-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+Nnku1Shz0mqhkfBFDtBD2ZYckMNNoKxCsIJ6WrLBmZM4Kp4Lt6514l/Et7jp4e PMzxD2jPsPgfuBymt0PakA== 0001047469-99-001121.txt : 19990115 0001047469-99-001121.hdr.sgml : 19990115 ACCESSION NUMBER: 0001047469-99-001121 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 42 FILED AS OF DATE: 19990114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHEON CORP CENTRAL INDEX KEY: 0001009575 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 943236644 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-70553 FILM NUMBER: 99505973 BUSINESS ADDRESS: STREET 1: 4600 PATRICK HENY DRIVE CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4088765000 MAIL ADDRESS: STREET 1: 4600 PATRICK HENY DRIVE CITY: SANTA CLARA STATE: CA ZIP: 95054 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- HEALTHEON CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 7374 94-3236644 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
4600 PATRICK HENRY DRIVE SANTA CLARA, CA 95054 (408) 876-5000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------------- W. MICHAEL LONG CHIEF EXECUTIVE OFFICER HEALTHEON CORPORATION 4600 PATRICK HENRY DRIVE SANTA CLARA, CA 95054 (408) 876-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: LARRY W. SONSINI JACK DENNISON GORDON K. DAVIDSON STEVEN E. BOCHNER VICE PRESIDENT AND LAIRD H. SIMONS III MARK L. REINSTRA GENERAL COUNSEL JEFFREY R. VETTER Wilson Sonsini Goodrich & Rosati HEALTHEON CORPORATION CRAIG A. MENDEN Professional Corporation 4600 Patrick Henry Drive Fenwick & West LLP 650 Page Mill Road Santa Clara, CA 95054 Two Palo Alto Square Palo Alto, CA 94304-1050 (408) 876-5000 Palo Alto, CA 94306 (650) 493-9300 (650) 494-0600
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. --------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / - ---------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / - ---------- If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / - ---------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / / --------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF SECURITIES AGGREGATE TO BE REGISTERED OFFERING PRICE(1) Common Stock, $.0001 par value $35,000,000 TITLE OF SECURITIES AMOUNT OF TO BE REGISTERED REGISTRATION FEE Common Stock, $.0001 par value $9,730
(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) of the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: (1) one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and (2) the other to be used in connection with a concurrent offering outside of the United States and Canada (the "International Prospectus" and, together with the U.S. Prospectus, the "Prospectuses"). The U.S. Prospectus and the International Prospectus are identical in all respects except for the front cover page. The front cover page of the International Prospectus is included herein after the final page of the U. S. Prospectus and is labeled "Alternate Page for International Prospectus." Final forms of each of the Prospectuses will be filed with the Commission pursuant to Rule 424(b) promulgated under the Securities Act of 1933, as amended. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS (SUBJECT TO COMPLETION) ISSUED , 1999 SHARES [LOGO] COMMON STOCK ----------------- HEALTHEON CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. ------------------- WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "HLTH." ------------------- INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4. ----------------- PRICE $ A SHARE -----------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS COMPANY --------- ------------- ----------- PER SHARE.................................................................. $ $ $ TOTAL...................................................................... $ $ $
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. HEALTHEON HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999. ------------------- MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO. HAMBRECHT & QUIST VOLPE BROWN WHELAN & COMPANY , 1999 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of the prospectus or of any sale of the common stock. In this prospectus, unless the context indicates otherwise, the "Company," "Healtheon," "we," "us" and "our" refer to Healtheon Corporation and its consolidated subsidiaries. TABLE OF CONTENTS
PAGE ----------- Prospectus Summary............................. 3 Risk Factors................................... 4 Healtheon Corporation.......................... 14 Use of Proceeds................................ 15 Dividend Policy................................ 15 Capitalization................................. 16 Dilution....................................... 17 Selected Consolidated Financial Data........... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 20 Business....................................... 31 Management..................................... 46 PAGE ----------- Certain Transactions........................... 58 Principal Stockholders......................... 62 Description of Capital Stock................... 64 Shares Eligible for Future Sale................ 68 Certain United States Tax Consequences to Non-U.S. Holders of Common Stock............. 70 Underwriters................................... 73 Legal Matters.................................. 76 Experts........................................ 76 Where You Can Find More Information............ 77 Index to Consolidated Financial Statements..... F-1
Our executive offices are located at 4600 Patrick Henry Drive, Santa Clara, California 95054. Our telephone number is (408) 876-5000. Information contained on our website is not a part of this prospectus. ------------------- Until , 1999, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ------------------- For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. Healtheon, Healtheon's logo, Virtual Healthcare Network, VHN, Healtheon ProviderWorks and ProviderLink are some of our trademarks. SBCL SCAN is a trademark of SmithKline Beecham Clinical Laboratories, Inc. Each other trademark, trade name or service mark of any other company appearing in this prospectus is the property of its holder. The consolidated financial data in this prospectus reflect our acquisition of ActaMed Corporation, or "ActaMed," on May 19, 1998, which was accounted for as a pooling of interests. This means that for accounting and financial reporting purposes, we treat the two companies as if they had always been combined. The consolidated statement of operations and statement of cash flows data for the year ended December 31, 1995 are derived solely from the ActaMed statement of operations for such period because Healtheon did not commence operations until January 1996. See Notes 1 and 2 of Notes to Consolidated Financial Statements for a discussion of how we accounted for the acquisition of ActaMed. 2 DESCRIPTION OF ARTWORK At the top of the page there is a colored band with the Healtheon name and logo on the left and the text "Pioneering the use of the Internet to simplify workflows, decrease costs, and improve the quality of patient care throughout the healthcare industry." On the middle left is the heading "Healtheon's Virtual Healthcare Networks" over a cloud labeled "Internet" with the Healtheon logo superimposed. The cloud has pictures of a telephone, a handheld computing device, a television with internet access, and a computer monitor. The cloud is connected to four photographs by lightning bolts. The upper left picture shows images from a laboratory and has the heading "Suppliers" with the subheadings "Laboratories, Pharmacies, Mail Order Drug and Pharmacy Benefit Managers." The upper right picture is of doctors and has the heading "Providers" with the subheadings "Physicians, Hospitals, Integrated Delivery Networks, Independent Practice Associations and Practice Management Companies." The lower left picture shows patients and has the heading "Consumers" with the subheadings "Employers", "Government Agencies, Individuals and Benefit Brokers." The lower right picture shows business people and has the heading "payers" with the subheadings "Government Agencies, Insurance Companies, Managed Care Companies, and Preferred Provider Organizations." On the middle right are two layers of plugs which connect the Healtheon logo identified as the "Healtheon Platform." This section has the heading "The Healtheon Platform" and is connected by a colored band to the cloud on the left. The upper level of plugs is identified as applications and has plugs for "Claims, Transcription, Authorizing, Workflow Engine, M.D. Search, Referrals, Reporting, Rules Engine, Registration, Eligibility, Person Index, Enrollment, Lab Orders and Prescriptions." There is a plug called "New Applications" over an arrow coming from three sources--"Healtheon Applications, 3rd Party Applications and Legacy Applications." The lower level of plugs is identified as "Data Objects." One plug, labeled "Data", is over an arrow coming from two sources--"Legacy Databases" and "Private Networks." The large Healtheon logo is surrounded by an inner band labeled "Security" and an outer band labeled "Flexibility," "Usability," "Scalability," "Availability," "Extensibility," "Manageability," "Performance" and "Fault Tolerance." The bottom of the page has a large arrow going from left to right with the heading "Enabling a New Model for Managing Healthcare Information and Transactions." To the left of the arrow is the term "Fragmented Legacy Software", and to the right is the term "Network Services Model." Inside the arrow is the following text: "HEALTHEON'S VIRTUAL HEALTHCARE NETWORKS connect providers, payers, consumers and suppliers over the public Internet or private intranets, and provide services and applications that enable the secure exchange of information, transactions and simplified workflows across the healthcare industry. At the center of these networks is THE HEALTHEON PLATFORM, an open framework for providing mission-critical applications and supporting complex healthcare transactions, while at the same time ensuring scalability, availability and security." PROSPECTUS SUMMARY YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. Healtheon is pioneering the use of the Internet to simplify workflows, decrease costs and improve the quality of patient care throughout the healthcare industry. We have designed and developed an Internet-based information and transaction platform, the "Healtheon Platform," that allows us to create Virtual Healthcare Networks, "VHNs," that facilitate and streamline interactions among the myriad participants in the healthcare industry. The Healtheon VHN solution includes a suite of services delivered through applications operating on our Internet-based platform. Our solution enables the secure exchange of information among disparate healthcare information systems and supports a broad range of healthcare transactions, including enrollment, eligibility determination, referrals and authorizations, laboratory and diagnostic test ordering, clinical data retrieval and claims processing. We provide our own applications on the Healtheon Platform and also enable third-party applications to operate on the platform. In addition to Virtual Healthcare Networks, we provide comprehensive consulting, development, implementation and network management services to enable our customers to take full advantage of the capabilities of the Healtheon Platform. To date, our revenue has been derived primarily from non-Internet network services, development and consulting services and management and operation of customers' information technology infrastructure. We have established strategic relationships with leading healthcare companies, including United HealthCare Corporation, SmithKline Beecham Clinical Laboratories, Inc., Brown & Toland Physician Services Organization and Beech Street Corporation. We believe these relationships will enhance our application portfolio, provide us with important specialized industry expertise, increase our market penetration and generate revenue. An investment in our common stock involves risks and uncertainties, including the risks that the healthcare industry may be resistant to the adoption of new information technology due to concerns about government regulation, patient confidentiality and security. See "Risk Factors." THE OFFERING Common stock offered: U.S. offering........................... shares International offering.................. shares Total................................. shares Common stock to be outstanding after the offering................................ shares(1) Use of proceeds........................... For general corporate purposes, including working capital and capital expenditures. See "Use of Proceeds." Dividend Policy........................... We do not anticipate paying any cash dividends in the foreseeable future. Proposed Nasdaq National Market symbol.... "HLTH"
SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- (UNAUDITED) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue..................................................................... $ 2,175 $ 11,013 $ 13,390 $ 7,000 $ 33,231 Loss from operations........................................................ (3,936) (16,541) (25,423) (19,073) (35,196) Net loss applicable to common stockholders.................................. $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613) Basic and diluted net loss per common share(2).............................. $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23) Weighted-average shares outstanding used in computing basic and diluted net loss per common share(2).................................................. 5,246 6,583 7,223 7,019 28,934 Pro forma basic and diluted net loss per common share (unaudited)(2)........ $ (.56) $ (.73) Shares used in computing pro forma basic and diluted net loss per common share (unaudited)(2)...................................................... 44,715 47,263
SEPTEMBER 30, 1998 -------------------------- ACTUAL AS ADJUSTED(3) --------- --------------- (UNAUDITED) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments.................................................... $ 5,392 $ Working capital (deficit)............................................................................ (6,055) Total assets......................................................................................... 50,270 Long-term obligations, net of current portion........................................................ 1,714 Stockholders' equity................................................................................. 30,225
- ------------ (1) Based on the number of shares outstanding at September 30, 1998. Excludes the following: - 15,979,566 shares subject to options and warrants outstanding or reserved for issuance under our stock plans at September 30, 1998; - 7,683,341 shares of Series A convertible preferred stock issued in November 1998; - a warrant to purchase 500,000 shares issued in December 1998; and - shares having a value of $11.0 million that may be issued in connection with an asset purchase agreement with SmithKline Beecham Clinical Laboratories, Inc. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of shares used in computing basic and diluted net loss per common share. (3) As adjusted to give effect to the sale of the shares at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and our estimated offering expenses. See "Use of Proceeds" and "Capitalization." 3 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS OR FINANCIAL CONDITION. IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY HARMED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS. OUR OPERATING HISTORY IS LIMITED AND OUR BUSINESS MODEL IS UNPROVEN Because we have recently begun operations, it is difficult to evaluate our business and our prospects. Our revenue and income potential is unproven and our business model is still emerging. We began operations in January 1996 and until recently had not earned significant revenue. In May 1998, we acquired ActaMed and in August 1998, we acquired Metis, LLC. Our historical financial information is of limited value in projecting our future operating results because of our limited operating history as a combined organization and the emerging nature of our markets. We have lost money since we began operations and, as of September 30, 1998, we had an accumulated deficit of $85.0 million. We currently derive our revenue primarily from proprietary non-Internet network services offered by ActaMed, from development and consulting services and from managing and operating our customers' information technology infrastructures. We plan to invest heavily in acquisitions, infrastructure development, applications development and sales and marketing. As a result, we expect that we will continue to lose money through 1999 and we may never achieve or sustain profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." THE HEALTHCARE INDUSTRY MAY NOT ACCEPT OUR SOLUTIONS To be successful, we must attract a significant number of customers throughout the healthcare industry. To date, the healthcare industry has been resistant to adopting new information technology solutions. Electronic information exchange and transaction processing by the healthcare industry is still developing. We believe that complexities in the nature of the healthcare transactions that must be processed have hindered the development and acceptance of information technology solutions by the industry. Conversion from traditional methods to electronic information exchange may not occur as rapidly as we expect it will. Even if the conversion does occur as rapidly as we expect, healthcare industry participants may use applications and services offered by others. We believe that we must gain significant market share with our applications and services before our competitors introduce alternative products, applications or services with features similar to our current or proposed offerings. Our business plan is based on our belief that the value and market appeal of our solution will grow as the number of participants and the scope of the transaction services available on our platform increase. We may not achieve the critical mass of users we believe is necessary to become successful. In addition, we expect to generate a significant portion of our revenue from subscription and transaction-based fees. Consequently, any significant shortfall in the number of users or transactions occurring over our platform would adversely affect our financial results. See "Business -- Industry Background." 4 WE RELY ON STRATEGIC RELATIONSHIPS To be successful, we must establish and maintain strategic relationships with leaders in a number of healthcare industry segments. This is critical to our success because we believe that these relationships will enable us to: - extend the reach of our applications and services to the various participants in the healthcare industry; - obtain specialized healthcare expertise; - develop and deploy new applications; - further enhance the Healtheon brand; and - generate revenue. Entering into strategic relationships is complicated because some of our current and future partners may decide to compete with us. In addition, we may not be able to establish relationships with key participants in the healthcare industry if we have established relationships with competitors of these key participants. Consequently, it is important that we are perceived as independent of any particular customer or partner. Moreover, many potential partners may resist working with us until our applications and services have been successfully introduced and have achieved market acceptance. Once we have established strategic relationships, we will depend on our partners' ability to generate increased acceptance and use of our platform, applications and services. To date, we have established only a limited number of strategic relationships and these relationships are in the early stages of development. We have limited experience in establishing and maintaining strategic relationships with healthcare industry participants. If we lose any of these strategic relationships or fail to establish additional relationships, or if our strategic partners fail to actively pursue additional business relationships and partnerships, we would not be able to execute our business plans and our business would suffer significantly. We may not experience increased use of our platform, applications and services even if we establish and maintain these strategic relationships. For additional information regarding strategic relationships, see "Business -- Strategy" and "-- Strategic Relationships." WE NEED TO EXPAND OUR SUITE OF APPLICATIONS We currently offer a limited number of applications on our platform and our future success depends on quickly introducing new applications in several healthcare segments. We do not have the internal resources and specialized healthcare expertise to develop all these applications independently. Consequently, we must rely on a combination of internal development, strategic relationships, licensing and acquisitions to develop these applications. Each of our applications, regardless of how it was developed, must be integrated and customized to operate with existing customer legacy computer systems and our platform. Developing, integrating and customizing these applications will be expensive and time consuming. Even if we are successful, these applications may never achieve market acceptance. If we fail to expand the breadth of our applications quickly or these applications fail to achieve market acceptance, our business will suffer significantly. WE FACE RISKS WITH OUR ACQUISITION STRATEGY We expect to continue to acquire technologies and other healthcare technology companies to increase the number and variety of applications on our platform and to increase our customer base. For example, in May 1998 we acquired ActaMed, and in August 1998 we acquired substantially all the assets of Metis, LLC. To be successful, we will need to identify applications, technologies and businesses that are complementary to ours, integrate disparate technologies and corporate cultures and manage a geographically dispersed 5 company. Acquisitions could divert our attention from other business concerns and expose us to unforeseen liabilities or risks associated with entering new markets. Finally, we may lose key employees while integrating these new companies. Integrating newly acquired organizations and technologies into our company could be expensive, time consuming and may strain our resources. In addition, we may lose our current customers if any acquired companies have relationships with competitors of our customers. Consequently, we may not be successful in integrating any acquired businesses or technologies and may not achieve anticipated revenue and cost benefits. The healthcare industry is consolidating and we expect that we will face intensified competition for acquisitions, especially from larger, better-funded organizations. If we fail to execute our acquisition strategy successfully for any reason, our business will suffer significantly. We intend to pay for some of our acquisitions by issuing additional common stock and this could dilute our stockholders. We may also use cash to buy companies or technologies in the future. If we do use cash, we may need to incur debt to pay for these acquisitions. Acquisition financing may not be available on favorable terms or at all. In addition, we may be required to amortize significant amounts of goodwill and other intangible assets in connection with future acquisitions, which would materially harm our results of operations. WE MUST MANAGE OUR GROWTH We have rapidly and significantly expanded our operations and expect to continue to do so. This growth has placed, and is expected to continue to place, a significant strain on our managerial, operational, financial and other resources. As of September 30, 1998, we have grown to 613 employees and independent contractors, from 176 employees and independent contractors on December 31, 1997. A large portion of this increase resulted from our acquisitions of ActaMed in May 1998 and Metis, LLC in August 1998, which increased our payroll by 230 employees. We expect to hire a significant number of new employees to support our business. Our current information systems, procedures and controls may not continue to support our operations and may hinder our ability to exploit the market for healthcare applications and services. We are in the process of evaluating our accounting and management information systems and anticipate that we may implement new systems within the next twelve months. We could experience interruptions to our business while we transition to new systems. WE DEPEND ON THE ADOPTION OF INTERNET SOLUTIONS Our business model depends on the adoption of Internet solutions by commercial users. The Internet may not prove to be a viable commercial marketplace for a number of reasons, including: - inadequate development of the necessary infrastructure for communication speed, access and server reliability; - security and confidentiality concerns; - lack of development of complementary products, such as high-speed modems and high-speed communication lines; - implementation of competing technologies; - delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity; and - governmental regulation. 6 We expect Internet use to grow in number of users and volume of traffic. The Internet infrastructure may be unable to support the demands placed on it by this continued growth. If these factors limit the acceptance or effectiveness of Internet solutions, our business could suffer dramatically. Growth in the demand for our applications and services depends on the adoption of Internet solutions by healthcare participants, which requires the acceptance of a new way of conducting business and exchanging information. The healthcare industry, in particular, relies on legacy systems that may be unable to benefit from our Internet-based platform. To maximize the benefits of our platform, healthcare participants must be willing to allow sensitive information to be stored in our databases. We can process transactions for healthcare participants that maintain information on their own proprietary databases. However, the benefits of our connectivity and sophisticated information management solution are limited under these circumstances. Customers using legacy and client-server systems may refuse to adopt new systems when they have made extensive investment in hardware, software and training for older systems. WE FACE SECURITY AND NETWORK RISKS We currently process substantially all our customer transactions and data at our facilities in Santa Clara, California and Atlanta, Georgia. Although we have safeguards for emergencies, we do not have backup facilities to process information if either of these facilities is not functioning. The occurrence of a major catastrophic event or other system failure at either the Santa Clara or the Atlanta facility could interrupt data processing or result in the loss of stored data. In addition, we depend on the efficient operation of Internet connections from customers to our systems. These connections, in turn, depend on the efficient operation of Web browsers, Internet service providers and Internet backbone service providers, all of which have had periodic operational problems or experienced outages. Any system delays, failures or loss of data, whatever the cause, could reduce customer satisfaction with our applications and services and harm our business. We retain confidential customer and patient information in our processing centers. Therefore, it is critical that our facilities and infrastructure remain secure and that our facilities and infrastructure are perceived by the marketplace to be secure. Despite the implementation of security measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. A material security breach could damage our reputation or result in liability to us. OUR BUSINESS IS AFFECTED BY RAPIDLY CHANGING TECHNOLOGY Healthcare information exchange and transaction processing is a relatively new and evolving market. The pace of change in our markets is rapid and there are frequent new product introductions and evolving industry standards. We may be unsuccessful in responding to technological developments and changing customer needs. In addition, our applications and services offerings may become obsolete due to the adoption of new technologies or standards. See "Business -- Development and Engineering." OUR PLATFORM INFRASTRUCTURE AND ITS SCALABILITY ARE NOT PROVEN So far, we have processed a limited number and variety of transactions over our platform. Similarly, a limited number of healthcare participants use our platform. We must continue to expand and adapt our network infrastructure to accommodate additional users, increased transaction volumes and changing customer requirements. This expansion and adaptation will be expensive and will divert our attention from other activities. Our systems may not accommodate increased use while maintaining acceptable overall performance. Many of our service agreements contain performance standards. If we fail to meet these standards, our customers could terminate their agreements with us. The loss of any of our service agreements would directly 7 and significantly impact our business. We may be unable to expand or adapt our network infrastructure to meet additional demand or our customers' changing needs on a timely basis and at a commercially reasonable cost, or at all. OUR REVENUES ARE CONCENTRATED IN A FEW CUSTOMERS We receive a substantial majority of our revenue from four customers. United HealthCare Corporation, SmithKline Beecham Clinical Laboratories, Inc., Brown & Toland Physician Services Organization and Beech Street Corporation each accounted for over 10% and together accounted for approximately 90% of our total revenue for the nine months ended September 30, 1998. In addition, United HealthCare and Brown & Toland each accounted for over 10% and together accounted for approximately 70% of our total revenue for the year ended December 31, 1997. Customers who also own shares of our stock, including United HealthCare and SmithKline Labs, accounted for 55% of our total revenue in the year ended December 31, 1997 and 43% of our total revenue for the nine months ended September 30, 1998. United HealthCare will own approximately % of our stock after this offering. Similarly, SmithKline Labs will own approximately % of our stock after this offering (not including common stock having a fair market value of $11.0 million that may be issued to SmithKline Labs under a December 1998 Asset Purchase Agreement). We expect that we will generate a significant portion of our revenue from a small number of customers for the next few years. If we do not generate as much revenue from these customers as we expect to, or if we lose any of them as customers, our revenue will be significantly reduced which would harm our business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Strategic Relationships." WE FACE SIGNIFICANT COMPETITION The market for healthcare information services is intensely competitive, rapidly evolving and subject to rapid technological change. Many of our competitors have announced or introduced Internet strategies that will compete with our applications and services. We have many competitors, including: - healthcare information software vendors, including HBO & Company and Shared Medical Systems Corporation; - healthcare electronic data interchange companies, including ENVOY Corporation and National Data Corporation; - large information technology consulting service providers, including Andersen Consulting, International Business Machines Corporation and Electronic Data Systems Corporation; and - small regional organizations. In addition, we expect that major software information systems companies and others specializing in the healthcare industry will offer competitive applications or services. Some of our large customers may also compete with us. Many of our competitors have greater financial, technical, product development, marketing and other resources than we have. These organizations may be better known and have more customers than us. We may be unable to compete successfully against these organizations. See "Business -- Competition." CHANGES IN THE HEALTHCARE INDUSTRY COULD AFFECT OUR BUSINESS The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. These factors affect the purchasing practices and operation of healthcare organizations. Changes in current healthcare financing and reimbursement systems could cause us to make unplanned enhancements of applications or services, or result in delays or cancellations of orders or in the revocation of endorsement of our applications and services by healthcare participants. Federal and state legislatures have 8 periodically considered programs to reform or amend the U.S. healthcare system at both the federal and state level. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our applications and services. We do not know what effect any proposals would have on our business. Many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for our applications and services. If we were forced to reduce our prices, our operating results would suffer. As the healthcare industry consolidates, competition for customers will become more intense and the importance of acquiring each customer will become greater. GOVERNMENT REGULATION COULD AFFECT OUR BUSINESS Our business is subject to government regulation. Laws and regulations may be adopted with respect to the Internet or other on-line services covering issues such as: - user privacy; - pricing; - content; - copyrights; - distribution; and - characteristics and quality of products and services. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Demand for our applications and services may be affected by additional regulation of the Internet. For example, until recently current Health Care Financing Administration guidelines prohibited transmission of Medicare eligibility information over the Internet. We are subject to extensive regulation relating to the confidentiality and release of patient records. Additional legislation governing the distribution of medical records has been proposed at both the state and federal level. It may be expensive to implement security or other measures designed to comply with any new legislation. Moreover, we may be restricted or prevented from delivering patient records electronically. Legislation currently being considered at the federal level could affect our business. For example, the Health Insurance Portability and Accountability Act of 1996 mandates the use of standard transactions, standard identifiers, security and other provisions by the year 2000. We are designing our platform and applications to comply with these proposed regulations; however, until these regulations become final, they could change, which could cause us to use additional resources and lead to delays in order to revise our platform and applications. In addition, our success depends on other healthcare participants complying with these regulations. Some computer applications and software are considered medical devices and are subject to regulation by the United States Food and Drug Administration, or the "FDA." We do not believe that our current applications or services are subject to FDA regulation. We may expand our application and service offerings into areas that subject us to FDA regulation. We have no experience in complying with FDA regulations. We believe that complying with FDA regulations would be time consuming, burdensome and expensive and could delay our introduction of new applications or services. See "Business -- Governmental Regulations." 9 OUR QUARTERLY OPERATING RESULTS MAY VARY We expect that our quarterly revenue and operating results may fluctuate as a result of a number of factors, including: - changes in our strategic relationships; - future acquisitions; - our entry into new healthcare markets; - new customers; - new application and service offerings; - software defects, delays in development and other quality factors; - customer demand for our applications and services; - our ability to meet project milestones or customer expectations; - our mix of consulting and transaction fee revenue; - variability in demand for Internet-based healthcare solutions; - changes within the healthcare industry; and - seasonality of demand. We expect to increase activities and spending in substantially all of our operational areas. We base our expense levels in part upon our expectations concerning future revenue and these expense levels are relatively fixed in the short-term. If we have lower revenue, we may not be able to reduce our spending in the short-term in response. Any shortfall in revenue would have a direct impact on our results of operations. Fluctuations in our quarterly results could affect the market price of our common stock in a manner unrelated to our long-term operating performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." For these and other reasons, we may not meet the earnings estimates of securities analysts or investors and our stock price could suffer. WE MAY FACE PRODUCT-RELATED LIABILITIES While we and our customers test our applications, they may contain defects or result in system failures. In addition, our platform may experience problems in security, availability, scalability or other critical features. These defects or problems could result in the loss of or delay in generating revenue, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to our reputation or increased insurance costs. Many of our strategic relationships and services agreements involve providing critical information technology services to our clients' businesses. Providing these services is complex because our clients have complex computing system environments. If we fail to meet our clients' expectations, our reputation could suffer and we could be liable for damages. In addition, patient care could suffer and we could be liable if our systems fail to deliver correct information in a timely manner. Our insurance may not protect us from this risk. Finally, we could become liable if confidential information is disclosed inappropriately. Our contracts limit our liability arising from our errors; however, these provisions may not be enforceable and may not protect us from liability. While we have general liability insurance that we believe is adequate, including coverage for errors and omissions, we may not be able to maintain this insurance on reasonable terms in the future. In addition, our insurance may not be sufficient to cover large claims and our insurer could disclaim coverage on claims. If we are liable for an uninsured or underinsured claim or if our premiums increase significantly, our financial condition could be materially harmed. 10 WE DEPEND ON OUR PROPRIETARY TECHNOLOGY Our intellectual property is important to our business. We expect that we could be subject to intellectual property infringement claims as the number of our competitors grows and the functionality of our applications overlaps with competitive offerings. These claims, even if not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we would be required to pay a substantial damage award and to develop noninfringing technology, obtain a license or cease selling the applications that contain the infringing intellectual property. We may be unable to develop noninfringing technology or obtain a license on commercially reasonable terms, or at all. In addition, we may not be able to protect against misappropriation of our intellectual property. Third parties may infringe upon our intellectual property rights, we may not detect this unauthorized use and we may be unable to enforce our rights. See "Business -- Intellectual Property." THE SALES AND IMPLEMENTATION CYCLES FOR OUR SOLUTIONS CAN BE LENGTHY A key element of our strategy is to market our solutions directly to large healthcare organizations. We expect that the sales and implementation process will be lengthy and will involve a significant technical evaluation and commitment of capital and other resources by our customers. The sale and implementation of our solutions are subject to delays due to our customers' internal budgets and procedures for approving large capital expenditures and deploying new technologies within their networks. We are unable to control many of the factors that will influence our customers' buying decisions. We will need to expend substantial resources to integrate our applications with the existing legacy and client-server architectures of large healthcare organizations. We have limited experience in integrating our applications with large, complex architectures, and we may experience delays in the integration process. These delays would, in turn, delay our ability to generate revenue from these applications and could adversely affect our results of operations. WE FACE RISKS RELATED TO THE YEAR 2000 Two of our systems, SBCL SCAN, or "SCAN," and ProviderLink, are not Year 2000 compliant. Our revenue from these systems accounted for approximately 43% of our total revenue in the first nine months of 1998. We plan to release Year 2000 upgrades to these systems in early 1999. We estimate the cost of these Year 2000 upgrades to SCAN and ProviderLink to be less than $1.0 million. In addition, our SCAN product is installed on approximately 4,650 workstations located in physician offices. Many of these workstations are not Year 2000 compliant and we must upgrade or replace them. We could experience delays and cost overruns in developing these upgrades. In addition, it may be difficult to convince physicians to implement these upgrades. Our revenue from SCAN and ProviderLink could decrease if we experience delays in upgrading these applications and workstations. In addition, we may not identify all of our applications and systems that must be modified to be Year 2000 compliant and may need to spend additional amounts to repair or modify our applications and systems. In certain of our agreements, we warrant that our applications and services are Year 2000 compliant. If they fail to be compliant, our customers could terminate the agreements and we could be liable for damages. We also depend on other healthcare participants to be Year 2000 compliant. Many of these organizations are not Year 2000 compliant, and we do not know what affect this would have on our systems. We could be liable for the failure of our platform even if the failure was caused by someone else. Furthermore, the costs to our customers of becoming Year 2000 compliant may result in reduced funds being available to purchase and implement our applications and services. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Compliance." 11 WE MAY NEED TO OBTAIN FUTURE CAPITAL We expect that the money generated from this offering, combined with our current cash resources and credit facilities, will be sufficient to meet our requirements for at least the next twelve months. However, we may raise additional financing 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. We may need to raise additional funds by selling debt or equity securities, by entering into strategic relationships or through other arrangements. We may be unable to raise any additional amounts on reasonable terms when they are needed. OUR COMMON STOCK PRICE MAY BE VOLATILE You may not be able to resell your shares at or above the initial public offering price due to a number of factors, including: - actual or anticipated quarterly variations in our operating results; - changes in expectations of future financial performance or changes in estimates of securities analysts; - announcements of technological innovations; - announcements relating to strategic relationships; - customer relationship developments; and - conditions affecting the Internet or healthcare industries, in general. The trading price of our common stock may be volatile. The stock market in general, and the market for technology and Internet-related companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. If this were to happen to Healtheon, litigation would be expensive and would divert management's attention. The initial public offering price will be established by negotiation between the U.S. underwriters and Healtheon. You should read the "Underwriters" section for a more complete discussion of the factors determining the initial public offering price. WE DEPEND ON OUR KEY PERSONNEL Our success will depend significantly on our senior management team and other key employees. We need to attract, integrate, motivate and retain additional highly skilled technical people. In particular, we need to attract experienced professionals capable of developing, selling and installing complex healthcare information systems. We face intense competition for these people. Our executive management team, including W. Michael Long, our Chief Executive Officer, and Pavan Nigam, our Vice President, Engineering, is critical to our success. We do not maintain key person life insurance for anyone. WE HAVE CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of our certificate of incorporation and bylaws and the provisions of Delaware law could have the effect of delaying, deferring or preventing an acquisition of Healtheon. For example, our board of directors is divided into three classes to serve staggered three-year terms, our stockholders may not take actions by written consent and our stockholders are limited in their ability to make proposals at stockholder meetings. See "Description of Capital Stock" for a further discussion of these provisions. 12 FUTURE SALES OF SHARES COULD AFFECT OUR STOCK PRICE The market price for our common stock could fall dramatically if our stockholders sell large amounts of our common stock in the public market following this offering. These sales, or the possibility that these sales may occur, could make it more difficult for us to sell equity or equity-related securities in the future. The number of shares of common stock available for sale in the public market is limited by restrictions under federal securities law and by certain "lock-up" agreements that our stockholders have entered into with the underwriters. The lock-up agreements restrict our stockholders from selling or otherwise disposing of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated may, however, in its sole discretion and without notice, release all or any portion of the shares from the restrictions in the lock-up agreements. After this offering, we will have outstanding shares of common stock, based upon shares outstanding as of November 30, 1998 and assuming no exercise of the Underwriters' overallotment option and no exercise of outstanding options or warrants. These shares will become eligible for sale in the public market as follows:
NUMBER OF SHARES DATE ELIGIBLE FOR PUBLIC RESALE - ----------------------- --------------------------------------------------------------------- .............. Date of this prospectus (includes the shares sold in this offering) 52,254,368............. 180 days after the date of this prospectus 9,283,341............. At various times thereafter through November 6, 1999
All but 10,437,264 of the shares eligible for sale at the 180th day after the date of this prospectus or afterward will be subject initially to certain volume and other limitations under Rule 144 of the Securities Act. On or prior to the 180th day following the date of this prospectus, we intend to register for resale an additional 13,811,659 shares of common stock reserved for issuance under our employee stock plans. In addition, the holders of approximately 50,007,164 shares of our common stock have the right to require us to register their shares for sale to the public. If these holders cause a large number of shares to be registered and sold in the public market, our stock price could fall materially. See "Shares Eligible for Future Sale." OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL OF THE COMPANY AND WILL BENEFIT FROM THE OFFERING After this offering, our directors and management will own or control approximately % of our common stock. If these people act together, they will be able to significantly influence the management and affairs of Healtheon and will have the ability to control all matters requiring stockholder approval. This concentration of ownership may have the effect of delaying, deferring or preventing an acquisition of Healtheon and may adversely affect the market price of our common stock. Existing stockholders have paid an average of $2.07 per share for their common stock, which is considerably less than the amount to be paid by investors who purchase in this offering. This offering will also create a public market for the resale of shares held by existing investors, and substantially increase the market value of those shares. See "Dilution" and "Principal Stockholders." 13 HEALTHEON CORPORATION Healtheon is pioneering the use of the Internet to simplify workflows, decrease costs and improve the quality of patient care throughout the healthcare industry. We designed and developed the Healtheon Platform, an Internet-based information and transaction platform that allows us to create Virtual Healthcare Networks, or VHNs, that facilitate and streamline interactions among the myriad participants in the healthcare industry. The Healtheon VHN solution includes a suite of services delivered through applications operating on our Internet-based platform. Our solution enables the secure exchange of information among disparate healthcare information systems and supports a broad range of healthcare transactions, including enrollment, eligibility determination, referrals and authorizations, laboratory and diagnostic test ordering, clinical data retrieval and claims processing. We provide our own applications on the Healtheon Platform and also enable third-party applications to operate on the platform. In addition to Virtual Healthcare Networks, we provide comprehensive consulting, development, implementation and network management services to enable our customers to take full advantage of the capabilities of the Healtheon Platform. We have established strategic relationships with leading healthcare companies, including United HealthCare Corporation, SmithKline Beecham Clinical Laboratories, Inc., Brown & Toland Physician Services Organization and Beech Street Corporation. We believe that these relationships will enhance our application portfolio, provide us with important specialized industry expertise, increase our market penetration and generate revenue. The Internet's open architecture, universal accessibility and growing acceptance make it an increasingly important environment for business-to-business and business-to-consumer interaction. Use of the Internet is rapidly expanding from simple information publishing, messaging, and data gathering to critical business transactions and confidential communications. For many industries, the Internet is connecting previously disconnected business processes and allowing companies to automate workflows, lower distribution costs and extend their market reach. We believe the healthcare industry, because of its size, fragmentation and extreme dependence on information exchange, is particularly well suited to benefit from greater use of the Internet. The Healtheon Platform is designed to ensure security, scalability, reliability, availability and flexibility. The platform includes a CORBA-based distributed application framework that allows reliable, simultaneous access by large numbers of users. Open architecture and object-oriented design permit standards-based integration with legacy systems and third-party applications. A combination of advanced technologies, including digital encryption, digital certificates and audit trail tracking, ensures security. The platform is deployed on redundant, fault tolerant servers with associated software to create 24-hour availability. Our objective is to become the leading provider of Internet-based transaction and information services to the healthcare industry. Our strategy includes: - leveraging Internet technology to provide secure transactions and communications among a broad range of healthcare participants, regardless of their computing platforms; - expanding the functionality and transaction capability of our platform through the development, acquisition or enabling of Internet-based applications; - forming additional strategic relationships to increase our portfolio of applications and services, to increase the number of connected healthcare participants and to provide specialized industry expertise for our new applications; - targeting regional markets where we can gain critical mass, thereby expanding nationally region by region; and - employing our usage-based business model to reduce the initial investment required by customers to obtain the benefits of high-end information technology systems and enable physicians, small organizations and individuals to gain access to advanced information systems for the first time. 14 We were incorporated in Delaware in December 1995 and commenced operations in January 1996. In May 1998, we acquired ActaMed, a leading provider of network services to the healthcare industry. In August 1998, we acquired Metis, LLC, a leading consulting, design and development firm focused on Internet and intranet-based solutions for medical centers and integrated delivery networks. USE OF PROCEEDS The net proceeds from the sale of the shares of common stock in this offering are estimated to be approximately $ million (approximately $ million if the U.S. underwriters' over-allotment option is exercised in full), at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and our estimated offering expenses. The principal purposes of this offering are to obtain additional capital, to create a public market for the Company's common stock, to enhance the ability of the Company to acquire other businesses, products or technologies, and to facilitate future access by the Company to public equity markets. The Company currently expects to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures. The Company may also use a portion of the net proceeds of this offering to acquire or invest in complementary businesses or technologies, although the Company has no present commitments or agreements with respect to any such acquisition or investment. However, the Company from time to time enters into nondisclosure agreements with third parties for the purpose of evaluating strategic transactions involving complementary businesses or technologies. Pending such uses, the Company intends to invest such funds in short-term, interest-bearing, investment grade securities. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its common stock or other securities and does not intend to pay any cash dividends with respect to its common stock in the foreseeable future. The Company intends to retain any earnings for use in the operation of its business and to fund future growth. In addition, the terms of the Company's credit agreement prohibit the payment of cash dividends on its capital stock. 15 CAPITALIZATION The following table sets forth the total capitalization of the Company as of September 30, 1998 (1) on an actual basis and (2) on an as adjusted basis to reflect the receipt by the Company of the estimated net proceeds from the sale of the shares of common stock in this offering (at an assumed initial public offering price of $ per share) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company.
SEPTEMBER 30, 1998 ----------------------- ACTUAL AS ADJUSTED ---------- ----------- (UNAUDITED) (IN THOUSANDS) Capital lease obligations, net of current portion........................................ $ 1,714 $ 1,714 ---------- ----------- Stockholders' equity: Convertible Preferred Stock, $.0001 par value; no shares authorized, no shares issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, as adjusted........................................................................... -- -- Common Stock, $.0001 par value; 75,000,000 shares authorized, 54,422,868 shares issued and outstanding, actual; 150,000,000 shares authorized, shares issued and outstanding, as adjusted(1)........................................................... 5 Additional paid-in capital............................................................... 117,964 Deferred stock compensation.............................................................. (2,751) (2,751) Accumulated deficit...................................................................... (84,993) (84,993) ---------- ----------- Total stockholders' equity........................................................... 30,225 ---------- ----------- Total capitalization............................................................... $ 31,939 $ ---------- ----------- ---------- -----------
- --------- (1) Excludes (i) 11,186,473 shares of common stock issuable upon the exercise of options outstanding at September 30, 1998, with a weighted average exercise price of $2.33 per share, (ii) 2,715,853 shares reserved for issuance under our 1996 Stock Plan and our 1998 Purchase Plan at September 30, 1998, (iii) 2,077,240 shares of common stock issuable upon the exercise of warrants outstanding at September 30, 1998, with a weighted average exercise price of $2.81 per share, (iv) 500,000 shares of common stock subject to a warrant with an exercise price of $10.40 per share issued to a customer in December 1998, (v) 7,683,341 shares of Series A convertible preferred stock issued in November 1998 for $46.1 million in cash proceeds, (vi) options to purchase common stock granted and shares of common stock issued pursuant to restricted stock purchase agreements equal to a total of 1,518,257 shares from October to December 1998 with a weighted-average exercise or purchase price of $3.55 per share and (vii) shares of common stock having a value of $11.0 million that may be issued in connection with a December 1998 Asset Purchase Agreement with SmithKline Beecham Clinical Laboratories, Inc. See "Management--Employee Benefit Plans," "Description of Capital Stock" and Notes 10, 11 and 14 of Notes to Consolidated Financial Statements. 16 DILUTION The net tangible book value of the Company as of September 30, 1998 was approximately $6.5 million, or $0.12 per share. Net tangible book value per share is determined by dividing the total net tangible book value of the Company, which is total tangible assets less total liabilities, by the number of shares of common stock at that date. Dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering. After giving effect to the sale of shares of common stock offered by the Company hereby, at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company, and the application of the estimated net proceeds therefrom, the Company's net tangible book value at September 30, 1998 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $ per share and an immediate dilution to new investors of $ per share. The following table illustrates the per share dilution:
Assumed initial public offering price per share............................ $ Net tangible book value per share as of September 30, 1998............... .12 Increase per share attributable to new investors ----- Net tangible book value per share after this offering...................... $ ----- Dilution per share to new public investors $ ----- -----
The following table sets forth, on a pro forma basis, as of September 30, 1998, the difference between the number of shares of common stock purchased from the Company, the total consideration paid and the average price per share paid by existing stockholders and by the new investors (at an assumed initial public offering price of $ per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company):
SHARES PURCHASED TOTAL CONSIDERATION ------------------------- --------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------------ ----------- -------------- ----------- --------------- Existing stockholders......... 54,422,868 % $ 112,858,000 % $ 2.07 New public investors.......... ------------ ----- -------------- ----- Total..................... 100.0% 100.0% ------------ ----- -------------- ----- ------------ ----- -------------- -----
As of September 30, 1998, there were options outstanding to purchase a total of 11,186,473 shares of common stock, with a weighted average exercise price of $2.33 per share, and warrants to purchase a total of 2,077,240 shares of common stock, with a weighted average exercise price of $2.81 per share. From October through December 1998, the Company granted options to purchase common stock and issued shares of common stock pursuant to restricted stock purchase agreements equal to a total of 1,518,257 shares, with a weighted average exercise or purchase price of $3.55 per share. To the extent that any of the outstanding options or warrants are exercised, there will be further dilution to new public investors. If all outstanding options and warrants, through December 31, 1998, were exercised, the dilution per share to new public investors would be $ . In November 1998, the Company issued 7,683,341 shares of Series A convertible preferred stock for $46.1 million in cash proceeds at a purchase price of $6.00 per share. In October 1998, the Company offered to reprice options granted from July 1998 through October 1998. Pursuant to this repricing, option holders could surrender their original option in exchange for a new option with a new vesting start date and an exercise price of $3.55 per share. Options for a total of 2,067,950 shares were canceled and reissued. On December 14, 1998, 455,000 shares of common stock issued in July 1998 pursuant to restricted stock purchase agreements were repurchased. 17 SELECTED CONSOLIDATED 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 prospectus. In May 1998, Healtheon acquired ActaMed in a transaction accounted for as a pooling of interests. All financial information has been restated to reflect the combined operations of the Company and ActaMed. The consolidated statements of operations data for the three-year period ended December 31, 1997 and the consolidated balance sheet data at December 31, 1996 and 1997 are derived from, and are qualified by reference to, the audited Consolidated Financial Statements included elsewhere in this prospectus. The consolidated statements of operations data for the two-year period ended December 31, 1994 and the consolidated balance sheet data at December 31, 1993, 1994 and 1995 are derived from, and are qualified by reference to, audited Consolidated Financial Statements that are not included in this prospectus. The statements of operations data for the nine-month period ended September 30, 1997 and 1998 and the balance sheet data as of September 30, 1998 are derived from unaudited financial statements included elsewhere in this prospectus and, in the opinion of the Company, include all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations for this period. Historical operating results are not necessarily indicative of results in the future, and the results for interim periods are not necessarily indicative of the results that may be expected for the entire year.
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1): Revenue: Services.................................... $ -- $ 190 $ 458 $ 1,795 $ 4,301 $ 1,216 $ 18,326 Services to related parties(2).............. -- -- -- 4,237 7,309 5,199 14,320 Software licenses........................... -- -- 1,717 4,981 1,780 585 585 --------- --------- --------- --------- --------- --------- --------- Total revenue............................... -- 190 2,175 11,013 13,390 7,000 33,231 Operating costs and expenses: Cost of revenue: Cost of services.......................... -- 507 1,573 1,648 4,011 1,080 18,688 Cost of services to related parties....... -- -- -- 4,919 6,536 4,648 12,512 Cost of software licenses................. -- -- 343 160 -- -- -- --------- --------- --------- --------- --------- --------- --------- Total cost of revenue....................... -- 507 1,916 6,727 10,547 5,728 31,200 Development and engineering expense......... 1,002 1,863 2,446 8,596 12,986 9,681 13,036 Sales, general and administrative expense... 769 938 1,749 9,042 11,031 7,477 16,794 Amortization of intangible assets........... -- -- -- 3,189 4,249 3,187 7,397 --------- --------- --------- --------- --------- --------- --------- Total operating costs and expenses.......... 1,771 3,308 6,111 27,554 38,813 26,073 68,427 --------- --------- --------- --------- --------- --------- --------- Loss from operations.......................... (1,771) (3,118) (3,936) (16,541) (25,423) (19,073) (35,196) Interest income............................... 5 172 208 539 611 359 834 Interest expense.............................. (117) (57) (6) (56) (323) (177) (361) Dividends on ActaMed's convertible redeemable preferred stock............................. -- -- -- (2,548) (2,870) (2,382) (890) --------- --------- --------- --------- --------- --------- --------- Net loss...................................... (1,883) (3,003) (3,734) (18,606) (28,005) (21,273) (35,613) Dividends on ActaMed's convertible redeemable preferred stock............................. -- (423) (724) -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net loss applicable to common stockholders.... $ (1,883) $ (3,426) $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Basic and diluted net loss per common share... $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23) Weighted-average shares outstanding used in computing basic and diluted net loss per common share(3)............................. 5,246 6,583 7,223 7,019 28,934 Pro forma basic and diluted net loss per common share (unaudited).................... $ (.56) $ (.73) Shares used in computing pro forma basic and diluted net loss per common share (unaudited)(3)............................. 44,715 47,263
18
DECEMBER 31, -------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- ------- -------- ------- SEPTEMBER 30, 1998 ------------- (IN THOUSANDS) (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA(1): Cash, cash equivalents and short-term investments..................... $ 74 $ 4,186 $ 9,386 $ 7,539 $21,804 $ 5,392 Working capital (deficit)............................................. (1,737) 4,226 7,244 2,505 14,790 (6,055) Total assets.......................................................... 899 5,379 10,801 34,407 53,747 50,270 Long-term obligations, net of current portion......................... 159 63 -- 1,210 932 1,714 Convertible redeemable preferred stock................................ -- 7,919 16,029 39,578 50,948 -- Stockholders' equity (net capital deficiency)......................... (1,335) (2,838) (7,697) (14,553) (9,930) 30,225
- ------------ (1) The consolidated statements of operations and balance sheet data as of and for the years ended December 31, 1993, 1994 and 1995 are derived solely from the ActaMed statements of operations and balance sheets for such periods because Healtheon did not commence operations until January 1996. See Notes 1 and 2 of Notes to Consolidated Financial Statements for a discussion of the accounting for the acquisition of ActaMed. (2) Revenue from services to related parties consists of revenue from United HealthCare and SmithKline Labs, customers that are also significant stockholders of the Company. (3) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the shares used in computing basic and diluted net loss per common share. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS CONTEMPLATED BY THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Healtheon is pioneering the use of the Internet to simplify workflows, decrease costs and improve the quality of patient care throughout the healthcare industry. Healtheon's VHN Solution enables the secure exchange of information among a wide array of disparate healthcare information systems and provides a framework for a broad range of healthcare transactions. Healtheon was incorporated in December 1995, commenced operations in January 1996 and until late 1997 had not recognized substantial revenue and was considered to be in the development stage. In May 1998, Healtheon acquired ActaMed, which was incorporated in 1992. The acquisition of ActaMed was accounted for as a pooling of interests. The financial information presented reflects the combined financial position and operations of Healtheon and ActaMed for all dates and periods presented. The Company's limited revenue to date has been derived primarily from proprietary non-Internet network services offered by ActaMed and from management and operation of customers' information technology, or "IT," infrastructure. In March 1996, ActaMed acquired EDI Services, Inc., or "EDI," a wholly-owned subsidiary of United HealthCare, in a transaction accounted for as a purchase. Accordingly, the operations of EDI are included in the Company's consolidated statements of operations beginning in March 1996. In August 1998, the Company acquired substantially all of the assets of Metis, LLC, a leading consulting, design and development firm focused on Internet and intranet-based solutions for medical centers and integrated delivery networks. In connection with this acquisition, the Company issued 1,600,000 shares of its common stock, of which 476,548 shares will be issued to certain employees pursuant to restricted stock purchase agreements subject to a lapsing right of repurchase, at the option of the Company, over the agreements' respective vesting periods. Of these shares, 200,000 shares are held in escrow to secure certain indemnification obligations. The Metis acquisition was treated as a tax-free reorganization and accounted for as a purchase. The Company earns revenue from services and services to related parties, which include providing access to its network-based services, including fixed fee and transaction-based services, and performing development and consulting services, and from licensing software. Revenue from services to related parties consists of services provided to United HealthCare under a Services and License Agreement between the Company and United HealthCare dated April 4, 1996, or the "United HealthCare Agreement," and services provided to SmithKline Labs under a Services Agreement between the Company and SmithKline Labs dated December 31, 1997, or the "Services Agreement." Customers may purchase some or all of the Company's applications and services and the customer relationship may evolve from utilizing development and consulting services to utilizing transaction and subscription-based services. The Company earns network-based services revenue from fixed fee subscription arrangements, which revenue is recognized ratably over the term of the applicable agreement, or revenue from arrangements that are priced on a per-transaction or per-user basis, which revenue is recognized as the services are performed. Revenue from development projects is recognized on a percentage-of-completion basis or as such services are performed, depending on the terms of the contract. Revenue from consulting services is recognized as such services are performed. Cash received in excess of revenue recognized relating to such services has been recorded as deferred revenue. As of September 30, 1998, the Company had deferred revenue of approximately $4.4 million. 20 The United HealthCare Agreement has a five year term; however, the agreement provides that two years after the date of the agreement, April 4, 1998, the parties will agree on new prices that they agree are competitive with the marketplace. The Company and United HealthCare are negotiating such new prices, and the Company anticipates that the new prices will reduce the rates paid by United HealthCare. The Services Agreement with SmithKline Labs also has a five year term, but provides that the parties will negotiate new rates as of January 1, 2001 and each two year period thereafter. Pursuant to the Services Agreement, the renegotiated rates must be competitive with the marketplace and must be no higher than the lowest fees charged by the Company to similarly situated customers. In December 1998, Healtheon and SmithKline Labs entered into an asset purchase agreement. The agreement provides that Healtheon will purchase certain assets currently used by SmithKline Labs to provide laboratory results delivery services in exchange for $2.0 million in cash and shares of Healtheon's common stock having a value of $11.0 million. The asset purchase agreement calls for Healtheon and SmithKline Labs to enter a related services agreement under which Healtheon will provide certain electronic laboratory results delivery services to approximately 20,000 provider sites, in addition to the sites currently served through the SCAN service. The asset purchase agreement is subject to execution of the related service agreement and approval by the Company's Board of Directors. The Company recognizes software license revenue in accordance with the American Institute of Certified Public Accountants' Statement of Position 97-2. ActaMed entered into a national marketing and licensing agreement with International Business Machines Corporation, "IBM", in 1995 that granted IBM a nonexclusive, nontransferable right to market ActaMed's software and services for a total of $6.3 million. For the years ended December 31, 1995, 1996 and 1997, approximately $1.7 million, $3.4 million and $1.2 million, respectively, of this amount was recognized as software license revenue upon delivery of the software. No software license revenue was recognized under this agreement for the nine months ended September 30, 1997 or 1998. In December 1996, the Company entered into a new agreement, or the "License," to license its newly granted patent to IBM. As part of the License, IBM agreed to pay ActaMed $4.8 million over a four-year period, $1.0 million in December 1996 and the remaining balance in 48 equal monthly installments commencing in January 1997. Additionally, in conjunction with the License, the Company issued IBM a five-year warrant to purchase 282,522 shares of the Company's common stock at a price of $7.97 per share. Because of the extended payment terms and the Company's contentious relationship with IBM, the Company concluded that the license fee was not assured of collection and, accordingly, is recognizing this revenue as the proceeds are collected. For the years ended December 31, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, the Company recognized revenue from the License of $1.0 million, $.8 million, $.6 million and $.6 million, respectively. At December 31, 1997, amounts due from IBM of $.7 million and $1.7 million were included in accounts receivable and other assets, respectively. At September 30, 1998, amounts due from IBM of $.8 million and $1.1 million were included in accounts receivable and other assets, respectively. Deferred revenue at December 31, 1996 and 1997 and September 30, 1998 included $3.1 million, $2.3 million and $1.8 million, respectively, related to the License. The Company does not expect that it will earn a material amount of revenue from software licenses in the foreseeable future. The Company has developed strategic relationships with healthcare industry leaders, including United HealthCare, SmithKline Labs, Brown & Toland and Beech Street. These four companies each accounted for over 10%, and together accounted for approximately 90%, of the Company's total revenue for the nine months ended September 30, 1998 and United HealthCare and SmithKline Labs accounted for all of the Company's revenue from services to related parties. The Company expects that a small number of customers will continue to account for a substantial portion of the Company's revenue for the foreseeable future. The 21 loss of one or more of the Company's significant customers, or a decline in volume of business generated by such customers, could have a material adverse effect on the Company's business, financial condition and results of operations. Cost of services and cost of services to related parties consist of costs related to services the Company provides to customers and costs associated with the operation and maintenance of Healtheon's networks. These costs include salaries and related expenses for consulting and development personnel, network operations personnel, customer support personnel, telecommunication costs, depreciation and maintenance of network equipment, a portion of facilities expenses and leased personnel and facilities costs. Cost of software licenses consists primarily of expenses related to royalties and sublicensing fees. Given the Company's limited operating history, changes in revenue mix, limited history of Internet-based network services, recent investments in personnel, amortization of infrastructure investments and evolving business model, the Company believes that analysis of historical cost of revenue as a percentage of revenue is not meaningful. The Company anticipates that its total cost of revenue will increase in absolute dollars in the future. Development and engineering expense, which excludes development expenses that are included in cost of revenue, consists primarily of salaries and related expenses associated with the development of applications and services and includes compensation paid to engineering personnel, fees to outside contractors and consultants, a portion of facilities expenses and the depreciation and amortization of capital equipment used in the development process. The Company believes its success is partially dependent upon its ability to introduce new applications in several healthcare markets in a relatively short period of time. Accordingly, the Company intends to continue recruiting and hiring experienced engineering personnel and to continue making other investments in development and engineering. The Company expects that development and engineering expenses will continue to increase in absolute dollars. Currently, all development and engineering costs are expensed as incurred. Sales, general and administrative expense consists primarily of salaries and related expenses for sales, account management, marketing, administrative, finance, legal, human resources and executive personnel, commissions, costs and expenses for marketing programs and trade shows, fees for professional services and costs of accounting and internal control systems to support the operations of the Company. The Company anticipates that sales, general and administrative expense will continue to increase in absolute dollars as it adds sales, marketing and administrative personnel, increases its marketing and promotional activities and incurs costs related to being a public company, such as directors' and officers' liability insurance premiums and professional fees. The Company's business model is still in an emerging stage, and revenue and income potential from the Company's business is unproven. Moreover, the Company's limited operating history under its current business model makes an evaluation of the Company and its prospects difficult; investors should not use the Company's past results as a basis to predict future performance. The Company has incurred net losses since inception and, as of September 30, 1998, had an accumulated deficit of $85.0 million. The Company intends to continue investing heavily in acquisitions, infrastructure development, application development and sales and marketing. As a result, the Company expects to incur substantial operating losses at least through 1999. There can be no assurance that the Company will achieve significant revenue or profitability or, if significant revenue or profitability are achieved, that they can be sustained. 22 RESULTS OF OPERATIONS The following table sets forth certain data expressed as a percentage of total revenue for the periods indicated.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------ ------------------- 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- (UNAUDITED) Revenue: Services................................................................... 21.1% 16.3% 32.1% 17.4% 55.1% Services to related parties(1)............................................. -- 38.5 54.6 74.3 43.1 Software licenses.......................................................... 78.9 45.2 13.3 8.3 1.8 -------- -------- -------- -------- -------- Total revenue.............................................................. 100.0 100.0 100.0 100.0 100.0 Operating costs and expenses: Cost of revenue: Cost of services......................................................... 72.3 15.0 30.0 15.4 56.2 Cost of services to related parties...................................... -- 44.7 48.8 66.4 37.7 Cost of software licenses................................................ 15.8 1.5 -- -- -- -------- -------- -------- -------- -------- Total cost of revenue.................................................... 88.1 61.2 78.8 81.8 93.9 Development and engineering................................................ 112.5 78.0 97.0 138.4 39.2 Sales, general and administrative.......................................... 80.4 82.1 82.4 106.8 50.5 Amortization of intangible assets.......................................... -- 29.0 31.7 45.5 22.3 -------- -------- -------- -------- -------- Total operating costs and expenses......................................... 281.0 250.3 289.9 372.5 205.9 -------- -------- -------- -------- -------- Loss from operations......................................................... (181.0) (150.3) (189.9) (272.5) (105.9) Interest income.............................................................. 9.6 4.9 4.6 5.1 2.5 Interest expense............................................................. (0.3) (0.5) (2.4) (2.5) (1.1) Dividends on ActaMed's convertible redeemable preferred stock................ -- (23.1) (21.4) (34.0) (2.7) -------- -------- -------- -------- -------- Net loss..................................................................... (171.7) (169.0) (209.1) (303.9) (107.2) Dividends on ActaMed's convertible redeemable preferred stock................ (33.3) -- -- -- -- -------- -------- -------- -------- -------- Net loss applicable to common stockholders................................... (205.0)% (169.0)% (209.1)% (303.9)% (107.2)% -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- --------- (1) Revenue from services to related parties consists of revenue from United HealthCare and SmithKline Labs, customers that are also significant stockholders of the Company. NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 REVENUE. Total revenue increased to $33.2 million in the first nine months of 1998 from $7.0 million in the same period of 1997. Revenue from services increased to $18.3 million in the first nine months of 1998 from $1.2 million in the same period in 1997. The significant increase in revenue was due principally to new contracts with Brown & Toland and Beech Street for the management and operation of their IT infrastructure beginning in late 1997. To provide these services, the Company utilizes its own personnel, certain outside contractors and certain personnel and facilities of the customers that are leased to the Company. The cost of these leased customer personnel and facilities are included as part of the total costs of the IT and development services billed to the customers by the Company. In the first nine months of 1998, the Company recognized revenue for IT services of $10.9 million, which included the Company's costs of leased personnel and facilities of $8.8 million. In addition, the Company recognized revenue of approximately $4.8 million for development services in the same period. 23 Revenue from services to related parties increased to $14.3 million in the first nine months of 1998 from $5.2 million in the same period of 1997 primarily due to a new contract with SmithKline Labs in December 1997 to service its SCAN laboratory test order and results service. Revenue from software licenses was unchanged in the first nine months of 1998 from the same period in 1997. The Company expects that revenue from software licenses will continue to decline in future periods as a percentage of total revenue. COST OF REVENUE. Total cost of revenue increased to $31.2 million in the first nine months of 1998 from $5.7 million in the same period of 1997. Cost of services increased to $18.7 million in the first nine months of 1998 from $1.1 million in the same period in 1997. This increase includes $8.8 million related to costs of leased personnel and facilities utilized to provide IT services and $4.8 million related to development services. The remainder of the increase resulted from increased personnel to support the Brown & Toland and Beech Street contracts. The Company had no cost of software licenses revenue in the first nine months of 1998 or in the comparable period of 1997. Cost of services to related parties increased to $12.5 million in the first nine months of 1998 from $4.6 million in the same period of 1997. This increase resulted from higher personnel and network operations costs necessary to support increased transactions from the Company's SCAN services. DEVELOPMENT AND ENGINEERING. Development and engineering expense, which excludes development expenses that are included in cost of revenue, increased to $13.0 million in the first nine months of 1998 from $9.7 million in the same period of 1997. The increase in development and engineering expenses was caused by a significant increase in the number of engineers engaged in the development of the Company's applications and services. SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative expense increased to $16.8 million in the first nine months of 1998 from $7.5 million in the same period of 1997. The increase resulted primarily from the addition of sales personnel and executive management (approximately $6.7 million in salaries and related support costs), approximately $.8 million of costs related to the merger with ActaMed and from the amortization of deferred compensation. The Company recorded deferred compensation of $2.4 million during the first nine months of 1998, and recorded $1.8 million of amortization of deferred compensation in this period. Deferred compensation represents the difference between the purchase or exercise price of certain restricted stock and stock option grants and the deemed fair value of the Company's common stock at the time of such grants. The deferred compensation balance of $2.8 million at September 30, 1998 will be amortized over the vesting period, generally four years, of the respective option or restricted stock grants. Amortization is estimated to total $0.6 million for the last three months of 1998, $1.4 million for 1999, $0.6 million for 2000, and $0.2 million for 2001. In October and December 1998, the Company repriced certain stock options and restricted stock purchases and may record additional deferred compensation as a result of this repricing. AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was $7.4 million in the first nine months of 1998 and $3.2 million in the same period of 1997. This amortization relates to the acquisition of EDI in March 1996 from United HealthCare and certain intangible assets related to SCAN acquired from SmithKline Labs in December 1997 and acquisition of Metis, LLC in August 1998. Although the Services and License Agreement entered into with United HealthCare in connection with the acquisition of EDI has a five year term, the Company determined that a three year amortization period was appropriate for the EDI-related assets due to the price renegotiation required by such agreement, the probability that the purchased technology and software would be replaced within three years and the uncertain profitability of the agreement after the price renegotiation. Similarly, although the Services Agreement entered into with SmithKline Labs in connection with the acquisition of the SCAN-related assets has a five year term, the Company determined that a three year amortization period was appropriate for the SCAN related assets due to the price renegotiation required by such agreement, the probability that the purchased technology and software would be replaced within three years and the uncertain profitability of the agreement after the price 24 renegotiation. There can be no assurance that the Company's services to United HealthCare and SmithKline Labs will be profitable after the price renegotiations required by the agreements, particularly given the uncertainty of future rates and volumes under those agreements. The Company determined that the acquisition of Metis, LLC included the value of an assembled workforce, which will be amortized over two years. The other intangible assets related to the acquisition of Metis, LLC were determined to have a three-year life. At September 30, 1998, a total of $23.7 million remained to be amortized, and the amortization charges for the three months ending December 31, 1998 and for the years ending 1999 and 2000 are estimated to be $3.9 million, $10.1 million and $8.2 million, respectively, assuming no impairment of the remaining unamortized intangible asset balances. See Notes 2 and 3 of Notes to Consolidated Financial Statements. INTEREST INCOME AND EXPENSE. Interest income has been derived primarily from cash investments, and increased to $.8 million in the first nine months of 1998 compared to $.4 million in the same period of 1997. The increase resulted from the Company's $25.0 million preferred stock financing in October 1997. Interest expense results from the Company's borrowings and from capitalized lease obligations for equipment purchases. DIVIDENDS ON ACTAMED'S CONVERTIBLE REDEEMABLE PREFERRED STOCK. As dividends on ActaMed's convertible redeemable preferred stock were cumulative whether declared or not, the Company accrued such dividends on a quarterly basis. Dividends of $2.4 million and $.9 million are shown as a charge against income in the consolidated statement of operations for the first nine months of 1997 and 1998, respectively. None of the dividends were paid, and, in conjunction with approving the acquisition of ActaMed by the Company, the preferred stockholders waived their right to receive such dividends, which totaled $7.5 million at the time of the acquisition, and received an aggregate of 17,252,408 shares of Healtheon common stock in exchange for their ActaMed preferred stock. YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 REVENUE. Total revenue increased to $13.4 million in 1997 from $11.0 million in 1996 and $2.2 million in 1995. Revenue from services increased to $4.3 million in 1997 from $1.8 million in 1996 and $.5 million in 1995. The increase is due primarily to the contract with Brown & Toland, which began in October 1997. In 1997, the Company recognized $2.1 million of revenue for IT services under this contract, which included costs of leased personnel and facilities of $1.9 million. Revenue from services to related parties increased to $7.3 million in 1997 from $4.2 million in 1996. There was no revenue from services to related parties in 1995. The Company's acquisition of ProviderLink in March 1996 from United HealthCare accounts for substantially all of the related party revenue in 1996 and the 1997 increase is substantially due to recording a full year of revenue in 1997 compared to nine months in 1996. Revenue from software licenses was $1.8 million, $5.0 million and $1.7 million in 1997, 1996 and 1995, respectively. Substantially all of this revenue was derived from licensing agreements with IBM. The full amount of revenue to be derived from one of these agreements had been recognized by the end of 1997. Revenue will continue to be recognized under a second agreement through December 2000. COST OF REVENUE. Cost of services was $4.0 million, $1.6 million and $1.6 million in 1997, 1996 and 1995, respectively. The increase from 1996 to 1997 was primarily due to the $1.9 million cost related to the leased personnel and facilities under the Brown & Toland contract. Cost of services to related parties increased to $6.5 million in 1997 from $4.9 million in 1996. This increase was primarily due to recording a full year of costs related to ProviderLink in 1997 compared to only nine months in 1996. Cost of software licenses in 1996 and 1995 related principally to royalties and sublicense fees paid by the Company. 25 DEVELOPMENT AND ENGINEERING. Development and engineering expense, which excludes development expenses that are included in cost of revenue, was $13.0 million in 1997 compared to $8.6 million in 1996 and $2.4 million in 1995. The increase in development and engineering expense was caused by a significant increase in the number of engineers engaged in the development of the Company's applications and services. SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative expense was $11.0 million in 1997, compared to $9.0 million in 1996 and approximately $1.7 million in 1995. The increase resulted primarily from the addition of sales personnel and executive management, which caused related salaries to increase by approximately $1.4 million in 1997 from 1996, and from the amortization of deferred compensation. The Company recorded deferred compensation of $2.7 million during 1997 and recorded $.6 million of amortization of deferred compensation in 1997. AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition-related costs including intangible assets was $4.2 million in 1997 and $3.2 million in 1996. This amortization relates to the acquisition of EDI in March 1996. INTEREST INCOME AND EXPENSE. Interest income was derived from cash investments following the Company's issuance of preferred stock and imputed interest on payments due from IBM beginning in early 1997. Interest expense increased in 1997 as a result of bridge financing and bank borrowings of the Company and from capitalized lease obligations for equipment purchases. INCOME TAXES. At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of $37.6 million and federal tax credits of $.8 million, both expiring from 2009 through 2012. Of these net operating losses, $16.7 million relates to a consolidated subsidiary. This loss carryforward is available only to offset future taxable income of that subsidiary. Because of the "change of ownership" provisions of the Internal Revenue Code, a portion of the Company's net operating loss carryforwards and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. Thus, a portion of these carryforwards may expire before becoming available to reduce future income tax liabilities. QUARTERLY FINANCIAL RESULTS The following table presents the Company's operating results for each of the seven quarters in the period ended September 30, 1998, as well as such data expressed as a percentage of the Company's total revenue for the periods indicated. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this prospectus. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results. This data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto appearing elsewhere in this prospectus. These operating results are not indicative of the results of any future period. 26
THREE MONTHS ENDED ----------------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1997 1997 1997 1997 1998 1998 1998 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED, IN THOUSANDS EXCEPT PERCENTAGES) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenue: Services................ $ 239 $ 417 $ 560 $ 3,085 $ 4,903 $ 5,990 $ 7,433 Services to related parties................ 1,488 1,752 1,959 2,110 4,656 4,714 4,950 Software licenses....... 195 195 195 1,195 195 195 195 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenue....... 1,922 2,364 2,714 6,390 9,754 10,899 12,578 Operating costs and expenses: Cost of revenue: Cost of services...... 213 385 482 2,931 5,088 5,682 7,918 Cost of services to related parties...... 1,633 1,496 1,519 1,888 2,860 4,457 5,195 Cost of software licenses............. -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total cost of revenue............ 1,846 1,881 2,001 4,819 7,948 10,139 13,113 Development and engineering............ 3,247 3,162 3,272 3,305 3,919 4,413 4,704 Sales, general and administrative......... 2,501 2,222 2,754 3,554 4,966 7,157 4,671 Amortization of intangible assets...... 1,062 1,062 1,063 1,062 1,949 1,989 3,459 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total operating costs and expenses........... 8,656 8,327 9,090 12,740 18,782 23,698 25,947 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Loss from operations...... (6,734) (5,963) (6,376) (6,350) (9,028) (12,799) (13,369) Interest income........... 146 108 105 252 358 279 197 Interest expense.......... (50) (78) (49) (146) (116) (135) (110) Dividends on ActaMed's convertible redeemable preferred stock......... (783) (823) (776) (488) (890) -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss.................. $(7,421) $(6,756) $(7,096) $(6,732) $(9,676) $(12,655) $(13,282) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- AS A PERCENTAGE OF REVENUE: Revenue: Services................ 12.4% 17.6% 20.6% 48.3% 50.3% 55.0% 59.1% Services to related parties................ 77.4 74.1 72.2 33.0 47.7 43.3 39.4 Software licenses....... 10.2 8.3 7.2 18.7 2.0 1.7 1.5 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total revenue....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Operating costs and expenses: Cost of revenue: Cost of services...... 11.1 16.3 17.8 45.9 52.2 52.1 63.0 Cost of services to related parties...... 85.0 63.3 56.0 29.5 29.3 40.9 41.3 Cost of software licenses............. -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total cost of revenue............ 96.1 79.6 73.8 75.4 81.5 93.0 104.3 Development and engineering............ 168.9 133.7 120.6 51.7 40.2 40.5 37.4 Sales, general and administrative......... 130.1 94.0 101.5 55.6 50.9 65.7 37.1 Amortization of intangible assets...... 55.3 44.9 39.2 16.6 20.0 18.2 27.5 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total operating costs and expenses........... 450.4 352.2 335.1 199.3 192.6 217.4 206.3 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Loss from operations...... (350.4) (252.2) (235.1) (99.3) (92.6) (117.4) (106.3) Interest income........... 7.6 4.6 3.9 3.9 3.7 2.6 1.6 Interest expense.......... (2.6) (3.3) (1.8) (2.3) (1.2) (1.2) (0.9) Dividends on ActaMed's convertible redeemable preferred stock......... (40.7) (34.8) (28.6) (7.6) (9.1) -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net loss.................. (386.1)% (285.7)% (261.6)% (105.3)% (99.2)% (116.0)% (105.6)% ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenue has grown each quarter as demand for the Company's services has increased. Cost of revenue increased in the quarter ended December 31, 1997 due primarily to expenses related to the Brown & Toland contract, and in the quarters ended March 31, June 30 and September 30, 1998 due primarily to expenses related to the Beech Street and SmithKline Labs contracts. In addition, in the quarter ended June 30, 1998, 27 total cost of revenue increased due in part to an increase in amortization of capitalized internally developed software. This increase was due to the fact that the Company evaluated the carrying value of the capitalized internally developed software in light of the changes in operations resulting from the acquisition of ActaMed by Healtheon. The Company determined that it expected no future cash flows to be generated by this software and, accordingly, wrote off the remaining unamortized balance of $.6 million. Development and engineering expense increased in the quarters ended March 31, June 30 and September 30, 1998 due to a significant increase in personnel engaged in the development of the Company's applications and services. Sales, general and administrative expenses increased in each of the quarters ended September 30, 1997 through September 30, 1998 due to increases in sales and executive personnel and due to amortization of deferred compensation. In addition, the Company recorded substantial professional fees related to the acquisition of ActaMed in the quarter ended June 30, 1998. The Company's quarterly revenue and operating results have varied in the past and are likely to vary substantially in the future. The Company intends to increase its marketing, sales, development and engineering, and administrative activities and to increase other operating expenses as required to integrate the operations, technologies and networks of recent and any future acquisitions and expand its healthcare network infrastructure and operations. It is anticipated that these expenses could significantly precede any revenue generated by such increased spending. If the Company does not experience significantly increased revenue from these efforts, the Company's business, financial condition and results of operations could be materially and adversely affected. In addition, the Company's expense levels are based in part on its expectations concerning future revenue and are relatively fixed in the short-term. Consequently, if the Company's revenue is below expectations in any period, the Company may not be able to adjust its spending levels in a timely manner. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations since inception primarily through the private placement of equity securities, through which it had raised net proceeds of $59.6 million through September 30, 1998. The Company has also financed its operations through equipment lease financing and bank borrowings. As of September 30, 1998, the Company had outstanding equipment lease financing and bank borrowings of $4.8 million. As of September 30, 1998, the Company had approximately $5.4 million of cash, cash equivalents and short-term investments. Cash used in operating activities was $1.3 million in 1995, $9.6 million in 1996 and $16.4 million in 1997. The cash used during these periods was primarily attributable to net losses of $3.7 million, $18.6 million and $28.0 million in 1995, 1996, 1997, respectively, offset in part by depreciation and amortization and dividends on ActaMed's convertible redeemable preferred stock. These losses were principally related to increased development and engineering expenses and sales, general and administrative expenses. Cash used in operations in the first nine months of 1998 was $13.9 million, reflecting a net loss partially offset by depreciation and amortization expenses and increases in liabilities. Investments in property and equipment, excluding equipment acquired under capital leases, and internally developed software were $.5 million, $3.0 million, $3.1 million and $5.1 million in 1995, 1996 and 1997, and the first nine months of 1998, respectively. In 1997, the Company used $5.3 million of cash to purchase short-term investments. During the first nine months of 1998, the Company purchased an additional $4.3 million of short-term investments and realized $8.8 million in cash from maturities of its short-term investments. The Company had no purchases or maturities of short-term investments in 1995, 1996, or the nine months ended September 30, 1997. Cash provided by financing activities was $7.0 million, $11.1 million and $34.6 million in 1995, 1996 and 1997, respectively, resulting primarily from net proceeds from the sale of preferred stock and, to a lesser extent, from a bank line and bridge note financing in 1997. Cash provided by financing activities for the first nine months of 1998 was $3.2 million, primarily from the net proceeds from the sale of preferred and 28 common stock, partially offset by payments on line of credit borrowings and capital lease obligations. In November 1998, the Company received proceeds of $46.1 million from the sale of its Series A preferred stock. As of September 30, 1998, the Company did not have any material commitments for capital expenditures. The Company's principal commitments at December 31, 1997 consisted of obligations under operating leases and capital leases of $14.4 million and $2.2 million, respectively. See Note 6 of Notes to Consolidated Financial Statements. The Company currently anticipates that the net proceeds from the offering, together with its available cash resources and credit facilities, will be sufficient to meet its presently anticipated working capital, capital expenditure and business expansion requirements for at least the next 12 months. However, the Company may need to raise additional funds prior to such time 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. The Company's future liquidity and capital requirements will depend upon numerous factors, including the success of the Company's existing and new application and service offerings and competing technological and market developments. The Company may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms acceptable to the Company, or at all. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are unable to distinguish between twentieth century dates and twenty-first century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced to comply with such "Year 2000" requirements. The Company's business is dependent on the operation of numerous systems that could potentially be impacted by Year 2000 related problems. Those systems include, among others: hardware and software systems used by the Company to deliver services to its customers, including the Company's proprietary software systems as well as hardware and software supplied by third parties; communications networks, such as the Internet and private intranets, which the Company depends on to provide electronic transactions to its customers; the internal systems of the Company's customers and suppliers; the hardware and software systems used internally by the Company in the management of its business; and non-information technology systems and services used by the Company in its business, such as telephone systems and building systems. The Company has internally reviewed the proprietary software systems it uses to deliver services to its customers. Although the Company believes that its internally developed applications and systems are designed to be Year 2000 compliant, the Company utilizes third-party equipment and software that may not be Year 2000 compliant. Also, two systems acquired by ActaMed, specifically SCAN and ProviderLink, which together accounted for approximately 43% of the Company's total revenue in the first nine months of 1998, will require modifications to become Year 2000 compliant. The Company plans to release Year 2000 upgrades to these systems in early 1999. The Company estimates the cost of these Year 2000 upgrades to be less than $1.0 million. In addition, the Company's SCAN product is installed on approximately 4,650 Company-owned workstations located in provider offices. Many of these workstations are not Year 2000 compliant and must be upgraded or replaced by the Company. The Company expects the costs of such upgrades or replacements to be less than $1.0 million. However, the Company could experience delays and cost overruns in the development of these upgrades, such upgrades could contain defects and the Company could experience difficulties in getting the Company's installed base of physicians to implement these upgrades in a timely manner. If the Company experiences these or other difficulties in developing and deploying its Year 2000 upgrades, revenues from SCAN and ProviderLink could be significantly reduced, which could have a material adverse effect on the Company's business, financial condition and results of operations. Failure of such third-party or Healtheon equipment or software to operate properly with regard to the Year 2000 and thereafter could require the Company to incur unanticipated expenses to remedy any 29 problems, which could have a material adverse effect on the Company's business, financial condition and results of operations. In certain of its agreements, the Company warrants that its applications and services are Year 2000 compliant. Failure of the Company's applications and services to be Year 2000 compliant could result in the termination of these agreements or in liability for damages, either of which could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not believe that its expenditures to upgrade its internal systems and applications will have a material adverse effect on its business, financial condition and results of operations. Furthermore, the success of the Company's efforts may depend on the success of other healthcare participants in dealing with their Year 2000 issues. Many of these organizations are not Year 2000 compliant, and the impact of widespread customer failure on the Company's systems is difficult to determine. Customer difficulties due to Year 2000 issues could interfere with healthcare transactions or information, which might expose the Company to significant potential liability. If client failures result in the failure of Healtheon systems, the Company's business, financial condition and results of operations would be materially adversely affected. Furthermore, the purchasing patterns of these customers or potential customers may be affected by Year 2000 issues as companies expend significant resources to become Year 2000 compliant. The costs of becoming Year 2000 compliant for current or potential customers may result in reduced funds being available to purchase and implement the Company's applications and services. The Company, with the assistance of an independent consulting firm specializing in Year 2000 issues, is conducting a formal assessment of its Year 2000 exposure in order to determine what steps beyond those identified by the Company's internal review may be advisable. The Company expects to complete such assessment in the first quarter of 1999. The Company does not presently have a contingency plan for handling Year 2000 problems that are not detected and corrected prior to their occurrence. Any failure of the Company to address any unforeseen Year 2000 issue could adversely affect the Company's business, financial condition and results of operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board, or "FASB," issued Statement of Financial Accounting Standards, or "SFAS," No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is required to adopt SFAS No. 131 for the year ending December 31, 1998. SFAS No. 131 requires disclosure of certain information regarding operating segments, products and services, geographic areas of operation and major customers. Adoption of SFAS No. 131 is expected to have no material impact on the Company's financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company is required to adopt SFAS No. 133 for the year ending December 31, 2000. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because the Company currently holds no derivative financial instruments and does not currently engage in hedging activities, adoption of SFAS No. 133 is expected to have no material impact on the Company's financial condition or results of operations. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position, or "SOP," 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain costs related to internal-use software once certain criteria have been met. The Company is required to implement SOP 98-1 for the year ending December 31, 1999. Adoption of SOP 98-1 is expected to have no material impact on the Company's financial condition or results of operations. 30 BUSINESS INDUSTRY BACKGROUND GROWTH OF INTERNET COMMERCE AND FUNCTIONALITY The Internet's open architecture, universal accessibility and growing acceptance make it an increasingly important environment for business-to-business and business-to-consumer interaction. Use of the Internet is rapidly expanding from simple information publishing, messaging, and data gathering to critical business transactions and confidential communications. For many industries, the Internet is connecting previously disconnected business processes and allowing companies to automate workflows, lower distribution costs and extend their market reach. The Company believes the healthcare industry, because of its size, fragmentation and extreme dependence on information exchange, is particularly well suited to benefit from greater use of the Internet. NEED FOR REDUCED HEALTHCARE COSTS AND IMPROVED QUALITY OF CARE According to the Health Insurance Association of America, healthcare is the largest single sector of the U.S. economy, consuming approximately $1 trillion annually, or 14% of the country's gross domestic product. The healthcare industry consists of a complex mix of participants, which includes: - "Providers" -- physicians, medical practice groups, hospitals and other organizations that deliver medical care; - "Payers" -- the government agencies, insurance companies, managed care organizations and other enterprises that pay the bills for healthcare; - "Suppliers" -- clinical laboratories, pharmaceutical companies, and other groups that provide tests, drugs, x-rays and other services; and - "Consumers" -- individual patients who receive medical care, and the government agencies, employers and other organizations that represent groups of individuals. All healthcare participants rely heavily upon information to perform their roles in the industry. Individuals compare medical plans, choose physicians and submit claims for reimbursement. Employers select health plans, determine benefit levels, enroll employees and maintain employee eligibility data. Providers verify patient eligibility, collect patient histories, order diagnostic tests and x-rays, receive and interpret test results, render diagnoses, make referrals and submit claims to payers. Payers manage referrals, establish medical care protocols and reimbursement policies and process claims. Suppliers analyze and process patient samples or tests, provide results, fill prescriptions and submit claims for reimbursement. These and many other healthcare transactions are also highly dependent on information, and each participant is dependent on the others for parts of that information. In sum, the finance and delivery of healthcare requires that consistent, accurate information be shared confidentially across a large and fragmented industry. Inefficiencies within the healthcare system consume enormous amounts of time, resources and dollars. It is estimated that over $250 billion, or 25% of every healthcare dollar, are wasted through the delivery of unnecessary care, performance of redundant tests and procedures, and excessive administrative costs. The Company believes much of this inefficiency and waste is a direct result of poor information exchange among healthcare participants. Consumers do not have easy access to the detailed information they need to compare health plans, select physicians, or manage their own healthcare and benefits. Providers often lack timely access to relevant patient information, and this lack of information causes them to prescribe unnecessary tests or procedures and hinders their ability to diagnose and treat patients. Providers and suppliers often rely on manual processes to share data, and errors and information bottlenecks resulting from these manual processes cause delays in determining eligibility, approving referrals, reporting test 31 results and paying claims. These inefficiencies contribute to the rising cost of healthcare. As a result, the government and other purchasers of healthcare have increasingly placed pressure on the healthcare industry to improve the cost-effectiveness of healthcare while maintaining the quality of care. LIMITATIONS OF TRADITIONAL FUNCTIONAL APPROACH TO HEALTHCARE INFORMATION MANAGEMENT The unique characteristics of the healthcare industry have limited the scope of previous technology solutions. The sheer number of participants, the complexity of healthcare transactions, and pervasive concerns about confidentiality have precluded any comprehensive solution that would deliver connectivity and automated workflows across the entire industry. Healthcare organizations and their traditional technology vendors have focused on automating discrete business processes, such as billing and scheduling for physicians, or claims processing for hospitals and payers. As a result, the industry currently uses thousands of different mainframe and client/server systems that lack cross-platform compatibility. While these legacy systems serve the narrow functions for which they were designed, they have compounded the industry's connectivity problems. Information the industry needs to share is trapped in isolated, proprietary databases using non-standardized data formats. In this environment, many physician offices, particularly those with limited financial resources, have been reluctant to invest in information technology solutions. Current solutions may provide connectivity to a single payer or supplier, or to a limited subset of payers or suppliers, leaving the physician office with its old manual processes for the majority of its transactions. The following examples illustrate how poor information management and the lack of connectivity result in costly, inefficient healthcare services: ENROLLMENT AND ELIGIBILITY. The enrollment process typically begins with employees choosing a health plan and completing paper forms; the employer manually enters the employee information into its human resources information system and subsequently sends the data, often via a paper report, to the relevant health plan. The plan manually enters the information into its membership system and sends the information, again often in paper form, to other entities, such as provider groups, pharmacies, pharmacy benefit management companies and diagnostic laboratories, which in turn must manually enter this information into their own systems. By the time this process is complete, the information may be months old and contain data entry errors, and the disparate healthcare information systems of the various participants may contain conflicting information about the same member. The participants must then expend costly, time-consuming extra effort to correct these errors manually. In the interim, patients may be denied treatment or providers may go unpaid for their services. REFERRALS AND AUTHORIZATIONS. Managed care organizations may require physicians to obtain prior approval to refer patients to specialists or to render certain treatments. The approval process often requires physicians to mail, fax or telephone requests for authorization to the health plan. The plan manually enters the data into its own system, checks its guidelines regarding conditions of referral (which can involve multiple parties in different organizations) and replies via mail, fax or telephone with an approval or denial, a process that can take two days to a week or more. Next, the patient must schedule an appointment if the request is approved, or seek alternative care if the request is denied. This lengthy authorization process is costly, wastes valuable physician time and delays patient care. CLINICAL INFORMATION EXCHANGE. To diagnose and treat a patient properly, physicians need access to clinical information, such as medical history data, laboratory and x-ray results, and medication lists. However, this information typically resides in proprietary databases or is stored in paper form. Therefore, the physician must submit requests for information by phone or fax to various hospitals, laboratories, outpatient diagnostic centers or provider offices. Even when the data are stored at the physician's office, it can be time-consuming to locate in the physician's paper-based medical record system. As a result, significant delays can occur before the physician obtains the information required to diagnose the patient's condition accurately. Often, physicians will require patients to repeat tests for which data are missing, 32 leading to unnecessary expense. More important, the lack of timely access to accurate clinical information in an urgent care situation may lead to inaccurate diagnoses resulting in delayed or inappropriate care. The problem is therefore not only costly, but also potentially harmful. The limitations and inefficiencies of traditional healthcare information management ultimately harm the individual consumer. Individual consumers have little control or influence over how healthcare services are provided, in part because they lack easy access to information. It can be difficult for consumers to perform simple tasks, such as changing primary care providers, gaining access to their own medical records, or monitoring their own care and compliance at home, because the information they need for these simple tasks requires time-consuming phone calls or paper correspondence. Consumers, frustrated by burdensome bureaucracy and lack of empowerment, often fail to take ownership and control of their own treatment and recovery. The result is higher costs of care and growing dissatisfaction with the healthcare experience. HEALTHEON'S OPPORTUNITY Healtheon believes a significant opportunity exists to leverage the power of the Internet to provide secure, open, universally accessible network services that connect participants and automate workflows throughout the healthcare delivery process. The Company believes that such a solution has the potential to create significant improvements in the way that information is used by the healthcare system, enabling improved workflows, better decision-making and, ultimately, higher quality care at a lower cost. THE HEALTHEON VIRTUAL HEALTHCARE NETWORK Healtheon is pioneering the use of the Internet to simplify workflows, decrease costs and improve the quality of patient care throughout the healthcare industry. Healtheon has designed an Internet-based information and transaction platform that allows it to create Virtual Healthcare Networks that facilitate and streamline interactions among the myriad participants in the healthcare industry. The Healtheon VHN solution includes a suite of services delivered through applications operating on its Internet-based platform. Healtheon VHNs enable the secure exchange of information among disparate healthcare information systems and support a broad range of healthcare transactions, including enrollment, eligibility determination, referrals and authorizations, laboratory and diagnostic test ordering, clinical data retrieval and claims processing. Healtheon provides its own applications on the Healtheon Platform and also enables third-party applications to operate on its platform. The Healtheon Virtual Healthcare Network solution provides the following key benefits: ELIMINATION OF UNNECESSARY OR REDUNDANT EFFORTS. The Healtheon VHN solution is designed to reduce paper-based transactions, eliminate redundant data entry, shorten cycle times and decrease the communication inefficiencies created by isolated proprietary systems. Healtheon believes that by decreasing redundant tasks, errors, delays, and unnecessary tests and procedures, it can create efficiencies and reduce costs across the healthcare industry. EXTENDIBILITY ACROSS THE CONTINUUM OF HEALTHCARE. The Company leverages the Internet to provide an open, low-cost information and transaction platform capable of extending across a wide range of healthcare market segments. The Healtheon VHN solution is designed to interconnect a broad range of practice management, managed care, human resources and laboratory information systems. The Company expects the benefits of its solution to increase as it adds customers, enabling each user to exchange more data and complete more transactions with a greater number and broader range of other healthcare industry participants. SCALABILITY AND FLEXIBILITY. The Healtheon VHN solution is designed to support the Company's customers as their businesses grow and evolve. The Healtheon Platform is designed to scale to accommodate 33 high volumes of transactions and large numbers of simultaneous users. In addition, Healtheon's object-oriented platform provides flexibility so that customers can add or modify applications and transaction capabilities to react to changes in the healthcare marketplace. HIGH DEGREE OF SECURITY. To enable the use of the Internet for transmission of highly sensitive and confidential data, Healtheon utilizes advanced technology designed to ensure a high degree of security. This technology includes strict authentication requirements, sophisticated data encryption techniques, system-wide network security monitoring and tightly controlled physical security systems. These safeguards are designed to provide a secure environment for the exchange of confidential patient and customer data. The Healtheon Platform is designed to enable compliance with proposed government standards under the Health Insurance Portability and Accountability Act of 1996, which mandate the acceptance by payers of electronic transactions as well as the use of standard transactions, standard identifiers and security features by the year 2000. INCREASED ACCURACY AND TIMELINESS OF INFORMATION. The Healtheon VHN solution is designed to increase information flows among all healthcare participants, which ultimately results in more timely and appropriate treatments. For example, on-line access to accurate, up-to-date eligibility information facilitates patients' access to care on a more timely basis, reduces frustration and costs and increases the likelihood that providers will be compensated for their services in a timely manner. Similarly, using Healtheon's VHN solution, consumers will have greater access to their healthcare information, thereby enabling them to become more active participants in the provision of their own healthcare. Healtheon believes that these and other benefits provided by its solution will result in increased quality of care. STRATEGY Healtheon's objective is to become the leading provider of Internet-based transaction and information services to the healthcare industry. The Company's strategy includes the following key elements: LEVERAGE INTERNET TECHNOLOGY. Healtheon leverages Internet technology to create Virtual Healthcare Networks that provide secure transactions and communications among a broad range of healthcare participants, regardless of their legacy computing platforms. Unlike traditional proprietary solutions that focus on point-to-point communications and narrowly defined transactions, Internet technology allows the Company to integrate all categories of healthcare participants--payers, providers, suppliers and consumers--to eliminate redundant tasks and reduce costs. The Company believes that such connectivity will optimize and simplify the flow of mission-critical information. EXPAND FUNCTIONALITY AND TRANSACTION CAPABILITY. The Company seeks to identify key functions that are critical to particular industry participants and integrate applications supporting these functions into its VHN. The Company plans to accomplish this by building native, Internet-based applications encompassing the identified functionality, by acquiring businesses or technologies, and by enabling industry-leading, third-party applications on its platform. The Company has initially targeted those applications that are most critical to each business segment of the healthcare industry, offer the highest value to the participants, and are readily adaptable to a network computing paradigm. For example, the Company developed its Benefits Administration application suite to automate healthcare plan enrollment and is developing its Healtheon Practice application suite, which is in use at beta sites, to manage eligibility, referrals, authorizations and claims transactions between healthcare providers and payers. FORM STRATEGIC RELATIONSHIPS WITH LEADING HEALTHCARE PARTICIPANTS. The Company is aggressively pursuing strategic relationships with leaders in key healthcare industry segments to increase its portfolio of applications and services, increase the number of connected users and provide specialized industry expertise for new applications. In addition, the Company plans to acquire companies with strategic relationships with leading healthcare industry participants. The Company believes this strategy also provides accelerated 34 market awareness and demand for Healtheon's services through the influence of these partners both directly, through their use and sales efforts, and indirectly, through their relationships with other potential customers. To date, Healtheon has established strategic relationships with leading healthcare organizations, including: United HealthCare, the largest health maintenance organization in the United States; SmithKline Labs, one of the largest independent clinical laboratory companies in the United States; Brown & Toland, a leading medical group in the San Francisco Bay Area; and Beech Street, one of the largest preferred provider organizations in the United States. ESTABLISH A NATIONAL PRESENCE REGION BY REGION. The Company believes that the value of its applications and services will grow as the number of connected parties and the breadth of the transactions conducted on the Company's platform increase. However, healthcare remains highly regional, driven by business relationships and practices that are often unique to specific regions. Therefore, the Company's approach is to target regional markets where it can gain critical mass and to expand nationally region by region. The Company plans to enter into, and to acquire companies with, strategic relationships with national and regional healthcare participants that have significant market share in specific regions. In addition, the Company intends to leverage its existing relationships to penetrate new regions and markets. PURSUE USAGE-BASED BUSINESS MODEL. The Company offers network-based transaction and information services on a transaction or subscription fee basis. This pricing model reduces the initial investment required to obtain the benefits of high-end information technology systems, enabling physicians, small organizations and individuals to gain access to such systems for the first time. By enabling the shift from fixed information technology costs to variable costs, the Company believes that it will be able to achieve a critical mass of users and broad-based adoption of the Healtheon Virtual Healthcare Network solution. PROVIDE A COMPLETE SOLUTION. In addition to its network-based transaction and information services, the Company offers consulting, application development, systems integration and network management services to provide complete customer-specific solutions. By offering this range of services, the Company can provide customers with a complete migration path from the customers' legacy systems and processes to Healtheon's Internet-based model. HEALTHEON'S SERVICES Healtheon offers a suite of healthcare transaction and information services delivered over the Internet or over private intranets and other networks. These network-based services are provided by software applications operating on or interfacing with the Healtheon Platform, which is designed to provide connectivity across the healthcare industry and enable a broad array of secure, mission-critical healthcare transactions. In addition to its platform and Internet-based applications, Healtheon provides comprehensive consulting and implementation services to enable its customers to take full advantage of the capabilities of Healtheon's platform. Healtheon provides a broad range of applications and services that support key healthcare transactions. The components of these application suites can be combined and modified, or supplemented with new application components, to provide custom solutions for large, complex, multi-entity business enterprises. These applications and services are typically sold on a transaction or subscription fee basis, which varies across customers and market segments. The following chart summarizes the key transactions supported by Healtheon, organized by business function. 35
