to include (i) the costs and expenses
actually incurred or accrued by such other party (including, without limitation,
fees and expenses of counsel) in connection with the collection under and
enforcement of this Section 8.05, together with (ii) interest on such unpaid
amounts, commencing on the date that such amounts became due, at a rate equal to
the rate of interest publicly announced by Citibank, N.A., from time to time, in
The City of New York, as such bank's Base Rate plus 2.00%.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that (a) those covenants
and agreements that by their terms apply or are to be performed in whole or in
part after the Effective Time and this Article IX shall survive the Effective
Time for the respective periods set forth therein or, if no such period is
specified, for six years and (b) the representations, warranties and agreements
set forth in Sections 6.03(b), 6.08, 8.02, and 8.05 and this Article IX shall
survive termination for the respective periods set forth therein or, if no such
period is specified, for six years. Nothing in this Section 9.01 shall relieve
any party for any willful breach of any representation, warranty, covenant or
other agreement in this Agreement occurring prior to termination.
SECTION 9.02. Notices. (a) All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be sent by an
overnight courier service that provides proof of receipt, mailed by registered
or certified mail (postage prepaid, return receipt requested) or telecopied to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to the Company:
Medical Manager Corporation
669 River Drive
Center 2
Elmwood Park, NJ 07407
Telephone No.: (201) 703-3400
Telecopier No.: (201) 703-3401
Attention: James R. Love, CFO
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with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telephone No.: (212) 848-4000
Telecopier No.: (212) 848-7179
Attention: Creighton O'M. Condon
Mark Roppel
if to Parent:
Healtheon/WebMD Corporation
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, GA 30326
Telephone No.: (404) 495-7600
Telecopier No.: (404) 479-7603
Attention: Jack Dennison,
Executive Vice President, General Counsel
with a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
Bank of America Corporate Center
Suite 2600
100 N. Tryon Street
Charlotte, North Carolina 28202
Telephone No.: (704) 417-3200
Telecopier No.: (704) 377-4814
Attention: H. Bryan Ives III
C. Mark Kelly
(b) If this Agreement provides for a designated period after a notice
within which to perform an act, such period shall commence on the date of
receipt or refusal of the notice.
(c) If this Agreement requires the exercise of a right by notice on or
before a certain date or within a designated period, such right shall be deemed
exercised on the date of delivery to the courier service, telecopying or mailing
of the notice pursuant to which such right is exercised.
(d) Notices of changes of address shall be effective only upon receipt.
SECTION 9.03. Certain Definitions. For purposes of this Agreement, except
as otherwise provided herein, the terms set forth below shall have the following
meanings:
"affiliate" of a specified Person means a Person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with such specified Person.
"beneficial owner" with respect to any shares means a Person who shall
be deemed to be the beneficial owner of such shares (i) which such Person or any
of its affiliates or associates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) beneficially owns, directly or indirectly,
(ii) which such Person or any of its affiliates or associates has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration rights,
exchange rights, warrants or options, or otherwise or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) which are
beneficially owned, directly or indirectly, by any other Persons with whom such
Person or any of its affiliates or associates or
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Person with whom such Person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any such shares.
"business day" means any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized to close in The City of New York.
"Contract" means any agreement, contract, indenture, instrument, lease
or any written arrangement, commitment, obligation, plan, restriction,
understanding or undertaking of any kind or character, or other document to
which any Person is a party or by which such Person is bound or affecting such
Person's capital stock, assets or business.
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
"Knowledge" means, with respect to any matter in question, (i) in the
case of the Company, if any of the executive officers of the Company has actual
knowledge of such matter after making reasonable inquiry of officers and
employees charged with senior administrative or operational responsibility of
such matters and (ii) in the case of Parent, if any of the executive officers of
Parent has actual knowledge of such matter after making reasonable inquiry of
officers and employees charged with senior administrative or operational
responsibility of such matters.
"Person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in section 13(d)(3) of the Exchange Act), trust, association, limited
liability company or entity or government, political subdivision, agency or
instrumentality of a government.
"subsidiary" or "subsidiaries" of any Person means any corporation,
partnership, joint venture or other legal entity of which such Person (either
alone or through or together with any other subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 9.05. Assignment; Binding Effect; Benefit. (a) Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties.
(b) This Agreement shall be binding upon and inure solely to the benefit
of the parties hereto and their respective successors and permitted assigns, and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other Person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement, other than Article II (which may be
enforced by the beneficiaries thereof), Section 6.05, Section 8.02 and Section
8.03 (which is intended to be for the benefit of the Persons covered thereby and
their respective heirs and representatives and may be enforced by such Persons)
and Section 9.10 (which may be enforced by CareInsite).
SECTION 9.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
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SECTION 9.07. Governing Law; Forum. (a) This Agreement shall be governed
by, and construed in accordance with, the Laws of the State of Delaware
applicable to contracts executed in and to be performed in that state.
(b) Each of the parties hereto irrevocably agrees that all legal actions
or proceedings with respect to this Agreement shall be brought and determined in
the courts of the State of Delaware or in the United States District Court for
the State of Delaware, and each of the parties hereto hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the jurisdiction of the aforesaid
courts. Each of the parties hereto hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, (i) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve process in accordance with applicable Law, (ii)
that it or its property is exempt or immune from jurisdiction of any such court
or from any legal process commenced in such courts and (iii) to the fullest
extent permitted by applicable Law, that (A) the suit, action or proceeding in
any such court is brought in an inconvenient forum, (B) the venue of such suit,
action or proceeding is improper and (C) this Agreement, or the subject matter
hereof, may not be enforced in or by such courts.
SECTION 9.08. Interpretation. (a) If a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents, glossary of defined terms and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The phrases "the date of this
Agreement" and "the date hereof" shall be deemed to refer to February 13, 2000.
(b) The parties hereto acknowledge that certain matters set forth in the
Company Disclosure Letter and certain matters set forth in the Parent Disclosure
Letter are included for informational purposes only, notwithstanding the fact
that, because they do not rise above applicable materiality thresholds or
otherwise, they would not be required to be set forth therein by the terms of
this Agreement. The parties agree that disclosure of such matters shall not be
taken as an admission by the Company or Parent, as the case may be, that such
disclosure is required to be made under the terms of any provision of this
Agreement and in no event shall the disclosure of such matters be deemed or
interpreted to broaden or otherwise amplify the representations and warranties
contained in this Agreement or to imply that such matters are or are not
material and neither party shall use, in any dispute between the parties, the
fact of any such disclosure as evidence of what is or is not material for
purposes of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed and delivered
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.10. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties and the stockholders of the parties with respect to
the subject matter hereof, other than the Confidentiality Agreement, the Company
Voting Agreement, the Parent Voting Agreement, the CareInsite Merger Agreement,
and the Company Voting Agreements (as defined in the CareInsite Merger
Agreement) all of which shall survive the execution and delivery of this
Agreement.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF PARENT AND THE COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT AND THE COMPANY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
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SECTION 9.12. Brokers and Finders. Except for Morgan Stanley & Co.
Incorporated, and FleetBoston Robertson Stephens, Inc., the investment banker
for Parent, and Merrill Lynch & Co., Warburg Dillon Reed LLC and Donaldson,
Lufkin & Jenrette Securities Corporation, the investment bankers for the
Company, 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 Parent or the Company in
connection with the transactions contemplated hereby, each of Parent or the
Company as the case may be, agrees to indemnify and hold the other parties
harmless of and from any liability in respect of any such claim. The Company
hereby represents and warrants to Parent that copies of all of its Contracts
with its investment bankers set forth in this Section 9.12 have been made
available to Parent. Parent hereby represents and warrants to the Company that
copies of all of its Contracts with its investment bankers set forth in this
Section 9.12 have been made available to the Company.
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
HEALTHEON/WEBMD CORPORATION
By: /s/ JEFFREY T. ARNOLD
----------------------------------------
Name: Jeffrey T. Arnold
Title: Chief Executive Officer
MEDICAL MANAGER CORPORATION
By: /s/ JOHN KANG
----------------------------------------
Name: John Kang
Title: Co-Chief Executive Officer
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AMENDMENT NO. 1 DATED
AS OF JUNE 18, 2000
TO THE AGREEMENT AND PLAN OF MERGER BETWEEN
HEALTHEON/WEBMD CORPORATION AND MEDICAL
MANAGER CORPORATION, DATED AS OF FEBRUARY 13, 2000
Amendment No. 1, dated as of June 18, 2000 (the "Amendment"), to the
Agreement and Plan of Merger, dated as of February 13, 2000 (the "Merger
Agreement"), between Healtheon/WebMD Corporation ("Parent") and Medical Manager
Corporation (the "Company").
PRELIMINARY STATEMENTS
Parent and the Company are parties to the Merger Agreement. Capitalized
terms not otherwise defined herein have the same meanings as specified in the
Merger Agreement.
Parent and the Company desire to amend the Merger Agreement as described
herein.
In consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, Parent and the
Company hereby agree as follows:
1. By-Laws. From and after the date hereof, Section 1.04(b) of the
Merger Agreement shall be amended to insert the phrase "and after giving
effect to the amendments contemplated by Section 6.11 of this Agreement"
immediately following the phrase "as in effect immediately prior to the
Effective Time".
2. Directors and Officers. From and after the date hereof, Section
1.05 of the Merger Agreement shall be amended to read in full as follows:
"Except as otherwise provided in Section 6.11 of this Agreement, (a) the
directors of Parent immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation, and (b) the officers of Parent immediately prior
to the Effective Time shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly
elected or appointed and qualified."
3. Exchange Ratio. From and after the date hereof, Section 2.01(a) of
the Merger Agreement shall be amended to replace "1.65 shares" with "2.5
shares".
4. Representations and Warranties of the Company. From and after the
date hereof, Section 3.15 of the Merger Agreement shall be amended to read
in full as follows:
"The Company has received separate opinions of Merrill Lynch & Co.
and UBS Warburg LLC dated June 18, 2000 to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to the
holders of the Company Common Stock."
5. Representations and Warranties of Parent. From and after the date
hereof, Section 4.15 of the Merger Agreement shall be amended to read in
full as follows:
"Parent has received the opinion of Morgan Stanley & Co.
Incorporated, dated June 18, 2000 that, as of such date, the Exchange
Ratios in the Merger and the CareInsite Merger, taken together and not
separately, are fair to Healtheon/WebMD from a financial point of view."
6. Covenants of the Company. From and after the date hereof, Section
5.01 of the Merger Agreement shall be amended as follows:
(a) The text of Sections 5.01(e), (j), (k), (l), (m) and (n) shall
be deleted in their entirety and replaced with, in each case,
"[RESERVED]";
(b) Section 5.01(c)(ii) shall be amended to read in full as
follows:
"the issuance of Company Stock Options to purchase shares of Company
Common Stock and the shares of Company Common Stock issuable pursuant
to such Company Stock Options";
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(c) Section 5.01(c) shall be amended to add the following at the
end of the existing clause (iii), and the existing clause (iv) shall be
renumbered as clause (v):
"(iv) the issuance by CareInsite of Series A Preferred Stock pursuant
to the Subscription Agreement dated as of September 15, 1999 between
CareInsite and America Online, Inc."
(d) Section 5.01(f)(ii) shall be amended to delete the word "or"
immediately preceding clause (C) and to add the following at the end of
the existing clause (C) to read in full as follows:
", and (D) loans or advances that in the aggregate do not exceed
$10,000,000"; and
(e) Section 5.01(p) shall be amended to delete the parenthetical
clause in the second line.
7. Covenants of Parent. From and after the date hereof, Section 5.02
of the Merger Agreement shall be amended as follows:
(a) Section 5.02(c)(ii) shall be amended to read in full as
follows:
"the issuance of Parent Stock Options to purchase shares of Parent
Common Stock and the shares of Parent Common Stock issuable pursuant
to such Parent Stock Options";
(b) Section 5.02(e)(ii) shall be amended to delete the word "or"
immediately preceding clause (C) and to add the following at the end of
the existing clause (C) to read in full as follows:
", or (D) loans or advances that in the aggregate do not exceed
$10,000,000.";
(c) Section 5.02(j) shall be amended to replace the word "Company"
in both places such word is used with the word "Parent"; and
(d) Section 5.02(i) shall be amended to delete the parenthetical
clause in the second line.
8. Further Action; Consents; Filings. From and after the date hereof,
Section 6.06 of the Merger Agreement shall be amended as follows:
(a) Section 6.06(a) shall be amended to add the following sentence
at the end of existing clause (a):
"Each of Parent and the Company shall use best efforts to certify by
no later than July 30, 2000, and shall certify by no later than August
15, 2000, to the Department of Justice as required by Section 802.6(b)
of the implementing rules for the HSR Act that such party has
substantially complied with the request for additional information the
parties received on May 24, 2000 in connection with their pre-merger
notification filing under the HSR Act."
(b) The proviso of the second sentence of Section 6.06(c) of the
Merger Agreement shall be amended to read in full as follows:
"provided, however, that neither Parent and the Parent Subsidiaries,
on the one hand, nor the Company and the Company Subsidiaries, on the
other hand, shall be required to take any actions otherwise required
hereunder if the effect of such actions would have a material adverse
effect on the financial position, business, or results of operations
of the Parent, the Parent Subsidiaries, the Company and the Company
Subsidiaries, all taken as a whole."
9. Governance. From and after the date hereof, Section 6.11 of the
Merger Agreement shall be amended to read in full as follows:
"SECTION 6.11. Governance. (a) Parent shall take any and all
action necessary, sufficient and reasonably satisfactory to the Company
(including, but not limited to, amending the Parent Certificate of
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Incorporation, Parent By-Laws and Parent Board's adoption of appropriate
resolutions and solicitation of proxies) to, effective immediately upon
the Effective Time:
(i) amend Article III, Section 3.2 of the Parent By-Laws to read
in full as follows:
"The number of directors of the corporation shall be 15. This
number may be changed exclusively by a resolution duly adopted by
the affirmative vote of a majority of the members of the board of
directors then authorized by the by-laws, except as may otherwise
be provided by the certificate of incorporation or by statute.
No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of
office expires."
(ii) amend Sections of Parent By-Laws to read as set forth below:
(A) In Section 3.8, replace the clause "may be called by the
chief executive officer" with "may be called by either of the
co-chief executive officers";
(B) In Section 5.1, replace the clause "shall be a chief
executive officer ("CEO")" with "shall be a chief executive
officer ("CEO") or two co-chief executive officers (each, a "Co-
CEO", and together, the "Co-CEOs"), and in the event that there
are Co-CEOs and one or the other of them shall resign, be removed
or otherwise not continue to serve as Co-CEO, then the remaining
Co-CEO shall be the CEO exercising such power and authority as
designated in these bylaws and by the board of directors of the
corporation and there shall be no further Co-CEOs";
(C) In Section 5.3, replace the clause "or empower the CEO to
appoint" with "or empower the CEO or either or both of the Co-CEOs
to appoint";
(D) In Section 5.6, replace the clause "If there is no CEO,
then the chairman of the board shall also be the CEO" with "If
there is no Co-CEO or CEO then the chairman of the board shall
also be the CEO";
(E) In Section 5.7, (1) replace the clause "the CEO of the
corporation shall," with "the CEO shall, or each of the Co-CEOs of
the corporation shall, separately and individually,", (2) replace
the clause "He shall preside" with "The CEO or Co-CEOs shall
preside", (3) replace the clause "He shall have the general
powers" with "The CEO, or each Co-CEO shall have the general
powers", and (4) replace the clause "vested in the CEO" with
"vested in the chief executive officer";
(F) In Section 5.8, replace the entire section to read as
follows:
"The president may assume and perform the duties of the
CEO in the absence or disability of the CEO or both Co-CEOs or
whenever the offices of the CEO and Co-CEO are vacant. The
president of the corporation shall exercise and perform such
powers and duties as may from time to time be assigned to him
by the board of directors, the CEO, either or both of the
Co-CEOs or as may be prescribed by these bylaws. The president
shall have the authority to execute in the name of the
corporation bonds, contracts, deeds, leases and other written
instruments to be executed by the corporation. In the absence
or nonexistence of the chairman of the board and the CEO or
both Co-CEOs, he shall preside at all meetings of the
stockholders and, in the absence or nonexistence of the
chairman of the board and the CEO or both Co-CEOs, at all
meetings of the board of directors and shall perform such
other duties as the board of directors may from time to time
determine.";
(G) In Section 5.9, replace the clause "disability of the
CEO" with "disability of the CEO or both Co-CEOs"; and
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(H) In Section 7.4, replace the clause "the CEO, the CFO or
any other person authorized by the board of directors or the CEO,"
with "the CEO or each of the Co-CEOs, the CFO or any other person
authorized by the board of directors, the CEO or either or both of
the Co-CEOs,";
(iii) provide that the Parent Board shall consist of:
(A) In Class I, 5 directors (the terms of which shall expire
at the annual meeting of Parent's stockholders in 2002),
consisting of (i) 3 persons holding such positions immediately
prior to the Effective Time and (ii) 2 persons designated by the
Company prior to the Effective Time and appointed by Parent Board
effective as of the Effective Time;
(B) In Class II, 5 directors (the terms of which shall expire
at the annual meeting of Parent's stockholders in 2003),
consisting of (i) 3 persons holding such positions immediately
prior to the Effective Time, at least 2 of whom are elected at the
annual meeting of Parent's stockholders in 2000 and (ii) 2 persons
designated by the Company Board prior to the Effective Time and
appointed by Parent Board effective as of the Effective Time; and
(C) In Class III, 5 directors (the terms of which shall
expire at the annual meeting of Parent's stockholders in 2001),
consisting of (i) 2 persons holding such positions immediately
prior to the Effective Time and (ii) 3 persons designated by the
Company Board prior to the Effective Time and appointed by Parent
Board effective as of the Effective Time.
(iv) provide for the appointment to each committee of the Parent
Board (including the Compensation Committee) of directors designated
by the Company such that one half of the members of each committee
will consist of such directors;
(v) provide for the appointment of W. Michael Long, if he is
able, willing and available to serve, as the Chairman of the Parent
Board;
(vi) provide for the appointment of Martin J. Wygod, if he is
able, willing and available to serve, as Co-Chief Executive Officer of
Parent;
(vii) provide for the appointment of Jeffrey T. Arnold, if he is
able, willing and available to serve, as Co-Chief Executive Officer of
Parent;
(viii) provide that Martin J. Wygod, so long as he is an officer
or director of Parent, in addition to any other powers and duties,
shall have full power and authority, on behalf of Parent, with respect
to the matters provided for in Sections 1.02(b), (c), (d), (e), (g)
and (h), 2.06, 2.07, 2.08 and 2.09 of the Stock Purchase Agreement,
dated as of January 15, 1999, among Synetic, Inc., David R. Kipp and
James P. Kipp, until such time as the matters referred to in such
sections have been finally and fully resolved;
(ix) provide for the appointment of Marvin P. Rich, if he is
able, willing and available to serve, as President of Parent; and
(x) provide for the amendment of the Parent Certificate of
Incorporation, (A) Article VIII, Section 2 to delete, in its entirety,
the first sentence and (B) Article I, to replace "Healtheon/ WebMD"
with "WebMD".
(b) Parent Board. Parent has no obligation to designate, nominate,
or appoint persons to the Parent Board other than the nominees of the
Company and as described in this Section 6.11(b). Pursuant to existing
contractual arrangements, Parent shall nominate for election at the
Parent Stockholders' meeting, and recommend to the stockholders of
Parent the election of, Dennis B. Gillings and a designee of Microsoft
Corporation as Class II directors to fill two of the positions referred
to in Section 6.11(a)(iii)(B)(i) of the Merger Agreement.
(c) Executives. Each of Parent and the Parent Subsidiaries and the
Company and the Company Subsidiaries shall consult in writing with the
other party prior to appointing or agreeing to appoint, any
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individual who on or after the Effective Time will hold a position as an
executive officer of Parent or the Company, as the case may be.
10. Conditions to the Obligations of the Company. From and after the
date hereof, Section 7.03 of the Merger Agreement shall be amended to add a
new Section 7.03(d) as follows:
"(d) Parent shall have taken all actions as shall be necessary to
comply with the provisions of Section 6.11;"
11. Change in Name of Counsel. From and after the date hereof, (a)
the reference to "Nelson Mullins Riley & Scarborough, L.L.P." in Section
7.02(c) shall be amended to be a reference to "Alston & Bird L.L.P."; and
(b) the reference to "Nelson Mullins Riley & Scarborough, L.L.P."
and its address in Section 9.02(a) shall be amended to read as follows:
"Alston & Bird L.L.P.
1211 East Morehead Street
Charlotte, NC 28204
Telephone No.: (704) 331-6002
Telecopier No.: (704) 334-2014
Attention: H. Bryan Ives III
C. Mark Kelly"
12. Termination. From and after the date hereof, Section 8.01(b) of
the Merger Agreement shall be amended to replace "September 30, 2000" with
"November 30, 2000".
13. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent that:
(a) The Company has all necessary corporate power and authority to
execute and deliver this Amendment and, subject to the terms and
conditions of this Amendment and the Merger Agreement and the approval
of the Merger Agreement by the holders of a majority of then outstanding
shares of Company Common Stock, to perform its obligations hereunder and
under the Merger Agreement and to consummate the transactions
contemplated by this Amendment and the Merger Agreement; (b) the
execution and delivery of this Amendment by the Company and the
consummation by the Company of the transactions contemplated by this
Amendment and the Merger Agreement have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on
the part of the Company are necessary to authorize this Amendment or to
consummate the Merger and the other transactions contemplated by this
Amendment and the Merger Agreement (other than, with respect to the
Merger, the approval of the Company Proposal by the holders of a
majority of the then outstanding shares of Company Common Stock and the
filing and recordation of appropriate merger documents as required by
Delaware Law and subject to the terms and conditions of this Amendment);
and (c) this Amendment has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and
delivery by Parent, constitutes a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar Laws now or hereafter in effect relating to creditors' rights
and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at Law).
14. Representations and Warranties of Parent. Parent hereby
represents and warrants to the Company that:
(a) Parent has all necessary corporate power and authority to
execute and deliver this Amendment and, subject to the terms and
conditions of this Amendment and the Merger Agreement and obtaining the
necessary approvals of Parent's stockholders, to perform its obligations
hereunder and under the Merger Agreement and to consummate the Merger
and the other transactions contemplated by this Amendment and the Merger
Agreement; (b) the execution and delivery of this Amendment by Parent
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and the consummation by Parent of the Merger and the other transactions
contemplated by this Amendment and the Merger Agreement have been duly
and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent are necessary to authorize
this Amendment or to consummate the Merger and the other transactions
contemplated by this Amendment and the Merger Agreement (other than,
with respect to the Merger, the approval of the Parent Proposal by a
majority of the outstanding shares of Parent Common Stock, and the
filing and recordation of appropriate merger documents as required by
Delaware Law and subject to the terms and conditions of this Amendment);
and (c) this Amendment has been duly and validly executed and delivered
by Parent and, assuming the due authorization, execution and delivery by
the Company, constitutes a legal, valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws
now or hereafter in effect relating to creditors' rights and by general
equitable principles (regardless of whether enforceability is considered
in a proceeding in equity or at Law).
15. Effect on Agreement. (a) From and after the date hereof, each
reference in the Merger Agreement or any other agreement in connection
therewith to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Merger Agreement, shall mean and be a reference to
the Merger Agreement as amended by this Amendment.
(b) The Merger Agreement as specifically amended hereby and subject
to the conditions herein, is and shall remain in full force and effect
and is in all respects ratified and confirmed.
(c) The Company hereby waives any rights it has or may have, as of
the date hereof, pursuant to Section 7.03(a) and (b) of the Merger
Agreement, as amended, based solely on the facts and circumstances of
which the Company has Knowledge, as of the date hereof, in respect of
the representations, warranties and covenants made and agreed to by
Parent. Parent hereby waives any rights it has or may have, as of the
date hereof, pursuant to Section 7.02(a) and (b) of the Merger
Agreement, as amended, based solely on the facts and circumstances of
which Parent has Knowledge, as of the date hereof, in respect of the
representations, warranties and covenants made and agreed to by the
Company. Except as specifically set forth in this Amendment, the
execution and delivery of this Amendment is not intended, and shall not
operate, to affect in any way any rights or remedies a party may have
with respect to the execution, delivery and performance of the Merger
Agreement, including the representations, warranties and covenants
contained therein, all of which rights or remedies are hereby expressly
reserved.
16. Counterparts. This Amendment may be executed and delivered in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be deemed to
be an original, but all of which taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of a signature page
to this Amendment by facsimile shall be effective as delivery of a manually
executed counterpart of this Amendment.
17. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the Laws of the State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto to duly authorized, as of the
date first above written.
HEALTHEON/WEBMD CORPORATION
By: /s/ JACK DENNISON
----------------------------------------
Name: Jack Dennison
Title: Executive Vice President and
General Counsel
MEDICAL MANAGER CORPORATION
By: /s/ CHARLES A. MELE
----------------------------------------
Name: Charles A. Mele
Title: Executive Vice President --
General Counsel and Secretary
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ANNEX B
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 13, 2000
AMONG
HEALTHEON/WEBMD CORPORATION
AVICENNA SYSTEMS CORPORATION
AND
CAREINSITE, INC.
<PAGE> 284
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER
SECTION 1.01. The Merger.................................................. B-2
SECTION 1.02. Effective Time; Closing..................................... B-2
SECTION 1.03. Effect of the Merger........................................ B-2
SECTION 1.04. Certificate of Incorporation; By-Laws....................... B-2
SECTION 1.05. Directors and Officers...................................... B-2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.................................... B-2
SECTION 2.02. Exchange of Certificates.................................... B-3
SECTION 2.03. Stock Transfer Books........................................ B-5
SECTION 2.04. Company Stock Options....................................... B-6
SECTION 2.05. Company Warrants............................................ B-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ASC
SECTION 3.01. Organization and Qualification.............................. B-7
SECTION 3.02. Certificate of Incorporation and Bylaws..................... B-7
SECTION 3.03. Capitalization.............................................. B-7
SECTION 3.04. Authority Relative to This Agreement........................ B-8
SECTION 3.05. No Conflict; Required Filings and Consents.................. B-8
SECTION 3.06. Permits; Compliance......................................... B-9
SECTION 3.07. SEC Filings; Financial Statements; Absence of Liabilities... B-9
SECTION 3.08. Absence of Certain Changes or Events........................ B-10
SECTION 3.09. Absence of Litigation....................................... B-10
SECTION 3.10. Employee Benefit Plans...................................... B-10
SECTION 3.11. Tax Matters................................................. B-11
SECTION 3.12. Intellectual Property....................................... B-11
SECTION 3.13. Taxes....................................................... B-12
SECTION 3.14. Vote Required............................................... B-13
SECTION 3.15. Opinion of Financial Advisor................................ B-13
SECTION 3.16. Brokers..................................................... B-13
SECTION 3.17. Contracts................................................... B-13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 4.01. Organization and Qualification.............................. B-13
SECTION 4.02. Certificate of Incorporation and By-Laws.................... B-14
SECTION 4.03. Capitalization.............................................. B-14
SECTION 4.04. Authority Relative to This Agreement........................ B-14
SECTION 4.05. No Conflict; Required Filings and Consents.................. B-15
SECTION 4.06. Permits; Compliance......................................... B-15
SECTION 4.07. SEC Filings; Financial Statements; Absence of Liabilities... B-15
SECTION 4.08. Absence of Certain Changes or Events........................ B-16
SECTION 4.09. Absence of Litigation....................................... B-16
SECTION 4.10. Employee Benefit Plans...................................... B-16
SECTION 4.11. Tax Matters................................................. B-17
SECTION 4.12. Intellectual Property....................................... B-17
SECTION 4.13. Taxes....................................................... B-18
SECTION 4.14. Vote Required............................................... B-18
SECTION 4.15. Opinion of Financial Advisor................................ B-18
SECTION 4.16. Brokers..................................................... B-18
SECTION 4.17. Contracts................................................... B-18
</TABLE>
B-i
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger....... B-19
SECTION 5.02. Conduct of Business by Parent Pending the Merger............ B-21
SECTION 5.03. Adverse Changes in Condition................................ B-22
ARTICLE VI ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Joint Proxy Statement............... B-22
SECTION 6.02. Stockholders' Meetings...................................... B-24
SECTION 6.03. Access to Information; Confidentiality...................... B-24
SECTION 6.04. No Solicitation of Transactions............................. B-25
SECTION 6.05. Directors' and Officers' Indemnification and Insurance...... B-26
SECTION 6.06. Amendment of Company Charter................................ B-27
SECTION 6.07. Further Action; Consents; Filings........................... B-27
SECTION 6.08. Plan of Reorganization...................................... B-28
SECTION 6.09. Public Announcements........................................ B-28
SECTION 6.10. NASDAQ Listing.............................................. B-28
SECTION 6.11. Conveyance Taxes............................................ B-28
SECTION 6.12. [RESERVED].................................................. B-28
SECTION 6.13. Employee Benefit Matters.................................... B-28
SECTION 6.14. Exemption From Liability Under Section 16(b)................ B-29
SECTION 6.15. [RESERVED].................................................. B-30
SECTION 6.16. Company Affiliates; Restrictive Legend; Restrictions on
Transfer.................................................... B-30
ARTICLE VII CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party................. B-30
SECTION 7.02. Conditions to the Obligations of Parent..................... B-31
SECTION 7.03. Conditions to the Obligations of the Company................ B-31
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination................................................. B-32
SECTION 8.02. Effect of Termination....................................... B-33
SECTION 8.03. Amendment................................................... B-33
SECTION 8.04. Waiver...................................................... B-33
SECTION 8.05. Expenses.................................................... B-33
ARTICLE IX GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements.................................................. B-34
SECTION 9.02. Notices..................................................... B-34
SECTION 9.03. Certain Definitions......................................... B-35
SECTION 9.04. Severability................................................ B-36
SECTION 9.05. Assignment; Binding Effect; Benefit......................... B-36
SECTION 9.06. Specific Performance........................................ B-37
SECTION 9.07. Governing Law; Forum........................................ B-37
SECTION 9.08. Interpretation.............................................. B-37
SECTION 9.09. Counterparts................................................ B-37
SECTION 9.10. Entire Agreement............................................ B-37
SECTION 9.11. Waiver of Jury Trial........................................ B-38
SECTION 9.12. Brokers and Finders......................................... B-38
</TABLE>
B-ii
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AGREEMENT AND PLAN OF MERGER dated as of February 13, 2000 (this
"AGREEMENT") among Healtheon/WebMD Corporation, a Delaware corporation
("PARENT"), Avicenna Systems Corporation, a Massachusetts corporation ("ASC")
and CareInsite, Inc., a Delaware corporation (the "COMPANY") and an indirect
majority-owned subsidiary of Medical Manager Corporation.
