10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number: 0-24975

WebMD Corporation

(Exact name of registrant as specified in its charter)

Delaware	94-3236644
(State of incorporation)	(I.R.S. employer identification no.)
669 River Drive, Center 2 Elmwood Park, New Jersey (Address of principal executive office)	07407-1361 (Zip code)

(Registrant’s telephone number including area code): (201) 703-3400

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, par value $.0001 per share

(Title of each class)

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes þ         No o

     As of June 30, 2003, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $3,109,441,188 (based on the closing price of the common stock of $10.87 per share on that date, as reported on the Nasdaq Stock Market’s National Market and, for purposes of this computation only, the assumption that all of the registrant’s directors and executive officers are affiliates). As of March 1, 2004, there were 309,464,573 shares of WebMD common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Certain information in the registrant’s definitive proxy statement to be filed with the Commission relating to the registrant’s 2004 Annual Meeting of Stockholders is incorporated by reference into Part III.

TABLE OF CONTENTS

		Page
Cautionary Statement Regarding Forward-Looking Statements			2
PART I
Item 1.	Business		3
Item 2.	Properties		42
Item 3.	Legal Proceedings		42
Item 4.	Submission of Matters to a Vote of Security Holders		46
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		47
Item 6.	Selected Financial Data		49
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		51
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		83
Item 8.	Financial Statements and Supplementary Data		83
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		83
Item 9A.	Controls and Procedures		83
PART III
Item 10.	Directors and Executive Officers of the Registrant		84
Item 11.	Executive Compensation		84
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		84
Item 13.	Certain Relationships and Related Transactions		84
Item 14.	Principal Accountant Fees and Services		84
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		85
Signatures			86
Financial Statements			F-1
Index to Exhibits			E-1
EX-3.2 CERTIFICATE OF DESIGNATIONS
EX-4.9 CONVERTIBLE REDEEMABLE EXCHANGEABLE
EX-10.44 EMPLOYMENT AGMT DATED 9/11/2000
EX-10.46 EMPLOYMENT AGMT 8-20-2001
EX-10.49 EMPLOYMENT AGMT DATED 12-4-2003
EX-12.1 COMPUTATION OF RATIO EARNINGS
EX-21 SUBSIDIARIES OF REGISTRANT
EX-23.1 CONSENT OF ERNST & YOUNG LLP
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO
EX-99.1 AMENDED & RESTATED AUDIT COMMITTEE CHARTER
EX-99.2 COMPENSATION COMMITTEE CHARTER
EX-99.3 AMENDED & RESTATED NOMINATING COMMITTEE

      WebMD®, Web-MD®, WebMD Health®, Digital Office Manager®, DIM_DX®, Envoy®, ExpressBill®, Intergy®, Medifax®, Medifax-EDI®, Medscape®, MEDPOR®, Medpulse®, POREX®, Publishers’ Circle®, The Little Blue Book^TM, The Little Yellow Book^TM, The Medical Manager®, ULTIA^TM, WebMD Health Hub^TM and WellMed® are trademarks of WebMD Corporation or its subsidiaries.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. 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 expressions 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 that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. In addition to the risk factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Our Future Financial Condition or Results of Operations” beginning on page 66, 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 failure to achieve sufficient levels of customer utilization and market acceptance of new services or newly integrated services,

•  the inability to successfully deploy new applications or newly integrated applications,

•  difficulties in forming and maintaining mutually beneficial relationships with customers and strategic partners,

•  the inability to attract and retain qualified personnel, and

•  general economic, business or regulatory conditions affecting the healthcare, information technology, Internet and plastic industries being less favorable than expected.

      These factors and the risk factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Our Future Financial Condition or Results of Operations” beginning on page 66 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 this Annual Report on Form 10-K are made only as of the date of this Annual Report. We expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

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PART I

Item 1. Business

INTRODUCTION

General Information

      WebMD Corporation is a Delaware corporation that was incorporated in December 1995 and commenced operations in January 1996 as Healtheon Corporation. Our common stock has traded on the Nasdaq National Market under the symbol “HLTH” since February 11, 1999.

      Our principal executive offices are located at 669 River Drive, Center 2, Elmwood Park, New Jersey 07407-1361 and our telephone number is (201) 703-3400.

      We make available free of charge at www.webmd.com (in the “About WebMD” section) copies of materials we file with, or furnish to, the Securities and Exchange Commission, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.

Overview of Our Businesses

      Our business is comprised of four segments. Three of our business segments, Portal Services, Transaction Services and Physician Services, provide various types of healthcare information services and technology solutions. Our fourth business segment is Plastic Technologies. The following overview describes our key products, services and markets:

•  Healthcare Information Services and Technology Solutions. We provide a range of information services and technology solutions for participants across the entire continuum of healthcare, including physicians and other healthcare providers, payers, suppliers and consumers. Our products and services promote administrative efficiency and assist in reducing the cost of healthcare and creating better patient outcomes.

—  WebMD Health. Our Portal Services segment, which is known as WebMD Health, provides online healthcare information, educational services and other resources for consumers and healthcare professionals. Our online offerings for consumers help them become better informed about healthcare choices and assist them in playing an active role in managing their own health. Our offerings for healthcare professionals help them improve their clinical knowledge, as well as their communication with patients regarding treatment options for specific health conditions. We also provide online content for use by media and healthcare partners in their Web sites, in some cases as part of a providing a co-branded site and in some cases on a private label basis under the partner’s branding.

We reach a large audience of health-involved consumers and clinically active healthcare professionals. We work closely with pharmaceutical, medical device and other healthcare companies to develop innovative online channels of communication to our audience, or targeted portions of our audience, that complement their offline education, marketing and customer service programs. In addition, through our WebMD Health Services business, we provide employers and health plans with access to a suite of online tools and related services, for use by their employees and plan members. These tools and services provide a framework for better decision-making by healthcare consumers and can assist employers and plans in managing demand while improving quality of care.

We generate the majority of our Portal Services revenue by selling sponsorships of specific pages, sections or events on our portals and related e-mailed newsletters, by selling advertising on our portals and the online and offline properties of our strategic partners and by licensing our content and our online tools and related software and services. The majority of our WebMD

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Health revenues come from a small number of customers. Our WebMD Health customers include pharmaceutical, biotech and medical device companies, employers and health plans and media distribution companies. WebMD Health also receives a small portion of its revenues from the sale of paid subscription services. In 2003, WebMD Health revenues were $110.7 million.

—  WebMD Envoy. Our Transaction Services segment, which is known as WebMD Envoy, provides healthcare reimbursement cycle management services, including transmission of electronic transactions between healthcare payers and physicians, pharmacies, dentists, hospitals, laboratory companies and other healthcare providers. The use of electronic transactions significantly reduces processing time and costs, as compared to mail, fax or telephone, and increases productivity for both payers and providers. The transactions that we facilitate include:

•  administrative transactions, such as claims submission and status inquiry, eligibility and patient coverage verification, referrals and authorizations, and electronic remittance advice, and

•  clinical transactions, such as lab test ordering and reporting of results.

We processed more than 2 billion transactions in 2003, for over 200,000 providers and 5,000 hospitals transacting with more than 1,200 commercial and government healthcare payers. We also provide automated patient billing services to providers, including statement printing and mailing services. In addition, through Advanced Business Fulfillment, Inc., which we acquired in July 2003, we provide healthcare paid-claims communications services for third-party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanations of benefits. We are focused on continuing to increase the percentage of healthcare transactions that are handled electronically and on providing electronic reimbursement cycle management solutions that can be used by payers and providers to automate the entire reimbursement process.

We generate Transaction Services revenue by selling our transaction services to healthcare payers and providers, generally on either a per transaction basis or, in the case of some providers, on a monthly fixed fee basis. We also generate revenue by selling our patient statement and paid-claims communication services, typically on a per statement or per communication basis. A significant portion of WebMD Envoy revenues come from the country’s leading national and regional healthcare payers. In 2003, WebMD Envoy revenues were $505.7 million.

—  WebMD Practice Services. Our Physician Services segment, which is known as WebMD Practice Services, develops and markets information technology systems for healthcare providers, primarily under The Medical Manager, Intergy, ULTIA and Medical Manager Network Services brands. Our systems include:

•  administrative and financial applications that enable healthcare providers and their administrative personnel to manage their practices more efficiently, and

•  electronic medical record and other clinical applications that assist them in delivering quality patient care.

In addition, through Medical Manager Network Services, we provide integrated access to our WebMD Envoy transaction services for our WebMD Practice Services customers. These systems and services allow physician offices to automate their scheduling, billing and other administrative tasks, to transmit transactions electronically, to maintain electronic medical records and to automate documentation of patient encounters.

WebMD Practice Services systems are scalable to meet the needs of a wide variety of healthcare provider settings, from small physician groups to large clinics, and across various medical specialties. Customers can purchase a base system and then add additional modules and services over time to expand their use of information technology as needed.

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We generate Physician Services revenue from one-time fees for licenses to our software modules, for system hardware and for implementation services and from recurring fees for the maintenance and support of our software and system hardware. Pricing depends on the number and type of software modules to be licensed, the number of users, the complexity of the installation and other factors. Our Medical Manager Network Services and some of our other WebMD Practice Services products and services are priced on a monthly fee per provider basis or a per transaction basis. In 2003, WebMD Practice Services revenues were $302.6 million.

We believe that the combination, in one company, of WebMD Health, WebMD Envoy and WebMD Practice Services makes us well positioned to create significant improvements in the way that information is used by the healthcare industry, enabling increased efficiency, better decision-making and, ultimately, higher quality patient care at a lower cost.

•  Plastic Technologies. Our Plastic Technologies segment, which is known as Porex, develops, manufactures and distributes proprietary porous plastic products and components used in healthcare, industrial and consumer applications. Our Porex customers include both end-users of our finished products, as well as manufacturers that include our components in their products for the medical device, life science, research and clinical laboratory, surgical and other markets. Porex is an international business with manufacturing operations in North America, Europe and Asia and customers in more than 65 countries. In 2003, Porex revenues from continuing operations were $71.9 million.

      During 2003, our revenues were divided among our segments as follows: 52.5% from WebMD Envoy, 31.4% from WebMD Practice Services, 11.5% from WebMD Health and 7.5% from Porex. The sum of these percentages equals 102.9% of our total revenues of $964.0 million because $27.0 million of our revenues are from inter-segment transactions and are eliminated when we consolidate our results.

      A more complete description of the products and services of each of our segments begins on page 10 below. For additional information regarding the results of operations of each of our segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations by Operating Segment” and Note 8 to the Consolidated Financial Statements included in this Annual Report.

Key Trends Affecting Our Healthcare Information Services and Technology Solutions Business

      Several key trends in the healthcare marketplace are influencing the use of healthcare information services and technology solutions of the types we provide or are developing. Those trends, and the strategies we have developed in response, are described briefly below; the implications for each of our businesses are discussed further in the descriptions of our products and services that follow.

•  High Rates of Increase in Healthcare Costs. According to the Centers for Medicare & Medicaid Services, or CMS, healthcare spending in the United States rose to $1.6 trillion in 2002, up from $1.4 trillion in 2001 and $1.3 trillion in 2000. The CMS report indicated a growth rate in healthcare spending of 9.3% for 2002, compared to 8.5% in 2001, and that the 9.3% rate of increase in 2002 was 5.7 percentage points higher than the 2002 increase in gross domestic product for the United States and marked the sixth consecutive year in which health spending grew at an accelerated rate. CMS projects the healthcare share of gross domestic product will be 15.3% for 2003 and increase to 18.4% by 2013. CMS expects that out-of-pocket healthcare spending by consumers — including deductibles, copayments, and payments for medical care not covered by insurance — will grow slightly faster in the next few years than during the previous few years, as employers continue to shift healthcare costs to employees. CMS projects that out-of-pocket spending growth will increase to a rate of 7.3% in 2005 from 6.0% in 2002 and will continue to increase as a percentage of consumer disposable personal income, from 2.7% in 2002 to 3.1%

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in 2013. The difficulties involved in controlling healthcare costs have resulted in the following key trends:

—  Cost-Shifting by Employers to their Employees and Changes in Plan Design. Employers are seeking to shift a greater portion of healthcare costs onto their employees and to redefine traditional health benefits. People in employer-sponsored health plans have been paying more out of their own pockets each year and are likely to see their share continue to increase significantly in the near future. With the shift in financial burdens, consumers are assuming a more active role in managing their health and need information to make educated benefit, provider and treatment decisions. We are in the process of transforming WebMD Health, our consumer portal, from an online place that consumers go for information to a place they go to actively manage their health. In addition, through our WebMD Health Services business, we help employers and plans provide employees and plan members with answers to healthcare and plan benefit questions and other personalized information and feedback. We intend to make significant investments in WebMD Health’s infrastructure, as well as in new products and services, to position ourselves to provide additional interactive online services.

—  Increasing Outsourcing by Healthcare Payers. In order to be more efficient, many healthcare payers are focusing upon core activities — building cost-effective provider networks, marketing their services to employers, and adjudicating claims payment — and outsourcing pre- and post-adjudication administrative activities, such as printing and mailing checks and explanation of benefits. By outsourcing these services to us, payers can reduce operating costs and capital expenditures. In addition, our outsourcing services allow our customers to participate in the use of systems and technologies that would be too expensive for them to acquire for their own use. Our acquisitions of Advanced Business Fulfillment and Medifax-EDI in 2003 support our ability to provide more comprehensive outsourcing services. For more information on the services we provide to payers and on these acquisitions, see “Healthcare Information Services and Technology Solutions — WebMD Envoy” below and Note 2 to the Consolidated Financial Statements included in this Annual Report.

—  Increased Use of Information Technology for Clinical Purposes. Governmental and commercial payers continue to exert considerable pricing pressure on providers. As a result, in order to maintain their incomes, providers need to see more patients and increase productivity and/or reduce their operating costs. Use of information technology can assist providers in these efforts. Healthcare providers are also under pressure to increase quality and reduce medical errors. There are currently numerous federal, state and private initiatives seeking ways to increase the use of information technology in healthcare, including in the physician’s office. In his State of the Union Address this year, President Bush stated: “By computerizing health records, we can avoid dangerous medical mistakes, reduce costs and improve care.” In a radio address the next week, he said “we can control health care costs and improve care by moving American medicine into the information age. My budget for the coming year proposes doubling to $100 million the money we spend on projects that use promising health information technology. This would encourage the replacement of handwritten charts and scattered medical files with a unified system of computerized records. By taking this action, we would improve care, and help prevent dangerous medical errors, saving both lives and money.” There are an increasing number of other governmental and private initiatives in this area.

While information technology systems and electronic transaction services are used by many physician offices for administrative and financial applications, their use in clinical workflow is much more limited, especially in smaller practices. We believe that is changing and we are targeting the market for clinical applications as one of our priorities for the next several years. While it will be a long time before most physicians go to a “paperless office,” more and more physicians are beginning to incorporate information technology into their clinical workflow and our products allow them to make this shift in a gradual way. See “Healthcare Information Services and Technology Solutions — WebMD Practice Services — EMR and Imaging Sys-

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tems” below. During 2004, we plan to improve the capacity and productivity of the WebMD Practice Services support, service and training infrastructure in order to be able to provide the additional assistance needed by customers as they increase their usage of our clinical solutions.

•  Increased Automation of the Healthcare Reimbursement Cycle. Government regulations concerning electronic transactions in healthcare are accelerating the shift from telephone and paper claims transactions to electronic ones and have the potential to have a similar effect on other phases of the reimbursement cycle. See “— Government Regulation — Health Insurance Portability and Accountability Act of 1996 — HIPAA Transaction Standards.”

—  Submission of claims electronically assists payers in reducing the cost of processing and servicing claims and can expedite the reimbursement process for providers. However, this is just a starting point for how electronic transactions can increase administrative efficiency. Our strategy is to be more than just a clearinghouse connection between payers and providers: we have been positioning our company to provide electronic reimbursement cycle management solutions that can be used by payers and providers to automate the entire reimbursement process. For example, our “all payer” transaction services include the capture, validation and routing of claims transactions on behalf of not just commercial payers, but also Blue Cross Blue Shield payers, Medicare and Medicaid, and the return electronic remittance from the payers back to the originating provider. We plan to continue to expand, through internal development and acquisitions, the transaction services we provide. See “Healthcare Information Services and Technology Solutions — WebMD Envoy” below and “— Increased Outsourcing by Healthcare Payers” above.

—  The HIPAA Transaction Standards establish format and data content standards for the most common healthcare transactions. In order to implement the Transaction Standards, WebMD Envoy has made significant changes to its systems and the software it uses internally. Similarly, the implementation has required payers and providers to simultaneously implement changes to their systems and/or internal procedures. As a result, this implementation process and related testing has been an immense challenge for the healthcare industry, including WebMD. However, it also represents a great opportunity for the industry and for us, because it encourages payer/provider connectivity to evolve from its current focus on the sending and receiving of claims to automating ancillary transactions, such as eligibility, status or remittance. As a leading clearinghouse for healthcare transactions and a leading vendor of physician office management information systems, WebMD has been the focus of a great deal of scrutiny in the implementation process and has received some criticism for difficulties encountered by our customers and for delays in our correcting some of those problems. Given the nature and scope of the changes being implemented, the large number of healthcare industry participants involved and our position in the industry, we expected that there would be some processing problems and delays. We continue to work diligently to identify and resolve these problems as they occur, while at the same time committing significant resources to keeping the implementation process moving forward. We are also working to foster communication among healthcare industry participants regarding how to achieve the intended benefits of the Transaction Standards with as little disruption to healthcare payment systems as possible. We have been incurring, and expect to continue to incur, significant expenses relating to the Transaction Standards implementation, including for testing, quality assurance and customer service activities. For more information regarding the challenges involved in such implementation and a description of the HIPAA regulations, see “Business — Government Regulation — Health Insurance Portability and Accountability Act of 1996 — Transaction Standards” below.

•  Increased Use of the Internet by Physicians and as a Source of Health Information for Consumers. According to a Pew Internet & American Life Project Survey published in December 2003, approximately seven million American consumers look for health information on the Internet each day. WebMD Health is a leading destination on the Internet for these consumers. See “Healthcare Information Services and Technology Solutions — WebMD Health” below. The Internet allows us

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to offer consumers the resources they are looking for, with immediate access to searchable information and dynamic interactive content. As a result, WebMD Health enables its sponsors, including pharmaceutical and medical device companies, to reach targeted consumers when they are looking for answers to healthcare questions and to reach physicians when they are exploring new treatment options. As recently noted by a Commissioner of the United States Food and Drug Administration: “The evidence shows that promotions directed to consumers can play an especially important role in helping patients start a discussion with their health care practitioner about conditions that are often unrecognized and therefore undertreated, such as diabetes, high blood pressure, high cholesterol, and depression.” Physicians are also increasingly turning to the Internet for professional activities. In 2003, physicians and healthcare professionals earned 629,000 continuing medical education credits at Medscape, an increase of 93% over 2002. Pharmaceutical companies and medical device manufacturers currently spend only a very small portion of their marketing and educational budgets on online media. Our strategy is to seek a greater portion of these budgets.

      As discussed above and in the “Business” section below, we intend to continue to invest in new products and services and in improving our existing products and services, both through internal development activities and, in certain cases, through acquisitions. We make these investments based on our assessments of the needs of our customers and potential customers, including the trends described above. However, the market for healthcare in the United States is highly complicated, and there can be no assurance that the trends identified above will continue or that the intended benefits to WebMD from our responses to those trends will be achieved. In addition, the markets for healthcare information services and technology solutions are highly competitive and not only are our existing competitors seeking to benefit from these same trends, but the trends may also attract additional competitors. See “Healthcare Information Services and Technology Solutions — Competition for Our Healthcare Information Services and Technology Solutions” below.

Recent Developments

      On March 4, 2004, WebMD sold $100 million of Convertible Redeemable Exchangeable Preferred Stock in a private transaction to CalPERS/PCG Corporate Partners, LLC. CalPERS/PCG is a private equity fund managed by the Pacific Corporate Group and principally backed by California Public Employees’ Retirement System, or CalPERS. Transfer of the Preferred Stock is subject to restrictions and holders may not engage in hedging transactions with respect to WebMD common stock.

      The Preferred Stock ranks senior to WebMD common stock with respect to rights upon liquidation, winding-up or dissolution. The Preferred Stock has a liquidation preference of $100 million in the aggregate and $10,000 per share. The Preferred Stock is convertible into 10,638,297 shares of WebMD common stock in the aggregate, representing a conversion price of $9.40 per share of common stock. We may not redeem the Preferred Stock prior to March 2007. Thereafter, we may redeem any portion of the Preferred Stock at 105% of its liquidation preference; provided that any redemption by us prior to March 2008 shall be subject to the condition that the average closing sale prices of WebMD common stock is at least $13.16 per share, subject to adjustment. We are required to redeem all shares of the Preferred Stock then outstanding in March 2012, at a redemption price equal to the liquidation preference, payable in cash or, at our option, in shares of WebMD common stock. Upon the occurrence of certain events constituting a change in control of WebMD or certain significant acquisitions by WebMD of businesses that are not related or complementary to its businesses, holders of the Preferred Stock will have the right to put their shares to WebMD at a purchase price equal to the liquidation preference of the Preferred Stock.

      If the average closing sales price of WebMD common stock during the three-month period ended on the fourth anniversary of the issuance date is less than $7.50 per share, holders of the Preferred Stock will have a right to exchange the Preferred Stock into WebMD’s 10% Subordinated Notes due March 2010. The Notes may be redeemed, in whole or in part, at any time thereafter at WebMD’s option at a price equal to 105% of the principal amount of Notes being redeemed.

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      Holders of Preferred Stock will not receive any dividends unless the holders of common stock do, in which case holders of Preferred Stock will be entitled to receive ordinary dividends in an amount equal to the ordinary dividends the holders of Preferred Stock would have received had they converted such Preferred Stock into common stock immediately prior to the record date for such dividend distribution. So long as the Preferred Stock remains outstanding, WebMD is required to pay a quarterly fee to CalPERS/PCG of 0.35% of the face amount of the then outstanding Preferred Stock.

      We have agreed that we will not, without the prior written consent of holders of 75% of the shares of Preferred Stock then outstanding, issue any additional shares of Preferred Stock or create any other class or series of capital stock that ranks equal or senior to the Preferred Stock. We also have agreed to use our reasonable best efforts to amend our charter at our next Annual Meeting of Stockholders to provide that the holders of the shares of Preferred Stock will have the right to vote, together with the holders of WebMD common stock, on matters that are put to a vote of holders of WebMD common stock, with holders of Preferred Stock having the right to cast the number of votes that could be cast by a holder of the WebMD common stock into which the Preferred Stock would be convertible immediately prior to the record date for the vote.

      Holders of the shares of WebMD common stock issued upon conversion of the Preferred Stock and any shares of the WebMD common stock issued upon satisfaction of our right to redeem Preferred Stock will have certain registration rights in respect of their shares of common stock, beginning in March 2006.

      WebMD intends to use the net proceeds from the private placement for general corporate purposes, which may include acquisitions.

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HEALTHCARE INFORMATION SERVICES AND TECHNOLOGY SOLUTIONS

      There are many types of transactions, information exchanges and other communications that occur between the various participants in the healthcare industry, including physicians, patients, pharmacies, dentists, hospitals, billing services, commercial health insurance companies, pharmacy benefit management companies, managed care organizations, state and federal government agencies and others. We offer a comprehensive suite of transaction and information services and technology solutions to healthcare industry participants. These integrated and stand-alone products and services are designed to facilitate transactions, information exchange and communication among healthcare industry participants and to operate on various platforms, including the Internet, private intranets and other networks.

WebMD Health

Overview

      WebMD Health, our Portal Services segment, offers a variety of online resources and services for consumers and healthcare professionals, including:

•  WebMD Health, our consumer portal, which is located at www.webmd.com. WebMD Health provides access to health and wellness content. We also distribute our content, and reach additional consumers, through AOL Health with WebMD and MSN Health with WebMD. In addition, WebMD Health offers paid subscription services that provide consumers with access to interactive tools, personalized in-depth content and expertise from leaders in their fields.

•  Medscape from WebMD, our portal for physicians and allied healthcare professionals, which is located at www.medscape.com. At Medscape, physicians and other healthcare professionals have access to resources that include timely medical news and professional conference coverage, continuing medical education activities, full-text medical journal articles and drug and medical literature databases.

We also license our content to health plans and other healthcare partners for use on their Web sites, in some cases as part of providing a co-branded site and in some cases on a private label basis under the partner’s branding.

      We reach a large audience of health-involved consumers and clinically active healthcare professionals. We work closely with pharmaceutical, medical device and other healthcare companies to develop innovative online channels of communication to our audience, or specific portions of our audience, that complement their offline education, marketing and customer service programs. These companies can sponsor specific pages or sections of our portals or specific events, programs and newsletters, all of which are clearly labeled as sourced from or sponsored by the specific sponsor. In addition, sponsors can reach specific demographic groups, condition-specific groups or specialty-specific groups through our portals and through newsletters that members have requested based on their interests. Performance of our sponsored programs, including the aggregate number of impressions, visitors and actions taken, is tracked and reported to the sponsor on a regular basis.

      Through our WebMD Health Services business, we provide web-based tools and applications to employers and health plans for use by their employees and plan members. These tools and services provide a framework for better decision-making by healthcare consumers and can assist employers and plans in managing demand while improving quality of care.

      We generate the majority of our Portal Services revenue by selling sponsorships of specific pages, sections or events on our portals and related e-mailed newsletters, by selling advertising on our portals and the online and offline properties of our strategic partners, and by licensing our content and our online tools and related software and services. Historically, the majority of our Portal Services revenues have come from a small number of companies. Our WebMD Health customers include pharmaceutical, biotech and

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medical device companies, employers and health plans and media distribution companies. WebMD Health also receives a small portion of its revenues from the sale of paid subscription services.

WebMD Health Consumer Portal

      General. Consumer interest in convenient and reliable sources of general information on health and wellness topics continues to grow. In addition, consumers increasingly seek to educate themselves about available treatment options for specific health conditions or injuries. We believe that these trends are likely to continue, as consumers are asked to bear an increasingly large share of their healthcare expenditures due to changes in the design of the medical plans and prescription drug plans being offered by payers and employers. Traditional media have sought to meet this demand by introducing magazines focused on health and wellness and by increasing news coverage of healthcare-related issues. The Internet allows us to offer consumers the resources they are looking for, with immediate access to searchable information and dynamic interactive content.

      WebMD Health provides access to health and wellness news and information, support communities, interactive tools and opportunities to purchase health-related products and services. There are no membership fees and no general usage charges for the site; however, we do charge usage or subscription fees for some premium content and services. See “— WebMD Health Subscription Services” below.

      Content Offerings. The content and service offerings on WebMD Health include:

•  Original and Licensed Content. We offer proprietary, medically reviewed health and wellness news articles written daily by our staff of journalists. We also offer searchable access to a library of health and wellness articles, reference information and interactive presentations, some of which we own and some of which we have licensed from others. Our articles and other content cover various health-related topics, including: specific diseases and chronic health conditions, medical tests, pregnancy and parenting, diet and nutrition, fitness and sports medicine, and sexuality and relationships.

•  Membership. Consumers can choose to become members of WebMD Health, which allows them to make use of certain WebMD interactive content and services. Members can also select from more than 32 different e-mail newsletters on health-related topics or specific conditions and have access to our communities and events, as described below. We have built a large consumer membership, most of whom have chosen to receive our clinical alerts, newsletters and reports on specific diseases, conditions and other health and wellness topics.

•  Communities. Our communities allow our members to participate in real-time discussions in our chat rooms and on our message boards. Members can share experiences and exchange information with other members who share their health condition or concern. Members can also use our “Ask the Experts” service to post their health questions for experts.

•  Events. Our events include one-time programs and series in which experts make presentations and answer questions on specific health-related topics. Our events also include WebMD University programs, which are four week courses, live moderated by experts, on specific subjects. WebMD University programs have included: Take Charge of Your Diabetes; Feeding Your Self, Feeding Your Baby; Alive and Well, Taking Charge of Your Breast Cancer Treatments; and Stories of Survivors, Your Breast Cancer Guide.

•  Interactive Personal Health Management Tools and Other Features. We provide access to interactive tools, calculators, quizzes and illustrated guides and slide shows on health topics. Our interactive tools include a pregnancy calendar, body mass index tool and a calorie counter. Our slide shows cover topics such as mammograms, fetal positions and common visual problems.

•  Physician Directory and Related Services. WebMD Health also has features that allow consumers to search for a physician or clinic in their area. The WebMD Physician Directory contains information on practicing physicians throughout the U.S. Users can search for a doctor by location

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or specialty and based on HMO or hospital affiliations. The WebMD Physician Directory is provided by The Little Blue Book, which was acquired by WebMD in 2003. See “— Physician Directory Services” below.

      WebMD Health Subscription Services. WebMD Health also offers the following paid subscription services, which provide access to exclusive interactive tools, personalized in-depth content and expertise from leaders in their fields:

•  WebMD Health Manager. We offer, on a subscription basis to individual consumers, a suite of healthcare decision-making tools and related services, which includes some of those we license to health plans and employers for use by their members and employees. See “— WebMD Health Services Group” below.

•  WebMD Weight Loss Clinic. The WebMD Weight Loss Clinic is a subscription service that provides members with a customized eating plan based on individual food preferences and other information and resources relating to weight loss.

•  WebMD Fertility Center. The WebMD Fertility Center provides information, tools and personalized e-mail reminders relating to fertility, conception and pregnancy.

Medscape from WebMD

      Medscape from WebMD is designed to meet the information needs of medical professionals. Medscape from WebMD is organized by medical specialty area, such as hematology-oncology and cardiology, to make it easier for members to access the information most relevant to them. We also have areas organized by profession or interest area, including sites for nurses, pharmacists, medical students, users interested in medical policy and practice management issues, and members with a particular interest in technology and medicine. Our extensive and up-to-date medical content and easy-to-use search capabilities assist medical professionals in keeping abreast of medical advances and obtaining fast, accurate answers to medical questions online. There are no membership fees and no general usage charges for the site; however, we do charge usage or subscription fees for some premium content and services.

      Our content and service offerings, a combination of original material and content licensed from major professional publishers, are generally presented by specialty and include:

•  Continuing Medical Education (CME). More than 30 states and many medical specialty societies require physicians and selected other medical professionals to certify annually that they have accumulated a minimum number of CME hours to maintain licensure or membership. We offer a selection of free, regularly updated CME activities for physicians, registered nurses, pharmacists and other healthcare professionals, including original programs and online multimedia adaptations of live events. In addition, our CME Live offerings provide real time webcasts of CME programs on key topics and conditions, designed to educate healthcare professionals about timely clinical issues. These webcasts combine streaming audio and slide presentations and allow participants to interact with faculty. We also provide services that track CME credits accumulated through our site for our users. Many of our CME-certified programs also carry Continuing Education (CE) credit for nurses and/or pharmacists.

All of our CME activities have been planned and implemented in accordance with the Essential Areas and Policies of the Accreditation Council for Continuing Medical Education, or ACCME, which oversees providers of CME credit, and have been produced in collaboration with ACCME-accredited CME providers. In August 2002, ACCME awarded Medscape a two-year, provisional accreditation as a CME provider, allowing Medscape to certify online CME activities, which Medscape now does for most of its CME programs. We are currently in the process of seeking full accreditation.

In July 2002, Pharmaceutical Research and Manufacturers of America (PhRMA), a trade association of pharmaceutical manufacturers, instituted a new voluntary Code on Interactions with

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Healthcare Professionals, which outlined guidelines for how sales representatives and others involved in marketing pharmaceuticals should interact with healthcare professionals. The PhRMA Code is intended to help ensure that these interactions benefit patients and enhance the practice of medicine and to avoid concerns about inappropriate influence on the prescribing practices of physicians. The PhRMA Code provides that these interactions should not consist of entertainment, dining or recreation, but should focus on informing the healthcare professional about scientific and clinical information and supporting research and education. While providing subsidies directly to healthcare professionals for travel, lodging and other expenses of attending CME or scientific conferences is no longer permitted, sponsorship or underwriting of CME programs or conferences continues to be. We believe that the guidelines contained in this Code are likely to benefit providers of online CME and other online informational materials for healthcare professionals, such as Medscape, as pharmaceutical manufacturers seek efficient, effective and appropriate sponsorships and channels of communication.

•  Newsletters. Members receive MedPulse, our weekly e-mail newsletter, which is published in more than 25 specialty-specific editions and highlights new information and CME activities on the Medscape site of interest to each particular specialty. We also provide commercially supported “Special Reports” newsletters, which contain information on specific conditions and treatments.

•  Medical Conference Coverage. We provide overviews and analysis of key data and presentations from about 150 professional meetings each year, including major conferences in a variety of specialties. This benefits our members who were unable to attend and those who did attend but might not have been able to see all of the presentations of interest to them, as well as the sponsors of the conferences, by increasing the size of the audience exposed to this material. We cover a number of these conferences in collaboration with the societies and organizations that present them.

•  Medical News and Clinical Alerts. We provide original, daily medical news stories written by our staff of journalists and reviewed by our staff of physicians, in addition to news provided by professional wire services. Our news group also regularly produces analytical reports based on interviews with experts and newsmakers. In addition, we provide real-time alerts on such critical clinical issues as pharmaceutical recalls and product advisories.

•  Resource Centers. Resource Centers are regularly updated collections of clinical content, selected by Medscape’s editors, focused on a specific topic, condition or theme. Content includes news, journal articles, conference coverage, expert columns and CME programs. Medscape currently has more than 60 Resource Centers across multiple specialties.

•  Electronic Journals. Medscape publishes an original electronic-only journal, Medscape General Medicine (MedGenMed), indexed in the National Library of Medicine’s MEDLINE reference database. MedGenMed, the world’s first online-only, primary source, peer-reviewed general medical journal, was established in April 1999. As of March 2004, it had published more than 1,100 papers. Since December 2002, MedGenMed at www.medgenmed.com has included specialty sections for HIV-AIDS, Gastroenterology, Hematology-Oncology, Pulmonary Medicine, OB-Gyn and Women’s Health, Orthopedics and Sports Medicine and Psychiatry/ Mental Health, Neurology, and Technology and Medicine. Medscape also publishes Topics in Advanced Practice Nursing, which is indexed in CINAHL, the Cumulative Index of Nursing and Allied Health Literature.

•  Medscape Publishers’ Circle. Medscape Publishers’ Circle is a collection of high-quality clinical information from prominent medical publishers, available free to registered Medscape members.

•  Medical Reference Applications. Our medical reference applications include access to various medically related databases and abstracts.

•  Medical Reference Services. These services include the professional medical reference texts ACP Medicine (formerly WebMD Scientific American® Medicine) and ACS Surgery: Principles and Practice (formerly Scientific American Surgery), each available for sale by subscription to individual physicians and to institutions in multiple formats (print, CD-ROM and Online). ACP Medicine has

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been a comprehensive and continually updated internal medicine reference for 25 years. ACP Medicine and ACS Surgery are official publications of the American College of Physicians and the American College of Surgeons, respectively, although wholly owned by WebMD.

      Users must register as members to utilize the features of Medscape from WebMD. This enables us to deliver targeted medical content based on our members’ registration profiles. The registration process enables professional members to choose a home page tailored to their medical specialty or interest. For example, a member registered as a cardiologist is automatically directed to Medscape Cardiology, rather than a more generic home page.

WebMD Health Services Group

      Through the WebMD Health Services Group, formerly known as WellMed, we provide employers and healthcare plans with a suite of online tools and related services called the WebMD Health Hub. The WebMD Health Hub integrates health and wellness content, a personal medical record, health assessment tools, decision support tools, health improvement programs and targeted messaging. The WebMD Health Hub provides a framework for better decision-making by healthcare consumers and allows employers and health plans to manage demand, while improving the quality of care and reducing administrative and communication costs. We receive fees from employers for use of our applications and services by their employees, and from health plans for use by their members. The WebMD Health Hub is also distributed through relationships with providers of benefits-related services as a part of their own offerings to employers.

      WebMD Health Hub applications are integrated into the client’s Intranet or Web site and work with the client’s specific health and benefit programs, disease management vendors and other health-related systems and content and can be co-branded or customized to match client branding and “look and feel.” The core products and applications that make up the WebMD Health Hub are Personal Health Manager, Personal Health Insight, Personal Health Decisions and HubX:

•  Personal Health Manager is a suite of consumer applications that provides a personalized framework to manage health, wellness and benefit information and facilitate healthy behavior, including health risk and condition assessment tools, an online personal health record and health and lifestyle improvement programs.

•  Personal Health Insight is an online service center that provides specialized decision-support for clients, including aggregated information regarding utilization of the WebMD Health Services platform and results of messaging campaigns. With Personal Health Insight, employers and plans can analyze aggregate health data in real time, address population health risks and proactively implement preventive programs.

•  Personal Health Decisions is a set of benefit decision-support applications that explain benefit plan choices and facilitate informed selection and use of those benefits.

•  HubX is a platform that integrates employer or plan applications and data into the WebMD Health Hub. In addition, the HubX Data Interchange option provides functionality to import data, such as healthcare claims and medication claims, for greater personalization and targeted messaging and to export self-reported information from the WebMD Health Hub to care providers.

      By educating and encouraging their employees and plan members to take a more active role in their healthcare, employers and plans can realize cost savings from more informed decision-making, while also improving healthcare outcomes. Other potential benefits to an employer or plan include efficiently identifying and enrolling candidates in disease management or other health management programs.

Physician Directory Services

      In 2003, we acquired the company that publishes The Little Blue Book, a leading source of practice contact information for physicians since 1988. The pocket-sized reference book is published annually in 146 distinct metropolitan editions. Physicians utilize it for local and up-to-date physician information. All physicians are listed free of charge in their local metropolitan-area edition, along with their specialties,

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HMO affiliations, hospital affiliations, office addresses, telephone numbers and Medicare-assigned Unique Physician Identification Number (UPIN). The database used to create The Little Blue Book contains practice information on approximately 400,000 practicing physicians. WebMD Health receives revenues from sales of The Little Blue Book, as well as from sponsors and advertisers in those books, most of whom are pharmaceutical companies. Pharmaceutical companies also purchase copies of The Little Blue Book for distribution to physicians. In addition, we use the database to provide physician information on the consumer portal. We also publish and sell to physicians The Little Yellow Book, a directory of physicians’ fax and e-mail information for 146 metropolitan areas.

Sales and Marketing

      A team of sales, marketing and account management personnel represents WebMD Health and Medscape from WebMD to pharmaceutical companies, medical device companies, health plans and other healthcare and consumer companies. These individuals work closely with clients and potential clients to develop innovative means of using our portals to bring their companies, and their products and services, to the attention of target groups of consumers and healthcare professionals and to create channels of communication with these audiences.

      A separate team of sales, marketing and account management personnel represents WebMD Health Services Group to employers and health plans. These individuals customize our services for each client according to the client’s specific plan design and business objectives. We also promote and distribute WebMD Health Services Group through relationships with employee benefits consultants and other companies that assist employers in purchasing or managing employee benefits.

      We seek to attract traffic and new members to WebMD Health through a variety of methods, including online and offline media campaigns. The primary focus of our media campaigns has been member registration. We promote WebMD Health’s subscription services through our consumer portal and our e-mailed newsletters.

      We seek to attract traffic and new members to Medscape through a variety of methods, including advertising on other Internet sites and in medical journals, pharmaceutical and other healthcare publications and other targeted publications. We also promote Medscape at industry conferences, trade shows and medical meetings and by using direct mail.

WebMD Envoy

Overview

      To ensure timely reimbursement and comply with managed care requirements, healthcare providers must interact effectively with healthcare payers from the first point of patient contact until final payment has been received. Unfortunately, in these interactions, providers and payers often juggle a confusing combination of electronic and manual processes, phone calls and faxes, and disparate software systems. WebMD Envoy, our Transaction Services segment, provides an electronic link between payers and providers that allows them to conduct medical, pharmacy and dental transactions electronically. However, WebMD Envoy provides much more than just a clearinghouse connection — we provide electronic reimbursement cycle management solutions that can be used by payers and providers to automate the entire reimbursement process. In addition, as a complement to our electronic transmission services, our WebMD ExpressBill operations provide print-and-mail services to providers, including patient statement processing, and, through Advanced Business Fulfillment, Inc., which we acquired in July 2003, we provide healthcare paid-claims communications services for third-party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanations of benefits. We also provide connectivity and tools for automating clinical functions.

      The customers for WebMD Envoy’s services consist of healthcare providers, such as physician offices, dental offices, billing services, national laboratories, pharmacies, hospitals, and healthcare payers, including Medicare and Medicaid agencies, Blue Cross and Blue Shield organizations, pharmacy benefit management companies, commercial health insurance companies and managed care organizations.

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Healthcare payers and providers pay fees to us for our services, generally on a per transaction basis or, in the case of some providers, as a flat rate per month. Transaction fees vary according to the type of transaction and other factors, such as volume level commitments. We may also charge one-time implementation fees to providers and payers. A significant portion of our WebMD Envoy revenues come from the country’s leading national and regional healthcare payers.

      We work with numerous medical and dental practice management system vendors, hospital information system vendors and other service providers to provide integrated transaction processing between their systems and our clearinghouse. Most practice management and hospital information systems support, and can be integrated with, WebMD Envoy transaction services. Many practice management system vendors, including WebMD Practice Services, market a private label brand of our transaction services that they have integrated with their systems. We pay a sales commission, based on volume, to some of these vendors as an inducement to use WebMD Envoy. We have long-standing relationships with many vendors of practice management systems. Medifax-EDI, which we acquired at the end of 2003, has similar relationships with vendors of hospital information systems. We work together with these vendors to increase the percentage of healthcare transactions that are handled electronically.

EDI Transaction Services

      General. We provide our payer and provider customers connectivity and transaction services through an integrated electronic transaction processing system, which includes proprietary software, host computer hardware, network management, switching services and interfaces. We refer to these services as electronic data interchange, or EDI. Our EDI transaction services reduce paperwork and the need for communication by mail, telephone and fax, resulting in cost savings for payers and providers. These services also expedite the reimbursement process, which can result in a lower average number of outstanding accounts receivable days for providers. A further benefit to payers is that they are able to more easily detect fraud and screen for unusual utilization trends.

      Providers access our transaction services both directly and through their relationships with integrated delivery networks, clinics, physician and dental practice management system vendors, hospital information management system vendors, and retail pharmacy chains. Providers initiate transactions using our proprietary applications, their practice management systems or other computer systems or networks. Providers submit transactions to our clearinghouse by modem connections using regular telephone lines, using dedicated high speed telecommunications services and over the Internet. At our clearinghouse, the transaction is edited for accuracy, validated for format and completeness, then translated in accordance with the payer’s specifications and sent to the payer’s claims adjudication and/or real-time database systems.

      We maintain direct connections with many healthcare payers, including Medicare contractors and Medicaid agencies, Blue Cross and Blue Shield organizations, commercial health insurance companies, pharmacy benefit management companies and managed care organizations. Our direct payer connectivity facilitates high levels of service by minimizing the number of intermediaries between the provider and the payer. Our direct connections with payers typically consist of dedicated networks between the payer and our clearinghouse. Most transactions are currently transmitted to the payers using our proprietary software and dedicated telephone lines, with some transmitted securely over the Internet. Other clearinghouses also use our services to transmit transactions that they have received from providers to payers. We make payments, based on volume, to some of these clearinghouses as an inducement to use WebMD Envoy to complete the transactions submitted through their systems.

      Medical and Dental Administrative Services. Our medical and dental administrative services provide the connectivity and transaction processing services needed for providers and payers in the healthcare

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industry to automate key business functions and communicate with each other. WebMD Envoy provides connectivity throughout the healthcare reimbursement cycle:

•  beginning with insurance eligibility verification,

•  continuing through the claim submission process,

•  followed by tracking the reimbursement through claim status inquiries, and

•  concluding with electronic remittance information and payment posting.

Providers can submit real-time or batch claims to us for processing and reimbursement by payers and inquire as to the status of claims previously submitted. Most claims are submitted to us as batch claims, which are collected by providers throughout the day and submitted to us in bulk. We then sort, format and edit the claims to meet each particular payer’s requirements before transmission to the payer. Providers can receive an electronic remittance advice which provides payer payment information and an explanation of the settlement of a related claim. Providers can also use our services to verify patient enrollment and eligibility and to obtain authorization from payers, at the point of care, for services and referrals to other providers. Our acquisition of Medifax-EDI at the end of 2003 has strengthened our service offerings for these types of transactions.

      Our “all-payer” suite of services includes the capture, validation and routing of claims transactions on behalf of not just commercial payers, but also Blue Cross Blue Shield payers, Medicare and Medicaid. Additionally, our all-payer services include the return of an electronic remittance transaction, which is the equivalent of a paper explanation of benefits, or EOB, from all the payers back to the originating provider. The goal is to provide a single source EDI reimbursement cycle management solution for providers and practice management system vendors. A single EDI solution reduces administrative burdens on the provider office in sending claims transactions and receiving electronic remittance advice transactions and, more importantly, allows us to provide a single report back to the provider office regarding those transactions. That, in turn, allows the provider office to determine more easily whether it has been paid on a particular claim and how much. Provider offices without such a solution typically receive five or more different reports that they then have to reconcile in order to manage their accounts receivable. Implementation of our “all-payer” services has presented technical, operational and customer service challenges and has resulted in a large increase in the amount of transactions we transmit to Blue Cross Blue Shield payers, Medicare and Medicaid which, in certain cases, has caused service delays. In addition, this implementation, happening together with the implementation of the HIPAA Transaction Standards, has required, and continues to require, system upgrades, additional programming and changes in our processes and procedures. We have been incurring, and expect to continue to incur, significant expenses relating to the “all-payer” implementation, including system upgrades and testing and related quality assurance activities.

      We provide various products designed to assist healthcare providers and payers in utilizing our administrative services, including:

•  WebMD Office. Through our WebMD Office Internet-based service, providers can securely access our transaction services through either a standard dial-up or high speed DSL or cable modem. WebMD Office can be used as a stand-alone system or as a complement to a practice management system through an import and data management function that allows transactions to be generated from the practice management system and submitted through WebMD Office. In addition, our practice management system vendor partners may elect to market a private-label brand version of WebMD Office.

•  AccuClaim Plus. Our AccuClaim Plus solution is designed for the claims submission processes of hospitals and large physician practices. AccuClaim Plus interfaces with their existing management systems, importing claim files and subjecting them to payer-specific edits, prompting users to correct claim errors prior to submission to payers in order to minimize the claim rejection rate while increasing the first pass and auto-adjudication rate at the payer’s adjudication system.

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•  WebMD Empower. WebMD Empower is an EDI-enabling software and data hosting solution that gives healthcare payers the ability to automate communication with their providers through our network, using our infrastructure. WebMD Empower takes claims data submitted to the WebMD Envoy clearinghouse, applies value-added editing, including checks against payer-specific business rules and data, and sends it directly to the payer’s information system. For real-time transactions, WebMD Empower works by downloading appropriate eligibility, provider, benefit, referral/authorization and claims data from the payer’s system onto our server. Downloads are performed periodically or in real time as information in the payer’s database is updated.

•  Medifax Assistant. Medifax Assistant integrates with hospital information systems (HIS) to automate various registration activities such as insurance eligibility verification, credit checking and address verification. Medifax Assistant can be configured to automatically perform real-time tasks during patient registration. This saves the registration staff time by eliminating the need to use separate systems for registration and for eligibility verification. The eligibility response can be automatically stored within the patient record as a permanent reference.

•  Medifax Receivable Analysis. Medifax Receivable Analysis is an electronic screening service designed to verify Medicaid and other forms of insurance eligibility in an electronic batch format. The healthcare provider submits a file electronically and the file is processed against the Medifax-EDI payer databases to determine eligibility. Medifax customers use this service to identify Medicaid and other forms of eligibility that may apply to patients who have been classified as not having coverage. The resulting reclassification often results in significant reimbursements.

      Pharmacy Administrative Services. A typical pharmacy benefit transaction takes place in a real-time setting using a pharmacy management system or other claim submission product. The claim is submitted to WebMD Envoy in a standard format and includes all required information about the prescription. The claim is then routed to the appropriate adjudicating processor where the claim is processed within seconds. Response information includes patient coverage, formulary compliance (specific drug coverage), potential drug interactions, patient’s co-payment due and anticipated reimbursement amount due to the pharmacy from the payer. Final dollar amounts due to the pharmacy are typically paid by the payer 15-30 days after claim submission.

      Lab Ordering and Reporting Services. We provide clinical lab ordering and reporting services through WebMD Clinician, our Internet-based product. This product supports the ordering of clinical tests and the reporting of test results between healthcare providers and labs. WebMD Clinician reduces costs and improves the quality of patient care by improving order entry accuracy and expediting the delivery of lab results, while enhancing the ability to share those results with multiple physicians. In addition, we provide similar services to practice management system vendors, hospital information system vendors and electronic medical record vendors through an application programming interface known as Clinician eXT.

Other Communications Services

      ABF. In July 2003, WebMD Envoy acquired Advanced Business Fulfillment, Inc., which we refer to as ABF, a provider of healthcare paid-claims communication services for healthcare payers. ABF’s operations are supported by proprietary software and systems that allow healthcare payers to outsource print-and-mail activities by sending an electronic feed to ABF. By outsourcing these services to ABF, its clients can reduce operating costs and capital expenditures. ABF’s systems include a Web-based suite of management tools to facilitate the printing and mailing of checks and remittance advice to providers and EOBs to plan members. These management tools allow clients to control the processes they have outsourced to ABF and to access archived data from their desktops. ABF has worked closely with leading claims processing system vendors to allow its software to interface with their systems. In return for marketing ABF’s post-adjudication services and for the creation and maintenance of an ABF-specific data extract, ABF makes periodic payments to vendor partners based on transaction volumes.

      Healthpayers USA is ABF’s proprietary program to cross-consolidate provider mail in order to create savings in postal costs for its clients. Healthpayers USA screens, sorts and consolidates mail from any

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number of its clients destined for a single provider into one package and automatically produces a recipient cover sheet that itemizes the contents. ABF and its clients share the resulting postal savings.

      WebMD ExpressBill. Through WebMD ExpressBill, we provide print-and-mail services to healthcare practitioners, hospitals and high volume commercial customers throughout the United States. WebMD ExpressBill accepts client data via modem or the Internet, generates printed materials and prepares them for mailing. Our WebMD ExpressBill services include:

•  Patient Mailings. On behalf of healthcare provider customers, we print invoices, account statements, collection letters, recall notices and other communications and mail them to patients.

•  Paper Claims. Claims that cannot be sent electronically to payers can be sent by healthcare providers electronically to WebMD ExpressBill, where we print and mail them on their behalf.

•  Payment Processing. We process payments on behalf of providers and other customers, receiving and depositing checks, posting payments and transmitting funds in accordance with customer instructions.

•  Electronic Payment Services. Our electronic payment services offer healthcare providers the ability to receive payment via the Internet.

HIPAA

      Under the Healthcare Insurance Portability and Accountability Act of 1996, or HIPAA, Congress mandated a package of interlocking administrative simplification rules, including rules to establish standards and requirements for the electronic transmission of certain health information, which we refer to as the Transaction Standards. As a supplier of EDI-enabling products and connectivity services to patients, payers, providers and third party vendors, WebMD Envoy is affected by many of the HIPAA provisions, including the Transaction Standards.

      In order to implement the Transaction Standards, WebMD Envoy has made and continues to make significant changes to its systems and the software it uses internally. Similarly, the implementation has required payers and providers to simultaneously implement changes to their systems and/or internal procedures. As a result, this implementation process and related testing has been an immense challenge for the healthcare industry, including WebMD. However, it also represents a great opportunity for the industry and for us, because it encourages payer/provider connectivity to evolve from its current focus on the sending and receiving of claims to automating ancillary transactions, such as eligibility, status or remittance.

      We believe that, even though the intent of HIPAA was to make electronic transactions more standardized, the use of clearinghouses will continue to be the most efficient way for most providers to send their electronic claims and related transactions to multiple payers. The standardization resulting from implementation of Transaction Standards is only partial: payer systems and requirements continue to vary in certain respects even after HIPAA implementation and will continue to evolve and change in the future. Payers have published approximately 440 “Companion Guides” setting forth their individual interpretations of the Transaction Standards and that number can be expected to continue to grow. These payer-specific interpretations require us to perform extensive customized programming and related testing. Another source of the implementation challenges resulting from the Transaction Standards is the increase in computing capacity required. The Transaction Standards formats are much larger than the pre-existing ones. We are utilizing more computing capacity than we had anticipated. As a result, our systems have experienced inefficiencies that have resulted in processing delays. Another difficulty for us and our provider customers results from the fact that the Transaction Standards cover not only transaction formats, but also required content, including some content not previously collected by most providers. We continue to work with payers, providers, practice management system vendors and other healthcare participants to implement the Transaction Standards. For more information regarding challenges involved in such implementation and a description of the HIPAA regulations, see “Business — Government Regulation — Health Insurance Portability and Accountability Act of 1996” below.

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Sales and Marketing

      Our WebMD Envoy sales and marketing efforts are conducted by sales, marketing and account management personnel located throughout the United States. We participate in trade shows and use direct mail and various advertising media to promote our services.

•  We promote our EDI services to organizations that have relationships with or access to a large number of providers, such as practice management systems vendors, hospital information systems vendors, practice management companies and other clearinghouses. In certain cases, we agree to pay a sales commission based on transaction volume to these organizations as an inducement to use WebMD Envoy as the clearinghouse for the transactions made through their systems or by providers with which they have relationships.

•  We also market our EDI services directly to healthcare payers, as well as to small and large physician practices, dentists, hospitals and other healthcare providers. We offer our payer customers the opportunity to work with us in targeted programs to educate physicians and dentists to increase the utilization of electronic services. When a payer agrees to participate in such a program, WebMD utilizes information supplied by the payer to target providers that may not be sending claims electronically.

•  In the pharmacy EDI area, WebMD Envoy has established relationships with large retail pharmacy chains and pharmacy software vendors.

•  In the post-adjudication services area, we have established relationships with vendors of claims processing software. Our ABF account management personnel also market directly to healthcare payers and, as part of their sales effort, provide potential clients with an operational audit and identify the efficiencies that we believe we can help them achieve.

WebMD Practice Services

Overview

      WebMD Practice Services, our Physician Services segment, develops and markets information technology systems for healthcare providers, primarily under The Medical Manager, Intergy, ULTIA and Medical Manager Network Services brands. Our systems include administrative and financial applications that enable healthcare providers and their administrative personnel to manage their practices more efficiently and clinical applications that assist them in delivering quality patient care. These applications and related services:

•  automate scheduling, billing, receivables management and other administrative and financial management tasks,

•  enable providers to maintain electronic medical records and to automate the documentation of patient encounters, and

•  facilitate the use of electronic data interchange for administrative and clinical healthcare transactions.

We expect that most of our future sales of practice management systems will be Intergy systems. However, we intend to continue to develop and support The Medical Manager system, which is currently the most widely used physician practice management system in the United States.

      Healthcare providers pay us a one-time license fee for the purchase of a license to our software or to additional software modules and for system hardware and also pay us recurring fees for the maintenance and support of our software. Many providers also pay us recurring fees for the provision of hardware support and maintenance. Pricing depends on several factors, including the number and type of modules to

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be licensed, the number of users per site, the number of practices, the operating system, the hardware to be supported and the complexity of the installation. Healthcare providers pay us fees for our Medical Manager Network Services transactions services, generally on a per provider per month subscription basis or a per transaction basis.

Practice Management Systems

      Intergy. Intergy, our new practice management software product, is the result of a significant, multi-year commitment to engineering and development of a completely new practice management system. The Intergy system’s graphical user interface (GUI) packages complex medical practice functions into easy-to-navigate windows with consistent point-and-click drop down menus and buttons. The Intergy software operates on Windows and UNIX based servers, together with Windows based workstations.

      Intergy systems are scalable to meet the needs of a wide variety of healthcare provider settings, from small physician groups to large clinics, and across various medical specialties. Customers can purchase a base system and then add additional modules and services over time to expand their use of technology as needed. The Intergy base package allows an office to automate appointment scheduling and recalls, registration, encounter form management, billing, collections and other administrative and financial functions. The Intergy system also has a customizable security system, with access to functions and features that can be defined for each user based on practice policies and procedures.

      One of our optional Intergy administrative and financial modules is the managed care system, which provides functions required to track incoming and outgoing referrals to facilities and specialists and to provide risk management capabilities. The managed care system assists providers in automating referral management, capitation payment posting, and contract management and profitability tracking. The system is designed to work in all managed care scenarios, including primary and specialty care. Optional clinical modules include imaging systems, tools that can be used to create and maintain electronic medical records and automate the documentation of patient encounters at the point of care, manage clinical workflow, write and send electronic prescriptions, and request and review laboratory tests and results. We believe that there is a significant opportunity to increase the use by physician practices of electronic medical record systems and are focusing on cross-selling these products and services to our existing customers and as part of our new systems sales. See “— EMR and Imaging Systems” below for descriptions of these products and services. Intergy users can also elect to implement some or all of the integrated products and services described below under “— Additional Products and Services,” including our ULTIA handheld wireless device and our Medical Manager Network Services connectivity services.

      The Medical Manager. The Medical Manager system provides physician practices with a broad range of patient care and practice management features. We also offer The Medical Manager system in customized versions to meet the functionality needs of public health and community health markets and family planning clinics and intend to continue to market The Medical Manager system in these formats.

      The Medical Manager software’s base package serves as the foundation of the system and includes an appointment scheduler, billing system, financial management system and other features. Additional modules containing advanced administrative and financial features are also available, including automated collections, advanced billing and multiple resource scheduling and managed care modules. The Medical Manager system also has optional electronic medical record and document and image management system products. See “— EMR and Imaging Systems” below. The Medical Manager users can elect to implement some or all of the integrated products and services described below under “— Additional Products and Services,” including our ULTIA handheld wireless device and our Medical Manager Network Services connectivity services.

      Other Practice Management Systems. Through our acquisitions of various businesses, we have also obtained ownership of other practice management systems with smaller user bases, including the practice management systems previously owned by Physician Computer Network, Inc., or PCN. We currently support these other systems and may provide periodic updates to the users of some of these systems. We face competition for the support services we market to users of these practice management systems. See

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“Competition for Our Healthcare Information Services and Technology Solutions” below. In addition, although we seek to market our Intergy practice management system to these customers when they are evaluating the purchase of a new system, we face competition from numerous other vendors of practice management systems. If our existing customers choose a practice management system from a competing vendor, they will no longer need support services from us. Loss of a significant number of these customers could have a material adverse effect on our Practice Services revenues.

Medical Manager Network Services

      Our practice management systems support integrated use of our WebMD Envoy EDI services through Medical Manager Network Services. For a description of WebMD Envoy’s EDI services, see “WebMD Envoy” above. The administrative transactions supported include electronic claims, claims status inquiry, eligibility verification, electronic referral authorization/status, patient statements and remittances. We also provide connectivity to laboratories, pharmacies, third party connectivity networks and hospitals and credit card authorization services. Users of our practice management systems can also choose third party EDI transaction service providers to transmit their transactions.

      Through Medical Manager Network Services, providers have access to EDI functionality that is integrated into their practice management workflow and recordkeeping systems. Integrated EDI allows providers and their staff to send and receive EDI transactions from within the practice management system and to generate reports regarding these transactions, including whether submitted claims have been accepted or rejected. These capabilities can be combined with our “all-payer” suite of transaction services to provide a single-source electronic reimbursement management solution (see “WebMD Envoy” above). In addition, our systems allow automated eligibility verification by contacting payers electronically overnight so that the practice can start the day with pre-checked eligibility and benefits for each scheduled patient. This information is stored as part of the patient’s record. In addition, eligibility checking for unscheduled patients can be performed in real time.

      As discussed more fully under “— Government Regulation — Health Insurance Portability and Accountability Act of 1996 — Transaction Standards” below, the process of implementing the HIPAA Transaction Standards has been an immense challenge for the healthcare industry, including WebMD. However, it also represents a great opportunity for the industry and for us because it encourages payer/provider connectivity to evolve from its current focus on the sending and receiving of claims to automating ancillary transactions, such as eligibility, status or remittance. Implementation of our “all-payer” services has also presented technical, operational and customer service challenges. See “— WebMD Envoy — EDI Transaction Services — Medical and Dental Administrative Services” above. We continue to work diligently to identify and resolve any service problems as they occur. We are also working to foster communication among healthcare industry participants regarding how to achieve the intended benefits of the Transaction Standards with as little disruption to healthcare payment systems as possible. We have been incurring, and expect to continue to incur, significant expenses relating to the Transaction Standards and “all-payer” implementations, including for testing, quality assurance and customer service activities.

      Medical Manager Network Services also provides integrated access to our WebMD ExpressBill print-and-mail services for patient statements, collection notices and recall notices. Practices transmit the required data from Intergy or The Medical Manager systems to our processing center. From there, customized statements, letters and inserts and complete mailing services are provided. Customization options include logos and patient education inserts.

EMR and Imaging Systems

      Healthcare providers record, use and share various types of clinical data about their patients, including patient histories, examination notes, lab results, medication orders and referrals. Much of this data is currently recorded in handwritten or printed form on paper records, often referred to as patient charts. As the amount of patient information maintained by a practice increases, so do the logistical challenges of

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moving paper charts from site to site and physician to physician. Many healthcare organizations are finding that the most promising solution to this challenge is the use of electronic medical record, or EMR, and imaging systems. These systems allow providers to share patient charts and other medical records, access them simultaneously and view them from remote locations. EMR systems not only help healthcare providers enhance clinical processes and patient safety, they also assist them in sharing information appropriately and efficiently and in collecting and managing the data necessary to meet the requirements of third-party billing procedures and contractual requirements.

      Our suite of EMR applications allows healthcare providers that use Intergy or The Medical Manager practice management systems to computerize their patient records without disrupting the way they practice medicine. We also provide technical assistance and support that helps the practice transition from the paper chart to the fully electronic medical record. Our encounter documentation module automates the documentation of a patient encounter at the point of care. This product allows healthcare providers to generate progress notes — and estimated evaluation and management service levels — simply by pointing and clicking on the findings appropriate to a patient exam, reducing the need for transcription services and enhancing the accuracy of documentation of care provided. Customization tools allow the practice to create pre-defined, disease-specific templates, with lists of symptoms or other information that can be easily completed at any workstation.

      Our EMR suite includes a prescription module that automates the process of writing and tracking prescriptions, providing improved efficiency with both the clinical and administrative aspects of the prescription process. The resulting prescription can be printed or called in to the patient’s preferred pharmacy. With optional services through Medical Manager Network Services, practices can perform full drug utilization review (DUR) screenings, transmit prescriptions electronically to connected pharmacies, and verify formulary compliance with the patient’s health plan.

      Our Laboratory System module allows providers to access, review and maintain all lab results from within the EMR system. Practices may also arrange a sponsorship through national and regional laboratories to place orders and receive accurate and timely lab test results via a direct, bi-directional link with the sponsoring laboratory. Test results are received electronically from the sponsoring laboratory and are stored directly in the patient’s file for viewing, printing and analysis.

      Using our EMR applications, healthcare providers can locate all tasks needing their attention. For example, items on the provider’s clinical task list are automatically generated whenever a lab report is ready, a transcription needs to be signed, or a prescription refill needs approval. Tasks can then be completed using the system or forwarded to another provider in the practice, accompanied by appropriate notes.

      We also offer our Document Image Management (DIM) system, which is fully integrated with our Intergy and The Medical Manager practice management systems. The DIM system allows a practice to scan, store, catalog and retrieve documents, images and sound files in electronic form, which then becomes part of the patient’s medical record and can be accessed from multiple workstations simultaneously. DIM_DX, the diagnostic version of our imaging system, allows a practice to organize and store X-rays and other diagnostic images. Using an imaging system, multiple files can be viewed at the same time making it possible to view diagnostic reports alongside images or compare before-and-after images such as pre- and post-operative X-rays.

      Our Digital Office Manager module provides additional capabilities for the scanning and organization of documents that are practice-related rather than patient-specific. Documentation such as contracts and personnel records are easily and efficiently managed with the Digital Office Manager, which can handle video, Adobe® Acrobat® and sound files as well as spreadsheets and word processing documents.

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Additional Products and Services

      Maintenance and Support Services. We separately sell software support and maintenance services and hardware maintenance services to our customers. Through our software support and maintenance services, we:

•  provide customers with access to our telephone help desk, typically advising customers in the use and operation of our software and services and remotely accessing customers’ systems to provide support, and

•  in some cases, provide periodic releases to our software to customers.

Through our hardware maintenance services, we typically provide customers with on-site hardware technical service and, if necessary, the replacement of hardware components that fail to function properly. Our contracts for maintenance and support services are generally up to one year in duration. Our customers may decide whether or not to purchase maintenance and support services from us. In addition, some of these services are also available from third party providers. See “— Competition for Our Healthcare Information Services and Technology Solutions” below. We cannot provide assurance regarding the levels at which our customers will continue to purchase maintenance and support services after the expiration of existing contracts.

      ULTIA Handheld Solution. Healthcare providers are becoming increasingly aware of the benefits of using wireless handheld computers in their practices. ULTIA, our handheld point-of-care solution, combines the power of our clinical and administrative systems with the convenience of mobile handheld connectivity. ULTIA runs on a handheld device, such as a Compaq®iPaq®. From anywhere in the office, healthcare providers can use ULTIA with a wireless local area network, or LAN, to access information stored within, or to enter data into, the Intergy or The Medical Manager system, giving them instant access at the point-of-care to:

•  appointment schedules, hospital rounds information and clinical tasks needing the provider’s attention;

•  a user-friendly electronic prescription writer, with integrated DUR and formulary checking, which electronically submits prescriptions to the patient’s chosen pharmacy and, at the same time, adds prescription information directly to the patient’s electronic medical record in the Intergy or The Medical Manager software;

•  electronic lab ordering and reporting of results that can be viewed using ULTIA, available through the Intergy or The Medical Manager system in the provider’s office;

•  their patients’ electronic medical records, including demographic data, progress notes, medications, lab results, procedure histories and other information and transcribed patient documentation; and

•  a fully customized encounter form for capturing patient charges, which displays procedure and diagnosis codes in customized checklists and automatically posts charge information to the practice management system.

Physicians can also use ULTIA to digitally record dictation and then send the voice file electronically for transcription, reducing the number of devices the physician has to carry and reducing turn-around time.

      In addition, ULTIA provides a range of offsite functionality that can be used at hospitals and other remote locations. Using the wireless LAN connection, up to ten days of hospital rounds and patient data can be downloaded to the handheld device. This information is then accessible to the provider when he or she is working at another location. The provider can enter new data and capture patient charges, all of which are then uploaded to The Medical Manager or Intergy system when the provider returns to the office. Using ULTIA Online, providers can access remotely, using a secure Internet connection, the clinical, administrative and financial data on the Intergy or The Medical Manager system in their office. See “— ULTIA Online” below.

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      ULTIA Online. ULTIA Online allows physicians whose offices use the Intergy or The Medical Manager practice management systems to remotely access, via an encrypted Internet connection through our Medscape portal, information contained in their office’s practice management system, including daily schedules, patient records and clinical items that need their attention. This enables physicians to view, in a secure manner, information residing on their office-based computer system from any personal or handheld computer with a connection to the Internet. The physician can use this connection to send and receive secure email messages, to write and send electronic prescriptions, or to create laboratory orders and view test results. ULTIA Online also provides access to Medscape health content and related services. See “— WebMD Health — Medscape from WebMD” above.

      Remote Monitoring System. Our Remote Monitoring System, or RMS, allows for a pro-active approach to system support and maintenance. Real-time connections allow us to monitor installations of our Intergy and ULTIA systems for problems that need immediate attention or for potential problems that are likely to need attention in the near future or that are adversely affecting system performance. RMS checks for particular conditions on a fixed schedule. For example, when a server has reached a defined percentage of capacity, an alert is forwarded to us to analyze the situation. This type of monitoring allows the system to be supported regardless of whether our customers become aware of problems or report them. In addition, if a required technical component has failed, we will be alerted to take action without the time it takes for a customer to call our help desk and have a support representative analyze and address the issue. For example, RMS alerts us if a prescription sits in the prescription queue for more than 15 minutes, thus notifying us of a potential system or connection issue. That issue can then be immediately addressed, even if it has not yet come to the attention of, or been reported by, our customer. The RMS infrastructure can also be used as a cost-effective means to deliver software updates and other support.

      InfoPOINT and InfoCENTRAL. InfoPOINT, our decision support and reporting application, is designed to provide timely access to practice data for informed managerial decision-making and to automate the process of generating reports using data from The Medical Manager and Intergy systems. InfoPOINT also provides access to tools to analyze that data and to export it to other applications. InfoCENTRAL is a flexible data warehouse solution, designed to support ambulatory healthcare organizations such as group practices, managed care organizations and physician services organizations. InfoCENTRAL consolidates financial, administrative, clinical and other data and manages the interface to the practice management system.

Sales and Marketing

      We market and distribute our WebMD Practice Services systems and related services nationally through a direct sales organization, who are also supported by field technicians and training and support personnel. We also participate in trade shows and use direct mail and various advertising media to promote our systems and services. In the past few years, we have acquired a significant number of independent dealers of The Medical Manager software and independent dealers no longer constitute a significant sales and marketing channel for our software. We believe that the acquisition of independent dealers and resellers has enabled us to establish direct relationships with end users of our software products, providing us with an opportunity to offer a wider range of products and services to these end users.

Competition for Our Healthcare Information Services and Technology Solutions

      The markets for healthcare information services and technology solutions are intensely competitive, continually evolving and, in some cases, subject to rapid technological change. We have many competitors, including:

•  healthcare information system vendors and support providers, including physician practice management system and EMR system vendors and support providers;

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•  transaction processing companies, including those providing EDI and/or Internet-based services and those providing services through other means, such as paper and fax;

•  large information technology consulting service providers;

•  online services, portals or Web sites targeted to the healthcare industry, healthcare consumers and/or physicians generally, including both commercial sites and not-for-profit sites;

•  consortiums of health insurance companies and of pharmacy benefit management companies that have announced that they are developing electronic transaction services for use by their members and other potential customers;

•  publishers and distributors of traditional offline media, including those targeted to healthcare professionals, many of which have established or may establish their own Web sites or partner with other Web sites;

•  general purpose consumer online services and portals and other high-traffic Web sites that provide access to healthcare-related content and services;

•  public sector and non-profit Web sites that provide healthcare information without advertising or commercial sponsorships; and

•  vendors of healthcare information, products and services distributed through other means, including direct sales, mail and fax messaging.

We also compete, in some cases, with alliances formed by the above competitors. Major software, hardware and information systems companies, both with and without healthcare companies as their partners, offer or have announced their intention to offer products or services that are competitive with some of ours. Competitors for one or more of our healthcare information services and technology solutions include, among others, Amicore (a joint venture of IBM Corporation, Microsoft Corporation and Pfizer, Inc.), Allscripts Healthcare Solutions, Eclipsys Corporation, First Consulting Group, Inc., General Electric Corporation, IDX Systems Corporation, iVillage Inc., McKesson Corporation, Misys plc, NDCHealth Corporation, Per-Se Technologies, Inc., ProxyMed, Inc., Quality Systems, Inc., Siemens Corporation, TriZetto Group, Inc. and VitalWorks Inc. Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations may be better known than we are and have more customers than we do. We cannot provide assurance that we will be able to compete successfully against these organizations or any alliances they have formed or may form.

      Some of our existing payer and provider customers and some of our strategic partners may compete with us or plan to do so or belong to alliances that compete with us or plan to do so. For example, some payers currently offer, through affiliated clearinghouses, Web portals and other means, electronic data transmission services to healthcare providers that allow the provider to have a direct connection to the payer, bypassing third party EDI service providers such as WebMD Envoy. Any significant increase in the utilization of direct links between healthcare providers and payers could have a material adverse effect on our business and results of operations. We cannot provide assurance that we will be able to maintain our existing links to payers or develop new connections on satisfactory terms, if at all. In addition, some of our other services allow healthcare payers to outsource business processes that they have been or could be performing for themselves and, in order for us to be able to compete, use of our services must be more efficient than use of internal resources.

      WebMD Health faces competition both in attracting members and visitor traffic and in generating revenue from sponsors and others. We compete with numerous companies and organizations for the attention of healthcare professionals and consumers including traditional offline media such as network and cable television, print journals, conferences, continuing medical education programs and symposia. We also face significant competition from online information resources. There are many healthcare-related Web sites on the Internet. In addition, there are many companies that provide non- Internet based marketing and advertising services to the healthcare industry. These competitors include advertising agencies, consulting firms, marketing and communications companies and contract sales and marketing organiza-

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tions. In addition, to the extent that we are successful in increasing revenue from our portals, competition for our portals audience and the potential sources of revenue are likely to increase.

      WebMD Practices Services faces competition for the support services it markets to owners of The Medical Manager and Intergy practice management systems, as well as for similar services that we market to owners of certain other practice management systems that we have acquired. See “WebMD Practice Services — Additional Products and Services — Maintenance and Support Services” and “WebMD Practice Services — Practice Management Systems — Other Practice Management Systems” above. Physician practices may seek such support from third parties, including businesses that support or manage information technology for various types of clients and businesses that specialize in physician office management systems, some of whom may formerly have been independent dealers of The Medical Manager software or of practice management systems we have acquired. We cannot provide assurance that we will be able to compete successfully against these service providers. In addition, some physician practices, especially larger ones, may use their own employees and other internal resources to support their practice management systems.

POREX

Overview

      Our plastic technologies segment is known as Porex. Through Porex, we develop, manufacture and distribute proprietary porous plastic products and components used in healthcare, industrial and consumer applications. Porex also works with porous structures using other materials such as fiber and membranes. Our Porex customers include both end-users of its finished products as well as manufacturers that include our components in their products, which we refer to as original equipment manufacturers or OEMs.

      Porex is an international business with manufacturing operations in North America, Europe and Asia. Porex’s global sales and customer service network markets its products to customers in more than 65 countries. In 2003, Porex derived approximately 57% of its revenues from the United States, approximately 29% from Europe, approximately 11% from Asia and approximately 3% from Canada and Latin America.

Porex Products

      Porous Plastics. Porous plastics are permeable plastic structures having omni-directional (porous in all directions) inter-connecting pores to permit the flow of fluids and gases. These pores, depending upon the number and size, control the flow of liquids and gases. We manufacture porous plastics with pore sizes between approximately 1 and 500 micrometers. One micrometer is equal to one-millionth of a meter; an object of 40 micrometers in size is about as small as can be discerned by the naked eye. Our ability to control pore size provides the opportunity to serve numerous applications, including:

•  Filtering. In filtration applications, the pore structure acts as both a surface filter and a depth filter. The structure acts as a surface filter by trapping particles larger than its average pore size and as a depth filter by trapping much smaller particles deep in its complex channels. Unlike the direct passages in woven synthetic materials and metal screens, the pores in porous plastics join to form many tortuous paths. Examples of these applications include: filters for drinking water purification, air filters, fuel filters for power tools and appliances and other liquid filters for clarification of drugs, blood separation and chemicals.

•  Venting. In venting applications, the pore structure allows gases to easily escape while retaining fluids. Examples of these applications include: vents for medical devices, printers and automotive batteries; and caps and closures.

•  Wicking. When used as a wicking device, the pore structure creates capillary channels for liquid transfer allowing fluid to flow, or wick, from a reservoir. Examples of these applications include: nibs or tips for writing instruments, such as highlighters and coloring markers; fluid delivery components for printers and copiers; fragrance wicks; and absorbent media for diagnostic testing.

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•  Diffusing. When used in diffusion applications, porous plastic components emit a multitude of small, evenly distributed bubbles. Examples of these applications include air diffusers for fermentation, metal finishing and plating.

•  Muffling. In muffling applications, exhaust air is channeled through a tortuous path, causing significant sound reduction by breaking up and diffusing the sound waves. Examples of these applications include industrial mufflers for pneumatic equipment.

We produce porous plastic components and products in our own manufacturing facilities, which are equipped to manufacture products for our customers in custom-molded shapes, sheets, tubes or rods, depending on customer needs.

      Other Porous Media. We believe that, in some applications, fiber and other porous membranes are preferred over our standard porous plastic materials. We use fiber technology for applications requiring high flow rates. Based on the same principles used in making our standard porous plastic products, fibers are thermally bonded into a matrix. This fiber material is well-suited for use in filtration and wicking applications, including our products for the consumer fragrance market. We also use sub-micron porous polytetrafluoroethylene, or PTFE, membranes to serve product markets where porous plastics do not have the physical properties to meet application demands. PTFE material is commonly known as Teflon®.

      Markets for Our Porous Plastic Products. Our porous plastic products are used in healthcare, consumer and industrial applications, including the following:

•  Healthcare Products. We manufacture a variety of porous plastic components for the healthcare industry that are incorporated into the products of other manufacturers. These components are used to vent or diffuse gases or fluids and are used as membrane supports, including catheter vents, self-sealing valves in surgical vacuum canisters, fluid filtration components and components for diagnostic devices.

We also use proprietary porous plastic technology to produce Medpor® implants for use in aesthetic and reconstructive surgery of the head and face. These permanent implants, which are composed of biocompatible porous high-density plastics, allow for rapid growth of the patient’s tissue and capillary blood vessels. Since the initial product introduction in 1985, we have continued to introduce new products to meet the market’s needs for a variety of shapes, sizes and uses of porous plastic implants.