BUSINESS CUSTOMERS/ FUNCTION USERS TRANSACTIONS SUPPORTED HEALTHEON SERVICE Membership Services Consumers - Enrollment Benefits Payers - Plan comparison/selection Administration - Provider search, selection, change - Benefits inquiry - Messaging Healthcare Administration Payers - Eligibility determination Healtheon Practice and Financial Management Providers - Referrals Healtheon - Authorization ProviderWorks* - Claims submission and status ProviderLink - Remittance advice - Provider directories* - Provider files-management* - Reporting - Claims repricing* Clinical Information Providers - Patient identification and Healtheon Dx* Services Suppliers encounter history SCAN+ - Patient registration GMPI+ - Lab orders and results - Text document/transcription distribution Online Consumer Consumers - Access to licensed dictionaries Healtheon Information and encyclopedias, medical news and Consumer other reference sources Portal - Customized wellness assessments - Food label and nutritional library - Secure communications and transactions with providers and health plans*
- --------- *Under development +Not Internet-enabled The primary applications and services currently available or under development are described in greater detail below. Certain of these applications were acquired by the Company and are not yet Internet-enabled; the Company is currently redeveloping or replacing these applications to integrate them with the Healtheon Platform. MEMBERSHIP SERVICES. Healtheon provides membership services through its Benefits Administration service. The Benefits Administration service utilizes internally developed applications operating on the Healtheon Platform. The service provides Internet-based connectivity between healthcare payers and consumers and supports transactions such as selection of health plans and providers, enrollment for benefits and benefit inquiries. Benefits Administration users also receive Healtheon's Health Risk Appraisal service, which provides consumer education in wellness and health risks. Healtheon has deployed its Benefits Administration service directly and through aggregators to 45 companies, covering approximately 190,000 members. 36 HEALTHCARE ADMINISTRATION AND FINANCIAL MANAGEMENT. Healtheon supports or will support healthcare administration and financial management transactions through its ProviderLink, Healtheon Practice and Healtheon ProviderWorks services. ProviderLink was licensed by the Company's ActaMed subsidiary from United HealthCare Corporation. The Company is currently developing a software interface between the Healtheon Platform and ProviderLink to integrate ProviderLink with the Company's network-based services. ProviderLink is used by providers to support transactions and workflows with payers. ProviderLink supports transactions such as eligibility determinations, claims submission and status, and remittance advice. For example, physicians use ProviderLink to determine eligibility of patients to receive care and to submit health claims to payers. ProviderLink is currently deployed in over 4,300 active provider sites in more than 20 major markets, and processes over 3.2 million transactions per month. The Company has developed Healtheon Practice, a new Internet-based provider service with support from Brown & Toland, one of the Company's strategic partners. Healtheon Practice, which is in use at beta sites, is designed to provide all of the functionality of ProviderLink and also support referrals, authorization, and provider directories reporting. Providers using the Healtheon Practice service will be able to receive real-time patient eligibility verifications and referral authorizations over the Healtheon VHN. The Company is developing Healtheon ProviderWorks, a new Internet-based payer service, with support from Beech Street, one of the Company's strategic partners. Healtheon ProviderWorks is designed to support the creation and management of networks of providers. The service is designed to manage large, complex provider directories and files, manage provider relationships and contracts and perform certain claim processing functions, such as claim repricing. See "-- Strategic Relationships." CLINICAL INFORMATION SERVICES. The Company's SCAN product supports ordering and distribution of clinical tests and test results between SmithKline Labs and providers using SmithKline Labs' services. ActaMed acquired the SCAN application from SmithKline Labs. SCAN is deployed on approximately 4,650 installed workstations serving physicians throughout the United States. SCAN is not Internet-enabled; however, the Company is developing a new Internet-enabled application called Healtheon Dx, currently in beta testing, that will combine the functionality of SCAN and ProviderLink. See "-- Strategic Relationships." The Company's Global Master Person Index, or "GMPI," enables the unique identification of a patient and reconciliation of multiple records for the same patient contained on diverse information systems. GMPI also supports access to patient data and registration information as well as clinical records. GMPI is an object-oriented application developed by ActaMed and is not yet Internet-enabled. Healtheon intends to adapt and implement GMPI functionality on the Healtheon Platform. ONLINE CONSUMER INFORMATION. The Company's recently introduced Consumer Portal provides individual consumers with an authoritative source for healthcare information and is intended to extend the Company's transaction services directly to individual consumers. The Consumer Portal provides access to medical dictionaries and encyclopedias, medical news, a food label and nutritional library and customized wellness assessments. These sources include: Miller-Keane Encyclopedia & Dictionary of Medicine, Nursing & Allied Health; Dorland's Illustrated Medical Dictionary; Citizen 1's CitiLine index of authoritative medical information; A.D.A.M.'s Hypertext Medical Encyclopedia; and Links to medical headlines via the New York Times Syndicate. Healtheon's business partners can integrate the Consumer Portal into their own sites to provide their consumers with a single point of entry into the healthcare community. The Company expects to expand its Consumer Portal to support secure communications and transactions between consumers and their providers and health plans. OTHER SERVICES. Healtheon also provides professional services to its customers to enable them to define, develop and implement network-based information systems that leverage the capabilities of the Healtheon Platform. These services are typically sold on a fixed fee or time and materials basis. These services include consulting on information systems strategy related to the use of the Internet and secure 37 networks, including design of information systems functional specifications, mapping and redesign of business processes and identification of enterprise transformation and training requirements to take advantage of increased connectivity. Healtheon also provides custom development of applications and enables the deployment of Healtheon services and integration with legacy information technology systems. In addition, Healtheon provides transitional network management services of its customers' networks. The Company believes that its success is partially dependent upon its ability to introduce new applications in several healthcare markets in a relatively short period of time. The Company currently offers a limited number of applications on its platform. CUSTOMERS AND MARKETS Healtheon's target customers include providers, payers, suppliers and consumers. Because the Company believes that the value and benefit of Healtheon's services are directly related to both the number of participants using Healtheon VHNs and the breadth of functionality supported, it intends initially to focus on selected regions where it can quickly gain significant market acceptance. Healtheon is presently targeting a number of regional markets across the United States. PROVIDERS. Healtheon's target provider customers include aggregators of individual physicians such as large medical groups, independent practice associations, physician practice management companies and other large, organized physician entities. In particular, the Company seeks to form strategic relationships with providers with a high degree of involvement in managed care, especially providers that are involved in activities such as capitation, which require them to bear some level of insurance risk for each enrolled patient. Healtheon's services for these providers include benefit eligibility determinations, referrals and authorizations, claims processing, ordering of clinical tests and delivery of results and maintenance of patient histories. Healtheon also targets as potential customers large integrated delivery networks that combine multiple healthcare facilities, such as hospitals, outpatient facilities, labs and diagnostic centers, and affiliate with physicians and physician groups to coordinate care, contract for managed care lives and manage healthcare resource utilization. Healtheon offers these customers the following services: patient identification, patient registration, ordering of clinical tests and delivery of results and distribution of text documents across the network. The Company's current customers in this category include Brown & Toland, Baylor Health Care System, Hill Physician Group, Promina Health System and the Greater Dayton Area Hospital Association. PAYERS. Healtheon's target payer customers include managed care organizations, indemnity insurers, third-party administrators and federal and state governmental agencies. Healtheon targets managed care organization customers, such as mid-sized to large HMOs and PPOs. Healtheon's services for these customers include eligibility determination, member customer service functions, referral and authorization management, coordination of provider files and directories, and submission and tracking of claims and patient encounter reports. Healtheon targets indemnity insurer and third-party administrator customers, such as mid-sized to large commercial entities, Medicare and other agencies of federal and state government. The Company's current customers in this category consist of United HealthCare, Beech Street, Sun Life of Canada, Blue Shield of California, CIGNA HealthCare and the Health Care Financing Administration. SUPPLIERS. Healtheon's target supplier customers include large national laboratory companies, pharmaceutical companies and pharmacy benefit managers. Healtheon's services for laboratory companies include ordering clinical tests and reporting test results. The Company's customers in this category include SmithKline Labs and Schering Corporation. CONSUMERS. Healtheon's target consumer customers include employers, health plans and health plan brokers. Healtheon's services in this area include a consumer web portal, health plan enrollment, benefits administration and membership coordination. Healtheon's target employer group includes mid-sized and large employers and, particularly, self-funded employers that have complex benefits management needs. 38 Healtheon's target health plan broker customers include mid-sized to large brokers that aggregate small and medium employers and administer healthcare benefits on their behalf. Healtheon services 45 employers covering approximately 190,000 members. STRATEGIC RELATIONSHIPS The Company has entered into several strategic relationships that it believes will enhance its application portfolio, provide important specialized industry expertise, increase its market penetration, and generate revenue. Certain of these relationships are described below: UNITED HEALTHCARE CORPORATION. United HealthCare is the largest HMO in the United States. United HealthCare is the Company's second largest stockholder and will own approximately % of the Company's common stock after the offering. In March 1996, the Company acquired United HealthCare's ProviderLink network which supports over 4,300 active provider sites in more than 20 major markets servicing over 3.2 million transactions per month. The Company earns transaction fee revenue by providing certain healthcare information services to United HealthCare, members of United HealthCare's provider network and ProviderLink subscribers. In April 1996, the Company and United HealthCare entered into a Services and License Agreement, the "United HealthCare Agreement", under which the Company, using ProviderLink, provides claims processing, referral, eligibility and enrollment services, to United HealthCare's managed care providers and customers. Under the United HealthCare Agreement, the Company currently receives a monthly fee for each user site enrolled with United HealthCare and a fee per transaction. However, the United HealthCare Agreement does not guarantee any minimum level of transactions or payments to the Company. The United HealthCare Agreement has a five year term; however, the agreement provides that two years after the date of the agreement, the parties will agree on new prices that will be competitive with the marketplace. The Company and United HealthCare are negotiating such new prices, and the Company anticipates that the new prices will reduce the rates paid by United HealthCare. United HealthCare has also agreed during the term of the United HealthCare Agreement not to promote or contract for services providing the same functionality as that provided by the Company, although United HealthCare is permitted to continue to utilize services it was utilizing when it entered into the United HealthCare Agreement. In addition, through ActaMed, the Company has developed PLNet, an Internet-based version of ProviderLink, which the Company intends to integrate into the Healtheon Platform and offer to other major healthcare payers and providers. The Company is working with United HealthCare to expand the applications and content available to United HealthCare's provider network, to increase the size and geographic reach of its provider network, and to assimilate newly acquired health plans. William McGuire, M.D., the Chairman and CEO of United HealthCare, is a member of the Company's Board of Directors. The United HealthCare Agreement is effective through March 2001, subject to earlier termination in the event the Company fails to meet certain network performance standards or otherwise breaches its material obligations under the United HealthCare Agreement. SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. SmithKline Beecham Clinical Laboratories, Inc., or "SmithKline Labs," a subsidiary of SmithKline Beecham, is one of the largest independent clinical laboratories in the United States. SmithKline is a stockholder of the Company and will own approximately % of the Company's common stock after the offering. In December 1997, the Company and SmithKline Labs entered into a Services Agreement, or the "Services Agreement" under which the Company provides lab orders and results to providers that use SCAN. SmithKline Labs has also agreed to promote the Company as its preferred vendor for laboratory electronic connectivity services. 39 The Company acquired SCAN-related assets from SmithKline Labs, including approximately 4,200 installed workstations in physicians' offices, hospitals and other provider offices. The Company is currently developing Healtheon Dx, an Internet-enabled version of the SCAN system, which the Company plans to integrate into the Healtheon Platform and to offer to physicians using SmithKline Labs' services or to physicians using other laboratories. Tadataka Yamada, M.D., President of SmithKline Beecham Healthcare Services, is a member of the Company's Board of Directors. The Services Agreement is effective through December 2002, with options for successive two-year renewals, subject to earlier termination in the event the Company fails to meet certain network performance standards or if the Company otherwise breaches its material obligations under the Services Agreement. The Services Agreement provides that the parties will negotiate new rates as of January 1, 2001 and each two years thereafter. Pursuant to the Services Agreement, the renegotiated rates must be competitive with the marketplace and must be no higher than the lowest fees charged by the Company to similarly situated customers. In December 1998, Healtheon and SmithKline Labs entered into an asset purchase agreement. The agreement provides that Healtheon will purchase certain assets currently used by SmithKline Labs to provide laboratory results delivery services in exchange for $2.0 million in cash and shares of Healtheon's common stock having a value of $11.0 million. The asset purchase agreement calls for Healtheon and SmithKline Labs to enter a related services agreement under which Healtheon will provide certain electronic laboratory results delivery services to approximately 20,000 provider sites, in addition to the sites currently served through the SCAN service. The asset purchase agreement is subject to execution of the related service agreement and approval by the Company's Board of Directors. BROWN & TOLAND PHYSICIAN SERVICES ORGANIZATION. Brown & Toland Medical Group, or "BTMG," based in San Francisco, California, is a partnership of approximately 2,000 physicians representing a merger of physicians from California Pacific Medical Center, the University of California-San Francisco and Stanford University. Brown & Toland Physician Services Organization, or "Brown & Toland", a wholly owned subsidiary of BTMG, is the management company that administers the managed care risk business on behalf of BTMG and other physician organizations. In December 1997, the Company and Brown & Toland entered into an agreement under which the Company is developing Healtheon Practice, which the Company intends to market to Brown & Toland and other payers and providers. The Company also manages the information technology operations of Brown & Toland. Through its relationship with Brown & Toland, the Company believes it is gaining valuable industry-segment expertise from a leader in managed care and accelerating its market presence in the San Francisco Bay Area. The Company's agreement with Brown & Toland is effective through September 2000, although it may be terminated by either party upon 120 days' notice. BEECH STREET CORPORATION. Beech Street is one of the largest PPOs in the United States. Beech Street's PPO network consists of approximately 4,300 hospitals and 320,000 physician locations serving 15 million individuals in 49 states, and its clients consist of major self-insured employers, insurance companies and third-party administrators. In December 1997, the Company and Beech Street have entered into an agreement under which the Company is developing Healtheon ProviderWorks, which the Company intends to offer to Beech Street and to other payers and providers. The Company also manages the information technology operations of Beech Street. The relationship with Beech Street provides the Company with important industry-segment expertise and a strategic entry-point into the PPO market segment. The Company's agreement with Beech Street is effective through December 2002, although it may be terminated by either party upon 180 days' notice. THE HEALTHEON PLATFORM The Healtheon Platform is a CORBA-based distributed application framework, combined with software tools that ensure security, scalability, availability, reliability and manageability, on which transaction intensive applications can be delivered over the Internet or over other distributed environments. 40 The Healtheon Platform is deployed on a server complex at the Healtheon data center in Santa Clara, California, which consists of SUN Solaris servers in a fault tolerant configuration and redundant or fault tolerant network components. The Healtheon Platform includes the following features: SECURITY. The Healtheon Platform is designed to ensure the privacy and integrity of data and communications by using a combination of security methodologies to provide multiple lines of defense. All Internet communications between Healtheon and its users employ the Secure Sockets Layer protocol. In addition, Healtheon utilizes server digital certificates and username/password schemes to authenticate users. Each user has a unique user ID and has one or more roles that define the types of functionality and data access available. All Healtheon's applications record logging information, creating an audit trail, and protect privacy by encrypting sensitive data. The Company also uses a multi-layered firewall complex to secure the Healtheon network infrastructure. In addition, network vulnerability scanners are used on a regular basis to actively monitor security status. Healtheon's physical security systems at its Santa Clara facility consist of comprehensive physical controls and multi-layered internal network and information system safeguards. The physical controls include using fingerprint authentication, dual-level access points, and multiple alarm systems. SCALABILITY. The Healtheon Platform utilizes CORBA-based middleware, which enables a highly scalable distributed applications infrastructure. The platform enables an application to run simultaneously on multiple host systems, allowing for large numbers of simultaneous users while at the same time optimizing network performance and resource utilization. In addition, the Healtheon Platform has been designed to transparently deploy new services and hardware while existing applications remain operational. Finally, the Healtheon Platform reduces communications bottlenecks resulting from limited numbers of connections to database servers through intelligent management of database connections and object caches that reduce the need to query database servers for frequently used data. RAPID APPLICATION DEVELOPMENT AND INTEGRATION. The Healtheon Platform is designed to enable rapid application development and integration. The platform supports object-oriented programming, which accelerates the design process through object reuse. The Company maintains a comprehensive set of object libraries, called core services, that allows developers to build complex applications rapidly. The platform is also designed for deploying applications developed by third parties with relative ease. The platform interfaces with legacy systems by accepting industry standard ANSI X.12 and HL7 electronic data interchange formats. HIGH AVAILABILITY. The Healtheon Platform architecture is designed to ensure high availability through the replication of applications and other software services, failure detection and automatic restart of failed services and applications. Running multiple copies of a service or application removes any single point of failure within the system and ensures that at least some copies of a service will be available while others may have failed. In addition, the servers that host Healtheon applications are duplicated to provide redundancy. Healtheon uses duplicate fiber optic cable connections to Sprint and WorldCom to ensure highly-available access to the Internet. The Company's platform uses a mix of fault-tolerant hardware, redundant equipment and back-up power systems. MANAGEABILITY. The Healtheon management framework provides a single image view of all Healtheon services, thus simplifying administration in a distributed environment. Healtheon services can be managed from a Web-based management station. The Healtheon management and administration framework monitors service performance and generates event notifications of system abnormalities. DISASTER RECOVERY PLANS. Although the Company believes its operations facilities are highly resistant to systems failure and sabotage, it has developed, and is in the process of implementing, a disaster recovery and contingency operations plan. In addition, all of the Company's services are linked to advanced storage systems that provide data protection through techniques such as replication. The Company also maintains on-site backup power systems. 41 AUDITS. The Company's information technology department periodically performs, and retains accredited third parties to perform, audits of its operational procedures under both internally-developed audit procedures and externally-recognized standards. CUSTOMER SUPPORT The Company believes that a high level of customer support is necessary to achieve wide acceptance of its solution. The Company provides a wide range of customer support services through a staff of customer service personnel, multiple call centers and an e-mail help desk. The Company also offers Web-based support services that are available 24 hours a day, seven days a week and are frequently updated to improve existing information and to support new services. The Company also employs technical support personnel who work directly with its direct sales force, distributors and customers of its applications and services. The Company provides its customers with the ability to purchase maintenance for its applications and services, which includes technical support and upgrades. The Company also provides training programs for its customers. As of September 30, 1998, the Company had 251 employees and independent contractors in customer support functions, including network services, provider services and customer support services. SALES AND MARKETING Healtheon's sales and marketing efforts are organized according to its four main customer segments: providers, payers, suppliers and consumers. Healtheon's direct sales force targets significant potential customers in each market segment by region. In certain instances, the Company's direct sales force works with complementary brokers, value added resellers and systems integrators to deliver complete solutions for major customers. In addition, senior management plays an active role in the sales process by cultivating industry contacts. The Company markets its applications and services through direct sales contacts, strategic relationships, the sales and marketing organizations of its strategic partners, participation in trade shows, articles in industry publications and by leveraging its existing client base. Healtheon attends a number of major trade shows each year and has begun to sponsor executive conferences, which feature industry experts who address the information systems needs of large healthcare organizations. The Company supports its sales force with technical personnel who perform demonstrations of Healtheon's applications and assist clients in determining the proper hardware and software configurations. The Company's executive sales and marketing management is located in its Santa Clara, California headquarters and in its Atlanta, Georgia, Minneapolis, Minnesota and San Francisco, California facilities, while its account representatives are deployed across the United States. As of September 30, 1998, the Company employed 67 sales executives, account managers, direct sales representatives and sales support personnel. DEVELOPMENT AND ENGINEERING The Company believes that its future success will depend in large part on its ability to continue to maintain and enhance its platform, applications and services. To this end, the Company leverages the modular nature of its platform architecture to enable it to develop new applications and services rapidly. The Company has developed applications and services both independently and through acquisitions. The Company will continue to work closely with other companies in its applications development efforts. The Company has several significant projects currently in development. These include the continued enhancement of the platform architecture, development of new services such as Healtheon Practice, Healtheon ProviderWorks and Healtheon Dx, and integration of ActaMed's platform, network and associated services. As of September 30, 1998, the Company employed 201 people in the areas of applications design, research and development, quality assurance and technical support. In 1995, 1996, 1997 and the nine months ended September 30, 1998, the Company's development and engineering expense, which excludes development expenses included in total cost of revenue, totaled $2.4 million, $8.6 million, $13.0 million and $13.0 million, respectively, representing 112%, 78%, 97% and 42 39%, respectively, of its total revenue. The Company believes that timely development of new and enhanced applications and technology is necessary to remain competitive in the marketplace. Accordingly, the Company intends to continue recruiting and hiring experienced development personnel and to make other investments in development and engineering. The emerging market for healthcare information exchange and transaction processing is characterized by rapid technological developments, frequent new application introductions and evolving industry standards. The emerging nature of this market and its rapid evolution will require that the Company continually improve the performance, features and reliability of its applications and services, particularly in response to competing offerings, and that it introduce new applications and services or enhancements to existing applications and services as quickly as possible and prior to its competitors. The success of new application and service introductions is dependent on several factors, including proper definition of new applications or services, timely completion and introduction of new applications and services, differentiation of new applications and services from those of the Company's competitors and market acceptance. There can be no assurance that the Company will be successful in developing and marketing new applications and services that respond to competitive and technological developments and changing customer needs. The failure of the Company to develop and introduce new applications and services successfully on a timely basis and to achieve market acceptance for such applications and services could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the widespread adoption of new Internet, networking or telecommunication technologies or standards or other technological changes could render its applications and services obsolete or require substantial expenditures by the Company to adapt its applications and services. Moreover, there is a risk that a competitor's product might become the standard for healthcare information services. INTELLECTUAL PROPERTY The Company relies upon a combination of trade secret, copyright and trademark laws, license agreements, confidentiality procedures, employee nondisclosure agreements and technical measures to maintain the secrecy of its intellectual property. The Company believes that patent, trade secret and copyright protection are less significant to the Company's success than its ability to further develop applications. The Company has several trademarks in the United States and internationally. COMPETITION The market for healthcare information services is intensely competitive, rapidly evolving and subject to rapid technological change. Many of the Company's actual and potential competitors have announced or introduced Internet strategies. The Company's competitors can be divided into several groups: healthcare information software vendors, including HBO & Company, which has agreed to be acquired by McKesson Corporation, one of the country's largest drug wholesalers, and Shared Medical Systems Corporation; healthcare electronic data interchange companies, including ENVOY Corporation, which has agreed to be acquired by Quintiles Transnational Corp., and National Data Corporation; and large information technology consulting service providers, including Andersen Consulting, International Business Machines Corporation and Electronic Data Systems Corporation. Each of these companies can be expected to compete with the Company within certain segments of the healthcare information technology market. Furthermore, major software information systems companies and others, including those specializing in the healthcare industry that are not presently offering applications that compete with those offered by the Company, may enter the Company's markets. In some cases, large customers may have the ability to compete directly with the Company as well. The Company also competes with smaller regional competitors. Many of the Company's competitors and potential competitors have significantly greater financial, technical, product development, marketing and other resources and greater market recognition than the Company. Many of the Company's competitors also currently have, or may develop or acquire, substantial installed customer bases in the healthcare industry. As a result of these factors, the Company's competitors may be 43 able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their applications or services than the Company. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, financial condition and results of operations. GOVERNMENT REGULATION AND HEALTHCARE REFORM Laws and regulations may be adopted with respect to the Internet or other on-line services covering issues such as user privacy, pricing, content, copyrights, distribution and characteristics and quality of products and services. The adoption of any additional laws or regulations may impede the growth of the Internet or other on-line services, which could, in turn, decrease the demand for the Company's applications and services and increase the Company's cost of doing business, or otherwise have an adverse effect on the Company's business, financial condition and results of operations. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to the Company's business, or the application of existing laws and regulations to the Internet and other online services could have a material adverse effect on the Company's business, financial condition and results of operations. The confidentiality of patient records and the circumstances under which such records may be released for inclusion in the Company's databases are subject to substantial regulation by state governments. These state laws and regulations govern both the disclosure and the use of confidential patient medical record information. Although compliance with these laws and regulations is at present principally the responsibility of the hospital, physician or other healthcare provider, regulations governing patient confidentiality rights are evolving rapidly. Additional legislation governing the dissemination of medical record information has been proposed at both the state and federal level. This legislation may require holders of such information to implement security measures that may require substantial expenditures by the Company. There can be no assurance that changes to state or federal laws will not materially restrict the ability of healthcare providers to submit information from patient records using the Company's applications. Legislation currently being considered at the federal level could impact the manner in which the Company conducts its business. The Health Insurance Portability and Accountability Act of 1996 mandates the use of standard transactions, standard identifiers, security and other provisions by the year 2000. The Company is designing its Platform and applications to enable compliance with the proposed regulations; however, until such regulations become final, they could change, which could require the Company to expend additional resources to comply with the revised standards. In addition, the success of the Company's compliance efforts may be dependent on the success of healthcare participants in dealing with the standards. International regulations with respect to the Internet, privacy and transborder data flows are considerably more developed than regulations in the United States. The Company intends to develop applications and services to be used on a worldwide basis and, consequently, will be required to comply with international regulations regarding the Internet and electronic commerce, as well as with U.S. regulations. The Company has not evaluated the effect that these regulations would have on its business, and there can be no assurance that such regulations will not have an adverse effect on the Company's ability to compete internationally. The United States Food and Drug Administration is responsible for assuring the safety and effectiveness of medical devices under the Federal Food, Drug and Cosmetic Act. Computer applications and software are considered medical devices and subject to regulation by the FDA when they are indicated, labeled or intended to be used in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, or are intended to affect the structure or function of the body. The 44 Company does not believe that any of its current applications or services are subject to FDA jurisdiction or regulation; however, the Company plans to expand its application and service offerings into areas that may subject it to FDA regulation. The Company has no experience in complying with FDA regulations. Healtheon's compliance with FDA regulations could prove to be time consuming, burdensome and expensive, which could have a material adverse effect on the Company's ability to introduce new applications or services in a timely manner. EMPLOYEES As of September 30, 1998, the Company had a total of 613 employees and independent contractors, of whom 184 engaged in customer and network services, 244 in development and engineering, 14 in consulting services, 67 in provider services, 67 in sales and marketing and 37 in corporate finance and administration. None of the Company's employees is represented by a labor union, and the Company has never experienced a work stoppage. The Company believes its relationship with its employees to be good. The Company's ability to achieve its financial and operational objectives depends in large part upon its continuing ability to attract, integrate, retain and motivate highly qualified sales, technical and managerial personnel, and upon the continued service of its senior management and key sales and technical personnel, most of whom are not bound by an employment agreement. Competition for such qualified personnel in the Company's industry and geographical location in the San Francisco Bay Area is intense, particularly in software development and technical personnel. FACILITIES The Company's principal executive and corporate offices and development and network operations are located in Santa Clara, California, in approximately 50,000 square feet of leased office space under a lease that expires in March 2008. The Company also maintains sales, development and network operations in Atlanta, Georgia, in approximately 41,000 square feet of leased office space under a lease that expires in July 2001; sales, engineering and support operations in Minneapolis, Minnesota, in approximately 16,500 square feet of leased office space under a lease that expires in December 1999; and sales, engineering and support operations in San Francisco, California, in approximately 6,000 square feet and 5,000 square feet of leased office space under two leases that expire in November 2000 and September 2001, respectively. The Company believes that its facilities are adequate for its current operations and that additional leased space can be obtained if needed. 45 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the Company's current executive officers and directors:
NAME AGE POSITION - -------------------------------------------- ----------- -------------------------------------------------------------- James H. Clark(1)(2)........................ 53 Chairman of the Board of Directors W. Michael Long(3).......................... 46 Chief Executive Officer and Director Michael K. Hoover........................... 43 President and Director Mark Bailey................................. 39 Vice President, Business Development Kallen Chan................................. 44 Corporate Controller Jack Dennison............................... 42 Vice President and General Counsel Dennis Drislane............................. 49 Vice President, Customer and Network Services Edward Fotsch, M.D.......................... 42 Vice President, Physician and Integrated Delivery Network Group Nancy Ham................................... 37 Vice President, Laboratories and Pharmaceuticals J. Philip Hardin............................ 35 Vice President, Managed Care Group John R. Hughes, Jr.......................... 46 Vice President, Provider Services Krishna Kolluri............................. 36 Vice President, Applications Matthew Moore............................... 34 Vice President, Consumer Internet Services Pavan Nigam................................. 39 Vice President, Engineering Charles Saunders, M.D....................... 44 Vice President, Marketing and Consulting Services and Medical Director John L. Westermann III...................... 53 Vice President, Chief Financial Officer, Secretary and Treasurer L. John Doerr(1)(2)......................... 46 Director C. Richard Kramlich(1)(2)................... 63 Director William W. McGuire, M.D.(1)(2).............. 50 Director P. E. Sadler(1)............................. 64 Director Tadataka Yamada, M.D.(1).................... 53 Director
- --------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Stock Option Committee. JAMES H. CLARK has served as Chairman of the Board of the Company since he co-founded it in December 1995. Dr. Clark co-founded Netscape Communications Corporation in April 1994 and has served as the Chairman of the Board of Directors of Netscape since its inception. He served as President and Chief Executive Officer of Netscape from its founding until December 1994. From 1981 until 1994, Dr. Clark served as Chairman of the board of directors of Silicon Graphics, Inc., a company that he founded in 1981. Prior to founding Silicon Graphics, Dr. Clark was an Associate Professor at Stanford University. He holds a B.S. and an M.S. from the University of New Orleans and a Ph.D. from the University of Utah. W. MICHAEL LONG has served as Chief Executive Officer and a director of the Company since joining the Company in July 1997. Prior to joining the Company, Mr. Long was President and Chief Executive Officer of CSC Continuum, Inc., a unit of Computer Sciences Corporation, from August 1996 to July 1997. For more 46 than five years prior to its acquisition by CSC, he was President and Chief Executive Officer of The Continuum Company, Inc., a provider of IT and consulting services to the financial industry. He holds a B.A. from the University of North Carolina. MICHAEL K. HOOVER has served as President and a director of the Company since the Company acquired ActaMed Corporation in May 1998. Mr. Hoover co-founded ActaMed in May 1992, and served as its President from its inception to May 1998, and as its President and Chief Executive Officer from December 1995 to May 1998. From 1989 to 1992, Mr. Hoover served as the Executive Director of Financial Services of the MicroBilt division of First Financial Management Corporation. Prior to that, he founded FormMaker Software Corporation, a producer of electronic forms automation systems, and served as its Chief Executive Officer from 1982 to 1988 and as its Executive Vice President during 1988. MARK BAILEY has served as Vice President, Business Development of the Company since joining the Company in July 1998. Prior to joining the Company, Mr. Bailey served as general partner at Venrock Associates, the venture capital organization for the Rockefeller family, from October 1997 to April 1998. Prior to that he was Senior Vice President Business Development at Symantec Corporation, a provider of productivity and utilities software, where he directed mergers and acquisitions efforts from December 1989 to October 1997. Before joining Symantec, he was an associate with Kleiner Perkins Caufield & Byers, a venture capital firm, from June 1985 to December 1989. Mr. Bailey holds an MBA from Harvard University and a BSE from Princeton University. KALLEN CHAN has served as Corporate Controller of the Company since April 1996. Prior to joining the Company, Mr. Chan was the Director of Audit and Group Controller for Worldwide Manufacturing at Cirrus Logic, Inc. since March 1995. From January 1993 to February 1995, Mr. Chan was Vice President of Finance and Chief Financial Officer of Comtech Labs Inc., a video imaging technology company. From 1986 to 1992, Mr. Chan served as Chief Financial Officer for various early stage companies, including Caeco Inc., Harmonic Lightwaves, Inc. and Oasic Technology, Inc. Prior to 1986, Mr. Chan spent nine years at Philips Semiconductor as a Division Controller. He holds a B.S. in commerce and an M.B.A. from the University of Santa Clara. JACK DENNISON has served as Vice President and General Counsel of the Company since joining the Company in July 1998. Mr. Dennison served as Deputy General Counsel of Computer Sciences Corporation from August 1996 to July 1998. Prior to that time, Mr. Dennison served as Vice President and General Counsel of The Continuum Company, Inc. Prior to joining Continuum in 1989, he was a partner with Ford, Dennison & Byrne in Austin, Texas. Mr. Dennison holds a B.A. and a J.D. from the University of Texas. DENNIS DRISLANE has served as Vice President, Customer and Network Services of the Company since joining the Company in July 1997. Mr. Drislane served as Vice President, Communications Industry Group, at Electronic Data Systems Corporation, "EDS," from June 1995 to July 1997. From October 1992 to June 1995, he was President of EDS' Healthcare Division. Prior to October 1992, he held various management positions for EDS. Mr. Drislane holds both a B.S. and an M.S. in business administration from California State University in Sacramento. EDWARD FOTSCH, M.D. has served as the Vice President, Physician and Integrated Delivery Network group of the Company since the Company acquired Metis, LLC in August 1998. Dr. Fotsch served as President and Chief Executive Officer of Metis, LLC from March 1997 to August 1998. Prior to working at Metis, LLC, Dr. Fotsch served as Vice President of Healthcare for NetSource Communications Inc., an Internet development and consulting organization, from November 1994 to March 1997. Prior to working at NetSource, Dr. Fotsch was President of Med-Tech Consulting, a healthcare consulting firm from October 1992 through November 1994. Dr. Fotsch practiced medicine as Chief of the Department of Emergency Medicine at Doctors Hospital in Northern California for ten years prior to 1994. He holds a Doctorate in Medicine from the Medical College of Wisconsin and a B.S. from Marquette University. 47 NANCY HAM has served as Vice President, Laboratories and Pharmaceuticals Group of the Company since the Company acquired ActaMed in May 1998. Ms. Ham served as a Senior Vice President of ActaMed from June 1996 to May 1998. She served as Chief Financial Officer and Secretary of ActaMed from 1993 to May 1996. From 1992 to 1993, she was a Corporate Finance Director for the Capital Finance Group of Equifax, Inc. Prior to that, she was an Assistant Vice President at G.E. Capital Corporation. Ms. Ham holds a B.A. in economics from Duke University and a masters in international business studies from the University of South Carolina. J. PHILIP HARDIN has served as Vice President, Managed Care Group of the Company since the Company acquired ActaMed in May 1998. Mr. Hardin served as Vice President of Managed Care Operations of ActaMed from August 1997 until May 1998. He also served as Director of payer Sponsorship for ActaMed from January 1997 to August 1997, and Project Executive from July 1995 to December 1996. From August 1993 to June 1995, Mr. Hardin attended Stanford University and received an MBA degree in June 1995. Prior to that, he served as Vice President, Finance, Director of Finance and Controller of Melita International Corporation and held various accounting positions at Arthur Andersen & Company. Mr. Hardin also holds a B.B.A. in accounting from the University of Georgia. JOHN R. HUGHES, JR. has served as Vice President, Provider Services of the Company since the Company acquired ActaMed in May 1998. Mr. Hughes served as Chief Operating Officer of ActaMed from March 1996 to May 1998. Prior to working at ActaMed, Mr. Hughes served as General Manager of the EDI Services Group of United HealthCare from August 1992 to March 1996. Mr. Hughes served as Vice President of North American Sales for Revelation Technologies, a computer software company, from 1990 to 1992. From 1980 to 1990, Mr. Hughes was Vice President, Sales Manager and Product Marketing Manager at Harris Corporation. Mr. Hughes holds a B.S. in business administration from the University of Kansas. KRISHNA KOLLURI has served as Vice President, Applications of the Company since July 1998, and prior to that, as Senior Director of Development Engineering of the Company since February 1996. Prior to joining the Company, Mr. Kolluri spent six years at Silicon Graphics, Inc. From August 1993 to February 1996, Mr. Kolluri served as Senior Engineering Manager of Applications and Development Environments in the Interactive Media Group of Silicon Graphics, Inc. From May 1992 to August 1993, he served as Senior Engineering Manager of Programming Environments in Silicon Graphics' CASE group where he was involved in the development and deployment of interactive TV projects in Orlando, Florida and Urayasu, Japan. From March 1990 to May 1992, he was a Member of Silicon Graphic's technical staff. Mr. Kolluri holds a B.S.M.E. from the Indian Institute of Technology, Madras, India, an M.S. in Operations Research from S.U.N.Y., Buffalo, and an M.S.C.S. from the University of California, Santa Cruz. MATTHEW MOORE has served as Vice President, Consumer Internet Services since joining the Company in September 1998. Prior to joining the Company, Mr. Moore spent four years at Netscape Communications, where he co-founded the firm's European operations and served as Director of Strategic Sales from August 1994 until December 1997. Commencing January 1998, he moved to Netscape's U.S. operations to head up vertical markets internationally. From 1989 to 1994, he was a partner at Keystone Strategies, a technology consultancy firm based in Geneva, Switzerland. Mr. Moore holds a B.A. from University of California, Los Angeles, and an M.B.A from Hautes Etudes Commerciales, University of Geneva, Switzerland. PAVAN NIGAM co-founded the Company and has served as its Vice President, Engineering since February 1996. Prior to joining the Company, Mr. Nigam worked at Silicon Graphics from August 1989 to January 1996, where he was the division manager for Silicon Graphic's Interactive Media Group and was responsible for deploying Time Warner, Inc.'s Interactive TV project in Orlando, Florida. From 1989 to 1993, he was director of Silicon Graphics' Casevision products. Prior to 1989, Mr. Nigam was employed by Atherton Technologies and Intel Corporation. Mr. Nigam holds a B.S.E.E. from the Indian Institute of Technology and an M.S.C.S. from the University of Wisconsin-Madison. 48 CHARLES SAUNDERS, M.D. has served as Vice President, Marketing and Consulting Services and Medical Director since joining the Company in September 1997. Prior to joining the Company, Dr. Saunders was a principal in the consulting firm of A.T. Kearney, Inc./Electronic Data Systems Corporation from September 1994 to August 1997. Prior to that time, Dr. Saunders was Executive Director of managed care programs at San Francisco General Hospital, and served as Medical Director of the San Francisco Department of Public Health, Paramedic Division, from 1988 to 1994. He has conducted healthcare systems research for and has served on the faculties of the University of California at San Francisco, Vanderbilt University and the University of Colorado. Dr. Saunders holds a B.S. in biology from the University of Southern California and an M.D. from Johns Hopkins University. JOHN L. WESTERMANN III has served as Vice President, Chief Financial Officer, Secretary and Treasurer of the Company since joining the Company in July 1998. From August 1996 to July 1998, Mr. Westermann was Chief Financial Officer and Vice President of CSC Continuum, Inc., a unit of Computer Sciences Corporation. For more than five years prior to its acquisition by CSC, Mr. Westermann was Chief Financial Officer, Vice President, Secretary and Treasurer of The Continuum Company, Inc., a provider of IT and consulting services to the financial industry. Mr. Westermann holds a B.A. from Northwestern University and an M.B.A. from the University of Chicago Graduate School of Business. L. JOHN DOERR has served as a director of the Company since July 1997. He has been a general partner at Kleiner Perkins Caufield & Byers, or "KPCB," a venture capital firm, since 1980. Prior to joining KPCB, Mr. Doerr worked at Intel Corporation for five years. He is a director of At Home Corporation, Amazon.com, Inc., Netscape Communications Corporation, Intuit Inc., Platinum Software Corporation and Sun Microsystems, Inc. He holds a B.S.E.E. and an M.E.E. from Rice University and an M.B.A. from Harvard Business School. C. RICHARD KRAMLICH has served as a director of the Company since July 1996. Mr. Kramlich is the co-founder and has been a General Partner of New Enterprise Associates, a venture capital firm, since 1978. He is a director of Ascend Communications, Inc., Com 21, Inc., Lumisys, Inc., Silicon Graphics, Inc., Chalone Wine Group, Inc. and SyQuest Technology, Inc. Mr. Kramlich holds a B.A. from Northwestern University and an M.B.A. from Harvard Business School. WILLIAM W. MCGUIRE, M.D. has served as a director of the Company since the Company acquired ActaMed in May 1998. He has been the President of United HealthCare since 1989 and the Chief Executive Officer and Chairman of the Board of Directors of United HealthCare since 1991. Prior to this, Dr. McGuire was Executive Vice President and Chief Operating Officer of United HealthCare. Prior to this time, he served as President and Chief Operating Officer of Peak Health Plan. Before becoming President and Chief Operating Officer, he held a number of other positions within that organization. Dr. McGuire practiced medicine in Colorado, specializing in cardiopulmonary medicine. He holds a B.A. from the University of Texas and an M.D. from the University of Texas Medical Branch. P. E. SADLER has served as a director of the Company since the Company acquired ActaMed in May 1998. He was Chairman of the Board of ActaMed from the time that he helped co-found it in 1992 until it was acquired by the Company, and served as its Chief Executive Officer from 1992 until May 1996. Prior to founding ActaMed, Mr. Sadler founded MicroBilt Corporation, a computer processing company, and served as its Chairman, Chief Executive Officer and President from 1981 until MicroBilt was acquired by First Financial Management Corporation, or "FFMC," in 1989. Following the acquisition of MicroBilt, he served as President of the MicroBilt division of FFMC until 1991. Mr. Sadler also founded Agency Data Systems in 1972 and served as its President until the Company was acquired in 1975. Mr. Sadler also served on the board of Knowledgeware, Inc. from 1990 to 1995 and currently serves on the Board of Directors of Central Parking, Inc., an operator of parking lots. Mr. Sadler holds a B.A. in business and economics from Vanderbilt University. TADATAKA YAMADA, M.D. has served as a director of the Company since the Company acquired ActaMed in May 1998. Dr. Yamada has been President and Executive Director of SmithKline Beecham HealthCare 49 Services since February 1996 and has been a non-executive director of SmithKline Beecham's Board of Directors since February 1994. From June 1990 to February 1996, Dr. Yamada was Chairman of the Internal Medicine department and Physician-in-Chief of the University of Michigan Medical Center. Prior to that time, Dr. Yamada was a Professor and Chief of the Gastroenterology Division at the University of Michigan Medical School's Internal Medicine department. Prior to his work at the University of Michigan, Dr. Yamada was an associate professor of medicine at the UCLA School of Medicine. Dr. Yamada is also a director of Genevco, Inc. Dr. Yamada holds a B.A. in history from Stanford University and an M.D. from the New York University School of Medicine. The Company's Bylaws authorize between six and eight directors. The size of the Board of Directors is currently set at eight. The Certificate of Incorporation and the Bylaws of the Company also provide for a staggered Board. Under a staggered Board, each director is designated to one of three categories. Each year the directors' positions in one of the three categories are subject to election so that it would take up to three years to replace the entire Board, absent resignation or premature expiration of a director's term. Executive officers of the Company are appointed by the Board and serve at the discretion of the Board. There are no family relationships among any of the directors or executive officers of the Company. BOARD COMMITTEES The Board currently has three committees: an Audit Committee, a Stock Option Committee and a Compensation Committee. The Audit Committee is currently comprised of Dr. Clark, Mr. Doerr, Mr. Kramlich, Dr. McGuire, Mr. Sadler and Dr. Yamada. The Audit Committee reviews and recommends to the Board the internal accounting and financial controls for the Company and the accounting principles and auditing practices and procedures to be used for the financial statements of the Company. The Audit Committee makes recommendations to the Board concerning the engagement of independent public accountants and the scope of the audit to be undertaken by such accountants. The Stock Option Committee is currently comprised of Mr. Long and is charged with overseeing the stock option plans as they relate to employees other than officers and directors of the Company. The Compensation Committee is currently comprised of Dr. Clark, Mr. Doerr, Mr. Kramlich, and Dr. McGuire. The Compensation Committee reviews and recommends to the Board policies, practices and procedures relating to the compensation of the officers and other managerial employees and the establishment and administration of employee benefit plans. The Committee exercises all authority under the Company's employee equity incentive plans and advises and consults with the officers of the Company regarding managerial personnel policies. DIRECTOR COMPENSATION Directors do not receive any cash fees for their service on the Board or any Board committee, but they are entitled to reimbursement for all reasonable out-of-pocket expenses incurred in connection with their attendance at Board and Board committee meetings. Upon completion of this offering, all Board members will be eligible to receive stock options under the 1996 Plan, and outside directors will receive stock options pursuant to automatic grants of stock options under the 1996 Plan. In July 1998, the Company granted to each of Drs. McGuire and Yamada an option to purchase 30,000 shares of its common stock under the 1996 Plan with an exercise price equal to $7.00 per share. In October 1998, Drs. McGuire and Yamada each agreed to exchange his option for a new option with an exercise price of $3.55 per share, reflecting the fair market value of the Company's common stock on that date as determined by the Board of Directors after taking into account the Company's financial results and prospects. In connection with this repricing, the vesting of the options for Drs. McGuire and Yamada was restarted. Therefore, 25% of their shares will vest in October 1999, and the remainder will vest ratably over the subsequent three years. The 1996 Plan provides that each outside director will receive an option to purchase 5,000 shares of common stock annually. 50 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Dr. Yamada, a member of the Compensation Committee, is a director and executive officer of SmithKline Beecham, which, through its subsidiary SmithKline Labs, beneficially owns 7.1% of the Company's common stock, and has entered into the Services Agreement and certain other agreements with the Company. Dr. McGuire, a member of the Compensation Committee, is the Chairman and Chief Executive Officer of United HealthCare, which, with its affiliates, beneficially owns approximately 14.4% of the Company's common stock prior to this offering, and has entered into the United HealthCare Agreement and certain other agreements with the Company. See "Certain Transactions." No interlocking relationship exists between the Board or Compensation Committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past. LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation and Bylaws limit or eliminate the personal liability of its directors for monetary damages for breach of the directors' fiduciary duty of care. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director or officer will not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for - any breach of the director's duty of loyalty to the Company or its stockholders; - acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions; and - any transaction from which the director derived an improper personal benefit. These provisions are permitted under Delaware law. The Company's Certificate of Incorporation also provides that the Company will indemnify, to the fullest extent permitted by law, any person made or threatened to be made a party to any action or proceeding by reason of the fact that such person is or was a director or officer of the Company or serves or served at any other enterprise as a director, officer or employee at the Company's request. The Company's Bylaws provide that the Company will, to the maximum extent and in the manner permitted by Delaware law, indemnify each of the following persons against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts incurred in connection with any proceeding arising by reason of the fact that such person is or was an agent of the Company: - a current or past director or officer of the Company or any subsidiary of the Company; - a current or past director or officer of another enterprise who served at the request of the Company; or - a current or past director or officer of a corporation that was a predecessor corporation of the Company or any of its subsidiaries or of another enterprise at the request of such predecessor corporation or subsidiary. 51 The Company intends to enter into Indemnification Agreements with each of its directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification described above and to provide additional procedural protections. These agreements, among other things, indemnify the Company's directors and executive officers for certain expenses, including attorneys' fees, judgments, fines, penalties and settlement amounts incurred by them in any action or proceeding arising out of such person's services to the Company, its subsidiaries or any other enterprise to which the person provides services at the Company's request. In addition, the Company intends to obtain directors' and officers' insurance providing indemnification for the Company's directors, officers and certain employees for certain liabilities. The Company believes that these indemnification provisions and agreements are necessary to attract and retain qualified directors and officers. The limited liability and indemnification provisions in the Company's Certificate of Incorporation and Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit the Company and it stockholders. Furthermore, a stockholder's investment in the Company may be adversely affected to the extent the Company pays the costs of settlement and damage awards against directors and officers of the Company pursuant to these indemnification provisions. At present, there is no pending or threatened litigation or proceeding involving any director, officer or employee of the Company where indemnification is expected to be required or permitted, and the Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation earned for services rendered to the Company in 1998 by (1) the Company's Chief Executive Officer and (2) the Company's four other most highly compensated executive officers who earned more than $100,000 in 1998 and were serving as executive officers at the end of 1998 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE(1)
LONG-TERM COMPENSATION AWARDS ------------------- ANNUAL COMPENSATION SECURITIES ----------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(2) OPTIONS(#) - ------------------------------------------------------------------- ---------- ----------- ------------------- W. Michael Long Chief Executive Officer.......................................... $ 458,337 $ -- -- Michael K. Hoover(3) President........................................................ 154,487 60,000(4) 80,000 Dennis Drislane Vice President, Customer and Network Services.................... 163,500 73,500 -- Pavan Nigam Vice President, Engineering...................................... 225,000 -- 325,000 Charles Saunders Vice President, Marketing and Consulting Services and Medical Director......................................................... 151,250 45,000 200,000(5)
- --------- (1) In accordance with the rules of the Securities and Exchange Commission, this table does not include certain perquisites and other benefits received by the Named Executive Officers which do not exceed the lesser of $50,000 or 10% of any such officer's salary and bonus disclosed in this table. 52 (2) Some employee year-end bonus amounts for 1998 have not been determined yet by the Board of Directors. (3) Mr. Hoover joined the Company in May 1998. (4) Mr. Hoover's 1998 year-end bonus is to be paid on January 15, 1999. (5) Includes 100,000 shares underlying an option granted in 1998 that was cancelled pursuant to a stock option repricing exchange program in October 1998. OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998 The following table sets forth certain information for the year ended December 31, 1998 with respect to grants of stock options to each of the Named Executive Officers:
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED ------------------------------------------------ ANNUAL RATES NUMBER OF % OF TOTAL OF STOCK PRICE SECURITIES OPTIONS APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4) OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------------- NAME GRANTED(1) IN 1998(2) SHARE(3) DATE 5% 10% - ----------------------------------------------------- ---------- ---------- --------- ---------- ---------- ------------ W. Michael Long...................................... -- --% $ -- -- $ -- $ -- Michael K. Hoover.................................... 80,000 0.9 3.55 6/2/08 178,606 452,623 Dennis Drislane...................................... -- -- -- -- -- -- Pavan Nigam.......................................... 325,000 3.8 4.50 7/8/08 919,758 2,330,848 Charles Saunders..................................... 100,000(5) 1.2 4.50 --(5) 283,003(5) 717,184(5) 100,000 1.2 3.55 10/21/08 223,258 565,779
- --------- (1) Options granted in 1998 were granted under the Company's 1996 Stock Plan. Options vest at a rate of 25% of the shares on the first anniversary of the date of grant and 1/48 of the shares each month thereafter. These options have a term of 10 years. See "--Employee Benefit Plans" for a description of the material terms of these options. (2) The Company granted options to purchase common stock and issued shares of common stock pursuant to restricted stock purchase agreements equal to a total of 8,662,807 shares during 1998. Includes 2,067,950 shares underlying options granted and 568,732 shares issued pursuant to restricted stock purchase agreements in connection with a repricing program in October 1998 and on December 14, 1998. (3) Options were granted at an exercise price equal to the fair market value of the Company's common stock, as determined in good faith by the Board of Directors. The Board of Directors determined the fair market value based on the Company's financial results and prospects, the share price derived for arms-length transactions, and independent evaluations conducted by valuation experts. (4) Potential realizable values are net of exercise price before taxes, and are based on the assumption that the common stock of the Company appreciates at the annual rate shown (compounded annually) from the date of grant until the expiration of the ten-year term. These numbers are calculated based on Securities and Exchange Commission requirements and do not reflect the Company's projection or estimate of future stock price growth. (5) Represents an option to purchase 100,000 shares of common stock granted to Dr. Saunders in 1998 that was cancelled pursuant to a stock option repricing exchange program in October 1998. 53 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND 1998 YEAR-END OPTION VALUES The following table sets forth information with respect to the Named Executive Officers concerning exercisable and unexercisable options held as of December 31, 1998:
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN- OPTIONS AT THE-MONEY OPTIONS AT DECEMBER 31, 1998(1) DECEMBER 31, 1998(2) SHARES ACQUIRED ON VALUE REALIZED -------------------------- --------------------------- NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------- ------------------ ---------------- ----------- ------------- ------------ ------------- W. Michael Long........ 400,000 $ 1,320,000(3) 537,500 1,562,500 $ $ 750,000(4) -- -- Michael K. Hoover...... 100,000 446,800(5) 793,268 80,000 Dennis Drislane........ -- -- -- -- -- -- Pavan Nigam............ -- -- 364,062 85,937 Charles Saunders....... -- -- 228,571 171,429
- --------- (1) Except in the case of Mr. Hoover, options shown were granted under the 1996 Stock Plan and are subject to vesting as described in footnote (1) to the option grant table above. An option to purchase 80,000 shares of common stock held by Mr. Hoover was granted under the 1996 Stock Plan and vests as is described above. Mr. Hoover also holds options to purchase 793,268 shares granted under the ActaMed 1992, 1993 Class B Common and 1994 Stock Option Plans. These options were assumed by the Company upon the consummation of the acquisition of ActaMed. (2) Based on an assumed initial public offering price of $ per share and net of the option exercise price. (3) Based on a value of $3.55 per share, the fair market value of the common stock at June 2, 1998 as determined by the Board of Directors, minus the exercise price. (4) Represents shares issuable upon exercise of a warrant issued to Mr. Long upon commencement of his employment with the Company. See "--Employment Agreements." (5) Based on value of $4.50 per share, the fair market value of the common stock at July 8, 1998 as determined by the Board of Directors, minus the exercise price. EMPLOYMENT AGREEMENTS The Company's ActaMed subsidiary has an employment agreement with Michael K. Hoover, Healtheon's President. The agreement provides for a base salary of $85,000, and imposes a covenant not to compete upon Mr. Hoover for a period of one year following the termination of his employment. In July 1997, the Company and Mr. Long entered into an employment agreement pursuant to which Mr. Long became the President and Chief Executive Officer of the Company. The Company granted Mr. Long an option to purchase 2,500,000 shares of common stock, 25% of which vested immediately, and the remainder of which vests ratably each month during the second through the fourth year of his employment. In addition, Mr. Long purchased 250,000 shares for $500,000, $499,750 of which was represented by a promissory note to the Company, and was issued a warrant to purchase an additional 750,000 shares at an exercise price of $2.00 per share. The shares issuable upon exercise of this warrant are subject to a right of repurchase commencing on Mr. Long's employment start date and lapsing as to 31,250 shares each month. The employment agreement provides that should Mr. Long leave the Company because he is no longer offered a position with similar responsibility due to a change of control of the Company, Mr. Long's option vests immediately as to 625,000 shares and the Company's repurchase right lapses. Additionally, if the Company terminates Mr. Long's employment without cause, he will receive six 54 months' salary in installments, his option will vest immediately as to 625,000 shares and the Company's repurchase right will lapse. EMPLOYEE BENEFIT PLANS 1996 STOCK PLAN. In February 1996 the Board adopted, and the Company's stockholders approved, the 1996 Plan. The Company initially reserved for issuance 9,000,000 shares of common stock under the 1996 Plan. In March 1998, the Board and the stockholders each approved an amendment to the 1996 Plan to increase the number of shares of common stock issuable thereunder to 10,000,000 shares. In July 1998, the Board approved, subject to stockholder approval, an amendment to increase the number of shares of common stock issuable under the 1996 Plan to 15,000,000 shares plus annual increases equal to the lesser of (1) 5% of the outstanding shares or (2) a lesser amount determined by the Board. Unless terminated sooner, the 1996 Plan will terminate automatically in February 2006. The 1996 Plan provides for the discretionary grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, the "Code," to employees and for the grant of nonstatutory stock options and stock purchase rights, "SPRs," to employees, directors and consultants. The 1996 Plan also provides for annual grants of options to purchase 5,000 shares of common stock to each of the outside directors. The 1996 Plan may be administered by the Board or a committee thereof (as applicable, the "Administrator"). The Administrator has the power to determine the terms of the options or SPRs granted, including the exercise price of the options or SPRs, the number of shares subject to each option or SPR, the exercisability thereof, and the form of consideration payable upon such exercise. In addition, the Administrator has the authority to amend, suspend or terminate the 1996 Plan, provided that no such action may affect any share of common stock previously issued and sold or any option previously granted under the 1996 Plan. The exercise price of all incentive stock options granted under the 1996 Plan must be at least equal to the fair market value of the common stock on the date of grant. The exercise price of nonstatutory stock options and SPRs granted under the 1996 Plan is determined by the Administrator, but with respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the exercise price must be at least equal to the fair market value of the common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive stock option granted must be at least equal 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the 1996 Plan may not exceed ten years. Options generally vest as to 25% at the end of the first year and monthly thereafter over a period of three years so that the entire option is vested after four years, based upon the optionee's continued employment or consulting relationship with the Company. In the case of SPRs, unless the Administrator determines otherwise, the restricted stock purchase agreement will grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment or consulting relationship with the Company for any reason (including death or disability). The purchase price for shares repurchased pursuant to a restricted stock purchase agreement must be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option will lapse at a rate determined by the Administrator. Options and SPRs granted under the 1996 Plan are generally not transferable by the optionee, and each option and SPR is exercisable during the lifetime of the optionee only by such optionee. Options granted under the 1996 Plan must generally be exercised within 30 days after the end of optionee's status as an employee, director or consultant of the Company, or within one year after such optionee's termination by disability or death, respectively, but in no event later than the expiration of the option's term. 55 The 1996 Plan provides that, in the event of a merger of the Company with or into another corporation, each outstanding option and SPR must be assumed or an equivalent option substituted by the successor corporation. If the outstanding options and SPRs are not assumed or substituted by the successor corporation, such outstanding options and SPRs will terminate. ACTAMED STOCK OPTION PLANS. In connection with its acquisition of ActaMed in a merger, the Company assumed the outstanding options of ActaMed under the following ActaMed stock option plans (collectively, the "ActaMed Plans"): ActaMed Corp. 1992 Stock Option Plan, ActaMed Corp. 1993 Class B common stock Option Plan, ActaMed Corp. 1994 Stock Option Plan, ActaMed Corp. 1995 Stock Option Plan, ActaMed Corp. 1996 Stock Option Plan, ActaMed Corp. 1997 Stock Option Plan and ActaMed Corp. 1996 Director Stock Option Plan. The following options held by directors and executive officers of the Company were assumed by the Company: options to purchase 1,424,216 shares of ActaMed common stock held by Michael Hoover, options to purchase 250,000 shares of ActaMed common stock held by Nancy Ham, options to purchase 80,000 shares of ActaMed common stock held by J. Philip Hardin, and options to purchase 220,000 shares of ActaMed common stock held by John R. Hughes, Jr. As a result of the merger, each option to purchase shares of ActaMed common stock now represents an option to purchase a number of shares of Healtheon common stock equal to .6272 times the number of shares of ActaMed common stock originally subject to the option at the per share exercise price equal to the original per share exercise price divided by .6272. The Company will make no further grants under the ActaMed Plans. However, each assumed ActaMed option continues to have and remains subject to substantially the terms and conditions of the applicable ActaMed Plan under which such option was originally granted as in effect immediately prior to the merger. Generally, options granted under the ActaMed Plans will automatically terminate ten years following their adoption, and may be administered by the Board of Directors or a committee of the Board (as applicable, the "Administrator"). Options granted under the ActaMed Plans generally are not transferable by the optionee, and must generally be exercised within 30 days after the end of the optionee's status as an employee or consultant of the Company or within 90 days after such optionee's termination by disability or death, respectively, but in no event later than the expiration of the option's term. Generally, in the event of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, share exchange, stock dividend, or transaction having a similar effect, where the Company does not remain in existence, the Administrator may (1) declare that all ActaMed options shall vest in full and be exercisable for a period of thirty (30) days following written notice from the Administrator, after which all ActaMed options shall terminate, (2) provide that all ActaMed options shall be assumed by the successor corporation, or (3) provide for a combination of (1) and (2). 1998 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1998 Employee Stock Purchase Plan, or the "1998 Purchase Plan," was adopted by the Board in September 1998, and is subject to stockholder approval. A total of 1,000,000 shares of common stock has been reserved for issuance under the 1998 Purchase Plan, plus annual increases equal to the lesser of (1) 500,000 shares, (2) .5% of the outstanding shares on such date or (3) a lesser amount determined by the Board. The 1998 Purchase Plan contains consecutive, overlapping, twenty-four month offering periods. Each offering period includes four six-month purchase periods. The offering periods generally start on the first trading day on or after May 1 and November 1 of each year, except for the first such offering period which commences on the first trading day on or after the effective date of this offering and ends on the last trading day on or before October 31, 2000. Employees are eligible to participate if they are employed by the Company or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted an option to purchase stock under the 1998 Purchase Plan if the employee (1) immediately after grant would own stock possessing 5% or more of the total combined voting power or value of all classes of the capital stock of the Company, or (2) holds rights to purchase stock under any 56 employee stock purchase plans of the Company that together accrue at a rate which exceeds $25,000 worth of stock for each calendar year. The 1998 Purchase Plan permits each participant to purchase common stock through payroll deductions of up to 15% of the participant's "compensation." Compensation is defined as the participant's base straight time gross earnings and commissions but excludes payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. The maximum number of shares a participant may purchase during a single purchase period is 5,000 shares. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each purchase period. The price of stock purchased under the 1998 Purchase Plan is 85% of the lower of the fair market value of the common stock (1) at the beginning of the offering period or (2) at the end of the purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the participants will be withdrawn from the current offering period following exercise and automatically re-enrolled in a new offering period. The new offering period will use the lower fair market value as of the first date of the new offering period to determine the purchase price for future purchase periods. Participants may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with the Company. Rights granted under the 1998 Purchase Plan are not transferable by a participant other than by will or the laws of descent and distribution. The 1998 Purchase Plan provides that, in the event of a merger of the Company with or into another corporation or a sale of substantially all of the Company's assets, each outstanding option may be assumed or substituted for by the successor corporation. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened and a new exercise date will be set. The 1998 Purchase Plan will terminate in 2008. The Board has the authority to amend or terminate the 1998 Purchase Plan, except that no such action may adversely affect any outstanding options under the 1998 Purchase Plan. The Board may alter the purchase price for any offering period or shorten an offering period at any time without consent of the stockholders or of any participants. 401(K) PLAN. The Company participates in a tax-qualified employee savings and retirement plan, or the "401(k) Plan," which covers all of the Company's full-time employees who have completed three months of service. Pursuant to the 401(k) Plan, eligible employees may defer up to 20% of their pre-tax earnings, subject to the Internal Revenue Service's annual contribution limit. The 401(k) Plan permits additional discretionary matching contributions by the Company on behalf of all participants in the 401(k) Plan in such a percentage amount as may be determined annually by the Board. To date, the Company has made no such matching contributions. The 401(k) Plan is intended to qualify under Section 401 of the Code, as amended, so that contributions by employees or by the Company to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by the Company, if any, will be deductible by the Company when made. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in any of a number of investment options. 57 CERTAIN TRANSACTIONS Since December 26, 1995, the Company's inception date, there has not been nor is there currently proposed any transaction or series of similar transactions to which the Company or any of its subsidiaries was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, holder of more than 5% of the common stock of the Company or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest other than (1) compensation agreements and other arrangements, which are described where required in "Management," and (2) the transactions described below. ACTAMED CORPORATION ACQUISITION On May 19, 1998, the Company acquired ActaMed in a merger. Pursuant to the merger, the Company issued 23,271,355 shares of its common stock in exchange for all of the issued and outstanding capital stock of ActaMed, and assumed all options to purchase ActaMed common stock. The merger was treated as a tax-free reorganization and as a "pooling-of-interests" transaction for accounting and financial reporting purposes. All of the then outstanding shares of preferred stock of the Company were converted into shares of common stock of the Company upon the consummation of the merger. The Company and certain stockholders of the Company who together hold a majority of the outstanding shares of common stock of the Company entered into a Voting Agreement in connection with the merger, or the "Voting Agreement." Among other things, the Voting Agreement requires each of the signatories thereto to vote its shares in favor of the election of four directors nominated by those signatories who were ActaMed shareholders prior to the merger and four directors nominated by those signatories who were Healtheon stockholders prior to the merger. The Voting Agreement terminates upon the consummation of this offering. TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS 1996 SERIES A PREFERRED STOCK. On January 26, 1996, the Company sold 10,285,000 shares of its Series A preferred stock for $.50 per share. The purchasers of the Series A preferred stock included, among others: Dr. James H. Clark--3,500,000 shares; Kleiner Perkins Caufield & Byers VII--2,999,500 shares; KPCB VII Founders Fund--325,500 shares; KPCB Life Sciences Zaibatsu Fund II--175,000 shares; and New Enterprise Associates VI, Limited Partnership, or "New Enterprise Associates VI"--2,000,000 shares. KPCB VII Founders Fund, KPCB Life Sciences Zaibatsu Fund II and Kleiner Perkins Caufield & Byers VII, along with KPCB VII Associates and KPCB Java Fund, are affiliated entities. L. John Doerr, a director of the Company, is a general partner of KPCB VII Associates and the general partner of KPCB Life Sciences Zaibatsu Fund II. Mr. Doerr disclaims beneficial ownership of the securities held by such entities except for his proportional interest therein. C. Richard Kramlich, a director of the Company, is a general partner of New Enterprise Associates VI. Mr. Kramlich disclaims beneficial ownership of the securities held by such entity except for his proportional interest therein. COMMON STOCK. On January 26, 1996, the Company sold 1,000,000 shares of its common stock for $.05 per share. The purchasers of the common stock included: Dr. Clark--500,000 shares; Kleiner Perkins Caufield & Byers VII--428,500 shares; KPCB VII Founders Fund--46,500 shares; and KPCB Life Sciences Zaibatsu Fund II--25,000 shares. SERIES B PREFERRED STOCK AND WARRANTS. On October 1, 1996, the Company sold 3,000,000 shares of its Series B preferred stock for $2.00 per share. The purchasers of the Series B preferred stock included, among others: Dr. Clark--1,125,000 shares; Kleiner Perkins Caufield & Byers VII--1,068,750 shares; KPCB Life Sciences Zaibatsu Fund II--56,250 shares; and New Enterprise Associates VI--500,000 shares. In related transactions, on November 1, 1996, the Company issued a warrant to purchase 1,000,000 shares of Series B preferred stock with an exercise price of $2.00 per share to each of Clark Ventures, as an incentive for Dr. Clark to continue to provide services to the Company, and KPCB VII Associates, in consideration for services provided to the Company by David Schnell, a former general partner of KPCB, in his capacity as President and CEO. The warrant issued to KPCB VII Associates was valued at $504,900. 58 Clark Ventures subsequently exercised its warrant on May 1, 1998 for an aggregate purchase price of $2.0 million. Clark Ventures is controlled by Dr. Clark. On July 11, 1997 the Company issued 250,000 shares of Series B preferred stock for a purchase price of $.5 million and a warrant to purchase 750,000 shares of Series B Stock with an exercise price of $2.00 per share to W. Michael Long. See "--Employment Agreements." In order to purchase the 250,000 shares of preferred stock, Mr. Long borrowed $499,750 from the Company pursuant to a one-year interest-free full recourse promissory note. The note was paid in full on June 30, 1998. BRIDGE FINANCING. Between April 15, 1997 and May 6, 1997, the Company borrowed an aggregate of $2.0 million at an annual interest rate of 6% pursuant to promissory notes, each of which included a right to receive certain Series B preferred stock warrants at the time of repayment or upon cancellation of such note in a bridge financing transaction, or the "Bridge Financing." The lenders in the Bridge Financing included, among others: Dr. Clark--$765,750; Kleiner Perkins Caufield & Byers VII--$727,463; KPCB Life Sciences Zaibatsu Fund II--$38,288; and New Enterprise Associates VI--$312,500. On July 1, 1997 the promissory notes were cancelled in consideration for the issuance of Series C preferred stock, as described below, and the Series B preferred stock warrants were issued as follows: Dr. Clark received a warrant to purchase 17,229 shares, Kleiner Perkins Caufield & Byers VII received a warrant to purchase 27,891 shares, KPCB Life Sciences Zaibatsu Fund II received a warrant to purchase 1,468 and New Enterprise Associates VI received a warrant to purchase 11,979 shares. All of the Series B Warrants have an exercise price of $2.00 per share. Dr. Clark subsequently exercised his warrant on May 1, 1998 for an aggregate purchase price of $34,458. SERIES C PREFERRED STOCK. On July 1, 1997, the Company sold 2,400,000 shares of its Series C preferred stock for $2.50 per share. The purchasers of the Series C preferred stock included, among others: Dr. Clark--612,600 shares for a purchase price of $1.5 million, including cancellation of the $765,750 promissory note given in the Bridge Financing discussed above; Kleiner Perkins Caufield & Byers VII-- 290,985 shares for cancellation of the $727,463 in promissory notes given in the Bridge Financing discussed above; KPCB Java Fund--306,300 shares for a purchase price of $765,750; KPCB Life Sciences Zaibatsu Fund II--15,315 shares for cancellation of the $38,288 in promissory note given in the Bridge Financing discussed above; and New Enterprise Associates VI--250,000 shares for a purchase price of $625,000 including cancellation of the $312,500 promissory note given in the Bridge Financing discussed above. SERIES D PREFERRED STOCK. Between October 17, 1997 and December 19, 1997, the Company sold 4,807,692 shares of its Series D preferred stock for $5.20 per share. The purchasers of the Series D preferred stock included, among others: Clark Ventures--1,730,769 shares; Kleiner Perkins Caufield & Byers VII--432,693 shares; KPCB Java Fund--480,769 shares; KPCB Life Sciences Zaibatsu Fund II-- 48,077 shares; Kathy Clark--96,154 shares; Michael James Clark Trust--96,154 shares; and New Enterprise Associates VI, Limited Partnership--576,923 shares. Kathy Clark and Michael James Clark are adult children of Dr. Clark. On May 19, 1998, pursuant to the ActaMed merger, each outstanding share of preferred stock of the Company converted into one share of common stock and each outstanding warrant to purchase shares of the Company's preferred stock converted into a warrant to purchase shares of the Company's common stock. 1998 SERIES A PREFERRED STOCK. On November 3, 1998 and November 6, 1998 the Company sold an aggregate of 7,683,341 shares of its Series A preferred stock for $6.00 per share. Among the purchasers were the following 5% stockholders and entities affiliated with directors of the Company, who purchased the number of shares indicated: Atherton Properties Partnership, LP, an entity affiliated with Kathy Clark and Michael Clark--166,667 shares; Kathy Clark--166,667 shares; Michael James Clark Trust--166,667 shares; HLM Partners VII, LP, of which United HealthCare Corporation is a limited partner--166,667 shares; KPCB Java Fund--416,667 shares; Kleiner Perkins Caufield & Byers--375,000 shares; KPCB Life Sciences Zaibatsu Fund II--41,667 shares; Monaco Partners, LP--2,850,000 shares; and New Enterprise Associates VI, LP--416,667 shares. 59 On November 21, 1996, ActaMed entered into an Amended and Restated Development Agreement with The SFA Limited Partnership, or "SFA," under which ActaMed granted SFA a license to ActaMed's object broker technology that supports the GMPI functionality. SFA is controlled by P. E. Sadler, a director of the Company. SFA was given the right to use such technology outside the healthcare industry and must pay royalties on any revenues that would be derived from such use. This agreement expires in November 2001. To date, no royalties have become payable to the Company or ActaMed as a result of this agreement. In September 1997, ActaMed received a loan from NationsBank, N.A. in the aggregate principal amount of $2.1 million, all of which was personally guaranteed by P. E. Sadler, a director of the Company. As a result of ActaMed's pledging a note receivable from IBM to NationsBank, N.A. in November 1997, Mr. Sadler was released from the guarantee. In December 1997, ActaMed obtained a line of credit in the aggregate principal amount of $2.3 million from NationsBank, N.A. In exchange for a personal guarantee of this line of credit by Mr. Sadler, ActaMed granted to Mr. Sadler a security interest in all of its tangible assets other than the IBM note receivable. Upon the completion of the acquisition of ActaMed by the Company, Mr. Sadler's guarantee was released. This line of credit was repaid by the Company on July 31, 1998. From 1995 through June 1998, up to three companies affiliated with Mr. Sadler had agreements with ActaMed whereby ActaMed provided office space, phone facilities and computer network support. In 1995, 1996, 1997 and 1998 ActaMed was paid approximately $256,000, $215,000, $137,000 and $32,000, respectively, under such agreements. CERTAIN BUSINESS RELATIONSHIPS SMITHKLINE LABS. Prior to the acquisition of ActaMed by the Company, ActaMed entered into a series of agreements, the "SmithKline Agreements," with SmithKline Labs, which agreements were assumed by the Company in the ActaMed merger. Pursuant to the SmithKline Agreements, ActaMed agreed to purchase certain assets, the "SmithKline Assets," located in four geographic regions, received a technology license relating to the SmithKline Assets and agreed to provide certain continuing development and network services to SmithKline Labs. In December 1997, SmithKline Labs transferred a portion of the SmithKline Assets from the first region to ActaMed in exchange for $2.0 million in cash and 3,695,652 shares of ActaMed preferred stock (which shares were converted into 2,317,913 shares of the Company's common stock in connection with the ActaMed merger). In March 1998, SmithKline Labs transferred the SmithKline Assets from the second region to ActaMed in exchange for 1,217,391 shares of ActaMed preferred stock (which shares were converted into 763,548 shares of the Company's common stock in connection with the ActaMed merger). In June 1998, SmithKline Labs transferred SmithKline Assets from the remaining two regions to the Company in exchange for 1,336,209 shares of common stock. Also pursuant to one of the SmithKline Agreements, the "Services Agreement," the Company will perform laboratory test order and results services to providers utilizing SmithKline Labs' laboratory services through SCAN. SmithKline Labs is obligated to pay the Company a minimum of approximately $10.0 million in 1998 for laboratory test orders and results transactions. SmithKline Labs may be required to pay the Company certain additional fees for transactions processed by the Company in the event the number of providers accessing SmithKline Labs' laboratory services through SCAN increases. SmithKline Labs paid the Company $7.1 million in service and transaction fees during the first nine months of 1998 under the Services Agreement. The Services Agreement is effective through December 2002, and provides for automatic successive two-year renewals, subject to each party's right to elect not to renew the agreement no later than 180 days, in the case of SmithKline Labs, or 360 days, in the case of the Company, prior to the end of a term. In the event that the Company gives notice of non-renewal, SmithKline Labs will be entitled to continued to receive long-term order entry and results reporting services from the Company on a per transaction pricing basis or, in the alternative, may require the Company to develop a service for SmithKline that duplicates the services the Company had been providing under the Services Agreement. Also under the Services Agreement, SmithKline Labs is entitled, no more than once in any 60 three consecutive month periods, to request that the Company engage in certain exclusive development work for SmithKline Labs. SmithKline Labs has agreed to use reasonable efforts to use the Company as its "preferred provider" of electronic eligibility verification and claims processing services. The Services Agreement provides that the parties will negotiate new rates as of January 1, 2001 and each two years thereafter. Pursuant to the Services Agreement, the renegotiated rates must be competitive with the marketplace and must be no higher than the lowest fees charged by the Company to similarly situated customers. See "Management's Discussion and Analysis--Overview" and Note 3 of Notes to Consolidated Financial Statements. In May 1998, the Company and SmithKline Labs entered into a letter agreement under which the Company is obligated not to compete with SmithKline Labs in the business of disease management, and has agreed to exclusively promote SmithKline Labs' disease management products and services so long as SmithKline continues to promote the Company as its preferred vendor. The Company also agreed that, in the event it performs development work related to a disease management program for one of its customers or itself, it will pay 50% of the profits from that development work to SmithKline Labs. In December 1998, Healtheon and SmithKline Labs entered into an asset purchase agreement. The agreement provides that Healtheon will purchase certain assets currently used by SmithKline Labs to provide laboratory results delivery services in exchange for $2.0 million in cash and shares of Healtheon's common stock having a value of $11.0 million. The asset purchase agreement calls for Healtheon and SmithKline Labs to enter a related services agreement under which Healtheon will provide certain electronic laboratory results delivery services to approximately 20,000 provider sites, in addition to the sites currently served through the SCAN service. The asset purchase agreement is subject to execution of the related service agreement and approval by the Company's Board of Directors. UNITED HEALTHCARE. In March 1996, ActaMed acquired EDI Services, a wholly owned subsidiary of United HealthCare, which had been formed by United HealthCare to deliver the ProviderLink service to United HealthCare's provider network. In exchange for EDI, ActaMed issued United HealthCare 10,344,828 shares of ActaMed preferred stock valued at $21.0 million (which were converted into 6,488,276 shares of the Company's common stock in connection with the merger). In April 1996, ActaMed also entered into a Services and License Agreement with United HealthCare that granted United HealthCare a license to certain ActaMed technology and granted ActaMed the responsibilities of managing the ProviderLink service and of providing other information technology services to United HealthCare. United HealthCare pays the Company fees based on the number of ProviderLink sites in use and transactions processed. In 1996 and 1997, United HealthCare paid ActaMed approximately $4.8 million and $7.3 million, respectively, related to services, transaction and license fees. In the first nine months of 1998, ActaMed, prior to the merger and the Company were paid an aggregate of $7.7 million. The Company is also obligated to provide certain support and maintenance services to United HealthCare. The Services and License Agreement is effective through March 2001 subject to earlier termination in the event the Company fails to meet certain network performance standards or otherwise breaches its material obligations under the United HealthCare Agreement. The Service and License Agreement provides that two years after the date of the agreement the parties will agree on new prices that will be competitive with the marketplace. The Company and United HealthCare are negotiating such new prices, and the Company anticipates that the new prices will reduce the rates paid by United HealthCare. See "Management's Discussion and Analysis--Overview" and Note 2 of Notes to Consolidated Financial Statements. United HealthCare is a principal stockholder of the Company and Dr. William McGuire, Chief Executive Officer and Chairman of United HealthCare, is a director of the Company. In February 1998, ActaMed issued a one-year promissory note in the aggregate principal amount of $2.0 million to HLM Partners VII, L.P., or "HLM," which bore interest at a rate of 10% per annum. United HealthCare was a limited partner of HLM and a director of United HealthCare, was a partner of HLM. HLM was also a stockholder of ActaMed. Both UHC and HLM are stockholders of the Company. This note was repaid at the time of the merger. 61 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's common stock as of November 30, 1998 and as adjusted to reflect the sale of the shares of common stock in this offering by: (1) each person who is known by the Company to beneficially own more than 5% of the Company's common stock, (2) each director of the Company, (3) each of the Named Executive Officers and (4) all directors and executive officers of the Company as a group.