W I T N E S S E T H
WHEREAS, the Boards of Directors of Parent, ASC and the Company have each
determined that it is in the best interests of their respective stockholders for
Parent and the Company to combine their respective businesses upon the terms and
conditions set forth herein;
WHEREAS, in furtherance of such business combination, upon the terms and
subject to the conditions of this Agreement and in accordance with the General
Corporation Law of the State of Delaware ("DELAWARE LAW") and the Business
Corporation Law of the Commonwealth of Massachusetts ("MASSACHUSETTS LAW"), the
Company will merge with and into ASC (the "MERGER");
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD"), by
resolution adopted in accordance with Delaware Law, has appointed a special
committee of independent members of the Company Board (the "SPECIAL COMMITTEE")
which (i) has determined that the Merger is consistent with and in furtherance
of the long-term business strategy of the Company and has declared to be
advisable this Agreement, the Merger and the other transactions contemplated
hereby and (ii) has recommended that the stockholders of the Company approve and
adopt this Agreement and the Merger (the "COMPANY PROPOSAL");
WHEREAS, the Special Committee and the Company Board have considered the
form and terms of the Agreement and Plan of Merger (the "MEDICAL MANAGER MERGER
AGREEMENT"), dated as of the date of this Agreement, between Parent and Medical
Manager Corporation ("MEDICAL MANAGER") and have determined that the
transactions contemplated thereby are in the best interests of the Company and
its stockholders and have approved such transactions;
WHEREAS, the Board of Directors of Parent (the "PARENT BOARD") (i) has
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Parent and has declared to be advisable this
Agreement, the Merger and the other transactions contemplated hereby and (ii)
has recommended that the stockholders of Parent vote to approve the issuance of
shares of common stock, par value $0.0001 per share, of Parent (the "PARENT
COMMON STOCK") to the stockholders of the Company pursuant to the Merger (the
"PARENT PROPOSAL");
WHEREAS, as a condition to the willingness of the parties to enter into
this Agreement, Parent has entered into a voting agreement, dated as of the date
of this Agreement, with (i) each of ASC and Cerner Corporation ("CERNER"),
significant stockholders of common stock, par value $.01 per share, of the
Company ("COMPANY COMMON STOCK"), pursuant to which each of ASC and Cerner have
agreed, among other things, to vote their shares of Company Common Stock in
favor of the Company Proposal and to take certain other actions in support of
the Merger and (ii) Medical Manager, the owner of all of the common stock of ASC
(the "ASC COMMON STOCK"), pursuant to which Medical Manager has agreed, among
other things, to vote the ASC Common Stock in favor of the Company Proposal, to
cause ASC to vote its shares of Company Common Stock in favor of the Company
Proposal and to take certain other actions in support of the Merger (the
"COMPANY VOTING AGREEMENTS");
WHEREAS, the consummation of the transactions contemplated by the Medical
Manager Merger Agreement is a condition to the consummation of the transactions
contemplated by this Agreement; and
WHEREAS, for federal income tax purposes, the Merger is intended to qualify
as a reorganization under the provisions of section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "CODE").
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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Section 252 of Delaware Law
and Section 79 of Chapter 156B of Massachusetts Law, at the Effective Time (as
defined below in Section 1.02), the Company shall be merged with and into ASC.
As a result of the Merger, the separate corporate existence of the Company shall
cease and ASC shall continue as the surviving corporation in the Merger (the
"SURVIVING CORPORATION").
SECTION 1.02. Effective Time; Closing. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place on the first business day
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (other than those that by their nature will be satisfied on the
Closing Date, as defined below) or on such other date as Parent and the Company
shall agree in writing (such date, the "CLOSING DATE"). On the Closing Date, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State
of Delaware, in such form as is required by, and executed and acknowledged in
accordance with, Section 252 of Delaware Law and by filing articles of merger
(the "ARTICLES OF MERGER") with the state secretary of the Commonwealth of
Massachusetts pursuant to Section 79 of Chapter 156B of Massachusetts Law. The
term "EFFECTIVE TIME" means the date and time of the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware and the Articles
of Merger with the state secretary of the Commonwealth of Massachusetts (or such
later time as may be agreed by the parties hereto and specified in the
Certificate of Merger and Articles of Merger). The Closing will be held at the
offices of counsel to Parent (or such other place as the parties may agree).
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law and
Massachusetts Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and ASC shall vest in the Surviving Corporation, and
all debts, liabilities, obligations, restrictions, disabilities and duties of
each of the Company and ASC shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. (a) At the Effective
Time, the Certificate of Incorporation of ASC, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Massachusetts Law.
(b) At the Effective Time, the By-Laws of ASC, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by Massachusetts Law, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.05. Directors and Officers. The directors of ASC immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
By-Laws of the Surviving Corporation, and the officers of the ASC immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, ASC, the Company or
the holders of any of the following securities:
(a) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be cancelled pursuant to Section 2.01(c) or
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Section 2.01(d)) shall be canceled and shall be converted, subject to
Section 2.02(e), into the right to receive 1.3 shares (the "EXCHANGE RATIO") of
Parent Common Stock; provided, however, that, if between the date of this
Agreement and the Effective Time the outstanding shares of Parent Common Stock
or of Company Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio shall be correspondingly adjusted to the extent appropriate
to reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares;
(b) each share of preferred stock, par value $.01 per share, of the
Company (the "COMPANY PREFERRED STOCK" and together with the Company Common
Stock, the "COMPANY CAPITAL STOCK") issued and outstanding immediately prior to
the Effective Time (other than any shares of Company Preferred Stock to be
canceled pursuant to Section 2.01(c)) shall be converted into the right to
receive newly issued preferred stock of Parent ("PARENT NEW PREFERRED STOCK")
with terms identical to the Company Preferred Stock; provided that each share of
Parent New Preferred Stock shall after the Effective Time represent the right to
receive upon conversion (A) the number of shares of Parent Common Stock equal to
(i) the Exchange Ratio multiplied by (ii) the number of shares of Company Common
Stock into which such share of Company Preferred Stock is convertible
immediately prior to the Effective Time;
(c) each share of Company Capital Stock held in the treasury of the
Company shall be cancelled and extinguished without any conversion thereof and
no payment or distribution shall be made with respect thereto;
(d) each share of Company Common Stock owned by ASC immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof and no payment or distribution shall be made with respect thereto; and
(e) each share of ASC Common Stock issued and outstanding immediately
prior to the Effective Time shall remain outstanding as a share of ASC Common
Stock following the Merger.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. Parent shall
deposit, or shall cause to be deposited, with a bank or trust company designated
by Parent and reasonably satisfactory to the Company (the "EXCHANGE AGENT"), for
the benefit of the holders of shares of Company Common Stock, for exchange in
accordance with this Article II through the Exchange Agent, certificates
representing the shares of Parent Common Stock issuable pursuant to Section
2.01(a) as of the Effective Time, cash in lieu of any fractional shares pursuant
to Section 2.02(e) and any dividends or other distributions pursuant to Section
2.02(c) (such certificates for shares of Parent Common Stock, together with cash
in lieu of fractional shares and any dividends or distributions with respect
thereto, being hereinafter referred to as the "EXCHANGE FUND"). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver out of the Exchange
Fund the Parent Common Stock contemplated to be issued pursuant to Section
2.01(a), the cash in lieu of fractional shares of Parent Common Stock to be paid
pursuant to Section 2.02(e) and any dividends or other distributions pursuant to
Section 2.02(c). Except as contemplated by Section 2.02(f) hereof, the Exchange
Fund shall not be used for any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, and in any event not later than five business days, Parent shall cause the
Exchange Agent to mail to each holder of record (as of the Effective Time) of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES")
whose shares were converted into the right to receive shares of Parent Common
Stock pursuant to Section 2.01(a), cash in lieu of fractional shares of Parent
Common Stock to be paid pursuant to Section 2.02(e) and any dividends or other
distributions pursuant to Section 2.02(c), (i) a letter of transmittal (which
shall be in customary form and shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of any fractional
shares and any dividends or other distributions pursuant to Section 2.02(c).
Upon surrender to the Exchange Agent of a Certificate for cancellation, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock which such holder has the right to receive in
respect of the
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shares of Company Common Stock formerly represented by such Certificate (after
taking into account all shares of Company Common Stock then held by such
holder), cash in lieu of any fractional shares of Parent Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c), and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of shares of Company Common Stock which is not registered
in the transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock, cash in lieu of any fractional shares
of Parent Common Stock to which such holder is entitled pursuant to Section
2.02(e) and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c) may be issued to a transferee if the
Certificate representing such shares of Company Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.02(b), each
Certificate shall be deemed at all times after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of Parent Common Stock, cash in lieu of any fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.02(e) and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.02(c). As promptly as practicable after the Effective Time, the
holders of Company Preferred Stock shall surrender the certificates representing
the Company Preferred Stock and shall upon surrender thereof receive in exchange
therefor pursuant to Section 2.01(b) a certificate representing the number of
shares of Parent New Preferred Stock.
(c) Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to the Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional shares shall be paid to any such holder
pursuant to Section 2.02(e), until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of escheat, tax or other
applicable Laws (as defined in Section 3.05), following surrender of any such
Certificate, there shall be paid to the holder of the certificates representing
whole shares of Parent Common Stock issued in exchange therefor, without
interest, (i) promptly, the amount of any cash payable with respect to a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e) and the amount of dividends or other distributions
with a record date after the Effective Time and theretofore paid with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions, with a record date after
the Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Parent Common Stock.
(d) No Further Rights in Company Common Stock. All shares of Parent
Common Stock issued upon conversion of shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.02(c) or (e)) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution with respect to Parent
Common Stock shall be payable on or with respect to any fractional share and
such fractional share interests will not entitle the owner thereof to any rights
of a stockholder of Parent.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full shares of
Parent Common Stock delivered to the Exchange Agent by Parent pursuant to
Section 2.02(a) over (y) the aggregate number of full shares of Parent Common
Stock to be distributed to holders of Company Common Stock pursuant to Section
2.02(b) (such excess being herein called the "EXCESS SHARES"). As soon after the
Effective Time as practicable, the Exchange Agent, as agent for such holders of
Parent Common Stock, shall sell the Excess Shares at then prevailing prices on
the National Market System of the Nasdaq Stock Market (the "NASDAQ"), all in the
manner provided in paragraph (iii) of this Section 2.02(e).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NASDAQ through one or more member firms of the NASDAQ and shall
be executed in round lots to the extent practicable. Until the net proceeds of
any such sale or sales have been distributed to such holders of Company Common
Stock,
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the Exchange Agent will hold such proceeds in trust for such holders of Company
Common Stock as part of the Exchange Fund. Parent shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs of the Exchange Agent
incurred in connection with such sale or sales of Excess Shares. In addition,
Parent shall pay the Exchange Agent's compensation and expenses in connection
with such sale or sales. The Exchange Agent shall determine the portion of such
net proceeds to which each holder of Company Common Stock shall be entitled, if
any, by multiplying the amount of the aggregate net proceeds by a fraction the
numerator of which is the amount of the fractional share interest to which such
holder of Company Common Stock is entitled (after taking into account all shares
of Company Common Stock then held by such holder) and the denominator of which
is the aggregate amount of fractional share interests to which all holders of
Certificates representing Company Common Stock are entitled.
(iv) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Company Common Stock with respect to any
fractional share interests, the Exchange Agent shall promptly pay such amounts
to such holders of Company Common Stock subject to and in accordance with the
terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Company Common Stock for 180 days
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Company Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Parent for the shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock to which
they are entitled pursuant to Section 2.02(e) and any dividends or other
distributions with respect to the Parent Common Stock to which they are entitled
pursuant to Section 2.02(c).
(g) No Liability. Neither Parent nor the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any such shares of
Company Common Stock (or dividends or distributions with respect thereto), or
cash lawfully delivered to a public official pursuant to any abandoned property,
escheat or similar Law.
(h) Withholding Rights. Each of the Exchange Agent, the Surviving
Corporation and Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as it may be required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax Law. To the extent that amounts are so
withheld by the Exchange Agent, the Surviving Corporation or Parent, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Parent, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock, any cash in lieu of fractional
shares of Parent Common Stock to which the holders thereof are entitled pursuant
to Section 2.02(e) and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 2.02(c).
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
Certificates representing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Company Common Stock, except as otherwise provided in this Agreement
or by Law. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into shares of Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock to
which the holders thereof are entitled pursuant to Section 2.02(e) and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.02(c).
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SECTION 2.04. Company Stock Options. (a) At the Effective Time, each
outstanding stock option (each a "COMPANY STOCK OPTION" and collectively, the
"COMPANY STOCK OPTIONS") granted pursuant to the terms and conditions of the
Company's stock option plans and arrangements (collectively, the "COMPANY STOCK
OPTION PLANS"), whether or not exercisable, shall be converted into and become
rights with respect to Parent Common Stock, and the Parent shall assume the
Company's obligations with respect to each Company Stock Option and the related
Company Stock Option Plan, in accordance with its terms, except that from and
after the Effective Time, (i) Parent and its compensation committee shall be
substituted for the Company and the committee of the Company's Board of
Directors (including, if applicable, the entire Company Board) administering the
Company Stock Option Plan, if any, under which such Company Stock Option was
granted or otherwise governed, (ii) each Company Stock Option assumed by Parent
may be exercised solely for shares of Parent Common Stock, (iii) the number of
shares of Parent Common Stock subject to such Company Stock Option shall be
equal to the number of whole shares (rounded to the nearest whole share) of
Company Common Stock subject to such Company Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, (iv) the per share exercise
price under each such Company Stock Option shall be adjusted by dividing the per
share exercise price under each such Company Stock Option by the Exchange Ratio
and rounding to the nearest whole cent, and (v) all references in the Company
Stock Option Plans and the stock option certificates and agreements to the
Company (or its predecessors) shall be deemed to refer to Parent.
Notwithstanding the provisions of clauses (iii) and (iv) of the first sentence
of this Section 2.04(a), each Company Stock 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 Company Stock Option, within the meaning of Section
424(h) of the Code.
(b) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Stock Options appropriate documentation
evidencing the foregoing assumption by Parent of such Company Stock Options and
the related Company Stock Option Plan and the agreements evidencing such Company
Stock Options shall continue in effect on the same terms and conditions (subject
to adjustments required by this Section 2.04 after giving effect to the Merger
and the provisions set forth above). Parent shall comply with the terms of the
Company Stock Option Plans and ensure, to the extent lawful, and subject to the
provisions of the applicable Company Stock Option Plan, that Company Stock
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.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
the exercise of Company Stock Options.
(d) Parent agrees to file, as of the Effective Time, a registration
statement on Form S-8 for the shares of Parent Common Stock issuable with
respect to the Company Stock Options and shall maintain the effectiveness of
such registration statement thereafter for so long as any such Company Stock
Options remain outstanding.
SECTION 2.05. Company Warrants. (a) At the Effective Time, Parent shall
assume the obligations of Company under any warrant or other rights to purchase
shares of Company Capital Stock (the "COMPANY WARRANTS") outstanding at the
Effective Time, whether or not the Company Warrants are then exercisable.
Thereafter, the Company Warrants shall represent the right to receive upon
exercise the number of shares of Parent Common Stock equal to the product of (i)
the Exchange Ratio and (ii) the number of shares of Company Common Stock which
such Company Warrant represents, with such product rounded to the nearest whole
share. The per share exercise price under each such Company Warrant shall be
adjusted by dividing the per share exercise price under each such Company
Warrant by the Exchange Ratio and rounding to the nearest whole cent. At the
Effective Time, (i) all references in the instruments evidencing the Company
Warrants to Company shall be deemed to refer to Parent and (ii) Parent shall
assume all of Company's obligations under such instruments with respect to such
Company Warrants as so amended.
(b) As soon as practicable after the Effective Time of the Merger,
Parent shall deliver to the holders of the Company Warrants documentation
evidencing the foregoing assumption by Parent of such Company Warrants.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Company Warrants.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ASC
Except as set forth in the Disclosure Letter of even date herewith
delivered by the Company to Parent concurrently with the execution of this
Agreement (the "COMPANY DISCLOSURE LETTER") (it being agreed that disclosure of
an item or fact in any section of the Company Disclosure Letter shall not be
deemed disclosed with respect to any other section of the Company Disclosure
Letter), the Company and ASC hereby jointly represent and warrant to Parent
that:
SECTION 3.01. Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Delaware and ASC is a corporation duly incorporated,
validly existing and in good standing under the Laws of the State of
Massachusetts. Each of the Company and ASC has all corporate power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted. Each subsidiary of the Company (collectively, the "COMPANY
SUBSIDIARIES") is a corporation duly incorporated, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. Each of ASC, the
Company and the Company Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not have
a Company Material Adverse Effect (as defined below). The term "COMPANY MATERIAL
ADVERSE EFFECT" means an event, change or occurrence which, individually or
together with any other event, change or occurrence, has a material adverse
effect on (a) the financial position, business, or results of operations of the
Company, the Company Subsidiaries, Medical Manager and each of the other
Subsidiaries of Medical Manager, all taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement or to consummate the
Merger or the other transactions contemplated by this Agreement, but shall not
include (x) any adverse effect due to changes, after the date of this Agreement,
in conditions generally affecting (1) the healthcare or electronic commerce
industries or (2) the U.S. economy as a whole, (y) any change or adverse effect
caused by, or relating to, the announcement of this Agreement or the
transactions contemplated hereby, or (z) any adverse effect due to legal or
regulatory changes, effective after the date of this Agreement; provided that
any order or regulatory action specifically related to the Company may be
considered in determining the existence of a Company Material Adverse Effect.
SECTION 3.02. Certificate of Incorporation and Bylaws. The Company and
ASC has heretofore furnished to Parent complete and correct copies of the
Certificate of Incorporation and the By-Laws, each as amended to the date of
this Agreement, of the Company and ASC. Such Certificates of Incorporation and
By-Laws are in full force and effect. None of ASC, the Company nor any Company
Subsidiary is in violation of any provision of its Certificate of Incorporation,
By-Laws or equivalent organizational documents.
SECTION 3.03. Capitalization. (a) The authorized capital stock of the
Company consists of (i) 300,000,000 shares of Company Common Stock and (ii)
30,000,000 shares of Company Preferred Stock. As of the date hereof, (1)
74,082,150 shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (2) 100 shares of the
Company's Series A Convertible Redeemable Preferred Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, and
(3) no shares of Company Common Stock are held in the treasury of the Company.
The Company has no other capital stock authorized, issued or outstanding.
(b) As of February 11, 2000, (i) 6,731,500 shares of Company Common
Stock were subject to issuance pursuant to outstanding Company Stock Options,
(ii) 4,122,129 shares of Company Common Stock were subject to issuance pursuant
to outstanding Company Warrants and (iii) 812,184 shares of Company Common Stock
were reserved for issuance upon the conversion of shares of Series A Convertible
Redeemable Preferred Stock. The Company Disclosure Letter sets forth, with
respect to the Company Stock Options outstanding as of February 11, 2000, the
aggregate number of shares of Company Common Stock subject to Company Stock
Options under each Company Stock Option Plan and the weighted average exercise
price of such Company Stock Options. The Company Disclosure Letter also lists
the names of all individuals or entities who own Company Warrants, together
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with the number of shares of Company Common Stock subject to such Company
Warrants and the exercise prices of such Company Warrants. No options, warrants
or other rights to acquire shares of Company Common Stock have been granted from
February 11, 2000 to the date of this Agreement.
(c) Except for (i) Company Stock Options granted pursuant to the Company
Stock Option Plans and (ii) the Company Warrants, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or any Company
Subsidiary or obligating the Company or any Company Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, the Company or any
Company Subsidiary. All shares of Company Capital Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any shares of Company Capital Stock or any capital
stock of any Company Subsidiary. Each outstanding share of capital stock of each
Company Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by the Company or another Company
Subsidiary is free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on the Company's or
such other Company Subsidiary's voting rights, charges and other encumbrances of
any nature whatsoever. There are no outstanding contractual obligations of the
Company or any Company Subsidiary to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any Company
Subsidiary, other than a Company Subsidiary that is wholly owned by the Company
and other Company Subsidiaries, or any other Person.
(d) On a fully exercised and converted to Company Common Stock basis,
the number of shares of Company Common Stock outstanding on the date hereof
would be 85,747,963, of which 50,763,375 are owned by ASC. The weighted average
exercise price of the Company Stock Options and Company Warrants outstanding on
the date hereof is no less than $21.79 per share of Company Common Stock.
(e) All of the capital stock of ASC is owned of record and beneficially
by Medical Manager. Such capital stock consists solely of ASC Common Stock.
SECTION 3.04. Authority Relative to This Agreement. Each of ASC and the
Company has all necessary corporate power and authority to execute and deliver
this Agreement and, subject to the terms and conditions of this Agreement and
the approval of this Agreement by the holders of a majority of then outstanding
shares of Company Common Stock, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by each of the Company and ASC and the consummation
by each of the Company and ASC of the transactions contemplated by this
Agreement have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of the Company or ASC are
necessary to authorize this Agreement or to consummate the Merger and the other
transactions contemplated by this Agreement (other than, with respect to the
Merger, the approval of the Company Proposal by the holders of a majority of
then outstanding shares of Company Common Stock and the filing and recordation
of appropriate merger documents as required by Delaware Law and Massachusetts
Law and subject to the terms and conditions of this Agreement). This Agreement
has been duly and validly executed and delivered by each of the Company and ASC
and, assuming the due authorization, execution and delivery by Parent,
constitutes a legal, valid and binding obligation of each of the Company and
ASC, enforceable against each of the Company and ASC in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws now or
hereafter in effect relating to creditors' rights and by general equitable
principles (regardless of whether enforceability is considered in a proceeding
in equity or at Law).
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or By-Laws of the Company or any
equivalent organizational documents of any Company Subsidiary, (ii) assuming
that all consents, approvals, authorizations and other actions described in
Section 3.05(b) have been obtained and all filings and obligations described in
Section 3.05(b) have been made, conflict with or violate any federal, state or
local statute, law, ordinance, regulation, rule, code, order, judgment or decree
of the United States of America or any foreign, state or local regulatory agency
or other
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Governmental Entity (as defined below) or any other jurisdiction and any
enforceable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment (collectively, the
"LAW") applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is bound or affected,
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of the
Company or any Company Subsidiary pursuant to, any Contract, or (iv) result in
any drag along or tag along rights of any stockholder of any Company Subsidiary,
except, with respect to clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences that would not have a
Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any domestic or foreign governmental or regulatory authority ("GOVERNMENTAL
ENTITY"), except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "EXCHANGE ACT") and the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder, the
"SECURITIES ACT"), state securities or "blue sky" Laws ("BLUE SKY LAWS"), the
Rules of the National Association of Securities Dealers ("NASD"), state takeover
Laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR ACT"), filings or approvals required under the competition
Laws of foreign jurisdictions, and the filing and recordation of the Certificate
of Merger as required by the Delaware Law and the Articles of Merger as required
by Massachusetts Law, and (ii) for such consents, approvals, authorizations or
permits, or such filings or notifications, the failure to obtain or to make as
would not prevent consummation of the Merger and would not have a Company
Material Adverse Effect.
SECTION 3.06. Permits; Compliance. (a) Except as set forth in the
Combined SEC Reports (as defined in Section 3.07), the Company and the Company
Subsidiaries are in possession of, and is in compliance with the terms of, all
federal, state, local, and foreign governmental approval, authorization,
certificate, consent, easement, filing, franchise, letter of good standing,
license, notice, permit, qualification, registration or right of or from any
Governmental Entity (or any extension, modification, amendment or waiver of any
of these), or any notice, statement, filing or other communication to be filed
with or delivered to any Governmental Entity ("PERMITS") that are required for
the operation of the business of the Company and the Company Subsidiaries, taken
as a whole, as they are operated on the date hereof except for such Permits, the
absence of which would not have a Company Material Adverse Effect (collectively,
the "COMPANY PERMITS"). Except as set forth in the Combined SEC Reports, no
suspension or cancellation of any Company Permit is pending or, to the Knowledge
(as defined in Section 9.03) of the Company, threatened, except with respect to
Company Permits the suspension or cancellation of which would not have a Company
Material Adverse Effect.
(b) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, the business of the Company and the
Company Subsidiaries has been and is being conducted in compliance with all
applicable Laws. Except as set forth in the Combined SEC Reports and as would
not have a Company Material Adverse Effect, neither the Company nor any Company
Subsidiary is in conflict with, or has violated any provision of, or committed
or failed to perform any act which, with or without notice, lapse of time, or
both, would constitute a default under the provisions of (i) any Law applicable
to the Company or any Company Subsidiary or by which any property or asset of
the Company or any Company Subsidiary is bound or affected or (ii) any Company
Permit. Except as set forth in the Combined SEC Reports and those which would
not have a Company Material Adverse Effect (i) no investigation or review by any
Governmental Entity with respect to the Company or the Company Subsidiaries is
pending or, to the Knowledge of the Company, threatened in writing, and (ii)
neither the Company nor any of the Company Subsidiaries has received any written
communication in the past two years from any Governmental Entity that alleges
that the Company or any of the Company Subsidiaries is not in compliance in any
material respect with any applicable Law.
SECTION 3.07. SEC Filings; Financial Statements; Absence of
Liabilities. (a) The Company has filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since June 15, 1999 (collectively, the "COMPANY SEC REPORTS", and
together with all forms, reports and
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documents required to be filed by Medical Manager since July 1, 1998, the
"COMBINED SEC REPORTS"). As of the respective dates they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, on the
date of such amending or superseding filing), (i) the Combined SEC Reports
complied in all material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) none of the
Combined SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes and schedules thereto) contained in the Combined SEC Reports
complied as to form with the applicable accounting requirements and rules and
regulations of the SEC and was prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited financial statements, as permitted by Form
10-Q of the SEC), and each presented fairly, in all material respects, the
consolidated financial position of the Company and the consolidated Company
Subsidiaries as at the respective dates thereof and their results of operations
and cash flows for the respective periods indicated therein, all in accordance
with GAAP (subject, in the case of unaudited statements, to normal and recurring
year-end adjustments which were not and are not expected to be material in
amount).
(c) Except for liabilities and obligations reflected on the consolidated
balance sheet of the Company as of December 31, 1999 (including the notes
thereto), liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1999 and other
liabilities and obligations that would not have a Company Material Adverse
Effect, neither the Company nor any Company Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet prepared in
accordance with GAAP.
SECTION 3.08. Absence of Certain Changes or Events. During the period
commencing December 31, 1999 and ending on the date of this Agreement, there has
not been:
(a) a Company Material Adverse Effect;
(b) any event, condition or occurrence which is reasonably likely to
have a Company Material Adverse Effect; or
(c) except as set forth in the Combined SEC Reports, or disclosed in
another representative of the Company contained in their Agreement, in any event
that, if taken during the period from the date of this Agreement through the
Effective Time, would constitute a breach of Sections 5.01(c) through (g) and
(o) hereof.
SECTION 3.09. Absence of Litigation. (a) As of the date of this
Agreement, there is no litigation, suit, claim, action, proceeding or
investigation pending or, to the Knowledge of the Company, threatened against
the Company or any Company Subsidiary, or any property or asset of the Company
or any Company Subsidiary, by or before any court, arbitrator or Governmental
Entity, domestic or foreign, except as set forth in the Combined SEC Reports and
would not have a Company Material Adverse Effect.
(b) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, as of the date of this Agreement,
neither the Company nor any Company Subsidiary nor any property or asset of the
Company or any Company Subsidiary is subject to any continuing order of, consent
decree, settlement agreement or other similar written agreement with, or, to the
Knowledge of the Company, continuing investigation by, any Governmental Entity,
or any order, writ, judgment, injunction, decree, determination or award of any
Governmental Entity or arbitrator.
SECTION 3.10. Employee Benefit Plans. (a) With respect to each employee
benefit plan, program, arrangement and contract (including, without limitation,
any "EMPLOYEE BENEFIT PLAN", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), maintained or
contributed to by the Company or any Company Subsidiary with respect to any
current or former director, officer or employee of the Company or any Company
Subsidiary, or with respect to which the Company or any Company Subsidiary could
incur liability under Section 4069, 4201 or 4212(c) of ERISA (the "COMPANY
BENEFIT PLANS"), the
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Company has made available to Parent a true and correct copy of (i) the most
recent annual report (Form 5500) filed with the Internal Revenue Service (the
"IRS"), (ii) such Company Benefit Plan, (iii) each trust agreement relating to
such Company Benefit Plan, (iv) the most recent summary plan description for
each Company Benefit Plan for which a summary plan description is required, (v)
the most recent actuarial report or valuation relating to a Company Benefit Plan
subject to Title IV of ERISA, if any, and (vi) the most recent determination
letter, if any, issued by the IRS with respect to any Company Benefit Plan
qualified under Section 401(a) of the Code.
(b) With respect to the Company Benefit Plans, no event has occurred
and, to the knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company or any Company Subsidiary
could be subject to any liability under the terms of such Company Benefit Plans,
ERISA, the Code or any other applicable Law except as would not have a Company
Material Adverse Effect. Neither the Company nor any Company Subsidiary has any
actual or contingent material liability under Title IV of ERISA (other than the
payment of premiums to the Pension Benefit Guaranty Corporation). None of the
Company Benefit Plans is a "multiemployer plan" ( as defined in Section
4001(a)(3) of ERISA).
(c) The Company has made available to Parent (i) copies of all
employment agreements and severance agreements with executive officers of the
Company and (ii) copies of all plans, programs, agreements and other
arrangements of the Company or any Company Subsidiary with or relating to its or
such Company Subsidiary's employees which contain change in control provisions.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, "golden parachute" or
otherwise) becoming due to any director, officer or employee of the Company or
any Company Subsidiary under any Company Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Company Benefit Plan or (iii)
result in any acceleration of the time of payment or vesting of any benefits
(including under the Company Stock Option Plans).