•  Consumer Products. Our porous plastics are used in a variety of office and home products. These products include writing instrument tips, or “nibs,” which we supply to manufacturers of highlighting pens and children’s coloring markers. The porous nib conducts the ink stored in the pen barrel to the writing surface by capillary action. Our porous plastic components are also found in products such as air fresheners, power tool dust canisters and computer printers. We also produce a variety of porous plastic water filters used to improve the taste and safety of drinking water.

•  Industrial Products. We manufactures a variety of custom porous plastic components for industrial applications, designed to customer specifications as to size, rigidity, porosity and other needs, including automobile battery vents and various types of filters and filtration components.

      Operating Room Products. We also produce two product lines for the operating room supplies market: surgical markers and surgical drainage systems.

Competition

      Porex operates in competitive markets and its products are, in general, used in applications that are affected by technological change and product obsolescence. The competitors for Porex’s porous plastic products include other producers of porous plastic materials as well as companies that manufacture and sell products made from materials other than porous plastics that can be used for the same purposes as Porex’s products. For example, Porex’s porous plastic pen nibs compete with felt and fiber tips manufactured by a variety of suppliers worldwide. Other Porex porous plastic products compete, depending

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on the application, with membrane material, porous metals, metal screens, fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other substances and devices. Porex’s competitors include, among others, Pall Corporation, Millipore Corporation, Filtrona (a division of Bunzl plc), Porvair plc and Whatman plc. The MEDPOR® 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.

      Some of Porex’s competitors may have greater financial, technical, product development, marketing and other resources than Porex does. We cannot provide assurance that Porex will be able to compete successfully against these companies or against particular products and services they provide or may provide in the future.

Raw Materials

      The principal raw materials used by Porex include a variety of plastic resins that are generally available from a number of suppliers. Some of Porex’s products also require high-grade plastic resins with specific properties as raw materials. While Porex has not experienced any material difficulty in obtaining adequate supplies of high-grade plastic resins that meet its requirements, it relies on a limited number of sources for some of these plastic resins. If Porex experiences a reduction or interruption in supply from these sources, it may not be able to access alternative sources of supply within a reasonable period of time or at commercially reasonable rates, which could have a material adverse effect on its business and financial results.

Marketing

      Sales and marketing of our porous plastic products are conducted by a sales and marketing team of professionals with in-depth knowledge of plastic technologies. Marketing activities include advertising in various trade publications and directories and participating at tradeshows. Sales to OEM customers in the United States of our porous plastic products are made directly by our sales and marketing team. Internationally, these products are sold by our sales and marketing team and through independent distributors and agents.

      We sell our MEDPOR Biomaterial products directly to medical centers, trauma centers, hospitals and private practice surgeons using independent and direct sales representatives. Internationally, these products are sold in over 40 countries through local stock distributors. We provide training, materials and other support to the sales representatives and distributors. Market awareness is primarily achieved through exhibitions in conjunction with medical specialty meetings, presentations by surgeons at medical meetings, journal publication of clinical papers, a group sponsored “visiting speaker” program and direct mail programs. Journal advertising is placed on a selected basis and we maintain an active database of contacts for targeted direct mail programs.

EMPLOYEES

      As of December 31, 2003, we had approximately 5,635 employees, of which approximately 175 work in our corporate headquarters or related functions, approximately 2,230 are WebMD Envoy employees, approximately 430 are WebMD Health employees, approximately 2,200 are WebMD Practice Services employees and approximately 600 are Porex employees.

DEVELOPMENT AND ENGINEERING

      We have developed internally and acquired through acquisitions healthcare information services and technology solutions products and services. Our development and engineering expense totaled $43.0 million in 2003, $43.5 million in 2002 and $43.6 million in 2001.

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      The markets for some of our products and services are characterized by rapid change and technological advances. Our future success will depend, in part, upon our ability to enhance our existing products and services, to respond effectively to technological changes, and to introduce new and newly integrated applications and technologies that address the changing needs of our customers. Accordingly, we intend to continue to make investments in development and engineering and to recruit and hire experienced development personnel. However, we cannot provide assurance that we will be able to successfully complete the development of new products or services, enhancements to existing products or services. Further, there can be no assurance that products or technologies developed by others will not adversely affect our competitive position or render our products, services or technologies noncompetitive or obsolete.

INTELLECTUAL PROPERTY

      We rely upon a combination of patent, trade secret, copyright and trademark laws, license agreements, confidentiality procedures, employee and client nondisclosure agreements and technical measures to protect the intellectual property used in our businesses.

      We use numerous trademarks, trade names and service marks for healthcare information services and technology solutions, including WebMD®, Web-MD®, WebMD Health®, Digital Office Manager®, DIM_DX®, Envoy®, ExpressBill®, Intergy®, Medifax®, Medifax-EDI®, Medscape®, Medpulse®, Publishers’ Circle®, The Little Blue Book^TM, The Little Yellow Book^TM, The Medical Manager®, ULTIA^TM and WellMed®. In addition, Porex uses trademarks and trade names, including POREX®, Lateral-Flo^TM, MEDPOR®, SQUEEZE-MARK®, and TLS®. We also use numerous other registered and unregistered trademarks and service marks for our various products and services. In addition to our trademark registrations and applications, we have registered the domain names “webmd.com,” “my.webmd.com” and “medscape.com” and numerous other domain names that either are or may be relevant to conducting our business. Our inability to protect our marks and domain names adequately could have a material adverse effect on our business and hurt us in establishing and maintaining our brands.

      We also rely on a variety of intellectual property rights that we license from third parties, including our Internet server software and healthcare content used on our Web sites, as well as various products incorporated into our physician practice management systems. These third party licenses may not continue to be available to us on commercially reasonable terms. Our loss of or inability to maintain or obtain upgrades to any of these licenses could significantly harm us. In addition, because we license content from third parties, we may be exposed to copyright infringement actions if these parties are subject to claims regarding the origin and ownership of that content.

      The steps we have taken to protect our proprietary rights may not be adequate, and we may not be able to secure trademark or service mark registrations for marks in the United States or in foreign countries. Third parties may infringe upon or misappropriate our copyrights, trademarks, service marks and similar proprietary rights. In addition, effective copyright and trademark protection may be unavailable or limited in many foreign countries, and the global nature of the Internet makes it impossible to control the ultimate destination of our services. It is possible that competitors or others will adopt product or service names similar to our names, which could impede our efforts to build brand identity and possibly lead to customer confusion. Moreover, because domain names derive value from the individual’s ability to remember such names, our domain name will lose its value if, for example, users begin to rely on mechanisms other than domain names to access online resources. Our inability to protect our marks and domain names adequately would hurt our ability to establish and maintain our brands. In the future, litigation may be necessary to enforce and protect our trade secrets, copyrights and other intellectual property rights. Litigation would divert management resources and be expensive and may not effectively protect our intellectual property.

      Substantial litigation regarding intellectual property rights exists in the software industry, and we expect that software products may be increasingly subject to third party infringement claims as the number of competitors in our industry grows and the functionality of products overlaps. Although we believe that

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our products do not infringe on the intellectual property rights of others, we cannot provide assurance that such a claim will not be asserted against us in the future, or that a license or similar agreement will be available on reasonable terms in the event of an unfavorable ruling on any such claim.

      We have several patents covering our software technology. Due to the nature of our application software, we believe that patent protection is less significant than our ability to further develop, enhance and modify our current services and products. However, any infringement or misappropriation of our proprietary software and databases could disadvantage us in our efforts to attract and retain customers in a highly competitive market and could cause us to lose revenue or incur substantial litigation expense. Moreover, in recent years, there have been a large number of patents issued in general and numerous patents issued related to Internet business methods. While we are unaware of any patent the loss of which would impact our ability to conduct our business, defense of a patent infringement claim against us could divert management and monetary resources, and an adverse judgment in any such matter may negatively impact our ability to conduct our business in the manner we desire.

      Porex relies upon a combination of patent and trade secret laws, license agreements, confidentiality procedures, employee and client nondisclosure agreements and technical measures in its efforts to protect its intellectual property and proprietary rights. For example, Porex seeks to protect its proprietary manufacturing technology by designing and fabricating its own manufacturing equipment and molds. In addition, in some cases, Porex has patented specific products and processes and intends to do so in some instances in the future. The majority of Porex’s patents relate to porous plastics and medical devices and medical device components. Porex seeks to take appropriate steps to protect its intellectual property and proprietary rights and intends to defend those rights as may be necessary. However, we cannot provide assurance that the steps it has taken to protect these rights are adequate. In the future, litigation may be necessary to enforce and protect those rights, which would divert management resources, may be expensive and may not effectively protect those rights.

GOVERNMENT REGULATION

      The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. These factors affect the purchasing practices and operations of healthcare organizations as well as the behavior and attitudes of consumers. Federal and state legislatures and agencies periodically consider programs to reform or revise the United States healthcare system. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our products and services. We are unable to predict future proposals with any certainty or to predict the effect they would have on our businesses.

      Existing laws and regulations could also create liability, cause us to incur additional cost and restrict our operations. Many healthcare laws are complex, applied broadly and subject to interpretation by courts and other governmental authorities. In addition, many existing healthcare laws and regulations, when enacted, did not anticipate the healthcare information services and technology solutions that we provide. However, these laws and regulations may nonetheless be applied to our products and services. Our failure, or the failure of our business partners, to accurately anticipate the application of these healthcare laws and regulations, or other failure to comply, could create liability for us, result in adverse publicity and negatively affect our businesses.

Health Insurance Portability and Accountability Act of 1996

      General. Under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, Congress mandated a package of interlocking administrative simplification rules to establish standards and

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requirements for the electronic transmission of certain health information. The five rules published in final form are:

•  the Standards for Electronic Transactions, published August 17, 2000, which we refer to as the Transaction Standards;

•  the Standards for Privacy of Individually Identifiable Health Information, published December 28, 2000, which we refer to as the Privacy Standards;

•  the Standard Unique Employer Identifier, published May 31, 2002;

•  the Health Insurance Reform: Security Standards, published February 20, 2003, which we refer to as the Security Standards; and

•  the Standard Unique Health Identifier for Health Care Providers, published January 23, 2004, which we refer to as the NPI Standard.

These rules took or will take effect on October 16, 2000, April 14, 2001, July 30, 2002, April 21, 2003 and May 23, 2005, respectively, with compliance by healthcare providers, healthcare clearinghouses and large health plans required under the rules two years following the respective effective dates. Small health plans are given an additional year to comply. On December 27, 2001, President Bush signed into law a one-year extension, to October 16, 2003, of the date for complying with the HIPAA Transaction Standards for any covered entity that submitted to the Secretary of the United States Department of Health and Human Services, or HHS, a plan of how the entity would come into compliance with the requirements by that deadline.

      Transaction Standards. The Transaction Standards establish format and data content standards for the most common healthcare transactions, using technical standards promulgated by recognized standards publishing organizations. These transactions include healthcare claims, enrollment, payment and eligibility. The Transaction Standards were intended to make it easier for payers and providers to send and receive healthcare transactions electronically, using specified formats. The Transaction Standards are applicable to that portion of our business involving the processing of healthcare transactions among physicians, payers, patients and other healthcare industry participants, including WebMD Envoy and Medical Manager Network Services.

      October 16, 2003 was the deadline for covered entities to comply with the Transaction Standards. Failure to comply with the Transaction Standards may subject covered entities, including our WebMD Envoy clearinghouse, to civil monetary penalties and possibly to criminal penalties. However, the ability of each covered entity to comply is dependent on compliance efforts by numerous other covered entities. The Centers for Medicare & Medicaid Services, or CMS, is responsible for enforcing the Transaction Standards. On July 24, 2003, in response to concerns communicated to CMS regarding the readiness of a significant portion of the covered entities for the October 16 deadline and the consequences to the healthcare industry if significant claim processing problems occur at that time, CMS released its “Guidance on Compliance with HIPAA Transactions and Code Sets After the October 16, 2003 Implementation Deadline” (which we refer to as the CMS Guidance). In addition, on July 24, 2003, CMS officials participated in an “Open Door Forum” teleconference during which they provided additional clarification on planned enforcement practices. CMS also urged the adoption of “contingency plans” to help prevent disruptions in the healthcare payment system. Under CMS’s contingency plan for Medicare, it will continue to accept claims in both HIPAA standard and legacy formats, with the legacy formats to be accepted for a period to be determined by CMS based upon a regular reassessment of the readiness of its electronic “trading partners.” In response, WebMD Envoy announced a contingency plan, pursuant to which it continues to process HIPAA standard transactions and, for a limited period of time, will also process legacy transactions as appropriate based on the needs of our business partners.

      On February 27, 2004, CMS modified its Medicare contingency plan to delay the payment of electronic claims that are not HIPAA-compliant. Specifically, effective July 1, 2004, only claims that are compliant with the Transaction Standards are to be reported as electronic media claims (EMC), which

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may be paid no earlier than after a 13 day waiting period. All other claims (including both electronic claims that are not compliant with the Transaction Standards, as well as paper claims) may be paid no earlier than after a 26 day waiting period. Calling it a “measured step toward ending the contingency plan entirely,” CMS implemented the change to encourage providers to move more quickly with their efforts to achieve HIPAA compliance. This policy may provide an incentive for providers who cannot send HIPAA standard claims from their desktop to use a clearinghouse, such as WebMD Envoy, to do so.

      CMS has made clear that it expects each party to every transaction to be accountable for compliance with the new standards as of October 16, 2003. However, the CMS Guidance provides for a flexible, complaint-driven enforcement strategy. CMS indicated that it will respond to complaints regarding non-compliant transactions submitted to it in writing and that, upon receipt of a complaint, CMS will notify the entity that a complaint has been filed and provide an opportunity for the entity to demonstrate compliance or to document its good faith effort to comply with the standards. In evaluating good faith efforts, CMS stated that it will consider not only the entity’s efforts on behalf of itself, but its efforts — through outreach and testing — to ensure that its trading partners are also in compliance. CMS also noted that its expectations regarding compliance efforts will vary with the size and type of covered entity. We understand that CMS expects that larger organizations will have more sophisticated compliance efforts and outreach to their smaller trading partners.

      We believe that the CMS enforcement approach assisted in reducing disruptions in the flow of electronic transactions that otherwise could have occurred in connection with the October 16, 2003 deadline and that a smoother transition benefits our company and the entire healthcare industry. We continue to work with payers, providers, practice management system vendors and other healthcare participants to implement the Transaction Standards. Transaction clearinghouses can provide a great deal of support for the healthcare industry in addressing the requirements of the Transaction Standards and in overcoming other connectivity challenges that HIPAA does not eliminate. Even though the goal of HIPAA was to make electronic transactions more standardized, the use of clearinghouses will continue to be the most efficient way for most providers to send their electronic claims and related transactions to multiple payers. The standardization resulting from implementation of HIPAA is only partial: payer systems and requirements continue to vary in certain respects even after HIPAA implementation and will continue to evolve and change in the future. Payers have published approximately 440 “Companion Guides” setting forth their individual interpretations of the Transaction Standards and that number can be expected to continue to grow. These payer-specific interpretations require us to perform extensive customized programming and related testing.

      Healthcare payers and providers who are unable to exchange data in the required standard formats can achieve Transaction Standards compliance by contracting with a clearinghouse, like WebMD Envoy, to translate between standard and non-standard formats. As a result, use of a clearinghouse allows numerous providers and payers to move to the Transaction Standards independently and at different times, reducing transition costs and risks. As various healthcare entities are in different stages of migration during the transition, WebMD Envoy is working to translate claim information from non-standard to standard formats and vice versa. In addition, the Transaction Standards require healthcare providers to collect and supply more information than they have in the past in order to submit a healthcare claim. From October 16, 2003 to the date of this Annual Report, a large majority of the claims we have received from submitters used legacy formats and very few contained the additional data content provided for in the Transaction Standards. Some providers who can submit claims in the HIPAA standard formats cannot yet collect all of the data payers may require to process the claim. In order to assist in claims processing, our clearinghouse software edits the information submitted in a claim using logic, mapping and defaults. A small number of our submitters currently send some additional HIPAA data content that does not yet pass through our clearinghouse.

      We cannot provide assurance regarding how CMS will regulate clearinghouses in general or WebMD Envoy in particular. In addition, even though major disruptions in the flow of electronic transactions may be less likely in light of CMS’s current approach to enforcement of the Transaction Standards, we have

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experienced isolated disruptions and some delays and we expect there will continue to be some problems for a period of time.

      Implementation of the Transaction Standards has presented us with significant technical and operational challenges. For example, we are working with our trading partners to complete quality assurance and testing on our enhanced clearinghouse data services for transmitting additional HIPAA data content. We do not plan to place these services into full production until both our systems and payers’ adjudication systems are capable of handling the production volume of transactions with the additional data content. As with any highly complex data transition involving significant modifications to trading partner systems, we are experiencing some problems during this process. Another aspect of the implementation challenges resulting from the Transaction Standards is the increase in computing capacity required. The Transaction Standards formats are much larger than the pre-existing ones. We are utilizing more computing capacity than we had anticipated. As a result, our systems have experienced inefficiencies that have resulted in processing delays. We seek to resolve all such problems when identified, but testing continues with numerous submitters and payers, and no assurance can be given that we will identify all problems promptly or that we will not continue to experience problems that delay the full implementation of these enhanced data services. The costs to us of dealing with those problems are inherently difficult to estimate and may be more than we expect and/or continue for longer than anticipated. In addition, most of our trading partners are currently operating under their own contingency plans and, accordingly, we would expect that there will be further disruptions during the adjustment period that occurs once CMS requires all applicable parties to perform in accordance with the Transaction Standards. We may not have enough technicians, programmers and customer service personnel to meet the demands placed on those functions by our customers and partners during the adjustment period, which could adversely affect our relationships with them.

      Privacy Standards. The Privacy Standards establish a set of basic national privacy standards and fair information practices for the protection by health plans, healthcare clearinghouses, healthcare providers and their business associates of individually identifiable health information. This rule became effective on April 14, 2001 and the compliance date for most entities was April 14, 2003. The Privacy Standards apply to the portions of our business that process healthcare transactions or provide certain technical services to other participants in the healthcare industry, and certain of our portal services may be affected through contractual relationships. This rule provides for civil and criminal liability for its breach and requires us, our customers and our partners to use health information in a highly restricted manner, to establish policies and procedures to safeguard the information, to obtain individual authorizations for some activities, and to provide certain access rights to individuals. This rule may require us to incur significant costs to change our products and services, may restrict the manner in which we transmit and use the information, and may adversely affect our ability to generate revenue from the provision of de-identified information to third parties. The effect of the Privacy Standards on our business is difficult to predict and there can be no assurances that we will adequately address the risks created by the Privacy Standards and their implementation or that we will be able to take advantage of any resulting opportunities. In addition, we are unable to predict what changes to the Privacy Standards might be made in the future or how those changes could affect our business.

      Unique Employer Identifier Standard. The Unique Employer Identifier Standard establishes a standard for identifying employers in healthcare transactions where information about the employer is transmitted electronically, as well as requirements concerning its use by covered entities. This rule requires the use of an employer identification number (EIN) as assigned by the IRS on all standard transactions that require an employer identifier to identify a person or entity as an employer. This standard applies to the portions of our business that process healthcare transactions or provide certain technical services to other participants in the healthcare industry, and certain of our portal services may be affected through contractual relationships. Most participants in the healthcare industry must be in compliance with the Unique Employer Identifier Standard by July 30, 2004. The effect of the Unique Employer Identifier Standard on our business is difficult to predict and there can be no assurances that we will adequately

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address the risks created by the Unique Employer Identifier Standard and its implementation or that we will be able to take advantage of any resulting opportunities.

      Security Standards. On February 20, 2003, HHS published the final Security Standards. The Security Standards establish detailed requirements for safeguarding patient information that is electronically transmitted or electronically stored. The rule establishes 42 implementation specifications, 20 of which are “required,” meaning they must be implemented as specified in the rule. Twenty-two are “addressable.” Complying with addressable implementation specifications requires a business to assess whether they constitute a reasonable and appropriate safeguard for the particular business; if not, an alternative approach must be designed and implemented to achieve the particular standard. The Security Standards apply to the portions of our business that process healthcare transactions, that provide certain technical services to other participants in the healthcare industry, or that enable electronic communications of patient information among healthcare industry participants, and certain of our portal services may be affected through contractual relationships. Most participants in the healthcare industry must be in compliance with the Security Standards by April 21, 2005. Some of the Security Standards are technical in nature, while others may be addressed through policies and procedures for using information systems. The Security Standards may require us to incur significant costs in evaluating our products and in establishing that our systems meet the 42 specifications. We are unable to predict what changes might be made to the Security Standards prior to the 2005 implementation deadline or how those changes might help or hinder our business. The effect of the Security Standards on our business is difficult to predict and there can be no assurances that we will adequately address the risks created by the Security Standards and their implementation or that we will be able to take advantage of any resulting opportunities.

      NPI Standard. On January 23, 2004, HHS published the final HIPAA standard for a unique health identifier for health care providers, commonly referred to as the National Provider Identifier (NPI) Standard. The NPI Standard requires health care providers that transmit any health information in electronic form in connection with a HIPAA covered transaction to obtain a single, 10 position all-numeric NPI from the National Provider System (NPS), and to use the NPI in standard transactions where a provider identifier is required. The NPI Standard requires health plans and health care clearinghouses to use a provider’s NPI to identify the provider on all standard transactions where that provider’s identifier is required. The NPI Standard is effective May 23, 2005. Most participants in the healthcare industry must be in compliance with the NPI Standard by May 23, 2007. The effect of the NPI Standard is difficult to predict and there can be no assurances that we will adequately address any business risks created by the NPI rule and its implementation or that we will be able to take advantage of any resulting business opportunities.

Other Restrictions Regarding Confidentiality and Privacy of Patient Information

      Numerous state and federal laws other than HIPAA govern the collection, dissemination, use, access to and confidentiality of patient health information. In addition, some states are considering new laws and regulations that further protect the confidentiality of medical records or medical information. These state laws are not in most cases preempted by the HIPAA Privacy Standard and may be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our customers and strategic partners. Definitions in the various state and federal laws concerning what constitutes “individually identifiable data” sometimes differ and sometimes are not provided, creating further complexity. In addition, determining whether data has been sufficiently de-identified may require complex factual and statistical analyses. The HIPAA Privacy Standards contain a restrictive definition of de-identified information, which is information that is not individually identifiable, that could create a new standard of care for the industry. These other privacy laws at a state or federal level, or new interpretations of these laws, could create liability for us, could impose additional operational requirements on our business, could affect the manner in which we use and transmit patient information and could increase our cost of doing business. In addition, parties may also have contractual rights that provide additional limits on our collection, dissemination, use, access to and confidentiality of patient health information. Claims of violations of privacy rights or contractual breaches, even if we are not found

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liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Other Regulation of Transaction Services

      Other state and federal statutes and regulations governing transmission of healthcare information may affect our operations. For example, Medicaid rules require some processing services and eligibility verification to be maintained as separate and distinct operations. Furthermore, the recently-enacted Medicare Prescription Drug, Improvement and Modernization Act of 2003 authorizes the development of an electronic prescription drug program that specifies standards for electronically transmitted prescriptions and other required information related to Medicare-covered prescription drugs. We carefully review our practices with regulatory experts in an effort to ensure that we are in compliance with all applicable state and federal laws. These laws, though, are complex and changing, and the courts and other governmental authorities may take positions that are inconsistent with our practices. See also “— Regulation of Healthcare Relationships” below.

International Data Regulation

      Other countries also have, or are developing, their own laws governing the collection, use, storage and dissemination of personal information or patient data. These laws could create liability for us, impose additional operational requirements or restrictions on our business, affect the manner in which we use or transmit data and increase our cost of doing business.

Regulation of Healthcare Relationships

      Anti-kickback Laws. There are federal and state laws that govern patient referrals, physician financial relationships and inducements to beneficiaries of federal healthcare programs. The federal healthcare programs 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. 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. In 2002, the Office of the Inspector General, or OIG, of HHS, the federal government agency responsible for interpreting the federal anti-kickback law, issued an advisory opinion that concluded that the sale of advertising and sponsorships to healthcare providers and vendors by Web-based information services, such as us, implicates the federal anti-kickback law. However, the advisory opinion suggests that enforcement action will not result if the fees paid represent fair market value for the advertising/sponsorship arrangements, the fees do not vary based on the volume or value of business generated by the advertising and the advertising/sponsorship relationships are clearly identified as such to users. We carefully review our practices with regulatory experts in an effort to ensure that we comply with all applicable laws. However, the laws in this area are both broad and vague and it is often difficult or impossible to determine precisely how the laws will be applied, particularly to new services. Penalties for violating the federal anti-kickback law include imprisonment, fines and exclusion from participating, directly or indirectly, in Medicare, Medicaid and other federal healthcare programs. Any determination by a state or federal regulatory agency that any of our practices violate any of these laws could subject us to civil or criminal penalties and require us to change or terminate some portions of our business. Even an unsuccessful challenge by regulatory authorities of our practices could cause us adverse publicity and be costly for us to respond to.

      False Claims Laws. We currently provide transaction services to healthcare 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, and can be enforced by individuals through qui tam actions. We

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cannot guarantee that state and federal agencies will regard billing errors processed by us as inadvertent and not in violation of these laws. In addition, changes in these laws could also require us to incur costs or restrict our business operations. As part of our data transmission and claims submission services, we may employ certain edits, using logic, mapping and defaults, when submitting claims to third party payers. Such edits are utilized when the information received from providers is insufficient to complete individual data elements requests by payers for reimbursement claims. We believe our editing processes are consistent with industry practice. However, it is possible that a court or governmental agency might view such practices in a manner that could result in liability and adversely affect our business.

Regulation of Medical Devices

      Overview. We manufacture and market medical devices subject to extensive regulation by the Food and Drug Administration, or FDA, under the Federal Food, Drug, and Cosmetic Act, or the FDC Act. The FDA’s regulations govern, among other things, product development, testing, manufacturing, labeling, storage, premarket clearance (referred to as 510(k) clearance), premarket approval (referred to as PMA approval), advertising and promotion, and sales and distribution. If the FDA finds that we have failed to comply, the agency can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as: fines, injunctions, and civil penalties; recall or seizure of our products; issuance of public notices or warnings; operating restrictions, partial suspension or total shutdown of production; refusal of our requests for 510(k) clearance or PMA approval of new products, withdrawal of 510(k) clearance or PMA approvals already granted, and criminal prosecution.

      Access to U.S. Market. Each medical device that we wish to commercially distribute in the U.S. will likely require either 510(k) clearance or PMA approval from the FDA prior to commercial distribution, unless exempt. Devices deemed to pose relatively less risk are placed in either class I or II, which requires the manufacturer to submit a premarket notification requesting 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device or to a “preamendment” class III device (in commercial distribution before May 28, 1976) for which PMA applications have not been called, are placed in Class III requiring PMA approval.

•  510(k) Clearance Process. To obtain 510(k) clearance, we must submit a premarket notification demonstrating that the proposed device is substantially equivalent in intended use and in safety and effectiveness to a “predicate device” — either a previously 510(k) cleared class I or class II device or a preamendment class III device for which the FDA has not called for PMA applications. The FDA’s 510(k) clearance process usually takes from four to 12 months, but it can last longer. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could even require a PMA approval. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with it, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained.

•  PMA Approval Process. If a product is not eligible for 510(k) clearance, the product is placed in class III and must follow the PMA approval process, which requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. A PMA approval application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding, among other things, device design, manufacturing and labeling. As part of the PMA approval application review, the FDA will inspect the manufacturer’s facilities for compliance with the Quality System Regulation, which requires manufacturers to follow elaborate design, testing, control, documentation and other quality assurance procedures during the manufacturing process. The PMA approval pathway is costly, lengthy and uncertain. It generally takes from one to three years or longer. After approval of a PMA approval application, a new PMA

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approval or PMA supplement approval may be required in the event of a modification to the device, its labeling or its manufacturing process.

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Clinical Studies. A clinical study is generally required to support a PMA approval application and is sometimes required for a 510(k) premarket notification. For “significant risk” devices, such studies generally require submission of an application for an Investigational Device Exemption, or IDE. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specified number of patients. Clinical studies may begin once the IDE application is approved by the FDA and the appropriate institutional review boards at the study sites. For “nonsignificant risk” devices, one or more institutional review boards must review the study, but submission of an IDE application to the FDA for advance approval is not required. Both types of studies are subject to record keeping, reporting and other IDE regulation requirements.

      Post-market Regulation. After the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply. These include the Quality System Regulation, labeling regulations, the FDA’s general prohibition against promoting products for unapproved or “off-label” uses, and the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.

      Products. Certain of Porex’s products are FDA-regulated medical devices, such as plastic and reconstructive surgical implants, blood filters, and tissue expanders. In addition, the FDA regulates WebMD Practice Services’ DIM_DX System as a medical image management device. It received 510(k) clearance on August 25, 2000. Subsequently, we have made modifications to certain of Porex’s products and to the DIM_DX System that we believe do not require new 510(k) clearance. If the FDA disagrees with our decisions, it can retroactively require new 510(k) clearance or PMA approval. The FDA also can require us to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained. Because Porex’s medical devices and the DIM_DX System are in commercial distribution, we are subject to inspection and market surveillance by the FDA to determine compliance with all regulatory requirements. Compliance with these requirements can be costly and time-consuming. Our failure to comply could subject us to FDA enforcement action and sanctions.

      The FDA has a long-standing draft software policy exempting computer software products from active regulation as medical devices if they are decision support systems intended to involve competent human intervention before any impact on human health occurs (in other words, where clinical judgment and experience can be used to check, interpret and potentially challenge a system’s output). Except for the cleared DIM_DX System, we believe that, under the draft software policy, the Intergy and The Medical Manager practice management systems are subject to limited FDA regulation and do not require 510(k) clearance or PMA approval. WebMD Practice Services has created an interface between the Intergy and The Medical Manager practice management systems and the image device. We are marketing the interface and the image device as the DIM_DX System. We believe that the sale of our practice management systems with the DIM_DX System does not require a new 510(k) clearance or PMA approval. Our ULTIA handheld solution permits access to the Intergy and The Medical Manager practice management systems and makes it available in a wireless handheld format, including allowing access to the medical images stored in the DIM_DX System. Because any displayed medical images are not intended for diagnostic use, we believe that ULTIA’s ability to access such medical images does not subject it to a 510(k) clearance or PMA approval requirement. We cannot assure you, however, that the FDA would agree with any of these conclusions. If the FDA does not agree, we may be required to obtain 510(k) clearance or PMA approval for these products and may be required to cease marketing and/or recall such products until 510(k) clearance or PMA approval is obtained.

      The FDA’s draft software policy has been under review for several years. A risk exists that the Intergy or The Medical Manager practice management system or other of our software or hardware

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components could in the future become subject to some or all of the medical device regulation requirements. In addition, the FDA may take the position that other products and services we offer, such as ULTIA, are subject to FDA regulation. We also may expand our services in the future to areas that subject us to FDA regulation. Except with respect to WebMD Practice Services and Porex, we have no experience in complying with FDA regulations. We believe that complying with FDA regulations is time consuming, burdensome and expensive and could delay our introduction of new applications or services.

FDA and FTC Regulation of Drug and Medical Device Advertising and Promotion

      The FDA and the FTC regulate the form, content and dissemination of labeling, advertising and promotional materials, including direct-to-consumer prescription drug and medical device advertising, prepared by, or for, pharmaceutical or medical device companies. The FTC regulates over-the-counter drug advertising and, in some cases, medical device advertising, as well as general product or service advertising. Generally, based on FDA requirements, regulated companies must limit their advertising and promotional materials to discussions of FDA-approved claims. In limited circumstances, regulated companies may disseminate non-promotional scientific information regarding products or claims not yet approved by the FDA.

      Any information that promotes the use of pharmaceutical products or medical devices that is put on our Web site is subject to the full array of the FDA and FTC requirements and enforcement actions and any information regarding other products and services is subject to FTC requirements. Areas of our Web site that could be the primary focus of the FDA and FTC include pages and programs that discuss use of an FDA-regulated product or that the regulators believe may lack editorial independence from the influence of sponsoring pharmaceutical or medical device companies. Television broadcast advertisements by WebMD may also be subject to FTC regulation and FDA regulation depending on the content. The FDA and the FTC place the principal burden of compliance with advertising and promotional regulations on the company that advertises on our Web site to make truthful, substantiated claims. If the FDA or the FTC finds that any information on our Web site violates FDA or FTC regulations, they may take regulatory or judicial action against us or the advertiser or sponsor of that information.

      Drug Advertising. The FDC Act requires that prescription drugs (including biological products) be approved for a specific medical indication by the FDA prior to their marketing in interstate commerce. It is a violation of the Act and of FDA regulations to market, advertise or otherwise commercialize such products prior to approval. The FDA does allow for preapproval exchange of scientific information, provided it is nonpromotional in nature and does not draw conclusions regarding the ultimate safety or effectiveness of the unapproved drug. Upon approval, the FDA’s regulatory authority extends to the labeling and advertising of prescription drugs offered in interstate commerce. Such products may only be promoted and advertised for their approved indications. In addition, the labeling and advertising can be neither false nor misleading, and must present all material information in a balanced manner. Labeling and advertising that violate these legal standards are subject to FDA enforcement action.

      The FDA regulates the safety, efficacy, and labeling of over-the-counter drugs or “OTC” drugs under the FDC Act either through specific product approvals or through regulations that define approved claims for specific categories of such products. The FTC regulates the advertising of OTC drugs under the section of the Federal Trade Commission Act that prohibits unfair or deceptive trade practices. Together, the FDA and FTC regulatory framework requires that OTC drugs be formulated and labeled in accordance with FDA approvals or regulations and promoted in a manner that is truthful, adequately substantiated, and consistent with the labeled uses. OTC drugs that do not meet these requirements are subject to FDA or FTC enforcement action depending on the nature of the violation.

      Continuing Medical Education. Activities and information provided in the context of a medical or scientific educational program, often referred to as continuing medical education or “CME,” usually are treated as nonpromotional and fall outside the FDA’s jurisdiction. The FDA does however evaluate such CME activities to determine whether they are independent of the promotional influence of the drug or medical device sponsor or whether they are promotional activities subject to FDA’s advertising and

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labeling requirements. In order to determine whether a company’s activities are sufficiently independent, the FDA looks at a number of factors related to the planning, content, speakers and audience selection of such activities. To the extent that the FDA concludes that such activities are not independent from a manufacturer, such content must fully comply with the FDA’s requirements.

      There are several administrative, civil and criminal sanctions available to the FDA for violations of the FDC Act or FDA regulations as they relate to labeling and advertising. Administrative sanctions may include a written request that violative advertising or promotion cease and/or that corrective action be taken, such as requiring a company to provide to healthcare providers and/or consumers information to correct misinformation previously conveyed. In addition, the FDA may use publicity, such as press releases, to warn the public about false and misleading information concerning a drug or medical device product. More serious civil sanctions include seizures, as well as injunctions and their resulting consent decrees. Such measures could prevent a company from introducing or maintaining its product in the marketplace. Criminal penalties for severe violations can result in a prison term and/or substantial fines.

      Any increase in FDA regulation of the Internet or other media for direct-to-consumer advertisements of prescription drugs could make it more difficult for WebMD Health to obtain advertising and sponsorship revenue. In the last 15 years, the FDA has gradually relaxed its formerly restrictive policies on direct-to-consumer advertising of prescription drugs. Companies can now advertise prescription drugs for serious conditions to consumers in any medium. However, physician groups and others have criticized the FDA’s current policies, and have called for restrictions on any advertising of prescription drugs to consumers and increased FDA enforcement. These critics point to both public health concerns and to the laws of many other countries that make direct-to-consumer advertising of prescription drugs a criminal offense. In response to these critics, the FDA or the FTC may alter its present policies on the direct-to-consumer advertising of prescription drugs or medical devices in a way that would materially reduce our advertising and sponsorship revenues. FDA recently issued three draft guidance documents intended to improve communication of: (1) risk information in direct-to-consumer print advertisements, (2) disease awareness information, and (3) risk information in direct-to-consumer advertising of restricted medical devices. These draft guidance documents do not alter existing FDA regulatory requirements, but may lead to future policy changes.

Medical Professional Regulation

      The practice of most healthcare professions requires licensing under applicable state law. In addition, the laws in some states prohibit business entities from practicing medicine, which is referred to as the prohibition against the corporate practice of medicine. We do not believe that we engage in the practice of medicine and we have attempted to structure our Web site, strategic relationships and other operations to avoid violating these state licensing and professional practice laws. A state, however, may determine that some portion of our business violates these laws and may seek to have us discontinue those portions or subject us to penalties or licensure requirements. We provide Web site capabilities for our physician customers. Many states regulate the ability of medical professionals to advertise or maintain referral services. We do not represent that a physician’s use of our Web site will comply with these or other state laws regulating professional practice and we do not monitor or control the content that physicians post on their individual practice Web sites using our Web site application. It is possible a state or a court may determine we are responsible for any non-compliance with these laws, which could affect our ability to offer this service to our customers. We employ and contract with physicians who provide only medical information to consumers, and we have no intention to provide medical care or advice. Any determination that we are a healthcare provider and acted improperly as a healthcare provider may result in liability to us.

Consumer Protection Regulation

      General. Advertising and promotional activities presented to consumers on our Web sites are subject to Federal and state consumer protection laws which regulate unfair and deceptive practices. We are also subject to various other federal and state consumer protection laws, including the ones described below.

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      Can-Spam Act. Effective January 1, 2004, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the Can-Spam Act, became effective. The Can-Spam Act regulates commercial emails and provides a right on the part of the recipient to request the sender to stop sending messages, and establishes penalties for the sending of email messages which are intended to deceive the recipient as to source or content. Under the Can-Spam Act, senders of commercial emails are required to make sure that these do not contain false or misleading transmission information. Commercial emails are required to include a valid return email address and other subject heading information so that the sender and the Internet location from which the message has been sent are accurately identified. Recipients must be furnished with an electronic method of informing the sender of the recipient’s decision to not receive further commercial emails. In addition, the email must include a postal address of the sender and notice that the email is an advertisement. We believe that our email practices comply with the requirements of the Can-Spam Act.

      Regulation of Advertisements Sent by Fax. A recent modification to the Telephone Consumer Protection Act was issued by the Federal Communication Commission that affects advertisements sent to telephone facsimile (fax) machines. Under this new regulation, which is effective as of January 1, 2005, advertisements which advertise the commercial availability or quality of a product or service cannot be sent to the fax machine of a recipient unless the recipient has signed a written statement that includes the fax number to which these advertisements may be sent and clearly indicates the recipient’s consent to receive these advertisements by fax from the sender. We do not send advertisements to fax machines in any significant portions of our business. However, in those areas in which we do send advertisements to a recipient’s fax machine that are the subject of this new regulation, we intend to be in compliance with this new regulation in advance of January 1, 2005.

      COPPA. The Children’s Online Privacy Protection Act, or COPPA, extends to operators of commercial Web sites and online services directed to U.S. children under the age of 13 that collect personal information from children, and operators of general audience sites with actual knowledge that they are collecting information from U.S. children under 13. WebMD’s sites are not directed at children and its general audience site, WebMD Health, states that no one under the applicable age is entitled to use the site. In addition, WebMD Health employs a kick-out procedure whereby anyone identifying themselves as being under the age of 13 during the registration process is not allowed to register for the site’s member only services, such as message boards and live chat events. COPPA, however, is a relatively new law, can be applied broadly and is subject to interpretation by courts and other governmental authorities. The failure to accurately anticipate the application or interpretation of this law could create liability to us, result in adverse publicity and negatively affect our business.

      Other Consumer Protection Regulation. The Federal Trade Commission, or FTC, and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, and the presentation of Web site content, comply with certain standards for notice, choice, security and access. Courts may also adopt these developing standards. In many cases, the specific limitations imposed by these standards are subject to interpretation by courts and other governmental authorities. We believe that we are in compliance with these consumer protection standards, but a determination by a state or federal agency or court that any of our practices do not meet these standards could result in liability and adversely affect our business. New interpretations of these standards could also require us to incur additional costs and restrict our business operations.

      In addition, several foreign governments have regulations dealing with the collection and use of personal information obtained from their citizens. Those governments may attempt to apply such laws extraterritorially or through treaties or other arrangements with U.S. governmental entities. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future. Any such developments (or developments stemming from enactment or modification of other laws) or the failure to accurately anticipate the application or interpretation of these laws could create liability to us, result in adverse publicity and negatively affect our businesses.

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Item 2. Properties

      We believe that the offices and other facilities described are, in general, in good operating condition and adequate for our current operations.

Headquarters

      We lease our corporate headquarters offices in Elmwood Park, New Jersey, which consists of approximately 45,000 square feet of space, under leases that expire in, or prior to, March 2006.

WebMD Envoy, WebMD Health and WebMD Practice Services

      We lease important facilities in:

•  Nashville, Tennessee for WebMD Envoy’s headquarters and primary data and call centers and Medifax’s operations;

•  St. Louis, Missouri for Advanced Business Fulfillment’s operations;

•  Scottsdale, Arizona and Toledo, Ohio for ExpressBill’s operations;

•  Tampa, Florida for WebMD Practice Services’ headquarters and Alachua, Florida for its development and engineering operations; and

•  New York, New York for WebMD Health’s headquarters and its editorial and marketing operations.

      We also use facilities in approximately 130 additional locations throughout the United States, 11 of which are owned and the rest of which are leased. These locations include sales and other offices, production centers, data centers and call centers.

Porex

      We use approximately 380,000 square feet for Porex’s headquarters and for office and manufacturing operations related to its porous plastics and other porous media product lines, including: the Porex headquarters and largest plant, which are located in property that we own in Fairburn, Georgia, a suburb of Atlanta; space that we own in Newnan, Georgia, College Park, Georgia and Bautzen, Germany; and space that we lease in Selangor, Malaysia and Alness, Scotland.

Item 3. Legal Proceedings

Envoy Securities Litigation

      Several years prior to our acquisition of Envoy Corporation, Envoy and some of its officers were named as defendants in three identical lawsuits filed in the United States District Court for the Middle District of Tennessee, Nashville Division. In 1998, the District Court ordered the three cases consolidated under the caption In re Envoy Corporation Securities Litigation.

      Plaintiffs alleged that the defendants made material misrepresentations and omissions in Envoy’s public filings and public statements concerning Envoy’s financial statements and Envoy’s accounting for some charges taken in connection with acquisitions. In addition, plaintiffs alleged that, as a result of defendants’ alleged actions, Envoy’s reported earnings during the class period were overstated and the price for Envoy’s common stock was artificially inflated.

      In April 2002, the court certified a class of plaintiffs consisting of all persons, other than defendants, who purchased shares of Envoy common stock between February 27, 1997 and August 18, 1998.

      As previously disclosed, on September 18, 2003, Envoy entered into a definitive Stipulation of Settlement regarding the settlement of this litigation, as contemplated by a Memorandum of Understanding dated July 11, 2003. Pursuant to the Stipulation of Settlement, the defendants paid into a settlement fund the amount of $11 million in settlement of the claims asserted in the action and the

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Stipulation of Settlement. On December 17, 2003, the United States District Court for the Middle District of Tennessee, following a hearing, entered an Order granting final approval of the settlement of this litigation on the terms contained in the Stipulation of Settlement. Pursuant to the Court’s Order, all members of the plaintiff class released defendants and the litigation was dismissed with prejudice. No appeal from the Court’s Order was taken and the Order became final and non-appealable on January 17, 2004. Defendants have denied and continue to deny the allegations asserted in the lawsuit and agreed to the settlement in order to eliminate the burden and expense of further litigation. As previously disclosed, the settlement of this litigation was funded entirely with the proceeds of Envoy’s insurance policy.

Litigation Regarding Distribution of Shares in Healtheon Initial Public Offering

      In the summer and fall of 2001, seven purported class action lawsuits were filed against Morgan Stanley & Co. Incorporated and Goldman Sachs & Co., underwriters of the initial public offering of the Company (then known as Healtheon) in the United States District Court for the Southern District of New York. Three of these suits also named WebMD and certain former officers and directors of WebMD as defendants. These suits were filed in the wake of reports of governmental investigations of the underwriters’ practices in the distribution of shares in certain initial public offerings. Similar suits were filed in connection with over 300 other initial public offerings that occurred in 1999, 2000 and 2001.

      The complaints against WebMD and its former officers and directors alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 under that Act and Section 11 of the Securities Act of 1933 because of failure to disclose certain practices alleged to have occurred in connection with the distribution of shares in the Healtheon IPO. Claims under Section 12(a)(2) of the Securities Act of 1933 were also brought against the underwriters. These claims were consolidated, along with claims relating to over 300 other initial public offerings, in the Southern District of New York.

      The plaintiffs have dismissed the claims against the four former officers and directors of WebMD without prejudice, pursuant to Reservation of Rights and Tolling Agreements with those individuals.

      On July 15, 2002, the issuer defendants in the consolidated action, including WebMD, filed a joint motion to dismiss the consolidated complaints. On February 18, 2003, the District Court denied, with certain exceptions not relevant to WebMD, the issuer defendants’ motion to dismiss.

      After a lengthy mediation under the auspices of former United States District Judge Nicholas Politan, the issuer defendants in the consolidated action (including WebMD), the affected insurance companies and the plaintiffs reached an agreement on a settlement to resolve the matter among the participating issuer defendants, their insurers and the plaintiffs. The settlement is embodied in a Memorandum of Understanding and a number of related agreements that together set out a comprehensive framework for settlement of the consolidated actions among these parties. The settlement calls for the participating issuers’ insurers jointly to guarantee that plaintiffs recover a certain amount in the IPO litigation and certain related litigation from the underwriters and other non-settling defendants. Accordingly, in the event that the guarantee becomes payable, the agreement calls for WebMD’s insurance carriers, not WebMD, to pay WebMD’s pro rata share.

      WebMD has approved the settlement, and we understand that virtually all of the approximately 260 other issuer defendants who are eligible have also elected to participate in the settlement. Although WebMD believes that the claims alleged in the lawsuits were primarily directed at the underwriters and, as they relate to WebMD, were without merit, we believe that the settlement is beneficial to WebMD because it reduces the time, expense and risks of further litigation, particularly since virtually all of the other issuer defendants will participate and our insurance carriers strongly support the settlement.

      In order for the settlement to become final, the Memorandum of Understanding must be reduced to a separate settlement agreement as to each issuer, each of which must be approved by the court. Accordingly, we anticipate, though we cannot guarantee, that this settlement will resolve the IPO allocation securities litigation between the plaintiffs and WebMD.

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Merrill Lynch Fundamental Growth Fund, Inc. et al. v. McKesson HBOC, Inc., et al.

      WebMD has been named as a defendant in the action Merrill Lynch Fundamental Growth Fund, Inc., et al. v. McKesson HBOC, Inc., et al., Case No. 405792, in the San Francisco Superior Court. The original complaint in this matter alleged that McKesson HBOC, HBO and Company (which we refer to as HBOC), certain officers and directors of those firms, Arthur Andersen LLP, and Bear Stearns & Co. engaged in a number of practices whereby HBOC and later McKesson HBOC improperly recognized revenues. When these practices were discovered, McKesson HBOC eliminated more than $327 million in revenues that HBOC had recognized over the prior three years. Plaintiffs claim to have lost more than $150 million as a result of the decline in McKesson HBOC’s share value after the accounting practices came to light in April 1999.

      On September 4, 2003, the plaintiffs filed a fourth amended complaint, naming WebMD and two other defendants, General Electric Capital Corporation, Inc. and Computer Associates International, Inc., for the first time. The complaint alleges that WebMD aided and abetted alleged fraud by certain defendants and conspired with those defendants in relation to HBOC’s and McKesson HBOC’s alleged improper recognition of approximately $14 million in revenue on two software transactions. Plaintiffs also allege that WebMD made certain negligent misrepresentations with respect to these transactions.

      Plaintiffs allege that WebMD, Inc. (then a separate private company and now a subsidiary of WebMD), through its participation in certain transactions with HBOC and McKesson HBOC, learned that officers of HBOC and/or McKesson HBOC, HBOC and McKesson HBOC were breaching duties owed to McKesson HBOC shareholders by making material misstatements and suppressing or omitting facts with respect to HBOC’s and McKesson HBOC’s financial results for the periods ending December 31, 1998 and March 31, 1999 and that WebMD, Inc. aided and abetted and conspired with these defendants. One of the officers became an officer of WebMD, Inc. on December 1, 1998, after having served as HBOC’s representative on the board of WebMD, Inc. and was dismissed by WebMD, Inc. after the accounting fraud at HBOC was disclosed. The other officer served as HBOC’s representative on the Board of WebMD, Inc. and ceased to be a director of WebMD, Inc. upon dismissal by McKesson HBOC. Plaintiffs seek unspecified damages against WebMD. The complaint alleges numerous instances of improper accounting by HBOC unrelated to the transactions between WebMD, Inc. and HBOC and/or McKesson HBOC.

      WebMD intends to vigorously defend against the plaintiffs’ claims against WebMD and WebMD, Inc. On December 16, 2003, WebMD filed a demurrer, seeking dismissal of the two claims against it. This demurrer is pending with the Court.

Investigations by United States Attorney for the District of South Carolina and the SEC

      The United States Attorney for the District of South Carolina is conducting an investigation of our company, which we first learned about on September 3, 2003. On that date, Federal Bureau of Investigation and Internal Revenue Service agents executed search warrants at our corporate headquarters in Elmwood Park, New Jersey and the offices of Medical Manager Health Systems in Tampa, Florida and Alachua, Florida and delivered subpoenas for documents and financial records. Based on the information available to us as of the date of this Annual Report, we believe that the investigation relates principally to issues of financial reporting for Medical Manager Corporation, a predecessor of WebMD (by its merger into WebMD in September 2000), and our Medical Manager Health Systems subsidiary; however, we cannot be sure of the investigation’s exact scope or how long it will continue. Included among the materials removed or subject to subpoena are records relating to a $5.5 million restatement of revenue by Medical Manager Corporation in August 1999 and to acquisitions by our Medical Manager Health Systems subsidiary of other companies, most of which were dealers of Medical Manager products and services. In August 1999, Medical Manager Corporation announced that it would restate previously reported results of Medical Manager Health Systems, which it had acquired in July 1999, for the six months ended immediately prior to the acquisition. Medical Manager Corporation determined at the time that the accounting treatment previously accorded to five transactions involving the bulk sales of software licenses entered into concurrently with business combinations and other related transactions should be

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restated to reflect the software license revenues as a reduction of the acquisition price of the related transactions. At the time, Medical Manager Corporation also noted that the transactions represented $5,532,000 of revenue and $3,502,000 of net income for the six months ended June 30, 1999. WebMD understands that the SEC is also conducting a formal investigation into this matter.

      WebMD intends to continue to fully cooperate with the authorities in this matter and our Board of Directors has formed a special committee consisting solely of independent directors to oversee this matter. The special committee has retained independent legal counsel to advise it.

      While WebMD is not able to estimate, at this time, the amount of the expenses that it will incur in connection with the investigations, it expects that they may be significant. For the year ended December 31, 2003, those expenses are reflected as “Legal Expenses” in the Consolidated Statements of Operations included in this Annual Report.

At Home Corporation General Unsecured Creditors Trust

      In 1999, WebMD, Inc. entered into an agreement with Excite Corp. concerning placing WebMD content on Excite Corp.’s consumer internet portal. In 2001, WebMD and Excite Corp.’s successor, AtHome Corp., entered into a revised agreement, which terminated the 1999 agreement and included a release of claims under the 1999 agreement. AtHome Corp. later filed for bankruptcy.

      On December 4, 2003, WebMD was served with a complaint in an adversary proceeding in the Bankruptcy Court for the Northern District of California brought by the trustee for the At Home Corporation General Unsecured Creditors Trust. The plaintiff alleges that the 2001 agreement provided AtHome Corp. less than reasonably equivalent value for its rights under the 1999 agreement and that the 2001 agreement should be avoided as a fraudulent transfer. The plaintiff also alleges that WebMD breached the 1999 agreement by failing to make required cash payments, and failed to pay AtHome Corp. fair and reasonable value for services that AtHome Corp. provided. The plaintiff has claimed that its damages are in excess of $8 million. WebMD intends to vigorously defend against the plaintiff’s claims.

Porex Mammary Implant Litigation

      From 1988 through 1990, Porex distributed silicone mammary implants in the United States pursuant to a distribution arrangement with a Japanese manufacturer. Porex believes that, after accounting for implants returned to Porex, the aggregate number of persons who received implants distributed by Porex totals approximately 2,500. Since March 1991, Porex has been named as one of many co-defendants in a number of actions brought by recipients of mammary implants. The typical case or claim alleges that the individual’s mammary implants caused one or more of a wide range of ailments. These implant cases and claims generally raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Porex does not have sufficient information to evaluate each case and claim.

      Certain of the actions against Porex have been dismissed, where it was determined that the implant in question was not distributed by Porex. In addition, as of March 10, 2004, approximately 300 actions have been settled by the manufacturer, or by Porex’s insurance carriers, without material cost to Porex. As of March 10, 2004, no implant-related claims were pending against Porex. During calendar year 2003, there were no implant-related claims made against Porex by individuals, as compared to two claims during each of 2002, 2001 and 2000, 39 claims during 1999 and nine claims during 1998. The majority of claims made during 1999 were claims that were filed by individuals following a court ruling in 1999 that cases filed in earlier years would not proceed as class actions, as a result of which such individuals would not be members of a class in such cases.

      In 1994, Porex was notified that its insurance carrier would not renew its then-existing insurance coverage after December 31, 1994 with respect to actions and claims arising out of its distribution of implants. However, Porex exercised its right, under such policy, to purchase extended reporting period coverage with respect to such actions and claims. Such coverage provides insurance subject to existing policy limits, but for an unlimited time period with respect to actions and claims made after December 31,

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1994 based on events that occurred during the policy period. In addition, Porex has purchased extended reporting period coverage with respect to other excess insurance. This coverage also extends indefinitely, replacing coverage that would, by its terms, have otherwise expired by December 31, 1997. Porex will continue to evaluate the need to purchase further extended reporting period coverage from excess insurers to the extent such coverage is reasonably available.

      Porex believes that its present coverage, together with its insurance policies in effect on or before December 31, 1994, should provide adequate coverage against liabilities that could result from actions or claims arising out of Porex’s distribution of silicone mammary implants. However, Porex cannot be certain that particular cases and claims will not result in liability that is greater than expected based on Porex’s prior experience. If so, Porex’s liability could exceed the amount of its insurance coverage. Furthermore, certain actions and claims seek punitive and compensatory damages arising out of alleged intentional torts. If these claims are successful, such damages may or may not be covered, in whole or in part, by Porex’s insurance policies.

Other Legal Proceedings

      In the normal course of business, we are involved in various other claims and legal proceedings. While the ultimate resolution of these matters, and those discussed above, has yet to be determined, we do not believe that their outcome will have a material adverse effect on our financial position or results of operations.

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

      During the fourth quarter of 2003, no matters were submitted to a vote of security holders of WebMD.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

      We completed the initial public offering of our common stock on February 10, 1999. Our common stock has been traded on the Nasdaq National Market under the symbol “HLTH” since February 11, 1999.

      The high and low prices for each quarterly period during the last two fiscal years are as follows:

		High		Low
2002
	First quarter	$	8.86	$	6.25
	Second quarter		7.78		5.05
	Third quarter		6.23		4.25
	Fourth quarter		9.30		4.54
2003
	First quarter	$	10.28	$	8.25
	Second quarter		12.00		8.28
	Third quarter		12.49		8.20
	Fourth quarter		9.32		7.59

      On March 1, 2004, there were approximately 4,470 holders of record of our common stock. Because many of these shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

      The market price of our common stock has fluctuated since the date of our initial public offering and is likely to fluctuate in the future. Changes in the market price of our common stock and other securities 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 us or our competitors

•  announcements of acquisitions or strategic partnerships by us or our competitors

•  developments in existing customer or strategic relationships

•  actual or perceived changes in our business strategy

•  developments in new or pending litigation and claims

•  sales of large amounts of our common stock

•  changes in market conditions in the healthcare, information technology, Internet or plastic industries

•  changes in general economic conditions

•  fluctuations in the securities markets in general.

      In addition, the market prices of Internet and healthcare information technology stocks in general, and of our common stock in particular, have experienced large fluctuations, sometimes quite rapidly. These fluctuations often may be unrelated or disproportionate to the operating performance of these companies.

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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 changes in the price of our common stock.

      We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. We intend to retain earnings to finance the expansion of our operations.

Sales of Unregistered Securities During the Fourth Quarter of 2003

      On December 12, 2003, WebMD issued 288 shares of WebMD common stock to an individual in a transaction exempt from registration under Section 3(a)(9) of the Securities Act. The shares were issued upon exercise of an outstanding warrant originally issued to Gleacher & Co. and transferred by it to the individual.

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Item 6. Selected Financial Data

      The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes thereto, which are included elsewhere in this Annual Report. On August 1, 2003, we completed the sale of two operating units of our Plastic Technologies segment. Accordingly, the following selected consolidated financial data has been reclassified to reflect the historical results of these two operating units as discontinued operations.

			Years Ended December 31,
			2003			2002			2001			2000			1999
			(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue			$	963,980		$	871,696		$	842,020		$	574,524		$	102,149
Costs and expenses:
	Cost of operations			564,939			509,744			568,321			430,296			88,576
	Development and engineering			42,985			43,467			43,572			59,867			29,669
	Sales, marketing, general and administrative			282,482			283,424			448,082			535,462			82,315
	Depreciation, amortization and other			62,434			125,593			2,394,857			2,188,461			193,067
	Legal expense			3,959			—			—			—			—
	Impairment of long-lived and other
		assets		—			—			3,816,115			—			—
	Restructuring and integration (benefit) charge			—			(5,850	)		266,755			452,919			—
	(Gain) loss on investments			(1,659	)		(6,547	)		—			40,365			—
	Interest income			22,901			19,590			30,409			51,467			4,013
	Interest expense			15,214			8,491			507			735			527
	Other income, net			4,218			3,844			—			—			—
Income (loss) from continuing operations before income tax provision (benefit)				20,745			(63,192	)		(6,665,780	)		(3,082,114	)		(287,992	)
	Income tax provision (benefit)			4,140			(10,079	)		2,588			790
	Income (loss) from continuing operations			16,605			(53,113	)		(6,668,368	)		(3,082,904	)		(287,992	)
	Income (loss) from discontinued operations, net of income taxes			(33,611	)		3,411			(3,950	)		1,296			—
Net loss			$	(17,006	)	$	(49,702	)	$	(6,672,318	)	$	(3,081,608	)	$	(287,992	)
Basic loss per common share:
	Income (loss) from continuing operations		$	0.05		$	(0.17	)	$	(19.13	)	$	(12.60	)	$	(3.58	)
	Income (loss) from discontinued operations			(0.11	)		0.01			(0.01	)		0.01			—
Net loss			$	(0.06	)	$	(0.16	)	$	(19.14	)	$	(12.59	)	$	(3.58	)
Diluted loss per common share:
	Income (loss) from continuing operations		$	0.05		$	(0.17	)	$	(19.13	)	$	(12.60	)	$	(3.58	)
	Income (loss) from discontinued operations			(0.10	)		0.01			(0.01	)		0.01			—
Net loss			$	(0.05	)	$	(0.16	)	$	(19.14	)	$	(12.59	)	$	(3.58	)
Weighted-average shares outstanding used in computing income (loss) per common share:
	Basic			304,858			304,168			348,570			244,688			80,367
	Diluted			325,811			304,168			348,570			244,688			80,367

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	As of December 31,
	2003		2002		2001		2000		1999
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	270,681	$	186,484	$	378,762	$	505,793	$	291,286
Long-term marketable securities		456,034		456,716		18,769		222,774		—
Working capital		202,573		193,031		360,429		528,136		216,304
Total assets		2,135,306		1,766,248		1,601,454		8,487,108		4,123,668
Convertible subordinated notes		649,999		300,000		—		—		—
Other long-term liabilities		1,182		498		1,226		15,279		2,695
Convertible redeemable preferred stock		—		—		10,000		10,000		—
Convertible preferred stock		—		—		—		710,746		—
Stockholders’ equity		1,178,597		1,153,801		1,255,512		8,097,435		3,973,672

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

      This Item 7 contains forward-looking statements with respect to possible events, outcomes or results that are, and are expected to continue to be, subject to risks, uncertainties and contingencies, including those identified in this Item. See “Cautionary Statement Regarding Forward-Looking Statements” on page 2.

Overview

      Management’s discussion and analysis of financial condition and results of operations, or MD&A, is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Annual Report and to provide an understanding of our results of operations, financial condition, and changes in financial condition. Our MD&A is organized as follows:

•  Introduction. This section provides a general description of our business, a brief discussion of our operating segments, summarizes the acquisitions we completed during the last two years and describes the restructuring and integration plans we undertook to eliminate duplication and redundancies that resulted from acquisitions we have made.

•  Critical Accounting Policies and Estimates. This section discusses those accounting policies that both are considered important to our financial condition and results of operations, and require us to exercise subjective or complex judgments in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 1 to our consolidated financial statements.

•  Results of Operations and Results of Operations by Operating Segment. These sections provide our analysis and outlook for the significant line items on our consolidated statements of operations, on both a company-wide and a segment-by-segment basis.

•  Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our outstanding debt and commitments, that existed as of December 31, 2003.

•  Factors That May Affect Our Future Financial Condition or Results of Operations. This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in some or all of our businesses. The factors discussed in this section are in addition to factors that may be described elsewhere in this Annual Report.

Introduction

      WebMD Corporation is a Delaware corporation that was incorporated in December 1995 and commenced operations in January 1996 as Healtheon Corporation. We changed our name to Healtheon/ WebMD Corporation in November 1999 and to WebMD Corporation in September 2000. Our common stock has traded on the Nasdaq National Market under the symbol “HLTH” since February 11, 1999.

      On August 1, 2003, we completed the sale of two operating units of our Plastic Technologies segment. Accordingly, the historical results of these two operating units, including the loss related to the divestitures, have been reclassified as discontinued operations in our financial statements.

     Operating Segments

      We have aligned our business into four operating segments as follows:

•  Transaction Services or WebMD Envoy. We provide healthcare reimbursement cycle management services, including transmission of transactions between healthcare payers and physicians, pharmacies, dentists, hospitals, laboratory companies and other healthcare providers using dial-up, Internet and dedicated communication methods. Our services assist our customers in automating

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	key administrative and clinical functions. In addition, we provide automated patient billing services to providers, including statement printing and mailing services, and provide paid-claims communication services to third party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanation of benefits.
•	Physician Services or WebMD Practice Services. We develop and market integrated physician practice management systems, including administrative, financial and clinical applications and services, under The Medical Manager, Intergy, ULTIA and Medical Manager Network Services brands. These systems and services allow physician offices to automate their scheduling, billing and other administrative tasks, to transmit transactions electronically, to maintain electronic medical records and to automate documentation of patient encounters.
•	Portal Services or WebMD Health. We provide online healthcare information, educational services and related resources for consumers and healthcare professionals, both directly and through our relationships with leading general consumer Internet portals. We also provide online content for use by media and healthcare partners in their Web sites. We develop and sell online and offline channels of communication and sponsorship programs to pharmaceutical, biotech, medical device and consumer products companies, particularly those who are interested in influencing healthcare decisions. In addition, we provide a suite of online tools and related services to employers and health plans for use by their employees and plan members.
•	Plastic Technologies or Porex. We develop, manufacture and distribute proprietary porous plastic products and components used in healthcare, industrial and consumer applications, as well as in finished products used in the medical device and surgical markets.

          Acquisitions

      In 2003, we completed 12 acquisitions. Our Portal Services segment acquired two companies for a total purchase consideration of approximately $14,612, comprised of $14,400 in cash and $212 of estimated acquisition costs. We will pay an additional $2,500 if certain financial milestones are achieved. In connection with the preliminary allocation of the purchase price, we recorded goodwill of $12,731 and intangible assets of $3,525, with estimated useful lives of three to seven years. Our Transaction Services segment acquired three companies for a total purchase price of $399,138, comprised of $390,238 in cash and $8,900 in estimated acquisition costs. Additionally, we will pay up to an additional $154,200 if certain milestones are achieved in the future. In connection with the preliminary allocation of the purchase price of these three acquisitions, we recorded goodwill of $244,021 and intangibles assets of $142,092, with estimated useful lives ranging from nine months to fifteen years. Also, during 2003, our Physician Services segment acquired seven companies for a total cost of $2,182, which was paid in cash. We will pay an additional $675 if certain of the acquired companies meet certain financial milestones. In connection with the preliminary allocation of the purchase prices, goodwill of $1,469 and intangible assets subject to amortization of $1,054 were recorded. The intangible assets have estimated useful lives from three to nine years.

      In 2002, we completed 22 acquisitions. On October 31, 2002, our Portal Services segment acquired one company. The total purchase consideration for this acquisition was approximately $19,031, comprised of $18,781 in cash and estimated acquisition costs of $250. In connection with the allocation of the purchase price, we recorded goodwill of $18,380 and an intangible asset of $2,700 with an estimated useful life of three years. Also, throughout 2002, our Physician Services segment acquired 21 companies for a total cost of $14,400 which was paid in cash. In connection with the allocation of the purchase price, goodwill of $11,784 and intangible assets subject to amortization of $4,049 were recorded. The intangible assets have estimated useful lives of one to nine years.

          Restructuring and Integration Initiatives

      After the mergers with Medical Manager Corporation, CareInsite, Inc. and OnHealth Network Company in 2000, our Board of Directors approved a restructuring and integration plan, with the objective

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of eliminating duplication and redundancies that resulted from these and certain prior acquisitions and consolidating our operational infrastructure into a common platform to more efficiently serve our customers.

      Our restructuring and integration efforts continued in 2001, and a plan to include the impact of eliminating functions resulting from our acquisition of Medscape in December 2001 was initiated.

      We have substantially completed our restructuring and integration efforts related to the 2000 and 2001 restructuring plans, with the primary exception being remaining lease payments of previously vacated facilities.

Critical Accounting Policies and Estimates

      Our discussion and analysis of WebMD’s financial condition and results of operations are based upon our Consolidated Financial Statements and Notes to Consolidated Financial Statements, which were prepared in conformity with accounting principles generally accepted in the United States. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to form a basis for making judgments about the carrying values of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

      We evaluate our estimates on an ongoing basis, including those related to revenue recognition, short-term and long-term investments, deferred tax assets, income taxes, collectibility of customer receivables, prepaid content and distribution services, long-lived assets including goodwill and other intangible assets, certain accrued expenses, accruals related to our restructuring program, contingencies and litigation.

      We believe the following reflect our critical accounting policies and our more significant judgments and estimates used in the preparation of our consolidated financial statements:

•  Revenue — Our revenue recognition policies for each reportable segment are as follows:

Transaction Services or WebMD Envoy. Healthcare payers and providers pay us fees for our services, generally on a per transaction basis or monthly basis. We recognize revenue as we perform the service. Healthcare payers and providers also pay us one-time implementation and annual maintenance fees. We recognize revenue from these fees ratably over the term of the respective agreements.

Physician Services or WebMD Practice Services. Healthcare providers pay us one-time fees for the purchase of our practice management systems. We recognize revenue from these one-time fees when we enter into noncancelable agreements with our customers, the products have been delivered and there are no uncertainties regarding product acceptance and delivery, no significant future performance obligations exist, fees are fixed and determinable and collectability is probable. Amounts received in advance of meeting these criteria are deferred until we meet these criteria. Revenue from multiple-element software arrangements is recognized using the residual method as vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements, but not for all of the delivered elements. The residual method requires revenue to be allocated to the undelivered elements based on the fair value of such elements, as indicated by VSOE. VSOE is based on the price charged when an element is sold separately. Healthcare providers also pay us fees for maintenance and support of their practice management system, including the hardware and software. We recognize revenue from these fees ratably over the contract period, typically in one year or less. Healthcare providers also pay us fees for transmitting transactions to payers and patients. We recognize revenue from these fees, which are generally paid on a monthly or per transaction basis, as we provide the service.

Portal Services or WebMD Health. Customers pay us for advertising, sponsorship, healthcare management tools, continuing medical education (“CME”), content syndication and distribution,

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and e-commerce transactions related to our online distribution channels and the online and offline distribution channels of our strategic partners. Revenue from advertising is recognized as advertisements are delivered. Revenues from sponsorship arrangements and healthcare management tools are recognized ratably over the term of the applicable agreement. Revenue from CME arrangements is recognized over the period we satisfy the minimum credit hour requirements of the applicable agreements. Revenue from fixed fee content license or carriage fees is recognized ratably over the term of the applicable agreement. E-commerce revenue is recognized when a subscriber or consumer utilizes our Internet-based services or purchases goods or services through our Web site or co-branded Web site with one of our strategic partners. Subscription revenue, including subscription revenue from sponsorship arrangements, is recognized over the subscription period. When contractual arrangements contain multiple elements, revenue is allocated to the elements based on their relative fair values, determined using prices charged when elements are sold separately.

Plastic Technologies or Porex. We develop, manufacture and distribute porous plastic products and components. For standard products, we recognize revenue upon shipment of product, net of sales returns and allowances. For sales of certain custom products, we recognize revenue upon completion and customer acceptance. Recognition of amounts received in advance of meeting these criteria is deferred until we meet these criteria.

•  Long-Lived Assets — Our long-lived assets consist of property and equipment, goodwill and other intangible assets. Goodwill and other intangible assets arise from the acquisitions we have made. The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible asset using accepted valuation techniques, such as discounted cash flow and replacement cost models. Our long-lived assets are amortized over their estimated useful lives, which we determine based on the consideration of several factors, including the period of time the asset is expected to remain in service. We evaluate the carrying value and remaining useful lives of long-lived assets, excluding goodwill, whenever indicators of impairment are present. We evaluate the carrying value of goodwill annually. We use a discounted cash flow approach to determine the fair value of goodwill. During 2001, we identified certain indicators of possible impairment of our long-lived assets, primarily goodwill and other intangible assets. We evaluated our long-lived assets for impairment by determining identifiable cash flows to related asset groupings, and compared the projected undiscounted cash flows for each asset grouping to its carrying value. Once we determined there was an impairment, we quantified the impairment based on projected discounted cash flows. As a result of this analysis in 2001, we recorded an impairment charge of approximately $3.8 billion. There was no impairment of goodwill noted as a result of our impairment testing in 2003 or 2002. Other unknown future indications of possible impairment charges, such as a significant downturn in one of our business segments or reporting units or general economic conditions, could result in an additional assessment of our long-lived assets for impairment and could result in an additional impairment charge in the future.

•  Investments — Our investments, at December 31, 2003, consisted principally of certificates of deposit, municipal bonds, asset backed securities, Federal Agency Notes, U.S. Treasury Notes and an equity investment in a publicly traded company. For each reporting period, we evaluate the carrying value of our investments and record a loss on investments when we believe an investment has experienced a decline in value that is other than temporary. We do not recognize a gain on an investment until sold. Future changes in market or economic conditions or operating results of our investments could result in gains or losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s carrying value.

•  Deferred Tax Assets — Our deferred tax assets are comprised primarily of net operating loss carryforwards. At December 31, 2003, we had net operating loss carryforwards of approximately $1.9 billion. These loss carryforwards may be used to offset taxable income in future periods, reducing the amount of taxes we might otherwise be required to pay. Due to a lack of a history of generating taxable income, we record a valuation allowance equal to 100% of our net deferred tax

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assets. In the event that we are able to generate taxable earnings in the future and determine it is more likely than not that we can realize our deferred tax assets, an adjustment to the valuation allowance would be made which may increase income in the period that such determination was made.

•

Restructuring and Integration — In connection with our restructuring and integration efforts, modifications to our strategic relationship with News Corporation resulted in a change in the carrying value of advertising services we have the rights to, classified as prepaid content and distribution services. We estimated the fair value of our rights under the new agreement using a discounted cash flow approach. This estimate also affects the amortization of this asset in future periods over the contractual term. Also, in connection with our restructuring and integration efforts, we recorded charges for estimated future lease obligations and lease cancellation penalties related to exited facilities based on many different variables, such as the term to expiration, contractual rights under the lease agreement and current real estate market conditions. Future changes in any of these variables, such as a change in real estate market conditions, could have an impact on these estimates.

Results of Operations

      The following table sets forth our consolidated statements of operations data and expresses that data as a percentage of revenue for the periods presented (amounts in thousands):

		Years Ended December 31,
		2003						2002						2001
		$			%			$			%			$			%
Revenue			963,980			100.0			871,696			100.0			842,020			100.0
Costs and expenses:
	Cost of operations		564,939			58.6			509,744			58.5			568,321			67.5
	Development and engineering		42,985			4.5			43,467			5.0			43,572			5.2
	Sales, marketing, general and administrative		282,482			29.3			283,424			32.5			448,082			53.2
	Depreciation, amortization and other		62,434			6.5			125,593			14.4			2,394,857			284.4
	Legal expense		3,959			0.4			—			—			—			—
	Impairment of long-lived and other assets		—			—			—			—			3,816,115			453.2
	Restructuring and integration (benefit) charge		—			—			(5,850	)		(0.7	)		266,755			31.7
	Gain on investments		1,659			0.2			6,547			0.8			—			—
	Interest income		22,901			2.4			19,590			2.3			30,409			3.6
	Interest expense		15,214			1.6			8,491			1.0			507			0.0
	Other income, net		4,218			0.4			3,844			0.4			—			—
Income (loss) from continuing operations before income tax provision (benefit)			20,745			2.1			(63,192	)		(7.2	)		(6,665,780	)		(791.6	)
	Income tax provision (benefit)		4,140			0.4			(10,079	)		(1.1	)		2,588			0.3
	Income (loss) from continuing operations		16,605			1.7			(53,113	)		(6.1	)		(6,668,368	)		(791.9	)
	Income (loss) from discontinued operations, net of income taxes		(33,611	)		(3.5	)		3,411			0.4			(3,950	)		(0.5	)
Net loss			(17,006	)		(1.8	)		(49,702	)		(5.7	)		(6,672,318	)		(792.4	)

      Revenue is derived from our four business segments: Transaction Services, Physician Services, Portal Services and Plastic Technologies. Our Transaction Services include administrative services, such as transaction processing for medical, dental and pharmacy claims, automated patient statements and clinical

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lab and reporting services, such as lab test orders and results. A significant portion of Transaction Services revenues is generated from the country’s largest national and regional healthcare payers. Our Physician Services include sales of practice management systems, including administrative, financial and clinical applications and services, under The Medical Manager, Intergy, ULTIA and Medical Manager Network Services brands. We also sell support and maintenance services related to the hardware and software associated with our practice management systems. Portal Services include advertising, sponsorship, continuing medical education, content syndication and distribution, and e-commerce transactions through our online distribution channels and the online and offline distribution channels of our strategic partners. The majority of Portal Services revenues are derived from a small number of customers. Our customers include pharmaceutical companies, biotech companies, medical device companies and media companies. Our Plastic Technologies revenue includes the sale of porous plastic components used to control the flow of fluids and gases for use in healthcare, industrial and consumer applications, as well as in finished products used in the medical device and surgical markets.

      Cost of operations consists of costs related to services and products we provide to customers and costs associated with the operation and maintenance of our networks. These costs include salaries and related expenses for network operations personnel and customer support personnel, telecommunication costs, maintenance of network equipment, cost of hardware related to the sale of practice management systems, a portion of facilities expenses, leased personnel and facilities costs, sales commissions paid to certain distributors of our Transaction Services products, non-cash expenses related to content and distribution services. In addition, cost of operations includes raw materials, direct labor and manufacturing overhead, such as fringe benefits and indirect labor related to our Plastic Technologies segment.

      Development and engineering expense consists primarily of salaries and related expenses associated with the development of applications and services. Expenses include compensation paid to development and engineering personnel, fees to outside contractors and consultants, and the maintenance of capital equipment used in the development process.

      Sales, marketing, general and administrative expense consists primarily of advertising, product and brand promotion, salaries and related expenses for sales, administrative, finance, legal, information technology, human resources and executive personnel. These expenses include items related to account management and marketing personnel, commissions, costs and expenses for marketing programs and trade shows, and fees for professional marketing and advertising services, as well as fees for professional services, costs of general insurance and costs of accounting and internal control systems to support our operations. Also included are non-cash expenses related to content and distribution services acquired in exchange for our equity securities and stock compensation expense primarily related to the amortization of deferred compensation. Content and distribution services consist of advertising, promotion and distribution services from our arrangements with News Corporation, Microsoft, AOL and other partners. Stock compensation primarily relates to deferred compensation associated with the intrinsic value of the vested portion of stock options issued in exchange for outstanding stock options of companies we acquired in 2000, and the excess of the market price over the exercise price of options granted to employees.

2003 and 2002

Revenue

      Our total revenues increased to $963,980 in 2003 from $871,696 in 2002. Transaction Services, Physician Services, Portal Services and Plastic Technologies accounted for $38,919, $27,334, $26,369 and $6,129, respectively, of the revenue increase. This revenue increase was partially offset by an increase in inter-segment eliminations of $6,467.