PERCENTAGE OF SHARES BENEFICIALLY OWNED(1) NUMBER OF SHARES -------------------------- BENEFICIALLY BEFORE AFTER NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2) - ------------------------------------------------------------------------ ----------------- ----------- ------------- Entities associated with James H. Clark(3).............................. 11,335,598 18.2% % Entities associated with United HealthCare Corporation(4)............... 8,936,687 14.4 William W. McGuire, M.D.(4)........................................... 8,936,687 14.4 Entities associated with Kleiner Perkins Caufield & Byers(5)............ 8,086,832 12.8 L. John Doerr(5)...................................................... 8,086,832 12.8 P. E. Sadler(6)......................................................... 5,001,993 8.0 SmithKline Beecham Clinical Laboratories, Inc.(7)....................... 4,417,670 7.1 Tadataka Yamada(7).................................................... 4,417,670 7.1 Entities associated with New Enterprise Associates, L.P.(8)............. 3,755,569 6.0 C. Richard Kramlich(8)................................................ 3,755,569 6.0 W. Michael Long(9)...................................................... 1,937,500 3.1 Integral Capital Partners, L.P.......................................... 1,255,129 2.0 Michael K. Hoover(10)................................................... 888,268 1.4 Dennis Drislane(11)..................................................... 550,000 * * Pavan Nigam(12)......................................................... 509,062 * * Charles Saunders (13)................................................... 115,178 * * All officers and directors as a group(21 persons)(14)................... 47,136,495 71.6
- ---------- * Less than one percent (1) The number and percentage of shares beneficially owned are based on 62,195,893 shares of common stock outstanding as of November 30, 1998 assuming conversion of all outstanding shares of preferred stock into common stock, and shares of common stock outstanding after this offering. Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of November 30, 1998 are deemed to be outstanding and beneficially owned by the person holding such options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of such person, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table, and subject to applicable community property laws, such persons have sole voting and investment power with respect to all shares of the Company's common stock shown as beneficially owned by them. (2) Assumes the U.S. Underwriters' over-allotment option to purchase shares of common stock is not exercised. (3) Represents 4,000,000 shares held of record by Dr. Clark as trustee of the James H. Clark and Nancy Rutter Clark Revocable Trust, 1,017,229 shares held of record by Clark Ventures, 268,000 shares held of record by JHC Investments, LLC and 6,050,369 shares held of record by Monaco Partners, LP. Dr. Clark wholly controls Clark Ventures, JHC Investments, LLC and Monaco Partners, LP. Dr. Clark is a director of the Company. The address for Dr. Clark is c/o Healtheon Corporation, 4600 Patrick Henry Drive, Santa Clara, CA 95054. The address for Clark Ventures and Monaco Partners, LP is 777 East Williams Street, Suite 201, Carson City, NV 89701. 62 (4) Represents 6,488,276 shares held of record by United HealthCare, 502,069 shares held of record by United HealthCare Services, Inc., a subsidiary thereof, 676,262 shares held of record by HLM Partners VII, L.P., of which United HealthCare is a limited partner and 1,270,080 shares held of record by Validus, L.P., of which United HealthCare is the sole limited partner. United HealthCare disclaims beneficial ownership of shares held by both limited partnerships except to the extent of its pecuniary interests therein. Dr. McGuire, a director of the Company, is the President, Chief Executive Officer and Chairman of United HealthCare. Dr. McGuire disclaims beneficial ownership of all shares held by United HealthCare. United HealthCare's address is 9900 Bren Road East, 300 Opus Center, Minnetonka, MN 55343. (5) Represents 5,500,863 shares held of record directly by Kleiner Perkins Caufield & Byers VII L.P. ("KPCB VII"), 1,203,736 shares held of record by KPCB Java Fund, and 352,874 shares held of record by KPCB Life Sciences Zaibatsu Fund II. Also represents 976,423 shares subject to warrants held of record by KPCB VII, and 52,936 shares subject to warrants held of record by KPCB Life Sciences Zaibatsu Fund II L.P., all of which are exercisable within 60 days of November 30, 1998. KPCB Life Sciences Zaibatsu Fund II and KPCB VII are wholly controlled by KPCB VII Associates, L.P. KPCB Java Fund is controlled by KPCB VIII Associates. L. John Doerr, a general partner of KPCB VIII Associates and KPCB VII Associates, L.P., is a director of the Company. Mr. Doerr disclaims beneficial ownership of shares in such entities except to the extent of his pecuniary interest therein. Kleiner Perkins Caufield & Byers' address is 2750 Sand Hill Road, Menlo Park, CA 94025. (6) Represents 2,975,140 shares held of record by P. E. Sadler and 2,026,853 shares held of record by SFA Limited Partnership, of which P. E. Sadler is a general partner. Mr. Sadler is a director of the Company. Mr. Sadler's address is c/o Healtheon Corporation, 4600 Patrick Henry Drive, Santa Clara, CA 95054. (7) Excludes common stock having a fair market value of $11 million that may be issued pursuant to a December 1998 Asset Purchase Agreement with SmithKline Labs. Dr. Yamada, a director of the Company, is President and Executive Director of SmithKline Beecham HealthCare Services and a director of SmithKline Beecham. SmithKline Labs' address is 1201 South Collegeville Road, Collegeville, PA 19426. Dr. Yamada disclaims beneficial ownership of all shares held by SmithKline Labs. (8) Represents 3,723,590 shares held of record directly by New Enterprise Associates VI, L.P., or "New Enterprise Associates VI," 11,979 shares subject to warrants held of record by New Enterprise Associates VI exercisable within 60 days of November 30, 1998, and 20,000 shares held of record by NEA Ventures 1996, L.P., which is controlled by New Enterprise Associates VI. Mr. Kramlich is a partner of New Enterprise Associates VI. Mr. Kramlich disclaims beneficial ownership of shares held by such entities except for his proportional interests therein. New Enterprise Associates VI's address is 1119 St. Paul Street, Baltimore, MD 21202. (9) Includes 750,000 shares subject to a warrant held of record by Mr. Long and 537,500 shares subject to options held of record by Mr. Long, in each case exercisable within 60 days of November 30, 1998. 187,500 shares underlying the warrant held by Mr. Long will remain subject to a right of repurchase by the Company 60 days after November 30, 1998. Mr. Long is the Chief Executive Officer and a director of the Company. (10) Represents 92,500 shares held of record directly by Mr. Hoover, 2,500 shares held by Nicholas D. Hoover for which Mr. Hoover is custodian, and 793,268 shares subject to options held of record by Mr. Hoover that are exercisable within 60 days of November 30, 1998. Mr. Hoover is the President and a director of the Company. (11) Includes 343,750 shares held by Mr. Drislane that will remain subject to a right of repurchase by the Company 60 days after November 30, 1998. (12) Includes 39,062 shares subject to options held of record by Mr. Nigam that are exercisable within 60 days of November 30, 1998. Also includes 121,875 shares that will remain subject to a right of repurchase by the Company 60 days after November 30, 1998. Mr. Nigam is the Vice President, Engineering of the Company. (13) Represents 115,178 shares subject to options held of record by Mr. Saunders that are exercisable within 60 days of November 30, 1998. Mr. Saunders is the Vice President, Marketing and Consulting Services and Medical Director of the Company. (14) Includes all shares described in the above footnotes and includes an additional 1,422,971 shares held by other executive officers, of which 1,085,928 shares were outstanding as of November 30, 1998 and 337,043 shares are subject to options or warrants that are exercisable within 60 days of November 30, 1998. 63 DESCRIPTION OF CAPITAL STOCK The following summary of certain provisions of the Company's capital stock describes all material provisions of the Company's Certificate of Incorporation and Bylaws. This summary, however, does not purport to be complete and is subject to, and qualified in its entirety by, the Certificate of Incorporation and Bylaws, copies of which have been filed as exhibits to the Registration Statement of which this prospectus is a part and by the provisions of applicable law. As of November 30, 1998, there were 62,183,393 shares of common stock outstanding, par value $0.0001 per share, assuming the conversion of all outstanding shares of preferred stock into shares of common stock. Upon consummation of this offering, 150,000,000 shares of common stock and 5,000,000 shares of preferred stock will be authorized. COMMON STOCK The issued and outstanding shares of common stock are, and the shares of common stock offered by this prospectus will be validly issued, fully paid and nonassessable upon payment therefor. The holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at such time and in such amounts as the Board may from time to time determine. See "Dividend Policy." The shares of common stock are not convertible and the holders thereof have no preemptive or subscription rights to purchase any securities of the Company. Upon liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to receive pro rata the assets of the Company that are legally available for distribution, after payment of all debts and other liabilities. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of the stockholders, including election of directors. There is no cumulative voting in the election of directors. PREFERRED STOCK Upon the closing of this offering, each outstanding share of Series A preferred stock will be converted into one share of common stock. See Note 14 of Notes to Consolidated Financial Statements for a description of the Series A preferred stock issued in November 1998. Upon the closing of this offering, the Company's Certificate of Incorporation will provide that preferred stock may be issued by the Company in one or more series and that the Board has the authority, without further action by the stockholders, to fix the rights, preferences and privileges thereof, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms, any or all of which may be greater than the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders would receive dividend payments and payments upon liquidation. Such issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock may also have the effect of delaying, deterring or preventing a change in control of the Company. The Company has no present plans to issue any shares of preferred stock. WARRANTS As of November 30, 1998, the Company has outstanding warrants for the purchase of 2,077,240 shares of common stock. Of these, warrants to purchase 1,794,718 shares of common stock have an exercise price of $2.00 and expire with respect to 1,000,000 shares on November 1, 1999, with respect to 750,000 shares on July 10, 2000, and with respect to 44,718 shares on June 30, 2002. Warrants to purchase 282,522 shares of common stock have an exercise price of $7.97, which expire December 2001. In addition, in December 1998, as part of a service agreement with a customer, the Company issued to the customer a warrant to purchase 500,000 shares of common stock with an exercise price of $10.40 per share, which expires on March 15, 2003. 64 REGISTRATION RIGHTS The holders of approximately 50,007,164 shares of common stock or their permitted transferees are entitled to certain rights with respect to registration of such shares, or the "Registrable Securities," under the Securities Act pursuant to an Amended and Restated Investors' Rights Agreement. These shares are held by (1) purchasers of common stock at the founding of the Company in December 1995, (2) purchasers of preferred stock of the Company prior to its conversion in connection with the acquisition of ActaMed, (3) certain former shareholders of ActaMed who received shares of the Company's common stock pursuant to the Company's acquisition of ActaMed and who had registration rights with respect to their shares of ActaMed capital stock and (4) purchasers of the Series A preferred stock sold in November 1998. At any time after 12 months following the effective date of this offering, the holders of at least 40% of the Registrable Securities then outstanding may require the Company to file a registration statement covering Registrable Securities with an aggregate gross offering price of at least $10.0 million. In addition, two years after this offering, holders of registrable securities may require, on up to four separate occasions, that the Company register their shares for public resale on Form S-3 or any successor form, provided the Company is eligible to use Form S-3 or any such successor form and provided further that the value of the securities to be registered is at least $1.0 million. Furthermore, in the event the Company elects to register any of its shares of common stock or other securities for purposes of effecting any public offering, the holders of registrable securities are entitled to include their Registrable Securities in the registration, subject however to the right of the Company to reduce the number of shares proposed to be registered in view of market conditions. All expenses in connection with any registration, other than underwriting discounts and commissions, will be borne by the Company. Registration rights, other than the right to require the Company to register shares on Form S-3 or any successor form, will terminate at such time as the Company's shares are publicly traded and the holder is entitled to sell all of its shares in any three-month period under Rule 144 of the Securities Act. If such holders, by exercising their registration rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Company's common stock. If the Company were to initiate a registration and include Registrable Securities pursuant to the exercise of registration rights, the sale of such Registrable Securities could have an adverse effect on the Company's ability to raise capital. CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS AND OF DELAWARE LAW GENERAL. Certain provisions of Delaware law and the Company's Certificate of Incorporation and Bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's common stock. These provisions of Delaware law and the Certificate of Incorporation and Bylaws may also have the effect of discouraging or preventing certain types of transactions involving an actual or threatened change of control of the Company, including unsolicited takeover attempts, even though such a transaction may offer the Company's stockholders the opportunity to sell their stock at a price above the prevailing market price. DELAWARE TAKEOVER STATUTE. Following consummation of this offering, the Company will be subject to the "business combination" provisions of Section 203 of the Delaware General Corporation Law. In general, such provisions prohibit a publicly held Delaware corporation from engaging in various "business combination" transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless: - the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; 65 - upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - on or subsequent to such date the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. A "business combination" is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years, did own, 15% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. CERTIFICATE OF INCORPORATION AND BYLAWS. The Company's Certificate of Incorporation provides that any action to be taken by the stockholders of the Company must be effected at an annual or special stockholder meeting and may not be taken by written consent. The Company's Bylaws provide that special meetings of the stockholders of the Company may be called by the Board or by the President of the Company, or by one or more stockholders holding at least 10% of the voting power of the Company's outstanding capital stock, or any persons as may be authorized by the Certificate of Incorporation or the Bylaws (which currently only give this authority to the Board). The Company's Bylaws also require advance written notice by a stockholder of a proposal or director nomination that such stockholder desires to present at an annual or special stockholders meeting. No business other than that stated in the notice may be transacted at any special meeting. These provisions will delay consideration of a stockholder proposal until the next annual meeting unless a special meeting is called by the Board. The Company's Bylaws provide that the authorized number of directors may be changed by an amendment to the Bylaws adopted by the Board or by the stockholders. Vacancies on the Board may be filled either by holders of a majority of the Company's voting stock or a majority of directors in office, although less than a quorum. The Certificate of Incorporation and the Bylaws of the Company also provide for a staggered Board. Under a staggered Board, each director is designated to one of three categories. Each year the directors' positions in one of the three categories are subject to election so that it would take three years to replace the entire board, absent resignation or premature expiration of a director's term, which may have the effect of deterring a hostile takeover or delaying or preventing changes in control or management of the Company. LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS The Company's Certificate of Incorporation limits the liability of directors to the fullest extent permitted by the Delaware law. In addition, the Certificate of Incorporation and Bylaws provide that the Company will indemnify directors and officers of the Company to the fullest extent permitted by Delaware law. The Company intends to enter into separate indemnification agreements with its directors and executive officers that provide such persons indemnification protection in the event the Certificate of Incorporation is subsequently amended. 66 TRANSFER AGENT AND REGISTRAR American Stock Transfer Trust Company has been appointed as transfer agent and registrar for the Company's common stock. LISTING Application has been made to have the common stock accepted for quotation on the Nasdaq National Market under the symbol "HLTH." 67 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the common stock of the Company. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect prevailing market prices. Upon consummation of the offering, the Company will have an aggregate of shares of common stock outstanding, based on the number of shares of common stock outstanding as of November 30, 1998, assuming no exercise of the U.S. underwriters' over-allotment option and no exercise of outstanding options or warrants. Of these shares, shares, including the shares sold in this offering, will be freely tradable without restriction under the Securities Act, except for any such shares that may be purchased by "affiliates" of the Company, which shares will be subject to the volume and other limitations of Rule 144 of the Securities Act, or "Rule 144" described below. As defined in Rule 144, an "affiliate" of an issuer is a person who, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such issuer. Upon the expiration of certain contractual "lock-up" restrictions described below, 52,254,368 shares will be eligible for sale 180 days after the date of this prospectus, with 41,817,104 of such shares subject to the volume and other limitations of Rule 144. The remaining 9,283,341 shares will become eligible for sale at various times thereafter, including 7,683,341 shares that will become eligible for resale between November 3 and November 6, 1999, and all such shares will be subject to the volume and other limitations of Rule 144. Each of the Company's directors and officers and certain other stockholders of the Company have agreed with Morgan Stanley & Co. Incorporated, for a period of 180 days after the date of this prospectus, not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. Morgan Stanley & Co. Incorporated may choose to release a certain number of these shares from such restrictions prior to the expiration of the 180-day period "lock-up" period, although it has no current intention of doing so. Under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of common stock for at least one year, including the holding period of any prior owner except an affiliate, would be entitled to sell a number of such shares within any three-month period equal to the greater of (1) 1% of the then outstanding shares of the common stock (which would equal approximately shares immediately after the offering) or (2) the average weekly reported volume of trading of the common stock on the Nasdaq National Market during the four calendar weeks preceding such sale. Rule 144 also imposes on such restricted shares certain manner of sale and notice requirements and requirements as to the availability of current public information concerning the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell such shares without regard to the volume or other limitations of Rule 144 just described. The holders of approximately 50,007,164 shares of common stock are also entitled to certain rights with respect to registration of such shares of common stock for offer or sale to the public. If such holders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Company's common stock. 68 Immediately after this offering, there will be options to purchase approximately 11,827,385 shares of common stock outstanding, based on the number of options outstanding as of November 30, 1998. Subject to the provisions of the lock-up agreements described above, holders of these options may rely on the resale provisions of Rule 701 under the Securities Act, which permits non-Affiliates to sell their shares without having to comply with the volume, holding period or other limitations of Rule 144 and permits Affiliates to sell their shares without having to comply with the holding period limitation of Rule 144, in each case beginning 90 days after the consummation of this offering. In addition, shortly after this offering, the Company intends to file a registration statement on Form S-8 covering the 13,811,659 shares of common stock reserved for issuance under the 1996 Plan and the 1998 Purchase Plan based upon the number of options outstanding as of November 30, 1998. Shares of common stock registered under such registration statement will, subject to Rule 144 volume limitations applicable to Affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with the Company or the lock-up agreements described above. 69 CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK The following is a general discussion of certain United States federal income and estate tax consequences relevant to holders of common stock that are non-U.S. Holders. A non-U.S. Holder is a holder of common stock that is not, for United States federal income tax purposes, any of the following: (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any state thereof, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust that meets the following two tests: (A) a U.S. court is able to exercise primary supervision over the administration of the trust, and (B) one or more U.S. persons have the authority to control all substantial decisions of the trust. This discussion does not consider the specific facts and circumstances that may be relevant to particular non-U.S. Holders in light of their personal circumstances and does not address the treatment of such holders under the laws of any state, local or foreign taxing jurisdiction. Further, the discussion is based on provisions of the United States Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change or different interpretation on a possibly retroactive basis. THIS DISCUSSION IS LIMITED TO NON-U.S. HOLDERS WHO HOLD THE COMMON STOCK AS A CAPITAL ASSET. EACH PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION. DIVIDENDS Dividends paid to a non-U.S. Holder of common stock will be subject to United States federal withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, unless the dividends are effectively connected with the conduct of a trade or business within the United States (and are attributable to a United States permanent establishment of such holder, if an applicable income tax treaty so requires as a condition for the non-U.S. holder to be subject to United States income tax on a net income basis in respect of such dividends). Such "effectively connected" dividends are subject to tax at rates applicable to United States citizens, resident aliens and domestic United States corporations, and are not generally subject to withholding. Any such effectively connected dividends received by a corporate non-U.S. Holder may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Under currently effective United States Treasury regulations, dividends paid prior to January 1, 2000 to an address in a foreign country are presumed to be paid to a resident of that country (unless the payer has knowledge to the contrary) for purposes of the withholding discussed above and, under the current interpretation of United States Treasury regulations, for purposes of determining the applicability of a tax treaty rate. Under recently finalized United States Treasury regulations that will generally be effective for distributions after December 31, 1999 (the "Final Withholding Regulations"), however, a non-U.S. Holder of common stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification requirements. In addition, under the Final Withholding Regulations, in the case of common stock held by a foreign partnership, (1) the certification requirement would generally be applied to the partners of the partnership and (2) the partnership would be required to provide certain information, including a United States taxpayer identification number. The Final Withholding Regulations provide look-through rules for tiered partnerships. A non-U.S. Holder of common stock that is eligible for a reduced rate of United States withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the United States Internal Revenue Service. 70 GAIN ON DISPOSITION OF COMMON STOCK A non-U.S. holder generally will not be subject to United States federal income tax in respect of gain recognized on a disposition of common stock unless: (1) the gain is effectively connected with a trade or business conducted by the non-U.S. Holder in the United States (and is attributable to a permanent establishment maintained in the United States by such non-U.S. Holder if an applicable income tax treaty so requires as a condition for such non-U.S. Holder to be subject to United States taxation on a net income basis in respect of gain from the sale or other disposition of the common stock); (2) in the case of a non-U.S. Holder who is an individual and holds the common stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist; (3) the Company is or has been a "United States real property holding corporation" for federal income tax purposes and, in the event that the common stock is considered "regularly traded on an established securities market," the non-U.S. Holder held, directly or indirectly at any time during the five-year period ending on the date of disposition, more than 5% of the common stock (and is not eligible for any treaty exemption); or (4) the non-U.S. Holder is subject to tax pursuant to certain provisions of the Code applicable to U.S. expatriates. Effectively connected gains realized by a corporate non-U.S. Holder may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. The Company believes it is not currently, and does not anticipate becoming, a "United States real property holding corporation" for federal income tax purposes. FEDERAL ESTATE TAXES Common stock held by a non-U.S. Holder at the time of death will be included in such holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING AND BACKUP WITHHOLDING Under current law, United States information reporting requirements, other than reporting of dividend payments for purposes of the withholding tax noted above, and backup withholding tax generally will not apply to dividends paid to non-U.S. Holders that are either subject to the 30% withholding discussed above or that are not so subject because an applicable tax treaty reduces such withholding. Otherwise, backup withholding of United States federal income tax at a rate of 31% may apply to dividends paid with respect to common stock to holders that are not "exempt recipients" and that fail to provide certain information (including the holder's United States taxpayer identification number). Generally, unless the payer of dividends has actual knowledge that the payee is a United States person, the payer may treat dividend payments to a payee with a foreign address as exempt from information reporting and backup withholding. However, under the Final Withholding Regulations, dividend payments generally will be subject to information reporting and backup withholding unless applicable certification requirements are satisfied. See the discussion above with respect to the rules applicable to foreign partnerships under the Final Withholding Regulations. In general, United States information reporting and backup withholding requirements also will not apply to a payment made outside the United States of the proceeds of a sale of common stock through an office outside the United States of a non-United States broker. However, United States information reporting, but not backup withholding, requirements will apply to a payment made outside the United States of the proceeds of a sale of common stock through an office outside the United States of a broker that is a United States person, that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, that is a "controlled foreign corporation" as to the United States, or, in the case of payments made after December 31, 1999, a foreign partnership with certain connections to the United States, unless the broker has documentary evidence in its records that 71 the holder or beneficial owner is a non-United States person or the holder or beneficial owner otherwise establishes an exemption. Payment of the proceeds of the sale of common stock to or through a United States office of a broker is currently subject to both United States backup withholding and information reporting unless the holder certifies its non-United States status under penalties of perjury or otherwise establishes an exemption. A non-U.S. Holder generally may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the United States Internal Revenue Service. 72 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated the date hereof (the "underwriting agreement"), the U.S. underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Hambrecht & Quist LLC and Volpe Brown Whelan & Company, LLC are acting as U.S. representatives, and the international underwriters named below for whom Morgan Stanley & Co. International Limited, Goldman Sachs International, Hambrecht & Quist LLC & Volpe Brown Whelan & Company, LLC are acting as international representatives, have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective number of shares of common stock set forth opposite the names of such underwriters below:
NUMBER OF NAME SHARES - ---------------------------------------------------------------------------------------------------- ------------ U.S. Underwriters: Morgan Stanley & Co. Incorporated................................................................. Goldman, Sachs & Co............................................................................... Hambrecht & Quist LLC............................................................................. Volpe Brown Whelan & Company, LLC................................................................. Subtotal........................................................................................ ------------ International Underwriters: Morgan Stanley & Co. International Limited........................................................ Goldman Sachs International....................................................................... Hambrecht & Quist LLC............................................................................. Volpe Brown Whelan & Company, LLC................................................................. Subtotal........................................................................................ ------------ Total......................................................................................... ------------ ------------
The U.S. underwriters and the international underwriters, and the U.S. representatives and the international representatives, are collectively referred to as the "underwriters" and the "representatives," respectively. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered hereby (other than those covered by the U.S. underwriters' over-allotment option described below) if any such shares are taken. Pursuant to the agreement between U.S. and international underwriters, each U.S. underwriter has represented and agreed that, with certain exceptions: (1) it is not purchasing any shares for the account of anyone other than a United States or Canadian Person (as defined herein) and (2) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute any prospectus relating to the shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the agreement between U.S. and international underwriters, each international underwriter has represented and agreed that, with certain exceptions: (1) it is not purchasing any shares for the account of any United States or Canadian Person and (2) it has not offered or sold, and will not offer or sell, 73 directly or indirectly, any shares or distribute any prospectus relating to the shares in the United States or Canada or to any United States or Canadian Person. With respect to any underwriter that is a U.S. underwriter and an international underwriter, the foregoing representations and agreements (1) made by it in its capacity as a U.S. underwriter apply only to it in its capacity as a U.S. underwriter and (2) made by it in its capacity as an international underwriter apply only to it in its capacity as an international underwriter. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the agreement between U.S. and international underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person), and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. Pursuant to the agreement between U.S. and international underwriters, sales may be made between the U.S. underwriters and international underwriters of any number of shares as may be mutually agreed. The per share price of any shares sold shall be the public offering price set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the agreement between U.S. and international underwriters, each U.S. underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any shares, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made. Each U.S. underwriter has further agreed to send to any dealer who purchases from it any of the shares a notice stating in substance that, by purchasing such shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such shares in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and that such dealer will deliver to any other dealer to whom it sells any of such shares a notice containing substantially the same statement as is contained in this sentence. Pursuant to the agreement between U.S. and international underwriters, each international underwriter has represented and agreed that (1) it has not offered or sold and, prior to the date six months after the closing date for the sale of the shares to the international underwriters, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (2) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom; and (3) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the offering of the shares to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. Pursuant to the agreement between U.S. and international underwriters, each international underwriter has further represented that it has not offered or sold, and has agreed not to offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the shares acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese international 74 underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law. Each international underwriter has further agreed to send to any dealer who purchases from it any of the shares a notice stating in substance that, by purchasing such shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, any of such shares, directly or indirectly, in Japan or to or for the account of any resident thereof except for offers or sales to Japanese international underwriters or dealers and except pursuant to an exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law, and that such dealer will send to any other dealer to whom it sells any of such shares a notice containing substantially the same statement as is contained in this sentence. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain other dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. The Company has granted to the U.S. underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered hereby. To the extent such option is exercised, each U.S. underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of common stock as the number set forth next to such U.S. underwriter's name in the preceding table bears to the total number of shares of common stock set forth next to the names of all U.S. underwriters in the preceding table. The underwriters have informed the Company that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. Each of the Company and the directors, officers and certain other stockholders of the Company has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not, during the period ending 180 days after the date of this prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to (x) the sale of shares to the underwriters, (y) the issuance by the Company of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing, or (z) transactions by any person other than the Company relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares, provided that purchasers in transactions described in clause (y) enter into similar "lock-up" agreements. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the 75 underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. The Company and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Certain of the underwriters from time to time perform various investment banking services for the Company, for which such underwriters receive customary compensation. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiations between the Company and the U.S. representatives. Among the factors to be considered in determining the initial public offering price will be the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Fenwick & West LLP, Palo Alto, California. EXPERTS Healtheon was incorporated in December 1995 and did not commence operations until January 1996. Thus, the financial statements of ActaMed for the year ended December 31, 1995 also represent the financial statements of Healtheon on a pooled basis for that period. The consolidated financial statements of Healtheon Corporation at December 31, 1996 and 1997, and for the two years in the period ended December 31, 1997 appearing in this prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein which, as to the year ended December 31, 1996, is based in part on the report of Deloitte & Touche LLP, independent auditors. The consolidated financial statements referred to above are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of ActaMed Corporation for the year ended December 31, 1995, included in this Prospectus and Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. The consolidated financial statements of ActaMed Corporation as of December 31, 1996 and for the year then ended, (not separately presented in this Prospectus and Registration Statement) have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 76 The statements of divisional net loss and United HealthCare Corporation's net investment and of divisional cash flows of EDI Services Group, a division of United HealthCare Corporation, included in this prospectus and Registration Statement have been audited by Deloitte and Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the common stock offered hereby. This prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto. Statements contained in this prospectus as to the contents of any contract or other document that is filed as an exhibit to the Registration Statement are not necessarily complete and each such statement is qualified in all respects by reference to the full text of such contract or document. For further information with respect to the Company and the common stock, reference is hereby made to the Registration Statement and the exhibits thereto, which may be inspected and copied at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may be obtained at prescribed rates from the Commission's Public Reference Section at such addresses. Also, the Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Upon completion of this offering, the Company will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy and information statements and other information with the Commission. Such periodic reports, proxy and information statements and other information will be available for inspection and copying at the regional offices, public reference facilities and Web site of the Commission referred to above. 77 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHEON CORPORATION: Report of Ernst & Young LLP, Independent Auditors......................... F-2 Report of Deloitte & Touche LLP, Independent Auditors..................... F-3 Consolidated Balance Sheets............................................... F-4 Consolidated Statements of Operations..................................... F-5 Consolidated Statement of Convertible Redeemable Preferred Stock and Stockholders' Equity (Net Capital Deficiency)........................... F-6 Consolidated Statements of Cash Flows..................................... F-9 Notes to Consolidated Financial Statements................................ F-11 FINANCIAL STATEMENTS OF EDI SERVICES, INC.: Report of Deloitte and Touche LLP, Independent Auditors................... F-34 Statement of Divisional Net Loss and United's Net Investment.............. F-35 Statement of Divisional Cash Flows........................................ F-36 Notes to Financial Statements............................................. F-37
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Healtheon Corporation We have audited the accompanying consolidated balance sheets of Healtheon Corporation as of December 31, 1996 and 1997, and the related consolidated statements of operations, convertible redeemable preferred stock and stockholders' equity (net capital deficiency), and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. In May 1998, the Company acquired ActaMed Corporation in a transaction that was accounted for as a pooling of interests. We did not audit the financial statements of ActaMed Corporation for the year ended December 31, 1996, which statements reflect total assets constituting approximately 82% of the related consolidated financial statement totals at December 31, 1996 and revenues and a net loss constituting approximately 89% and 54%, respectively, of the related consolidated financial statement totals for the year ended December 31, 1996. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for ActaMed Corporation, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Healtheon Corporation at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Palo Alto, California February 27, 1998, except for Notes 1 and 2, as to which the date is September 26, 1998 F-2 INDEPENDENT AUDITORS' REPORT Board of Directors of ActaMed Corporation We have audited the consolidated balance sheet of ActaMed Corporation and subsidiary (the "Company") as of December 31, 1996 and the related consolidated statements of operations, convertible redeemable preferred stock and stockholders' equity (net capital deficiency), and cash flows for each of the two years in the period ended December 31, 1996 (the consolidated financial statements for 1996 are not separately presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Atlanta, Georgia June 20, 1997 (September 26, 1998 as to Note 1--Net Loss per Common Share, paragraph 2 and Note 2--Acquisition of EDI Services, Inc., paragraph 4) F-3 HEALTHEON CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, ---------------------- 1996 1997 ---------- ---------- SEPTEMBER 30, 1998 ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................................ $ 7,539 $ 16,504 $ 4,526 Short-term investments................................................... -- 5,300 866 Accounts receivable, net of allowance for doubtful accounts of $41, $71 and $130 in 1996, 1997 and 1998, respectively........................... 959 2,723 5,104 Due from related parties................................................. 1,742 1,533 1,159 Other current assets..................................................... 437 527 621 ---------- ---------- ------------- Total current assets..................................................... 10,677 26,587 12,276 Property and equipment, net................................................ 4,534 5,500 11,276 Intangible assets, net..................................................... 16,555 18,768 23,741 Other assets............................................................... 2,641 2,892 2,977 ---------- ---------- ------------- $ 34,407 $ 53,747 $ 50,270 ---------- ---------- ------------- ---------- ---------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) Current liabilities: Borrowings under line of credit.......................................... $ 30 $ 3,425 $ 1,415 Accounts payable......................................................... 1,359 2,225 4,472 Accrued compensation..................................................... 242 448 2,465 Other accrued liabilities................................................ 1,097 1,265 3,871 Current portion of capital lease obligations............................. 763 1,038 1,716 Deferred revenue......................................................... 4,681 3,396 4,392 ---------- ---------- ------------- Total current liabilities................................................ 8,172 11,797 18,331 Capital lease obligations, net of current portion.......................... 1,210 932 1,714 Commitments Convertible redeemable preferred stock, $.016 par value, issuable in series: 16,488,860 shares authorized in 1996 and 1997, none in 1998; 14,170,947, 16,488,860 and no shares issued and outstanding in 1996, 1997 and 1998, respectively; at amounts paid in............................... 39,578 50,948 -- Stockholders' equity (net capital deficiency): Convertible preferred stock, $.0001 par value, issuable in series: 48,020,000 shares authorized in 1996 and 1997, none in 1998; 13,285,000, 21,002,692 and no shares issued and outstanding in 1996, 1997 and 1998, respectively; at amounts paid in........................................ 11,607 43,756 -- Common stock, $.0001 par value, 75,000,000 shares authorized; 8,652,422, 9,436,724 and 54,422,868 shares issued and outstanding in 1996, 1997 and 1998, respectively...................................................... 1 1 5 Additional paid-in capital............................................... 1,523 4,502 117,964 Note receivable from officer............................................. -- (349) -- Deferred stock compensation.............................................. -- (2,151) (2,751) Accumulated deficit...................................................... (27,684) (55,689) (84,993) ---------- ---------- ------------- Total stockholders' equity (net capital deficiency)...................... (14,553) (9,930) 30,225 ---------- ---------- ------------- $ 34,407 $ 53,747 $ 50,270 ---------- ---------- ------------- ---------- ---------- -------------
SEE ACCOMPANYING NOTES. F-4 CONSOLIDATED STATEMENTS OF OPERATIONS(1) (IN THOUSANDS, EXCEPT PER SHARE DATA)
HEALTHEON CORPORATION ACTAMED ---------------------------------------------- CORPORATION ------------ YEARS ENDED NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30 DECEMBER 31, ---------------------- ---------------------- 1995 1996 1997 1997 1998 ------------ ---------- ---------- ---------- ---------- (UNAUDITED) Revenue: Services............................................ $ 458 $ 1,795 $ 4,301 $ 1,216 $ 18,326 Services to related parties(2)...................... -- 4,237 7,309 5,199 14,320 Software licenses................................... 1,717 4,981 1,780 585 585 ------------ ---------- ---------- ---------- ---------- Total revenue....................................... 2,175 11,013 13,390 7,000 33,231 Operating costs and expenses: Cost of revenue: Cost of services.................................. 1,573 1,648 4,011 1,080 18,688 Cost of services to related parties............... -- 4,919 6,536 4,648 12,512 Cost of software licenses......................... 343 160 -- -- -- ------------ ---------- ---------- ---------- ---------- Total cost of revenue............................. 1,916 6,727 10,547 5,728 31,200 Development and engineering......................... 2,446 8,596 12,986 9,681 13,036 Sales, general and administrative................... 1,749 9,042 11,031 7,477 16,794 Amortization of intangible assets................... -- 3,189 4,249 3,187 7,397 ------------ ---------- ---------- ---------- ---------- Total operating costs and expenses.................. 6,111 27,554 38,813 26,073 68,427 ------------ ---------- ---------- ---------- ---------- Loss from operations.................................. (3,936) (16,541) (25,423) (19,073) (35,196) Interest income....................................... 208 539 611 359 834 Interest expense...................................... (6) (56) (323) (177) (361) Dividends on ActaMed's convertible redeemable preferred stock..................................... -- (2,548) (2,870) (2,382) (890) ------------ ---------- ---------- ---------- ---------- Net loss.............................................. (3,734) (18,606) (28,005) (21,273) (35,613) Dividends on ActaMed's convertible redeemable preferred stock..................................... (724) -- -- -- -- ------------ ---------- ---------- ---------- ---------- Net loss applicable to common stockholders............ $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613) ------------ ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- Basic and diluted net loss per common share........... $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23) ------------ ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- Weighted-average shares outstanding used in computing basic and diluted net loss per common share......... 5,246 6,583 7,223 7,019 28,934 ------------ ---------- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ---------- Pro forma basic and diluted net loss per common share (unaudited)......................................... $ (.56) $ (.73) ---------- ---------- ---------- ---------- Shares used in computing pro forma basic and diluted net loss per common share (unaudited)............... 44,715 47,263 ---------- ---------- ---------- ----------
- --------- (1) Because Healtheon did not commence operations until January 1996, the ActaMed statement of operations presented for the year ended December 31, 1995 represents the statement of operations of Healtheon for that period on a pooled basis. (2) Revenue from services to related parties consists of revenue from United HealthCare and SmithKline Labs, customers that are also significant stockholders of the Company. SEE ACCOMPANYING NOTES. F-5 CONSOLIDATED STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(1) (IN THOUSANDS, EXCEPT SHARE DATA) ACTAMED CORPORATION
CONVERTIBLE REDEEMABLE PREFERRED CONVERTIBLE PREFERRED STOCK STOCK COMMON STOCK --------------------- --------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- -------- ----------- -------- ---------- ------- BALANCES AT DECEMBER 31, 1994...... 8,800,880 $ 8,343 -- $ -- 8,250,000 $ 200 Net loss........................... -- -- -- -- -- -- Issuance of common stock pursuant to option exercises by employees........................ -- -- -- -- 1,071,250 21 Issuance of Series B convertible redeemable preferred stock for cash (less issuance costs of $36)............................. 3,448,276 6,963 -- -- -- -- Dividends accrued on convertible redeemable preferred stock....... -- 724 -- -- -- -- ----------- -------- ----------- -------- ---------- ------- BALANCES AT DECEMBER 31, 1995...... 12,249,156 $ 16,030 -- $ -- 9,321,250 $ 221 ----------- -------- ----------- -------- ---------- ------- ----------- -------- ----------- -------- ---------- ------- HEALTHEON CORPORATION BALANCES AT DECEMBER 31, 1995 (REFLECTING THE EXCHANGE RATIO OF .6272)........................... 7,682,671 $ 16,030 -- $ -- 5,846,288 $ 1 Net loss........................... -- -- -- -- -- -- Issuance of common stock to founders and employees for cash............................. -- -- -- -- 2,806,134 -- Issuance of Series A convertible preferred stock for cash (less issuance costs of $27)........... -- -- 10,285,000 5,115 -- -- Issuance of Series B convertible preferred stock for cash (less issuance costs of $8)............ -- -- 3,000,000 5,992 -- -- Issuance of Series B convertible preferred stock warrant to investor for services............ -- -- -- 500 -- -- Issuance of Series C convertible redeemable preferred stock for acquisition...................... 6,488,276 21,000 -- -- -- -- Issuance of common stock warrants......................... -- -- -- -- -- -- Dividends accrued on convertible redeemable preferred stock....... -- 2,548 -- -- -- -- ----------- -------- ----------- -------- ---------- ------- BALANCES AT DECEMBER 31, 1996...... 14,170,947 39,578 13,285,000 11,607 8,652,422 1 TOTAL NOTE STOCKHOLDERS' ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET PAID-IN FROM STOCK ACCUMULATED CAPITAL CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY) ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1994...... $ 1,883 $ -- $ -- $ (5,344) $ (3,261) Net loss........................... -- -- -- (3,734) (3,734) Issuance of common stock pursuant to option exercises by employees........................ -- -- -- -- 21 Issuance of Series B convertible redeemable preferred stock for cash (less issuance costs of $36)............................. -- -- -- -- -- Dividends accrued on convertible redeemable preferred stock....... (724) -- -- -- (724) ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1995...... $ 1,159 $ -- $ -- $ (9,078) $ (7,698) ---------- ---------- ------------ ----------- ------------- ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1995 (REFLECTING THE EXCHANGE RATIO OF .6272)........................... $ 1,379 $ -- $ -- $ (9,078) $ (7,698) Net loss........................... -- -- -- (18,606) (18,606) Issuance of common stock to founders and employees for cash............................. 140 -- -- -- 140 Issuance of Series A convertible preferred stock for cash (less issuance costs of $27)........... -- -- -- -- 5,115 Issuance of Series B convertible preferred stock for cash (less issuance costs of $8)............ -- -- -- -- 5,992 Issuance of Series B convertible preferred stock warrant to investor for services............ -- -- -- -- 500 Issuance of Series C convertible redeemable preferred stock for acquisition...................... -- -- -- -- -- Issuance of common stock warrants......................... 4 -- -- -- 4 Dividends accrued on convertible redeemable preferred stock....... -- -- -- -- -- ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1996...... 1,523 -- -- (27,684) (14,553)
- ------------- (1) Because Healtheon did not commence operations until January 1996, the ActaMed statement of convertible redeemable preferred stock and stockholders' equity (net capital deficiency) presented for the year ended December 31, 1995 represents the statement of stockholders' equity of Healtheon for that period on a pooled basis. SEE ACCOMPANYING NOTES. F-6 CONSOLIDATED STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(1) (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) HEALTHEON CORPORATION
CONVERTIBLE REDEEMABLE PREFERRED CONVERTIBLE PREFERRED STOCK STOCK COMMON STOCK --------------------- --------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- -------- ----------- -------- ---------- ------- BALANCES AT DECEMBER 31, 1996...... 14,170,947 $ 39,578 13,285,000 $ 11,607 8,652,422 $ 1 Net loss........................... -- -- -- -- -- -- Issuance of common stock pursuant to option and restricted stock exercises by employees........... -- -- -- -- 1,397,844 -- Repurchase of employee common stock............................ -- -- -- -- (613,542) -- Issuance of Series A and Series B convertible preferred stock for services......................... -- -- 45,000 55 -- -- Issuance of Series B convertible preferred stock for cash......... -- -- 15,000 30 -- -- Issuance of Series B convertible preferred stock to officer for note receivable.................. -- -- 250,000 500 -- -- Issuance of Series B convertible preferred stock warrants in connection with bridge financing........................ -- -- -- 64 -- -- Issuance of Series C convertible preferred stock for cash and conversion of bridge note........ -- -- 2,600,000 6,500 -- -- Issuance of Series D convertible preferred stock for cash......... -- -- 4,807,692 25,000 -- -- Issuance of Series D convertible redeemable preferred stock for asset purchase................... 2,317,913 8,500 -- -- -- -- Repayment of note receivable from officer.......................... -- -- -- -- -- -- Dividends accrued on convertible redeemable preferred stock....... -- 2,870 -- -- -- -- Deferred stock compensation........ -- -- -- -- -- -- Amortization of deferred stock compensation..................... -- -- -- -- -- -- ----------- -------- ----------- -------- ---------- ------- BALANCES AT DECEMBER 31, 1997...... 16,488,860 50,948 21,002,692 43,756 9,436,724 1 TOTAL NOTE STOCKHOLDERS' ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET PAID-IN FROM STOCK ACCUMULATED CAPITAL CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY) ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1996...... $ 1,523 $ -- $ -- $(27,684) $(14,553) Net loss........................... -- -- -- (28,005) (28,005) Issuance of common stock pursuant to option and restricted stock exercises by employees........... 297 -- -- -- 297 Repurchase of employee common stock............................ (31) -- -- -- (31) Issuance of Series A and Series B convertible preferred stock for services......................... -- -- -- -- 55 Issuance of Series B convertible preferred stock for cash......... -- -- -- -- 30 Issuance of Series B convertible preferred stock to officer for note receivable.................. -- (500) -- -- -- Issuance of Series B convertible preferred stock warrants in connection with bridge financing........................ -- -- -- -- 64 Issuance of Series C convertible preferred stock for cash and conversion of bridge note........ -- -- -- -- 6,500 Issuance of Series D convertible preferred stock for cash......... -- -- -- -- 25,000 Issuance of Series D convertible redeemable preferred stock for asset purchase................... -- -- -- -- -- Repayment of note receivable from officer.......................... -- 151 -- -- 151 Dividends accrued on convertible redeemable preferred stock....... -- -- -- -- -- Deferred stock compensation........ 2,713 -- (2,713) -- -- Amortization of deferred stock compensation..................... -- -- 562 -- 562 ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1997...... 4,502 (349) (2,151) (55,689) (9,930)
- ------------- (1) Because Healtheon did not commence operations until January 1996, the ActaMed statement of convertible redeemable preferred stock and stockholders' equity (net capital deficiency) presented for the year ended December 31, 1995 represents the statement of stockholders' equity of Healtheon for that period on a pooled basis. SEE ACCOMPANYING NOTES. F-7 CONSOLIDATED STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)(1) (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) HEALTHEON CORPORATION
CONVERTIBLE REDEEMABLE PREFERRED CONVERTIBLE PREFERRED STOCK STOCK COMMON STOCK --------------------- --------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------- -------- ----------- -------- ---------- ------- BALANCES AT DECEMBER 31, 1997...... 16,488,860 $ 50,948 21,002,692 $ 43,756 9,436,724 $ 1 Net loss (unaudited)............... -- -- -- -- -- -- Issuance of common stock pursuant to option exercises by employees (unaudited)...................... -- -- -- -- 2,247,606 -- Issuance of Series B convertible preferred stock pursuant to warrant exercises (unaudited).... -- -- 1,017,229 2,034 -- -- Issuance of Series D convertible redeemable preferred stock for asset purchase (unaudited)....... 763,548 2,800 -- -- -- -- Dividends accrued on convertible redeemable preferred stock (unaudited)...................... -- 890 -- -- -- -- Conversion of redeemable preferred and preferred stock to common stock (unaudited)................ (17,252,408) (54,638) (22,019,921) (45,790) 39,272,329 4 Issuance of common stock for asset purchase (unaudited)............. -- -- -- -- 2,936,209 -- Repayment of note receivable from officer (unaudited).............. -- -- -- -- -- -- Deferred stock compensation (unaudited)...................... -- -- -- -- -- -- Amortization of deferred stock compensation (unaudited)......... -- -- -- -- -- -- Issuance of common stock pursuant to restricted stock purchase by employees (unaudited)............ -- -- -- -- 530,000 -- ----------- -------- ----------- -------- ---------- ------- BALANCES, SEPTEMBER 30, 1998 (UNAUDITED)...................... -- $ -- -- $ -- 54,422,868 $ 5 ----------- -------- ----------- -------- ---------- ------- ----------- -------- ----------- -------- ---------- ------- TOTAL NOTE STOCKHOLDERS' ADDITIONAL RECEIVABLE DEFERRED EQUITY (NET PAID-IN FROM STOCK ACCUMULATED CAPITAL CAPITAL OFFICER COMPENSATION DEFICIT DEFICIENCY) ---------- ---------- ------------ ----------- ------------- BALANCES AT DECEMBER 31, 1997...... $ 4,502 $(349) $(2,151) $(55,689) $ (9,930) Net loss (unaudited)............... -- -- -- (35,613) (35,613) Issuance of common stock pursuant to option exercises by employees (unaudited)...................... 1,260 -- -- -- 1,260 Issuance of Series B convertible preferred stock pursuant to warrant exercises (unaudited).... -- -- -- -- 2,034 Issuance of Series D convertible redeemable preferred stock for asset purchase (unaudited)....... -- -- -- -- -- Dividends accrued on convertible redeemable preferred stock (unaudited)...................... -- -- -- -- -- Conversion of redeemable preferred and preferred stock to common stock (unaudited)................ 94,115 -- -- 6,309 54,638 Issuance of common stock for asset purchase (unaudited)............. 13,220 -- -- -- 13,220 Repayment of note receivable from officer (unaudited).............. -- 349 -- -- 349 Deferred stock compensation (unaudited)...................... 2,402 -- (2,402) -- -- Amortization of deferred stock compensation (unaudited)......... -- -- 1,802 -- 1,802 Issuance of common stock pursuant to restricted stock purchase by employees (unaudited)............ 2,465 -- -- -- 2,465 ---------- ---------- ------------ ----------- ------------- BALANCES, SEPTEMBER 30, 1998 (UNAUDITED)...................... $ 117,964 $ -- $(2,751) $(84,993) $ 30,225 ---------- ---------- ------------ ----------- ------------- ---------- ---------- ------------ ----------- -------------
- ------------- (1) Because Healtheon did not commence operations until January 1996, the ActaMed statement of convertible redeemable preferred stock and stockholders' equity (net capital deficiency) presented for the year ended December 31, 1995 represents the statement of stockholders' equity of Healtheon for that period on a pooled basis. SEE ACCOMPANYING NOTES. F-8 CONSOLIDATED STATEMENTS OF CASH FLOWS(1) (IN THOUSANDS)
HEALTHEON CORPORATION ACTAMED ------------------------------------------ CORPORATION NINE MONTHS ENDED ------------- YEARS ENDED DECEMBER YEAR ENDED 31, SEPTEMBER 30, DECEMBER 31, -------------------- -------------------- 1995(1) 1996 1997 1997 1998 ------------- --------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities: Net loss................................................... $ (3,734) $ (18,606) $ (28,005) $ (21,273) $ (35,613) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................ 359 6,366 9,319 6,937 13,489 Amortization of deferred stock compensation.............. -- -- 562 309 1,802 Warrants and preferred stock issued for services......... -- 500 119 55 -- Dividends on ActaMed's convertible redeemable preferred stock................................................... -- 2,548 2,870 2,382 890 Changes in operating assets and liabilities: Accounts receivable.................................... (36) (5,066) (806) 651 (1,819) Other assets........................................... (77) (325) (224) 122 (162) Accounts payable....................................... 49 1,139 751 (263) 2,580 Accrued compensation and other liabilities............. 516 800 345 681 3,964 Deferred revenue....................................... 1,603 3,078 (1,285) (285) 996 ------------- --------- --------- --------- --------- Net cash used in operating activities...................... (1,320) (9,566) (16,354) (10,684) (13,873) ------------- --------- --------- --------- --------- Cash flows from investing activities: Purchase of short-term investments......................... -- -- (5,300) -- (4,341) Maturities of short-term investments....................... -- -- -- -- 8,775 Increase in restricted cash................................ -- -- (867) -- -- Purchases of property and equipment........................ (464) (2,027) (2,817) (449) (5,071) Cash paid in business combination.......................... -- -- -- -- (652) Acquisition costs related to business combination.......... -- (316) -- -- -- Capitalized internally developed software costs............ -- (1,001) (291) (291) -- ------------- --------- --------- --------- --------- Net cash used in investing activities...................... (464) (3,344) (9,275) (740) (1,289) ------------- --------- --------- --------- --------- Cash flows from financing activities: Proceeds from line of credit borrowings and bridge notes... -- 30 5,395 2,000 -- Payment of line of credit borrowings....................... -- -- -- -- (2,010) Proceeds from line of credit borrowings from related party.................................................... -- -- -- -- 1,000 Payments of line of credit borrowings from related party... -- -- -- -- (1,000) Proceeds from issuance of preferred stock.................. 6,963 11,107 29,530 4,470 2,034 Proceeds from issuance of common stock, net of repurchases.............................................. 21 144 266 18 3,725 Payments on note receivable from officer................... -- -- 151 -- 349 Principal payments of capital lease obligations............ -- (218) (748) (573) (914) ------------- --------- --------- --------- --------- Net cash from financing activities......................... 6,984 11,063 34,594 5,915 3,184 ------------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents....... 5,200 (1,847) 8,965 (5,509) (11,978) Cash and cash equivalents at beginning of period........... 4,186 9,386 7,539 7,539 16,504 ------------- --------- --------- --------- --------- Cash and cash equivalents at end of period................. $ 9,386 $ 7,539 $ 16,504 $ 2,030 $ 4,526 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- ---------
F-9 CONSOLIDATED STATEMENTS OF CASH FLOWS(1) (CONTINUED) (IN THOUSANDS)
HEALTHEON CORPORATION ACTAMED ------------------------------------------ CORPORATION NINE MONTHS ENDED ------------- YEARS ENDED DECEMBER YEAR ENDED 31, SEPTEMBER 30, DECEMBER 31, -------------------- -------------------- 1995(1) 1996 1997 1997 1998 ------------- --------- --------- --------- --------- (UNAUDITED) Supplemental disclosure of cash flow information: Interest paid.............................................. $ 5 $ 56 $ 252 $ 154 $ 379 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Supplemental schedule of noncash investing and financing activities: Equipment acquired under capital lease obligations......... $ -- $ 2,083 $ 774 $ 472 $ 2,278 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Issuance of note receivable from officer for preferred stock.................................................... $ -- $ -- $ 500 $ -- $ -- ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Conversion of bridge notes to preferred stock.............. $ -- $ -- $ 2,000 $ 2,000 $ -- ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Dividends on ActaMed's convertible redeemable preferred stock.................................................... $ 724 $ -- $ -- $ -- $ -- ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Issuance of convertible redeemable preferred stock for business combination..................................... $ -- $ 21,000 $ -- $ -- $ -- ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Issuance of convertible redeemable preferred stock for asset purchase........................................... $ -- $ -- $ 8,500 $ -- $ 2,800 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Issuance of common stock for asset purchase................ $ -- $ -- $ -- $ -- $ 4,900 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Issuance of common stock for business combination.......... $ -- $ -- $ -- $ -- $ 8,320 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Deferred stock compensation related to options granted..... $ -- $ -- $ 2,713 $ 1,101 $ 2,402 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- --------- Conversion of convertible redeemable preferred and convertible preferred stock to common stock.............. $ -- $ -- $ -- $ -- $ 94,115 ------------- --------- --------- --------- --------- ------------- --------- --------- --------- ---------
- ------------ (1) Because Healtheon did not commence operations until January 1996, the statement of cash flows presented for the year ended December 31, 1995 represents the statement of cash flows of Healtheon for that period on a pooled basis. SEE ACCOMPANYING NOTES F-10 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION In May 1998, Healtheon Corporation ("Healtheon") acquired ActaMed Corporation ("ActaMed") in a merger transaction accounted for as a pooling of interests (see Note 2). ActaMed was incorporated in 1992. Healtheon was incorporated on December 26, 1995 and was considered to be in the development stage through late 1997. All financial information has been restated to reflect the combined operations of Healtheon and ActaMed. All 1995 financial statement information represents that of ActaMed. Because Healtheon did not commence operations until January 1996, the financial statements of ActaMed for the year ended December 31, 1995 also represent the financial statements of Healtheon on a pooled basis for that period. As used herein, the "Company" refers to the combined companies and "Healtheon" or "ActaMed" is used to refer to the individual pre-merger company where required for clarity of presentation. NATURE OF OPERATIONS The Company is pioneering the use of the Internet to simplify workflows, decrease costs and improve the quality of patient care throughout the healthcare industry. The Company has designed and developed an Internet-based information and transaction platform (the "Healtheon Platform") that allows it to create Virtual Healthcare Networks ("VHNs") that facilitate and streamline interactions among the myriad participants in the healthcare industry. The Company's VHN solution includes a suite of services delivered through applications operating on its Internet-based platform. The Company's solution enables the secure exchange of information among disparate healthcare information systems and supports a broad range of healthcare transactions, including enrollment, eligibility determination, referrals and authorization, laboratory and diagnostic test ordering, clinical data retrieval and claims processing. Healtheon provides its own applications on the Healtheon Platform and also enables third-party applications to operate on the platform. In addition to VHNs, Healtheon provides consulting, implementation and network management services to enable its customers to take advantage of the capabilities of the Healtheon Platform. The Company has incurred operating losses to date and had an accumulated deficit of $84,993,000 at September 30, 1998. Company activities have been primarily financed through private placements of equity securities. The Company had cash, cash equivalents and short-term investments totaling $5,392,000 at September 30, 1998. As noted above and as further discussed in Note 2, Healtheon merged with ActaMed in May 1998. This merger may significantly affect the Company's operating cash needs. The Company may need to raise additional capital through the issuance of debt or equity securities. There can be no assurance that the Company will be able to raise additional financing, or that such financing will be available on terms satisfactory to the Company, if at all. INTERIM FINANCIAL INFORMATION The financial information as of September 30, 1998 and for the nine months ended September 30, 1997 and 1998 is unaudited but includes all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of the Company's operating results and cash flows for such period. Results for the nine months ended September 30, 1998 are not necessarily indicative of results to be expected for the full fiscal year of 1998 or for any future period. F-11 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ materially from these estimates. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS All highly liquid investments with an original maturity from date of purchase of three months or less are considered to be cash equivalents. The Company's cash, cash equivalents and short-term investments are invested in various investment-grade commercial paper, money market accounts and certificates of deposit. All of the Company's short-term investments mature within nine months. The fair value of the Company's cash equivalents and short-term investments is as follows (in thousands):
DECEMBER 31, -------------------- SEPTEMBER 30, 1996 1997 1998 --------- --------- ------------- (UNAUDITED) Cash equivalents: Corporate and other non-government debt securities...... $ -- $ 12,704 $ 2,808 Money market funds...................................... 5,603 3,429 1,372 --------- --------- ------ 5,603 16,133 4,180 Short-term investments: Corporate and other non-government debt securities...... -- 5,300 866 --------- --------- ------ $ 5,603 $ 21,433 $ 5,046 --------- --------- ------ --------- --------- ------
Net unrealized gains (losses) were immaterial at December 31, 1996 and 1997 and September 30, 1998. Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. Marketable debt and equity securities are classified as available-for-sale, and are carried at their fair value, with the unrealized gains and losses, when material, reported net-of-tax in a separate component of stockholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in interest income. Additionally, at December 31, 1997 and September 30, 1998, the Company had restricted cash of $867,000, related to a letter of credit invested in a certificate of deposit at a financial institution as a F-12 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) security deposit for its office facilities (see Note 6). Such amount is included in other assets in the accompanying consolidated balance sheets. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, net of accumulated amortization and depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related asset, generally three to seven years. Leasehold improvements and equipment acquired under capital leases are amortized over the shorter of the lease term or the estimated useful life of the related asset. INTANGIBLE ASSETS Intangible assets related to software technology rights, services agreements and goodwill are amortized on a straight-line basis over three years. Intangible assets related to assembled workforce are amortized on a straight-line basis over two years. SOFTWARE DEVELOPMENT COSTS Software development costs are incurred in the development or enhancement of software utilized in providing the Company's business management systems and services. Software development costs incurred after the establishment of technological feasibility for each product or process are capitalized and capitalization ceases when the product or process is available for general release to customers or is put into service. Capitalized internally developed software costs were approximately $1,001,000, $291,000 and $288,000 for the years ended December 31, 1996 and 1997 and the nine months ended September 30, 1997, respectively. There were no internally developed software costs capitalized for the year ended December 31, 1995 or for the nine months ended September 30, 1998. Capitalized internally developed software costs are amortized based on the greater of the amount determined using the straight line method over the estimated useful economic life of the software or the ratio of remaining unamortized costs to current and expected future revenue from the software. Amortization expense related to the Company's capitalized internally developed software costs included in cost of revenue was approximately $134,000, $376,000, $268,000 and $782,000 for the years ended December 31, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, respectively. There was no amortization expense related to ActaMed's capitalized internally developed software costs for the year ended December 31, 1995. LONG-LIVED ASSETS The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. In June 1998, the Company evaluated the carrying value of the capitalized internally developed software in light of the changes in operations resulting from the acquisition of ActaMed by Healtheon. The Company determined that it expected no future cash flows to be generated by this software and, accordingly, wrote off the remaining unamortized balance of $603,000 related to capitalized internally developed software. Such amount is included in the $782,000 amortization expense for the nine F-13 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) months ended September 30, 1998 noted above. No impairment losses were recorded for the years ended December 31, 1995, 1996 and 1997 or for the nine months ended September 30, 1997. REVENUE RECOGNITION The Company earns revenue from services and services to related parties, both of which include providing access to its network-based services and performing development and consulting services, and from licensing software. The Company earns network-based services revenue from fixed fee subscription arrangements, which is recognized ratably over the term of the applicable agreement, and from arrangements that are priced on a per-transaction or per-user basis, which is recognized as the services are performed. Revenue from development projects is recognized on a percentage-of-completion basis or as such services are performed, depending on the terms of the contract. Revenue from consulting services is recognized as such services are performed. Cash received in excess of revenue recognized relating to such services has been recorded as deferred revenue in the accompanying consolidated balance sheets. Revenue from services to related parties consists of services revenue attributable to United HealthCare and SmithKline Labs. To date, the Company has derived no significant revenue from brokers, value-added resellers or systems integrators. During the year ended December 31, 1997, the Company entered into agreements with two customers to manage and operate their current and expanding information technology ("IT") operations, to develop a suite of specific Internet-based commercial software applications and to assist these customers in migrating from their current IT operating environment to these new applications. The Company utilizes its own personnel, certain outside contractors and certain personnel and facilities of the customers that are leased under contract terms to the Company for these services. The cost of these leased customer personnel and facilities is included as part of the total costs of the IT and development services billed to the customers by the Company. For the year ended December 31, 1997 and the nine months ended September 30, 1998, the Company recognized revenue of approximately $2,100,000 and $10,915,000, respectively, for the IT services and approximately $200,000 and $4,772,000, respectively, for the development services. Included in the revenue recognized for IT services for the year ended December 31, 1997 and the nine months ended September 30, 1998 were amounts related to leased personnel and facilities of $1,909,000 and $8,806,000, respectively, which amounts were also included in cost of revenue for the respective periods. The Company recognizes revenue from license fees when a noncancellable license agreement has been signed with a customer, the software product covered by the license agreement has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the license fees are fixed and determinable and collection of the license fees is considered probable. The Company's products do not require significant customization. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 is effective January 1, 1998 and generally requires revenue earned on software arrangements involving multiple elements such as software products, upgrades, enhancements, post-contract customer support, installation and training to be allocated to each element based on the relative fair values of the elements. There was no material change to the Company's accounting for revenue as a result of the adoption of SOP 97-2. F-14 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ActaMed entered into a national marketing and licensing agreement (the "Agreement") with International Business Machines Corporation ("IBM") in 1995 that granted IBM a nonexclusive, nontransferable right to market ActaMed's software and services for a total of $6,300,000. For the years ended December 31, 1995, 1996 and 1997, approximately $1,700,000, $3,400,000 and $1,200,000, respectively, of this amount was recognized as software license revenue upon delivery of the software. No software license revenue was recognized under this agreement for the nine months ended September 30, 1997 or 1998. In December 1996, the Company entered into a new agreement (the "License") to license its newly granted patent to IBM. As part of the License, IBM agreed to pay ActaMed $4,800,000 over a four-year period. Additionally, in conjunction with the License, the Company issued IBM a five-year warrant to purchase 282,522 shares of the Company's common stock at a price of $7.97 per share. Because of the extended payment terms and the Company's contentious relationship with IBM, the Company concluded that the license fee was not assured of collection and, accordingly, is recognizing this revenue as the proceeds are collected. For the years ended December 31, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, the Company recognized revenue from the License of $995,000, $780,000, $585,000 and $585,000, respectively. At December 31, 1997, amounts due from IBM of $738,000 and $1,715,000 were included in accounts receivable and other assets, respectively. At September 30, 1998, amounts due from IBM of $795,000 and $1,112,000 were included in accounts receivable and other assets, respectively. Deferred revenue at December 31, 1996 and 1997 and September 30, 1998 included $3,121,000, $2,341,000 and $1,756,000, respectively, related to the License. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value for marketable debt securities is based on quoted market prices. The carrying value of these securities approximates their fair value. The fair value of notes is estimated by discounting the future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying value of the note receivable from an officer approximated its fair value. The fair value of short-term and long-term capital lease obligations is estimated based on current interest rates available to the Company for debt instruments with similar terms, degrees of risk and remaining maturities. The carrying values of these obligations approximate their respective fair values. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS The Company currently derives a substantial portion of its consolidated revenue from a few large customers, two of which are related parties. Two customers represented 35% and 17% of the total balance of trade accounts receivable and amounts due from related parties at December 31, 1997, and three customers represented 20%, 18% and 15% of the total balance of trade accounts receivable and amounts due from related parties at September 30, 1998. The Company believes that the concentration of credit risk in its trade receivables, with respect to its limited customer base, is substantially mitigated by the Company's credit evaluation process. The Company does not require collateral. To date, the Company's bad debt write-offs have not been significant. During the years ended December 31, 1996 and 1997 and the F-15 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) nine months ended September 30, 1998, respectively, the Company added approximately $41,000, $35,000 and $66,000 to its bad debt reserves. Total write-offs of uncollectible amounts were zero, $5,000 and $7,000 in these periods, respectively. For the year ended December 31, 1995, one customer accounted for 85% of consolidated revenue. For the year ended December 31, 1996, two customers accounted for 46% and 38% of consolidated revenue. For the year ended December 31, 1997, two customers accounted for 55% and 15% of consolidated revenue. For the nine months ended September 30, 1998, four customers accounted for 27%, 22%, 21% and 20% of consolidated revenue. The Company operates solely within one business segment, the development and marketing of healthcare transaction and information services delivered over the Internet, private intranets or other networks. Through September 30, 1998, the Company had no export sales. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair market value of the shares at the date of grant. As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company accounts for stock option grants to employees and directors in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). NET LOSS PER COMMON SHARE Basic net loss per common share and diluted net loss per common share are presented in conformity with SFAS No. 128, "Earnings Per Share," for all periods presented. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common stock and convertible preferred stock issued or granted for nominal consideration prior to the anticipated effective date of the Company's initial public offering must be included in the calculation of basic and diluted net loss per common share as if they had been outstanding for all periods presented. To date, the Company has not had any issuances or grants for nominal consideration. In accordance with SFAS No. 128, basic net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. For the year ended December 31, 1995, the weighted-average number of shares of ActaMed reflects the effect of the exchange ratio of 0.6272. Basic pro forma net loss per common share, as presented in the statements of operations, has been computed as described above and also gives effect, under Securities and Exchange Commission guidance, to the conversion of the convertible and convertible redeemable preferred stock (using the if-converted method) from the original date of issuance. On May 19, 1998, in connection with Healtheon's acquisition of ActaMed, all outstanding shares of Healtheon's convertible preferred stock and ActaMed's convertible redeemable preferred stock were converted into an aggregate of 39,272,329 shares of common stock. There were no shares of convertible or convertible redeemable preferred stock outstanding at September 30, 1998. F-16 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per common share follows (in thousands, except per share data):