(d) No Company Benefit Plan provides retiree medical or retiree life
insurance benefits to any person (except to the extent required by Law).
SECTION 3.11. Tax Matters. To the Knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to take any action that
would prevent the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code. To the Knowledge of the
Company, there are no agreements, plans or other circumstances that would
prevent the Merger from qualifying under Section 368(a) of the Code.
SECTION 3.12. Intellectual Property. (a) "INTELLECTUAL PROPERTY" means
(i) patents, patent applications and statutory invention registrations, (ii)
trademarks, service marks, URLs, trade dress, logos, trade names, corporate
names, and other source identifiers, and registrations and applications for
registration thereof, (iii) copyrightable works, copyrights, and registrations
and applications for registration thereof, (iv) all computer programs, whether
in source code, object code or other form (including without limitation any
embedded in or otherwise constituting part of a computer hardware device), and
all databases and data collections, and (v) confidential and proprietary
information, including trade secrets and know-how.
(b) Except as set forth in the Combined SEC Reports and as would not
have a Company Material Adverse Effect, (i) to the Knowledge of the Company, the
conduct of the business of the Company and the Company Subsidiaries as currently
conducted does not infringe or misappropriate the Intellectual Property of any
third party, and to the Knowledge of the Company, no claim has been asserted to
the Company that the conduct of the business of the Company and the Company
Subsidiaries as currently conducted infringes or may infringe or misappropriates
the Intellectual Property of any third party, (ii) with respect to each item of
Intellectual Property owned by the Company and the Company Subsidiaries and
material to the businesses of the Company and the Company Subsidiaries as
currently conducted ("COMPANY OWNED INTELLECTUAL PROPERTY"), the Company or a
Company Subsidiary is the owner of the entire right, title and interest in and
to such Intellectual Property and is entitled to use such Intellectual Property
in the continued operation of its respective business, (iii) with respect to
each item of Intellectual Property licensed to the Company or a Company
Subsidiary that is material to the businesses of the Company and the Company
Subsidiaries as currently conducted ("COMPANY LICENSED INTELLECTUAL PROPERTY"),
the Company or a Company Subsidiary has the right to use such Company Licensed
Intellectual Property in the continued operation of its respective business in
accordance with the terms of the
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license agreement governing such Company Licensed Intellectual Property, (iv) to
the Knowledge of the Company, the Company Owned Intellectual Property is valid
and enforceable, and has not been adjudged invalid or unenforceable in whole or
part, (v) to the Knowledge of the Company, no person is engaging in any activity
that infringes the Company Owned Intellectual Property, (vi) to the Knowledge of
the Company, each license of Company Licensed Intellectual Property is valid and
enforceable, is binding on all parties to such license, and is in full force and
effect, except to the extent expired in accordance with its terms, and (vii) to
the Knowledge of the Company, no party to any license of the Company Licensed
Intellectual Property is in breach thereof or default thereunder.
(c) Except as set forth in the Combined SEC Reports and as would not have a
Company Material Adverse Effect, to the Knowledge of the Company, all Company
Systems and Company Owned Intellectual Property are Year 2000 Compliant. For
purposes hereof, "Company Systems" shall mean all computer, hardware, software,
systems, and equipment (including embedded microcontrollers in non-computer
equipment) material to or necessary for the Company to carry on its business as
currently conducted. For purposes hereof, "Year 2000 Compliant" means that the
Company Systems and Company Owned Intellectual Property provide uninterrupted
millennium functionality in that the Company Systems and Company Owned
Intellectual Property will record, store, process and present calendar dates
falling on or after January 1, 2000, in the same manner and with the same
functionality as the Company Systems and Company Owned Intellectual Property
record, store, process, and present calendar dates falling on or before December
31, 1999.
SECTION 3.13. Taxes. (a) Except as would not have a Company Material
Adverse Effect, (i) the Company and each of the Company Subsidiaries have timely
filed or will timely file all returns and reports required to be filed by them
with any taxing authority with respect to Taxes for any period ending on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of the Company and the Company Subsidiaries,
(ii) all Taxes that are due prior to the Effective Time have been paid or will
be paid (other than Taxes which (A) are not yet delinquent or (B) are being
contested in good faith and have not been finally determined), (iii) as of the
date of this Agreement, no deficiency for any Tax has been asserted or assessed
by a taxing authority against the Company or any of the Company Subsidiaries and
(iv) the Company and each of the Company Subsidiaries have provided adequate
reserves in accordance with generally accepted accounting principles in their
financial statements for any Taxes that have not been paid, whether or not shown
as being due on any returns. As used in this Agreement, "TAXES" shall mean any
and all taxes, fees, levies, duties, tariffs, imposts and other charges of any
kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any government or
taxing authority, including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added or gains taxes; license, registration and documentation fees; and
customers' duties, tariffs and similar charges.
(b) To the Knowledge of the Company, there are no material disputes
pending, or claims asserted in writing for, Taxes or assessments upon the
Company or any of the Company Subsidiaries, nor has the Company or any of the
Company Subsidiaries been requested in writing to give any currently effective
waivers extending the statutory period of limitation applicable to any federal
or state income tax return for any period which disputes, claims, assessments or
waivers are reasonably likely to have a Company Material Adverse Effect.
(c) There are no Tax liens upon any property or assets of the Company or
any of the Company Subsidiaries except liens for current Taxes not yet due and
except for liens which have not had and are not reasonably likely to have a
Company Material Adverse Effect.
(d) Neither the Company nor any of the Company Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the Code
by reason of a voluntary change in accounting method initiated by the Company or
any of the Company Subsidiaries, and the IRS has not initiated or proposed any
such adjustment or change in accounting method, in either case which adjustment
or change has had or is reasonably likely to have a Company Material Adverse
Effect.
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(e) Except as set forth in the financial statements described in Section
3.07, neither the Company nor any of the Company Subsidiaries has entered into a
transaction which is being accounted for under the installment method of Section
453 of the Code, which would be reasonably likely to have a Company Material
Adverse Effect.
SECTION 3.14. Vote Required. The only vote of the holders of any class or
series of capital stock of the Company necessary to approve the Company Proposal
is the affirmative vote of the holders of a majority of the outstanding shares
of Company Common Stock.
SECTION 3.15. Opinion of Financial Advisor. The Company has received the
opinion of Bank of America Securities LLC dated February 13, 2000 that, as of
such date, the Exchange Ratio is fair, from a financial point of view, to the
stockholders of the Company.
SECTION 3.16. Brokers. No broker, finder or investment banker (other than
Bank of America Securities LLC) is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
SECTION 3.17. Contracts. Except for agreements listed as exhibits to any
Combined SEC Reports, none of the Company or any of the Company Subsidiaries is
a party to any: (a) Contract which grants any person the exclusive right to any
of the material assets of the Company or any of the Company Subsidiaries or
purports to limit in any material respect the manner in which, or the localities
in which, the Company or any of the Company Subsidiaries is entitled to conduct
all or any material portion of the business of Company or any of the Company
Subsidiaries; (b) Contract that requires the consent of, or terminates or
becomes terminable by, any party other than the Company or any of the Company
Subsidiaries as a result of the transactions contemplated by this Agreement
where the failure to obtain such consent or the termination of such Contract
could be reasonably expected to have a Company Material Adverse Effect; or (c)
Contract of any sort, other than in the ordinary course of business, which
contemplates any joint venture, partnership, strategic alliance or similar
arrangement extending beyond six (6) months or involving equity or investments
of more than $20,000,000. There is not, under any of the aforesaid obligations,
any default by the Company or any of the Company Subsidiaries except for
defaults or other events which would not have a Company Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the Disclosure Letter of even date herewith
delivered by Parent to the Company concurrently with the execution of this
Agreement (the "PARENT DISCLOSURE LETTER") (it being agreed that disclosure of
an item or fact in any section of the Parent Disclosure Letter shall not be
deemed disclosed with respect to any other section of the Parent Disclosure
Letter), Parent hereby represents and warrants to the Company that:
SECTION 4.01. Organization and Qualification. Parent is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Delaware. Parent has all corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each subsidiary of Parent (collectively, the "PARENT SUBSIDIARIES")
is a corporation duly incorporated, validly existing and in good standing under
the Laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Each of Parent and the
Parent Subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not have a Parent
Material Adverse Effect (as defined below). The term "PARENT MATERIAL ADVERSE
EFFECT" means an event, change or occurrence which, individually or together
with any other event, change or occurrence, has a material adverse effect on (a)
the financial position, business, or results of operations of Parent and the
Parent Subsidiaries, taken as a whole, or (b) the ability of Parent to perform
its obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, but shall not include (x) any
adverse effect due to changes, after the date of this Agreement, in conditions
generally affecting (1) the healthcare or electronic commerce industries or (2)
the U.S. economy as a
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whole, (y) any change or adverse effect caused by, or relating to, the entering
into of this Agreement, the consummation of the transactions contemplated hereby
or the announcement thereof, or (z) any adverse effect due to legal or
regulatory changes, effective after the date of this Agreement.
SECTION 4.02. Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company complete and correct copies of the Parent
Certificate of Incorporation and the Parent By-Laws (as defined below). Such
Certificate of Incorporation and By-Laws are in full force and effect. Neither
Parent nor any Parent Subsidiary is in violation of any provision of its
Certificate of Incorporation, By-Laws or equivalent organizational documents.
SECTION 4.03. Capitalization. (a) The authorized capital stock of Parent
consists of: (i) 600,000,000 shares of Parent Common Stock, of which 179,772,040
shares are issued and outstanding as of February 7, 2000 and (ii) 5,000,000
shares of Preferred Stock, $0.0001 par value per share, of which 155,951 shares
are issued and outstanding as of February 7, 2000. All of the outstanding shares
of Parent Common Stock have been duly authorized and validly issued, and are
fully paid and nonassessable.
(b) As of February 7, 2000, an aggregate of 65,701,201 shares of Parent
Common Stock are subject to issuance pursuant to outstanding options to purchase
Parent Common Stock under Parent's stock option plans and outstanding warrants
to purchase Parent Common Stock. (Stock options granted by Parent pursuant to
its stock option plans and warrants are referred to in this Agreement as "Parent
Options and Warrants".) No options or warrants to acquire shares of Parent
Common Stock have been granted from February 7, 2000 to the date of this
Agreement.
(c) Except as set forth in Section 4.03(a) and (b) above or in
connection with the Medical Manager Merger Agreement, as of the date of this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Parent or any Parent Subsidiary or obligating Parent or any
Parent Subsidiary to issue or sell any shares of capital stock of, or other
equity interests in, Parent or any Parent Subsidiary. All shares of Parent
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There are
no outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any
capital stock of any Parent Subsidiary. Each outstanding share of capital stock
of each Parent Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Parent or another Parent Subsidiary
is free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's or such other
Parent Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever. There are no outstanding contractual obligations of Parent or any
Parent Subsidiary to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, any Parent Subsidiary, other than a
Parent Subsidiary that is wholly owned by Parent and other Parent Subsidiaries,
or any other Person.
(d) The shares of Parent Common Stock to be issued in the Merger
pursuant to Section 2.01(a) will be duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights created by Law, the
Certificate of Incorporation of Parent or Amended and Restated By-Laws of Parent
(the "PARENT BY-LAWS") or any agreement or arrangement to which the Parent is a
party or is bound.
SECTION 4.04. Authority Relative to This Agreement. Parent has all
necessary corporate power and authority to execute and deliver this Agreement,
and, subject to the terms and conditions of this Agreement and obtaining the
necessary approvals of Parent's stockholders, to perform its obligations
hereunder and to consummate the Merger and the other transactions contemplated
by this Agreement. The execution and delivery of this Agreement by Parent and
the consummation by Parent of the Merger and the other transactions contemplated
by this Agreement have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the Merger and the other
transactions contemplated by this Agreement (other than, with respect to the
Merger, the approval of the Parent Proposal by a majority of their outstanding
shares of Parent Common Stock, and the filing and recordation of the appropriate
merger documents as required by Delaware Law and Massachusetts Law and subject
to the terms and conditions of this Agreement). This Agreement has been duly and
validly executed and delivered by
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Parent and, assuming the due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar Laws now or hereafter in effect
relating to creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at Law).
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent does not, and the performance
of this Agreement by Parent will not, (i) conflict with or violate the
Certificate of Incorporation of Parent or the Parent By-Laws or any equivalent
organizational documents of any Parent Subsidiary, (ii) assuming that all
consents, approvals, authorizations and other actions described in Section
4.05(b) have been obtained and all filings and obligations described in Section
4.05(b) have been made, conflict with or violate any Law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Parent or any Parent Subsidiary pursuant
to, any Contract, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults, or other occurrences that would not
have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent does not, and
the performance of this Agreement by Parent will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for the applicable requirements, if any, of the
Exchange Act and the Securities Act, Blue Sky Laws, the NASD, state takeover
Laws, the HSR Act, filings or approvals required under the competition Laws of
foreign jurisdictions, and the filing and recordation of the Certificate of
Merger as required by Delaware Law and the Articles of Merger as required by
Massachusetts Law, (ii) the request that the shares of Parent Common Stock to be
issued pursuant to this Agreement in the Merger be listed for trading on the
Nasdaq National Market, and (iii) for such consents, approvals, authorizations
or permits, or such filings or notifications, the failure to obtain or make as
would not prevent consummation of the Merger and would not have a Parent
Material Adverse Effect.
SECTION 4.06. Permits; Compliance. (a) Except as set forth in the Parent
SEC Reports (as defined in Section 4.07), Parent and the Parent Subsidiaries are
in possession and are in compliance with the terms of all Permits that are
required for the operation of the business except for such Permits, the absence
of which would not have a Parent Material Adverse Effect (collectively, the
"PARENT PERMITS"). Except as set forth in the Parent SEC Reports, no suspension
or cancellation of any Parent Permit is pending or, to the Knowledge of Parent,
threatened, except with respect to Parent Permits the suspension or cancellation
of which would not, individually or in the aggregate, have a Parent Material
Adverse Effect.
(b) Except as set forth in the Parent SEC Reports and as would not have
a Parent Material Adverse Effect, the business of Parent and the Parent
Subsidiaries has been and is being conducted in compliance with all applicable
Laws. Except as set forth in the Parent SEC Reports and as would not have a
Parent Material Adverse Effect, neither Parent nor any Parent Subsidiary is in
conflict with, or has violated any provision of, or committed or failed to
perform any act which, with or without notice, lapse of time, or both, would
constitute a default under the provisions of (i) any Law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected or (ii) any Parent Permit. Except as set forth
in the Parent SEC Reports, no investigation or review by any Governmental Entity
with respect to Parent or the Parent Subsidiaries is pending or, to the
Knowledge of Parent, threatened in writing, other than, in each case, those
which would not have a Parent Material Adverse Effect; and neither Parent nor
any of the Parent Subsidiaries has received any written communication in the
past two years from any Governmental Entity that alleges that Parent or any of
the Parent Subsidiaries is not in compliance in any material respect with any
applicable Law.
SECTION 4.07. SEC Filings; Financial Statements; Absence of
Liabilities. (a) Parent has filed all forms, reports and documents required to
be filed by it with the SEC since February 1, 1999 (collectively, the "PARENT
SEC REPORTS"). As of the respective dates they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, on the date of such
amending or superseding filing), (i) the Parent SEC Reports complied
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in all material respects in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) none of the Parent SEC
Reports contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No Parent Subsidiary is required to file any form, report
or other document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes and schedules thereto) contained in the Parent SEC Reports
complied as to form with the applicable accounting requirements and rules and
regulations of the SEC and was prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto or, in the case of unaudited financial statements, as
permitted by Form 10-Q of the SEC), and each presented fairly, in all material
respects, the consolidated financial position of Parent and the consolidated
Parent Subsidiaries as at the respective dates thereof and their results of
operations and cash flows for the respective periods indicated therein, all in
accordance with GAAP (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not expected to be
material in amount).
(c) Except for liabilities and obligations reflected on the consolidated
balance sheet of Parent as of September 30, 1999 (including the notes thereto),
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since September 30, 1999 and liabilities and
obligations arising under this Agreement and the Medical Manager Agreement,
neither Parent nor any Parent Subsidiary has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) which would be
required to be reflected on a balance sheet prepared in accordance with GAAP.
SECTION 4.08. Absence of Certain Changes or Events. During the period
commencing September 30, 1999 and ending on the date of this Agreement, there
has not been:
(a) a Parent Material Adverse Effect;
(b) any event, condition or occurrence which is reasonably likely to
have a Parent Material Adverse Effect; or
(c) except as set forth in the Parent SEC Reports, or disclosed in
another representation of the Parent contained in this Agreement, in any event
that, if taken during the period from the date of this Agreement through the
Effective Time, would constitute a breach of Sections 5.02(c) through (f) and
(i) hereof.
SECTION 4.09. Absence of Litigation. (a) Except as set forth in the
Parent SEC Reports, as of the date of this Agreement, there is no litigation,
suit, claim, action, proceeding or investigation pending or, to the Knowledge of
Parent, threatened against Parent or any Parent Subsidiary, or any property or
asset of Parent or any Parent Subsidiary, by or before any court, arbitrator or
Governmental Entity, domestic or foreign, except as would not have a Parent
Material Adverse Effect.
(b) Except as set forth in the Parent SEC Reports and as would not have
a Parent Material Adverse Effect, as of the date of this Agreement neither
Parent nor any Parent Subsidiary nor any property or asset of Parent or any
Parent Subsidiary is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
Knowledge of Parent, continuing investigation by, any Governmental Entity, or
any order, writ, judgment, injunction, decree, determination or award of any
Governmental Entity or arbitrator.
SECTION 4.10. Employee Benefit Plans. (a) With respect to each employee
benefit plan, program, arrangement and contract (including, without limitation,
any "EMPLOYEE BENEFIT PLAN", as defined in Section 3(3) of ERISA), maintained or
contributed to by Parent or any Parent Subsidiary, or with respect to which
Parent or any Parent Subsidiary could incur liability under Section 4069, 4201
or 4212(c) of ERISA (the "PARENT BENEFIT PLANS"), Parent has made available to
the Company a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Parent Benefit Plan, (iii) each trust
agreement relating to such Parent Benefit Plan, (iv) the most recent summary
plan description for each Parent Benefit Plan for which a summary plan
description is required, (v) the most recent actuarial report or valuation
relating to a Parent Benefit Plan
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subject to Title IV of ERISA, if any, and (vi) the most recent determination
letter, if any, issued by the IRS with respect to any Parent Benefit Plan
qualified under Section 401(a) of the Code.
(b) With respect to the Parent Benefit Plans, no event has occurred and,
to the knowledge of Parent, there exists no condition or set of circumstances,
in connection with which Parent or any Parent Subsidiary could be subject to any
liability under the terms of such Parent Benefit Plans, ERISA, the Code or any
other applicable Law, except as would not have a Parent Material Adverse Effect.
Neither Parent nor any Parent Subsidiary has any actual or contingent material
liability under Title IV of ERISA (other than the payment of premiums to the
Pension Benefit Guaranty Corporation). None of the Parent Benefit Plans is a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA).
(c) Parent has made available to the Company (i) copies of all
employment agreements and severance agreements with executive officers of Parent
or any Parent Subsidiary and (ii) copies of all plans, programs, agreements and
other arrangements of Parent or any Parent Subsidiary with or relating to its or
such Parent Subsidiary's employees which contain change in control provisions.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, "golden parachute" or
otherwise) becoming due to any director, officer or employee of Parent or any
Parent Subsidiary under any Parent Benefit Plan or otherwise, (ii) increase any
benefits otherwise payable under any Parent Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any benefits (including under
the stock option plans of Parent).
(d) No Parent Benefit Plan provides retiree medical or retiree life
insurance benefits to any person (except to the extent required by Law).
SECTION 4.11. Tax Matters. To the Knowledge of Parent, neither Parent nor
any of its affiliates has taken or agreed to take any action that would prevent
the Merger from constituting a transaction qualifying as a reorganization under
Section 368(a) of the Code. To the Knowledge of Parent, there are no agreements,
plans or other circumstances that would prevent the Merger from qualifying under
Section 368(a) of the Code.
SECTION 4.12. Intellectual Property. (a) Except as set forth in the
Parent SEC Reports and as would not have a Parent Material Adverse Effect, (i)
to the Knowledge of Parent, the conduct of the business of Parent and the Parent
Subsidiaries as currently conducted does not infringe or misappropriate the
Intellectual Property of any third party, and to the Knowledge of Parent, no
claim has been asserted to Parent that the conduct of the business of Parent and
the Parent Subsidiaries as currently conducted infringes or may infringe or
misappropriates the Intellectual Property of any third party, (ii) with respect
to each item of Intellectual Property owned by Parent and the Parent
Subsidiaries and material to the businesses of Parent and the Parent
Subsidiaries as currently conducted ("PARENT OWNED INTELLECTUAL PROPERTY"),
Parent or a Parent Subsidiary is the owner of the entire right, title and
interest in and to such Intellectual Property and is entitled to use such
Intellectual Property in the continued operation of its respective business,
(iii) with respect to each item of Intellectual Property licensed to Parent or a
Parent Subsidiary that is material to the businesses of Parent and the Parent
Subsidiaries as currently conducted ("PARENT LICENSED INTELLECTUAL PROPERTY"),
Parent or a Parent Subsidiary has the right to use such Parent Licensed
Intellectual Property in the continued operation of its respective business in
accordance with the terms of the license agreement governing such Parent
Licensed Intellectual Property, (iv) to the Knowledge of Parent, the Parent
Owned Intellectual Property is valid and enforceable, and has not been adjudged
invalid or unenforceable in whole or part, (v) to the Knowledge of Parent, no
person is engaging in any activity that infringes the Parent Owned Intellectual
Property, (vi) to the Knowledge of Parent, each license of Parent Licensed
Intellectual Property is valid and enforceable, is binding on all parties to
such license, and is in full force and effect, except to the extent expired in
accordance with its terms, and (vii) to the Knowledge of Parent, no party to any
license of the Parent Licensed Intellectual Property is in breach thereof or
default thereunder.
(b) Except as set forth in the Parent SEC Reports and as would not have
a Parent Material Adverse Effect, to the Knowledge of Parent, all Parent Systems
and Parent Owned Intellectual Property are Year 2000 Compliant. For purposes
hereof, "Parent Systems" shall mean all computer, hardware, software, systems,
and equipment (including embedded microcontrollers in non-computer equipment)
material to or necessary for Parent to carry on its business as currently
conducted. For purposes hereof, "Year 2000 Compliant" means that the Parent
Systems and Parent Owned Intellectual Property provide uninterrupted millennium
functionality in that the Parent
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Systems and Parent Owned Intellectual Property will record, store, process and
present calendar dates falling on or after January 1, 2000, in the same manner
and with the same functionality as the Parent Systems and Parent Owned
Intellectual Property record, store, process, and present calendar dates falling
on or before December 31, 1999.
SECTION 4.13. Taxes. (a) Except as would not have a Parent Material
Adverse Effect, (i) Parent and each of the Parent Subsidiaries have timely filed
or will timely file all returns and reports required to be filed by them with
any taxing authority with respect to Taxes for any period ending on or before
the Effective Time, taking into account any extension of time to file granted to
or obtained on behalf of Parent and the Parent Subsidiaries, (ii) all Taxes that
are due prior to the Effective Time have been paid or will be paid (other than
Taxes which (1) are not yet delinquent or (2) are being contested in good faith
and have not been finally determined), (iii) as of the date of this Agreement,
no deficiency for any material amount of Tax has been asserted or assessed by a
taxing authority against Parent or any of the Parent Subsidiaries and (iv)
Parent and each of the Parent Subsidiaries have provided adequate reserves in
accordance with generally accepted accounting principles in their financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any returns.
(b) To the Knowledge of Parent, there are no material disputes pending,
or claims asserted in writing for, Taxes or assessments upon Parent or any of
the Parent Subsidiaries, nor has Parent or any of the Parent Subsidiaries been
requested in writing to give any currently effective waivers extending the
statutory period of limitation applicable to any federal or state income tax
return for any period which disputes, claims, assessments or waivers are
reasonably likely to have a Parent Material Adverse Effect.
(c) There are no Tax liens upon any property or assets of Parent or any
of the Parent Subsidiaries except liens for current Taxes not yet due and except
for liens which have not had and are not reasonably likely to have a Parent
Material Adverse Effect.
(d) Neither Parent nor any of the Parent Subsidiaries has been required
to include in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by Parent or any of
the Parent Subsidiaries, and the IRS has not initiated or proposed any such
adjustment or change in accounting method, in either case which adjustment or
change has had or is reasonably likely to have a Parent Material Adverse Effect.
(e) Except as set forth in the financial statements described in Section
4.07, neither Parent nor any of the Parent Subsidiaries has entered into a
transaction which is being accounted for under the installment method of Section
453 of the Code, which would be reasonably likely to have a Parent Material
Adverse Effect.
SECTION 4.14. Vote Required. The affirmative vote of a majority of the
shares of Parent Common Stock at the Parent Stockholders' Meeting (as defined
below) is required to approve the Parent Proposal. No other vote of the
stockholders of Parent is required by Law, the Certificate of Incorporation of
Parent, the Parent By-Laws or otherwise in order for Parent to consummate the
Merger and the transactions contemplated hereby.
SECTION 4.15. Opinion of Financial Advisor. Parent has received the
opinion of Morgan Stanley & Co. Incorporated, dated February 13, 2000 that, as
of such date, the Exchange Ratio is fair, from a financial point of view, to
Parent.
SECTION 4.16. Brokers. No broker, finder or investment banker (other than
Morgan Stanley & Co., Incorporated and FleetBoston Robertson Stephens, Inc.) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the other transactions contemplated by this Agreement based
upon arrangements made by or on behalf of Parent.
SECTION 4.17. Contracts. Except for agreements listed as exhibits to any
Parent SEC Reports, none of Parent or any of the Parent Subsidiaries is a party
to any: (a) Contract which grants any person the exclusive right to any of the
material assets of Parent or any of the Parent Subsidiaries or purports to limit
in any material respect the manner in which, or the localities in which, the
Parent or any of the Parent Subsidiaries is entitled to conduct all or any
material portion of the business of Parent or any of the Parent Subsidiaries;
(b) Contract that requires the consent of, or terminates or becomes terminable
by, any party other than the Parent or any of the Parent Subsidiaries as a
result of the transactions contemplated by this Agreement where the failure to
obtain such
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consent or the termination of such Contract could be reasonably expected to have
a Parent Material Adverse Effect; or (c) Contract of any sort, other than in the
ordinary course of business, which contemplates any joint venture, partnership,
strategic alliance or similar arrangement extending beyond six (6) months or
involving equity or investments of more than $20,000,000. There is not, under
any of the aforesaid obligations, any default by Parent or any of the Parent
Subsidiaries except for defaults or other events which would not have a Parent
Material Adverse Effect.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, except as specifically contemplated by any other provision of
this Agreement or Section 5.01 of the Company Disclosure Letter, unless Parent
shall otherwise agree in writing (such agreement not to be unreasonably withheld
or delayed):
(a) the Company and the Company Subsidiaries shall use all reasonable
efforts to preserve intact their present lines of business, maintain their
rights and franchises and preserve their relationships with employees,
customers, suppliers and others having business dealings with them; provided,
however, that no action by the Company or any Company Subsidiary with respect to
matters specifically addressed by any other provision of this Section 5.01 or
Section 6.07 shall be deemed a breach of this Section 5.01(a);
(b) neither the Company nor any Company Subsidiary shall amend or
otherwise change its Certificate of Incorporation or By-Laws or equivalent
organizational documents, except as contemplated by Section 6.06 hereof or in
connection with the issuance of preferred stock in connection with acquisitions
permitted pursuant to Section 5.01(f)(i);
(c) neither the Company nor any Company Subsidiary shall issue, sell,
pledge, dispose of, grant or encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, any shares of capital stock of the Company
or any Company Subsidiary of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest (including, without limitation, any
phantom interest), of the Company or any Company Subsidiary, except for (i) the
issuance of any shares of Company Common Stock issuable pursuant to Company
Stock Options outstanding on the date hereof in accordance with the respective
terms thereof, (ii) the issuance, in the ordinary course of business and
consistent with past practice, of Company Stock Options to purchase a maximum of
450,000 shares of Company Common Stock to new employees of the Company in
connection with the commencement of their employment with the Company of any
Company Subsidiary pursuant to Company Stock Option Plans in effect on the date
of this Agreement and the shares of Company Common Stock issuable pursuant to
such Company Stock Options, in accordance with the terms of the Company Stock
Option Plans, (iii) issuances by a direct or indirect wholly owned subsidiary of
the Company of capital stock to such subsidiary's parent and (iv) issuances of
capital stock in acquisitions permitted under Section 5.01(f);
(d) neither the Company nor any Company Subsidiary shall declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock, other than
dividends by a direct or indirect wholly owned subsidiary of the Company to such
subsidiary's parent;
(e) neither the Company nor any Company Subsidiary shall reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock, except for any such transaction by a
wholly owned subsidiary of the Company that remains a wholly owned subsidiary of
the Company after the consummation of such transaction;
(f) neither the Company nor any Company Subsidiary shall: (i) acquire or
dispose of (including, without limitation, by merger, consolidation, or
acquisition or disposition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof, (x) for or
with a fair market value in excess of $500,000,000 or (y) in the case of
acquisitions, as could reasonably be expected to result in any (A) delay in the
consummation of the Merger or the transactions contemplated herein or (B)
decrease in the likelihood that the
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conditions set forth in Sections 7.01(d) and (e) would be satisfied, or (ii)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any Person, or make any loans or advances,
except for (A) indebtedness incurred in the ordinary course of business and
consistent with past practice, (B) indebtedness of the Company to a direct or
indirect wholly owned Company Subsidiary or indebtedness of a direct or indirect
wholly owned Company Subsidiary to the Company or another direct or indirect
wholly owned Company Subsidiary, and (C) indebtedness that in the aggregate does
not exceed $100,000,000;
(g) neither the Company nor any Company Subsidiary shall change its
method of accounting in effect at December 31, 1999, except as required by
changes in GAAP or the accounting rules and regulations of the SEC;
(h) neither the Company nor any Company Subsidiary shall take any action
that would prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code;
(i) neither the Company nor any Company Subsidiary shall make any
material tax election or settle or compromise any material federal, state, local
or foreign income tax liability;
(j) neither the Company nor any Company Subsidiary shall enter into any
new employment Contract or make any material commitment to employees (including
any commitment to pay severance, retirement or other material benefits) except
in the ordinary course of business and consistent with past practice;
(k) neither the Company nor any Company Subsidiary shall increase the
compensation (including material fringe benefits) payable or to become payable
to any officer, director, or employee, except (x) general hourly rate increases
and normal merit increases for employees other than executive officers made in
the ordinary course of business and consistent with past practice and (y) for
increases committed to prior to the date of this Agreement and not in
contemplation thereof;
(l) neither the Company nor any Company Subsidiary shall 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 or pursuant to commitments made prior to the date of
this Agreement and not in contemplation thereof;
(m) neither the Company nor any Company Subsidiary shall waive any stock
repurchase rights, accelerate, amend or change the period of exercisability of
outstanding options, reprice outstanding options granted under any Company Stock
Option Plans or authorize cash payments in exchange for any outstanding options
granted under any of such plans;
(n) neither the Company nor any Company Subsidiary shall grant any
severance or termination pay to any officer or employee except pursuant to
written agreements outstanding or policies existing on the date hereof or adopt
any new severance plan;
(o) neither the Company nor any Company Subsidiary shall transfer or
license to any Person or otherwise extend, amend or modify any rights to the
Intellectual Property of them, or enter into any grants of future patent rights,
other than in the ordinary course of business consistent with past practice;
(p) not materially modify or amend, or terminate any Contract referred
to in Section 3.17 of this Agreement (including any of the Company Stock Plans)
to which the Company or any Company Subsidiary is a party or waiver, release, or
assign any material rights or claims thereunder, in any such case in a manner
materially adverse to Parent;
(q) neither the Company nor any Company Subsidiary shall authorize or
enter into any agreement to do anything prohibited by Sections 5.01(b) through
(p); and
(r) the Company will (i) use its reasonable best efforts to consummate
the transactions contemplated by the agreements listed in Section 5.02(r) of the
Company Disclosure Letter in accordance with the terms thereof, (ii) not take
any action which would materially adversely impact the timing of the closing of
such transactions or the ability of the Company to satisfy the conditions
precedent to the closing of such transactions, and (iii) not waive or amend any
material provision of such agreements without the prior written approval of
Parent.