      Revenue from customers acquired through the 2003 Acquisitions and 2002 Acquisitions contributed $55,629 to the overall increase in revenue for 2003 of $92,284. For purposes of this discussion, only revenue from existing customers of the acquired business on the date of the acquisition is considered to be revenue from acquired customers. We integrate acquisitions as quickly as practicable, and only revenue

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recognized during the first twelve months following the quarter in which the acquisitions closed is considered to be revenue from acquired customers.

Costs and Expenses

      Cost of Operations. Cost of operations increased to $564,939 in 2003 from $509,744 in 2002. Our cost of operations represented 58.6% of revenues in 2003, compared to 58.5% in 2002. While cost of operations as a percentage of revenue has remained relatively consistent from 2003 to 2002, cost of operations increased due to our July 17, 2003 acquisition of ABF, whose products have a lower gross margin. Additionally, cost of operations increased due to higher sales commissions paid to our channel partners and due to higher consulting and personnel costs related to our implementation of the Health Insurance Portability and Accountability Act of 1996, or HIPAA. These increases were offset by lower data communication costs and the costs associated with the lower margin terminated products and relationships exited in May 2002. Cost of operations for 2003 and 2002 includes approximately $2,356 and $4,765, respectively, of non-cash expenses related to content and distribution services.

      Development and Engineering. Development and engineering expense was $42,985 and $43,467 in 2003 and 2002, respectively. Development and engineering expense was relatively flat in 2003 compared to 2002, both in the aggregate and at the segment level, reflecting relatively consistent spending throughout all operating segments.

      Sales, Marketing, General and Administrative. Sales, marketing, general and administrative expense decreased to $282,482 in 2003, from $283,424 in 2002, which represents a decrease of $942. Included in sales, marketing, general and administrative expense are non-cash expenses related to content and distribution services and stock compensation. Non-cash expenses related to content and distribution services were $21,942 in 2003, compared to $20,941 in 2002. Non-cash stock compensation was $12,449 in 2003, compared to $25,265 in 2002. The decrease in non-cash stock compensation is primarily related to the vesting schedules of options issued and assumed in connection with our 2000 acquisitions. Sales, marketing, general and administrative expense excluding the non-cash expenses discussed above, were $248,091, or 25.7% of revenue in 2003, compared to $237,218, or 27.2% of revenue in 2002. The decrease in sales, marketing, general and administrative expense, excluding the non-cash expenses discussed above, as a percentage of revenue, is due to the fixed cost leverage of our increased revenues as well as lower sales and marketing costs, partially offset by higher consulting and personnel costs related to our implementation efforts with respect to the HIPAA Transaction Standards and our “all-payer” services, higher professional services expenses, and higher insurance expenses.

      Depreciation, Amortization and Other. Depreciation, amortization and other expense decreased to $62,434 in 2003 from $125,593 in 2002. The decrease was primarily the result of intangible assets relating to certain acquisitions made in 1999 and 2000 becoming fully amortized since the beginning of the prior year period.

      Legal Expense. Legal expense in 2003 was $3,959 and represents the costs and expenses incurred related to the investigation by the United States Attorney for the District of South Carolina initiated on September 3, 2003. Over the course of the investigation, we expect that these costs and expenses may be significant.

      Impairment of Long-Lived and Other Assets. During 2003 and 2002, we performed the impairment tests of goodwill, as required by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. There was no impairment resulting from these tests.

      Restructuring and Integration (Benefit) Charge. In connection with our restructuring and integration efforts, we recorded a benefit of $5,850 in 2002, which related to the settlement of certain contractual obligations. There were no restructuring or integration charges recorded during 2003.

      Gain on Investments. During 2003, the gain on investments in the amount of $1,659 consisted of a gain of $2,973 related to the sale of a portion of our investments in marketable equity securities, offset by a loss of $1,314 related to the sale of our investments in marketable debt securities. During 2002, we

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recognized a gain on investments of $6,547, which is comprised of a gain of $5,866 and $681 related to the sale of our investment in an available-for-sale and an early redemption call of a held-to-maturity security, respectively.

      Interest Income. Interest income increased to $22,901 in 2003, from $19,590 in 2002. This increase was mainly due to higher average investment balances, partially offset by lower average rates of return, during 2003 as compared to 2002. The higher average investment balances in 2003 were primarily attributable to the proceeds from the issuance of our $300,000 3 1/4% Convertible Subordinated Notes in April 2002, and the issuance of our $350,000 1.75% Convertible Subordinated Notes in June and July 2003.

      Interest Expense. Interest expense increased to $15,214 in 2003, from $8,491 in 2002, due to the inclusion of a full year of interest expense and amortization of debt issuance costs related to our $300,000 3 1/4% Convertible Subordinated Notes issued in April 2002 and the interest expense and amortization of debt issuance costs related to our $350,000 1.75% Convertible Subordinated Notes issued in June and July of 2003.

      Other Income, Net. Other income for 2003 of $4,218 is comprised of a gain of $3,100 for the sale of property in California and Ohio and a benefit of $1,118 from a state tax refund which applied to a pre-acquisition tax year of a company we acquired. Other income of $3,844 in 2002 includes $5,223 for the settlement of various pre-acquisition issues related to certain companies acquired in 1998 through 2000, partially offset by $1,379 in expenses related to our disposition plan for our Plastic Technologies business.

      Income Tax Provision (Benefit). Income tax provision (benefit) in 2003 and 2002 primarily represents taxes from profitable operations in certain states and foreign countries in which we do not have net operating losses to offset that income. Accordingly, we provided for taxes of $4,140 and $2,808 related to foreign, state and other jurisdictions during 2003 and 2002, respectively. Also included in the 2002 income tax provision (benefit) is a $12,887 benefit reflecting the carryback of net operating losses to the prior periods of certain acquired subsidiaries, in which those subsidiaries generated taxable income. The carryback was allowed as a result of the “Job Creation and Worker Assistance Act of 2002” that was enacted on March 9, 2002.

      Discontinued Operations. Loss from discontinued operations in 2003 represents the operating results of the discontinued units of the Plastic Technologies segment as well as the loss of $3,491 recognized in connection with their disposal on August 1, 2003. Also included in the loss from discontinued operations in 2003 was an impairment charge of $33,113 to reduce the long-lived assets of the discontinued units to fair value. The income from discontinued operations in 2002 includes the operating results of the discontinued units.

2002 and 2001

     Revenue

      Our total revenues increased to $871,696 in 2002 from $842,020 in 2001. Transaction Services, Physician Services, Portal Services and Plastic Technologies accounted for $9,362, $15,097, $9,670 and $3,794, respectively, of the revenue increase. This revenue increase was partially offset by an increase in inter-segment eliminations and other of $8,247 which included revenue related to technology outsourcing and consulting relationships and other non-core products that the Company exited in 2002 and 2001.

Costs and Expenses

      Cost of Operations. Cost of operations decreased to $509,744 in 2002 from $568,321 in 2001. Our cost of operations represented 58.5% of revenues in 2002, compared to 67.5% in 2001. This decrease was primarily due to the elimination of costs as a result of our restructuring and integration initiatives, primarily reduced personnel and facilities related costs from consolidating data center operations in our Transaction Services segment as well as in our Portal Services segment. Also contributing to the decrease was the elimination of direct costs associated with residual revenue from technology outsourcing and

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consulting relationships and other non-core products that were exited in 2002 and 2001. Cost of operations for 2002 and 2001 includes approximately $4,765 and $1,531, respectively, in non-cash expenses related to content and distribution services.

      Development and Engineering. Development and engineering expense was $43,467 in 2002 and $43,572 in 2001. During 2002, we increased our investment in product offerings in both the Transaction Services and Physician Services segments, which was predominantly offset by the impact of cost reductions resulting from our restructuring and integration efforts.

      Sales, Marketing, General and Administrative. Sales, marketing, general and administrative expense decreased to $283,424 in 2002 from $448,082 in 2001, which represents a decrease of 36.7% or $164,658. Included in sales, marketing, general and administrative expense are non-cash expenses related to content and distribution services and stock compensation. Non-cash expenses related to content and distribution services were $20,941 in 2002, compared to $43,943 in 2001. This decrease was primarily due to the expiration of certain content and distribution alliance agreements. Non-cash stock compensation was $25,265 in 2002, compared to $78,451 in 2001. The decrease in non-cash stock compensation was primarily related to the vesting schedules of options issued and assumed in connection with our 2000 acquisitions. Sales, marketing, general and administrative expense excluding the non-cash expenses discussed above, decreased to $237,218 in 2002 from $325,688 in 2001. This decrease was primarily due to the elimination of costs as a result of our restructuring and integration efforts and, to a lesser extent, due to reduced advertising expenses related to the elimination of barter arrangements and distribution costs in our Portal Services segment, as well as lower personnel related costs and lower bad debt expense.

      Depreciation, Amortization and Other. Depreciation, amortization and other expense decreased to $125,593 in 2002 from $2.4 billion in 2001. The decrease was primarily attributable to the adoption of SFAS No. 142 on January 1, 2002, which eliminates amortization expenses related to goodwill and certain intangibles and requires these assets to be tested for impairment at least annually. We recorded goodwill and intangible amortization of $2.2 billion in 2001, related to goodwill and certain intangible assets that were not subject to amortization in 2002.

      Impairment of Long-Lived and Other Assets. During 2002, we performed both the transitional and annual impairment tests of goodwill, as required by SFAS No. 142. There was no impairment resulting from these tests. During 2001, we identified certain indicators of possible impairment of long-lived assets, primarily goodwill and other acquired intangible assets. These indicators included a further decline in the price of our common stock to its lowest price in the previous twelve months accompanied by a significant decline in the volatility of our stock price, a sustained decline in valuations in the e-health, technology and Internet sectors, and the impact of recent trends in general economic conditions. Based on these indicators, we reviewed substantially all of our long-lived assets for impairment. As a result of this review, we determined that our long-lived and other assets, primarily goodwill and other acquired intangibles, were impaired and recorded a write-down of $3.8 billion during 2001.

      Restructuring and Integration (Benefit) Charge. In connection with our restructuring and integration efforts, we recorded a net benefit of $5,850 in 2002, which was primarily due to the settlements of certain contractual obligations. During 2001, we continued our restructuring efforts that began in 2000, with the intention of eliminating duplication and redundancy that resulted from 2000 and 2001 acquisitions. These restructuring efforts resulted in a charge of $266,755 in 2001.

      Gain on Investments. Gain on investments of $6,547 in 2002 represented a $5,866 gain related to the sale of one of our investments in available-for-sale securities and a $681 gain related to one of our investments in held-to-maturity securities that was called for early redemption.

      Interest Income. Interest income decreased to $19,590 in 2002, from $30,409 in 2001. This decrease is due to lower average balances available for investment as a result of cash used to settle certain contracts with certain of our strategic partners, repurchases of our stock, acquisitions during 2002 and payments made under our restructuring and integration program combined with lower available rates of return, offset

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in part by interest income related to the $292,000 of net proceeds received from the issuance of our $300,000 3 1/4% Convertible Subordinated Notes in April 2002.

      Interest Expense. Interest expense increased to $8,491 in 2002 from $507 in 2001, as a result of interest expense and amortization of debt issuance costs related to our $300,000 3 1/4% Convertible Subordinated Notes issued in April 2002.

      Other Income, Net. Other income of $3,844 in 2002 included $5,223 for the settlement of various preacquisition issues related to certain companies acquired in 1998 through 2000. This income was partially offset by $1,379 in expenses related to our disposition plan for our Plastic Technologies business.

      Income Tax Provision (Benefit). Income tax provision (benefit) in 2002 included a $12,887 benefit reflecting the carryback of net operating losses to the prior periods of certain acquired subsidiaries, in which those subsidiaries generated taxable income. The carryback was allowed as a result of the “Job Creation and Worker Assistance Act of 2002” that was enacted on March 9, 2002. In addition, we have operations that are profitable in certain states and foreign countries in which we do not have net operating losses to offset that income. Accordingly, we provided for taxes of $2,808 and $2,588 related to foreign, state and other jurisdictions during 2002 and 2001, respectively.

      Discontinued Operations. Income from discontinued operations in 2002 represents the operating results of the discontinued units of the Plastic Technologies segment. The loss from discontinued operations in 2001 includes the operating results of the discontinued operating units as well as an impairment charge of $10,778 representing the difference between the carrying value and fair value of the discontinued operating units’ assets.

Results of Operations by Operating Segment

      We evaluate the performance of our business segments based upon income or loss before restructuring, taxes, non-cash and other items. Non-cash and other items include depreciation, amortization, accretion of preferred stock, impairment charges, costs and expenses related to the investigation by the United States Attorney for the District of South Carolina and the SEC (“legal expense”), gain on investments, other income, non-cash expenses related to content, advertising and distribution services acquired in exchange for our equity securities in acquisitions and strategic alliances, and stock compensation primarily related to stock options issued and assumed in connection with acquisitions. The accounting policies of the segments are the same as the accounting policies for the consolidated company. We record inter-segment revenues at rates comparable to those charged to third parties for comparable services. Inter-segment revenues are eliminated in consolidation.

      The following table presents the results of our operations for each of our reportable segments (amounts in thousands):

	Years Ended December 31,
	2003			2002			2001
Revenues
Transaction services	$	505,729		$	466,810		$	457,448
Physician services		302,640			275,306			260,209
Portal services		110,665			84,296			74,626
Plastic technologies		71,940			65,811			62,017
Eliminations and other, net		(26,994	)		(20,527	)		(12,280	)(a)
	$	963,980		$	871,696		$	842,020
Income (loss) before restructuring, taxes, non-cash and other items
Transaction services	$	94,218		$	85,154		$	41,987
Physician services		20,924			26,685			20,827

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		Years Ended December 31,
		2003			2002			2001
Portal services			24,898			5,574			(79,437	)
Plastic technologies			20,532			19,891			17,406
Corporate and other			(50,251	)		(51,272	)		(94,813	)
Interest income			22,901			19,590			30,409
Interest expense			(15,214	)		(8,491	)		(507	)
		$	118,008		$	97,131		$	(64,128	)
Restructuring, taxes, non-cash and other items
Depreciation, amortization and other		$	(62,434	)	$	(125,593	)	$	(2,394,857	)
Non-cash content and distribution services and stock compensation			(36,747	)		(50,971	)		(123,925	)
Impairment of long-lived and other assets			—			—			(3,816,115	)
Restructuring and integration benefit (charge)			—			5,850			(266,755	)
Legal expense			(3,959	)		—			—
Gain on investments			1,659			6,547			—
Other income, net			4,218			3,844			—
Income tax benefit (provision)			(4,140	)		10,079			(2,588	)
Income (loss) from continuing operations			16,605			(53,113	)		(6,668,368	)
Income (loss) from discontinued operations, net of income taxes			(33,611	)		3,411			(3,950	)
	Net loss	$	(17,006	)	$	(49,702	)	$	(6,672,318	)

(a) In 2001, includes revenues related to technology outsourcing and consulting relationships and other non-core products that we decided to exit as a result of restructuring and integration efforts that commenced in the third quarter of 2000, as well as the elimination of inter-segment revenues of $14,061.

2003 and 2002

      Transaction Services. Revenues were $505,729 in 2003, an increase of $38,919 or 8.3% from 2002. Revenues from customers acquired through the 2003 Acquisitions contributed $37,870 to the increase in Transaction Services revenue. Additionally, revenues for 2002 include $7,460 of revenues associated with terminated laboratory connectivity products and relationships exited. Excluding the impact of the 2003 Acquisitions and terminated products and relationships, revenues for 2003 increased by $8,509, primarily the result of a postal rate increase that went into effect on July 1, 2002.

      Income before restructuring, taxes, non-cash and other items was $94,218 in 2003, an increase of $9,064 or 10.6% from 2002. As a percentage of revenue, income before restructuring, taxes, non-cash and other items was 18.6% in 2003, compared to 18.2% in 2002. The slight improvement in income as a percentage of revenue was due to lower data communication costs and the elimination of costs associated with the terminated products and relationship discussed above, offset by higher sales commissions paid to our channel partners, and increased costs related to our implementation efforts with respect to the HIPAA Transaction Standards and our “all-payer” network services.

      Physician Services. Revenues were $302,640 in 2003, an increase of $27,334 or 9.9% from 2002. The increase was primarily attributable to an increase in Network Services revenues. Systems sales and maintenance revenues also increased, primarily as a result of revenues from customers acquired. Those customers contributed $8,180 to the increase in revenues in 2003.

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      Income before restructuring, taxes, non-cash and other items was $20,924 in 2003, a decrease of $5,761 from 2002. As a percentage of revenue, income before restructuring, taxes, non-cash and other items was 6.9% in 2003, compared to 9.7% in 2002. This decrease in income as a percentage of revenue was primarily attributable to increased costs related to our implementation efforts with respect to the HIPAA Transaction Standards and our “all-payer” network services, as well as a shift in sales focus to larger accounts in 2003, which generally carry lower margins as a percentage of sales.

      Portal Services. Revenues were $110,665 in 2003, an increase of $26,369 or 31.3% from 2002. Revenues from customers acquired through 2003 Acquisitions and 2002 Acquisitions contributed $9,579 to the increase in Portal Service revenue for 2003. Excluding the 2003 Acquisitions and 2002 Acquisitions, the increase was primarily attributable to growth in advertising and sponsorship revenues on our consumer and professional sites, and, to a lesser extent, an increase in revenues from health plans and employers.

      Income before restructuring, taxes, non-cash and other items in 2003 was $24,898, compared to $5,574 in 2002. As a percentage of revenue, the income before restructuring, taxes, non-cash and other items improved to 22.5% in 2003, compared to 6.6% in 2002. This improvement was the result of fixed cost leverage related to the increased revenues discussed above and reduced sales and marketing related costs during 2003 compared to 2002. Also included in income before restructuring, taxes, non-cash and other items in 2003 was $1,863 of expense related to the acquisition of certain resources of Physicians Online.

      Plastic Technologies. Revenues were $71,940 in 2003, an increase of $6,129 or 9.3% from 2002. The increase was primarily due to a favorable impact of foreign exchange rates, higher sales of our computer printing and writing instrument components and higher sales of our surgical products.

      Income before restructuring, taxes, non-cash and other items in 2003 was $20,532, an increase of $641 from 2002. As a percentage of revenue, income before restructuring, taxes, non-cash and other items was 28.5% in 2003, compared to 30.2% in 2002. This decrease in income as a percentage of revenue was due to higher sales and marketing and product development expenses.

      Corporate and Other. Corporate and other includes expenses shared across all segments, such as executive personnel, corporate finance, legal, human resources and risk management. Corporate and other expenses declined to $50,251 or 5.2% of consolidated revenue in 2003 from $51,272 or 5.9% of consolidated revenue in 2002 due to lower personnel and facility costs, partially offset by higher insurance expenses and higher professional services expenses.

      Eliminations and Other, Net. The increase of $6,467 in inter-segment eliminations from 2002 resulted from higher sales of Transaction Services products into the Physician Services customer base.

2002 and 2001

      Transaction Services. Revenues were $466,810 in 2002, an increase of $9,362 from 2001. The increase was due to higher transaction volumes and the impact of the postal rate increase that was effective July 1, 2002. These increases were partially offset by the net reduction in revenues of $22,511 in 2002, when compared to 2001. This reduction in revenue related to certain terminated products and relationships, such as hospital and laboratory connectivity relationships and consolidation of duplicate product offerings in 2001 and 2002.

      Income before restructuring, taxes, non-cash and other items in 2002 increased by $43,167 or 102.8% from 2001. As a percentage of revenue, income before restructuring, taxes, non-cash and other items improved to 18.2% in 2002, from 9.2% in 2001. The improvement was a result of our consolidation and integration efforts which resulted in lower personnel and occupancy-related expenses and the elimination of certain unprofitable products and relationships.

      Physician Services. Revenues were $275,306 in 2002, an increase of $15,097 from 2001. The increase was primarily attributable to an increase in Network Services revenues, as well as higher systems sales and maintenance revenues. The higher sales in 2002 reflect the impact of the June 2002 release of Intergy. Revenues from customers acquired through 2002 Acquisitions and 2001 Acquisitions contributed $6,781 to the increase in revenues in 2002.

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      Income before restructuring, taxes, non-cash and other items increased by $5,858 in 2002 from 2001. As a percentage of revenue, income before restructuring, taxes, non-cash and other items was 9.7% in 2002, compared to 8.0% in 2001. This improvement related to changes in the mix of revenues offset by roll-out costs related to our new products.

      Portal Services. Revenues were $84,296 in 2002, an increase of $9,670 from 2001. The increase was a result of higher levels of sponsorship from our customers, the acquisition of Medscape in late 2001 and WellMed in late 2002, which contributed an aggregate of $23,449 in revenues during 2002, partially offset by the elimination of arrangements which generated barter revenue of $19,009 in 2001. No barter revenue was recognized during 2002. Revenue from related parties was $3,000 in 2001. These revenues consist of services provided to News Corporation. Revenue from News Corporation ceased being considered from a related party as of February 15, 2001 when News Corporation surrendered our Series A Convertible Preferred Stock.

      Income before restructuring, taxes, non-cash and other items in 2002 was $5,574, compared to a loss of $79,437 in 2001. As a percentage of revenue, the income (loss) before restructuring, taxes, non-cash and other items improved to 6.6% in 2002, compared to (106.4)% in 2001. Our restructuring, integration and cost containment efforts have resulted in substantial reductions in personnel, marketing, advertising, content, distribution and other expenses.

      Plastic Technologies. Revenues were $65,811 in 2002, an increase of $3,794 from 2001. The increase was primarily due to higher sales of medical OEM components, surgical products and computer printing components.

      Income before restructuring, taxes, non-cash and other items in 2002 was $19,891, an increase of $2,485 from 2001. As a percentage of revenue, income before restructuring, taxes, non-cash and other items was 30.2% in 2002 compared to 28.1% in 2001. This increase was due to higher sales discussed above, partially offset by an increase in certain direct manufacturing and other costs.

      Corporate and Other includes expenses shared across all segments, such as executive personnel, corporate finance, legal, human resources and risk management as well as the residual costs during the prior year periods related to the exit of discontinued products resulting from our restructuring and integration efforts. Corporate and other expenses declined to $51,272 in 2002 from $94,813 in 2001 as a result of consolidating many duplicative corporate functions and the elimination of residual expenses related to discontinued products. These efforts resulted in reduced expenses in occupancy, personnel, outside services and other operating expenses.

      Eliminations and Other, Net. The increase of $8,247 in inter-segment eliminations from 2001 resulted from higher sales of Transaction Services products into the Physician Services customer base, offset by the elimination of $1,781 in revenues from technology outsourcing and consulting relationships and other non-core products exited in 2001.

Liquidity and Capital Resources

      We have incurred significant operating and net losses since we began operations and, as of December 31, 2003, we had an accumulated deficit of $10.2 billion. We plan to continue to invest in acquisitions, strategic relationships, infrastructure and product development.

      As of December 31, 2003, we had approximately $270,681 in cash and cash equivalents and short-term investments and working capital of $202,573. Additionally, we had long-term investments of $451,290 in marketable debt securities and $4,744 in marketable equity securities. We invest our excess cash principally in U.S. Treasury obligations and federal agency notes and expect to do so in the future. During 2003, we reviewed the classification of our marketable securities between available-for-sale and held-to-maturity. As a result of our review, we reclassified all remaining held-to-maturity securities to available-for-sale.

      Cash provided by operating activities was $82,239 in 2003, compared to cash provided by operating activities of $93,097 in 2002. The cash provided by operating activities in 2003 was primarily attributable to the net loss of $17,006 and a net decrease in operating assets and liabilities of $36,164, offset by non-

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cash charges of $101,427 and the loss from discontinued operations of $33,611. The impact of changes in operating assets and liabilities may change in future periods, depending on the timing of each period end in relation to items such as internal payroll and billing cycles, payments from customers, payments to vendors, interest payments relating to our 3 1/4% Convertible Subordinated Notes and our 1.75% Convertible Subordinated Notes and interest receipts relating to our investments in marketable securities. The cash provided by operating activities in 2002 was primarily attributable to a net loss of $49,702 and a net decrease in operating assets and liabilities of $34,828, offset by non-cash charges of $177,673. The non-cash charges consist of depreciation and amortization, non-cash expenses related to content and distribution services and stock compensation and amortization of debt issuance costs.

      Cash used in investing activities was $556,526 in 2003, compared to cash used in investing activities of $402,663 in 2002. Cash used in investing activities during 2003 included $598,367 of purchases of held-to-maturity and available-for-sale securities, partially offset by $405,213 of proceeds from the maturities, sales and redemptions of available-for-sale and held-to-maturity securities. Cash used in investing activities in 2002 primarily related to purchases of held-to-maturity and available-for-sale securities. The 2003 Acquisitions consumed cash of $400,491, net of cash acquired, primarily related to the Medifax and ABF acquisitions. Cash paid for the 2002 Acquisitions was $33,471 and related to the Medscape and Physician Services acquisitions. Investments in property and equipment were $18,385 in 2003, compared to $26,267 in 2002. Additionally we received proceeds of $56,279 related to the sale of our discontinued operations and the sale of certain property, primarily land and buildings.

      Cash provided by financing activities was $356,621 in 2003 compared to cash provided by financing activities of $201,751 in 2002. Cash provided by financing activities for 2003 principally relates to net proceeds of $339,125 from the issuance of the 1.75% Convertible Subordinated Notes on June 25, 2003 and July 7, 2003, and $44,719 related to the issuance of common stock, primarily due to exercises of employee stock options. Cash provided by financing activities for 2002 primarily related to $292,000 of net proceeds related to the issuance of our 3 1/4% Convertible Subordinated Notes on April 1, 2002. During 2003 and 2002, $20,316 and $104,960, respectively, was used for repurchases of our common stock.

      As of December 31, 2003, we did not have any material commitments for capital expenditures. Our principal commitments at December 31, 2003 consisted primarily of our commitments related to the $350,000 of 1.75% Convertible Subordinated Notes due in June of 2023 and the $299,999 of 3 1/4% Convertible Subordinated Notes due in April of 2007, obligations under operating leases and potential earnout payments of up to an aggregate of $157,375 related to completed acquisitions. The following table summarizes our principal commitments as of December 31, 2003, as well as management’s estimates of the timing of the cash flows associated with these commitments. Management’s estimates of the timing of future cash flows are largely based on historical experience, and accordingly, actual timing of cash flows may vary from these estimates. The potential earnout payments of up to $157,375 have not been included in the table below as it is impracticable to estimate the timing or amount of any payments related to these commitments.

				Less Than						More Than
		Total		1 Year		1-3 Years		3-5 Years		5 Years
		(In thousands)
Leases		$	119,508	$	24,082	$	36,038	$	26,547	$	32,841
Strategic Relationships			2,641		1,262		1,254		125		—
Long-Term Debt			649,999		—		—		299,999		350,000
Purchase Obligations			35,485		20,886		14,599		—		—
Other Long-Term Liabilities			1,182		—		727		51		404
	Total	$	808,815	$	46,230	$	52,618	$	326,722	$	383,245

      Purchase obligations include amounts committed under legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery.

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      The lease amounts include leases identified in our restructuring and integration efforts and are net of sublease income. Other long-term liabilities primarily include those amounts on the Company’s December 31, 2003 balance sheet representing the long term portion of capital leases.

      We believe that, for the foreseeable future, we will have sufficient cash resources to meet the commitments described above and our currently anticipated working capital and capital expenditure requirements, including the capital requirements related to the roll-out of new or updated products in 2004 and 2005. Our future liquidity and capital requirements will depend upon numerous factors, including the success of the integration of our businesses, retention of customers at current volume and revenue levels, our existing and new application and service offerings, competing technological and market developments, potential future acquisitions and additional repurchases of our common stock. In addition, we have been incurring, and expect to continue to incur, costs relating to our own implementation of the HIPAA Transaction Standards and for assistance we provide to our customers in their implementation efforts. Our ability to perform our services in compliance with HIPAA and the cost to us of doing so will depend on, among other things, the status of the compliance efforts of our payer and provider customers and the extent of the need to adjust our systems and procedures in response to changes in their systems and procedures. We may need to raise additional funds to support expansion, develop new or enhanced applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. If required, we may raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders.

Recent Accounting Pronouncements

      In May 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to our existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15, 2003. The adoption of SFAS No. 150 on June 1, 2003 did not have any effect on our consolidated financial position or results of operations.

      In November 2002, the Emerging Issues Task Force issued a final consensus on issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”) which addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. Companies may also elect to apply the provisions of EITF 00-21 to existing arrangements and record the operating statement impact as the cumulative effect of a change in accounting principle. We have adopted EITF 00-21 prospectively for contracts beginning after June 30, 2003. The adoption of EITF 00-21 did not have a material impact on our consolidated financial position or results of operations.

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The interpretation elaborates on the disclosures to be made in our interim and annual financial statements about obligations under certain guarantees. It also requires us to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. The initial measurement and recognition provisions are required to be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on our consolidated financial position or results of operations.

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      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). SFAS No. 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 will have an impact on the timing of the recording of any future restructuring charges.

Factors That May Affect Our Future Financial Condition or Results of Operations

      This section describes circumstances or events that could have a negative effect on our financial results or operations or that could change, for the worse, existing trends in some or all of our businesses. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our financial condition, results of operations and cash flows or on the trading prices of the common stock and convertible notes that we have issued. The risks and uncertainties described below are not the only ones facing WebMD. Additional risks and uncertainties that are not currently known to us or that we currently believe are immaterial may also adversely affect our business and operations.

Risks Related to Our Relationships with Customers and Strategic Partners

WebMD Envoy’s transaction volume and financial results could be adversely affected if we do not maintain relationships with practice management system vendors and large submitters of healthcare electronic data interchange, or EDI, transactions

      We have developed relationships with practice management system vendors and large submitters of healthcare claims to increase the usage of our WebMD Envoy transaction services. WebMD Practice Services is a competitor of these practice management system vendors. These vendors, as a result of our ownership of WebMD Practice Services or for other reasons, may choose in the future to diminish or terminate their relationships with WebMD Envoy. Some other large submitters of claims compete with, or may have significant relationships with entities that compete with, WebMD Envoy or WebMD Health. To the extent that we are not able to maintain mutually satisfactory relationships with the larger practice management system vendors and large submitters of healthcare EDI transactions, WebMD Envoy’s transaction volume and financial results could be adversely affected.

WebMD Envoy’s transaction volume and financial results could be adversely affected if payers and providers conduct EDI transactions without using a clearinghouse

      There can be no assurance that healthcare payers and providers will continue to use WebMD Envoy and other independent companies to transmit healthcare transactions. Some payers currently offer electronic data transmission services to healthcare providers that establish a direct link between the provider and payer, bypassing third-party EDI service providers such as WebMD Envoy. We cannot provide assurance that we will be able to maintain our existing links to payers and providers or develop new connections on satisfactory terms, if at all. Although the standardization of formats and data standards required by HIPAA is only partial and we believe that use of clearinghouses will continue to be the most efficient way for most providers to transact electronically with multiple payers, such standardization may facilitate additional use of direct EDI links for transmission of transactions between a greater number of healthcare payers and providers without use of a clearinghouse. Any significant increase in the utilization of direct links between healthcare providers and payers could have a material adverse effect on WebMD Envoy’s transaction volume and financial results.

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Loss of a small number of sponsors could have a material adverse effect on WebMD Health’s revenues

      A substantial portion of WebMD Health’s revenues come from a relatively small number of companies. Thus, the loss of a small number of these relationships or a reduction in the purchases by a portion of these sponsors could have a material adverse effect on our Portal Services revenues. We may lose such relationships or experience a reduction in purchases if customers decide not to renew their commitments or renew at lower levels, which may occur if we fail to meet our customers’ expectations or needs or fail to keep up with our competition or for reasons outside our control, including changes in economic and regulatory conditions affecting the healthcare industry or changes specific to the businesses of particular customers. For more information, see “Risks Related to Providing Products and Services to the Healthcare Industry — Developments in the healthcare industry could adversely affect our business” below and “Business — Government Regulation” above.

Third parties may bring claims as a result of the activities of our strategic partners or resellers of our products and services

      We could be subject to claims by third parties, and to liability, as a result of the activities, products or services of our strategic partners or resellers of our products and services. Even if these claims do not result in liability to us, investigating and defending these claims could be expensive, time-consuming and result in adverse publicity that could harm our business.

Risks Related to the Development and Performance of Our

Healthcare Information Services and Technology Solutions

Our ability to generate revenue could suffer if we do not continue to update and improve our existing products and services and develop new ones

      We must introduce new healthcare information services and technology solutions and improve the functionality of our existing products and services in a timely manner in order to retain existing customers and attract new ones. However, we may not be successful in responding to technological and regulatory developments and changing customer needs. The pace of change in the markets we serve is rapid, and there are frequent new product and service introductions by our competitors and by vendors whose products and services we use in providing our own products and services. If we do not respond successfully to technological and regulatory changes and evolving industry standards, our products and services may become obsolete. Technological changes may also result in the offering of competitive products and services at lower prices than we are charging for our products and services, which could result in our losing sales unless we lower the prices we charge. In addition, there can be no assurance that the products we develop or license will be able to compete with the alternatives available to our customers. For more information about the competition we face, see “Business — Healthcare Information Services and Technology Solutions — Competition for Our Healthcare Information Services and Technology Solutions” above.

Developing and implementing new or updated products and services may take longer and cost more than expected

      We rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop our products and services. The cost of developing new healthcare information services and technology solutions is inherently difficult to estimate. Our development and implementation of proposed products and services may take longer than originally expected, require more testing than originally anticipated and require the acquisition of additional personnel and other resources. If we are unable to develop new or updated products and services on a timely basis and implement them without significant disruptions to the existing systems and processes of our customers, we may lose potential sales and harm our relationships with current or potential customers.

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      For example, we have been incurring, and expect to continue to incur, significant expenses relating to implementation of the HIPAA electronic transaction and code sets standards and our “all-payer” suite of services, including expenses for additional technical and customer service personnel.

•  Implementation of the HIPAA transaction standards requires us, among other things, to make significant changes to the software WebMD Envoy uses internally, to engage in testing with its customers and to implement additional quality assurance processes. If our reprogramming and testing are not completed on a timely basis, we could lose customers and revenues.

•  Implementation of our “all-payer” suite of transaction services requires us to expand our connectivity to support a broader set of transaction services to non-commercial payers in key markets as well as to improve the functional capability of our claims and accounts receivable management solutions. We may not have enough technicians, programmers and customer service personnel to meet the demands placed on those functions by our customers and partners during the implementation period, which could adversely affect our relationships with them.

The amount and timing of future expenses for the HIPAA and “all-payer” implementations are difficult to estimate and may exceed amounts we have budgeted or continue for longer than expected. For more information about HIPAA see “Business — Government Regulation” above. For a description of our “all-payer” suite of services see “Business — Healthcare Information Services and Technology Solutions — WebMD Envoy — EDI Transaction Services — Medical and Dental Administrative Services” above.

New or updated products and services will not become profitable unless they achieve sufficient levels of market acceptance

      There can be no assurance that healthcare providers and payers will accept from us new or updated products and services or products and services that result from integrating existing and/or acquired products and services. Providers and payers may choose to use similar products and services from our competitors if they are already using products and services of those competitors and have made extensive investments in hardware, software and training relating to those products and services. Even providers and payers who are already our customers may not purchase new or updated products or services, especially when they are initially offered. Providers and payers using our existing products and services may refuse to adopt new or updated products and services when they have made extensive investments in hardware, software and training relating to those existing products and services. In addition, there can be no assurance that any pricing strategy that we implement for any such products and services will be economically viable or acceptable to the target markets. Failure to achieve broad penetration in target markets with respect to new or updated products and services could have a material adverse effect on our business prospects.

      For example, we are working to transform WebMD Envoy from a commercial claims clearinghouse to a supplier of a full complement of reimbursement cycle management solutions, including outsourcing of pre- and post-adjudication services for payer customers, sending claims transactions and receiving electronic remittance advice transactions for our provider and vendor customers, and other value-added services. However, there can be no assurance that customers who use our services for sending and receiving claims will use our other services, that our other services will attract additional customers or that such services will generate sufficient revenues to cover the costs of developing, marketing and providing those services.

Achieving market acceptance of new or updated products and services is likely to require significant efforts and expenditures

      Achieving market acceptance for new or updated products and services is likely to require substantial marketing efforts and expenditure of significant funds to create awareness and demand by participants in the healthcare industry. In addition, deployment of new or updated products and services may require the use of additional resources for training our existing sales force and customer service personnel and for hiring and training additional salespersons and customer service personnel. There can be no assurance that

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the revenue opportunities from new or updated products and services will justify amounts spent for their development, marketing and roll-out.

We could be subject to breach of warranty, product liability or other claims if our software products, information technology systems or transmission systems contain errors or experience failures

      Undetected errors in the software and systems we provide to customers or the software and systems we use to provide services could cause serious problems for our customers. For example, errors in our transaction processing systems can result in healthcare payers paying the wrong amount or making payments to the wrong payee. If problems like these occur, our customers may seek compensation from us or may seek to terminate their agreements with us, withhold payments due to us, seek refunds from us of part or all of the fees charged under those agreements or initiate litigation or other dispute resolution procedures. We also provide products and services that assist in healthcare decision-making, including some that relate to patient medical histories and treatment plans. If these products malfunction or fail to provide accurate and timely information, we could be subject to product liability claims. In addition, we could face breach of warranty or other claims or additional development costs if our software and systems do not meet contractual performance standards, do not perform in accordance with their documentation, or do not meet the expectations that our customers have for them. Our software and systems are inherently complex and, despite testing and quality control, we cannot be certain that errors will not be found in prior versions, current versions or future versions or enhancements. See also “During times when we are making significant changes to our products and services, there are increased risks of performance problems” below.

      We attempt to limit, by contract, our liability for damages arising from negligence, errors or mistakes. However, contractual limitations on liability may not be enforceable in certain circumstances or may otherwise not provide sufficient protection to us from liability for damages. We maintain general liability insurance coverage, including coverage for errors and omissions. However, it is possible that claims could exceed the amount of our applicable insurance coverage or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay market acceptance of our products and services, including unrelated products and services.

Performance problems with WebMD Envoy’s systems or system failures could cause us to lose customers or cause customers to reduce the number of transactions we process for them

      We process payer and provider transactions and data at our own facilities and at a data center in Tampa, Florida that is operated by an independent third party. We have contingency plans for emergencies with our systems; however, we have 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 our facilities or at the third-party facility could interrupt data processing or result in the loss of stored data, which could have a material adverse impact on our business.

      Our payer and provider customer satisfaction and our business could be harmed if WebMD Envoy experiences transmission delays or failures or loss of data in its systems. WebMD Envoy’s systems are complex and, despite testing and quality control, we cannot be certain that problems will not occur or that they will be detected and corrected promptly if they do occur. See also “During times when we are making significant changes to our products and services, there are increased risks of performance problems” below.

During times when we are making significant changes to our products and services, there are increased risks of performance problems

      If we do not respond successfully to technological and regulatory changes and evolving industry standards, our products and services may become obsolete. See “Our ability to generate revenue could suffer if we do not continue to update and improve our existing products and services and develop new

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ones.” The software and systems that we sell and that we use to provide services are inherently complex and, despite testing and quality control, we cannot be certain that errors will not be found in any enhancements, updates and new versions that we market or use. Even if new products and services do not have performance problems, our technical and customer service personnel may have difficulties in installing them or in their efforts to provide any necessary training and support to customers.

      For example, we have had and may continue to have transmission or processing problems relating to implementation of the HIPAA electronic transaction and code sets standards and our “all-payer” suite of services. See “Developing and implementing new or updated products and services may take longer and cost more than expected” above. These problems include: transmission failures resulting from sending large batches of electronic transactions to non-commercial payers who have been accustomed to receiving transactions through a greater number of smaller batches; enrollment and other set-up errors resulting from the implementation of large numbers of customers simultaneously; and various other transmission, processing, interfacing and service problems resulting from the implementation of new software and new business processes.

If our systems or the Internet experience security breaches or are otherwise perceived to be insecure, our business could suffer

      A significant security breach could damage our reputation or result in liability. We retain and transmit confidential information, including patient health information, in our processing centers and other facilities. It is critical that these facilities and infrastructure remain secure and be perceived by the marketplace as secure. We may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by breaches. Despite the implementation of security measures, this infrastructure or other systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, attacks by third parties or similar disruptive problems. Any compromise of our security, whether as a result of our own systems or systems that they interface with, could reduce demand for our services. See also “Business — Government Regulation — Health Insurance Portability and Accountability Act of 1996 — Security Standards.”

Performance problems with WebMD Envoy’s systems could affect our relationships with customers of our Practice Services business

      WebMD Envoy provides the transaction services, including the “all-payer” transaction services, used by the Medical Manager Network Services customers of our Practice Services business. As an increasing number of our WebMD Practice Services customers rely on us to provide our “all-payer” suite of transaction services, disruptions to those services could cause some of those customers to obtain some or all of their software support requirements from competitors of ours or could cause some customers to switch to a competing physician practice management or billing software solution.

WebMD Envoy’s ability to provide transaction services depends on services provided by telecommunications companies

      WebMD Envoy relies on a limited number of suppliers to provide some of the telecommunications services necessary for its transaction services. The telecommunications industry has been subject to significant changes as a result of changes in technology, regulation and the underlying economy. Recently, many telecommunications companies have experienced financial problems and some have sought bankruptcy protection. Some of these companies have discontinued telecommunications services for which they had contractual obligations to WebMD Envoy. WebMD Envoy’s inability to source telecommunications services at reasonable prices due to a loss of competitive suppliers could affect its ability to maintain its margins until it is able to raise its prices to its customers and, if it is not able to raise its prices, could have a material adverse effect on its financial results.

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Risks Related to Providing Products and Services to the Healthcare Industry

Developments in the healthcare industry could adversely affect our business

      Almost all of the revenues of WebMD Health, WebMD Envoy and WebMD Practice Services come from customers in various parts of the healthcare industry. In addition, a significant portion of Porex’s revenues come from products used in healthcare or related applications. Developments that result in a reduction of expenditures by customers or potential customers in the healthcare industry could have a material adverse effect on our business. General reductions in expenditures by healthcare industry participants could result from, among other things:

•  government regulation or private initiatives that affect the manner in which healthcare providers interact with patients, payers or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services (for additional discussion of the potential effects of regulatory matters on our business and on participants in the healthcare industry, see the other “Risks Related to Providing Products and Services to the Healthcare Industry” described below in this section and “Business — Government Regulation” above);

•  consolidation of healthcare industry participants;

•  reductions in governmental funding for healthcare; and

•  adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical companies, medical device manufacturers or other healthcare industry participants.

Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending on information technology and services or in some or all of the specific segments of that market we serve or are planning to serve. For example, use of our products and services could be affected by:

•  changes in the billing patterns of healthcare providers;

•  changes in the design of health insurance plans;

•  changes in the contracting methods payers use in their relationships with providers; and

•  decreases in marketing expenditures by pharmaceutical companies or medical device manufacturers, including as a result of governmental regulation or private initiatives that discourage or prohibit promotional activities by pharmaceutical or medical device companies.

In addition, expectations of our customers regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to products and services of the types we provide.

      The healthcare industry has changed significantly in recent years and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot provide assurance that the markets for our products and services will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.

The HIPAA Transaction and Code Set Standards creates risks and challenges with respect to our compliance efforts, business strategies and customer relationships

      Application of the Transaction Standards to WebMD. October 16, 2003 was the deadline for covered entities to comply with HIPAA’s electronic transaction and code sets standards (which we refer to as the Transaction Standards). Failure to comply with the Transaction Standards may subject WebMD Envoy to civil monetary penalties, and possibly to criminal penalties. On July 24, 2003, the Centers for Medicare & Medicaid Services, or CMS, released its “Guidance on Compliance with HIPAA Transactions and Code Sets After the October 16, 2003 Implementation Deadline” (which we refer to as the CMS Guidance). In addition, on July 24, 2003, CMS officials participated in an “Open Door Forum” teleconference during

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which they provided additional clarification on planned enforcement practices. CMS also urged the adoption of “contingency plans” to help prevent disruptions in the healthcare payment system. Under CMS’s contingency plan for Medicare, it will continue to accept claims in both HIPAA standard and legacy formats, with the legacy formats to be accepted for a period to be determined by CMS based upon a regular reassessment of the readiness of its electronic “trading partners.” In response, WebMD Envoy announced a contingency plan, pursuant to which it continues to process HIPAA standard transactions and, for a limited period of time, will also process legacy transactions as appropriate based on the needs of our business partners.

      On February 27, 2004, CMS modified its Medicare contingency plan to delay the payment of electronic claims that are not HIPAA-compliant. Specifically, effective July 1, 2004, only claims that are compliant with the Transaction Standards are to be reported as electronic media claims (EMC), which may be paid no earlier than after a 13 day waiting period. All other claims (including both electronic claims that are not compliant with the Transaction Standards, as well as paper claims) may be paid no earlier than after a 26 day waiting period. Calling it a “measured step toward ending the contingency plan entirely,” CMS implemented the change to encourage providers to move more quickly with their efforts to achieve HIPAA compliance. This policy may provide an incentive for providers who cannot send HIPAA standard claims from their desktop to use a clearinghouse, such as WebMD Envoy, to do so.

      CMS has made clear that it expects each party to every transaction to be accountable for compliance with the new standards. However, the CMS Guidance provides for a flexible, complaint-driven enforcement strategy that will take into consideration good faith efforts to comply with the Transaction Standards. We believe that CMS’s enforcement approach assisted in reducing disruptions in the flow of electronic transactions that otherwise could have occurred. However, one short-term effect of CMS’s approach and related transition matters may be that, as a result of the extended period of testing and implementation, there could be fewer electronic transactions for us to process in 2004 than would otherwise have been the case.

      We cannot provide assurance regarding how CMS will regulate clearinghouses in general or WebMD Envoy in particular. In addition, even though major disruptions in the flow of electronic transactions may be less likely in light of CMS’s current approach to enforcement of the Transaction Standards, we have experienced isolated disruptions and some delays and we expect that there will continue to be some problems for a period of time. We continue to work diligently to identify and resolve problems as they occur. The costs to us of dealing with those problems are inherently difficult to estimate and may be more than we expect and/or continue for longer than anticipated. In addition, most of our trading partners are currently operating under their own contingency plans and, accordingly, we would expect that there will be further disruptions during the adjustment period that occurs once CMS requires all applicable parties to perform in accordance with the Transaction Standards. We may not have enough technicians, programmers and customer service personnel to meet the demands placed on those functions by our customers and partners during that adjustment period, which could adversely affect our relationships with them.

      Implementation Challenges. Implementation of the Transaction Standards has presented us with significant technical and operational challenges. For example, the Transaction Standards cover not only transaction formats, but also required content, including some content not previously collected by most providers. We are working with our trading partners to complete quality assurance and testing on our enhanced clearinghouse data services for transmitting additional data content provided for in the Transaction Standards. We do not plan to place these services into full production until both our systems and payers’ adjudication systems are capable of handling the production volume of transactions with the additional data content. As with any highly complex data transition involving significant modifications to trading partner systems, we are experiencing some problems during this process. Another aspect of the implementation challenges resulting from the Transaction Standards is the increase in computing capacity required. The Transaction Standards formats are much larger than the pre-existing ones. We are utilizing more computing capacity than we had anticipated. As a result, our systems have experienced inefficiencies that have resulted in processing delays. We seek to resolve all such problems when identified, but testing

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continues with numerous submitters and payers and no assurance can be given that we will identify all problems promptly or that we will not continue to experience problems that delay the full implementation of these enhanced data services. See also “Developing and implementing new or updated products and services may take longer and cost more than expected” and “During times when we are making significant changes to our products and services, there are increased risks of performance problems” above.

      From October 16, 2003 to the date of this Annual Report, a large majority of the claims we have received from submitters used legacy formats and very few contained the additional data content provided for in the Transaction Standards. A small number of our submitters currently send some additional HIPAA data content that does not yet pass through our clearinghouse. In order to facilitate transmission of claims with the standard HIPAA format, our clearinghouse software uses edits, including the use of default data, in the transmission of claims from our clearinghouse and some data received by us is not transmitted by us. To date, our software, editing procedures and production criteria for additional HIPAA content have not had a material effect on our ability to process and transmit transactions.

      Implementation Costs. We have been incurring, and expect to continue to incur, significant expenses relating to implementation of the Transaction Standards. Implementation of the Transaction Standards requires us, among other things, to make significant changes to the software WebMD Envoy uses internally, to engage in testing with its customers and to implement additional quality assurance processes. If our reprogramming and testing are not completed on a timely basis, we could lose customers and revenues. In addition, our ability to perform our transaction services in compliance with HIPAA and the cost to us of doing so will depend on, among other things, the status of the compliance efforts of our payer and provider customers and the extent of the need to adjust our systems and procedures in response to changes in their systems and procedures. We cannot control when or how payers, providers, practice management system vendors or other healthcare participants will comply with the Transaction Standards or predict how their compliance efforts will affect their relationships with us, including the volume of transactions for which they use our services. Our technological and strategic responses to the Transaction Standards may result in conflicts with, or other adverse changes in our relationships with, some healthcare industry participants, including some who are existing or potential customers for our products and services or existing or potential strategic partners.

      Use of Direct Links. Although the standardization of formats and data standards required by HIPAA is only partial and we believe that use of clearinghouses will continue to be the most efficient way for most providers to transact electronically with multiple payers, such standardization may facilitate use of direct EDI links, for transmission of transactions between a greater number of healthcare payers and providers without use of a clearinghouse. Any significant increase in the utilization of direct links between healthcare providers and payers could have a material adverse effect on WebMD Envoy’s transaction volume and financial results.

      For additional information regarding the Transaction Standards and a discussion of the risks and challenges associated with other portions of HIPAA and related regulations, see “Business — Government Regulation” above.

Changes in government regulation or industry guidelines could adversely affect our continuing medical education offerings

      WebMD Health’s Medscape physician portal is a leading provider of online continuing medical education, or CME, to physicians and other healthcare professionals, offering a wide selection of free, regularly updated online CME activities. We receive funding from pharmaceutical and medical device companies for these CME programs. See “Business — Healthcare Information Services and Technology Solutions — WebMD Health — Medscape from WebMD — Continuing Medical Education (CME)” above.

      Our CME activities are planned and implemented in accordance with the Essential Areas and Policies of the Accreditation Council for Continuing Medical Education, or ACCME, which oversees providers of CME credit. In August 2002, ACCME awarded Medscape a two-year provisional accreditation as a CME

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provider, allowing Medscape to certify online CME activities. Provision of CME is also subject to government regulation by the FDA and the Office of Inspector General, or OIG, of the United States Department of Health and Human Services, a federal agency responsible for interpreting certain federal laws relating to healthcare. Among the goals of regulation of CME is ensuring that funding of CME programs by pharmaceutical and medical device companies is not a means of providing improper remuneration to physicians or others in a position to generate business for those companies and does not result in improper influence or control of the content of CME programs by the sponsoring companies. See “Business — Government Regulation — Regulation of Healthcare Relationships” and “— FDA and FTC Regulation of Advertising” above and “Other government regulation of healthcare and healthcare information technology creates risks and challenges with respect to our compliance efforts and our business strategies” below.

      Increased scrutiny by regulators of CME sponsorship by pharmaceutical or medical device companies, changes to existing regulation or ACCME guidelines or changes in internal compliance procedures of potential sponsors may require Medscape to make changes in the way it offers or provides CME programs, may slow sponsors’ internal approval processes for CME, and may reduce the volume of sponsored CME programs implemented by Medscape to levels that are lower than expected.

Other government regulation of healthcare and healthcare information technology creates risks and challenges with respect to our compliance efforts and our business strategies

      General. The healthcare industry is highly regulated and is subject to changing political, regulatory and other influences. These factors affect the purchasing practices and operations of healthcare organizations. Federal and state legislatures and agencies periodically consider programs to reform or revise the United States healthcare system. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our applications and services. We are unable to predict future proposals with any certainty or to predict the effect they would have on our business. In addition, existing laws and regulations could create liability, cause us to incur additional costs or restrict our operations. Although we carefully review our practices with regulatory experts in an effort to ensure that we are in compliance with all applicable state and federal laws, these laws are complex and subject to interpretation by courts and other governmental authorities, who may take positions that are inconsistent with our practices.

      Healthcare Relationships. A federal law commonly known as the Federal Healthcare Programs anti-kickback law and several similar state laws prohibit payments that are intended to induce healthcare providers either to refer patients or to acquire or arrange for or recommend the acquisition of healthcare products or services. These laws are broad and may apply to some of our activities or our relationships with our customers, advertisers or strategic partners. Other federal and state laws generally prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services that were not provided as claimed. Since we provide transaction services to healthcare providers, we cannot provide assurance that the government will regard errors in transactions processed by us as inadvertent and not in violation of these laws. In addition, our transaction services include providing edits, using logic, mapping and defaults, to enhance the information submitted in claims in order to assist in claims processing. We believe that our editing practices are in compliance with industry practice and applicable laws; however, it is possible that a court or governmental agency might interpret these laws in a different manner, which could result in liability and adversely affect our business. In addition, changes in these laws could also require us to incur costs or restrict our business operations. Many anti-kickback and false claims laws prescribe civil and criminal penalties for noncompliance that can be substantial. Even an unsuccessful challenge by regulatory authorities of our practices could cause us adverse publicity and be costly for us to respond to.

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      Regulation of Medical Devices. Certain of Porex’s products are medical devices regulated by the Food and Drug Administration, or FDA, such as plastic and reconstructive surgical implants, intravenous administration sets, blood filters, and tissue expanders. These products are subject to comprehensive government regulation under the Food, Drug and Cosmetic Act and implementing regulations. In addition, the FDA regulates WebMD Practice Services’ DIM_DX System as a medical image management device. If the FDA were to find that we have not complied with required procedures, it can bring a wide variety of enforcement actions that could result in severe civil and criminal sanctions. Porex is also subject to similar regulation in international markets, with similar risks. Future products that we wish to bring to market may require clearances or approvals from governmental authorities, which may be expensive, time-consuming and burdensome to obtain or which may never be obtained.

      For more information regarding healthcare regulation to which we are or may be subject, see “Business — Government Regulation” above.

Risks Related to Our Web Sites and Our Use of the Internet

Government regulation of the Internet could adversely affect our business

      The Internet and its associated technologies are subject to government regulation. Our failure, or the failure of our business partners, to accurately anticipate the application of applicable laws and regulations, or any other failure to comply, could create liability for us, result in adverse publicity, or negatively affect our business. In addition, new laws and regulations, or new interpretations of existing laws and regulations, may be adopted with respect to the Internet or other online services covering user privacy, patient confidentiality, consumer protection and other issues, including pricing, content, copyrights and patents, distribution, and characteristics and quality of products and services. We cannot predict whether these laws or regulations will change or how such changes will affect our business. Government regulation of the Internet could limit the effectiveness of the Internet for services that we are providing or developing or even prohibit particular services.

      For more information regarding government regulation of the Internet to which we are or may be subject, see “Business — Government Regulation” above.

We face potential liability related to the privacy and security of personal information we collect on our Web sites

      Internet user privacy has become a controversial issue both in the United States and abroad. We have privacy policies posted on our consumer portal and our professional portal that we believe comply with applicable laws requiring notice to users about our information collection, use and disclosure practices. However, whether and how existing privacy and consumer protection laws in various jurisdictions apply to the Internet is still uncertain and may take years to resolve. Any legislation or regulation in the area of privacy of personal information could affect the way we operate our Web sites and could harm our business. Further, we can give no assurance that the statements on our portals, or our practices, will be found sufficient to protect us from liability or adverse publicity in this area.

      Some of our portal services may, through contractual relationships, be affected by the HIPAA Privacy Standards and Security Standards. For more information regarding the HIPAA Privacy and Security Standards and other regulation of the collection, use and disclosure of personal information to which we may be subject, see “Business — Government Regulation” above.

Our ability to maintain or increase our Portal Services sponsorship revenues will depend, in part, on our ability to retain or increase usage of our Portal Services by consumers and physicians

      WebMD Health generates revenues by, among other things, selling sponsorships of specific pages, sections or events on its online physician and consumer portals and related e-mailed newsletters. Our WebMD Health sponsors include pharmaceutical, biotech, medical device and consumer products

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companies that are interested in communicating with and educating our audience or parts of our audience. While we currently attract a large audience of health-involved consumers and clinically active healthcare professionals to our online offerings, we cannot provide assurance that we will continue to do so. Users of our portals have numerous other online and offline sources of healthcare information services. In addition, some of WebMD Health’s traffic and new members come to it through relationships with third parties, including MSN and AOL, and, as a result, depends on the amount of traffic to sites of the third parties and other factors outside our control and may cease if the relationship ends.

Implementation of changes in hardware and software platforms used to deliver our Web sites may result in performance problems

      From time to time, we implement changes to the hardware and software platforms we use for creating and delivering our Web sites. During and after the implementation of those changes, a platform may not perform as expected, which could result in interruptions in the operation of our Web sites, an increase in response time of those sites or an inability to track performance metrics.

      Any significant interruption in our ability to operate our Web sites could have an adverse effect on our relationship with users and sponsors and, as a result, on our financial results.

Our Internet-based services rely on third-party service providers

      Our Web sites are designed to operate 24 hours a day, seven days a week, without interruption. To do so, we rely on communications and hosting services provided by third parties. We do not maintain redundant systems or facilities for some of these services. To operate without interruption, both we and our service providers must guard against:

•  damage from fire, power loss and other natural disasters;

•  communications failures;

•  software and hardware errors, failures or crashes;

•  security breaches, computer viruses and similar disruptive problems; and

•  other potential interruptions.

We have experienced periodic system interruptions in the past, and we cannot guarantee that they will not occur again. In addition, our Web sites may, at times, be required to accommodate higher than usual volumes of traffic. At those times, our Web sites may experience slower response times or system failures. Any sustained or repeated interruptions or disruptions in these systems or increase in their response times could result in reduced usage of our Web sites and could damage our relationships with strategic partners, advertisers and sponsors. Although we maintain insurance for our business, we cannot guarantee that our insurance will be adequate to compensate us for all losses that may occur or to provide for costs associated with business interruptions.

Our Internet-based services are dependent on the development and maintenance of the Internet infrastructure

      Our ability to deliver our 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 complementary 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 usage, 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 usage.

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      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 us for delivery of our Internet-based services. In addition, our customers who utilize our Web-based services depend on Internet service providers, online service providers and other Web site operators for access to our Web site. All of these providers have experienced significant outages in the past and could experience outages, delays and other difficulties in the future due to system failures unrelated to our systems. Any significant interruptions in our services or increases in response time could result in a loss of potential or existing users of and advertisers and sponsors on our Web site and, if sustained or repeated, could reduce the attractiveness of our services.

Third parties may challenge the enforceability of our online agreements

      The law governing the validity and enforceability of online agreements and other electronic transactions is evolving. We could be subject to claims by third parties that our online agreements with consumers and physicians that provide the terms and conditions for use of our portal services are unenforceable. A finding by a court that these agreements are invalid could harm our business and require costly changes to our portals.

Third parties may bring claims against us as a result of content provided on our Web sites, which may be expensive and time consuming to defend

      We could be subject to third-party claims based on the nature and content of information supplied on our Web sites by us or third parties, including content providers, medical advisors or users. We could also be subject to liability for content that may be accessible through our Web sites or third-party Web sites linked from our Web sites or through content and information that may be posted by users in chat rooms, bulletin boards or on Web sites created by professionals using our Web site application. Even if these claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our operations.

Risks Related to Porex’s Business and Industry

Porex’s success depends upon demand for its products, which in some cases ultimately depends upon end-user demand for the products of its customers

      Demand for our Porex products may change materially as a result of economic or market conditions and other trends that affect the industries in which Porex participates. In addition, because a significant portion of our Porex products are components that are eventually integrated into or used with products manufactured by customers for resale to end-users, the demand for these product components is dependent on product development cycles and marketing efforts of these other manufacturers, as well as variations in their inventory levels, which are factors that we are unable to control. Accordingly, the amount of Porex’s sales to manufacturer customers can be difficult to predict and subject to wide quarter-to-quarter variances.

Porex’s success may depend on satisfying rapidly changing customer requirements

      A significant portion of our Porex products are integrated into end products used in various industries, some of which are characterized by rapidly changing technology, evolving industry standards and practices and frequent new product introductions. Accordingly, Porex’s success depends to a substantial degree on our ability to develop and introduce in a timely manner products that meet changing customer requirements and to differentiate our offerings from those of our competitors. If we do not introduce new Porex products in a timely manner and make enhancements to existing products to meet the changing needs of our Porex customers, some of our products could become obsolete over time, in which case our customer relationships, revenue and operating results would be negatively impacted.

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Potential new or enhanced Porex products may not achieve sufficient sales to be profitable or justify the cost of their development

      We cannot be certain, when we engage in Porex research and development activities, whether potential new products or product enhancements will be accepted by the customers for which they are intended. Achieving market acceptance for new or enhanced products may require substantial marketing efforts and expenditure of significant funds to create awareness and demand by potential customers. In addition, sales and marketing efforts with respect to these products may require the use of additional resources for training our existing Porex sales forces and customer service personnel and for hiring and training additional salespersons and customer service personnel. There can be no assurance that the revenue opportunities from new or enhanced products will justify amounts spent for their development and marketing. In addition, there can be no assurance that any pricing strategy that we implement for any new or enhanced Porex products will be economically viable or acceptable to the target markets.

Porex may not be able to source the raw materials it needs or may have to pay more for those raw materials

      Some of Porex’s products require high-grade plastic resins with specific properties as raw materials. While Porex has not experienced any material difficulty in obtaining adequate supplies of high-grade plastic resins that meet its requirements, it relies on a limited number of sources for some of these plastic resins. If Porex experiences a reduction or interruption in supply from these sources, it may not be able to access alternative sources of supply within a reasonable period of time or at commercially reasonable rates, which could have a material adverse effect on its business and financial results.

Disruptions in Porex’s manufacturing operations could have a material adverse effect on its business and financial results

      Any significant disruption in Porex’s manufacturing operations, including as a result of fire, power interruptions, equipment malfunctions, labor disputes, material shortages, earthquakes, floods, computer viruses, sabotage, terrorist acts or other force majeure, could have a material adverse effect on Porex’s ability to deliver products to customers and, accordingly, its financial results.

The nature of Porex’s products exposes it to product liability claims that may not be adequately covered by indemnity agreements or insurance

      The products sold by Porex, whether sold directly to end-users or sold to other manufacturers for inclusion in the products that they sell, expose it to potential risk of product liability claims, particularly with respect to Porex’s life sciences, clinical, surgical and medical products. Some of Porex’s products are designed to be permanently implanted in the human body. Design defects and manufacturing defects with respect to such products sold by Porex or failures that occur with the products of Porex’s manufacturer customers that contain components made by Porex could result in product liability claims and/or a recall of one or more of Porex’s products. Porex also manufactures products that are used in the processing of blood for medical procedures and the delivery of medication to patients. Porex believes that it carries adequate insurance coverage against product liability claims and other risks. We 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, we cannot assure you that Porex will continue to be able to obtain adequate insurance coverage at an acceptable cost.

      In most instances, Porex enters into indemnity agreements with its manufacturing customers. These indemnity agreements generally provide that these customers would indemnify Porex from liabilities that may arise from the sale of their products that incorporate Porex components to, or the use of such products by, end-users. While Porex generally seeks contractual indemnification from its customers, any such indemnification is limited, as a practical matter, to the creditworthiness of the indemnifying party. If Porex does not have adequate contractual indemnification available, product liability claims, to the extent

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not covered by insurance, could have a material adverse effect on its business, operating results and financial condition.

      Since March 1991, Porex has been named as one of many co-defendants in a number of actions brought by recipients of mammary implants distributed by Porex in the United States. For a description of these actions, see the information under “Legal Proceedings — Porex Mammary Implant Litigation” above.

Economic, political and other risks associated with Porex’s international sales and geographically diverse operations could adversely affect Porex’s operations and results

      Since Porex sells its products worldwide, its business is subject to risks associated with doing business internationally. In addition, Porex has manufacturing facilities in the United Kingdom, Germany and Malaysia. Accordingly, Porex’s operations and financial results could be harmed by a variety of factors, including:

•  changes in foreign currency exchange rates;

•  changes in a specific country’s or region’s political or economic conditions, particularly in emerging markets;

•  trade protection measures and import or export licensing requirements;

•  potentially negative consequences from changes in tax laws;

•  difficulties in managing international and geographically diverse operations;

•  differing protection of intellectual property; and

•  unexpected changes in regulatory requirements.

Environmental regulation could adversely affect Porex’s business

      Porex is subject to foreign and domestic environmental laws and regulations and is subject to scheduled and random checks by environmental authorities. Porex’s business involves the handling, storage and disposal of materials that are classified as hazardous. Although Porex’s safety procedures for handling, storage and disposal of these materials are designed to comply with the standards prescribed by applicable laws and regulations, Porex may be held liable for any environmental damages that result from Porex’s operations. Porex may be required to pay fines, remediation costs and damages, which could have a material adverse effect on its results of operations.

Risks Applicable to Our Entire Company

The ongoing investigations by the United States Attorney for the District of South Carolina and the SEC could negatively impact our company and divert management attention from our business operations

      The United States Attorney for the District of South Carolina is conducting an investigation of our company. As more fully described in “Legal Proceedings” above, based on the information available to WebMD as of the date of this Annual Report, we believe that the investigation relates principally to issues of financial reporting for Medical Manager Corporation, a predecessor of WebMD (by its merger into WebMD in September 2000), and our Medical Manager Health Systems subsidiary; however, we cannot be sure of the investigation’s exact scope or how long it may continue. In addition, WebMD understands that the SEC is conducting a formal investigation into this matter. Adverse developments in connection with the investigations, if any, including as a result of matters that the authorities or WebMD may discover, could have a negative impact on our company and on how it is perceived by investors and potential investors and customers and potential customers. In addition, the management effort and

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attention required to respond to the investigations and any such developments could have a negative impact on our business operations.

      WebMD intends to continue to fully cooperate with the authorities in this matter. While we are not able to estimate, at this time, the amount of the expenses that we will incur in connection with the investigations, we expect that they may be significant.

We face significant competition for our products and services

      The markets in which we operate are intensely competitive, continually evolving and, in some cases, subject to rapid technological change. Many of our competitors have greater financial, technical, product development, marketing and other resources than we do. These organizations may be better known than we are and have more customers than we do. We cannot provide assurance that we will be able to compete successfully against these organizations or any alliances they have formed or may form. For more information about the competition we face, see “Business — Healthcare Information Services and Technology Solutions — Competition for Our Healthcare Information Services and Technology Solutions” and “Business — Porex — Competition” above.

The performance of our businesses depends on attracting and retaining qualified executives and employees

      Our performance depends on attracting and retaining key personnel, including executives, product managers, software developers and other technical personnel and sales and marketing personnel. Failure to do so could have a material adverse effect on the performance of our business and the results of our operations.

We may not be successful in protecting our intellectual property and proprietary rights

      Our intellectual property is important to all of our businesses. We rely on a combination of trade secret, patent and other intellectual property laws and confidentiality procedures and non-disclosure contractual provisions to protect our intellectual property. We believe that our non-patented proprietary technologies and business and manufacturing processes are protected under trade secret, contractual and other intellectual property rights. However, those rights do not afford the statutory exclusivity provided by patented processes. In addition, the steps that we take to protect our intellectual property, proprietary information and trade secrets may prove to be inadequate and, whether or not adequate, may be expensive.

      There can be no assurance that we will be able to detect potential or actual misappropriation or infringement of our intellectual property, proprietary information or trade secrets. Even if we detect misappropriation or infringement by a third party, there can be no assurance that we will be able to enforce our rights at a reasonable cost, or at all. In addition, our rights to intellectual property, proprietary information and trade secrets may not prevent independent third-party development and commercialization of competing products or services.

Third parties may claim that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products or services

      We could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, could be expensive to defend and divert management’s attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and to develop non-infringing technology, obtain a license or cease selling the products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our customers if they become subject to third-party claims relating to intellectual property that we license or otherwise provide to them, which could be costly.

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We have incurred and may continue to incur losses

      We began operations in January 1996 and have incurred net losses in each year since our inception and, as of December 31, 2003, we had an accumulated deficit of approximately $10.2 billion. Although we generated net income, determined in accordance with generally accepted accounting principles, in the quarters ended December 31, 2003, September 30, 2003 and September 30, 2002, we incurred a net loss for the year ended December 31, 2003. We currently intend to continue to invest in infrastructure development, applications development, sales and marketing, and acquisitions and whether we continue to incur losses in a particular period will depend on, among other things, the amount of such investments and whether those investments lead to increased revenues.

We may be subject to litigation

      Our business and operations may subject us to claims, litigation and other proceedings brought by private parties and governmental authorities. For information regarding certain proceedings to which we are currently a party, see “Legal Proceedings” above.

Business combinations and other transactions may be difficult to complete and, if completed, may have negative consequences for our business and our securityholders

      We intend to seek to acquire or to engage in business combinations with companies engaged in complementary businesses. In addition, we may enter into joint ventures, strategic alliances or similar arrangements with third parties. These transactions may result in changes in the nature and scope of our operations and changes in our financial condition. Our success in completing these types of transactions will depend on, among other things, our ability to locate suitable candidates and negotiate mutually acceptable terms with them, as well as the availability of financing. Significant competition for these opportunities exists, which may increase the cost of and decrease the opportunities for these types of transactions. Financing for these transactions may come from several sources, including:

•  cash and cash equivalents on hand and marketable securities,

•  proceeds from the incurrence of indebtedness, and

•  proceeds from the issuance of additional common stock, preferred stock, convertible debt or other securities.

Our issuance of additional securities could:

•  cause substantial dilution of the percentage ownership of our stockholders at the time of the issuance,

•  cause substantial dilution of our earnings per share, and

•  adversely affect the prevailing market price for our outstanding securities.

We do not intend to seek securityholder approval for any such acquisition or security issuance unless required by applicable law or regulation or the terms of existing securities.

Our business will suffer if we fail to successfully integrate acquired businesses and technologies or to assess the risks in particular transactions

      We have in the past acquired, and may in the future acquire, businesses, technologies, services, product lines and other assets. The successful integration of the acquired businesses and assets into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected benefits of any acquisition, including potential synergies between WebMD and the acquired

81

business, are subject to significant risks and uncertainties. These risks and uncertainties include, but are not limited to, those relating to:

•  our ability to maintain relationships with the customers of the acquired business;

•  our ability to cross-sell products and services to customers with which we have established relationships and those with which the acquired businesses have established relationships;

•  our ability to retain or replace key personnel;

•  potential conflicts in payer, provider, strategic partner, sponsor or advertising relationships;

•  our ability to coordinate organizations that are geographically diverse and may have different business cultures; and

•  compliance with regulatory requirements.

      We cannot guarantee that any acquired businesses will be successfully integrated with our operations in a timely or cost-effective manner, or at all. Failure to successfully integrate acquired businesses or to achieve anticipated operating synergies, revenue enhancements or cost savings could have a material adverse effect on our business, financial condition and results of operations.

      Although our management attempts to evaluate the risks inherent in each transaction and to value acquisition candidates appropriately, we cannot assure you that we will properly ascertain all such risks or that acquired businesses and assets will perform as we expect or enhance the value of our company as a whole. In addition, acquired companies or businesses may have larger than expected liabilities that are not covered by the indemnification, if any, we are able to obtain from the sellers.

We may not be able to raise additional funds when needed for our business or to exploit opportunities

      Our future liquidity and capital requirements will depend upon numerous factors, including the success of the integration of our businesses, our existing and new applications and service offerings, competing technologies and market developments, potential future acquisitions and additional repurchases of our common stock. We may need to raise additional funds to support expansion, develop new or enhanced applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities. If required, we may raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

      The primary objective of our investment activities is to preserve principal and maintain adequate liquidity, while at the same time maximizing the yield we receive from our investment portfolio. This objective is accomplished by adherence to our investment policy, which establishes the list of eligible types of securities and credit requirements for each investment.

      Changes in prevailing interest rates will cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash equivalents, short-term investments and marketable securities in commercial paper, non-government debt securities, money market funds and highly liquid United States Treasury notes. We view these high grade securities within our portfolio as having similar market risk characteristics.

      Principal amounts expected to mature are $204.0 million, $23.0 million, $319.1 million and $102.0 million during 2004, 2005, 2006 and 2007, respectively. These include investments totaling $358.0 million in federal agency notes that are callable subjecting us to interest rate risk on the reinvestment of these securities. We believe that the impact of any call and resulting reinvestment of proceeds would not have a material effect on our financial condition or results of operations.

      We have not utilized derivative financial instruments in our investment portfolio.

Exchange Rate Sensitivity

      Currently, substantially all of our sales and expenses are denominated in United States dollars; however, Porex is exposed to fluctuations in foreign currency exchange rates, primarily the rate of exchange of the United States dollar against the Euro. This exposure arises primarily as a result of translating the results of Porex’s foreign operations to the United States dollar at exchange rates that have fluctuated from the beginning of the accounting period. Porex has not engaged in foreign currency hedging activities to date. Foreign currency translation gains (losses) were $3.3 million, $2.5 million and $(0.7) million, in 2003, 2002 and 2001, respectively. We believe that future exchange rate sensitivity related to Porex will not have a material effect on our financial condition or results of operations.

Item 8. Financial Statements and Supplementary Data

      Our financial statements required by this item are contained on pages F-1 through F-44 of this Annual Report on Form 10-K. See Item 15(a)(1) for a listing of financial statements provided.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

      As required by Exchange Act Rule 13a-15(b), WebMD management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of WebMD’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of December 31, 2003. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that WebMD’s disclosure controls and procedures provided reasonable assurance that all material information required to be filed in this Annual Report has been made known to them in a timely fashion.

      In connection with the evaluation required by Exchange Act Rule 13a-15(d), WebMD management, including the Chief Executive Officer and Chief Financial Officer, concluded that no changes in WebMD’s internal control over financial reporting occurred during the fourth quarter of 2003 that have materially affected, or are reasonably likely to materially affect, WebMD’s internal control over financial reporting.

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PART III

      Information required by Items 10, 11, 12, 13 and 14 of Part III is omitted from this Annual Report and will be filed in a definitive proxy statement or by an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report.

Item 10.     Directors and Executive Officers of the Registrant

      We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Directors and Executive Officers,” and possibly elsewhere therein. That information is incorporated in this Item 10 by reference.

Item 11.     Executive Compensation

      We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Executive Compensation,” and possibly elsewhere therein. That information is incorporated in this Item 11 by reference.

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

      We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” and possibly elsewhere therein. That information is incorporated in this Item 12 by reference.

Item 13.      Certain Relationships and Related Transactions

      We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Certain Relationships and Related Transactions,” and possibly elsewhere therein. That information is incorporated in this Item 13 by reference.

Item 14.      Principal Accountant Fees and Services

      We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in either case under the caption “Principal Accountant Fees and Services,” and possibly elsewhere therein. That information is incorporated in this Item 14 by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)(1)-(2) Financial Statements and Schedules

      The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements and Supplemental Data on page F-1 are filed as part of this Report.

      (a)(3) Exhibits

      See “Index to Exhibits” beginning on page E-1, which is incorporated by reference herein. The Index to Exhibits lists all exhibits filed with this Report and identifies which of those exhibits are management contracts and compensation plans.

      (b) Reports on Form 8-K

      During the last quarter of the fiscal year ended December 31, 2003, the registrant filed or furnished the following Reports on Form 8-K:

•  Report on Form 8-K filed on October 14, 2003 pursuant to which the registrant announced preliminary results for the quarter ended September 30, 2003.

•  Report on Form 8-K filed on October 24, 2003 pursuant to which the registrant announced that it had entered into a definitive agreement to acquire Medifax-EDI.

•  Report on Form 8-K filed on November 6, 2003 pursuant to which the registrant announced results for the quarter ended September 30, 2003.

•  Report on Form 8-K filed on December 1, 2003 pursuant to which the registrant announced that the Medifax-EDI acquisition agreement had been amended.

•  Report on Form 8-K filed on December 24, 2003 pursuant to which the registrant announced that the Medifax-EDI acquisition had been completed.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized, on the 11th day of March, 2004.

WEBMD CORPORATION

By:  /s/ ANDREW C. CORBIN

Andrew C. Corbin

Executive Vice President and

Chief Financial Officer

POWER OF ATTORNEY

      KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Andrew C. Corbin, Lewis H. Leicher and Charles A. Mele, and each one of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

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

Signature	Capacity	Date
/s/ ROGER C. HOLSTEIN Roger C. Holstein	Chief Executive Officer (principal executive officer) and Director	March 11, 2004
/s/ ANDREW C. CORBIN Andrew C. Corbin	Executive Vice President and Chief Financial Officer (principal financial and accounting officer)	March 11, 2004
/s/ MARK J. ADLER, M.D. Mark J. Adler, M.D.	Director	March 11, 2004
/s/ PAUL A. BROOKE Paul A. Brooke	Director	March 11, 2004
/s/ NEIL F. DIMICK Neil F. Dimick	Director	March 11, 2004
/s/ JAMES V. MANNING James V. Manning	Director	March 11, 2004
/s/ HERMAN SARKOWSKY Herman Sarkowsky	Director	March 11, 2004

86

Signature	Capacity	Date
/s/ MICHAEL A. SINGER Michael A. Singer	Director	March 11, 2004
/s/ JOSEPH E. SMITH Joseph E. Smith	Director	March 11, 2004
/s/ MARTIN J. WYGOD Martin J. Wygod	Director	March 11, 2004

87

WebMD Corporation

Index to Consolidated Financial Statements and Supplemental Data

      The following financial statements of the Company and its subsidiaries required to be included in Item 15(a)(1) of Form 10-K are listed below:

		Page
Historical Financial Statements:
	Report of Independent Auditors		F-2
	Consolidated Balance Sheets at December 31, 2003 and 2002		F-3
	Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001		F-4
	Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001		F-5
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001		F-6
	Notes to Consolidated Financial Statements		F-8
Supplemental Financial Data:
	The following supplementary financial data of the Registrant and its subsidiaries required to be included in Item 15(a)(2) of Form 10-K are listed below:
	Schedule II — Valuation and Qualifying Accounts		S-1

      All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in the notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

WebMD Corporation

      We have audited the accompanying consolidated balance sheets of WebMD Corporation as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of WebMD Corporation at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

      As discussed in Note 10 to the financial statements, the Company changed its accounting for goodwill and other indefinite lived intangible assets in 2002.