YEARS ENDED NINE MONTHS DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------- ---------------------- 1995 1996 1997 1997 1998 --------- ---------- ---------- ---------- ---------- (UNAUDITED) Net loss applicable to common stockholders............. $ (4,458) $ (18,606) $ (28,005) $ (21,273) $ (35,613) --------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- Basic and diluted: Weighted-average shares of common stock outstanding........................................ 5,246 7,398 8,621 8,396 30,389 Less: Weighted-average shares subject to repurchase......................................... -- (815) (1,398) (1,377) (1,455) --------- ---------- ---------- ---------- ---------- Weighted-average shares used in computing basic and diluted net loss per common share.................... 5,246 6,583 7,223 7,019 28,934 --------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- Basic and diluted net loss per common share............ $ (.85) $ (2.83) $ (3.88) $ (3.03) $ (1.23) --------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- Pro forma: Net loss applicable to common stockholders............. $ (28,005) $ (35,613) Add: Dividends on ActaMed convertible redeemable preferred stock...................................... 2,870 890 ---------- ---------- Pro forma net loss..................................... $ (25,135) $ (34,723) ---------- ---------- ---------- ---------- Shares used above...................................... 7,223 28,934 Pro forma adjustment to reflect weighted effect of assumed conversion of convertible preferred stock.... 37,492 18,329 ---------- ---------- Shares used in computing pro forma basic and diluted net loss per common share (unaudited)................ 44,715 47,263 ---------- ---------- ---------- ---------- Pro forma basic and diluted net loss per common share (unaudited).......................................... $ (.56) $ (.73) ---------- ---------- ---------- ----------
The Company has excluded all convertible redeemable preferred stock, convertible preferred stock, warrants, outstanding stock options and shares subject to repurchase by the Company from the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented. The total numbers of shares excluded from the calculations of diluted loss per share were 10,157,109, 36,643,084, 51,216,689, 46,893,485 and 12,687,723 for the years ended December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, respectively. See Notes 9, 10 and 11 for further information on these securities. F-17 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE LOSS The Company has no material components of other comprehensive loss and accordingly the comprehensive loss is the same as net loss for all periods presented. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is required to adopt SFAS No. 131 for the year ending December 31, 1998. SFAS No. 131 requires disclosure of certain information regarding operating segments, products and services, geographic areas of operation and major customers. Adoption of SFAS No. 131 is expected to have no material impact on the Company's financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company is required to adopt SFAS No. 133 for the year ending December 31, 2000. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because the Company currently holds no derivative financial instruments and does not currently engage in hedging activities, adoption of SFAS No. 133 is expected to have no material impact on the Company's financial condition or results of operations. In March 1998, the American Institute of Certified Public Accountants issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain costs related to internal use software once certain criteria have been met. The Company is required to implement SOP 98-1 for the year ending December 31, 1999. Adoption of SOP 98-1 is expected to have no material impact on the Company's financial condition or results of operations. 2. BUSINESS COMBINATIONS ACQUISITION OF EDI SERVICES, INC. Effective March 31, 1996, ActaMed acquired EDI Services Inc. ("EDI"), a wholly-owned subsidiary of United HealthCare Corporation ("United HealthCare"), in a transaction pursuant to which EDI became a wholly-owned subsidiary of ActaMed. ActaMed issued 6,488,276 shares of Series C convertible redeemable preferred stock with a fair value of $21,000,000 and incurred acquisition-related costs of approximately $316,000 in connection with the acquisition. EDI is a provider of electronic data interchange services to health care providers and has marketed its health care network product, ProviderLink, to providers of United HealthCare's local health plans since 1992. In connection with the acquisition, United HealthCare and ActaMed entered into a five-year Services and License Agreement pursuant to which the Company earns transaction fee revenue by providing certain health care information services to United HealthCare and its provider network and ProviderLink subscribers. The acquisition was accounted for as a purchase. Accordingly, the operations of EDI were included in the Company's consolidated statements of operations only after March 31, 1996. Assets and liabilities F-18 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED) acquired in connection with this acquisition were recorded at their estimated fair market values. Approximately $359,000 of the purchase price was allocated to certain equipment and the remaining approximately $20,957,000 of the purchase price was allocated to intangible assets, consisting principally of software technology rights, the Services and License Agreement, trademarks and goodwill. Subsequent to the issuance of the financial statements for 1996 and 1997, ActaMed changed the allocation of the purchase price associated with the acquisition of the EDI technology to decrease the amount previously expensed as in process research and development costs and increase the amount capitalized as software technology rights. The financial statements for ActaMed for the year ended December 31, 1996, have been reissued to reflect this restatement. Intangible assets arising from the acquisition of EDI at March 31, 1996 are summarized as follows (in thousands):
AMORTIZATION PERIOD --------------- Goodwill.......................................................... 3 years $ 8,012 Software technology rights........................................ 3 years 8,333 Service and License Agreement..................................... 3 years 2,855 Trademarks........................................................ 3 years 216 Other intangibles................................................. 3 years 1,541 --------- $ 20,957 --------- ---------
The following pro forma information gives effect to the acquisition of EDI as if such transaction had occurred as of the beginning of each respective year (in thousands, except per share data):
DECEMBER 31, ---------------------- 1995 1996 ---------- ---------- (UNAUDITED) Net revenue........................................................... $ 6,330 $ 12,031 ---------- ---------- ---------- ---------- Net loss applicable to common stockholders............................ $ (11,475) $ (20,492) ---------- ---------- ---------- ---------- Basic and diluted net loss per common share........................... $ (2.19) $ (3.11) ---------- ---------- ---------- ----------
ACQUISITION OF ACTAMED CORPORATION On May 19, 1998, the Company completed its acquisition of ActaMed, a Georgia corporation that develops and markets an integrated health care network, in a transaction that has been accounted for as a pooling of interests. Accordingly, the financial information presented reflects the combined financial position and operations of the Company and ActaMed for all dates and periods presented. The Company issued 23,271,355 shares of its common stock in exchange for all of the outstanding shares of common and convertible redeemable preferred stock of ActaMed. The Company also assumed all outstanding stock options and warrants to acquire 3,383,011 shares of ActaMed capital stock, after giving effect to the exchange ratio. F-19 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED) Separate results of the combined entities for the years ended December 31, 1995, 1996 and 1997 and the four months ended April 30, 1998 (period ended immediately prior to the acquisition) were as follows (in thousands, unaudited):
FOUR MONTHS YEARS ENDED DECEMBER 31, ENDED --------------------------------- APRIL 30, 1995 1996 1997 1998 --------- ---------- ---------- ------------ Revenue: Healtheon...................................................... $ -- $ 1,200 $ 3,199 $ 6,405 ActaMed........................................................ 2,175 9,813 10,191 6,690 --------- ---------- ---------- ------------ $ 2,175 $ 11,013 $ 13,390 $ 13,095 --------- ---------- ---------- ------------ --------- ---------- ---------- ------------ Net loss: Healtheon...................................................... $ -- $ (8,543) $ (13,979) $ (6,664) ActaMed........................................................ (3,734) (10,063) (14,026) (6,186) --------- ---------- ---------- ------------ $ (3,734) $ (18,606) $ (28,005) $ (12,850) --------- ---------- ---------- ------------ --------- ---------- ---------- ------------
There were no significant intercompany transactions between the two companies or significant conforming accounting adjustments. ACQUISITION OF METIS, LLC On August 25, 1998, the Company acquired Metis, LLC ("Metis"), a provider of Internet/intranet strategic consulting, design and development of Internet-based applications and content for the healthcare industry enabling clinical integration and managed care process improvement. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and the liabilities assumed on the basis of their respective fair values on the acquisition date. Metis' results of operations have been included in the consolidated financial statements from its date of acquisition. The Company issued 1,600,000 shares of its common stock with a fair market value of $8.3 million. Of these shares, 476,548 shares will be issued to employees pursuant to restricted stock purchase agreements subject to a lapsing right of repurchase, at the option of the Company, over the respective vesting periods. In addition, the Company made a cash payment of approximately $.6 million, assumed liabilities of approximately $.3 million and incurred other acquisition related expenses, consisting primarily of legal and other professional fees, of approximately $.1 million. The total purchase price was approximately $9.4 million. Approximately $.3 million of the purchase price was allocated to accounts receivable and certain assets; approximately $1.4 million of the purchase price was allocated to the assembled workforce of Metis and will be amortized over two years; and the remaining $7.7 million of the purchase price was allocated to goodwill and will be amortized over three years. F-20 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 3. SERVICES AGREEMENT WITH SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. Effective December 31, 1997, the Company entered into a series of agreements with SmithKline Beecham Clinical Laboratories, Inc. ("SmithKline") to outsource the network connection between their customers and SmithKline laboratories. In connection with this transaction, SmithKline and the Company entered into a five-year Services Agreement pursuant to which the Company will earn transaction fee revenue by providing certain health care information services to SmithKline and its provider customers. As part of that transaction, the Company acquired a license to SBCL SCAN software and computer workstations that reside in various medical providers' offices. At December 31, 1997, the SCAN license and the assets from one region of the country were transferred to the Company for $2,000,000 in cash and 2,317,913 shares of Series D convertible redeemable preferred stock valued at $8,500,000. In March and June 1998, the assets for the remaining regions of the country were transferred to the Company and the Company paid the remaining purchase price of $7,700,000 through the issuance of 763,548 shares of the Company's Series D convertible redeemable preferred stock in March and 1,336,209 shares of the Company's common stock in June. The value of the services agreement and the SCAN software license totaled $14,774,000, and the value of the computer workstations totaled $3,426,000. SmithKline determined there was substantial benefit to their existing customers and potential marketing advantages in attracting new customers, if the SCAN software was upgraded to a new technology platform. Accordingly, in 1998 SmithKline entered into a development agreement with the Company to upgrade the technology. Payments to the Company are based upon achieving certain milestones in the development effort. At September 30, 1998 the Company had not achieved any milestones. Accordingly, no development revenue had been recognized by the Company under this development agreement. 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands):
DECEMBER 31, -------------------- 1996 1997 --------- --------- SEPTEMBER 30, 1998 ------------- (UNAUDITED) Computer equipment......................................... $ 3,677 $ 6,238 $ 12,458 Office equipment, furniture and fixtures................... 1,185 1,237 2,885 Purchased software for internal use........................ 1,001 1,240 1,852 Leasehold improvements..................................... 303 328 1,604 --------- --------- ------------- 6,166 9,043 18,799 Less accumulated depreciation and amortization............. (1,632) (3,543) (7,523) --------- --------- ------------- Property and equipment, net................................ $ 4,534 $ 5,500 $ 11,276 --------- --------- ------------- --------- --------- -------------
Included in property and equipment at December 31, 1996 and 1997 and September 30, 1998 were assets acquired under capital lease obligations with a cost of approximately $2,302,000, $3,076,000 and $5,354,000, respectively. Accumulated depreciation related to the assets acquired under capital leases totaled $319,000, $1,174,000 and $2,176,000 at December 31, 1996 and 1997 and September 30, 1998, respectively. F-21 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 5. INTANGIBLE ASSETS Intangible assets consist of the following (in thousands):
DECEMBER 31, AMORTIZATION ---------------------- PERIOD 1996 1997 ------------ ---------- ---------- SEPTEMBER 30, 1998 ------------- (UNAUDITED) Services agreements...................... 3 years $ 2,855 $ 2,855 $ 2,855 Software technology rights............... 3 years 8,333 17,664 23,107 Internally developed software............ 3 years 1,001 1,292 -- Trademarks............................... 3 years 216 216 216 Goodwill................................. 3 years 8,012 8,012 15,668 Other.................................... 2-3 years 1,541 1,541 2,924 ---------- ---------- ------------- 21,958 31,580 44,770 Less accumulated amortization............ (5,403) (12,812) (21,029) ---------- ---------- ------------- $ 16,555 $ 18,768 $ 23,741 ---------- ---------- ------------- ---------- ---------- -------------
6. COMMITMENTS The Company has entered into several lease lines of credit. Lease lines totaling $3,500,000 and $2,000,000 were entered into during the years ended December 31, 1996 and 1997, respectively. Approximately $2,900,000 and $5,135,000 had been utilized under these lease lines through December 31, 1997 and September 30, 1998, respectively. At September 30, 1998, approximately $1,266,000 was available for future utilization under these lease lines. This amount included approximately $901,000 that was repaid under the terms of a revolving lease line and is thus again available for future utilization. The arrangements are secured by the property and equipment subject to the leases. The term of the leases is generally three years and the interest rates implicit in the leases range from 16.9% to 20.2% per annum. Information on payments due under these lease lines is included in the table below under "Capital Leases." The Company leases its headquarters and other office facilities under operating lease agreements that expire at various dates through 2008. Total rent expense for all operating leases was approximately $391,000, $953,000, $1,646,000, $1,165,000 and $1,616,000 for the years ended December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, respectively, net of sublease income from a related party of approximately $30,000, $68,000, $58,000, $42,000 and $43,000, respectively. Future F-22 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 6. COMMITMENTS (CONTINUED) minimum lease commitments under noncancellable lease agreements at December 31, 1997 were as follows (in thousands):
OPERATING LEASES CAPITAL LEASES ---------------- --------------- Year ending December 31, 1998...................................................... $ 2,444 $ 1,167 1999...................................................... 2,423 858 2000...................................................... 2,077 164 2001...................................................... 1,506 -- 2002...................................................... 963 -- Thereafter................................................ 4,978 -- ------- ------ Total minimum lease payments................................ $ 14,391 2,189 ------- ------- Amount representing interest................................ (219) ------ Present value of minimum lease payments under capital lease obligations............................................... 1,970 Less current portion........................................ (1,038) ------ Non-current portion......................................... $ 932 ------ ------
7. BRIDGE LOANS AND NOTE RECEIVABLE FROM OFFICER In 1997, the Company borrowed $2,000,000 from certain stockholders in the form of 6% convertible promissory notes (the "Notes") in contemplation of the Series C convertible preferred stock offering. The Notes were converted into 800,000 shares of Series C convertible preferred stock upon the closing of that offering. Warrants to purchase 61,947 shares of Series B convertible preferred stock were issued in connection with the Notes (see Note 10). In July 1997, in consideration of 250,000 shares of the Company's Series B convertible preferred stock issued to an officer, the Company received a one-year, full-recourse, noninterest-bearing promissory note for $500,000. At December 31, 1997, $349,000 remained outstanding under the note. At September 30, 1998, the note had been paid in full. In February 1998, the Company entered into a $2,000,000 line of credit agreement with a stockholder. The Company borrowed $1,000,000 under the agreement, which was repaid with interest at 10% per annum in May 1998. 8. LINES OF CREDIT In September 1997, the Company entered into a line of credit agreement with a bank that allows the Company to borrow up to $2,101,000. Amounts borrowed under this agreement bear interest at the bank's prime rate (8.5% at December 31, 1997 and September 30, 1998). Interest is payable monthly with payments commencing on September 30, 1997. The line of credit availability declines over the term to $1,821,000, $1,215,000 and $547,000 at December 31, 1997, 1998 and 1999, respectively, and expires on F-23 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 8. LINES OF CREDIT (CONTINUED) September 5, 2000. The amount outstanding is collateralized by certain assets. At December 31, 1997 and September 30, 1998, $1,415,000 was outstanding under the agreement. In December 1997, the Company entered into a loan agreement with a bank that allowed the Company to borrow up to $2,250,000. Amounts borrowed under this loan agreement bear interest at the bank's prime rate (8.5% at December 31, 1997 and September 30, 1998). The loan was personally guaranteed by one of the Company's stockholders until the acquisition of ActaMed in May 1998. In May 1998, concurrent with the removal of the stockholder guarantee, the interest rate was increased to the bank's prime rate plus 1.5%. Interest is payable monthly with payments commencing on January 31, 1998. At December 31, 1997, $2,000,000 was outstanding under the loan agreement. The principal balance of the loan was repaid in full in August 1998. 9. CONVERTIBLE REDEEMABLE PREFERRED STOCK A summary of ActaMed's 8% cumulative convertible redeemable preferred stock is as follows.
DECEMBER 31, -------------------------------------------------------- 1996 1997 --------------------------- --------------------------- ISSUED ISSUED SHARES AND LIQUIDATION AND LIQUIDATION AUTHORIZED OUTSTANDING PREFERENCE OUTSTANDING PREFERENCE ------------ ------------ ------------- ------------ ------------- Series A............. 5,519,912 5,519,912 $ 9,825,000 5,519,912 $ 10,458,000 Series B............. 2,162,759 2,162,759 7,614,000 2,162,759 8,171,000 Series C............. 6,488,276 6,488,276 22,257,000 6,488,276 23,936,000 Series D............. 2,317,913 -- -- 2,317,913 8,500,000 ------------ ------------ ------------- ------------ ------------- 16,488,860 14,170,947 $ 39,696,000 16,488,860 $ 51,065,000 ------------ ------------ ------------- ------------ ------------- ------------ ------------ ------------- ------------ -------------
In March 1998, an additional 763,548 shares of Series D convertible redeemable preferred stock were issued in connection with the asset acquisition from SmithKline Labs (see Note 3). Dividends on each Series were cumulative whether or not declared and are shown as a charge against income in the accompanying financial statements. On May 19, 1998, in connection with the acquisition of ActaMed by Healtheon, the convertible redeemable preferred stockholders waived payment of all accrued and unpaid dividends. Preferred holders voted generally on an as-if converted basis. In addition, a majority approval of the four Series was required to approve certain transactions. The Series A, B, C and D cumulative convertible redeemable preferred stockholders were entitled to receive, upon liquidation, an amount per share equal to the issuance price, plus all accrued but unpaid dividends. Common stockholders would then have received $5,000,000. Any remaining proceeds would then have been distributed pro rata to the stockholders, subject only to the Series A holders' right to receive sufficient funds to provide a 20% return on their original investment. Each Series was redeemable at up to one-third of the originally issued shares per year commencing in years six, seven and eight after the issue date at a redemption price equal to the issue price plus all accrued F-24 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 9. CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED) but unpaid dividends. On May 19, 1998, all outstanding shares of convertible redeemable preferred stock were converted into 17,252,408 shares of common stock in connection with the acquisition of ActaMed by the Company. 10. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK The Company was authorized to issue 48,020,000 shares of convertible preferred stock, designated in series. A summary of convertible preferred stock was as follows:
DECEMBER 31, -------------------------------------------------------- 1996 1997 --------------------------- --------------------------- ISSUED ISSUED SHARES AND LIQUIDATION AND LIQUIDATION DESIGNATED OUTSTANDING PREFERENCE OUTSTANDING PREFERENCE ------------ ------------ ------------- ------------ ------------- Series A............. 10,305,000 10,285,000 $ 5,143,000 10,305,000 $ 5,153,000 Series B............. 6,105,000 3,000,000 6,000,000 3,290,000 6,580,000 Series C............. 2,600,000 -- -- 2,600,000 6,500,000 Series D............. 5,000,000 -- -- 4,807,692 25,000,000 ------------ ------------ ------------- ------------ ------------- 24,010,000 13,285,000 $ 11,143,000 21,002,692 $ 43,233,000 ------------ ------------ ------------- ------------ ------------- ------------ ------------ ------------- ------------ -------------
Series A and Series B convertible preferred shares included 20,000 and 25,000 shares, respectively, that were issued for services rendered. On May 19, 1998, all outstanding shares of convertible preferred stock were converted into shares of common stock on a one-for-one basis at the election of the holders in connection with the Company's acquisition of ActaMed. Concurrently with the conversion, all outstanding warrants to purchase Series B preferred stock were converted into warrants to purchase the same number of shares of the Company's common stock. Series A, B, C and D convertible preferred stockholders were entitled to noncumulative dividends of $0.03375, $0.135, $0.16875 and $0.351, respectively, per share per annum. No dividends were declared through the date of conversion. The Series A, B, C and D convertible preferred stockholders were entitled to receive, upon liquidation, an amount per share equal to the issuance price, plus all declared but unpaid dividends. The Series A, B, C and D convertible preferred stockholders had voting rights equal to the common shares issuable upon conversion. PREFERRED STOCK In July 1998, the Board of Directors approved a resolution authorizing the Company to issue up to 5,000,000 shares of preferred stock, to be effective upon the effective date of an initial public offering by the Company. F-25 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 10. STOCKHOLDERS' EQUITY (CONTINUED) WARRANTS In November 1996, the Company issued a warrant to a venture capital investor to purchase 1,000,000 shares of Series B convertible preferred stock at an exercise price of $2.00 per share for services rendered by the investor on behalf of the Company. A then partner of the venture capital firm assumed the role of President and Chief Executive Officer for the Company from the Company's inception through June 1997. The warrant was immediately exercisable and expires three years from the date of issuance. The Company recorded a charge of $500,000 representing the fair value of the warrant issued and services received based on a valuation obtained by the Company from an independent appraiser utilizing a modified Black-Scholes option pricing model. This warrant was outstanding at December 31, 1997 and in May 1998 was converted to a warrant to purchase common stock. It remained outstanding at September 30, 1998. In November 1996, the Company granted a warrant to a director of the Company to purchase 1,000,000 shares of Series B convertible preferred stock at an exercise price of $2.00 per share, the fair value of Series B convertible preferred stock at the date of issuance. The warrant vests over a period of 18 months from the date of issuance. The term of the warrant is three years. This warrant was outstanding at December 31, 1997 and was exercised in full in May 1998. In December 1996, the Company issued a warrant to a customer to purchase 282,522 shares of the Company's common stock at a price of $7.97 per share. The warrant expires in December 2001. This warrant was outstanding at September 30, 1998. In July 1997, the Company issued a warrant to an officer of the Company, in connection with his employment, to purchase 750,000 shares of Series B convertible preferred stock at an exercise price of $2.00 per share, the fair value of Series B convertible preferred stock at the date of issuance. The warrant expires three years from issuance, and shares purchased under the warrant are subject to repurchase by the Company, at the Company's option, upon termination of employment. Shares under the warrant vest ratably over a period of two years from the date of grant. This warrant was outstanding at December 31, 1997 and in May 1998 was converted to a warrant to purchase common stock. It remained outstanding at September 30, 1998. In July 1997, the Company issued warrants to purchase a total of 61,947 shares of Series B convertible preferred stock to certain investors in connection with a bridge financing. The warrants expire four years from issuance and are exercisable at $2.00 per share. The value of these warrants, approximately $64,000, was expensed as a cost of financing. All of these warrants were outstanding at December 31, 1997. In May 1998, warrants to purchase 17,229 shares of Series B convertible preferred stock were exercised and the remainder of the warrants, which were outstanding at September 30, 1998, were converted to warrants to purchase 44,718 shares of common stock. At December 31, 1997 the Company had reserved 2,811,947 and 282,522 shares of its Series B preferred stock and common stock, respectively, for issuance upon exercise of outstanding warrants. In conjunction with the acquisition of ActaMed in May 1998, all outstanding warrants to purchase Series B preferred stock were converted into warrants to purchase common stock. At September 30, 1998, the Company had reserved 2,077,240 shares of its common stock for issuance upon exercise of the outstanding warrants for common stock. F-26 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 10. STOCKHOLDERS' EQUITY (CONTINUED) In December 1998, as part of a service agreement with a customer, the Company issued to the customer a warrant to purchase 500,000 shares of the Company's common stock with an exercise price of $10.40 per share. (See Note 14). 11. STOCK-BASED COMPENSATION STOCK OPTION PLANS Under the 1996 Stock Plan (the "1996 Plan"), which was adopted in February 1996, the Board of Directors may grant options to purchase common stock or issue common stock subject to a restricted stock purchase agreement to eligible participants. At December 31, 1997, a total of 9,000,000 shares had been reserved under the Plan. In March 1998, the Board of Directors and the stockholders approved an increase in the reserve of 1,000,000 shares; in July 1998, the Board of Directors approved, subject to stockholder approval, an additional increase in the reserve of 5,000,000 shares to a total of 15,000,000 shares reserved. Options granted may be either incentive stock options or nonstatutory stock options and are exercisable within the times or upon the events determined by the Board of Directors as specified in each option agreement. Options vest over a period of time as determined by the Board of Directors, generally four years. The term of the 1996 Plan is ten years. At December 31, 1997 and September 30, 1998, 274,166 and 1,715,853 shares, respectively, remained available for future grant under the 1996 Plan. In connection with the acquisition of ActaMed, the Company assumed all the outstanding options issued under the ActaMed stock option plans, after the application of the exchange ratio, and reserved 3,100,489 shares of the Company's common stock for issuance upon exercise of the assumed options. No further options can be granted under these plans. At the time of the acquisition, options for 2,717,269 shares were fully vested. The remainder of the shares vest based upon annual cliffs over a five-year period from the date of grant. During the years ended December 31, 1996 and 1997 and the nine-month period ended September 30, 1998, the Company issued approximately 1,806,000, 850,000 and 530,000 shares, respectively, of common stock subject to restricted stock purchase agreements to employees for cash. The common stock is subject to repurchase at the original exercise price until vested, at the option of the Company, and approximately 614,000 shares were repurchased from terminated employees during the year ended December 31, 1997. The shares vest over a period of time as determined by the Board of Directors for each individual purchase agreement, generally four years. At December 31, 1996 and 1997 and September 30, 1998, approximately 1,660,000, 1,430,000 and 1,501,000 shares, respectively, were subject to repurchase. F-27 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 11. STOCK-BASED COMPENSATION (CONTINUED) The following table summarizes stock option activity:
WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE PER SHARES SHARE ----------------- ------------------- ACTAMED CORPORATION Outstanding at January 1, 1995.............................................. 4,223,214 $ .34 Granted................................................................... 856,000 .91 Exercised................................................................. (1,071,250) .02 Canceled.................................................................. (62,750) .83 ----------------- Options outstanding at December 31, 1995.................................... 3,945,214 $ .55 ----------------- ----------------- HEALTHEON CORPORATION Options outstanding at December 31, 1995 (reflecting the exchange ratio of .6272).................................................................... 2,474,438 $ .88 Granted................................................................... 3,004,384 .54 Exercised................................................................. (300) .05 Canceled.................................................................. (233,907) .78 ----------------- Options outstanding at December 31, 1996.................................... 5,244,615 .68 Granted................................................................... 5,394,008 .73 Exercised................................................................. (547,844) .16 Canceled.................................................................. (890,528) .49 ----------------- Options outstanding at December 31, 1997.................................... 9,200,251 .72 Granted (unaudited)....................................................... 4,756,006 4.47 Exercised (unaudited)..................................................... (2,247,606) .59 Canceled (unaudited)...................................................... (522,178) 1.01 ----------------- Options outstanding at September 30, 1998 (unaudited)....................... 11,186,473 $ 2.33 ----------------- -----------------
ACTAMED CORPORATION HEALTHEON CORPORATION --------------- --------------------------------------- NINE MONTHS YEAR ENDED YEARS ENDED ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, --------------- -------------------- ----------------- 1995 1996 1997 1998 --------------- --------- --------- ----------------- (UNAUDITED) Weighted-average fair value of options granted...................... $ .28 $ .15 $ .18 $ .75 --- --- --- --- --- --- --- ---
F-28 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 11. STOCK-BASED COMPENSATION (CONTINUED) The following table summarizes information regarding options outstanding and exercisable at December 31, 1997:
WEIGHTED- AVERAGE REMAINING WEIGHTED- WEIGHTED- CONTRACTUAL AVERAGE AVERAGE LIFE NUMBER EXERCISE EXERCISE PRICES NUMBER OUTSTANDING EXERCISE PRICE (IN YEARS) EXERCISABLE PRICE - --------------------------------------- ------------------- --------------- --------------- ---------- ----------- $ .03 - $.08.......................... 2,490,007 $ .05 6.98 1,679,870 $ .04 $ .20 - $.25.......................... 3,693,879 .24 9.53 682,500 .20 $1.00 - $1.45.......................... 2,092,187 1.24 9.69 794,213 1.45 $3.24.................................. 924,178 3.24 7.94 76,644 3.24 ---------- ---------- 9,200,251 $ .72 8.63 3,233,227 $ .50 ---------- ---------- ---------- ----------
The Company recorded deferred stock compensation of approximately $2,713,000 and $2,402,000 during the year ended December 31, 1997 and the nine months ended September 30, 1998, respectively. These amounts represented the difference between the exercise price and the deemed fair value of the Company's common stock on the date such stock options were granted. The Company recorded amortization of deferred stock compensation of approximately $562,000 and $1,802,000, respectively, during these periods based on a graded vesting method. At September 30, 1998, the Company had a total of approximately $2,751,000 remaining to be amortized on a graded vesting method over the corresponding vesting period of each respective option, generally four years. PRO FORMA INFORMATION The Company has elected to follow APB No. 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, no compensation expense is recognized when the exercise price of stock options granted to the Company's employees equals the market price of the underlying stock on the date of grant. Pro forma information regarding net loss is required by SFAS No. 123 and has been determined as if employee stock options granted subsequent to December 31, 1994 were accounted for under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using the minimum value method with the following weighted-average assumptions for the years ended December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1998: risk-free interest rate F-29 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 11. STOCK-BASED COMPENSATION (CONTINUED) of approximately 6.2%, 6.0%, 6.0% and 5.4%, respectively; a weighted-average expected life of the option of 5.0 years, 4.3 years, 4.2 years and 3.5 years, respectively; and a dividend yield of zero for all periods.
HEALTHEON CORPORATION ACTAMED ------------------------------------ CORPORATION ------------ YEARS ENDED NINE MONTHS YEAR ENDED DECEMBER 31, ENDED DECEMBER 31, ---------------------- SEPTEMBER 30 1995 1996 1997 1998 ------------ ---------- ---------- ------------ (UNAUDITED) Net loss applicable to common stockholders (in thousands): As reported................................................ $ (4,458) $ (18,606) $ (28,005) $ (35,613) ------------ ---------- ---------- ------------ ------------ ---------- ---------- ------------ Pro forma.................................................. $ (4,488) $ (18,695) $ (28,173) $ (36,645) ------------ ---------- ---------- ------------ ------------ ---------- ---------- ------------ Basic and diluted net loss per common share: As reported................................................ $ (.85) $ (2.83) $ (3.88) $ (1.23) ------------ ---------- ---------- ------------ ------------ ---------- ---------- ------------ Pro forma.................................................. $ (.86) $ (2.84) $ (3.90) $ (1.27) ------------ ---------- ---------- ------------ ------------ ---------- ---------- ------------
In September 1998, the Board of Directors approved and in October 1998, the stockholders also approved the adoption of the Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan"), to be effective on the effective date of an initial public offering by the Company. A total of 1,000,000 shares of common stock has been reserved for issuance under the 1998 Purchase Plan, plus annual increases equal to the lesser of 500,000 shares, 0.5% of the outstanding common shares on such date or a lesser amount determined by the Board of Directors. 12. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax F-30 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 12. INCOME TAXES (CONTINUED) purposes. Significant components of the Company's deferred tax assets (liabilities) were as follows (in thousands):
DECEMBER 31, -------------------- 1996 1997 --------- --------- Deferred tax assets: Net operating loss carryforwards....................................... $ 7,537 $ 14,263 Intangible assets...................................................... 1,580 3,688 Research and development tax credit.................................... 561 1,014 Reserves and accruals not currently deductible......................... 227 308 --------- --------- Total deferred tax assets................................................ 9,905 19,273 Valuation allowance...................................................... (9,545) (18,931) --------- --------- Net deferred tax assets.................................................. 360 342 --------- --------- Deferred tax liabilities Depreciation........................................................... (31) (45) Capitalized software development costs................................. (329) (297) --------- --------- Total deferred tax liabilities........................................... (360) (342) --------- --------- Net deferred tax assets and liabilities.................................. $ -- $ -- --------- --------- --------- ---------
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 Company's lack of earnings history. The valuation allowance for deferred tax assets increased by $6,580,000 and $9,386,000 during the years ended December 31, 1996 and 1997, respectively. At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $37,575,000, which expire in 2009 through 2012, and federal tax credits of approximately $800,000, which expire in 2009 through 2012. Approximately $16,675,000 of the net operating loss at December 31, 1997 related to a consolidated subsidiary. This loss carryforward is only available to offset future taxable income of that subsidiary. Because of the "change of ownership" provisions of the Internal Revenue Code, a portion of the Company's net operating loss carryforwards and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. A portion of these carryforwards may expire before becoming available to reduce future income tax liabilities. 13. RELATED PARTY TRANSACTIONS The Company has two customers that are significant stockholders of the Company. The Company entered into a Development Agreement with a partnership controlled by the former Chairman of the Board of Directors of ActaMed. Pursuant to this agreement, the Company granted the partnership exclusive licenses to use ActaMed's technology for industries other than the health care industry. Under the agreement, the Company will receive a commercial royalty on the partnership's gross F-31 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 13. RELATED PARTY TRANSACTIONS (CONTINUED) receipts. If the Company desires in the future to expand to other industries, the partnership must either develop that industry in a defined time period or rights to that industry revert to the Company. The agreement expires December 3, 1998 and to date no fees have been paid to the Company thereunder. The Company shares office space and provides administrative support and network resources to a company controlled by a member of the Board of Directors. Amounts reimbursed for the shared facilities and administrative support totaled approximately $62,000, $58,000, $46,000, $36,000 and $51,000 for the years ended December 31, 1995, 1996, and 1997 and the nine months ended September 30, 1997 and 1998, respectively. Approximately $211,000, $187,000, $78,000 and $41,000 was reimbursed during the years ended December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1997, respectively, for the use of the network maintained by the Company. No income for the use of the network by the related party was recognized for the nine months ended September 30, 1998. All such amounts are included as an offset to general and administrative expenses in the accompanying consolidated statements of operations. Amounts due from the related party of $33,000 and $72,000 at December 31, 1996 and 1997, respectively, were included in other current assets in the accompanying consolidated balance sheets. There were no amounts due from the related party at September 30, 1998. 14. SUBSEQUENT EVENTS (UNAUDITED) From October through December 1998, the Company granted to employees options to purchase common stock and issued shares of common stock pursuant to restricted stock purchase agreements equal to a total of 1,518,257 shares of common stock at an exercise or purchase price of $3.55 per share. In October 1998, the Company offered its employees who were granted options between July 1998 through October 1998 the ability to cancel their original option grant in exchange for a new option agreement with a new vesting start date and option price of $3.55 per share. A total of 3,380,200 option shares with exercise prices of $4.50, $6.30, $7.00 and $8.00 were eligible to be repriced. A total of 2,067,950 option shares were cancelled and reissued. In addition, on December 14, 1998, 455,000 shares of common stock issued in July 1998 pursuant to restricted stock purchase agreements with purchase prices of $4.55 to $7.00 per share were rescinded. The Company anticipates that it may record additional deferred compensation as a result of this repricing. In December 1998, the Company issued to a customer a warrant to purchase 500,000 shares of the Company's common stock at an exercise price of $10.40 per share. In October 1998, the Board of Directors authorized 8,285,007 shares of convertible preferred stock and designated all of these shares as Series A. In November 1998, the Company issued 7,683,341 shares of Series A convertible preferred stock for $46,100,000 of cash proceeds. The Series A convertible preferred stockholders are entitled to non-cumulative dividends of $.405 per share per annum, and liquidation rights per share equal to the issuance price plus all declared but unpaid dividends. The Series A preferred stock has voting rights equal to the common stock issuable upon conversion. Also in October 1998, the Board of Directors approved an increase in the number of shares of common stock authorized for issuance to 150,000,000 shares. F-32 HEALTHEON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED) 14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) In December 1998, Healtheon and SmithKline Labs entered into an asset purchase agreement. The agreement provides that Healtheon will purchase certain assets currently used by SmithKline Labs to provide laboratory results delivery services in exchange for $2.0 million in cash and shares of Healtheon's common stock having a value of $11.0 million. The asset purchase agreement calls for Healtheon and SmithKline Labs to enter a related services agreement under which Healtheon will provide certain electronic laboratory results delivery services to approximately 20,000 provider sites, in addition to the sites currently served through the SCAN service. The asset purchase agreement is subject to execution of the related service agreement and approval by the Company's Board of Directors. F-33 INDEPENDENT AUDITORS' REPORT Board of Directors of United HealthCare Corporation: We have audited the accompanying statements of divisional net loss and United HealthCare Corporation's ("United's") net investment and of divisional cash flows for the year ended December 31, 1995 of EDI Services Group ("EDI") (a Division of United.) These statements of divisional net loss and United's net investment and of divisional cash flows are the responsibility of United's management. Our responsibility is to express an opinion on these statements of divisional net loss and United's net investment and of divisional cash flows based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements of divisional net loss and United's net investment and of divisional cash flows are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements of divisional net loss and United's net investment and of divisional cash flows. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statements of divisional net loss and United's net investment and of divisional cash flows presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statements of divisional net loss and United's net investment and of divisional cash flows reflect a component of a business enterprise that was derived from a consolidated group of companies rather than a complete legal entity. See Note 1 to the statements of divisional net loss and United's net investment and of divisional cash flows for a description of the basis of presentation. In our opinion, the statements of divisional net loss and United's net investment and of divisional cash flows present fairly, in all material respects, the results of its divisional net loss and United's net investment and of divisional cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Minneapolis, Minnesota April 4, 1996 F-34 EDI SERVICES GROUP (A DIVISION OF UNITED HEALTHCARE CORPORATION) STATEMENT OF DIVISIONAL NET LOSS AND UNITED'S NET INVESTMENT YEAR ENDED DECEMBER 31, 1995 Revenue: Related-party processing revenue.............................................. $2,900,448 Related-party site revenue.................................................... 1,155,300 Other processing revenue...................................................... 100,013 --------- Total revenue............................................................. 4,155,761 Operating costs and expenses: Cost of revenues.............................................................. 1,646,039 Sales and marketing........................................................... 302,145 Research and development...................................................... 1,604,897 General and administrative.................................................... 642,980 --------- Total operating costs and expenses........................................ 4,196,061 --------- Loss before income taxes........................................................ (40,300) Income taxes.................................................................... 48,177 --------- Net loss.................................................................. (88,477) United's net investment--Beginning of period.................................... 124,393 Net cash flows to EDI division.................................................. 417,213 --------- United's net investment--end of period.......................................... $ 453,129 --------- ---------
See notes to financial statements. F-35 EDI SERVICES GROUP (A DIVISION OF UNITED HEALTHCARE CORPORATION) STATEMENT OF DIVISIONAL CASH FLOWS YEAR ENDED DECEMBER 31, 1995 Operating activities: Net loss....................................................................... $ (88,477) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................................................ 285,613 Increase in deferred income taxes............................................ 48,177 Changes in assets and liabilities: Accounts receivable........................................................ (13,347) Accounts payable........................................................... (58,612) Accrued expenses........................................................... (46,083) --------- Net cash provided by operating activities................................ 127,271 --------- Investing activities: Purchase of property........................................................... (190,375) Software development costs..................................................... (354,109) --------- Net cash used in investing activities.................................... (544,484) --------- Net cash flows of division which were provided by United......................... $(417,213) --------- ---------
See notes to financial statements. F-36 EDI SERVICES GROUP (A DIVISION OF UNITED HEALTHCARE CORPORATION) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS--EDI Services Group ("EDI") is an operating division of United HealthCare Corporation ("United"). EDI was established to develop and market software to control a network that facilitates the exchange of health care information among managed care organizations, insurance carriers, hospitals, physicians, and other health care industry participants. On December 15, 1995, United transferred EDI and its ProviderLink operations to a holding company, UHC Green Acquisition Inc. ("UHC Green") (a wholly owned subsidiary of United). BASIS OF PRESENTATION--The accompanying statements of divisional net loss and United's net investment and divisional cash flows have been prepared from the books and records maintained by EDI and United. The statement of divisional net loss may not necessarily be indicative of the results of operations that would have been obtained if EDI had been operated as an independent entity. The statement of divisional net loss includes allocation of certain expenses that are material in amount. Such expenses are allocations for corporate services and overhead. Intercompany revenue results from network services provided to health plans owned or managed by United. The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and liabilities in the normal course of business. As shown in the financial statements, during the year ended December 31, 1995, EDI incurred a net loss of approximately $88,000 and a cash flow deficit of approximately $417,000. As discussed in Note 5, EDI was acquired by ActaMed Corporation ("ActaMed") effective March 31, 1996. EDI's continued existence is dependent on funding of its cash flow deficit by ActaMed and on its relationship and service agreement with United. The service agreement states that the combined entities will be the primary provider of electronic data interchange services for United for a period of five years. The nature of EDI's operations exposes EDI to certain business risks. Such business risks include EDI's concentration of sales transactions with United, which accounted for 98% of EDI's 1995 revenues (see Note 4). The market for health care information services is highly competitive and subject to rapid technological change, evolving industry standards, and regulatory developments and influences that may affect both the operations of EDI and its customers. In addition, significant demands may be placed on EDI's management as a result of EDI's merger with ActaMed (see Note 5). Other significant business risks faced by EDI include a dependence on key employees and the risk of liability associated with unforeseen software product errors. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SIGNIFICANT ACCOUNTING POLICIES INCOME TAXES--United provides for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes," which requires deferred income tax balances to be computed annually for differences between financial statement and tax bases of assets and liabilities based on enacted tax rates. An income tax provision has been allocated to EDI as if EDI filed on a separate return basis; however, under the F-37 EDI SERVICES GROUP (A DIVISION OF UNITED HEALTHCARE CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) income tax allocation agreement policy with United, no benefit is allocated for losses incurred which are utilized in the consolidated income tax return (see Note 2). UNITED'S NET INVESTMENT--United's net investment, as shown in the accompanying statement of divisional net loss and United's net investment, represents losses incurred by EDI since inception and the intercompany account with United that consists of transactions with United and the net cash flows of EDI, which have been funded by United. REVENUE RECOGNITION--EDI earns revenue from providing access to its network services, including fixed fee and transaction-based services. EDI recognizes revenue from network services over the period the services are provided. 2. INCOME TAXES Components of income tax expense for the year ended December 31, 1995 were: Deferred: State............................................................................ $ 11,666 Federal.......................................................................... 36,511 --------- $ 48,177 --------- ---------
Differences between the provision for income taxes at the federal statutory rate and the recorded provision for the year ended December 31, 1995 are summarized as follows: Benefit at statutory rate......................................................... $ (13,610) State income taxes................................................................ (2,590) Net operating loss carryforward for which no benefit could be recognized under United's tax allocation policy.................................................. 60,368 Other............................................................................. 4,009 --------- $ 48,177 --------- ---------
As of December 31, 1995, EDI had no federal and state tax loss carryforwards. Under a tax sharing agreement, tax loss carryforwards are not available to EDI because United has already realized these tax benefits in its prior years, consolidated federal and state returns. 3. EMPLOYEE STOCK OWNERSHIP PLAN EDI employees participate in United's unleveraged Employee Stock Ownership Plan ("ESOP") maintained for the benefit of all eligible employees. United contributions are made at the discretion of the Board of Directors. Contributions totaling $3,700 for the year ended December 31, 1995, have been made to the ESOP for EDI employees. F-38 EDI SERVICES GROUP (A DIVISION OF UNITED HEALTHCARE CORPORATION) NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1995 4. RELATED PARTIES Revenue from processing transactions and site licensing for United and its affiliates comprises approximately 98% of total revenue for the year ended December 31, 1995, and was approximately $4,056,000 for the year then ended. EDI utilizes various common corporate systems and support maintained by United. The related costs are charged to EDI based on specific allocation methods, if applicable, and are based on employee headcount. These functions include human resources, accounting, legal, other processing and administrative services, and building rent. The total amounts allocated to EDI were approximately $438,000 for the year ended December 31, 1995. United's management believes that these allocations are reasonable; however, these allocations would not necessarily represent the amounts that would have been incurred on a separate company basis. 5. SUBSEQUENT EVENTS On March 1, 1996, United and UHC Green (renamed "EDI Services, Inc.") entered into an agreement with ActaMed and EDI Acquisition, Inc. (a subcorporation of ActaMed). This agreement allows for the acquisition of EDI Services, Inc. by ActaMed pursuant to the merger of EDI Acquisition, Inc. with and into EDI Services, Inc. effective March 31, 1996. The outstanding shares of capital stock of EDI Services, Inc. were converted into 10,344,828 shares of ActaMed's Series C convertible redeemable preferred stock. F-39 [LOGO] THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS (SUBJECT TO COMPLETION) ISSUED , 1999 SHARES [LOGO] COMMON STOCK ----------------- HEALTHEON CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. ------------------- WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "HLTH." ------------------- INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4. ----------------- PRICE $ A SHARE -----------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS COMPANY --------- ------------- ----------- PER SHARE.................................................................. $ $ $ TOTAL...................................................................... $ $ $
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. HEALTHEON HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999. ------------------- MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS INTERNATIONAL HAMBRECHT & QUIST VOLPE BROWN WHELAN & COMPANY , 1999 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of common stock being registered. All amounts are estimates except the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
AMOUNT TO BE PAID ------------ Securities and Exchange Commission registration fee............................. $ 9,730 NASD filing fee................................................................. 4,000 Nasdaq National Market listing fee.............................................. 95,000 Printing and engraving expenses................................................. 500,000 Professional fees and expenses.................................................. 1,550,000 Blue Sky fees and expenses...................................................... 5,000 Transfer agent fees............................................................. 5,000 Miscellaneous................................................................... 31,270 ------------ Total......................................................................... $ 2,200,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. Article V of the Registrant's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law. Article VI of the Registrant's Bylaws provides for the indemnification of officers and directors (and allows the Registrant to indemnify other employees and third parties) acting on behalf of the Registrant if such person acted in good faith and in a manner reasonably believed to be in and not opposed to the best interest of the Registrant, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful. The Registrant intends to enter into indemnification agreements with its directors and executive officers, in addition to indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. The Registrant intends to obtain directors' and officers' insurance providing indemnification for certain of the Registrant's directors, officers and employees for certain liabilities. Reference is also made to Section 7 of the Underwriting Agreement to be filed as Exhibit 1.1 to the Registration Statement for information concerning the Underwriters' obligation to indemnify the Registrant and its officers and directors in certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (a) From its founding in December 1995, through August 31, 1998, the Registrant has issued and sold the following unregistered securities: (1) Between January 26 and August 15, 1996, the Registrant sold an aggregate of 10,285,000 shares of Series A preferred stock to 22 investors at a purchase price of $.50 per share, which was paid in cash. II-1 (2) On January 26, 1996, the Registrant sold 1,000,000 shares of common stock to four investors at a purchase price of $.05 per share, which was paid in cash. (3) On July 8, 1996, the Registrant sold 10,000 shares of Series A preferred stock valued at $5,000 to a consulting firm for services rendered. (4) Between October 1 and November 27, 1996, the Registrant sold an aggregate of 3,000,000 shares of Series B preferred stock to five investors at a purchase price of $2.00 per share, which was paid in cash. (5) On November 1, 1996, the Registrant issued warrants to purchase (i) 1,000,000 shares of Series B preferred stock with an exercise price of $2.00 per share to KPCB VII Associates, L.P., in consideration of services rendered by David Schnell as President and Chief Executive Officer with a value of $504,900 and (ii) 1,000,000 shares of Series B preferred stock with an exercise price of $2.00 per share to Clark Ventures as an incentive for James H. Clark to continue to provide services. (6) On July 1, 1997, the Registrant issued warrants to purchase a total of 61,947 shares of Series B preferred stock with an exercise price of $2.00 per share to five investors pursuant to a bridge loan financing. (7) Between July 1 and July 27, 1997, the Registrant sold an aggregate of 2,600,000 shares of Series C preferred stock to nine investors at a purchase price of $2.50 per share, in consideration of cash and cancellation of indebtedness incurred in connection with a bridge loan financing. (8) Between July 7 and July 16, 1997, the Registrant sold 25,000 shares of Series B preferred stock to the same consulting firm referred to in (3) above at a purchase price of $2.00 per share for services rendered. (9) On July 11, 1997, the Registrant sold 10,000 shares of Series A preferred stock valued at $5,000 to the same consulting firm referred to in (3) above for services rendered. (10) On July 11, 1997, the Registrant sold 250,000 shares of Series B preferred stock to W. Michael Long at a purchase price of $2.00 per share, paid with an amount of cash equal to the par value of the purchased shares and with a promissory note that has subsequently been paid in full for the remainder. (11) On July 11, 1997, the Registrant issued a warrant to purchase 750,000 shares of Series B preferred stock with an exercise price of $2.00 per share to W. Michael Long as an incentive to continue to provide services. (12) On July 22, 1997, the Registrant sold 15,000 shares of Series B preferred stock to Hugh Reinhuff, a former Director, at a purchase price of $2.00 per share, which was paid in cash. (13) Between October 17 and December 19, 1997, the Registrant sold an aggregate of 4,807,692 shares of Series D preferred stock to 13 investors at a purchase price of $5.20 per share, which was paid in cash. (14) On May 1, 1998, the Registrant issued 1,000,000 shares of Series B preferred stock to Clark Ventures and 17,229 shares of Series B preferred stock to James H. Clark upon the exercise of warrants with exercise prices of $2.00 per share which were paid in cash. (15) On May 19, 1998, in connection with the acquisition of ActaMed Corporation, 22,019,921 shares of the Registrant's preferred stock were converted into common stock on a one-for-one basis and warrants to purchase 1,794,718 shares of the Registrant's preferred stock were exchanged for warrants to purchase an equal number of shares of common stock. II-2 (16) On May 19, 1998, in connection with the ActaMed acquisition, the Registrant assumed options to purchase ActaMed common stock which were held by former ActaMed employees which are now exercisable for an aggregate of 3,100,489 shares of Registrant's common stock. (17) On May 19, 1998, the Registrant issued 23,271,355 shares of its common stock to former shareholders of ActaMed in connection with the acquisition of ActaMed Corporation ("ActaMed") in exchange for all of the issued and outstanding shares of capital stock of ActaMed. (18) On May 19, 1998, in connection with the acquisition of ActaMed, the Registrant assumed a warrant held by IBM to purchase shares of ActaMed capital stock which is now exercisable for an aggregate of 282,522 shares of Healtheon common stock with an exercise price of $7.97 per share. (19) On June 26, 1998, the Registrant sold 1,336,209 shares of common stock valued at $3.67 to SmithKline Labs in consideration for certain assets and licenses relating to SmithKline Labs. (20) Since January 1996, the Registrant has granted options to purchase 15,995,609 shares of Registrant's common stock to employees pursuant to the Company's 1996 Stock Plan. (21) From July 6, 1996 through December 31, 1998, the Company issued an aggregate of 6,108,770 shares of common stock as the result of exercises of options or stock purchase rights for aggregate consideration, in the form of cash and a promissory note, of approximately $4.1 million. (22) On August 25, 1998, the Registrant issued 1,600,000 shares of common stock valued at $12.8 million to Metis, LLC in connection with acquisition of certain assets of Metis, LLC of which 476,548 shares will be issued to employees pursuant to restricted stock purchase agreements subject to a lapsing right of repurchase, at the option of the Company, over the agreements' respective vesting periods. (23) On December 15, 1998 the Registrant issued to Beech Street Corporation a warrant to Purchase 500,000 shares of the Registrant's common stock at an exercise price of $10.40 per share as part of a service agreement. (24) On November 3 and November 6, 1998, the Registrant sold an aggregate of 7,683,341 shares of Series A preferred stock to 21 investors at a purchase price of $6.00 per share, which was paid in cash. (b) There were no underwriters, brokers or finders employed in connection with any of the transactions set forth above. (c) The transactions referred to in numbers 16-18 and 22 were exempt from registration pursuant to the provisions of Section 3(a)(10) of the Securities Act. The sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or, with respect to issuances to employees, Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments representing such securities issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about the Registrant. II-3 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS 1.1* Form of Underwriting Agreement. 2.0 Agreement and Plan of Reorganization, dated as of February 24, 1998, by and among the Registrant, MedNet Acquisition Corp. and ActaMed Corporation. 2.1 Agreement and Plan of Merger, dated as of March 1, 1996, by and among ActaMed Corporation, EDI Acquisition, Inc., UHC Green Acquisition, Inc. and United HealthCare Corporation, including amendment. 2.2 Asset Purchase Agreement, dated June 25, 1998, among the Registrant, Metis Acquisition Corp. and Metis, LLC. 3.1 Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect. 3.2 Form of Amended and Restated Certificate of Incorporation, to be filed prior to the closing of the offering made under this Registration Statement. 3.3 Bylaws of the Registrant, as currently in effect. 3.4 Form of Bylaws of the Registrant, to be adopted prior to the closing of the offering made under this Registration Statement. 4.1 Specimen Common Stock certificate. 5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, regarding the legality of the securities being issued. 10.1 Form of Indemnification Agreement to be entered into by the Registrant with each of its directors and executive officers. 10.2 1996 Stock Plan and form of Stock Option Agreement thereunder. 10.3 ActaMed Corp. 1997 Stock Option Plan 10.4 ActaMed Corp. 1996 Stock Option Plan 10.5 ActaMed Corp. 1995 Stock Option Plan 10.6 ActaMed Corp. 1994 Stock Option Plan. 10.7 ActaMed Corp. 1993 Class B Common Stock Option Plan. 10.8 ActaMed Corp. 1992 Stock Option Plan. 10.9 ActaMed Corp. 1996 Director Stock Option Plan, as amended. 10.10 Amended and Restated Investors' Rights Agreement dated as of May 19, 1998 among the Registrant and certain of the Registrant's security holders. 10.11 Lease Agreement, dated December 2, 1997, between Larvan Properties and Registrant, including addenda. 10.12 Lease Agreement, dated November 6, 1995, as amended, between ActaMed Corporation and ZML-Central Park, L.L.C., including addenda. 10.13+ Services and License Agreement, dated as of April 4, 1996, between ActaMed Corporation and United HealthCare Corporation. 10.14+ Services Agreement, dated as of December 31, 1997, as amended, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc. 10.15+ Assets Purchase Agreement, dated as of December 31, 1997, as amended, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc.
II-4 10.16+ License Agreement, dated as of December 31, 1997, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc. 10.17+ Development Agreement, dated as of October 31, 1997, as amended, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc. 10.18+ Services, Development and License Agreement, dated as of December 15, 1997, between the Registrant and Beech Street Corporation. 10.19+ Services, Development and License Agreement, dated as of September 30, 1997, between the Registrant and Brown & Toland Physician Services Organization. 10.20 Amended and Restated Securities Purchase Agreement, dated as of August 15, 1996, between the Registrant and investors. 10.21 Amended and Restated Series B Preferred Stock Purchase Agreement dated October 31, 1996, between Registrant and investors. 10.22 Form of Series B Preferred Stock Purchase Warrant between the Registrant and certain of the Registrant's investors. 10.23 Series C Preferred Stock Purchase Agreement dated July 25, 1997, between the Registrant and investors. 10.24 Series D Preferred Stock Purchase Agreement dated October 13, 1997, between the Registrant and investors. 10.25 Full Recourse Promissory Note dated as of July 11, 1997, between the Registrant and W. Michael Long. 10.26 Form of Promissory Note for Bridge Financing 10.27 W. Michael Long Employment Agreement 10.28 Michael Hoover Employment Agreement, as amended 10.29 1998 Employee Stock Purchase Plan 10.30 Series A Preferred Stock Purchase Agreement, dated as of October 31, 1998, between the Registrant and investors. 10.31*+ Asset Purchase Agreement, dated December 31, 1998, between the Registrant and SmithKline Beecham Clinical Laboratories, Inc. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP, independent auditors (see page II-8). 23.3 Consent of Deloitte & Touche LLP, independent auditors (see page II-9). 23.4 Consent of Deloitte & Touche LLP, independent auditors (see page II-10). 24.1 Power of Attorney (see page II-7). 27.1 Financial Data Schedule.
- --------- * To be filed by amendment. + Confidential treatment requested as to portions of this exhibit. II-5 (b) FINANCIAL STATEMENT SCHEDULES All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto. ITEM 17. UNDERTAKINGS (a) The undersigned hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on this 14th day of January, 1999. HEALTHEON CORPORATION BY: /S/ W. MICHAEL LONG ----------------------------------------- W. Michael Long CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints John L. Westermann III, Jack Dennison, and Kallen Chan, and any two of them, as attorneys-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendment to this Registration Statement (including post-effective amendments and registration statements filed pursuant to Rule 462 and otherwise), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact, and any two of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or any two of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- /s/ W. MICHAEL LONG Chief Executive Officer and - ------------------------------ Director (Principal January 14, 1999 W. Michael Long Executive Officer) /s/ JOHN L. WESTERMANN III Chief Financial Officer - ------------------------------ (Principal Financial and January 14, 1999 John L. Westermann III Accounting Officer) /s/ JAMES H. CLARK Chairman of the Board - ------------------------------ January 14, 1999 James H. Clark /s/ L. JOHN DOERR Director - ------------------------------ January 14, 1999 L. John Doerr /s/ MICHAEL HOOVER President and Director - ------------------------------ January 14, 1999 Michael Hoover Director - ------------------------------ January , 1999 C. Richard Kramlich Director - ------------------------------ January , 1999 William W. Mcguire, M.D. /s/ P. E. SADLER Director - ------------------------------ January 14, 1999 P. E. Sadler Director - ------------------------------ January , 1999 Tadataka Yamada II-7 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 27, 1998 (except Notes 1 and 2 as to which the date is September 26, 1998) with respect to the consolidated financial statements of Healtheon Corporation in the Registration Statement on Form S-1 and related Prospectus of Healtheon Corporation for the registration of shares of its common stock. /s/ Ernst & Young LLP Palo Alto, California January 13, 1999 II-8 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Healtheon Corporation on Form S-1 of our report dated June 20, 1997 (September 26, 1998 as to Note 1--Net Loss per Common Share, paragraph 2 and Note 2--Acquisition of EDI Services, Inc., paragraph 4), relating to the consolidated financial statements of ActaMed Corporation as of December 31, 1996 and for the two years then ended (the consolidated financial statements for 1996 are not separately presented herein) appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP Atlanta, Georgia January 13, 1999 II-9 EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Healtheon Corporation on Form S-1 of our report dated April 4, 1996, relating to the statements of divisional net loss and United's net investment and of divisional cash flows for the year ended December 31, 1995 of EDI Services Group (a Division of United HealthCare Corporation) appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota January 13, 1999 II-10 EXHIBIT INDEX
EXHIBIT SEQUENTIAL PAGE NUMBER DESCRIPTION NUMBER - --------- -------------------------------------------------------------------------------------- --------------- 1.1* Form of Underwriting Agreement. 2.0 Agreement and Plan of Reorganization, dated as of February 24, 1998, by and among the Registrant, MedNet Acquisition Corp. and ActaMed Corporation. 2.1 Agreement and Plan of Merger, dated as of March 1, 1996, by and among ActaMed Corporation, EDI Acquisition, Inc., UHC Green Acquisition, Inc. and United HealthCare Corporation, including amendment. 2.2 Asset Purchase Agreement, dated June 25, 1998, among the Registrant, Metis Acquisition Corp. and Metis, LLC. 3.1 Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect. 3.2 Form of Amended and Restated Certificate of Incorporation, to be filed prior to the closing of the offering made under this Registration Statement. 3.3 Bylaws of the Registrant, as currently in effect. 3.4 Form of Bylaws of the Registrant, to be adopted prior to the closing of the offering made under this Registration Statement. 4.1 Specimen Common Stock certificate. 5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, regarding the legality of the securities being issued. 10.1 Form of Indemnification Agreement to be entered into by the Registrant with each of its directors and executive officers. 10.2 1996 Stock Plan and form of Stock Option Agreement thereunder. 10.3 ActaMed Corp. 1997 Stock Option Plan 10.4 ActaMed Corp. 1996 Stock Option Plan 10.5 ActaMed Corp. 1995 Stock Option Plan 10.6 ActaMed Corp. 1994 Stock Option Plan. 10.7 ActaMed Corp. 1993 Class B Common Stock Option Plan. 10.8 ActaMed Corp. 1992 Stock Option Plan. 10.9 ActaMed Corp. 1996 Director Stock Option Plan, as amended. 10.10 Amended and Restated Investors' Rights Agreement dated as of May 19, 1998 among the Registrant and certain of the Registrant's securityholders. 10.11 Lease Agreement, dated December 2, 1997, between Larvan Properties and Registrant, including addenda. 10.12 Lease Agreement, dated November 6, 1995, as amended, between ActaMed Corporation and ZML-Central Park, L.L.C., including addenda. 10.13+ Services and License Agreement, dated as of April 4, 1996, between ActaMed Corporation and United HealthCare Corporation. 10.14+ Services Agreement, dated as of December 31, 1997, as amended, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc. 10.15+ Assets Purchase Agreement, dated as of December 31, 1997, as amended, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc.
EXHIBIT SEQUENTIAL PAGE NUMBER DESCRIPTION NUMBER - --------- -------------------------------------------------------------------------------------- --------------- 10.16+ License Agreement, dated as of December 31, 1997, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc. 10.17+ Development Agreement, dated as of October 31, 1997, as amended, between ActaMed Corporation and SmithKline Beecham Clinical Laboratories, Inc. 10.18+ Services, Development and License Agreement, dated as of December 15, 1997, between the Registrant and Beech Street Corporation. 10.19+ Services, Development and License Agreement, dated as of September 30, 1997, between the Registrant and Brown & Toland Physician Services Organization. 10.20 Amended and Restated Securities Purchase Agreement, dated as of August 15, 1996, between the Registrant and investors. 10.21 Amended and Restated Series B Preferred Stock Purchase Agreement dated October 31, 1996, between Registrant and investors. 10.22 Form of Series B Preferred Stock Purchase Warrant between the Registrant and certain of the Registrant's investors. 10.23 Series C Preferred Stock Purchase Agreement dated July 25, 1997, between the Registrant and investors. 10.24 Series D Preferred Stock Purchase Agreement dated October 13, 1997, between the Registrant and investors. 10.25 Full Recourse Promissory Note dated as of July 11, 1997, between the Registrant and W. Michael Long. 10.26 Form of Promissory Note for Bridge Financing 10.27 W. Michael Long Employment Agreement 10.28 Michael Hoover Employment Agreement, as amended 10.29 1998 Employee Stock Purchase Plan 10.30 Series A Preferred Stock Purchase Agreement, dated as of October 31, 1998, between the Registrant and investors. 10.31*+ Asset Purchase Agreement, dated December 31, 1998, between the Registrant and SmithKline Beecham Clinical Laboratories, Inc. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP, independent auditors (see page II-8). 23.3 Consent of Deloitte & Touche LLP, independent auditors (see page II-9). 23.4 Consent of Deloitte & Touche LLP, independent auditors (see page II-10). 24.1 Power of Attorney (see page II-7). 27.1 Financial Data Schedule.