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SECTION 5.02. Conduct of Business by Parent Pending the Merger. Parent
agrees that, between the date of this Agreement and the Effective Time, except
as specifically contemplated by any other provision of this Agreement or Section
5.02 of the Parent Disclosure Letter, unless the Company shall otherwise agree
in writing (such agreement not to be unreasonably withheld or delayed):
(a) Parent and the Parent Subsidiaries shall use all reasonable efforts
to preserve intact their present lines of business, maintain their rights and
franchises and preserve their relationships with employees, customers, suppliers
and others having business dealings with them; provided, however, that no action
by Parent or any Parent Subsidiary with respect to matters specifically
addressed by any other provision of this Section 5.02 or Section 6.07 shall be
deemed a breach of this Section 5.02(a);
(b) neither Parent nor any Parent Subsidiary shall amend or otherwise
change its Certification of Incorporation or By-Laws or equivalent
organizational documents, except as contemplated by Section 2.01(b) or for the
issuance of preferred stock in connection with acquisitions permitted pursuant
to Section 5.02(e);
(c) neither Parent nor any Parent Subsidiary shall issue, sell, pledge,
dispose of, grant or encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, any shares of capital stock of Parent or
any Parent Subsidiary of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest (including, without limitation, any
phantom interest), of Parent or any Parent Subsidiary, except for (i) the
issuance of shares of Parent Common Stock issuable pursuant to Parent Stock
Options outstanding on the date hereof in accordance with the terms thereof,
(ii) the issuance, in the ordinary course of business and consistent with past
practice, of Parent Stock Options to purchase shares of Parent Common Stock
pursuant to Parent Stock Option Plans in effect on the date of this Agreement
and the shares of Parent Common Stock issuable pursuant to such Parent Stock
Options, in accordance with the terms of the Parent Stock Option Plans, (iii)
issuances for Parent's Employee Stock Purchase Plan, (iv) issuances by a direct
or indirect wholly owned subsidiary of Parent of capital stock to such
subsidiary's parent and (v) issuances of capital stock in acquisitions permitted
under Section 5.02(e);
(d) neither Parent nor any Parent Subsidiary shall declare, set aside,
make or pay any dividend or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock, other than dividends by
a direct or indirect wholly owned subsidiary of Parent to such subsidiary's
parent;
(e) neither Parent nor any Parent Subsidiary shall: (i) acquire or
dispose of (including, without limitation, by merger, consolidation, or
acquisition or disposition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof, for or with a
fair market value in excess of $500,000,000 and, in the case of acquisitions, as
could reasonably be expected to result in any (A) delay in the consummation of
the Merger or the transactions contemplated herein or (B) decrease in the
likelihood that the conditions set forth in Sections 7.01(d) and (e) would be
satisfied, or (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any Person, or make any loans or
advances, except for (A) indebtedness incurred in the ordinary course of
business and consistent with past practice, (B) indebtedness of Parent to a
direct or indirect wholly owned Parent Subsidiary or indebtedness of a direct or
indirect wholly owned Parent Subsidiary to Parent or another direct or indirect
wholly owned Parent Subsidiary, and (C) indebtedness that in the aggregate does
not exceed $100,000,000;
(f) neither Parent nor any Parent Subsidiary shall change its methods of
accounting in effect at September 30, 1999, except as required by changes in
GAAP or the accounting rules and regulations of the SEC;
(g) neither Parent nor any Parent Subsidiary shall take any action that
would prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code;
(h) neither Parent nor any Parent Subsidiary shall make any material tax
election or settle or compromise any federal, state, local, or foreign income
tax liability;
(i) not materially modify or amend, or terminate any Contract referred
to in Section 4.17 of this Agreement (including Parent Stock Plans) to which
Parent or any Parent Subsidiary is a party or waive, release,
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or assign any material rights or claims thereunder, in any such case in a manner
materially adverse to the Company;
(j) neither the Company nor any Company Subsidiary shall transfer or
license to any Person or otherwise extend, amend or modify any rights to the
Intellectual Property of them, or enter into any grants of future patent rights,
other than in the ordinary course of business consistent with past practice;
(k) neither Parent nor any Parent Subsidiary shall authorize or enter
into any agreement to do anything prohibited by Sections 5.02(b) through (j);
and
(l) Parent will (i) use its reasonable best efforts to consummate the
transactions contemplated by the agreements listed in Section 5.02(l) of the
Parent Disclosure Letter in accordance with the terms thereof, and (ii) not take
any action which would materially adversely delay the closing of such
transactions or the ability of Parent to satisfy the conditions precedent to the
closing of such transactions and (iii) not waive or amend any material provision
of such agreements without the prior written approval of the Company.
SECTION 5.03. Adverse Changes in Condition. Each party agrees (a) to give
written notice promptly to the other parties 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 a Parent
Material Adverse Effect or a Company Material Adverse Effect, or (ii) would
cause or constitute a breach of any of its representations, warranties,
agreements or covenants contained herein, such that the conditions set forth in
Section 7.02 or Section 7.03 with respect to such party (as appropriate) would
not be satisfied as of the time of such breach or as of the time of such
representation or warranty shall have become untrue, and (b) to use its
reasonable efforts to prevent or promptly to remedy the same.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Joint Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) Parent and
the Company shall prepare and file with the SEC a joint proxy statement
(together with any amendments thereof or supplements thereto, the "PROXY
STATEMENT") relating to the meetings of the Company's stockholders (the "COMPANY
STOCKHOLDERS' MEETING") and Parent's stockholders (the "PARENT STOCKHOLDERS'
MEETING" and, together with the Company Stockholders' Meeting, the
"STOCKHOLDERS' MEETINGS") to be held to consider approval and adoption of this
Agreement and the Merger by the Company's stockholders and the approval of the
Parent Proposal by Parent's stockholders and (ii) Parent shall prepare and file
with the SEC a registration statement on Form S-4 (together with all amendments
thereto, the "REGISTRATION STATEMENT") in which the Proxy Statement shall be
included as a prospectus, in connection with the registration under the
Securities Act of the shares of Parent Common Stock to be issued to the
stockholders of the Company pursuant to the Merger and to the stockholders of
Medical Manager pursuant to the Medical Manager Merger. Parent and the Company
each shall use their reasonable best efforts to cause the Registration Statement
to become effective as promptly as practicable, and, prior to the effective date
of the Registration Statement, Parent shall take all or any action required
under any applicable federal or state securities Laws in connection with the
issuance of shares of Parent Common Stock pursuant to the Merger. The Company
shall promptly furnish all information concerning the Company as Parent may
reasonably request in connection with such actions and the preparation of the
Registration Statement and Proxy Statement. As promptly as practicable after the
Registration Statement shall have become effective, each of Parent and the
Company shall mail the Proxy Statement to its stockholders.
(b) (i) The Proxy Statement shall include the recommendation of the
Special Committee to the holders of Company Common Stock in favor of the Company
Proposal; provided, however, that the Special Committee may, at any time prior
to the Effective Time, withdraw, modify or change any such recommendation to the
extent that the Special Committee determines in good faith after consultation
with outside legal counsel to the Special Committee that the failure to so
withdraw, modify or change its recommendation could reasonably be deemed to
cause the Board of Directors or the Special Committee to breach its fiduciary
duties to the holders of Company Common Stock under applicable Law and,
notwithstanding anything to the contrary contained in this Agreement,
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such a withdrawal, modification or change in such recommendation shall not
constitute a breach of this Agreement by the Company. Notwithstanding anything
to the contrary in this Agreement, such a withdrawal, modification or change, in
such recommendation shall not relieve the Company in any way whatsoever of its
other obligations under this Section 6.01 or its obligations under Section 6.02
of this Agreement.
(ii) The Proxy Statement shall include the recommendation of the Parent
Board to the holders of Parent Common Stock in favor of approval of the Parent
Proposal; provided, however, that the Parent Board may, at any time prior to the
Effective Time, withdraw, modify or change any such recommendation to the extent
that the Parent Board determines in good faith after consultation with outside
legal counsel (who may be Parent's regularly engaged outside legal counsel) that
the failure to so withdraw, modify or change its recommendation could reasonably
be deemed to cause the Parent Board to breach its fiduciary duties to the
holders of Parent Common Stock under applicable Law and, notwithstanding
anything to the contrary contained in this Agreement, such a withdrawal,
modification or change in such recommendation shall not constitute a breach of
this Agreement by the Company. Notwithstanding anything to the contrary in this
Agreement, such a withdrawal, modification or change, in such recommendation
shall not relieve Parent in any way whatsoever of its other obligations under
this Section 6.01 or its obligations under Section 6.02 of this Agreement.
(c) No amendment or supplement to the Proxy Statement or the
Registration Statement will be made by Parent or the Company without the
approval of the other party (such approval not to be unreasonably withheld or
delayed). Parent and the Company shall each advise the other, promptly after the
receipt of notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, of the issuance
of any stop order, of the suspension of the qualification of the Parent Common
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or of any request by the SEC for amendment of the Proxy Statement
or the Registration Statement or comments thereon and responses thereto or
requests by the SEC for additional information.
(d) The information supplied by Parent for inclusion in the Registration
Statement and the Proxy Statement shall not, at (i) the time the Registration
Statement is declared effective, (ii) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders of
the Parent and the Company, (iii) the time of each of the Stockholders' Meetings
and (iv) the Effective Time, contain any untrue statement of a material fact or
fail to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. If, at any time prior to the Effective Time, any
event or circumstance relating to Parent or any Parent Subsidiary, or their
respective officers or directors, should be discovered by Parent which should be
set forth in an amendment or a supplement to the Registration Statement or Proxy
Statement, Parent shall promptly inform the Company. All documents that Parent
is responsible for filing with the SEC in connection with the Merger or the
other transactions contemplated by this Agreement will comply as to form in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(e) The information supplied by the Company for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of the Company and Parent, (iii) the time of each of the
Stockholders' Meetings and (iv) the Effective Time, contain any untrue statement
of a material fact or fail to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If, at any time prior
to the Effective Time, any event or circumstance relating to the Company or any
Company Subsidiary, or their respective officers or directors, should be
discovered by the Company which should be set forth in an amendment or a
supplement to the Registration Statement or Proxy Statement, the Company shall
promptly inform Parent. All documents that the Company is responsible for filing
with the SEC in connection with the Merger or the other transactions
contemplated by this Agreement will comply as to form in all material respects
with the applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
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SECTION 6.02. Stockholders' Meetings. (a) The Company shall call and hold
the Company Stockholders' Meeting, and Parent shall call and hold the Parent
Stockholders' Meeting, as promptly as practicable for the purpose of voting upon
the approval of the Company Proposal by the Company's stockholders and the
approval of the Parent Proposal by Parent's stockholders, as the case may be,
and Parent and the Company shall use their reasonable best efforts to hold the
Stockholders' Meetings on the same day and on the same day that Parent's
Stockholders hold their meeting to vote on the Medical Manager Merger and the
adoption of the Medical Manager Merger Agreement and as soon as practicable
after the date on which the Registration Statement becomes effective. Parent
agrees to seek stockholder approval of the Company's 1999 Non-Employee Director
Stock Option Plan at the Parent Stockholders' Meeting.
(b) Parent shall use its reasonable best efforts to solicit from holders
of Parent Common Stock proxies in favor of approval of the Parent Proposal, and
shall take all other action necessary or advisable to secure the vote or consent
of holders of Parent Common Stock required by the rules of the NASDAQ or
Delaware Law or Massachusetts Law to obtain approval of the Parent Proposal,
except to the extent that the Parent Board determines in good faith after
consultation with outside legal counsel (who may be Parent's regularly engaged
outside legal counsel) that doing so could reasonably be deemed to cause the
Parent Board to breach its fiduciary duties to the holders of Parent Common
Stock under applicable Law and any such failure to solicit proxies or take other
solicitation action under this sentence to secure the vote or consent of holders
of Parent Common Stock shall not constitute a breach of this Agreement by
Parent. Notwithstanding anything to the contrary contained in this Agreement,
such failure to solicit proxies in favor of the approval of the Parent Proposal
shall not relieve Parent in any way whatsoever of its obligations under Section
6.01 of this Agreement or its other obligations under this Section 6.02.
(c) The Company shall use its reasonable best efforts to solicit from
holders of Company Common Stock proxies in favor of the Company Proposal and
shall take all other action necessary or advisable to secure the vote or consent
of holders of Company Common Stock required by the rules of the NASDAQ or
Delaware Law or Massachusetts Law to obtain the approval of the Company
Proposal, except to the extent that the Special Committee determines in good
faith after consultation with outside legal counsel to the Special Committee
that doing so could reasonably be deemed to cause the Board of Directors or the
Special Committee to breach its fiduciary duties to the holders of Company
Common Stock under applicable Law and any such failure to solicit proxies or
take other solicitation action under this sentence to secure the vote or consent
of holders of Company Common Stock shall not constitute a breach of this
Agreement by the Company. Notwithstanding anything to the contrary contained in
this Agreement, such failure to solicit proxies in favor of the Company Proposal
shall not relieve the Company in any way whatsoever of its obligations under
Section 6.01 of this Agreement or its other obligations under this Section 6.02.
Notwithstanding anything permitted by the foregoing, neither Company, its Board
of Directors nor the Special Committee shall take any action that would cause
any Company Voting Agreements to be unenforceable in accordance with its terms
under applicable law.
SECTION 6.03. Access to Information; Confidentiality. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which Parent or the Company or any of their respective
subsidiaries is a party or pursuant to applicable Law, from the date of this
Agreement to the Effective Time, Parent and the Company shall (and shall cause
their respective subsidiaries to): (i) provide to the other (and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives, collectively, "REPRESENTATIVES") access at reasonable times
upon prior notice to the officers, employees, agents, properties, offices and
other facilities of the other and its subsidiaries and to the books and records
thereof and (ii) furnish promptly such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects of the
other party and its subsidiaries as the other party or its Representatives may
reasonably request.
(b) With respect to information that is made available by one party to
another pursuant to Section 6.03(a) or pursuant to any other provision of this
Agreement, the receiving party shall comply with, and shall cause its
Representatives to comply with, the provisions relating to confidentiality
contained in the Confidentiality Agreement currently in existence between the
parties (the "CONFIDENTIALITY AGREEMENT").
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(c) No investigation by either the Company or Parent shall affect the
representations and warranties of the other.
SECTION 6.04. No Solicitation of Transactions. (a) The Company agrees
that, from and after the date hereof until the earlier of the Effective Time or
the termination of this Agreement in accordance with Article VIII, it shall not,
and that it shall cause its Representatives not to, directly or indirectly,
initiate, solicit or encourage any inquiries or the making of any proposal, or
offer with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving, or any purchase or sale of all or any significant portion
of the assets or 20% or more of the equity securities of, the Company or any
Company Subsidiary (any such proposal or offer being hereinafter referred to as
a "COMPANY ACQUISITION PROPOSAL"). The Company further agrees that it shall not,
and that it shall cause its Representatives not to, directly or indirectly, have
any discussion with or provide any confidential information or data relating to
the Company or any Company Subsidiary to any Person relating to a Company
Acquisition Proposal or engage in any negotiations concerning a Company
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a Company Acquisition Proposal or accept a Company Acquisition
Proposal; provided, however, that nothing contained in this Section 6.04(a)
shall prevent the Company or the Special Committee from (i) complying with Rule
14d-9 or Rule 14e-2 promulgated under the Exchange Act with regard to a Company
Acquisition Proposal; (ii) engaging in any discussions or negotiations with, or
providing any information to, any Person in response to an unsolicited written
Company Acquisition Proposal by any such Person; or (iii) recommending such an
unsolicited written Company Acquisition Proposal to the holders of Company
Common Stock if, in any such case as is referred to in clause (ii) or (iii), (A)
the Special Committee determines in good faith after consultation with outside
legal counsel to the Special Committee that such action could reasonably be
deemed to be necessary for it to act in a manner consistent with its fiduciary
duties under applicable Law, (B) prior to providing any information or data
regarding the Company to any Person or any of such Person's Representatives in
connection with a Company Acquisition Proposal by such Person, the Company
receives from such Person an executed confidentiality agreement on terms at
least as restrictive on such Person as those contained in the Confidentiality
Agreement, (C) prior to providing any information or data to any Person or any
of such Person's Representatives or entering into discussions or negotiations
with any Person or any of such Person's Representatives in connection with a
Company Acquisition Proposal by such Person, the Company notifies Parent
promptly of the receipt of such Company Acquisition Proposal indicating, in
connection with such notice, the name of such Person and attaching a copy of the
proposal or offer or providing a complete written summary thereof, and (D) the
Company has not breached its obligations under the first sentence of this
Section 6.04(a). The Company agrees that it will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Company Acquisition Proposal.
The Company agrees that it shall keep Parent informed, on a current basis, of
the status and terms of any such proposals or offers and the status of any such
discussions or negotiations. The Company agrees that it will take the necessary
steps to promptly inform each Representative of the Company of the obligations
undertaken in this Section 6.04(a).
(b) Parent agrees that, from and after the date hereof until the earlier
of the Effective Time or the termination of this Agreement in accordance with
Article VIII, it shall not, and that it shall cause its Representatives not to,
directly or indirectly, initiate, solicit or encourage any inquiries or the
making of any proposal, or offer with respect to a merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase or sale of all or
any significant portion of the assets or 20% or more of the equity securities
of, Parent or any Parent Subsidiary that, in any such case, could reasonably be
expected to preclude the completion of the Merger or the other transactions
contemplated by this Agreement (any such proposal or offer being hereinafter
referred to as an "PARENT ACQUISITION PROPOSAL"). Parent further agrees that it
shall not, and that it shall cause its Representatives not to, directly or
indirectly, have any discussion with or provide any confidential information or
data relating to Parent or any Parent Subsidiary to any Person relating to a
Parent Acquisition Proposal or engage in any negotiations concerning a Parent
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a Parent Acquisition Proposal or accept a Parent Acquisition Proposal;
provided, however, that nothing contained in this Section 6.04(b) shall prevent
Parent or the Parent Board from (i) complying with Rule 14d-9 or Rule 14e-2
promulgated under the Exchange Act with regard to a Parent Acquisition Proposal;
(ii) engaging in any discussions or negotiations with, or providing any
information to, any Person in response to an unsolicited written
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Parent Acquisition Proposal by any such Person; or (iii) recommending such an
unsolicited written Parent Acquisition Proposal to the holders of Parent Common
Stock if, in any such case as is referred to in clause (ii) or (iii), (A) the
Parent Board concludes in good faith (after consultation with its financial
advisors) that such Parent Acquisition Proposal would, if consummated, result in
a transaction more favorable to holders of Parent Common Stock than the
transaction contemplated by this Agreement (any such more favorable Parent
Acquisition Proposal being referred to in this Agreement as a "PARENT SUPERIOR
PROPOSAL"), (B) the Parent Board determines in good faith after consultation
with outside legal counsel (who may be Parent's regularly engaged outside legal
counsel) that such action could reasonably be deemed to be necessary for it to
act in a manner consistent with its fiduciary duties under applicable Law, (C)
prior to providing any information or data regarding Parent or any Parent
Subsidiary to any Person or any of such Person's Representatives in connection
with a Parent Superior Proposal by such Person, Parent receives from such Person
an executed confidentiality agreement on terms at least as restrictive on such
Person as those contained in the Confidentiality Agreement, (D) prior to
providing any information or data to any Person or any of such Person's
Representatives or entering into discussions or negotiations with any Person or
any of such Person's Representatives in connection with a Parent Superior
Proposal by such Person, Parent notifies the Company promptly of the receipt of
such Parent Superior Proposal indicating, in connection with such notice, the
name of such Person and attaching a copy of the proposal or offer or providing a
complete written summary thereof, and (E) Parent has not breached its
obligations under the first sentence of this Section 6.04(b). Parent agrees that
it will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Parent Acquisition Proposal. Parent agrees that it shall keep the Company
informed, on a current basis, of the status and terms of any such proposals or
offers and the status of any such discussions or negotiations. Parent agrees
that it will take the necessary steps to promptly inform each Representative of
Parent of the obligations undertaken in this Section 6.04(b).
SECTION 6.05. Directors' and Officers' Indemnification and Insurance. (a)
From and after the Effective Time, Parent shall, and shall cause the Surviving
Corporation to, indemnify and hold harmless each present and former director and
officer of the Company and each person who served at the request of the Company
as a director, officer or trustee of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or enterprise
(collectively, the "INDEMNIFIED PARTIES"), to the fullest extent permitted under
applicable Law, against all costs and expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee or fiduciary,
including, without limitation, the transactions contemplated by this Agreement
(and shall also advance, or cause to be advanced, expenses as incurred to the
fullest extent permitted under applicable Law). Parent agrees that all rights to
indemnification existing in favor of the Indemnified Parties as provided in the
Company's Certificate of Incorporation and By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time. From and after the Effective
Time, Parent shall assume the obligations of the Company to provide
indemnification to Indemnified Parties under indemnification agreements or
similar contracts.
(b) Without limiting or expanding the foregoing, in the event any claim,
action, suit, proceeding or investigation (a "CLAIM") that is subject to Section
6.05(a) is brought against any Indemnified Party at or after the Effective Time,
(i) the Indemnified Parties may retain counsel satisfactory to them and
reasonably satisfactory to Parent and the Surviving Corporation, (ii) Parent and
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received, and (iii) Parent and the Surviving Corporation will use all reasonable
efforts to assist in the vigorous defense of any such matter, provided that
neither Parent nor the Surviving Corporation shall be liable for any settlement
of any Claim effected without its written consent, which consent, however, shall
not be unreasonably withheld or delayed. Any Indemnified Party wishing to claim
indemnification under this Section 6.05, upon learning of any such Claim, shall
notify Parent (but the failure so to notify Parent shall not relieve Parent and
the Surviving Corporation from any liability that either may have under this
Section 6.05 except to the extent such failure materially prejudices them). The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each
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such matter unless, under applicable standards of professional conduct, there is
or would reasonably be expected to be a conflict on any significant issue
between the positions of any two or more Indemnified Parties.
(c) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current directors' and officers' liability
insurance policies maintained by the Company (provided that Parent may
substitute therefor policies of at least the same coverage containing other
terms and conditions which are no less advantageous) with respect to claims
arising from facts or events that occurred prior to the Effective Time;
provided, further, that Parent shall not be required to maintain such policies
to the extent that the annual premiums (or incremental annual premiums in the
case of substitute policies that provide coverage to other Persons or for other
matters) exceed 200% of the most recent annual premium paid for such policies by
the Company.
SECTION 6.06. Amendment of Company Charter. Immediately prior to the
Effective Time, the Certificate of Designation of Preferences and Rights of the
Series A Convertible Redeemable Preferred Stock of the Company set forth in
Article IV of the Certificate of Incorporation of the Company shall be amended
to allow the Company Preferred Stock which is outstanding immediately prior to
the Effective Time to be converted into Parent New Preferred Stock without
adversely affecting the relative rights, preferences, powers and privileges of
the Company Preferred Stock.
SECTION 6.07. Further Action; Consents; Filings. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its best
efforts to (i) take, or cause to be taken, all actions necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective the
Merger and the other transactions contemplated by this Agreement, (ii) obtain
from Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company or any of their subsidiaries, as the case may be, in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated by this Agreement and (iii)
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement, the Merger and the other transactions
contemplated by this Agreement required under (A) the Exchange Act and the
Securities Act and the rules and regulations thereunder and any other applicable
federal or state securities Laws, (B) the HSR Act and (C) any other applicable
Law. The parties hereto shall cooperate with each other in connection with the
making of all such filings, including by providing copies of all such documents
to the nonfiling party and its advisors prior to filing and, if requested, by
accepting all reasonable additions, deletions or changes suggested in connection
therewith. The parties hereto shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable Law (including all information required to be in the Proxy
Statement) in connection with the transactions contemplated by this Agreement.
(b) Parent and the Company shall file as soon as practicable (but not
later than five business days) after the date of this Agreement notifications
under the HSR Act and shall respond as promptly as practicable to all inquiries
or requests received from the Federal Trade Commission or the Antitrust Division
of the Department of Justice for additional information or documentation and
shall respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other Governmental Entity in connection with
antitrust matters. The parties shall cooperate with each other in connection
with the making of all such filings or responses, including providing copies of
all such documents to the other party and its advisors prior to filing or
responding.
(c) Each of the Company and Parent agree to cooperate and use their best
efforts vigorously to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "ORDER") that is in effect and that restricts,
prevents or prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal and all
available legislative action. Notwithstanding any other provision of this
Agreement to the contrary, each of the Company and Parent also agree, if
requested by the other, to take any and all actions as is or may be required by
Governmental Entities as a condition to the granting of any approvals required
in order to permit the consummation of the Merger or the other transactions
contemplated hereby or as may be required to avoid, lift, vacate or reverse any
legislative, administrative or judicial action which
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would otherwise cause any condition to Closing not to be satisfied; provided,
however, that Parent and the Parent Subsidiaries shall not be required to take
any actions otherwise required hereunder if the effect of such action would have
a material adverse effect on the financial position, business, or results of
operations of the Parent, the Parent Subsidiaries, the Company, the Company
Subsidiaries, Medical Manager and each of the other Subsidiaries of Medical
Manager, all taken as a whole.
SECTION 6.08. Plan of Reorganization. (a) This Agreement is intended to
constitute a "plan of reorganization" within the meaning of section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Merger to qualify, and will not
knowingly take any action, cause any action to be taken, fail to take any action
or cause any action to fail to be taken which action or failure to act could
prevent the Merger from qualifying as a reorganization under the provisions of
section 368(a) of the Code. Following the Effective Time, neither the Surviving
Corporation, Parent nor any of their affiliates shall knowingly take any action,
cause any action to be taken, fail to take any action or cause any action to
fail to be taken, which action or failure to act could cause the Merger to fail
to qualify as a reorganization under section 368(a) of the Code.
(b) As of the date hereof, to the Company's Knowledge, there is no
reason (i) why it would not be able to deliver to Company's counsel or Parent's
counsel, at the date of the legal opinions referred to below, certificates
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the legal opinions contemplated by Section 7.01(f) or (ii) why Company's counsel
or Parent's counsel would not be able to deliver the opinions required by
Section 7.01(f).
(c) As of the date hereof, to Parent's Knowledge, there is no reason (i)
why it would not be able to deliver to Company's counsel or Parent's counsel, at
the date of the legal opinions referred to below, certificates substantially in
compliance with IRS published advance ruling guidelines, with customary
exceptions and modifications thereto, to enable such firms to deliver the legal
opinions contemplated by Section 7.01(f) or (ii) why Company's counsel or
Parent's counsel would not be able to deliver the opinions required by Section
7.01(f).
SECTION 6.09. Public Announcements. The initial press release relating to
this Agreement shall be a joint press release, the text of which has been agreed
to by each of Parent and the Company. Unless otherwise required by applicable
Law or by obligations pursuant to any listing agreement with or rules of any
securities exchange, the parties hereto shall consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement, the transactions contemplated hereby or the activities and
operations of the other party and shall not issue any such release or make any
such statement without the prior written consent of the other party (such
consent not to be unreasonably withheld or delayed).
SECTION 6.10. NASDAQ Listing. Parent shall promptly prepare and submit to
the NASDAQ a listing application covering the shares of Parent Common Stock to
be issued in the Merger, and shall use its reasonable efforts to obtain, prior
to the Effective Time, approval for the listing of such Parent Common Stock,
subject to official notice to the NASDAQ of issuance, and the Company shall
cooperate with Parent with respect to such listing.