/s/ ERNST & YOUNG LLP

MetroPark, New Jersey

February 27, 2004, except for Note 22,

 as to which the date is March 4, 2004

F-2

WebMD Corporation

Consolidated Balance Sheets

(In thousands, except share and per share data)

			December 31,
			2003			2002
ASSETS
Current assets:
	Cash and cash equivalents		$	63,298		$	175,596
	Short-term investments			207,383			10,888
	Accounts receivable, net of allowance for doubtful accounts of $20,500 in 2003 and $22,417 in 2002			181,173			163,244
	Inventory			12,158			9,976
	Current portion of prepaid content and distribution services			18,116			25,406
	Assets of discontinued operations			—			94,056
	Other current assets			25,973			25,814
		Total current assets		508,101			504,980
Marketable debt securities				451,290			449,289
Marketable equity securities				4,744			7,427
Property and equipment, net				77,278			70,488
Prepaid content and distribution services				31,992			48,532
Goodwill				844,448			586,043
Intangible assets, net				184,130			73,222
Other assets				33,323			26,267
			$	2,135,306		$	1,766,248
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	10,390		$	10,063
	Accrued expenses			208,430			208,342
	Deferred revenue			86,708			81,179
	Liabilities of discontinued operations			—			12,365
		Total current liabilities		305,528			311,949
3 1/4% convertible subordinated notes due 2007				299,999			300,000
1.75% convertible subordinated notes due 2023				350,000			—
Other long-term liabilities				1,182			498
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $.0001 par value; 5,000,000 shares authorized and no shares issued at December 31, 2003 and December 31, 2002			—			—
	Common stock, $.0001 par value; 900,000,000 shares authorized at December 31, 2003; 600,000,000 shares authorized at December 31, 2002; 384,751,705 shares issued at December 31, 2003; 374,661,064 shares issued at December 31, 2002			38			37
	Additional paid-in capital			11,726,734			11,682,443
	Deferred stock compensation			(4,683	)		(17,805	)
	Treasury stock, at cost; 76,576,865 shares at December 31, 2003; 74,254,669 shares at December 31, 2002			(347,858	)		(327,542	)
	Accumulated deficit			(10,212,054	)		(10,195,048	)
	Accumulated other comprehensive income			16,420			11,716
		Total stockholders’ equity		1,178,597			1,153,801
			$	2,135,306		$	1,766,248

See accompanying notes.

F-3

WebMD Corporation

Consolidated Statements of Operations

(In thousands, except per share data)

		Years Ended December 31,
		2003			2002			2001
Revenue		$	963,980		$	871,696		$	842,020
Costs and expenses:
	Cost of operations		564,939			509,744			568,321
	Development and engineering		42,985			43,467			43,572
	Sales, marketing, general and administrative		282,482			283,424			448,082
	Depreciation, amortization and other		62,434			125,593			2,394,857
	Legal expense		3,959			—			—
	Impairment of long-lived and other assets		—			—			3,816,115
	Restructuring and integration (benefit) charge		—			(5,850	)		266,755
	Gain on investments		1,659			6,547			—
	Interest income		22,901			19,590			30,409
	Interest expense		15,214			8,491			507
	Other income, net		4,218			3,844			—
Income (loss) from continuing operations before income tax provision (benefit)			20,745			(63,192	)		(6,665,780	)
	Income tax provision (benefit)		4,140			(10,079	)		2,588
	Income (loss) from continuing operations		16,605			(53,113	)		(6,668,368	)
	Income (loss) from discontinued operations, net of income taxes		(33,611	)		3,411			(3,950	)
Net loss		$	(17,006	)	$	(49,702	)	$	(6,672,318	)
Basic loss per common share:
	Income (loss) from continuing operations	$	0.05		$	(0.17	)	$	(19.13	)
	Income (loss) from discontinued operations		(0.11	)		0.01			(0.01	)
Net loss		$	(0.06	)	$	(0.16	)	$	(19.14	)
Diluted loss per common share:
	Income (loss) from continuing operations	$	0.05		$	(0.17	)	$	(19.13	)
	Income (loss) from discontinued operations		(0.10	)		0.01			(0.01	)
Net loss		$	(0.05	)	$	(0.16	)	$	(19.14	)
Weighted-average shares outstanding used in computing income (loss) per common share:
	Basic		304,858			304,168			348,570
	Diluted		325,811			304,168			348,570

See accompanying notes.

F-4

WebMD Corporation

Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

							Stockholders’ Equity
	Convertible
	Redeemable						Convertible
	Preferred Stock						Preferred Stock						Common Stock				Additional			Deferred
																	Paid-In			Stock
	Shares			Amount			Shares			Amount			Shares		Amount		Capital			Compensation
Balances at December 31, 2000		100		$	10,000			155,951		$	710,746			361,233,643	$	36	$	11,028,461		$	(144,467	)
Net loss		—			—			—			—			—		—		—			—
Net increase in unrealized gains on securities		—			—			—			—			—		—		—			—
Foreign currency translation adjustment		—			—			—			—			—		—		—			—
Comprehensive loss		—			—			—			—			—		—		—			—
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances		—			—			—			—			3,722,517		1		12,994			—
Issuance, net of reductions, and exercise of warrants in connection with strategic alliances and services		—			—			—			—			2,000,000		—		24,739			—
Reacquisition of convertible preferred stock and issuance of warrants in connection with revision of strategic alliance		—			—			(155,951	)		(710,746	)		—		—		559,575			—
Stock compensation expense		—			—			—			—			—		—		40,909			88,359
Purchase of treasury stock		—			—			—			—			—		—		—			—
Adjustment to deferred stock compensation for terminations		—			—			—			—			—		—		(13,935	)		13,935
Balances at December 31, 2001		100			10,000			—			—			366,956,160		37		11,652,743			(42,173	)
Net loss		—			—			—			—			—		—		—			—
Net decrease in unrealized gains on securities		—			—			—			—			—		—		—			—
Foreign currency translation adjustment		—			—			—			—			—		—		—			—
Comprehensive loss		—			—			—			—			—		—		—			—
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances		—			—			—			—			7,704,904		—		28,774			—
Issuance, net of repurchase, of warrants in connection with strategic alliances and services		—			—			—			—			—		—		29			—
Redemption of convertible redeemable preferred stock		(100	)		(10,000	)		—			—			—		—		—			—
Deferred stock compensation		—			—			—			—			—		—		2,500			(2,500	)
Stock compensation expense		—			—			—			—			—		—		392			24,873
Purchase of treasury stock		—			—			—			—			—		—		—			—
Adjustment to deferred stock compensation for terminations		—			—			—			—			—		—		(1,995	)		1,995
Balances at December 31, 2002		—			—			—			—			374,661,064		37		11,682,443			(17,805	)
Net loss		—			—			—			—			—		—		—			—
Net increase in unrealized gains on securities		—			—			—			—			—		—		—			—
Foreign currency translation adjustment		—			—			—			—			—		—		—			—
Comprehensive loss		—			—			—			—			—		—		—			—
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances		—			—			—			—			10,090,641		1		44,718			—
Issuance of warrants in connection with strategic alliances and services		—			—			—			—			—		—		67			—
Deferred stock compensation		—			—			—			—			—		—		25			(25	)
Stock compensation expense		—			—			—			—			—		—		335			12,293
Purchase of treasury stock		—			—			—			—			—		—		—			—
Adjustment to deferred stock compensation for terminations		—			—			—			—			—		—		(854	)		854
Balances at December 31, 2003		—		$	—			—		$	—			384,751,705	$	38	$	11,726,734		$	(4,683	)

[Table continued below]

[Table continued from above]

	Stockholders’ Equity
									Accumulated
	Treasury Stock								Other			Total
						Accumulated			Comprehensive			Stockholders'
	Shares		Amount			Deficit			Income			Equity
Balances at December 31, 2000		5,163,509	$	(30,759	)	$	(3,473,028	)	$	6,446		$	8,097,435
Net loss		—		—			(6,672,318	)		—			(6,672,318	)
Net increase in unrealized gains on securities		—		—			—			7,097			7,097
Foreign currency translation adjustment		—		—			—			(710	)		(710	)
Comprehensive loss		—		—			—			—			(6,665,931	)
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances		—		—			—			—			12,995
Issuance, net of reductions, and exercise of warrants in connection with strategic alliances and services		—		—			—			—			24,739
Reacquisition of convertible preferred stock and issuance of warrants in connection with revision of strategic alliance		—		—			—			—			(151,171	)
Stock compensation expense		—		—			—			—			129,268
Purchase of treasury stock		50,928,426		(191,823	)		—			—			(191,823	)
Adjustment to deferred stock compensation for terminations		—		—			—			—			—
Balances at December 31, 2001		56,091,935		(222,582	)		(10,145,346	)		12,833			1,255,512
Net loss		—		—			(49,702	)		—			(49,702	)
Net decrease in unrealized gains on securities		—		—			—			(3,640	)		(3,640	)
Foreign currency translation adjustment		—		—			—			2,523			2,523
Comprehensive loss		—		—			—			—			(50,819	)
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances		—		—			—			—			28,774
Issuance, net of repurchase, of warrants in connection with strategic alliances and services		—		—			—			—			29
Redemption of convertible redeemable preferred stock		—		—			—			—			—
Deferred stock compensation		—		—			—			—			—
Stock compensation expense		—		—			—			—			25,265
Purchase of treasury stock		18,162,734		(104,960	)		—			—			(104,960	)
Adjustment to deferred stock compensation for terminations		—		—			—			—			—
Balances at December 31, 2002		74,254,669		(327,542	)		(10,195,048	)		11,716			1,153,801
Net loss		—		—			(17,006	)		—			(17,006	)
Net increase in unrealized gains on securities		—		—			—			1,419			1,419
Foreign currency translation adjustment		—		—			—			3,285			3,285
Comprehensive loss		—		—			—			—			(12,302	)
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances		—		—			—			—			44,719
Issuance of warrants in connection with strategic alliances and services		—		—			—			—			67
Deferred stock compensation		—		—			—			—			—
Stock compensation expense		—		—			—			—			12,628
Purchase of treasury stock		2,322,196		(20,316	)		—			—			(20,316	)
Adjustment to deferred stock compensation for terminations		—		—			—			—			—
Balances at December 31, 2003		76,576,865	$	(347,858	)	$	(10,212,054	)	$	16,420		$	1,178,597

See accompanying notes.

F-5

WebMD Corporation

Consolidated Statements of Cash Flows

(In thousands)

				Years Ended December 31,
				2003			2002			2001
Cash flows from operating activities:
Net loss				$	(17,006	)	$	(49,702	)	$	(6,672,318	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Loss (income) from discontinued operations				33,611			(3,411	)		3,950
	Depreciation, amortization and other				62,434			125,593			2,394,857
	Impairment of long-lived and other assets				—			—			3,816,115
	Amortization of debt issuance costs				2,246			1,109			—
	Non-cash content and distribution services				24,298			25,706			45,474
	Non-cash stock based compensation				12,449			25,265			78,451
	Non-cash portion of restructuring and integration charge				—			—			185,498
	Gain on investments				(1,659	)		(6,547	)		—
	Gain on sale of property and equipment				(3,100	)		—			—
	Changes in operating assets and liabilities:
		Accounts receivable			5,515			(2,631	)		46,908
		Inventory			(2,176	)		(872	)		927
		Prepaid content and distribution services			(467	)		753			(7,609	)
		Other assets			4,259			(4,416	)		20,318
		Accounts payable			(651	)		(7,541	)		(5,815	)
		Accrued expenses			(42,419	)		(32,651	)		(45,124	)
		Deferred revenue			(225	)		12,530			11,508
			Net cash provided by (used in) continuing operations		77,109			83,185			(126,860	)
			Net cash provided by discontinued operations		5,130			9,912			12,591
			Net cash provided by (used in) operating activities		82,239			93,097			(114,269	)
Cash flows from investing activities:
Proceeds from maturities and sales of available-for-sale securities					247,294			108,991			124,725
Proceeds from maturities and redemptions of held-to-maturity securities					157,919			59,095			1,014
Purchases of available-for-sale securities					(8,254	)		(207,833	)		—
Purchases of held-to-maturity securities					(590,113	)		(300,970	)		(1,014	)
Purchases of property and equipment					(18,385	)		(26,267	)		(27,256	)
Proceeds received from sale of discontinued operations					46,500			—			—
Proceeds received from sale of property and equipment					9,779			—			—
Other changes in equity of discontinued operations					1,754			10,369			2,496
Cash paid in business combinations, net of cash acquired					(400,491	)		(33,471	)		(17,334	)
			Net cash provided by (used in) continuing operations		(553,997	)		(390,086	)		82,631
			Net cash used in discontinued operations		(2,529	)		(12,577	)		(6,238	)
			Net cash provided by (used in) investing activities		(556,526	)		(402,663	)		76,393

F-6

		Years Ended December 31,
		2003			2002			2001
Cash flows from financing activities:
Proceeds from issuance of common stock			44,719			28,765			12,995
Purchase of treasury shares			(20,316	)		(104,960	)		(191,823	)
Payment of notes payable and other			(361	)		(2,904	)		(2,911	)
Net proceeds from issuance of convertible debt			339,125			292,000			—
Redemption of Series B Preferred Stock			—			(10,000	)		—
	Net cash provided by (used in) continuing operations		363,167			202,901			(181,739	)
	Net cash used in discontinued operations		(6,546	)		(1,150	)		(456	)
	Net cash provided by (used in) financing activities		356,621			201,751			(182,195	)
Effects of exchange rates on cash			1,423			1,083			(312	)
Net decrease in cash and cash equivalents			(116,243	)		(106,732	)		(220,383	)
Changes in cash attributable to discontinued operations			3,945			3,815			(5,897	)
Cash and cash equivalents at beginning of year			175,596			278,513			504,793
Cash and cash equivalents at end of year		$	63,298		$	175,596		$	278,513

See accompanying notes.

F-7

WebMD Corporation

Notes to Consolidated Financial Statements

December 31, 2003

(In thousands, except share and per share data)

1. Summary of Significant Accounting Policies

Basis of Presentation

      WebMD Corporation was incorporated in Delaware in December 1995 and commenced operations in January 1996 as Healtheon Corporation. The Company changed its name to Healtheon/ WebMD Corporation in November 1999 and to WebMD Corporation in September 2000. The accompanying consolidated financial statements include the consolidated accounts of WebMD Corporation and its subsidiaries (the “Company”) and have been prepared in United States dollars, and in accordance with accounting principles generally accepted in the United States (“GAAP”). As described in Note 6, on August 1, 2003 the Company completed the sale of two operating units of its Plastic Technologies segment. Accordingly, the results of these two operating units, including the loss related to the divestitures, have been presented as discontinued operations in the accompanying consolidated financial statements.

Business

      The Company has aligned its business into four operating segments as follows:

      Transaction Services or WebMD Envoy provides healthcare reimbursement cycle management services, including transmission of transactions between healthcare payers and physicians, pharmacies, dentists, hospitals, laboratory companies and other healthcare providers using dial-up, Internet and dedicated communication methods. WebMD Envoy’s services assist its customers in automating key administrative and clinical functions. In addition, WebMD Envoy provides automated patient billing services to providers, including statement printing and mailing services, and provides paid-claims communication services to third party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanations of benefits.

      Physician Services or WebMD Practice Services develops and markets integrated physician practice management systems, including administrative, financial and clinical applications and services, under The Medical Manager, Intergy, ULTIA and Medical Manager Network Services brands. These systems and services allow physician offices to automate their scheduling, billing and other administrative tasks, to transmit transactions electronically, to maintain electronic medical records and to automate documentation of patient encounters.

      Portal Services or WebMD Health provides online healthcare information, educational services and related resources for consumers and healthcare professionals, both directly and through its relationships with leading general consumer Internet portals. WebMD Health also provides online content for use by media and healthcare partners on their Web sites. WebMD Health develops and sells online and offline channels of communication and sponsorship programs to pharmaceutical, biotech, medical device and consumer products companies, particularly those who are interested in influencing healthcare decisions. In addition, WebMD Health provides a suite of online tools and related services to employers and health plans for use by their employees and plan members.

      Plastic Technologies or Porex develops, manufactures and distributes proprietary porous plastic products and components used in healthcare, industrial and consumer applications, as well as in finished products used in the medical device and surgical markets.

Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. The results of operations for companies acquired or disposed of are included in the

F-8

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

consolidated financial statements from the effective date of acquisition or up to the date of disposal. All material intercompany accounts and transactions have been eliminated in consolidation.

Accounting 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 amounts reported in the consolidated financial statements and accompanying notes. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect: the Company’s allowance for doubtful accounts, the carrying value of inventory, the carrying value of prepaid content and distribution services, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill), the carrying value, capitalization and amortization of software development costs, the carrying value of short-term and long-term investments, the provision for taxes and related deferred tax accounts, certain accrued expenses, revenue recognition, restructuring costs, contingencies, litigation and the value attributed to warrants issued for services.

Cash and Cash Equivalents

      All highly liquid investments with an original maturity from the date of purchase of three months or less are considered to be cash equivalents. These short-term investments are stated at cost, which approximates market. The Company’s cash and cash equivalents are invested in various investment-grade commercial paper, money market accounts and federal agency notes.

Marketable Securities

      Management determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost. Debt securities that the Company does not have the intent or ability to hold to maturity are classified as available-for-sale. Investments in marketable equity securities are classified as available-for-sale. Available-for-sale securities are carried at fair value as of the balance sheet date. The Company uses specific identification to determine the cost basis of a security sold.

Allowance for Doubtful Accounts

      The allowance for doubtful accounts receivable reflects the Company’s best estimate of probable losses inherent in the Company’s receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.

Inventory

      Inventory is stated at the lower of cost or market value using the first-in, first-out basis. Cost includes raw materials, direct labor, and manufacturing overhead. Market value is based on current replacement

F-9

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

cost for raw materials and supplies and on net realizable value for work-in-process and finished goods. Inventory consisted of the following as of December 31, 2003 and 2002:

	2003		2002
Raw materials and supplies	$	3,142	$	3,019
Work-in-process		1,394		1,308
Finished goods and other		7,622		5,649
	$	12,158	$	9,976

Long-Lived Assets

Property and Equipment

      Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related asset, generally three to twelve years for equipment and up to forty years for buildings. Leasehold improvements and equipment acquired under capital leases are depreciated over the shorter of the lease term or the estimated useful life of the related asset. Expenditures for maintenance, repair and renewals of minor items are charged to expense as incurred. Major betterments are capitalized.

Goodwill and Intangible Assets

      Goodwill and intangible assets result from acquisitions accounted for under the purchase method. Goodwill is no longer being amortized but is subject to impairment by applying a fair value based test. Intangible assets related to acquired technology, customer lists, trademarks and other intangibles are being amortized on a straight-line basis over the estimated useful life of the related asset, generally one to nine years, with the exception of certain technology and trademarks that have estimated useful lives of nineteen to forty years.

Recoverability

      In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Company reviews the carrying value of goodwill and intangible assets with indefinite lives annually. The Company measures impairment losses by comparing carrying value to fair value. Fair value is determined using discounted cash flow methodology.

      In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell.

      Prior to January 1, 2002, the Company accounted for its long-lived assets under SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” In accordance with SFAS No. 121, the Company reviewed the recoverability of long-lived assets using an undiscounted cash flow methodology, whenever events or changes in circumstances indicated that carrying amounts may not be recoverable. The Company measured impairment losses using a discounted cash flow methodology.

F-10

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

Software Development Costs

Software to be Sold, Leased or Otherwise Marketed

      SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon the Company’s product development process, technological feasibility is established upon the completion of a working model. The costs incurred from the time a working model is available until general release are immaterial.

Internal Use Software

      The Company accounts for internal use software development costs in accordance with Statement of Position (“SOP”) No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”). Software development costs that are incurred in the preliminary project stage are expensed as incurred. Once the specified criteria of SOP 98-1 have been met, internal and external direct costs incurred in developing or obtaining computer software are capitalized. Training and data conversion costs are expensed as incurred. Capitalized software costs are amortized over a three-year period.

Revenue Recognition

      Revenue is derived from the Company’s Transaction Services, Physician Services, Portal Services and Plastic Technologies segments.

      The Company’s transaction services include administrative services, such as transaction processing for medical, dental and pharmacy claims, automated patient statements, and clinical lab and reporting services, such as lab test orders and results. In addition, the Company provides paid-claims communication services to third party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanation of benefits. Healthcare payers and providers pay fees to the Company for these services, generally on a per transaction basis. Transaction fees vary according to the type of transaction and other factors, such as volume level commitments. The Company also charges one-time implementation fees to providers and payers that are recognized ratably over the contract term. Revenue from transaction services, which are generally priced on a per transaction or monthly per provider basis, is recognized when the services are provided.

      The Company’s physician services include sales of The Medical Manager and Intergy practice management systems and related hardware, as well as the support and maintenance of these systems. Revenue from software licenses is recognized in accordance with SOP No. 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Software license fee revenue is recognized when a customer enters into a noncancelable license agreement, the software product has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the license fees are fixed or determinable and collection of the license fee is considered probable. Amounts received in advance of meeting these criteria are deferred. Revenue from multiple-element software arrangements is recognized using the residual method as vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements, but not for all the delivered elements. The residual method requires revenue to be allocated to the undelivered elements based on the fair value of such elements, as indicated by VSOE. VSOE is based on the price charged when an element is sold separately. Revenue from the sale of hardware is recognized upon delivery to the customer. Revenue from support and maintenance contracts is recognized ratably over the contract period, which typically does not exceed one year. The Company also markets a variety of transaction processing services to physician practices, such as medical claim

F-11

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

processing and automated patient statements. Payment for these services is typically monthly on a per transaction or fixed fee basis. Revenues are recognized when these services are provided.

      The Company’s portal services include advertising, sponsorship, healthcare management tools, continuing medical education (“CME”), content syndication and distribution, and e-commerce transactions related to the Company’s online distribution channels and the online and offline distribution channels of the Company’s strategic partners. Revenue from advertising is recognized as advertisements are delivered. Revenues from sponsorship arrangements and healthcare management tools are recognized ratably over the term of the applicable agreement. Revenue from CME arrangements is recognized over the period the Company satisfies the minimum credit hour requirements of the applicable agreements. Revenue from fixed fee content license or carriage fees is recognized ratably over the term of the applicable agreement. E-commerce revenue is recognized when a subscriber or consumer utilizes the Company’s Internet-based services or purchases goods or services through the Company’s Web site or co-branded Web site with one of its strategic partners. Subscription revenue, including subscription revenue from sponsorship arrangements, is recognized over the subscription period. Subscription fees to the Company’s physician portal were discontinued as of December 31, 2000. When contractual arrangements contain multiple elements, revenue is allocated to the elements based on their relative fair values, determined using prices charged when elements are sold separately.

      The Company’s Plastic Technologies segment develops, manufactures and distributes porous plastic products and components. For standard products, revenue is recognized upon shipment of product, net of sales returns and allowances, in accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” and SFAS No. 48 “Revenue Recognition When Right of Return Exists.” These statements establish that revenue can be recorded when persuasive evidence of an arrangement exists, delivery has occurred and all significant obligations have been satisfied, the fee is fixed or determinable and collection is considered probable. Appropriate reserves are established for anticipated returns and allowances based on past experience. For sales of certain custom products, revenue is recognized upon completion and customer acceptance. The amount of cash received at the time a customer’s order is placed is recorded as a liability. The liability is reversed at the time revenue is recognized.

      The Company recognizes revenue related to the nonmonetary exchange of advertising for advertising (“Barter”) when such exchanges are objectively determinable based on the criteria set forth in Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” for contractual agreements entered into prior to January 20, 2000. Revenues from these exchanges are recorded at the fair value of the products and services provided or received, whichever is more clearly evident. For contractual arrangements after January 20, 2000, the Company recognizes revenue based on the criteria set forth in EITF Issue No. 99-17, “Accounting for Advertising Barter Transactions” (“EITF 99-17”). EITF 99-17 requires that an entity recognize revenue and expenses from advertising barter transactions at the fair value of the advertising surrendered only when an entity received cash for similar transactions. There were no revenues recognized from Barter transactions in 2003 or 2002. Revenue recognized from arrangements deemed to be Barter transactions totaled approximately $19,009 in 2001. The costs related to these transactions were equal to the revenues and are included in sales, marketing, general and administrative expenses in the accompanying consolidated statement of operations.

Foreign Currency

      The financial statements and transactions of the Company’s foreign manufacturing facilities are maintained in their local currency. In accordance with SFAS No. 52, “Foreign Currency Translation,” the translation of foreign currencies into United States dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate for the period. The gains or losses resulting from translation are included as a

F-12

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

component of accumulated other comprehensive income within stockholders’ equity. Foreign currency transaction gains and losses are included in net loss and were not material in any of the periods presented.

Concentration of Credit Risk

      None of the Company’s customers individually accounted for more than 10% of the Company’s consolidated revenues in 2003, 2002 or 2001.

      The Company’s revenues are principally generated in the United States. An adverse change in economic conditions in the United States could negatively affect the Company’s revenues and results of operations.

      The Company places its short-term investments in a variety of financial instruments and, by policy, limits the amount of credit exposure through diversification and by restricting its investments to highly rated securities.

Income Taxes

      Income taxes are accounted for using the liability method in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are recognized for the future tax consequence of differences between the tax and financial reporting basis of assets and liabilities at each year end. A valuation allowance is established to reduce deferred tax assets to the amounts expected to be realized.

Accounting for Stock-Based Compensation

      As discussed more fully in Note 15, the Company accounts for its stock-based employee compensation plans using the intrinsic value method under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations. No stock-based employee compensation cost is reflected in net loss with respect to options granted with an exercise price equal to the market value of the underlying common stock on the date of grant. Stock-based awards to non-employees are accounted for based on provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. The following table illustrates the effect on net loss and net loss per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

		Years Ended December 31,
		2003			2002			2001
Net loss as reported		$	(17,006	)	$	(49,702	)	$	(6,672,318	)
Deduct: Stock-based employee compensation expense included in reported net loss (including stock-based employee compensation expense related to discontinued operations)			12,629			25,265			129,268
Add: Total stock-based employee compensation expense determined under fair value based method for all awards			(76,484	)		(119,670	)		(317,166	)
	Pro forma net loss	$	(80,861	)	$	(144,107	)	$	(6,860,216	)
Net loss per common share:
	Basic — as reported	$	(0.06	)	$	(0.16	)	$	(19.14	)
	Diluted — as reported	$	(0.05	)	$	(0.16	)	$	(19.14	)
	Basic and diluted — pro forma	$	(0.27	)	$	(0.47	)	$	(19.68	)

F-13

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      The pro forma results above are not intended to be indicative of or a projection of future results. Refer to Note 15 for assumptions used in computing the fair value amounts above.

Net Loss Per Common Share

      Basic loss per common share and diluted loss per common share are presented in conformity with SFAS No. 128, “Earnings Per Share.” In accordance with SFAS No. 128, basic loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, increased to consider the effect of potentially dilutive securities. The following table presents the calculation of basic and diluted loss per common share (shares in thousands):

		Years Ended December 31,
		2003			2002			2001
Income (loss) from continuing operations		$	16,605		$	(53,113	)	$	(6,668,368	)
Income (loss) from discontinued operations			(33,611	)		3,411			(3,950	)
Net loss attributable to common stockholders		$	(17,006	)	$	(49,702	)	$	(6,672,318	)
Weighted-average shares — Basic			304,858			304,168			348,570
Effect of dilutive securities:
Employee stock options and warrants			20,953			—			—
Adjusted weighted-average shares after assumed conversions — Diluted			325,811			304,168			348,570
Basic loss per common share:
	Income (loss) from continuing operations	$	0.05		$	(0.17	)	$	(19.13	)
	Income (loss) from discontinued operations		(0.11	)		0.01			(0.01	)
Net loss		$	(0.06	)	$	(0.16	)	$	(19.14	)
Diluted loss per common share:
	Income (loss) from continuing operations	$	0.05		$	(0.17	)	$	(19.13	)
	Income (loss) from discontinued operations		(0.10	)		0.01			(0.01	)
Net loss		$	(0.05	)	$	(0.16	)	$	(19.14	)

      The Company has excluded convertible subordinated notes and restricted stock, as well as certain outstanding warrants and stock options from the calculation of diluted loss per common share because such securities were either anti-dilutive or were not convertible to common stock in accordance with their terms during the periods presented. The following table presents the total number of shares that could potentially dilute basic loss per common share in the future that were not included in the computation of diluted loss per common share during the periods presented (shares in thousands):

	Years Ended December 31,
	2003		2002		2001
Options, warrants and restricted stock		82,267		136,147		159,058
Convertible notes		55,129		32,387		—
		137,396		168,534		159,058

F-14

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

Recent Accounting Pronouncements

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Company’s existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15, 2003. The adoption of SFAS No. 150 on June 1, 2003 did not have any effect on the Company’s consolidated financial position or results of operations.

      In November 2002, the Emerging Issues Task Force issued a final consensus on issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”) which addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. Companies may also elect to apply the provisions of EITF 00-21 to existing arrangements and record the operating statement impact as the cumulative effect of a change in accounting principle. The Company has adopted EITF 00-21 prospectively for contracts beginning after June 30, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s consolidated financial position or results of operations.

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The interpretation elaborates on the disclosures to be made in the Company’s interim and annual financial statements about obligations under certain guarantees. It also requires the Company to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. The initial measurement and recognition provisions are required to be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on the Company’s consolidated financial position or results of operations.

      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 will have an impact on the timing of the recording of any future restructuring charges.

Reclassifications

      Certain reclassifications have been made to the financial statements to conform with the current year presentation.

2. Business Combinations

2003 Acquisitions

      On December 22, 2003, the Company completed its acquisition of Medifax-EDI, Inc. (“Medifax”), a privately held company based in Nashville, Tennessee. Medifax provides real-time medical eligibility transaction services and other claims management solutions to hospitals, medical centers, physician practices and other medical organizations throughout the United States. These services enable healthcare

F-15

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

providers to verify insurance coverage for their patients on a real-time basis. The total purchase consideration was approximately $280,065, comprised of $276,065 in cash and $4,000 of estimated acquisition costs, for all of the outstanding capital stock of Medifax. Prior to closing, Medifax distributed its Pharmacy Services companies to its owner and these companies were not included in the transaction. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price, goodwill of $179,090 and intangible assets subject to amortization of $92,700 were recorded. The Company does not expect that the goodwill or intangible assets will be deductible for tax purposes. The intangible assets are comprised of $72,600 relating to customer relationships with estimated useful lives of fifteen years, $8,600 relating to acquired technology with an estimated useful life of five years, $8,400 relating to payer connections with estimated useful lives of fifteen years and $3,100 relating to a tradename with an estimated useful life of one year. The results of operations of Medifax will be included in the Transaction Services segment. The results of operations of Medifax since the closing date of the acquisition were not material.

      On September 25, 2003, the Company completed its acquisition of a privately held dental clearinghouse based in Hartford, Connecticut. The Company paid $5,805 in cash for all of the outstanding capital stock of the acquired company and agreed to pay up to an additional $4,200 beginning in 2005 if certain revenue related milestones are achieved. The additional payment may be made over a three-year period by issuing shares of the Company’s common stock or in cash. The additional payment may exceed $4,200 if all or a portion of the additional payment is made by issuing shares of the Company’s stock and if the value of the Company’s stock exceeds certain price levels. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price, goodwill of $3,478 and an intangible asset subject to amortization of $2,392 were recorded. The Company does not expect that the goodwill or intangible assets will be deductible for tax purposes. The intangible asset is acquired technology with an estimated useful life of five years. The results of operations of the acquired company have been included in the financial statements of the Company from September 25, 2003, the closing date of the acquisition, and are included in the Transaction Services segment.

      On July 17, 2003, the Company completed its acquisition of Advanced Business Fulfillment, Inc. (“ABF”), a privately held company based in St. Louis, Missouri. ABF provides healthcare paid-claims communications services for third-party administrators and health insurers. ABF’s services allow its customers to outsource print-and-mail activities for the distribution of checks, remittance advice and explanations of benefits. The total purchase consideration for ABF was approximately $113,268, comprised of $108,368 in cash and $4,900 of estimated acquisition costs for all of the outstanding capital stock of ABF. Additionally, the Company will pay up to an additional $150,000 beginning in April 2004 if certain financial milestones are achieved. The additional payment may be made over a three-year period by issuing shares of the Company’s common stock or, at the Company’s option in certain circumstances, in cash. The additional payment may exceed $150,000 if all or a portion of the additional payment is made by issuing shares of the Company’s stock and if the value of the Company’s stock exceeds certain price levels at the time of payment. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price, goodwill of $61,453 and intangible assets subject to amortization of $47,000 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible assets are comprised of $41,000 relating to customer relationships with estimated useful lives of ten years, $4,900 relating to acquired unpatented technologies with estimated useful lives of

F-16

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

nine months to six years and $1,100 relating to a trade name with an estimated useful life of three years. The results of operations of the acquired company have been included in the financial statements of the Company from July 17, 2003, the closing date of the acquisition, and are included in the Transaction Services segment.

      On May 29, 2003, the Company acquired The Little Blue Book (“LBB”), a company which maintains a database containing practice information for over 380,000 physicians, and publishes a pocket-sized reference book containing physician information. The total purchase consideration for LBB was approximately $10,550, comprised of $10,400 in cash and estimated acquisition costs of $150. Additionally, the Company will pay up to $2,500 if LBB meets certain financial milestones during the years ending December 31, 2003 and 2004. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the preliminary allocation of the purchase price, goodwill of $8,661 and intangible assets subject to amortization of $2,815 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible assets are comprised of $1,787 relating to a trade name with an estimated useful life of seven years, $761 relating to customer relationships with estimated useful lives of five years and $267 relating to acquired technology with an estimated useful life of three years. The results of operations of LBB have been included in the financial statements of the Company from May 29, 2003, the closing date of the acquisition, and are included in the Portal Services segment.

      On April 30, 2003, the Company acquired the assets and assumed certain liabilities of a company which provides healthcare benefit decision support tools and solutions to its clients through online technology. The total purchase consideration for this acquisition was approximately $4,062, comprised of $4,000 in cash and estimated acquisition costs of $62. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $4,070 and an intangible asset subject to amortization of $710 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible asset represents the fair value of customer relationships with estimated useful lives of five years. The results of operations of the acquired business have been included in the financial statements of the Company from April 30, 2003, the closing date of the acquisition, and are included in the Portal Services segment.

      In 2003, the Company acquired seven practice services companies for an aggregate cost of $2,182, which was paid in cash. Additionally, the Company will pay up to $675 beginning in 2004 if some of the acquired companies meet certain financial milestones. These acquisitions were accounted for using the purchase method of accounting and, accordingly, the purchase prices were allocated to assets acquired and liabilities assumed based on their respective fair values. In connection with the preliminary allocation of the purchase prices, goodwill of $1,469 and intangible assets subject to amortization of $1,054 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible assets are comprised of $351 related to non-compete agreements with estimated useful lives of three to five years and $703 related to customer relationships with estimated useful lives of nine years. The results of operations of these companies have been included in the financial statements of the Company from the respective acquisition closing dates and are included in the Physician Services segment.

2002 Acquisitions

      On October 31, 2002, the Company acquired WellMed, Inc. (“WellMed”), which develops and markets healthcare information technology applications, including online healthcare decision support and

F-17

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

health management tools for use by consumers. The total purchase consideration for WellMed was approximately $19,031, comprised of $18,781 in cash and estimated acquisition costs of $250. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $18,380 and an intangible asset subject to amortization of $2,700 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible asset represents the fair value of acquired unpatented technology and has a useful life of three years. The results of operations of WellMed have been included in the financial statements of the Company from October 31, 2002, the closing date of the acquisition. WellMed’s results of operations are included in the Portal Services segment.

      In 2002, the Company acquired 21 physician services companies for a total cost of $14,400, which was paid in cash. These acquisitions were accounted for using the purchase method of accounting with the purchase price being allocated to assets acquired and liabilities assumed based on their fair values. In connection with the preliminary allocation of the purchase price, goodwill of $11,784 and intangible assets subject to amortization of $4,049 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible assets are comprised of $1,281 related to non-compete agreements with estimated useful lives of one to five years and $2,768 related to customer relationships with estimated useful lives of nine years. The results of operations of these companies have been included in the financial statements of the Company from the respective acquisition closing dates and are included in the Physician Services segment.

2001 Acquisitions

      On December 26, 2001, the Company completed its acquisition of the portal assets of MedicaLogic/ Medscape, Inc. (“Medscape”). Medscape operates both consumer and professional websites. The total purchase consideration for these assets was approximately $9,852, comprised of $9,242 in cash and acquisition costs of $610. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values. In connection with the allocation of the purchase price, goodwill of $5,732 and intangible assets subject to amortization totaling $2,420 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. The intangible assets are comprised of $800 related to a tradename and $1,620 related to customer relationships with useful lives of three and five years, respectively. The results of operations of Medscape have been included in the financial statements of the Company from December 26, 2001, the closing date of the acquisition. Medscape’s results of operations are included in the Portal Services segment.

      In 2001, the Company acquired ten physician services companies for a total cost of $8,159, which was paid primarily in cash. These acquisitions were accounted for using the purchase method of accounting with the purchase price being allocated to assets acquired and liabilities assumed based on their fair values. In connection with the allocation of the purchase price, goodwill of $9,879 and intangible assets subject to amortization of $3,453 were recorded. The Company expects that substantially all of the goodwill recorded will be deductible for tax purposes. Amortization of goodwill related to business combinations completed prior to June 30, 2001 has been provided based on an estimated useful life of three years. The intangible assets are comprised of $886 related to non-compete agreements with estimated useful lives of one to five years and $2,567 related to customer relationships with estimated useful lives of nine years. The results of operations of these companies have been included in the financial statements of the Company from the respective acquisition closing dates and are included in the Physician Services segment.

F-18

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

Unaudited Pro Forma Information

      The following unaudited pro forma financial information for the years ended December 31, 2003 and 2002 gives effect to the acquisitions of ABF and Medifax, including the amortization of intangible assets, as if they had occurred as of the beginning of the earliest period presented. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transactions had been consummated at the dates indicated, nor is it necessarily indicative of future operating results of the consolidated companies, and should not be construed as representative of these results for any future period. The remaining acquisitions in 2003, 2002 and 2001 have been excluded as the pro forma impact of such acquisitions was not significant in any of the periods presented.

		Years Ended December 31,
		2003			2002
Revenue		$	1,067,936		$	981,168
Income (loss) from continuing operations			28,867			(47,628	)
Net loss			(4,744	)		(44,217	)
Basic loss per common share:
	Income (loss) from continuing operations	$	0.09		$	(0.16	)
	Net loss	$	(0.02	)	$	(0.15	)
Diluted loss per common share:
	Income (loss) from continuing operations	$	0.09		$	(0.16	)
	Net loss	$	(0.01	)	$	(0.15	)

3. Significant Transactions

Quintiles Transnational Corporation

      As part of the transaction in which the Company acquired Envoy from Quintiles Transnational Corp. in May 2000, Quintiles and the Company entered into a Data Rights Agreement and an Internet Product Development and Marketing Agreement. In February 2000, Quintiles filed an action for breach of the Data Rights Agreement against the Company. On October 12, 2001, the Company and Quintiles entered into an agreement to settle this litigation (“Settlement Agreement”). Pursuant to the Settlement Agreement, the Company and Quintiles terminated the Data Rights Agreement and the Internet Product Development and Marketing Agreement and all other agreements between them. Pursuant to the court order in the litigation, Quintiles continued to receive de-identified data from the Company until February 28, 2002. The Company and Envoy have no further obligation to provide, and no longer provide, any data to Quintiles.

      In accordance with the terms of the Settlement Agreement, the Company purchased from Quintiles all 35,000,000 shares of WebMD common stock held by Quintiles for $185,000 in cash. The fair market value of the repurchased shares on the date of settlement was $126,000 and has been recorded as treasury stock. The excess of the purchase price of the shares over their fair market value was $59,000 and has been recorded as a component of restructuring and integration charges along with a benefit of $7,000 related to the release from certain obligations in relation to the Company’s acquisition of Envoy.

      The Settlement Agreement also provides that Quintiles will have the right to receive a payment (payable at the Company’s option in cash, stock, or a combination of cash and stock) in the event that, on or before June 30, 2004, a transaction closes in which the Company is acquired at a price per the Company’s common share greater than $4.00 or in which Envoy is sold at an aggregate price of greater

F-19

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

than $500,000. The Company is under no obligation to pursue either of these types of transactions. In the event an acquisition of the Company closes on or before June 30, 2004, the payment to Quintiles will equal 80% of the amount by which the price paid in the acquisition exceeds $4.00 per share, multiplied by 35,000,000. In the event a sale of Envoy closes on or before June 30, 2004, the payment to Quintiles will equal 80% of the amount by which the price received in the sale exceeds $500,000.

America Online, Inc.

      In May 2001, the Company entered into an agreement for a strategic alliance with Time Warner, Inc. (“Time Warner”). The term of the agreement is three years expiring May 2004. Under the agreement, the Company is the primary provider of healthcare content, tools and services for use on America Online (“AOL”) properties that include AOL, AOL.com, CompuServe and Netscape.com. In addition, the Company created a co-branded personalized health service for AOL that features the Company’s personalized news, health assessment and monitoring tools, communities and newsletters, integrated with AOL’s calendaring and reminders. The Company and AOL intend, through the co-branded services, to provide users with the ability to communicate with their health plans, physicians, pharmacies and other providers. The Company and AOL share revenue from advertising (whether or not related to healthcare), commerce and programming on the health channels of the AOL properties and on the co-branded service, with the Company receiving 80% of revenues up to an agreed-upon annual threshold and 60% thereafter. In connection with the strategic alliance, the Company issued to Time Warner a warrant to purchase 2,408,908 shares of the Company’s common stock at an exercise price of $9.25 per share. The warrant was valued at approximately $17,500 using the Black-Scholes option pricing model and is being amortized over the term of the strategic alliance as a non-cash distribution expense included in sales, marketing, general and administrative expense.

News Corporation

      Pursuant to an agreement signed and publicly announced in December 1999 and closed in January 2000, the Company entered into a strategic relationship with News Corporation. On December 29, 2000, this strategic alliance was revised by the parties. On February 15, 2001, the Company completed all transactions related to its revised strategic relationship with News Corporation. The original relationship and the new relationship are each described below.

Original Relationship

      The financial terms of the strategic relationship included: $700,000 in media services by News Corporation, comprised of $400,000 domestically and $300,000 internationally over 10 years; $100,000 cash investment commitment by News Corporation in an international joint venture; a $60,000 five-year licensing agreement for syndication of WebMD daily broadcast content; and the transfer to the Company of 50% interests in The Health Network, a health-focused cable network, and thehealthnetwork.com. The Company issued an aggregate of 155,951 shares of Series A preferred stock, convertible into 21,282,645 shares of the Company’s common stock. In addition, affiliates of News Corporation purchased 2,000,000 shares of the Company’s common stock for an aggregate purchase price of $100,000 in cash.

Current Relationship

      The Company retained the right to receive $205,000 in domestic media services from News Corporation over ten years expiring in 2010 and will continue to license its content for use across News Corporation’s media properties for four years for cash payments totaling $12,000 annually expiring in 2004. The remaining portion of the domestic media services is included in prepaid content and distribution services in the accompanying consolidated balance sheets. News Corporation transferred its 50% interest in

F-20

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

the international joint venture to the Company and was relieved of its commitment to provide any future capital to the international joint venture and its commitment to provide any international media services. The Company transferred its interest in The Health Network to News Corporation. The Company was also relieved of all future capital commitments to The Health Network. In connection with the revisions to the relationship, News Corporation surrendered 155,951 shares of WebMD’s Series A convertible preferred stock. The Company granted to News Corporation a warrant to acquire 3,000,000 shares of its common stock at an exercise price of $15 per share. The Company included approximately $17,759, determined using the Black-Scholes option pricing model, as a non-cash restructuring charge related to this issuance.

Microsoft

      The Company entered into a five-year strategic alliance with Microsoft in May 1999. In March 2001, the Company executed a non-binding letter of intent with Microsoft with respect to a new relationship. In April 2001, the Company entered into definitive agreements with Microsoft to implement the new relationship, which was effective as of January 1, 2001. In connection with the original strategic relationship, Microsoft acquired shares of common stock and a warrant to purchase shares of common stock of WebMD, Inc. These securities were converted into securities of the Company as a result of the merger of the Company and WebMD, Inc. in November 1999. As of December 31, 2003, Microsoft had a warrant to purchase 13,676,389 shares of the Company’s common stock at an exercise price of $30.16 per share. The warrant is fully vested and expires on May 12, 2004. The original relationship and the new relationship are each described below.

Original Relationship

      Under the terms of the original strategic relationship, the Company developed, hosted and maintained on its servers a health channel for MSN and was required to pay Microsoft an aggregate of $162,000 in carriage fees for the distribution of that content. In addition, Microsoft and the Company each committed co-marketing funds of $50,000 over the first two years of the term. As of December 31, 2000, the Company had recorded $30,562 as sales, marketing, general and administrative expense related to the carriage fees.

      Microsoft was required to remit to the Company 100% of the net revenue over the term of the agreement from banner and other advertising and e-commerce transactions generated on the health channel or advertising that Microsoft placed on WebMD.com each year during the term until the Company received an amount equal to that year’s carriage fees, including guaranteed minimum amounts of $22,500 in each of the first two years of the term, and was required to share revenue equally with the Company after that. The Company was required to pay Microsoft a 25% commission on the portion of the revenue received up to the annual guaranteed minimum amounts for all advertisements placed by Microsoft. The Company recognized this advertising revenue when Microsoft notified it that advertisements had been placed on the health channel and billed by Microsoft, not based on the guaranteed minimum amounts. During 2000, the Company recognized $5,996, net of commissions, related to health channel advertising.

      Microsoft agreed to sponsor up to 5.0 million subscriber months, for $29.95 per month, of subscriptions to the Company’s physician Web site over the term of the agreement. The Company was required to pay a $5 per month commission on all subscriptions placed by Microsoft. During 2000, the Company recorded $16,114 as revenue, net of commissions, related to subscriptions sponsored by Microsoft.

      The Company was required to share with Microsoft 50% of net revenue from banner and other advertising on the Company’s physician Web site generated by sponsored subscriptions until Microsoft received the amount it had incurred for its sponsored subscriptions. Thereafter, the Company was required

F-21

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

to share 25% of this revenue with Microsoft. In addition, the Company was required to share with Microsoft 15% of the Company’s net revenue from e-commerce transactions and additional services not included in the basic subscription to the Company’s physician Web site generated by these sponsored subscriptions. There were no obligations to Microsoft as of December 31, 2000 relating to this provision.

Current Relationship

      The parties entered into two definitive agreements to implement the new relationship. The first agreement related to technology matters and was terminated by the parties on September 14, 2001. No payments were made by either party under the terminated agreement. Under the second agreement, the Company programs the majority of the MSN health channel, and the Company and MSN share revenues derived from advertising, sponsorship and e-commerce on the MSN health channel site, with the Company receiving 100% of revenues up to an agreed upon annual threshold (or until an agreed upon maximum for the contract period is reached) and 60% thereafter. The Company no longer pays carriage fees to Microsoft. The term of this agreement is scheduled to expire on June 30, 2004. In connection with the new relationship, the parties agreed that Microsoft would no longer be responsible for funding the sponsorship of subscriptions to the Company’s physician portal, and the Company would no longer be required to share with Microsoft revenue generated by physician usage of the Company’s healthcare portals.

4. Impairment of Long-Lived and Other Assets

      During 2001, the Company identified certain indicators of possible impairment of its long-lived assets, primarily goodwill and other acquired intangible assets. The indicators of possible impairment that were identified included a decline in the price of the Company’s common stock to its lowest price in the previous twelve months accompanied by a significant decline in the volatility of the Company’s stock price, a sustained decline in valuations in the e-health, technology and Internet sectors and the impact of recent trends in general economic conditions. As a result of these indicators, the Company reviewed substantially all of its long-lived assets for impairment. The Company’s long-lived assets primarily related to goodwill and other acquired intangible assets recorded in connection with the acquisitions of WebMD, Inc., MedE America and Medcast in November 1999 and the acquisitions of Kinetra, Envoy, Medical Manager, CareInsite and OnHealth during 2000. The Company utilized its common stock as the primary consideration for the acquisitions. The Company evaluated its long-lived assets for impairment by determining identifiable cash flows of related asset groupings at the lowest level that were largely independent of the cash flows of other asset groupings. The projected undiscounted cash flows for each asset grouping was compared to the related carrying value. As a result of these comparisons, the Company determined its long-lived assets were impaired.

      The Company determined the amount of the impairment by comparing the fair value of each asset grouping to the related carrying value. The fair value for each asset grouping was determined primarily using a discounted cash flow approach. As a result of these comparisons, the Company recorded a write-down of $3,816,115 related to its long-lived assets reflecting the difference between the carrying value and fair value of the asset groupings. The write-down consisted of $3,678,950 of goodwill, $94,186 of other acquired intangibles and $42,979 of other long-lived assets consisting of computer equipment, leasehold improvements, office equipment and furniture and fixtures. In addition to this write-down, the Company recorded a write-down in 2001 of $10,778 of goodwill related to one of the discontinued operating units of the Company’s Plastic Technologies segment. Accordingly, this write-down has been included as a component of discontinued operations during the year ended December 31, 2001.

      During 2003 and 2002, the Company performed the impairment tests of goodwill, as required by SFAS No. 142. There was no impairment resulting from these tests.

F-22

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

5. Restructuring and Integration Charges

      After the mergers with Medical Manager Corporation, CareInsite, Inc. and OnHealth Network Company in September 2000, the Company’s Board of Directors approved a restructuring and integration plan, with the objective of eliminating duplication and redundancies that resulted from these and certain prior acquisitions and consolidating the Company’s operational infrastructure into a common platform to more efficiently serve its customers.

      The Company’s restructuring and integration efforts continued in 2001, and a plan to include the impact of eliminating functions resulting from the Company’s acquisition of Medscape (“Medscape Restructuring”) in December 2001 was initiated. As a result of the Medscape Restructuring, 115 employees were notified of termination in December 2001. In connection with the continuing restructuring and integration efforts, a charge was recorded in 2001 of $266,755, that consisted of: (i) $123,206 primarily relating to the restructuring of the original strategic relationship with Microsoft, of which $133,500 represented non-cash charges for the write-off of intangible assets associated with the Company’s original Microsoft agreement recorded as part of the Company’s acquisition of WebMD, Inc. in 1999 offset by a $15,610 cash benefit for the settlement of certain obligations from the original strategic relationship with Microsoft, as well as net cash payments of $5,316 made to exit contractual obligations, (ii) $52,000 cash charge associated with the settlement of the original Quintiles agreements, of which $59,000 was a cash charge recorded for the difference between the purchase price and fair value of the 35,000,000 shares of the Company’s common stock acquired in October 2001, offset by a $7,000 cash benefit related to the release of the Company from certain obligations in relation to the Company’s acquisition of Envoy, (iii) personnel-related costs of $67,604, of which $51,998 primarily represented non-cash stock option compensation charges related to the resignation or termination of certain employees pursuant to the applicable employment and separation arrangements, with the remaining personnel-related charge relating to severance and outplacement services for approximately 615 employees that the Company identified and notified of termination during 2001, of which $2,777 related to 115 employees notified of termination as a result of the Medscape Restructuring, (iv) $15,538 of cash charges related to estimated future lease obligations and lease cancellation penalties related primarily to additional anticipated costs of exiting previously vacated facilities as a result of declines in rental values in certain markets and vacating additional facilities identified during 2001, and (v) $8,407 of cash charges related to integration costs, consisting of employee retention arrangements related to exit activities, moving and relocation expenses, as well as outside professional fees related to the integration of the Company’s business.

      During 2002, the Company recorded a benefit of $5,850 relating to its restructuring and integration activity resulting from the settlements of certain contractual obligations.

F-23

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      The Company has substantially completed its restructuring and integration efforts related to the 2000 and 2001 restructuring plans. The balance of the restructuring and integration accrual as of December 31, 2003 is primarily related to remaining lease payments of previously vacated facilities. The following table presents cash activity in the restructuring and integration accrual:

	Severance			Facilities			Other			Total
Balance at December 31, 2000	$	8,599		$	35,843		$	8,683		$	53,125
Accrual		15,606			15,538			50,113			81,257
Cash payments		(20,749	)		(10,484	)		(58,796	)		(90,029	)
Balance at December 31, 2001	$	3,456		$	40,897		$	—		$	44,353
Accrual		—			—			(5,850	)		(5,850	)
Cash payments		(3,212	)		(7,606	)		5,850			(4,968	)
Balance at December 31, 2002	$	244		$	33,291		$	—		$	33,535
Cash payments		(70	)		(7,550	)		—			(7,620	)
Balance at December 31, 2003	$	174		$	25,741		$	—		$	25,915

6. Discontinued Operations

      The Company’s Plastic Technologies segment, Porex, had been accounted for as an asset held for sale during the period from September 12, 2000 to September 12, 2001, and as a discontinued operation from September 13, 2001 to September 30, 2002. During February 2003, the Company terminated its formal divestiture plan relating to Porex and, accordingly, the assets, liabilities and operations of Porex were reclassified as a continuing operation from September 12, 2000, its date of acquisition.

      On August 1, 2003, the Company completed the sale of two operating units of Porex, Porex Bio Products, Inc. (“Porex Bio”) and Porex Medical Products, Inc. (“Porex Medical”) to enable Porex to focus on its porous materials businesses. Accordingly, the historical financial information of these operating units has been reclassified as discontinued operations in the accompanying consolidated financial statements for all periods presented. The operating units were sold in two separate transactions for an aggregate sales price of $46,500. An impairment charge of $33,113 was recorded in the results for the quarter ended June 30, 2003 to reduce the long-lived assets of Porex Bio and Porex Medical to fair value. The write-down consisted of $27,564 of goodwill, $4,162 of trade name and patent intangibles and $1,387 of other long-lived assets consisting primarily of manufacturing equipment. The impairment charge was based on the fair value of the divested businesses as determined by the expected proceeds from disposition. During the three months ended September 30, 2003, the Company recorded a loss on disposal of $3,491, primarily representing certain costs related to the disposition, which is included in income (loss) from discontinued operations in the accompanying consolidated statements of operations. Summarized operating results for the discontinued units through August 1, 2003 were as follows:

	For the Period
	January 1, 2003			For the Year		For the Year
	through			Ended		Ended
	August 1, 2003			December 31, 2002		December 31, 2001
Revenue	$	31,004		$	54,181	$	59,008
Income (loss) from operations	$	(30,120	)	$	3,411	$	(3,950	)
Loss on disposal		(3,491	)		—		—
Income (loss) from discontinued operations, net of income taxes	$	(33,611	)	$	3,411	$	(3,950	)

F-24

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      The following table presents summary balance sheet information for the discontinued operations as of December 31, 2002:

Assets of discontinued operations:
	Cash and cash equivalents		$	3,945
	Accounts receivable, net			7,223
	Inventory, net			8,828
	Property and equipment, net			24,249
	Goodwill and intangible assets, net			49,326
	Other assets			485
		Total assets of discontinued operations	$	94,056
Liabilities of discontinued operations:
	Accounts payable and accrued expenses		$	5,700
	Debt			6,665
		Total liabilities of discontinued operations	$	12,365

7. Convertible Subordinated Notes

$350,000 1.75% Convertible Subordinated Notes due 2023

      On June 25, 2003, the Company issued $300,000 aggregate principal amount of 1.75% Convertible Subordinated Notes due 2023 (the “1.75% Notes”) in a private offering. On July 7, 2003, the Company issued an additional $50,000 aggregate principal amount of the 1.75% Notes. Unless previously redeemed or converted, the 1.75% Notes will mature on June 15, 2023. Interest on the 1.75% Notes accrues at the rate of 1.75% per annum and is payable semiannually on June 15 and December 15, commencing December 15, 2003. The Company will also pay contingent interest of 0.25% per annum of the average trading price of the 1.75% Notes during specified six month periods, commencing on June 20, 2010, if the average trading price of the 1.75% Notes for specified periods equals 120% or more of the principal amount of the 1.75% Notes.

      The 1.75% Notes are convertible into an aggregate of 22,742,040 shares of the Company’s common stock (representing a conversion price of $15.39 per share) if the sale price of the Company’s common stock exceeds 120% of the conversion price for specified periods and in certain other circumstances. The 1.75% Notes are redeemable by the Company after June 15, 2008 and prior to June 20, 2010, subject to certain conditions, including the sale price of the Company’s common stock exceeding certain levels for specified periods. If the 1.75% Notes are redeemed by the Company during this period, the Company will be required to make additional interest payments. After June 20, 2010, the 1.75% Notes are redeemable at any time for cash at 100% of their principal amount. Holders of the 1.75% Notes may require the Company to repurchase their 1.75% Notes on June 15, 2010, June 15, 2013 and June 15, 2018, for cash at 100% of the principal amount of the 1.75% Notes, plus accrued interest. Upon a change in control, holders may require the Company to repurchase their 1.75% Notes for, at the Company’s option, cash or shares of the Company’s common stock, or a combination thereof, at a price equal to 100% of the principal amount of the 1.75% Notes being repurchased.

      The Company incurred issuance costs related to the 1.75% Notes of approximately $10,875 which are included in other assets in the accompanying consolidated balance sheets. The issuance costs are being amortized to interest expense in the accompanying consolidated statements of operations, using the

F-25

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

effective interest method over the period from issuance through June 15, 2010, the earliest date on which holders can demand redemption.

$300,000 3 1/4% Convertible Subordinated Notes due 2007

      On April 1, 2002, the Company issued $300,000 aggregate principal amount of 3 1/4% Convertible Subordinated Notes due 2007 (the “3 1/4% Notes”) in a private offering. Interest on the 3 1/4% Notes accrues at the rate of 3 1/4% per annum and is payable semiannually on April 1 and October 1. Unless previously redeemed or converted, the 3 1/4% Notes will mature on April 1, 2007. At the time of issuance, the 3 1/4% Notes were convertible into an aggregate of approximately 32,386,916 shares of the Company’s common stock (representing a conversion price of $9.26 per share), subject to adjustment in certain circumstances. During the three months ended June 30, 2003, $1 principal amount of the 3 1/4% Notes was converted into 107 shares of the Company’s common stock in accordance with the provisions of the 3 1/4% Notes. As of December 31, 2003, the 3 1/4% Notes were convertible into an aggregate of approximately 32,386,808 shares of the Company’s common stock. The 3 1/4% Notes are redeemable at the Company’s option, at any time on or after April 5, 2005. The redemption price, as a percentage of principal amount, is 101.3% beginning April 5, 2005 and 100.65% beginning April 1, 2006. The Company incurred issuance costs related to the 3 1/4% Notes of $8,000, which are included in other assets in the accompanying consolidated balance sheets. The issuance costs are being amortized using the effective interest method over the term of the 3 1/4% Notes. The amortization of the issuance costs is included in interest expense in the accompanying consolidated statements of operations.

8. Segment Information

      Segment information has been prepared in accordance with the Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”). The accounting policies of the segments are the same as the accounting policies for the consolidated Company. Inter-segment revenues represent sales of Transaction Services products into the Physician Services customer base and are reflected at rates comparable to those charged to third parties for comparable products. The performance of the Company’s business is monitored based on income or loss before restructuring, taxes, non-cash and other items. Non-cash and other items include depreciation, amortization, accretion of preferred stock, impairment charges, gain on investments, other income, costs and expenses related to the investigation by the United States Attorney for the District of South Carolina and the SEC (“legal expense”), non-cash expenses related to content, advertising and distribution services acquired in exchange for the Company’s equity securities in acquisitions and strategic alliances, and stock compensation expense primarily related to stock options issued and assumed in connection with acquisitions.

F-26

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      Summarized financial information for each of the Company’s operating segments and a reconciliation to net loss are presented below:

		Years Ended December 31,
		2003			2002			2001
Revenues
Transaction services		$	505,729		$	466,810		$	457,448
Physician services			302,640			275,306			260,209
Portal services			110,665			84,296			74,626
Plastic technologies			71,940			65,811			62,017
Eliminations and other, net			(26,994	)		(20,527	)		(12,280	)(a)
		$	963,980		$	871,696		$	842,020
Income (loss) before restructuring, taxes, non-cash and other items
Transaction services		$	94,218		$	85,154		$	41,987
Physician services			20,924			26,685			20,827
Portal services			24,898			5,574			(79,437	)
Plastic technologies			20,532			19,891			17,406
Corporate and other			(50,251	)		(51,272	)		(94,813	)
Interest income			22,901			19,590			30,409
Interest expense			(15,214	)		(8,491	)		(507	)
		$	118,008		$	97,131		$	(64,128	)
Restructuring, taxes, non-cash and other items
Depreciation, amortization and other		$	(62,434	)	$	(125,593	)	$	(2,394,857	)
Non-cash content and distribution services and stock compensation			(36,747	)		(50,971	)		(123,925	)
Impairment of long-lived and other assets			—			—			(3,816,115	)
Restructuring and integration benefit (charge)			—			5,850			(266,755	)
Legal expense			(3,959	)		—			—
Gain on investments			1,659			6,547			—
Other income, net			4,218			3,844			—
Income tax benefit (provision)			(4,140	)		10,079			(2,588	)
Income (loss) from continuing operations			16,605			(53,113	)		(6,668,368	)
Income (loss) from discontinued operations, net of income taxes			(33,611	)		3,411			(3,950	)
	Net loss	$	(17,006	)	$	(49,702	)	$	(6,672,318	)

(a) In 2001, includes revenues related to technology outsourcing and consulting relationships and other non-core products that the Company decided to exit as a result of restructuring and integration efforts that commenced in the third quarter of 2000, as well as the elimination of inter-segment revenues of $14,061.

      The Company does not disaggregate assets for internal management reporting and, therefore, such information is not presented.

F-27

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      Revenues generated from foreign customers of the continuing operations of the Company’s Plastic Technologies segment were $31,320, $26,674 and $24,282 in 2003, 2002 and 2001, respectively. Long-lived assets based in foreign facilities of the Plastic Technologies segment were $13,798 and $11,745 as of December 31, 2003 and 2002, respectively.

9. Prepaid Content and Distribution Services

      In connection with obtaining Web site content and distribution services, the Company paid cash or issued equity instruments to certain service providers, in conjunction with business combinations or strategic alliances. The amount of payments made or the fair value of equity instruments issued has been capitalized and is being amortized over the term of the related agreement. Prepaid content and distribution services are summarized as follows:

		December 31,
		2003		2002
Current Portion
	Content	$	479	$	334
	Services		15,693		19,239
	Distribution		1,944		5,833
		$	18,116	$	25,406
Long-Term Portion
	Content	$	25	$	83
	Services		31,967		46,504
	Distribution		—		1,945
		$	31,992	$	48,532

10. Long-Lived Assets

      In 2001, the Company recorded an impairment charge of $3,816,115 related to the write-down of the carrying value of long-lived and other assets. See Note 4.

Property and Equipment

      Property and equipment consists of the following:

		December 31,
		2003			2002
Computer equipment		$	52,968		$	42,220
Land and buildings			17,136			15,447
Office equipment, furniture and fixtures			38,612			26,430
Software			27,219			17,427
Leasehold improvements			9,050			8,494
Construction in process			3,819			8,648
			148,804			118,666
Less: accumulated depreciation			(71,526	)		(48,178	)
	Property and equipment, net	$	77,278		$	70,488

F-28

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      Depreciation expense was $25,926, $23,255 and $33,675 in 2003, 2002 and 2001, respectively.

Goodwill and Intangible Assets

      Effective July 1, 2001 and January 1, 2002, the Company adopted SFAS No. 141, “Business Combinations” (“SFAS No. 141”) and SFAS No. 142, respectively. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill. SFAS No. 142 requires that goodwill and certain intangibles no longer be amortized, but instead tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144. Based on the Company’s analysis, there was no impairment of goodwill upon adoption of SFAS No. 142 on January 1, 2002, or in connection with the annual impairment tests that were performed during the quarters ended December 31, 2003 and 2002.

      The changes in the carrying amount of goodwill during the years ended December 31, 2003 and 2002 are as follows:

		Transaction		Physician			Portal			Plastic
		Services		Services			Services			Technologies		Total
Balance as of January 1, 2002		$	333,412	$	166,002		$	7,347		$	37,481	$	544,242
	Adjustment for acquired workforce intangibles		8,555		8,089			—			—		16,644
	Goodwill recorded during the period		—		11,784			17,973			—		29,757
	Adjustments to finalize purchase price allocations		—		(3,790	)		(1,615	)		356		(5,049	)
	Effects of exchange rates		—		—			—			449		449
Balance as of January 1, 2003			341,967		182,085			23,705			38,286		586,043
	Goodwill recorded during the period		244,021		1,469			12,731			—		258,221
	Adjustments to finalize purchase price allocations		—		(745	)		407			—		(338	)
	Effects of exchange rates		—		—			—			522		522
Balance as of December 31, 2003		$	585,988	$	182,809		$	36,843		$	38,808	$	844,448

      Intangible assets subject to amortization consist of the following:

		December 31, 2003							December 31, 2002
		Gross							Gross
		Carrying		Accumulated					Carrying		Accumulated
		Amount		Amortization			Net		Amount		Amortization			Net
Customer lists		$	325,160	$	(206,163	)	$	118,997	$	209,386	$	(179,127	)	$	30,259
Trade names			30,316		(19,756	)		10,560		24,329		(14,013	)		10,316
Technology and patents			191,318		(146,905	)		44,413		175,159		(144,485	)		30,674
Non-compete agreements and other			11,019		(859	)		10,160		2,268		(295	)		1,973
	Total	$	557,813	$	(373,683	)	$	184,130	$	411,142	$	(337,920	)	$	73,222

F-29

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      Amortization expense was $35,763, $102,338 and $2,361,182 in 2003, 2002 and 2001, respectively. Aggregate amortization expense for intangible assets is estimated to be:

Year ending December 31,
2004	$	23,056
2005		18,565
2006		15,584
2007		14,772
2008		14,286
Thereafter		97,867

      The pro forma results of operations for 2001, assuming the provisions of SFAS No. 142 were applied, are as follows:

				Year Ended
				December 31,
				2001
Net loss (as reported)				$	(6,672,318	)
	Add back amortization for:
		Goodwill			2,204,138
		Workforce			14,050
Adjusted net loss				$	(4,454,130	)
Basic and diluted net loss per common share:
	Net loss (as reported)			$	(19.14	)
		Add back amortization for:
			Goodwill		6.32
			Workforce		.04
Adjusted net loss				$	(12.78	)

11. Accrued Expenses

      Accrued expenses consist of the following:

		December 31,
		2003		2002
Accrued outside services		$	26,841	$	26,386
Accrued restructuring costs			25,915		33,535
Accrued compensation			39,320		47,918
Accrued customer deposits			16,539		5,926
Other accrued liabilities			99,815		94,577
	Total accrued expenses	$	208,430	$	208,342

F-30

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

12. Commitments and Contingencies

Legal Matters

Porex Mammary Implant Litigation

      From 1988 through 1990, Porex distributed silicone mammary implants in the United States pursuant to a distribution arrangement with a Japanese manufacturer. Porex believes that, after accounting for implants returned to Porex, the aggregate number of persons who received implants distributed by Porex totals approximately 2,500. Since March 1991, Porex has been named as one of many co-defendants in a number of actions brought by recipients of mammary implants. The typical case or claim alleges that the individual’s mammary implants caused one or more of a wide range of ailments. These implant cases and claims generally raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. Porex does not have sufficient information to evaluate each case and claim.

      Certain of the actions against Porex have been dismissed, where it was determined that the implant in question was not distributed by Porex. In addition, as of March 10, 2003, approximately 300 actions have been settled by the manufacturer, or by Porex’s insurance carriers, without material cost to Porex. As of March 10, 2003, no implant-related claims were pending against Porex. During calendar year 2003, there were no implant-related claims made against Porex by individuals, as compared to two claims during each of 2002, 2001 and 2000, 39 claims during 1999 and nine claims during 1998. The majority of claims made during 1999 were claims that were filed by individuals following a court ruling in 1999 that cases filed in earlier years would not proceed as class actions, as a result of which such individuals would not be members of a class in such cases.

      In 1994, Porex was notified that its insurance carrier would not renew its then-existing insurance coverage after December 31, 1994 with respect to actions and claims arising out of its distribution of implants. However, Porex exercised its right, under such policy, to purchase extended reporting period coverage with respect to such actions and claims. Such coverage provides insurance subject to existing policy limits, but for an unlimited time period with respect to actions and claims made after December 31, 1994 based on events that occurred during the policy period. In addition, Porex has purchased extended reporting period coverage with respect to other excess insurance. This coverage also extends indefinitely, replacing coverage that would, by its terms, have otherwise expired by December 31, 1997. Porex will continue to evaluate the need to purchase further extended reporting period coverage from excess insurers to the extent such coverage is reasonably available.

      The Company believes that Porex’s present coverage, together with Porex’s insurance policies in effect on or before December 31, 1994, should provide adequate coverage against liabilities that could result from actions or claims arising out of Porex’s distribution of silicone mammary implants. However, Porex cannot be certain that particular cases and claims will not result in liability that is greater than expected based on Porex’s prior experience. If so, Porex’s liability could exceed the amount of its insurance coverage. Furthermore, certain actions and claims seek punitive and compensatory damages arising out of alleged intentional torts. If these claims are successful, such damages may or may not be covered, in whole or in part, by Porex’s insurance policies.

     Merrill Lynch Fundamental Growth Fund, Inc. et al. v. McKesson HBOC, Inc., et al.

      The Company has been named as a defendant in the action Merrill Lynch Fundamental Growth Fund, Inc., et al. v. McKesson HBOC, Inc., et al., Case No. 405792, in the San Francisco Superior Court. The original complaint in this matter alleged that McKesson HBOC, HBO and Company (which the Company refers to as HBOC), certain officers and directors of those firms, Arthur Andersen LLP, and

F-31

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

Bear Stearns & Co. engaged in a number of practices whereby HBOC and later McKesson HBOC improperly recognized revenues. When these practices were discovered, McKesson HBOC eliminated more than $327 million in revenues that HBOC had recognized over the prior three years. Plaintiffs claim to have lost more than $150 million as a result of the decline in McKesson HBOC’s share value after the accounting practices came to light in April 1999.

      On September 4, 2003, the plaintiffs filed a fourth amended complaint, naming the Company and two other defendants, General Electric Capital Corporation, Inc. and Computer Associates International, Inc., for the first time. The complaint alleges that the Company aided and abetted alleged fraud by certain defendants and conspired with those defendants in relation to HBOC’s and McKesson HBOC’s alleged improper recognition of approximately $14 million in revenue on two software transactions. Plaintiffs also allege that the Company made certain negligent misrepresentations with respect to these transactions.

      Plaintiffs allege that WebMD, Inc. (then a separate private company and now a subsidiary of the Company), through its participation in certain transactions with HBOC and McKesson HBOC, learned that officers of HBOC and/or McKesson HBOC, HBOC and McKesson HBOC were breaching duties owed to McKesson HBOC shareholders by making material misstatements and suppressing or omitting facts with respect to HBOC’s and McKesson HBOC’s financial results for the periods ending December 31, 1998 and March 31, 1999 and that WebMD, Inc. aided and abetted and conspired with these defendants. One of the officers became an officer of WebMD, Inc. on December 1, 1998, after having served as HBOC’s representative on the board of WebMD, Inc. and was dismissed by WebMD, Inc. after the accounting fraud at HBOC was disclosed. The other officer served as HBOC’s representative on the Board of WebMD, Inc. and ceased to be a director of WebMD, Inc. upon dismissal by McKesson HBOC. The complaint alleges numerous instances of improper accounting by HBOC unrelated to the transactions between WebMD, Inc. and HBOC and/or McKesson HBOC.

      The Company intends to vigorously defend against the plaintiffs’ claims against the Company and WebMD, Inc. On December 16, 2003, the Company filed a demurrer, seeking dismissal of the two claims against it. This demurrer is pending with the Court.

Investigations by United States Attorney for the District of South Carolina and the SEC

      The United States Attorney for the District of South Carolina is conducting an investigation of the Company, which it first learned about on September 3, 2003. On that date, Federal Bureau of Investigation and Internal Revenue Service agents executed search warrants at the Company’s corporate headquarters in Elmwood Park, New Jersey and the offices of Medical Manager Health Systems in Tampa, Florida and Alachua, Florida and delivered subpoenas for documents and financial records. Based on the information available to the Company as of the date of this Annual Report, it believes that the investigation relates principally to issues of financial reporting for Medical Manager Corporation, a predecessor of WebMD (by its merger into the Company in September 2000) and the Company’s Medical Manager Health Systems subsidiary; however, the Company cannot be sure of the investigation’s exact scope or how long it will continue. Included among the materials removed or subject to subpoena are records relating to a $5,532 restatement of revenue by Medical Manager Corporation in August 1999 and to acquisitions by the Company’s Medical Manager Health Systems subsidiary of other companies, most of which were dealers of Medical Manager products and services. In August 1999, Medical Manager Corporation announced that it would restate previously reported results of Medical Manager Health Systems, which it had acquired in July 1999, for the six months ended immediately prior to the acquisition. Medical Manager Corporation determined at the time that the accounting treatment previously accorded to five transactions involving the bulk sales of software licenses entered into concurrently with business combinations and other related transactions should be restated to reflect the software license revenues as a reduction of the acquisition price of the related transactions. At the time, Medical Manager

F-32

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

Corporation also noted that the transactions represented $5,532 of revenue and $3,502 of net income for the six months ended June 30, 1999. The Company understands that the SEC is also conducting a formal investigation into this matter.

      The Company intends to continue to fully cooperate with the authorities in this matter and the Company’s Board of Directors has formed a special committee consisting solely of independent directors to oversee this matter. The special committee has retained independent legal counsel to advise it.

      While the Company is not able to estimate, at this time, the amount of costs and expenses that it will incur in connection with the investigations, it expects that they may be significant. For the year ended December 31, 2003, those expenses are reflected as “legal expense” in the consolidated statements of operations.

At Home Corporation General Unsecured Creditors Trust

      In 1999, WebMD, Inc. entered into an agreement with Excite Corp. concerning placing the Company’s content on Excite Corp.’s consumer internet portal. In 2001, the Company and Excite Corp.’s successor, AtHome Corp., entered into a revised agreement, which terminated the 1999 agreement and included a release of claims under the 1999 agreement. AtHome Corp. later filed for bankruptcy.

      On December 4, 2003, the Company was served with a complaint in an adversary proceeding in the Bankruptcy Court for the Northern District of California brought by the trustee for the AtHome Corporation General Unsecured Creditors Trust. The plaintiff alleges that the 2001 agreement provided AtHome Corp. less than reasonably equivalent value for its rights under the 1999 agreement and that the 2001 agreement should be avoided as a fraudulent transfer. The plaintiff also alleges that the Company breached the 1999 agreement by failing to make required cash payments, and failed to pay AtHome Corp. fair and reasonable value for services that AtHome Corp. provided. The plaintiff has claimed that its damages are in excess of $8 million. The Company intends to vigorously defend against the plaintiff’s claims.

Other Legal Proceedings

      In the normal course of business, the Company is involved in various other claims and legal proceedings. While the ultimate resolution of these matters, and those discussed above, has yet to be determined, the Company does not believe that their outcome will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

Strategic Relationships

      The Company has agreements with various content providers and strategic partners whereby the Company is committed to pay certain amounts in connection with content and distribution services obtained for use on its Web site and certain distribution arrangements. The Company’s non-cancelable future commitments under these agreements are as follows:

Year Ending December 31,
2004	$	1,262
2005		754
2006		500
2007		125
	$	2,641

F-33

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

Leases

      The Company leases its offices and other facilities under operating lease agreements that expire at various dates through February 2013. Total rent expense for all operating leases was approximately $19,486, $18,700 and $20,609 in 2003, 2002 and 2001, respectively. Future minimum lease commitments under non-cancelable lease agreements (including leases identified as part of the Company’s restructuring and integration efforts) at December 31, 2003 were as follows:

		Gross Operating		Sublease			Net Operating
		Leases		Income			Leases
Year Ending December 31,
2004		$	24,306	$	(224	)	$	24,082
2005			20,062		(175	)		19,887
2006			16,184		(33	)		16,151
2007			14,166		—			14,166
2008			12,381		—			12,381
Thereafter			32,841		—			32,841
	Total minimum lease payments	$	119,940	$	(432	)	$	119,508

13. Retirement Plan

      The Company maintains various defined contribution retirement plans covering substantially all of its employees. Certain of these plans provide for Company matching and discretionary contributions. The Company has recorded expenses related to these plans of $1,531, $3,485 and $5,963 for 2003, 2002 and 2001, respectively.