- --------- * To be filed by amendment. + Confidential treatment requested as to portions of this exhibit. EX-2.0 2 EX-2.0 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG HEALTHEON CORPORATION, MEDNET ACQUISITION CORP. AND ACTAMED CORPORATION DATED AS OF FEBRUARY 24, 1998 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Maximum Shares to Be Issued; Effect on Capital Stock. . . . . . . . . . . . . . 3 1.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.8 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.9 No Further Ownership Rights in Company Common Stock . . . . . . . . . . . . . . 7 1.10 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . . . . . . . . . . 7 1.11 Tax and Accounting Consequences . . . . . . . . . . . . . . . . . . . . . . . . 7 1.12 Taking of Necessary Action; Further Action. . . . . . . . . . . . . . . . . . . 7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . . 8 2.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 2.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .10 2.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 2.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . .12 2.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . .14 2.10 Title to Properties; Absence of Liens and Encumbrances. . . . . . . . . . . . .14 2.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 2.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . .16 2.13 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . .18 2.14 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2.17 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 2.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 2.19 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . . . . . . . . .19 2.20 Employee Matters and Benefit Plans. . . . . . . . . . . . . . . . . . . . . . .20 2.21 Accounting and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . .23 2.22 Representations Complete. . . . . . . . . . . . . . . . . . . . . . . . . . . .24 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . . . .24 3.1 Organization of Parent and Merger Sub . . . . . . . . . . . . . . . . . . . . .24 3.2 Parent and Merger Sub Capital Structure . . . . . . . . . . . . . . . . . . . .24 i 3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 3.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .27 3.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 3.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . .29 3.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . .30 3.10 Title to Properties; Absence of Liens and Encumbrances. . . . . . . . . . . . .30 3.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 3.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . .32 3.13 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . .33 3.14 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 3.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 3.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 3.17 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 3.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 3.19 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . . . . . . . . .35 3.20 Employee Matters and Benefit Plans. . . . . . . . . . . . . . . . . . . . . . .35 3.21 Accounting and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . .39 3.22 Representations Complete. . . . . . . . . . . . . . . . . . . . . . . . . . . .39 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . .39 4.1 Conduct of Business of the Company. . . . . . . . . . . . . . . . . . . . . . .39 4.2 No Company Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 4.3 No Parent or Merger Sub Solicitation. . . . . . . . . . . . . . . . . . . . . .45 ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 5.1 California Permit; Company Shareholder and Parent Stockholder Approvals . . . .46 5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 5.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 5.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 5.5 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 5.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 5.7 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 5.8 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 5.9 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . .48 5.10 Certain Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 5.11 Accounting and Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . .48 5.12 Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . .49 5.13 Company's Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 5.14 Parent's Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 5.15 Agreement of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 5.16 Amendment of Parent Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . .49 5.17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 ii ARTICLE VI CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . .50 6.1 Conditions to Obligations of Each Party to Effect the Merger. . . . . . . . . .50 6.2 Additional Conditions to Obligations of the Company . . . . . . . . . . . . . .52 6.3 Additional Conditions to the Obligations of Parent and Merger Sub . . . . . . .54 ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . .55 7.1 Non-Survival of Representations and Warranties. . . . . . . . . . . . . . . . .55 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . . . .55 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 9.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 9.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 9.4 Entire Agreement; Assignment. . . . . . . . . . . . . . . . . . . . . . . . . .58 9.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 9.6 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 9.8 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 9.9 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
iii INDEX OF EXHIBITS
EXHIBIT DESCRIPTION - ------- ----------- EXHIBIT A Company Schedules EXHIBIT B Parent and Merger Sub Schedules EXHIBIT C Form of Parent Affiliate Agreement EXHIBIT D Form of Voting Agreement EXHIBIT E Form of Company Affiliate Agreement EXHIBIT F Merger Agreement Schedules
iv INDEX OF SCHEDULES
SCHEDULE DESCRIPTION - -------- ----------- 4.1(a) Exceptions to Company Conduct 4.1(b) Exceptions to Parent Conduct 6.3(j) Company Required Consents
v AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and entered into as of February 24, 1998 among Healtheon Corporation, a Delaware corporation ("PARENT"), MedNet Acquisition Corp., a Georgia corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and ActaMed Corporation, a Georgia corporation (the "COMPANY"). RECITALS A. The Boards of Directors of each of the Company, Parent and Merger Sub believe it is in the best interests of each Company and their respective shareholders that Parent acquire the Company through the statutory merger of Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof, have approved the Merger. B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding shares of capital stock of the Company ("COMPANY CAPITAL STOCK") and all outstanding options, warrants or other rights to acquire or receive shares of Company Capital Stock shall be converted into the right to receive shares of voting Common Stock of Parent ("PARENT COMMON STOCK"). C. It is the intention of the parties to this Agreement that the Merger for federal income tax purposes shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and for accounting purposes shall qualify for treatment as a pooling of interests. D. The Company, Parent and Merger Sub desire to make certain representations and warranties and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I THE MERGER 1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW") and Georgia Business Corporation Code ("GEORGIA LAW"), Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION." The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of Directors of the Company, Merger Sub and Parent, and by Parent, as the sole shareholder of Merger Sub. 1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "CLOSING") will take place as promptly as practicable, but no later than five (5) business days, following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Wilson Sonsini Goodrich & Rosati ("WSGR"), 650 Page Mill Road, Palo Alto, California, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "CLOSING DATE." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing the Articles of Merger (or like instrument) with the Secretary of State of the State of Georgia (the "CERTIFICATE OF MERGER"), in accordance with the relevant provisions of applicable law (the time of acceptance by the Secretary of State of Georgia of such filing being referred to herein as the "EFFECTIVE TIME"). The parties currently intend that the Closing Date will occur on or prior to May 15, 1998. 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Georgia Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 ARTICLES OF INCORPORATION; BYLAWS. (a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Articles of Incorporation of Merger Sub shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Articles of Incorporation; provided, however, that Article I of the Articles of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is ActaMed Corporation." (b) Unless otherwise determined by Parent, the Bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5 DIRECTORS AND OFFICERS. As promptly as practicable following the Effective Time, unless otherwise unanimously agreed to by Parent's Board of Directors, the board of directors of Merger Sub shall be comprised of an equal number of representatives from each of the Company and of Parent, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation. 2 1.6 MAXIMUM SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. The maximum number of shares of Parent Common Stock to be issued (including Parent Common Stock to be reserved for issuance upon exercise of any of the Company's stock options or other securities convertible into, exchangeable for or exercisable for Company Capital Stock to be assumed by Parent) in exchange for the acquisition by Parent of all outstanding Company Capital Stock and all unexpired and unexercised options, warrants or other rights to acquire Company Capital Stock shall be the Aggregate Share Number (as defined in Section 1.6(g)(iii)). No adjustment shall be made in the number of shares of Parent Common Stock issued in the Merger as a result of any cash proceeds received by the Company from the date hereof to the Effective Time pursuant to the exercise of options, warrants or other rights to acquire Company Capital Stock. Subject to the terms and conditions of this Agreement, as of the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or the holder of any shares of the Company Capital Stock, the following shall occur: (a) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Capital Stock (including any shares of Common Stock of the Company ("COMPANY COMMON STOCK") issued upon conversion of Preferred Stock of the Company ("COMPANY PREFERRED STOCK") and upon exercise, conversion or exchange of all other outstanding securities immediately prior to the Closing) issued and outstanding immediately prior to the Effective Time (other than any shares of Company Capital Stock to be canceled pursuant to Section 1.6(b) and any Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will be canceled and extinguished and be converted automatically into the right to receive that number of shares of Parent Common Stock equal to the Exchange Ratio (as defined in Section 1.6(g)(iv) below), upon surrender of the certificate representing such share of Company Common Stock in the manner provided in Section 1.8. (b) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each share of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct or indirect wholly-owned subsidiary of Parent or the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (c) STOCK OPTIONS. At the Effective Time, all options to purchase Company Common Stock then outstanding under the Company's Option Plans or otherwise shall be assumed by Parent in accordance with provisions described below. "Option Plans" means collectively the Company's 1997 Stock Option Plan, 1996 Stock Option Plan, 1996 Directors Stock Option Plan, 1995 Stock Option Plan, 1994 Stock Option Plan, 1993 Stock Option Plan and 1992 Stock Option Plan. (i) At the Effective Time, each outstanding option and warrant to purchase shares of Company Common Stock (each a "COMPANY OPTION") under the Option Plans or otherwise, whether vested or unvested, shall be, in connection with the Merger, assumed by Parent. Each Company Option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions set forth in the Option Plans and/or as provided in the 3 respective option agreements governing such Company Option immediately prior to the Effective Time, except that (A) such Company Option shall be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down (in the case of Company Options granted under the Option Plan) to the nearest whole number of shares of Parent Common Stock, (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Option shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent, and (C) Parent and its Board of Directors shall be substituted for the Company and the Committee of the Company's Board of Directors (including, if applicable, the entire Board of Directors of the Company) administering such Company Stock Plan. (ii) Promptly following the Effective Time, Parent will issue to each holder of an outstanding Company Option a document evidencing the foregoing assumption of such Company Option by Parent. At or prior to the Effective Time, Parent shall take all corporate action necessary to reserve for issuance sufficient shares of Parent Common Stock for delivery upon exercise of Company Options assumed by it in accordance with this Section 1.6. (d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. (e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be equitably adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof and prior to the Effective Time. Any such change for which a record date is established shall be deemed for the purposes of this Section 1.6(e) to have occurred on the record date. (f) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock will be issued. (g) DEFINITIONS. (i) COMPANY FULLY DILUTED CAPITALIZATION NUMBER. The "Company Fully-Diluted Capitalization Number" shall mean all of the issued and outstanding shares of the Company Common Stock as of the Effective Time calculated on a fully-diluted basis as if all outstanding convertible securities had been fully converted and all outstanding warrants, options and other rights 4 for the purchase of shares of Company Common Stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into Company Common Stock, if so convertible) as of such date. (ii) PARENT FULLY-DILUTED CAPITALIZATION NUMBER. The "Parent Fully-Diluted Capitalization Number" shall mean all of the issued and outstanding shares of Parent Common Stock as of the Effective Time calculated on a fully-diluted basis as if all outstanding convertible securities had been fully converted and all outstanding warrants, options and other rights for the purchase of shares of Parent Common Stock or convertible securities had been fully exercised immediately prior to such issuance (and the resulting securities fully converted into Parent Common Stock, if so convertible) as of such date. (iii) AGGREGATE SHARE NUMBER. The "Aggregate Share Number" shall mean the number of shares of Parent Common Stock equal to (a) the Parent Fully Diluted Capitalization Number multiplied by (b) 44.68 divided by (c) 55.32. (iv) EXCHANGE RATIO. The "Exchange Ratio" shall mean the quotient obtained by dividing (x) the Aggregate Share Number by (y) the Company Fully Diluted Capitalization Number. 1.7 DISSENTING SHARES. (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder who has demanded and perfected dissenters' rights for such shares in accordance with Georgia Law and who, as of the Effective Time, has not effectively withdrawn or lost such dissenters' rights ("DISSENTING SHARES") shall not be converted into or represent a right to receive Parent Common Stock pursuant to Section 1.6, but the holder thereof shall only be entitled to receive payment in cash for the fair value of such holder's shares as determined pursuant to the applicable provisions of Georgia Law; provided, that no such payment shall be made to any dissenting shareholder unless and until such dissenting shareholder has complied with the applicable provisions of Georgia Law and surrendered to the Company the certificate or certificates representing the Dissenting Shares. (b) Notwithstanding the provisions of subsection (a), if any holder of shares of Company Capital Stock who demands appraisal of such shares under Georgia Law shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive Parent Common Stock as provided in Section 1.6, without interest thereon, upon surrender of the certificate representing such shares. (c) The Company shall give Parent (i) prompt notice of any written notice by any shareholder of intent to demand payment for such shareholder's shares of Company Capital Stock, 5 withdrawals of such demands, and any other instruments served pursuant to Georgia Law and received by the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for dissenters' rights under Georgia Law. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any demands for dissenters' rights or offer to settle or settle any such demands. 1.8 SURRENDER OF CERTIFICATES. (a) EXCHANGE AGENT. WSGR shall serve as the exchange agent (the "EXCHANGE AGENT") in the Merger. (b) PARENT TO PROVIDE COMMON STOCK. Immediately prior to the Effective Time, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I, certificates representing the aggregate number of shares of Parent Common Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of Company Capital Stock. (c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates (the "CERTIFICATES") which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock and which shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Parent Common Stock, to which such holder is entitled pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be canceled and the holder thereof shall no longer have any rights with respect to such Certificate. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the ownership of the number of full shares of Parent Common Stock into which such shares of Company Capital Stock shall have been so converted. (d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions with respect to Parent Common Stock declared or made after the Effective Time and with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole 6 shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock. (e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (f) NO LIABILITY. Notwithstanding anything to the contrary in this Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof (including any cash paid in respect thereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates evidencing shares of Company Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock as may be required pursuant to Section 1.6; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto that the Merger shall (i) constitute a reorganization within the meaning of Section 368 of the Code and (ii) qualify for accounting treatment as a pooling of interests. 1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to 7 vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Merger Sub, subject to such exceptions as are specifically disclosed in the disclosure schedules (referencing the appropriate section number or subsection, as the case may be) supplied by the Company to Parent attached hereto as EXHIBIT A (the "COMPANY SCHEDULES") and dated as of the date hereof, as follows: 2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia. The Company has the corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of the Company (hereinafter referred to as a "COMPANY MATERIAL ADVERSE EFFECT"). The Company has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to Parent. 2.2 COMPANY CAPITAL STRUCTURE. (a) The authorized capital stock of the Company consists of 50,000,000 shares of authorized Common Stock, of which 9,384,200 shares are issued and outstanding; 8,800,880 shares of authorized Series A Preferred Stock, all of which are issued and outstanding; 3,448,276 shares of authorized Series B Preferred Stock, all of which are issued and outstanding; 10,344,828 shares of authorized Series C Preferred Stock, all of which are issued and outstanding; and 7,043,478 shares of authorized Series D Preferred Stock, of which 3,695,652 are issued and outstanding and the balance of which may be issued pursuant to the Asset Purchase Agreement between the Company and SmithKline Beecham Clinical Laboratories, Inc. ("SBCL") dated as of December 31, 1997 (the "SBCL ASSETS PURCHASE AGREEMENT"). The Company Capital Stock is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.2(a). All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. (b) The Company has reserved 6,061,238 shares of Common Stock for issuance to directors, employees and consultants pursuant to the Option Plans, of which 5,173,615 shares are 8 subject to outstanding, unexercised options and 887,623 shares remain available for future grant. The Company has reserved 30,087,912 shares of Common Stock for issuance upon the conversion, exercise or exchange of any outstanding securities and 450,450 shares subject to a warrant issued to IBM (each referred to herein as a "COMPANY CONVERTIBLE SECURITY"). All of the Company Convertible Securities and Company Options have been duly authorized and validly issued, as applicable, in accordance with the applicable terms of the Option Plans and Blue Sky laws. Schedule 2.2(b) sets forth for each outstanding Company Option or Company Convertible Security the name of the holder of such option or Company Convertible Security, the domicile address of such holder, the number of shares of Common Stock subject to such option or Company Convertible Security, the exercise price of such option or Company Convertible Security and the vesting schedule for such option or Company Convertible Security, including the extent vested to date and whether the exercisability of such option or Company Convertible Security will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except for the Company Options and Company Convertible Securities described in Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. The holders of Company Options and Company Convertible Securities have been or will be given, or shall have properly waived, any required notice prior to the Merger, and all such rights will be terminated at or prior to the Effective Time. As a result of the Merger, Parent will be the record and sole beneficial owner of all capital stock of the Company and rights to acquire or receive such capital stock. 2.3 SUBSIDIARIES. The Company does not have and has never had any subsidiaries and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 2.4 AUTHORITY. Subject only to the requisite approval of the Merger and this Agreement by the Company's shareholders, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The vote required of the Company's shareholders to duly approve the Merger and this Agreement is set forth on Schedule 2.4. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval of the Merger by the Company's shareholders. The Company's Board of Directors has unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or 9 injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Except as set forth on Schedule 2.4, subject only to the approval of the Merger and this Agreement by the Company's shareholders, the execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "COMPANY CONFLICT") (i) any provision of the Articles of Incorporation or Bylaws of the Company or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any Company Conflict) is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Agreement of Merger with the Georgia Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws (iii) such notices or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans or under the HSR Act, and (iv) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 2.4. 2.5 FINANCIAL STATEMENTS. Schedule 2.5 sets forth the Company's unaudited balance sheet as of December 31, 1997, and the related unaudited statement of operations for the twelve month period ended December 31, 1997 (the "COMPANY UNAUDITED FINANCIALS"), and the audited balance sheet as of December 31, 1996, and the related audited statement of operations for the twelve-month period ended December 31, 1996 (the "COMPANY AUDITED FINANCIALS") (collectively, such financial statements are sometimes referred to herein as "COMPANY FINANCIAL STATEMENTS"). The Company Unaudited Financials and the Company Audited Financials have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other (except that the Company Unaudited Financials do not contain all the notes that may be required by GAAP, and may require subsequent reclassification for proper recording of the accounting treatment of the acquisition of the SBCL SCAN business. As of the date hereof, the final accounting treatment of that transaction has not been determined). The Company Unaudited Financials and Company Audited Financials present fairly the financial condition, operating results and, in the case of Company Audited Financials only, the cash flows of the Company as of the dates and during the periods indicated therein, subject in the case of the Company Unaudited Financials, to normal year-end adjustments, which will not be material in amount or significance except for the effects of reclassification that may be required by the final accounting treatment of the SBCL SCAN acquisition. The Company's unaudited balance sheet dated as of December 31, 1997, shall be referred to as the "COMPANY CURRENT BALANCE SHEET". 10 2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, the Company does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the Company Current Balance Sheet, or (ii) has not arisen in the ordinary course of the Company's business since the date of the Company Current Balance Sheet, consistent with past practices. 2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of the Company Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by the Company except in the ordinary course of business as conducted as of the date of the Company Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Articles of Incorporation or Bylaws of the Company; (c) capital expenditure or commitment by the Company, either individually or in the aggregate, exceeding $25,000; (d) destruction of, damage to or loss of any material assets, business or customer of the Company (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company; (g) revaluation by the Company of any of its assets (other than as may be required by the final accounting of the SBCL SCAN business); (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of its officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement or in the ordinary course of business and consistent with past practices and Schedule 2.7(i) lists all salary increases in excess of 10% and any bonus or other compensation arrangement exceeding $10,000; 11 (j) sale, lease, license or other disposition of any of the assets or properties of the Company, except in the ordinary course of business and consistent with past practices; (k) material amendment or termination of any material contract, agreement or license to which the Company is a party or by which it is bound; (l) loan by the Company to any person or entity, incurring by the Company of any indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the Company or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (m) waiver or release of any right or claim of the Company, including any write-off or other compromise of any account receivable of the Company; (n) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of the Company or its affairs; (o) notice of any claim of ownership by a third party of the Company's Intellectual Property (as defined in Section 2.11 below) or of infringement by the Company of any third party's Intellectual Property rights; (p) issuance or sale by the Company of any of its shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities; (q) change in pricing or royalties set or charged by the Company to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to the Company; (r) event or condition of any character that has or could be reasonably expected to have a Company Material Adverse Effect on the Company; or (s) negotiation or agreement by the Company or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (r) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement). 2.8 TAX AND OTHER RETURNS AND REPORTS. (a) DEFINITIONS. (i) "TAX" or, collectively, "TAXES", means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, 12 and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (ii) "KNOWLEDGE" as used herein shall mean the personal knowledge (including references to such person being aware of a particular matter), after reasonable inquiry, of, (a) in the case of the Company, P.E. Sadler, Michael K. Hoover, Lew Belote, Nancy J. Ham, J. Philip Hardin, J.R. Hughes and (to the extent not already identified in the foregoing list) all directors of the Company on the date of this Agreement, and (b) in the case of Parent, Jim Clark, W. Michael Long, Kallen Chan, Pavan Nigam, Dennis Drislane, Chuck Saunders, Denise M. Shea, Ron Alvarez and (to the extent not already identified in the foregoing list) all directors of Parent on the date of this Agreement. (b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8: (i) The Company as of the Effective Time will have prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("RETURNS") due on or before the Effective Time relating to any and all Taxes concerning or attributable to the Company or its operations and such Returns are or will be prior to filing true and correct in all material respects and have been completed in accordance with applicable law. (ii) The Company as of the Effective Time: (A) will have paid (if due on or before the Effective Time) or accrued on the Company Current Balance Sheet all Taxes it is required to pay, or which are attributable to the period ending December 31, 1997 and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, assessed, or to its Knowledge proposed against the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company is currently in progress, nor has the Company been notified of any request for such an audit or other examination. (v) The Company does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved for in accordance with GAAP on the Company Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the Company has no Knowledge of any basis for the assertion of any such liability attributable to the Company, its assets or operations. 13 (vi) The Company has provided to Parent or has made available to representatives of Parent for inspection copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of Company's incorporation. (vii) There are (and as of immediately following the Effective Date there will be) no liens, pledges, charges, claims, security interests or other encumbrances of any sort on the assets ("LIENS") of the Company relating to or attributable to Taxes. (viii) The Company has no Knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the Company. (ix) None of the Company's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) As of the Effective Time, there will not be any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or 162 of the Code. (xi) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xii) The Company is not a party to a tax sharing or allocation agreement nor does the Company owe any amount under any such agreement. (xiii) The Company is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) Since December 31, 1997 no taxes have been incurred except in the ordinary course of business. 2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company which has or reasonably could be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company or the conduct of business by the Company. Without limiting the foregoing, the Company has not entered into any agreement under which the Company is restricted from developing, selling, licensing, marketing, promoting or otherwise distributing any products, services or technology to any class of customers, or entering into any strategic alliances, in any geographic area, during any period of time or in any segment of the market. 14 2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. (a) The Company owns no real property, nor has it ever owned any real property. Schedule 2.10(a) sets forth a list of all real property currently leased by the Company, the name of the lessor, the date of the lease and each amendment thereto and the aggregate annual rental and/or other fees payable under any such lease and any security interest in the Company's assets created by such lease. All such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). (b) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the Company Financial Statements or in Schedule 2.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.11 INTELLECTUAL PROPERTY. (a) The Company owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material that are used in the business of the Company as currently conducted or as proposed to be conducted by the Company (the "COMPANY INTELLECTUAL PROPERTY RIGHT(S)"). Schedule 2.11(a) sets forth a complete list of all patents, registered and material unregistered trademarks, registered copyrights, trade names and service marks, and any applications therefor, included in the Company Intellectual Property Rights, and specifies, where applicable, the jurisdictions in which each such Company Intellectual Property Right has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers and the names of all registered owners. (b) Schedule 2.11(b) sets forth a complete list of all licenses, sublicenses and other agreements to which the Company is a party and pursuant to which the Company or any other person is authorized to use any Company Intellectual Property Right (excluding object code end-user licenses granted to end-users in the ordinary course of business that permit use of software products without a right to modify, distribute or sublicense the same ("END-USER LICENSES")) or trade secret of the Company, and includes the identity of all parties thereto, a description of the nature and subject matter thereof, the applicable royalty or other fees and the term thereof. The execution and delivery of this Agreement by the Company, and the consummation of the transactions contemplated hereby, will neither cause the Company to be in violation or default under any such license, sublicense or agreement, nor entitle any other party to any such license, sublicense or agreement to terminate or 15 modify such license, sublicense or agreement. Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is the sole and exclusive owner or licensee of, with all right, title and interest in and to (free and clear of any liens or encumbrances), the Company Intellectual Property Rights, and has sole and exclusive rights (and is not contractually obligated to pay any compensation to any third party in respect thereof) to the use thereof or the material covered thereby in connection with the services or products in respect of which the Company Intellectual Property Rights are being used. (c) No claims with respect to the Company Intellectual Property Rights have been asserted or are, to the Company's Knowledge, threatened by any person, nor are there any valid grounds for any claims (i) to the effect that the manufacture, sale, licensing or use of any of the products of the Company infringes on any copyright, patent, trade mark, service mark, trade secret or other proprietary right, (ii) against the use by the Company of any trademarks, service marks, trade names, trade secrets, copyrights, maskworks, patents, technology, know-how or computer software programs and applications used in the Company's business as currently conducted or as proposed to be conducted by the Company, or (iii) challenging the ownership by the Company, validity or effectiveness of any of the Company Intellectual Property Rights. All registered trademarks, service marks and copyrights held by the Company are valid and subsisting. The Company has not infringed, and the business of the Company as currently conducted or as proposed to be conducted does not infringe, any copyright, patent, trademark, service mark, trade secret or other proprietary right of any third party. There is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, including any employee or former employee of the Company. No Company Intellectual Property Right or product of the Company or any of its subsidiaries is subject to any outstanding decree, order, judgment, or stipulation restricting in any manner the licensing thereof by the Company. Each employee, consultant or contractor of the Company has executed a proprietary information and confidentiality agreement substantially in the Company's standard forms. Except for software licensed to the Company, all software included in the Company Intellectual Property Rights (i) is original with the Company and has been either created by employees of the Company on a work-for-hire basis or by consultants or contractors who have created such software themselves and have assigned all rights they may have had in such software to the Company, or (ii) was acquired by the Company and the seller of such software made representations substantially similar to those contained in (i) in connection with the acquisition of such software. 2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 2.12(a), the Company does not have, is not a party to nor is it bound by: (i) any collective bargaining agreements, (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations, (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements, 16 (iv) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any consulting or sales agreement, contract or commitment under which any firm or other organization provides services to the Company, (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (vi) any fidelity or surety bond or completion bond, (vii) any lease of personal property having a value individually in excess of $25,000, (viii) any agreement of indemnification or guaranty, (ix) any agreement, contract or commitment containing any covenant limiting the freedom of the Company to engage in any line of business or to compete with any person, (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $25,000, (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of the Company's business, (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof, (xiii) any purchase order or contract for the purchase of raw materials involving $25,000 or more, (xiv) any construction contracts, (xv) any distribution, joint marketing or development agreement, 17 (xvi) any agreement pursuant to which the Company has granted or may be required to grant in the future, to any party, a source-code license or option or other right to use or acquire source-code, or (xvii) any other agreement, contract or commitment that involves $25,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are noted in Schedule 2.12(b), the Company has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.12(a) or Schedule 2.11(b) (any such agreement, contract or commitment, a "COMPANY CONTRACT"). Each Company Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any default thereunder of which the Company has Knowledge by any party obligated to the Company pursuant thereto. 2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13, (i) no officer, director or, to the Knowledge of the Company (without any duty to investigate), any shareholder of the Company has, directly or indirectly, an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells, or proposes to furnish or sell, (ii) no officer or director, or to the Knowledge of the Company (without any duty to investigate), any shareholder of the Company has, directly or indirectly, an economic interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services or (iii) no officer, director or shareholder of the Company has, directly or indirectly, a beneficial interest in any contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.13. For the purposes of this subsection, "officer" and "director" shall include any parent, child, sibling or spouse of any of such persons, or any trust, partnership or corporation in which such officer or director has a controlling interest. 2.14 COMPLIANCE WITH LAWS. The Company has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action, suit or proceeding of any nature pending or to the Company's Knowledge threatened against the Company, its properties or any of its officers or directors in their respective capacities as such. Except as set forth in schedule 2.15, to the Company's Knowledge, there is no investigation pending or threatened against the Company, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 2.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of the Company to manufacture, offer or sell any of its products in the present manner or style thereof. 2.16 INSURANCE. Set forth on Schedule 2.16 is a list of all of the Company's insurance policies and fidelity bonds. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company, there is no claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid or will be paid when due and the Company is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). The Company has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.17 MINUTE BOOKS. The minute books of the Company made available to counsel for Parent are the only minute books of the Company and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of the Company. 2.18 ENVIRONMENTAL MATTERS. (a) HAZARDOUS MATERIAL. The Company has not operated any underground storage tanks, and has no Knowledge of the existence, at any time, of any underground storage tank (or related piping or pumps), at any property that the Company has at any time owned, operated, occupied or leased. The Company has not released any amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, oil and petroleum products, urea-formaldehyde and all substances listed as a "hazardous substance," "hazardous waste," "hazardous material" or "toxic substance" or words of similar import, under any law, including but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended; the Resource Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended, and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present as a result of the actions or omissions of the Company, or, to the Company's Knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that the Company has at any time owned, operated, occupied or leased. (b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Effective Time, nor has the Company disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, 19 regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) PERMITS. The Company currently holds all environmental approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's Hazardous Material Activities and other businesses of the Company as such activities and businesses are currently being conducted. (d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation proceeding, amendment, procedure, writ, injunction or claim is pending, or to the Company's Knowledge, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Company. The Company is not aware of any fact or circumstance which could involve the Company in any environmental litigation or impose upon the Company any environmental liability. 2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth on Schedule 2.19, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Schedule 2.19 sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. Schedule 2.19 also sets forth the Company's current reasonable estimate of all Company Third Party Expenses (as defined in Section 5.4) expected to be incurred by the Company in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby. 2.20 EMPLOYEE MATTERS AND BENEFIT PLANS. (a) DEFINITIONS. For purposes of this Section 2.20 and Section 3.20 of this Agreement, the following terms shall have the meanings set forth below: (i) "COMPANY AFFILIATE" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b) or (c) and the regulations thereunder. In addition, for any Company Employee Plan subject to Section 412(n), the term Company Affiliate shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code; (ii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and 20 whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Company Affiliate for the benefit of any "Company Employee" (as defined below), and any Company Employee Plan which has been maintained, contributed to, or required to have been contributed to by the Company or any Company Affiliate pursuant to which the Company or any Company Affiliate has or may have any material liability contingent or otherwise; (iv) "COMPANY EMPLOYEE" shall mean any current, former, or retired employee, officer, or director of the Company or any Company Affiliate; (v) "COMPANY EMPLOYEE AGREEMENT" shall refer to each written management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between the Company or any Company Affiliate and any Employee or consultant. Except as set forth on Schedule 2.20(a)(v), the Company represents and warrants that there are no oral agreements between the Company or any Affiliate and any Employee or consultant pertaining to management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar matters or arrangements; (vi) "IRS" shall mean the Internal Revenue Service; (vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA; and (viii) "COMPANY PENSION PLAN" shall refer to each Company Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (ix) "COMPANY DEFINED BENEFIT PLAN" shall mean any Pension Plan that is a "defined benefit plan," as defined in ERISA Section 3(35). (b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete list of each Company Employee Plan and each Company Employee Agreement. The Company does not have any plan or commitment, whether legally binding or not, to establish any new Company Employee Plan or Company Employee Agreement, to modify any Company Employee Plan or Company Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Company Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan or Company Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) DOCUMENTS. The Company has provided to Parent (i) correct and complete copies of all nonprivileged documents embodying or materially affecting the interpretation or application of each Company Employee Plan and each Company Employee Agreement including all amendments thereto, and, to the Knowledge of the Company, there are no privileged documents 21 pertaining to such matters; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Defined Benefit Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each Company Employee Plan which has a material adverse effect on such Company Employee Plan; (vi) the most recent IRS determination, opinion, notification or advisory letters as applicable, and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all communications material to any Company Employee or Company Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; and (viii) all registration statements and prospectuses prepared in connection with each Company Employee Plan not otherwise publicly available on the SEC website. (d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 2.20(d), (i) the Company has performed in all material respects all obligations required to be performed by it under each Company Employee Plan, and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Company Employee Plan for which an exemption is not applicable; (iii) there are no actions, suits or claims pending, or, to the Knowledge of the Company, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; and (iv) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to the Company, Parent or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no inquiries or proceedings pending or, to the Knowledge of the Company or any Affiliates, threatened by the IRS or DOL with respect to any Company Employee Plan; and (vi) neither the Company nor any Company Affiliate is subject to any material penalty or tax with respect to any Company Employee Plan under Section 502(i) of ERISA or Section 4975 through 4980 of the Code. (e) PENSION PLANS. Except as set forth on Schedule 2.20(e), the Company does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) MULTIEMPLOYER PLANS. At no time has the Company contributed to or been requested to contribute to any Multiemployer Plan. 22 (g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule 2.20(g), no Company Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any Company Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Company Employee (either individually or to Company Employees as a group) that such Company Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. The term "other employee welfare benefits" means those benefits traditionally provided under an "employee benefit welfare plan" as defined in ERISA Section 3(1). (h) COBRA. Neither the Company nor any Company Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of the FMLA or any similar provisions of state law applicable to its Company Employees. (i) EFFECT OF TRANSACTION. (i) Except as set forth on Schedule 2.20(i)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Company Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Company Employee. (ii) Except as set forth on Schedule 2.20(i)(ii), no payment or benefit which will or may be made by the Company or Parent or any of their respective affiliates with respect to any Employee will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (j) EMPLOYMENT MATTERS. The Company (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Company Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Company Employees; (iii) is not liable for any arrears of wages, other than arrears normally included in its payroll schedule and system, or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Company Employees (other than routine payments to be made in the normal course of business and consistent with past practice). 23 (k) LABOR. To the Knowledge of the Company, no work stoppage or labor strike against the Company is pending or threatened. Except as set forth in Schedule 2.20(k), the Company is not involved in or, to the Knowledge of the Company, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any Company Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in a material liability to the Company. To the Knowledge of the Company, neither the Company nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to the Company. Except as set forth in Schedule 2.20(k), the Company is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Company Employees and no collective bargaining agreement is being negotiated by the Company. 2.21 ACCOUNTING AND REGULATORY MATTERS. The Company has no Knowledge of any action taken or agreed to be taken by the Company or any affiliate of the Company or has any Knowledge of any fact or circumstance that is reasonably likely to (a) prevent the Merger from qualifying for pooling-of-interests accounting treatment, or (b) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 6.1(c), Section 6.1(e) and Section 6.1(h) or result in the imposition of a condition or restriction of the type referred to in the last sentence of such Section. An "AFFILIATE" of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 5% or greater equity or voting interest of such Person; or (iii) any other Persons for which a Person described in clause (ii) acts in any such capacity. 2.22 REPRESENTATIONS COMPLETE. None of the representations or warranties made by the Company (as modified by the Company Schedules), nor any statement made in any schedule or certificate furnished by the Company pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of the Company in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub hereby represent and warrant to the Company, subject to such exceptions as are specifically disclosed in the disclosure schedule (referencing the appropriate section number or subsection, as the case may be) supplied by the Parent and Merger Sub to the 24 Company attached hereto as EXHIBIT B (the "PARENT AND MERGER SUB SCHEDULES") and dated as of the date hereof, as follows: 3.1 ORGANIZATION OF PARENT AND MERGER SUB. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Parent has the corporate power to own its properties and to carry on their business as now being conducted. Parent is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of Parent (hereinafter referred to as a "PARENT MATERIAL ADVERSE EFFECT"). Parent has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to the Company. Merger Sub has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to the Company. 3.2 PARENT AND MERGER SUB CAPITAL STRUCTURE. (a) The authorized capital stock of Parent consists of 37,000,000 shares of authorized Common Stock, of which 3,571,480 shares are issued and outstanding, 10,305,000 shares of authorized Series A Preferred Stock, of which 10,305,000 shares are issued and outstanding, 10,305,000 shares of authorized Series A-1 Preferred Stock, none of which is issued and outstanding, 6,105,000 shares of authorized Series B Preferred Stock, of which 3,290,000 shares are issued and outstanding, 6,105,000 shares of authorized Series B-1 Preferred Stock, none of which is issued and outstanding, 2,600,000 shares of authorized Series C Preferred Stock, of which 2,600,000 shares are issued and outstanding, 2,600,000 shares of authorized Series C-1 Preferred Stock, none of which is issued and outstanding, 5,000,000 shares of authorized Series D Preferred Stock, of which 4,807,692 shares are issued and outstanding, 5,000,000 shares of authorized Series D-1 Preferred Stock, none of which is issued and outstanding. The shares of the capital stock of Parent are held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 3.2(a). All outstanding shares of Parent Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Parent or any agreement to which Parent is a party or by which it is bound. (b) The authorized capital stock of Merger Sub consists of 100 shares of authorized Common Stock, all of which are issued and outstanding and held of record by Parent. All outstanding shares of the capital stock of Merger Sub are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Merger Sub or any agreement to which the Merger Sub is a party or by which it is bound. (c) Parent has reserved (i) 9,000,000 shares of Common Stock for issuance to directors, employees and consultants pursuant to Parent's 1996 Stock Plan ("PARENT STOCK PLAN"), of which 6,441,520 shares are subject to outstanding, unexercised options ("PARENT OPTIONS") and 25 2,558,480 shares remain available for future grant, (ii) 500,000 shares of Common Stock for issuance pursuant to an outstanding warrant ("COMMON WARRANT") and (iii) 2,811,947 shares of Series B Preferred Stock for issuance pursuant to outstanding warrants ("PREFERRED WARRANTS"). The Parent Options, the Common Warrant and the Preferred Warrants are collectively referred to herein as "PARENT CONVERTIBLE SECURITIES." Schedule 3.2(b) sets forth for each outstanding Parent Convertible Security, the name of the holder of such Parent Convertible Security, the domicile address of such holder, the number of shares of Common Stock subject to such Parent Convertible Security, the exercise price of such Parent Convertible Security and the vesting schedule for such Parent Convertible Security, including the extent vested to date and whether the exercisability of such Parent Convertible Security will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except for the Parent Convertible Securities described in Schedule 3.2(b), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which Parent is a party or by which it is bound obligating Parent to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of Parent or obligating Parent to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. 3.3 SUBSIDIARIES. Other than Merger Sub, Parent does not have any subsidiaries and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 3.4 AUTHORITY. Subject only to the requisite approval of the Merger and this Agreement by Parent's stockholders and Merger Sub's shareholder, each of Parent and Merger Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. A majority vote is required of the holders of Parent's Common Stock and the holders of Parent's Preferred Stock, each voting as a separate class, to duly approve the Merger and this Agreement. A majority vote is required of the holders of Merger Sub's Common Stock to duly approve the Merger and this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and Merger Sub, subject only to the approval of the Merger by Parent's stockholders and Merger Sub's shareholder. Each of Parent's Board of Directors and Merger Sub's Board of Directors have unanimously approved the Merger and this Agreement. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes the valid and binding obligation of Parent and Merger Sub, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). Except as set forth on Schedule 3.4, subject only to the approval of the Merger and this Agreement by Parent's stockholders and Merger Sub's shareholders, the execution and delivery of this Agreement by Parent and Merger Sub does not, and, as of the Effective Time, 26 the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "PARENT CONFLICT") (i) any provision of the Certificate of Incorporation or Bylaws of Parent, (ii) any provision of the Articles of Incorporation or Bylaws of Merger Sub, or (iii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any third party (so as not to trigger any Parent Conflict) is required by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Articles of Merger with the Georgia Secretary of State, (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, (iii) such notices or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans or under the HSR Act and (iv) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 3.4. Parent, as the sole shareholder of Merger Sub, has voted prior to the Effective Time the shares of Merger Sub's Common Stock in favor of approval of this Agreement, as and to the extent required by applicable law. 3.5 FINANCIAL STATEMENTS. Schedule 3.5 sets forth the Parent's unaudited balance sheet as of December 31, 1997, and the related unaudited statement of income and cash flow for the twelve month period ended December 31, 1997 (the "PARENT UNAUDITED FINANCIALS"), and the audited balance sheet as of December 31, 1996, and the related audited statement of income and cash flow for the twelve-month period ended December 31, 1996 (the "PARENT AUDITED FINANCIALS") (collectively, such financial statements are sometimes referred to herein as "PARENT FINANCIAL STATEMENTS"). The Parent Unaudited Financials and the Parent Audited Financials have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other (except that the Parent Unaudited Financials do not contain all the notes that may be required by GAAP). The Parent Unaudited Financials and Parent Audited Financials present fairly the financial condition, operating results and cash flows of the Parent as of the dates and during the periods indicated therein, subject in the case of the Parent Unaudited Financials, to normal year-end adjustments, which will not be material in amount or significance. Parent's unaudited balance sheet dated as of December 31, 1997, shall be referred to as the "PARENT CURRENT BALANCE SHEET". 3.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 3.6, Parent does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the Parent Current Balance Sheet, or (ii) has not arisen in the ordinary course of Parent's business since the date of the Parent Current Balance Sheet, consistent with past practices. 27 3.7 NO CHANGES. Except as set forth in Schedule 3.7, since the date of the Parent Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by Parent except in the ordinary course of business as conducted as of the date of the Parent Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Certificate of Incorporation or Bylaws of Parent; (c) capital expenditure or commitment by Parent, either individually or in the aggregate, exceeding $25,000; (d) destruction of, damage to or loss of any material assets, business or customer of Parent (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by Parent; (g) revaluation by Parent of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of Parent, or any direct or indirect redemption, purchase or other acquisition by Parent of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of Parent's officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement or in the ordinary course of business and consistent with past practices and Schedule 3.7(i) lists all salary increases in excess of 10% and any bonus or other compensation arrangement exceeding $10,000; (j) sale, lease, license or other disposition of any of the assets or properties of Parent, except in the ordinary course of business as conducted on that date and consistent with past practices; (k) material amendment or termination of any material contract, agreement or license to which Parent is a party or by which it is bound; (l) loan by Parent to any person or entity, incurring by Parent of any indebtedness, guaranteeing by Parent of any indebtedness, issuance or sale of any debt securities of 28 Parent or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (m) waiver or release of any right or claim of Parent, including any write-off or other compromise of any account receivable of Parent; (n) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of Parent or its affairs; (o) notice of any claim of ownership by a third party of Parent's Intellectual Property (as defined in Section 3.11 below) or of infringement by Parent's of any third party's Intellectual Property rights; (p) issuance or sale by Parent of any of its shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities; (q) change in pricing or royalties set or charged by Parent to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to Parent; (r) event or condition of any character that has or could be reasonably expected to have a Parent Material Adverse Effect on Parent; or (s) negotiation or agreement by Parent or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (r) (other than negotiations with the Company and its representatives regarding the transactions contemplated by this Agreement). 3.8 TAX AND OTHER RETURNS AND REPORTS. (a) TAX RETURNS AND AUDITS. Except as set forth in Schedule 3.8: (i) Parent as of the Effective Time will have prepared and filed all required Returns relating to any and all Taxes concerning or attributable to Parent or its operations and such Returns are true and correct in all material respects and have been completed in accordance with applicable law. (ii) Parent as of the Effective Time: (A) will have paid or accrued on the Parent Unaudited Financials all Taxes it is required to pay or which are attributable to the period ending December 31, 1997 and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) Parent has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, assessed, or to its Knowledge proposed against Parent, nor has 29 Parent executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of Parent is currently in progress, nor has Parent been notified of any request for such an audit or other examination. (v) Parent does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against in accordance with GAAP on the Parent Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and Parent has no Knowledge of any basis for the assertion of any such liability attributable to the Company, its assets or operations. (vi) Parent has provided to the Company copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of Parent's incorporation. (vii) There are (and as of immediately following the Effective Date there will be) no Liens on the assets of Parent relating to or attributable to Taxes. (viii) Parent has no Knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of Parent. (ix) None of Parent's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) As of the Effective Time, there will not be any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Parent that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or 162 of the Code. (xi) Parent has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by Parent. (xii) Parent is not a party to a tax sharing or allocation agreement nor does Parent owe any amount under any such agreement. (xiii) Parent is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) Since December 31, 1997 no Taxes have been incurred except in the ordinary course of business. 30 Parent's tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income tax deductions is accurately reflected on the Parent's tax books and records. 3.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which Parent is a party or otherwise binding upon Parent which has or reasonably could be expected to have the effect of prohibiting or impairing any business practice of Parent, any acquisition of property (tangible or intangible) by Parent or the conduct of business by Parent. Without limiting the foregoing, Parent has not entered into any agreement under which Parent is restricted from developing, selling, licensing, marketing, promoting or otherwise distributing any products, services or technology to any class of customers, or entering into any strategic alliances, in any geographic area, during any period of time or in any segment of the market. 3.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. (a) Parent owns no real property, nor has it ever owned any real property. Schedule 3.10(a) sets forth a list of all real property currently leased by Parent, the name of the lessor, the date of the lease and each amendment thereto and the aggregate annual rental and/or other fees payable under any such lease and any security interest in Parent's assets created by such lease. All such leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). (b) Parent has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the Parent Financial Statements or in Schedule 3.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 3.11 INTELLECTUAL PROPERTY. (a) Parent owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material that are used in the business of Parent as currently conducted or as proposed to be conducted by Parent (the "PARENT INTELLECTUAL PROPERTY RIGHT(S)"). Schedule 3.11(a) sets forth a complete list of all patents, registered and material unregistered trademarks, registered copyrights, trade names and service marks, and any applications therefor, included in the Parent Intellectual Property Rights, and specifies, where applicable, the jurisdictions in which each such Parent Intellectual Property Right has been issued or registered or in which an application for such issuance 31 and registration has been filed, including the respective registration or application numbers and the names of all registered owners. (b) Schedule 3.11(b) sets forth a complete list of all licenses, sublicenses and other agreements to which Parent is a party and pursuant to which Parent or any other person is authorized to use any Parent Intellectual Property Right (excluding End-User Licenses) or trade secret of Parent, and includes the identity of all parties thereto, a description of the nature and subject matter thereof, the applicable royalty or other fees and the term thereof. The execution and delivery of this Agreement by Parent, and the consummation of the transactions contemplated hereby, will neither cause Parent to be in violation or default under any such license, sublicense or agreement, nor entitle any other party to any such license, sublicense or agreement to terminate or modify such license, sublicense or agreement. Except as set forth in Schedules 3.11(a) or 3.11(b), Parent is the sole and exclusive owner or licensee of, with all right, title and interest in and to (free and clear of any liens or encumbrances), the Parent Intellectual Property Rights, and has sole and exclusive rights (and is not contractually obligated to pay any compensation to any third party in respect thereof) to the use thereof or the material covered thereby in connection with the services or products in respect of which the Parent Intellectual Property Rights are being used. (c) No claims with respect to the Parent Intellectual Property Rights have been asserted or are, to Parent's Knowledge, threatened by any person, nor are there any valid grounds for any claims, (i) to the effect that the manufacture, sale, licensing or use of any of the products of Parent infringes on any copyright, patent, trade mark, service mark, trade secret or other proprietary right, (ii) against the use by Parent of any trademarks, service marks, trade names, trade secrets, copyrights, maskworks, patents, technology, know-how or computer software programs and applications used in Parent's business as currently conducted or as proposed to be conducted by Parent, or (iii) challenging the ownership by Parent, validity or effectiveness of any of the Parent Intellectual Property Rights. All registered trademarks, service marks and copyrights held by Parent are valid and subsisting. Parent has not infringed, and the business of Parent as currently conducted or as proposed to be conducted does not infringe, any copyright, patent, trademark, service mark, trade secret or other proprietary right of any third party. There is no material unauthorized use, infringement or misappropriation of any of the Parent Intellectual Property Rights by any third party, including any employee or former employee of Parent. No Parent Intellectual Property Right or product of Parent or any of its subsidiaries is subject to any outstanding decree, order, judgment, or stipulation restricting in any manner the licensing thereof by Parent. Each employee, consultant or contractor of Parent has executed a proprietary information and confidentiality agreement substantially in the Parent's standard forms. All software included in the Parent Intellectual Property Rights is original with Parent and has been either created by employees of Parent on a work-for-hire basis or by consultants or contractors who have created such software themselves and have assigned all rights they may have had in such software to Parent. 3.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 3.12(a), Parent does not have, is not a party to nor is it bound by: 32 (i) any collective bargaining agreements, (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations, (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements, (iv) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any consulting or sales agreement, contract or commitment under which any firm or other organization provides services to Parent, (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (vi) any fidelity or surety bond or completion bond, (vii) any lease of personal property having a value individually in excess of $25,000, (viii) any agreement of indemnification or guaranty, (ix) any agreement, contract or commitment containing any covenant limiting the freedom of Parent to engage in any line of business or to compete with any person, (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $25,000, (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of the Parent's business, (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof, (xiii) any purchase order or contract for the purchase of raw materials involving $25,000 or more, (xiv) any construction contracts, 33 (xv) any distribution, joint marketing or development agreement, (xvi) any agreement pursuant to which Parent has granted or may grant in the future, to any party, a source-code license or option or other right to use or acquire source-code, or (xvii) any other agreement, contract or commitment that involves $25,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 3.12(b), Parent has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 3.12(a) or Schedule 3.11(b) (any such agreement, contract or commitment, a "PARENT CONTRACT"). Each Parent Contract is in full force and effect and, except as otherwise disclosed in Schedule 3.12(b), is not subject to any default thereunder of which Parent has Knowledge by any party obligated to Parent pursuant thereto. 3.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 3.13, (i) no officer, director or, to the Knowledge of Parent (without any duty to investigate), any shareholder of Parent has, directly or indirectly, an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that Parent furnishes or sells, or proposes to furnish or sell, (ii) no officer, director or, to the Knowledge of Parent (without any duty to investigate), any stockholder of Parent has, directly or indirectly, an economic interest in any entity that purchases from or sells or furnishes to, Parent, any goods or services or (iii) no officer, director or shareholder of Parent has, directly or indirectly, a beneficial interest in any contract or agreement set forth in Schedule 3.12(a) or Schedule 3.11(b); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 3.13. For the purposes of this subsection, "officer" and "director" shall include any parent, child, sibling or spouse of any of such persons, or any trust, partnership or corporation in which such officer or director has a controlling interest. 3.14 COMPLIANCE WITH LAWS. Parent has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 3.15 LITIGATION. Except as set forth in Schedule 3.15, there is no action, suit or proceeding of any nature pending or to Parent's Knowledge threatened against Parent, its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 3.15, to the Parent's Knowledge, there is no investigation pending or threatened against Parent, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 3.15 sets forth, with respect to any pending or threatened action, suit, 34 proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of Parent to manufacture, offer or sell any of its products in the present manner or style thereof. 3.16 INSURANCE. Set forth on Schedule 3.16 is a list of all of Parent's insurance policies and fidelity bonds. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of Parent, there is no claim by Parent pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Parent is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). Parent has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 3.17 MINUTE BOOKS. The minute books of Parent made available to counsel for the Company are the only minute books of Parent and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of Parent. 3.18 ENVIRONMENTAL MATTERS. (a) HAZARDOUS MATERIAL. Parent has not operated any underground storage tanks, and has no Knowledge of the existence, at any time, of any underground storage tank (or related piping or pumps), at any property that Parent has at any time owned, operated, occupied or leased. Parent has not released any amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be a Hazardous Material. No Hazardous Materials are present as a result of the actions or omissions of Parent, or, to Parent's Knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Parent has at any time owned, operated, occupied or leased. (b) HAZARDOUS MATERIALS ACTIVITIES. Parent has not engaged in any Hazardous Materials Activities in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) PERMITS. The Company currently holds all Environmental Permits necessary for the conduct of Parent's Hazardous Material Activities and other businesses of Parent as such activities and businesses are currently being conducted. (d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation proceeding, amendment, procedure, writ, injunction or claim is pending, or to Parent's Knowledge, threatened 35 concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of Parent. Parent is not aware of any fact or circumstance which could involve Parent in any environmental litigation or impose upon Parent any environmental liability. 3.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth on Schedule 3.19, Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Schedule 3.19 sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. Schedule 3.19 also sets forth Parent's current reasonable estimate of all Third Party Expenses (as defined in Section 5.4) expected to be incurred by Parent in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby. 3.20 EMPLOYEE MATTERS AND BENEFIT PLANS. (a) DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "PARENT AFFILIATE" shall mean any other person or entity under common control with Parent within the meaning of Section 414(b) or (c) and the regulations thereunder. In addition, for any Parent Employee Plan subject to Section 412(n), the term Parent Affiliate shall mean any other person or entity under common control with Parent within the meaning of Section 414(b), (c), (m) or (o) of the Code; (ii) "PARENT EMPLOYEE PLAN" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Parent Affiliate for the benefit of any "Parent Employee" (as defined below), and any Parent Employee Plan which has been maintained, contributed to, or required to have been contributed to by Parent or any Parent Affiliate pursuant to which Parent or any Parent Affiliate has or may have any material liability contingent or otherwise; (iii) "PARENT EMPLOYEE" shall mean any current, former, or retired employee, officer, or director of Parent or any Parent Affiliate; (iv) "PARENT EMPLOYEE AGREEMENT" shall refer to each management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between Parent or any Parent Affiliate and any Parent Employee or consultant; 36 (v) "PARENT PENSION PLAN" shall refer to each Parent Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (vi) "PARENT DEFINED BENEFIT PLAN" shall mean any Pension Plan that is a "defined benefit plan," as defined in ERISA Section 3(35). (b) SCHEDULE. Schedule 3.20(b) contains an accurate and complete list of each Parent Employee Plan and each Parent Employee Agreement together with a schedule of all liabilities, whether or not accrued, under each such Parent Employee Plan or Parent Employee Agreement only to the extent not reflected on the Parent Current Balance Sheet. Parent does not have any plan or commitment, whether legally binding or not, to establish any new Parent Employee Plan or Parent Employee Agreement, to modify any Parent Employee Plan or Parent Employee Agreement (except to the extent required by law or to conform any such Parent Employee Plan or Parent Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Parent Employee Plan or Parent Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) DOCUMENTS. Parent has provided to Company (i) correct and complete copies of all nonprivileged documents embodying or materially affecting the interpretation or application of each Parent Employee Plan and each Parent Employee Agreement including all amendments thereto, and, to the Knowledge of the Company, there are no privileged documents pertaining to such matters; (ii) the most recent annual actuarial valuations, if any, prepared for each Parent Defined Benefit Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each Parent Employee Plan or related trust; (iv) if the Parent Employee Plan is funded, the most recent annual and periodic accounting of Parent Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each Parent Employee Plan which has a material adverse effect on such Parent Employee Plan; (vi) the most recent IRS determination, opinion, notification or advisory letters as applicable, and rulings relating to Parent Employee Plans and copies of all applications and correspondence to or from the IRS or the DOL with respect to any Parent Employee Plan; (vii) all communications material to any Parent Employee or Parent Employees relating to any Parent Employee Plan and any proposed Parent Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to Parent; and (viii) all registration statements and prospectuses prepared in connection with each Parent Employee Plan not otherwise publicly available on the SEC website. (d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 3.20(d), (i) Parent has performed in all material respects all obligations required to be performed by it under each Parent Employee Plan, and each Parent Employee Plan has been established and maintained in 37 all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Parent Employee Plan for which an exemption is not applicable; (iii) there are no actions, suits or claims pending, or, to the Knowledge of Parent, threatened or anticipated (other than routine claims for benefits) against any Parent Employee Plan or against the assets of any Parent Employee Plan; and (iv) each Parent Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to the Company, Parent or any Parent Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no inquiries or proceedings pending or, to the Knowledge of Parent or any Affiliates, threatened by the IRS or DOL with respect to any Parent Employee Plan; and (vi) neither Parent nor any Parent Affiliate is subject to any material penalty or tax with respect to any Parent Employee Plan under Section 502(i) of ERISA or Section 4975 through 4980 of the Code. (e) PENSION PLANS. Parent does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) MULTIEMPLOYER PLANS. At no time has Parent contributed to or been requested to contribute to any Multiemployer Plan. (g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule 3.20(g), no Parent Employee Plan provides, or has any liability to provide, life insurance, medical or other employee welfare benefits to any Parent Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and Parent has never represented, promised or contracted (whether in oral or written form) to any Parent Employee (either individually or to Employees as a group) that such Parent Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. The term "other employee welfare benefits" means those benefits traditionally provided under an "employee benefit welfare plan" as defined in ERISA Section 3(1). (h) COBRA. Neither Parent nor any Parent Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of the FMLA or any similar provisions of state law applicable to its Parent Employees. (i) EFFECT OF TRANSACTION. (i) Except as set forth on Schedule 3.20(i)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Parent 38 Employee Plan, Parent Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Parent Employee. (ii) Except as set forth on Schedule 3.20(i)(ii), no payment or benefit which will or may be made by Parent or Company or any of their respective affiliates with respect to any Employee will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (j) EMPLOYMENT MATTERS. Parent (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Parent Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Parent Employees; (iii) is not liable for any arrears of wages, other than arrears normally included in its payroll schedule and system, or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Parent Employees (other than routine payments to be made in the normal course of business and consistent with past practice). (k) LABOR. To the Knowledge of Parent, no work stoppage or labor strike against Parent is pending or threatened. Except as set forth in Schedule 3.20(k), Parent is not involved in or, to the Knowledge of Parent, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any Parent Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to Parent. To the Knowledge of Parent, neither Parent nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a material liability to Parent. Except as set forth in Schedule 3.20(k), Parent is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Parent Employees and no collective bargaining agreement is being negotiated by Parent. 3.21 ACCOUNTING AND REGULATORY MATTERS. Parent has no Knowledge of any action taken by Parent or any Affiliate of Parent or agreed to be taken nor has any Knowledge of any fact or circumstance that is reasonably likely to (a) prevent the Merger from qualifying for pooling-of-interests accounting treatment, or (b) materially impede or delay receipt of any consents of regulatory authorities referred to in Section 6.1(c), Section 6.1(e) and Section 6.1(h) or result in the imposition of a condition or restriction of the type referred to in the last sentence of such Section. 3.22 REPRESENTATIONS COMPLETE. None of the representations or warranties made by Parent or Merger Sub (as modified by the Parent and Merger Sub Schedules), nor any statement made in 39 any schedule or certificate furnished by Parent or Merger Sub pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the stockholders of Parent or Merger Sub in connection with soliciting their consent to this Agreement and the Merger, contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 CONDUCT OF BUSINESS OF THE COMPANY AND PARENT. (a) COMPANY CONDUCT. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement and the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing or as expressly contemplated herein) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. The Company shall promptly notify Parent of any material event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting the Company or its business. Except as expressly contemplated by this Agreement and except as set forth on Schedule 4.1(a), the Company shall not, without the prior written consent of Parent: (i) Except as set forth in the following subparagraph, enter into any commitment, activity or transaction not in the ordinary course of business; (ii) Except for ProviderLink Valve-Added Reseller Agreements, transfer to any person or entity any rights to any Company Intellectual Property Rights (other than pursuant to End-User Licenses in the ordinary course of business); (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of the Company; 40 (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the Company Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of the Company, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock (or options, warrants or other rights exercisable therefor); (vii) Except as may be required by the SBCL Assets Purchase Agreement, for the issuance of shares of Company Capital Stock upon exercise or conversion of presently outstanding Company Options or Company Convertible Securities and except pursuant to agreements previously entered into and agreements that the Company will enter into in connection with the employment of non-officer employees, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (viii) Cause or permit any amendments to its Articles of Incorporation or Bylaws; (ix) Except as may be required by the SBCL Assets Purchase Agreement, acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of the Company; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of the Company or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments (a) required by law or, (b) with respect to non-officer employees and consultants (i) made pursuant to written agreements outstanding on the date hereof 41 (which such agreements are disclosed on Schedule 4.1(a)(xii)), or (ii) pursuant to Company policy in effect on the date hereof; (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees other than in the ordinary course of business and consistent with past practice; (xiv) Except as required by the acquisition of assets pursuant to the SBCL Assets Purchase Agreement, revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; (xv) Take any action, including the acceleration of vesting of any options, warrants, restricted stock or other rights to acquire shares of the capital stock of the Company which would be reasonably likely to interfere with Parent's ability to account for the Merger as a pooling of interests or any other action that could jeopardize the tax-free reorganization hereunder; (xvi) Pay, discharge or satisfy, in an amount in excess of $15,000, in any one case, or $50,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Financial Statements or incurred in the ordinary course of business since December 31, 1997; (xvii) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xviii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xix) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (xx) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xxi) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; 42 (xxii) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest on the date hereof; or (xxiii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(i) through (xxii) above, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder. (b) PARENT CONDUCT. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement and the Effective Time, Parent agrees (except to the extent that Company shall otherwise consent in writing or as expressly contemplated herein) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. Parent shall promptly notify the Company of any material event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting Parent or its business. Except as expressly contemplated by this Agreement and except as set forth on Schedule 4.1(b), Parent shall not, without the prior written consent of the Company: (i) Enter into any commitment, activity or transaction not in the ordinary course of business. (ii) Transfer to any person or entity any rights to any Parent Intellectual Property Rights (other than pursuant to End-User Licenses in the ordinary course of business); (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of Parent; (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the Parent and Merger Sub Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of Parent, or repurchase, redeem 43 or otherwise acquire, directly or indirectly, any shares of its capital stock (or options, warrants or other rights exercisable therefor); (vii) Except for the issuance of shares of Parent capital stock upon exercise or conversion of presently outstanding Parent Convertible Securities and except pursuant to agreements previously entered into and agreements that Parent will enter into in connection with the employment of non-officer employees, issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (viii) Cause or permit any amendments to its Certificate of Incorporation or Bylaws; (ix) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of Parent; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of Parent or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments (a) required by law or, (b) with respect to non-officer employees and consultants (i) made pursuant to written agreements outstanding on the date hereof (which such agreements are disclosed on Schedule 4.1(b)(xii)), or (ii) pursuant to Parent policy in effect on the date hereof; (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees other than in the ordinary course of business and consistent with past practice; (xiv) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business and consistent with past practice; 44 (xv) Take any action, including the acceleration of vesting of any options, warrants, restricted stock or other rights to acquire shares of the capital stock of Parent which would be reasonably likely to interfere with Parent's ability to account for the Merger as a pooling of interests or any other action that could jeopardize the tax-free reorganization hereunder; (xvi) Pay, discharge or satisfy, in an amount in excess of $15,000, in any one case, or $50,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Parent Financial Statements or incurred in the ordinary course of business since December 31, 1997; (xvii) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xviii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xix) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; (xx) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xxi) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (xxii) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which Parent directly or indirectly holds any interest on the date hereof; or (xxiii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(i) through (xxii) above, or any other action that would prevent Parent from performing or cause Parent not to perform its covenants hereunder. 4.2 NO COMPANY SOLICITATION. Until the earlier of the Effective Time and the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, the Company will not (nor will the Company permit any of the Company's officers, directors, shareholders, agents, representatives or Affiliates to) directly or indirectly, take any of the following actions with any party other than Parent and its designees: (a) solicit, initiate, entertain, or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of the Company or any of its subsidiaries (whether by way of merger, purchase 45 of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries, (b) provide information with respect to it to any person, other than Parent, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries, (c) enter into an agreement with any person, other than Parent, providing for the acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries, or (d) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of the Company or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries by any person, other than by Parent. The Company shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if the Company receives prior to the Effective Time or the termination of this Agreement any offer or proposal relating to any of the above, the Company shall immediately notify Parent thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Parent may reasonably request. Except as contemplated by this Agreement, disclosure by the Company of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.2. 4.3 NO PARENT OR MERGER SUB SOLICITATION. Until the earlier of the Effective Time and the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, Parent and Merger Sub will not (nor will Parent or Merger Sub permit any of their officers, directors, stockholders, agents, representatives or Affiliates to) directly or indirectly, take any of the following actions with any party other than the Company and its designees: (a) solicit, initiate, entertain, or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of Parent or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in Parent or any of its subsidiaries, (b) provide information with respect to it to any person, other than the Company, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of Parent (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in Parent or any of its subsidiaries, (c) enter into an agreement with any person providing for the acquisition of Parent (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in Parent or any of its subsidiaries, or (d) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of Parent or any of its subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in Parent or any of its subsidiaries by any person. Parent shall 46 immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if Parent receives prior to the Effective Time or the termination of this Agreement any offer or proposal relating to any of the above, Parent shall immediately notify the Company thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as the Company may reasonably request. Except as contemplated by this Agreement, disclosure by Parent of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.3. ARTICLE V ADDITIONAL AGREEMENTS 5.1 CALIFORNIA PERMIT; COMPANY SHAREHOLDER AND PARENT STOCKHOLDER APPROVALS. (a) As soon as reasonably practical following the execution of this Agreement, Parent and the Company will prepare the necessary documentation to obtain a permit (a "CALIFORNIA PERMIT") from the Commissioner of Corporations of the State of California (after a hearing before such Department) pursuant to Section 25121 of the California Corporate Securities Law of 1968, so that the issuance of Parent Common Stock in the Merger shall be exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended (the "SECURITIES ACT"). The Company and Parent will respond to any comments from the California Department of Corporations and use their commercially reasonable efforts to have the California Permit granted as soon as practical after such filing. As promptly as practical after the date of this Agreement, Parent and the Company shall prepare and make such filings as are required under applicable Blue Sky laws relating to the transactions contemplated by this Agreement. (b) As promptly as practicable after the receipt of a California Permit, the Company shall submit this Agreement and the transactions contemplated hereby, including without limitation the Merger, to the Company's shareholders for approval as provided by Georgia Law and the Company's Articles of Incorporation and Bylaws. The materials submitted to the Company's shareholders shall be subject to review and approval by Parent and include information regarding Parent and the Company, the terms of the Merger and this Agreement and the unanimous recommendation of the Board of Directors of the Company in favor of the Merger, this Agreement and the transactions contemplated hereby. (c) As promptly as practicable after receipt of a California Permit, Parent shall submit this Agreement and the transactions contemplated hereby, including without limitation the Merger, to Parent's stockholders for approval and adoption as provided by Delaware law, California law and Parent's Certificate of Incorporation and Bylaws. The materials submitted to Parent's 47 stockholders shall include the unanimous recommendation of the Board of Directors of Parent in favor of the Merger, this Agreement and the transactions contemplated hereby. 5.2 ACCESS TO INFORMATION. Each party shall afford the others and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (a) all of its properties, books, contracts, commitments and records, and (b) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of it as the others may reasonably request, subject, in the case of Parent, to reasonable limits on access to its technical and other nonpublic information. No information or knowledge obtained in any investigation pursuant to this Section 5.2 shall affect or be deemed to modify any representation or warranty contained herein. 5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep the terms of this Agreement (except to the extent contemplated hereby) and such information or knowledge obtained in any investigation pursuant to Section 5.2, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, confidential; provided, however, that the foregoing shall not apply to information or knowledge which (a) a party can demonstrate was already lawfully in its possession prior to the disclosure thereof by the other party, (b) is generally known to the public and did not become so known through any violation of law, (c) became known to the public through no fault of such party, (d) is later lawfully acquired by such party without confidentiality restrictions from other sources, (e) is required to be disclosed by order of court or government agency with subpoena powers (provided that such party shall have provided the other party with prior notice of such order or subpoena and an opportunity to object or take other available action) or (f) which is disclosed in the course of any litigation between any of the parties hereto. 5.4 EXPENSES. Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. 5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including, without limitation, federal and state securities laws) prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto unless approved by Parent and the Company prior to release, provided that such approval shall not be unreasonably withheld. 5.6 CONSENTS. Parent and the Company shall use commercially reasonable efforts to obtain the consents, waivers and approvals under any of the Parent Contracts and Company Contracts as may be required in connection with the Merger (all of such consents, waivers and 48 approvals are set forth in the Company Schedules and Parent and Merger Sub Schedules) so as to preserve all rights of and benefits to the Parent and Company thereunder. 5.7 FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company shall deliver to Parent a properly executed statement in a form reasonably acceptable to Parent for purposes of satisfying Parent's obligations under Treasury Regulation Section 1.1445-2(c)(3). 5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use its reasonable efforts to ensure that its representations and warranties remain true and correct in all material respects, and to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement; provided that Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent or its subsidiaries or affiliates or the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company, Parent or Merger Sub, respectively, contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (ii) any failure of the Company or Parent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise affect any remedies available to the party receiving such notice. 5.10 CERTAIN BENEFIT PLANS. Subject to compliance with pooling-of-interest accounting treatment of the Merger, Parent shall take such reasonable actions as are necessary to allow eligible employees of the Company to participate in the benefit programs of Parent, or alternative benefits programs substantially comparable to those applicable to employees of Parent on similar terms, as soon as practicable after the Effective Time. For purposes of participation, vesting and benefit accrual under Parent's employee benefit plans, the service of the employees of the Company prior to the Effective Time shall be treated as service with Parent. Parent shall cause the Surviving Corporation to honor in accordance with their terms all employment, severance, consulting and other compensation Contracts disclosed in the Company Schedules between the Company and any current or former director, officer or employee thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the Company Benefit Plans. 49 5.11 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and agrees to use its reasonable efforts to cause the Merger, and to take no action which would cause the Merger not, to qualify for treatment as a pooling of interests for accounting purposes and each of the Parties agrees to take no action which would cause the Merger not to qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes. 5.12 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. 5.13 COMPANY'S AUDITORS. The Company will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any Company audit or review work papers for up to the past three years, including the examination of selected interim financial statements and data and (ii) the delivery of such representations from the Company's independent accountants as may be reasonably requested by Parent or its accountants in order for Parent's accountants to render the opinion called for by Section 6.1(l) hereof. 5.14 PARENT'S AUDITORS. Parent will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any Parent audit or review work papers for up to the past three years, including the examination of selected interim financial statements and data and (ii) the delivery of such representations from Parent's independent accountants as may be reasonably requested by the Company or its accountants in order for Company's accountants to render the opinion called for by Section 6.1(l) hereof. 5.15 AGREEMENT OF AFFILIATES. Each Party has disclosed in Schedule 5.15 of its Schedules all Persons whom it reasonably believes is an Affiliate. If the Merger is accounted for using the pooling-of-interests method of accounting, shares of Parent Common Stock held by such Persons shall not be transferable until such time as financial results covering at least 30 days of combined operations of Parent and the Company have been published within the meaning of Section 201.01 of the SEC's Codification of Financial Reporting Policies, regardless of whether each such Affiliate has provided the Voting Agreement (and Parent shall be entitled to place restrictive legends upon certificates for shares of Parent Common Stock issued to Affiliates of the Company pursuant to this Agreement to enforce the provisions of this Section 5.14). 5.16 AMENDMENT OF PARENT BYLAWS. Parent shall take all necessary corporate actions, including without limitation soliciting stockholder approval (including the unanimous recommendation of Parent's Board of Directors in favor thereof), to increase the authorized number of directors to eight. 5.17 INDEMNIFICATION. 