SECTION 6.11. Conveyance Taxes. The Company shall be liable for and shall
hold Parent and the holders of shares of Company Common Stock who are holders of
the shares of Company Common Stock immediately prior to the Effective Time
harmless against any real property transfer or gains, sales, use, transfer,
value added, stock transfer or stamp taxes, any transfer, recording
registration, and other fees, and any similar Taxes which become payable in
connection with the transactions contemplated by this Agreement, but not
including income taxes. The parties acknowledge that this Section 6.11 is
specifically intended to benefit the holders of shares of Company Common Stock
who are holders of the shares of Company Common Stock immediately prior to the
Effective Time.
SECTION 6.12. [RESERVED].
SECTION 6.13. Employee Benefit Matters. (a) Parent hereby agrees that,
for a period of two years immediately following the Effective Time, it shall, or
shall cause the Surviving Corporation and the Company
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Subsidiaries to, maintain employee benefit plans, programs and arrangements for
the benefit of active and retired employees of the Company and the Company
Subsidiaries that in the aggregate will provide compensation and benefits that
are substantially equivalent to the compensation and benefits provided to such
active and retired employees under the employee benefit plans, programs and
arrangements of the Company and the Company Subsidiaries as in effect
immediately prior to the Effective Time; provided, however, that changes may be
made to such employee benefit plans and arrangements to the extent necessary in
light of applicable Law. From and after the Effective Time, Parent shall honor,
and shall cause the Surviving Corporation and the Company Subsidiaries to honor,
in accordance with their terms, all existing employment and severance agreements
and arrangements and severance, termination protection and bonus plans which are
applicable to any current or former employees or directors of the Company or any
of the Company Subsidiaries and that have been disclosed or made available to
Parent.
(b) With respect to any benefits plans of Parent or Parent Subsidiaries
in which the officers and employees of the Company and the Company Subsidiaries
participate after the Effective Time, Parent shall, or shall cause the Surviving
Corporation to, use reasonable efforts to: (i) waive any limitations as to
pre-existing conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to such officers and
employees under any welfare benefit plan in which such employees may be eligible
to participate after the Effective Time (provided, however, that no such waiver
shall apply to a pre-existing condition of any such officer or employee who was,
as of the Effective Time, excluded from participation in a Company benefit plan
by nature of such pre-existing condition), (ii) provide each such officer and
employee with credit for any co-payments and deductibles paid prior to the
Effective Time during the year in which the Effective Time occurs in satisfying
any applicable deductible or out-of-pocket requirements under any welfare
benefit plan in which such employees may be eligible to participate after the
Effective Time, and (iii) other than with respect to vesting credit with respect
to Parent options granted to such officers and employees (other than pursuant to
Section 2.04), recognize all service of such officers and employees with the
Company and the Company Subsidiaries (and their respective predecessors) for all
purposes (including without limitation purposes of eligibility to participate,
vesting credit, entitlement for benefits, and benefit accrual) in any benefit
plan in which such employees may be eligible to participate after the Effective
Time, except to the extent such treatment would result in duplicative accrual of
benefits for the same period of service.
(c) If at any time following the Effective Time but prior to the date
two (2) years following the Effective Time, (i) Parent shall terminate any
employee of the Company or any Company Subsidiary without "cause" (as defined
below) or (ii) any such employee shall terminate his or her employment with
Parent, the Company or any Company Subsidiary following a "material reduction in
the duties" or material reduction in compensation of such employee or the
relocation of such employee to a location more than 25 miles from such
employee's existing work location, without the employee's consent, Parent shall
cause all Company Stock Options granted to such employee to become fully
exercisable upon such termination. A "MATERIAL REDUCTION IN THE DUTIES" of an
employee means a substantive reduction in duties, not a change in title or
reporting hierarchy occurring as a result of the Merger (including as a result
of the Company being combined with Parent or becoming a subsidiary of Parent
following the Merger). "CAUSE" means (A) repeated failure by an employee to
perform his or her duties in any material respect following notice and a
reasonable period of time to correct such failure; (B) an employee engaging in
an act of dishonesty that is materially and demonstrably injurious to the
Company or Parent; or (C) the conviction of an employee of a felony in respect
of a dishonest or fraudulent act or other crime of moral turpitude involving
Parent or the Company. In the case of any employee who is an executive officer
of Parent, the Company or a Company Subsidiary, any assertion that "cause"
exists shall be made only with the approval of the Parent Board. Notwithstanding
the foregoing, in the case of a sale of a Company Subsidiary (or the assets
thereof) that is treated, as a result of such sale, as a termination of
employment of an employee of such Company Subsidiary for purposes of this
Section 6.13(c), the acceleration of vesting provided for herein shall be made
subject to such further terms and conditions as the Parent Board may impose at
the time of such sale.
SECTION 6.14. Exemption From Liability Under Section 16(b). Assuming that
the Company delivers to Parent the Section 16 Information (defined below) in a
timely fashion, the Parent Board, or a committee of two or more Non-Employee
Directors thereof (as such item is defined for purposes of Rule 16b-3 under the
Exchange Act), shall adopt resolutions prior to the consummation of the Merger,
providing that the receipt by the Company
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Insiders (as defined below) of Parent Common Stock in exchange for shares of the
Company Common Stock, and of options for Parent Common Stock upon conversion of
options for the Company Common Stock, in each case pursuant to the transactions
contemplated hereby and to the extent such securities are listed in the Section
16 Information, are intended to be exempt from liability pursuant to Section
16(b) under the Exchange Act. Such resolutions shall comply with the approval
conditions of Rule 16b-3 under the Exchange Act for purposes of such Section
16(b) exemption, including, but not limited to, specifying the name of the
Company Insiders, the number of securities to be acquired or disposed of for
each such person, the material terms of any derivative securities, and that the
approval is intended to make the receipt of such securities exempt pursuant to
Rule 16b-3(d). "SECTION 16 INFORMATION" shall mean information accurate in all
respects regarding the Company Insiders, the number of shares of the Company
Common Stock held by each such Company Insider and expected to be exchanged for
Parent Common Stock in the Merger, and the number and description of the options
on the Company Common Stock held by each such Company Insider that are expected
to be converted into options on Parent Common Stock in connection with the
Merger. "COMPANY INSIDERS" shall mean those officers and directors of the
Company who will be subject to the reporting requirements of Section 16(b) of
the Exchange Act with respect to Parent and who are listed in the Section 16
Information.
SECTION 6.15. [RESERVED].
SECTION 6.16. Company Affiliates; Restrictive Legend; Restrictions on
Transfer. Not later than 30 days prior to the Company Stockholders Meeting, the
Company shall deliver to Parent a list of those Persons who may be deemed to be,
in the Company's reasonable judgment at the time this Agreement is submitted for
adoption by the Stockholders of the Company, affiliates of the Company within
the meaning of Rule 145 promulgated under the 1933 Act (each a "RULE 145
AFFILIATE"). The Company will provide Parent with such information and documents
as Parent reasonably requests for purposes of reviewing such list. Parent will
give stop transfer instructions to its transfer agent with respect to any Parent
Common Stock received pursuant to the Merger by the Company Stockholders who are
Rule 145 Affiliates and there will be placed on the certificates representing
such Parent Common Stock, or any substitution therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES AND MAY ONLY BE TRANSFERRED (A) IN CONFORMITY WITH RULE 145(d) UNDER
SUCH ACT, OR (B) IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The
obligations of the Company and Parent to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) the Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no proceeding
for that purpose shall have been initiated by the SEC;
(b) the Company Proposal shall have been approved by the requisite
affirmative vote of the stockholders of the Company in accordance with Delaware
Law and the Certificate of Incorporation of the Company and the Company By-Laws;
(c) the Parent Proposal shall have been approved by the requisite
affirmative vote of the stockholders of Parent in accordance with Delaware Law,
the Certificate of Incorporation of Parent and the Parent By-Laws;
(d) no Governmental Entity or court of competent jurisdiction located or
having jurisdiction in the United States shall have enacted, issued,
promulgated, enforced or entered any Law, judgment, decree, executive order or
award (an "ORDER") or taken any other action permanently restraining, enjoining
or otherwise prohibiting
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the transactions contemplated by this Agreement, and such Order or other action
shall have become final and nonappealable or shall have failed to issue an Order
or to take any other action necessary to fulfill the conditions to the Closing
of the Merger and such denial of a request to issue such Order or take such
other action shall have become final and nonappealable, which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger;
(e) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated; and
(f) the Medical Manager Merger and the transactions contemplated by the
Medical Manager Merger Agreement shall have been consummated.
SECTION 7.02. Conditions to the Obligations of Parent. The obligations of
Parent to consummate the Merger are subject to the satisfaction of the following
additional conditions:
(a) Each of the representations and warranties of the Company and ASC
contained in this Agreement shall be true and correct as of the Effective Time
as though made on and as of the Effective Time, except where failure to be so
true and correct would not have a Company Material Adverse Effect, and except
that those representations and warranties which address matters only as of a
particular date or period of time shall remain true and correct as of such date
or period of time, except where failure to be so true and correct would not have
a Company Material Adverse Effect. Parent shall have received a certificate of
the President or Chief Financial Officer of the Company to such effect;
(b) The Company and ASC shall have performed or complied, in all
material respects, with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time, and
Parent shall have received a certificate of the Chief Executive Officer or Chief
Financial Officer of the Company to such effect; and
(c) Parent shall have received a written opinion of Nelson Mullins Riley
& Scarborough, L.L.P., legal counsel to Parent, in form and substance reasonably
satisfactory to Parent, which shall be to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
that Parent, ASC and the Company will each be a party to the reorganization
within the meaning of Section 368(b) of the Code, and such opinion shall not
have been withdrawn; provided, that if counsel to Parent does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to Parent if counsel to the Company renders such opinion to Parent, which
opinion shall be in form and substance reasonably satisfactory to Parent. In
rendering such opinion, legal counsel shall be entitled to rely upon, among
other things, reasonable and customary assumptions as well as representations of
Parent, the Company and others. In addition, in the event that legal counsel
cannot deliver tax opinions based on the Medical Manager Merger being structured
as a merger of Medical Manager Corporation with and into Parent or the Merger
being structured as a merger of the Company with and into ASC, the parties shall
use their best efforts to restructure either or both of such mergers in a manner
upon which legal counsel is able to deliver tax opinions.
SECTION 7.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following additional conditions:
(a) Each of the representations and warranties of Parent contained in
this Agreement shall be true and correct as of the Effective Time, as though
made on and as of the Effective Time except where the failure to be so true and
correct would not have a Parent Material Adverse Effect, and except that those
representations and warranties which address matters only as of a particular
date or period of time shall remain true and correct as of such date or period
of time, except where the failure to be so true and correct would not have a
Parent Material Adverse Effect. The Company shall have received a certificate of
the President or Chief Financial Officer of Parent to such effect;
(b) Parent shall have performed or complied, in all material respects,
with all agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Effective Time, and the Company shall
have received a certificate of the Chief Executive Officer or Chief Financial
Officer of Parent to such effect; and
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(c) The Company shall have received a written opinion of Davis Polk &
Wardwell, legal counsel to the Company, in form and substance reasonably
satisfactory to the Company, which shall be to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
that Parent, ASC and the Company will each be a party to the reorganization
within the meaning of Section 368(b) of the Code, and such opinion shall not
have been withdrawn; provided, that if counsel to the Company does not render
such opinion, this condition shall nonetheless be deemed to be satisfied with
respect to such party if counsel to Parent renders such opinion to the Company,
which opinion shall be in form and substance reasonably satisfactory to the
Company. In rendering such opinion, legal counsel shall be entitled to rely
upon, among other things, reasonable and customary assumptions as well as
representations of Parent, the Company and others. In addition, in the event
that legal counsel cannot deliver tax opinions based on the Medical Manager
Merger being structured as a merger of Medical Manager Corporation with and into
Parent or the Merger being structured as a merger of the Company with and into
ASC, the parties shall use their best efforts to restructure either or both of
such mergers in a manner upon which legal counsel is able to deliver tax
opinions.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the transactions contemplated by
this Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards of Directors
of each of Parent and the Company;
(b) by either Parent or the Company if the Effective Time shall not have
occurred on or before September 30, 2000 (the "TERMINATION DATE"); provided,
however, that the right to terminate this Agreement under this Section 8.01(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) by either Parent or the Company, if any Governmental Entity (i)
shall have issued an Order or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such Order or other action shall have become final and
nonappealable or (ii) shall have failed to issue an Order or to take any other
action necessary to fulfill the conditions to the Closing of the Merger and such
denial of a request to issue such Order or take such other action shall have
become final and nonappealable;
(d) by the Company, if (i) the Parent Board withdraws, modifies or
changes its recommendation of the Parent Proposal in a manner adverse to the
Company or shall have resolved to do so or (ii) the Parent Board shall have
recommended to the stockholders of Parent a Parent Acquisition Proposal or shall
have resolved to do so;
(e) by either Parent or the Company, if the Company Proposal shall fail
to receive the requisite vote for approval at the Company Stockholders' Meeting;
provided, however, the right to terminate this Agreement under this Section
8.01(e) shall not be available to the Company if the failure to obtain the
requisite vote shall have been caused by the action or failure to act of the
Company and such action or failure to act constitutes a material breach by the
Company of this Agreement;
(f) by either Parent or the Company, if the approval of the Parent
Proposal shall fail to receive the requisite vote at the Parent Stockholders'
Meeting; provided, however, the right to terminate this Agreement under this
Section 8.01(f) shall not be available to Parent if the failure to obtain the
requisite vote shall have been caused by the action or failure to act of Parent
and such action or failure to act constitutes a material breach by Parent of
this Agreement; or
(g) by either Parent or the Company, if the Medical Manager Merger
Agreement is terminated in accordance with its terms.
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SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void
and there shall be no liability under this Agreement on the part of Parent, ASC
or the Company or any of their respective officers or directors and all rights
and obligations of each party hereto shall cease, except (a) as provided in
Sections 8.05 and 9.01 and (b) nothing herein shall relieve any party from
liability for any willful breach of any representation, warranty, covenant or
other agreement in this Agreement occurring prior to termination.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval of the Company Proposal by the stockholders of the Company, no
amendment may be made which would reduce the amount or change the type of
consideration into which each share of Company Common Stock shall be converted
upon consummation of the Merger and provided, further, that the parties shall
not amend any provision of this Agreement without the prior written consent of
the Special Committee (which shall not be unreasonably withheld or delayed) if
such amendment could reasonably be expected to delay the consummation of the
Merger or adversely affect the Company or its stockholders or would change the
Exchange Ratio.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any agreement or condition contained herein; provided,
however, that no such extension or waiver may be granted without the prior
written consent of the Special Committee (which shall not be unreasonably
withheld or delayed) if such extension or waiver could reasonably be expected to
delay the consummation of the Merger or adversely affect the Company or its
stockholders or would change the Exchange Ratio. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
SECTION 8.05. Expenses. (a) Except as set forth in this Section 8.05, all
Expenses (as defined below) incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses, whether or not the Merger or any other transaction is
consummated. "EXPENSES" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Registration Statement and the Proxy Statement, the solicitation of
stockholder approvals, the filing of any required notices under the HSR Act or
other similar regulations and all other matters related to the closing of the
Merger and the other transactions contemplated by this Agreement.
(b) Parent agrees that:
(i) if (A) the Company shall terminate this Agreement pursuant to
Section 8.01(d) and (B) at the time of the occurrence of the circumstance
permitting termination pursuant to such Section, there shall exist a Parent
Acquisition Proposal, or
(ii) if (A) the Company or Parent shall terminate this Agreement
pursuant to Section 8.01(f) due to the failure of Parent's stockholders to
approve the Parent Proposal and (B) at the time of such failure to so approve
this Agreement there shall exist a Parent Acquisition Proposal,
then Parent shall pay to the Company an amount equal to the sum of $70,000,000
(the "PARENT ALTERNATIVE TRANSACTION FEE") and all of the Company's Expenses;
provided, however, that the Company shall not, upon a termination pursuant to
Section 8.01(d) by the Company or pursuant to Section 8.01(f) by the Company or
Parent, be entitled to receive the Parent Alternative Transaction Fee or any of
the Company's Expenses pursuant to this Section 8.05(b) if the Parent Board
shall, prior to such termination, have withdrawn, modified or changed its
recommendation of this Agreement or the transactions contemplated hereby in a
manner adverse to the Company due solely to a breach (i) by the Company of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, which breach is not cured by the Company within 10 days
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following notice of such breach, and would cause the conditions set forth in
Sections 7.02(a) and 7.02(b) to not be satisfied or (ii) by Medical Manager of
any representation, warranty, covenant or agreement on the part of Medical
Manager set forth in the Medical Manager Merger Agreement, which breach is not
cured by Medical Manager within 10 days following notice of such breach, and
would cause the conditions set forth in Sections 7.02(a) and 7.02(b) of the
Medical Manager Merger Agreement to not be satisfied.
(c) Each of the Company and Parent agrees that the agreements contained
in Sections 8.05(b) are an integral part of the transactions contemplated by
this Agreement. Each of the Company and Parent agrees that the payments provided
for in Section 8.05(b) shall be the sole and exclusive remedies of the parties
upon a termination of this Agreement pursuant to Sections 8.01(d) and (f), as
the case may be, and such remedies shall be limited to the sums stipulated in
Sections 8.05(b), regardless of the circumstances giving rise to such
termination; provided, however, that nothing herein shall relieve any party from
liability for any willful breach of any representation, warranty, covenant or
other agreement in this Agreement occurring prior to termination.
(d) Any payment of a Parent Alternative Transaction Fee required to be
made pursuant to Section 8.05(b) shall be made to the Company not later than two
business days after termination of this Agreement. Payment of Expenses pursuant
to Section 8.05(b) shall be made not later than two business days after delivery
to Parent by the Company of notice of demand for payment and an itemization
setting forth in reasonable detail all Expenses of the Company (which
itemization may be supplemented and updated from time to time by the Company
until the 60th day after the Company delivers such notice of demand for
payment). All payments to the Company under this Section 8.05 shall be made by
wire transfer of immediately available funds to an account designated by the
Company.
(e) In the event that the Company or Parent, as the case may be, shall
fail to pay any amount payable pursuant to this Section 8.05 when due, the other
party's "Expenses" shall be deemed to include (i) the costs and expenses
actually incurred or accrued by such other party (including, without limitation,
fees and expenses of counsel) in connection with the collection under and
enforcement of this Section 8.05, together with (ii) interest on such unpaid
amounts, commencing on the date that such amounts became due, at a rate equal to
the rate of interest publicly announced by Citibank, N.A., from time to time, in
the City of New York, as such bank's Base Rate plus 2.00%.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that (a) those covenants
and agreements that by their terms apply or are to be performed in whole or in
part after the Effective Time and this Article IX shall survive the Effective
Time for the respective periods set forth therein or, if no such period is
specified, for six years and (b) the representations, warranties and agreements
set forth in Sections 6.03(b), 6.09, 8.02, and 8.05 and this Article IX shall
survive termination for the respective periods set forth therein or, if no such
period is specified, for six years. Nothing in this Section 9.01 shall relieve
any party for any willful breach of any representation, warranty, covenant or
other agreement in this Agreement occurring prior to termination.
SECTION 9.02. Notices. (a) All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be sent by an
overnight courier service that provides proof of receipt,
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mailed by registered or certified mail (postage prepaid, return receipt
requested) or telecopied to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to Parent:
Healtheon/WebMD Corporation
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
Telephone No.: (404) 495-7600
Telecopier No.: (404) 479-7603
Attention: Jack Dennison, Executive Vice President, General Counsel
with a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
Bank of America Corporate Center
Suite 2600
100 N. Tryon Street
Charlotte, North Carolina 28202
Telephone No.: (704) 417-3200
Telecopier No.: (704) 377-4814
Attention: H. Bryan Ives III
C. Mark Kelly
if to the Company:
CareInsite, Inc.
669 River Drive
Elmwood Park, NJ 07407
Telephone No.: 201-703-3400
Telecopier No.: 201-703-3401
Attention: David Amburgey
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telephone No.: (201) 450-4000
Telecopier No.: (201) 450-4800
Attention: John Bick, Esq.
(b) If this Agreement provides for a designated period after a notice
within which to perform an act, such period shall commence on the date of
receipt or refusal of the notice.
(c) If this Agreement requires the exercise of a right by notice on or
before a certain date or within a designated period, such right shall be deemed
exercised on the date of delivery to the courier service, telecopying or mailing
of the notice pursuant to which such right is exercised.
(d) Notices of changes of address shall be effective only upon receipt.
SECTION 9.03. Certain Definitions. For purposes of this Agreement, except
as otherwise provided herein, the terms set forth below shall have the following
meanings:
"affiliate" of a specified Person means a Person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with such specified Person.
"beneficial owner" with respect to any shares means a Person who shall
be deemed to be the beneficial owner of such shares (a) which such Person or any
of its affiliates or associates (as such term is defined in
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Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (b) which such Person or any of its affiliates or associates has,
directly or indirectly, (i) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise or (ii) the right to
vote pursuant to any agreement, arrangement or understanding or (c) which are
beneficially owned, directly or indirectly, by any other Persons with whom such
Person or any of its affiliates or associates or Person with whom such Person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
such shares.
"business day" means any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are not required or
authorized to close in The City of New York.
"Contract" means any agreement, contract, indenture, instrument, lease,
or any written arrangement, commitment, obligation, plan, restriction,
understanding or undertaking of any kind or character, or other document to
which any Person is a party or by which such Person is bound or affecting such
Person's capital stock, assets or business.
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise.
"Knowledge" means, with respect to any matter in question, (a) in the
case of the Company, if any of the executive officers of the Company has actual
knowledge of such matter after making reasonable inquiry of officers and
employees charged with senior administrative or operational responsibility of
such matters and (b) in the case of Parent, if any of the executive officers of
Parent has actual knowledge of such matter after making reasonable inquiry of
officers and employees charged with senior administrative or operational
responsibility of such matters.
"Medical Manager Merger" means the merger of Medical Manager with and
into Parent pursuant to the Medical Manager Merger Agreement.
"Person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in section 13(d)(3) of the Exchange Act), trust, association, limited
liability company or entity or government, political subdivision, agency or
instrumentality of a government.
"subsidiary" or "subsidiaries" of any Person means any corporation,
partnership, joint venture or other legal entity of which such Person (either
alone or through or together with any other subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 9.05. Assignment; Binding Effect; Benefit. (a) Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties.
(b) This Agreement shall be binding upon and inure solely to the benefit
of the parties hereto and their respective successors and permitted assigns, and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other Person any right, benefit or remedy of any nature whatsoever
under or by reason of this
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Agreement, other than Article II (which may be enforced by the beneficiaries
thereof), Section 6.05 (which is intended to be for the benefit of the Persons
covered thereby and their respective heirs and representatives and may be
enforced by such Persons), Section 8.02 and Section 8.03.
SECTION 9.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 9.07. Governing Law; Forum. (a) This Agreement shall be governed
by, and construed in accordance with, the Laws of the State of Delaware
applicable to contracts executed in and to be performed in that state.
(b) Each of the parties hereto irrevocably agrees that all legal actions
or proceedings with respect to this Agreement shall be brought and determined in
the courts of the State of Delaware or in the United States District Court for
the State of Delaware, and each of the parties hereto hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the jurisdiction of the aforesaid
courts. Each of the parties hereto hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, (i) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve process in accordance with applicable Law, (ii)
that it or its property is exempt or immune from jurisdiction of any such court
or from any legal process commenced in such courts and (iii) to the fullest
extent permitted by applicable Law, that (A) the suit, action or proceeding in
any such court is brought in an inconvenient forum, (B) the venue of such suit,
action or proceeding is improper and (C) this Agreement, or the subject matter
hereof, may not be enforced in or by such courts.
SECTION 9.08. Interpretation. (a) If a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents, glossary of defined terms and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The phrases "the date of this
Agreement" and "the date hereof" shall be deemed to refer to February 13, 2000.
(b) The parties hereto acknowledge that certain matters set forth in the
Company Disclosure Letter and certain matters set forth in the Parent Disclosure
Letter are included for informational purposes only, notwithstanding the fact
that, because they do not rise above applicable materiality thresholds or
otherwise, they would not be required to be set forth therein by the terms of
this Agreement. The parties agree that disclosure of such matters shall not be
taken as an admission by the Company or Parent, as the case may be, that such
disclosure is required to be made under the terms of any provision of this
Agreement and in no event shall the disclosure of such matters be deemed or
interpreted to broaden or otherwise amplify the representations and warranties
contained in this Agreement or to imply that such matters are or are not
material and neither party shall use, in any dispute between the parties, the
fact of any such disclosure as evidence of what is or is not material for
purposes of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed and delivered
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.10. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties and the stockholders of the parties with respect to
the subject matter hereof, other than the Confidentiality Agreement, the Company
Voting Agreement (as defined in the Medical Manager Merger Agreement), the
Parent Voting Agreement, (as defined in
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the Medical Manager Merger Agreement), the Medical Manager Merger Agreement and
the Company Voting Agreements, all of which shall survive the execution and
delivery of this Agreement.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF PARENT AND THE COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, ASC AND THE COMPANY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
SECTION 9.12. Brokers and Finders. Except for Morgan Stanley and Co.
Incorporated and FleetBoston Robertson Stephens, Inc., the investment banker for
Parent, and Bank of America Securities, Inc., the investment banker for the
Company, 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 Parent or the Company in
connection with the transactions contemplated hereby, each of Parent or the
Company as the case may be, agrees to indemnify and hold the other parties
harmless of and from any liability in respect of any such claim. The Company
hereby represents and warrants to Parent that copies of all of its Contracts
with Bank of America Securities LLC have been made available to Parent. Parent
hereby represents and warrants to the Company that copies of all of its
Contracts with Morgan Stanley and Co. Incorporated and FleetBoston Robertson
Stephens, Inc. have been made available to the Company.
IN WITNESS WHEREOF, Parent, ASC and the Company have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
HEALTHEON/WEBMD CORPORATION
By /s/ JEFFREY T. ARNOLD
----------------------------------------
Name: Jeffrey T. Arnold
Title: Chief Executive Officer
AVICENNA SYSTEMS CORPORATION
By /s/ DAVID SCHLANGER
----------------------------------------
Name: David Schlanger
Title: Senior Vice President
CAREINSITE, INC.
By /s/ JAMES R. LOVE
----------------------------------------
Name: James R. Love
Title: Executive Vice President and
Chief Financial Officer
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AMENDMENT NO. 1 DATED
AS OF JUNE 18, 2000
TO THE AGREEMENT AND PLAN OF MERGER AMONG
HEALTHEON/WEBMD CORPORATION, AVICENNA SYSTEMS
CORPORATION AND CAREINSITE, INC., DATED AS OF FEBRUARY 13, 2000
Amendment No. 1, dated as of June 18, 2000 (the "Amendment"), to the
Agreement and Plan of Merger, dated as of February 13, 2000 (the "Merger
Agreement"), among Healtheon/WebMD Corporation ("Parent"), Avicenna Systems
Corporation ("ASC") and CareInsite, Inc. (the "Company").
PRELIMINARY STATEMENTS
Parent, ASC and the Company are parties to the Merger Agreement.
Capitalized terms not otherwise defined herein have the same meanings as
specified in the Merger Agreement.
Parent, ASC and the Company desire to amend the Merger Agreement as
described herein.
In consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, Parent, ASC and the
Company hereby agree as follows:
1. Representations and Warranties of the Company and ASC. From and
after the date hereof, Section 3.15 of the Merger Agreement shall be
amended to read in full as follows:
"The Company has received the opinion of Banc of America Securities
LLC dated June 18, 2000 that, as of such date, the Exchange Ratio is
fair, from a financial point of view, to the holders of the Company
Common Stock."
2. Representations and Warranties of Parent. From and after the date
hereof, Section 4.15 of the Merger Agreement shall be amended to read in
full as follows:
"Parent has received the opinion of Morgan Stanley & Co.
Incorporated, dated June 18, 2000 that, as of such date, the Exchange
Ratios in the Merger and the Medical Manager Merger, taken together and
not separately, are fair to Healtheon/WebMD from a financial point of
view."
3. Covenants of the Company. From and after the date hereof, Section
5.01 of the Merger Agreement shall be amended as follows:
(a) The text of Sections 5.01(e), (j), (k), (l), (m) and (n) shall
be deleted in their entirety and replaced with, in each case, with
"[RESERVED]";
(b) Section 5.01(c)(ii) shall be amended to read in full as
follows:
"the issuance of Company Stock Options to purchase shares of Company
Common Stock and the shares of Company Common Stock issuable pursuant
to such Company Stock Options";
(c) Section 5.01(c) shall be amended to add the following at the
end of the existing clause (iii), and the existing clause (iv) shall be
renumbered as clause (v):
"(iv) the issuance by CareInsite of Series A Preferred Stock pursuant
to the Subscription Agreement dated as of September 15, 1999 between
CareInsite and America Online, Inc."
(d) Section 5.01(f)(ii) shall be amended to delete the word "and"
from the immediately preceding clause (C) and to add the following at
the end of the existing clause (C) to read in full as follows:
"and (D) loans or advances that in the aggregate do not exceed
$10,000,000"; and
(e) Section 5.01(p) shall be amended to delete the parenthetical
clause in the third line.
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4. Covenants of Parent. From and after the date hereof, Section 5.02
of the Merger Agreement shall be amended as follows:
(a) Section 5.02(c)(ii) shall be amended to read in full as
follows:
"the issuance of Parent Stock Options to purchase shares of Parent
Common Stock and the shares of Parent Common Stock issuable pursuant
to such Parent Stock Options";
(b) Section 5.02(e)(ii) shall be amended to delete the word "and"
immediately preceding clause (C) and to add the following at the end of
the existing clause (C) to read in full as follows:
"and (D) loans or advances that in the aggregate do not exceed
$10,000,000"; and
(c) Section 5.02(i) shall be amended to delete the parenthetical
clause beginning in the second line.
5. Further Action; Consents; Filings. From and after the date hereof,
Section 6.07 of the Merger Agreement shall be amended as follows:
(a) Section 6.07(a) shall be amended to add the following sentence
at the end of the existing clause (a):
"Each of Parent and the Company shall use best efforts to certify, by
no later than July 30, 2000, and shall certify no later than August
15, 2000, to the Department of Justice as required by Section 802.6(b)
of the implementing rules for the HSR Act that such party has
substantially complied with the request for additional information the
parties received on May 24, 2000 in connection with their pre-merger
notification filing under the HSR Act."