14. Stockholders’ Equity

Common Stock

      On March 29, 2001, the Company announced a stock repurchase program (the “Program”). Under the Program, the Company was authorized to use up to $50,000 to purchase shares of its common stock from time to time beginning on April 2, 2001, subject to market conditions. On November 2, 2001, the maximum aggregate amount of purchases under the Program was increased to $100,000 and on November 7, 2002 it was increased to $150,000. As of December 31, 2003 and 2002, the Company has repurchased 22,313,356 and 19,991,160 shares, respectively, at a cost of approximately $106,358 and $86,042 under the Program. These shares are reflected as treasury shares in the accompanying consolidated balance sheets. As of December 31, 2003, the Company had $43,642 available to repurchase shares of its common stock under the Program.

      On October 12, 2001, the Company and Quintiles Transnational Corporation settled the litigation between the two companies. Under the terms of the settlement, the companies agreed to terminate all of their business agreements and the Company agreed to purchase from Quintiles for $185,000 in cash all 35,000,000 shares of the Company’s common stock held by Quintiles. These shares are reflected as treasury shares in the accompanying consolidated balance sheets. The fair market value of these shares on the date of the settlement was $126,000 and has been recorded as treasury stock. The excess of the purchase price of the shares over their fair market value was $59,000 and has been recorded as a component of restructuring and integration charges.

      During 2002, the Company repurchased 14,100,000 shares of its common stock from Cerner Corporation at a purchase price of $6.01 per share, or an aggregate purchase price of $84,741. The

F-34

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

repurchase of the shares from Cerner Corporation was separately approved by the Executive Committee of the Company’s Board of Directors and, accordingly, was not part of the Stock Repurchase Program.

      During 2002, the Company adopted the 2002 Restricted Stock Plan for the benefit of its employees. The shares of restricted stock are generally granted at prices not less than the fair market value on the date of grant and vest 25% per year over four years. At December 31, 2003, 688,669 shares of restricted stock remain reserved for issuance under the 2002 Restricted Stock Plan. In connection with the 2002 acquisitions, the Company recorded deferred compensation of $2,500 related to grants of restricted stock. At December 31, 2003, the Company had approximately $785 remaining to be amortized on a graded vesting method over a period of three years.

Preferred Stock

Series A Convertible Preferred Stock

      In January 2000, the Board of Directors authorized 213,000 shares of Series A Convertible Preferred Stock (“2000 Series A Preferred”) with a par value of $0.0001 per share and a face value of $5,000 per share. The 2000 Series A Preferred was entitled to quarterly dividends at a per annum rate of 10.5% of the face amount plus any accrued and unpaid dividends, payable in additional shares of 2000 Series A Preferred. With respect to dividend rights, other than the right to receive additional shares of 2000 Series A Preferred, rights on liquidation, winding up or dissolution, whether voluntary or involuntary, the Series A Preferred ranked on a parity with the Company’s common stock and junior to the Series B Preferred. The 2000 Series A Preferred was convertible into common stock automatically on the third anniversary of the date of issuance. The 2000 Series A Preferred holders were entitled to vote with common stockholders on an as converted basis.

      At December 31, 2000, there were 155,951 shares of 2000 Series A Preferred stock outstanding, convertible into 21,282,645 shares of the Company’s common stock. In connection with the revised strategic alliance during 2001 with News Corporation, the 155,951 shares of 2000 Series A Preferred were surrendered to the Company and therefore at December 31, 2003 and 2002 no shares of 2000 Series A Preferred stock were outstanding.

      In November 2003, the Board of Directors eliminated the designation of 2000 Series A Preferred and restored all the shares to the status of authorized and unissued shares of preferred stock.

Series B Convertible Redeemable Preferred Stock

      In September 2000, the Board of Directors authorized 200 shares of Series B Convertible Redeemable Preferred Stock (“Series B Preferred”). In connection with the acquisition of CareInsite, the Company issued 100 shares of Series B Preferred in exchange for all the outstanding shares of CareInsite’s preferred stock. In March 2002, the Company redeemed the outstanding Series B Preferred for $10,000 in accordance with its terms.

      In November 2003, the Board of Directors eliminated the designation of the Series B Preferred and restored all the shares to the status of authorized and unissued shares of preferred stock.

Warrants

      The Company has warrants outstanding to purchase 25,562,697 shares of common stock at prices ranging from $0.67 to $74.22 per share, with a weighted average exercise price of $20.35 per share. Substantially all of the outstanding warrants are currently vested and exercisable and expire at various dates through January 1, 2009.

F-35

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      In January 2000, in connection with an Internet marketing and services agreement entered into with a distributor, the Company issued a warrant to purchase 4,376,445 shares of the Company’s common stock at $1.00 per share. The warrant vests over a four-year period, subject to certain performance thresholds. As of December 31, 2000, the Company estimated that the performance thresholds were not achieved and no value was assigned to the warrants. As of December 31, 2001, the Company estimated the distributor was entitled to a warrant for 2,000,000 shares and recorded $13,418, determined using the Black-Scholes option pricing model, as a non-cash distribution services expense included in sales, marketing, general and administrative expense. In January 2002, the Internet marketing and services agreement was terminated and the distributor retained the warrant to purchase 2,000,000 shares of the Company’s common stock at $1.00 per share. The warrant is fully vested and expires on January 24, 2007. As of December 31, 2003, 1,333,333 shares remain unexercised as part of this warrant agreement.

      During 2003 and 2002, warrants to purchase a total of 1,729,713 shares and 1,090,121 shares, respectively, of the Company’s common stock at a weighted average exercise price of $5.33 per share and $3.04 per share, respectively, were exercised. Also during 2002, the Company repurchased warrants to purchase 8,419,736 shares of the Company’s common stock, with a weighted average exercise price of $38.00 per share, for a cash payment of $10.

15. Stock Option Plans

      The Company has various stock option plans (collectively, the “Plans”) for directors, officers and key employees that provide for non-qualified and incentive stock options and restricted stock grants. Generally, options become exercisable ratably over a three to five year period based on their individual grant dates. Options are generally granted at prices not less than the fair market value on the date of grant. Options granted under the Plans expire within four to fifteen years from the date of grant. An aggregate of 21,579,838 shares of common stock remain reserved for issuance under the Plans at December 31, 2003.

      In addition to the Plans, the Company has granted options to certain directors, consultants and key employees. At December 31, 2003, there were options to purchase 6,030,500 shares of common stock outstanding to these individuals. The terms of these grants are similar to the terms of the options granted under the Plans.

      In connection with the mergers with Medical Manager, CareInsite and OnHealth, the Company assumed all the outstanding options issued under the respective stock option plans and arrangements and, after the application of the exchange ratio, reserved 76,640,029 shares for Medical Manager and CareInsite and 1,354,482 shares for OnHealth of common stock for issuance upon exercise of the assumed options. No further options can be granted under these plans. At the time of these acquisitions, options for 21,265,330 and 1,067,796 shares, respectively, were fully vested. The remainder of the shares vest based upon the terms of the original plans ranging from three to five years.

      In 1999, the Company assumed all outstanding options issued under the respective stock option plans and arrangements and, after application of the exchange ratio, reserved the following shares of common stock per merger: 14,734,986 for WebMD, Inc., 468,584 for MedE America, and 164,036 for Medcast, for issuance upon exercise of the assumed options. No further options can be granted under these plans. At the time of these acquisitions, the number of fully vested options were: 8,637,406 for WebMD, Inc., 60,136 for MedE America, and 83,626 for Medcast. The remainder of the options vest based upon the terms of the original plans, generally four years.

      The Company records deferred stock compensation related to stock options as a component of stockholders’ equity when the exercise price is lower than the deemed fair value of common stock on the date stock options are granted. No deferred stock compensation related to stock options was recorded in

F-36

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

2003, 2002 or 2001. At December 31, 2003, the Company had a total of approximately $3,898 remaining to be amortized on a graded vesting method over the remaining two years.

      The Company recorded stock compensation expense, primarily related to deferred stock compensation recorded in connection with acquisitions, of $12,629, $25,265 and $129,268 in 2003, 2002 and 2001, respectively, of which $51,998 was included in restructuring and integration charges in 2001. No stock compensation expenses were included in restructuring and integration charges for 2003 or 2002.

      A summary of the status of the Company’s stock option plans for the three year period ended December 31, 2003 is presented below:

		Years Ended December 31,
		2003					2002					2001
					Weighted					Weighted					Weighted
					Average					Average					Average
		Number of			Exercise Price		Number of			Exercise Price		Number of			Exercise Price
		Shares			per Share		Shares			per Share		Shares			per Share
Outstanding at the beginning of the year			108,232,050		$	12.73		121,184,501		$	12.99		128,045,133		$	15.79
	Granted		12,326,350			9.88		4,946,459			6.58		23,057,311			4.39
	Assumed		—			—		—			—		—			—
	Exercised		(8,773,510	)		4.73		(5,316,668	)		3.26		(2,701,776	)		3.17
	Cancelled		(7,024,164	)		15.82		(12,582,242	)		16.49		(27,216,167	)		19.34
Outstanding at the end of the year			104,760,726			12.86		108,232,050			12.73		121,184,501			12.99
Exercisable at the end of the year			73,927,473		$	14.03		70,764,983		$	13.86		65,352,769		$	14.15

      The following table summarizes information with respect to options outstanding and options exercisable at December 31, 2003:

	Outstanding						Exercisable
					Weighted
			Weighted		Average				Weighted
			Average		Remaining				Average
			Exercise		Contractual				Exercise
Exercise Prices	Shares		Price		Life (In Years)		Shares		Price
$0.25-$3.43		12,452,583	$	3.33		7.55		6,874,423	$	3.24
$3.55-$6.04		13,470,264		5.11		4.96		11,327,809		5.06
$6.12-$9.56		13,604,017		8.29		7.91		3,966,664		8.01
$9.57-$11.55		14,865,774		11.33		6.68		10,281,298		11.49
$11.56-$13.38		12,712,858		12.39		7.24		7,662,493		12.67
$13.50-$15.60		10,836,113		14.10		5.89		9,967,774		14.10
$15.81-$21.69		13,833,019		17.85		6.37		12,542,191		17.73
$22.12-$105.00		12,986,098		30.68		5.04		11,304,821		30.76
		104,760,726	$	12.86		6.47		73,927,473	$	14.03

      The Company has elected to follow APB No. 25 and related interpretations in accounting for employee stock options because the alternative fair value accounting method provided for under SFAS No. 123 requires the use of option valuation models that were not developed for use in valuing

F-37

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

employee stock options. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s employee stock options.

      The pro forma information presented in Note 1 has been determined as if employee stock options granted subsequent to December 31, 1994 were accounted for under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	2003			2002			2001
Expected dividend yield		0	%		0	%		0	%
Expected volatility		0.85			0.9			0.9
Risk free interest rate		1.33	%		1.85	%		3.04	%
Expected option lives (years)		0.75-3.0			0.75-3.0			0.5-3.5
Weighted fair value of options granted during the year	$	5.64		$	4.06		$	2.70

Employee Stock Purchase Plan

      The Company’s 1998 Employee Stock Purchase Plan, as amended from time to time (the “1998 Purchase Plan”), became effective upon the completion of the initial public offering on February 10, 1999. The 1998 Purchase Plan allows eligible employees the opportunity to purchase shares of the Company’s common stock through payroll deductions, up to 15% of a participant’s annual compensation with a maximum of 5,000 shares available per participant during each purchase period. Prior to an amendment to the 1998 Purchase Plan on November 1, 2002, the purchase price of the stock was 85% of the lesser of the fair market value on the first and last day of each purchase period. Effective with the November 1, 2002 amendment, the purchase price of the stock is 85% of the fair market value on the last day of each purchase period. A total of 3,995,447 shares of common stock remain reserved for issuance under the 1998 Purchase Plan. The 1998 Purchase Plan, as amended in connection with the 2000 mergers, provides for annual increases equal to the lesser of 1,500,000 shares, 0.5% of the outstanding common shares, or a lesser amount determined by the Board of Directors. A total of 345,575, 640,172 and 876,960 shares were issued under this plan during 2003, 2002 and 2001, respectively.

F-38

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

16. Income Taxes

      Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) were as follows:

		December 31,
		2003			2002
Deferred tax assets:
	Net operating loss carryforwards	$	729,963		$	691,303
	Restructuring costs		9,943			13,092
	Research and development tax credits		15,274			13,136
	Other accrued expenses		33,589			38,816
	Allowance for doubtful accounts		7,692			8,401
	Depreciation		4,846			8,007
	Intangible assets		131,979			175,824
	Other		2,482			1,506
Total deferred tax assets			935,768			950,085
Valuation allowance			(926,767	)		(941,507	)
Net deferred tax assets			9,001			8,578
Deferred tax liabilities:
	Tax basis		(2,582	)		(1,278	)
	Other		(6,419	)		(7,300	)
Total deferred tax liabilities			(9,001	)		(8,578	)
Net deferred tax assets and liabilities		$	—		$	—

      The reconciliation between the federal statutory rate and the effective income tax rate is as follows:

	2003			2002			2001
United States federal statutory rate		34.0	%		(34.0	)%		(34.0	)%
State income taxes (net of federal benefit)		3.3			(3.6	)		(0.8	)
Impairment and restructuring expenses		0.0			(3.1	)		16.0
Goodwill amortization		(12.3	)		5.6			11.0
Valuation allowance		(2.0	)		21.0			7.8
Other		(3.0	)		(1.9	)		0.0
Effective income tax rate		20.0	%		(16.0	)%		0.0	%

      A valuation allowance equal to 100% of the net deferred tax assets has been established because of the uncertainty of realization of the deferred tax assets due to the lack of earnings history. Approximately $339,416 and $151,129 of these deferred tax assets and related valuation allowances were recorded through additional paid in capital and goodwill, respectively. Therefore, if in the future the Company believes that it is more likely than not that these deferred tax benefits will be realized, this portion of the valuation allowances will be reversed against additional paid in capital and goodwill, respectively. The valuation allowance for deferred tax assets increased (decreased) by ($14,740) and $1,743 in 2003 and 2002, respectively.

F-39

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      At December 31, 2003, the Company had net operating loss carryforwards for federal income tax purposes of approximately $1,920,956, that expire in 2004 through 2023, and federal tax credits of approximately $15,274, which expire in 2006 through 2023.

      A portion of net operating loss carryforwards and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods due to the “change of ownership” provisions of the Internal Revenue Code and similar state provisions. A portion of these carryforwards may expire before becoming available to reduce future income tax liabilities.

      The income tax provision (benefit) for 2002 included a $12,887 benefit reflecting the carryback of net operating losses to the prior periods of certain acquired subsidiaries, in which those subsidiaries generated taxable income. The carryback was allowed as a result of the “Job Creation and Worker Assistance Act of 2002” that was enacted on March 9, 2002. In addition, some of the Company’s operating companies are profitable in certain states and foreign countries in which the Company does not have net operating losses to offset that income. Accordingly, the Company provided for taxes of $4,140, $2,808 and $2,588 related to foreign, state and other jurisdictions during 2003, 2002 and 2001, respectively.

      The income tax provision (benefit) for 2003, 2002 and 2001 includes $2,228, $1,756 and $1,496, respectively, related to non-U.S. income taxes. The non-U.S. income included in income (loss) from continuing operations before income tax provision (benefit) was $5,879, $4,310 and $3,756 for 2003, 2002 and 2001, respectively. Accumulated net earnings of foreign subsidiaries are intended to be permanently reinvested in those subsidiaries. Accordingly, no federal taxes have been provided on those earnings.

17. Related Party Transactions

      In 2001, the Company recorded $3,000 in revenue from related parties attributable to News Corporation (until February 15, 2001, the date News Corporation ceased being considered a related party when it surrendered its Series A Convertible Preferred Stock) and Microsoft (until October 22, 2001, the date Microsoft ceased being considered a related party when a representative of Microsoft resigned from the Board of Directors).

18. Fair Value of Financial Instruments

      The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The estimated fair values have been determined using available market information. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

		December 31, 2003				December 31, 2002
		Cost Basis		Fair Value		Cost Basis		Fair Value
Assets:
	Cash and cash equivalents	$	63,298	$	63,298	$	175,596	$	175,596
	Short-term investments		205,962		207,383		10,865		10,897
	Marketable securities — long term		447,583		456,034		448,286		464,638
Liabilities:
	Convertible subordinated notes	$	649,999	$	657,812	$	300,000	$	348,000

      As of December 31, 2003, the Company’s short-term investments consisted of certificates of deposit, municipal bonds and asset backed securities, marketable debt securities consisted of Federal Agency Notes

F-40

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

and U.S. Treasury Notes and marketable equity securities consisted of equity investments in publicly traded companies. As of December 31, 2002, the Company’s short-term investments consisted principally of U.S. Treasury Notes and certificates of deposit, marketable debt securities consisted of municipal bonds and marketable equity securities represented an equity investment in a publicly traded company.

      In accordance with the requirements of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” below is a summary of the fair value, gains and losses relating to the Company’s investments in debt and equity securities:

				December 31, 2003								December 31, 2002
				Cost or		Gross		Gross				Cost or		Gross		Gross
				Amortized		Unrealized		Unrealized				Amortized		Unrealized		Unrealized
				Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
Short-Term
	Held-to-maturity:
		Certificate of deposits and marketable debt securities		$	—	$	—	$	—	$	—	$	2,919	$	9	$	—	$	2,928
	Available-for-sale:
		Certificate of deposits and marketable debt securities			205,962		1,421		—		207,383		7,946		23		—		7,969
			Total	$	205,962	$	1,421	$	—	$	207,383	$	10,865	$	32	$	—	$	10,897
Long-Term
	Held-to-maturity:
		Marketable debt securities		$	—	$	—	$	—	$	—	$	243,475	$	7,922	$	—	$	251,397
	Available-for-sale:
		Marketable debt securities			445,810		6,043		563		451,290		201,641		4,173		—		205,814
		Equity securities			1,773		2,971		—		4,744		3,170		4,257		—		7,427
			Total	$	447,583	$	9,014	$	563	$	456,034	$	448,286	$	16,352	$	—	$	464,638

      The amortized cost and estimated fair value by maturity of securities are shown in the following table. Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities. During the quarter ended December 31, 2003, the Company reviewed the classification of its held-to-maturity and available-for-sale securities. The Company considered its acquisition activity in 2003, and its plan to continue to invest in acquisitions, strategic relationships, infrastructure and product development in the future. As a result of its review, the Company determined it no longer had the positive intent to hold certain of its securities to maturity, and accordingly, all remaining held-to-maturity securities were reclassified to available-for-sale.

			Cost or
			Amortized Cost		Fair Value
Available-for-sale:
	Due in one year or less		$	205,962	$	207,383
	Due after one year through five years			445,810		451,290
		Total	$	651,772	$	658,673

F-41

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

      During 2003, three of the Company’s investments in held-to-maturity debt securities were called for early redemption by the issuer for net proceeds of $155,000. As a result of the redemption, the Company realized a gain of $285 reflecting the difference between the proceeds received and the related carrying amount of the investment. In addition, during 2003, the Company sold its investments in available-for-sale marketable debt securities for proceeds of $242,907. The majority of these proceeds were used to finance the Medifax acquisition on December 22, 2003. The Company realized a loss of $1,599 in connection with the sales. Additionally, during 2003, the Company sold a portion of its investments in marketable equity securities for proceeds of $4,387, which resulted in a gain of $2,973. The proceeds from these sales have been included in “proceeds from maturities and sales of available-for-sale securities” and “proceeds from maturities and redemptions of held-to-maturity securities” in the accompanying consolidated statements of cash flows and the gain and losses have been included in “gain on investments” in the accompanying consolidated statements of operations.

      During 2002, one of the Company’s investments in Federal Agency Notes was called for early redemption by the issuer for net proceeds of $56,000. As a result of the redemption, the Company realized a gain of $681 reflecting the difference between the proceeds received and the related carrying amount of the investment. The proceeds from this redemption have been included in “proceeds from maturities and redemptions of held-to-maturity securities” in the accompanying consolidated statements of cash flows and the gain has been included in “gain on investments” in the accompanying consolidated statements of operations. Additionally, during 2002, the Company sold one of its investments in marketable equity securities for proceeds of $7,026, which resulted in a gain of $5,866. The proceeds from this sale have been included in “proceeds from maturities and sales of available-for-sale securities” in the accompanying consolidated statements of cash flows and the gain has been included in “gain on investments” in the accompanying consolidated statements of operations for 2002.

19. Comprehensive Loss

      Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity that are excluded from net loss, such as changes in unrealized holding gains (losses) on available-for-sale marketable securities and foreign currency translation adjustments. The following table presents the components of other comprehensive income (loss) for the years ended December 31, 2003, 2002 and 2001:

		2003			2002			2001
Foreign currency translation gains (losses)		$	3,285		$	2,523		$	(710	)
Unrealized gains (losses) on securities:
	Unrealized holding gains		3,078			2,907			7,097
	Less: reclassification adjustment for net gains realized in net income (loss)		(1,659	)		(6,547	)		—
Net unrealized gains (losses) on securities			1,419			(3,640	)		7,097
Other comprehensive income (loss)			4,704			(1,117	)		6,387
Net loss			(17,006	)		(49,702	)		(6,672,318	)
Comprehensive loss		$	(12,302	)	$	(50,819	)	$	(6,665,931	)

      The foreign currency translation gains (losses) are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries.

F-42

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

20. Supplemental Disclosures of Cash Flow Information

      Supplemental information related to the consolidated statements of cash flows is summarized below:

	Years Ended December 31,
	2003		2002		2001
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	12,714	$	5,021	$	479
Taxes paid	$	7,215	$	1,090	$	1,822
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Issuance of equity securities in connection with business combinations, strategic alliances and services, and asset purchases	$	67	$	39	$	24,739
Reacquisition of convertible preferred stock and issuance of warrants in connection with revision of strategic alliances	$	—	$	—	$	(151,171	)
Equipment acquired under capital lease obligations	$	—	$	—	$	168
Deferred stock compensation and options granted in connection with acquisitions	$	25	$	2,500	$	—

21. Quarterly Financial Data (Unaudited)

      The following table summarizes the quarterly financial data for 2003 and 2002. Net income (loss) per share calculations for each of the quarters are based on the weighted average number of shares for each period; therefore, the sum of the quarters may not necessarily be equal to the full year per share amount.

						Income			Income						Income			Income
						(Loss) from			(Loss) from			Net Income			(Loss) from			(Loss) from			Net Income
						Continuing			Discontinued			(Loss) per			Continuing			Discontinued			(Loss) per
			Net			Operations			Operations			Share			Operations			Operations			Share
	Revenue		Income (Loss)			(Basic)			(Basic)			(Basic)			(Diluted)			(Diluted)			(Diluted)
2003
March 31, 2003	$	221,531	$	(7,358	)	$	(0.03	)	$	0.01		$	(0.02	)	$	(0.03	)	$	0.01		$	(0.02	)
June 30, 2003		233,418		(26,270	)		0.02			(0.11	)		(0.09	)		0.02			(0.10	)		(0.08	)
September 30, 2003		250,635		6,089			0.03			(0.01	)		0.02			0.03			(0.01	)		0.02
December 31, 2003		258,396		10,533			0.03			—			0.03			0.03			—			0.03
Year Ended December 31, 2003		963,980		(17,006	)		0.05			(0.11	)		(0.06	)		0.05			(0.10	)		(0.05	)
2002
March 31, 2002	$	211,961	$	(29,602	)	$	(0.10	)	$	0.01		$	(0.09	)	$	(0.10	)	$	0.01		$	(0.09	)
June 30, 2002		213,255		(22,209	)		(0.07	)		(0.00	)		(0.07	)		(0.07	)		(0.00	)		(0.07	)
September 30, 2002		217,004		4,538			0.01			0.01			0.01			0.01			0.00			0.01
December 31, 2002		229,476		(2,429	)		(0.01	)		0.00			(0.01	)		(0.01	)		0.00			(0.01	)
Year Ended December 31, 2002		871,696		(49,702	)		(0.17	)		0.01			(0.16	)		(0.17	)		0.01			(0.16	)

      As a result of certain reclassifications related to the discontinued operations of our Plastic Technologies segment, the above amounts may vary from amounts previously reported in the Company’s quarterly filings.

F-43

WebMD Corporation

Notes to Consolidated Financial Statements — (Continued)

22.  Subsequent Event

      On March 4, 2004, the Company sold $100,000 of Convertible Redeemable Exchangeable Preferred Stock (“Preferred Stock”) in a private transaction to CalPERS/PCG Corporate Partners, LLC (“CalPERS/PCG”). CalPERS/PCG is a private equity fund managed by the Pacific Corporate Group and principally backed by California Public Employees’ Retirement System, or CalPERS.

      The Preferred Stock has a liquidation preference of $100,000 in the aggregate and is convertible into 10,638,297 shares of the Company’s common stock in the aggregate, representing a conversion price of $9.40 per share of common stock. The Company may not redeem the Preferred Stock prior to March 2007. Thereafter, the Company may redeem any portion of the Preferred Stock at 105% of its liquidation preference; provided that any redemption by the Company prior to March 2008 shall be subject to the condition that the average closing sale prices of the Company’s common stock is at least $13.16 per share, subject to adjustment. The Company is required to redeem all shares of the Preferred Stock then outstanding in March 2012, at a redemption price equal to the liquidation preference of the Preferred Stock, payable in cash or, at the Company’s option, in shares of the Company’s common stock.

      If the average closing sales price of the Company’s common stock during the three-month period ended on the fourth anniversary of the issuance date is less than $7.50 per share, holders of the Preferred Stock will have a right to exchange the Preferred Stock into the Company’s 10% Subordinated Notes (“10% Notes”) due March 2010. The 10% Notes may be redeemed, in whole or in part, at any time thereafter at the Company’s option at a price equal to 105% of the principal amount of the 10% Notes being redeemed.

      Holders of Preferred Stock will not receive any dividends unless the holders of common stock do, in which case holders of Preferred Stock will be entitled to receive ordinary dividends in an amount equal to the ordinary dividends the holders of Preferred Stock would have received had they converted such Preferred Stock into common stock immediately prior to the record date for such dividend distribution. So long as the Preferred Stock remains outstanding, the Company is required to pay a quarterly fee to CalPERS/PCG of 0.35% of the face amount of the then outstanding Preferred Stock.

F-44

Schedule II.     Valuation and Qualifying Accounts

		Years Ended December 31, 2003, 2002 and 2001
		Balance at		Charged to
		Beginning		Costs and											Balance at
		of Year		Expenses			Acquired			Write-offs			Other(a)		End of Year
		(In thousands)
December 31, 2003
	Allowance for Doubtful Accounts	$	22,417	$	6,328		$	768		$	(9,013	)	$	—	$	20,500
	Valuation Allowance for Deferred Tax Assets		941,507		(1,423	)		(33,277	)		—			19,960		926,767
December 31, 2002
	Allowance for Doubtful Accounts		26,972		11,305			34			(15,894	)		—		22,417
	Valuation Allowance for Deferred Tax Assets		939,764		10,471			(17,355	)		—			8,627		941,507
December 31, 2001
	Allowance for Doubtful Accounts		26,746		26,752			484			(27,010	)		—		26,972
	Valuation Allowance for Deferred Tax Assets		281,392		519,864			135,511			—			2,997		939,764

(a) Represents valuation allowance created through equity as a result of stock option and warrant exercises.

S-1

INDEX TO EXHIBITS

Exhibit No.				Description
	2	.1	—	Stock Purchase Agreement dated as of June 15, 2003 between WebMD Corporation and Joseph Q. DiMartini, individually and as Trustee U/A dated February 6, 1998 f/b/o Joseph Q. DiMartini, and as Trustee of the Joseph Q. DiMartini 2002 Irrevocable Trust dated October 14, 2002, Eric J. Schaefer, an individual, Daniel A. Schmitt, individually and as Trustee of the Daniel A. Schmitt Revocable Trust dated March 26, 1999, and as Trustee of the Daniel Schmitt 2002 Irrevocable Trust dated September 24, 2002, and Dru A. Schmitt, individually and as Trustee U/A dated October 20, 1997 f/b/o Dru A. Schmitt (incorporated by reference to Exhibit 2.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
	2	.2	—	Stock Purchase Agreement dated as of October 21, 2003 between TPG Holding Company Limited and Envoy Corporation (incorporated by reference to Exhibit 2.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	2	.3	—	Amendment No. 1, dated as of November 28, 2003, to the Stock Purchase Agreement dated as of October 21, 2003 between TPG Holding Company Limited and Envoy Corporation (incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed December 1, 2003)
	2	.4	—	Amendment No. 2, dated as of December 22, 2003, to the Stock Purchase Agreement dated as of October 21, 2003 between TPG Holding Company Limited and Envoy Corporation (incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed December 24, 2003)
	3	.1	—	Eleventh Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	3	.2	—	Certificate of Designations for Convertible Redeemable Exchangeable Preferred Stock
	3	.3	—	Amended and Restated Bylaws of Registrant, as currently in effect (incorporated by reference to Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
	4	.1	—	Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement on Form S-1 (No. 333-70553) filed January 14, 1999)
	4	.2	—	Indenture between WebMD Corporation and The Bank of New York, dated as of April 1, 2002 (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)
	4	.3	—	Registration Rights Agreement dated as of April 1, 2002 between WebMD Corporation and UBS Warburg LLC (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)
	4	.4	—	Form of 3 1/4% Convertible Subordinated Note Due 2007 (included in Exhibit 4.2)
	4	.5	—	Indenture, dated as of June 25, 2003, between WebMD Corporation and The Bank of New York (incorporated by reference to Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
	4	.6	—	Form of 1.75% Convertible Subordinated Note Due 2023 (included in Exhibit 4.5)
	4	.7	—	Registration Rights Agreement dated as of June 25, 2003 between WebMD Corporation and Banc of America Securities LLC (incorporated by reference to Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)

E-1

Exhibit No.				Description
	4	.8	—	Registration Rights Agreement dated as of July 17, 2003 between WebMD Corporation and Joseph Q. DiMartini, individually and as Trustee U/A dated February 6, 1998 f/b/o Joseph Q. DiMartini, and as Trustee of the Joseph Q. DiMartini 2002 Irrevocable Trust dated October 14, 2002, Eric J. Schaefer, an individual, Daniel A. Schmitt, individually and as Trustee of the Daniel A. Schmitt Revocable Trust dated March 26, 1999, and as Trustee of the Daniel Schmitt 2002 Irrevocable Trust dated September 24, 2002, and Dru A. Schmitt, individually and as Trustee U/A dated October 20, 1997 f/b/o Dru A. Schmitt (incorporated by reference to Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
	4	.9	—	Convertible Redeemable Exchangeable Preferred Stock Purchase Agreement, dated as of March 4, 2004, between CalPERS/PCG Corporate Partners, LLC and WebMD Corporation
	4	.10	—	Form of Stock Certificate for Convertible Redeemable Exchangeable Preferred Stock (included in Exhibit 3.2)
	4	.11	—	Form of Indenture for 10% Subordinated Notes due 2010 (included in Exhibit 3.2)
	4	.12	—	Form of 10% Subordinated Note due 2010 (included in Exhibit 3.2)
	10	.1	—	Form of Indemnification Agreement to be entered into by Registrant with each of its directors and officers (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)
	10	.2	—	Domestic Assignment Agreement dated as of February 15, 2001 among Registrant, Healtheon/WebMD Cable Corporation, Healtheon/WebMD Internet Corporation, The News Corporation Limited, Fox Entertainment Group, Inc. AHN/FIT Cable, LLC and AHN/FIT Internet, LLC (incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
	10	.3	—	International Assignment Agreement dated as of February 15, 2001 among Registrant, HW International Holdings, Inc., The News Corporation Limited, Eastrise Profits Limited and IJV Holdings Inc. (incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
	10	.4	—	Healtheon/WebMD Corporation Registration Rights Agreement dated January 26, 2000 among Registrant, Eastrise Profits Limited, AHN/FIT Cable, LLC, AHN/FIT Internet, LLC, News America Incorporated and Fox Broadcasting Company (incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000), as amended by Amendment dated February 15, 2001 (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
	10	.5	—	Healtheon/WebMD Media Services Agreement dated January 26, 2000 among Registrant, Eastrise Profits Limited and Fox Entertainment Group, Inc. (incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000), as amended by Amendment dated February 15, 2001 (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
	10	.6	—	Content License Agreement dated January 26, 2000 between The News Corporation Limited and Registrant (incorporated by reference to Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)
	10	.7	—	Letter Agreement dated December 29, 2000 between Registrant and The News Corporation Limited (incorporated by reference to Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000)
	10	.8	—	Settlement Agreement dated October 12, 2001 between Registrant and Quintiles Transnational Corp. (incorporated by reference to Exhibit 10.01 to Quintiles Transnational Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001, filed with the Securities and Exchange Commission on November 1, 2001)
	10	.9	—	Warrant to Purchase Shares of Common Stock of WebMD, Inc. dated May 12, 1999 issued to Microsoft Corporation (incorporated by reference to Exhibit 10.9 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000)

E-2

Exhibit No.				Description
	10	.10*	—	Employment Agreement dated as of February 1, 1998 between Registrant and K. Robert Draughon (incorporated by reference to Exhibit 10.51 to Registrant’s Form 10-K to Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Amendment No. 1 on Form 10-K/A)
	10	.11*	—	Letter Agreement dated as of September 12, 2000 between Registrant and K. Robert Draughon (incorporated by reference to Exhibit 10.52 to Registrant’s Form 10-K to Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Amendment No. 1 on Form 10-K/A)
	10	.12*	—	Agreement dated as of October 8, 2001 between Registrant and Martin J. Wygod (incorporated by reference to Exhibit 10.55 to Registrant’s Form 10-K to Annual Report on Form 10-K for the year ended December 31, 2001)
	10	.13*	—	Amended and Restated Stock Option Agreement dated August 21, 2000 between the Registrant (as successor to Medical Manager Corporation) and Martin J. Wygod (incorporated by reference to Exhibit 10.21 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, as amended by Amendment No. 1 on Form 10-K/A)
	10	.14*	—	Employment Agreement dated as of October 23, 2002 between the Registrant and Roger C. Holstein (incorporated by reference to Exhibit 10.14 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002)
	10	.15*	—	Employment Agreement dated as of May 16, 1999 between the Registrant (as successor to Synetic, Inc.) and Michael A. Singer (incorporated by reference to Exhibit 10.26 to Medical Manager Corporation’s Annual Report on Form 10-K for the fiscal year ended June 30, 1999)
	10	.16*	—	Letter Agreement dated as of September 5, 2000 between Registrant (as successor to Medical Manager Corporation) and Michael A. Singer (incorporated by reference to Exhibit 10.50 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as amended by Amendment No. 1 on Form 10-K/A)
	10	.17*	—	Employment Agreement dated as of July 1, 2000 between Registrant (as successor to Medical Manager Corporation) and Charles A. Mele, as amended (incorporated by reference to Exhibit 10.51 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as amended by Amendment No. 1 on Form 10-K/A)
	10	.18*	—	Employment Agreement dated as of July 1, 2000 between Registrant (as successor to Medical Manager Corporation) and Anthony Vuolo, as amended (incorporated by reference to Exhibit 10.52 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as amended by Amendment No. 1 on Form 10-K/A)
	10	.19*	—	Form of Amended and Restated Stock Option Agreement dated August 21, 2000, between Registrant (as successor to Medical Manager Corporation) and each of Charles A. Mele and Anthony Vuolo (incorporated by reference to Exhibit 10.54 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, as amended by Amendment No. 1 on Form 10-K/A)
	10	.20*	—	WebMD Corporation 2001 Employee Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 10.46 to Registrant’s Form 10-K for the year ended December 31, 2001, as amended by Amendment No. 1 on Form 10-K/A)
	10	.21*	—	WebMD Corporation 2002 Restricted Stock Plan and Form of Award Agreement (incorporated by reference to Exhibit 10.21 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002)
	10	.22*	—	Healtheon Corporation 1996 Stock Plan and Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to Registrant’s Registration Statement on Form S-1 (No. 333-70553) filed February 10, 1999)
	10	.23*	—	WebMD Corporation Amended and Restated 1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.27 to Registrant’s Registration Statement on Form S-8 (No. 333-47250) filed October 4, 2000)

E-3

Exhibit No.				Description
	10	.24*	—	WebMD Corporation 2000 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to Registrant’s Registration Statement on Form S-4 (No. 333-39592) filed August 1, 2000)
	10	.25*	—	WebMD, Inc. Amended and Restated 1997 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to Registrant’s Registration Statement on Form S-8 (No. 33-90795) filed November 12, 1999)
	10	.26*	—	Envoy Stock Plan (incorporated by reference to Exhibit 99.1 to Registrant’s Registration Statement on Form S-8 (No. 333-42616) filed July 31, 2000)
	10	.27*	—	Amended and Restated 1989 Class A Non-Qualified Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 10.1 to Synetic, Inc.’s Registration Statement on Form S-1 (No. 333-28654) filed May 18, 1989)
	10	.28*	—	Amended and Restated 1989 Class B Non-Qualified Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 10.2 to Synetic, Inc.’s Registration Statement on Form S-1 (No. 333-28654) filed May 18, 1989)
	10	.29*	—	1991 Director Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 4.2 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-46640) filed March 24, 1992)
	10	.30*	—	Amended and Restated 1991 Special Non-Qualified Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 4.3 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-36041) filed September 19, 1997)
	10	.31*	—	Form of Stock Option Agreement made as of December 7, 1994 between Synetic, Inc. and certain individuals (incorporated by reference to Exhibit 4.5 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-21555) filed February 11, 1997)
	10	.32*	—	Medical Manager Corporation’s 1996 Amended and Restated Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Medical Manager Corporation’s (Commission File No. 0-29090) Quarterly Report on Form 10-Q for the quarter ended September 30, 1998)
	10	.33*	—	Medical Manager Corporation’s 1996 Amended and Restated Non-Employee Director’s Stock Plan (incorporated by reference to Exhibit 10.2 to Medical Manager Corporation’s (Commission File No. 0-29090) Annual Report on Form 10-K for the fiscal year ended December 31, 1997)
	10	.34*	—	1996 Class C Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 4.1 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-36041) filed September 19, 1997)
	10	.35*	—	1997 Class D Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 4.2 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-36041) filed September 19, 1997)
	10	.36*	—	1998 Class E Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 4.1 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-72517) filed February 17, 1999)
	10	.37*	—	The 1999 Medical Manager Corporation Stock Option Plan for Employees of Medical Manager Systems, Inc. (incorporated by reference to Exhibit 10.28 to Medical Manager Corporation’s Annual Report on Form 10-K for the year ended June 30, 1999)
	10	.38*	—	Form of Stock Option Agreement between the Corporation and each of John H. Kang and Michael A. Singer (incorporated by reference to Exhibit 99.5 to Amendment No. 1 to Medical Manager Corporation’s Registration Statement on Form S-4 (No. 333-81123) filed June 24, 1999)
	10	.39*	—	1998 Porex Technologies Corp. Stock Option Plan of Synetic, Inc. (incorporated by reference to Exhibit 4.2 to Synetic, Inc.’s Registration Statement on Form S-8 (No. 333-72517) filed February 17, 1999)
	10	.40*	—	CareInsite, Inc. 1999 Officer Stock Option Plan (incorporated by reference to Exhibit 10.18 to Amendment No. 6 to CareInsite, Inc.’s Registration Statement on Form S-1 (No. 333-75071) filed June 11, 1999)

E-4

Exhibit No.				Description
	10	.41*	—	CareInsite, Inc. 1999 Employee Stock Option Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 6 to CareInsite, Inc.’s Registration Statement on Form S-1 (No. 333-75071) filed June 11, 1999)
	10	.42*	—	CareInsite, Inc. 1999 Director Stock Option Plan (incorporated by reference to Annex G to the Proxy Statement/Prospectus included in Registrant’s Registration Statement on Form S-4 (No. 333-39592) filed June 19, 2000)
	10	.43*	—	Amendment to the Company Stock Option Plans of Medical Manager Corporation and CareInsite, Inc. (incorporated by reference to Exhibit 99.28 to Registrant’s Registration Statement on Form S-8 (No. 333-47250) filed October 4, 2000)
	10	.44*	—	Employment Agreement, dated as of September 11, 2000, between the Registrant and Kirk Layman
	10	.45*	—	2003 Non-Qualified Stock Option Plan for Employees of Advanced Business Fulfillment, Inc. (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.46*	—	Employment Agreement, dated as of August 20, 2001, between the Registrant and Wayne Gattinella
	10	.47*	—	Stock Option Agreement between the Registrant and Wayne Gattinella dated August 20, 2001 (incorporated by reference to Exhibit 4.8 to Registrant’s Registration Statement on Form S-8 (No. 333-88420) filed May 16, 2002)
	10	.48*	—	Employment Agreement, dated as of September 23, 2003, between the Registrant and Andrew Corbin (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.49*	—	Employment Agreement, dated as of December 4, 2003, between Envoy Corporation and Tony Holcombe
	12	.1	—	Computation of Ratio of Earnings to Fixed Charges
	14	.1**	—	Code of Business Conduct
	21		—	Subsidiaries of Registrant
	23	.1	—	Consent of Ernst & Young LLP, Independent Auditors
	24	.1	—	Power of Attorney (see page 85)
	31	.1	—	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant
	31	.2	—	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Registrant
	32	.1	—	Statement of Chief Executive Officer of Registrant Pursuant to 18 U.S.C. § 1350
	32	.2	—	Statement of Chief Financial Officer of Registrant Pursuant to 18 U.S.C. § 1350
	99	.1	—	Amended and Restated Audit Committee Charter
	99	.2	—	Compensation Committee Charter
	99	.3	—	Amended and Restated Nominating Committee Charter

*  Agreement relates to executive compensation.

**  To be filed by amendment.

E-5 EX-3.2 3 g87450exv3w2.htm EX-3.2 CERTIFICATE OF DESIGNATIONS

Exhibit 3.2

CERTIFICATE OF DESIGNATIONS

CONVERTIBLE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
OF
WEBMD CORPORATION

Pursuant to Section 151 of the General Corporation Law
of the State of Delaware

          The undersigned, Andrew C. Corbin, Executive Vice-President and Chief Financial Officer of WebMD Corporation, a Delaware corporation (the “Company”), does hereby certify in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware that, pursuant to authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Company currently in effect (the “Amended and Restated Certificate of Incorporation”), duly delegated to a committee (the “Committee”) of the Board of Directors of the Company with the Board of Directors having approved the voting powers set forth below, the Committee adopted a resolution providing for the issuance of authorized shares of preferred stock of the Company, which resolution is as follows:

          WHEREAS, it is the desire of the Board of Directors and the Committee, pursuant to its authority as aforesaid, to authorize for issuance and determine the terms of the preferred stock;

          NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized for issuance such preferred stock on the terms and with the provisions herein set forth:

1.     Designation and Amount.

          The shares of preferred stock shall be designated as the “Convertible Redeemable Exchangeable Preferred Stock” (the “Preferred Stock”) and the number of shares constituting such Preferred Stock shall be 5,000,000, with a par value of $0.0001 per share. The shares of Preferred Stock will be issued in certificated form in Liquidation Preference denominations of $10,000 per share and any positive integral multiple thereof.

2.     Certain Definitions.

          As used in this Certificate, the following terms shall have the following meanings, unless the context otherwise requires:

          “Acquisition Notice” shall have the meaning assigned to it in Section 9(b) hereof.

          “Affiliate” means any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For this purpose, “control” shall mean the

1

power to direct the management and policies of a person through the ownership of securities, by contract or otherwise.

          “Amended and Restated Certificate of Incorporation” shall have the meaning assigned to it in the introductory paragraphs of this Certificate.

          “Board of Directors” means either the board of directors of the Company or any duly authorized committee of such board.

          “Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification.

          “Business day” is a day other than a Legal Holiday.

          “Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of the Company and all warrants or options to acquire such capital stock.

          “Cash” means U.S. legal tender currency.

          “Certificate” means this Certificate of Designations relating to the Preferred Stock.

          A “Change in Control” of the Company shall be deemed to have occurred at such time as:

(a)

any person acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of the Company’s capital stock entitling the person to exercise 50% or more of the total voting power of all shares of the Company’s capital stock that are entitled to vote generally in elections of directors, other than an acquisition by the Company, any of its subsidiaries or any of its employee benefit plans; or

(b)

the conveyance, sale, transfer or lease by the Company of all or substantially all of its assets to another person.

     However, a Change in Control will not be deemed to have occurred if:

(a)

the Closing Sale Price for any five Trading Days within the period of ten consecutive Trading Days ending immediately after the later of the Change in Control or the public announcement of the Change in Control, in the case of a Change in Control relating to an acquisition of capital stock, or the period of ten consecutive Trading Days ending immediately before the Change in Control, in the case of a Change in Control relating to a merger, consolidation or asset sale, equals or exceeds 105% of the Conversion Price of the Preferred Stock in effect on each of those five Trading Days; or

(b)

all or substantially all (but in no event less than 90%) of the consideration,

2

excluding Cash payments for fractional shares of Common Stock and Cash payments made pursuant to statutory appraisal rights, in a merger or consolidation otherwise constituting a Change in Control in the preceding paragraph consists of shares of common stock, depositary receipts or other certificates representing common equity interests traded on a national securities exchange or quoted on the NASDAQ National Market, or will be so traded or quoted immediately following such merger or consolidation, and as a result of such merger or consolidation the Preferred Stock becomes convertible solely into such common stock, depositary receipts or other certificates representing common equity interests.

     For purposes of this “Change in Control” definition:

(a)	whether a person is a “beneficial owner” will be determined in accordance with Rule 13d-3 under the Exchange Act as in effect on the date hereof; and
(b)	a “person” includes any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act as in effect on the date hereof.

          “Closing Sale Price” means the price of a share of Common Stock on the relevant date, determined on the basis of the last reported per share sale price (or, if no last sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) of the Common Stock on such date as reported on the NASDAQ National Market, or if the Common Stock is not quoted on the NASDAQ National Market, as reported by the principal U.S. exchange or quotation system the Common Stock is then listed or quoted; provided, however, in the absence of such quotations, the Board of Directors will make a good faith determination of the Closing Sale Price.

          “Combined Amount” shall have the meaning assigned to it in Section 7(d) hereof.

          “Commencement Date” shall have the meaning assigned to it in Section 7(d) hereof.

          “Common Stock” means the common stock, par value $0.0001 per share, of the Company, or such other capital stock into which the Company’s common stock is reclassified or changed.

          “Company” means the party named as such above until a successor replaces it pursuant to the applicable provision hereof and thereafter means the successor.

          “Company Notice” shall have the meaning assigned to it in Section 8(b) hereof.

          “Conversion Date” shall have the meaning assigned to it in Section 7(b) hereof.

          “Conversion Price” means, on any date, the Liquidation Preference per share of Preferred Stock divided by the Conversion Rate in effect on such date.

          “Conversion Rate” means the number of shares of Common Stock issuable upon conversion of one share of Preferred Stock, as determined by dividing the Liquidation Preference

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by the Initial Conversion Price, and subject to adjustment in accordance with Section 7 of this certificate.

          “Determination Date” shall have the meaning assigned to it in Section 7(d) hereof.

          “Distribution Date” shall have the meaning assigned to it in Section 7(d) hereof.

          “Distribution Declaration Date” shall have the meaning assigned to it in Section 7(d) hereof.

          “Election Notice” shall have the meaning assigned to it in Section 8(b) hereof.

          “Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended.

          “Exchange Date” shall mean the date on which Subordinated Notes are issued by the Company and authenticated by the Trustee in exchange for shares of Preferred Stock being surrendered for exchange in accordance with Section 8(b) hereof.

          “Exchange Right” shall have the meaning assigned to it in Section 8(a) hereof.

          “Expiration Time” shall have the meaning assigned to it in Section 7(d) hereof.

          “Holder” means a person in whose name the shares of Preferred Stock is registered on the books of the Company.

          “Initial Conversion Price” means $9.40 per share of Preferred Stock.

          “Junior Stock” shall have the meaning assigned to it in Section 3(a) hereof.

          “Legal Holiday” is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the City of New York, in the State of New York or in the city in which the Registrar or the applicable agent engaged by the Company administers its corporate trust business.

          “Liquidation Preference” shall have the meaning assigned to it in Section 5(a) hereof.

          “Notice of Conversion” means the notice of conversion substantially in the form attached to this Certificate as Exhibit B.

          “Officer” means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, any Executive Vice President, any Vice President, the Treasurer or the Secretary of the Company.

          “Parity Stock” shall have the meaning assigned to it in Section 3(b) hereof.

          “Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

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          “Preferred Stock” shall have the meaning assigned to it in Section 1 hereof.

          “Purchase Agreement” means the Purchase Agreement, dated March 4, 2004, as may be amended from time to time, between the Company and the several Investors named therein.

          “Purchase Date” shall have the meaning assigned to it in Section 9(d) hereof.

          “Purchase Price” shall have the meaning assigned to it in Section 9(a) hereof.

          “Purchased Shares” shall have the meaning assigned to it in Section 7(d) hereof.

          “Put Option” shall have the meaning assigned to it in Section 9(a) hereof.

          “Put Option Notice” shall have the meaning assigned to it in Section 9(d) hereof.

          “Redemption Date” means a date that is fixed for redemption of the Preferred Stock by the Company, as specified in the Redemption Notice, in accordance with Section 6 hereof.

          “Redemption Notice” means the written notice from the Company to the Holders as to the redemption of the Preferred Stock delivered in accordance with Section 6 hereof.

          “Redemption Price” means an amount equal to the price per share payable by the Company for any shares of Preferred Stock to be redeemed by the Company calculated in accordance with Section 6 of this Certificate.

          “Registrar” means the office or agency where Preferred Stock may be presented for registration of transfer or for exchange.

          “Rights” shall have the meaning assigned to it in Section 7(d) hereof.

          “Securities Act” shall mean the U.S. Securities Act of 1933, as amended.

          “Significant Unrelated Business Acquisition” shall mean the acquisition by the Company of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of all or substantially all assets of another person, or shares of the capital stock of another person which entitles the Company to exercise 50% or more of the total voting power of all shares of such person’s capital stock that are entitled to vote generally in elections of directors, of an Unrelated Business with a fair market value (as determined in good faith by the Board of Directors) greater than 25% or more of the Company’s total assets on a consolidated basis as of the end of the most recent fiscal quarter for which financial statements of the Company (which may be unaudited) are available.

          “Subsidiary” means (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by one or more subsidiaries of the Company or by the Company and one or more of its subsidiaries or (ii) any other person (other than a corporation) in which the

5

Company, one or more its subsidiaries or the Company and one or more its subsidiaries, directly or indirectly, at the date of determination thereof, have at least majority ownership interest.

          “Subordinated Notes” means the 10% Subordinated Notes due 2010 of the Company issuable pursuant to the indenture of the Company substantially in the form attached hereto as Exhibit C.

          “Trading Day” means a day during which trading in securities generally occurs on the NASDAQ National Market or, if the Common Stock is not quoted on the NASDAQ National Market, on the principal other national or regional securities exchange on which the Common Stock is then listed or quoted.

          “Triggering Distribution” shall have the meaning assigned to it in Section 7(d) hereof.

          “Underlying Shares” shall have the meaning assigned to it in Section 7(a) hereof.

          “Unrelated Business” shall mean a business that (i) does not operate in one or more businesses conducted by the Company or any of its subsidiaries or (ii) is not related or complimentary to one or more of such businesses.

3. Rank.

(a) The Preferred Stock shall, with respect to rights upon liquidation, winding-up or dissolution, rank:

(i)

senior to the Common Stock and any other class or series of Capital Stock, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the Preferred Stock as to rights upon liquidation, winding-up or dissolution of the Company (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Capital Stock, the “Junior Stock”); and

(ii)

on a parity with any other class or series of Capital Stock, the terms of which expressly provide that such class or series ranks on a parity with the Preferred Stock as to rights upon liquidation, winding-up or dissolution of the Company, that may hereafter be created (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Capital Stock, the “Parity Stock”).

(b) The Preferred Stock shall, with respect to dividend rights, rank on a parity with the Common Stock and any other class or series of Capital Stock, the terms of which do not expressly provide that such class or series ranks senior to or junior to the Preferred Stock as to dividend rights.

4.     Dividends.

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          Holders of Preferred Stock shall be entitled to receive ordinary dividends declared, paid or payable with respect to the Common Stock in an amount equal to such dividends the Holders shall have had the right to receive had such Holder converted such Preferred Stock immediately prior to the record date for such distribution.

5.     Liquidation Preference.

(a)	In the event of any liquidation, winding-up or dissolution of the Company, whether voluntary or involuntary, before any payment or distribution of the Company’s assets (whether capital or surplus) shall be made to or set apart for the holders of Junior Stock, holders of Preferred Stock shall be entitled to receive $10,000 per share of Preferred Stock (the “Liquidation Preference”); holders of Preferred Stock shall not be entitled to any further payment.
(b)	If, upon any liquidation, winding-up or dissolution of the Company, the Company’s assets, or proceeds thereof, distributable among the holders of Preferred Stock are insufficient to pay in full the preferential amount aforesaid and liquidating payments on any Parity Stock, then such assets, or the proceeds thereof, shall be distributed among the holders of the Preferred Stock and any other Parity Stock ratably in accordance with the respective amounts that would be payable on such shares of Preferred Stock and any such other Parity Stock if all amounts payable thereon were paid in full.
(c)	Neither the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock, securities or other consideration, of all or substantially all of the Company’s property or assets nor the consolidation, merger or amalgamation of the Company with or into any entity or the consolidation, merger or amalgamation of any entity with or into the Company shall be deemed to be a voluntary or involuntary liquidation, winding-up or dissolution of the Company.
(d)	Subject to the rights of the holders of any Parity Stock, after payment has been made in full to the holders of the Preferred Stock, as provided in this Section 5, holders of Junior Stock shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Preferred Stock shall not be entitled to share therein.

6.     Redemption.

          The shares of Preferred Stock shall be redeemable by the Company in accordance with this Section 6.

(a) Optional Redemption. The Company may not redeem any shares of Preferred Stock prior to March 19, 2007. On and after March 19, 2007 and to but excluding March 19, 2008, the Company shall have the option to redeem, out of lawfully available funds, shares of Preferred Stock, in whole or in part, at a Redemption Price in Cash equal to 105% of the Liquidation Preference; provided that the

7

	average of the Closing Sale Prices for the five consecutive Trading Days preceding the date of the Redemption Notice is greater than or equal to 140% of the then current Conversion Price. On and after March 19, 2008, the Company shall have the option to redeem, out of lawfully available funds, shares of Preferred Stock, in whole or in part, at a Redemption Price in Cash equal to 105% of the Liquidation Preference.
(b)	Mandatory Redemption. The Company shall redeem all, and not less than all, then outstanding shares of Preferred Stock on March 19, 2012, at a Redemption Price equal to 100% of the Liquidation Preference. Such Redemption Price shall be paid in Cash or, at the option of the Company, the Company may, or if funds are not lawfully available for the payment of such Redemption Price, the Company shall, pay all or a specified percentage of the Redemption Price payable pursuant to this Section 6(b) by the issuance of a number of shares of Common Stock available for issuance equal to the aggregate Redemption Price payable divided by an amount equal to 90% of the average of the Closing Sale Prices for the 15 Trading Days preceding the Redemption Date (appropriately adjusted to take into account the occurrence during such period of any event described in Section 7(d)); provided that the Company shall not be permitted to pay all or any portion of the Redemption Price in shares of Common Stock unless (i) the average of the Closing Sale Prices for the 45 Trading Days preceding the Redemption Date shall exceed $2.00 (such amount appropriately adjusted to take into account the occurrence after March 19, 2004 of any event described in Section 7(d)); and (ii) the Company shall have given timely Redemption Notice pursuant to Section 6(c) hereof of its intention to redeem all or a specified percentage of the Preferred Stock with shares of Common Stock as provided herein; and provided further that the maximum number of shares of Common Stock issuable pursuant to this Section 6(b) shall be the aggregate publicly reported trading volume for shares of the Common Stock on The Nasdaq National Market, or any other stock exchange or automated quotation system on which the shares of Common Stock are then traded, for the 45 Trading Days preceding the Redemption Date.
	If the foregoing conditions are not satisfied with respect to any Holder prior to the close of business on the Redemption Date and the Company has elected to purchase the Preferred Stock pursuant to this Section 6 through the issuance of shares of Common Stock, then, notwithstanding any election by the Company to the contrary, the Company shall pay the entire Redemption Price of the Preferred Stock of such Holder or Holders in Cash, subject to the availability of lawful funds therefor.
(c)	Redemption Procedures. In the event the Company elects to redeem shares of Preferred Stock, the Company shall send a written notice by first class mail to each Holder at such Holder’s registered address, not less than 10 days prior to the Redemption Date stating:

(i) the Redemption Date;

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(ii)	the Redemption Price and, if applicable pursuant to Section 6(b) hereof, whether such Redemption Price will be paid in Cash, shares of Common Stock, or, if a combination thereof, the percentages of the Redemption Price in respect of which the Company will pay in Cash and shares of Common Stock;
(iii)	the then current Conversion Rate;
(iv)	that holders who want to convert shares of the Preferred Stock must satisfy the requirements set forth in Section 7 of this Certificate and that the date on which the right to convert the shares of the Preferred Stock called for redemption will terminate shall be at the close of business on the Business Day immediately preceding the Redemption Date (unless the Company shall default in making the payment of the Redemption Price then due, in which case the right of the Holder to convert its whole shares of Preferred Stock shall terminate on the date such default is cured and such Preferred Stock is redeemed);
(v)	the date on which the right to convert the shares of Preferred Stock called for redemption will terminate and the place or places where such Preferred Stock may be surrendered for conversion;
(vi)	that certificates representing shares of the Preferred Stock called for redemption must be surrendered to the Company to collect the Redemption Price;
(vii)	if fewer than all the outstanding shares of the Preferred Stock are to be redeemed by the Company, the number of shares to be redeemed;
(viii)	the Preferred Stock certificate number or the numbers of the shares of Preferred Stock that are to be redeemed; and
(ix)	any other information the Company wishes to present.

(d)

No Fractional Shares. The Company shall not issue fractional shares of Common Stock in payment of the Redemption Price. Instead, the Company shall pay Cash based on the Closing Sale Price at the close of business on the last Trading Day prior to the Redemption Date for all fractional shares. The Closing Sale Price of a fractional share shall be determined to the nearest 1/1,000th of a share, by multiplying the applicable Closing Sale Price of a full share by the fractional amount and rounding to the nearest whole cent. It is understood that the number of shares of Common Stock issuable upon redemption of the Preferred Stock, and the Cash payment in lieu of fractional shares, shall be based on the aggregate number of shares of Preferred Stock so redeemed.

(e)

Payment of Redemption Price.

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(i)	If the Company gives a Redemption Notice pursuant to this Section 6, then, by 12:00 p.m., New York City time, on the Redemption Date, to the extent sufficient funds are legally available, the Company shall segregate or cause to be segregated Cash or shares of Common Stock, as applicable, sufficient to pay the Redemption Price and shall pay the Redemption Price to holders of such shares of the Preferred Stock upon surrender of their certificates evidencing their shares of the Preferred Stock. On and after the Redemption Date, all rights of holders of such shares shall terminate, other than the right of such holders to receive the Redemption Price upon delivery of the certificates formerly evidencing such redeemed shares of Preferred Stock, payable in accordance with the terms hereof, unless the Company defaults in making payment of such Redemption Price.
(ii)	Payment of the Redemption Price for shares of the Preferred Stock is conditioned upon transfer and delivery of certificates representing, immediately prior to the Redemption Date, the shares of Preferred Stock being redeemed, together with necessary endorsements, to the Company at any time after delivery of the Redemption Notice by the Company.
(iii)	If fewer than all of the outstanding shares of Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors and the Company shall redeem from each Holder such Holder’s pro rata share of the number of shares of Preferred Stock to be redeemed. If any Holder of shares Preferred Stock selected for partial redemption elects to convert any of such Holder’s shares of Preferred Stock after receipt of the notice required by Section 6(c) with respect to such partial redemption and prior to the applicable Redemption Date, the number of shares of Preferred Stock of such Holder that would have been redeemed pursuant to such partial redemption shall be reduced by the number of shares of Preferred Stock so converted.
(iv)	Upon surrender of a certificate or certificates representing shares of Preferred Stock that is or are redeemed in part, the Company shall execute and deliver to the Holder of shares redeemed, a new certificate or certificates representing shares of the Preferred Stock in an amount equal to the unredeemed portion of the whole shares of Preferred Stock surrendered for partial redemption.

7.      Conversion.

(a) Conversion Privilege.

(i) Prior to any redemption or exchange of the Preferred Stock and subject to the provisions of this Section 7, each Holder may convert any whole shares of its Preferred Stock into Common Stock (the shares of Common Stock issuable upon such conversion, the “Underlying Shares”), at any

10

	time at the then current Conversion Rate.
(ii)	If the Preferred Stock is called for redemption pursuant to Section 6 hereof, the date and time the right to convert the shares of the Preferred Stock called for redemption will terminate shall be at the close of business on the Business Day immediately preceding the Redemption Date (unless the Company shall default in making the payment of the Redemption Price then due, in which case the right of the Holder to convert its whole shares of Preferred Stock shall terminate on the date such default is cured and such Preferred Stock is redeemed).
(iii)	Preferred Stock in respect of which a Holder has delivered an Exchange Notice pursuant to Section 8 hereof or a Put Notice pursuant to Section 9 hereof may be converted only if such notice is properly withdrawn in accordance with the terms of this Certificate.
(iv)	A Holder is not, solely by virtue of being a Holder of shares of Preferred Stock, entitled to any rights of a holder of Common Stock until such Holder has converted any of its whole shares of Preferred Stock into Common Stock and, upon such conversion, only to the extent and in respect of such shares of Preferred Stock are deemed to have been converted into Common Stock pursuant to this Section 7.

(b) Conversion Procedure.

(i)	To convert shares of Preferred Stock, a Holder must (1) complete and sign the Notice of Conversion, with the appropriate signature guarantee, (2) surrender such Notice of Conversion and the certificates representing the shares of Preferred Stock to be converted to the Company and (3) furnish appropriate endorsements and transfer documents if required by the Company. The date on which the Holder satisfies all those requirements is the “Conversion Date.”
(ii)	As promptly as practicable following the Conversion Date, the Company shall deliver to the Holder a certificate for, or make or cause to be made a book-entry notation of, the number of full shares of Common Stock issuable upon the conversion of such Preferred Stock and Cash in lieu of any fractional share. The person in whose name the certificate representing the Preferred Stock is registered shall be treated as a stockholder of record of such shares of Common Stock on and after the Conversion Date.
(iii)	The Company shall not issue fractional shares of Common Stock upon conversion of any Preferred Stock. Instead, the Company shall pay Cash based on the Closing Sale Price at the close of business on the last Trading Day prior to the Conversion Date for the fractional shares that would otherwise be issuable as a result of the conversion. The Closing Sale Price

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	of a fractional share shall be determined to the nearest 1/1,000th of a share, by multiplying the applicable Closing Sale Price of a full share by the fractional amount and rounding to the nearest whole cent. It is understood that if a Holder elects to have more than one share converted, the number of shares of Common Stock issuable upon conversion and the Cash payment in lieu of fractional shares shall be based on the aggregate Liquidation Preference of the Preferred Stock converted.
(iv)	Upon surrender of a certificate or certificates representing shares of the Preferred Stock to be converted in part, the Company shall execute, authenticate and deliver to the Holder, a new certificate or certificates representing shares of the Preferred Stock in an amount equal to the unconverted portion of the whole shares of Preferred Stock surrendered for conversion.
(v)	If the last day on which the Preferred Stock may be converted is a Legal Holiday in a place where the Company’s headquarters are located, the Preferred Stock may be surrendered to the Company on the next succeeding day that is not a Legal Holiday.
(vi)	If a Holder converts its shares, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion, if any. However, the Holder shall pay any such tax which is due because the shares are issued in a name other than the Holder’s name. The Company may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder’s name until it receives a sum sufficient to pay any tax which shall be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any withholding tax required by law.

(c) Company to Deliver Common Stock.

(i)	The Company shall reserve out of its authorized but unissued shares of Common Stock or Common Stock held in its treasury enough shares of Common Stock to permit the conversion of all of the shares of Preferred Stock. All shares of Common Stock that may be issued upon conversion of the Preferred Stock shall be validly issued, fully paid and nonassessable.
(ii)	The Company will endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of the shares of Preferred Stock and will endeavor to list such shares on each national securities exchange or automated quotation system on which the Common Stock is listed or quoted.

(d) Adjustment of Conversion Rate. On and after the date of effectiveness of this

12

Certificate, the Conversion Rate shall be subject to adjustment from time to time as follows:
(i)	In case the Company shall (1) pay a dividend in shares of Common Stock to all holders of Common Stock, (2) make a distribution in shares of Common Stock to all or substantially all holders of Common Stock, (3) subdivide the outstanding shares of Common Stock into a greater number of shares of Common Stock, (4) combine the outstanding shares of Common Stock into a smaller number of shares of Common Stock or (5) reclassify its outstanding Common Stock, the Conversion Rate in effect immediately prior to such action shall be adjusted so that the holder of any Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which he would have owned immediately following such action had such Preferred Stock been converted immediately prior thereto. Any adjustment made pursuant to this Section 7(d)(i) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, or reclassification.
(ii)	In case the Company shall issue rights, options or warrants to all or substantially all holders of Common Stock, as the case may be, entitling them (for a period commencing no earlier than the record date for the determination of Holders of Common Stock entitled to receive such rights, options or warrants and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock), at a price per share less than the then current market price (as determined pursuant to Section 7(d)(vii) below) per share of Common Stock on such record date, other than rights, options or warrants issued by the Company pursuant to its employee benefits, compensation or stock option plans (including stock option agreements under any stock option plan of the Company), the Conversion Rate shall be increased by multiplying the Conversion Rate in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares of Common Stock so offered for subscription or purchase, and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on such record date plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price. Such adjustments shall become effective immediately after such record date.
(iii)	In case the Company shall distribute to all or substantially all holders of Common Stock shares of Capital Stock other than Common Stock, evidences of indebtedness, cash or other assets (other than cash dividends

13

out of current or retained earnings) or shall distribute to all or substantially all holders of Common Stock rights, options or warrants to subscribe for securities (in each case other than those referred to in Section 7(d)(i) and (ii) above and Section 7(d)(iv) and (v) below), then in each such case the Conversion Rate shall be increased by multiplying the Conversion Rate in effect immediately prior to the close of business on the record date for the determination of stockholders entitled to such distribution by a fraction of which the numerator shall be the current market price per share of Common Stock (determined as provided in Section 7(d)(vii) below) on such date and the denominator shall be such current market price less the fair market value (as determined by the Board of Directors whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the evidences of indebtedness, shares of capital stock, cash and other assets to be distributed or of such subscription rights, options or warrants applicable to one share of Common Stock, such increase to become effective immediately prior to the opening of business on the day following such record date. Notwithstanding the foregoing, in the event that the Company shall distribute rights, options or warrants (other than those referred to in Section 7(d)(ii) above) (“Rights”) pro rata to holders of Common Stock, the Company may, in lieu of making any adjustment pursuant to this Section 7(d)(iii), and subject to the availability of lawful funds therefor, make proper provision so that each Holder of a Preferred Stock who converts such Preferred Stock (or any portion thereof) after the record date for such distribution and prior to the expiration or redemption of the Rights shall be entitled to receive upon such conversion, in addition to the Underlying Shares, a number of Rights to be determined as follows: (1) if such conversion occurs on or prior to the date for the distribution to the holders of Rights of separate certificates evidencing such Rights (the “Distribution Date”), the same number of Rights to which a holder of a number of shares of Common Stock equal to the number of shares of Underlying Shares is entitled at the time of such conversion in accordance with the terms and provisions of and applicable to the Rights; and (2) if such conversion occurs after the Distribution Date, the same number of Rights to which a holder of the number of shares of Common Stock into which the amount of the Preferred Stock so converted was convertible immediately prior to the Distribution Date would have been entitled on the Distribution Date in accordance with the terms and provisions of and applicable to the Rights.

(iv)

In case the Company shall make a distribution (the “Triggering Distribution,” and the amount of the Triggering Distribution, together with the sum of (1) and (2) below in this subsection, the “Combined Amount”) consisting exclusively of cash to all or substantially all holders of Common Stock (including any distributions of cash out of current or retained earnings of the Company, but excluding any cash that is distributed as part of a distribution requiring a Conversion Rate adjustment

14

pursuant to Section 7(d)(iii) above or Section 7(d)(v) below), in an aggregate amount that, together with the sum of (1) the aggregate amount of any cash and the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive thereof and described in a Board Resolution), as of the expiration of the tender or exchange offer referred to below, of any other consideration payable in respect of any tender or exchange offer by the Company or a subsidiary of the Company for all or any portion of the Common Stock consummated within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Rate adjustment has been made pursuant to this Section 7(d), and (2) the aggregate amount of all other cash distributions to all or substantially all holders of Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Rate adjustment has been made pursuant to this Section 7(d), exceeds 10% of the product of the current market price per share (as determined in accordance with Section 7(d)(vii) below) of the Common Stock on the close of business, New York City time, on the business day (the “Distribution Declaration Date”) immediately preceding the day on which the Triggering Distribution is declared by the Company and the number of shares of Common Stock outstanding on the Distribution Declaration Date (excluding shares held in the treasury of the Company), the Conversion Rate shall be adjusted by multiplying the Conversion Rate in effect immediately prior to the effectiveness of the Conversion Rate adjustment contemplated by this Section 7(d)(iv) by a fraction (y) the numerator of which shall be such current market price per share of Common Stock and (z) the denominator of which shall be (I) such current market price per share of Common Stock less (II) the number obtained by dividing the Combined Amount by such number of shares of Common Stock outstanding. Such adjustment shall become effective immediately prior to the opening of business on the day following the Distribution Declaration Date.

(v)

In case a repurchase (including by way of tender offer or exchange offer) made by the Company or any of its subsidiaries for all or any portion of the Common Stock shall expire and such repurchase (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the repurchase) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) that combined together with:

(A) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution), as of the expiration of such

15

	repurchase, of other consideration payable in respect of any other tender offers, exchange offers or other repurchases, by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such repurchase and in respect of which no adjustment pursuant to this Section 7(d) has been made; and
(B)	the aggregate amount of any distributions to all or substantially all holders of the Company’s Common Stock made exclusively in cash within the 12 months preceding the expiration of such repurchase and in respect of which no adjustment pursuant to Section 7(d) has been made,
exceeds 10% of the product of (x) the current market price per share (as determined in accordance with Section 7(d)(vii)) as of the last time (the “Expiration Time”) tenders, exchanges or other repurchases could have been made pursuant to such repurchase (as it may be amended) and (y) the number of shares of Common Stock outstanding (including any tendered shares, exchanged shares or repurchased shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be adjusted by multiplying the Conversion Rate in effect immediately prior to the close of business on the date of the Expiration Time by a fraction:
(A)	the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer, exchange offer or other repurchase offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the “Purchased Shares”) and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price of the Common Stock as of the Expiration Time; and
(B)	the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered, exchanged or repurchased shares) at the Expiration Time multiplied by the current market price of the Common Stock as of the Expiration Time.
Such adjustment (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such repurchase, but the Company is permanently prevented by applicable

16

	law from effecting any such repurchase or all such repurchase are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such repurchase had not been made. If the application of this Section 7(d)(v) to any repurchase (including by way of tender offer or exchange offer) would result in a decrease in the Conversion Rate, no adjustment shall be made for such repurchase under this Section 7(d)(v).
(vi)	In addition to the foregoing adjustments in subsections (i), (ii), (iii), (iv) and (v) above, the Company, from time to time and to the extent permitted by law, may increase the Conversion Rate by any amount for at least 20 days or such longer period as may be required by law, if the Board of Directors of the Company has made a determination, which determination shall be conclusive, that such increase would be in the best interests of the Company, provided that the effective Conversion Price is not less than the par value of a share of Common Stock. The Company shall cause notice of such increase to be mailed to each Holder at such Holder’s address as the same appears on the Company’s books, at least 15 days prior to the date on which such increase commences. Any increase, however, will not be taken into account for purposes of determining whether the Closing Sale Price equals or exceeds the Conversion Price by 105% in connection with an event that otherwise would be a Change in Control. Such conversion rate increase shall be irrevocable during such period.
(vii)	For the purpose of any computation under subsections (i), (ii), (iii), (iv) and (v) above of this Section 7(d), the current market price per share of Common Stock on the date fixed for determination of the stockholders entitled to receive the issuance or distribution requiring such computation (the “Determination Date”) shall be deemed to be the average of the Closing Sale Price for the ten consecutive Trading Days immediately preceding the Determination Date; provided, however, that (1) if the “ex” date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Rate pursuant to subsection (i), (ii), (iii), (iv) or (v) above occurs on or after the tenth Trading Day prior to the Determination Date and prior to the “ex” date for the issuance or distribution requiring such computation, the Closing Sale Price for each Trading Day prior to the “ex” date for such other event shall be adjusted by multiplying such Closing Sale Price by the reciprocal of the fraction by which the Conversion Rate is so required to be adjusted as a result of such other event, (2) if the “ex” date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Rate pursuant to subsection (i), (ii), (iii), (iv) or (v) above occurs on or after the “ex” date for the issuance or distribution requiring such computation and on or prior to the Determination Date, the Closing Sale Price for each Business Day on and

17

	after the “ex” date for such other event shall be adjusted by multiplying such Closing Sale Price by the same fraction by which the Conversion Rate is so required to be adjusted as a result of such other event, and (iii) if the “ex” date for the issuance or distribution requiring such computation is on or prior to the Determination Date, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Sale Price for each Trading Day on and after the “ex” date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for the purposes of this Section 7(d), whose determination shall be conclusive and described in a Resolution of the Board of Directors) of the evidences of indebtedness, shares of capital stock or other securities or assets being distributed (in the distribution requiring such computation) applicable to one share of Common Stock as of the close of business on the day before such “ex” date. For the purpose of any computation under subsection (v) of this Section 7(d), the current market price per share of Common Stock at the expiration time for the repurchase requiring such computation shall be deemed to be the average of the Closing Sale Price for the ten consecutive Trading Days commencing on the Business Day immediately following the expiration time of such repurchase (the “Commencement Date”); provided, however, that if the “ex” date for any event (other than the repurchase requiring such computation) that requires an adjustment to the Conversion Rate pursuant to subsection (i), (ii), (iii), (iv) or (v) above occurs on or after the expiration time for the repurchase requiring such computation and prior to the day in question, the Closing Sale Price for each Trading Day on or after the “ex” date for such other event shall be adjusted by multiplying such Closing Sale Price by the same fraction by which the Conversion Rate is so required to be adjusted as a result of such other event.
	For purposes of this subsection, the term “ex” date, (i) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Sale Price was obtained without the right to receive such issuance or distribution, (ii) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (iii) when used with respect to any repurchase means the first date on which the Common Stock trades regular way on such exchange or in such market after the expiration time of such repurchase (as it may be amended or extended).
(viii)	No adjustment in the Conversion Rate shall be required until cumulative adjustments amount to 1% or more of the Conversion Rate as last adjusted; provided, however, that any adjustments which by reason of this

18

	Section 7(d)(viii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7(d) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value of the Common Stock.
(ix)	If any rights, options or warrants issued by the Company as described in Section 7(d) are only exercisable upon the occurrence of certain triggering events, then the Conversion Rate will not be adjusted as provided in Section 7(d) until the earliest of such triggering events occurs. Upon the expiration or termination of any rights, options or warrants without the exercise of such rights, options or warrants, the Conversion Rate then in effect shall be adjusted immediately to the Conversion Rate which would have been in effect at the time of such expiration or termination had such rights, options or warrants, to the extent outstanding immediately prior to such expiration or termination, never been issued.
(x)	No adjustment need be made for a transaction referred to in this Section 7(d) if Holders are to participate in the transaction without conversion on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction.

(e) Other Adjustments.

(i)

In the event that, as a result of an adjustment made pursuant to Section 7(d) hereof, the Holder of any Preferred Stock thereafter surrendered for conversion shall become entitled to receive any shares of Capital Stock other than shares of Common Stock, thereafter the Conversion Rate for such other shares so receivable upon conversion of any Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Section 7(d).

(ii)

The Company may make such increases in the Conversion Rate, in addition to those required by Section 7(d) hereof, as it determines to be advisable in order that any stock dividend, subdivision of shares, distribution or rights to purchase stock or securities or distribution of securities convertible into or exchangeable for stock made by the Company or to its stockholders will not be taxable to the recipients thereof.