50 (a) For a period of three years after the Effective Time, Parent shall, and shall cause the Surviving Corporation to, indemnify, defend and hold harmless the present and former directors, officers, employees and agents of the Company (each, an "INDEMNIFIED PARTY") against all liabilities arising out of actions or omissions arising out of the Indemnified Party's service or services as directors, officers, employees or agents of the Company, ShareNet, EDI Services, Inc. or as a trustee of the Company's 401(K) plans(s) occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the fullest extent permitted under Delaware law (or, in the event Georgia law is more restrictive with respect to indemnification, then under Georgia law) and by the Company's Articles of Incorporation and Bylaws as in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any litigation and whether or not Parent is insured against any such matter. Without limiting the foregoing, in any case in which approval by the Surviving Corporation is required to effectuate any indemnification, the Surviving Corporation shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually and reasonably agreed upon between Parent and the Indemnified Party. (b) This Section 5.17 shall survive the Effective Time and is intended to benefit the Company, the Surviving Corporation and each of the Indemnified Parties and his or her heirs and representatives (each of whom shall be entitled to enforce this Section 5.17 against Parent or the Surviving Corporation, as the case may be) and shall be binding upon all successors and assigns (whether by operation of law or by contract) of Parent and the Surviving Corporation. ARTICLE VI CONDITIONS TO THE MERGER 6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) COMPANY SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been approved by the shareholders of the Company by the requisite vote under applicable law and the Company's Articles of Incorporation and Bylaws. (b) PARENT STOCKHOLDER APPROVAL. This Agreement and the Merger (including any amendments to Parent's Certificate of Incorporation reasonably necessary to consummate the transactions contemplated by this Agreement) shall have been approved and adopted by the stockholders of Parent by the requisite vote under applicable law and Parent's Certificate of Incorporation and Bylaws. (c) CALIFORNIA PERMIT. The Commissioner of Corporations for the State of California shall have approved the terms and conditions of the transactions contemplated by this 51 Agreement, and the fairness of such terms and conditions pursuant to Section 25142 of the California Corporations Code ("CALIFORNIA CODE") following a hearing for such purpose, and shall have issued a Permit under Section 25121 of the California Code. (d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect. (e) HSR ACT CLEARANCE. All approvals shall have been received and the expiration or early termination under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR ACT"), and other applicable antitrust laws ("HSR CLEARANCE"); provided that, neither party may rely on the condition set forth in this Section 6.1(e) if the failure to obtain HSR Clearance for the Merger is a result of such party's failure to take commercially reasonable efforts to obtain HSR Clearance. (f) TAX OPINIONS. Parent shall have received a written opinion from its counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation, and the Company shall have received a written opinion from its counsel, Alston & Bird LLP (substantially identical to the opinion received by Parent), to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code; provided, however, that if Company counsel does not render such opinion, this condition shall nonetheless be deemed to be satisfied if Parent's counsel renders its opinion to the Company as well as to Parent. The parties to this Agreement agree to make reasonable representations (and to cause their Affiliates to make reasonable representations) as requested by counsel for the purpose of rendering the opinions discussed herein. (g) INVESTORS' RIGHTS AGREEMENT. The Investors' Rights Agreement, dated as of October 14, 1997, as amended (the "INVESTORS' RIGHTS AGREEMENT"), by and between Parent and certain holders of Parent's securities shall have been amended and executed by Parent, the shareholders of the Company who possess registration rights pursuant to written agreements existing on the date hereof with respect to certain securities of the Company, and a sufficient number of the existing holders of registration rights with respect to Parent's securities in order to permit the granting of such rights under the Investors' Rights Agreement. (h) OTHER GOVERNMENTAL APPROVALS. All approvals from government authorities, including without limitation any requisite Blue Sky approvals, which are appropriate or necessary for the consummation of the Merger, shall have been obtained. (i) LITIGATION. There shall be no BONA FIDE action, suit, claim or proceeding of any nature pending, or overtly threatened, against Parent or the Company, their respective properties or any of their officers or directors, arising out of, or in any way connected with, the Merger or other transactions contemplated by the terms of this Agreement. 52 (j) CONSENTS AND APPROVALS. Each Party shall have obtained any and all consents required for consummation of the Merger or for the preventing of any Default under any Contract or Permit of such Party which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a Company Material Adverse Effect or a Parent Material Adverse Effect, as applicable. No consent so obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of either party would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such party would not, in its reasonable judgment, have entered into this Agreement. (k) AGREEMENT WITH SBCL. Sections 1.5 through 1.8 of the SBCL Assets Purchase Agreement shall be amended to provide for payment of the Purchase Price (as that term is defined therein) with Parent Common Stock for any payment due on any Transfer Date (as that term is defined therein) which occurs following the Effective Time, and the parties shall obtain such other amendments and waivers to such agreement as may be reasonably necessary to accomplish the objectives of the Merger. (l) POOLING LETTERS. Each of Parent and Company shall have received letters, dated as of the Effective Time, from Ernst & Young LLP regarding such firm's concurrence with Parent's managements' and Company's managements' conclusions as to the appropriateness of pooling-of-interests accounting for the Merger under Accounting Principles Board Opinion No. 16 if the Merger is consummated in accordance with this Agreement. (m) VOTING AGREEMENTS. Each of the persons and entities listed on Exhibit A and Exhibit B to the Voting Agreement set forth in EXHIBIT D hereto, shall have executed and delivered such Voting Agreements in substantially the form set forth in EXHIBIT D. (n) AFFILIATE AGREEMENTS. Each of the persons and entities listed as Affiliates of Parent on Schedule 5.14 shall have executed and delivered Affiliate Agreements in substantially the form of EXHIBIT C, and each of the persons and entities listed as Affiliates of the Company on Schedule 5.14 shall have executed and delivered Affiliate Agreements in substantially the form of EXHIBIT E, and all such Affiliate Agreements shall be in full force and effect. 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing 53 Date, except for those representations and warranties that are qualified by references to "material" or "Material Adverse Effect" which all shall be true and correct in all respects, and except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on Parent; and the Company shall have received a certificate to such effect signed on behalf of Parent by a duly authorized officer of Parent. (b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time, and the Company shall have received a certificate to such effect signed by a duly authorized officer of Parent. (c) EXCHANGE AGENT CERTIFICATION. The Exchange Agent shall have delivered to the Company a certificate, dated as of the Effective Time, to the effect that the Exchange Agent has received from Parent appropriate instructions and authorization for the Exchange Agent to issue a sufficient number of shares of Parent Common Stock in exchange for outstanding shares of Company Common Stock and that Parent has deposited with the Exchange Agent sufficient funds to pay a reasonable estimate of the cash payments necessary to make all fractional share payments as required by Section 1.6(f). (d) LEGAL OPINION. The Company shall have received a legal opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to Parent, in form and substance reasonably acceptable to counsel of Company. (e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial condition or results of operations of Parent since the date of the Parent Current Balance Sheet. (f) CONVERSION OF PREFERRED STOCK. All shares of Parent Preferred Stock, other than shares of Parent Series D Preferred Stock, shall have converted into Parent Common Stock in accordance with the Parent's Certificate of Incorporation; provided, however, if the Company so requests, shares of Parent Series D Preferred Stock shall have also converted to Parent Common Stock. (g) BOARD OF DIRECTORS. Parent shall have amended its Bylaws so as to increase the number of Directors on its Board of Directors from four to eight. Parent shall have taken all corporate actions to ensure that immediately upon the Closing, the Board of Directors of Parent consists of Jim Clark, John Doerr, Richard Kramlich, W. Michael Long, P. E. Sadler, Michael K. Hoover, Tadakata Yamada and one other person to be designated by the Company prior to the Closing Date. (h) INDEMNIFICATION. The Articles of Incorporation of Merger Sub shall contain officer and director indemnification provisions that are substantially similar to the officer and 54 director indemnification provisions contained in the Company's Articles of Incorporation in the form delivered to Parent on the date of this Agreement. (i) DUE DILIGENCE INVESTIGATION. Company shall have completed its due diligence investigation of Parent to Company's reasonable satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of Parent contained herein. In this regard, Company's due diligence investigation shall be conclusively deemed to have been completed to Company's reasonable satisfaction in the event that the preliminary Parent Schedules attached hereto are not subsequently modified, or otherwise do not require subsequent modification in order to make Parent's representations and warranties true and correct in all material respects on and as of the Closing Date. (j) PARENT 1997 FINANCIAL STATEMENTS. Parent shall have completed and delivered to the Company a copy of its audited financial statements for the year ended December 31, 1997. 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties that are qualified by references to "material" or "Material Adverse Effect" which all shall be true and correct in all respects, and except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on the Company or Parent; and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by the chief executive officer and chief financial officer of the Company. (b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and Parent and Merger Sub shall have received a certificate to such effect signed by a duly authorized officer of the Company. (c) LEGAL OPINION. Parent shall have received a legal opinion from Alston & Bird LLP, legal counsel to the Company, in form and substance reasonably acceptable to counsel of Parent. 55 (d) MATERIAL ADVERSE CHANGE. There shall not have occurred any material adverse change in the business, assets (including intangible assets) financial condition or results of operations of the Company since the date of the Company Current Balance Sheet. (e) NO ELECTION TO TREAT AS LIQUIDATION. Prior to the Closing Date, there shall have been no election made by the holders of a majority of the Company's Preferred Stock, in accordance with Section 3.2 of the Company's Articles of Incorporation, to treat the Merger as a liquidation, dissolution or winding up of the Company in accordance with such Articles of Incorporation. (f) NO DISSENTERS. Holders of more than five (5%) of the outstanding shares of Company Capital Stock shall not have exercised, nor shall they have any continued right to exercise, dissenters' rights under applicable law with respect to their shares by virtue of the Merger. (g) THIRD-PARTY CONSENTS. Parent shall have been furnished with evidence satisfactory to it that the Company has obtained the consents, approvals and waivers set forth in Schedule 6.3(j). (h) DUE DILIGENCE INVESTIGATION. Parent shall have completed its due diligence investigation of the Company to Parent's reasonable satisfaction, provided that no information or knowledge obtained in such investigation shall affect or be deemed to modify any representation or warranty of the Company contained herein. In this regard, Parent's due diligence investigation shall be conclusively deemed to have been completed to Parent's reasonable satisfaction in the event that the preliminary Company Schedules attached hereto are not subsequently modified, or otherwise do not require subsequent modification, in order to make the Company's representations and warranties true and correct in all material respects on and as of the Closing Date. (i) COMPANY 1997 FINANCIAL STATEMENTS. The Company shall have completed and delivered to Parent a copy of its audited financial statements for the year ended December 31, 1997. ARTICLE VII NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES 7.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Company, Parent and Merger Sub contained in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the corresponding schedules thereto) shall terminate at the Effective Time. ARTICLE VIII 56 TERMINATION, AMENDMENT AND WAIVER 8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) by mutual consent of the Company and Parent; (b) by Parent or the Company if: (i) the Effective Time has not occurred before 5:00 p.m. (Pacific time) on May 15, 1998 (provided that (A) the right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party whose failure to use its commercially reasonable efforts to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date, and (B) such date shall be automatically extended where the failure to Close is a result of not obtaining HSR Clearance and the parties are continuing to pursue such clearance); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any governmental entity that would make consummation of the Merger illegal; (c) by Parent if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the Company's ownership or operation of all or any portion of the business of the Company or (ii) compel Parent or the Company to dispose of or hold separate all or a portion of the business or assets of the Company or Parent as a result of the Merger; (d) by Parent if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and (i) such breach has not been cured within thirty (30) days after written notice to the Company (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied; or (e) by the Company if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and (i) such breach has not been cured within thirty (30) days after written notice to Parent (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied. Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 57 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Sub or the Company, or their respective officers, directors or shareholders, provided that each party shall remain liable for any breaches of this Agreement prior to its termination; and provided further that, the provisions of Sections 5.3 and 5.4 and Article VIII of this Agreement shall remain in full force and effect and survive any termination of this Agreement. 8.3 AMENDMENT. Except as is otherwise required by applicable law after the shareholders of the Company and the Stockholders of Parent approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Merger Sub, to: Healtheon Corporation 87 Encina Palo Alto, CA 94301 Attention: W. Michael Long Telephone No.: (650) 614-0200 Facsimile No.: (650) 614-3300 58 with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attention: Steven E. Bochner, Esq. Jeffrey A. Herbst, Esq. Telephone No.: (415) 493-9300 Facsimile No.: (415) 493-6811 (ii) if to the Company, to: ActaMed Corporation 7000 Central Parkway, Suite 600 Atlanta, Georgia 30328 Attention: Michael K. Hoover Telephone No.: (770) 352-1600 Facsimile No.: (770) 352-1601 with a copy to: Alston & Bird 1201 W. Peachtree Street Atlanta, Georgia 30309 Attention: George M. Maxwell, Jr. Telephone No.: (404) 881-7570 Facsimile No.: (404) 881-7777 9.2 INTERPRETATION. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights 59 or remedies hereunder (except with respect to Section 5.17); and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Parent and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to their respective Affiliates. 9.5 SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement 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 Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.6 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 9.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 60 IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this Agreement to be signed by their duly authorized respective officers and representatives, all as of the date first written above. ACTAMED CORPORATION HEALTHEON CORPORATION By /s/ Michael Hoover By /s/ W. Michael Long --------------------------- ----------------------------- Name: Michael Hoover Name: W. Michael Long Title: President and Chief Title: President and Chief Executive Officer Executive Officer MEDNET ACQUISITION CORP. By /s/ W. Michael Long ----------------------------- Name: W. Michael Long Title: President ***REORGANIZATION AGREEMENT** EX-2.1 3 EX-2.1 AGREEMENT AND PLAN OF MERGER BY AND AMONG ACTAMED CORPORATION, EDI ACQUISITION, INC., UHC GREEN ACQUISITION, INC. AND UNITED HEALTHCARE CORPORATION TABLE OF CONTENTS
PAGE ---- ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER. . . . . . . . . . . . . . 1 1.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . 2 1.3 Effective Time. . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Items to Be Delivered at Closing. . . . . . . . . . . . . . 2 ARTICLE 2 THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . 4 2.1 Articles of Incorporation . . . . . . . . . . . . . . . . . 4 2.2 Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.3 Directors and Officers. . . . . . . . . . . . . . . . . . . 4 ARTICLE 3 MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . 5 3.1 Conversion of Shares. . . . . . . . . . . . . . . . . . . . 5 3.2 Exchange Procedures . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UHC AND THE COMPANY . . . 5 4.1 Ownership of Shares; Operations . . . . . . . . . . . . . . 5 4.2 Capacity and Validity . . . . . . . . . . . . . . . . . . . 6 4.3 Organization, Standing and Foreign Qualification. . . . . . 6 4.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 6 4.5 Subsidiaries and Investments. . . . . . . . . . . . . . . . 7 4.6 EDI Financial Statements. . . . . . . . . . . . . . . . . . 7 4.7 Absence of Undisclosed Liabilities. . . . . . . . . . . . . 7 4.8 No Liabilities as Guarantor . . . . . . . . . . . . . . . . 8 4.9 Absence of Changes. . . . . . . . . . . . . . . . . . . . . 8 4.10 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 9 4.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 10 4.12 Real Property . . . . . . . . . . . . . . . . . . . . . . . 10 4.13 Personal Property . . . . . . . . . . . . . . . . . . . . . 10 4.14 Intellectual Property . . . . . . . . . . . . . . . . . . . 11 4.15 Accounts and Notes Receivable . . . . . . . . . . . . . . . 11 4.16 The Proprietary Software. . . . . . . . . . . . . . . . . . 11 4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.18 Compliance with Laws. . . . . . . . . . . . . . . . . . . . 12 4.19 Environmental Conditions. . . . . . . . . . . . . . . . . . 13 4.20 Litigation and Claims . . . . . . . . . . . . . . . . . . . 13 4.21 Contracts and Commitments; Warranties . . . . . . . . . . . 13 4.22 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . 14 4.23 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 14 -i- PAGE ---- 4.24 Remuneration. . . . . . . . . . . . . . . . . . . . . . . . 14 4.25 Union and Employment Agreements . . . . . . . . . . . . . . 14 4.26 Officers, Directors, and Bank Accounts. . . . . . . . . . . 15 4.27 Interested Party Transactions . . . . . . . . . . . . . . . 15 4.28 Brokers and Finders . . . . . . . . . . . . . . . . . . . . 15 4.29 Investment Representations; Legend on Shares. . . . . . . . 15 4.30 Compliance with Regulation D Information Requirements . . . 16 4.31 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ACTAMED AND SUBCORP . . . 17 5.1 Organization and Good Standing. . . . . . . . . . . . . . . 17 5.2 Authorization of Agreement, No Breach . . . . . . . . . . . 18 5.3 Corporate Power . . . . . . . . . . . . . . . . . . . . . . 18 5.4 ActaMed Financial Statements. . . . . . . . . . . . . . . . 18 5.5 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.6 Capitalization. . . . . . . . . . . . . . . . . . . . . . . 19 5.7 Validity and Rights of the Preferred Shares . . . . . . . . 19 5.8 Registration Rights . . . . . . . . . . . . . . . . . . . . 20 5.9 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.10 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.11 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 20 5.12 Pending Litigation, etc.. . . . . . . . . . . . . . . . . . 20 5.13 Title to Properties . . . . . . . . . . . . . . . . . . . . 20 5.14 Intellectual Property, etc. . . . . . . . . . . . . . . . . 21 5.15 Compliance with Other Instruments . . . . . . . . . . . . . 21 5.16 Compliance with Law . . . . . . . . . . . . . . . . . . . . 22 5.17 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 22 5.18 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . 22 5.19 Compliance with Environmental Laws. . . . . . . . . . . . . 22 5.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.21 Material Contracts and Agreements . . . . . . . . . . . . . 23 5.22 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.23 Investment Company. . . . . . . . . . . . . . . . . . . . . 24 5.24 Labor Relations . . . . . . . . . . . . . . . . . . . . . . 24 5.25 No Conflict of Interest . . . . . . . . . . . . . . . . . . 25 5.26 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . 25 5.27 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 6 RELATED AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . 25 6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . 25 6.2 Access to Properties. . . . . . . . . . . . . . . . . . . . 26 6.3 Relationship with Employees and Customers . . . . . . . . . 26 -ii- PAGE ---- 6.4 Hired Employees . . . . . . . . . . . . . . . . . . . . . . 27 6.5 Employee Benefits . . . . . . . . . . . . . . . . . . . . . 27 6.6 Other Offers and Exclusive Dealing. . . . . . . . . . . . . 28 6.7 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . 29 6.8 Consents and Approvals. . . . . . . . . . . . . . . . . . . 29 6.9 Qualification and Corporate Existence . . . . . . . . . . . 29 6.10 Public Announcements. . . . . . . . . . . . . . . . . . . . 29 6.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 30 6.12 Covenant Not to Compete . . . . . . . . . . . . . . . . . . 30 6.13 Closing Conditions. . . . . . . . . . . . . . . . . . . . . 30 6.14 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.15 Repayment of Debts to Company . . . . . . . . . . . . . . . 31 6.16 Compliance with Regulation D. . . . . . . . . . . . . . . . 31 6.17 Voting for Merger . . . . . . . . . . . . . . . . . . . . . 31 6.18 Antitrust Notification. . . . . . . . . . . . . . . . . . . 31 6.19 Review of Registration Statement. . . . . . . . . . . . . . 31 6.20 Escrow of Software. . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED AND SUBCORP 32 7.1 Representations True and Covenants Performed at Closing . . 32 7.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 32 7.3 No Injunction, etc. . . . . . . . . . . . . . . . . . . . . 32 7.4 Approval of Legal Matters . . . . . . . . . . . . . . . . . 32 7.5 Governmental Approvals. . . . . . . . . . . . . . . . . . . 32 7.6 No Material Adverse Change. . . . . . . . . . . . . . . . . 32 ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UHC AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.1 Representations True and Covenants Performed at Closing . . 33 8.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.3 No Injunction, etc. . . . . . . . . . . . . . . . . . . . . 33 8.4 Approval of Legal Matters . . . . . . . . . . . . . . . . . 33 8.5 Governmental Approvals. . . . . . . . . . . . . . . . . . . 33 8.6 No Material Adverse Change. . . . . . . . . . . . . . . . . 34 ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 34 9.1 Survival of Representations and Warranties of UHC and the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 34 9.2 Survival of Representations and Warranties of ActaMed and SubCorp . . . . . . . . . . . . . . . . . . . . . . . . . . 34 -iii- PAGE ---- 9.3 Obligation of UHC to Indemnify. . . . . . . . . . . . . . . 35 9.4 Obligation of ActaMed and SubCorp to Indemnify. . . . . . . 35 9.5 Claims Notice . . . . . . . . . . . . . . . . . . . . . . . 36 9.6 Procedures Involving Non-Third Party Claims . . . . . . . . 36 9.7 Procedures Involving Third Party Claims . . . . . . . . . . 36 9.8 Limitations on Indemnification. . . . . . . . . . . . . . . 37 9.9 No Release for Fraud. . . . . . . . . . . . . . . . . . . . 38 9.10 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 38 9.11 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . 38 9.12 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE 10 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 39 10.1 Tax Indemnities . . . . . . . . . . . . . . . . . . . . . . 39 10.2 Returns and Payments. . . . . . . . . . . . . . . . . . . . 40 10.3 Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . 41 10.4 Cooperation and Exchange of Information . . . . . . . . . . 41 10.5 Tax Sharing Agreements. . . . . . . . . . . . . . . . . . . 42 10.6 Article 9 . . . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE 11 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 42 11.1 Method of Termination . . . . . . . . . . . . . . . . . . . 42 11.2 Notice of Termination . . . . . . . . . . . . . . . . . . . 43 11.3 Effect of Termination . . . . . . . . . . . . . . . . . . . 43 11.4 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 12 ADDITIONAL COVENANTS OF ACTAMED . . . . . . . . . . . . . . 44 12.1 Securities Law Filings. . . . . . . . . . . . . . . . . . . 44 12.2 Transactions with Substantial Holders . . . . . . . . . . . 44 12.3 Business and Financial Covenants. . . . . . . . . . . . . . 44 12.4 Corporate Existence, Business, Maintenance, Insurance . . . 46 12.5 Payment of Taxes, etc.; ERISA . . . . . . . . . . . . . . . 47 12.6 Books and Records, Compliance . . . . . . . . . . . . . . . 47 12.7 Repurchase of Preferred Shares. . . . . . . . . . . . . . . 48 12.8 Compensation. . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 13 INFORMATIONAL COVENANTS OF ACTAMED. . . . . . . . . . . . . 48 13.1 Audited Annual Financial Statements . . . . . . . . . . . . 48 13.2 Quarterly Unaudited Financial Statements. . . . . . . . . . 48 13.3 Monthly Unaudited Financial Statements. . . . . . . . . . . 49 13.4 Management's Analysis . . . . . . . . . . . . . . . . . . . 49 13.5 Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . 49 13.6 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . 49 13.7 Other Information . . . . . . . . . . . . . . . . . . . . . 50 -iv- PAGE ---- ARTICLE 14 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . 51 14.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 51 14.2 Further Assurances. . . . . . . . . . . . . . . . . . . . . 52 14.3 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 14.4 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 52 14.5 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . 53 14.6 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 53 14.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 53 14.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 53 14.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 53 14.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 53 14.11 Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . . 53 14.12 Time of Essence . . . . . . . . . . . . . . . . . . . . . . 53 14.13 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . 53
-v- EXHIBITS AND SCHEDULES
EXHIBITS - -------- A Defined Terms 1.4(a)(1) Services and License Agreement 1.4(a)(2) Registration Rights Agreement Amendment 1.4(a)(3) Stockholders' Agreement Amendment 1.4(a)(4) Standstill Agreement Amendment 1.4(a)(5) Terms of Transition Services Agreement 1.4(a)(6) UHC Compliance Certificate 1.4(a)(7) UHC Secretary's Certificate 1.4(a)(8) Company Compliance Certificate 1.4(a)(9) Company Secretary's Certificate 1.4(b)(2) Third Amended and Restated Articles of Incorporation 1.4(b)(3) ActaMed Compliance Certificate 1.4((b)(4) ActaMed Secretary's Certificate 1.4(b)(5) SubCorp Compliance Certificate 1.4(b)(6) SubCorp Secretary's Certificate SCHEDULES 4.6 EDI Financial Statements 4.9 Changes 4.13(a) Company Personal Property 4.14 Company Intellectual Property 4.19 Company Environmental Conditions 4.20 Company Litigation 4.21(a) Company Contracts 4.27 Interested Party Transactions 5.4(a) ActaMed Financial Statements 5.4(b) Undisclosed Liabilities 5.5 Consent Requirements 5.6 ActaMed Derivative Securities 5.12 ActaMed Litigation 5.13 ActaMed Liens 5.14 ActaMed Intellectual Property 5.20 ActaMed Insurance Policies 5.21 ActaMed Contracts 5.22 Description of 1993 IRS Audit 5.24 ActaMed Labor Practices 5.25 ActaMed Conflicts 6.5 Hired Employees
-vi- AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of March 1, 1996, is made and entered into by and among ACTAMED CORPORATION, a Georgia corporation ("ACTAMED"), EDI ACQUISITION, INC., a Georgia corporation ("SUBCORP"), UNITED HEALTHCARE CORPORATION, a Minnesota corporation ("UHC") and UHC GREEN ACQUISITION, INC., a Nevada corporation (the "COMPANY"). PREAMBLE The Boards of Directors of ActaMed, SubCorp and the Company, and UHC are of the opinion that the transactions described in this Agreement are in the best interests of the parties and their respective shareholders. UHC is the sole shareholder of the Company and ActaMed is the sole shareholder of SubCorp. The assets dedicated to the EDI Services Group of UHC ("EDI") were transferred to the Company. This Agreement provides for the acquisition of the Company by ActaMed pursuant to the merger of SubCorp with and into the Company. At the effective time of such merger, the outstanding shares of the capital stock of the Company shall be converted into the right to receive preferred stock of ActaMed. As a result, UHC shall become a shareholder of ActaMed and the Company shall continue to conduct its business and operations as a wholly-owned subsidiary of ActaMed. The transactions described in this Agreement are subject to the approval of the Federal Trade Commission and the United States Department of Justice, and the satisfaction of several other conditions described in this Agreement. Capitalized terms used in this Agreement are defined in EXHIBIT A to this Agreement. AGREEMENT In consideration of the mutual representations, warranties and covenants contained herein, the parties hereto agree as follows: ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER 1.1 MERGER. At the Effective Time, SubCorp shall be merged with and into the Company in the Merger. The Company shall be the Surviving Corporation of the Merger and shall be governed by the laws of the State of Nevada. The Merger shall be consummated pursuant to the terms and subject to the conditions of this Agreement, which has been approved and adopted by the respective Boards of Directors (or authorized committees thereof) of ActaMed, SubCorp and the Company, and by UHC. -vii- 1.2 TIME AND PLACE OF CLOSING. The Closing of the transactions contemplated by this Agreement will take place at 9:00 a.m., Atlanta, Georgia local time, three business days after satisfaction of the conditions set forth in Articles 7 and 8, or on such other day or at such other time as the parties hereto may mutually agree. Notwithstanding the foregoing, if the Closing does not occur on the first day of a month, then solely for financial accounting and reporting purposes and filing of income tax returns in connection with the Company, the parties hereto agree that the transactions contemplated herein shall be deemed to have closed on as of the first day of the month in which the Closing occurs; provided that the parties hereto agree that for all other purposes, including, without limitation, risk of loss, the Closing shall occur, and shall be deemed to have occurred, on the actual date of the Closing. Executed counterparts of the documents required for the Closing shall be exchanged by mail prior to the Closing Date, and the parties shall inspect and approve such executed documents prior to the Closing Date. Prior to the Closing Date any documents so exchanged shall not be deemed to have been delivered, but shall be held in escrow for inspection and approval pending the Closing. On the Closing Date the parties shall confirm to each other in writing that the documents are satisfactory, the documents shall be deemed to be delivered, the Closing shall occur and the Merger shall be effected. 1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by this Agreement shall become effective at the later of: (a) the date and the time that a Certificate of Merger reflecting the Merger is filed with the Secretary of State of the State of Georgia or (b) the date and the time that articles of merger reflecting the Merger are filed with the Secretary of State of the State of Nevada. 1.4 ITEMS TO BE DELIVERED AT CLOSING. At the Closing, the parties shall exchange the following documents in connection with the Merger. (a) UHC and the Company shall deliver to ActaMed and SubCorp the following: (1) a Services and License Agreement, executed by UHC as attached hereto as EXHIBIT 1.4(a)(1); (2) a Second Amendment to the Registration Rights Agreement, executed by UHC and substantially in the form of EXHIBIT 1.4(a)(2); (3) a Second Amendment to the ActaMed Stockholders' Agreement, executed by UHC and substantially in the form of EXHIBIT 1.4(a)(3); (4) an Amendment to the Standstill Agreement, executed by UHC, UHC Management Company, Inc. and HLM Partners VII, L.P. and substantially in the form of EXHIBIT 1.4(a)(4); -viii- (5) a Transition Services Agreement, to be negotiated in good faith by ActaMed and UHC and to be executed by UHC on substantially the terms set forth on EXHIBIT 1.4(a)(5); (6) a compliance certificate executed by an appropriate officer of UHC and substantially in the form of EXHIBIT 1.4(a)(6); (7) a Secretary's certificate executed by the Secretary of UHC and substantially in the form of EXHIBIT 1.4(a)(7); (8) a compliance certificate executed by the President of the Company and substantially in the form of EXHIBIT 1.4(a)(8); (9) a Secretary's certificate executed by the Secretary of the Company and substantially in the form of EXHIBIT 1.4(a)(9); (10) an opinion of Kevin H. Roche to be negotiated in good faith by ActaMed, UHC and Mr. Roche; (11) the written consents of other persons obtained pursuant to SECTION 6.8; (12) the resignation of each officer and director of the Company; (13) all of the books and records of the Company and the Company Business including, but not limited to, (a) all corporate and other records of the Company and each of its predecessors, including the minute books, stock books, stock registers, books of account, leases and contracts, deeds, title documents, customer lists, financial statements, (b) employee records and (c) such other documents or certificates as shall be reasonably requested by ActaMed and SubCorp; (14) the good standing and other certificates referred to in SECTION 6.9 hereof; and (15) all other documents reasonably requested by ActaMed or SubCorp. (b) ActaMed and the SubCorp shall deliver to UHC and the Company the following: (1) executed counterpart originals of the Services and License Agreement, the Registration Rights Agreement Amendment, the Stockholders' Agreement Amendment, the Standstill Agreement Amendment, the Transition Services Agreement and the Sublease Agreement; -ix- (2) a certified copy of the Third Amended and Restated Articles of Incorporation of ActaMed, filed in the office of the Secretary of State of Georgia and substantially in the form of EXHIBIT 1.4(b)(2); (3) a compliance certificate executed by the President of ActaMed and substantially in the form of EXHIBIT 1.4(b)(3); (4) a Secretary's certificate executed by the Secretary of ActaMed and substantially in the form of EXHIBIT 1.4(b)(4); (5) a compliance certificate executed by the President of SubCorp and substantially in the form of EXHIBIT 1.4(b)(5); (6) a Secretary's certificate executed by the Secretary of SubCorp and substantially in the form of EXHIBIT 1.4(b)(6); (7) an opinion of Alston & Bird to be negotiated in good faith by UHC, ActaMed and Alston & Bird; and (8) all other documents reasonably requested by UHC or the Company. ARTICLE 2 THE SURVIVING CORPORATION 2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the Company as in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation after the Effective Time, and thereafter may be amended in accordance with its terms as provided by law and this Agreement. 2.2 BYLAWS. The Bylaws of SubCorp as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation, and thereafter may be amended in accordance with their terms and as provided by laws and this Agreement. 2.3 DIRECTORS AND OFFICERS. The directors of SubCorp in office immediately prior to the Effective Time shall be the directors of the Surviving Corporation, and the officers of SubCorp in office immediately prior to the Effective Time shall be the officers of the Surviving Corporation, in each case until their respective successors are duly elected and qualified. -x- ARTICLE 3 MANNER OF CONVERTING SHARES 3.1 CONVERSION OF SHARES. Subject to the provisions of this ARTICLE 3, at the Effective Time, by virtue of the Merger and without any action on the part of UHC: (a) All of the Company Common Stock issued and outstanding immediately prior to the Effective Time shall be deemed canceled and cease to be outstanding and shall be converted into the right to receive at the Effective Time as consideration from ActaMed for the Merger 10,344,828 shares of Series C Preferred Stock of ActaMed. If, after the date of this Agreement and before the Effective Time, ActaMed shall take any action that would have caused conversion of the Preferred Shares had they been outstanding, then the Company Common Stock shall be exchanged for the number of shares of the ActaMed Common Stock that would have been issued upon the conversion of the Preferred Shares. If, after the date of this Agreement and before the Effective Time, ActaMed shall take any action that would have caused an adjustment to the Series C Conversion Price (as defined in the Restated Articles) had the Preferred Stock been outstanding, then the Series C Conversion Price shall be so adjusted. (b) Any and all shares of Company Common Stock held as treasury shares by the Company shall be canceled and retired at the Effective Time, and no consideration shall be issued in exchange therefor. (c) Each share of the common stock of the SubCorp issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time and shall be unaffected by the Merger. 3.2 EXCHANGE PROCEDURES. At the Closing, UHC shall deliver to ActaMed the certificates held by it that formerly represented Company Common Stock, and shall promptly upon surrender thereof receive in exchange therefor the consideration provided in SECTION 3.1 of this Agreement. The certificates so surrendered shall be duly endorsed as ActaMed may require. Until surrendered for exchange in accordance with the provisions of this SECTION 3.2, each certificate for Company Common Stock shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in SECTION 3.1 of this Agreement in exchange therefor. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF UHC AND THE COMPANY UHC and the Company jointly and severally represent and warrant to ActaMed and SubCorp as follows: 4.1 OWNERSHIP OF SHARES; OPERATIONS. UHC is the owner of all right, title and interest (legal and beneficial) in and to all of the Shares, free and clear of any and all -xi- Liens of any nature whatsoever, and UHC holds no other interest in the Company or the Company Business. Except as pursuant to this Agreement, no person or entity has any agreement or option or any right or privilege (whether pre-emptive or contractual) capable of becoming an agreement or option for the purchase of any of the Shares. Substantially all of the assets required for the operation of the Company Business have been transferred to the Company on _____________, 199_ and the Company did not have any operations prior to such date. 4.2 CAPACITY AND VALIDITY. UHC and the Company each have the full power, authority and capacity necessary to enter into and perform its obligations under this Agreement and the other UHC Documents and to consummate the transactions contemplated hereby and thereby. This Agreement and all other UHC Documents have been or will be duly executed and delivered by UHC and the Company, and constitute or will constitute the legal, valid and binding obligations of UHC and the Company, enforceable in accordance with their respective terms. Neither the execution, delivery and performance of this Agreement or any other UHC Document, nor the consummation of the transactions contemplated hereby or thereby, will violate any provisions of the articles of incorporation or bylaws of UHC or the Company, or any Regulation or Court Order to which UHC or the Company is subject. 4.3 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION. UHC is a corporation duly incorporated, validly existing and in good standing under the laws of Minnesota. The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Nevada, and has the power and authority to carry on its business in the places as it has been and is now being conducted and to own and lease the properties and assets which it now owns or leases. The Company is duly qualified and/or licensed to transact business and is in good standing as a foreign corporation in the State of Minnesota, and the character of the property owned or leased by the Company and the nature of the business conducted by it do not require such qualification and/or licensing in any other jurisdiction. Copies of the articles of incorporation and all amendments thereto of the Company (certified by the Secretary of State of the State of Nevada), the bylaws of the Company (certified by the Secretary of the Company) and copies of the corporate minutes of the Company, which have been made available to ActaMed and SubCorp for review, are true and complete copies of such documents and accurately reflect all proceedings of the shareholders and directors of the Company (and all committees thereof). The stock record books of the Company, which have been made available to ActaMed and SubCorp for review, contain true, complete and adequate records of the stock ownership of the Company and the transfer of the shares of its capital stock. 4.4 CAPITAL STOCK. The authorized capital stock of the Company consists of 1,000 shares of Common Stock, $.01 par value per share, all of which are issued and outstanding. All of the issued and outstanding Shares are duly and validly issued and outstanding, are fully paid and nonassessable, and were issued pursuant to a valid exemption from registration under the Securities Act and all applicable state securities -xii- laws. There are no outstanding warrants, options, rights, calls or other commitments of any nature relating to the Company Common Stock or any other capital stock of the Company, and there are no outstanding securities of the Company convertible into or exchangeable for shares of Company Common Stock or any other capital stock of the Company. There are no shares of capital stock held in the treasury of the Company. 4.5 SUBSIDIARIES AND INVESTMENTS. The Company has not in the past and does not currently own, directly or indirectly, any capital stock or other equity, ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 4.6 EDI FINANCIAL STATEMENTS. (a) SCHEDULE 4.6 contains audited balance sheets of EDI as of December 31, 1994, and December 31, 1995, and audited statements of operations and statements of cash flows for the three years ending December 31, 1995, together with the notes thereto and the reports thereon of Deloitte & Touche, LLP. (b) The EDI Financial Statements (1) are in accordance with the books and records of the UHC Group, which have been properly maintained and are complete and correct in all material respects; (2) present fairly the financial condition, assets and liabilities (whether accrued, absolute, contingent or otherwise) of the Company Business as of the respective dates indicated and the results of operations for the respective periods indicated; (3) have been prepared in accordance with GAAP consistently applied throughout the periods involved, and (4) reflect adequate reserves for all known Liabilities and reasonably anticipated losses. (c) The EDI Financial Statements contain no untrue statements of any material fact nor do they omit to state any material fact required to be stated to make the EDI Financial Statements not misleading. No member of the UHC Group has received any advice or notification from its independent certified public accountants that the UHC Group has used any improper accounting practice that would have the effect of not reflecting or incorrectly reflecting in the EDI Financial Statements any properties, assets, liabilities, revenues or expenses. The EDI Financial Statements do not contain any items of special or nonrecurring income, or other income not earned in the ordinary course of business, individually or in the aggregate in excess of $5,000. (d) The Company owns all of the assets reflected in the EDI Financial Statements and the EDI Financial Statements reflect all of the assets currently used by EDI in connection with the Company Business. 4.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no Liabilities that are not reflected on the EDI Financial Statements, other than Liabilities for the performance by the Company after the Closing Date of the contracts assigned to the Company as set forth on the Schedules hereto. -xiii- 4.8 NO LIABILITIES AS GUARANTOR. The Company is not directly or indirectly liable, by guaranty, indemnity, or otherwise, upon or with respect to, or obligated, by discount or repurchase agreement or in any other way, to provide funds in respect to, or obligated to guarantee or assume any debt, dividend or other obligation of any person, corporation, association, partnership or other entity. 4.9 ABSENCE OF CHANGES. Except as disclosed on SCHEDULE 4.9, and except as contemplated by this Agreement, since December 31, 1995, the business and operations of the Company have been carried on only in the ordinary course, and there has not been any transaction or occurrence, whether or not in the ordinary course, in which the Company (and, with respect to (e), (f), (h), (i) and (n), any other member of the UHC Group in connection with the Hired Employees) has: (a) suffered or experienced any event or condition materially and adversely affecting the business, operations, assets, properties or condition of the Company, financial or otherwise; (b) declared, set aside or made, or agreed to declare, set aside or make any payments or dividends or any distribution to shareholders, or purchased, redeemed or otherwise acquired, directly or indirectly, or agreed to purchase, redeem or acquire, any shares of capital stock or other securities; (c) effected any changes in its capital structure, or issued, sold or otherwise transferred any equity or other interest in itself or any other securities, or granted or agreed to grant any options or rights to purchase any securities; (d) suffered any damage, destruction or loss, whether or not covered by insurance, which materially and adversely affected the properties or business of the Company, or suffered any extraordinary losses or waived any rights of substantial value; (e) increased the rate of compensation payable or to become payable by it to any of its officers, directors, employees or agents over the rate being paid to them as of December 31, 1995, or agreed so to do, except general hourly rate increases and normal merit increases for employees other than officers; (f) hired, committed to hire, terminated or received the resignation of any Hired Employee; (g) suffered any loss or termination, or threatened loss or termination, of any material customer or supplier; (h) through negotiation or otherwise, made any commitment or incurred any Liability, whether or not enforceable, to any labor organization; -xiv- (i) directly or indirectly paid or entered into a Contract to pay any severance or termination pay to any officer, director, employee or agent; (j) changed any of the accounting principles followed by it or the methods of applying such principles; (k) offered or extended more favorable prices, discounts or advertising, promotional, display or other allowances than were offered or extended regularly as of the date of the most recently dated EDI Financial Statements; (l) entered into any commitment or transaction not in the ordinary course of business involving aggregate value in excess of $10,000 or made or approved the making of any capital expenditure exceeding the amount of $10,000 in any instance; (m) paid, discharged or satisfied any material liability other than the payment, discharge or satisfaction of liabilities in the ordinary course of business; (n) except in the ordinary course of business and consistent with past practice, canceled or compromised any debts or waived or permitted to lapse any claims or rights or sold, transferred or otherwise disposed of any of its properties or assets; (o) incurred any liabilities or obligations (absolute, accrued or contingent) in excess of $10,000, except for accounts payable incurred in the ordinary course of business; (p) mortgaged, pledged, subjected or agreed to subject, any of its assets, tangible or intangible, to any Lien, except for Liens for current property taxes not yet due and payable; (q) terminated or amended any material Contract, License or other instrument to which the Company is a party or suffered any loss or termination or threatened loss or termination of any existing business arrangement or material supplier, the termination or loss of which could materially and adversely affect the Company; (r) paid or agreed to pay any service charge, interest charge, investment charge, intercompany charge or similar fee to any member of the UHC Group that is not reflected in the Transition Services Agreement or entered into any other transactions other than in the ordinary course of business; (s) charged off any bad debts or increased its bad debt reserve; (t) experienced any significant development, quality assurance or network operations problems. 4.10 INDEBTEDNESS. The Company has no indebtedness for money borrowed. -xv- 4.11 TAX MATTERS. (a) The Company has filed all Tax returns and information returns required to be filed, taking into account any extensions of the filing deadlines which have been validly granted to the Company, and such returns are and will be true and correct in all material respects and properly reflect the Tax liabilities of the Company for the periods, property or events covered thereby, and the Company has paid all Taxes (including penalties and interest in respect thereof, if any) that are due, whether shown on such returns or not. (b) Adequate provision has been made on the EDI Financial Statements for all accrued Tax liabilities not required to be paid prior to such date and for all current and deferred Taxes. (c) The UHC Group has withheld or collected from each of the Hired Employees the amount of all Taxes required to be withheld or collected therefrom and has paid the same to the proper tax depositories or collecting authorities. (d) All ad valorem property taxes imposed on the Company and each of its predecessors or its Affiliates to which it has succeeded with respect to, or which may become a Lien on, its assets have been paid in full. 4.12 REAL PROPERTY. The Company neither owns nor leases (either as lessee or lessor) any real property. 4.13 PERSONAL PROPERTY. (a) SCHEDULE 4.13(a) contains a true, complete and correct list of the material equipment, machinery, or other tangible personal property owned by the Company, other than inventories held for resale and personal property of the Hired Employees. The Company has good and marketable title to all of its equipment, machinery, and items of tangible personal property (whether or not disclosed in SCHEDULE 4.13(a)), free and clear of any and all Liens of any kind or nature. (b) The Company does not lease any of the equipment, machinery or other items of tangible personal property used or employed in the Company Business. The Company does not lease any personal property as lessor. (c) The equipment, machinery, or other tangible personal property owned or leased by the Company is in good operating condition and in a state of reasonable maintenance and repair, and is considered adequate and usable for the continued operation of the business of the Company as the same is presently conducted. -xvi- 4.14 INTELLECTUAL PROPERTY. SCHEDULE 4.14 contains a list of all material Intellectual Property owned by, registered in the name of, or used in the Company Business by the UHC Group on the date hereof, or for which application has been made. All licenses constituting Intellectual Property are in full force and effect and constitute legal, valid and binding obligations of the respective parties thereto, and there have not been and there currently are not any Defaults thereunder by any party. The Company owns all of such Intellectual Property free and clear of all assignments, Licenses (or sublicenses), restrictions or Liens, except as set forth on SCHEDULE 4.14. None of the Intellectual Property rights in the version and form used on the Closing Date in the Company's Business infringes upon or otherwise violates the rights of others, nor has any person asserted to UHC Group a claim of such infringement, and to the knowledge of UHC Group, no person is infringing upon or otherwise violating the Intellectual Property rights of the Company. Except as set forth in SCHEDULE 4.14, the Company is not obligated to pay any royalties to any person or entity with respect to any Intellectual Property. The Company does not believe it is or will be necessary to utilize any inventions of any of the employees engaged in the Company Business (or people the Company currently intends to hire) made prior to their employment by any member of the UHC Group. To the best knowledge of the Company, no employee engaged in the Company Business is or has been in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the Intellectual Property or the relationship of any such employee with such entity or any other party. 4.15 ACCOUNTS AND NOTES RECEIVABLE. The accounts receivable and notes receivable of the Company as reflected in the most recently dated balance sheet included in the EDI Financial Statements, to the extent uncollected on the date hereof, and the accounts receivable and notes receivable reflected on the books of the Company are: (a) valid and existing, (b) enforceable by the Company in accordance with the terms of the instruments or documents creating them, and (c) collectible within ninety (90) days in an amount not less than the aggregate face amount thereof (net of reserves for doubtful and uncollectible accounts) pursuant to the Company's normal collection practices. 4.16 THE PROPRIETARY SOFTWARE. (a) The proprietary computer software of the Company included in the Intellectual Property (the "SOFTWARE") performs in accordance with the documentation and other written material used in connection with the Software, is in machine-readable form, contains all current revisions of such software, and includes all computer programs, materials, tapes, object and source codes and other written materials related to the Software. The Company has delivered to ActaMed complete and correct copies of all user and technical documentation related to the Software. (b) Neither the UHC Group nor, to the best knowledge of the UHC Group, any employee or agent thereof has developed or assisted in the -xvii- enhancement of the Software except for enhancements included in the Software as delivered to ActaMed pursuant hereto. (c) No employee of UHC Group is, or is now expected to be, in default under any term of any employment contract, agreement or arrangement relating to the Software or noncompetition arrangement, or any other Contract or any restrictive covenant relating to the Software or its development or exploitation. The Software was developed entirely by the employees of UHC Group during the time they were employees only of UHC Group or by consultants who assigned in writing all of their rights in the Software to UHC Group. (d) All right, title and interest in and to the Software is owned by the Company, free and clear of all liens, claims, charges or encumbrances, are fully transferable to the Purchaser, and no party other than the Company has any interest in the Software, including without limitation, any security interest, license, contingent interest or otherwise. UHC Group's development or sale of the Software did and does not violate any rights of any other person or entity and UHC Group has not received any communication alleging such a violation. UHC Group does not have any obligation to compensate any Person for the development, use, sale or exploitation of the Software nor has UHC Group granted to any other person or entity any license, option or other right to develop, use, sell or exploit in any manner the Software, whether requiring the payment of royalties or not. (e) UHC Group has kept secret and has not disclosed the source code for the Software to any person or entity other than certain employees of UHC Group. UHC Group has taken all appropriate measures to protect the confidential and proprietary nature of the Software. There have been no patents applied for and no copyrights registered for any part of the Software. To the knowledge of UHC Group, there are no trademark rights of any person or entity other than UHC Group in the name "ProviderLink". (f) Except as set forth in SECTION 6.20, all copies of the Software embodied in physical form are being delivered to ActaMed at or prior to the Closing. 4.17 INSURANCE. UHC has maintained all appropriate types of insurance, relative to its and the Company's Business in order to protect UHC and the Company's assets and employees. 4.18 COMPLIANCE WITH LAWS. (a) The Company and, in the operation of the Company Business, the UHC Group has complied in all material respects with all applicable laws, Regulations and orders. The Company has obtained all material permits, licenses, orders, and -xviii- approvals of federal, state and local governmental and regulatory bodies that are required for the ownership, maintenance and operation of the Company's premises and facilities and the operation of the Company Business; and no member of the UHC Group is aware of any pending threat of cancellation, modification or nonrenewal of any such permits, licenses, orders or approvals, nor any basis for such cancellation, modification or nonrenewal. The Company is not presently in material violation or material Default of any such permit, license, order or approval and the present uses of the Company's assets do not in any material respect violate any law, Regulation or order. No notice or warning from any governmental authority with respect to any failure or alleged failure of the Company to comply with any law, Regulation or order has been issued or given, nor is any member of the UHC Group aware that any such notice or warning is proposed or threatened. With the exception of the acceptance for filing of articles of merger by the secretaries of state of the States of Georgia and Nevada, respectively, and as set forth in SECTION 6.18, no consent or approval of, prior filing with or notice to, or other action by, any governmental body or agency or any other third party is required in connection with the execution and delivery of this Agreement or any assignment, agreement or other instrument to be executed and delivered pursuant to this Agreement by the Company or any of UHC or the consummation of the transactions provided for herein or therein. (b) There are no material capital expenditures that the Company believes are reasonably likely to be required to be made in connection with the Company Business as now conducted in order to comply with any Regulations or other governmental requirements applicable to the Company Business as it is now conducted. 4.19 ENVIRONMENTAL CONDITIONS. Except as set forth in SCHEDULE 4.19, there are no present or past Environmental Conditions in any way relating to the business, properties or assets of the Company. 4.20 LITIGATION AND CLAIMS. There are no outstanding Court Orders or quasi-judicial or administrative decisions to which the Company is subject, and, except as disclosed on SCHEDULE 4.20, there is no Litigation pending or to the best knowledge of the UHC Group threatened against or relating to the Company or its assets or businesses. The UHC Group has not been advised by any attorney representing it that there are any "loss contingencies" (as defined in FASB 5), which would be required by FASB 5 to be disclosed or accrued in financial statements of EDI, were such financial statements prepared as of the date hereof. 4.21 CONTRACTS AND COMMITMENTS; WARRANTIES. (a) SCHEDULE 4.21(a) contains a true, correct and complete list of all Contracts to which the Company is a party or by which the Company benefits, except for the Contracts that (1) are terminable at will by the Company without any Liability, (2) are described in any other Schedule hereto, or (3) do not and can not require payments in excess of $5,000 in the aggregate following the date hereof. -xix- (b) Each of the Contracts listed in SCHEDULE 4.21(a), or described in this SECTION 4.21 but which is included in any other Schedule, is in full force and effect. No Default under any of the terms or conditions set forth in any of the Contracts to which the Company is a party or any document or instrument related thereto has occurred or been asserted by any party which could result in monetary damages or termination of the Contract or require payments to cure such Default. Except as reflected in such Schedules, neither the execution, delivery and performance of this Agreement or any other agreement or other instrument or document to be executed and delivered by the Company or UHC pursuant to this Agreement, nor the consummation of the transactions contemplated hereby or thereby, will conflict with, result in a breach of, or constitute a Default under any Contract to which the Company or UHC is a party or by which any of them is bound, affect the continuation, validity and effectiveness of any of such Contracts, or any terms thereof, or result in the creation of any Lien upon any of the Shares or any of the Company's assets or properties, or result in the acceleration of the maturity of any payment date of any of the Company's obligations, or increase or adversely affect the obligations of the Company thereunder. True, correct and complete copies of all written Contracts or a written description of all oral Contracts referred to in SCHEDULE 4.21(a) have been made available to ActaMed and SubCorp for review. (c) UHC Group has not given any warranties to any third parties with respect to the products or services offered by the Company Business. 4.22 POWERS OF ATTORNEY. The Company has not given or granted any power of attorney, whether limited or general, to any person, firm, corporation or otherwise that is continuing in effect. 4.23 BENEFIT PLANS. The Company has not at any time sponsored, contributed to or been obligated to contribute to any Benefit Plan. Neither the Company nor UHC has at any time sponsored, contributed to or been obligated to contribute to a "multiemployer pension plan" (as defined in ERISA Section 4001(a)(3) and 3(37)(A)) or to a "defined benefit plan" (as defined in ERISA Section 3(35)). Except as provided in SECTION 6.5(b) of this Agreement, the Company, ActaMed and ActaMed's Affiliates shall have no liability or obligation with respect to (i) employment related liabilities, whether contingent or otherwise, arising out of any Hired Employee's or Hired Hold-Over Employee's employment with UHC or its Affiliates or (ii) any Benefit Plan sponsored, maintained or contributed to by UHC or its Affiliates. 4.24 REMUNERATION. The Company has provided complete and accurate information to ActaMed relating to the direct compensation (including wages, salaries and actual or anticipated bonuses) and benefits paid or provided in 1995, and the direct compensation and benefits (as described in the preceding clause) to be paid in 1996, to all of the Hired Employees. 4.25 UNION AND EMPLOYMENT AGREEMENTS. The Company does not have any employees or independent contractors. No member of the UHC Group is a party to any - xx - union agreement that covered the Hired Employees or Hired Hold-Over Employees, nor does any such member have any written or oral agreement that is not terminable by it at will with any of the Hired Employees or Hired Hold-Over Employees, relating to their employment by or performance of service for the Company Business or their compensation therefor. No union attempts to organize such employees have been made, nor are any such attempts now threatened so far as is known to UHC or the Company. 4.26 OFFICERS, DIRECTORS, AND BANK ACCOUNTS. The Company has provided complete and accurate information to ActaMed relating to (a) the names of all directors and officers of any member of the UHC Group who are Hired Employees and (b) the name and location of each bank or other institution in which the Company has an account or safe deposit box, all account numbers and account names, and names of all persons authorized to draw thereon or to have access thereto. 4.27 INTERESTED PARTY TRANSACTIONS. (a) Except as set forth in SCHEDULE 4.27, the Company is not a party to any Contract, loan or other transaction with any of the following persons, or in which any of the following persons have any direct or indirect interest (other than as a Hired Employee): (1) any director, officer, or employee of any member of the UHC Group; or (2) any of the spouses, parents, siblings, children, aunts, uncles, nieces, nephews, in-laws or grandparents of any of the persons described in clause (1). (b) Except as set forth on SCHEDULE 4.27, no member of the UHC Group is a consultant, partner, principal, director or shareholder of any business entity (other than the Company or a corporation whose shares are publicly traded and in which such member of the UHC Group beneficially owns in the aggregate no more than a 5% equity interest) which is engaged in a business similar to the Company Business. 4.28 BROKERS AND FINDERS. No third party is entitled to receive any commission, fees or similar consideration in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of UHC or the Company. 4.29 INVESTMENT REPRESENTATIONS; LEGEND ON SHARES. UHC hereby acknowledges that the Preferred Shares (or Conversion Shares) delivered pursuant to the Merger will not be registered under the Securities Act, and the resale of such shares will therefore be subject to restrictions imposed by federal and state securities laws. UHC represents to and agrees with ActaMed and SubCorp as follows with respect to the Preferred Shares (and Conversion Shares): - xxi - (a) It is acquiring the shares for its own account for investment purposes only, and not with a view to the distribution, transfer, or assignment of the same in whole or in part. (b) ActaMed and SubCorp have advised it, a reasonable time prior to the execution of this Agreement, that the shares have not been registered under the Securities Act and, therefore, cannot be sold or otherwise disposed of except in a transaction which is registered under the Securities Act or exempted from registration. (c) It has been represented by counsel and advisers, each of whom has been previously selected by UHC, as UHC has found necessary to consult concerning this Agreement and the shares to be issued pursuant to this Agreement. UHC, either alone or with its representative(s), has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the prospective investment. (d) UHC and its counsel and other advisers have been provided with the information described in SECTION 4.30 and with such other information concerning ActaMed as they have deemed relevant with respect to UHC's investment decision relating to the shares being delivered to it. UHC has had a reasonable opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement, to discuss ActaMed's business, management and financial affairs with the management of ActaMed and SubCorp, and to obtain any additional information which ActaMed or SubCorp possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished. UHC has received satisfactory responses from management of ActaMed and SubCorp to UHC's inquiries. (e) UHC acknowledges that all certificates representing the shares delivered to UHC shall be stamped or otherwise imprinted with a legend substantially in the following form (together with any other legend required by state law), and that stop transfer orders will be given to ActaMed's transfer agent: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACTS OR EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE." 4.30 COMPLIANCE WITH REGULATION D INFORMATION REQUIREMENTS. (a) ActaMed and SubCorp have provided to UHC, a reasonable time prior to the execution of this Agreement: (1) ActaMed's Financial Statements for the year - xxii - ended December 31, 1995; (2) a brief description of the Preferred Shares; and (3) a brief description of the business of ActaMed. The contents of material exhibits to such materials have been identified and such exhibits have been made available to UHC, upon its written request, a reasonable time prior to the execution of this Agreement. (b) ActaMed and SubCorp have made available to UHC a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Agreement and to obtain any additional information which ActaMed or SubCorp possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished pursuant to paragraph (a) above. (c) ActaMed and SubCorp have advised UHC of the limitations on resale of Preferred Shares (and Conversion Shares) imposed by Regulation D promulgated under the Securities Act. 4.31 SCHEDULES. All Schedules referenced in this ARTICLE 4 are true, correct and complete as of the date of this Agreement, and will be true, correct and complete as of the Closing. Matters disclosed on each such Schedule shall be deemed disclosed only for purposes of the matters to be disclosed on such Schedule and shall not be deemed to be disclosed for any other purpose unless expressly provided therein. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ACTAMED AND SUBCORP ActaMed and SubCorp jointly and severally represent and warrant to UHC and the Company as follows: 5.1 (a) ORGANIZATION AND GOOD STANDING. ActaMed and SubCorp are duly organized and validly existing corporations in good standing under the laws of the States of Georgia and have full corporate power to carry on their businesses, to own and operate their properties and assets, and to consummate the transactions contemplated by this Agreement. (b) QUALIFIED TO DO BUSINESS. ActaMed is currently engaged in the ActaMed Business. ActaMed is qualified to do business as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect. (c) INCORPORATION DOCUMENTS. ActaMed has delivered to UHC and the Company true, correct and complete copies of the Restated Articles and Bylaws of ActaMed, including all amendments thereto, as presently in effect. (d) POWER TO CONDUCT BUSINESS. ActaMed has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on - xxiii - the ActaMed Business as now conducted and as proposed to be conducted and to own, operate and lease its properties and assets, except for those licenses, authorizations, consents and approvals the failure of which to have would not have a Material Adverse Effect. 5.2 AUTHORIZATION OF AGREEMENT, NO BREACH. The execution and delivery of this Agreement have been duly authorized by all necessary corporate action on the part of ActaMed and SubCorp, and no further corporate action of any nature is required pursuant to the charter or bylaws of ActaMed or SubCorp. All persons who have executed or will execute this Agreement, or any other agreement or document called for by this Agreement, on behalf of ActaMed or SubCorp have been duly authorized to do so by all necessary corporate action. This Agreement constitutes, and all of the ActaMed Documents to be executed and delivered by ActaMed or SubCorp pursuant to this Agreement will constitute, legal, valid and binding obligations of ActaMed and SubCorp, enforceable against ActaMed and SubCorp in accordance with their respective terms, except as enforceability may be limited by applicable equitable principles, or by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. The execution, delivery and performance of this Agreement and the other ActaMed Documents and the consummation of the transactions contemplated hereby and thereby will not (1) violate or result in a breach of or Default or acceleration under the charter or bylaws of ActaMed or SubCorp or any material instrument or agreement to which ActaMed or SubCorp is a party or is bound, (2) violate any Court Order, quasi-judicial or administrative decision or award of any court, arbitrator, mediator, tribunal, administrative agency or governmental body applicable to or binding upon ActaMed or SubCorp or upon the securities, property or business of ActaMed or SubCorp, or (3) violate any Regulation of any administrative agency or governmental body relating to ActaMed or SubCorp, or to the securities, property, or business of ActaMed or SubCorp. 5.3 CORPORATE POWER. ActaMed and SubCorp have the requisite corporate power to execute and deliver the ActaMed Documents to which either is a party. 5.4 ACTAMED FINANCIAL STATEMENTS. (a) The Company has set forth as SCHEDULE 5.4(a) hereto the balance sheets of ActaMed at December 31, 1994 and December 31, 1995 and the statements of operations, statements of stockholders equity and statements of cash flows of ActaMed for the years ended December 31, 1994 and December 31, 1995, which have been audited by Deloitte & Touche, LLP independent accountants; and (b) The ActaMed Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the respective periods covered thereby. The ActaMed Financial Statements are correct and complete and present fairly in all material respects the financial position of ActaMed at the date of the balance sheet included therein and the results of operations and cash flows of ActaMed - xxiv - for the respective periods covered by the statements of operations and cash flows included therein. Except as set forth on SCHEDULE 5.4(b) hereto, ActaMed has no material obligations or liabilities of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or not due) which are required to be disclosed in the ActaMed Financial Statements in accordance with GAAP and which, either individually or in the aggregate, would have a Material Adverse Effect and which are not disclosed by the ActaMed Financial Statements. 5.5 CONSENTS. No consent, approval or authorization of, or qualification, designation, declaration or filing with, or notice to any governmental authority on the part of ActaMed is required in connection with (a) the valid execution and delivery of the ActaMed Documents and (b) the issuance of the Preferred Shares (and the Conversion Shares, except (1) as set forth on SCHEDULE 5.5, (2) the filing of the Restated Articles in the office of the Secretary of State of the State of Georgia, which filings will be accomplished on or prior to the Closing Date, (3) the filing of a Form D with the SEC and (4) the qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Preferred Shares (and the Conversion Shares) under any applicable state securities laws, which qualification, if required, will be accomplished in a timely manner prior to or promptly upon completion of the Closing, as required by such laws. 5.6 CAPITALIZATION. After giving effect to the issuance of the Preferred Shares, the capital stock of ActaMed, as authorized by its Restated Articles will consist of: (1) 50,000,000 shares of ActaMed Common Stock, no par value per share, 9,321,250 of which are issued and outstanding, 10,344,828 of which will be reserved for issuance upon conversion of the Preferred Shares, 8,800,880 of which will be reserved for issuance upon conversion of issued and outstanding Series A Preferred Stock, 3,448,276 of which will be reserved for issuance upon conversion of issued and outstanding Series B Preferred Stock, and 5,624,188 of which will be reserved for issuance upon exercise of stock options granted or to be granted to officers, key employees, directors and consultants of ActaMed; (2) 8,800,880 shares of Series A Preferred Stock all of which are issued and outstanding, and (3) 3,448,276 shares of Series B Preferred Stock, all of which are issued and outstanding, and 10,344,828 shares of the Preferred Shares, all of which will be issued and outstanding. As of the Closing Date none of such issued shares will be held in the treasury of ActaMed. Except as set forth above and on SCHEDULE 5.6 hereto, as of the Closing Date ActaMed will not have outstanding any stock or securities convertible into or exchangeable for any shares of its capital stock and no person will have any right against ActaMed to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance of any capital stock or any stock or securities convertible into capital stock of ActaMed. All of the outstanding shares of capital stock of ActaMed are validly issued, fully paid and nonassessable. 5.7 VALIDITY AND RIGHTS OF THE PREFERRED SHARES. The Preferred Shares, when issued to UHC pursuant to this Agreement, will be validly issued, fully paid and nonassessable, will have the designations, preferences, limitations, and relative rights set - xxv - forth in the Restated Articles and will be free and clear of all liens, claims and encumbrances. Any and all of the Conversion Shares, when issuable, will be validly issued, fully paid and nonassessable. 5.8 REGISTRATION RIGHTS. Except as set forth in the Registration Rights Agreement, as of the Closing Date ActaMed will not be under any obligation to register under the Securities Act any of its then outstanding securities or any of its securities which may thereafter be issued. 5.9 OFFERING. Subject to the accuracy of representations and warranties by UHC and the Company in ARTICLE 4 hereof, the issuance of the Preferred Shares (and the issuance of the Conversion Shares) constitute transactions exempt from the registration requirements of Section 5 of the Securities Act, and from the qualification requirements of any applicable state securities or "blue sky" laws. 5.10 CHANGES. Since the date of the latest ActaMed Financial Statements, there has not been any adverse change in the assets, liabilities, financial condition or operations of the ActaMed Business from that reflected in the ActaMed Financial Statements, other than changes in the ordinary course of business, none of which individually or in the aggregate has had a Material Adverse Effect, any adverse change in the prospects of the ActaMed Business or any other event or condition (or events or conditions) of any character which, either individually or cumulatively, has had a Material Adverse Effect. 5.11 SUBSIDIARIES. Other than SubCorp, ActaMed has no Subsidiaries. Except as set forth in this Agreement, ActaMed does not own, or have the right to acquire, any securities or other equity or ownership interest in any corporation, association or other business entity or person. 5.12 PENDING LITIGATION, ETC. Other than as set forth in SCHEDULE 5.12 hereto, there are no actions at law, suits in equity or other proceedings or, to the best knowledge of ActaMed, investigations in any court, tribunal or by or before any other governmental or public authority or agency or any arbitrator or arbitration panel or any governmental or private third-party insurance agency, pending or, to the best knowledge of ActaMed, threatened against or affecting ActaMed that: (a) either individually or in the aggregate, would have a Material Adverse Effect; or (b) would question the validity or enforceability of this Agreement, the ActaMed Documents, or any of the transactions contemplated hereby and thereby. ActaMed is not in default with respect to any Court Order. 5.13 TITLE TO PROPERTIES. ActaMed has good and marketable title to its properties and assets and has good title to all its respective leasehold interests, in each case subject to no Lien, other than as set forth on SCHEDULE 5.13 hereto. SCHEDULE 5.13 - xxvi - accurately lists with respect to the personal property owned by ActaMed (a) each financing statement, deed, agreement or other instrument which has been filed, recorded or registered pursuant to any United States federal, state or local law or regulation that names a business entity as debtor or lessee or as the grantor or the transferor of the interest created thereby, and (b) as to each such financing statement, deed, agreement or other instrument, the names of the debtor, lessee, grantor or transferor and the secured party, lessor, grantee or transferee and the name of the jurisdiction in which such financing statement, deed, agreement or other instrument has been filed, recorded or registered. ActaMed has not signed any agreement or instrument authorizing any secured party thereunder to file any such financing statement, deed, agreement or other instrument. 5.14 INTELLECTUAL PROPERTY, ETC. ActaMed owns or possesses the rights to use, free from burdensome restrictions or conflicts with the rights of others, all copyrights, trademarks, service marks, trade names, patents and intellectual property licenses, and all rights with respect to the foregoing, necessary for the conduct of the ActaMed Business as now conducted and as proposed to be conducted, and is in compliance in all material respects with the terms and conditions, if any, of all such copyrights, trademarks, service marks, trade names, patents and intellectual property licenses and the terms and conditions of any agreements relating thereto. Except as set forth on SCHEDULE 5.14, there are no outstanding options, licenses, or material agreements of any kind relating to the foregoing, nor is ActaMed bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. ActaMed has not received any communications alleging that it has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. To ActaMed's knowledge, none of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of their best efforts to promote the interests of ActaMed or that would conflict with ActaMed's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of ActaMed's business by the employees of ActaMed, nor the conduct of ActaMed's business as proposed, will, to ActaMed's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. ActaMed does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by ActaMed. 5.15 COMPLIANCE WITH OTHER INSTRUMENTS. ActaMed is not in violation of or in default in any material respect under any term of its organizational documents, any term or provision of any mortgage, indenture, contract, agreement, instrument, judgment or decree, and is not in violation in any material respect of any applicable order, statute, rule or regulation, and to ActaMed's knowledge there is no state of facts which, with the - xxvii - passage of time or giving of notice or both, would constitute any such violation or default that would in the aggregate have a Material Adverse Effect. The execution, delivery and performance of and compliance with the ActaMed Documents, the issuance of the Preferred Shares (and the Conversion Shares) and the consummation of any other transaction contemplated by the ActaMed Documents have not resulted and will not result in any such violation, or be in conflict with, or constitute a default under any of the foregoing, or result in the creation of any Lien upon any of the properties or assets of ActaMed. 5.16 COMPLIANCE WITH LAW. ActaMed is in compliance with all statutes, laws and ordinances and all governmental rules and regulations to which it is subject, the violation of which, either individually or in the aggregate, would have a Material Adverse Effect. Neither the execution, delivery or performance of this Agreement or any of the other ActaMed Documents nor the consummation of the transactions contemplated by the ActaMed Documents will cause ActaMed to be in violation of any law or ordinance, or any order, rule or regulation, of any federal, state, municipal or other governmental or public authority or agency. 5.17 EMPLOYEES. To the best knowledge of ActaMed, no employee of ActaMed is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the intellectual property of ActaMed or the relationship of any such employee with such entity or any other party. 5.18 BENEFIT PLANS. Except as provided in this Agreement, applicable law and the terms of any Benefit Plan sponsored, maintained or contributed to by UHC or its Affiliates, neither UHC nor its Affiliates shall have any liability or obligation with respect to (i) employment related liabilities, whether contingent or otherwise, arising out of any Hired Employee's or Hired Hold-Over Employee's employment with the Company, ActaMed or ActaMed's Affiliates or (ii) any Benefit Plan sponsored, maintained or contributed to by ActaMed or its Affiliates. 5.19 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) ActaMed is, and will continue to be, in compliance with all applicable federal, state and local environmental laws, regulations and ordinances governing the ActaMed Business with respect to all discharges into the ground and surface water, emissions into the ambient air and generation, accumulation, storage, treatment, recycling, transportation, labeling or disposal of waste materials or process by-products, except violations which, either individually or in the aggregate, would not have a Material Adverse Effect. ActaMed is not liable for any material penalties, fines or forfeitures for failure to comply with any of the foregoing. All licenses, permits or registrations required for the ActaMed Business as presently conducted and proposed to be conducted, under any federal, state, or local environmental laws, regulations or ordinances have been or will, in a timely manner, be obtained or made, other than such licenses, permits or registrations as to which the failure to obtain or make, either individually or in the aggregate, will not have a Material Adverse Effect, and ActaMed is in compliance therewith in all material respects. - xxviii - (b) No release, emission or discharge into the environment of hazardous substances, as defined under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, or hazardous waste, as defined under the Resource Conservation and Recovery Act, or air pollutants as defined under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by ActaMed has occurred or is presently occurring on or from any property owned or leased by ActaMed in excess of federal, state or local permitted releases or reportable quantities, or other concentrations, standards or limitations under the foregoing laws or any state or local law governing the protection of health and the environment or under any other federal, state or local laws or regulations (then or now applicable, as the case may be) other than such releases, emissions or discharges, either individually or in the aggregate, would not have a Material Adverse Effect. (c) To its knowledge, ActaMed has never (1) owned, occupied or operated a site or structure on or in which any hazardous substance was or is stored, transported or disposed of in violation of any federal, state or local environmental laws, regulations or ordinances at such time as such site or structure was owned, occupied or operated by ActaMed or at any other time, or (2) transported or arranged for the transportation of any hazardous substance other than in full compliance with all applicable federal, state and local environmental laws, regulations and ordinances governing the ActaMed Business or the storage, transportation or disposal of hazardous substances except for such violations as, either individually or in the aggregate, would not have a Material Adverse Effect. ActaMed has never caused or been held legally responsible for any release or threatened release of any hazardous substance, or received notification from any federal, state or other governmental authority of any such release or threatened release, or that ActaMed may be required to pay any costs or expenses incurred or to be incurred in connection with any efforts to mitigate the environmental impact of any release or threatened release, of any hazardous substance from any site or structure owned, occupied or operated by ActaMed, except such releases or threatened releases as, either individually or in the aggregate, would not have a Material Adverse Effect. 5.20 INSURANCE. The ActaMed Business has fire, casualty, liability, and business interruption insurance policies with recognized insurers, in such amounts and with such coverage as set forth on SCHEDULE 5.20. 5.21 MATERIAL CONTRACTS AND AGREEMENTS. SCHEDULE 5.21 lists the parties to, and subject matter of, all material Contracts of the ActaMed Business, including without limitation, all employment or labor contracts, leases or compensation plans. Except as set forth on SCHEDULE 5.21, all material Contracts set forth on such list are valid, binding, and in full force and effect, without any breach by ActaMed or, to the best of ActaMed's knowledge, any other party thereto. - xxix - 5.22 TAXES. Except as set forth on SCHEDULE 5.22, all federal, state and other tax returns of ActaMed required by law to be filed have been duly filed, except for such returns the failure of which to file would not have a Material Adverse Effect, and all federal, state and other taxes, assessments, fees and other federal governmental charges upon ActaMed or any of the properties, incomes or assets of ActaMed that are due and payable have been paid. No extensions of the time for the assessment of deficiencies have been granted to ActaMed in connection with any federal tax, assessment, fee or other federal governmental charge. There are no Liens, on any properties or assets of the ActaMed Business imposed or arising as a result of the delinquent payment or the non-payment of any tax, assessment, fee or other governmental charge that, either individually or in the aggregate, would have a Material Adverse Effect. ActaMed: (a) has not assumed and is not liable for any federal, state or other income tax liability of any other person, including any predecessor corporation, as a result of any purchase of assets or other business acquisition transaction; and (b) has not indemnified any other person or otherwise agreed to pay on behalf of any other person tax liability growing out of or which may be asserted on the basis of any tax treatment adopted with respect to all or any aspect of such a business acquisition transaction. The charges, accruals and reserves, if any, on the books of ActaMed in respect of federal, state and local corporate franchise and income taxes for all fiscal periods to date are adequate in accordance with GAAP, and ActaMed knows of no additional unpaid assessments for such periods or other governmental charges payable by ActaMed in connection with the execution and delivery of this Agreement, the ActaMed Documents or the issuance of the Preferred Shares by ActaMed, other than stock transfer taxes, recording fees and filing fees in connection with state securities or "blue sky" filings. 5.23 INVESTMENT COMPANY. ActaMed is not an "investment company", or an "affiliated person" of an "investment company", or a company "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended, and ActaMed is not an "investment adviser" or an "affiliated person" of an "investment adviser" as such terms are defined in the Investment Advisers Act of 1940, as amended. 5.24 LABOR RELATIONS. ActaMed is not engaged in any unfair labor practices which, either individually or in the aggregate, would have a Material Adverse Effect. Except as set forth on SCHEDULE 5.24, there is: (a) no unfair labor practice complaint pending or, to the best of ActaMed's knowledge, threatened against ActaMed before the National Labor Relations Board or any court or labor board, and no grievance or arbitration proceedings arising out of or under collective bargaining agreements is so pending or, to the best of ActaMed's knowledge, threatened, - xxx - (b) no strike, lock-out, labor dispute, slowdown or work stoppage pending or, to the best of ActaMed's knowledge, threatened against ActaMed, and (c) no union representation or certification question existing or pending with respect to the employees of ActaMed, and, to the best knowledge of ActaMed, no union organization activity taking place, other than such actions or proceedings as, either individually or in the aggregate, would not have a Material Adverse Effect. 5.25 NO CONFLICT OF INTEREST. Except as set forth in SCHEDULE 5.25, ActaMed is not indebted, directly or indirectly, to any Substantial Holder, or, to ActaMed's knowledge, to any Affiliate of a Substantial Holder, in any amount whatsoever. To the best knowledge of ActaMed, and except as set forth on SCHEDULE 5.25, no Substantial Holders, or any of their Affiliates, are indebted to any firm or corporation with which ActaMed is affiliated or with which ActaMed has a business relationship, or any firm or corporation which competes with ActaMed. Except as contemplated by the ActaMed Documents, no Substantial Holder, or, to ActaMed's knowledge, any Affiliate of a Substantial Holder, is directly or indirectly interested in any contract with ActaMed or any of its Subsidiaries. 5.26 BROKERS OR FINDERS. No broker, agent, finder or consultant or other person has been retained by or on behalf of ActaMed or SubCorp (other than legal or accounting advisors), or is may be entitled to be paid based upon any agreements or understandings made by ActaMed or SubCorp in connection with the transactions contemplated hereby. 5.27 FULL DISCLOSURE. This Agreement, the other ActaMed Documents, and any report or financial statement referred to in SECTION 5.4 hereof and any certificate, report, statement or other writing furnished to UHC or the Company by or on behalf of ActaMed in connection with the negotiation of this Agreement and the other ActaMed Documents and the sale of the Preferred Shares, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact with respect to which disclosure has been requested and which is necessary to make the statements contained herein or therein not misleading. ARTICLE 6 RELATED AGREEMENTS OF THE PARTIES 6.1 CONDUCT OF BUSINESS. Prior to the Closing Date, except with the prior written consent of ActaMed and SubCorp and except as necessary to effect the transactions contemplated in this Agreement, the Company shall and UHC shall cause the Company to: - xxxi - (a) conduct the Company Business in substantially the same manner as presently being conducted, and refrain from entering into any transaction or Contract other than in the ordinary course of business, and not make any change in its methods of management, marketing, or operations other than in the ordinary course of business; (b) consult with ActaMed and SubCorp prior to undertaking any new business opportunity not in the ordinary course of business and not undertake such new business opportunity without the prior written consent of ActaMed and SubCorp, which consent will not be unreasonably withheld; (c) confer on a regular and reasonable basis with one or more designated representatives of ActaMed and SubCorp to report material operational matters and to report the general status of ongoing operations; (d) notify ActaMed and SubCorp of any change in the normal course of the Company Business or in the operation of its properties, and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), adjudicatory proceedings, budget meetings or submissions involving any material property of the Company, and keep ActaMed and SubCorp fully informed of such events and permit its representatives prompt access to all materials prepared in connection therewith; and (e) not take any action, or omit to take any action, which would cause the representations and warranties contained in ARTICLE 4 hereof, including but not limited to the representations and warranties in SECTION 4.9 of this Agreement, to be untrue or incorrect at any time through and including the Closing Date. 6.2 ACCESS TO PROPERTIES. At all times prior to the Closing Date, employees, attorneys, accountants, agents and other authorized and designated representatives of ActaMed and SubCorp will be allowed reasonable access to the properties, books and records of the Company and other members of the UHC Group relating to the Company Business, including without limitation, deeds, title documents, leases, customer lists, insurance policies, minute books, share certificate books, share registers, accounts, Tax returns, financial statements and all other data that, in the reasonable opinion of ActaMed and SubCorp, are required for ActaMed and SubCorp to make such investigation as they may desire of the Hired Employees and the properties and business of the Company and the Company Business. ActaMed and SubCorp shall also be allowed reasonable access to consult with the officers, employees, accountants, counsel and agents of the members of the UHC Group in connection with such investigation. No investigation by ActaMed and SubCorp shall diminish or otherwise affect any of the representations, warranties, covenants or agreements of the Company or UHC under this Agreement. 6.3 RELATIONSHIP WITH EMPLOYEES AND CUSTOMERS. At all times prior to the Closing Date, UHC shall cause each member of the UHC Group to use its best efforts (without making any commitments other than in the ordinary course of business), to - xxxii - (a) preserve the Company Business organization intact, (b) keep the Hired Employees available to the Company Business, (c) preserve the present relationships of the Company Business with its suppliers and customers and others having business relationships, and (d) take all steps reasonably necessary to maintain the intangible assets and Intellectual Property of the Company. Prior to the Closing and for two (2) years thereafter, no member of the UHC Group shall, directly or indirectly, on its own behalf or on behalf of others, solicit, divert or take away, or attempt to solicit, divert or take away, any of the Hired Employees. 6.4 HIRED EMPLOYEES. Immediately after the Closing, the Company will offer employment (to commence on the Closing Date) to all of the Hired Employees; provided, however, that, if any Hold-Over Employee presents a medical release from his or her attending physician which allows such employee to return to work within nine months after the beginning of his or her leave of absence, then the Company will offer employment (to commence immediately) to such Hold-Over Employee on the day he or she returns to work ("HIRED HOLD-OVER EMPLOYEE"), and if any Hold-Over Employee does not have a medical release to return to work within such nine-month period, then the Company will not be obligated to offer employment to him or her. UHC shall cause each member of the UHC Group to terminate the employment of each of the Hired Employees effective as of the Closing Date; provided, however, that no member of the UHC Group shall terminate the employment of any Hired Hold-Over Employee until such employee presents a medical release from his or her attending physician and will continue to provide each Hired Hold-Over Employee with benefits in accordance with UHC's standard policies and procedures until the earlier of (a) the day such employee has a medical release to return to work, or (b) nine (9) months after the beginning of such employee's leave of absence. 6.5 EMPLOYEE BENEFITS. (a) The Company has never been a participating employer in any Benefit Plan sponsored, maintained or contributed to by UHC or its Affiliates. Except as provided in SECTION 6.5(B) below, no portion of the assets of any Benefit Plan heretofore sponsored or maintained by any member of the UHC Group for the Hired Employees or Hired Hold-Over Employees (and no amount attributable to any such Benefit Plan) shall be transferred to the Company, and the Company shall not be required to sponsor or maintain any such Benefit Plan after the Closing Date. The amounts payable to the Hired Employees or Hired Hold-Over Employees on account of all benefit arrangements (including, but not limited to, all accrued, but unpaid, sick leave but excluding the UHC 401(k) Plan) shall be either maintained in such Benefit Plan or paid to the Hired Employees and Hired Hold-Over Employees, in each case in accordance with the applicable Benefit Plan documents, except that such amounts shall be determined with reference to the date of the event by reason of which such amounts become payable, without regard to conditions subsequent. - xxxiii - (b) Certain Hired Employees and Hired Hold-Over Employees will have account balances under the UHC 401(k) Plan as of the Closing Date. UHC warrants that the UHC 401(k) Plan that will make the transfer described below is "qualified" within the meaning of Section 401(k) of the Internal Revenue Code, has received a favorable determination letter from the Internal Revenue Service dated August, 1995 and no event has occurred and no condition exists that could reasonably be expected to result in the revocation of any such determination letter. The vested and nonvested account balances under the UHC 401(k) Plan for those Hired Employees and Hired Hold-Over Employees will be transferred to the ActaMed 401(k) Plan as soon as administratively feasible after the Closing Date but (i) for Hired Employees, no later than 60 days after the second "valuation date" (as defined in the UHC 401(k) Plan) following the Closing Date and (ii) for Hired Hold-Over Employees, no later than 60 days after the second "valuation date" following the Hired Hold-Over Employee's initial hire date with the Company. The account balances to be transferred will include cash and any outstanding participant loans. The amount transferred will be calculated in accordance with normally accepted practices by record keepers and ERISA trustees. ActaMed warrants that the ActaMed 401(k) Plan that will receive the transfer is "qualified" within the meaning of Section 401(k) of the Internal Revenue Code, has adopted a standardized prototype plan (as defined in Section 3.08 of Rev. Proc. 89-9, 1989-1 CB 780) with an IRS opinion letter dated November 8, 1993 and no event has occurred and no condition exists that could reasonably be expected to result in the ActaMed 401(k) Plan losing its status as a qualified, standardized prototype plan. The ActaMed 401(k) Plan will be amended to address the transfer of accounts from the UHC 401(k) Plan including the preservation of all Section 411(d)(6) optional forms of benefits available to the Hired Employees or Hired Hold-Over Employees under the UHC 401(k) Plan, distribution rules under Section 401(k) of the Internal Revenue Code, past service credit and participation in the ActaMed 401(k) Plan by such Hired Employees and Hired Hold-Over Employees. United HealthCare Corporation will assume no liability for the payment of account balances that are transferred following the date of transfer and ActaMed will assume no liability for the payment of account balances that are not transferred. However, as provided in SECTION 5.18 of this Agreement, ActaMed and its Affiliates shall continue to be liable to UHC and its Affiliates for any other loss suffered by UHC and its Affiliates arising out of the ActaMed 401(k) Plan. Similarly, as provided in SECTION 4.23 of this Agreement, UHC and its Affiliates shall continue to be liable to ActaMed and its Affiliates for any other loss suffered by ActaMed and its Affiliates arising out of the UHC 401(k) Plan. (c) The Company, ActaMed and ActaMed's Affiliates shall not be liable for any claim for insurance, reimbursement or other benefits payable by reason of any event which occurs prior to the Closing Date. Notwithstanding the foregoing, prior employment of Hired Employees by the UHC Group shall be counted for purposes of eligibility for a medical and dental plan which shall be provided by ActaMed to such Hired Employees without any limitations based upon pre-existing conditions effective (i) for Hired Employees and their dependents, as of the first day of the month following the Closing Date and (ii) for Hired Hold-Over Employees and their dependents, as of the - xxxiv - later of the Hired Hold-Over Employee's initial date of employment with the Company or the first day of the month following the Closing Date. 6.6 OTHER OFFERS AND EXCLUSIVE DEALING. Unless and until this Agreement is terminated prior to Closing pursuant to ARTICLE 10, UHC shall not, acting in any capacity, directly or indirectly, through any officer, director, employee, agent or otherwise of the UHC or any member of the UHC Group, (a) solicit, initiate or encourage submission of proposals or offers from any person, corporation or other entity relating to any purchase of the Shares, or any merger, sale of substantial assets or similar transaction involving the Company or the Company Business, (b) participate in any discussions or negotiations regarding, or, except as required by a legal or judicial process, furnish to any other person, corporation or other entity any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person, corporation or other entity to purchase the Shares, or engage in a merger, purchase of substantial assets or similar transaction involving the Company or the Company Business, or (c) approve or undertake any such transaction. UHC shall promptly communicate to ActaMed and SubCorp the terms of any such proposal or offer upon knowledge or receipt of such proposal or offer. 