(b) The proviso of the second sentence of Section 6.07(c) of the
Merger Agreement shall be amended to read in full as follows:
"provided, however, that neither Parent and the Parent Subsidiaries,
on the one hand, nor the Company and the Company Subsidiaries, on the
other hand, shall be required to take any actions otherwise required
hereunder if the effect of such actions would have a material adverse
effect on the financial position, business, or results of operations
of the Parent, the Parent Subsidiaries, the Company, the Company
Subsidiaries, Medical Manager and each of the other Subsidiaries of
Medical Manager, all taken as a whole."
6. Change in Name of Counsel. From and after the date hereof, (a) the
reference to "Nelson Mullins Riley & Scarborough, L.L.P." in Section
7.02(c) shall be amended to be a reference to "Alston & Bird L.L.P."; and
(b) the reference to "Nelson Mullins Riley & Scarborough, L.L.P."
and its address in Section 9.02(a) shall be amended to read as follows:
"Alston & Bird L.L.P.
1211 East Morehead Street
Charlotte, NC 28204
Telephone No.: (704) 331-6002
Telecopier No.: (704) 334-2014
Attention: H. Bryan Ives III
C. Mark Kelly"
7. Termination. From and after the date hereof, Section 8.01(b) of
the Merger Agreement shall be amended to replace "September 30, 2000" with
"November 30, 2000".
8. Representations and Warranties of the Company. The Company and ASC
hereby jointly represent and warrant to Parent that:
(a) Each of the Company and ASC has all necessary corporate power
and authority to execute and deliver this Amendment and, subject to the
terms and conditions of this Amendment and the Merger Agreement and in
the case of the Company, the approval of the Merger Agreement by the
holders of a
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majority of then outstanding shares of Company Common Stock, to perform
its obligations hereunder and under the Merger Agreement and to
consummate the transactions contemplated by this Amendment and the
Merger Agreement; (b) the execution and delivery of this Amendment by
each of the Company and ASC and the consummation by each of the Company
and ASC of the transactions contemplated by this Amendment and the
Merger Agreement have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the
Company or ASC are necessary to authorize this Amendment or to
consummate the Merger and the other transactions contemplated by this
Amendment and the Merger Agreement (other than, with respect to the
Merger, the approval of the Company Proposal by the holders of a
majority of the then outstanding shares of Company Common Stock and the
filing and recordation of appropriate merger documents as required by
Delaware Law and Massachusetts Law and subject to the terms and
conditions of this Amendment); and (c) this Amendment has been duly and
validly executed and delivered by each of the Company and ASC and,
assuming the due authorization, execution and delivery by Parent,
constitutes a legal, valid and binding obligation of each of the Company
and ASC, enforceable against each of the Company and ASC in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to
creditors' rights and by general equitable principles (regardless of
whether enforceability is considered in a proceeding in equity or at
Law).
9. Representations and Warranties of Parent. Parent hereby represents
and warrants to the Company that:
(a) Parent has all necessary corporate power and authority to
execute and deliver this Amendment and, subject to the terms and
conditions of this Amendment and the Merger Agreement and obtaining the
necessary approvals of Parent's stockholders, to perform its obligations
hereunder and under the Merger Agreement and to consummate the Merger
and the other transactions contemplated by this Amendment and the Merger
Agreement; (b) the execution and delivery of this Amendment by Parent
and the consummation by Parent of the Merger and the other transactions
contemplated by this Amendment and the Merger Agreement have been duly
and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent are necessary to authorize
this Amendment or to consummate the Merger and the other transactions
contemplated by this Amendment and the Merger Agreement (other than,
with respect to the Merger, the approval of the Parent Proposal by a
majority of the shares of Parent Common Stock present and entitled to
vote at the Parent Stockholders' Meeting, and the filing and recordation
of appropriate merger documents as required by Delaware Law and subject
to the terms and conditions of this Amendment); and (c) this Amendment
has been duly and validly executed and delivered by Parent and, assuming
the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws now or
hereafter in effect relating to creditors' rights and by general
equitable principles (regardless of whether enforceability is considered
in a proceeding in equity or at Law).
10. Effect on Agreement. (a) From and after the date hereof, each
reference in the Merger Agreement or any other agreement in connection
therewith to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Merger Agreement, shall mean and be a reference to
the Merger Agreement as amended by this Amendment.
(b) The Merger Agreement as specifically amended hereby and subject
to the conditions herein, is and shall remain in full force and effect
and is in all respects ratified and confirmed.
(c) The Company hereby waives any rights it has or may have, as of
the date hereof, pursuant to Section 7.03(a) and (b) of the Merger
Agreement, as amended, based solely on the facts and circumstances of
which the Company has Knowledge, as of the date hereof, in respect of
the representations, warranties and covenants made and agreed to by
Parent. Parent hereby waives any rights it has or may have, as of the
date hereof, pursuant to Section 7.02(a) and (b) of the Merger
Agreement,
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as amended, based solely on the facts and circumstances of which Parent
has Knowledge, as of the date hereof, in respect of the representations,
warranties and covenants made and agreed to by the Company. Except as
specifically set forth in this Amendment, the execution and delivery of
this Amendment is not intended, and shall not operate, to affect in any
way any rights or remedies a party may have with respect to the
execution, delivery and performance of the Merger Agreement, including
the representations, warranties and covenants contained therein, all of
which rights or remedies are hereby expressly reserved.
11. Counterparts. This Amendment may be executed and delivered in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be deemed to
be an original, but all of which taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of a signature page
to this Amendment by facsimile shall be effective as delivery of a manually
executed counterpart of this Amendment.
12. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the Laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto to duly authorized, as of the
date first above written.
HEALTHEON/WEBMD CORPORATION
By: /s/ JACK DENNISON
----------------------------------------
Name: Jack Dennison
Title: Executive Vice President and
General Counsel
AVICENNA SYSTEMS CORPORATION
By: /s/ DAVID SCHLANGER
----------------------------------------
Name: David Schlanger
Title: Senior Vice President
CAREINSITE, INC.
By: /s/ DAVID C. AMBURGEY
----------------------------------------
Name: David C. Amburgey
Title: Senior Vice President and
General Counsel
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ANNEX C
MORGAN STANLEY & CO. INCORPORATED
June 18, 2000
Board of Directors
Healtheon/WebMD Corporation
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, GA 30326
Members of the Board:
We understand that Healtheon/WebMD Corporation ("Healtheon/WebMD") and Medical
Manager Corporation ("Medical Manager") propose to enter into an Amendment No.
1, dated as of June 18, 2000, to the Agreement and Plan of Merger, dated as of
February, 13, 2000, (as so amended, the "Medical Manager Merger Agreement"),
which provides, among other things, for the merger (the "Medical Manager
Merger") of Medical Manager with and into Healtheon/WebMD, whereby the separate
corporate existence of Medical Manager shall cease and Healtheon/WebMD shall
continue as the surviving corporation. Pursuant to the Medical Manager Merger,
each share of Medical Manager common stock (other than shares held in treasury
and shares held by Healtheon/WebMD) issued and outstanding immediately prior to
the Medical Manager Merger shall be converted into the right to receive 2.5
shares of Healtheon/WebMD common stock (the "Medical Manager Exchange Ratio").
The terms and conditions of the Medical Manager Merger are more fully set forth
in the Medical Manager Merger Agreement.
We also understand that in connection with the Medical Manager Merger,
Healtheon/WebMD, Avicenna Systems Corporation, a wholly-owned subsidiary of
Medical Manager ("ASC") and CareInsite, Inc., an indirect majority-owned
subsidiary of Medical Manager ("CareInsite"), have entered into an Agreement and
Plan of Merger, dated as of February 13, 2000 (the "CareInsite Merger
Agreement"), which provides, among other things, for the merger (the "CareInsite
Merger"; and, together with the Medical Manager Merger, and not separately, the
"Mergers") of CareInsite with and into ASC, whereby ASC shall be the surviving
corporation and shall continue to be a wholly-owned subsidiary of Medical
Manager. Upon consummation of both the Medical Manager Merger and the CareInsite
Merger, ASC shall become a wholly-owned subsidiary of Healtheon/WebMD and each
share of CareInsite common stock (other than shares held in treasury and shares
held by ASC) issued and outstanding immediately prior to the CareInsite Merger
shall be converted into the right to receive 1.3 shares of Healtheon/WebMD
common stock (the "CareInsite Exchange Ratio"; and, together with the Medical
Manager Exchange Ratio, and not separately, the "Exchange Ratios"). The terms
and conditions of the CareInsite Merger are more fully set forth in the
CareInsite Merger Agreement.
We also understand that the Medical Manager Merger is conditioned upon the
satisfaction of all conditions to the closing of the CareInsite Merger (except
for the condition that the closing of the CareInsite Merger shall have occurred)
contained in the CareInsite Merger Agreement and that the CareInsite Merger is
conditioned upon the consummation of the Medical Manager Merger and the
transactions contemplated by the Medical Manager Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratios in the
Mergers, taken together, and not separately, are fair from a financial point of
view to Healtheon/WebMD.
For purposes of the opinion set forth herein, we have
(i) reviewed certain publicly available financial statements and other
information of Medical Manager, CareInsite and Healtheon/WebMD;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Medical Manager, CareInsite and
Healtheon/WebMD prepared by the managements of Medical Manager,
CareInsite and Healtheon/WebMD, respectively;
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Healtheon/WebMD Corporation
June 18, 2000
Page 2
(iii) reviewed certain financial projections prepared by the managements
of Medical Manager, CareInsite and Healtheon/WebMD;
(iv) reviewed the past and current operations and financial condition and
the prospects of Medical Manager, CareInsite and Healtheon/WebMD,
including information relating to certain strategic, financial and
operational benefits (including revenue and expense synergies)
anticipated from the Mergers, with senior executives of Medical
Manager, CareInsite and Healtheon/WebMD, respectively;
(v) discussed the strategic benefits (including revenue and expense
synergies) expected to result from the Mergers with the managements
of Medical Manager, CareInsite and Healtheon/WebMD;
(vi) reviewed the pro forma impact of the Mergers on Healtheon/WebMD's
financial performance, including revenue per share and gross profit
per share;
(vii) reviewed the reported prices and trading activity for the common
stock of Medical Manager, CareInsite and Healtheon/WebMD;
(viii) compared the financial performance of Medical Manager, CareInsite
and Healtheon/WebMD with that of certain other publicly-traded
companies comparable to Medical Manager, CareInsite and
Healtheon/WebMD, respectively;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(x) discussed the strategic rationale of the Mergers, and the strategic
implications of the Mergers not occurring, with the management of
Healtheon/WebMD;
(xi) participated in discussions and negotiations among representatives of
Medical Manager, CareInsite and Healtheon/WebMD and their financial
and legal advisors;
(xii) reviewed the Medical Manager Merger Agreement, the CareInsite Merger
Agreement and certain related documents; and
(xiii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without any obligation for independent
verification, the accuracy and completeness of the information reviewed by us
for the purposes of this opinion. With respect to the financial projections,
including information relating to certain strategic, financial and operational
benefits (including revenue and expense synergies) anticipated from the Mergers,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of Medical Manager, CareInsite and Healtheon/WebMD, respectively. In
addition, we have assumed that each of the Mergers will be consummated in
accordance with the terms set forth in the Medical Manager Merger Agreement and
the CareInsite Merger Agreement, respectively, including that each of the
Medical Manager Merger and the CareInsite Merger will be treated as a tax-free
reorganization and/or exchange pursuant to the Internal Revenue Code of 1986. In
addition, we have assumed that in connection with the receipt of any necessary
regulatory approvals for the Mergers, no restrictions will be imposed that would
have a material adverse effect on Healtheon/WebMD, Medical Manager or
CareInsite, or the contemplated benefits expected to be derived in the Mergers.
We have relied upon, without any obligation for independent verification,
the assessment by the managements of Medical Manager, CareInsite and
Healtheon/WebMD of the strategic benefits (including revenue and expense
synergies) expected to result from the Mergers, and the strategic implications
of the Mergers not occurring. We have also relied upon, without any obligation
for independent verification, the assessment by the managements of Medical
Manager, CareInsite and Healtheon/WebMD of the technologies and products of
Medical Manager, CareInsite and Healtheon/WebMD, the assessment by the
management of Healtheon/WebMD of the strategic
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Healtheon/WebMD Corporation
June 18, 2000
Page 3
benefits of, and the ability to retain, key employees of Medical Manager and
CareInsite, the timing and risks associated with the integration of Medical
Manager, CareInsite and Healtheon/WebMD and the validity of, and risks
associated with, Medical Manager's, CareInsite's and Healtheon/WebMD's existing
and future products and technologies.
We have not made any independent valuation or appraisal of the assets or
liabilities of Medical Manager, CareInsite or Healtheon/WebMD, nor have we been
furnished with any such appraisals.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of
Healtheon/WebMD in connection with the Mergers and will receive fees for our
services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for Healtheon/WebMD and,
prior to its merger with Synetic, Inc., Medical Manager and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Healtheon/WebMD and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in any
filing made by Healtheon/WebMD with the Securities and Exchange Commission in
connection with the Mergers. This opinion does not in any manner address the
prices at which the common stock of Healtheon/WebMD will trade at any time prior
to or following the consummation of the Mergers, and does not constitute any
recommendation as to how shareholders of Healtheon/WebMD should vote at any
shareholders' meeting held in connection with the Mergers.
This opinion is limited to the fairness of the Exchange Ratios, taken
together, and not separately, from a financial point of view to Healtheon/WebMD.
This opinion shall supercede in its entirety the separate prior opinions dated
February 13, 2000, rendered with respect to each of the Medical Manager Merger
(on its original terms) and the CareInsite Merger, and such prior opinions are
hereby withdrawn and shall not be relied upon or used for any purpose.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratios in the Mergers, taken together, and not
separately, are fair from a financial point of view to Healtheon/WebMD.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ GEOFFREY D. BALDWIN
----------------------------------------
Geoffrey D. Baldwin
Principal
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ANNEX D
MERRILL LYNCH & CO.
June 18, 2000
The Board of Directors
Medical Manager Corporation
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407
Gentlemen:
Medical Manager Corporation ("Medical Manager") and Healtheon/WebMD
Corporation ("Healtheon") propose to enter into an amendment (the "Amendment")
to the agreement and plan of merger between Healtheon and Medical Manager dated
as of February 13, 2000 (the "Merger Agreement"). Pursuant to the Merger
Agreement as so amended, Medical Manager will be merged with and into Healtheon
in a transaction (the "Merger") in which each outstanding share of Medical
Manager's common stock, par value $0.01 per share (the "Medical Manager
Shares"), will be converted into the right to receive 2.50 shares (the "Revised
Exchange Ratio") of the common stock of Healtheon, par value $0.0001 per share
(the "Healtheon Shares"). We understand that consummation of the Merger is
subject to the satisfaction of the conditions to the consummation of the merger
of CareInsite, Inc., a 68.5% owned subsidiary of Medical Manager, with and into
a wholly owned subsidiary of Healtheon pursuant to the agreement and plan of
merger between Healtheon and CareInsite, Inc. dated as of February 13, 2000, as
amended contemporaneously with the execution of the Amendment.
You have asked us whether, in our opinion, the Revised Exchange Ratio is
fair from a financial point of view to the holders of Medical Manager Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to Medical Manager, and Healtheon that we deemed to be
relevant;
(2) Reviewed certain financial forecasts of Medical Manager relating to
the business, financial performance, and prospects of Medical Manager
furnished to us by Medical Manager;
(3) Reviewed certain financial forecasts of Healtheon relating to the
business, financial performance and prospects of Healtheon furnished
to us by Healtheon;
(4) Conducted discussions with certain members of management and
representatives of Medical Manager and Healtheon concerning their
respective businesses, prospects and strategic relationships before
and after giving effect to the Merger;
(5) Reviewed the market prices and valuation multiples for the Medical
Manager Shares and the Healtheon Shares and compared them with those
of certain publicly traded companies that we deemed to be relevant;
(6) Reviewed the results of operations of Medical Manager and Healtheon
and compared them with those of certain publicly traded companies that
we deemed to be relevant;
(7) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(8) Participated in certain discussions among representatives of Medical
Manager and Healtheon and their financial and legal advisors;
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(9) Reviewed the Merger Agreement and a draft dated June 18, 2000 of the
Amendment; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of Medical Manager or Healtheon or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct, nor have we conducted, any physical inspection of the properties or
facilities of Medical Manager or Healtheon. With respect to the financial
forecast information furnished to or discussed with us by Medical Manager or
Healtheon, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and good faith judgments of Medical
Manager's or Healtheon's respective managements as to the expected future
financial performance of Medical Manager or Healtheon respectively. We have
further assumed that the Merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes. We have also assumed that the final form of
the Amendment will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on Medical Manager, Healtheon or the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by Medical Manager or its Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of Medical Manager.
We are acting as financial advisor to Medical Manager in connection with
the Merger and will receive a fee from Medical Manager for our services. In
addition, Medical Manager has agreed to indemnify us for certain liabilities
arising out of our engagement. We have, in the past, provided financial advisory
and financing services to Medical Manager and/or its affiliates and may continue
to do so and have received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of our business, we may actively
trade the Medical Manager Shares and other securities of Medical Manager, as
well as the Healtheon Shares and other securities of Healtheon, for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
Medical Manager. Our opinion does not address the merits of the underlying
decision by Medical Manager to engage in the Merger and does not constitute a
recommendation to any shareholder of Medical Manager as to how such shareholder
should vote on the proposed Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Healtheon Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Revised Exchange Ratio is fair from a financial point
of view to the holders of the Medical Manager Shares.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
------------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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ANNEX E
UBS WARBURG LLC
June 18, 2000
The Board of Directors
Medical Manager Corporation
669 River Drive
Elmwood Park, New Jersey 07407
Dear Members of the Board:
We understand that Medical Manager Corporation ("Medical Manager") and
Healtheon/WebMD Corporation ("Healtheon/WebMD") propose to enter into an
Amendment No. 1, dated as of June 18, 2000 (the "Amendment"), to the Agreement
and Plan of Merger, dated as of February 13, 2000, by and between Medical
Manager and Healtheon/WebMD (the "Original Agreement" and, as amended by the
Amendment, the "Agreement") pursuant to which Medical Manager will merge with
and into Healtheon/WebMD (the "Merger") and each outstanding share of the common
stock, par value $0.01 per share, of Medical Manager ("Medical Manager Common
Stock") will be converted into the right to receive 2.5 (the "Exchange Ratio")
shares of the common stock, par value $0.0001 per share, of Healtheon/WebMD
(Healtheon/WebMD Common Stock"). The terms and conditions of the Merger are more
fully set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of Medical Manager Common Stock.
UBS Warburg LLC ("UBSW") has acted as financial advisor to Medical Manager
in connection with the Merger and will receive a fee for its services, a
significant portion of which is contingent upon the consummation of the Merger
and a portion of which is payable upon delivery of this opinion. UBSW in the
past has provided investment banking services to Medical Manager and its
affiliates and to Healtheon/WebMD unrelated to the proposed Merger and has
received customary compensation for the rendering of such services. In the
ordinary course of business, UBSW, its successors and affiliates may trade
securities of Medical Manager and its affiliates and Healtheon/WebMD for their
own accounts and accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
Our opinion does not address Medical Manager's underlying business decision
to effect the Merger or constitute a recommendation to any stockholder of
Medical Manager as to how such stockholder should vote with respect to any
matter relating to the Merger. At your direction, we have not been asked to, nor
do we, offer any opinion as to the material terms (other than with respect to
the Exchange Ratio to the extent expressly specified herein) of the Agreement
and the obligations thereunder, or the form of the Merger. We express no opinion
as to what the value of Healtheon/WebMD Common Stock will be when issued
pursuant to the Merger or the prices at which Healtheon/WebMD Common Stock will
trade or otherwise be transferable subsequent to the announcement or
consummation of the Merger. In rendering this opinion, we have assumed, at your
direction, that each of Medical Manager and Healtheon/WebMD will comply with all
material covenants and agreements set forth in, and other material terms of, the
Agreement and that the Merger will be validly consummated in accordance with its
terms. Representatives of Medical Manager have advised us that, concurrent with
the execution of the Amendment, Healtheon/WebMD, Avicenna Systems Corporation, a
wholly owned subsidiary of Medical Manager ("ASC"), and CareInsite, Inc., an
indirect majority owned subsidiary of Medical Manager ("CareInsite"), have
entered into an amendment, dated as of June 18, 2000, to the Agreement and Plan
of Merger, dated as of February 13, 2000, among Healtheon/WebMD, ASC and
CareInsite (as amended, the "CareInsite Merger Agreement," and the transactions
contemplated thereby, the "CareInsite Transaction"). At your direction, we have
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The Board of Directors
Medical Manager Corporation
June 18, 2000
Page 2
assumed, to the extent material to our analysis with respect to the Merger, that
the CareInsite Transaction will be validly consummated in accordance with the
terms discussed with us by representatives of Medical Manager.
In arriving at our opinion, we have, among other things: (i) reviewed
current and historical market prices and trading volumes of Medical Manager
Common Stock and Healtheon/WebMD Common Stock; (ii) reviewed certain publicly
available business and historical financial information relating to Medical
Manager and Healtheon/WebMD; (iii) reviewed certain internal financial
information and other data relating to the businesses and financial prospects of
Medical Manager and Healtheon/WebMD (both before and after giving effect to the
CareInsite Transaction and certain other acquisitions of Healtheon/WebMD),
including estimates and financial forecasts prepared by the managements of
Medical Manager and Healtheon/WebMD, that were provided to or discussed with us
by Medical Manager and Healtheon/WebMD and are not publicly available; (iv)
conducted discussions with members of the senior managements of Medical Manager
and Healtheon/WebMD; (v) reviewed publicly available financial and stock market
data with respect to certain companies in lines of business we believe to be
generally comparable to those of Medical Manager and Healtheon/WebMD; (vi)
compared the financial terms of the Merger with the publicly available financial
terms of certain other transactions which we believe to be generally relevant;
(vii) reviewed the Agreement; and (viii) conducted such other financial studies,
analyses, and investigations, and considered such other information as we deemed
necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification of any of the information provided
to or reviewed by us for the purpose of this opinion and have, with your
consent, relied on its being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of
Medical Manager or Healtheon/WebMD, nor have we been furnished with any such
evaluation or appraisal. With respect to the financial forecasts and estimates
referred to above, we have assumed, at your direction regarding the financial
forecasts and estimates relating to Medical Manager and at the direction of
Healtheon/WebMD regarding the financial forecasts and estimates relating to
Healtheon/WebMD, that they have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the managements of
Medical Manager and Healtheon/WebMD as to the future performance of their
respective companies. We also have assumed, with your consent, that the Merger
will qualify as a tax-free reorganization and will be accounted for as a
purchase for financial accounting purposes. In connection with our engagement,
we were not requested to, and we did not, solicit third party indications of
interest in the acquisition of all or a part of Medical Manager, and we were not
requested to, nor did we, express any opinion as to the exchange ratio provided
for in the Original Agreement. We also were not requested to, nor do we, express
any opinion as to the CareInsite Transaction or any other transactions related
to the Merger or the effect of any other transaction in which Medical Manager
might engage. Our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of Medical Manager Common Stock.
Very truly yours,
/s/ UBS WARBURG LLC
UBS WARBURG LLC
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ANNEX F
BANC OF AMERICA SECURITIES LLC
June 18, 2000
Special Committee of the Board of Directors
CareInsite, Inc.
669 River Drive, Center Two
Elmwood Park, New Jersey 07407
Members of the Special Committee of the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of CareInsite, Inc. (the "Company"), other than Medical
Manager Corporation ("Medical Manager") or its subsidiaries, of the Exchange
Ratio (as defined below) provided for in connection with the proposed merger
(the "Merger") of the Company with and into Avicenna Systems Corporation
("Avicenna"), which is currently a wholly-owned subsidiary of Medical Manager.
Immediately prior to the Merger, Medical Manager will merge with and into
Healtheon/WebMD Corporation (the "Purchaser"), so that at the time of the
Merger, Avicenna will be a wholly-owned subsidiary of the Purchaser. Pursuant to
the terms of the Agreement and Plan of Merger, dated as of February 13, 2000
(the "Original Agreement"), as amended by the Amendment thereto dated as of June
18, 2000 (the "Amendment", and the Original Agreement as so amended, the
"Agreement"), between the Company, Purchaser and Avicenna, the Company will
merge with and into Avicenna, with Avicenna being the surviving corporation, and
stockholders of the Company will receive for each share of Common Stock, par
value $.01 per share, of the Company (the "Company Common Stock"), held by them,
other than shares held in treasury or held by the Purchaser or any wholly-owned
subsidiary of the Purchaser, consideration equal to 1.30 shares (the "Exchange
Ratio") of Common Stock of the Purchaser (the "Purchaser Common Stock"). The
terms and conditions of the Merger are more fully set out in the Agreement.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and the Purchaser,
respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data of the Company and of the Purchaser;
(iii) analyzed certain financial forecast prepared by the managements
of the Company and of the Purchaser;
(iv) discussed the past and current operations, financial condition
and prospects of the Company with senior executives of the Company and
discussed the past and current operations, financial condition and
prospects of the Purchaser with senior executives of the Purchaser;
(v) reviewed and discussed with senior executives of the Company and
the Purchaser information relating to certain strategic, financial and
operational benefits anticipated from the Merger;
(vi) reviewed the pro forma impact of the Merger on the Purchaser's
revenue, cash flow, consolidated capitalization and financial ratios;
(vii) reviewed and considered in the analysis, information prepared by
members of senior management of the Company and the Purchaser relating to
the relative contributions of the Company and the Purchaser to the combined
company;
(viii) reviewed the reported prices and trading activity for the
Company Common Stock and the Purchaser Common Stock;
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(ix) compared the financial performance of the Company and the
Purchaser and the prices and trading activity of the Company Common Stock
and the Purchaser Common Stock with that of certain other publicly traded
companies we deemed relevant;
(x) compared certain financial terms to financial terms, to the extent
publicly available, of certain other business combination transactions we
deemed relevant;
(xi) participated in discussions and negotiations among
representatives of the Company and the Purchaser and their financial and
legal advisors;
(xii) reviewed the Original Agreement, the June 18, 2000 draft of the
Amendment and certain related documents; and
(xiii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by us
for the purposes of this opinion. With respect to the financial forecasts
prepared by the managements of the Company and the Purchaser, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the future financial performance
of the Company and of the Purchaser. We have not made an independent valuation
or appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals.
We were not requested to and did not solicit any expressions of interest
from any other parties with respect to the sale of all or any part of the
Company or any other alternative transaction. We have assumed that the
definitive form of the Amendment will be substantially similar to the last draft
reviewed by us.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with this transaction and will receive a
fee for our services, one-half of which is payable upon rendering an opinion and
one-half of which is contingent upon consummation of the Merger or a comparable
transaction. In the ordinary course of our businesses, we and our affiliates may
actively trade the debt and equity securities of the Company and the Purchaser
for our own account or for the accounts of customers and, accordingly, we or our
affiliates may at any time hold long or short positions in such securities.
It is understood that this letter is for the benefit and use of the Special
Committee of the Board of Directors of the Company in connection with and for
purposes of its evaluation of the Merger. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. It should be understood that we do not
have any obligation to update, revise, or reaffirm this opinion. This opinion
does not in any manner address the prices at which the Purchaser Common Stock
will trade following consummation of the Merger. In addition, Banc of America
Securities LLC expresses no opinion or recommendation as to how the stockholders
of the Company and the Purchaser should vote at the stockholders' meetings held
in connection with the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, we are of the opinion on the date hereof that
the Exchange Ratio in the proposed Merger is fair from a financial point of view
to the Company's stockholders, other than Medical Manager or its subsidiaries.
Very truly yours,
BANC OF AMERICA SECURITIES LLC
By: /s/ GREGORY SORENSEN
----------------------------------------
Gregory Sorensen
Managing Director
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ANNEX G
HEALTHEON/WEBMD CORPORATION
2000 LONG-TERM INCENTIVE PLAN
ARTICLE 1
PURPOSE
1.1 General. The purpose of the Healtheon/WebMD Corporation 2000 Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
Healtheon/WebMD Corporation (the "Corporation"), by linking the personal
interests of its employees, officers, directors and consultants to those of
Corporation shareholders and by providing such persons with an incentive for
outstanding performance. The Plan is further intended to provide flexibility to
the Corporation in its ability to motivate, attract, and retain the services of
employees, officers, directors and consultants upon whose judgment, interest,
and special effort the successful conduct of the Corporation's operation is
largely dependent. Accordingly, the Plan permits the grant of incentive awards
from time to time to selected employees and officers, directors and consultants.
ARTICLE 2
EFFECTIVE DATE
2.1 Effective Date. The Plan shall be effective as of the date upon which
it shall be approved by the Board (the "Effective Date"). However, the Plan
shall be submitted to the shareholders of the Corporation for approval within 12
months of the Board's approval thereof. No Incentive Stock Options granted under
the Plan may be exercised prior to approval of the Plan by the shareholders and
if the shareholders fail to approve the Plan within 12 months of the Board's
approval thereof, any Incentive Stock Options previously granted hereunder shall
be automatically converted to Non-Qualified Stock Options without any further
act. In the discretion of the Committee, Awards may be made to Covered Employees
which are intended to constitute qualified performance-based compensation under
Code Section 162(m).
ARTICLE 3
DEFINITIONS
3.1 Definitions. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, Dividend Equivalent Award, or Other
Stock-Based Award, or any other right or interest relating to Stock or
cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Cause" as a reason for a Participant's termination of employment
shall have the meaning assigned such term in the employment agreement, if
any, between such Participant and the Corporation or an affiliated company,
provided, however that if there is no such employment agreement in which
such term is defined, "Cause" shall mean any of the following acts by the
Participant, as determined by the Board: gross neglect of duty, prolonged
absence from duty without the consent of the Corporation, intentionally
engaging in any activity that is in conflict with or adverse to the
business or other interests of the Corporation, or willful misconduct,
misfeasance or malfeasance of duty which is reasonably determined to be
detrimental to the Corporation.