(f) Notice of Conversion Rate Adjustment. Whenever the Conversion Rate is adjusted, the Company shall promptly mail to Holders at the addresses appearing

19

	on the Registrar’s books a notice of the adjustment briefly stating the facts requiring the adjustment and the manner of computing it. The notice shall be conclusive evidence of the correctness of such adjustment.
(g)	Notice of Certain Transactions. In the event that:

(i)	the Company takes any action which would require an adjustment in the Conversion Rate;
(ii)	the Company takes any action pursuant to Section 7(h) below that would require an amendment to this Certificate; or
(iii)	there is a merger that is reasonably expected to result in a Change in Control, a dissolution or a liquidation of the Company,
a Holder may wish to convert its Preferred Stock into shares of Common Stock prior to the record date for or the effective date of the transaction so that he may receive the rights, warrants, securities or assets which a holder of shares of Common Stock on that date may receive. Therefore, the Company shall mail to Holders at the addresses appearing on the books of the Registrar a notice stating the proposed record or effective date, as the case may be, of any transaction referred to in clause (i), (ii) or (iii) of this Section 7(g). The Company shall mail such notice at least 15 days before such date; however, failure to mail such notice or any defect therein shall not affect the validity of any transaction referred to in clause (i), (ii) or (iii) of this Section 7(g).

(h) Effect of Reclassifications, Consolidations, Mergers, Binding Share Exchanges or Sales on Conversion Privilege. If any of the following shall occur, namely:

(i)	any reclassification or change in the Common Stock issuable upon conversion of the Preferred Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or
(ii)	any consolidation, merger or binding share exchange to which the Company is a party other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than a change in name, or par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination) in, the Common Stock or any consolidation or merger or binding share exchange to which the Company is a party and as a result thereof all or part of the outstanding shares of Common Stock shall be converted into or exchanged for stock or other securities of any person other than the Company or its successor;
Holders of then shares of Preferred Stock that remain outstanding thereafter, if any, shall thereafter have the right to convert such shares into the kind and

20

amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, consolidation, merger or binding share exchange by a holder of the number of shares of Common Stock deliverable upon conversion of such shares of Preferred Stock immediately prior to such reclassification, change, consolidation, merger or binding share exchange, which kind and amount shall thereafter be subject to adjustment in a manner equivalent to the adjustments of the Conversion Rate provided for in Section 7(d) hereof. The foregoing, however, shall not in any way affect the right a Holder may otherwise have, pursuant to clause (2) of the last sentence of subsection (iii) of Section 7(d) hereof, to receive Rights upon conversion of a Preferred Stock. Notwithstanding the foregoing, if, in the case of any such consolidation, merger or binding share exchange, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock includes shares of stock or other securities and property of an entity other than the successor, as the case may be, in such consolidation, merger or binding share exchange, then, as a condition thereto, such other person shall make such adequate provision by board resolution, its organizational documents, or otherwise, to protect the interests of the Holders of Preferred Stock that are to remain outstanding thereafter, if any, as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Board of Directors expressly reserves the right to cancel all shares of Preferred Stock in exchange for preferred stock of such other person, with similar rights and designation. The provision of this Section 7(h) shall similarly apply to successive consolidations, mergers or binding share exchanges, sales or conveyances. This Section 7(h) shall not apply to any consolidation, merger or binding share exchange, sale or conveyance of all or substantially all of the property or business of the Company as an entirety that does not result in any reclassification, conversion, exchange or cancellation of the Common Stock.

8. Exchange Right

(a)

Subject to the availability of lawful funds therefor, each Holder shall have the right, at the Holder’s option, to require the Company to exchange for Subordinated Notes (the “Exchange Right”) in accordance with the provisions of this Section 8 all, and not less than all, of such Holder’s shares of Preferred Stock if the average of the Closing Sale Prices for the three-month period ending March 19, 2008 is less than $7.50 per share.

(b)

If the conditions specified in Section 8(a) are met, the Company shall give written notice of the Exchange Right to the Holders (the “Company Notice”). The Company Notice shall be sent by first-class mail to each Holder by March 23, 2008, shall include a written notice of election to be used by Holders for purposes of exercising such Exchange Right (“Election Notice”), and shall state, among other things:

(i) a description of the procedures which a Holder must follow to exercise an Exchange Right and a brief description of those rights;

21

(ii)	that, in order to exercise the Exchange Right, certificates representing shares of Preferred Stock are to be surrendered to the Company;
(iii)	that shares of Preferred Stock as to which an Election Notice has been given may be converted only in accordance with Section 7 hereof and only if the applicable Election Notice has been withdrawn in accordance with the terms hereof;
(iv)	the procedures for withdrawing an Election Notice;
(v)	the then existing Conversion Rate;
(vi)	the place or places where such shares of Preferred Stock may be surrendered for conversion;
(vii)	that all rights of the Holders of such shares of Preferred Stock shall terminate with respect to such shares on the Exchange Date, other than the right to receive the Subordinated Notes issuable upon exchange of the Preferred Stock in accordance with the terms hereof; and
(viii)	the Preferred Stock certificate number or numbers of the shares of Preferred Stock held by such Holder.

(c) To exercise an Exchange Right, a Holder shall:

(i)	deliver to the Company its Election Notice which Election Notice must be delivered to the Company by the close of business on March 29, 2008 and must specify an Exchange Date of not less than 60 days from the date of the Election Notice; and
(ii)	deliver to the Company the stock certificates evidencing the number of shares of Preferred Stock with respect to which the Exchange Right is being exercised, duly endorsed for transfer to the Company.

(d)

In the event an Exchange Right shall be exercised in accordance with the terms hereof, the Company shall on the Exchange Date issue in the name of the Holder exercising such Exchange Right, Subordinated Notes in an aggregate principal amount equal to the aggregate Liquidation Preference of the shares of Preferred Stock being surrendered for exchange pursuant to this Section 8.

(e)

Notwithstanding anything herein to the contrary, any Holder delivering to the Company an Election Notice contemplated by this Section 8 shall have the right to withdraw such Election Notice at any time prior to the close of business on the second Business Day prior to the Exchange Date by delivery of a written notice of withdrawal to the Company. Shares of Preferred Stock as to which an Election Notice has been given may be converted only in accordance with Section 7 hereof and only if the applicable Election Notice has been so properly withdrawn.

22

9. Redemption of Preferred Stock Upon Significant Unrelated Business Acquisition or Change in Control

(a)

Subject to the availability of lawful funds therefor, upon any Significant Unrelated Business Acquisition or Change in Control, to the extent that any shares of Preferred Stock remain outstanding thereafter, each Holder of such shares of Preferred Stock shall have the right, at the Holder’s option (the “Put Option”), to require the Company to redeem all or a portion of such Holder’s shares of Preferred Stock at a Purchase Price in Cash equal to the Liquidation Preference (“Purchase Price”).

(b)

If the conditions specified in Section 9(a) are met, within 30 days after the occurrence of a Significant Unrelated Business Acquisition or Change in Control, the Company shall mail to all Holders a notice (the “Acquisition Notice”) of the occurrence of such Significant Unrelated Business Acquisition or Change in Control and the Put Option arising as a result thereof. Such Acquisition Notice shall state:

(i)	the date of the Significant Unrelated Business Acquisition or Change in Control, as the case may be;
(ii)	a brief description of the Put Option and the procedures which a Holder must follow to exercise its Put Option;
(iii)	to the extent that lawful funds are not available for the redemption of all Holders’ shares of Preferred Stock, the percentage of the shares of Preferred Stock then outstanding in respect of which there may be a redemption by the Company pursuant to this Section 9;
(iv)	the date by which the Put Option must be exercised;
(v)	the Purchase Price;
(vi)	that, in exercising the Put Option, the shares of Preferred Stock must be surrendered to the Company for payment of the Purchase Price;
(vii)	that Preferred Stock as to which a Put Option Notice has been given may be converted only in accordance with Section 7 hereof if the applicable Put Option Notice has been withdrawn in accordance with the terms hereof;
(viii)	the procedures for withdrawing a Put Option Notice;
(ix)	the then existing Conversion Rate, and any adjustment to the Conversion Rate that will result from the Significant Unrelated Business Acquisition or Change in Control;

23

(x)	the place or places where such Preferred Stock may be surrendered for conversion;
(xi)	that all rights of the Holders shall terminate with respect to such Preferred Stock on the Purchase Date, other than the right to receive the Purchase Price upon delivery of the certificates formerly evidencing such purchased shares of Preferred Stock, unless the Company defaults in making payment on the Preferred Stock for which a Put Option Notice has been submitted; and
(xii)	the Preferred Stock certificate number or the numbers of shares of Preferred Stock held by such Holder.

(c)

No failure of the Company to give the foregoing notice shall limit any such Holder’s right to exercise a Put Option.

(d)

To exercise the Put Option, such a Holder must deliver on or before the close of business on the 30th day after the date of the Acquisition Notice irrevocable written notice to the Company (the “Put Option Notice”) of the Holder’s election to exercise of such Put Option together with the stock certificates evidencing the shares of Preferred Stock with respect to which the Put Option is being exercised, duly endorsed for transfer to the Company. The date on which the Holder satisfies all such requirements is the “Purchase Date.”

10. Tax.

The Company shall be entitled to deduct and withhold in respect of the Preferred Stock such amounts as the Company is required to withhold and deduct under applicable federal, state, local or foreign tax laws. Amounts that are so withheld and deducted shall be treated hereunder as having been paid to the Holder in respect of which the withholding and deduction was made.

11. Form.

(a)	The shares of Preferred Stock shall be issued in the form of one or more permanent certificated shares substantially in the form attached hereto as Exhibit A. The certificates evidencing the Preferred Stock also may have notations, legends or endorsements required by law, stock exchange rules, agreements to which the Company is subject, if any, or usage, in a form acceptable to the Company.
(b)	An Officer shall sign the certificate representing the Preferred Stock, in accordance with the Company’s bylaws and applicable law, by manual or facsimile signature. If an Officer whose signature is on a certificate no longer holds that office, the certificate representing the Preferred Stock shall be valid nevertheless.

24

12. Restrictions on Transfer.

The shares of Preferred Stock and, until the Preferred Stock is converted into shares of Common Stock, the Underlying Shares shall not be transferable by the Holders thereof other than in accordance with the terms and conditions set forth in the Purchase Agreement.

13. Registrar; Transfer Agent

          The Company may appoint one or more registrars, paying agents, transfer agents and/or conversion agents in respect of its obligations hereunder.

14. Headings.

          The headings of the Sections of this Certificate are for convenience of reference only and shall not define, limit or affect any of the provisions hereof.

25

     IN WITNESS WHEREOF, WebMD Corporation has caused this Certificate of Designations to be signed by the undersigned this 4th day of March, 2004.

WEBMD CORPORATION
By:		/s/ Andrew C. Corbin
	Name:	Andrew C. Corbin
	Title:	Executive Vice-President and Chief Financial Officer

EXHIBIT A

FORM OF
CONVERTIBLE REDEEMABLE EXCHANGEABLE PREFERRED STOCK

[FACE OF SECURITY]

Number: _______ ________ Shares

CONVERTIBLE REDEEMABLE EXCHANGEABLE PREFERRED STOCK

Par Value $0.0001 per share
Liquidation Preference $10,000 per share
OF
WEBMD CORPORATION

THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY AND THE 10% SUBORDINATED NOTES DUE 2010 THAT ARE ISSUABLE UPON EXCHANGE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.

NONE OF THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY, THE 10% SUBORDINATED NOTES DUE 2010 THAT ARE ISSUABLE UPON EXCHANGE OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS: (1) SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AND (2) THE COMPANY CONSENTS IN WRITING TO SUCH DISPOSITION.

THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER AS SET FORTH IN THE CERTIFICATE OF DESIGNATION PURSUANT TO WHICH THIS SECURITY IS ISSUED AND THE PURCHASE AGREEMENT, DATED MARCH 4, 2004, AS MAY BE AMENDED FROM TIME TO TIME, BETWEEN THE COMPANY AND THE INVESTORS NAMED THEREIN.

WEBMD CORPORATION, a Delaware corporation (the “Company”), hereby certifies that _________________________is the registered owner of fully paid and non-assessable shares of preferred stock of the Company designated the Convertible Redeemable Exchangeable Preferred Stock, par value $0.0001 per share and liquidation preference $10,000 per share (the “Preferred Stock”).

The shares of Preferred Stock are transferable on the books and records of the Company, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designations of the Company dated March 19, 2004, as the same may be amended from time to time in accordance with its terms (the “Certificate of Designations”).

Capitalized terms used herein but not defined shall have the respective meanings given them in the Certificate of Designations. The Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Reference is hereby made to select provisions of the Preferred Stock set forth on the reverse hereof, and to the Certificate of Designations, which select provisions and the Certificate of Designations shall for all purposes have the same effect as if set forth at this place.

Upon receipt of this certificate, the Holder is bound by the Certificate of Designations and is entitled to the benefits thereunder.

Unless this certificate has been properly executed, the shares of Preferred Stock evidenced hereby shall not be entitled to any benefit under the Certificate of Designations or be valid or obligatory for any purpose.

     IN WITNESS WHEREOF, WebMD Corporation has executed this certificate as of the date set forth below.

WEBMD CORPORATION
By:
	Name:
	Title:

Dated:

[REVERSE OF SECURITY]

WEBMD CORPORATION

Convertible Redeemable Exchangeable Preferred Stock

The shares of Preferred Stock shall be redeemable as provided in the Certificate of Designations.

The shares of Preferred Stock shall be convertible into the Company’s Common Stock in the manner and according to the terms set forth in the Certificate of Designations.

Subject to the availability of lawful funds therefor, the shares of Preferred Stock shall be exchangeable for the Company’s 10% Subordinated Notes due 2010 in the manner and according to the terms set forth in the Certificate of Designations.

Subject to the availability of lawful funds therefor, upon a Significant Unrelated Business Acquisition, Holders will have the right to require the Company to purchase such shares in the manner and according to the terms set forth in the Certificate of Designations.

EXHIBIT B

NOTICE OF CONVERSION
(To be Executed and Delivered by the Holder in order to Convert the Preferred Stock)

     The undersigned hereby irrevocably elects to convert (the “Conversion”)      shares of Convertible Redeemable Exchangeable Preferred Stock (the “Preferred Stock”) represented by stock certificate No(s).      (the “Preferred Stock Certificates”) into shares of common stock, par value $0.0001 per share (the “Common Stock”), of WebMD Corporation (the “Corporation”) according to the conditions of the Certificate of Designations establishing the terms of the Preferred Stock (the “Certificate of Designations”), as of the date written below.

     If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

     The Company is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Company. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three Business Days following receipt of the original Preferred Stock Certificate(s) to be converted.

     Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designations.

Conversion Date: __________________________________

Applicable Conversion Rate: ________________________

Number Preferred Stock to be Converted: ____________

Number of shares of Common Stock to be Issued: __________

Signature: ______________________________________________

Name: ________________________________________________

Address:¹________

Fax No.: ______________

¹ Address where shares of Common Stock and any other payments or certificates shall be sent by the Company.

EXHIBIT C

FORM OF INDENTURE

Exhibit C

WEBMD CORPORATION

and

[          ]

as Trustee

INDENTURE

Dated as of [        ], 2008

$[        ] Principal Amount

10% Subordinated Notes due 2010

CROSS-REFERENCE TABLE*

TIA		Indenture
Section		Section
310	(a)(1)		7.10
	(a)(2)		7.10
	(a)(3)		N.A.
	(a)(4)		N.A.
	(b)		7.08; 7.10; 12.02
	(c)		N.A.
311	(a)		7.11
	(b)		7.11
	(c)		N.A.
312	(a)		2.05
	(b)		12.03
	(c)		12.03
313	(a)		7.06
	(b)(1)		N.A.
	(b)(2)		7.06
	(c)		7.06; 12.02
	(d)		7.06
314	(a)		4.03
	(b)		N.A.
	(c)(1)		12.04
	(c)(2)		12.04
	(c)(3)		N.A.
	(d)		N.A.
	(e)		12.05
	(f)		N.A.
315	(a)		1.01(a)(i)(B)
	(b)		7.05; 12.02
	(c)		1.01(a)(i)(A)
	(d)		1.01(a)(iii)(A)
	(e)		6.11
316	(a)(last sentence)		2.09
	(a)(1)(A)		6.05
	(a)(1)(B)		6.04
	(a)(2)		N.A.
	(b)		6.07
317	(a)(1)		6.08
	(a)(2)		6.09
	(b)		2.04
318	(a)		12.01

*This Cross-Reference Table is not part of the Indenture.

i

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE			1
	1.01 Definitions		1
	1.02 Other Definitions		3
	1.03 Incorporation by Reference of Trust Indenture Act		4
	1.04 Rules of Construction		4
ARTICLE II THE SECURITIES			5
	2.01 Form and Dating		5
	2.02 Execution and Authentication		5
	2.03 Registrar and Paying Agent		6
	2.04 Paying Agent To Hold Money in Trust		6
	2.05 Securityholder Lists		6
	2.06 Transfer and Exchange		7
	2.07 Replacement Securities		7
	2.08 Outstanding Securities		7
	2.09 Securities Held by the Company or an Affiliate		8
	2.10 Temporary Securities		8
	2.11 Cancellation		8
	2.12 Defaulted Interest		8
	2.13 CUSIP Numbers		9
	2.14 Deposit of Moneys		9
	2.15 Book-Entry Provisions for Global Securities		9
	2.16 Global Security Legend		10
ARTICLE III REDEMPTION AND REPURCHASE			11
	3.01 Right of Redemption		11
	3.02 Notices to Trustee of Redemption		11
	3.03 Selection of Securities to Be Redeemed		11
	3.04 Notice of Redemption		11
	3.05 Effect of Notice of Redemption		12
	3.06 Deposit of Redemption Price		12
	3.07 Securities Redeemed in Part		12
	3.08 Repurchase Upon a Change in Control		12
	3.09 Effect of Change in Control Repurchase Notice		18
	3.10 Covenant to Comply With Securities Laws Upon Purchase of Securities		19
ARTICLE IV COVENANTS			19
	4.01 Payment of Securities		19

ii

		Page
	4.02 Maintenance of Office or Agency		19
	4.03 Reports		20
	4.04 Compliance Certificate		20
	4.05 Stay, Extension and Usury Laws		20
	4.06 Corporate Existence		20
	4.07 Notice of Default		21
ARTICLE V SUCCESSORS			21
	5.01 When Company May Merge, etc.		21
	5.02 Successor Substituted		21
ARTICLE VI DEFAULTS AND REMEDIES			22
	6.01 Events of Default		22
	6.02 Acceleration		23
	6.03 Other Remedies		24
	6.04 Waiver of Past Defaults		24
	6.05 Control by Majority		24
	6.06 Limitation on Suits		24
	6.07 Rights of Holders to Receive Payment		25
	6.08 Collection Suit by Trustee		25
	6.09 Trustee May File Proofs of Claim		25
	6.10 Priorities		26
	6.11 Undertaking for Costs		26
ARTICLE VII TRUSTEE			27
	7.01 Duties of Trustee		27
	7.02 Rights of Trustee		27
	7.03 Individual Rights of Trustee		29
	7.04 Trustee’s Disclaimer		29
	7.05 Notice of Defaults		29
	7.06 Reports by Trustee to Holders		29
	7.07 Compensation and Indemnity		30
	7.08 Replacement of Trustee		30
	7.09 Successor Trustee by Merger, etc.		31
	7.10 Eligibility; Disqualification		31
	7.11 Preferential Collection of Claims Against Company		31
ARTICLE VIII DISCHARGE OF INDENTURE			32
	8.01 Termination of the Obligations of the Company		32
	8.02 Application of Trust Money		33
	8.03 Repayment to Company		33

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		Page
	8.04 Reinstatement		33
ARTICLE IX AMENDMENTS			34
	9.01 Without Consent of Holders		34
	9.02 With Consent of Holders		34
	9.03 Compliance with Trust Indenture Act		35
	9.04 Revocation and Effect of Consents		35
	9.05 Notation on or Exchange of Securities		36
	9.06 Trustee Protected		36
ARTICLE X LEGAL DEFEASANCE AND COVENANT DEFEASANCE			36
	10.01 Applicability of Article; Company’s Option to Effect Defeasance or Covenant Defeasance		36
	10.02 Legal Defeasance and Discharge		36
	10.03 Covenant Defeasance		37
	10.04 Conditions to Legal Defeasance or Covenant Defeasance		37
	10.05 Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions		38
	10.06 Reinstatement		39
ARTICLE XI SUBORDINATION			40
	11.01 Agreement to Subordinate		40
	11.02 Certain Definitions		40
	11.03 Liquidation; Dissolution; Bankruptcy		40
	11.04 Company Not to Make Payments with Respect to Securities in Certain Circumstances		41
	11.05 Acceleration of Securities		42
	11.06 When Distribution Must Be Paid Over		42
	11.07 Notice by Company		42
	11.08 Subrogation		42
	11.09 Relative Rights		42
	11.10 Subordination May Not Be Impaired by Company		43
	11.11 Distribution or Notice to Representative		43
	11.12 Rights of Trustee and Paying Agent		43
	11.13 Officers’ Certificate		44
	11.14 Not to Prevent Events of Default		44
ARTICLE XII MISCELLANEOUS			45
	12.01 Trust Indenture Act Controls		45
	12.02 Notices		45
	12.03 Communication by Holders with Other Holders		46

iv

	Page
12.04 Certificate and Opinion as to Conditions Precedent		46
12.05 Statements Required in Certificate or Opinion		46
12.06 Rules by Trustee and Agents		46
12.07 Legal Holidays		47
12.08 No Recourse Against Others		47
12.09 Duplicate Originals		47
12.10 Governing Law		47
12.11 No Adverse Interpretation of Other Agreements		47
12.12 Successors		47
12.13 Separability		47
12.14 Table of Contents, Headings, Etc.		48

EXHIBITS

Exhibit A	- -	Form of Global Security
Exhibit B	- -	Form of Legend

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               INDENTURE, dated as of [       ], between WebMD Corporation, a Delaware corporation (the “Company”), and [       ], as trustee (the “Trustee”).

               Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company’s 10% Subordinated Notes due 2010 (the “Securities”).

ARTICLE I

DEFINITIONS AND INCORPORATION BY REFERENCE

     1.01 Definitions.

               “Affiliate” means any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For this purpose, “control” shall mean the power to direct the management and policies of a person through the ownership of securities, by contract or otherwise.

               “Agent” means any Registrar, Paying Agent or co-registrar.

               “Board of Directors” means the board of directors of the Company or any committee thereof authorized to act for it hereunder.

               “Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

               “Cash” means U.S. legal tender currency.

               “Common Stock” means the common stock, par value $0.0001 per share, of the Company, or such other capital stock into which the Company’s common stock is reclassified or changed.

               “Company” means the party named as such above until a successor replaces it pursuant to the applicable provision hereof and thereafter means the successor.

               “Company Request” or “Company Order” means a written request or order signed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, its Chief Operating Officer, its Chief Financial Officer, any Executive Vice President or any Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary, and delivered to the Trustee.

               “Corporate Trust Office of the Trustee” shall be at the address of the Trustee specified in Section 12.02 or such other address as the Trustee may give notice of to the Company.

               “Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

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               “Depositary” means The Depository Trust Company, its nominees and successors.

               “Exchange Act” means the Securities Exchange Act of 1934, as amended.

               “Holder” or “Securityholder” means a person in whose name a Security is registered on the Registrar’s books.

               “Indenture” means this Indenture as amended or supplemented from time to time.

               “Maturity Date” means March [     ], 2010.

               “Non-Recourse Indebtedness” means Indebtedness upon the enforcement of which recourse may be had by the holder(s) thereof only to identified assets of the Company or any Subsidiary and not to the Company or any Subsidiary personally.

               “Officer” means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, any Executive Vice President, any Vice President, the Treasurer or the Secretary of the Company.

               “Officers’ Certificate” means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company.

               “Opinion of Counsel” means a written opinion from legal counsel who may be an employee of or counsel for the Company, or other counsel reasonably acceptable to the Trustee.

               “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

               “Redemption Date” means, with respect to Securities to be redeemed by the Company in accordance with Section 3.01, the business day specified for redemption of such Security in accordance with the terms of the Securities and this Indenture, as set forth in a notice of redemption.

               “Redemption Price” means, with respect to Securities to be redeemed by the Company in accordance with Section 3.01, a Cash amount equal to 105% of the outstanding principal amount of such Securities.

               “Repurchase Price” means, with respect to Securities duly tendered for purchase by the Company in accordance with Section 3.08, 100% of the outstanding principal amount of such Securities so tendered.

               “Responsible Officer” shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred

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because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

               “Sale Price” means the price of a share of Common Stock on the relevant date, determined on the basis of the last reported per share sale price (or, if no last sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) of the Common Stock on such date as reported on the NASDAQ National Market, or if the Common Stock is not quoted on the NASDAQ National Market, as reported by the principal U.S. exchange or quotation system the Common Stock is then listed or quoted; provided, however, in the absence of such quotations, the Board of Directors will make a good faith determination of the Sale Price.

               “SEC” means the U.S. Securities and Exchange Commission.

               “Securities” means the 10% Subordinated Notes due 2010 issued by the Company pursuant to this Indenture.

               “Securities Act” means the Securities Act of 1933, as amended.

               “Significant Subsidiary” with respect to any person means any subsidiary of such person that, from time to time, constitutes a “significant subsidiary” within the meaning of Rule 1-02 of Regulation S-X under the Securities Act, as such regulation is in effect on the date of this Indenture.

               “subsidiary” means (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by one or more subsidiaries of the Company or by the Company and one or more of its subsidiaries or (ii) any other person (other than a corporation) in which the Company, one or more its subsidiaries or the Company and one or more its subsidiaries, directly or indirectly, at the date of determination thereof, have at least majority ownership interest.

               “TIA” means the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in Section 9.03.

               “Trading Day” means a day during which trading in securities generally occurs on the NASDAQ National Market or, if the Common Stock is not quoted on the NASDAQ National Market, on the principal other national or regional securities exchange on which the Common Stock is then listed or quoted.

               “Trustee” means the party named as such in this Indenture until a successor replaces it in accordance with the provisions hereof and thereafter means the successor.

     1.02 Other Definitions.

Term	Defined in Section
“Bankruptcy Law”		6.01
“business day”		12.07

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Term	Defined in Section
“Change in Control”		3.08
“Change in Control Notice”		3.08
“Change in Control Repurchase Date”		3.08
“Change in Control Repurchase Right”		3.08
“Company Paid Amount”		10.06
“Covenant Defeasance”		10.03
“Custodian”		6.01
“Event of Default”		6.01
“Global Security”		2.01
“Global Security Legend”		2.17
“Indebtedness”		11.02
“Legal Defeasance”		10.02
“Legal Holiday”		12.07
“Market Price”		3.08
“Participants”		2.15
“Paying Agent”		2.03
“Payment Blockage”		11.04
“Payment Blockage Notice”		11.04
“Physical Securities”		2.01
“Registrar”		2.03
“Representative”		11.02
“Senior Indebtedness”		11.02
“U.S. Government Obligations”		8.01

     1.03 Incorporation by Reference of Trust Indenture Act.

               Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.

               The following TIA terms used in this Indenture have the following meanings:

               “Commission” means the SEC.

               All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein have the meanings so assigned to them.

     1.04 Rules of Construction.

               Unless the context otherwise requires:

     (i) a term has the meaning assigned to it;

     (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect on the date hereof;

     (iii) “or” is not exclusive;

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     (iv) words in the singular include the plural and in the plural include the singular;

     (v) provisions apply to successive events and transactions; and

     (vi) “herein,” “hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

ARTICLE II

THE SECURITIES

     2.01 Form and Dating.

               The Securities and the Trustee’s certificate of authentication shall be substantially in the form set forth in Exhibit A, which is incorporated in and forms a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication.

               The Securities shall be issued initially in the form of one or more Global Securities, substantially in the form set forth in Exhibit A (each, a “Global Security”), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided and bearing the legend set forth in Exhibit B. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided; provided that in no event shall the aggregate principal amount of the Global Security or Securities exceed $[    ].

               Securities issued in exchange for interests in a Global Security pursuant to Section 2.15 may be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in Exhibit A (the “Physical Securities”) and, if applicable, bearing any legends required by Section 2.16.

     2.02 Execution and Authentication.

               One Officer shall sign the Securities for the Company by manual or facsimile signature.

               If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid.

               A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture.

               Upon a written order of the Company signed by one Officer of the Company, the Trustee shall authenticate Securities for original issue in the aggregate principal amount of $[    ].

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               The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and its Affiliates.

               If a written order of the Company pursuant to this Section 2.02 of the Indenture has been, or simultaneously is, delivered, any instructions by the Company to the Trustee with respect to endorsement, delivery or redelivery of a Security issued in global form shall be in writing but need not comply with Section 12.04 hereof and need not be accompanied by an Opinion of Counsel.

               The Securities shall be issuable only in registered form without interest coupons and only in denominations of $1,000 principal amount and any positive integral multiple thereof.

     2.03 Registrar and Paying Agent.

               The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (“Registrar”) and an office or agency where Securities may be presented for payment (“Paying Agent”). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint or change one or more co-registrars and one or more additional paying agents without notice and may act in any such capacity on its own behalf. The term “Registrar” includes any co-registrar; and the term “Paying Agent” includes any additional paying agent.

               The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such.

               The Company initially appoints the Trustee as Paying Agent and Registrar.

     2.04 Paying Agent To Hold Money in Trust.

               Each Paying Agent shall hold in trust for the benefit of the Securityholders or the Trustee all moneys held by the Paying Agent for the payment of the Securities, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold as a separate trust fund all money held by it as Paying Agent.

     2.05 Securityholder Lists.

               The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is

6

not the Registrar, the Company shall furnish to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Securityholders.

     2.06 Transfer and Exchange.

               Subject to Section 2.15 hereof, where Securities are presented to the Registrar with a request to register their transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transaction are met. To permit registrations of transfer and exchanges, the Trustee shall authenticate Securities at the Registrar’s request. The Company or the Trustee, as the case may be, shall not be required (a) to issue, authenticate, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 3.04 and ending at the close of business on the day of such mailing or (b) to register the transfer of or exchange any Security so selected for redemption or repurchase in whole or in part, except the unredeemed or unrepurchased portion of Securities being redeemed or repurchased in part.

               No service charge shall be made for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities, other than exchanges pursuant to Section 2.10, 3.07, 3.08 or 9.05 not involving any transfer.

     2.07 Replacement Securities.

               If the Holder of a Security claims that the Security has been mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee’s requirements are met and, in the case of a mutilated Security, such mutilated Security is surrendered to the Trustee. In the case of lost, destroyed or wrongfully taken Securities, if required by the Trustee, an indemnity bond must be provided by the Holder that is sufficient in the judgment of the Trustee to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Trustee may charge for its expenses in replacing a Security.

               In case any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security when due.

               Every replacement Security is an additional obligation of the Company only as provided in Section 2.08.

     2.08 Outstanding Securities.

               Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. Except to the extent provided in Section 2.09, a Security

7

does not cease to be outstanding because the Company or one of its subsidiaries or Affiliates holds the Security.

               If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it, or a court holds, that the replaced Security is held by a protected purchaser.

               If the Paying Agent (other than the Company) holds on a Redemption Date, Change in Control Repurchase Date or maturity date money sufficient to pay Securities payable on that date, then on and after that date, such Securities shall be deemed to be no longer outstanding and interest on them shall cease to accrue, and such Security shall be deemed paid whether or not the Security is delivered to the Paying Agent. Thereafter, all other rights of the Holders of such Securities shall terminate with respect to such Securities, other than the right to receive the Redemption Price, Repurchase Price or principal amount, as applicable.

     2.09 Securities Held by the Company or an Affiliate.

               In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or any of its subsidiaries or an Affiliate shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Responsible Officer of the Trustee knows are so owned shall be so disregarded.

     2 .10 Temporary Securities.

               Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities.

     2 .11 Cancellation.

               The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment or cancellation in accordance with its customary procedures. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation.

     2.12 Defaulted Interest.

               If and to the extent the Company defaults in a payment of interest on the Securities, the Company shall pay the defaulted interest in any lawful manner plus, to the extent not prohibited by applicable statute or case law, interest payable on the defaulted interest at the rate provided in the Securities. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix such record date

8

and payment date. At least 15 days before the record date, the Company shall mail to Securityholders a notice that states the record date, payment date and amount of interest to be paid.

     2.13 CUSIP Numbers.

               The Company in issuing the Securities may use one or more “CUSIP” numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP numbers.

     2.14 Deposit of Moneys.

               Prior to 11:00 a.m., New York City time, on each interest payment date, Maturity Date, Redemption Date and Change in Control Repurchase Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to make Cash payments, if any, due on such interest payment date, Maturity Date, Redemption Date and Change in Control Repurchase Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such interest payment date, Maturity Date and Redemption Date, as the case may be.

     2.15 Book-Entry Provisions for Global Securities.

     (A) The Global Securities initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.16.

     (B) Members of, or participants in, the Depositary (“Participants”) shall have no rights under this Indenture with respect to any Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security.

     (C) Transfers of Global Securities shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for any Global Security and a successor Depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary to issue Physical Securities.

9

     (D) In connection with the transfer of a Global Security in its entirety to beneficial owners pursuant to Section 2.15 (C), such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon written instructions from the Company authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations.

     (E) The Holder of any Global Security may grant proxies and otherwise authorize any person, including Participants and persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Securities.

     2.16 Global Security Legend.

               Each Global Security shall bear the “Global Security Legend” as set forth in Exhibit B.

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ARTICLE III

REDEMPTION AND REPURCHASE

     3.01 Right of Redemption.

               Redemption of the Securities, as permitted by any provision of this Indenture, shall be made in accordance with Paragraphs 6 and 7 of the Securities and in accordance with this Article III. At any time, from time to time, the Company will have the right to redeem for Cash all or any part of the Securities, subject to the conditions specified in Paragraph 6 of the Securities, at the applicable Redemption Price, plus accrued and unpaid interest thereon to, but not including, the Redemption Date, provided that, if such Redemption Date is on or after an interest record date, but on or prior to the related interest payment date, such interest will be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record date for payment of such interest.

     3.02 Notices to Trustee of Redemption.

               If the Company elects to redeem Securities pursuant to Paragraph 6 of the Securities, it shall notify the Trustee at least 15 days prior to the mailing of the notice of redemption (unless a shorter notice period shall be satisfactory to the Trustee) of the Redemption Date and the aggregate principal amount of Securities to be redeemed.

     3.03 Selection of Securities to Be Redeemed.

               If the Company elects to redeem Securities pursuant to Paragraph 6 of the Securities and less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on a pro rata basis. The Trustee shall make the selection from Securities outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000 principal amount. Securities and portions of them it selects shall be in amounts of $1,000 principal amount or positive integral multiples of $1,000 principal amount. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and the principal amount thereof to be redeemed.

               The Registrar need not transfer or exchange any Securities selected for redemption, except the unredeemed portion of the Securities redeemed in part. Also, the Registrar need not transfer or exchange any Securities for a period of 15 days before selecting Securities to be redeemed.

     3.04 Notice of Redemption.

               At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail by first-class mail a notice of redemption to each Holder whose Securities are to be redeemed.

               The notice shall identify the Securities and the aggregate principal amount thereof to be redeemed and shall state:

11

     (i) the Redemption Date;

     (ii) the Redemption Price, plus the amount of accrued and unpaid interest to be paid on the Securities called for redemption;

     (iii) the name and address of the Paying Agent;

     (iv) the Paragraph of the Securities pursuant to which the Securities are to be redeemed;

     (v) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price;

     (vi) that unless the Company shall default in the payment of the Redemption Price, interest on Securities called for redemption ceases to accrue on and after the Redemption Date; and

     (vii) the CUSIP number or numbers, as the case may be, of the Securities.

               At the Company’s request, upon reasonable prior notice, the Trustee shall give the notice of redemption in the Company’s name and at the Company’s expense; provided that the form and content of such notice shall be prepared by the Company.

     3.05 Effect of Notice of Redemption.

               Once a notice of redemption is mailed, Securities called for redemption become due and payable on the Redemption Date at the Redemption Price, plus accrued and unpaid interest to the date of redemption, and, on and after such date (unless the Company shall default in the payment of the Redemption Price), such Securities shall cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price, plus accrued interest to, but excluding, the Redemption Date, subject to the proviso to Section 3.01.

     3.06 Deposit of Redemption Price.

               On or before the Redemption Date, the Company shall, in accordance with Section 2.14, deposit with the Paying Agent money in funds immediately available on the Redemption Date sufficient to pay the Redemption Price of and accrued interest on all Securities to be redeemed on that date. The Paying Agent shall return to the Company, as soon as practicable, any money not required for that purpose.

     3.07 Securities Redeemed in Part.

               Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder a new Security or Securities in an aggregate principal amount equal to the unredeemed portion of the Security surrendered.

     3.08 Repurchase Upon a Change in Control.

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               Upon any Change in Control (as defined below) with respect to the Company, each Holder shall have the right (the “Change in Control Repurchase Right”), at the Holder’s option, subject to the rights of the holders of Senior Indebtedness under Article XI of this Indenture, to require the Company to repurchase all of such Holder’s Securities, or a portion thereof which is $1,000 in principal amount or any positive integral multiple thereof, on the date (the “Change in Control Repurchase Date”) that is 30 business days after the date of the Change in Control Notice (as defined below) at the Repurchase Price, plus accrued and unpaid interest to, but not including, the Change in Control Repurchase Date. Provisions of this Indenture that apply to the repurchase of Securities pursuant to this Section 3.08 of all of a Security also apply to the repurchase of such portion of such Security.

               At the option of the Company, all or a specified percentage of the Repurchase Price of Securities in respect of which a Change in Control Notice pursuant to this Section 3.08 has been given may be paid by the Company by the issuance of a number of shares of Common Stock or, in the case of a merger in which the Company is not the surviving corporation, common stock, ordinary shares, American Depositary Shares or analogous securities of the surviving corporation or its direct or indirect parent, equal to the quotient obtained by dividing (i) the amount of Cash to which the Holders would have been entitled had the Company elected to pay all or a specified percentage of the Repurchase Price of such Securities in Cash by (ii) the product of (A) the Market Price of the Common Stock, subject to the next succeeding paragraph, and (B) 0.95.

               The Company will not issue fractional shares of Common Stock in payment of the Repurchase Price in connection with the exercise of any Change in Control Repurchase Right. Instead the Company will pay Cash based on the Market Price for all fractional shares. The Market Price of a fractional share shall be determined to the nearest 1/1,000th of a share, by multiplying the applicable Market Price of a full share by the fractional amount and rounding to the nearest whole cent. It is understood that if a Holder elects to have more than one Security repurchased, the number of shares of Common Stock shall be based on the aggregate principal amount of Securities to be repurchased.

               In the event that the Company is unable to purchase the Securities of a Holder or Holders for Common Stock because any necessary qualifications or registrations of the Common Stock under applicable state securities laws cannot be obtained, the Company may purchase the Securities of such Holder or Holders for Cash. The Company may not change its election with respect to the consideration to be paid once the Company has given its Change in Control Notice to Securityholders except pursuant to the immediately preceding sentence in the event of a failure to satisfy, prior to the close of business on the Change in Control Repurchase Date, any condition to the payment of the Repurchase Price in shares of Common Stock.

               At least three business days before the date of the Change in Control Notice (as defined below), the Company shall deliver an Officers’ Certificate to the Trustee specifying:

     (i) the manner of payment selected by the Company;

     (ii) the information required to be included in the Change in Control Notice;

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     (iii) if the Company elects to pay all or a specified percentage of the Repurchase Price in shares of Common Stock, that the conditions to such manner of payment set forth in this Section 3.08 have been or will be complied with; and

     (iv) whether the Company desires the Trustee to give the Change in Control Notice required by this Section 3.08.

               The Company’s right to exercise its election to purchase Securities through the issuance of Common Stock shall be conditioned upon:

     (i) the Company’s giving of timely Change in Control Notice to purchase Securities with Common Stock as provided herein;

     (ii) the registration of such Common Stock under the Securities Act or the Exchange Act, in each case, if required;

     (iii) such Common Stock having been quoted or listed on the NASDAQ National Market or other principal U.S. exchange or quotation system on which the shares of Common Stock are then listed, or if the Common Stock is not so quoted or listed then on the principal other market on which the Common Stock are then traded;

     (iv) any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and

     (v) the receipt by the Trustee of an Officers’ Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the Common Stock are in conformity with this Indenture and (B) the shares of Common Stock to be issued by the Company in payment of all or a specified percentage of the Repurchase Price in respect of Securities have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of all or a specified percentage of the Repurchase Price in respect of the Securities, will be validly issued, fully paid and nonassessable and, to the best of such counsel’s knowledge, free from preemptive rights, and, (a) in the case of such Officers’ Certificate, stating that the conditions above and the condition set forth in the second succeeding sentence have been satisfied and, (b) in the case of such Opinion of Counsel, stating that the conditions above have been satisfied.

               Such Officers’ Certificate shall also set forth (i) the number of shares of Common Stock of to be issued for each $1,000 principal amount at maturity of Securities, (ii) the Sale Price on each Trading Day during the period during which the Market Price is calculated and (iii) the Market Price of the Common Stock. The Company may pay the Repurchase Price in Common Stock only if the information necessary to calculate the Market Price is published in a daily newspaper of national circulation or is otherwise publicly available or obtainable (e.g., by dissemination on the World Wide Web or by other public means). If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the Change in Control Repurchase Date and the Company has elected to purchase the Securities pursuant to this Section 3.08 through the issuance of Common Stock, the Company shall pay the entire Repurchase Price of the Securities of such Holder or Holders in Cash.

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               All shares of Common Stock delivered upon purchase of the Securities shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any lien or adverse claim.

               Within 30 days after the occurrence of a Change in Control of the Company, the Company shall mail to all Holders of record of the Securities a notice (the “Change in Control Notice”) of the occurrence of such Change in Control and the Change in Control Repurchase Right arising as a result thereof. The Company shall deliver a copy of the Change in Control Notice to the Trustee and shall disseminate a copy via a press release through Dow Jones & Company, Inc. or Bloomberg Business News or other similarly broad public medium that is customary for such press releases. To exercise the Change in Control Repurchase Right, a Holder of Securities must deliver on or before the close of business on the 30th day after the date of the Change in Control Notice irrevocable written notice to the Trustee, or to a Paying Agent designated by the Company for such purpose in the Change in Control Notice, in the form of the Option of Holder to Elect Repurchase Notice on the back of the Security, of the Holder’s exercise of such right together with the Securities with respect to which the right is being exercised, duly endorsed for transfer.

               Each Change in Control Notice shall state:

     (i) the events causing the Change in Control;

     (ii) the date of such Change in Control;

     (iii) the Change in Control Repurchase Date;

     (iv) the date by which the Change in Control Repurchase Right must be exercised;

     (v) the Repurchase Price, plus the amount of accrued and unpaid interest to be paid on the Securities to be repurchased;

     (vi) the name and address of the Paying Agent;

     (vii) a description of the procedure which a Holder must follow to exercise a Change in Control Repurchase Right and a brief description of those rights;

     (viii) that, in order to exercise the Change in Control Repurchase Right, the Securities are to be surrendered for payment of the Repurchase Price;

     (ix) that the Repurchase Price for, any accrued and unpaid interest on any Security as to which an Option of Holder to Elect Repurchase Notice has been given and not withdrawn, shall be so paid pursuant to this Section 3.08 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Change in Control Notice, as determined by the Company in its sole discretion;

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     (x) the procedures for withdrawing an Option of Holder to Elect Repurchase Notice (as specified in Section 3.09);

     (xi) that, unless the Company defaults in making payment on Securities for which a Change in Control repurchase notice has been submitted, interest on such Securities will cease to accrue on the Change in Control Repurchase Date;

     (xii) that all rights of the Holders of such Securities shall terminate with respect to such Securities on the Change in Control Repurchase Date, other than the right to receive the Repurchase Price upon delivery of the Securities to be purchased;

     (xiii) the CUSIP number of the Securities; and

     (xiv) whether the Repurchase Price will be paid in Cash, Common Stock or a combination of both and, if both, the percentage thereof; provided, however, if the Company elects to pay all or a portion of the Repurchase Price in Common Stock, such Change in Control Notice shall also:

(X)	state that each Holder will receive shares of Common Stock with a Market Price determined as of a specified date prior to the Change in Control Repurchase Date equal to such specified percentage of the Repurchase Price of the Securities held by such Holder (except any Cash amount to be paid in lieu of fractional shares);
(Y)	describe the method of calculating the Market Price of the Common Stock; and
(Z)	state that because the Market Price of Common Stock will be determined prior to the Change in Control Repurchase Date, Holders of the Securities will bear the market risk with respect to the value of the Common Stock to be received from the date such Market Price is determined to the Change in Control Repurchase Date.

               The “Market Price” means the average of the Sale Prices for the five consecutive Trading Days ending on the third business day prior to the applicable Change in Control Repurchase Date (if the third business day prior to the applicable Change in Control Repurchase Date is a Trading Day, or if not, then on the last Trading Day prior to the third business day).

               No failure of the Company to give the foregoing notice shall limit any Holder’s right to exercise a Change in Control Repurchase Right.

               To exercise a Change in Control Repurchase Right, a Holder shall deliver to the Trustee, or to a Paying Agent designated by the Company for such purpose in the Change in Control Notice, on or before the close of business on the 30th day after the date of the Change in Control Notice, (i) irrevocable written notice in the form of the Option of Holder to Elect Repurchase Notice on the back of the Securities with respect to which the Change in Control Repurchase Right is being exercised, or any other form of written notice substantially similar to the Option of Holder to Elect Repurchase Notice, in each case, duly completed and signed, with

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appropriate signature guarantee, and (ii) such Securities with respect to which the Change in Control Repurchase Right is being exercised, duly endorsed for transfer to the Company, and the Holder of such Securities shall be entitled to receive from the Company (if it is acting as its own Paying Agent), or such Paying Agent a nontransferable receipt of deposit evidencing such deposit.

               In the event a Change in Control Repurchase Right shall be exercised in accordance with the terms hereof, the Company shall, on or prior to a Change in Control Repurchase Date, deposit Cash in respect of the Cash portion of a repurchase under this Section 3.08 or for fractional shares of Common Stock, as applicable, plus Cash sufficient to pay accrued an unpaid interest with respect to all Securities to be purchased pursuant to this Section 3.08. On the Trading Day following the Change in Control Repurchase Date, the Company shall deliver to each Holder entitled to receive Common Stock the number of full shares of Common Stock issuable in payment of the Repurchase Price. The person in whose name the certificate for shares of Common Stock is registered shall be treated as a holder of record of Common Stock on the business day following the Change in Control Repurchase Date. No payment or adjustment will be made for dividends on the shares of Common Stock on the record date for which occurred on or prior to the Change in Control Repurchase Date.

               If a Holder of a repurchased Security is paid in Common Stock pursuant to this Section 3.08, the Company shall pay all, stamp and other duties, if any, which may be imposed by the United States or any political subdivision thereof or taxing authority thereof or therein with respect to the issuance of shares of Common Stock. However, the Holder shall pay any such tax which is due because the Holder requests the shares of Common Stock to be issued in a name other than the Holder’s name. The Trustee or any Paying Agent may refuse to deliver the certificates representing the Common Stock issued in a name other than the Holder’s name until the Trustee or any such Paying Agent receives a sum sufficient to pay any tax which shall be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any withholding tax required by law.

               As used in this Section 3.08 of the Indenture and in the Securities:

               A “Change in Control” of the Company shall be deemed to have occurred at such time as:

               (i) any person acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of the Company’s capital stock entitling the person to exercise 50% or more of the total voting power of all shares of the Company’s capital stock that are entitled to vote generally in elections of directors, other than an acquisition by the Company, any of its subsidiaries or any of its employee benefit plans; or

               (ii) the conveyance, sale, transfer or lease by the Company of all or substantially all of its assets to another person.

               However, a Change in Control will not be deemed to have occurred if all or substantially all (but in no event less than 90%) of the consideration, excluding Cash payments

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for fractional shares of Common Stock and Cash payments made pursuant to dissenters’ appraisal rights, in a merger or consolidation otherwise constituting a Change in Control in the preceding paragraph consists of shares of common stock, depositary receipts or other certificates representing common equity interests traded on a national securities exchange or quoted on the NASDAQ National Market, or will be so traded or quoted immediately following such merger or consolidation, and as a result of such merger or consolidation the Securities become convertible solely into such common stock, depositary receipts or other certificates representing common equity interests.

               For purposes of this “Change in Control” definition:

     (1) whether a person is a “beneficial owner” will be determined in accordance with Rule 13d-3 under the Exchange Act as in effect on the date hereof; and

     (2) a “person” includes any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act as in effect on the date hereof.

     3 .09 Effect of Change in Control Repurchase Notice.

               Upon receipt by the Paying Agent of a Holder’s Option of Holder to Elect Repurchase Notice in accordance with Section 3.08, the Holder of the Security in respect of which such notice, as the case may be, was given shall (unless such notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Repurchase Price, together with all accrued and unpaid interest thereon, to but not including the Change in Control Repurchase Date, with respect to such Security.

               With respect any Physical Security which is to be submitted for repurchase only in part pursuant to Section 3.08 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or its attorney duly authorized in writing), the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, of the same tenor and in aggregate principal amount equal to the portion of such Security not submitted for repurchase thereunder.

               A Holder’s Option of Holder to Elect Repurchase Notice specified in Section 3.08 may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent at any time prior to close of business on second the business day prior to the Change in Control Repurchase Date specifying:

     (i) the certificate or CUSIP number, as applicable, of the Security in respect of which such notice of withdrawal is being submitted;

     (ii) the aggregate principal amount of the Security with respect to which such notice of withdrawal is being submitted; and

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     (iii) the aggregate principal amount, if any, of such Security which remains subject to the original Option of Holder to Elect Repurchase Notice and which has been or will be delivered for purchase by the Company.

               The Paying Agent shall promptly notify the Company of the receipt of any repurchase notice specified in Section 3.08 or written notice of withdrawal thereof.

     3.10 Covenant to Comply With Securities Laws Upon Purchase of Securities.

               When complying with the provisions of Section 3.08 hereof (provided that such offer or purchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), the Company shall (i) comply with the applicable provisions of Rule 13e-4 and Rule 14e-1 (or any successor provisions) under the Exchange Act, and any other tender offer rules under the Exchange Act that may then apply, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with any applicable federal and state securities laws so as to permit the rights and obligations under Section 3.08 to be exercised in the time and in the manner specified in Sections 3.08.

ARTICLE IV

COVENANTS

     4.01 Payment of Securities.

               The Company shall pay all amounts due with respect to the Securities on the dates and in the manner provided in the Securities. All such amounts shall be considered paid on the date due if the Paying Agent holds (or, if the Company is acting as Paying Agent, if the Company has segregated and holds in trust in accordance with Section 2.04) on that date money sufficient to pay the amount then due with respect to the Securities.

               The Company shall pay interest on any overdue amount (including, to the extent permitted by applicable law, overdue interest) at the rate borne by the Securities.

     4.02 Maintenance of Office or Agency.

               The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee or Registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.

               The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and

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may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

               The Company hereby designates the Corporate Trust Office of the Trustee as an agency of the Company in accordance with Section 2.03.

     4.03 Reports.

     (A) The Company will comply with the provisions of TIA § 314(a).

     (B) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on the Officers’ Certificate).

     4.04 Compliance Certificate.

               The Company shall deliver to the Trustee within 90 days after the end of each fiscal year of the Company an Officers’ Certificate stating whether or not the signers know of any Default or Event of Default by the Company in performing any of its obligations under this Indenture or the Securities. If they do know of any such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status.

     4.05 Stay, Extension and Usury Laws.

               The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (in each case, to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.

     4.06 Corporate Existence.

               Subject to Article V, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each Significant Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Significant Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any Significant Subsidiary, if in the judgment of the Board of Directors (i) such preservation or

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existence is not material to the conduct of business of the Company and (ii) the loss of such right, license or franchise or the dissolution of such Significant Subsidiary does not have a material adverse impact on the Holders.

     4.07 Notice of Default.

               In the event that any Default or Event of Default shall occur, the Company will give prompt written notice of such Default or Event of Default to the Trustee.

ARTICLE V

SUCCESSORS

     5.01 When Company May Merge, etc.

               The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its properties and assets to, another person unless such other person is a corporation organized under the laws of the United States, any State thereof or the District of Columbia or a corporation or comparable legal entity organized under the laws of a foreign jurisdiction and whose equity securities are listed on a national securities exchange in the United States or authorized for quotation on the NASDAQ National Market prior to or upon giving effect to the transaction (provided, however, that in the case of a transaction where the surviving entity is organized under the laws of a foreign jurisdiction, the Company may not consummate the transaction without first (i) making provision for the satisfaction of its obligations to repurchase the Securities following a Change in Control, if any, (ii) amending the terms of the Securities to provide that, in the event the Company is required under the laws of such foreign jurisdiction (or any political subdivision thereof) to withhold or deduct amounts in respect of taxes from payments made to Securityholders on the Securities, the Company will pay, subject to certain standard exceptions, such additional amounts to the holders as may be necessary so that each Securityholder will receive the same amounts it would have received had no such withholding or deduction been required, and (iii) obtaining an opinion of tax counsel experienced in such matters to the effect that, under then existing United States federal income tax laws, there would be no material adverse tax consequences to Securityholders of the Securities resulting from such transaction); such person assumes by supplemental indenture all the obligations of the Company, under the Securities and this Indenture; and immediately after giving effect to the transaction, no Default or Event of Default shall exist under the terms of this Indenture.

               The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers’ Certificate to the foregoing effect and an Opinion of Counsel, which may rely upon such Officers’ Certificate as to the absence of Defaults and Events of Default, stating that the proposed transaction and such supplemental indenture will, upon consummation of the proposed transaction, comply with this Indenture.

     5.02 Successor Substituted.

               Upon any consolidation or merger or transfer or lease of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor person formed by such

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consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to, and, except in the case of a lease, be substituted for, and may exercise every right and power of, and shall assume every duty and obligation of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein. When the successor assumes all obligations of the Company hereunder, except in the case of a lease, all obligations of the predecessor shall terminate.

ARTICLE VI

DEFAULTS AND REMEDIES

     6.01 Events of Default.

               An “Event of Default” occurs if:

     (i) the Company defaults in the payment of the principal amount or Redemption Price with respect to any Security when the same becomes due and payable, whether on the Maturity Date, Redemption Date, Change in Control Repurchase Date or otherwise, whether or not such payment shall be prohibited by the provisions of Article XI hereof;

     (ii) the Company defaults in the payment of accrued and unpaid interest on any Security when the same becomes due and payable and such default continues for a period of 30 days, whether or not such payment shall be prohibited by the provisions of Article XI hereof;

     (iii) the Company fails to comply with any of its other agreements in the Securities or this Indenture and the default continues for the period and after the notice specified below;

     (iv) the Company fails to provide a Change in Control Notice in accordance with Section 3.08;

     (v) the Company or any of its Significant Subsidiaries defaults in the payment at the final maturity thereof, after the expiration of any applicable grace period, of principal of, or premium, if any, on indebtedness for money borrowed, other than Non-Recourse Indebtedness, in the aggregate principal amount then outstanding of $30,000,000 or more, or the acceleration of indebtedness for money borrowed in such aggregate principal amount so that it becomes due and payable prior to the date on which it would otherwise become due and payable and such acceleration is not rescinded or such default is not cured within 30 business days after notice to the Company in accordance with this Indenture;

     (vi) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law:

     (A) commences a voluntary case,

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     (B) consents to the entry of an order for relief against it in an involuntary case,

     (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or

     (D) makes a general assignment for the benefit of its creditors; or

     (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

     (A) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case or proceeding, or adjudicates the Company or any Significant Subsidiary insolvent or bankrupt,

     (B) appoints a Custodian of the Company or any of its Significant Subsidiaries for all or substantially all of the property of the Company or any such Significant Subsidiary, as the case may be, or

     (C) orders the winding up or liquidation of the Company or any of its Significant Subsidiaries,

and the order or decree remains unstayed and in effect for 90 consecutive days.

               The term “Bankruptcy Law” means Title 11, U.S. Code or any similar federal or State law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

               A default under Section 6.01 (iii) above is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company and the Trustee of the default and the default is not cured within 60 days after receipt of the notice. The notice must specify the default, demand that it be remedied and state that the notice is a “Notice of Default.” If the Holders of 25% in aggregate principal amount of the outstanding Securities request the Trustee to give such notice on their behalf, the Trustee shall do so. When a default is cured, it ceases.

     6.02 Acceleration.

               If an Event of Default (other than an Event of Default specified in Section 6.01(v) or (vi) with respect to the Company) as to which the Trustee has received notice pursuant to the provisions of this Indenture occurs and is continuing, the Trustee by notice to the Company or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding by notice to the Company and the Trustee may declare the Securities to be due and payable. Upon such declaration such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(v) or (vi) with respect to the Company occurs, the principal of and accrued interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. The Holders of a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission

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would not conflict with any order or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration and if all amounts due to the Trustee under Section 7.07 have been paid.

     6.03 Other Remedies.

               Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of amounts due with respect to the Securities or to enforce the performance of any provision of the Securities or this Indenture.

               The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative.

     6.04 Waiver of Past Defaults.

               Subject to Sections 6.07 and 9.02, the Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive any past Default or Event of Default and its consequences, except a default in the payment of the principal amount, accrued and unpaid interest, any Redemption Price or any Repurchase Price. When a Default or an Event of Default is waived, it is cured and ceases for every purpose of this Indenture.

     6.05 Control by Majority.

               The Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

     6.06 Limitation on Suits.

               Except as provided in Section 6.07, a Securityholder may pursue a remedy with respect to this Indenture or the Securities only if:

     (i) the Holder gives to the Trustee written notice of a continuing Event of Default;

     (ii) the Holders of at least 25% in aggregate principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy;

     (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense;

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     (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and

     (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the Securities then outstanding do not give the Trustee a direction inconsistent with the request.

               A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder.

     6.07 Rights of Holders to Receive Payment.

               Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of all amounts due with respect to the Securities, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder.

     6.08 Collection Suit by Trustee.

               If an Event of Default specified in Section 6.01 (i) or (ii) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount due with respect to the Securities, including any unpaid and accrued interest.

     6.09 Trustee May File Proofs of Claim.

               The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee, any predecessor Trustee and the Securityholders allowed in any judicial proceedings relative to the Company or its creditors or properties.

               The Trustee may collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07.

               Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

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     6.10 Priorities.

               If the Trustee collects any money pursuant to this Article VI, it shall pay out the money in the following order:

               First: to the Trustee for amounts due under Section 7.07;

               Second: to holders of Senior Indebtedness to the extent required by Article XI;

               Third: to Securityholders for all amounts due and unpaid on the Securities, without preference or priority of any kind, according to the amounts due and payable on the Securities; and

               Fourth: to the Company.

               The Trustee, upon prior written notice to the Company may fix a record date and payment date for any payment by it to Securityholders pursuant to this Section 6.10.

     6.11 Undertaking for Costs.

               In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit other than the Trustee of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in aggregate principal amount of the outstanding Securities.

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ARTICLE VII

TRUSTEE

     7.01 Duties of Trustee.

     (A) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

     (B) Except during the continuance of an Event of Default:

     (i) the Trustee need perform only those duties that are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

     (ii) in the absence of bad faith, willful misconduct or negligence on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

     (C) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

     (i) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

     (ii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05.

     (D) Every provision of this Indenture that in any way relates to the Trustee is subject to the provisions of this Section 7.01.

     (E) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

     7.02 Rights of Trustee.

     (A) Subject to Section 7.01, the Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper

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person. The Trustee need not investigate any fact or matter stated in the document; if, however, the Trustee shall determine to make such further inquiry or investigation, it shall be entitled during normal business hours to examine the relevant books, records and premises of the Company, personally or by agent or attorney upon reasonable prior notice.

     (B) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate and/or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel.

     (C) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution.

     (D) The Trustee may consult with counsel (such counsel to be reasonably acceptable to the Company) and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

     (E) The Trustee may act through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care.

     (F) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its discretion, rights or powers conferred upon it by this Indenture.

     (G) Except with respect to Section 6.01, the Trustee shall have no duty to inquire as to the performance of the Company with respect to the covenants contained in Article IV. In addition, the Trustee shall not be deemed to have knowledge of an Event of Default except (1) any Default or Event of Default occurring pursuant to Sections 6.01(i) and 6.01(ii) or (2) any Default or Event of Default of which a Responsible Officer of the Trustee shall have received written notification or obtained actual knowledge. Delivery of reports, information and documents to the Trustee under Article IV (other than Sections 4.04 and 4.07) is for informational purposes only and the Trustee’s receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).

     (H) The Trustee shall be under no obligation to exercise any of the rights or powers vested by this Indenture at the request or direction of any of the Holders pursuant to this Indenture unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

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     (I) The rights, privileges, protections, immunities and benefits given to the Trustee, including without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other person employed to act hereunder.

     (J) The Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.

     7 .03 Individual Rights of Trustee.

               The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any of its Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, must comply with Sections 7.10 and 7.11.

     7.04 Trustee’s Disclaimer.

               The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities; it shall not be accountable for the Company’s use of the proceeds from the Securities; and it shall not be responsible for any statement in the Securities other than its certificate of authentication.

     7 .05 Notice of Defaults.

               If a Default or Event of Default occurs and is continuing as to which the Trustee has received notice pursuant to the provisions of this Indenture, the Trustee shall mail to each Securityholder a notice of the Default or Event of Default within 30 days after it occurs unless such Default or Event of Default has been cured or waived. Except in the case of a Default or Event of Default in payment of any amounts due with respect to any Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of Securityholders.

     7.06 Reports by Trustee to Holders.

               Within 60 days after each May 15 beginning with May 15 after the date hereof, the Trustee shall mail to each Securityholder if required by TIA § 313(a) a brief report dated as of such May 15 that complies with TIA § 313(c). In such event, the Trustee also shall comply with TIA § 313(b).

               A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed by the Trustee with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange.

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     7.07 Compensation and Indemnity.

               The Company shall pay to the Trustee from time to time such compensation for its services as shall be agreed upon in writing. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee’s agents and counsel.

               The Company shall indemnify the Trustee against any and all loss, liability, damage, claim or expense (including the reasonable fees and expenses of counsel and taxes other than those based upon the income of the Trustee) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Company, any Holder or any other person) or liability in connection with the exercise or performance of any of its powers and duties hereunder. The Company need not pay for any settlement made without its consent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnification. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through the Trustee’s negligence, bad faith or willful misconduct.

               To secure the Company’s payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay amounts due on particular Securities.

               The indemnity obligations of the Company with respect to the Trustee provided for in this Section 7.07 shall survive any resignation or removal of the Trustee.

               When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(v) or (vi) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law.

     7.08 Replacement of Trustee.

               A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.08.

               The Trustee may resign by so notifying the Company in writing 30 business days prior to such resignation. The Holders of a majority in aggregate principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee with the Company’s consent. The Company may remove the Trustee if:

     (i) the Trustee fails to comply with Section 7.10;

     (ii) the Trustee is adjudged a bankrupt or an insolvent;

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     (iii) a receiver or other public officer takes charge of the Trustee or its property; or

     (iv) the Trustee becomes incapable of acting.

               If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee.

               If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the Company’s expense), the Company or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee.

               If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

               A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07.

     7.09 Successor Trustee by Merger, etc.

               If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee, if such successor corporation is otherwise eligible hereunder.

     7.10 Eligibility; Disqualification.

               There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA § 310(b).

     7.11 Preferential Collection of Claims Against Company.

               The Trustee shall comply with TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated.

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ARTICLE VIII

DISCHARGE OF INDENTURE

     8.01 Termination of the Obligations of the Company.

               The Company may terminate all of its obligations under this Indenture if all Securities previously authenticated and delivered (other than mutilated, destroyed, lost or stolen Securities which have been replaced or paid as provided in Section 2.07) have been delivered to the Trustee for cancellation or if:

     (i) the Securities mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption;

     (ii) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations sufficient to pay the principal or Redemption Price of and any unpaid and accrued interest on the Securities to maturity or redemption, as the case may be. Immediately after making the deposit, the Company shall give notice of such event to the Securityholders;

     (iii) the Company has paid or caused to be paid all sums then payable by the Company to the Trustee hereunder as of the date of such deposit; and

     (iv) the Company has delivered to the Trustee an opinion of counsel and an Officers’ Certificate stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. The Company may make the deposit only during the one-year period and only if Article XI permits it.

However, the Company’s obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.15, 4.01, 4.02, 7.07, 7.08 and Article VIII shall survive until the Securities are no longer outstanding. Thereafter the obligations of the Company in Sections 7.07 and 8.03 shall survive.

               After a deposit pursuant to this Section 8.01, the Trustee upon request shall acknowledge in writing the discharge of the obligations of the Company under the Securities and this Indenture, except for those surviving obligations specified above.

               In order to have money available on a payment date to pay the principal or Redemption Price of and any unpaid and accrued interest on the Securities, the U.S. Government Obligations shall be payable as to principal and any unpaid and accrued interest on or before such payment date in such amounts as will provide the necessary money.

               “U.S. Government Obligations” means direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged.

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     8.02 Application of Trust Money.

               The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of the principal or Redemption Price of and any unpaid and accrued interest on the Securities. Money and securities so held in trust are not subject to the subordination provisions of Article XI.

     8.03 Repayment to Company.

               The Trustee and the Paying Agent shall promptly notify the Company of, and pay to the Company upon the request of the Company, any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon the written request of the Company any money held by them for the payment of the principal, Redemption Price or Repurchase Price of and any unpaid and accrued interest that remains unclaimed for two years; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense and request of the Company, cause to be published once in a newspaper of general circulation in The City of New York or cause to be mailed to each Holder, notice stating that such money remains and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After repayment to the Company, Securityholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person and all liability of the Trustee and the Paying Agent shall cease.

     8.04 Reinstatement.

               If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Sections 8.01 and 8.02 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Sections 8.01 and 8.02 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Sections 8.01 and 8.02; provided, however, that if the Company has made any payment of amounts due with respect to any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent.

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ARTICLE IX

AMENDMENTS

     9.01 Without Consent of Holders.

               The Company, with the consent of the Trustee, may amend or supplement this Indenture or the Securities without notice to or the consent of any Securityholder:

     (i) to evidence a successor to the Company and the assumption by that successor of the Company’s obligations under this Indenture and the Securities;

     (ii) to evidence and provide for the acceptance of the appointment under this Indenture of a successor Trustee;

     (iii) to add to the covenants of the Company described in this Indenture for the benefit of Securityholders or to surrender any right or power conferred upon the Company;

     (iv) to secure the obligations of the Company in respect of the Securities;

     (v) to cure any ambiguity, inconsistency or other defect in this Indenture; or

     (vi) to comply with Sections 5.01.

               Notwithstanding the foregoing, no supplemental indenture pursuant to the foregoing clauses (iii), (iv) or (v) may be entered into without the consent of the holders of a majority in principal amount of the Securities if such supplemental indenture would materially and adversely affect the interests of the Holders of the Securities.

     9.02 With Consent of Holders.

               The Company, with the consent of the Trustee, may amend or supplement this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of a majority in aggregate principal amount of the outstanding Securities. Subject to Section 6.07, the Holders of a majority in aggregate principal amount of the outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any other Securityholder. However, without the consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not:

     (i) reduce the rate of or change the time for payment of interest on any Security;

     (ii) make any Security payable in money or securities other than as stated in such Security;

     (iii) change the stated maturity of any Security;

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     (iv) reduce the principal amount, Redemption Price or Repurchase Price of any Security;

     (v) make any change that adversely affects the right of a Holder to require the Company to repurchase a Security in accordance with Article III;

     (vi) make any change that adversely affects the right to receive payment with respect to any Security or the right to institute suit for the enforcement of any payment with respect to any Security;

     (vii) modify the provisions of Article XI hereof in a manner adverse to the Holders; or

     (viii) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver.

               An amendment under this Section 9.02 may not make any change that adversely affects the rights under Article XI of any holder of Senior Indebtedness unless the holders of such Senior Indebtedness pursuant to its terms consent to the change.

               Promptly after an amendment under Section 9.01 and this Section 9.02 becomes effective, the Company shall mail to Securityholders a notice briefly describing the amendment. Any failure of the Company to mail such notice shall not in any way impair or affect the validity of such amendment, supplement or waiver.

               It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or supplement, but it shall be sufficient if such consent approves the substance thereof.

     9.03 Compliance with Trust Indenture Act.

     Every amendment, waiver or supplement to this Indenture or the Securities shall comply with the TIA as then in effect.

     9 .04 Revocation and Effect of Consents.

               Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Securityholder.

               After an amendment, supplement or waiver becomes effective with respect to the Securities, it shall bind every Securityholder unless it makes a change described in Section 9.02. In that case, the amendment, supplement or waiver shall bind each Holder of a Security who has

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consented to it and, provided that notice of such amendment, supplement or waiver is reflected on a Security that evidences the same debt as the consenting Holder’s Security, every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security.

     9.05 Notation on or Exchange of Securities.

               If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security as directed and prepared by the Company about the changed terms and return it to the Holder. Alternatively, if the Company so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms.

     9.06 Trustee Protected.

               The Trustee need not sign any amendment, supplement or waiver authorized pursuant to this Article IX that adversely affects the Trustee’s rights, duties, liabilities or immunities. The Trustee shall be entitled to receive and conclusively rely upon an Opinion of Counsel and an Officers’ Certificate that any supplemental indenture, amendment or waiver is permitted or authorized pursuant to the Indenture.

ARTICLE X

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

     10.01 Applicability of Article; Company’s Option to Effect Defeasance or Covenant Defeasance.

               The Company may at its option by Board Resolution, at any time, elect to have either Section 10.02 or Section 10.03 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article X.

     10.02 Legal Defeasance and Discharge.

               Upon the Company’s exercise of the above option applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth in Section 10.04 are satisfied (hereinafter, “Legal Defeasance”). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be “outstanding” only for the purposes of Section 10.05 and the other Sections of this Indenture referred to in clauses (A) and (B) of this Section, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Securities to receive, solely from the trust fund described in Section 10.04 and as more fully set forth in such Section, payments in respect of the principal of and interest, if any, on such Securities when such

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payments are due, (B) the Company’s obligations with respect to such Securities under Sections 2.06, 2.07, 4.01 and 4.02, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article X. Subject to compliance with this Article X, the Company may exercise its option under this Section notwithstanding the prior exercise of its option under Section 10.03 with respect to such Securities. Money and securities held in trust pursuant to Section 10.02 shall not be subject to Article XI.

     10.03 Covenant Defeasance.

               Upon the Company’s exercise under Section 10.01 hereof of the option applicable to this Section 10.03, the Company shall be released from its obligations under any covenant or provision contained or referred to in Article IV and Article V on and after the date the conditions set forth in Section 10.04 are satisfied (hereinafter, “Covenant Defeasance”), and the Securities shall thereafter be deemed to be not “outstanding” for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with any such covenant, but shall continue to be deemed “outstanding” for all other purposes hereunder. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(iii) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby.

     10 .04 Conditions to Legal Defeasance or Covenant Defeasance.

               The following shall be the conditions to application of Section 10.02 or Section 10.03 to the outstanding Securities:

     (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 11.12 who shall agree to comply with the provisions of this Article X applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities, (1) United States dollars in an amount, (2) U.S. Government Obligations applicable which through the scheduled payment of principal and interest in respect thereof in accordance with their terms and with no further reinvestment will provide, not later than one day before the due date of any payment of principal of and interest, if any, on such Securities, in an amount, or (3) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of and interest, if any, on such outstanding Securities on the Maturity Date of such principal or installment of principal or interest.

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     (ii) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound.

     (iii) No Default or Event of Default with respect to such Securities shall have occurred and be continuing on the date of such deposit or, insofar as Sections 6.01(v) and 6.01(vi) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period).

     (iv) In the case of an election under Section 10.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (1) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (2) since the date of execution of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred.

     (v) In the case of an election under Section 10.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred.

     (vi) The Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to the Legal Defeasance under Section 10.02 or the Covenant Defeasance under Section 10.03, as the case may be, have been complied with and an Opinion of Counsel to the effect that either (1) as a result of a deposit pursuant to subsection (i) above and the related exercise of the Company’s option under Section 10.02 or Section 10.03, as the case may be, registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the trustee for such trust funds or (2) all necessary registrations under said Act have been effected.

     10.05 Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.

               Subject to the provisions of Section 8.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 10.05, the “Trustee”) pursuant to Section 10.04 in respect of any outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due

38

thereon in respect of principal and interest, if any, but such money need not be segregated from other funds except to the extent required by law.

               The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 10.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such outstanding Securities.

     Anything in this Article X to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 10.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a Legal Defeasance or Covenant Defeasance, as applicable, in accordance with this Article X.

     10.06 Reinstatement.

     (A) If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 10.05 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit has occurred pursuant to this Article X until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 10.05.

     (B) If the Company’s obligations under this Indenture and the Securities shall be revived and reinstated in accordance with this Section 10.06, the Company shall be permitted, at its discretion to withdraw all or a portion of the deposits made by the Company pursuant to this Article X.

     If the Company elects not to withdraw any of the deposits made by the Company pursuant to this Article X, if and when the Trustee or Paying Agent is later permitted to apply all such money or U.S. Government Obligations in accordance with Section 10.05, the rights of the Company shall be subrogated to the rights of the Holders of the Securities to receive payments from the money or U.S. Government Obligations deposited by the Company pursuant to Article X and held by the Trustee or Paying Agent; provided that if the Company shall have made any payment of principal or interest on the Securities because of the revival and reinstatement of its obligations, which payment is not sourced from any amounts deposited by the Company pursuant to Article X (such amount, in the aggregate, being referred to as the “Company Paid Amount”), the Company shall be permitted, at its discretion, to withdraw all or a portion of the deposits made by the Company pursuant to this Article X up to the Company Paid Amount.

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ARTICLE XI

SUBORDINATION

     11.01 Agreement to Subordinate.

               The Company agrees, and each Securityholder by accepting a Security agrees, that the payment of all amounts due with respect to the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article XI, to the prior payment in full of all Senior Indebtedness and that the subordination is for the benefit of the holders of Senior Indebtedness.

               Money and securities held in trust pursuant to Article VIII are not subject to the subordination provisions of this Article XI.

     11.02 Certain Definitions.

               “Indebtedness” means, with respect to any person, the principal of, and premium, if any, and interest on (a) all indebtedness of such person for borrowed money (including all indebtedness evidenced by notes, bonds, debentures or other securities sold by such person for money), (b) all obligations incurred by such person in the acquisition (whether by way of purchase, merger, consolidation or otherwise and whether by such person or another person) of any business, real property or other assets (except trade payables), (c) guarantees by such person of indebtedness described in clause (a) or (b) of another person, (d) all renewals, extensions, refundings, deferrals, restructurings, amendments and modifications of any such indebtedness, obligation or guarantee, (e) all reimbursement obligations of such person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such person, (f) all capital lease obligations of such person and (g) all net obligations of such person under interest rate swap, currency exchange or similar agreements of such person.

               “Representative” means the Trustee or other trustee, agent or representative for an issue of Senior Indebtedness.

               “Senior Indebtedness” means all Indebtedness of the Company outstanding at any time, except the Securities, Indebtedness that by its terms provides that it shall not be “senior” in right of payment to the Securities or Indebtedness that by its terms provides that it shall be “pari passu” or “junior” in right of payment to the Securities. Senior Indebtedness does not include Indebtedness of the Company to any of its subsidiaries, the Company’s 3¼% Convertible Subordinated Notes due 2007 or the Company’s 1.75% Convertible Subordinated Notes due 2023.

     11.03 Liquidation; Dissolution; Bankruptcy.

               Upon any distribution of assets to creditors of the Company in a liquidation, winding up or dissolution of the Company, or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property:

40

     (i) holders of Senior Indebtedness shall be entitled to receive payment in full of the principal of and interest (including interest accruing after the commencement of any such proceeding) to the date of payment on the Senior Indebtedness before Securityholders shall be entitled to receive any payment from the Company of amounts due with respect to the Securities; and

     (ii) until the Senior Indebtedness is paid in full, any distribution to which Securityholders would be entitled from the Company but for this Article XI shall be made to holders of Senior Indebtedness, as their interests may appear, except the Securityholders may receive securities that are subordinated to Senior Indebtedness to at least the same extent as the Securities and payments made pursuant to Sections 8.01 and 8.02.

     11.04 Company Not to Make Payments with Respect to Securities in Certain Circumstances.

               No payment of amounts due may be made by the Company, directly or indirectly, with respect to the Securities or to acquire any of the Securities (including any repurchase right pursuant to the exercise of the Change in Control Repurchase Right) at any time if a default in payment of the principal of or premium, if any, or interest on Senior Indebtedness exists beyond any applicable grace period, unless and until such default shall have been cured or waived or shall have ceased to exist. During the continuance of any default with respect to any Senior Indebtedness pursuant to which any Senior Indebtedness has been issued (other than default in payment of the principal of or premium, if any, or interest on any Senior Indebtedness), permitting the holders thereof to accelerate the maturity thereof, no payment may be made by the Company, directly or indirectly, of any amount due with respect to the Securities (a “Payment Blockage”) until the earlier of (i) the date on which such default has been cured or waived, (ii) 180 days following receipt of written notice (a “Payment Blockage Notice”) to the Company from any holder or holders thereof or its Representative or Representatives or the trustee or trustees under any indenture under which any instrument evidencing any such Senior Indebtedness may have been issued, that such a default has occurred and is continuing, (iii) the date on which such Senior Indebtedness is discharged or paid in full or (iv) the date of which the imposition of such Payment Blockage shall have been terminated by written notice to such trustee or the Company from such trustee or other representative initiating such Payment Blockage. Notwithstanding the foregoing, no new Payment Blockage Notice shall be given until a period of at least 365 consecutive days shall have elapsed since the beginning of the prior Payment Blockage period. No default (other than a default in payment) that existed or was continuing on the date of delivery of any Payment Blockage Notice shall be the basis for any subsequent Payment Blockage Notice, unless such default has been cured or waived for a period of not less than 90 consecutive days. However, if the maturity of such Senior Indebtedness is accelerated, no payment may be made by the Company on the Securities until such Senior Indebtedness that has matured has been paid or such acceleration has been cured or waived.