6.7 CERTAIN TAX MATTERS. UHC shall cause all Tax returns of the Company required to be filed on or before the Closing Date, taking into account any extensions of the filing deadlines granted to the Company that had not yet been filed prior to the date hereof (including those relating to periods after the Closing Date), to be prepared by the Company but not to be filed without prior examination by or on behalf of ActaMed and SubCorp. 6.8 CONSENTS AND APPROVALS. The Company and UHC agree to use their best efforts to obtain the waiver, consent and approval of all persons whose waiver, consent or approval (a) is required in order to consummate the transactions contemplated by this Agreement, or (b) is required by any Contract, Court Order or License to which the Company or UHC is a party or subject on the Closing Date, and (1) which would prohibit, or require the waiver, consent or approval of such transactions, or (2) under which such transactions would, without such waiver, consent or approval, constitute a Default under the provisions thereof, result in the acceleration of any obligation thereunder, or give rise to a right of any party thereto to terminate its obligations thereunder. All written waivers, consents and approvals obtained by UHC and the Company shall be produced at the Closing in form and content reasonably satisfactory to ActaMed and SubCorp. 6.9 QUALIFICATION AND CORPORATE EXISTENCE. The Company shall deliver to ActaMed and SubCorp (a) a certificate of the Secretary of State of the State of Nevada, dated as of a date no more than ten (10) business days prior to the Closing Date, stating that the Company is a corporation in good standing under the laws of such state and has paid all applicable franchise or other fees and taxes due to such state and (b) certificates of the appropriate officials of the State of Minnesota, all dated as of a date no more than - xxxv - ten (10) business days prior to the Closing Date, stating that the Company is duly qualified and in good standing to transact business as a foreign corporation as stated in SECTION 4.3 of this Agreement in such state and has paid all applicable franchise or other fees and taxes due to each such state. 6.10 PUBLIC ANNOUNCEMENTS. Each party hereto agrees that neither it, nor or any of its representatives, shall make any public announcement with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other parties hereto unless required by law or judicial process, in which case notification shall be given to the other parties hereto prior to such disclosure. 6.11 CONFIDENTIALITY. (a) Each party hereto agrees not to use, copy or disclose the trade secrets of any other party, except as permitted by this Agreement. Each party shall treat any other's trade secrets with at least that degree of care it uses with respect to its own such trade secrets. Each party will give access to any other party's trade secrets only to such of its personnel as have a need to such access and to no other person whatsoever. The requirements herein contained with respect to non-disclosure and non-use and protection of each party's trade secrets shall permanently survive termination of any other provisions of this Agreement. If any party is ordered by a court, administrative agency, or other governmental body of competent jurisdiction to disclose trade secrets, or if it is served with or otherwise becomes aware of a motion or similar request that such an order be issued, then such party will not be liable to the other party for disclosure of trade secrets required by such order if the disclosing party complies with the following requirements: (1) if an already issued order calls for immediate disclosure, then the disclosing party shall immediately move for or otherwise request a stay of such order to permit the other party to respond; (2) the disclosing party promptly notifies the other party of the motion or order; and (3) the disclosing party not oppose a motion or similar request by the other party for an order protecting the trade secrets including joining or agreeing to (or non-opposition to) a motion for leave to intervene by such other party. (b) The term "TRADE SECRETS" means information related to a party (1) which derives economic value, actual or potential, from not being generally known to or readily ascertainable by other persons who can obtain economic value from its disclosure or use, and (2) which is the subject of efforts by said party that are reasonable under the circumstances to maintain its secrecy. 6.12 COVENANT NOT TO COMPETE. UHC hereby acknowledges and agrees that the exclusivity and noncompetition provisions of the Services and License Agreement are an important and substantial part of the consideration to ActaMed for the consummation of the transactions contemplated hereby, and the parties hereby incorporate by reference those provisions of the Services and License Agreement. - xxxvi - 6.13 CLOSING CONDITIONS. ActaMed, SubCorp, the Company and UHC each agree to use its best efforts to satisfy the closing conditions set forth in ARTICLES 1, 7 and 8 of this Agreement. 6.14 EXPENSES. Except as otherwise provided herein and except that UHC shall pay all of the expenses of the Company (including, but not limited to, the audit by Deloitte & Touche, LLP of the books and records of the Company and the Company Business), the parties to this Agreement shall each bear its respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants. 6.15 REPAYMENT OF DEBTS TO COMPANY. On or before the Closing Date, all loans and advances from the Company to any member of the UHC Group, whether or not disclosed in SCHEDULE 4.27, shall be repaid to the Company in full and the Company shall have delivered to ActaMed and SubCorp appropriate instruments or writings to evidence the receipt of such repayments, and all guaranties by the Company of loans obtained by any member of the UHC Group, from third parties shall have been released. 6.16 COMPLIANCE WITH REGULATION D. ActaMed shall file five copies of a notice on SEC Form D no later than fifteen (15) days after the execution of this Agreement. 6.17 VOTING FOR MERGER. UHC agrees to vote for and approve the Merger and the transactions contemplated by this Agreement and waives its dissenter's rights under the General Corporation Law of the State of Nevada. 6.18 ANTITRUST NOTIFICATION. Each of the parties will promptly file with the United States Federal Trade Commission and the United States Department of Justice the notification and report form required for the transactions contemplated hereby and any supplemental or additional information which may reasonably be requested in connection therewith pursuant to the HSR Act and will comply in all material respects with the requirements of the HSR Act. UHC and ActaMed shall each pay fifty percent (50%) of the applicable filing fees. 6.19 REVIEW OF REGISTRATION STATEMENT. ActaMed shall give UHC the opportunity to review and comment upon those portions of any Registration Statement or amendment thereto prepared by ActaMed in connection with a proposed initial public offering which describe UHC and ActaMed's relationship therewith, prior to filing such Registration Statement or amendment thereto with the Securities and Exchange Commission, and shall cooperate with UHC and use its reasonable efforts to accommodate the reasonable comments of UHC. 6.20 ESCROW OF SOFTWARE. On the Closing Date, the Company shall deliver to one copy of the Software to Fort Knox (the "ESCROW AGENT"), which copy shall serve as a - xxxvii - prototype of the Software delivered to ActaMed on the Closing Date and which copy shall be made available to UHC for the defense of any claims by ActaMed or others regarding the functionality and performance of the Software. ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED AND SUBCORP The obligations of ActaMed and SubCorp to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by ActaMed and SubCorp for purposes of consummating such transactions, but without prejudice to any other right or remedy which ActaMed and SubCorp may have hereunder as a result of any misrepresentation by, or breach of any agreement, covenant or warranty of, UHC or the Company contained in this Agreement or any schedule, certificate or instrument furnished or caused to be furnished by UHC or the Company hereunder. 7.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The representations and warranties made by UHC or the Company in the UHC Documents shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if such representations and warranties had been made on and as of the Closing Date. 7.2 COVENANTS. All of the terms, covenants and conditions in the UHC Documents to be complied with or performed by UHC or the Company on or prior to the Closing shall have been complied with and performed in all material respects. 7.3 NO INJUNCTION, ETC. No action, proceeding, investigation, Regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, prohibit, or obtain substantial damages in respect of, or which is related to, or arises out of, this Agreement or the consummation of the transactions contemplated hereby, or which is related to or arises out of the Company Business, if such action, proceeding, investigation, regulation or legislation, in the reasonable judgment of ActaMed and SubCorp, would make it inadvisable to consummate such transactions. 7.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and documents deemed necessary or appropriate by ActaMed and SubCorp or their counsel to effectuate this Agreement and the consummation of the transactions contemplated hereby, or incidental thereto, and all other related legal matters, shall have been approved by such counsel. - xxxviii - 7.5 GOVERNMENTAL APPROVALS. All governmental and other consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received by ActaMed and SubCorp. 7.6 NO MATERIAL ADVERSE CHANGE. There shall not have been any material adverse change in the financial condition, operating results or assets of the Company or EDI between the date of the EDI Financial Statements and the Closing Date, and UHC shall have delivered to ActaMed a certificate dated as of the Closing Date certifying to such effect. ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UHC AND THE COMPANY The obligations of UHC and the Company to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by UHC and the Company for purposes of consummating such transactions, but without prejudice to any other right or remedy which they may have hereunder as a result of any misrepresentation by, or breach of any agreement, covenant or warranty of ActaMed or SubCorp contained in this Agreement, or any certificate or instrument furnished by it hereunder. 8.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The representations and warranties made by ActaMed or SubCorp in the ActaMed Documents shall be true and correct in all material respects as of the Closing Date, with the same force and effect as if such representations and warranties had been made on and as of the Closing Date. 8.2 COVENANTS. All of the terms, covenants and conditions in the ActaMed Documents to be complied with or performed by ActaMed or SubCorp on or prior to the Closing shall have been complied with and performed in all material respects. 8.3 NO INJUNCTION, ETC. No action, proceeding, investigation, Regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, prohibit, or obtain substantial damages in respect of, or which is related to, or arises out of, this Agreement or the consummation of the transactions contemplated hereby, or which is related to or arises out of the business of ActaMed or SubCorp, if such action, proceeding, investigation, Regulation or legislation, in the reasonable judgment of UHC, would make it inadvisable to consummate such transactions. 8.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and documents deemed necessary or appropriate by UHC or their counsel to effectuate this -xxxix- Agreement and the consummation of the transactions contemplated hereby, or incidental hereto, and all other related legal matters, shall have been approved by such counsel. 8.5 GOVERNMENTAL APPROVALS. All governmental and other consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been received by UHC and the Company. 8.6 NO MATERIAL ADVERSE CHANGE. There shall not have been any material adverse change in the financial condition, operating results or assets of ActaMed between the date of the ActaMed Financial Statements and the Closing Date, and ActaMed shall have delivered to UHC a certificate dated as of the Closing Date certifying to such effect. ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF UHC AND THE COMPANY. ActaMed, SubCorp, UHC and the Company acknowledge and agree that, as contemplated by SECTION 6.2, prior to the Closing Date, ActaMed and SubCorp intend to perform such investigation of the Company as they may deem appropriate; provided, however, no investigation by ActaMed and SubCorp shall diminish or otherwise affect any of the representations, warranties, covenants or agreements made or to be performed by UHC or the Company pursuant to this Agreement or ActaMed's and SubCorp's right to rely fully upon such representations, warranties, covenants and agreements. All such representations, warranties, covenants and agreements made or to be performed by UHC or the Company pursuant to this Agreement shall survive the execution and delivery hereof and the Closing hereunder. The representations and warranties shall thereafter terminate and expire (a) with respect to any General Claim with respect to which a Claims Notice has not been given, on the later of (i) eighteen months after the Closing Date or (ii) the first anniversary of the date on which such covenant is to be performed hereunder; and (b) with respect to any Tax Claim, on the later of (i) the ninetieth (90th) day after the date upon which the Liability to which any such Tax Claim may relate is barred by all applicable statutes of limitation and (ii) the ninetieth (90th) day after the date upon which any claim for refund or credit related to such Tax Claim is barred by all applicable statutes of limitation. With respect to any Ownership Claim, Undisclosed Liability Claim or any type of claim not specifically addressed above, such representations, warranties, covenants and agreements shall survive without limit of time. 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF ACTAMED AND SUBCORP. Except for the covenants and agreements contained in ARTICLES 12 and 13, which shall survive termination of this Agreement in accordance with their respective terms, all the representations, warranties, covenants and agreements, made or to be performed by ActaMed and SubCorp pursuant to this Agreement shall be considered to have been relied upon by UHC and shall survive the delivery to UHC of the Preferred -xl- Shares (and the Conversion Shares) and shall terminate and expire, with respect to any Claim for which a Claims Notice has not been given, on the first anniversary of the Closing Date. 9.3 OBLIGATION OF UHC TO INDEMNIFY. Subject to the limitations of SECTIONS 9.1 and 9.8, UHC agrees to indemnify and hold harmless each ActaMed Indemnitee against and in respect of: (a) all Losses, asserted against, imposed upon or incurred by any ActaMed Indemnitee by reason of or resulting from: (1) a breach of any representation or warranty of UHC or the Company contained in or made pursuant to this Agreement; or (2) any nonfulfillment of any covenant or agreement of UHC or the Company contained in or made pursuant to this Agreement; (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any Loss in connection with SECTION 9.3(a) or to the enforcement of this SECTION 9.3; (c) all Losses asserted against, imposed upon or incurred by any ActaMed Indemnitee by reason or resulting from: (1) any and all costs, judgments, claims, actions at law or in equity, interest charges and reasonable attorneys' fees with respect to any cause of action or proceeding, by any participant or dependent or beneficiary of any participant, arising out of or by reason of the sponsorship by any member of the UHC Group of any Benefit Plan prior to the Effective Time; (2) any Environmental Condition, and arising out of or in connection with any event or events which occurred prior to the Effective Time; and (3) any Litigation pending or threatened as of the Closing Date, or Litigation arising out of events which occurred prior to the Effective Time, against or affecting the Company regardless of whether it is disclosed on SCHEDULE 4.20 or any other Schedule attached to ARTICLE 4 hereto. 9.4 OBLIGATION OF ACTAMED AND SUBCORP TO INDEMNIFY. Subject to the limitations of SECTIONS 9.1 and 9.8, ActaMed and SubCorp agree to indemnify and hold harmless each UHC Indemnitee against and in respect of: (a) all Losses asserted against, imposed upon or incurred by any UHC Indemnitee by reason of or resulting from: -xli- (1) a breach of any representation or warranty of ActaMed or SubCorp contained in or made pursuant to this Agreement; or (2) any nonfulfillment of any covenant or agreement of the ActaMed or SubCorp contained in or made pursuant to this Agreement; and (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any Loss in connection with SECTION 9.4(a) or to the enforcement of this SECTION 9.4. 9.5 CLAIMS NOTICE. A Claim shall be made by any Indemnitee by delivery of a Claims Notice to any Indemnifying Party requesting indemnification and specifying the basis on which indemnification is sought and the amount of asserted Losses and, in the case of a Third Party Claim, containing (by attachment or otherwise) such other information as such Indemnitee shall have concerning such Third Party Claim. 9.6 PROCEDURES INVOLVING NON-THIRD PARTY CLAIMS. If the Claim involves a matter other than a Third Party Claim, the Indemnifying Party shall have forty-five (45) days to object to such Claim by delivery of a written notice of such objection to such Indemnitee specifying in reasonable detail the basis for such objection. If an objection is timely interposed by the Indemnifying Party, the Indemnifying Party and the Indemnitee shall cooperate in the compromise of the Claim. Failure to object in a timely manner shall constitute a final and binding acceptance of the Claim by the Indemnifying Party on behalf of all Indemnitors, and the Claim shall be paid in accordance with SECTION 9.10 hereof. 9.7 PROCEDURES INVOLVING THIRD PARTY CLAIMS. The obligations and liabilities of the parties hereunder with respect to a Third Party Claim shall be subject to the following terms and conditions: (a) The Indemnitee shall give the Indemnifying Party written notice of a Third Party Claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnifying Party may undertake the defense, compromise and settlement thereof by representatives of its own choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee to notify the Indemnifying Party of such claim shall not relieve the Indemnifying Party of any liability that they may have with respect to such claim except to the extent the Indemnifying Party demonstrates that the defense of such claim is prejudiced by such failure. The assumption of the defense, compromise and settlement of any such Third Party Claim by the Indemnifying Party shall be an acknowledgment of the obligation of the Indemnifying Party to indemnify the Indemnitee with respect to such claim hereunder. If the Indemnitee desires to participate in, but not control, any such defense, compromise and settlement, it may do so at its sole cost and expense. If, -xlii- however, the Indemnifying Party fails or refuses to undertake the defense of such Third Party Claim within ten (10) days after written notice of such claim has been given to the Indemnifying Party by the Indemnitee, the Indemnitee shall have the right to undertake the defense, compromise and settlement of such claim with counsel of its own choosing. In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, make a Claim as specified in SECTION 9.5 which shall be deemed a Claim that is not a Third Party Claim for the purposes of the procedures set forth herein. (b) If, in the reasonable opinion of the Indemnitee, any Third Party Claim or the litigation or resolution thereof involves an issue or matter which could have a material adverse effect on the business, operations, assets, properties or prospects of the Indemnitee (including, without limitation, the administration of the tax returns and responsibilities under the tax laws of the Indemnitee), the Indemnitee shall have the right to control the defense, compromise and settlement of such Third Party Claim undertaken by the Indemnifying Party, and the reasonable costs and expenses of the Indemnitee in connection therewith shall be included as part of the indemnification obligations of the Indemnifying Party hereunder. If the Indemnitee shall elect to exercise such right, the Indemnifying Party shall have the right to participate in, but not control, the defense, compromise and settlement of such Third Party Claim at its sole cost and expense. (c) No settlement of a Third Party Claim involving the asserted liability of the Indemnifying Party under this Article shall be made without the prior written consent by or on behalf of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party assumes the defense of such a Third Party Claim, (1) no compromise or settlement thereof may be effected by the Indemnifying Party without the Indemnitee's consent unless (A) there is no finding or admission of any violation of law or any violation of the rights of any person and no effect on any other claim that may be made against the Indemnitee (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (C) the compromise or settlement includes, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a release, in form and substance satisfactory to the Indemnitee, from all liability in respect of such Third Party Claim, and (2) the Indemnitee shall have no liability with respect to any compromise or settlement thereof effected without its consent. 9.8 LIMITATIONS ON INDEMNIFICATION. (a) No party to this Agreement shall be entitled to indemnification under this Agreement to the extent that such party's Losses are increased or extended by the willful misconduct, violation of law or bad faith of such party. (b) No Indemnifying Party shall be required to indemnify an Indemnitee with respect to any Loss arising out of or with respect to a General Claim unless the amount of such Loss, when aggregated with all other such Losses, shall exceed -xliii- the Threshold Amount (as defined below), at which time Claims may be asserted to the extent that all Losses or Asserted Liabilities are in excess of the Threshold Amount; provided, however, that the Threshold Amount shall not apply to any Loss: (A) which results from or arises out of an Ownership Claim, Tax Claim or Undisclosed Liability Claim, (B) which results from or arises out of fraud or intentional misrepresentation or an intentional breach of a representation, warranty, covenant or agreement in this Agreement; or (C) which results from or arises out of any Litigation incident to any of the matters referred to in the foregoing clauses (A) and (B). The Threshold Amount shall be One Hundred Thousand Dollars ($100,000). Notwithstanding the foregoing, for any breach of SECTION 4.13, UHC shall indemnify each ActaMed Indemnitee for any individual Loss in excess of $10,000 per item of tangible personal property and any aggregate Loss exceeding $50,000 for items of tangible personal property. (c) In no event shall the aggregate liability of the Indemnifying Party for any General Claim under this ARTICLE 9 exceed $10 million. 9.9 NO RELEASE FOR FRAUD. Nothing contained in this Agreement shall relieve or limit the liability of any party or any officer or director of such party from any Liability arising out of or resulting from common law fraud or intentional misrepresentation in connection with the transactions contemplated by this Agreement or in connection with the delivery of any of the Transaction Documents. Each party shall have a right to indemnification for any Loss incurred as the result of any common law fraud or intentional misrepresentation by any other party or any officer or director of such other party without regard to the Threshold Amount, the maximum liability or any period of limitation. 9.10 PAYMENT. (a) If any party is required to make any payment under this ARTICLE 9, such party shall promptly pay the Indemnified Party the amount so determined. If there is a dispute as to the amount or manner of determination of any indemnity obligation owed under this ARTICLE 9, the Indemnifying Party shall nevertheless pay when due such portion, if any, of the obligation as shall not be subject to dispute. The difference, if any, between the amount of the obligation ultimately determined as properly payable under this ARTICLE 9 and the portion, if any, theretofore paid shall bear interest as provided in SECTION 9.10(c). (b) Any items as to which an Indemnified Party is entitled to payment under this ARTICLE 9 may be paid by set-off against amounts payable to the Indemnifying Party to the extent that such amounts are sufficient to pay such items. (c) If all or part of any indemnification obligation under this Agreement is not paid when due, then the Indemnifying Party shall pay the Indemnified Party interest on the unpaid principal amount of the obligation from the date the amount -xliv- became due until payment in full, at the per annum rate of interest announced from time to time by NationsBank South, N.A., to be its "prime rate." 9.11 EXCLUSIVE REMEDY. Except for equitable remedies and any action for common law fraud, the remedies provided in this ARTICLE 9 constitute the sole and exclusive remedies for recovery against the Indemnifying Party based upon this Agreement. 9.12 ARBITRATION. All disputes arising under this ARTICLE 9 (other than claims in equity) shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Arbitration shall be by a single arbitrator experienced in the matters at issue and selected by UHC and ActaMed in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be held in such place in Atlanta, Georgia as may be specified by the arbitrator (or any place agreed to by UHC, ActaMed and the arbitrator). The decision of the arbitrator shall be final and binding as to any matters submitted under this ARTICLE 9; provided, however, if necessary, such decision and satisfaction procedure may be enforced by either UHC or ActaMed in any court of record having jurisdiction over the subject matter or over any of the parties to this Agreement. All costs and expenses incurred in connection with any such arbitration proceeding (including reasonable attorneys' fees) shall be borne by the party against which the decision is rendered, or, if no decision is rendered, such costs and expenses shall be borne equally by the Indemnifying Party as one party and the Indemnitees as the other party. If the arbitrator's decision is a compromise, the determination of which party or parties bears the costs and expenses incurred in connection with any such arbitration proceeding shall be made by the arbitrator on the basis of the arbitrator's assessment of the relative merits of the parties' positions. ARTICLE 10 TAX MATTERS 10.1. TAX INDEMNITIES. (a) From and after the Closing Date, UHC shall indemnify ActaMed and the Company against all Taxes (i) imposed on the Company with respect to any taxable period or portion thereof that ends before or on (but includes) the Closing Date (ii) imposed on UHC or any member of an affiliated group with which UHC files a consolidated or combined income tax return (other than the Company) with respect to any taxable period. (b) From and after the Closing Date, ActaMed and Company shall indemnify UHC against all Taxes imposed on the Company with respect to its income, business, property or operations for any taxable period or portion thereof that begins after the Closing Date. -xlv (c) For purposes of Sections 10.01(a) and (b), in the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall: (i) in the case of Taxes that are either (x) based upon or related to income or receipts of (y) imposed in connection with any sale, other transfer or assignment or any deemed sale, transfer or assignment of property (real or personal, tangible or intangible), be deemed equal to the amount which would be payable if the taxable year ended on the Closing Date, and (ii) in the case of Taxes imposed on a periodic basis with respect to the assets of the Company or otherwise measured by the level of any item, be deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the portion of such period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period. For purposes of clause (i) above, any exemption, deduction, credit or other item that is calculated on an annual basis shall be allocated to the period beginning before the Closing Date and, pursuant to clause (i) treated as ending on the Closing Date, based on the pro rata portion of such item determined by multiplying the total amount of such item times a fraction, the numerator of which is the number of calendar days in the period up to and including the Closing Date and the denominator of which is the total number of calendar days in the entire period. 10.2. RETURNS AND PAYMENTS. (a) From the date of this Agreement through and after the Closing Date, UHC shall prepare and file or otherwise furnish to the appropriate party (or cause to be prepared and filed or so furnished) in a timely manner all Tax returns, reports and forms ("RETURNS") with respect to the Company for any taxable period ending on or before the Closing Date, and ActaMed shall do the same for any taxable period ending after the Closing Date. With respect to any Return required to be filed with respect to the Company after the Closing Date and as to which an amount of Tax is allocable to UHC under Section 10.01(c), ActaMed shall provide UHC and its authorized representatives with a copy of such completed Return and a statement (including all necessary supporting schedules and information required to support such statement) that certifies and sets forth the calculation of the amount of Tax shown on such Return that is allocable to UHC pursuant to Section 10.01(c) at least 30 days prior to the due date (including any extension thereof) for the filing of such Return, and UHC and its authorized representatives shall have the right to review such Return and statement (including any supporting Schedules or other documents relevant thereto) prior to the filing of such Return. UHC and ActaMed agree to consult and to attempt in good faith to resolve any issues arising as a result of the review of such Return and statement by UHC or its authorized representatives. -xlvi- (b) UHC and ActaMed shall each pay or cause to be paid when due and payable all Taxes that have not been paid as of the Closing Date that are allocable to them pursuant to the provisions of Section 10.01. (c) Payment of any amounts due under this Article 10 shall be made (i) with respect to agreed amounts, at least three calendar days before the payment of any such Tax is due, provided that no such payment shall be due prior to 10 business days following receipt of written notice that payment of such Tax is due, or (ii) within 10 business days following either an agreement between UHC and ActaMed that an amount is payable by UHC or ActaMed to the other or within 10 business days of a "determination" as defined in section 1313(a) of the Internal Revenue Code. 10.3 TAX AUDIT (a) After the Closing, ActaMed shall promptly notify UHC in writing of the commencement of any Tax audit or administrative or judicial proceeding and shall also separately notify UHC in writing of any demand or claim on ActaMed or the Company which, if determined adversely to the taxpayer or after the lapse of time would be grounds for indemnification by UHC under this Article 10. Such notice shall contain factual information (to the extent known to ActaMed or the Company) describing the asserted Tax liability in reasonable detail and shall include copies of any notice or other document received from any taxing authority in respect of any such asserted Tax liability. If ActaMed fails to give UHC prompt notice of an asserted Tax liability as required by this Section 10.03, then (a) if UHC is precluded by the failure to give prompt notice from contesting the asserted Tax liability in the appropriate administrative or judicial forums, then UHC shall not have any obligation to indemnify ActaMed for any loss or damage arising out of such asserted Tax liability, and (b) if UHC is not so precluded from contesting but such failure to give prompt notice results in a detriment to UHC, then any amount which UHC is otherwise required to pay ActaMed pursuant to this Article 10 with respect to such liability shall be reduced by the amount of such detriment. (b) UHC may elect to direct, through counsel of its own choosing and at its own expense, any audit, or administrative or judicial proceeding involving any asserted liability with respect to which indemnity may be sought under this Article 10 (any such audit or proceeding relating to an asserted Tax liability are referred to herein collectively as a "CONTEST"). If UHC elects to direct the Contest of an asserted Tax liability, it shall within 30 calendar days of receipt of the notice of an asserted Tax liability notify ActaMed of its intent to do so, and ActaMed shall cooperate in good faith and shall cause the Company or its successor to cooperate in good faith, at UHC's expense, in each phase of such Contest. If UHC elects not to direct the Contest, fails to notify ActaMed of its election as herein provided or contests its obligation to indemnify under Section 10.01, ActaMed or the Company may pay, compromise or contest, at its own expense, such asserted liability. However, in such case, neither ActaMed nor the Company (including any designated representative of either) may settle or compromise any asserted liability over the objection of UHC; PROVIDED, HOWEVER, that UHC's consent -xlvii- to settlement or compromise shall not be unreasonably withheld. In any event, each of ActaMed (or the Company) and UHC may participate, at its own expense, in the Contest. If UHC chooses to direct the Contest, ActaMed shall promptly empower and shall cause the Company or its successor promptly to empower (by power of attorney and such other documentation as may be appropriate) such representatives of UHC as it may designate to represent ActaMed or the Company or its successor in the Contest insofar as the Contest involves an asserted Tax liability for which UHC would be liable under this Article 10. 10.4. COOPERATION AND EXCHANGE OF INFORMATION. UHC and ActaMed will provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax return, amended return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes or participating in or conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of relevant Tax returns or portions thereof, together with accompanying schedules and related work papers and documents relating to rulings or other determinations by taxing authorities, but in no event shall UHC or ActaMed be required to disclose to the other any information relating to the operations of either, as the case may be, other than information relating to the Company. The Seller and ActaMed shall make its employees available on a mutually convenient basis to provide explanations of any documents or information provided hereunder. UHC and ActaMed will retain all returns, schedules and work papers and all material records or other documents relating to Tax matters of the Company for its taxable period first ending after the Closing Date and for all prior taxable periods until the later of: (i) the expiration of the statute of limitations of the taxable periods to which such returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods; or (ii) eight years following the due date (without extension) for such returns. After such time, before ActaMed shall dispose of any of such books and records, at least 90 calendar days prior written notice to such effect shall be given by ActaMed to UHC, and UHC shall be given an opportunity, at its cost and expense, to remove and retain all or any part of such books and records as UHC may select. Any information obtained under this Section 10.05 shall be kept confidential, except as may be otherwise necessary in connection with the filing of returns or claims for refund or in conducting an audit or other proceeding. 10.5. TAX SHARING AGREEMENTS. UHC shall cause any tax-sharing agreements or arrangements with the Company to be terminated as of the Closing Date, with no amounts payable thereunder after the Closing other than those amounts payable thereunder in respect of current tax payable accounts. 10.6. ARTICLE 9. The provisions of this Article 10 shall supersede the provisions of Article 9 with respect to the matters set forth herein, except to the extent explicitly referenced in this Article 10. ARTICLE 11 -xlviii- TERMINATION 11.1 METHOD OF TERMINATION. This Agreement and the transactions contemplated by it may be terminated at any time prior to the Closing Date: (a) by the mutual consent of UHC and ActaMed; (b) by UHC, if ActaMed and SubCorp shall (1) fail to perform in any material respect their agreements contained herein required to be performed by any of them on or prior to the Closing Date, or (2) materially breach any of their representations, warranties or covenants contained herein; (c) by ActaMed, if UHC or the Company shall (1) fail to perform in any material respect their agreements contained herein required to be performed by any of them on or prior to the Closing Date, or (2) materially breach any of their representations, warranties or covenants contained herein; (d) by either UHC or ActaMed if there shall be any order, writ, injunction or decree of any court or governmental or regulatory agency binding on ActaMed, SubCorp, the Company or UHC, which prohibits or restrains ActaMed, SubCorp, the Company and/or UHC from consummating the Merger, provided that ActaMed, SubCorp, the Company and UHC shall have used their best efforts to have any such order, writ, injunction or decree lifted and the same shall not have been lifted within thirty (30) days after entry, by any such court or governmental or regulatory agency; (e) pursuant to SECTION 11.4; or (f) without action of either party if the Closing has not occurred on or before April 30, 1996. 11.2 NOTICE OF TERMINATION. Notice of termination of this Agreement, as provided for in this ARTICLE 11, shall be given by the parties so terminating to the other parties hereto in accordance with SECTION 14.1 of this Agreement. 11.3 EFFECT OF TERMINATION. If this Agreement terminates pursuant to SECTION 11.1 (a), (d), (e) or (f), then this Agreement shall become void and of no further force and effect, and each party shall pay the costs and expenses incurred by it in connection with this Agreement as set forth in SECTION 6.14 and no party (nor any of its officers, directors, employees, agents, representatives or shareholders) shall be liable to any other party for any costs, expenses, damages (direct or indirect) or loss of anticipated profits. 11.4 RISK OF LOSS. The Company and UHC assume all risk of condemnation, destruction, loss or damage due to fire or other casualty from the date of this Agreement until the Closing. If the condemnation, destruction, loss, or damage is such that the business of the Company is interrupted or curtailed or the assets of the Company are -xlix materially affected, then ActaMed and SubCorp shall have the right to terminate this Agreement. If ActaMed and SubCorp nonetheless elect to close, the Company and UHC shall remit all net condemnation proceeds or third party insurance proceeds to ActaMed and SubCorp and the number of shares of Series C Preferred Stock to be delivered to UHC at the Closing shall be adjusted to reflect such condemnation, destruction, loss, or damage to the extent that insurance or condemnation proceeds are not sufficient to cover such destruction, loss or damage. If ActaMed and SubCorp and UHC are unable to agree upon the amount of such adjustment, the dispute shall be resolved jointly by the independent accounting firms then employed by ActaMed and SubCorp and the Company, and if said accounting firms do not agree, they shall appoint a nationally recognized accounting firm, whose determination of the dispute shall be final and binding. ARTICLE 12 ADDITIONAL COVENANTS OF ACTAMED ActaMed covenants and agrees that, except as provided in SECTION 12.1 below, until such time as ActaMed has consummated a Public Offering: 12.1 SECURITIES LAW FILINGS. Upon consummation of a Public Offering and for so long as the UHC holds the Conversion Shares, ActaMed will timely file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, to the extent required from time to time to enable the UHC to sell the Conversion Shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any UHC, ActaMed will deliver a written statement as to whether it has complied with such requirements. 12.2 TRANSACTIONS WITH SUBSTANTIAL HOLDERS. ActaMed shall not, directly or indirectly, knowingly enter into any material transaction or agreement with any of its Substantial Holders or any Affiliate or officer of ActaMed or a Substantial Holder, or a material transaction or agreement in which a Substantial Holder or Affiliate or officer of ActaMed or a Substantial Holder has a direct or indirect interest, unless such transaction or agreement is on terms and conditions no less favorable to ActaMed or any of its Subsidiaries than could be obtained at the time in an arm's length transaction with a third person that is not such a Substantial Holder or Affiliate or officer of ActaMed or a Substantial Holder, and such transaction or agreement has been reviewed and approved by a majority of those members of ActaMed's Board of Directors who have no such interest in the transaction. Except as provided in SECTION 14.4, this SECTION 12.2 shall not be enforceable against ActaMed by any person or entity not a party to this Agreement. 12.3 BUSINESS AND FINANCIAL COVENANTS. ActaMed covenants that: -l- (a) MERGER, ACQUISITIONS, SALE OF ASSETS. Without the prior written consent of the holders of a majority interest of the Series A Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock, each voting separately as a class: (1) ActaMed shall not merge, effect a statutory share exchange, or consolidate with any entity at a price per preferred share less than the Series C Conversion Price. (2) ActaMed shall not sell, assign, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter acquired) in a transaction that would result in a price per preferred share less than the Series C Conversion Price. (b) MERGER, ACQUISITIONS, SALE OF ASSETS. Without the prior written consent of the holders of a majority interest of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, voting as a single class: (1) ActaMed shall not merge, effect a statutory share exchange, or consolidate with any entity at a price per Preferred Share equal to or greater than the Series C Conversion Price. (2) ActaMed shall not sell, assign, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter acquired) in a transaction that would result in a price per preferred share equal to or greater than the Series C Conversion Price. (3) The Company shall not permit any of its Subsidiaries to merge, effect a statutory share exchange, or consolidate with any entity other than ActaMed, or to sell, assign, lease or otherwise dispose of, all or substantially all of its assets (whether now owned or hereafter acquired) except to ActaMed. (4) Except for (A) up to 500,000 shares of ActaMed Common Stock which may be issued pursuant to ActaMed's 1996 Stock Option Plan approved by the Board of Directors, (B) up to 100,000 shares of ActaMed Common Stock which may be issued pursuant to ActaMed's 1996 Directors Stock Option Plan approved by the Board of Directors, (C) up to 975,000 shares of ActaMed Common Stock which may be issued pursuant to ActaMed's 1995 Stock Option Plan approved by the Board of Directors, (D) any remaining shares which may be issued under ActaMed's 1994 Stock Option Plan, 1993 Stock Option Plan and 1992 Stock Option Plan, (E) the reissuance of any unvested options that terminate under such option plans, (F) the issuance of shares of ActaMed Common Stock pursuant to additional stock option plans that may be established from time to time by the Board of Directors of ActaMed in its discretion, and (E) the conversion of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, ActaMed will not, and will not permit any of its Subsidiaries, to hereafter issue or sell any shares of any securities convertible into, or any warrants, rights, -li- or options to purchase shares of, the capital stock of ActaMed or such Subsidiary to any person or entity other than ActaMed, and ActaMed will not pledge any of the capital stock of any Subsidiary to any person or entity. (c) LOANS TO AND INVESTMENTS IN OTHERS. ActaMed shall not (except for the advancement of money for expenses in the ordinary course of business) make, or permit any of its Subsidiaries to make, any loans or advances to any person or entity or have outstanding any investment in any entity, whether by way of loan or advance to, or by the acquisition of the capital stock, assets or obligations of or any interest in, any person or entity. (d) RESTRICTED PAYMENTS, REPURCHASE OF ACTAMED COMMON STOCK. Except as expressly permitted herein or by the Restated Articles, neither ActaMed nor any of its Subsidiaries shall declare or make any Restricted Payments. (e) ARTICLES OF INCORPORATION. Neither ActaMed nor any of its Subsidiaries will amend or change its Articles of Incorporation or Bylaws, or violate or breach any of the provisions thereof. (f) Without the consent of a majority of the Board of Directors: (1) DEBT. ActaMed shall not create, incur or suffer to exist, or permit any Subsidiary to create, incur or suffer to exist, any debt other than: (A) debt existing on the date hereof and included in the ActaMed Financial Statements or incurred in the ordinary course of business between the date of the ActaMed Financial Statements and the date hereof, and any renewals or replacements of such debt not exceeding the principal amount of the debt being replaced or renewed; and (B) debt not in excess of $1,000,000 in the aggregate in any one calendar year. (2) LEASE OBLIGATIONS. ActaMed shall not create or suffer to exist, or permit any Subsidiary to create or suffer to exist, any obligations for the payment of rent for any property under leases or agreements to lease, other than obligations for (A) the payment of rent which, in the aggregate, do not exceed $1,000,000 annually and (B) payments under leases set forth on SCHEDULE 5.21. (3) ACQUISITIONS. ActaMed shall not acquire, or permit any Subsidiary to acquire, directly or indirectly, the assets of or equity interests in any other business or entity, whether by purchase, merger consolidation or otherwise in excess of $1,000,000. -lii- (4) PUBLIC OFFERING. ActaMed shall not effect an initial public offering of any equity securities, other than equity securities issued in a merger, less than $15,000,000 at a per share price of less than 2.5 times the then existing conversion price of the Series A Preferred Stock. 12.4 CORPORATE EXISTENCE, BUSINESS, MAINTENANCE, INSURANCE. (a) ActaMed will at all times preserve and keep in full force and effect its corporate existence and rights and franchises deemed material to its business and those of its Subsidiaries, except any Subsidiary of ActaMed may be merged into ActaMed or another Subsidiary. (b) ActaMed shall engage solely in the business of developing information networks and businesses closely related thereto. ActaMed (and any Subsidiary) will not purchase or acquire any property other than property useful in and related to such business. (c) ActaMed will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of ActaMed and any Subsidiary and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. ActaMed and any Subsidiary will at all times comply in all material respects with the provisions of all material leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder. (d) ActaMed will maintain or cause to be maintained, with financially sound and reputable insurers, appropriate insurance with respect to its properties and business and the properties and business of any Subsidiary against loss or damage. 12.5 PAYMENT OF TAXES, ETC.; ERISA. (a) ActaMed will pay, and will cause any of its Subsidiaries to pay, all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a lien or charge upon any of its properties or assets, PROVIDED that no such charge or claim need be paid if being contested in good faith by appropriate proceedings and if such reserve or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made therefor. (b) ActaMed and any of its Subsidiaries will comply in all material respects with the ERISA. -liii- 12.6 BOOKS AND RECORDS, COMPLIANCE. (a) ActaMed and any of its Subsidiaries will keep true records and books of account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with GAAP applied on a consistent basis. (b) ActaMed and any of its Subsidiaries shall duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its property or assets. 12.7 REPURCHASE OF PREFERRED SHARES. Except as provided in the Restated Articles, ActaMed shall not, and shall not permit any of its Subsidiaries or any Affiliate of ActaMed to, directly or indirectly, redeem or repurchase or make any offer to redeem or repurchase any Preferred Shares, unless ActaMed, such Subsidiary or such Affiliate has offered to repurchase Preferred Shares PRO RATA, from all holders of outstanding Preferred Shares) upon the same terms. 12.8 COMPENSATION. All awards of compensation, including, but not limited to, salary, bonus and awards of stock options made to executive officers and/or directors of ActaMed shall be determined by ActaMed in accordance with the terms of the Stockholders' Agreement. ARTICLE 13 INFORMATIONAL COVENANTS OF ACTAMED ActaMed covenants and agrees that it shall deliver the following information to UHC (including permitted transferees in accordance with SECTION 14.4, except as set forth in SECTION 13.6), for so long as UHC (or such transferees) shall hold at least 5% of the aggregate outstanding Preferred Shares and Conversion Shares (considered as a single class), or until such time as ActaMed shall have consummated a Public Offering: 13.1 AUDITED ANNUAL FINANCIAL STATEMENTS. As soon as practicable and, in any case, within one hundred and twenty (120) days after the end of each fiscal year, financial statements of ActaMed, consisting of the balance sheet of ActaMed as of the end of such fiscal year and the statements of operations, statements of shareholders, equity and statements of cash flows of ActaMed for such fiscal year, setting forth in each case, in comparative form, the figures for the preceding fiscal year, all in reasonable detail and fairly presented in accordance with GAAP applied on a consistent basis throughout the periods reflected therein, except as stated therein, and accompanied by an opinion thereon of Deloitte & Touche, or other independent certified public accountants selected by ActaMed of good and recognized national standing in the United States. -liv- 13.2 QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As soon as practicable and, in any case, within forty-five (45) days after the end of each of the first three fiscal quarters in each fiscal year, unaudited financial statements of ActaMed setting forth the balance sheet of ActaMed at the end of each such fiscal quarter and the statements of operations and statements of cash flows of ActaMed for each such fiscal quarter and for the year to date, and setting forth in comparative form figures as of the corresponding date and for the corresponding periods of the preceding fiscal year, all in reasonable detail and certified by an accounting officer of ActaMed as complete and correct, as having been prepared in accordance with GAAP consistently applied (except as otherwise disclosed therein) and as presenting fairly, in all material respects, the financial position of ActaMed and any of its Subsidiaries and results of operations and cash flows thereof subject, in each case, to customary exceptions for interim unaudited financial statements. 13.3 MONTHLY UNAUDITED FINANCIAL STATEMENTS. As soon as available, but in any event within thirty (30) days after the end of each calendar month, copies of the unaudited balance sheet of ActaMed as at the end of such calendar month and the related unaudited statements of operations and cash flows for such calendar month and the portion of the calendar year through such calendar month, in each case setting forth in comparative form the figures for the corresponding periods of (a) the previous calendar year and (b) the budget for the current year, prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as otherwise disclosed therein) and certified by the chief financial officer of ActaMed as presenting fairly the financial condition and results of operations of ActaMed and any of its Subsidiaries (subject to customary exceptions for interim unaudited financial statements). 13.4 MANAGEMENT'S ANALYSIS. All the financial statements delivered pursuant to SECTIONS 13.1 and 13.2 shall be accompanied by an informal narrative description of material business and financial trends and developments and significant transactions that have occurred in the appropriate period or periods covered thereby. 13.5 BUDGETS. As soon as practicable, but in any event within thirty (30) days prior to the commencement of a fiscal year, an annual operating budget for such fiscal year, approved by the Board of Directors, including monthly income and cash flow projections and projected balance sheets as of the end of each quarter within such fiscal year. Extensions of such due date shall not be unreasonably withheld. 13.6 INSPECTION. Upon reasonable notice, ActaMed shall, and shall cause any of its Subsidiaries to, permit UHC (so long as it owns 5% more of the outstanding capital stock of ActaMed) by its representatives, agents or attorneys: (a) to examine all books of account, records, reports and other papers of ActaMed or such Subsidiary except to the extent that such action would, in the reasonable opinion of counsel, constitute a waiver of the attorney/client privilege, -lv- (b) to make copies and take extracts from any thereof, except for information which is confidential or proprietary, (c) to discuss the affairs, finances and accounts of ActaMed or such Subsidiary with ActaMed's or such Subsidiary's officers and independent certified public accountants (and by this provision ActaMed hereby authorizes said accountants to discuss with UHC and its representatives, agents or attorneys the finances and accounts of ActaMed or such Subsidiary), and (d) to visit and inspect, at reasonable times and on reasonable notice during normal business hours, the properties of ActaMed and such Subsidiary. Notwithstanding any provision herein to the contrary, the provisions of this SECTION 13.6 are in addition to any rights of UHC under the Georgia Business Corporation Code and shall in no way limit such rights. The expenses of UHC in connection with any such inspection shall be for the account of UHC. Notwithstanding the foregoing sentence, it is understood and agreed by ActaMed that all reasonable expenses incurred by ActaMed or such Subsidiary, any officers, employees or agents thereof or the independent certified public accountants therefor, shall be expenses payable by ActaMed and shall not be expenses of UHC making the inspection. Notwithstanding anything to the contrary, no member of the UHC Group shall be permitted access to any information of, or related to, any competitor of UHC. 13.7 OTHER INFORMATION. ActaMed shall deliver the following provided that in the reasonable opinion of counsel to ActaMed such disclosure will not constitute a waiver of the attorney/client privilege, the breach of any secrecy covenant or the release of information regarding competitors of UHC: (a) promptly after the submission thereof to ActaMed, copies of any detailed reports (including the auditors' comment letter to management, if any such letter is prepared) submitted to ActaMed by its independent auditors in connection with each annual or interim audit of the accounts of ActaMed made by such accountants; (b) promptly, and in any event within ten (10) days after obtaining knowledge thereof, notice of the institution of any suit, action or proceeding (other than a proceeding of general application which is not directly against ActaMed or one or more of the Subsidiaries), the happening of any event or, to the best knowledge of ActaMed, the assertion or threat of any claim against ActaMed or any of the Subsidiaries which, either individually or in the aggregate, would have a Material Adverse Effect; (c) promptly upon, and in any event within thirty (30) days after obtaining knowledge thereof, notice of any breach of, default under or failure to comply with any material term under SECTIONS 12 or 13 of this Agreement or any material adverse -lvi- change in ActaMed's relationship with its major customers, suppliers, employees or other entity with which ActaMed has a business relationship; (d) with reasonable promptness, a notice of any default by ActaMed or any of its Subsidiaries under any material agreement to which it is a party; (e) with reasonable promptness, copies of all written materials furnished to directors; (f) promptly (but in any event within ten (10) days) after the filing of any document or material with the SEC, a copy of such document or material; (g) promptly after the record date set by the Board of Directors to determine the stockholders entitled to vote at ActaMed's annual meeting of stockholders (but in any event ten (10) days prior to such meeting), a list of all stockholders of ActaMed and their respective holdings; and (h) promptly upon request therefor, such other data, filings and information as any UHC may from time to time reasonably request. ARTICLE 14 GENERAL PROVISIONS 14.1 NOTICES. (a) All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given if (1) delivered by hand or if mailed by United States registered or certified mail, return receipt requested, first class postage prepaid, (2) sent by Federal Express or similar overnight courier service to the parties or their assignees, or (3) sent by telecopy to the number set forth below and promptly followed by a written copy sent by any other means specified herein, addressed as follows: If to UHC or the Company: United Healthcare Corporation Inc. 9900 Bren Road East Minneapolis, Minnesota 55440-1459 Attention: Chief Information Officer Telephone: (___)____________ Telecopy: (___)_____________ If to ActaMed and/or SubCorp: -lvii- ActaMed Corporation Suite 600 7000 Central Parkway Atlanta, Georgia 30328 Attention: Chief Financial Officer Telephone: (770) 551-1600 Telecopy: (770) 551-1815 with a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: J. Vaughan Curtis, Esq. Telephone: (404) 881-7000 Telecopy Number: (404) 881-7777 (b) If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made and, if delivered by mail, telecopy, Federal Express or other overnight courier, the date on which such notice, request, instruction or document is first received shall be the date of delivery. (c) Any party hereto may change its address specified for notices herein by designating a new address by notice in accordance with this SECTION 14.1. (d) Failure of any party to send a copy of any notice to counsel for the other party shall not affect in any way the validity of such notice to other party. 14.2 FURTHER ASSURANCES. Each party covenants that at any time, and from time to time, after the Closing Date, it will execute such additional instruments and take such actions as may be reasonably requested by the other parties to confirm or perfect or otherwise to carry out the intent and purposes of this Agreement. 14.3 WAIVER. Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder may be waived by any other party to whom such compliance is owed. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. 14.4 ASSIGNMENT. This Agreement shall not be assignable by any of the parties hereto without the written consent of the other parties hereto, and no rights under this Agreement may be transferred, except that: -lviii- (a) the rights of ActaMed under this Agreement may be transferred to any successor, by purchase of assets, merger or other corporate reorganization; (b) the rights of UHC under this Agreement may be transferred after the Closing in connection with a transfer of Preferred Shares made in accordance with the provisions of the Stockholders' Agreement (other than a transfer pursuant to a registration statement under the Securities Act or a transfer pursuant to Rule 144 thereunder); and (c) all the rights of UHC may be transferred to an Affiliate of UHC; PROVIDED, that any such transferee of UHC shall execute and deliver to ActaMed an instrument satisfactory to it agreeing to be bound by the provisions hereof and of the Stockholders' Agreement and the Registration Rights Agreement. 14.5 BINDING EFFECT. Subject to the limitations on transfer set forth in SECTION 14.4, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, executors, administrators, successors and assigns. 14.6 KNOWLEDGE. The use of the terms "to ActaMed's knowledge" or "to the best of ActaMed's knowledge" shall mean the facts known to P.E. Sadler, Michael K. Hoover, and Nancy J. Ham after reasonable inquiry. 14.7 HEADINGS. The section and other headings in this Agreement are inserted solely as a matter of convenience and for reference, and are not a part of this Agreement. 14.8 ENTIRE AGREEMENT. This Agreement and the Exhibits, Schedules, certificates and other documents delivered pursuant hereto or incorporated herein by reference, contain and constitute the entire agreement among the parties hereto and supersede and cancel any prior agreements, representations, warranties, or communications, whether oral or written, among the parties hereto relating to the transactions contemplated hereby or the subject matter herein. This Agreement may be changed, waived, discharged or terminated only by an agreement in writing signed by (A) ActaMed and (B) UHC or, after the Closing Date, the holder(s) of a majority of the Preferred Shares and any Conversion Shares considered as a single class. 14.9 GOVERNING LAW. Except as set forth in SECTION 6.12, this Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. 14.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.11 PRONOUNS. All pronouns used herein shall be deemed to refer to the masculine, feminine or neutral gender as the context requires. -lix- 14.12 TIME OF ESSENCE. Time is of the essence in this Agreement. 14.13 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this Agreement are by this reference made a part hereof. -lx- [SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER DATED MARCH 1, 1996 BY AND AMONG ACTAMED CORPORATION, SUBCORP, INC., UHC GREEN ACQUISITION, INC. AND UNITED HEALTHCARE CORPORATION] IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day and year first above written. ACTAMED CORPORATION EDI ACQUISITION, INC. By : /s/ MICHAEL K. HOOVER By: /s/ MICHAEL K. HOOVER --------------------------- ---------------------------- Name: Michael K. Hoover Name: Michael K. Hoover -------------------- --------------------- Title: President Title: President ------------------- -------------------- UNITED HEALTHCARE UHC GREEN ACQUISITION, INC. CORPORATION By : /s/ TRAVERS H. WILLS By: /s/ TRAVERS H. WILLS --------------------------------- ------------------------------- Name: Travers H. Wills Name: Travers H. Wills -------------------------- --------------------------- Title: Chief Operating Officer Title: Chief Operating Officer -------------------------- --------------------------- -lxi- EXHIBIT A DEFINED TERMS "ACTAMED" - ActaMed Corporation, a Georgia corporation. "ACTAMED BUSINESS" - The business of selling and developing information systems and related technology for the healthcare industry. "ACTAMED COMMON STOCK" - The $.01 par value common stock of ActaMed. "ACTAMED DOCUMENTS" - All of the Transaction Documents to which either ActaMed or SubCorp is a party. "ACTAMED FINANCIAL STATEMENTS" - The materials described in SECTION 5.4(a) of this Agreement. "ACTAMED INDEMNITEE" - ActaMed and SubCorp and their respective directors, officers, employees, affiliates and assigns. "AFFILIATE" - Any person, firm, corporation, partnership or association controlling, controlled by or under common control with another person, firm, corporation, partnership or association. "AGREEMENT" - This Agreement and Plan of Merger, including the Exhibits and Schedules delivered pursuant hereto. "BENEFIT PLAN" - An employee benefit plan or agreement of a person for the benefit of its shareholders, officers, directors, employees, or independent contractors, including, without limitation, (a) any affirmative action plans or programs, (b) any current and deferred compensation, severance, vacation, stock purchase, stock option, bonus and incentive compensation benefits, (c) any "employee benefit plan" (as defined in ERISA Section 3(3)) and (d) any medical, hospital, life, health, accident, disability, death and other fringe and welfare benefits, including any split-dollar life insurance policies, all of which plans, programs, practices, policies and other individual and group arrangements and agreements, including any unwritten compensation, fringe benefit, payroll or employment practices, procedures or policies of any kind or description. "CLAIM" - Any claim for indemnification under ARTICLE 9, including but not limited to a General Claim, a Tax Claim or an Ownership Claim. "CLAIMS NOTICE" - A written notice of an indemnification claim delivered pursuant to SECTION 9.5 hereof. "CLOSING" - The closing referred to in SECTION 1.2 hereof. A-1 "CLOSING DATE" - The date referred to in SECTION 1.2 hereof for the closing of the transactions contemplated by this Agreement. "CODE" - The Internal Revenue Code of 1986, as amended. "COMPANY" - UHC Green Acquisition, Inc., a Nevada corporation. "COMPANY BUSINESS" - The business of providing electronic data interchange products and services to the health care industry, excluding EmployerLink and LaborLink, whether conducted by the Company or any other member of the UHC Group. "COMPANY COMMON STOCK" - The common stock, $.01 par value, of the Company. "CONTRACT" - Any written or oral contract, agreement, lease, plan, instrument or other document, commitment, arrangement, undertaking, practice or authorization that is or may be binding on any person or its property under applicable law. "CONVERSION SHARES" - The shares of ActaMed Common Stock issued or issuable upon the conversion of the Preferred Shares. "COURT ORDER" - Any judgment, decree, writ, injunction, order or ruling of any federal, state or local court or governmental or regulatory body or authority that is binding on any person or its property under applicable law. "DEFAULT" - (a) a breach of or default under any Contract or License, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract or License, or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract or License. "EDI FINANCIAL STATEMENTS" - The materials described in SECTION 4.6(a) of this Agreement. "EFFECTIVE TIME" - The date and time at which the Merger becomes effective pursuant to SECTION 1.3 of this Agreement. "ENVIRONMENTAL CONDITION" - (a) The introduction into the environment of any pollution, including without limitation any contaminant, irritant or pollutant or other toxic or hazardous substance (whether or not such pollution constituted at the time thereof a violation of any federal, state or local law, ordinance or governmental rule or Regulation) as a result of any spill, discharge, leak, emission, escape, injection, dumping or release of A-2 any kind whatsoever of any substance or exposure of any type in any work places or to any medium, including without limitation air, land, surface waters or ground waters, or from any generation, transportation, treatment, discharge, storage or disposal of waste materials, raw materials, hazardous materials, toxic materials or products of any kind or from the storage, use or handling of any hazardous or toxic materials or other substances, as a result of which the Company has or may become liable to any person by any reason of which any of the assets of the Company may suffer or be subjected to any Lien, or (b) any noncompliance with any federal, state or local environmental law, rule, Regulation or order as a result of or in connection with any of the foregoing. "ERISA" - The Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" - The Securities Exchange Act of 1934, as amended. "FASB 5" - Statement of Financing Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975. "GAAP" - Generally accepted accounting principles. "GENERAL CLAIM" - Any claim other than a Tax Claim, Ownership Claim or Undisclosed Liability Claim based upon, arising out of or otherwise in respect of: any inaccuracy in any representation or warranty or any breach of any covenant or agreement made or to be performed by a party pursuant to this Agreement. "HIRED EMPLOYEES" - The employees assigned to the Company Business and identified on SCHEDULE 6.5. "HIRED HOLD-OVER EMPLOYEE" - See SECTION 6.4 of this Agreement. "HSR ACT" - Section 7A of the Clayton Act, as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "INDEMNITEE" - A party seeking indemnification under SECTIONS 9.3 or 9.4. "INDEMNIFYING PARTY" - The party obligated to provide indemnification pursuant to SECTIONS 9.3 or 9.4. "INTELLECTUAL PROPERTY" - Copyrights, trademarks, service marks, trade names, patents, applications therefor, technology rights and licenses, computer software (including, without limitation, any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions and intellectual property rights. A-3 "IRS" - The Internal Revenue Service. "LIABILITY" - Any direct or indirect liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of or by any person (other than endorsements of notes, bills and checks presented to banks for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute, contingent, matured, unmatured or other. "LICENSE" - Any license, franchise, notice, permit, easement, right, authorization or filing. "LIEN" - Any mortgage, lien, security interest, pledge, encumbrance, restriction on transferability, defect of title, charge or claim of any nature whatsoever on any property or property interest. "LITIGATION" - Any lawsuit, action, claim, arbitration, administrative or other proceeding, criminal prosecution or governmental investigation or inquiry involving or affecting the Company or its business, assets or Contracts to which the Company is a party or by which it or its business, assets or Contracts may be bound or affected. "LOSSES" - Any and all demands, claims, actions or causes of action, assessments, losses, diminution in value, damages (including special and consequential damages), liabilities, costs, and expenses, including without limitation, interest, penalties, cost of investigation and defense, and reasonable attorneys' and other professional fees and expenses. "MATERIAL ADVERSE EFFECT" - With respect to ActaMed, a material adverse effect on the ability of ActaMed to conduct the ActaMed Business or the impairment of ActaMed's ability to perform its obligations under the ActaMed Documents. "MERGER" - The merger of SubCorp with and into the Company pursuant to this Agreement. "OWNERSHIP CLAIM" - Any claim arising out of or otherwise in respect of any inaccuracy in the representations and warranties set forth in SECTIONS 4.1, 4.2, 4.3, 4.4 or 4.16 or 5.2 or 5.7 of this Agreement. "PUBLIC OFFERING" - A bona fide firm commitment underwritten offering of ActaMed Common Stock pursuant to a registration statement filed with and declared effective by the SEC. "PREFERRED SHARES" - The shares of Series C Preferred Stock issued to UHC pursuant to SECTION 3.1(a). A-4 "REGISTRATION RIGHTS AGREEMENT" - The Registration Rights Agreement dated May 3, 1994, by and among ActaMed and the signatures thereto, as amended. "REGISTRATION RIGHTS AGREEMENT AMENDMENT" - The agreement referenced in SECTION 1.4(a)(2) hereof. "REGULATION" - Any statute, law, ordinance, regulation, order or rule of any federal, state, local or other governmental agency or body or of any other type of regulatory body, including, without limitation, those covering environmental, energy, safety, health, transportation, bribery, recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters. "RESTATED ARTICLES" Before the Closing, the Second Amended and Restated Articles of Incorporated of ActaMed and, after the Closing, the Third Amended and Restated Articles of Incorporation of ActaMed. "RESTRICTED PAYMENT" means (a) any payment or the incurrence of any liability to make any payment in cash, property or other assets as a dividend or other distribution in respect of any shares of capital stock of ActaMed or any Subsidiary, excluding, however, any dividends payable to ActaMed by a Subsidiary or dividends which may be payable solely in ActaMed Common Stock of ActaMed or any Subsidiary and (b) except as otherwise permitted by the Transaction Documents or a stock option agreement under the Stock Option Plans, any payment or the incurrence of any liability to make any payment in cash, property or other assets for the purposes of purchasing, retiring or redeeming any shares of any class of capital stock of ActaMed or any Subsidiary or any warrants, options or other rights to purchase any such shares. "SCHEDULE" - Any of the disclosure schedules referred to in ARTICLES 4 or 5. "SEC" - The Securities and Exchange Commission. "SECURITIES ACT" - The Securities Act of 1933, as amended. "SERIES A PREFERRED STOCK" - The Series A Convertible Preferred Stock of ActaMed. "SERIES B PREFERRED STOCK" - The Series B Convertible Preferred Stock of ActaMed. "SERIES C PREFERRED STOCK" - The Series C Convertible Preferred Stock of ActaMed. "SERVICES AND LICENSE AGREEMENT" - The agreement referenced in SECTION 1.4(a)(1) hereof. A-5 "SHAREHOLDERS' AGREEMENT AMENDMENT" - The agreement referenced in SECTION 1.4(a)(3) hereof. "SHARES" - The total of 1,000 shares of Company Common Stock constituting in the aggregate one hundred percent (100%) of the issued and outstanding common stock of the Company. "STANDSTILL AGREEMENT AMENDMENT" - The agreement referenced in SECTION 1.4(a)(4) hereof. "SUBCORP" - EDI Acquisition, Inc., a Georgia corporation. "SUBSIDIARY" - A corporation, limited liability company, partnership, association, trust, joint venture or other entity in which ActaMed or the Company, as the case may be, has, directly or indirectly, an equity, ownership or proprietary interest of greater than ten percent (10%). "SUBSTANTIAL HOLDER" - An officer or employee of ActaMed or SubCorp who is the beneficial owner of one percent (1%) or more of the outstanding voting power or the outstanding equity (on a fully diluted basis) of ActaMed. "SURVIVING CORPORATION" - The Company, as the surviving corporation of the Merger, after the Merger. "TAX CLAIM" - Any claim based upon, arising out of or otherwise in respect of any inaccuracy in any representation or warranty or breach of any covenant or agreement made or to be performed by a party pursuant to this Agreement related to any Taxes. "TAXES" - Any federal, state, county, local and other taxes, including without limitation, income taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes, taxes on earnings and profits, employment and payroll related taxes, property taxes, real property transfer taxes, Federal Insurance Contributions Act taxes, taxes on value added and import duties, whether or not measured in whole or in part by net income, imposed by the United States or any political subdivision thereof or by any jurisdiction other than the United States or any political subdivision thereof. "THIRD PARTY CLAIM" - Any claim, suit or proceeding (including, without limitation, a binding arbitration or an audit by any taxing authority) that is instituted against an Indemnitee by a person or entity other than an Indemnitor and which, if prosecuted successfully, would result in a Loss for which such Indemnitee is entitled to indemnification hereunder. A-6 "TRANSACTION DOCUMENTS" - This Agreement and the documents exchanged by the parties at the Closing. "TRANSITION SERVICES AGREEMENT" - The agreement referenced in SECTION 1.4(a)(5) hereof. "UHC" - United Healthcare Corporation, a Minnesota corporation. "UHC DOCUMENTS" - All of the Transaction Documents to which either UHC or the Company is a party. "UHC GROUP" - UHC and its Affiliates. "UHC INDEMNITEE" - UHC and its directors, officers, employees, affiliates and assigns. "UNDISCLOSED LIABILITY CLAIM" - Any claim arising out of or otherwise in respect of any inaccuracy in the representations and warranties set forth in SECTIONS 4.7, 4.8, 4.10, 4.20 or 4.23. A-7 AMENDMENT TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT (this "Amendment") to the Agreement and Plan of Merger dated March 1, 1996 (the "Plan of Merger") is entered into this 4th day of April, 1996, by and among ActaMed Corporation, EDI Acquisition, Inc., United HealthCare Corporation and EDI Services, Inc. (formerly UHC Green Acquisition, Inc.). Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Plan of Merger. WHEREAS, the parties hereto desire to amend the Plan of Merger as set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. SECTION 1.2. The second sentence of Section 1.2 of the Plan of Merger is hereby deleted and is replaced in its entirety by the following sentence: "Notwithstanding the foregoing, if the Closing does not occur on the first day of a month, then solely for financial accounting and reporting purposes, the parties hereto agree that the transactions contemplated herein shall be deemed to have closed as of the first day of the month in which the Closing occurs or the last day of the preceding month, as appropriate; provided that the parties hereto agree that for all other purposes, including, without limitation, risk of loss, the Closing shall occur, and shall be deemed to have occurred on the actual date of the Closing." 3. SECTION 3.3. The following Section 3.3 is hereby added to the Plan of Merger: "3.3 BASIS OF ASSETS OF THE COMPANY. Actamed and UHC recognize and agree that the prearranged transfer by UHC of the assets to the Company in contemplation of and in connection with the sale of the stock of the Company to Actamed is not a transaction described in Section 351 of the Internal Revenue Code, that such transfer to the Company is taxable to UHC as a taxable transfer of assets to the Company and the Company has a fair market value basis in the assets received in the transfer from UHC immediately prior to the time of the transaction contemplated hereby. UHC and Actamed agree to report the foregoing transactions in a manner consistent herewith. In addition, and in order to assure that Actamed shall have a basis in the assets of the Company equal to the amount paid pursuant to this Agreement, in lieu of the foregoing reporting and at Actamed's request, Actamed and UHC will make a timely election under Section 338(h)(10) of the Internal Revenue Code and any corresponding elections under state or local tax law. Actamed and UHC shall cooperate in taking all actions necessary to report the transaction as described above, or at Actamed's request to effect the election, including the execution and preparation of all forms, returns, elections and schedules and other documents and instruments. Any allocation of basis among the assets of the Company shall be initially prepared by UHC and consented to by Actamed. Any such allocation shall, for tax purposes, be binding on Actamed and UHC and no party shall take any position inconsistent with such allocation. UHC and Actamed agree that any liability for Tax arising out of or in any way attributable to the sale or deemed sale of assets by UHC shall be for the sole account of the UHC." 2. SECTION 4.1. The last sentence of Section 4.1 of the Plan of Merger is hereby deleted and is replaced in its entirety by the following sentence: "Substantially all of the assets required for the operation of the Company Business were transferred to the Company on December 15, 1995, and the Company did not have any operations prior to such date." IN WITNESS WHEREOF, the undersigned parties have executed this Amendment as of the day and year first above written. ACTAMED CORPORATION By: /S/ MICHAEL K. HOOVER ------------------------------ Michael K. Hoover, President EDI ACQUISITION, INC. By: /S/ MICHAEL K. HOOVER ------------------------------ Michael K. Hoover, President UNITED HEALTHCARE CORPORATION By: /s/ TRAVERS H. WILLS ------------------------------ Title: Chief Operating Officer --------------------------- EDI SERVICES, INC. By: /s/ TRAVERS H. WILLS ------------------------------ Title: Chief Operating Officer --------------------------- EX-2.2 4 EX-2.2 ASSET PURCHASE AGREEMENT BY AND AMONG HEALTHEON CORPORATION METIS ACQUISITION CORP. AND METIS, LLC DATED AS OF JUNE 25, 1998 TABLE OF CONTENTS PAGE ARTICLE I - THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . 1 1.1 Purchase of Assets . . . . . . . . . . . . . . . . . . . 1 1.2 Retained Assets. . . . . . . . . . . . . . . . . . . . . 3 1.3 Assumed Liabilities. . . . . . . . . . . . . . . . . . . 3 1.4 Retained Liabilities . . . . . . . . . . . . . . . . . . 3 1.5 Purchase Price . . . . . . . . . . . . . . . . . . . . . 4 1.6 Cash Payment . . . . . . . . . . . . . . . . . . . . . . 4 1.7 Closing. . . . . . . . . . . . . . . . . . . . . . . . . 4 1.8 Execution and Delivery of Documents of Title by the Company; Further Assurances . . . . . . . . . . . . . . 4 1.9 Tax Free Reorganization. . . . . . . . . . . . . . . . . 4 ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . 5 2.1 Organization of the Company. . . . . . . . . . . . . . . 5 2.2 Company Capital Structure. . . . . . . . . . . . . . . . 5 2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 5 2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . 5 2.5 Financial Statements . . . . . . . . . . . . . . . . . . 6 2.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . 6 2.7 No Changes . . . . . . . . . . . . . . . . . . . . . . . 7 2.8 Tax and Other Returns and Reports. . . . . . . . . . . . 8 2.9 Restrictions on Business Activities. . . . . . . . . . . 9 2.10 Title to Properties; Absence of Liens and Encumbrances .10 2.11 Intellectual Property. . . . . . . . . . . . . . . . . .10 2.12 Agreements, Contracts and Commitments. . . . . . . . . .11 2.13 Interested Party Transactions. . . . . . . . . . . . . .13 2.14 Compliance with Laws . . . . . . . . . . . . . . . . . .13 2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . .13 2.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . .13 2.17 Minute Books . . . . . . . . . . . . . . . . . . . . . .13 2.18 Environmental Matters. . . . . . . . . . . . . . . . . .13 2.19 Brokers' and Finders' Fees; Third Party Expenses . . . .14 2.20 Employee Matters and Benefit Plans . . . . . . . . . . .14 2.21 Representations Complete . . . . . . . . . . . . . . . .17 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF HEALTHEON AND ACQUISITION SUB . . . . . . . . . . . . . . . . . . . . .17 3.1 Organization of Healtheon and Acquisition Sub. . . . . .17 3.2 Healtheon and Acquisition Sub Capital Structure. . . . .18 3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . .18 3.4 Authority. . . . . . . . . . . . . . . . . . . . . . . .18 -i- TABLE OF CONTENTS (CONTINUED) PAGE 3.5 Financial Statements . . . . . . . . . . . . . . . . . .19 3.6 No Undisclosed Liabilities . . . . . . . . . . . . . . .19 3.7 No Changes . . . . . . . . . . . . . . . . . . . . . . .19 3.8 Tax and Other Returns and Reports. . . . . . . . . . . .21 3.9 Restrictions on Business Activities. . . . . . . . . . .22 3.10 Title to Properties; Absence of Liens and Encumbrances .22 3.11 Intellectual Property. . . . . . . . . . . . . . . . . .22 3.12 Agreements, Contracts and Commitments. . . . . . . . . .23 3.13 Interested Party Transactions. . . . . . . . . . . . . .24 3.14 Compliance with Laws . . . . . . . . . . . . . . . . . .25 3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . .25 3.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . .25 3.17 Minute Books . . . . . . . . . . . . . . . . . . . . . .25 3.18 Environmental Matters. . . . . . . . . . . . . . . . . .25 3.19 Brokers' and Finders' Fees; Third Party Expenses . . . .26 3.20 Employee Matters and Benefit Plans . . . . . . . . . . .26 3.21 Representations Complete . . . . . . . . . . . . . . . .28 ARTICLE IV - CONDUCT PRIOR TO THE CLOSING. . . . . . . . . . . . .29 4.1 Conduct of Business of the Company . . . . . . . . . . .29 4.2 No Company Solicitation. . . . . . . . . . . . . . . . .31 ARTICLE V - ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . .31 5.1 Company Member Approvals . . . . . . . . . . . . . . . .31 5.2 Access to Information. . . . . . . . . . . . . . . . . .32 5.3 Confidentiality. . . . . . . . . . . . . . . . . . . . .32 5.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . .32 5.5 Public Disclosure. . . . . . . . . . . . . . . . . . . .32 5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . .33 5.7 Reasonable Efforts . . . . . . . . . . . . . . . . . . .33 5.8 Notification of Certain Matters. . . . . . . . . . . . .33 5.9 Certain Benefit Plans. . . . . . . . . . . . . . . . . .33 5.10 Additional Documents and Further Assurances. . . . . . .33 5.11 Company's Auditors . . . . . . . . . . . . . . . . . . .33 5.12 Mutual Release . . . . . . . . . . . . . . . . . . . . .33 ARTICLE VI - CONDITIONS TO THE ASSET PURCHASE. . . . . . . . . . .34 6.1 Conditions to Obligations of Each Party to Effect the Asset Purchase . . . . . . . . . . . . . . . . . . .34 6.2 Additional Conditions to Obligations of the Company. . .34 6.3 Additional Conditions to the Obligations of Healtheon and Acquisition Sub. . . . . . . . . . . . . . . . . . .35 -ii- TABLE OF CONTENTS (CONTINUED) PAGE ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW .36 7.1 Survival of Representations and Warranties . . . . . . .36 7.2 Escrow Arrangements and Indemnification. . . . . . . . .37 7.3 Indemnification by Healtheon and Acquisition Sub . . . .42 ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER . . . . . . . . .43 8.1 Termination. . . . . . . . . . . . . . . . . . . . . . .43 8.2 Effect of Termination. . . . . . . . . . . . . . . . . .44 8.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . .44 8.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . .44 ARTICLE IX - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . .44 9.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . .44 9.2 Interpretation . . . . . . . . . . . . . . . . . . . . .45 9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . .45 9.4 Transfer Taxes . . . . . . . . . . . . . . . . . . . . .45 9.5 Entire Agreement; Assignment . . . . . . . . . . . . . .46 9.6 Severability . . . . . . . . . . . . . . . . . . . . . .46 9.7 Other Remedies . . . . . . . . . . . . . . . . . . . . .46 9.8 Governing Law. . . . . . . . . . . . . . . . . . . . . .46 9.9 Rules of Construction. . . . . . . . . . . . . . . . . .46 9.10 Specific Performance . . . . . . . . . . . . . . . . . .46 -iii- INDEX OF EXHIBITS EXHIBIT DESCRIPTION Exhibit A Assignment and Assumption Agreement Exhibit B Bill of Sale Exhibit C Legal Opinion of Counsel to Healtheon Exhibit D Legal Opinion of Counsel to the Company Exhibit E Noncompetition Agreement INDEX OF SCHEDULES Schedule Description -iv- ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of June 25, 1998 among Healtheon Corporation, a Delaware corporation ("HEALTHEON"), Metis Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Healtheon ("ACQUISITION SUB"), Metis, LLC, a California limited liability company (the "COMPANY"), and, with respect to Article VII, Edward J. Fotsch, M.D., as Securityholder Agent and U.S. Bank Trust National Association, as Escrow Agent. RECITALS A. The Boards of Directors of each of the Company, Healtheon and Acquisition Sub believe it is in the best interests of each organization and their respective securityholders that Healtheon acquire certain assets and assume certain liabilities of the Company (the "ASSET PURCHASE") and, in furtherance thereof, have approved the Asset Purchase. B. A portion of the shares of Healtheon Common Stock otherwise issuable by Healtheon in connection with the Asset Purchase shall be placed in escrow by Healtheon, the release of which amount shall be contingent upon certain events and conditions, all as set forth in Article VII hereof. C. The Company, Healtheon and Acquisition Sub desire to make certain representations and warranties and other agreements in connection with the Asset Purchase. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I THE ASSET PURCHASE 1.1 PURCHASE OF ASSETS. Upon the terms and subject to the conditions contained in this Agreement, at the Closing (as defined in Section 2.7 below), the Company shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase, acquire and accept from the Company, the assets comprising the Healthcare Internet/Intranet business of the Company (the "Business"), including all of the Company's assets of every kind and description relating to the Business (other than those assets included in the Retained Assets as defined in Section 2.2 below) (the "Purchased Assets"), and subject only to the liabilities and obligations of the Company which are defined in Section 2.3 (the "Assumed Liabilities"). The Purchased Assets include, without limitation, the following assets and properties (other than those assets included in the Retained Assets as defined in Section 2.2): (a) all trade and other accounts receivable and other Indebtedness owing to the Company with respect to the Business and including the benefit of all collateral, security, guaranties, and similar undertakings received or held in connection therewith (the "Accounts Receivable"); (b) all inventories with respect to the Business wherever located, including raw materials, goods consigned to vendors or subcontractors, work in process, finished goods and goods in transit; (c) all prepaid expenses, deposits and rights to refunds from customers and suppliers with respect to the Business; (d) all machinery, equipment, fixtures and furniture used in the Business and identified on Schedule 1.1 (e) all motor vehicles; (f) all supplies owned by the Company; (g) all rights and interests of the Company in and to any leases, subleases, licenses, loan agreements, mortgages, notes, indentures, restrictions, wills, trusts, commitment obligations or other contracts, agreements or instruments, whether written or oral or other similar agreements ("Contracts"), and rights thereunder, including without limitation, the designated Contracts relating to the Company set forth on Schedule 2.12 including contracts for the purchase of materials, supplies and services and the sale of products and services, equipment leases, and any other contract of the Company relating to the Business; (h) all business and financial records, books, ledgers, files, plans, documents, correspondence, lists, plots, architectural plans, drawings, notebooks, specifications, creative materials, advertising and promotional materials, marketing materials, studies, reports, equipment repair, maintenance or service records of the Company, whether written or electronically stored or otherwise recorded in each case, relating to the Business; (i) all of the Company's goodwill, dealer and customer lists and all other sales and marketing information, and all knowhow, technology, drawings, engineering specifications, bills of materials, software and other intangible assets of the Company in each case, relating to the Business; (j) all patents, patent applications, copyrights, trademarks, service marks, trade names, trade secrets, proprietary information, technology rights and licenses, proprietary rights and processes, know-how, research and development in progress, and any and all other intellectual property including, without limitation, the Company Intellectual Property Rights, the Company's name, all things authored, discovered, developed, made, perfected, improved, designed, engineered, devised, acquired, produced, conceived or first reduced to practice and that pertain to or are used in the Business or that are relevant to an understanding or to the development of the Business or to the performance by the products of the Business of their intended functions or purposes, whether tangible or intangible, in any stage of development, including without limitation, enhancements, designs, technology, improvements, inventions, works or authorship, formulas, processes, routines, subroutines, techniques, concepts, object code, flow charts, diagrams, coding sheets, source code, listings and annotations, programmers' notes, information, work papers, work product and other materials or any types whatsoever, and all rights of any kind in or to any of the foregoing including all goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions; (k) all permits, licenses, orders, ratings and approvals of all federal, state, local or foreign governmental or regulatory authorities or industrial bodies that are held by the Company and relate to the Business, to the extent the same are transferable; -2- (l) all rights of the Company to causes of action, lawsuits, judgments, claims and demands of any nature which would relate to the Business or constitute counterclaims, rights of setoff, and affirmative defenses to any claims brought against Buyer by third parties relating to the Business; (m) all present and future insurance proceeds which may be payable under the insurance policies listed on Schedule 2.16 attached hereto to the extent that such proceeds relate to the future loss of asset value of the Purchased Assets; (n) except for Retained Assets described in Section 1.2 below, all other items of property, real or personal, tangible or intangible, including, without limitation, all restrictive and negative covenant agreements with employees and others, including, without limitation, nondisclosure agreements, computer programs, tapes, discs and timesharing files, owned, used by or accruing to the benefit of the Company in each case, used in the Business; and (o) Intellectual property and associated html code that is transferable by the Company, as well as the exclusive rights to operate the Company's website located at www.metisllc.com. 1.2 RETAINED ASSETS. The Company will retain ownership of the assets of the Company listed on Schedule 1.2 attached hereto (collectively, the "Retained Assets"). 1.3 ASSUMED LIABILITIES. The Acquisition Sub shall assume and agree to pay, perform and discharge only the Assumed Liabilities, and will pay, perform and discharge the Assumed Liabilities as they become due. The Assumed Liabilities shall consist of only those liabilities of the Company listed on Schedule 1.3 attached hereto or otherwise specifically provided for in this Agreement. 1.4 RETAINED LIABILITIES. The liabilities and obligations which shall be retained by the Company (the "Retained Liabilities") shall consist of all liabilities of the Company other than Assumed Liabilities, including, without limitation, the following: (a) all liabilities of the Company relating to indebtedness for borrowed money; (b) all liabilities of the Company resulting from, constituting or relating to a breach of any of the representations, warranties, covenants or agreements of the Company under this Agreement in accordance with the indemnification provisions of this Agreement; (c) all liabilities of the Company for federal, state, local or foreign Taxes, including Taxes incurred in respect of or measured by the income of the Company earned on or realized prior to the Closing Date, including any gain and income from the sale of the Purchased Assets and other transactions contemplated herein; (d) all liabilities for all environmental, ecological, health or safety claims to the extent arising out of the operation of the Business or the Purchased Assets by the Company on or before the Closing Date; (e) all liabilities of the Company arising in connection with its operations unrelated to the Business except as otherwise specifically provided in Schedule 1.3; (f) any liability of the Company based on its tortious or illegal conduct; -3- (g) any liability or obligation incurred by the Company in connection with the negotiation, execution or performance of this Agreement and the transactions contemplated hereby, including, without limitation, all legal, accounting, brokers', finders' and other professional fees and expenses other than through Healtheon's or Acquisition Sub's breach of this Agreement; (h) any liability or obligation incurred by the Company in connection with the negotiation, execution or performance of, and settlement of any claims pertaining to, the Netsource Agreement (as defined herein) and the transactions contemplated thereby, including, without limitation, all legal, accounting, brokers', finders' and other professional fees and expenses; and (i) all liabilities incurred by the Company after the Closing Date other than through Healtheon's or Acquisition Sub's breach of this Agreement (except to the extent such liability is specifically assumed by Acquisition Sub); and 1.5 PURCHASE PRICE. Upon the terms and subject to the conditions contained in this Agreement, in reliance upon the representations, warranties and agreements of the Company contained herein, and in consideration of the sale, assignment, transfer and delivery of the Transferred Assets and the Noncompetition Agreements received from the Company, Acquisition Sub will assume the Assumed Liabilities and Healtheon will deliver (a) (i) to the Company, a stock certificate representing 1,400,000 shares of Healtheon Common Stock, (ii) the Cash Payment, and (b) to the Escrow Agent, for the benefit of the Company, a stock certificate representing 200,000 shares of Healtheon Common Stock (the "Escrow Amount"). 1.6 CASH PAYMENT. In the event that on the Closing Date, the Company shall have a cash balance that is less than $654,112, Healtheon shall pay to the Company on the Closing Date, as additional consideration, an amount of money (the "Cash Payment") equal to (a)$654,112, LESS (b) such cash balance. Notwithstanding the foregoing, in the event that the Company shall have failed to conduct its business in the ordinary course and in compliance with the provisions of this Agreement, including without limitation, Section 4.1, an adjustment shall be made to the purchase price to reflect the extent to which the Company's cash and accounts receivable balance is less than $654,112 on the Closing Date. 1.7 CLOSING. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "CLOSING") will take place as promptly as practicable, but no later than five (5) business days, following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Wilson Sonsini Goodrich & Rosati ("WSGR"), 650 Page Mill Road, Palo Alto, California, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "CLOSING DATE." The parties currently intend that the Closing Date will occur on or prior to August 15, 1998. 1.8 EXECUTION AND DELIVERY OF DOCUMENTS OF TITLE BY THE COMPANY; FURTHER ASSURANCES. At the Closing, the parties hereto shall have entered into the Assignment and Assumption Agreement in the form attached hereto as Exhibit A and the Company shall execute and deliver to Buyer the Bill of Sale in the form attached hereto as Exhibit B and such deeds, conveyances, bills of sale, certificates of title, assignments, assurances and other instruments and documents as Buyer may reasonably request in order to effect the sale, conveyance, and transfer of the Purchased Assets from the Company to the Buyer. Such instruments and documents shall be sufficient to convey to Buyer good and merchantable title in all of the Purchased Assets. The Company will, from time to time after the Closing Date, take such additional actions and execute and deliver such further documents as Buyer may reasonably request in order more effectively to sell, transfer and convey the Purchased Assets to Buyer and to place Buyer in position to operate and control all of the Purchased Assets. To -4- the extent any of such assets are, by nature or terms, not transferrable, the Company shall hold, provide, and make such assets available for the use and benefit of Buyer as Buyer's agent. 1.9 TAX FREE REORGANIZATION. The parties hereto intend that this Agreement shall constitute a plan of reorganization pursuant to the Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, and agree to report the transactions contemplated by this Agreement as such for all purposes. Each party has consulted with its own tax advisors as to the tax consequences of the transactions contemplated by this Agreement and no party makes any representation or warranty with respect to such consequences. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Healtheon and Acquisition Sub, subject to such exceptions as are specifically disclosed in the disclosure letter (referencing the appropriate section number or subsection, as the case may be) supplied by the Company to Healtheon (the "COMPANY SCHEDULES") and dated as of the date hereof, as follows: 2.1 ORGANIZATION OF THE COMPANY. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California. The Company has the power to own its properties and to carry on its business as now being conducted. The Company is duly qualified to do business and in good standing as a foreign limited liability company in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of the Company (hereinafter referred to as a "COMPANY MATERIAL ADVERSE EFFECT"). The Company has delivered a true and correct copy of its Organizational Documents, each as amended to date, to Healtheon. 2.2 COMPANY CAPITAL STRUCTURE. (a) The authorized capitalization of the Company consists of 183,050 authorized Class A units (the "Class A units"), of which 183,050 units are issued and outstanding, and 300,000 authorized Class B units (the "Class B units", and together with the Class A units, the Company Capital Stock), of which 225,123 units are issued and outstanding. The Company Capital Stock is held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 2.2(a). With respect to each holder of Class B Units, Schedule 2.2(a) contains an identification of each such holder's vesting provisions and vesting start date. All outstanding Company Capital Stock is duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the First Amended and Restated Operating Agreement of Metis, LLC and the Articles of Organization (together, the "Organizational Documents) of the Company or any agreement to which the Company is a party or by which it is bound. All of the Company Capital Stock has been issued in compliance with the terms of the Company's Organizational Documents. (b) There are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any ownership interests of the Company (each, a "Company Capital Stock Equivalent") or obligating the Company -5- to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such Company Common Stock Equivalent. 