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(e) "Change of Control" means and includes the occurrence of any one
of the following events:
(i) individuals who, at the Effective Date, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a director
after the Effective Date and whose election or nomination for election
was approved by a vote of at least a majority of the Incumbent Directors
then on the Board (either by a specific vote or by approval of the proxy
statement of the Corporation in which such person is named as a nominee
for director, without written objection to such nomination) shall be an
Incumbent Director; provided, however, that no individual initially
elected or nominated as a director of the Corporation as a result of an
actual or threatened election contest (as described in Rule 14a-11 under
the 1934 Act ("Election Contest") or other actual or threatened
solicitation of proxies or consents by or on behalf of any "person" (as
such term is defined in Section 3(a)(9) of the 1934 Act and as used in
Section 13(d)(3) and 14(d)(2) of the 1934 Act) other than the Board
("Proxy Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest, shall be deemed
an Incumbent Director;
(ii) any person becomes a "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of the
Corporation's then outstanding securities eligible to vote for the
election of the Board (the "Company Voting Securities"); provided,
however, that the event described in this paragraph (ii) shall not be
deemed to be a Change in Control of the Corporation by virtue of any of
the following acquisitions: (A) any acquisition by a person who is on
the Effective Date the beneficial owner of 25% or more of the
outstanding Company Voting Securities, (B) an acquisition by the
Corporation which reduces the number of Company Voting Securities
outstanding and thereby results in any person acquiring beneficial
ownership of more than 25% of the outstanding Company Voting Securities;
provided, that if after such acquisition by the Corporation such person
becomes the beneficial owner of additional Company Voting Securities
that increases the percentage of outstanding Company Voting Securities
beneficially owned by such person, a Change in Control of the
Corporation shall then occur, (C) an acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Corporation or
any Parent or Subsidiary, (D) an acquisition by an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (E) an acquisition pursuant to a Non-Qualifying
Transaction (as defined in paragraph (iii)); or
(iii) the consummation of a reorganization, merger, consolidation,
statutory share exchange or similar form of corporate transaction
involving the Corporation that requires the approval of the
Corporation's stockholders, whether for such transaction or the issuance
of securities in the transaction (a "Reorganization"), or the sale or
other disposition of all or substantially all of the Corporation's
assets to an entity that is not an affiliate of the Corporation (a
"Sale"), unless immediately following such Reorganization or Sale: (A)
more than 50% of the total voting power of (x) the corporation resulting
from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Corporation (in either case, the
"Surviving Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of 100%
of the voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by the
Corporation Voting Securities that were outstanding immediately prior to
such Reorganization or Sale (or, if applicable, is represented by shares
into which such Company Voting Securities were converted pursuant to
such Reorganization or Sale), and such voting power among the holders
thereof is in substantially the same proportion as the voting power of
such Company Voting Securities among the holders thereof immediately
prior to the Reorganization or Sale, (B) no person (other than (x) the
Corporation, (y) any employee benefit plan (or related trust) sponsored
or maintained by the Surviving Corporation or the Parent Corporation, or
(z) a person who immediately prior to the Reorganization or Sale was the
beneficial owner of 25% or more of the outstanding Company Voting
Securities) is the beneficial owner, directly or indirectly, of 25% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation), and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the
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consummation of the Reorganization or Sale were Incumbent Directors at
the time of the Board's approval of the execution of the initial
agreement providing for such Reorganization or Sale (any Reorganization
or Sale which satisfies all of the criteria specified in (A), (B) and
(C) above shall be deemed to be a "Non-Qualifying Transaction").
Notwithstanding anything herein to the contrary, neither the
consummation of the merger contemplated by that certain Agreement and Plan
of Merger dated as of February 13, 2000 between the Corporation and Medical
Manager Corporation, as amended, nor the consummation of the merger
contemplated by that certain Agreement and Plan of Merger dated as of
February 13, 2000 among the Corporation, Avicenna Systems Corporation and
CareInsite, Inc., as amended, shall be deemed to be a "Change of Control"
for purposes of this Section 3.1(e).
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the committee of the Board described in Article
4.
(h) "Corporation" means Healtheon/WebMD Corporation, a Delaware
corporation.
(i) "Covered Employee" means a covered employee as defined in Code
Section 162(m)(3), provided that no employee shall be a Covered Employee
until the deduction limitations of Code Section 162(m) are applicable to
the Corporation and any reliance period under Code Section 162(m) has
expired, as described in Section 17.15 hereof.
(j) "Disability" shall mean any illness or other physical or mental
condition of a Participant that renders the Participant incapable of
performing his customary and usual duties for the Corporation, or any
medically determinable illness or other physical or mental condition
resulting from a bodily injury, disease or mental disorder which, in either
case, has lasted or can reasonably be expected to last for at least 180
days out of a period of 365 days. The Committee may require such medical or
other evidence as it deems necessary to judge the nature and permanency of
the Participant's condition. Notwithstanding the above, with respect to an
Incentive Stock Option, Disability shall mean Permanent and Total
Disability as defined in Section 22(e)(3) of the Code.
(k) "Dividend Equivalent" means a right granted to a Participant under
Article 11.
(l) "Effective Date" has the meaning assigned such term in Section
2.1.
(m) "Fair Market Value", on any date, means (i) if the Stock is listed
on a securities exchange or is traded over the Nasdaq National Market, the
closing sales price on such exchange or over such system on such date or,
in the absence of reported sales on such date, the closing sales price on
the immediately preceding date on which sales were reported, or (ii) if the
Stock is not listed on a securities exchange or traded over the Nasdaq
National Market, the mean between the bid and offered prices as quoted by
Nasdaq for such date, provided that if it is determined that the fair
market value is not properly reflected by such Nasdaq quotations, Fair
Market Value will be determined by such other method as the Committee
determines in good faith to be reasonable.
(n) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.
(o) "Non-Employee Director" means a member of the Board who is not an
employee of the Corporation or any Parent or Subsidiary.
(p) "Non-Qualified Stock Option" means an Option that is not an
Incentive Stock Option.
(q) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a Non-
Qualified Stock Option.
(r) "Other Stock-Based Award" means a right, granted to a Participant
under Article 12, that relates to or is valued by reference to Stock or
other Awards relating to Stock.
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(s) "Parent" means a corporation which owns or beneficially owns a
majority of the outstanding voting stock or voting power of the
Corporation.
Notwithstanding the above, with respect to an Incentive Stock Option,
Parent shall have the meaning set forth in Section 424(e) of the Code.
(t) "Participant" means a person who, as an employee, officer,
consultant or director of the Corporation or any Parent or Subsidiary, has
been granted an Award under the Plan.
(u) "Performance Share" means a right granted to a Participant under
Article 9, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(v) "Plan" means the Healtheon/WebMD Corporation 2000 Long-Term
Incentive Plan, as amended from time to time; provided, however, that if
the name of the Corporation is changed to WebMD Corporation, the name of
the Plan shall automatically be changed to the WebMD Corporation 2000
Long-Term Incentive Plan effective upon the change of the name of the
Corporation.
(w) "Restricted Stock Award" means Stock granted to a Participant
under Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(x) "Retirement" means a Participant's termination of employment with
the Corporation, Parent or Subsidiary after attaining any normal or early
retirement age specified in any pension, profit sharing or other retirement
program sponsored by the Corporation, or, in the event of the
inapplicability thereof with respect to the person in question, as
determined by the Committee in its reasonable judgment.
(y) "Stock" means the $.0001 par value common stock of the Corporation
and such other securities of the Corporation as may be substituted for
Stock pursuant to Article 15.
(z) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(aa) "Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting
stock or voting power is beneficially owned directly or indirectly by the
Corporation. Notwithstanding the above, with respect to an Incentive Stock
Option, Subsidiary shall have the meaning set forth in Section 424(f) of
the Code.
(bb) "1933 Act" means the Securities Act of 1933, as amended from time
to time.
(cc) "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time.
ARTICLE 4
ADMINISTRATION
4.1. Committee. The Plan shall be administered by a committee (the
"Committee") appointed by the Board (which Committee shall consist of two or
more directors) or, at the discretion of the Board from time to time, the Plan
may be administered by the Board. It is intended that the directors appointed to
serve on the Committee shall be "non-employee directors" (within the meaning of
Rule 16b-3 promulgated under the 1934 Act) and "outside directors" (within the
meaning of Code Section 162(m) and the regulations thereunder) to the extent
that Rule 16b-3 and, if necessary for relief from the limitation under Code
Section 162(m) and such relief is sought by the Corporation, Code Section
162(m), respectively, are applicable. However, the mere fact that a Committee
member shall fail to qualify under either of the foregoing requirements shall
not invalidate any Award made by the Committee which Award is otherwise validly
made under the Plan. The members of the Committee shall be appointed by, and may
be changed at any time and from time to time in the discretion of, the Board.
During any time that the Board is acting as administrator of the Plan, it shall
have all the powers of the Committee hereunder, and any reference herein to the
Committee (other than in this Section 4.1) shall include the Board.
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4.2. Action by the Committee. For purposes of administering the Plan, the
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation or
any Parent or Subsidiary, the Corporation's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3. Authority of Committee. Except as provided below, the Committee has
the exclusive power, authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its
sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection
with an Award;
(i) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
Notwithstanding the above, the Board or the Committee may expressly
delegate to a special committee consisting of one or more directors who are also
officers of the Corporation some or all of the Committee's authority under
subsections (a) through (g) above with respect to those eligible Participants
who, at the time of grant are not, and are not anticipated to be become, either
(i) Covered Employees or (ii) persons subject to Section 16 of the 1934 Act.
4.4. Decisions Binding. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. Number of Shares. Subject to adjustment as provided in Section 15.1,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be
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5,000,000 shares (the "Base Number"). Notwithstanding the foregoing, if the
proposed acquisitions by the Company of Medical Manager Corporation and
CareInsite, Inc. are completed on or before December 31, 2000, then the Base
Number shall be 10,000,000. Not more than 10% of the total authorized shares may
be granted as Awards of Restricted Stock or unrestricted Stock Awards, and not
more than the Base Number of shares of Stock shall be granted in the form of
Incentive Stock Options.
5.2. Lapsed Awards. To the extent that an Award is canceled, terminates,
expires, is forfeited or lapses for any reason, any shares of Stock subject to
the Award will again be available for the grant of an Award under the Plan and
shares subject to SARs or other Awards settled in cash will be available for the
grant of an Award under the Plan.
5.3. Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. Limitation on Awards. Notwithstanding any provision in the Plan to
the contrary (but subject to adjustment as provided in Section 15.1), the
maximum number of shares of Stock with respect to one or more Options and/or
SARs that may be granted during any one calendar year under the Plan to any one
Participant shall be 2,000,000; provided, however, that in connection with his
or her initial employment with the Company, a Participant may be granted Options
or SARs with respect to up to an additional 2,000,000 shares of Stock, which
shall not count against the foregoing annual limit. The maximum fair market
value (measured as of the date of grant) of any Awards other than Options and
SARs that may be received by any one Participant (less any consideration paid by
the Participant for such Award) during any one calendar year under the Plan
shall be $5,000,000.
ARTICLE 6
ELIGIBILITY
6.1. General. Awards may be granted only to individuals who are employees,
officers, directors or consultants of the Corporation or a Parent or Subsidiary.
ARTICLE 7
STOCK OPTIONS
7.1. General. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an
Option shall be determined by the Committee.
(b) Time and Conditions of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part,
subject to Section 7.1(e). The Committee also shall determine the
performance or other conditions, if any, that must be satisfied before all
or part of an Option may be exercised. The Committee may waive any exercise
provisions at any time in whole or in part based upon factors as the
Committee may determine in its sole discretion so that the Option becomes
exercisable at an earlier date.
(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants; provided,
however, that if shares of Stock are used to pay the exercise price of an
Option, such shares must have been held by the Participant for at least six
months.
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(d) Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Corporation and the Participant. The Award
Agreement shall include such provisions, not inconsistent with the Plan, as
may be specified by the Committee.
(e) Exercise Term. In no event may any Option be exercisable for more
than ten years from the date of its grant.
7.2. Incentive Stock Options. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be
set by the Committee, provided that the exercise price for any Incentive
Stock Option shall not be less than the Fair Market Value as of the date of
the grant.
(b) Lapse of Option. An Incentive Stock Option shall lapse under the
earliest of the following circumstances; provided, however, that the
Committee may, prior to the lapse of the Incentive Stock Option under the
circumstances described in paragraphs (3), (4) and (5) below, provide in
writing that the Option will extend until a later date, but if an Option is
exercised after the dates specified in paragraphs (3), (4) and (5) below,
it will automatically become a Non-Qualified Stock Option:
(1) The Incentive Stock Option shall lapse as of the option
expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years after it is
granted, unless an earlier time is set in the Award Agreement.
(3) If the Participant terminates employment for any reason other
than as provided in paragraph (4) or (5) below, the Incentive Stock
Option shall lapse, unless it is previously exercised, three months
after the Participant's termination of employment; provided, however,
that if the Participant's employment is terminated by the Corporation
for Cause, the Incentive Stock Option shall (to the extent not
previously exercised) lapse immediately.
(4) If the Participant terminates employment by reason of his
Disability, the Incentive Stock Option shall lapse, unless it is
previously exercised, one year after the Participant's termination of
employment.
(5) If the Participant dies while employed, or during the
three-month period described in paragraph (3) or during the one-year
period described in paragraph (4) and before the Option otherwise
lapses, the Option shall lapse one year after the Participant's death.
Upon the Participant's death, any exercisable Incentive Stock Options
may be exercised by the Participant's beneficiary, determined in
accordance with Section 14.5.
Unless the exercisability of the Incentive Stock Option is accelerated
as provided in Article 14, if a Participant exercises an Option after
termination of employment, the Option may be exercised only with respect to
the shares that were otherwise vested on the Participant's termination of
employment.
(c) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00.
(d) Ten Percent Owners. No Incentive Stock Option shall be granted to
any individual who, at the date of grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Corporation or any Parent or Subsidiary unless the exercise price per
share of such Option is at least 110% of the Fair Market Value per share of
Stock at the date of grant and the Option expires no later than five years
after the date of grant.
(e) Expiration of Incentive Stock Options. No Award of an Incentive
Stock Option may be made pursuant to the Plan after the day immediately
prior to the tenth anniversary of the Effective Date.
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(f) Right to Exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant or, in the case of
the Participant's Disability, by the Participant's guardian or legal
representative.
(g) Directors. The Committee may not grant an Incentive Stock Option
to a non-employee director. The Committee may grant an Incentive Stock
Option to a director who is also an employee of the Corporation or Parent
or Subsidiary but only in that individual's position as an employee and not
as a director.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. Grant of Stock Appreciation Rights. The Committee is authorized to
grant Stock Appreciation Rights to Participants on the following terms and
conditions:
(a) Right to Payment. Upon the exercise of a Stock Appreciation
Right, the Participant to whom it is granted has the right to receive the
excess, if any, of:
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined
by the Committee, which shall not be less than the Fair Market Value of
one share of Stock on the date of grant in the case of any Stock
Appreciation Right related to an Incentive Stock Option.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE 9
PERFORMANCE SHARES
9.1. Grant of Performance Shares. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant, subject
to Section 5.4. All Awards of Performance Shares shall be evidenced by an Award
Agreement.
9.2. Right to Payment. A grant of Performance Shares gives the Participant
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Shares are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. The Committee
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant.
9.3. Other Terms. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. Grant of Restricted Stock. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. Issuance and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
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Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3. Forfeiture. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Corporation; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. Certificates for Restricted Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 11
DIVIDEND EQUIVALENTS
11.1. Grant of Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as may
be selected by the Committee. Dividend Equivalents shall entitle the Participant
to receive payments equal to dividends with respect to all or a portion of the
number of shares of Stock subject to an Award, as determined by the Committee.
The Committee may provide that Dividend Equivalents be paid or distributed when
accrued or be deemed to have been reinvested in additional shares of Stock, or
otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. Grant of Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including without limitation shares
of Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Parents or Subsidiaries. The Committee shall determine
the terms and conditions of such Awards.
ARTICLE 13
ANNUAL AWARD OF OPTIONS TO NON-EMPLOYEE DIRECTORS
13.1 Grant of Options. Each Non-Employee Director who is serving in such
capacity as of January 1 of each year that the Plan is in effect shall be
granted a Non-Qualified Option to purchase 20,000 shares of Stock, subject to
adjustment as provided in Section 15.1. Each such day that Options are to be
granted under this Article 13 is referred to hereinafter as a "Grant Date."
If on any Grant Date, shares of Stock are not available under the Plan to
grant to Non-Employee Directors the full amount of a grant contemplated by the
immediately preceding paragraph, then each Non-Employee Director shall receive
an Option (a "Reduced Grant") to purchase shares of Stock in an amount equal to
the number of shares of Stock then available under the Plan divided by the
number of Non-Employee Directors as of the applicable Grant Date. Fractional
shares shall be ignored and not granted.
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If a Reduced Grant has been made and, thereafter, during the term of the
Plan, additional shares of Stock become available for grant, then each person
who was a Non-Employee Director both on the Grant Date on which the Reduced
Grant was made and on the date additional shares of Stock become available (a
"Continuing Non-Employee Director") shall receive an additional Option to
purchase shares of Stock. The number of newly available shares shall be divided
equally among the Options granted to the Continuing Non-Employee Directors;
provided, however, that the aggregate number of shares of Stock subject to a
Continuing Non-Employee Director's additional Option plus any prior Reduced
Grant to the Continuing Non-Employee Director on the applicable Grant Date shall
not exceed 20,000 shares (subject to adjustment pursuant to Section 15.1). If
more than one Reduced Grant has been made, available Options shall be granted
beginning with the earliest such Grant Date.
13.2. Option Price. The option price for each Option granted under this
Article 13 shall be the Fair Market Value on the date of grant of the Option.
13.3. Term. Each Option granted under this Article 13 shall, to the extent
not previously exercised, terminate and expire on the date ten (10) years after
the date of grant of the option, unless earlier terminated as provided in
Section 13.4.
13.4. Lapse of Option. An Option granted under this Article 13 shall not
automatically lapse by reason of the Participant ceasing to qualify as a
Non-Employee Director but remaining as a member of the Board. An Option granted
under this Article 13 shall lapse under the earliest of the following
circumstances:
(1) The Option shall lapse ten years after it is granted.
(2) If the Participant ceases to serve as a member of the Board for
any reason other than as provided in paragraph (3) or (4) below, the Option
shall lapse, unless it is previously exercised, three months after the
Participant's termination as a member of the Board; provided, however, that
if the Participant is removed for cause (determined in accordance with the
Corporation's bylaws, as amended from time to time), the Option shall (to
the extent not previously exercised) lapse immediately.
(3) If the Participant ceases to serve as a member of the Board by
reason of his Disability, the Option shall lapse, unless it is previously
exercised, one year after the Participant's termination as a member of the
Board.
(4) If the Participant dies while serving as a member of the Board, or
during the three-month period described in paragraph (2) or during the
one-year period described in paragraph (3) and before the Option otherwise
lapses, the Option shall lapse one year after the Participant's death. Upon
the Participant's death, any exercisable Options may be exercised by the
Participant's beneficiary, determined in accordance with Section 14.5.
If a Participant exercises Options after termination of his service on the
Board, he may exercise the Options only with respect to the shares that were
otherwise exercisable on the date of termination of his service on the Board.
Such exercise otherwise shall be subject to the terms and conditions of this
Article 14.
13.5. Exercisability. Each Option granted under this Article 13 shall be
exercisable as to one fourth (1/4) of the Option shares on the first anniversary
of the Grant Date and, thereafter, as to one forty-eighth (1/48) of the Option
shares on each monthly anniversary of the Grant Date, such that the Options will
be fully exercisable after four years from the Grant Date.
13.6. Exercise and Payment. An Option granted under this Article 13 shall
be exercised by written notice directed to the Secretary of the Company (or his
designee) and accompanied by payment in full of the exercise price in cash, by
check, in shares of Stock, or in any combination thereof; provided that if
shares of Stock surrendered in payment of the exercise price were themselves
acquired otherwise than on the open market, such shares shall have been held by
the Participant for at least six months. To the extent permitted under
Regulation T of the Federal Reserve Board, and subject to applicable securities
laws, such Options may be exercised through a broker in a so-called "cashless
exercise" whereby the broker sells the Option shares and delivers cash sales
proceeds to the Corporation in payment of the exercise price.
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13.7. Transferability of Options. Any Option granted pursuant to this
Article 13 shall be assignable or transferable by the Participant by will, by
the laws of descent and distribution, or pursuant to a qualified domestic
relations order that would satisfy Section 414(p)(l)(A) of the Code if such
section applied to an Award under the Plan. In addition, any Option granted
pursuant to this Article 13 shall be transferable by the Participant to any of
the following permitted transferees, upon such reasonable terms and conditions
as the Committee may establish (and, unless specifically permitted by the Board
in advance, such transfers shall be limited to one transfer per Participant to
no more than four transferees): (i) one or more of the following family members
of the Participant: any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, (ii) a trust, partnership or other entity established and
existing for the sole benefit of, or under the sole control of, one or more of
the above family members of the Participant, or (iii) any other transferee
specifically approved by the Committee after taking into account any state or
federal tax, securities or other laws applicable to transferable options.
13.8. Termination of Article 13. No Options shall be granted under this
Article 13 after January 1, 2010.
13.9. Non-Exclusivity. Nothing in this Article 13 shall prohibit the
Committee from making discretionary Awards to Non-Employee Directors pursuant to
the other provisions of the Plan before or after January 1, 2010. Options
granted pursuant to this Article 13 shall be governed by the provisions of this
Article 13 and by other provisions of the Plan to the extent not inconsistent
with the provisions of Article 13.
ARTICLE 14
PROVISIONS APPLICABLE TO AWARDS
14.1. Stand-Alone, Tandem, and Substitute Awards. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
14.2. Term of Award. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(d) applies, five years from the date of its grant).
14.3. Form of Payment for Awards. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance with
rules adopted by, and at the discretion of, the Committee.
14.4. Limits on Transfer. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Corporation or a Parent or Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Corporation or a Parent or Subsidiary. No
unexercised or restricted Award shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution or,
except in the case of an Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such
Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated taxation,
(ii) does not cause any Option intended to be an Incentive Stock Option to fail
to be described in Code Section 422(b), and (iii) is otherwise appropriate and
desirable, taking into account any factors deemed relevant, including without
limitation, state or federal tax or securities laws applicable to transferable
Awards.
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14.5. Beneficiaries. Notwithstanding Section 14.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
14.6. Stock Certificates. All Stock issuable under the Plan are subject to
any stop-transfer orders and other restrictions as the Committee deems necessary
or advisable to comply with federal or state securities laws, rules and
regulations and the rules of any national securities exchange or automated
quotation system on which the Stock is listed, quoted, or traded. The Committee
may place legends on any Stock certificate or issue instructions to the transfer
agent to reference restrictions applicable to the Stock.
14.7. Acceleration Upon Death or Disability. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the Participant's death or Disability during his employment or service as a
director, all outstanding Options, Stock Appreciation Rights, and other Awards
in the nature of rights that may be exercised shall become fully exercisable and
all restrictions on outstanding Awards shall lapse. Any Option or Stock
Appreciation Rights Awards shall thereafter continue or lapse in accordance with
the other provisions of the Plan and the Award Agreement. To the extent that
this provision causes Incentive Stock Options to exceed the dollar limitation
set forth in Section 7.2(c), the excess Options shall be deemed to be
Non-Qualified Stock Options.
14.8. Acceleration. Whether or not a Change in Control shall have
occurred, the Committee may in its sole discretion at any time determine that
all or a portion of a Participant's Options, Stock Appreciation Rights, and
other Awards in the nature of rights that may be exercised shall become fully or
partially exercisable, and/or that all or a part of the restrictions on all or a
portion of the outstanding Awards shall lapse, in each case, as of such date as
the Committee may, in its sole discretion, declare. The Committee may
discriminate among Participants and among Awards granted to a Participant in
exercising its discretion pursuant to this Section 14.8.
14.9. Effect of Acceleration. If an Award is accelerated under Section
14.8, the Committee may, in its sole discretion, provide (i) that the Award will
expire after a designated period of time after such acceleration to the extent
not then exercised, (ii) that the Award will be settled in cash rather than
Stock, (iii) that the Award will be assumed by another party to a transaction
giving rise to the acceleration or otherwise be equitably converted in
connection with such transaction, or (iv) any combination of the foregoing. The
Committee's determination need not be uniform and may be different for different
Participants whether or not such Participants are similarly situated.
14.10. Performance Goals. In order to preserve the deductibility of an
Award under Code Section 162(m), the Committee may determine that any Award
granted pursuant to this Plan to a Participant is or is expected to become a
Covered Employee shall be determined solely on the basis of (a) the achievement
by the Corporation or a Parent or Subsidiary of a specified target return, or
target growth in return, on equity or assets, (b) the Corporation's stock price,
(c) the Corporation's total shareholder return (stock price appreciation plus
reinvested dividends) relative to a defined comparison group or target over a
specific performance period, (d) the achievement by the Corporation or a Parent
or Subsidiary, or a business unit of any such entity, of a specified target, or
target growth in, net income, earnings per share, earnings before income and
taxes and earnings before income, taxes, depreciation and amortization, or (e)
any combination of the goals set forth in (a) through (d) above. If an Award is
made on such basis, the Committee shall establish goals prior to the beginning
of the period for which such performance goal relates (or such later date as may
be permitted under Code Section 162(m) or the regulations thereunder), and the
Committee has the right for any reason to reduce (but not increase) the Award,
notwithstanding the achievement of a specified goal. Any payment of an Award
granted with performance goals shall be conditioned on the written certification
of the Committee in each case that the performance goals and any other material
conditions were satisfied.
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14.11. Termination of Employment. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur (i) in a circumstance in which a Participant
transfers from the Corporation to one of its Parents or Subsidiaries, transfers
from a Parent or Subsidiary to the Corporation, or transfers from one Parent or
Subsidiary to another Parent or Subsidiary, or (ii) in the discretion of the
Committee as specified at or prior to such occurrence, in the case of a
spin-off, sale or other disposition of the Participant's employer from the
Corporation or any Parent or Subsidiary. To the extent that this provision
causes Incentive Stock Options to extend beyond three months from the date a
Participant is deemed to be an employee of the Corporation, a Parent or
Subsidiary for purposes of Section 424(f) of the Code, the Options held by such
Participant shall be deemed to be Non-Qualified Stock Options.
14.12. Loan Provisions. With the consent of the Committee, the Corporation
may make, guarantee or arrange for a loan or loans to a Participant with respect
to the exercise of any Option granted under this Plan and/or with respect to the
payment of the purchase price, if any, of any Award granted hereunder and/or
with respect to the payment by the Participant of any or all federal and/or
state income taxes due on account of the granting or exercise of any Award
hereunder. The Committee shall have full authority to decide whether to make a
loan or loans hereunder and to determine the amount, terms and provisions of any
such loan(s), including the interest rate to be charged in respect of any such
loan(s), whether the loan(s) are to be made with or without recourse against the
borrower, the collateral or other security, if any, securing the repayment of
the loan(s), the terms on which the loan(s) are to be repaid and the conditions,
if any, under which the loan(s) may be forgiven.
ARTICLE 15
CHANGES IN CAPITAL STRUCTURE
15.1. General. In the event of a corporate transaction involving the
Corporation (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
authorization limits under Section 5.1 and 5.4 shall be adjusted
proportionately, and the Committee may adjust Awards to preserve the benefits or
potential benefits of the Awards. Action by the Committee may include: (i)
adjustment of the number and kind of shares which may be delivered under the
Plan; (ii) adjustment of the number and kind of shares subject to outstanding
Awards; (iii) adjustment of the exercise price of outstanding Awards; and (iv)
any other adjustments that the Committee determines to be equitable. Without
limiting the foregoing, in the event a stock dividend or stock split is declared
upon the Stock, the authorization limits under Section 5.1 and 5.4 shall be
increased proportionately, and the shares of Stock then subject to each Award
shall be increased proportionately without any change in the aggregate purchase
price therefor.
ARTICLE 16
AMENDMENT, MODIFICATION AND TERMINATION
16.1. Amendment, Modification and Termination. The Board or the Committee
may, at any time and from time to time, amend, modify or terminate the Plan
without shareholder approval; provided, however, that the Board or Committee may
condition any amendment or modification on the approval of shareholders of the
Corporation if such approval is necessary or deemed advisable with respect to
tax, securities or other applicable laws, policies or regulations.
16.2. Awards Previously Granted. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however, that, subject to the terms of the
applicable Award Agreement, such amendment, modification or termination shall
not, without the Participant's consent, reduce or diminish the value of such
Award determined as if the Award had been exercised, vested, cashed in or
otherwise settled on the date of such amendment or termination and provided
further that the original term of any Option may not be extended. No
termination, amendment, or modification of the Plan shall adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant.
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ARTICLE 17
GENERAL PROVISIONS
17.1. No Rights to Awards. No Participant or any eligible participant
shall have any claim to be granted any Award under the Plan, and neither the
Corporation nor the Committee is obligated to treat Participants or eligible
participants uniformly.
17.2. No Stockholder Rights. No Award gives the Participant any of the
rights of a shareholder of the Corporation unless and until shares of Stock are
in fact issued to such person in connection with such Award.
17.3. Withholding. The Corporation or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Corporation, an amount sufficient to satisfy federal, state, and
local taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require or permit
that any such withholding requirement be satisfied, in whole or in part, by
withholding from the Award shares of Stock having a Fair Market Value on the
date of withholding equal to the minimum amount (and not any greater amount)
required to be withheld for tax purposes, all in accordance with such procedures
as the Committee establishes.
17.4. No Right to Continued Service. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Corporation
or any Parent or Subsidiary to terminate any Participant's employment or status
as an officer, director or consultant at any time, nor confer upon any
Participant any right to continue as an employee, officer, director or
consultant of the Corporation or any Parent or Subsidiary.
17.5. Unfunded Status of Awards. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Corporation or any Parent or Subsidiary.
17.6. Indemnification. To the extent allowable under applicable law, each
member of the Committee shall be indemnified and held harmless by the
Corporation from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Corporation an opportunity, at its own expense, to handle
and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Corporation's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Corporation may have to indemnify them or hold
them harmless.