               Regardless of anything to the contrary herein, nothing shall prevent (a) any payment by the Trustee to the Securityholders of amounts deposited with it pursuant to Article VIII or (b) any payment by the Trustee or the Paying Agent as permitted by Section 11.12. Nothing contained in this Article XI will limit the right of the Trustee or the Securityholders to

41

take any action to accelerate the maturity of the Securities pursuant to Section 6.02 or to pursue any rights or remedies hereunder.

     11 .05 Acceleration of Securities.

               If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration.

     11.06 When Distribution Must Be Paid Over.

               In the event that the Company shall make any payment to the Trustee with respect to the Securities at a time when such payment is prohibited by Section 11.03 or 11.04, such payment shall be held by the Trustee, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) or their Representative or the trustee under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness.

               If a distribution is made to Securityholders, that because of this Article XI should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear.

     11.07 Notice by Company.

               The Company shall promptly notify the Trustee and the Paying Agent in writing of any facts known to the Company that would cause a payment of any amount due with respect to the Securities to violate this Article XI, but failure to give such notice shall not affect the subordination of the Securities to the Senior Indebtedness provided in this Article XI.

     11.08 Subrogation.

               After all Senior Indebtedness is paid in full and until the Securities are paid in full, Securityholders shall be subrogated (equally and ratably with all other Indebtedness of the Company ranking pari passu with the Securities) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Securityholders have been applied to the payment of Senior Indebtedness. A distribution made under this Article XI to holders of Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on Senior Indebtedness.

     11.09 Relative Rights.

               This Article XI defines the relative rights of Securityholders and holders of Senior Indebtedness. Nothing in this Indenture shall:

42

     (i) impair, as between the Company, on the one hand, and Securityholders, on the other hand, the obligation of the Company, which is absolute and unconditional, to pay all amounts due with respect to the Securities in accordance with their terms;

     (ii) affect the relative rights of Securityholders and creditors of the Company other than holders of Senior Indebtedness; or

     (iii) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Indebtedness to receive distributions otherwise payable to Securityholders.

               Upon any distribution of assets of the Company referred to in this Article XI, the Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders of the Securities shall be entitled to rely upon any order or decree by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the Trustee or the Holders of the Securities, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XI. Nothing contained in this Article XI or elsewhere in this Indenture or in any Security is intended to or shall affect the obligation of the Company to make, or prevent the Company from making, at any time except during the pendency of any dissolution, winding up, liquidation or reorganization proceeding, and except during the continuance of any default specified in Section 11.04 (not cured or waived), payments at any time of all amounts due with respect to the Securities.

     11 .10 Subordination May Not Be Impaired by Company.

               No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by the failure of the Company to comply with this Indenture.

     11.11 Distribution or Notice to Representative.

               Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representatives.

     11.12 Rights of Trustee and Paying Agent.

               The Trustee or Paying Agent may continue to make payments on the Securities until it receives written notice of facts that would cause a payment of amounts due with respect to the Securities to violate this Article XI. Only the Company or a Representative or a holder of an issue of Senior Indebtedness that has no Representative may give the notice.

               The Trustee shall be entitled to conclusively rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Indebtedness (or a Representative on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a Representative on behalf of any such holder. In the event that the

43

Trustee determines in good faith that further evidence is required with respect to the right of any person who is a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XI, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article XI, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment or until such time as the Trustee shall be otherwise satisfied as to the right of such person to receive such payment.

               The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights.

               The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holder if it shall mistakenly pay over or distribute to Securityholders or the Company or any other person money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XI or otherwise.

     11.13 Officers’ Certificate.

               If there occurs an event referred to in Section 11.03 or 11.04, the Company shall promptly give to the Trustee an Officers’ Certificate (on which the Trustee may conclusively rely) identifying all holders of Senior Indebtedness or their Representatives and the principal amount of Senior Indebtedness then outstanding held by each such holder and stating the reasons why such Officers’ Certificate is being delivered to the Trustee.

     11 .14 Not to Prevent Events of Default.

               The failure to make any payment due with respect to the Securities by reason of any provision of this Article XI shall not be construed as preventing the occurrence of an Event of Default under Section 6.01.

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ARTICLE XII

MISCELLANEOUS

     12.01 Trust Indenture Act Controls.

               If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision of the TIA shall control.

     12.02 Notices.

               Any notice or communication by the Company or the Trustee to one or both of the others is duly given if in writing and delivered in person, mailed by first-class mail or by express delivery to the other parties’ addresses stated in this Section 12.02. The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications.

               Any notice or communication to a Securityholder shall be mailed to its address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders.

               If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.

               If the Company mails a notice or communication to Securityholders, it shall mail a copy to the other and to the Trustee and each Agent at the same time.

               All notices or communications shall be in writing.

               The Company’s address is:

WebMD Corporation
669 River Drive, Center 2
Elmwood Park, New Jersey 07407-1361
Facsimile: (201) 703-3401
Attention: Executive Vice President—Chief Financial Officer

               The Trustee’s address is:

[NAME]
[ADDRESS]
Facsimile: [      ]
Attention: [      ]

45

     12.03 Communication by Holders with Other Holders.

               Securityholders may communicate pursuant to TIA § 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).

     12.04 Certificate and Opinion as to Conditions Precedent.

               Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

     (i) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

     (ii) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

               Each signer of an Officers’ Certificate or an Opinion of Counsel may (if so stated) rely, effectively, upon an Opinion of Counsel as to legal matters and an Officers’ Certificate as to factual matters if such signer reasonably and in good faith believes in the accuracy of the document relied upon.

     12.05 Statements Required in Certificate or Opinion.

               Each Officers’ Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include:

     (i) a statement that the person making such certificate or opinion has read such covenant or condition;

     (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

     (iii) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and

     (iv) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.

     12.06 Rules by Trustee and Agents.

     The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for their respective functions.

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     12.07 Legal Holidays.

               A “Legal Holiday” is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the City of New York, in the State of New York or in the city in which the Trustee or the applicable agent administers its corporate trust business. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on that payment for the intervening period.

               A “business day” is a day other than a Legal Holiday.

     12.08 No Recourse Against Others.

               No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities.

     12.09 Duplicate Originals.

               The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Delivery of an executed counterpart by facsimile shall be effective as delivery of a manually executed counterpart thereof.

     12.10 Governing Law.

               The laws of the State of New York shall govern this Indenture and the Securities.

     12.11 No Adverse Interpretation of Other Agreements.

               This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

     12.12 Successors.

               All agreements of the Company in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors.

     12.13 Separability.

               In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and a Holder shall have no claim therefor against any party hereto.

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     12.14 Table of Contents, Headings, Etc.

               The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

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     IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written.

WEBMD CORPORATION
By:
	Name:
	Title:
[             ]
as Trustee
By:
	Name:
	Title:

49

Exhibit A

[Face of Security]

WEBMD CORPORATION

[Certificate No.            ]

[INSERT GLOBAL SECURITY LEGEND AS REQUIRED]

10% Subordinated Note due 2010

CUSIP No.            

     WEBMD CORPORATION, a Delaware corporation (herein called the “Company”), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of                  Dollars ($           ) on [      ], 2010, and to pay interest thereon, as provided on the reverse hereof, until the principal and any unpaid and accrued interest is paid or duly provided for. The right to payment of the principal and all other amounts due with respect hereto is subordinated to the rights of Senior Indebtedness as set forth in the Indenture referred to on the reverse side hereof.

     Interest Payment Dates: [           ] and [           ], with the first payment to be made on [           ].

     Record Dates: [           ] and [           ] immediately preceding each Interest Payment Date.

     The provisions on the back of this certificate are incorporated as if set forth on the face hereof.

     IN WITNESS WHEREOF, WEBMD CORPORATION has caused this instrument to be duly signed.

	WEBMD CORPORATION
	By:
		Name:
		Title:
Dated:

A-1

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities referred
to in the within-mentioned Indenture.

[                 ], as Trustee

By:

          Authorized Signatory

Dated:

A-2

[REVERSE OF SECURITY]

WEBMD CORPORATION

10% Subordinated Notes due 2010

     1.     Interest. WebMD Corporation, a Delaware corporation (the “Company”), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on [     ] and [     ] of each year, with the first payment to be made on [ ], to the Holders of record on the immediately preceding [     ] and [     ], respectively, whether or not such day is a business day. Interest on the Securities will accrue on the principal amount from the most recent date to which interest has been paid or provided for or, if no interest has been paid, from [     ]. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company will not be required to make any interest payment on the Securities on any day that is not a business day until the next succeeding business day. Such interest payment made on the next succeeding business day will be treated as though it were paid on the original due date and no interest will accrue on the payment for the additional period of time.

     2.     Maturity. The Notes will mature on [     ], 2010.

     3.     Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security immediately preceding the applicable interest payment date. Holders must surrender Securities to a Paying Agent to collect the principal, Redemption Price or Repurchase Price of the Securities. The Company will pay all amounts due with respect to the Securities in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay interest, the Redemption Price, the Repurchase Price and the principal amount at maturity, as the case may be, by check or wire payable in such money; provided, however, that a Holder holding Securities with an aggregate principal amount in excess of $2,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder. The Company may mail an interest check to the Holder’s registered address. Notwithstanding the foregoing, so long as this Security is registered in the name of a Depositary or its nominee, all payments hereon shall be made by wire transfer of immediately available funds to the account of the Depositary or its nominee.

     4.     Paying Agent, Registrar. Initially, [     ] (the “Trustee”) will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice. The Company may act as Paying Agent.

     5.     Indenture; Ranking. The Company issued the Securities under an Indenture, dated as of [     ], 2008 (the “Indenture”), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb) (the “Act”) as in effect on the date of the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of such terms. The

A-3

Securities are general unsecured subordinated obligations of the Company limited to $[          ] aggregate principal amount, except as otherwise provided in Section 2.07 of the Indenture. The Securities rank equal in right of payment to the Company’s 31/4% Convertible Subordinated Notes due 2007 and the Company’s 1.75% Convertible Subordinated Notes due 2023. Terms used and not otherwise defined herein that are defined in the Indenture have the meanings assigned to them in the Indenture.

     6.     Redemption by the Company. The Securities will be redeemable at the option of the Company, in whole or in part, at any time, from time to time, at the Redemption Price, plus accrued and unpaid interest thereon up to, but not including, the Redemption Date for such Securities.

     7.     Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder to be redeemed at its registered address. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in positive integral multiples of $1,000 principal amount. On and after the Redemption Date interest ceases to accrue on Securities or portions of them called for redemption.

     8.     Repurchase Upon a Change in Control. Upon any Change in Control (as defined below) with respect to the Company, each Holder shall have the right (the “Change in Control Repurchase Right”), at the Holder’s option, subject to the rights of the holders of Senior Indebtedness under Article XI of the Indenture, to require the Company to repurchase all of such Holder’s Securities, or a portion thereof which is $1,000 in principal amount or any positive integral multiple thereof, on the date (the “Change in Control Repurchase Date”) that is 30 business days after the date of the Change in Control Notice (as defined below) at the Repurchase Price plus accrued and unpaid interest to, but not including, the Change in Control Repurchase Date. At the option of the Company, the Repurchase Price for Securities the Company is required to repurchase pursuant to a Change in Control may be paid in Cash, Common Stock or a combination of both, subject to certain conditions as set forth in the Indenture.

     Within 30 days after the occurrence of a Change in Control of the Company, the Company shall mail to all Holders of record of the Securities a notice (the “Change in Control Notice”) of the occurrence of such Change in Control and the Change in Control Repurchase Right arising as a result thereof. The Company shall deliver a copy of the Change in Control Notice to the Trustee and shall disseminate a copy via a press release through Dow Jones & Company, Inc. or Bloomberg Business News or other similarly broad public medium that is customary for such press releases. To exercise the Change in Control Repurchase Right, a Holder of Securities must deliver on or before the close of business on the 30th day after the date of the Change in Control Notice irrevocable written notice to the Trustee, or to a Paying Agent designated by the Company for such purpose in the Change in Control Notice, in the form of the Option of Holder to Elect Repurchase Notice on the back of the Security, of the Holder’s exercise of such right together with the Securities with respect to which the right is being exercised, duly endorsed for transfer.

A-4

               A “Change in Control” of the Company shall be deemed to have occurred at such time as:

               (i) any person acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of the Company’s capital stock entitling the person to exercise 50% or more of the total voting power of all shares of the Company’s capital stock that are entitled to vote generally in elections of directors, other than an acquisition by the Company, any of its subsidiaries or any of its employee benefit plans; or

               (ii) the conveyance, sale transfer or lease by the Company of all or substantially all of its assets to another person.

               However, a Change in Control will not be deemed to have occurred if all or substantially all (but in no event less than 90%) of the consideration, excluding Cash payments for fractional shares of Common Stock and Cash payments made pursuant to dissenters’ appraisal rights, in a merger or consolidation otherwise constituting a Change in Control in the preceding paragraph consists of shares of common stock, depositary receipts or other certificates representing common equity interests traded on a national securities exchange or quoted on the NASDAQ National Market, or will be so traded or quoted immediately following such merger or consolidation, and as a result of such merger or consolidation the Securities become convertible solely into such common stock, depositary receipts or other certificates representing common equity interests.

               For purposes of this “Change in Control” definition:

               (1) whether a person is a “beneficial owner” will be determined in accordance with Rule 13d-3 under the Exchange Act as in effect on the date hereof; and

               (2) a “person” includes any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act as in effect on the date hereof.

     9.     Discharge or Defeasance. Subject to certain conditions, the Company at any time may terminate all of some of its obligations under the Securities and the Indenture if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to the redemption or maturity, as the case may be.

     10.     Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in Article XI of the Indenture, to the prior payment in full of all Senior Indebtedness. Each Holder by accepting a Security agrees to such subordination and authorizes the Trustee to give it effect.

     11.     Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 principal amount and positive integral multiples of $1,000 principal amount. The transfer of Securities may be registered and Securities may be

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exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Registrar need not exchange or register the transfer of any Security selected for redemption in whole or in part, except the unredeemed portion of Securities to be redeemed in part. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before the mailing of a notice of redemption of the Securities selected to be redeemed and in certain other circumstances provided in the Indenture.

     12.     Persons Deemed Owners. The registered Holder of a Security may be treated as the owner of such Security for all purposes.

     13.     Merger or Consolidation. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its properties and assets to, another person unless such other person is a corporation organized under the laws of the United States, any State thereof or the District of Columbia or a corporation or comparable legal entity organized under the laws of a foreign jurisdiction and whose equity securities are listed on a national securities exchange in the United States or authorized for quotation on the NASDAQ National Market prior to or upon giving effect to the transaction (provided, however, that in the case of a transaction where the surviving entity is organized under the laws of a foreign jurisdiction, the Company may not consummate the transaction without first (i) making provision for the satisfaction of its obligations to repurchase the Securities following a Change in Control, if any, (ii) amending the terms of the Securities to provide that, in the event the Company is required under the laws of such foreign jurisdiction (or any political subdivision thereof) to withhold or deduct amounts in respect of taxes from payments made to Securityholders on the Securities, the Company will pay, subject to certain standard exceptions, such additional amounts to the holders as may be necessary so that each Securityholder will receive the same amounts it would have received had no such withholding or deduction been required, and (iii) obtaining an opinion of tax counsel experienced in such matters to the effect that, under then existing United States federal income tax laws, there would be no material adverse tax consequences to Securityholders of the Securities resulting from such transaction); such person assumes by supplemental indenture all the obligations of the Company, under the Securities and this Indenture; and immediately after giving effect to the transaction, no Default or Event of Default shall exist under the terms of the Indenture.

     14.     Amendments, Supplements and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or the consent of any Securityholder, the Indenture or the Securities may be amended or supplemented, with the consent of the Trustee, to cure any ambiguity, inconsistency or other defect in the Indenture; to comply with Section 5.01 of the Indenture; to evidence a successor to the Company and the assumption by that successor of the Company’s obligations under the Indenture and the Securities; to evidence and provide for the acceptance of the appointment under the Indenture of a successor Trustee; to secure the obligations of the Company in respect of the Securities; or to

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add to covenants of the Company described in the Indenture for the benefit of Securityholders or to surrender any right or power conferred upon the Company.

     15.     Defaults and Remedies. An Event of Default includes the occurrence of those events set forth in Section 6.01 of the Indenture. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may declare all the Securities to be due and payable immediately, except as provided in the Indenture. If an Event of Default specified in Section 6.01 (vi) or (vii) of the Indenture with respect to the Company occurs, the principal of and accrued interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. The Company must furnish an annual compliance certificate to the Trustee.

     16.     Registration Rights. The Holders are entitled to registration rights as set forth in Exhibit [    ] to the Purchase Agreement.

     17.     Trustee Dealings with the Company. The Trustee under the Indenture, or any banking institution serving as successor Trustee thereunder, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee.

     18.     No Recourse Against Others. No past, present or future director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.

     19.     Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

     20.     Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act).

     THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO:

WebMD Corporation
669 River Drive, Center 2
Elmwood Park, New Jersey 07407-1361
Attention: Executive Vice President—Chief Financial Officer

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[FORM OF ASSIGNMENT]

I or we assign to

PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER

(please print or type name and address)

the within Security and all rights thereunder, and hereby irrevocably constitutes and appoints

Attorney to transfer the Security on the books of the Company with full power of substitution in the premises.

Dated:
	NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Security in every particular without alteration or enlargement or any change whatsoever and be guaranteed by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee.

Signature Guarantee:

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OPTION OF HOLDER TO ELECT REPURCHASE NOTICE

Certificate No. of Security:

     If you want to elect to have this Security purchased by the Company pursuant to Section 3.08 of the Indenture, check the box:o

     If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.08 of the Indenture, state the principal amount:

$
	(in an integral multiple of $1,000)

Date:	Signature(s):
	(Sign exactly as your name(s) appear(s) on the other side of this Security)
Signature(s) guaranteed by:	(All signatures must be guaranteed by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee.)

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SCHEDULE A

SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY¹

     The following exchanges of a part of this Global Security for an interest in another Global Security or for Securities in certificated form, have been made:

		Amount of	Principal amount of
	Amount of decrease	increase in	this Global Security	Signature or
	in Principal amount	Principal amount	following such	authorized
	of this Global	of this Global	decrease (or	signatory of Trustee
Date of Exchange	Security	Security	increase)	or Note Custodian

¹ This is included in Global Securities only.

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Exhibit B

FORM OF LEGEND FOR GLOBAL SECURITY

     Any Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form:

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE.

B-1 EX-4.9 4 g87450exv4w9.htm EX-4.9 CONVERTIBLE REDEEMABLE EXCHANGEABLE

EXHIBIT 4.9

WEBMD CORPORATION

CONVERTIBLE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK

PURCHASE AGREEMENT
MARCH 4, 2004

PURCHASE AGREEMENT

March 4, 2004

CalPERs/PCG Corporate Partners, LLC
c/o Pacific Corporate Group LLC
1200 Prospect Street, Suite 200
La Jolla, CA 92037
        as Investor

Dear Sirs and Mesdames:

          WebMD Corporation, a Delaware corporation (the “Company”), has duly authorized the sale and issuance to the investor named in Schedule A hereto (the “Investor”) up to 10,000 shares of its Convertible Redeemable Exchangeable Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), having the rights, restrictions, privileges and preferences set forth in the Certificate of Designations in the form attached hereto as Exhibit A (the “Certificate”) filed concurrently with the Secretary of State of the State of Delaware.

          The shares of Preferred Stock will be convertible in accordance with their terms and the terms of the Certificate into shares of the common stock, par value $0.0001 per share (the “Common Stock”), of the Company, and the Company has reserved a sufficient number of its authorized but unissued shares of Common Stock in order to satisfy the rights upon conversion of the shares of Preferred Stock. The shares of Preferred Stock also will be exchangeable for the Company’s 10% Subordinated Notes due 2010 (the “Subordinated Notes”), which will be issued pursuant to an Indenture to be entered into between the Company and the trustee to be named therein (the “Trustee”), substantially in the form attached hereto as Exhibit B (the “Indenture”). The Investor will be entitled to the benefits of the registration rights set forth in Exhibit C with respect to the shares of Common Stock issuable upon conversion of the shares of Preferred Stock, which terms contained in Exhibit C shall be deemed to be incorporated by reference in and to constitute a part of this Agreement.

          In consideration of the representations, warranties, covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor agree as follows:

          1. Sale and Purchase. Upon the basis of the warranties and representations and subject to the other terms and conditions herein set forth, the Company hereby sells to the Investor, and the Investor hereby purchases from the Company, the aggregate number of shares of Preferred Stock set forth opposite its name in Schedule A hereto at a purchase price of $10,000 per share of Preferred Stock, for an aggregate purchase price of $100,000,000.

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          2. Payment and Delivery. Payment of the purchase price for the shares of Preferred Stock shall be made by wire transfer made payable to the order of the Company or as it shall direct in federal (same day) funds, against delivery of the certificates representing the number of shares of Preferred Stock to be purchased to the Investor, at the offices of Shearman & Sterling LLP, in New York, New York, or at such other place as may be agreed upon by the parties hereto, at 10:00 A.M., eastern standard time, on March 19, 2004 (the “Settlement Date”), concurrently with the delivery of the legal opinions of Shearman & Sterling LLP, counsel to the Company, and Richards, Layton & Finger, P.A., special Delaware counsel to the Company.

          3. Use of Proceeds. The proceeds received by the Company from the sale of the Preferred Stock pursuant to the terms hereof will be used for general corporate purposes, which may include strategic acquisitions.

          4. Representations and Warranties of the Company. The Company represents and warrants to the Investor that as of the date hereof:

               (a) Each document filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”) since March 27, 2003, as listed in Schedule B hereto, (i) complied when so filed in all material respects with the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the applicable rules and regulations of Commission thereunder and (ii) when so filed did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The documents listed in Schedule B hereto, exclusive of any portions of the respective filings that were furnished rather than filed under applicable rules and regulations of the Commission, shall hereinafter be referred to as, the “Specified Exchange Act Documents.” The Company has provided or made available to the Investor such other information, as set forth Schedule C hereto, which, together with the Specified Exchange Act Documents, shall hereinafter referred to as the “Company Information”;

               (b) The statements in the Company’s draft Annual Report on Form 10-K, dated March 4, 2004, under the caption “Part I. Item 1. Business—Government Regulation” as of the date hereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

               (c) As of December 31, 2003, the Company had an authorized and outstanding capitalization as set forth in the Capitalization table (including the footnotes thereto describing options, warrants and instruments convertible into equity of the Company) attached hereto as Schedule D (the “Capitalization Table”); all of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and, except as described or incorporated by reference in the Company Information, are free of statutory or contractual preemptive and similar rights; since December 31, 2003, through and including March 2, 2004, there has been no issuances of any shares of capital stock of the Company, or any options, warrants or securities exercisable for or convertible into capital stock of the Company, other than such

2

shares that were issued pursuant to the Company’s employee benefits, compensation or stock option plans (including stock option agreements under any stock option plan of the Company) or that were issued upon the exercise of securities described in Schedule D;

               (d) The Company has no significant subsidiaries (as defined in Rule 1-02 of Regulation S-X under the Exchange Act) except as listed in an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (such significant subsidiaries of the Company, collectively, the “Subsidiaries”); (i)(A) each of Porex Corporation, WebMD Inc., Medical Manager Health Systems, Inc. and Envoy Corporation (collectively, the “Material Subsidiaries”) and the Company has been duly incorporated and is validly existing as a corporation under the laws of the jurisdiction of its incorporation, with all requisite corporate power and authority to own its properties and conduct its business as described in the Company Information and (B) with respect to each of the Subsidiaries other than the Material Subsidiaries, such Subsidiary has been duly incorporated and is validly existing as a corporation under the laws of the jurisdiction of its incorporation, with all requisite corporate power and authority to own its properties and conduct its business as described in the Company Information except where such failure to be so duly incorporated, validly existing and with all requisite corporate power and authority would not have a Material Adverse Effect (as defined below); (ii)(A) all of the issued shares of capital stock of each Material Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and to the extent indicated in such exhibit are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except (x) for those encumbrances disclosed in the Company Information, (y) for interests or liens held by others as security for indebtedness of the Company or any Subsidiary, such interests or liens as disclosed in the Company Information, and (x) for transfer restrictions under applicable federal and state securities laws and (B) with respect to each Subsidiary other than the Material Subsidiaries, except to the extent that it would not have a Material Adverse Effect (as defined below), all of the issued shares of capital stock of each Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and to the extent indicated in such exhibit are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except (x) for those encumbrances disclosed in the Company Information, (y) for interests or liens held by others as security for indebtedness of the Company or any Subsidiary, such interests or liens as disclosed in the Company Information, and (z) for transfer restrictions under applicable federal and state securities laws;

               (e) The Company and each of its Subsidiaries are duly qualified or licensed to do business as foreign corporations and are in good standing in each jurisdiction in which the conduct of their respective businesses or their ownership or leasing of property requires such qualification or license or good standing, except to the extent that the failure, individually or in the aggregate, to be so qualified or licensed or be in good standing would not have a material adverse effect on the operations, business, prospects or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole (a “Material Adverse Effect”);

3

               (f) Neither the Company nor any of the Subsidiaries is in material breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a material breach of, or default under), its respective charter or by-laws, or any material license, indenture, mortgage, deed of trust, bank loan or credit agreement or other material evidence of indebtedness, or any material lease, contract or other material agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or under any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the Company or any of the Subsidiaries, and the execution, delivery and performance of this Agreement and the execution and filing of the Certificate, and the consummation of the transactions contemplated hereby and thereby, including the issuance of the shares of Preferred Stock, and any redemption thereof, the issuance of the shares of Common Stock upon conversion of the Preferred Stock and the issuance of the Subordinated Notes upon exchange of the Preferred Stock, will not conflict with, or result in any material breach of or constitute a default under (nor constitute any event which with notice, lapse of time, or both would constitute a breach of, or default under), any provisions of the charter or by-laws of the Company or any of the Subsidiaries or under any provision of any material license, indenture, mortgage, deed of trust, bank loan or credit agreement or other material evidence of indebtedness, or any material lease, contract or other material agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or under any federal, state, local or foreign law, regulation or rule or, to the knowledge of the Company, any decree, judgment or order applicable to the Company or any of the Subsidiaries;

               (g) This Agreement has been duly authorized, executed and delivered by the Company;

               (h) The Indenture has been duly authorized by the Company and when executed and delivered by the Company and the other parties thereto will be a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and general principles of equity;

               (i) The shares of Preferred Stock to be sold to the Investor pursuant to the provisions of this Agreement have been duly authorized and, when issued and paid for in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and nonassessable, and will be issued free of statutory and contractual preemptive rights;

               (j) The shares of Common Stock issuable upon conversion of the Preferred Stock have been duly authorized and validly reserved for issuance upon conversion of the Preferred Stock, and upon conversion of the Preferred Stock in accordance with their terms and the terms of the Certificate will be issued free of statutory and contractual preemptive rights, and such Common Stock, when so issued upon such conversion in accordance with the terms of the Preferred Stock and the Certificate, will be duly and validly issued and fully paid and nonassessable;

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               (k) The Subordinated Notes have been duly authorized by the Company for issuance to the Investor upon exchange of their shares of Preferred Stock in accordance with the terms of the Indenture and the terms of the Certificate and, when executed and delivered by the Company and duly authenticated by the Trustee in accordance with the terms of the Indenture, and delivered to the Investor in accordance with the terms of the Certificate and the Indenture, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and general principles of equity, and will be entitled to the benefits of the Indenture;

               (l) Assuming the accuracy of the Investor’s representations and warranties and compliance by the Investor with its covenants set forth herein, no approval, authorization, consent or order of or filing with any national, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale by the Company of the Preferred Stock, the shares of Common Stock issuable upon conversion of the Preferred Stock and the Subordinated Notes issuable upon exchange of the Preferred Stock, in each case as contemplated hereby, other than (i) as may be required by federal and state securities laws with respect to the Company’s obligations with respect to the Investor’s registration rights set forth in Exhibit C hereto and (ii) as have been made or obtained on or prior to the applicable time of purchase;

               (m) Ernst & Young LLP, whose reports on the consolidated financial statements of the Company and the Subsidiaries are included in the Company Information, are independent public accountants with respect to the Company as required by the Securities Act of 1933, as amended (the “Securities Act”), and the applicable published rules and regulations thereunder;

               (n) Each of the Company and the Subsidiaries has all necessary licenses, authorizations, consents and approvals (collectively, “Consents”) and has made all necessary filings required under any federal, state, local or foreign law, regulation or rule (collectively, “Filings”) and has obtained all necessary Consents from other persons, in order to conduct its respective business, except where the failure to have any such Consent or to have made any such Filing would not have a Material Adverse Effect; neither the Company nor any of its Subsidiaries is in violation of, or in default under, any such Consent or any federal, state, local or foreign law, regulation or rule or, to the knowledge of the Company, any decree, order or judgment applicable to the Company or any of the Subsidiaries which violation or default would have a Material Adverse Effect;

               (o) Except as described or incorporated by reference in the Company Information, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries or any of their respective properties, at law or in equity, or before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency which, if determined in a manner adverse to the Company or any Subsidiary, would result in a judgment, decree or order having a Material Adverse Effect;

5

               (p) Except as would not reasonably be expected to have a Material Adverse Effect, the Company and each Subsidiary have filed on a timely basis all necessary federal, state and foreign income, franchise and other tax returns (other than returns being contested in good faith) and have paid all taxes shown thereon as due (other than those being contested in good faith or which are currently payable without penalty or interest), and the Company has no knowledge of any tax deficiency which has been or might be asserted against the Company or any Subsidiary; all material tax liabilities are adequately provided for within the financial statements of the Company in accordance with generally accepted accounting principles (“GAAP”);

               (q) The Company and the Subsidiaries maintain insurance of the types and in the amounts reasonably believed to be adequate for their business and, to the knowledge of the Company, consistent with insurance coverage maintained by similar companies in similar businesses, all of which insurance is in full force and effect, except where the failure of any of such insurance coverage to be in full force and effect would not have a Material Adverse Effect;

               (r) Neither the Company nor the Subsidiaries are involved in any labor dispute or disturbance nor, to the knowledge of the Company, is any such dispute or disturbance threatened except, in each case, for disputes or disturbances which would not, individually or in the aggregate, have a Material Adverse Effect;

               (s) Except as described or incorporated by reference in the Company Information, the Company and each Subsidiary owns or possesses such licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets, know-how, franchises, and other material intangible property and assets (collectively, “Intellectual Property”) necessary to the conduct of their respective businesses as conducted and as proposed to be conducted as described or incorporated by reference in the Company Information, except where the failure to do so would not have a Material Adverse Effect; the Company has no knowledge that it or any Subsidiary lacks or will be unable to obtain any rights or licenses to use any of the Intellectual Property necessary to conduct the business now conducted or proposed to be conducted by it as described or incorporated by reference in the Company Information, except as described or incorporated by reference in the Company Information and except where the failure to have or obtain such rights or licenses would not have a Material Adverse Effect; neither the Company nor any Subsidiary has received any written notice of infringement or of conflict with rights or claims of others with respect to any Intellectual Property which infringement or conflict would have a Material Adverse Effect, except as described or incorporated by reference in the Company Information, and the Company is not aware of any patents of others which are infringed by the Company or any Subsidiaries in such a manner as would have a Material Adverse Effect, except as described or incorporated by reference in the Company Information;

               (t) The audited financial statements and related notes thereto of the Company included or incorporated by reference in the Specified Exchange Act Documents

6

present fairly in all material respects the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the results of operations and cash flows of the Company and its Subsidiaries for the periods specified; such financial statements have been prepared in conformity with GAAP applied on a consistent basis during the periods involved;

               (u) As of the date hereof, subsequent to the respective dates as of which information is stated or incorporated by reference in the Company Information, there has not been (A) any material and unfavorable change in the business, properties, prospects, regulatory environment, results of operations or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, (B) any transaction entered into by the Company or any of its subsidiaries, which is material to the Company and its subsidiaries, taken as a whole, or (C) any obligation, contingent or otherwise, directly or indirectly, incurred by the Company or any of its subsidiaries which is material to the Company and its subsidiaries, taken as a whole;

               (v) Except as described or incorporated by reference in the Company Information, the Company and the Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not have a Material Adverse Effect.

               (w) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an “Affiliate”) of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Preferred Stock in a manner that would require the registration under the Securities Act of the Preferred Stock or (ii) offered, solicited offers to buy or sold the Preferred Stock by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act;

               (x) Assuming the accuracy of the representations and warranties of each of the Investor contained herein and compliance by the Investor with its covenants set forth herein, it is not necessary in connection with the offer, sale and delivery of the Preferred Stock to the Investor pursuant to this Agreement, the issuance of shares of Common Stock issuable upon conversion of the Preferred Stock or the issuance of Subordinated Notes upon exchange of the Preferred Stock, to register the Preferred Stock, such Common Stock or the Subordinated Notes under the Securities Act;

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               (y) The Company is not and, after giving effect to the offering and sale of the Preferred Stock and the application of the proceeds thereof as described above in Section 3, will not be, required to register as an “investment company” as defined in the Investment Company Act of 1940, as amended;

               (z) Except as set forth in Exhibit D hereto and except for the Investor’s registration rights set forth in Exhibit C hereto, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to register any securities with the Commission;

               (aa) Prior to the date hereof, neither the Company nor any of its Affiliates has taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company in connection with the sale of the Preferred Stock contemplated hereby; and

               (bb) Within the preceding six months, neither the Company nor any other person acting on behalf of the Company has offered or sold to any person any shares of Preferred Stock, or any securities of the same or a similar class as the shares of Preferred Stock, other than the shares of Preferred Stock offered or sold to the Investor hereunder.

          5. Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company as follows:

               (a) Power and Authority. It has all necessary limited liability company power and authority under all applicable provisions of law to execute and deliver this Agreement to carry out its obligations hereunder. All action on the Investor’s part required for the lawful execution and delivery of this Agreement have been taken. Upon the execution and delivery of this Agreement by the Investor, this Agreement will be the legal, valid and binding agreement of such Investor;

               (b) No Registration. It understands that none of the shares of Preferred Stock, or the shares of Common Stock issuable upon conversion of the Preferred Stock or the Subordinated Notes issuable upon exchange of the Preferred Stock has been registered under the Securities Act. It also understands that the shares of Preferred Stock are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the Investor’s representations contained in this Agreement;

               (c) Standstill. It will not, during the period commencing the date hereof through and including the sooner of (i) the date immediately succeeding such date that the Company files its Annual Report on Form 10-K for the year ended December 31, 2003 and (ii) April 5, 2004, directly or indirectly, alone on in concert with any other person, other than the shares of Preferred Stock to be purchased hereby, acquire or sell, offer to acquire or sell, or agree to acquire or sell whether through market purchases, tender or exchange offer, acquisition of control or otherwise, record or beneficial ownership, or any right to acquire or vote, any of the Company’s shares of Common Stock;

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               (d) Investor Bears Economic Risk. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Investor understands that it must bear the economic risk of this investment indefinitely unless the shares of Preferred Stock are registered pursuant to the Securities Act, or an exemption from registration is available. The Investor understands that the Company has no present intention of registering the shares of Preferred Stock. The Investor also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow the Investor to transfer all or any portion of shares of Preferred Stock under the circumstances, in the amounts or at the times the Investor might propose;

               (e) Acquisition for Own Account. The Investor is acquiring the Preferred Stock (and the shares of Common Stock issuable upon conversion of the Preferred Stock or the Subordinated Notes issuable upon exchange of the Preferred Stock, if applicable) for the Investor’s own account for investment only, and not with a view towards its distribution, other than in accordance with applicable law;

               (f) Investor Can Protect Its Interest. The Investor represents that by reason of its, or of its management’s, business or financial experience, the Investor has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. Further, the Investor has not undertaken any publication of any advertisement in connection with the transactions contemplated in the Agreement;

               (g) Accredited Investor. The Investor represents that it is an accredited investor (“Accredited Investor”) within the meaning of Regulation D under the Securities Act;

               (h) Company Information. The Investor has had an opportunity to discuss the Company’s business, management and financial affairs with certain members of management of the Company. The Investor has also had the opportunity to ask questions of the Company and its management regarding the terms and conditions of this investment;

               (i) Residence. If the Investor is an individual, then the Investor resides in the state or province identified in the address of the Investor set forth on Schedule A; if the Investor is a partnership, corporation, limited liability company or other entity, then the office or offices of the Investor in which its investment decision was made is located at the address or addresses of the Investor set forth on Schedule A;

               (j) Rule 144. The Investor understands that the shares of Preferred Stock it is purchasing are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144, as presently in

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effect thereunder, and understands the resale limitations imposed thereby and by the Securities Act;

               (k) No Broker Fee. The Investor represents and warrants that, other than the fee payable to CalPERs/PCG Corporate Partners, LLC as set forth in Schedule E hereof, no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated herein; and

               (l) Hart-Scott-Rodino Act. The Investor will not hold (within the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of 1975, as amended (the “HSR Act”)) any shares in the capital stock of the Company other than the shares of Preferred Stock to be issued to the Investor hereunder. The Investor intends to acquire such shares of Preferred Stock solely for the purpose of investment and has no present intention of participating in the formulation, determination or direction of the basic business decisions of the Company under Subsection (c)(9) of the HSR Act and rules promulgated thereunder.

          6. Certain Covenants of the Company. The Company hereby agrees that:

               (a) The Company will reserve and keep available at all times, free of preemptive rights, such number of shares of Common Stock for the purpose of enabling the Company to satisfy any obligations to issue such shares of Common Stock upon conversion of the shares of Preferred Stock in accordance with its terms;

               (b) Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the shares of Preferred Stock in a manner which would require the registration under the Securities Act of the shares of Preferred Stock;

               (c) The Company will not solicit or agree to solicit any offer to buy or offer or sell the shares of Preferred Stock by means of any form of general solicitation or general advertising (as those terms are used in Regulation D) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act;

               (d) The Company will not take any action prohibited by Regulation M under the Exchange Act in connection with the distribution of the shares of Preferred Stock contemplated hereby;

               (e) So long as any other shares of Common Stock shall then be so listed and so long as any shares of Preferred Stock are then outstanding, the Company shall (i) use its reasonable best efforts to secure the listing of the shares of Common Stock issuable upon conversion of the Preferred Stock (collectively, the “Conversion Shares”) upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and (ii) maintain, so

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long as any other shares of Common Stock shall then be so listed, such listing of all Conversion Shares from time to time issuable under the terms of the Preferred Stock. So long as any other shares of Common Stock shall then be so listed and so long as any shares of Preferred Stock are then outstanding, the Company shall maintain the Common Stock’s authorization for quotation or listing on The New York Stock Exchange, the American Stock Exchange, Inc. or The Nasdaq National Market or SmallCap Market, as applicable. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 6(e); and

               (f) The Company will not, without the prior written consent of holders of 75% of the shares of Preferred Stock then outstanding, (i) issue any additional shares of Preferred Stock, (ii) create any other class or series of Capital Stock, the terms of which expressly provide that such class or series ranks senior to the Preferred Stock as to rights upon liquidation, winding-up, dividends or dissolution of the Company or (iii) create any class or series of Parity Stock (as such term is defined in the Certificate).

               (g) The Company agrees to use its reasonable best efforts to amend, subject to the approval thereof by the holders of (i) a majority of the shares of Common Stock then outstanding, voting as a separate class, and (ii) a majority of the shares of Preferred Stock then outstanding, voting as a separate class, the Certificate of Incorporation of the Company at the next meeting of the stockholders of the Company to provide that the shares of Preferred Stock shall have the right to vote, on an as-converted basis, on matters that are put to vote of holders of shares of Common Stock of the Company with such number of votes as the Holders shall have had the right to receive had such Holder converted its Preferred Stock into Common Stock immediately prior to the event date, and to provide that the Company will not, without the prior written consent of holders of 75% of the shares of Preferred Stock then outstanding, voting as a separate class, undertake any of the actions set forth in Section 6(f) above. In the event that such amendments to the Certificate of Incorporation are not obtained at such meeting of stockholders, the Company agrees that it will pay to the Investor $250,000.

               (h) The Company agrees that it will pay to CalPERs/PCG Corporate Partners, LLC the fees set forth in Schedule E hereof.

               (i) In the event of any offer made by the Company or any Affiliate of the Company, at the option of the Company, to repurchase or acquire less than all of the shares of Preferred Stock (a “Repurchase Offer”), the Investor shall be entitled to written notice of such Repurchase Offer no less than 15 days prior to the effective date of the repurchase that is the subject of the Repurchase Offer. Such notice shall state the price and all other terms and conditions upon which the Repurchase Offer is made, and the Investor shall be entitled to accept such Repurchase Offer and participate, on a pro rata basis, in such repurchase.

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          7. Restrictions on Transfer; Investor Covenants. The Investor hereby agrees that:

               (a) So long as the Investor owns any shares of Preferred Stock, it will not transfer, directly or indirectly, by operation of law or otherwise (including by merger), whether through offers to sell, contracts to sell, pledges, sales of any option or contract to purchase, grants of any option, right or warrant to purchase, the lending of or the entering into any swap or other agreements involving one or more parties, commonly known as “hedging,” in each case, that transfers to another, in whole or in part, any of the economic consequences of ownership of Preferred Stock or shares of Common Stock, whether any of such transactions is to be settled by delivery of shares of Preferred Stock, Common Stock or such other securities, in cash or otherwise. In addition, the Investor shall not sell, transfer or otherwise dispose of (“Transfer”) its Preferred Stock other than in accordance with applicable law, and then only:

               (i) to “qualified institutional buyers” in compliance with the exemption from registration provided by Rule 144A under the Securities Act (“Rule 144A”), to members or partners of the Investor who are Accredited Investors, to other Accredited Investors reasonably acceptable to the Company or otherwise in accordance with Schedule F hereto;

               (ii) in aggregate dollar denominations (which shall be an amount equal to the aggregate number of shares of Preferred Stock multiplied by the Liquidation Preference of such Preferred Stock as set forth in the Certificate) of at least $10 million, or integral multiples thereof, to any single purchaser;

               (iii) upon delivery to the Company of (1) a certificate duly executed by the Investor, as transferor, together with an opinion of counsel reasonably satisfactory to the Company, stating that such Transfer complies with the Securities Act, (2) an acknowledgement and agreement of the transferee to be bound by the terms and conditions of this Section 7 as if such transferee were an Investor and party to this Agreement, (3) a written statement executed by the transferee certifying that such transferee currently does not have any unwound position in any transaction that otherwise would be prohibited by Section 7(a), provided that in the event the transferee is an entity of which the purchaser is a division (the “Purchasing Division”) of a diversified financial institution that engages separately in investment and trading activities, such transferee institution will be exempt from Section 7(a) and from such certification in respect solely of the activities of the divisions of the transferee other than the Purchasing Division that are (A) separately operated as a corporate matter and (B) not permitted to, and not in fact engaging, or proposing to engage in, the activities described in Section 7(a) on behalf of or on concert with the Purchasing Division; and (4) a written representation from such transferee to the effect set forth in Sections 5(d), 5(e), 5(f) and 5(g) hereof; and

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               (iv) otherwise in compliance with and subject to the terms and conditions set forth in this Section 7, including the right of the Company to effect a repurchase pursuant to Section 7(c) below;

               (b) in the event that the Investor intends to effect any Transfer, it shall provide prior written notice (the “Transfer Notice”) thereof to the Company, at least 5 trading days prior to the date of the proposed Transfer (the “Transfer Date”), which Transfer Notice shall state the aggregate number of shares, aggregate dollar amount and the stock certificate number of the Preferred Stock proposed to be Transferred (the “Transfer Shares”);

               (c) from and after the Transfer Date, the Company shall have the option to repurchase, at any time and from time to time, out of lawfully available funds, all or a portion of the shares of Preferred Stock then outstanding that are Transfer Shares (other than Transfer Shares subject to Schedule F and other than Transfer Shares acquired by members or partners of the Investor who are Accredited Investors in accordance with this Section 7), at a repurchase price per share equal to 105% of the Liquidation Preference of the Preferred Stock, as set forth in the Certificate;

               (d) shares of Common Stock issued upon conversion of the Preferred Stock, and Subordinated Notes issued upon exchange of the Preferred Stock, shall bear appropriate legends as to restrictions on transfer (a “Restrictive Legend”);

               (e) upon the transfer, exchange or replacement of any Common Stock or Subordinated Notes bearing the Restrictive Legend, the Company (or its transfer agent or registrar) shall deliver only Common Stock or Subordinated Notes, as applicable, that bear the Restrictive Legend until such time as there shall have been delivered to the Company an opinion of counsel reasonably satisfactory to the Company to the effect that the Restrictive Legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act; and

               (f) the Investor will not provide, disclose or otherwise divulge any “Confidential Information” (as such term is defined in the Confidentiality Agreement, dated January 5, 2004, between the Company and Pacific Corporate Group (the “Confidentiality Agreement”)) to any transferee or potential transferee of any shares of Preferred Stock or shares of Common Stock held by it without the prior written consent of the Company.

          The Company agrees that nothing in the provisions of this Section 7 shall be deemed to prohibit or restrict any outright sale of both record and beneficial ownership of the Common Stock issuable upon conversion of the Preferred Stock, subject only to applicable law.

          8. Indemnification.

               (a) The Company agrees to indemnify, defend and hold harmless the Investor, its respective directors and officers, and any person who controls the Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, an “Investor Indemnified Party”), from and against any loss, damage, expense,

13

liability or claim (including the reasonable cost of investigation) which such Investor Indemnified Party may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any misrepresentation or breach of any representation, warranty, covenant or agreement by the Company in this Agreement.

               (b) The Investor agrees to indemnify, defend and hold harmless the Company, its directors and officers, and any person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a “Company Indemnified Party”), from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which such Company Indemnified Party may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any misrepresentation or breach of any representation, warranty, covenant or agreement by the Investor in this Agreement.

               (c) If any action, suit or proceeding (each, a “Proceeding”) is brought against any person in respect of which indemnity may be sought pursuant to subsection (a) or (b) of this Section 7, such person (the “Indemnified Party”) shall promptly notify the person against whom such indemnity may be sought (the “Indemnifying Party”) in writing of the institution of such Proceeding and such Indemnifying Party shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all fees and expenses; provided, however, that the omission to so notify such Indemnifying Party shall not relieve such Indemnifying Party from any liability which it may have to such Indemnified Party or otherwise. Such Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless the employment of such counsel shall have been authorized in writing by such Indemnifying Party in connection with the defense of such Proceeding or such Indemnifying Party shall not have employed counsel to have charge of the defense that is reasonably satisfactory to the Indemnified Party of such Proceeding within 60 days of the receipt of notice thereof or such Indemnified Party shall have reasonably concluded upon written advice of counsel that there may be defenses available to it that are different from, additional to, or in conflict with those available to such Indemnifying Party (in which case such Indemnifying Party shall not have the right to direct that portion of the defense of such Proceeding on behalf of such Indemnified Party, but such Indemnifying Party may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnifying Party), in any of which events such reasonable fees and expenses shall be borne by such Indemnifying Party and paid as incurred (it being understood, however, that such Indemnifying Party shall not be liable for the expenses of more than one separate counsel in any one Proceeding or series of related Proceedings together with reasonably necessary local counsel representing the Indemnified Parties who are parties to such Proceeding). An Indemnifying Party shall not be liable for any settlement or compromise of any such Proceeding effected without its written consent, but if settled or compromised with the written consent of such Indemnifying Party, such Indemnifying Party agrees to indemnify and hold harmless an Indemnified Party from and against any loss or liability by

14

reason of such settlement. An Indemnifying Party shall not, without the prior written consent of any Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which such Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such Indemnified Party.

               (d) The indemnity agreements contained in this Section 7 and the covenants, warranties and representations of the Company and the Investors contained in this Agreement shall remain in full force and effect (regardless, with respect to representations and warranties of the Company, of any investigation made by on behalf of the Investor, its respective directors or officers or any person who controls the Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, or by or on behalf of the Company, its directors and officers or any person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and shall survive any termination of this Agreement and the issuance and delivery of the shares of Preferred Stock.

          9. Effectiveness. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. The respective indemnities, agreements, representations, warranties and other statements of the Company and the Investor, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Investor or any controlling person of the Investor, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the shares of Preferred Stock.

          10. Fees and Expenses. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of the Agreement; provided, however, that the Company shall reimburse the Investor for reasonable and documented out-of-pocket expenses incurred in connection with the due diligence and legal review related to the transaction contemplated herein, not to exceed $750,000, on the Settlement Date.

          11. Amendment and Waiver.

               (a) This Agreement may be amended or modified only upon the written consent of the Company and holders of at least a majority of the shares of Preferred Stock outstanding (treated as if converted and including any shares of Common Stock into which the Preferred Stock have been converted).

               (b) The obligations of the Company and the rights of the holders of the shares of Preferred Stock under the Agreement may be waived only with the written consent of the holders of at least a majority of the shares of Preferred Stock outstanding (treated as if converted and including any shares of Common Stock into which the Preferred Stock have been converted).

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          12. Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any Investor’s part of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of the Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.

          13. Headings. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

          14. Parties in Interest. The Agreement herein set forth has been and is made solely for the benefit of the Investor and the Company and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, assigns, executors and administrators. No other person, partnership, association or corporation (other than a purchaser who acquires Preferred Stock or Common Stock pursuant to Section 7 hereof) shall acquire or have any right under or by virtue of this Agreement.

          15. Entire Agreement. This Agreement, the Exhibits and Schedules hereto, and the other documents delivered pursuant hereto or referred to herein, including the terms and provisions of the Confidentiality Agreement, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

          16. Counterparts. This Agreement may be signed by the parties in any number of counterparts that together shall constitute one and the same agreement among the parties. Delivery of an executed counterpart by facsimile shall be effective as delivery of a manually executed counterpart thereof.

          17. Notices. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by facsimile and, if to the Investor, shall be sufficient in all respects if delivered or sent to CalPERs/PCG Corporate Partners, LLC, c/o Pacific Corporate Group LLC, 1200 Prospect Street, Suite 200, La Jolla, CA 92037, Direct Phone: +1 (858) 456-3113, Direct Fax: +1 (858) 456-6018, Attention: Monte Brem, with a copy to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, California 90071, Attention Jennifer Bellah Maguire, Partner, facsimile no. (213) 229-7520, and, if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at 669 River Drive, Center 2, Elmwood Park, New Jersey 07407-1361, Attention: Andrew C. Corbin, Executive Vice-President and Chief Financial Officer, facsimile no. (201) 703-3401, with a copy to Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022, Attention: Creighton O’M Condon, Partner, facsimile no.: (212) 848-7179.

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          18. Governing Law and Construction. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. THE SECTION HEADINGS IN THIS AGREEMENT HAVE BEEN INSERTED AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS AGREEMENT.

          19. Submission to Jurisdiction. Except as set forth below, no Proceeding may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and the Company hereby consents to the jurisdiction of such courts and personal service with respect thereto. The Company hereby consents to personal jurisdiction, service and venue in any court in which any Proceeding arising out of or in any way relating to this Agreement is brought by any third party against the Investor. The Company and the Investor hereby waive all right to trial by jury in any Proceeding (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. The Company agrees that a final judgment in any such Proceeding brought in any such court shall be conclusive and binding thereupon and may be enforced in any other court in the jurisdiction to which the Company is or may be subject by suit upon such judgment.

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          If the foregoing correctly sets forth the understanding between the Company and the Investor, please so indicate in the space provided below for the purpose, whereupon this letter and your acceptance shall constitute a binding agreement between the Company and the Investor.

Very truly yours,
WEBMD CORPORATION
By:		/s/ Andrew C. Corbin
	Name:	Andrew C. Corbin
	Title:	Executive Vice-President and  Chief Financial Officer

Accepted and agreed to as of the date first above written:

CALPERS/PCG CORPORATE PARTNERS, LLC

By:  PCG Corporate Partners Investments LLC
Its:  Manager

     By:  Pacific Corporate Group Holdings, LLC
     Its:  Managing Member

              /s/ Christopher Bower

Name:  Christopher Bower

Title:    Chief Executive Officer

EXHIBIT A

Certificate of Designation

[See Exhibit 3.2 to this Annual Report on Form 10-K]

A-1

Exhibit B

Form of Indenture

[See Exhibit 3.2 to this Annual Report on Form 10-K]

B-1

Exhibit C

Registration Rights of the Investor
With Respect to Shares of Common Stock Underlying the Preferred Stock

ARTICLE 1
DEFINITIONS

     1.1 Certain Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Purchase Agreement of which this Exhibit C is a part. As used in this Exhibit C:

          (a) “Affiliate” means, with respect to any Person, any other Person which directly or indirectly, by itself or through one or more intermediaries, controls, or is controlled by, or is under direct or indirect common control with, such Person. For purposes of this Exhibit C, none of the Investors nor any of their Affiliates shall be deemed an Affiliate of the Company, and neither the Company nor any of its Affiliates shall be deemed an Affiliate of any Investor.

          (b) “Business Day” is a day other than a Legal Holiday.

          (c) “Certificate” means the Certificate of Designations pursuant to which the Preferred Stock is issued.

          (d) “Common Stock” means the shares of common stock, par value $0.0001 per share, of the Company.

          (e) “control” (including the term “controlled by”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

          (f) “Demand Requests” shall have the meaning set forth in Section 2.1(a) hereof.

          (g) “Demand Registration Statement” shall have the meaning set forth in Section 2.1(a) hereof.

          (h) “Effectiveness Period” shall have the meaning set forth in Section 2.2(c) hereof.

          (i) “Exchange Act” means the Exchange Act of 1934, as amended.

          (j) “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

          (k) “Holders” means the Investors and Permitted Holders, if any.

          (l) “Indemnified Persons” shall have the meaning set forth in Section 2.4(a) hereof.

          (m) “Investors” shall mean the parties identified as such in the Purchase Agreement.

          (n) “Legal Holiday” is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the City of New York, in the State of New York or in the city in which the Registrar or the applicable agent administers its corporate trust business.

          (o) “Notice Holders” shall have the meaning set forth in Section 2.1(a) hereof.

          (p) “Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

          (q) “Permitted Holder” means any Person to whom an Investor has assigned any of its rights under this Exhibit C in accordance with Section 2.6 of this Exhibit C.

          (r) “Purchase Agreement” means the purchase agreement, dated March 4, 2004, between the Company and the Investors named therein.

          (s) “Preferred Stock” means the Convertible Redeemable Exchangeable Preferred Stock, par value $0.0001 per share, of the Company.

          (t) “Register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

          (u) “Registrable Securities” means all or any portion of (i) the shares of Common Stock that are issued upon conversion of the Preferred Stock in accordance with its terms (the “Underlying Common Stock”) and (ii) any shares of Common Stock that are issued in satisfaction of the Company’s right to redeem shares of Preferred Stock in accordance with the terms of the Certificate (the “Redemption Common Stock”), until the earlier of (1) the date on which such Underlying Common Stock or Redemption Common Stock, as the case may be, has been registered under the Securities Act and disposed of pursuant to an effective registration statement or (2) the date on which all legends restricting transfers of such Underlying Common Stock or Redemption Common Stock have been removed from the related certificates and, if requested by the Holder, the Company shall have delivered to such Holder an opinion of outside counsel reasonably acceptable to such Holder to the effect that the removal of such legend is in accordance with applicable securities laws.

          (v) “SEC” means the U.S. Securities and Exchange Commission.

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          (w) “Securities Act” means the Securities Act of 1933, as amended.

          (x) “Suspension Condition” shall have the meaning set forth in Section 2.2(f) hereof.

          (y) “Suspension Period” shall have the meaning set forth in Section 2.2(f) hereof.

ARTICLE 2
REGISTRATION RIGHTS

     2.1 Demand Registration.

          (a) Subject to Section 2.2(a), if, at any time on or after March 19, 2006, the Company shall receive from the Holders, a written request signed by the Holders of at least 40% of the then outstanding Underlying Common Stock and Redemption Common Stock, if any, determined as one class (a “Demand Request”), which Demand Request shall be forwarded by the Company to all Holders, that the Company register under the Securities Act all or any portion of the Registrable Securities, then the Company shall use its reasonable best efforts to cause the Registrable Securities specified in such Demand Request to be registered as soon as reasonably practicable so as to permit the offering and sale thereof by such Holders (the “Notice Holders”) and, in connection therewith, shall, as soon as reasonably practicable, but in any event not later than sixty (60) days (excluding any days which occur during the period of a permitted Suspension Condition pursuant to Section 2.2(f) below) after receipt of a Demand Request, prepare and file with the SEC a registration statement (which may be a shelf registration statement on Form S-3, if such Form S-3 is available for use by the Company) to effect the registration and distribution of the Registrable Securities pursuant to Rule 415(a)(1)(i) under the Securities Act (a “Demand Registration Statement”); provided however that in no event shall the Company be obligated to prepare and file any Demand Registration Statement with respect to less than 20% of the shares of Registrable Securities originally issued; provided further that in the event that the Company or its successor thereto ceases to be a company subject to or in compliance with Section 13 or 15(d) of the Exchange Act, any such Demand Request may, at the option of the Holders and subject to the provisions hereof, be delivered to the Company immediately.

          (b) Each Demand Request shall: (i) specify the number of Registrable Securities intended to be offered and sold by the Notice Holders pursuant thereto; (ii) describe the nature or method of distribution of such Registrable Securities pursuant to such Demand Registration Statement; and (iii) contain the undertaking of the Notice Holders to provide all such information and materials and take all such actions as may be required in order to permit the Company to comply with all applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the SEC thereunder.

     2.2 Registration Procedures, Rights and Obligations. The procedures to be followed by the Company and the Holder, and the respective rights and obligations of the Company and the Holder, with respect to the preparation, filing and effectiveness of the Demand Registration Statement and the distribution of Registrable Securities pursuant thereto, are as follows:

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          (a) The Holders, collectively, shall be entitled to make a maximum of two (2) Demand Requests that result in the actual registration of Registrable Securities.

          (b) Any Demand Request that does not result in the corresponding Demand Registration Statement being declared effective by the SEC shall not be counted against the maximum of two (2) Demand Requests to which the Holders are entitled. Any Demand Request that is withdrawn by the Holders for any reason (other than as a result of a materially adverse development on the part of the Company) shall count for purposes of determining the Demand Request to which the Holders are entitled.

          (c) The Company shall use its reasonable best efforts to cause the Demand Registration Statement to be declared effective by the SEC promptly and to keep such Demand Registration Statement continuously effective until the earliest to occur of: (i) the sale or other disposition of all the Registrable Securities so registered; and (ii) the date which is 180 days from the date on which such Demand Registration Statement was declared effective by the SEC (the “Effectiveness Period”). The Company shall prepare and file with the SEC such amendments and supplements to the Demand Registration Statement and prospectus used in connection therewith as may be necessary to make and to keep such Demand Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities proposed to be distributed pursuant thereto during the Effectiveness Period. The Company shall, to the extent reasonably practicable, at least three (3) Business Days prior to filing any Demand Registration Statement or prospectus or any amendments or supplements thereto, furnish to the Notice Holders and its counsel copies of all such documents proposed to be filed and the Notice Holders shall have the opportunity to comment on any information pertaining solely to it and its plan of distribution that is contained therein and the Company shall make the corrections reasonably requested by the Notice Holders with respect to such information prior to filing any such Demand Registration Statement or amendment.

          (d) The Notice Holders named as selling securityholders in any Demand Registration Statement shall not be entitled to offer or sell any securities pursuant to such Demand Registration Statement unless and until the Company has made all required filings with the SEC with respect to the distribution of the Registrable Securities, such filings have become effective, and the Company has notified the Notice Holders so named of the foregoing and that no Suspension Condition then exists. The Company agrees to make all of such required filings, if any, and to use its reasonable best efforts to cause them to so become effective.

          (e) Notwithstanding any other provisions of this Exhibit C, in the event that the Company receives the Demand Request, at a time when the Company (i) has commenced, or has a bona fide intention to commence, a public securities offering transaction, or (ii) non-public material information not otherwise then required by law to be publicly disclosed regarding the Company exists, the immediate disclosure of which would be significantly disadvantageous to the Company, then the Company shall be entitled to suspend, for an aggregate period of up to thirty (30) days after the receipt by the Company of such Demand Request, the filing of any Demand Registration Statement (each of the events or conditions referred to in clauses (i) and (ii) of this sentence is hereinafter referred to as a “Blackout Event”).

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          (f) Notwithstanding any other provision of this Exhibit C, in the event that the Company’s board of directors determines that: (i) the prospectus constituting a part of any Demand Registration Statement covering the distribution of any Registrable Securities contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (ii) an offering of Registrable Securities would materially and adversely affect or interfere with any proposed material acquisition, disposition or other similar corporate transaction or event involving the Company (each of the events or conditions referred to in clauses (i) and (ii) of this sentence is hereinafter referred to as a “Suspension Condition”), then the Company shall have the right to suspend the filing or effectiveness of any Demand Registration Statement required pursuant to Section 2.1, or to suspend any distribution of Registrable Securities pursuant thereto for an aggregate period of up to forty-five (45) days (such period hereinafter referred to as a “Suspension Period”) after the delivery of notice from the Company to the Holders of the existence of any Suspension Condition; provided that the 180-day period during which a Demand Registration Statement is required to be declared effective in accordance with the terms of this Exhibit C shall be extended by the duration of any Suspension Period and any additional period during which the amendment or supplement to the prospectus relating to such Demand Registration Statement referred to below has not been delivered. Upon receipt of notice from the Company of the existence of any Suspension Condition, the Holders shall forthwith discontinue to offer or sell Registrable Securities (in the event that such Demand Registration Statement has been declared effective at the time the Notice Holders receive notice that a Suspension Condition has arisen). In the event that the Notice Holders had previously commenced or were about to commence the distribution of Registrable Securities pursuant to a prospectus under an effective Demand Registration Statement then the Company shall, promptly after the Suspension Condition ceases to exist, make available to the Notice Holders an amendment or supplement to such prospectus. If so directed by the Company, the Notice Holders shall deliver to the Company all copies, other than permanent file copies then in the Notice Holders’ possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice.

          (g) The Company shall promptly notify the Notice Holders of any stop order, injunction or other order or requirement of the SEC issued or, to the Company’s knowledge, threatened to be issued by the SEC with respect to any Demand Registration Statement in which such Notice Holders are named as selling securityholders and will use its reasonable best efforts to prevent the entry of such stop order, injunction or other order or requirement of the SEC or to remove it if entered at the earliest possible date.

          (h) The Company shall furnish to the Notice Holders such number of copies of any prospectus, including any preliminary prospectus and any amended or supplemented prospectus (including in each case all exhibits), in conformity with the requirements of the Securities Act, in which such Notice Holders are named as selling securityholders, as such Notice Holders shall reasonably request in order to effect the offering and sale of any Registrable Securities to be offered and sold.

          (i) The Company shall use its reasonable best efforts to register or qualify the Registrable Securities covered by the Registration Statement under the state securities or “blue sky” laws of such jurisdictions as the Notice Holder shall reasonably request, to keep such

C-5

registration or qualification in effect for so long as such Registration Statement remains in effect, and to take any other action which may be reasonably necessary to enable the Notice Holder to consummate the disposition in such jurisdiction of the Registrable Securities owned by the Notice Holder until the earlier to occur of: (i) the sale or other disposition of the Registrable Securities so registered; and (ii) in the case of a Demand Registration Statement, until the date which is 180 days from the date on which such Registration Statement was declared effective by the SEC; provided, however, that the Company shall not be required to take any action that would subject it to the general jurisdiction of the courts of any jurisdiction in which it is not so subject or to qualify as a foreign corporation in any jurisdiction where the Company is not so qualified.

          (j) The Company shall use its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of any Demand Registration Statement at the earliest possible time.

     2.3 Expenses. All fees and expenses incurred in connection with any Demand Registration Statement, including without limitation all registration, filing and qualification fees, printers’ and accounting fees, fees of the National Association of Securities Dealers, Inc. or listing fees, and all fees and expenses of complying with state securities or “blue sky” laws and the fees and disbursements of counsel for the Company shall be paid by the Company, except that the Holders shall bear and pay any and all fees and expenses incurred in respect of counsel or other advisors to the Holders.

     2.4 Indemnification.

          (a) In the case of any offering registered pursuant to this Exhibit C, to the extent permitted by law, the Company shall indemnify and hold harmless each Notice Holder named as a selling securityholder in the Demand Registration Statement and each of its officers and directors and each person who controls such Notice Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such person being sometimes referred to as an “Indemnified Person”) against any losses, claims, damages, expenses or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Demand Registration Statement under which such Registrable Securities are to be registered under the Securities Act, or any prospectus contained therein or furnished by the Company to any Indemnified Person, or any amendment or supplement thereto, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and the Company hereby agrees to reimburse such Indemnified Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Demand Registration Statement or prospectus, or amendment or supplement, in reliance upon and in conformity with written

C-6

information furnished to the Company by such Indemnified Person expressly for use therein; provided, further, however, that the Company shall not be liable to any indemnified party in any such case to the extent that such loss, damage, expense, liability or claim (i) arises from an offer or sale by such Notice Holder of Registrable Securities occurring during a Suspension Period, if the indemnified party is a Notice Holder that received from the Company a notice of commencement of any Suspension Period prior to the making of such offer or sale or (2) the Holder fails to deliver at or prior to written confirmation of sale, the most recent prospectus, as amended or supplemented, and such prospectus, as amended or supplemented, would have corrected such untrue statement or omission or alleged untrue statement or omission of a material fact and the Company had previously provided to such Notice Holder such most recent prospectus, as amended or supplemented, in a timely manner and in requisite quantities so as to timely permit such delivery by the Notice Holder.

          (b) Each Notice Holder named as a selling securityholder in any Demand Registration Statement agrees, as a consequence of the inclusion of any of such Notice Holder’s Registrable Securities in such Demand Registration Statement, and each underwriter, selling agent or other securities professional, if any, which facilitates the disposition of Registrable Securities shall agree, as a consequence of facilitating such disposition of Registrable Securities, severally and not jointly, to (i) indemnify and hold harmless the Company, its directors, officers who sign any Demand Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company or such other persons may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, expenses or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such Demand Registration Statement or prospectus, or any amendment or supplement, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Notice Holder, underwriter, selling agent or other securities professional expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred.

          (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under this Section 2.4, notify such indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under the indemnification provisions of or contemplated by subsection (a) or (b) above. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), including the payment of all fees and expenses. Such indemnified party shall have the

C-7

right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the employment of such counsel shall have been authorized in writing by such indemnifying party in connection with the defense of such proceeding or such indemnifying party shall not have employed counsel to have charge of the defense that is reasonably satisfactory to the indemnified party of such proceeding within 60 days of the receipt of notice thereof or such indemnified party shall have reasonably concluded upon written advice of counsel that there may be defenses available to it that are different from, additional to, or in conflict with those available to such indemnifying party (in which case such indemnifying party shall not have the right to direct that portion of the defense of such proceeding on behalf of such indemnified party, but such indemnifying party may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnifying party), in any of which events such reasonable fees and expenses shall be borne by such indemnifying party and paid as incurred (it being understood, however, that such indemnifying party shall not be liable for the expenses of more than one separate counsel in any one proceeding or series of related proceedings together with reasonably necessary local counsel representing the indemnified parties who are parties to such proceeding). An indemnifying party shall not be liable for any settlement or compromise of any such proceeding effected without its written consent, but if settled or compromised with the written consent of such indemnifying party, such indemnifying party agrees to indemnify and hold harmless an indemnified party from and against any loss or liability by reason of such settlement. An indemnifying party shall not, without the prior written consent of any indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.

          (d) If the indemnification provided for in this Section 2.4 is unavailable to an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The relative benefit to such indemnifying party and indemnified party shall be determined in such proportion as is appropriate to reflect the benefits received by the Company on the one hand and the Notice Holders on the other hand from the offering of the Registrable Securities. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.4(d) were determined by pro rata allocation (even if the Notice Holders or any underwriters, selling agents or other securities professionals or all of them were treated as

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one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 2.4(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Notice Holders and any underwriters, selling agents or other securities professionals in this Section 2.4(d) to contribute shall be several in proportion to the percentage of principal amount of Registrable Securities registered or underwritten, as the case may be, by them and not joint.

          (e) The agreements contained in this Section 2.4 shall survive the transfer of the Registered Securities by the Holders and sale of all the Registrable Securities pursuant to any Demand Registration Statement and shall remain in full force and effect, regardless of any investigation made by or on behalf of the Holders or such director, officer or participating or controlling Person.

     2.5 Information by the Holder. The Holder shall furnish to the Company such information regarding it in the distribution of Registrable Securities proposed by such Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Article 2.

ARTICLE 3
MISCELLANEOUS

     3.1 Amendment. The provisions of this Exhibit C may not be amended, modified or supplemented except (a) by an instrument in writing signed by, or on behalf of, the Company and each Investor or (b) by a waiver in accordance with Section 3.3.

     3.2 Waiver. No provision of this Exhibit C may be waived except as set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Exhibit C. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any such rights.

     3.3 Assignment of Registration Rights. The registration rights set forth in this Exhibit C may be transferred or assigned by an Investor to purchasers of the Preferred Stock or the Registrable Securities; provided that such purchasers of the Preferred Stock or Registrable Securities, as the case may be, agree in writing (i) to be subject to the transfer restrictions applicable to the Preferred Stock and shares of Common Stock issuable upon conversion thereof, as set forth in the Purchase Agreement, and (ii) to otherwise comply with the provisions of this Exhibit C.

     3.4 Severability. Solely in respect of this Exhibit C and not in respect of the provisions within the Purchase Agreement, in the event that any provision of this Exhibit C or

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the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Exhibit C will continue in full force and effect and the application of such provision to other Persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Exhibit C with a valid and enforceable provision that will achieve, to the greatest extent possible, the economic, business and other purposes of such void or unenforceable provision.

     3.6 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Exhibit C 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 equity, without the necessity of demonstrating the inadequacy of money damages.

C-10 EX-10.44 5 g87450exv10w44.htm EX-10.44 EMPLOYMENT AGMT DATED 9/11/2000

Exhibit 10.44

MEDICAL MANAGER CORPORATION
669 River Drive, Center 2
Elmwood Park, New Jersey 07407

September 11, 2000

Kirk Layman
499 Wyndam Road
Teaneck, NJ 07666

Dear Kirk:

     As you know, it is anticipated that, on September 12, 2000, Medical Manager Corporation (the “Company”) will merge (the “Merger”) with Healtheon/WebMD Corporation (“WebMD”). The Company recognizes that the uncertainty and questions that might arise among management in the context of the Merger could result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. To induce you to remain in its employ, the Company has decided to enter into this agreement (the “Letter Agreement”) to confirm the following terms and conditions with respect to your continued employment with the Company:

     1. Term. The term of this Letter Agreement (the “Term”) begins on the date of this Letter Agreement and ends on the fifth anniversary thereof.

     2. Title. Your title is Senior Vice President - Finance and Chief Accounting Officer of the Company. It is expected that you will use your best and most diligent efforts to promote the interests of the Company and its affiliates and will devote all of your business time and attention to your employment with the Company.

     3. Base Salary and Bonus.

     (a) Your annual base salary is $260,000 (as it may be increased, “Base Salary”) and will be paid in accordance with the Company’s prevailing payroll practices.

     (b) You will be eligible to participate in any WebMD bonus plan, as any such plan may be modified from time to time, on terms commensurate with those applicable to officers and such participation shall be at a level that is no lower than the level applicable to individuals who hold your title (i.e. “Senior Vice President” or such more senior title which you may hold from time to time), as set forth in Section 2 above.

     4. Benefits. You will continue to be eligible to participate in the employee benefit programs of the Company in accordance with the terms of such programs, as they may be amended from time to time.

     5. Termination of Employment.

     (a) In the event that, during the Term, your employment is terminated by the Company without Cause (as defined in the attached Annex A), by you for Good Reason (as defined in Annex A) or as a result of your death or your becoming Disabled (as defined in Annex A) (any of the foregoing, a “Qualifying Termination”), the Company will continue to pay your Base Salary to you for a period of one year from the date of termination.

     (b) In the event that a Qualifying Termination occurs during or after the Term, any options to purchase shares of the Company’s or CareInsite’s common stock granted to you on or prior to June 5, 2000 that are not vested at the time of such Qualifying Termination will vest in full upon such Qualifying Termination and such options together with any options that were already vested prior to the time of such Qualifying Termination will remain exercisable for a period of one year from the date of such Qualifying Termination or, with respect to all such options granted prior to June 5, 2000, for a period of three years, if such termination occurs after Martin J. Wygod is no longer Chairman, Co-CEO or a senior executive officer of WebMD.

     (c) Notwithstanding anything to the contrary in this Letter Agreement, the exercisability of any stock option will not extend beyond the expiration of the original term of such stock option.

     (d) If a Qualifying Termination occurs during the Term and you elect to continue health insurance under the Company’s group health plan pursuant to the federal “COBRA” law, the Company will continue to pay, for a period of one year from the date of your termination, that portion of the premium that is paid by the Company for active and similarly-situated employees who receive the same type of coverage. The remaining balance of any premium costs, and all premium costs after the one-year period, will be paid by you on a monthly basis for as long as, and to the extent that you remain eligible for COBRA continuation. You agree to promptly notify the Company if you obtain employment that provides health insurance coverage or you other wise become eligible for employer-sponsored health insurance coverage.

     (e) If a Qualifying Termination occurs during the Term, the Company will provide outplacement services through Lee Hecht Harrison or such other nationally recognized outplacement firm as the Company may select.

     6. Effect on Prior Agreements.

     (a) You will continue to be bound by, and you hereby reaffirm your obligations under, your Key Employee Agreement, except that you hereby agree that the period during which you are bound by such agreement not to compete with the Company or not to solicit the Company’s customers or employees is extended to the second anniversary of the date on which your employment terminates. In the event of a material breach of such agreement, the Company’s obligations under this Letter Agreement will cease.

     (b) This Letter Agreement supplements any prior agreement affecting the terms of your employment with the Company, except that if the terms of this Letter Agreement and any such prior agreement are inconsistent, the terms of the Letter Agreement will prevail.

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Notwithstanding the foregoing, the terms of the Stock Option Agreement dated August 21, 2000 between you and the Company relating to the grant by the Company to you of options to purchase 40,000 shares of the Company’s common stock shall govern the terms of such grant.

     7. Miscellaneous.

     (a) All payments to you will be subject to applicable tax withholding obligations.

     (b) The terms of this Letter Agreement will be governed by the laws of the State of New Jersey.

     (c) The headings contained in this Letter Agreement are for reference purposes only and do not affect the meaning or interpretation of the Letter Agreement.

     (d) Any provisions of this Letter Agreement, which by their terms are intended to survive the Term, shall survive the expiration of the Term.

     (e) This agreement shall be binding on any successors of the Company, including WebMD.

     We look forward to continuing our working relationship. If you have any questions, please feel free to contact me at (201) 703-3408.

Sincerely,
By:	/s/ Anthony Vuolo
	Anthony Vuolo
	Senior Vice President - Corporate Development

Agreed to: /s/ Kirk Layman
Kirk Layman

 3

Annex A to Letter Agreement

     “Cause” means (i) your repeated failure to perform your duties in any material respect following notice and a reasonable period of time to correct such failure, (ii) your engaging in any act of dishonesty that is materially and demonstrably injurious to the Company, (iii) any material breach by you of your Key Employee Agreement, as amended hereby or (iv) your conviction of a felony in respect of a dishonest or fraudulent act or other crime of moral turpitude involving the Company.

     “Disabled” means, during your employment with the Company, (i) you become ill, mentally or physically disabled, or otherwise incapacitated so as to be unable regularly to perform the duties of your position for a period in excess of 90 consecutive days or more than 120 days in any consecutive 12 month period, or (ii) a qualified independent physician determines that you are mentally or physically disabled so as to be unable to regularly perform the duties of your position and such condition is expected to be of a permanent duration.

     “Good Reason” means any of the following conditions or events that remain in effect 20 days after written notice is provided by you to the Company detailing such condition or event: (i) a “material reduction in your duties” with the Company, (ii) any reduction in Base Salary or material fringe benefits provided by the Company, (iii) any material breach by the Company of the Letter Agreement or (iv) the relocation of your place of work to a location more than 25 miles from your work location as of the date of the Letter Agreement. For purposes hereof, “a material reduction in the duties” means a substantive reduction in duties, not a change in title or reporting hierarchy occurring as a result of the Merger.