17.7. Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Parent or Subsidiary unless provided otherwise in such other
plan.
17.8. Expenses. The expenses of administering the Plan shall be borne by
the Corporation and its Parents or Subsidiaries.
17.9. Titles and Headings. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
17.10. Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
17.11. Fractional Shares. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
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17.12. Government and Other Regulations. The obligation of the Corporation
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock issued in connection with the Plan. The shares issued in connection with
the Plan may in certain circumstances be exempt from registration under the 1933
Act, and the Corporation may restrict the transfer of such shares in such manner
as it deems advisable to ensure the availability of any such exemption.
17.13. Governing Law. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Delaware.
17.14. Additional Provisions. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of this Plan.
The foregoing is hereby acknowledged as being the Healtheon/WebMD
Corporation 2000 Long-Term Incentive Plan as adopted by the Board on July 28,
2000.
HEALTHEON/WEBMD CORPORATION
By: /s/ JOHN L. WESTERMANN III
----------------------------------------
Its: Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
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ANNEX H
CAREINSITE, INC.
1999 DIRECTOR STOCK OPTION PLAN
1. Definitions. The terms below shall be defined as indicated.
1.1 Administrator means the Board or any executive officer or officers
of the Company designated by the Board.
1.2 Board means the Board of Directors of the Company, including any
directors who may be Optionees.
1.3 Change in Control means the occurrence of any of the following
events:
(i) when any "person", as defined in Section 3(a)(9) of the
Exchange Act and as used in Section 13(d) and 14(d) thereof (but
excluding the Parent and its subsidiaries, the Company and its
Subsidiaries (and any successor to the Company in a transaction that did
not result in a Change in Control), Martin J. Wygod and his affiliates
and any employee benefit plan sponsored or maintained by the Parent or
any of its subsidiaries, the Company or any of its Subsidiaries or
Martin J. Wygod or any of his affiliates (including the trustee of such
plan acting as trustee)), directly or indirectly, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 50 percent or more of the
combined power of its then outstanding securities with respect to the
election of directors;
(ii) when, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors"), cease for any
reason other than death to constitute at least a majority thereof;
provided, however, that a director who was not a director at the
beginning of such 24-month period shall be deemed an Incumbent Director
if such director was elected by or on the recommendation of or with the
approval of at least two-thirds of the directors of the Company, who
then qualified as Incumbent Directors, either actually (because they
were directors at the beginning of such 24-month period) or by prior
operation of this Section 1.3(ii);
(iii) when the stockholders of the Company approve a merger or
consolidation of the Company without the consent or approval of a
majority of the Incumbent Directors;
(iv) when the stockholders of the Company approve a sale or
disposition of all or substantially all of the Company's assets; or
(v) when the Company adopts a plan of liquidation; provided,
however, that in the event that any of the above-described events is
triggered as a result of a transaction with the Parent, such event shall
not constitute a "Change in Control" for purposes of the Plan. For the
avoidance of doubt, a change in control of the Parent shall not
constitute a "Change in Control" for purposes of the Plan.
1.4 Code means the Internal Revenue Code of 1986, as amended from
time-to-time, or any successor statute thereto.
1.5 Common Stock means the Company's common stock, par value $.01,
subject to the provisions of Section 9.
1.6 Company means CareInsite, Inc., a Delaware corporation, and any
successor corporation which adopts the Plan.
1.7 Exchange Act means the Securities Exchange Act of 1934, as amended
from time-to-time, or any successor statute thereto.
1.8 Fair Market Value means, on a specified date, the last sales price
of a Share, as reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or the last closing price for a
Share on the stock exchange, if any, on which Shares are primarily traded
(or if no Shares were traded on such date, then on the last previous date
on which any Share were so traded), or if none of the
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above is applicable, the value of a Share for such date as established by a
nationally recognized appraisal firm or investment bank, using any
reasonable method of valuation.
1.9 Non-Employee Director means a director of the Company who is not
an officer or employee of the Company, any Subsidiary or the Parent.
1.10 Option means an option to purchase Shares granted by the Company
pursuant to the Plan.
1.11 Option Agreement means a written agreement or certificate as
described in Section 7.
1.12 Option Period means the period from the date of the granting of
an Option to the date on which that Option terminates pursuant to Section
5.2 hereof.
1.13 Option Price means the price to be paid for the Shares purchased
pursuant to an Option.
1.14 Optionee means any person who is granted an Option under the
Plan.
1.15 Parent means Medical Manager Corporation, a Delaware Corporation,
so long as it owns stock possessing 50 percent or more of the total
combined voting power of the Company.
1.16 Plan means the Company's 1999 Director Stock Option Plan, as
adopted by the Board in substantially the form set forth herein and as the
same may be amended or otherwise modified from time-to-time.
1.17 Shares means shares of Common Stock.
1.18 Subsidiary means a subsidiary of the Company as defined under
Section 424 of the Code.
2. Purpose; Construction.
(a) The Plan is intended to encourage ownership of Common Stock by
directors of the Company, upon whose judgement and interest the Company is
dependent for its successful operation and growth, in order to increase
their proprietary interest in the Company's success and to encourage them
to serve as directors of the Company.
(b) The Plan is intended to comply with the terms and provisions of
Rule 16b-3 promulgated under the Exchange Act. Any provision of the Plan or
any Option Agreement inconsistent with the terms of such Rule in effect
shall be inoperative and shall not affect the validity of the Plan, such
Option Agreement or any other provision thereof.
3. Administration and Interpretation. The terms and conditions under which
Options shall be granted under the Plan are set forth in Section 5. Subject to
the provisions of Section 12, the Administrator shall have authority to
interpret the provisions of the Plan, to establish such rules and procedures as
may be necessary or advisable to administer the Plan and to make all
determinations necessary or advisable for the administration of the Plan;
provided, however, that no such interpretation or determination shall change or
affect the selection of participants eligible to receive grants under the Plan,
the number of shares covered by or the timing of any grant of Options under the
Plan or the terms and conditions thereof. The interpretation and construction by
the Administrator of any provision of the Plan or of any Option Agreement shall
be final and conclusive.
4. Eligible Persons. Options shall be granted pursuant to the provisions
hereof to persons who are Non-Employee Directors at the time of grant.
5. Grant of Options.
5.1 Procedure. Subject to the provisions of Section 8.1 limiting the
maximum number of Shares subject to purchase under Options, (i) each
Non-Employee Director whose initial term commences after the Effective Date
(as defined in Section 6 below) shall be granted an Option to purchase
10,000 Shares as of the date such director is first elected to the Board,
(ii) on the first day of each fiscal year of the Company, each Non-
Employee Director (including Non-Employee Directors whose initial term
commenced on or before the Effective Date) shall be granted an Option to
purchase 10,000 Shares, and (iii) on the Effective Date, each Non-Employee
Director shall be granted an Option to purchase 10,000 Shares (the "Initial
Grants"), subject
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to obtaining the approval of the Plan by the stockholders of the Company at
its 1999 Annual Meeting of Stockholders. Each such Option shall become
exercisable as to 20% of the Shares covered thereby on each of the first
five successive anniversaries of the date of grant (the "Vesting
Schedule"); provided, however, that no Option shall become vested and
exercisable prior to December 15, 2001 (on such date, each Option shall
become vested and exercisable to the extent that such Option would have
become exercisable by virtue of the Vesting Schedule). Notwithstanding the
foregoing, upon the occurrence of a Change in Control, any portion of each
such Option not then exercisable shall immediately and automatically
(without notice) become fully exercisable. The Option Price for each Option
shall be the Fair Market Value of a Share on the date of grant. No Options
shall be granted under the Plan except as provided in this Section 5.1.
5.2 Termination. The unexercised portion of each Option (both vested
and non-vested) shall automatically and without notice terminate and become
null and void upon the earlier of the following:
(a) The fifteenth anniversary of the date of grant;
(b) Subject to the provisions of this Section 5.2, with respect to the
unvested portion of the Option, on the date of termination of the
Optionee's status as a director of the Company and, with respect to the
vested portion of the Option, one year following the date of termination of
the Optionee's status as a director of the Company;
(c) In the event that an Optionee's status as a director terminates
for any reason and such Optionee is employed by the Company or a Subsidiary
(or, if the Board in its sole discretion retains such Optionee as a
consultant to the Company or a Subsidiary and affords such Optionee the
treatment described in this Section 5.2 (c)) immediately following such
termination, then such Optionee's Option shall remain outstanding and
continue to vest until the termination of Optionee's status as an employee
(or consultant) of the Company or such Subsidiary and, to the extent the
Option is exercisable on the date of such termination, the vested portion
of the Option shall remain outstanding until 30 days following the date of
termination; or
(d) If an Optionee dies while a director of the Company or within one
year following the date of termination of such Optionee's status as a
director, any unexercised portion of the Option that was otherwise
exercisable on the date of such Optionee's death shall be exercisable by
the Optionee's personal representatives or heirs at law, if no personal
representative is required by the governing state law, at any time within
the one year period from the date of such Optionee's death.
5.3 Additional Grants. Nothing contained in the Plan shall be
construed to preclude the granting of an option to an Optionee in addition
to an Option or Options for the purchase of Shares already held by that
Optionee or the granting of more than one Option to an Optionee at the same
time.
5.4 Subject to Exchange Rules. Any and all grants of Options shall be
subject to all applicable rules and regulations of any exchange on which
the Common Stock may then be listed.
6. Effective and Expiration Dates of Plan. The Plan shall be effective on
November 12, 1999, the date on which the Board approved the Plan (the "Effective
Date"), subject to the approval of the Company's stockholders at its next
meeting of stockholders. In the event that the stockholders fail to approve the
Plan, the Plan shall be null, void and of no further force and effect and the
Initial Grants shall be cancelled without any payment made therefor. No Option
shall be granted after July 1, 2009.
7. Option Agreements. Option Agreements shall be in such form as the
Administrator shall approve or determine; provided, however, that all Option
Agreements shall comply with and be subject to the following terms and
conditions:
7.1 Manner, Time, and Medium of Payment. An Option shall be exercised
in the manner set forth in the Option Agreement relating thereto and
payment in full of the Option Price for all Shares shall be made at the
time of exercise. Payment shall be in United States dollars in the form of
cash, certified check or bank draft, or by delivery of fully paid Shares
held by the Optionee for a period of at least six months valued at their
Fair Market Value on the date of exercise, or, if the Option Agreement so
provides, by withholding Shares with respect to which the Optionee has
exercised such Option having a Fair Market Value on the date
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of exercise equal to the sum of the Option Price for the withheld Shares
and the remaining Shares with respect to which the Optionee has exercised
such option, or any combination of such methods of payment.
7.2 Number of Shares. Subject to Section 9, the Option Agreement
shall state the number of Shares to which it pertains.
7.3 Date of Exercise. An Option may be exercised, to the extent
vested, in whole or in part from time-to-time during the Option Period.
Notwithstanding anything in this Plan or any Option Agreement to the
contrary, no Option shall be exercisable prior to the approval of this Plan
by the stockholders of the Company.
7.4 Reorganization. In case the Company is merged or consolidated
with another corporation, or in case of a reorganization, separation or
liquidation of the Company, the Board or the board of directors of any
corporation assuming the obligations of the Company hereunder shall make
appropriate provisions for the protection of any outstanding options by the
substitution on an equitable basis of appropriate securities of the
Company, or appropriate shares or other securities of the merged,
consolidated, or otherwise reorganized corporation, or the appropriate
adjustment in the Option Price, or both.
7.5 Assignability. No Option shall be assignable or transferable
except by will or by the laws of descent and distribution and no Option may
be exercised other than by an Optionee or, after the death of an Optionee,
by that Optionee's personal representative, heirs or legatees; provided,
however, that the Administrator may, subject to such terms and conditions
as the Administrator shall specify, permit the transfer of an Option to an
Optionee's family members or to one or more trusts established in whole or
in part for the benefit of one or more of such family members or to one or
more entities which are owned in whole or in part by one or more such
family members.
7.6 No Right to Continue as Director. Nothing in the Plan or in any
Option granted under the Plan shall confer (or be deemed to confer) any
right in any Optionee to continue as a director of the Company or any
Subsidiary or shall interfere in any way with the right of the Board or the
stockholders of the Company, or the board of directors or stockholders
(including the Company) of any Subsidiary, to terminate such status at any
time, with or without cause and with or without notice, except as otherwise
provided by the certificate of incorporation or by-laws of the Company or
such Subsidiary or applicable law.
7.7 Rights as a Stockholder. An Optionee shall have no rights as a
stockholder with respect to Shares covered by an Option until the date the
Company has issued or delivered such Shares to the Optionee, and then only
as to such Shares as are actually issued and delivered to the Optionee.
7.8 Other Provisions. Option Agreements shall contain such other
terms and conditions not inconsistent with the Plan as the Administrator
shall deem advisable.
7.9 Compliance with Law. Notwithstanding any provision of the Plan or
any Option Agreement to the contrary, no Option may be granted or exercised
at any time when such Option or the granting or exercise thereof or payment
therefor may result in the violation of any law or governmental order or
regulation.
7.10 Securities Laws. The Company intends to register the Shares
issuable pursuant to exercise of Options under the Securities Act of 1933,
as amended, and to effect similar compliance under applicable state laws,
but shall be under no obligation to do so. The Administrator may require,
as a condition of the issuance and delivery of certificates evidencing
Shares issuable pursuant to exercise of Options, that the Optionee make
such covenants, agreements and representations, including, without
limitation, as to compliance with applicable securities laws, and that such
certificates bear such legends, as the Administrator in its sole discretion
deems necessary or desirable.
8. Shares Available for Option.
8.1 Maximum. Subject to Section 7.4 and 9, no more than 500,000
Shares shall be subject to purchase pursuant to Options granted under the
Plan, which Shares may be either Shares held in treasury or authorized but
unissued Shares. At all times during the term of the Plan, the Company
shall have reserved that number of Shares less an amount equal to the
number of Shares held in treasury and the number of Shares which have been
issued pursuant to the exercise of Options. At all times after termination
of the Plan, the Company
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shall have reserved for issuance a number of Shares equal to the aggregate
number of Shares subject to outstanding Options less the number of Shares
held in treasury.
8.2 Expiration or Termination. If any outstanding Option under the
Plan expires for any reason or is terminated prior to the expiration date
of the Plan as set forth in Section 6, the Shares allocable to any
unexercised portion of such Option may again be subject to an Option. In
addition, if an Optionee delivers Shares as payment for the Option Price or
any applicable tax withholding obligations or if Shares are withheld to
satisfy any such tax withholding obligations, such Shares shall again be
available for grant.
9. Recapitalization or Change in Par Value of Common Stock. The aggregate
number of Shares purchasable under Options granted and which may be granted
pursuant to the Plan and the Option Price for Shares covered by each outstanding
Option shall all be proportionately adjusted, as deemed appropriate by the
Administrator, if the Shares are split up, converted, exchanged, reclassified or
in any way substituted for. The Administrator shall provide for appropriate
adjustments of the numbers of Shares purchasable under the Plan and of
outstanding Options in the event of stock dividends or distributions of assets
or securities of other companies owned by the Company to stockholders relating
to Common Stock for which the record date is prior to the date the Shares
purchased by exercise of an Option are issued or transferred, except that no
such adjustment shall be made for cumulative stock dividends of 10% of less (in
the aggregate) or cash dividends. Any such adjustment may include an adjustment
of the Option Price or the number of Shares for which an Option may be
exercised, or may provide for an escrow of assets or securities so distributed
to be available upon future exercise. In the event of a change in the Company's
presently authorized Common Stock which is limited to a change of all of its
presently authorized Shares of Common Stock with par value into the same number
of shares without par value, or any change of the then authorized Shares of
Common Stock with par value into the same number of shares of Common Stock with
a different par value, the shares resulting from any such change shall be deemed
to be Shares as defined in Section 1, and no change in the number of Shares
covered by each Option or in the Option Price shall take place.
10. Indemnification; Reliance; Exculpation.
10.1 Indemnification. Each person who is or shall have been a member
of the Board or who is or shall have served as an Administrator shall be
indemnified and held harmless by the Company against and from any and all
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim,
action, suit, or proceeding to which such person may be a party or in which
such person may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by such person
in settlement thereof (with the Company's written approval) or paid by such
person in satisfaction of a judgment in any such action, suit, or
proceeding to the fullest extent permitted by the Delaware General
Corporation Law, subject, however, to the condition that upon the
institution of any such claim, action, suit, or proceeding, such person
shall in writing give the Company an opportunity to intervene at the
Company's expense on his or her behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such
person may be entitled as a matter of law or otherwise, or any power that
the Company may have to indemnify such person or hold him or her harmless.
10.2 Reliance. Each member of the Board and each officer and employee
of the Company in performing duties under the Plan shall be entitled to
rely upon information and reports furnished in connection with the
administration of this Plan by any duly authorized officer or agent of the
Company.
10.3 Exculpation. No member of the Board and no officer or employee
of the Company shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under the Plan.
11. Income Tax Withholding. Any Option Agreement may include provisions
that if the Company or a Subsidiary shall be required to withhold any amounts by
reason of any federal, state or local tax rules or regulations in respect of the
issuance of Shares pursuant to the exercise of an Option, the Company or the
Subsidiary shall be entitled to deduct and to withhold such amount from any cash
payments to be made to the Optionee. In any event, the Optionee shall either (i)
make available to the Company or Subsidiary, promptly when requested by the
Company or such Subsidiary, sufficient funds or, if the Option Agreement so
provides, Shares
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(valued at Fair Market Value as of the date the withholding tax obligation
arises (the "Tax Date")), to meet the requirements of such withholding, or (ii)
unless disallowed by the Administrator, irrevocably authorize the Company to
withhold from the Shares otherwise issuable to the Optionee as a result of such
exercise a number of Shares having a Fair Market Value as of the Tax Date which
alone, or when added to funds paid or Shares delivered to the Company or the
Subsidiary by the Optionee, equal the amount of the minimum withholding tax
obligation (the "Withholding Election") and the Company or such Subsidiary shall
be entitled to take and authorize such steps as it may deem advisable in order
to have such funds or Shares made available to the Company or such Subsidiary
out of any funds or property due or to become due to the Optionee. An Optionee's
Withholding Election may only be made prior to the Tax Date and may be
disapproved by the Administrator. The Administrator may establish such rules and
procedures, including, without limitation, any rules or procedures necessary to
comply with Rule 16b-3, as it may deem necessary or advisable in connection with
the withholding of taxes relating to the exercise of any Option.
12. Amendment or Termination of Plan. The Plan may be terminated and may
be modified or amended by the Board at any time and from time-to-time; provided,
however, that (i) no modification or amendment shall be effective without
stockholder approval if such approval is required by law or under the rules of
NASDAQ or the stock exchange on which the shares are listed, and (ii) no such
termination, modification, or amendment of the Plan shall adversely alter or
affect the terms of any then outstanding Options previously granted hereunder
without the consent of the holder thereof.
13. Set-Off. If at any time an Optionee is indebted to or otherwise
obligated to make any payment to the Company or any Subsidiary, the Company may
(a) withhold from the Optionee (i) following the exercise by the Optionee of an
Option, Shares issuable to the Optionee having a Fair Market Value on the date
of exercise up to the amount of indebtedness to the Company or (ii) following
the sale by an Optionee of Shares received pursuant to the exercise of an
Option, amounts due to an Optionee in connection with the sale of such Shares up
to the amount of indebtedness to the Company, or (b) take any substantially
similar action. The Company may establish such rules and procedures as it may
deem necessary or advisable in connection with the taking of any action
contemplated by this Section 13.
14. Headings. The section headings contained herein have no substantive
meaning or content and are not part of this Plan.
15. Governing Law. The Plan shall be construed in accordance with the laws
of the State of Delaware without regard to any principles of conflicts of law.
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ANNEX I
CHARTER OF THE AUDIT COMMITTEE OF THE
BOARD OF DIRECTORS OF HEALTHEON/WEBMD CORPORATION
1. PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee shall
monitor the Corporation's financial reporting and accounting practices to
ascertain that they are within acceptable limits of sound practice in such
matters. In furtherance of this purpose, the Audit Committee shall maintain
direct communication among the Corporation's independent auditors and manager of
internal audit and the Board of Directors. In discharging its oversight role,
the Audit Committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities and personnel of
the Corporation and the power to retain outside counsel, auditors or other
experts for this purpose.
The Audit Committee's job is one of oversight and it recognizes that the
Corporation's management is responsible for preparing the Corporation's
financial statements and that the independent auditors are responsible for
auditing those financial statements. Additionally, the Audit Committee
recognizes that financial management, as well as the independent auditors, have
more time, knowledge and more detailed information about the Corporation than do
Committee members; consequently, in carrying out its oversight responsibilities,
the Audit Committee is not providing any expert or special assurance as to the
Corporation's financial statements or any professional certification as to the
independent auditor's work.
2. COMPOSITION
2.1 Membership
The members of the Audit Committee shall be appointed, and may be removed,
by the Board of Directors. In compliance with the requirements for companies
listed for quotation on the NASDAQ NMS, on or before June 14, 2001, the Audit
Committee shall consist of at least three members of the Board of Directors all
of whom shall be independent directors (as defined below) except as provided in
Section 2.3, and all of whom shall meet the requirements of Section 2.4(a), and
at least one of whom shall meet the requirements of Section 2.4(b). In addition,
all members of the Audit Committee are and shall be free from any relationship
that, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment as a member of the Audit Committee.
2.2. Independent Directors
To qualify as an independent director, an individual must not:
(a) be employed or have been employed within the previous three (3)
years by the Corporation or any its affiliates;
(b) have accepted compensation from the Corporation or any its
affiliates in excess of $60,000 in the previous fiscal year (provided that
compensation for board service, tax-qualified retirement benefits and non-
discretionary compensation are excluded);
(c) be a member of the immediate family of an individual who
currently, or within the previous three (3) years, has been an executive
officer of the Corporation or its affiliates ("immediate family" includes a
person's spouse, parents, children, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who
resides in such person's home);
(d) be a partner in, or a controlling shareholder or executive officer
of, any for-profit business which the Corporation made, or from which the
Corporation received, payments (other than those arising solely from
investments in the Corporation's securities) that exceed 5% of the
Corporation's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years; or
(e) be employed as an executive of another entity where any of the
Corporation's executives serves on that entity's compensation committee.
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2.3 Interested Director
If the Board of Directors determines that the presence of one director not
meeting the qualifications set forth in subsection 2.2 is in the best interest
of the Corporation and its stockholders, the Board of Directors may elect one
such director to serve on the Audit Committee so long as the Corporation
discloses, in accordance with the requirements of the Securities and Exchange
Commission, the nature of the director's relationship with the Corporation and
the reasons for such director's election to the Audit Committee by the Board of
Directors.
2.4 Qualifications
In addition to the requirements otherwise set forth in this Section 2,
(a) each member of the Audit Committee shall be able to read and understand
fundamental financial statements, including the Corporation's balance sheet,
income statement and cash flow statement. The financial literacy qualifications
of the members of the Audit Committee shall be interpreted by the Board of
Directors in its business judgment; and
(b) at least one member to the Audit Committee must have previous
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer, or other senior
officer with financial oversight responsibilities.
The requirements set forth in this subsection 2.4 shall become effective at
the earlier of June 14, 2001 or such other date as the Board of Directors
requires.
3. MEETINGS
The Audit Committee shall meet at least two times per year. Each meeting
shall include an executive session with the independent auditors. The first such
meeting (October meeting) shall be held at a time when the Audit Committee can
review and approve the planned scope of the annual audit with the independent
auditors. The second meeting (March meeting) should be held as soon after
completion of the annual audit as possible. At the second meeting, the Audit
Committee will review the "management letter" that is supplied to the
Corporation by its independent auditors upon completion of the annual audit
effort. Minutes of each of these meetings shall be kept, and the Chief Financial
Officer will function as the management liaison officer to this Committee.
4. RESPONSIBILITIES AND DUTIES
The Audit Committee shall:
(a) Review and reassess the adequacy of this Charter at least annually
and submit the Charter to the Board of Directors for approval.
(b) Study and make recommendations to the Board of Directors with
respect to audit policies and procedures and the scope and extent of
audits. In consultation with corporate management, the independent
auditors, and the internal auditors, consider the integrity of the
Corporation's financial reporting processes and controls. Discuss
significant financial risk exposures and the steps corporate management has
taken to monitor, control, and report such exposures.
(c) Review the independence and performance of the independent
auditors and recommend to the Board of Directors, annually in advance of
the annual meeting of stockholders, the selection of the public accounting
firm to be the Corporation's independent auditor for that year. The Audit
Committee and the Board of Directors have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditors. As part of such annual review, the Audit Committee
shall discuss with the independent auditors all relationships they have
with the Corporation that could impair the auditors' independence as
disclosed by the auditors in a formal written statement that delineates all
relationships between the independent auditors and the Corporation. Such
discussion shall address the impact that such disclosed relationships or
services may have upon the objectivity and independence of the independent
auditors. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors.
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(d) Satisfy themselves as to the professional competency of the
manager of internal audit and the adequacy and quality of performance of
his staff in discharging the responsibility of the office.
(e) Review with the independent auditors and with the manager of
internal audit, at a time when the annual audit plan is being developed,
the plan's timing, scope, staffing, locations, foreseeable issues,
priorities and procedures, the coordination between the independent
auditors and the manager of internal audit in executing the plan and the
engagement team.
(f) Review annually the Corporation's internal auditing program and
significant reports with the manager of internal audit and corporate
management's response and follow-up to those reports. Review and assess the
adequacy of internal accounting procedures and controls, including a review
with the independent auditors of their evaluation of the Corporation's
internal controls and discuss significant items with management.
(g) Review with corporate management and the independent auditors, if
necessary, the unaudited quarterly financial results prior to the release
of earnings and/or the quarterly financial statements prior to filing or
distribution. In discharging this obligation, receive and review, if
necessary, a report from the controller as to any unusual deviations from
prior practice that were included in the preparation of the interim
quarterly results. Review draft press releases of unaudited interim and
annual financial results before public release. Press releases and interim
financial statements also will be reviewed by the independent auditors
prior to public release. The Chairman of the Audit Committee may represent
the entire Audit Committee for purposes of this review.
(h) Review with corporate management all major accounting policy
matters involved in the preparation of interim and annual financial reports
and any deviations from prior practice with the independent auditors.
(i) Review with corporate management, and the independent auditors as
deemed necessary, the audited financial results for the year and the
proposed footnotes to the financial statements prior to filing or
distribution.
(j) Review with the independent auditors, on completion of the annual
audit, their experience, any restrictions on their work, cooperation
received, significant disagreements with corporate management, their
findings and their recommendations. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61(1).
(k) Review the application of significant accounting and auditing
policies, including new pronouncements, to the Corporation's financial
reports.
(l) Analyze financial reports to understand performance fluctuations
between reporting periods and between reports and the Corporation's
business plan.
(m) Review annually the programs that the Corporation has instituted
to correct any control deficiencies noted by the manager of internal audit
or the independent auditors in their annual review.
(n) Report annually to the Board of Directors, after the close of each
fiscal year but prior to the Corporation's annual meeting of stockholders,
as well as on any other occasion, whatever it deems appropriate concerning
the activities of the Audit Committee.
(o) Annually prepare a report to stockholders as required by the
Securities and Exchange Commission.
(p) Perform any other activities consistent with this Charter, the
Corporation's bylaws, and governing law, as the Audit Committee or the
Board of Directors deems necessary or appropriate.
Adopted: May 12, 2000
---------------
1 Among the matters to be communicated to the Audit Committee are: (1) methods
used to account for significant unusual transactions; (2) the effect of
significant accounting policies in controversial or emerging areas for which
there is a lack of authoritative guidance or consensus; (3) the process used
by management in formulating particularly sensitive accounting estimates and
the basis for the auditor's conclusions regarding the reasonableness of those
estimates; and (4) disagreements with management over the application of
accounting principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
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FORM OF PROXY CARD FOR MEDICAL MANAGER CORPORATION
[X] PLEASE MARK YOUR
VOTE AS IN THIS EXAMPLE
REVOCABLE PROXY
MEDICAL MANAGER CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 2000
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF MEDICAL MANAGER CORPORATION
The undersigned hereby appoints Charles A. Mele, Marvin P. Rich and James V.
Manning, and each of them, as the true and lawful agents and proxies of the
undersigned, each with full power of substitution, to represent the undersigned
and to vote all shares of common stock which the undersigned is entitled in any
capacity to vote at the Special Meeting of Stockholders of Medical Manager
Corporation ("Medical Manager"), to be held at the St. Regis Hotel, Two East
55th Street, New York, New York 10022 on September 12, 2000 at 9:30 a.m.,
Eastern Time, and at any and all adjournments or postponements thereof, on the
matters set forth below, and, in their discretion, upon all matters incident to
the conduct of the Special Meeting and upon such other matters as may properly
be brought before the meeting.
The Medical Manager Board of Directors recommends a vote FOR approval of
proposal 1.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To approve and adopt the Medical Manager merger and the
Medical Manager merger agreement, as amended. [ ] [ ] [ ]
</TABLE>
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED STOCKHOLDER AND,
WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN,
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED FOR THE PROPOSAL SET FORTH
HEREON AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING. THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE JOINT PROXY
STATEMENT/PROSPECTUS (WITH ALL ENCLOSURES AND ATTACHMENTS) RELATED TO THE
SPECIAL MEETING.
Please be sure to sign and date this proxy in the box below.
<TABLE>
<S> <C>
Date
------------------------------------------------
------------------------------------------------ ------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
</TABLE>
<PAGE> 362
Detach above card, sign, date and mail in postage paid envelope provided.
MEDICAL MANAGER CORPORATION
This Proxy must be signed exactly as your name appears hereon. When shares are
held by joint tenants, both should sign. Attorneys, executors, administrators,
trustees and guardians should indicate their capacities. If the signer is a
corporation, please print full corporate name and indicate capacity of the duly
authorized officer executing on behalf of the corporation. If the signer is a
partnership, please print full partnership name and indicate capacity of duly
authorized officer executing on behalf of the partnership.
PLEASE ACT PROMPTLY
MARK, SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