 4

EX-3.2

EX-3.2 CERTIFICATE OF DESIGNATIONS

EX-4.9

EX-4.9 CONVERTIBLE REDEEMABLE EXCHANGEABLE

EX-10.44

EX-10.44 EMPLOYMENT AGMT DATED 9/11/2000

EX-10.46

Exhibit 10.46

[WebMD Letterhead]

August 20, 2001

Wayne Gattinella
257 Riversville Road
Greenwich, CT 06831

Dear Wayne:

I am pleased to provide you this letter, which sets forth the terms of your employment with WebMD Corporation (the “Company”).

• Your employment with the Company will commence on August 20, 2001.

• Your title will be President—Consumer Services, and you will report to the Chief Executive Officer—Consumer Services or his designee. Your duties will include (i) marketing strategy and execution, which will encompass consumers and sponsors and include product marketing and advertising and communication, distribution, customer management and customer support and (ii) such other reasonable duties and responsibilities as may be determined by the Company. You will use your best and most diligent efforts to promote the interests of the Company and its Affiliates (as defined on Annex A attached) and devote all of your business time and attention to your employment with the Company.

• In consideration of your services, your annual base salary will be $400,000 and will be paid in accordance with the Company’s prevailing payroll practices.

• You will receive a one-time signing bonus of $60,000 within thirty days of the date of this letter. In addition, you will be eligible to participate in any bonus plan instituted for similarly situated employees of the Company. The amount of bonus paid to you under any such plan will be determined by the Company in its sole discretion.

• You will be eligible to participate in the employee benefit programs of the Company in accordance with the terms of such programs. Specifics of such arrangements will follow under separate cover.

• You will be covered by the Company’s director and officer (D&O) insurance policy to the same extent as other similarly situated employees of the Company.

• On the first day of your employment (the “date of grant”), subject to the approval of the Compensation Committee of the Board of Directors, you will be granted a nonqualified option (the “Option”) to purchase 600,000 shares of the Company’s

Common Stock, which will be subject to the terms and conditions of the Company’s stock option plan and standard option agreement. The exercise price will be the closing price of the Company’s stock on the date of grant. The Option will vest, so long as you remain employed by the Company (except as set forth below), as follows: 25% of the Option on each of the first, second, third and fourth anniversaries of the date of grant (full vesting therefore occurring on the fourth anniversary of the date of grant).

• You acknowledge that you will be required to travel to the extent reasonably necessary in the performance of your duties to the Company. Pursuant to its customary policies, the Company will reimburse you for all authorized expenses properly and reasonably incurred by you on behalf of the Company or its Affiliates in the performance of your duties.

• In the event that your employment is terminated by the Company without Cause or by you for Good Reason (as defined on Annex A attached), subject to your execution of a release in favor of the Company and its affiliates, subsidiaries, parent companies, officers, directors, employees, agents, representatives, successors and assigns (collectively, “Company Persons”) and in a form reasonably satisfactory to the Company and your not having violated any term of the Key Employee Agreement, (i) the Company will continue to pay you your base salary for a period of one year from the date of termination and (ii) the Option, to the extent unvested, will remain outstanding and continue to vest as if you remained an employee of the Company until the first anniversary of the date of termination. In the event of the termination of your employment for any other reason, you will receive your compensation through the date of termination.

• In the event of a Change of Control (as defined on Annex A attached), subject to your remaining in the employ of the Company until the first anniversary of the date of such Change of Control (the “Change of Control Anniversary Date”) and your not having violated any term of the Key Employee Agreement, 75% of any portion of the Option that is unvested as of the date of such Change of Control Anniversary Date will vest on the Change of Control Anniversary Date. In addition, in the event of a Change of Control, if prior to the Change of Control Anniversary Date either (a) your employment is terminated by the Company without Cause or (b) you resign as an employee of the Company for Good Reason, subject to your execution of a release in favor of the Company and the Company Persons and in a form reasonably satisfactory to the Company and your not having violated any term of the Key Employee Agreement, 75% of any portion of the Option that is unvested as of the date of such termination or resignation will vest on the date of such termination or resignation.

• All payments will be subject to applicable tax withholding obligations.

• You will be required to sign the enclosed standard Key Employee Agreement on or prior to your first day of employment.

• By signing the acknowledgement below, you represent to the Company that you are not subject to any agreement that would limit your ability to perform your duties to the Company. You also agree not to share with the Company any “Proprietary Information” of your current employer or violate any other terms of any agreement with your current employer.

• The terms of this letter agreement will be governed by the laws of the State of New Jersey.

Sincerely,
 

/s/ David C. Amburgey

David C. Amburgey
Senior Vice President

Agreed To:

/s/ Wayne Gattinella

Wayne Gattinella

ANNEX A

“Cause” means your conviction of, or plea of guilty to, a felony or act of fraud directed against the Company or that is demonstrably injurious to the Company or any of its subsidiaries or affiliates.

“Good Reason” means (a) a substantive and material reduction in your duties (not including a change in title or reporting hierarchy), (b) a reduction in your base salary, or (c) the relocation of your principal place of employment to a location that is more than sixty miles from your current residence in Greenwich, Connecticut, provided in the case of each of (a), (b) and (c) that you provide the Company with written notice of the occurrence of such “Good Reason” event and such event is not cured by the Company within 60 days of such notice.

A “Change of Control” of the Company shall be deemed to have occurred if:

(a)	Both (i) any person, entity or group shall have acquired at least 50% of the voting power of the outstanding voting securities of the Company, excluding Martin J. Wygod and his Affiliates (as defined below), and (ii) immediately following such acquisition, Martin J. Wygod shall no longer be the Chairman of the Board (or Co-Chairman) or Chief Executive Officer (or Co-Chief Executive Officer) of the purchaser; or
(b)	Both (i) a reorganization, merger or consolidation (“Business Combination”) or sale or other disposition of all or substantially all of the assets of the Company (“Asset Sale”) shall have occurred and (ii) immediately following such Business Combination or Asset Sale, Martin J. Wygod shall no longer be the Chairman of the Board (or Co-Chairman) or Chief Executive Officer (or Co-Chief Executive Officer) of the entity resulting from such Business Combination, in the case of a Business Combination, or the acquirer, in the case of an Asset Sale; or
(c)	Both (i) either (a) any person, entity or group shall have acquired at least 50% of the voting power of the outstanding voting securities of the Company’s consumer Internet portal business, excluding Martin J. Wygod and his Affiliates (“Stock Purchase”) or (b) a reorganization, merger or consolidation (“Business Combination”) or sale or other disposition of all or substantially all of the assets of the Company’s consumer Internet portal business (“Asset Sale”) shall have occurred and (ii) immediately following such Stock Purchase, Business Combination or Asset Sale, Martin J. Wygod shall no longer be the Chairman of the Board (or Co-Chairman) or Chief Executive Officer (or Co-Chief Executive Officer) of either (a) the purchaser, in the case of a Stock Purchase, the entity resulting from such Business Combination, in the case of

a Business Combination, or the acquirer, in the case of an Asset Sale, or (b) an “Affiliate” of such purchaser, resulting entity or acquirer. An “Affiliate” of a purchaser, resulting entity or acquirer shall mean a person or entity that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such purchaser, resulting entity or acquirer.

KEY EMPLOYEE AGREEMENT

     In consideration of my employment by WebMD Corporation, and any of its corporate parents, subsidiaries, divisions, or affiliates, or the successors or assigns of any of the foregoing (hereinafter collectively referred to as “Employer”), I hereby agree as follows:

     1. Property Rights. All data, concepts, ideas, designs, findings, discoveries, inventions, improvements, advances, methods, formulas, plans, programs (computer or otherwise), practices, techniques, developments and relationships with customers and prospective customers relating in any way to the present and/or contemplated products, services, or business of the Employer (collectively “Developments”) that I may conceive, make, invent or suggest as a result of my employment by the Employer, whether acting alone or in conjunction with others, shall be the sole and absolute property of the Employer free of any rights of any kind on my part. During my employment and thereafter, I will promptly make full disclosure of all Developments to the Employer. I agree to do all acts and things (including, among others, the execution and delivery of patent and copyright applications and instruments of assignment) deemed by the Employer to be necessary or desirable at any time in order to effect the full assignment to the Employer of my rights, if any, to such Developments.

     2. Covenant Against Use and Disclosure. I recognize that in connection with my employment, I may learn of, and/or it may be desirable or necessary for the Employer to disclose to me confidential information (“Confidential Information”). I understand that Confidential Information is valuable and proprietary to the Employer (or to third parties that have entrusted the Confidential Information to the Employer). I agree that, except as required by my employment with the Employer, I will not at any time, directly or indirectly, use, publish, communicate, describe, disseminate, or otherwise disclose Confidential Information to any person or entity without the express prior written consent of the Employer. The term Confidential Information shall include, but shall not be limited to: (a) specifications, manuals, software in various stages of development; (b) customer and prospect lists, and details of agreements and communications with customers and prospects; (c) sales plans and projections, product pricing information, acquisition, expansion, marketing, financial and other business information and existing and future products and business plans of the Employer; (d) sales proposals, demonstrations systems, sales material; (e) research and development; (f) computer programs; (g) sources of supply; (h) identity of specialized consultants and contractors and Confidential Information developed by them for the Employer; (i) purchasing, operating and other cost data; (j) special customer needs, cost and pricing data; and (k) employee information (including, but not limited to, personnel, payroll, compensation and benefit data and plans), including all such information recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs, formula books, data, specifications, software programs and records, whether or not legended or otherwise identified by the Employer as Confidential Information, as well as such information that is the subject of meetings and discussions and not recorded. Confidential Information shall not include such information that is generally available to the public (other than as a result of a disclosure by me) or that is disclosed to me by a third party under no obligation to keep such information confidential.

     3. Return of Documents. Upon the termination of my employment with the Employer or upon the Employer’s request, whichever is sooner, I shall immediately deliver to the Employer all plans, designs, drawings, specifications, listings, manuals, records, notebooks, and similar repositories of or containing Confidential Information or other data relating to the Employer’s products, services, or business then in my possession or control or available from other persons receiving such documents from me, whether prepared by me or others. I shall not retain any copies or abstracts of any such documents.

     4. Restrictions Against Solicitation and Inducement. During my employment and for a period of one (1) year after the termination of my employment, for any reason, I will not, on behalf of myself or any other person, firm, or organization, directly or indirectly, (i) induce, or attempt to induce any employees or consultants of the Employer to do anything from which I am restricted by reason of this Agreement, (ii) offer or aid others to offer employment to, or hire, any employees or consultants of the Employer, and/or (iii) contact or solicit any of the Employer’s customers or targeted potential customers for the purpose of offering products or services that directly or indirectly compete or interfere with the business of the Employer.

     5. Restrictions on Competitive Employment. During my employment and for a period of one (1) year after the termination of my employment, for any reason, I will not (as principal, agent, employee, consultant or otherwise), anywhere in the United States and Canada, directly or indirectly, without the prior written approval of the Employer, (i) engage in competition with the Employer or (ii) develop products or services which are competitive with those of the Employer on or prior to the date of termination (collectively, “Competitive Business”). Notwithstanding the foregoing, I understand that I may have an interest consisting of publicly traded securities constituting less than 1 percent of any class of publicly traded securities in any public company engaged in a Competitive Business so long as I am not employed by and do not consult with, or become a director of or otherwise engage in any activities for, such company. The one year period referred to above shall be extended by the length of any period during which I am in breach of the terms of this paragraph.

     6. Compliance Not Contingent Upon Additional Consideration. I have not been promised, and I shall not claim, any additional or special payment for any of the covenants and agreements contained in this Agreement.

     7. Continuation of Employment. Except as may be limited by the letter agreement dated August 20, 2001 between the Company and me, this Agreement does not constitute a contract of employment or an implied promise to continue my employment or status with the Employer; nor does this Agreement affect my rights or the rights of the Employer to terminate my employment status at any time with or without cause.

     8. Severability. In light of the possibility of a change of conditions or differing interpretations by a court of what is fair and reasonable, I agree that if any one or more of the terms, provisions, covenants, or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement shall remain in full force and effect and

shall in no way be affected, impaired, or invalidated; further, if any one or more of the terms, provisions, covenants or restrictions contained in this Agreement shall for any reason be determined by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity, or subject, it shall be construed, by limiting or reducing it, so as to be enforceable to the maximum extent compatible with then applicable law.

     9. Acknowledgment of Federal Securities Laws. I acknowledge that in the course of my employment with the Employer, I may have received, and may hereafter receive, material non-public information about the Employer which may include possible transactions involving the Employer which have not been publicly disclosed, such as potential acquisitions or other business ventures. If I receive or become aware of any confidential information concerning another company or its business in connection with any such transaction, I agree to hold that information in confidence to the same extent that the Employer is required to do so. I AGREE THAT I WILL NOT DISCLOSE INFORMATION REGARDING ANY SUCH TRANSACTION OR ANY SUCH CONFIDENTIAL INFORMATION TO ANY THIRD PARTY INCLUDING ANY SPOUSE OR FAMILY MEMBERS. I HAVE ALSO BEEN REMINDED THAT TRADING SECURITIES OF THE EMPLOYER OR ANY OTHER PUBLIC COMPANY WHILE IN THE POSSESSION OF NON-PUBLIC MATERIAL INFORMATION MAY CONSTITUTE A VIOLATION OF FEDERAL SECURITIES LAWS. I also confirm that I will not trade in any securities of the Employer while in possession of material non-public information, or its affiliates or any other company which may be involved in such transaction, or disclose such material non-public information to any third party, unless and until I receive permission from General Counsel of the Employer.

     10. Governing Law. This Agreement shall be construed in accordance with and governed for all purposes by the laws and public policy of the State of New Jersey, without regard to principles of conflict of laws. I acknowledge that breach of this Agreement would cause grave and irreparable injury to the Employer which would not be compensable in money damages, and therefore, in addition to the Employer’s other express or implied remedies, the Employer shall be entitled to injunctive and other equitable relief to prevent any actual intended or likely injuries that may result from such breach. However, nothing in this Agreement shall limit any other right or remedy to which the Employer may be entitled.

Witness	Employee     /s/ Wayne Gattinella
Date	Print Name:   Wayne Gattinella
	Address:	257 Riversville Rd. Greenwich, CT 06831

EX-10.49

EXHIBIT 10.49

CONFORMED COPY

EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT (the “Agreement”) dated as of December 4, 2003 (the “Effective Date”), by and between ENVOY CORPORATION, a Delaware corporation (the “Company”), and Tony G. Holcombe (“Executive”).

     WHEREAS, the Company desires to employ Executive on a full-time basis on the terms described herein and Executive desires to be so employed by the Company;

     WHEREAS, Executive owns 11,441 shares (2,464 of which he is contractually obligated to purchase on or before February 28, 2004) and 7,943 shares, respectively, (collectively, the “Preferred Shares”) of Series A Junior Convertible Preferred Stock, par value $.01 per share, and Series B Senior Convertible Preferred Stock, par value $.01 per share, (together, the “Valutec Stock”) of Valutec Card Solutions, Inc., a Delaware corporation (“Valutec”); and

     WHEREAS, WebMD Corporation, a Delaware corporation (“WebMD”), and Executive desire to enter into certain arrangements with respect to the Preferred Shares, as set forth on Annex A hereto;

     NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein (including, without limitation, the Company’s employment of Executive and the advantages and benefits thereby inuring to Executive) and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged by each party hereto, the parties hereby agree as follows:

     1.     Effectiveness of Agreement and Employment of Executive.

     1.1 Effectiveness of Agreement. The first day of Executive’s employment with the Company shall be December 15, 2003 (the “Employment Commencement Date”)

     1.2 Employment by the Company. The Company hereby employs Executive as President of the Company as of the Employment Commencement Date and Executive hereby accepts such employment with the Company. Executive shall report to the Chief Executive Officer, the President or Chief Operating Officer of WebMD Corporation (“WebMD”) and perform such duties and services for the Company and its subsidiaries and affiliates (such subsidiaries and affiliates collectively, “Affiliates”), as may be designated from time to time, by such person and as are consistent with his role as President of the Company. Executive shall use his best and most diligent efforts to promote the interests of the Company and the Affiliates, and shall devote all of his business time and attention to his employment under this Agreement; provided, however, that Executive shall be permitted to manage his personal, financial and legal affairs and shall be permitted to continue to serve as a member of the boards of directors of TALX Corporation and TSI Telecommunications Services Inc. so long as such activities require insubstantial portions of his working time, and would not singularly or in the aggregate interfere or be inconsistent or conflict with his duties and obligations under this Agreement (including

under Section 6); provided, further, that for a period ending on the earlier of (x) January 15, 2005 and (y) the date on which a sale or other disposition of Valutec to a third party occurs, Executive shall be entitled to spend up to 10% of his business time providing advisory services to Valutec, in connection with the sale or disposition of Valutec, so long as such services do not, singularly or in the aggregate, interfere with Executive’s performance of his duties and responsibilities under this Agreement. It is understood and agreed that any advisory services provided by Executive to Valutec pursuant to the preceding sentence are being provided solely at the direction, and on behalf of, Valutec, and that such services are not being provided by Executive, directly or indirectly or in whole or in part, in his capacity as an officer, employee or representative of the Company or any of its Affiliates.

     2.    Compensation and Benefits.

     2.1 Salary. The Company shall pay Executive for services during the Employment Period a base salary at the annual rate of $450,000. Any and all increases to Executive’s base salary (as it may be increased, “Base Salary”) shall be determined by the Compensation Committee of the Board of Directors of WebMD (the “Compensation Committee”) in its sole discretion. Such Base Salary shall be payable in equal installments, no less frequently than monthly, pursuant to the Company’s customary payroll policies in force at the time of payment, less any required or authorized payroll deductions.

     2.2 Bonuses. For each fiscal year of the Company during the Employment Period commencing with the fiscal year ending December 31, 2004, Executive shall be eligible to receive an annual bonus, the target of which is 50% of Base Salary, in the sole discretion of the Compensation Committee. Such bonus, if any, shall be payable at such time as executive officer bonuses are paid generally so long as Executive remains in the employ of the Company on the payment date.

     2.3 Benefits. During the Employment Period, Executive shall be entitled to participate, on the same basis and at the same level as other similarly situated senior executives of the Company, in any group insurance, hospitalization, medical, health and accident, disability, fringe benefit and tax-qualified retirement plans or programs or vacation leave of the Company now existing or hereafter established to the extent that he is eligible under the general provisions thereof.

     2.4 Expenses. Pursuant to the Company’s customary policies in force at the time of payment, Executive shall be promptly reimbursed, against presentation of vouchers or receipts, for all authorized expenses properly and reasonably incurred by him on behalf of the Company or its Affiliates in the performance of his duties hereunder. The Company shall pay the reasonable expenses of Executive’s counsel incurred in connection with the negotiation of this Agreement, but in no event shall such payment exceed $10,000.

     2.5 Valutec Preferred Shares. Annex A hereto sets forth certain rights and obligations of WebMD and Executive with regard to the Preferred Shares, and is incorporated herein by reference.

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     3.     Employment Period. Executive’s employment under this Agreement shall commence as of the Employment Commencement Date, and shall terminate on the fifth anniversary thereof, unless terminated earlier pursuant to Section 5 (the “Initial Employment Period”). Unless written notice of either party’s desire to terminate this Agreement has been given to the other party prior to the expiration of the Initial Employment Period (or any one-month renewal thereof contemplated by this sentence), the term of this Agreement shall be automatically renewed for successive one-month periods (as it may be so extended, the “Employment Period”).

     4.     Options. Subject to the approval of the Compensation Committee, on the Employment Commencement Date, Executive shall be granted a nonqualified option to purchase 400,000 shares of WebMD common stock under WebMD’s 2000 Long Term Incentive Plan (the “Option”). The per share exercise price shall be the closing price of WebMD’s common stock on the Employment Commencement Date and the Option shall vest, subject to Executive’s continued employment on the applicable vesting dates (except as set forth in Section 5), in four equal annual installments of 25% commencing on the first anniversary of the Employment Commencement Date. The Option will have a term of ten years, subject to earlier expiration in the event of the termination of Executive’s employment. Subject to the terms of this Agreement, the Option shall be evidenced by the Company’s standard form of option agreement.

     5.     Termination.

     5.1 Termination by the Company for Cause.

     (a) Executive’s employment with the Company may be terminated at any time by the Company for Cause. Upon such a termination, the Company shall have no obligation to Executive other than the payment of Executive’s earned and unpaid compensation to the effective date of such termination.

     (b) For purposes of this Agreement, the term “Cause” shall mean any of the following:

     (i) Executive’s willful failure to perform his duties following written notice from the Board of Directors of WebMD or its designee detailing the specific acts and a thirty (30) day period of time to remedy such failure. For this purpose, no act, or failure to act, on Executive’s part shall be deemed “willful” if it was done (or omitted to be done) by Executive in good faith with reasonable belief that Executive’s action or omission was in the best interest of the Company; and failure to attain financial or other business objectives shall not by itself be deemed a failure to perform duties.

     (ii) Executive engaging in any misconduct, negligence, act of dishonesty, violence or threat of violence that is materially and demonstrably injurious to the Company or any of its Affiliates;

     (iii) Executive’s material breach of a policy of the Company or any of its Affiliates, which breach is not remedied (if susceptible to remedy) following

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written notice by the Board of Directors of the Company or its designee detailing the specific breach and a thirty (30) day period of time to remedy such breach;

     (iv) Any material breach by Executive of this Agreement, which breach is not remedied (if susceptible to remedy) following written notice by the Board of Directors of WebMD or its designee detailing the specific breach and a thirty (30) day period of time to remedy such breach; or

     (v) Executive’s conviction of a felony in respect of a dishonest or fraudulent act or other crime of moral turpitude.

     5.2 Permanent Disability; Death. If during the term of this Agreement, Executive shall become ill, mentally or physically disabled, or otherwise incapacitated so as to be unable regularly to perform the duties of his position for a period in excess of ninety (90) consecutive days or more than one hundred twenty (120) days in any consecutive twelve (12) month period (“Permanent Disability”), then the Company shall have the right to terminate Executive’s employment with the Company upon written notice to Executive. In the event the Company terminates Executive’s employment as a result of his Permanent Disability or death, Executive or Executive’s estate shall be entitled to the benefits that he would have been entitled to receive if Executive’s employment had been terminated by the Company without Cause pursuant to Section 5.4 (subject to the provisos and conditions set forth therein); provided, however, that the Company shall have no other obligation to Executive or Executive’s estate pursuant to this Agreement in the event that Executive’s employment with the Company is terminated by the Company pursuant to this Section 5.2.

     5.3 Resignation by Executive. Executive may voluntarily resign from his employment with the Company, provided that Executive shall provide the Company with thirty (30) days advance written notice (which notice requirement may be waived, in whole or in part, by the Company in its sole discretion) of his intent to terminate. Upon such a termination, the Company shall have no obligation other than the payment of Executive’s earned but unpaid compensation to the effective date of such termination.

     5.4 Termination by the Company Without Cause. Executive’s employment with the Company may be terminated at any time by the Company without Cause. If the Company terminates Executive’s employment without Cause (including upon notice of the Company pursuant to Section 3 of its desire to terminate this Agreement), the Company shall have the following obligations to Executive (but excluding any other obligation to Executive pursuant to this Agreement):

     (a) The continuation of his Base Salary, as severance, for a period commencing on the date of termination and ending one year from the date of termination (the “Severance Period”);

     (b) Executive shall be eligible to continue to participate during the Severance Period on the same terms and conditions that would have applied had he remained in the employ of the Company during the Severance Period, in all health, medical, dental, life and disability plans provided to Executive at the time of such termination and which are

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provided by the Company to its employees generally following the date of termination (“Welfare Plans”), provided that the Company may require Executive to elect COBRA and, in such case, the Company shall pay that portion of the COBRA premium that the Company pays for active employees with the same coverage for the period that Executive is eligible for COBRA; and

     (c) The Option shall remain outstanding and continue to vest, and shall otherwise be treated for purposes of the terms and conditions thereof, as if Executive remained in the employ of the Company through the next vesting date applicable to the Option;

provided, however, that the continuation of such salary and benefits and the continued vesting and exercisability of the Option shall cease on the occurrence of any circumstance or event that would constitute Cause under Section 5.1 of this Agreement (including any material breach of the covenants contained in Section 6 below), provided further, however, that Executive’s eligibility to participate in the Welfare Plans shall cease at such time as Executive is offered comparable coverage with a subsequent employer. If Executive is precluded from participating in any Welfare Plan by its terms or applicable law, the Company shall provide Executive with benefits that are reasonably equivalent in the aggregate to those which Executive would have received under such plan had he been eligible to participate therein, provided that the Company’s cost or expense therefor shall in no event exceed what the Company would have been required to incur if Executive participated in the Company’s plan.

     5.5 Termination by Executive For Good Reason. Executive’s employment with the Company may be terminated by Executive for Good Reason on 30 days written notice to the Company, which notice shall detail the specific basis for such termination. The Company shall be given the opportunity to cure the basis for such termination within such 30 days period. For the purpose of this Section 5.5 of this Agreement, the term “Good Reason” means any of the following: (i) a material breach by the Company of its obligations to Executive under this Agreement, (ii) any reduction in Executive’s Base Salary or (iii) if Executive is required by the Company to relocate his place of work to a location that is more than 50 miles from the Company’s current headquarters. If Executive terminates his employment under this Section, Executive shall be entitled to receive the same benefits as if his employment had been terminated by the Company without Cause under Section 5.4 (subject to the provisos and conditions set forth therein).

     5.6 Liquidated Damages. Executive acknowledges that any payments and benefits under Section 5 resulting from a termination of Executive’s employment with the Company are in lieu of any and all claims that Executive may have against the Company (other than benefits under the Company’s employee benefit plans that by their terms survive termination of employment and benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and rights to indemnification under certain indemnification arrangements for officers of the Company), and represent liquidated damages (and not a penalty). The Company may require that the Executive execute and not revoke a release of claims in a form provided by the Company as a condition to Executive’s the receipt of such payments.

     6.     Restrictive Covenants.

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     6.1 Confidentiality. Executive understands and acknowledges that in the course of his employment and as a result of signing this Agreement, he will be granted access to and will learn information that is proprietary to, or confidential to the Company and its Affiliates that concerns the operation and methodology of the Company and its Affiliates and that provides the Company with a competitive advantage, including, without limitation, business strategy and plans, financial information, protocols, proposals, manuals, clinical procedures and guidelines, technical data, computer source codes, programs, software, knowhow and specifications, copyrights, trade secrets, market information, Developments (as hereinafter defined), and customer and employee information (collectively, “Proprietary Information”). Proprietary Information shall include all such information recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs, formula books, data, specifications, software programs and records, whether or not legended or otherwise identified by the Company as Proprietary Information, as well as such information that is the subject of meetings and discussions and not recorded. Executive agrees that, at all times (including following termination of this Agreement), he will keep confidential and will not disclose directly or indirectly any such Proprietary Information to any third party, except as required to fulfill his duties hereunder, and will not misuse, misappropriate or exploit such Proprietary Information in any way. The restrictions contained herein shall not apply to any information which Executive can demonstrate by written record (a) was already available to the public at the time of disclosure, or subsequently become available to the public, otherwise than by breach of this Agreement, or (b) was the subject of a court order for Executive to disclose, provided that Executive give the Company prompt notice of any and all such requests for disclosure so that it has ample opportunity to take all necessary or desired action, to avoid disclosure. Upon any termination of this Agreement, Executive shall immediately return to the Company all copies of any Proprietary Information in his possession.

     6.2 Restrictions on Solicitation. In order to protect the Company’s Proprietary Information, during the period beginning on the Effective Date and ending on the second anniversary of the date of cessation of the employment of Executive for any reason whatsoever (the “Restricted Period”), Executive shall not, directly or indirectly, without the prior written approval of the Company:

     (a) solicit, induce, hire, engage, or attempt to hire or engage any employee or independent contractor of the Company or its Affiliates, or in any other way interfere with the Company’s or an Affiliate’s employment or contractual relations with any of its employees or independent contractors, nor will Executive solicit, induce, hire, engage or attempt to hire or engage any individual who was an employee of the Company or an Affiliate at any time during the one year period immediately prior to the termination of Executive’s employment with the Company;

     (b) call upon or solicit, on behalf of a Competitive Business (as hereinafter defined), any existing or prospective (with whom Executive has had contact during the last twelve (12) months of his employment) client, or customer of the Company, nor will Executive attempt to divert or take away from the Company the business of any such client or customer.

         6.3 Restrictions on Competitive Employment.

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     (a) During the Restricted Period, Executive shall not (as principal, agent, employee, consultant or otherwise), anywhere in the United States, directly or indirectly, without the prior written approval of the Company, engage in, or perform duties for, a Competitive Business. Notwithstanding the foregoing, Executive may have an interest consisting of publicly traded securities constituting less than two (2%) percent of any class of publicly traded securities in any public company engaged in a Competitive Business so long as he is not employed by and does not consult with, or become a director of or otherwise engage in any activities for, such company.

     (b) For purposes of the covenant not to compete set forth in paragraph (a) above, Executive acknowledges that the Company and its Affiliates presently conduct their businesses throughout the United States. Executive agrees that the Restricted Period and the geographical areas encompassed by such covenant are necessary and reasonable in order to protect the Company and its Affiliates in the conduct of their businesses. The parties intend that the foregoing covenant of Executive shall be construed as a series of separate covenants, one for each geographic area specified. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant set forth in paragraph (a) above. To the extent that the foregoing covenant or any provision of this Section 6.3 shall be deemed illegal or unenforceable by a court or other tribunal of competent jurisdiction with respect to (i) any geographic area, (ii) any part of the time period covered by such covenant, (iii) any activity or capacity covered by such covenant or (iv) any other term or provision of such covenant, such determination shall not affect such covenant with respect to any other geographic area, time period, activity or other term or provision covered by or included in such covenant.

     6.4 Extension of Restricted Period. The Restricted Period shall be extended by the length of any period during which Executive is in breach of the terms of this Section 6.

     6.5 Assignment of Developments. Executive acknowledges that all developments, including, without limitation, the creation of new products, conferences, training/seminars, publications, programs, methods of organizing information, inventions, discoveries, concepts, ideas, improvements, patents, trademarks, trade names, copyrights, trade secrets, designs, works, reports, computer software, flow charts, diagrams, procedures, data, documentation, and writings and applications thereof relating to the past, present, or future business of the Company that Executive, alone or jointly with others, may have discovered, conceived, created, made, developed, reduced to practice, or acquired during his employment with the Company (collectively, “Developments”) are works made for hire and shall remain the sole and exclusive property of the Company, and he hereby assigns to the Company all of his rights, titles, and interest in and to all such Developments, if any. Executive agrees to disclose to the Company promptly and fully all future Developments and, at any time upon request and at the expense of the Company, to execute, acknowledge, and deliver to the Company all instruments that the Company shall prepare, to give evidence, and to take any and all other actions that are necessary or desirable in the reasonable opinion of the Company to enable the Company to file and prosecute applications for, and to acquire, maintain, and enforce, all letters patent, trademark registrations, or copyrights covering the Developments in all countries in which the same are deemed necessary by the Company. All data, memoranda, notes, lists, drawings, records, files, investor and client/customer lists, supplier lists, and other documentation (and all copies thereof)

7

made or compiled by Executive or made available to him concerning the Developments or otherwise concerning the past, present, or planned business of the Company are the property of the Company, and will be delivered to the Company immediately upon the termination of his employment with the Company.

     6.6 Competitive Business. Executive acknowledges that a “Competitive Business” shall mean any of the following: (i) any enterprise engaged in establishing electronic linkages between individual healthcare providers, patients, payors (including, without limitation, insurance companies, HMO’s, pharmacy benefits management companies, and/or self-insured employer groups), pharmacies, laboratories and/or other participants in the healthcare industry for the purpose of facilitating or conducting financial, administrative and/or clinical communication and/or transactions; (ii) any enterprise engaged in developing, selling or providing a consumer or physician Internet healthcare portal; (iii) any enterprise engaged in developing, marketing or providing healthcare information and/or management systems (including, without limitation, electronic medical and/or dental records software; physician practice management, dental practice management and/or other healthcare practice management software systems; and other financial, administrative and/or clinical systems for use in the healthcare industry) and/or services related thereto (including, without limitation, software support and maintenance services, hardware support and maintenance services, and training services); and (iv) any enterprise engaged in any other type of business in which the Company or one of its affiliates is also engaged, or plans to be engaged, so long as Executive is involved in such business or planned business on behalf of the Company or one of its affiliates.

     6.7 Investors, Other Third-Parties, and Goodwill. Executive acknowledges that all third-parties that Executive services or proposes to service while employed by the Company are doing business with the Company and not with Executive personally, and that, in the course of dealing with such third-parties, the Company establishes goodwill with respect to each such third-party that is created and maintained at the Company’s expense (“Third-Party Goodwill”). Executive also acknowledges that, by virtue of his employment with the Company, he has gained or will gain knowledge of the business needs of, and other information concerning, third-parties, and that Executive will inevitably have to draw on such information were Executive to solicit or service any of the third-parties on his own behalf or on behalf of a Competitive Business.

     6.8 Nondisparagement. Executive agrees that at no time during his employment by the Company and for a period of four years thereafter, shall he make, or cause or assist any other person to make, any statement or other communication to any third party which impugns or attacks, or is otherwise critical of, in any material respect, the reputation, business or character of the Company or any of its Affiliates or all of their respective directors, officers or employees; provided that Executive shall not be required to make any untruthful statement or to violate any law.

     6.9 Remedies. Executive acknowledges and agrees that the restrictions contained in this Agreement are reasonably necessary to protect the legitimate business interests of the Company, and that any violation of any of the restrictions will result in immediate and irreparable injury to the Company for which monetary damages will not be an adequate remedy. Executive further acknowledges and agrees that if any such restriction is violated, the Company will be entitled to immediate relief enjoining such violation (including, without limitation,

8

temporary and permanent injunctions, a decree for specific performance, and an equitable accounting of earnings, profits, and other benefits arising from such violation) in any court having jurisdiction over such claim, without the necessity of showing any actual damage or posting any bond or furnishing any other security, and that the specific enforcement of the provisions of this Agreement will not diminish Executive’s ability to earn a livelihood or create or impose upon Executive any undue hardship. Executive also agrees that any request for such relief by the Company shall be in addition to, and without prejudice to, any claim for monetary damages that the Company may elect to assert.

     7.     Notices. Any notice or communication given by either party hereto to the other shall be in writing and personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the following addresses:

     (a) if to the Company and/or WebMD:

c/o WebMD Corporation

River Drive Center 2

669 River Drive

Elmwood Park, New Jersey 07407-1361

Attention: General Counsel

(b) if to Executive, at the address specified in the personnel files of the Company

with a copy to:

Schiff Hardin & Waite

6600 Sears Tower

Chicago, Illinois 60606

Attention: Frederick L. Hartmann

Any notice shall be deemed given when actually delivered to such address, or two days after such notice has been mailed or sent by Federal Express, whichever comes earliest. Any person entitled to receive notice may designate in writing, by notice to the other, such other address to which notices to such person shall thereafter be sent.

     8.     Miscellaneous.

     8.1 Representations and Covenants. In order to induce the Company to enter into this Agreement, Executive makes the following representations and covenants to the Company and acknowledges that the Company is relying upon such representations and covenants:

     (a) No agreements or obligations exist to which Executive is a party or otherwise bound, in writing or otherwise, that in any material respect interfere with, impede or preclude him from fulfilling all of the terms and conditions of this Agreement. Executive has previously provided the Company copies of his agreements with his former

9

employers that contain obligations that survive termination of employment and Executive agrees to abide by such agreements.

     (b) Executive, during his employment, shall use his best efforts to disclose to the Chief Executive Officer and the General Counsel of WebMD in writing or by other effective method any bona fide information known by him and not known to the Chief Executive Officer and the General Counsel of WebMD that he reasonably believes would have any material negative impact on the Company or any of its Affiliates.

     8.2 Entire Agreement. This Agreement, Annex A hereto and the agreement evidencing the Option contain the entire understanding of the parties in respect of their subject matter and supersede upon their effectiveness all other prior agreements and understandings between the parties with respect to such subject matter.

     8.3 Amendment; Waiver. This Agreement may not be amended, supplemented, canceled or discharged, except by written instrument executed by the party against whom enforcement is sought. No failure to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof. No waiver of any breach of any provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision.

     8.4 Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of any successor of the Company or WebMD by reorganization, merger or consolidation, or any assignee of all or substantially all of the Company’s or WebMD’s business and properties. The Company and WebMD may assign their rights and obligations under this Agreement to any of their Affiliates without the consent of Executive. Executive’s rights or obligations under this Agreement may not be assigned by Executive, except that the rights specified in Section 5.2 shall pass upon Executive’s death to Executive’s executor or administrator.

     8.5 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

     8.6 Governing Law; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes by the laws and public policy (other than conflict of laws principles) of the State of New Jersey applicable to contracts executed and to be wholly performed within such State.

     8.7 Further Assurances. Each of the parties agrees to execute, acknowledge, deliver and perform, and cause to be executed, acknowledged, delivered and performed, at any time and from time to time, as the case may be, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary to carry out the provisions or intent of this Agreement.

     8.8 Severability. The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable. However, in light of the possibility of differing interpretations of law and changes in circumstances, the parties agree that if any one or more of the provisions of this Agreement shall be determined by a court of competent

10

jurisdiction to be invalid, void or unenforceable, the remainder of the provisions of this Agreement shall, to the extent permitted by law, remain in full force and effect and shall in no way be affected, impaired or invalidated. Moreover, if any of the provisions contained in this Agreement is determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law.

     8.9 Taxes. All payments made hereunder (including, without limitation, under Annex A) shall be subject to any and all applicable federal, state or local tax withholdings.

     8.10 Term. Notwithstanding the term of the Employment Period as determined pursuant to Section 3 hereof, each obligation of the Company and Executive, as the case may be, that is intended to survive termination of employment, including, without limitation, pursuant to Sections 5 and 6 hereof, shall survive the termination of the Employment Period until such obligation is fulfilled in its entirety pursuant to the terms hereof.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ENVOY CORPORATION

By: /s/ Charles A. Mele

Name: Charles A. Mele

Title: Executive Vice President

EXECUTIVE

/s/ Tony G. Holcombe

Tony G. Holcombe

Accepted and Agreed:

WEBMD CORPORATION

By: /s/ Roger C. Holstein

Name: Roger C. Holstein
Title: Chief Executive Officer

11

Annex A

VALUTEC STOCK PUT RIGHT

     Set forth below is the understanding and agreement of WebMD and Executive with regard to the Preferred Shares:

     1.     Put Right.

     (a) During Executive’s employment with the Company under the Agreement (excluding any period on or following the date on which notice of termination of Executive’s employment has been given by the Company or Executive), but not later than the earlier of (i) January 15, 2005 and (ii) the Sale Date (as defined below) (the “Put Period”), Executive shall have the right (the “Put Right”) to put all (but not less than all) of the Available Shares (as defined below) owned by Executive to WebMD for an aggregate purchase price (the “Purchase Price”) equal to (x) $20.30 multiplied by (y) the number of Available Shares subject to the Put Right. For purposes of this Annex A, (i) “Sale Date” means the date on which a Sale occurs; (ii) a “Sale” means a sale by Valutec’s shareholders of a majority of the shares of voting Valutec stock outstanding as of the date hereof; and (iii) “Available Shares” means the number of Preferred Shares owned by Executive as of the date the Put Right is exercised and which are no longer subject to any right of repurchase on the part of Valutec or AMP or any right of first refusal on the part of Valutec or any shareholder of Valutec.

     (b) Executive may exercise the Put Right by giving written notice thereof to WebMD prior to the expiration of the Put Period. The closing of any exercise of the Put Right pursuant to this Section 1(b) (the “Closing”) shall take place at the offices of WebMD, or such other place as may be mutually agreed, not less than 30 days after the date such Put Right is exercised. As a condition precedent to the closing, AMP Associates LLC (“AMP”) shall have provided its consent (the “AMP Consent”) in writing, as provided in Section 2.01(a)(i) of the Stockholders Agreement, dated as of September 26, 2002, to which Valutec, AMP, Executive and other stockholders of Valutec are parties (the “Stockholders Agreement”), so that the transfer of the Available Shares pursuant to the Put Right will be treated as an Excluded Transfer (as that term is defined in Section 3.01 of the Stockholders Agreement). In the event that the consent of AMP described in the preceding sentence is not obtained prior to the time the Put Right is exercised, the provisions of this Annex A shall be null and void, and WebMD shall have no liability or obligation with regard to any of the Preferred Shares owned or previously owned by Executive. The Put Right may only be exercised by, and for the account of, Executive (or his estate). The exact date and time of the Closing shall be specified by WebMD. At such Closing:

     (i) Executive shall (A) deliver certificates for the Available Shares being sold to WebMD duly endorsed, or accompanied by written instruments of transfer in form reasonably satisfactory to WebMD duly executed, by Executive and free and clear of any Encumbrances (as

defined below), (B) deliver as a condition to the Closing a certificate indicating that the representations and warranties set forth in Section 2 are true and correct as of the date of such closing and (C) assign to WebMD in writing his rights under the Registration Rights Agreement, dated as of September 26, 2002, to which Valutec, AMP, Executive and certain other persons are parties (the “Registration Rights Agreement”). For purposes of this Annex A, “Encumbrance” means any security interest, pledge, mortgage, lien, charge, adverse claim of ownership or use, or other encumbrance of any kind.

     (ii) WebMD shall (A) pay the Purchase Price for the Available Shares in cash, (B) agree in writing to be bound by, and to comply with, all provisions of the Stockholders Agreement to the same extent and in the same manner as Executive, and (C) expressly agree to become bound by the Registration Rights Agreement as an investor pursuant to a written instrument in form and substance reasonably satisfactory to Valutec and WebMD, and give notice of such transfer to Valutec, as provided in Section 6(d) of the Registration Rights Agreement.

     (iii) As a condition to the Closing, WebMD shall represent and warrant to Executive as of such Closing, and acknowledge that Executive is relying on such representations and warranties: (A) WebMD is acquiring the Available Shares and will acquire any securities of Valutec issued upon conversion of any of the Available Shares (the “Conversion Shares”) for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; and (B) WebMD is an “accredited investor” as such term is defined in Rule 501 under the Securities Act.

     (iv) WebMD shall acknowledge as of such Closing that: (A) none of the Available Shares has been registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of their issuance and transfer and transactions exempt from registration requirements of the Securities Act, (B) the Available Shares and the Conversion Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (C) the Available Shares and the Conversion Shares will bear a legend to such effect and (D) Valutec will make a notation in its transfer books to such effect.

     (c) In the event that, during the Put Period, Executive’s Preferred Shares are sold to any person or entity at a price per Preferred Share that exceeds $20.30 (such excess over $20.30 per Preferred Shared, the “Excess Price”), Executive shall pay to WebMD, not later than ten (10) days after the date on which such sale occurs, an amount in cash equal to ten (10%) percent of the amount equal to (x) the number of Preferred Shares sold in such sale multiplied by (y) the Excess Price.

2

     2.     Representations and Warranties. In order to induce WebMD to agree to the terms and conditions of this Annex A, Executive represents and warrants to WebMD as of the date hereof and as of the date on which the Closing occurs, and acknowledges that WebMD is relying upon such representations and warranties:

     (a) The Agreement (including this Annex A) has been duly executed and delivered by Executive and constitutes a legal, valid and binding agreement of Executive, enforceable against Executive in accordance with its terms.

     (b) The Preferred Shares have been duly authorized and validly issued and are fully paid and nonassessable.

     (c) Executive owns the Preferred Shares free and clear of all Encumbrances.

     (d) There are no voting trusts, stockholder agreements, proxies or other agreements in effect with respect to the Preferred Shares, except for the Stockholders Agreement.

     (e) There are no restrictions or other agreements that would prevent the fulfillment or enforcement of any provision of the Agreement (including this Annex A), and the execution, delivery and performance of the Agreement (including this Annex A) and the transactions contemplated hereby will not result in any liability to WebMD other than such obligations as are assumed by it under the Stockholders Agreement and the Registration Rights Agreement.

     (f) No consent, approval or authorization of any other person or entity is required to be made or obtained by Executive in connection with the execution, delivery and performance of the Agreement (including this Annex A) and, except as expressly stated herein, the consummation of the transactions contemplated hereby. Provided that the AMP Consent is obtained, the transfer of the Available Shares to WebMD shall be an Excluded Transfer.

     (g) WebMD shall have the ability to resell the Available Shares subject to applicable securities laws and the provisions of the Stockholders Agreement and the Registration Rights Agreement.

     (h) Set forth as Exhibit A are true and correct copies of Valutec’s By-Laws, Certificate of Incorporation, the Stockholders Agreement, the Registration Rights Agreement and any other agreements concerning the Shares.

Executive shall indemnify and hold harmless WebMD, the Company and their Affiliates against any liabilities, losses or expenses incurred by any of them as a result of a breach of any of the foregoing representations and warranties.

     3.     Binding Effect; Assignment. The rights and obligations of this Annex A shall bind and inure to the benefit of any successor of WebMD by reorganization, merger or consolidation, or any assignee of all or substantially all of the WebMD’s business and

3

properties. WebMD may assign its rights and obligations under this Annex A to any of its Affiliates without the consent of Executive, but with written notice to Executive. Executive’s rights or obligations under this Annex A (including, without limitation, the Put Right) may not be assigned or otherwise transferred by Executive.

     4.     Defined Terms. Any defined terms used herein but not defined herein shall have the meanings assigned in the Agreement.

     5.     Consultation. During the Put Period, Executive shall consult with WebMD in good faith before providing any consent or taking any other action in his capacity as stockholder with respect to the Preferred Shares.

     6.     No Responsibility for Claims. Executive shall not hold or seek to hold WebMD, the Company or any of their Affiliates liable for any claims, liabilities or losses incurred by Executive as a result of this Annex A or the consummation of any transaction contemplated hereby.

4 EX-12.1 8 g87450exv12w1.htm EX-12.1 COMPUTATION OF RATIO EARNINGS

RATIO OF EARNINGS TO FIXED CHARGES

     The following table sets forth our consolidated ratio of earnings to fixed charges for each of the periods indicated:

	Fiscal years ended December 31,
	1999		2000		2001		2002		2003
Ratio of Earnings to Fixed Charges		*		*		*		*		2.0

*	The earnings for the years ended December 31, 2002 through 1999 were inadequate to cover total fixed charges. The coverage deficiencies for the years ended December 31, 2002 through 1999 were (in thousands): $63,192, $6,665,780, $3,082,114 and $287,992, respectively.
	In computing the ratio of earnings to fixed charges, earnings have been based on income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest, amortization of debt issuance costs and the portion of rental expense on operating leases attributable to interest.

EX-12.1

EX-12.1 COMPUTATION OF RATIO EARNINGS

EX-21

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

     The following are the subsidiaries of WebMD Corporation:

Name	Jurisdiction of Incorporation
WebMD Corporation	Delaware
Advanced Business Fulfillment, Inc.	Missouri
CLD Corporation	Delaware
Envoy Corporation	Delaware
CareInsite LLC	Massachusetts
THINC, LLC (99%)	New York
THINC Acquisition Corp.	Delaware
THINC, LLC (1%)	New York
Claims Processing Service, Inc.	Connecticut
Envoy/ExpressBill, Inc.	Tennessee
Kinetra LLC	Delaware
IMS – Net of Arkansas, Inc.	Arkansas
IMS – Net of Central Florida, Inc.	Colorado
IMS – Net of Colorado, Inc.	Colorado
IMS – Net of Illinois, Inc.	Illinois
Illinois Medical Information Network, Inc.	Illinois
Minnesota Medical Communication Network, LLC	Colorado
MediFAX-EDI Holding Company	Delaware
MediFAX-EDI LLC	Tennessee
Medi, Inc.	California
MediFAX, Inc.	Tennessee
Medware Solutions, Inc.	Florida
MediFAX-EDI Holdings, Inc.	Delaware
MediFAX-EDI Services, Inc.	Delaware
National Electronic Information Corporation	Delaware
WebMD Clinical Services, LLC	Delaware
Healtheon Software India Pvt. Ltd.	India
Healtheon/WebMD Cable Corporation	Delaware
Healtheon/WebMD Internet Corporation	Delaware
HW International Holdings, Inc.	Delaware
WebMD International, LLC	Delaware
WebMD Canada Ventures, Inc.	Canada
WebMD UK Limited	England and Wales
HW Japan, Inc.	Delaware
LaPook Lear Systems, Inc.	New York
MDNX Acquisition Corp.	Florida
MedEAmerica Corporation	Delaware
Healthcare Interchange, Inc.	Missouri
MedE America Corporation of Ohio	Ohio
OnHealth Network Company	Washington
BabyData.com, Inc.	Delaware
Demand Management, Inc.	Colorado
Health Decisions International, LLC (30%)	Colorado
Health Decisions, Inc.	Delaware
Health Decisions International, LLC (70%)	Colorado
The Ornish Health Program, Inc.	California
PRX Holdings Corp.	Delaware
SNTC Holding, Inc.	Delaware
Porex Corporation	Delaware
Mupor Limited	England
Porex GmbH	Germany
Porex International, Inc.	Barbados
Porex Products Malaysia SDN, BHD	Malaysia
Porex Surgical Inc.	Delaware
Porex Surgical GmbH	Germany
SYN Healthcare Service, Inc.	California
SYNC Corp.	New Jersey
WebMD Domain Corp.	Delaware

Name	Jurisdiction of Incorporation
WebMD, Inc.	Georgia
Endeavor Technologies, Inc.	Georgia
MMM Acquisition Company	Delaware
Medscape Portals, Inc.	Delaware
MDhub, LLC	Connecticut
National Physicians DataSource, LLC	Connecticut
OW Corp	Delaware
Physicians Telephone Directory, Inc.	Connecticut
Telemedics, Inc.	Georgia
Wellmed, Inc.	Delaware
WebMD Practice Services, Inc.	Delaware
Adaptive Health Systems of Arizona, Inc.	Arizona
MAS Subsidiary, Inc.	Delaware
Medical Manager PCN, Inc.	Delaware
Benchmark Systems, Inc. of Louisiana	Louisiana
Medical Manager Research & Development, Inc.	Florida
Medical Manager Sales & Marketing, Inc.	California
Peachtree Associates, Inc.	Georgia
Personal Best!, Inc.	North Carolina
Preferred System Solutions, Inc.	Oklahoma
TouchPoint Software Corporation	Delaware
United Software Architects, Inc.	Texas

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-89616, No. 333-100857, No. 333-104271, No. 333-107151 and No. 333-110629) and on Form S-8 (No. 333-39592, No. 333-42616, No. 333-47250, No. 333-84825, No. 333-88418, No. 333-88420, No. 333-90795 and No. 333-110516) of WebMD Corporation of our report dated February 27, 2004 (except for Note 22, as to which the date is March 4, 2004), with respect to the consolidated financial statements of WebMD Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2003.

Our audits also included the financial statement schedule of WebMD Corporation listed in Item 15(a). This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

MetroPark, New Jersey
March 12, 2004 EX-31.1 11 g87450exv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF THE CEO

Exhibit 31.1

CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Roger C. Holstein, certify that:

     1. I have reviewed this annual report on Form 10-K of WebMD Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the

equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2004

     /s/ Roger C. Holstein

Roger C. Holstein
Chief Executive Officer
(Principal executive officer)

- 2 -

EX-31.1

EX-31.1 SECTION 302 CERTIFICATION OF THE CEO

EX-31.2

Exhibit 31.2

CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Andrew C. Corbin, certify that:

     1. I have reviewed this annual report on Form 10-K of WebMD Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the

- 3 -

equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2004

     /s/ Andrew C. Corbin

Andrew C. Corbin
Executive Vice President and
Chief Financial Officer
(Principal financial and
accounting officer)

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EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER OF
WEBMD CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Annual Report of WebMD Corporation (“WebMD”) on Form 10-K for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roger C. Holstein, Chief Executive Officer of WebMD, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WebMD.

Dated: March 11, 2004	/s/ Roger C. Holstein
		Roger C. Holstein
		Chief Executive Officer

The foregoing certification is being furnished to accompany WebMD Corporation’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2003 (the “Report”) solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a separate disclosure document and shall not be deemed incorporated by reference into any other filing of WebMD Corporation that incorporates the Report by reference. A signed original of this written certification required by Section 906 has been provided to WebMD Corporation and will be retained by WebMD Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

STATEMENT OF CHIEF FINANCIAL OFFICER OF
WEBMD CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Annual Report of WebMD Corporation (“WebMD”) on Form 10-K for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew C. Corbin, Executive Vice President and Chief Financial Officer of WebMD, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of WebMD.

Dated: March 11, 2004	/s/ Andrew C. Corbin
		Andrew C. Corbin Executive Vice President and     Chief Financial Officer

The foregoing certification is being furnished to accompany WebMD Corporation’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2003 (the “Report”) solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a separate disclosure document and shall not be deemed incorporated by reference into any other filing of WebMD Corporation that incorporates the Report by reference. A signed original of this written certification required by Section 906 has been provided to WebMD Corporation and will be retained by WebMD Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

WebMD Corporation

Amended and Restated Audit Committee Charter

As Adopted on February 27, 2004

A.  Purpose and Role

1. General. The Audit Committee (the “Committee”) has been established by the Board of Directors (the “Board”) of WebMD Corporation (the “Corporation”) to oversee:

• the accounting and financial reporting processes of the Corporation,

• the audits of the Corporation’s financial statements, and

• related matters, including administration of the Corporation’s Code of Business Conduct;

with such oversight responsibilities being delegated by the Board to the Committee to the full extent contemplated by the requirements applicable to audit committees of companies listed for quotation on the NASDAQ NMS under applicable law and under the listing standards of The NASDAQ Stock Market.

2.

Oversight Role. The Committee’s role is one of oversight, recognizing 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. In carrying out its oversight responsibilities, the Committee is not providing any expert or professional certification as to the Corporation’s financial statements or the independent auditor’s work.

3.

Reporting Relationships; Retention Authority. The Corporation’s independent auditors shall report directly to the Committee and the Committee shall have the sole authority to appoint and terminate such independent auditors and to approve the amount of their compensation and shall have the authority to cause its payment by the Corporation. The Corporation’s internal audit

function shall also report directly to the Committee. The Committee shall have the sole authority to appoint and terminate any outside parties retained by the Corporation to provide internal audit services and to approve the amount of their compensation and shall have the authority to cause its payment by the Corporation.

B.  Composition

1.

Members. The Committee shall consist of as many members as the Board shall determine, but in any event not fewer than three members. Members of the Committee shall be appointed by the Board in accordance with the By-laws of the Corporation. Committee members shall serve until the earliest of their resignation or their replacement or removal by the Board in accordance with this Charter and the By-laws of the Corporation.

2.

Qualifications. Each member of the Committee shall, in the judgment of the Board, meet the following requirements (the “Independence Requirements”):

• all independence requirements, under applicable law, for members of audit committees of companies listed for quotation on the NASDAQ NMS;

• all applicable independence requirements of The NASDAQ Stock Market for members of audit committees of companies listed for quotation on the NASDAQ NMS; and

• being free from any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a member of the Committee.

In addition, the following additional requirements (together with the Independence Requirements, the “Qualification Requirements”) shall also apply:

• each member of the Committee shall, in the judgment of the Board, meet the basic financial literacy requirements, under applicable law, for members of audit committees of companies listed for quotation on the NASDAQ NMS;

• each member of the Committee shall, in the judgment of the Board, meet the basic financial literacy requirements under applicable listing standards of the NASDAQ Stock Market for members of audit committees of companies listed for quotation on the NASDAQ NMS;

• each member of the Committee must not have participated in the preparation of the financial statements of the Corporation (or any

Amended and Restated Audit Committee Charter –
As Adopted on February 27, 2004 – Page 2

	subsidiary of the Corporation) at any time during the three years prior to appointment as a member of the Committee;
•	at least one member of the Committee shall, in the judgment of the Board, 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 (which member may be the one who is also an “audit committee financial expert” under applicable rules promulgated by the Securities and Exchange Commission); and
•	at least one member of the Committee shall, in the judgment of the Board, be an “audit committee financial expert” under the applicable rules promulgated by the Securities and Exchange Commission.

	In the event that the Board determines that a member ceases to meet the Qualification Requirements applicable to individual members, the Board shall consider the removal and replacement of such member; provided, however, that the Board may, if necessary or appropriate in its judgment, appoint or retain Committee members in reliance on any available exceptions to any of the Qualification Requirements for the time period such exceptions are available. A failure by one or more Committee members to meet any of the Qualification Requirements (or of there to be an “audit committee financial expert” or a Committee member meeting other qualifications required one or more Committee members) shall not invalidate decisions made, or actions taken, by the Committee.
3.	Chair. A Chair of the Committee may be appointed by the Board or the Committee.
4.	Removal and Replacement. The members of the Committee may be removed or replaced, and any vacancies on the Committee shall be filled, by the Board in accordance with the By-laws of the Corporation.

C.  Operations

1.	Meetings. The Committee shall determine the schedule and frequency of the Committee meetings, provided that the Committee shall meet at least four times per year. Minutes of these meetings shall be kept and filed with the Secretary of the Corporation.
2.	Agenda; Reports. The Committee shall determine the agenda for its meetings. The Committee may invite other Board members, members of management and others to attend meetings and provide pertinent information and reports, as it deems necessary; provided, however, that the Committee

Amended and Restated Audit Committee Charter –
As Adopted on February 27, 2004 – Page 3

members shall meet regularly with appropriate representatives of the Corporation’s independent auditors without any members of management present. Nothing in this Charter shall be construed to restrict the reliance by any member of the Committee, to the full extent permitted by law, on information, opinions, reports or statements presented to the Committee by any of the Corporation’s officers or employees, or other committees of the Board, or by any other person selected with reasonable care by or on behalf of the Corporation or the Committee as to matters the Committee member reasonably believes are within such other person’s professional or expert competence.

3.

Report to Board. The Committee shall report its actions and recommendations to the Board at the next Board meeting after each Committee meeting or, if so determined by the Committee, by distribution to the members of the Board of the minutes of a meeting, a unanimous written consent or other relevant documents.

D.  Authority and Responsibilities Delegated to the Committee

1.	The Committee shall assess the adequacy of this Charter and the procedures developed by the Committee to implement this Charter on at least an annual basis and shall submit any proposed amendments to this Charter that the Committee recommends be made to the Board for its approval.
2.	The Committee shall review with corporate management and the independent auditors:

• the unaudited quarterly financial results prior to the release of earnings and/or the quarterly financial statements prior to filing or distribution;

• the audited financial results for the year and the proposed footnotes to the financial statements prior to filing or distribution, including disclosures of related party transactions;

• all major accounting policy matters involved in the preparation of interim and annual financial reports and any deviations from prior practice; and

• the application of significant accounting and auditing policies, including new pronouncements, to the Corporation’s financial reports.

3. In consultation with corporate management, the independent auditors, and the internal auditors, the Committee shall review the Corporation’s accounting procedures, internal controls, financial reporting processes and disclosure controls and procedures, and shall take such action with respect to any of those matters as the Committee may determine to be necessary or appropriate. The Committee shall annually obtain and review a report from

Amended and Restated Audit Committee Charter –
As Adopted on February 27, 2004 – Page 4

the independent auditors, which shall be delivered prior to and within 90 days of the filing of the audit report with the SEC, which sets forth:

• All critical accounting policies and practices used by the Corporation,

• All alternative accounting treatments of financial information within GAAP related to material items that have been discussed with management, including the ramifications of the use of such alternative treatments and disclosures and the treatment preferred by the accounting firm, and

• Other material written communications between the accounting firm and management.

4. The Committee shall oversee the work of the independent auditors and evaluate their performance at least annually and shall receive and review:

• a report by the independent auditor describing the independent auditor’s internal quality-control procedures and any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditing firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and

• any other required reports from the independent auditor.

5.	At least annually, the Committee shall consider the independence of the independent auditor, including whether the provision by the independent auditor of permitted non-audit services is compatible with independence, and obtain and review a report from, and discuss with, the independent auditor describing all relationships between the auditor and the Corporation.
6.	The Committee shall pre-approve, to the extent required by applicable law, all audit engagements and any permitted non-audit engagements and the related fees and terms with the independent auditors. The Committee may establish policies and procedures for the engagement of the independent auditor to provide permitted non-audit services. The Committee shall review with management and the independent auditors, at a time when the annual audit plan is being developed, the plan’s timing, scope, staffing, locations, foreseeable issues, priorities and procedures, and the engagement team.
7.	The Committee shall 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. The Committee shall oversee the resolution of any disagreements between corporate management and the independent auditors. The Committee shall discuss with the independent

Amended and Restated Audit Committee Charter –
As Adopted on February 27, 2004 – Page 5

	auditors those matters required to be communicated to audit committees by the independent accountants in accordance with law and with professional standards applicable to the independent accountants.
8.	The Committee shall recommend to the Board, based on the reviews performed by the Committee, whether the annual financial statements should be included in the Annual Report on Form 10-K.
9.	The Committee shall oversee the Corporation’s internal auditing program, shall receive regular reports from the Corporation’s internal auditors regarding the results of their procedures and shall receive corporate management’s response and follow-up to those reports. The Committee shall evaluate the Corporation’s internal auditors, including any outside parties retained by the Corporation to provide internal audit services.
10.	The Committee shall review the Corporation’s policies with respect to risk assessment and risk management, and review contingent liabilities and risks that may be material to the Corporation and major legislative and regulatory developments which could materially impact the Corporation’s contingent liabilities and risks.
11.	The Committee shall review and monitor any programs or procedures that the Corporation has instituted to correct any control deficiencies noted by the independent auditors or the internal auditors in their reviews.
12.	The Committee shall oversee and confirm the rotation, in accordance with applicable law, of the lead audit partner of the independent auditors.
13.	The Committee shall establish policies with respect to hiring by the Corporation of current or former employees of its independent auditors.
14.	The Committee shall administer the Corporation’s Code of Business Conduct. in accordance with its terms, shall construe all terms, provisions, conditions and limitations of the Code and shall make factual determinations required for the administration of the Code and, in connection with such administration shall:

• establish procedures for (a) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters and (b) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters; and

• review with management proposed related party transactions (as such term is used in Item 404 of SEC Regulation S-K) and approve any such transactions the Committee determines to be appropriate for the Corporation to enter into.

Amended and Restated Audit Committee Charter –
As Adopted on February 27, 2004 – Page 6

15. The Committee shall annually prepare a report to stockholders as required to be included in the Corporation’s annual proxy statement filed with the Securities and Exchange Commission.

     The foregoing list is not intended to be exhaustive, and the Committee shall, in addition, have such powers as may be necessary or appropriate in furtherance of the objectives set forth in this Charter or as may, from time to time, be delegated by the Board. The adoption of this Amended and Restated Charter shall not be construed to reduce any power or authority previously delegated to the Committee by the Board.

     The Committee shall have the power to delegate its authority to subcommittees or individual members of the Committee as it deems appropriate, to the full extent permitted under applicable law and applicable listing standards of The NASDAQ Stock Market; provided, however, that any decision made pursuant to the foregoing delegation of authority with respect to the Committee authority under Paragraph 6 of this Section D shall be presented to the Committee at its next regularly-scheduled meeting. In addition, the Committee shall have the power to delegate its authority to other members of the Board who meet the Independence Requirements as it deems appropriate, to the full extent permitted by applicable law and the listing standards of The NASDAQ Stock Market applicable to the Corporation; provided, however, that in no event may it delegate its authority to such other members of the Board under Paragraphs 1 through 8 or Paragraph 15 of this Section D. The Committee shall have the power to delegate its authority under Paragraph 14 of this Section D with respect to administration of the Corporation’s Code of Business Conduct to the General Counsel of the Corporation, except with respect to the authority to amend the Code and to grant waivers to Corporation’s directors, executive officers and senior financial officers.

     The Committee shall have the power to conduct or authorize investigations into any matters within the scope of its responsibilities. The Committee shall have the power to retain consultants, accountants and other outside advisors to advise and assist it in any manner it deems appropriate. The Committee may also retain outside legal counsel, as it deems appropriate. The Committee shall have the sole authority to retain and terminate such consultants, accountants, advisors and counsel and to review and approve their fees and other retention terms and shall have the authority to cause the payment of such fees by the Corporation.

Amended and Restated Audit Committee Charter –
As Adopted on February 27, 2004 – Page 7

EX-99.2

Exhibit 99.2

WebMD Corporation

Compensation Committee Charter

As Adopted on February 27, 2004

A.  Purpose

1.

General. The Compensation Committee (the “Committee”) has been established by the Board of Directors (the “Board”) of WebMD Corporation (the “Corporation”) to determine the compensation arrangements of the executive officers of the Corporation, to assist the Board in providing oversight of the compensation programs applicable to other employees of the Corporation and to provide assistance and recommendations to the Board with respect to various other aspects of the Corporation’s compensation policies and practices and related matters.

2.

Equity Compensation Plans. The Committee has the authority under the Corporation’s existing equity compensation plans (and shall have the authority under any future equity compensation plans that so provide) to make awards in any form permitted under the respective plans.

B.  Composition

1.

Members. The Committee shall consist of as many members as the Board shall determine, but in any event not fewer than three members. Members of the Committee shall be appointed by the Board in accordance with the By-laws of the Corporation. Committee members shall serve until the earliest of their resignation or their replacement or removal by the Board in accordance with this Charter and the By-laws of the Corporation.

2.

Qualifications. Each member of the Committee shall, in the judgment of the Board, meet the following requirements (the “Independence Requirements”):

• all independence requirements, under applicable law, for members of compensation committees of companies listed for quotation on the NASDAQ NMS;

• all applicable independence requirements of The NASDAQ Stock Market for members of compensation committees of companies listed for quotation on the NASDAQ NMS; and

• being free from any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a member of the Committee.

In addition, each member shall, in the judgment of the Board, also meet the following additional requirements (together with the Independence Requirements, the “Qualification Requirements”):

• being “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended); and

• being “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder) (“Section 162(m)”).

	In the event that the Board determines that a member ceases to meet the Qualification Requirements, the Board shall consider the removal and replacement of such member; provided, however, that the Board may, if necessary or appropriate in its judgment, appoint or retain Committee members in reliance on any available exceptions to any of the Qualification Requirements for the time period such exceptions are available. A failure by one or more Committee members to meet any of the Qualification Requirements shall not invalidate decisions made, or actions taken, by the Committee.
3.	Chair. A Chair of the Committee may be appointed by the Board or the Committee.
4.	Removal and Replacement. The members of the Committee may be removed or replaced, and any vacancies on the Committee shall be filled, by the Board in accordance with the By-laws of the Corporation.

C. Operations

1.	Meetings. The Committee shall determine the schedule and frequency of the Committee meetings, provided that the Committee shall meet at least twice per year. Minutes of these meetings shall be kept and filed with the Secretary of the Corporation.
2.	Agenda; Reports. The Committee shall determine the agenda for its meetings. The Committee may invite other Board members, members of management and others to attend meetings and provide pertinent information and reports, as it deems necessary; provided, however, that the Chief

Compensation Committee Charter – As Adopted on February 27, 2004 – Page 2

Executive Officer of the Corporation may not be present during voting or deliberations with respect to his or her own compensation arrangements. Nothing in this Charter shall be construed to restrict the reliance by any member of the Committee, to the full extent permitted by law, on information, opinions, reports or statements presented to the Committee by any of the Corporation’s officers or employees, or other committees of the Board, or by any other person selected with reasonable care by or on behalf of the Corporation or the Committee as to matters the Committee member reasonably believes are within such other person’s professional or expert competence.

3.

Report to Board. The Committee shall report its actions and recommendations to the Board at the next Board meeting after each Committee meeting or, if so determined by the Committee, by distribution to the members of the Board of the minutes of a meeting, a unanimous written consent or other relevant documents.

D.  Authority and Responsibilities Delegated to the Committee

1.	The Committee shall review and approve compensation arrangements for the Corporation’s Chief Executive Officer and other executive officers and shall have the authority to make any determinations and take any actions it determines to be necessary or appropriate in administering any such compensation arrangements.
2.	The Committee shall provide general oversight with respect to compensation policies relating to the Corporation’s other officers and employees and make recommendations to the Board for any changes to such policies that the Committee determines to be necessary or appropriate.
3.	The Committee shall review and approve compensation arrangements for non-employee directors in their capacity as directors and members of the standing committees of the Board. The Committee shall review and approve compensation arrangements for any non-employee directors who provide services to the Corporation other than in their capacity as directors.
4.	The Committee shall evaluate the Chief Executive Officer’s performance in light of the Corporation’s goals and objectives.
5.	The Committee shall assist the Board in overseeing the development of executive succession plans.
6.	The Committee shall review the Corporation’s incentive compensation and equity compensation plans and recommend to the Board any changes in such plans that the Committee determines to be necessary or appropriate.
7.	The Committee shall administer the Corporation’s equity compensation plans and such other compensation plans as the Board may determine (the

Compensation Committee Charter – As Adopted on February 27, 2004 – Page 3

	“Plans”) in accordance with their terms, shall construe all terms, provisions, conditions and limitations of the Plans and shall make factual determinations required for the administration of the Plans.
8.	The Committee shall oversee the Company’s policies on structuring compensation for executive officers to preserve tax deductibility and, as and when required, establish and certify the attainment of performance goals pursuant to Section 162(m).
9.	The Committee shall assess the adequacy of this Charter and the procedures developed by the Committee to implement this Charter on at least an annual basis and shall submit any proposed amendments to this Charter that the Committee recommends be made to the Board for its approval.
10.	The Committee shall produce a report on executive compensation as required to be included in the Corporation’s annual proxy statement filed with the Securities and Exchange Commission.

     The foregoing list is not intended to be exhaustive, and the Committee shall, in addition, have such powers as may be necessary or appropriate in furtherance of the objectives set forth in this Charter or as may, from time to time, be delegated by the Board. The adoption of this Charter shall not be construed to reduce any power or authority previously delegated to the Committee by the Board.

     The Committee shall, to the full extent permitted by applicable law and the listing standards of The NASDAQ Stock Market applicable to the Corporation, have the power to delegate its authority to subcommittees or individual members of the Committee as it deems appropriate. In addition, the Committee shall have the power to delegate its authority to other members of the Board and to members of management as it deems appropriate, to the full extent permitted by applicable law and the listing standards of The NASDAQ Stock Market applicable to the Corporation; provided, however, that in no event may it delegate its authority under Paragraphs 1, 3, 4, 6, 7 and 9 of this Section D.

     The Committee shall have the power to retain consultants, accountants and other outside advisors to advise and assist it in any manner it deems appropriate. The Committee may also retain outside legal counsel, as it deems appropriate. The Committee shall have the sole authority to retain and terminate such consultants, accountants, advisors and counsel and to review and approve their fees and other retention terms and shall have the authority to cause the payment of such fees by the Corporation.

Compensation Committee Charter – As Adopted on February 27, 2004 – Page 4

EX-99.3

Exhibit 99.3

WebMD Corporation

Amended and Restated Nominating Committee Charter

As Amended Through February 27, 2004

A.   Purpose

1.

General. The Nominating Committee (the “Committee”) has been established by the Board of Directors (the “Board”) of WebMD Corporation (the “Corporation”) to assist the Board by actively identifying individuals qualified to become Board members and making recommendations to the Board regarding (a) the persons to be nominated by the Board for election as director at each annual meeting of stockholders, (b) appointments of directors to fill vacancies occurring between annual meetings and (c) appointments of directors to fill newly created directorships, if any, created by expansion of the size of the Board between annual meetings.

2.

Diversity. The Board believes that diversity is a critical attribute of a well-functioning board. It is the responsibility of the Nominating Committee to seek qualified candidates to fill vacancies on the Board that contribute distinctive and useful perspectives to governance that best serves the interests of the Company and its stockholders. The Committee shall advise the Board on matters of diversity, including gender, race, culture, thought and geography, and recommend, as necessary, procedures for achieving diversity of viewpoint, background, skills, types of experience, and areas of expertise on the Board.

B.   Composition

1.

Members. The Committee shall consist of as many members as the Board shall determine, but in any event not fewer than three members. Members of the Committee shall be appointed by the Board in accordance with the By-laws of the Corporation. Committee members shall serve until the earliest of their resignation or their replacement or removal by the Board in accordance with this Charter and the By-laws of the Corporation.

2.

Qualifications. Each member of the Committee shall, in the judgment of the Board, meet the following requirements (the “Independence Requirements”):

• all independence requirements, under applicable law, for members of nominating committees of companies listed for quotation on the NASDAQ NMS;

• all applicable independence requirements of The NASDAQ Stock Market for members of nominating committees of companies listed for quotation on the NASDAQ NMS; and

• being free from any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a member of the Committee.

In the event that the Board determines that a member ceases to meet the Independence Requirements, the Board shall consider the removal and replacement of such member; provided, however, that the Board may, if necessary or appropriate in its judgment, appoint or retain Committee members in reliance on any available exceptions to any of the Independence Requirements for the time period such exceptions are available. A failure by one or more Committee members to meet any of the Independence Requirements shall not invalidate decisions made, or actions taken, by the Committee.

3.	Chair. A Chair of the Committee may be appointed by the Board or the Committee.
4.	Removal and Replacement. The members of the Committee may be removed or replaced, and any vacancies on the Committee shall be filled, by the Board in accordance with the By-laws of the Corporation.

C.  Operations

1.

Meetings. The Committee shall determine the schedule and frequency of the Committee meetings, provided that the Committee shall meet at least once per year in advance of the Board’s nomination of directors for election at the Corporation’s annual meeting. Minutes of these meetings shall be kept and filed with the Secretary of the Corporation.

2.

Agenda; Reports. The Committee shall determine the agenda for its meetings. The Committee may invite other Board members, members of management and others to attend meetings and provide pertinent information and reports, as it deems necessary. Nothing in this Charter shall be construed to restrict the reliance by any member of the Committee, to the full extent permitted by law, on information, opinions, reports or statements presented to the Committee by any of the Corporation’s officers or employees, or other committees of the Board, or by any other person selected with reasonable care by or on behalf of the Corporation or the Committee as to matters the Committee member reasonably believes are within such other person’s professional or expert competence.

Amended and Restated Nominating Committee Charter –
As Adopted on February 27, 2004 – Page 2

3. Report to Board. The Committee shall report its actions and recommendations to the Board at the next Board meeting after each Committee meeting or, if so determined by the Committee, by distribution to the members of the Board of the minutes of a meeting, a unanimous written consent or other relevant documents.

D.  Authority and Responsibilities Delegated to the Committee

1.	The Committee shall establish and review with the Board the qualifications and characteristics that it determines should be sought with respect to individual Board members and the Board as a whole and shall review with the Board any changes thereto that it may, from time to time, determine to be appropriate. These qualifications and characteristics shall be designed to assist the Board in meeting the objectives set forth in Section A.2 of this Charter with respect to diversity.
2.	The Committee shall assess the adequacy of this Charter and the procedures developed by the Committee to implement this Charter on at least an annual basis and shall submit any proposed amendments to this Charter that the Committee recommends be made to the Board for its approval. This assessment shall include a review of procedures developed to assist the Board in meeting the objectives set forth in Section A.2 of this Charter with respect to diversity.
3.	In order to assist the Board in meeting the objectives set forth in Section A.2 of this Charter with respect to diversity, the Committee shall develop director search processes that identify qualified Board candidates both in the corporate environment as well as other enterprises, such as government, academia, private enterprise, complex non-profit organizations, and professions that serve them, such as accounting, human resources, and legal services. The search process will be designed so that candidates are not systematically eliminated from the search process due solely to background or organizational affiliation and so that each director search affirmatively seeks to include candidates with diverse backgrounds and skills.
4.	The Committee shall, in accordance with (a) the policies and principles set forth in this Charter and (b) the relevant requirements of applicable law and requirements applicable to companies listed for quotation on the NASDAQ NMS, identify and recommend to the Board

i.	the persons to be nominated by the Board for election as director at each annual meeting of stockholders,
ii.	persons to be appointed as directors to fill vacancies occurring between annual meetings, and
iii.	persons to be appointed as directors to fill newly created directorships, if any, created by expansion of the size of the Board between annual meetings.

Amended and Restated Nominating Committee Charter –
As Adopted on February 27, 2004 – Page 3

5.	The Committee shall review candidates for the Board recommended by stockholders pursuant to policies and procedures established by the Committee from time to time.
6.	The Committee shall consider whether to recommend to the Board increases or decreases in the size of the Board. The Committee shall consider whether to recommend to the Board (a) changes in the Board committee assignments of existing directors, (b) committee assignments for new directors and (c) the formation of additional Board committees.

     The foregoing list is not intended to be exhaustive, and the Committee shall, in addition, have such powers as may be necessary or appropriate in furtherance of the objectives set forth in this Charter, including the objectives set forth in Section A.2 of this Charter with respect to diversity, or as may, from time to time, be delegated by the Board. The adoption of this Amended and Restated Charter shall not be construed to reduce any power or authority previously delegated to the Committee by the Board.

     The Committee shall, to the full extent permitted by applicable law and the listing standards of The NASDAQ Stock Market applicable to the Corporation, have the power to delegate its authority to subcommittees or individual members of the Committee as it deems appropriate.

     The Committee shall have the power to retain search firms or other advisors to identify director candidates. The Committee may also retain counsel or other advisors, as it deems appropriate. The Committee shall have the sole authority to retain and terminate such search firms, advisors or counsel and to review and approve their fees and other retention terms and shall have the authority to cause the payment of such fees by the Corporation.

Amended and Restated Nominating Committee Charter –
As Adopted on February 27, 2004 – Page 4