2.3 SUBSIDIARIES. The Company does not have and has never had any subsidiaries or affiliated organizations and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 2.4 AUTHORITY. Subject only to the requisite approval of the Asset Purchase and this Agreement by the Company's Members, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The vote required of the Company's Members to duly approve the Asset Purchase and this Agreement is a Majority in Interest of the Members (as defined in the Organizational Documents) and a Majority in Interest of the Class A Members (as defined in the Organizational Documents). The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company, subject only to the approval of the Asset Purchase by the Company's Members. The Company's Board of Directors has unanimously approved the Asset Purchase and this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms. Except as set forth on Schedule 2.4, subject only to the approval of the Asset Purchase and this Agreement by the Company's Members, the execution and delivery of this Agreement by the Company does not, and, as of the Closing, the consummation of the transactions contemplated hereby (including the Asset Purchase) will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "COMPANY CONFLICT") (i) any provision of the Organizational Documents of the Company or (ii) any mortgage, indenture, lease, Contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any Company Conflict) is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (ii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 2.4. 2.5 FINANCIAL STATEMENTS. Section 2.5 sets forth the Company's audited balance sheets as of December 31, 1997 and the related audited statement of income and cash flow for the period from inception to December 31, 1997 (the "COMPANY AUDITED FINANCIALS") and the Company's unaudited balance sheet as of May 31, 1998 and the related unaudited statements of income and cash flow for the five months then ended (the "COMPANY UNAUDITED FINANCIALS") (collectively, such financial statements are sometimes referred to herein as "COMPANY FINANCIAL STATEMENTS"). The Company Audited Financials and the Company Unaudited Financials are correct in all material respects and have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other (except that the Company Unaudited Financials do not contain all the notes that may be required by GAAP). The Company Audited Financials and Company Unaudited Financials present fairly the financial condition, operating results and cash flows of the Company as of the dates and during the periods indicated therein, subject in the case of the Company Unaudited Financials, -6- to normal year-end adjustments, which will not be material in amount or significance. The Company's unaudited balance sheet dated as of May 31, 1998 shall be referred to as the "COMPANY CURRENT BALANCE SHEET". The Company's cash and accounts receivable balance as of May 15, 1998 was $654,112, and the Company's accounts receivable are fully collectible. Since December 31, 1997, the Company has not changed its methodology for valuation of accounts receivable. 2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, the Company does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the Company Current Balance Sheet, or (ii) has not arisen in the ordinary course of the Company's business since the date of the Company Current Balance Sheet, consistent with past practices. 2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of the Company Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by the Company except in the ordinary course of business as conducted as of the date of the Company Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Organizational Documents of the Company; (c) capital expenditure or commitment by the Company, either individually or in the aggregate, exceeding $25,000; (d) destruction of, damage to or loss of any material assets, business or customer of the Company (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company; (g) revaluation by the Company of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to any units of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its units; (i) increase in the salary or other compensation payable or to become payable to any of its officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement; (j) sale, lease, license or other disposition of any of the assets or properties of the Company, except in the ordinary course of business as conducted on that date and consistent with past practices; -7- (k) any Lien placed on any of the Transferred Assets which remains in existence on the date hereof; (l) amendment or termination of any material contract, agreement or license to which the Company is a party or by which it is bound; (m) loan by the Company to any person or entity, the incurrence by the Company of any indebtedness, the guaranty by the Company of any indebtedness, issuance or sale of any debt securities of the Company or the guaranty of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (n) waiver or release of any right or claim of the Company, including any write-off or other compromise of any account receivable of the Company; (o) any contingent liabilities incurred by the Company with respect to the obligations of any other person that would be assumed hereunder; (p) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of the Company or its affairs; (q) notice of any claim of ownership by a third party of the Company's Intellectual Property (as defined in Section 2.11 below) or of infringement by the Company of any third party's Intellectual Property rights; (r) issuance or sale by the Company of any of its shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities; (s) change in pricing or royalties set or charged by the Company to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to the Company; (t) event or condition of any character that has or could be reasonably expected to have a Company Material Adverse Effect on the Company; or (u) any postponement or delay in payment of any accounts payable or other liability of the Company that will be included as Assumed Liabilities; (v) negotiation or agreement by the Company or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (r) (other than negotiations with Healtheon and its representatives regarding the transactions contemplated by this Agreement). 2.8 TAX AND OTHER RETURNS AND REPORTS. (a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or, collectively, "TAXES", means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts -8- and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8: (i) The Company as of the Closing will have prepared and filed all required federal, state, local and foreign returns, estimates, information statements and reports ("RETURNS") relating to any and all Taxes concerning or attributable to the Company or its operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) The Company as of the Closing: (A) will have paid or accrued all Taxes it is required to pay or accrue and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. (iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company is currently in progress, nor has the Company been notified of any request for such an audit or other examination. (v) The Company does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against on the Company Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the Company has no knowledge of any basis for the assertion of any such liability attributable to the Company, its assets or operations. (vi) The Company has made available to Healtheon copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of Company's incorporation. (vii) There are (and as of immediately following the Effective Date there will be) no liens, pledges, charges, claims, security interests or other encumbrances of any sort ("LIENS") on the assets of the Company relating to or attributable to Taxes. (viii) The Company has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of the Company. (ix) None of the Company's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) As of the Closing, there will not be any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or 162 of the Code. -9- (xi) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xii) The Company is not a party to a tax sharing or allocation agreement nor does the Company owe any amount under any such agreement. (xiii) The Company is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) The Company's tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income tax deductions is accurately reflected on the Company's tax books and records. 2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company which has or reasonably could be expected to have the effect of prohibiting or impairing the ability of Acquisition Sub to operate the Business after the Closing Date, any acquisition of property (tangible or intangible) by the Company or the conduct of the Business. Without limiting the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its products to any class of customers, in any geographic area, during any period of time or in any segment of the market that would be applicable to the Business after the Closing Date. 2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. (a) The Company owns no real property, nor has it ever owned any real property. Schedule 2.10(a) sets forth a list of all real property currently, or at any time in the past, leased by the Company, the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease and any security interest in the Company's assets created by such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). All such current leases will be assigned by the Company to Acquisition Sub as of the Closing Date. (b) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of the Purchased Assets, real, personal and mixed, used or held for use in the Business, free and clear of any Liens (as defined in Section 2.8(b)(vii)), except as reflected in the Company Financial Statements or in Schedule 2.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.11 INTELLECTUAL PROPERTY. (a) The Company owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, computer software programs or applications (in both source code -10- and object code form), and tangible or intangible proprietary information or material that are used in the Business as currently conducted and as proposed to be conducted by the Company (the "COMPANY INTELLECTUAL PROPERTY RIGHT(S)"). Schedule 2.11(a) sets forth a complete list of all patents, registered and material unregistered trademarks, registered copyrights, trade names and service marks, and any applications therefor, included in the Company Intellectual Property Rights, and specifies, where applicable, the jurisdictions in which each such Company Intellectual Property Right has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers and the names of all registered owners. (b) Schedule 2.11(b) sets forth a complete list of all licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which the Company or any other person is authorized to use any Company Intellectual Property Right (excluding object code end-user licenses granted to end-users in the ordinary course of business that permit use of software products without a right to modify, distribute or sublicense the same ("END-USER LICENSES")) or trade secret of the Company, and includes the identity of all parties thereto, a description of the nature and subject matter thereof, the applicable royalty or other fees and the term thereof. Each license, sublicense and other agreement will be transferred or assigned to Acquisition Sub as of and effective upon the Closing. The execution and delivery of this Agreement by the Company, and the consummation of the transactions contemplated hereby, including, without limitation, the transfer or assignment of the Company Intellectual Property Rights, will neither cause the Company to be in violation or default under any such license, sublicense or agreement, nor entitle any other party to any such license, sublicense or agreement to terminate or modify such license, sublicense or agreement. Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is the sole and exclusive owner or licensee of, with all right, title and interest in and to (free and clear of any liens or encumbrances), the Company Intellectual Property Rights, and has sole and exclusive rights (and is not contractually obligated to pay any compensation to any third party in respect thereof) to the use thereof or the material covered thereby in connection with the services or products in respect of which the Company Intellectual Property Rights are being used. (c) No claims with respect to the Company Intellectual Property Rights have been asserted or are, to the Company's knowledge, threatened by any person, nor are there any valid grounds for any claims, (i) to the effect that the manufacture, sale, licensing or use of any of the products of the Company infringes on any copyright, patent, trade mark, service mark, trade secret or other proprietary right, (ii) against the use by the Company of any trademarks, service marks, trade names, trade secrets, copyrights, maskworks, patents, technology, know-how or computer software programs and applications used in the Business as currently conducted or as proposed to be conducted by the Company, or (iii) challenging the ownership by the Company, validity or effectiveness of any of the Company Intellectual Property Rights. All registered trademarks, service marks and copyrights held by the Company are valid and subsisting. The Company has not infringed, and the Business as currently conducted or as proposed to be conducted does not infringe, any copyright, patent, trademark, service mark, trade secret or other proprietary right of any third party. There is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, including any employee or former employee of the Company. No Company Intellectual Property Right or product of the Company or any of its subsidiaries is subject to any outstanding decree, order, judgment, or stipulation restricting in any manner the licensing thereof by the Company. Each current and former employee, consultant or contractor of the Company has executed a proprietary information and confidentiality agreement substantially in the Company's standard forms. All software included in the Company Intellectual Property Rights is original with the Company and has been either created by employees of the Company on a work-for-hire basis or by consultants or contractors who have created such software themselves and have assigned all rights they may have had in such software to the Company. -11- 2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 2.12(a), the Company does not have, is not a party to nor is it bound by, and neither Healtheon nor the Acquisition Sub will be bound, by virtue of the transactions contemplated hereby, by: (i) any collective bargaining agreements, (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations, (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements, (iv) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any consulting or sales agreement, contract or commitment under which any firm or other organization provides services to the Company, (v) any operating agreement or other agreement relating to the operations of any business organization, including the Company, (vi) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (vii) any fidelity or surety bond or completion bond, (viii) any lease of personal property having a value individually in excess of $15,000, (ix) any agreement of indemnification or guaranty, (x) any agreement, contract or commitment containing any covenant limiting the freedom of the Company to engage in any line of business or to compete with any person, (xi) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $15,000, (xii) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of the Company's business, (xiii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof, (xiv) any purchase order or contract for the purchase of raw materials involving $15,000 or more, -12- (xv) any construction contracts, (xvi) any distribution, joint marketing or development agreement, (xvii) any agreement pursuant to which the Company has granted or may grant in the future, to any party, a source-code license or option or other right to use or acquire source-code, or (xviii) any other agreement, contract or commitment that involves $15,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 2.12(b), the Company has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.12(a) or Schedule 2.11(b) (any such agreement, contract or commitment, a "COMPANY CONTRACT"). Each Company Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any default thereunder of which the Company has knowledge by any party obligated to the Company pursuant thereto. 2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13, no officer, director or Member of the Company (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has or has had, directly or indirectly, (i) an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that the Company furnishes or sells, or proposes to furnish or sell, (ii) an economic interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services or (iii) a beneficial interest in any contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.13. Except as disclosed on Schedule 2.13, all interested party transactions were made on terms no more favorable to such interested party than could have been obtained on an arms'-length basis. 2.14 COMPLIANCE WITH LAWS. To the Company's knowledge, it has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action, suit or proceeding of any nature pending or to the Company's knowledge threatened against the Company, its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 2.15, to the Company's knowledge, there is no investigation pending or threatened against the Company, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 2.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of the Company to manufacture, offer or sell any of its products in the present manner or style thereof. -13- 2.16 INSURANCE. Set forth on Schedule 2.16 is a list of all of the Company's insurance policies and fidelity bonds. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company, there is no claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). The Company has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 2.17 MINUTE BOOKS. The minute books of the Company made available to counsel for Healtheon are the only minute books of the Company and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and Members or actions by written consent since the time of organization of the Company. 2.18 ENVIRONMENTAL MATTERS. (a) HAZARDOUS MATERIAL. The Company has not operated any underground storage tanks, and has no knowledge of the existence, at any time, of any underground storage tank (or related piping or pumps), at any property that the Company has at any time owned, operated, occupied or leased. The Company has not released any amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, oil and petroleum products, urea-formaldehyde and all substances listed as a "hazardous substance," "hazardous waste," "hazardous material" or "toxic substance" or words of similar import, under any law, including but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended; the Resource Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended, and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present as a result of the actions or omissions of the Company, or, to the Company's knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that the Company has at any time owned, operated, occupied or leased. (b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, nor has the Company disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) PERMITS. The Company currently holds all environmental approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's Hazardous Material Activities and other businesses of the Company as such activities and businesses are currently being conducted. (d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation proceeding, amendment, procedure, writ, injunction or claim is pending, or to the Company's knowledge, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Company. The Company -14- is not aware of any fact or circumstance which could involve the Company in any environmental litigation or impose upon the Company any environmental liability. 2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth on Schedule 2.19, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Schedule 2.19 sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. Schedule 2.19 also sets forth the Company's current reasonable estimate of all Company Third Party Expenses (as defined in Section 5.4) expected to be incurred by the Company in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby. 2.20 EMPLOYEE MATTERS AND BENEFIT PLANS. (a) DEFINITIONS. With the exception of the definition of "Affiliate" set forth in Section 2.20(a)(i) below (which definition shall apply only to this Section 2.20), for purposes of this section, the following terms shall have the meanings set forth below: (i) "COMPANY AFFILIATE" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder; (ii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, unit or unit related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Company Affiliate for the benefit of any "Company Employee" (as defined below), and pursuant to which the Company or any Company Affiliate has or may have any material liability contingent or otherwise; (iv) "COMPANY EMPLOYEE" shall mean any current, former, or retired employee, officer, or director of the Company or any Company Affiliate; (v) "COMPANY EMPLOYEE AGREEMENT" shall refer to each management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between the Company or any Affiliate and any Employee or consultant; (vi) "IRS" shall mean the Internal Revenue Service; (vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA; and -15- (viii) "COMPANY PENSION PLAN" shall refer to each Company Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete list of each Company Employee Plan and each Company Employee Agreement, together with a schedule of all liabilities, whether or not accrued, under each such Company Employee Plan or Company Employee Agreement. The Company does not have any plan or commitment, whether legally binding or not, to establish any new Company Employee Plan or Company Employee Agreement, to modify any Company Employee Plan or Company Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Company Employee Agreement to the requirements of any applicable law, or as required by this Agreement), or to enter into any Company Employee Plan or Company Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) DOCUMENTS. The Company has made available to Healtheon (i) correct and complete copies of all documents embodying or relating to each Company Employee Plan and each Company Employee Agreement including all amendments thereto and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the most recent annual report (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each Company Employee Plan; (vi) all IRS determination letters and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all communications material to any Company Employee or Company Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; and (viii) all registration statements and prospectuses prepared in connection with each Company Employee Plan. (d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 2.20(d), (i) the Company has performed in all material respects all obligations required to be performed by it under each Company Employee Plan, and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Company Employee Plan; (iii) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; and (iv) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without liability to the Company, Healtheon or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no inquiries or proceedings pending or, to the knowledge of the Company or any affiliates, threatened by the IRS or DOL with respect to any Company Employee Plan; and (vi) neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Company Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code. -16- (e) PENSION PLANS. The Company does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) MULTIEMPLOYER PLANS. At no time has the Company contributed to or been requested to contribute to any Multiemployer Plan. (g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule 2.20(g), no Company Employee Plan provides, or has any liability to provide, life insurance, medical or other employee benefits to any Company Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Company Employee (either individually or to Company Employees as a group) that such Company Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. (h) EFFECT OF TRANSACTION. (i) Except as set forth on Schedule 2.20(h)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Company Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Company Employee. (ii) Except as set forth on Schedule 2.20(h)(ii), no payment or benefit which will or may be made by the Company or Healtheon or any of their respective affiliates with respect to any Employee will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (i) EMPLOYMENT MATTERS. The Company (i) to its knowledge, is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Company Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Company Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Company Employees (other than routine payments to be made in the normal course of business and consistent with past practice). (j) LABOR. No work stoppage or labor strike against the Company is pending or, to the best knowledge of the Company, threatened. Except as set forth in Schedule 2.20(j), the Company is not involved in or, to the knowledge of the Company, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any Company Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to the Company. Neither the Company nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to the Company. Except as set forth in Schedule 2.20(j), the Company is not presently, nor has it been in the past, a party to, or bound by, any collective -17- bargaining agreement or union contract with respect to Company Employees and no collective bargaining agreement is being negotiated by the Company. 2.21 REPRESENTATIONS COMPLETE. None of the representations or warranties made by the Company (as modified by the Company Schedules), nor any statement made in any schedule or certificate furnished by the Company pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of the Company in connection with soliciting their consent to this Agreement and the Asset Purchase, contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF HEALTHEON AND ACQUISITION SUB Healtheon and Acquisition Sub hereby represent and warrant to the Company, subject to such exceptions as are specifically disclosed in the disclosure letter (referencing the appropriate section number or subsection, as the case may be) supplied by the Healtheon and Acquisition Sub to the Company (the "HEALTHEON AND ACQUISITION SUB SCHEDULES") and dated as of the date hereof, as follows: 3.1 ORGANIZATION OF HEALTHEON AND ACQUISITION SUB. Healtheon is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Acquisition Sub is a corporation duly organized and in good standing under the laws of the State of Delaware. Healtheon has the corporate power to own its properties and to carry on their business as now being conducted. Healtheon is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of Healtheon (hereinafter referred to as a "HEALTHEON MATERIAL ADVERSE EFFECT"). Healtheon has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to the Company. Acquisition Sub has delivered a true and correct copy of its Certificate of Incorporation and Bylaws, each as amended to date, to the Company. 3.2 HEALTHEON AND ACQUISITION SUB CAPITAL STRUCTURE. (a) The authorized capital stock of Healtheon consists of 75,000,000 shares of authorized Common Stock, of which 49,774,826 shares are issued and outstanding. The shares of the capital stock of Healtheon are held of record by the persons, with the addresses of record and in the amounts set forth on Schedule 3.2(a). All outstanding shares of Healtheon capital stock are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Healtheon or any agreement to which Healtheon is a party or by which it is bound. (b) The authorized capital stock of Acquisition Sub consists of 1,000 shares of authorized Common Stock, all of which are issued and outstanding and held of record by Healtheon. All outstanding shares of the capital stock of Acquisition Sub are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of Acquisition Sub or any agreement to which the Acquisition Sub is a party or by which it is bound. -18- (c) Healtheon has reserved 10,000,000 shares of Common Stock for issuance to employees and consultants pursuant to Healtheon's 1996 Stock Plan ("HEALTHEON STOCK PLAN"), of which 6,464,426 shares are subject to outstanding, unexercised options ("HEALTHEON OPTIONS") and 52,023 shares remain available for future grant. Schedule 3.2(b) sets forth for each outstanding Healtheon Option the name of the holder of such option, the domicile address of such holder, the number of shares of Common Stock subject to such option, the exercise price of such option and the vesting schedule for such option, including the extent vested to date and whether the exercisability of such option will be accelerated and become exercisable by reason of the transactions contemplated by this Agreement. Except as set forth in Schedule 3.2(b), there are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which Healtheon is a party or by which it is bound obligating Healtheon to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of Healtheon or obligating Healtheon to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. 3.3 SUBSIDIARIES. Other than Acquisition Sub, Healtheon does not have any subsidiaries or affiliated companies and does not otherwise own and has never otherwise owned any shares of capital stock or any interest in, or control, directly or indirectly, any other corporation, partnership, limited liability company, association, joint venture or other business entity. 3.4 AUTHORITY. Each of Healtheon and Acquisition Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and Acquisition Sub. Each of Healtheon's Board of Directors and Acquisition Sub's Board of Directors have unanimously approved the Asset Purchase and this Agreement. This Agreement has been duly executed and delivered by Healtheon and Acquisition Sub and constitutes the valid and binding obligation of Healtheon and Acquisition Sub, enforceable in accordance with its terms. Except as set forth on Schedule 3.4, the execution and delivery of this Agreement by Healtheon and Acquisition Sub does not, and, as of the Closing, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "HEALTHEON CONFLICT") (i) any provision of the Certificate of Incorporation or Bylaws of Healtheon, (ii) any provision of the Certificate of Incorporation or Bylaws of Acquisition Sub, or (iii) any mortgage, indenture, lease, contract, or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Healtheon or its properties or assets. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any third party (so as not to trigger any Healtheon Conflict) is required by or with respect to Healtheon or Acquisition Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and (ii) such other consents, waivers, authorizations, filings, approvals and registrations which are set forth on Schedule 3.4. 3.5 FINANCIAL STATEMENTS. Section 3.5 sets forth the Healtheon's audited balance sheets as of December 31, 1996 and draft balance sheets as of December 31, 1997 and the related audited and draft statement of income and cash flow for the twelve-month periods ended December 31, 1996 and December 31, 1997 (the "HEALTHEON AUDITED FINANCIALS") and Healtheon's unaudited balance sheet of May 31, 1998 and the related unaudited statements of income and cash flow for the five months then ended (the "HEALTHEON UNAUDITED -19- FINANCIALS") (collectively, such financial statements are sometimes referred to herein as "HEALTHEON FINANCIAL STATEMENTS"). The Healtheon Audited Financials and the Healtheon Unaudited Financials are correct in all material respects and have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other (except that the Healtheon Unaudited Financials do not contain all the notes that may be required by GAAP). The Healtheon Audited Financials and Healtheon Unaudited Financials present fairly the financial condition, operating results and cash flows of Healtheon as of the dates and during the periods indicated therein, subject in the case of the Healtheon Unaudited Financials, to normal year-end adjustments, which will not be material in amount or significance. Healtheon's unaudited balance sheet dated as of May 31, 1998 shall be referred to as the "HEALTHEON CURRENT BALANCE SHEET". 3.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 3.6, Healtheon does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles), which individually or in the aggregate, (i) has not been reflected in the Healtheon Current Balance Sheet, or (ii) has not arisen in the ordinary course of Healtheon's business since the date of the Healtheon Current Balance Sheet, consistent with past practices. 3.7 NO CHANGES. Except as set forth in Schedule 3.7 or in the ordinary course of its business, since the date of the Healtheon Current Balance Sheet, there has not been, occurred or arisen any: (a) transaction by Healtheon except in the ordinary course of business as conducted as of the date of the Healtheon Current Balance Sheet and consistent with past practices; (b) amendments or changes to the Certificate of Incorporation or Bylaws of Healtheon; (c) capital expenditure or commitment by Healtheon, either individually or in the aggregate, exceeding $25,000; (d) destruction of, damage to or loss of any material assets, business or customer of Healtheon (whether or not covered by insurance); (e) labor trouble or claim of wrongful discharge or other unlawful labor practice or action; (f) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by Healtheon; (g) revaluation by Healtheon of any of its assets; (h) declaration, setting aside or payment of a dividend or other distribution with respect to the capital stock of Healtheon, or any direct or indirect redemption, purchase or other acquisition by Healtheon of any of its capital stock; (i) increase in the salary or other compensation payable or to become payable to any of Healtheon's officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement; -20- (j) sale, lease, license or other disposition of any of the assets or properties of Healtheon, except in the ordinary course of business as conducted on that date and consistent with past practices; (k) amendment or termination of any material contract, agreement or license to which Healtheon is a party or by which it is bound; (l) loan by Healtheon to any person or entity, incurring by Healtheon of any indebtedness, guaranteeing by Healtheon of any indebtedness, issuance or sale of any debt securities of Healtheon or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (m) waiver or release of any right or claim of Healtheon, including any write-off or other compromise of any account receivable of Healtheon; (n) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of Healtheon or its affairs; (o) notice of any claim of ownership by a third party of Healtheon's Intellectual Property (as defined in Section 3.11 below) or of infringement by Healtheon's of any third party's Intellectual Property rights; (p) issuance or sale by Healtheon of any of its shares of capital stock, or securities exchangeable, convertible or exercisable therefor, or of any other of its securities; (q) change in pricing or royalties set or charged by Healtheon to its customers or licensees or in pricing or royalties set or charged by persons who have licensed Intellectual Property to Healtheon; (r) event or condition of any character that has or could be reasonably expected to have a Healtheon Material Adverse Effect on Healtheon; or (s) negotiation or agreement by Healtheon or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (r) (other than negotiations with the Company and its representatives regarding the transactions contemplated by this Agreement). 3.8 TAX AND OTHER RETURNS AND REPORTS. (a) TAX RETURNS AND AUDITS. Except as set forth in Schedule 3.8: (i) Healtheon as of the Closing will have prepared and filed all required Returns relating to any and all Taxes concerning or attributable to Healtheon or its operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) Healtheon as of the Closing: (A) will have paid or accrued all Taxes it is required to pay or accrue and (B) will have withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld. -21- (iii) Healtheon has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against Healtheon, nor has Healtheon executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of Healtheon is currently in progress, nor has Healtheon been notified of any request for such an audit or other examination. (v) Healtheon does not have any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved against on the Healtheon Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and Healtheon has no knowledge of any basis for the assertion of any such liability attributable to the Company, its assets or operations. (vi) Healtheon has provided to the Company copies of all federal and state income and all state sales and use Tax Returns for all periods since the date of Healtheon's incorporation. (vii) There are (and as of immediately following the Effective Date there will be) no Liens on the assets of Healtheon relating to or attributable to Taxes. (viii) Healtheon has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of Healtheon. (ix) None of Healtheon's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) As of the Closing, there will not be any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of Healtheon that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Section 280G or 162 of the Code. (xi) Healtheon has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by Healtheon. (xii) Healtheon is not a party to a tax sharing or allocation agreement nor does Healtheon owe any amount under any such agreement. (xiii) Healtheon is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) Healtheon's tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income tax deductions is accurately reflected on the Healtheon's tax books and records. 3.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which Healtheon is a party or otherwise binding upon Healtheon which has or reasonably could be expected to have the effect of prohibiting or impairing any business practice of Healtheon, any acquisition of property (tangible or intangible) by Healtheon or the conduct of business -22- by Healtheon. Without limiting the foregoing, Healtheon has not entered into any agreement under which Healtheon is restricted from selling, licensing or otherwise distributing any of its products to any class of customers, in any geographic area, during any period of time or in any segment of the market. 3.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. (a) Healtheon owns no real property, nor has it ever owned any real property. Schedule 3.10(a) sets forth a list of all real property currently, or at any time in the past, leased by Healtheon, the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease and any security interest in Healtheon's assets created by such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). (b) Healtheon has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except as reflected in the Healtheon Financial Statements or in Schedule 3.10(b) and except for liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 3.11 INTELLECTUAL PROPERTY. (a) Healtheon owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics, technology, know-how, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material that are used in the business of Healtheon as currently conducted or as proposed to be conducted by Healtheon (the "HEALTHEON INTELLECTUAL PROPERTY RIGHTS"). Schedule 3.11(a) sets forth a complete list of all patents, registered and material unregistered trademarks, registered copyrights, trade names and service marks, and any applications therefor, included in the Healtheon Intellectual Property Rights, and specifies, where applicable, the jurisdictions in which each such Healtheon Intellectual Property Right has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers and the names of all registered owners. (b) Schedule 3.11(b) sets forth a complete list of all licenses, sublicenses and other agreements as to which Healtheon is a party and pursuant to which Healtheon or any other person is authorized to use any Healtheon Intellectual Property Right (excluding End-User Licenses) or trade secret of Healtheon, and includes the identity of all parties thereto, a description of the nature and subject matter thereof, the applicable royalty or other fees and the term thereof. The execution and delivery of this Agreement by Healtheon, and the consummation of the transactions contemplated hereby, will neither cause Healtheon to be in violation or default under any such license, sublicense or agreement, nor entitle any other party to any such license, sublicense or agreement to terminate or modify such license, sublicense or agreement. Except as set forth in Schedules 3.11(a) or 3.11(b), Healtheon is the sole and exclusive owner or licensee of, with all right, title and interest in and to (free and clear of any liens or encumbrances), the Healtheon Intellectual Property Rights, and has sole and exclusive rights (and is not contractually obligated to pay any compensation to any third party in respect thereof) to the use -23- thereof or the material covered thereby in connection with the services or products in respect of which the Healtheon Intellectual Property Rights are being used. (c) No claims with respect to the Healtheon Intellectual Property Rights have been asserted or are, to Healtheon's knowledge, threatened by any person, nor are there any valid grounds for any claims, (i) to the effect that the manufacture, sale, licensing or use of any of the products of Healtheon infringes on any copyright, patent, trade mark, service mark, trade secret or other proprietary right, (ii) against the use by Healtheon of any trademarks, service marks, trade names, trade secrets, copyrights, maskworks, patents, technology, know-how or computer software programs and applications used in Healtheon's business as currently conducted or as proposed to be conducted by Healtheon, or (iii) challenging the ownership by Healtheon, validity or effectiveness of any of the Healtheon Intellectual Property Rights. All registered trademarks, service marks and copyrights held by Healtheon are valid and subsisting. Healtheon has not infringed, and the business of Healtheon as currently conducted or as proposed to be conducted does not infringe, any copyright, patent, trademark, service mark, trade secret or other proprietary right of any third party. There is no material unauthorized use, infringement or misappropriation of any of the Healtheon Intellectual Property Rights by any third party, including any employee or former employee of Healtheon. No Healtheon Intellectual Property Right or product of Healtheon or any of its subsidiaries is subject to any outstanding decree, order, judgment, or stipulation restricting in any manner the licensing thereof by Healtheon. Each employee, consultant or contractor of Healtheon has executed a proprietary information and confidentiality agreement substantially in the Healtheon's standard forms. All software included in the Healtheon Intellectual Property Rights is original with Healtheon and has been either created by employees of Healtheon on a work-for-hire basis or by consultants or contractors who have created such software themselves and have assigned all rights they may have had in such software to Healtheon. 3.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on Schedule 3.12(a) or in the ordinary course of its business, Healtheon does not have, is not a party to nor is it bound by: (i) any collective bargaining agreements, (ii) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations, (iii) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements, (iv) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or any consulting or sales agreement, contract or commitment under which any firm or other organization provides services to Healtheon, (v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, (vi) any fidelity or surety bond or completion bond, -24- (vii) any lease of personal property having a value individually in excess of $25,000, (viii) any agreement of indemnification or guaranty, (ix) any agreement, contract or commitment containing any covenant limiting the freedom of Healtheon to engage in any line of business or to compete with any person, (x) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $25,000, (xi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise, (xii) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (viii) hereof, (xiii) any purchase order or contract for the purchase of raw materials involving $25,000 or more, (xiv) any construction contracts, (xv) any distribution, joint marketing or development agreement, (xvi) any agreement pursuant to which Healtheon has granted or may grant in the future, to any party, a source-code license or option or other right to use or acquire source-code, or (xvii) any other agreement, contract or commitment that involves $25,000 or more or is not cancelable without penalty within thirty (30) days. Except for such alleged breaches, violations and defaults, and events that would constitute a breach, violation or default with the lapse of time, giving of notice, or both, as are all noted in Schedule 3.12(b),Healtheon has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 3.12(a) or Schedule 3.11(b) (any such agreement, contract or commitment, a "HEALTHEON CONTRACT"). Each Healtheon Contract is in full force and effect and, except as otherwise disclosed in Schedule 3.12(b), is not subject to any default thereunder of which Healtheon has knowledge by any party obligated to Healtheon pursuant thereto. 3.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 3.13, no officer, director or shareholder of Healtheon (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has or has had, directly or indirectly, (i) an economic interest in any entity which furnished or sold, or furnishes or sells, services or products that Healtheon furnishes or sells, or proposes to furnish or sell, (ii) an economic interest in any entity that purchases from or sells or furnishes to, Healtheon, any goods or services or (iii) a beneficial interest in any contract or agreement set forth in Schedule 3.12(a) or Schedule 3.11(b); provided, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 3.13. -25- 3.14 COMPLIANCE WITH LAWS. Healtheon has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. 3.15 LITIGATION. Except as set forth in Schedule 3.15, there is no action, suit or proceeding of any nature pending or to Healtheon's knowledge threatened against Healtheon, its properties or any of its officers or directors, in their respective capacities as such. Except as set forth in Schedule 3.15, to the Healtheon's knowledge, there is no investigation pending or threatened against Healtheon, its properties or any of its officers or directors (in their respective capacities as such) by or before any governmental entity. Schedule 3.15 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of Healtheon to manufacture, offer or sell any of its products in the present manner or style thereof. 3.16 INSURANCE. Set forth on Schedule 3.16 is a list of all of Healtheon's insurance policies and fidelity bonds. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of Healtheon, there is no claim by Healtheon pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and Healtheon is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). Healtheon has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 3.17 MINUTE BOOKS. The minute books of Healtheon made available to counsel for the Company are the only minute books of Healtheon and contain a reasonably accurate summary of all meetings of directors (or committees thereof) and stockholders or actions by written consent since the time of incorporation of Healtheon. 3.18 ENVIRONMENTAL MATTERS. (a) HAZARDOUS MATERIAL. Healtheon has not operated any underground storage tanks, and has no knowledge of the existence, at any time, of any underground storage tank (or related piping or pumps), at any property that Healtheon has at any time owned, operated, occupied or leased. Healtheon has not released any amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be a Hazardous Material. No Hazardous Materials are present as a result of the actions or omissions of Healtheon, or, to Healtheon's knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Healtheon has at any time owned, operated, occupied or leased. (b) HAZARDOUS MATERIALS ACTIVITIES. Healtheon has not engaged in any Hazardous Materials Activities in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) PERMITS. The Company currently holds all Environmental Permits necessary for the conduct of Healtheon's Hazardous Material Activities and other businesses of Healtheon as such activities and businesses are currently being conducted. -26- (d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation proceeding, amendment, procedure, writ, injunction or claim is pending, or to Healtheon's knowledge, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of Healtheon. Healtheon is not aware of any fact or circumstance which could involve Healtheon in any environmental litigation or impose upon Healtheon any environmental liability. 3.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set forth on Schedule 3.19, Healtheon has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees, investment banking fees, consulting fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. Schedule 3.19 sets forth the principal terms and conditions of any agreement, written or oral, with respect to such fees. Schedule 3.19 also sets forth Healtheon's current reasonable estimate of all Third Party Expenses (as defined in Section 5.4) expected to be incurred by Healtheon in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby. 3.20 EMPLOYEE MATTERS AND BENEFIT PLANS. (a) DEFINITIONS. With the exception of the definition of "Affiliate" set forth in Section 3.20(a)(i) below (which definition shall apply only to this Section 3.20), for purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "HEALTHEON AFFILIATE" shall mean any other person or entity under common control with Healtheon within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder; (ii) "HEALTHEON EMPLOYEE PLAN" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether formal or informal, funded or unfunded and whether or not legally binding, including without limitation, each "employee benefit plan", within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Healtheon Affiliate for the benefit of any "Healtheon Employee" (as defined below), and pursuant to which Healtheon or any Healtheon Affiliate has or may have any material liability contingent or otherwise; (iii) "HEALTHEON EMPLOYEE" shall mean any current, former, or retired employee, officer, or director of Healtheon or any Healtheon Affiliate; (iv) "HEALTHEON EMPLOYEE AGREEMENT" shall refer to each management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between Healtheon or any Healtheon Affiliate and any Healtheon Employee or consultant; (v) "HEALTHEON PENSION PLAN" shall refer to each Healtheon Employee Plan which is an "employee pension benefit plan", within the meaning of Section 3(2) of ERISA. (b) SCHEDULE. Schedule 3.20(b) contains an accurate and complete list of each Healtheon Employee Plan and each Healtheon Employee Agreement, together with a schedule of all liabilities, whether or not accrued, under each such Healtheon Employee Plan or Healtheon Employee Agreement. Healtheon does not -27- have any plan or commitment, whether legally binding or not, to establish any new Healtheon Employee Plan or Healtheon Employee Agreement, to modify any Healtheon Employee Plan or Healtheon Employee Agreement (except to the extent required by law or to conform any such Healtheon Employee Plan or Healtheon Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Healtheon in writing, or as required by this Agreement), or to enter into any Healtheon Employee Plan or Healtheon Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) DOCUMENTS. Healtheon has provided to Company (i) correct and complete copies of all documents embodying or relating to each Healtheon Employee Plan and each Healtheon Employee Agreement including all amendments thereto and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Healtheon Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA or the Code in connection with each Healtheon Employee Plan or related trust; (iv) if the Healtheon Employee Plan is funded, the most recent annual and periodic accounting of Healtheon Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, required under ERISA with respect to each Healtheon Employee Plan; (vi) all IRS determination letters and rulings relating to Healtheon Employee Plans and copies of all applications and correspondence to or from the IRS or the Department of Labor ("DOL") with respect to any Healtheon Employee Plan; (vii) all communications material to any Healtheon Employee or Healtheon Employees relating to any Healtheon Employee Plan and any proposed Healtheon Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to Healtheon; and (viii) all registration statements and prospectuses prepared in connection with each Healtheon Employee Plan. (d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule 3.20(d), (i) Healtheon has performed in all material respects all obligations required to be performed by it under each Healtheon Employee Plan, and each Healtheon Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) no "prohibited transaction", within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Healtheon Employee Plan; (iii) there are no actions, suits or claims pending, or, to the knowledge of Healtheon, threatened or anticipated (other than routine claims for benefits) against any Healtheon Employee Plan or against the assets of any Healtheon Employee Plan; and (iv) each Healtheon Employee Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without liability to the Company, Healtheon or any Healtheon Affiliates (other than ordinary administration expenses typically incurred in a termination event); (v) there are no inquiries or proceedings pending or, to the knowledge of Healtheon or any affiliates, threatened by the IRS or DOL with respect to any Healtheon Employee Plan; and (vi) neither Healtheon nor any Healtheon Affiliate is subject to any penalty or tax with respect to any Healtheon Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of the Code. (e) PENSION PLANS. Healtheon does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) MULTIEMPLOYER PLANS. At no time has Healtheon contributed to or been requested to contribute to any Multiemployer Plan. -28- (g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule 3.20(g), no Healtheon Employee Plan provides, or has any liability to provide, life insurance, medical or other employee benefits to any Healtheon Employee upon his or her retirement or termination of employment for any reason, except as may be required by statute, and Healtheon has never represented, promised or contracted (whether in oral or written form) to any Healtheon Employee (either individually or to Employees as a group) that such Healtheon Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. (h) EFFECT OF TRANSACTION. (i) Except as set forth on Schedule 3.20(h)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Healtheon Employee Plan, Healtheon Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Healtheon Employee. (ii) Except as set forth on Schedule 3.20(h)(ii), no payment or benefit which will or may be made by Healtheon or Company or any of their respective affiliates with respect to any Employee will be characterized as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (i) EMPLOYMENT MATTERS. Healtheon (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Healtheon Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Healtheon Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Healtheon Employees (other than routine payments to be made in the normal course of business and consistent with past practice). (j) LABOR. No work stoppage or labor strike against Healtheon is pending or, to the best knowledge of Healtheon, threatened. Except as set forth in Schedule 3.20(j),Healtheon is not involved in or, to the knowledge of Healtheon, threatened with, any labor dispute, grievance, or litigation relating to labor, safety or discrimination matters involving any Healtheon Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in liability to Healtheon. Neither Healtheon nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act which would, individually or in the aggregate, directly or indirectly result in a liability to Healtheon. Except as set forth in Schedule 3.20(j),Healtheon is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Healtheon Employees and no collective bargaining agreement is being negotiated by Healtheon. 3.21 REPRESENTATIONS COMPLETE. None of the representations or warranties made by Healtheon or Acquisition Sub (as modified by the Healtheon and Acquisition Sub Schedules), nor any statement made in any schedule or certificate furnished by Healtheon or Acquisition Sub pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the stockholders of Healtheon or Acquisition Sub in -29- connection with soliciting their consent to this Agreement and the Asset Purchase, contains or will contain at the Closing, any untrue statement of a material fact, or omits or will omit at the Closing to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. ARTICLE IV CONDUCT PRIOR TO THE CLOSING 4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement and the Closing, the Company agrees (except to the extent that Healtheon shall otherwise consent in writing) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve their relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Closing. The Company shall promptly notify Healtheon of any event or occurrence or emergency not in the ordinary course of its business, and any material event involving or adversely affecting the Company or its business. Except as expressly contemplated by this Agreement, the Company shall not, without the prior written consent of Healtheon: (i) Enter into any commitment, activity or transaction not in the ordinary course of business. (ii) Transfer to any person or entity any rights to any Company Intellectual Property Rights (other than pursuant to End-User Licenses in the ordinary course of business); (iii) Enter into or amend any agreements pursuant to which any other party is granted manufacturing, marketing, distribution or similar rights of any type or scope with respect to any products of the Company; (iv) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the agreements set forth or described in the Company Schedules; (v) Commence any litigation; (vi) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, equity interests or property) in respect of any of its units or other evidences of ownership, or split, combine or reclassify any of its units or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for units or other evidences of ownership of the Company, or repurchase, redeem or otherwise acquire, directly or indirectly, any Company Capital Stock (or Company Capital Stock Equivalents); -30- (vii) Issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any units or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such units or other convertible securities; (viii) Cause or permit any amendments to its Organizational Documents; (ix) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of the Company; (x) Sell, lease, license or otherwise dispose of any of its properties or assets, except in the ordinary course of business and consistent with past practice; (xi) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of the Company or guarantee any debt securities of others; (xii) Grant any severance or termination pay to any director, officer, employee or consultant, except payments made pursuant to standard written agreements outstanding on the date hereof (which such agreements are disclosed on Schedule 4.1(a)(xii)); (xiii) Adopt or amend any employee benefit plan, program, policy or arrangement, or enter into any employment contract, extend any employment offer, pay or agree to pay any special bonus or special remuneration to any director, employee or consultant, or increase the salaries or wage rates of its employees (other than the two employees of the Company currently under review); (xiv) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable in excess of $10,000 in the aggregate; (xv) Pay, discharge or satisfy, in an amount in excess of $10,000, in any one case, or $25,000, in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Financial Statements; (xvi) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (xvii) Enter into any strategic alliance, joint development or joint marketing arrangement or agreement; (xviii) Fail to pay or otherwise satisfy its monetary obligations as they become due, except such as are being contested in good faith; -31- (xix) Waive or commit to waive any rights with a value in excess of $10,000, in any one case, or $25,000, in the aggregate; (xx) Cancel, materially amend or renew any insurance policy other than in the ordinary course of business; (xxi) Alter, or enter into any commitment to alter, its interest in any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest on the date hereof; or (xxii) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(i) through (xxii) above, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder. 4.2 NO COMPANY SOLICITATION. Until the earlier of the Closing and the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, the Company will not (nor will the Company permit any of the Company's officers, directors, Members, agents, representatives or affiliates to) directly or indirectly, take any of the following actions with any party other than Healtheon and its designees: (a) solicit, initiate, entertain, or encourage any proposals or offers from, or conduct discussions with or engage in negotiations with, any person relating to any possible acquisition of the Company or any of its subsidiaries (whether by way of Merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries, (b) provide information with respect to it to any person, other than Healtheon, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such person with regard to, any possible acquisition of the Company (whether by way of Merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries, (c) enter into an agreement with any person, other than Healtheon, providing for the acquisition of the Company (whether by way of Merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries, or (d) make or authorize any statement, recommendation or solicitation in support of any possible acquisition of the Company or any of its subsidiaries (whether by way of Merger, purchase of capital stock, purchase of assets or otherwise), any material portion of its or their capital stock or assets or any equity interest in the Company or any of its subsidiaries by any person, other than by Healtheon. The Company shall immediately cease and cause to be terminated any such contacts or negotiations with third parties relating to any such transaction or proposed transaction. In addition to the foregoing, if the Company receives prior to the Closing or the termination of this Agreement any offer or proposal relating to any of the above, the Company shall immediately notify Healtheon thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Healtheon may reasonably request. Except as contemplated by this Agreement, disclosure by the Company of the terms hereof (other than the prohibition of this section) shall be deemed to be a violation of this Section 4.2. -32- ARTICLE V ADDITIONAL AGREEMENTS 5.1 COMPANY MEMBER APPROVALS. As promptly as practicable: (a) Prior to the execution of this Agreement, Healtheon and the Company have prepared the necessary documentation for, and as soon as reasonably practicable following the execution of this Agreement they shall apply to obtain, a permit (a "CALIFORNIA PERMIT") from the Commissioner of Corporations of the State of California (after a hearing before the California Department of Corporations) pursuant to Section 25121 of the California Corporate Securities Law of 1968, so that the issuance of Healtheon Common Stock in the Asset Purchase shall be exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended (the "SECURITIES ACT") and California blue sky laws. The Company and Healtheon will respond to any comments from the California Department of Corporations and use their commercially reasonable effort to have the California Permit granted as soon as practical after such filing. As promptly as practical after the date of this Agreement, Healtheon shall prepare and make such filings as are required under applicable Blue Sky laws relating to the transactions contemplated by this Agreement. (b) As promptly as practicable after the receipt of a California Permit, the Company shall submit this Agreement and the transactions contemplated hereby, including without limitation the sale, to the Company's Members for approval and adoption as provided by California Corporate Code and the Company's Organizational Documents. The materials submitted to the Company's Members shall be subject to review and approval by Healtheon and include information regarding Healtheon and the Company, the terms of the Asset Purchase and this Agreement and the unanimous recommendation of the Board of Directors of the Company in favor of the Asset Purchase, this Agreement and the transactions contemplated hereby. 5.2 ACCESS TO INFORMATION. Each party shall afford the other and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Closing to (a) all of its properties, books, contracts, commitments and records, and (b) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of it as the others may reasonably request, subject, in the case of Healtheon, to reasonable limits on access to its technical and other nonpublic information. No information or knowledge obtained in any investigation pursuant to this Section 5.2 shall affect or be deemed to modify any representation or warranty contained herein. 5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep the terms of this Agreement (except to the extent contemplated hereby) and such information or knowledge obtained in any investigation pursuant to Section 5.2, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, confidential; PROVIDED, HOWEVER, that the foregoing shall not apply to information or knowledge which (a) a party can demonstrate was already lawfully in its possession prior to the disclosure thereof by the other party, (b) is generally known to the public and did not become so known through any violation of law, (c) became known to the public through no fault of such party, (d) is later lawfully acquired by such party without confidentiality restrictions from other sources, (e) is required to be disclosed by order of court or government agency with subpoena powers (provided that such party shall have provided the other party with prior notice of such order or subpoena and an opportunity to object or take other available action) or (f) which is disclosed in the course of any litigation between any of the parties hereto. -33- 5.4 EXPENSES. Whether or not the Asset Purchase is consummated, all fees and expenses incurred in connection with the Asset Purchase including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. 5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including, without limitation, federal and state securities laws) prior to the Closing, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto unless approved by Healtheon and the Company prior to release. 5.6 CONSENTS. Healtheon and the Company shall use commercially reasonable efforts to obtain the consents, waivers, assignments and approvals under any of the Healtheon Contracts and Company Contracts as may be required in connection with the Asset Purchase (all of such consents, waivers and approvals are set forth in the Company Schedules and Healtheon and Acquisition Sub Schedules) so as to preserve and transfer all rights of and benefits to Acquisition Sub thereunder. 5.7 REASONABLE EFFORTS. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use its reasonable efforts to ensure that its representations and warranties remain true and correct in all material respects, and to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents, assignments and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement; PROVIDED, that Healtheon shall not be required to agree to any divestiture by Healtheon or the Company or any of Healtheon's subsidiaries or affiliates of equity interests or of any business, assets or property of Healtheon or its subsidiaries or affiliates or the Company or its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 5.8 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Healtheon, and Healtheon shall give prompt notice to the Company, of (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company, Healtheon or Acquisition Sub, respectively, contained in this Agreement to be untrue or inaccurate at or prior to the Closing and (ii) any failure of the Company or Healtheon, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise affect any remedies available to the party receiving such notice. 5.9 CERTAIN BENEFIT PLANS. Healtheon shall take such reasonable actions as are necessary to allow eligible employees of the Company to participate in the benefit programs of Healtheon, or alternative benefits programs substantially comparable to those applicable to employees of Healtheon on similar terms, as soon as practicable after the Closing. 5.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as -34- may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. 5.11 COMPANY'S AUDITORS. The Company will use its commercially reasonable efforts to cause its management and its independent auditors to facilitate on a timely basis (i) the review of any Company audit or review work papers for up to the past three years, including the examination of selected interim financial statements and data and (ii) the delivery of such representations from the Company's independent accountants as may be reasonably requested by Healtheon or its accountants to enable Healtheon's accountants to render the opinion called for by Section 6.3(j) hereof. 5.12 MUTUAL RELEASE. The Company shall use its commercially reasonable best efforts with and Netsource Communications, Inc. ("Netsource") to enter into a mutual settlement and release with Netsource relating to any and all disputes arising from or related to the transactions contemplated by the Asset Purchase Agreement among Netsource, the Company and Edward Fotsch, M.D. dated March 20, 1997. ARTICLE VI CONDITIONS TO THE ASSET PURCHASE 6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE ASSET PURCHASE. The respective obligations of each party to this Agreement to effect the Asset Purchase shall be subject to the satisfaction at or prior to the Closing of the following conditions: (a) COMPANY MEMBER APPROVAL. This Agreement and the Asset Purchase shall have been approved and adopted by the Members of the Company by the requisite vote under applicable law and the Company's Organizational Documents. (b) CALIFORNIA PERMIT. The Commissioner of Corporations for the State of California shall have approved the terms and conditions of the transactions contemplated by this Agreement, and the fairness of such terms and conditions pursuant to Section 25142 of the California Corporations Code ("CALIFORNIA CODE") following a hearing for such purpose, and shall have issued a Permit under Section 25121 of the California Code. (c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Asset Purchase shall be in effect. (d) TAX OPINIONS. Healtheon and the Company shall each have received substantially identical written opinions from their counsel in form and substance reasonably satisfactory to them, to the effect that the Asset Purchase will constitute a reorganization within the meaning of Section 368(a) of the Code. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinions. (e) PERMITS. All approvals from government authorities, including any requisite Blue Sky approvals, which are appropriate or necessary for the consummation of the Asset Purchase, shall have been obtained. -35- (f) LITIGATION. There shall be no BONA FIDE action, suit, claim or proceeding of any nature pending, or overtly threatened, against Healtheon or the Company, their respective properties or any of their officers or directors, arising out of, or in any way connected with, the Asset Purchase or other transactions contemplated by the terms of this Agreement. 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the Company to consummate the Asset Purchase and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Healtheon and Acquisition Sub contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on Healtheon; and the Company shall have received a certificate to such effect signed on behalf of Healtheon by a duly authorized officer of Healtheon. (b) AGREEMENTS AND COVENANTS. Healtheon and Acquisition Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing, and the Company shall have received a certificate to such effect signed by a duly authorized officer of Healtheon. (c) THIRD PARTY CONSENTS. The Company shall have been furnished with evidence satisfactory to it that Healtheon has obtained the consents, approvals, assignments and waivers set forth in Schedule 6.2(c). (d) LEGAL OPINION. The Company shall have received a legal opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to Healtheon, in substantially the form attached hereto as EXHIBIT C. (e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material adverse change in the business, assets (including intangible assets), liabilities, financial condition or results of operations of Healtheon since the date of the Balance Sheet. (f) HEALTHEON CAPITALIZATION. At the Closing, Healtheon shall have only a single class of Common Stock outstanding and shall have no other class or series of capital stock issued or outstanding. 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF HEALTHEON AND ACQUISITION SUB. The obligations of Healtheon and Acquisition Sub to consummate the Asset Purchase and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Healtheon: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except for changes contemplated by this Agreement and except for those representations and warranties which address -36- matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, except, in all such cases, for such breaches, inaccuracies or omissions of such representations and warranties which have neither had nor reasonably would be expected to have a Material Adverse Effect on the Company or Healtheon; and Healtheon and Acquisition Sub shall have received a certificate to such effect signed on behalf of the Company by the chief executive officer and chief financial officer of the Company; (b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing, and Healtheon and Acquisition Sub shall have received a certificate to such effect signed by a duly authorized officer of the Company; (c) THIRD PARTY CONSENTS. Healtheon shall have been furnished with evidence satisfactory to it that the Company has obtained the consents, approvals and waivers set forth in Schedule 6.3(c). (d) LEGAL OPINION. Healtheon shall have received a legal opinion from Cooley Godward LLP, legal counsel to the Company, in substantially the form attached hereto as EXHIBIT D. (e) MATERIAL ADVERSE CHANGE. There shall not have occurred any material adverse change in the business, assets (including intangible assets) financial condition or results of operations of the Company since the date of the Company Balance Sheet. (f) NONCOMPETITION AGREEMENTS. Each of the persons listed on Schedule 6.3(g) shall have executed and delivered to Healtheon a Noncompetition Agreement in substantially the form of EXHIBIT E, and all of the Noncompetition Agreements shall be in full force and effect. (g) NO DISSENTERS. Holders of more than 10% of the outstanding units of Company Capital Stock shall not have exercised, nor shall they have any continued right to exercise, appraisal, dissenters' or similar rights under applicable law with respect to their shares by virtue of the Asset Purchase. (h) EMPLOYMENT AGREEMENTS. Edward J. Fotsch, M.D., Deb Del Guidice, Fel Bautista, Jeff Nelson and Terry McMann shall have entered into an Employment Agreement in form and substance reasonably satisfactory to Healtheon. (i) MEMBER LOANS. At the Closing, all loans from Members of the Company ("Member Loans") shall have been repaid or canceled. (j) STOCK TRANSFER AGREEMENTS. The Company and each Member of the Company shall have entered into an agreement providing for the restriction on sales of Healtheon Common Stock received in connection with this transaction until 180 days after completion of a public offering of Healtheon Common Stock pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission; provided, however, that no Member shall be required to sign such agreement unless Healtheon's executive officers and directors sign similar agreements. (k) BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT. The Company shall have delivered the Bill of Sale and the parties hereto shall have entered into the Assignment and Assumption Agreement. -37- ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW 7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Company, Healtheon and Acquisition Sub contained in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the corresponding Schedules thereto) shall survive the Asset Purchase and continue until 5:00 p.m., California time, on the date which is one year following the date of this Agreement (the "EXPIRATION DATE"). 7.2 ESCROW ARRANGEMENTS AND INDEMNIFICATION. (a) ESCROW FUND AND INDEMNIFICATION. At the Closing, the Company will be deemed to have received and deposited with the Escrow Agent (as defined below) the Escrow Amount (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Healtheon after the Closing). As soon as practicable after the Closing, the Escrow Amount will be deposited with U.S. Bank Trust National Association, (or other institution acceptable to Healtheon and the Securityholder Agent (as defined in Section 7.2(g) below)) as Escrow Agent (the "ESCROW AGENT"), such deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by the terms set forth herein and at Healtheon's cost and expense. The Escrow Fund shall be available to compensate Healtheon, Acquisition Sub and their affiliates for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses, and expenses of investigation and defense (hereinafter individually a "LOSS" and collectively "LOSSES") incurred by Healtheon, Acquisition Sub, their officers, directors, or affiliates directly or indirectly as a result of (a) any inaccuracy or breach of a representation or warranty of the Company contained in Article II herein (as modified by the Company Schedules), or any failure by the Company to perform or comply with any covenant contained herein and (b) any Loss arising out of a claim by Netsource or any trustee in bankruptcy or creditor relating the Asset Purchase Agreement dated March 20, 1997 (the "Netsource Agreement"). Healtheon and the Company each acknowledge that such Losses, if any, would relate to unresolved contingencies existing at the Closing, which if resolved at the Closing would have led to a reduction in the aggregate consideration. Nothing herein shall limit the liability of the Company for any breach of any representation, warranty or covenant if the Asset Purchase does not close. Healtheon may not receive any shares from the Escrow Fund unless and until Officer's Certificates (as defined in paragraph (d) below) identifying Losses, the aggregate amount of which exceed $50,000, which, for purposes of aggregating such amount, shall not include the value of any Healtheon shares transferred to Netsource, have been delivered to the Escrow Agent as provided in paragraph (e); in such case, Healtheon may recover from the Escrow Fund the total of its Losses, including the first $50,000; provided, however, in the event that such Losses arise from, or relate to, Retained Liabilities of the Company, Healtheon shall be entitled to immediate indemnification from the Company without regard to such $50,000 threshold. The indemnification provisions in this Section 7.2 shall be the sole remedy and recourse of Healtheon against the Company or any of its respective directors, officers, representatives, agents or Members for any Losses incurred by Healtheon; PROVIDED, HOWEVER, that nothing herein shall limit any remedy for fraud. (b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW PERIODS. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Closing and shall terminate at 5:00 p.m., California time, on the later to occur of (i) the first anniversary of the Closing and (ii) [the final resolution of all claim, made by or on behalf of Netsource and relating to the Netsource Agreement] (the "ESCROW PERIOD"); PROVIDED, that the Escrow Period shall not terminate with respect to such amount (or some portion thereof), that together with the aggregate amount remaining in the Escrow Fund is necessary in the -38- reasonable judgment of Healtheon, subject to the objection of the Securityholder Agent and the subsequent arbitration of the matter in the manner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims concerning facts and circumstances existing prior to the termination of such Escrow Period specified in any Officer's Certificate delivered to the Escrow Agent prior to termination of such Escrow Period. As soon as all such claims have been resolved, the Escrow Agent shall deliver to the Company, or its transferees, the remaining portion of the Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts to the Members of the Company pursuant to this Section 7.2(b) shall be made in proportion to their respective original contributions to the Escrow Fund. (c) PROTECTION OF ESCROW FUND. (i) The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Healtheon and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. (ii) Any shares of Healtheon Common Stock or other equity securities issued or distributed by Healtheon (including shares issued upon a stock split) ("NEW SHARES") in respect of Healtheon Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Healtheon Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. Cash dividends on Healtheon Common Stock shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. (iii) The Company shall have voting rights with respect to the shares of Healtheon Common Stock contributed to the Escrow Fund (and on any voting securities added to the Escrow Fund in respect of such shares of Healtheon Common Stock). (d) CLAIMS UPON ESCROW FUND. (i) Upon receipt by the Escrow Agent at any time on or before the last day of the Escrow Period of a certificate signed by any officer of Healtheon (an "OFFICER'S CERTIFICATE"): (A) stating that Healtheon has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall, subject to the provisions of Section 7.2(e) hereof, deliver to Healtheon out of the Escrow Fund, as promptly as practicable, shares of Healtheon Common Stock held in the Escrow Fund in an amount equal to such Losses. (ii) For the purposes of determining the number of shares of Healtheon Common Stock to be delivered to Healtheon out of the Escrow Fund pursuant to Section 7.2(d)(i) hereof, the value of the shares of Healtheon Common Stock shall be deemed to be equal to $5.20 per share of Healtheon Common Stock. (e) OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Securityholder Agent and for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery to Healtheon of any Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have received written authorization from the Securityholder Agent to make such delivery. After the expiration of such thirty (30) day period, the Escrow -39- Agent shall make delivery of shares of Healtheon Common Stock from the Escrow Fund in accordance with Section 7.2(d) hereof; PROVIDED, that no such payment or delivery may be made if the Securityholder Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty (30) day period. (f) RESOLUTION OF CONFLICTS; ARBITRATION. (i) In case the Securityholder Agent shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholder Agent and Healtheon shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholder Agent and Healtheon should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Healtheon Common Stock from the Escrow Fund in accordance with the terms thereof. (ii) If no such agreement can be reached after good faith negotiation, either Healtheon or the Securityholder Agent may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Healtheon and the Securityholder Agent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys' fees and costs, to the extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. (iii) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Santa Clara County, California under the rules then in effect of the American Arbitration Association. For purposes of this Section 7.2(f), in any arbitration hereunder in which any claim or the amount thereof stated in the Officer's Certificate is at issue, Healtheon shall be deemed to be the Non-Prevailing Party in the event that the arbitrators award Healtheon less than the sum of one-half (1/2) of the disputed amount plus any amounts not in dispute; otherwise, the Members of the Company as represented by the Securityholder Agent shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative costs of the arbitration and the expenses, including without limitation, reasonable attorneys' fees and costs, incurred by the other party to the arbitration. (g) SECURITYHOLDER AGENT OF THE MEMBERS; POWER OF ATTORNEY. -40- (i) In the event that the Asset Purchase is approved, effective upon such vote, and without further act of any Member, Edward Fotsch, M.D. shall be appointed as agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for the Company to give and receive notices and communications, to authorize delivery to Healtheon of shares of Healtheon Common Stock from the Escrow Fund in satisfaction of claims by Healtheon, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of Securityholder Agent for the accomplishment of the foregoing. Such agency may be changed by the Company from time to time upon not less than thirty (30) days prior written notice to Healtheon; PROVIDED that the Securityholder Agent may not be removed unless holders of a two-thirds interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in the position of Securityholder Agent may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholder Agent, and the Securityholder Agent shall not receive compensation for his or her services. Notices or communications to or from the Securityholder Agent shall constitute notice to or from the Company. (ii) The Securityholder Agent shall not be liable for any act done or omitted hereunder as Securityholder Agent while acting in good faith and in the exercise of reasonable judgment. The Members of the Company and the Company shall severally indemnify the Securityholder Agent and hold the Securityholder Agent harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Securityholder Agent and arising out of or in connection with the acceptance or administration of the Securityholder Agent's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholder Agent. (h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent or instruction of the Securityholder Agent shall constitute a decision of the holders in interest in the Escrow Fund and shall be final, binding and conclusive upon each of each such holder, and the Escrow Agent and Healtheon may rely upon any such decision, act, consent or instruction of the Securityholder Agent as being the decision, act, consent or instruction of each and every such holder. The Escrow Agent and Healtheon are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Securityholder Agent. (i) THIRD-PARTY CLAIMS. In the event Healtheon becomes aware of a third-party claim which Healtheon believes may result in a demand against the Escrow Fund, Healtheon shall notify the Securityholder Agent of such claim, and the Securityholder Agent, as representative for the Company, shall be entitled, at their expense, to participate in any defense of such claim. Healtheon shall have the right in its sole discretion to settle any such claim; PROVIDED, HOWEVER, that except with the consent of the Securityholder Agent, no settlement of any such claim with third-party claimants shall alone be determinative of the amount of any claim against the Escrow Fund. In the event that the Securityholder Agent has consented to any such settlement, the Securityholder Agent shall have no power or authority to object under any provision of this Article VII to the amount of any claim by Healtheon against the Escrow Fund with respect to such settlement. (j) ESCROW AGENT'S DUTIES. (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Healtheon and the Securityholder Agent, and may rely and shall be protected in relying or refraining from acting on any instrument -41- reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. (ii) The Escrow Agent is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court of law, notwithstanding any notices, warnings or other communications from any party or any other person to the contrary. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. (v) In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (vi) If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of Healtheon Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of Healtheon Common Stock held in escrow, except all cost, expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the interpleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. (vii) The parties and their respective successors and assigns agree jointly and severally to indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities, and -42- expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his/her duties under this Agreement, including but not limited to any litigation arising from this Agreement or involving its subject matter. (viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; PROVIDED, HOWEVER, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business in the State of California. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. The Escrow Agent shall be discharged from any further duties and liability under this Agreement. (k) FEES. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by Healtheon. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorney's fees, and expenses occasioned by such default, delay, controversy or litigation. Healtheon promises to pay these sums upon demand. 7.3 INDEMNIFICATION BY HEALTHEON AND ACQUISITION SUB. (a) SCOPE OF INDEMNIFICATION. Subject to the limitations set forth in this Section 7.3, Healtheon will indemnify and hold harmless for any Losses (as defined in Section 7.2(a) above) incurred by the Company directly or indirectly as a result of any inaccuracy or breach of a representation or warranty of Healtheon or Acquisition Sub contained in Article III herein (as modified by the Healtheon and Acquisition Sub Schedules), or any failure by Healtheon or Acquisition Sub to perform or comply with any covenant contained herein. Healtheon and the Company each acknowledge that such Losses, if any, would relate to unresolved contingencies existing at the Closing, which if resolved at the Closing would have led to an increase in the aggregate Asset Purchase consideration. Nothing herein shall limit the liability of the Healtheon for any breach of any representation, warranty or covenant if the Asset Purchase does not close. The indemnification provisions in this Section 7.3 shall be the sole remedy and recourse of the Company against Healtheon or any of its respective directors, officers, representatives, agents, shareholders or subsidiaries for any Losses incurred by such Indemnified Members; PROVIDED, HOWEVER, that nothing herein shall limit any remedy for fraud. (b) LIMITATION OF LIABILITY. The maximum aggregate liability of Healtheon with respect to the indemnification provided in this Section 7.3 shall be limited solely to the number of newly issued shares of Healtheon Common Stock equal to the Escrow Amount. Healtheon shall not be obligated to issue any shares of Healtheon Common Stock to the Company unless and until the Securityholder Agent, on behalf of the Company, delivers a certificate ("SECURITYHOLDER CERTIFICATE") that identifies Losses, the aggregate amount of which exceed $50,000; in such case, the Company shall be entitled to shares of Healtheon Common Stock for the total of its Losses, including the first $50,000. -43- (c) PROCEDURE FOR INDEMNIFICATION. The Company shall give written notice to Healtheon of its claim for indemnification as promptly as practicable whenever the Securityholder Agent shall have determined that there are facts or circumstances which render or would reasonably and forseeably render Healtheon liable for indemnification under this Section 7.3; PROVIDED, HOWEVER, that the failure to give a timely notice of a claim for indemnification shall not limit the indemnification obligations of Healtheon. The notice shall set forth in reasonable detail the basis for the claim, the nature of the Losses and the monetary amount thereof. (d) VALUE OF HEALTHEON COMMON STOCK. For the purposes of determining the number of shares of Healtheon Common Stock to be delivered to the Company in satisfaction of Healtheon's indemnity obligations under this Section 7.3, the value of the shares of Healtheon Common Stock shall be deemed to be $5.20 per share of Healtheon Common Stock. (e) THIRD-PARTY BENEFICIARY. Each of the parties to this Agreement specifically intends that the benefits of the indemnification provisions of this Section 7.3 shall accrue to the Company and that the Company and its authorized representatives shall be entitled to take any necessary action to enforce the remedy set forth in this Section 7.3. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement may be terminated and the Asset Purchase abandoned at any time prior to the Closing: (a) by mutual consent of the Company and Healtheon; (b) by Healtheon or the Company if: (i) the Closing has not occurred before 5:00 p.m. (Pacific time) on August 15, 1998 (provided that the right to terminate this Agreement under this clause 8.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Closing to occur on or before such date); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Asset Purchase; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Asset Purchase by any governmental entity that would make consummation of the Asset Purchase illegal; (c) by Healtheon if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Asset Purchase, by any Governmental Entity, which would: (i) prohibit Healtheon's or the Company's ownership or operation of all or any portion of the business of the Company or (ii) compel Healtheon or the Company to dispose of or hold separate all or a portion of the business or assets of the Company or Healtheon as a result of the Asset Purchase; (d) by Healtheon if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and (i) such breach has not been cured within five (5) business days after written notice to the Company (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied; or -44- (e) by the Company if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Healtheon or Acquisition Sub and (i) such breach has not been cured within five (5) business days after written notice to Healtheon (provided that, no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied. Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Healtheon, Acquisition Sub or the Company, or their respective officers, directors, shareholders or Members; PROVIDED, that each party shall remain liable for any breaches of this Agreement prior to its termination; and PROVIDED FURTHER, that, the provisions of Sections 5.3 and 5.4 and Article VIII of this Agreement shall remain in full force and effect and survive any termination of this Agreement. 8.3 AMENDMENT. Except as is otherwise required by applicable law after the Members of the Company approve this Agreement, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto. 8.4 EXTENSION; WAIVER. At any time prior to the Closing, Healtheon and Acquisition Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Healtheon or Acquisition Sub, to: Healtheon Corporation 4600 Patrick Henry Drive Santa Clara, CA 95054 Attention: W. Michael Long Telephone No.: (408) 876-5000 Facsimile No.: (408) 876-5010 -45- with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attention: Steven E. Bochner, Esq. Telephone No.: (650) 493-9300 Facsimile No.: (650) 493-6811 (ii) if to the Company, to: Metis, LLC 444 Spear Street, Suite 205 San Francisco, CA 94105 Attention: Edward Fotsch, M.D. Telephone No.: (415) 537-7400 Facsimile No.: (415) 357-5919 with a copy to: Cooley Godward LLP One Maritime Plaza, 20th Floor San Francisco, CA 94111 Attention: Peter M. Wong Telephone No.: (415) 693-2198 Facsimile No.: (415) 951-3699 (c) if to the Securityholder Agent: ------------------------------ ------------------------------ ------------------------------ (d) if to the Escrow Agent: U.S. Bank Trust National Association San Francisco, CA Attention: Cora Murphy Telephone No.: (415) 273-4534 Facsimile No.: (415) 273-4593 9.2 INTERPRETATION. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. -46- 9.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 9.4 TRANSFER TAXES. The Company shall pay all real property transfer Taxes, sales Taxes, stock transfer Taxes, documentary stamp Taxes, recording charges and other similar Taxes resulting from, arising under or in connection with the transfer of the Purchased Assets or any other related transaction under the Agreement. 9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Healtheon and Acquisition Sub may assign their respective rights and delegate their respective obligations hereunder to their respective affiliates; PROVIDED, that such affiliates agree to be bound by the terms hereof, including without limitation, the provisions of 6.3(k) hereof. 9.6 SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement 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 Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 9.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto agrees that process may be served upon them in any manner authorized by the laws of the State of California for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to -47- prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. -48- IN WITNESS WHEREOF, Healtheon, Acquisition Sub and the Company and, with respect to Article VII, the Securityholder Agent and Escrow Agent, have caused this Agreement to be signed by their duly authorized respective officers and representatives, all as of the date first written above. METIS, LLC HEALTHEON CORPORATION By: /s/ Edward Fotsch By: /s/ W. Michael Long ----------------------------- ------------------------- Name: Name: Title: Title: SECURITYHOLDER AGENT: METIS ACQUISITION CORP. By: /s/ Edward Fotsch By: /s/ W. Michael Long ---------------------------- ------------------------- Name: Name: Title: ESCROW AGENT By: /s/ Ann Gadsby ---------------------------- Name: Ann Gadsby Title: Vice President ***ASSET PURCHASE AGREEMENT*** EX-3.1 5 EX-3.1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HEALTHEON CORPORATION (Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware) Healtheon Corporation, a corporation organized and existing under the General Corporation law of the State of Delaware (the "General Corporation Law") DOES HEREBY CERTIFY: FIRST: That this corporation was originally incorporated on December 26, 1995 under the name Healthscape Corporation, pursuant to the General Corporation Law. The corporation changed its name to "Healtheon Corporation" on June 17, 1996. SECOND: The Amended and Restated Certificate of Incorporation (the "Amended Certificate") of Healtheon Corporation, in the form set forth below, has been duly adopted in accordance with the provisions of Sections 288, 242, and 245 of the General Corporation Law by the directors and the stockholders of the corporation. THIRD: The Amended Certificate, as so adopted, reads in full as set forth below: ARTICLE I The name of this corporation is Healtheon Corporation. ARTICLE II The address of the registered office of this corporation in the State of Delaware is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV This corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that this corporation is authorized to issue is one hundred fifty-eight million two hundred eighty-five thousand seven (158,285,007) with a par value of $0.0001 per share. The number of shares of Preferred Stock authorized to be issued is eight million two hundred eighty-five thousand seven (8,285,007), all of which are designated "Series A Preferred Stock." The number of shares of Common Stock authorized to be issued is one hundred fifty million (150,000,000). The relative rights, preferences, privileges and restrictions granted to or imposed upon the respective classes and series of shares of capital stock or the holders thereof are as set forth below. 1. DIVIDEND PROVISIONS (a) The holders of the Preferred Stock shall be entitled to receive dividends, out of funds legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this corporation) on the Common Stock of this corporation, at the rate of $0.405 per share per annum, with respect to the Series A Preferred Stock (as adjusted to reflect any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to a series of Preferred Stock), payable when, as, and if declared by the Board of Directors. Such dividends shall not be cumulative, and no right shall accrue to holders of the Series A Preferred Stock by reason of the fact that dividends on such shares are not declared or paid in any year. After payment of such dividend to the holders of the Series A Preferred Stock any additional dividends declared shall be distributed pro rata among the holders of the Common Stock and the Preferred Stock on an as-converted to Common Stock basis. (b) Notwithstanding paragraph (a) of Section 1 hereof, the corporation may at any time, out of funds legally available therefor, repurchase shares of Common Stock of the corporation (i) issued to or held by employees, directors or consultants of the corporation or its subsidiaries upon termination of their employment or services, provided the repurchase price does not exceed the original purchase price for such shares (appropriately adjusted for recapitalizations, stock combinations, stock dividends, stock splits and the like) or (ii) issued to or held by any person subject to the corporation's right of first refusal to purchase such shares provided that the purchase is pursuant to the exercise of such right of first refusal and is approved by a majority of the disinterested members of the corporation's Board of Directors, in any case whether or not dividends on the Preferred Stock shall have been declared and paid or funds set aside therefor. 2. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, the holders of Series A Preferred Stock, shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of the Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (A) $6.00 for each outstanding share of Series A Preferred Stock (as adjusted to reflect any recapitalizations, stock combinations, stock dividends, stock splits and the like), and (B) an amount equal to declared but unpaid dividends on the Series A Preferred Stock. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, 2 then, the entire assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive. (b) After payment has been made to the holders of the Preferred Stock of the full amounts to which they shall be entitled as provided in Section 2(a), the remaining assets and funds of the corporation available for distribution to stockholders shall be distributed ratably among the holders of Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them or issuable to them upon conversion of their shares of Preferred Stock. (c) A consolidation or merger of this corporation, with or into any other corporation, or a sale, conveyance or disposition of all or substantially all of the assets of this corporation, or the effectuation by this corporation of a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this corporation is disposed of, shall be deemed to be a liquidation, dissolution or winding up of the corporation. 3. CONVERSION. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this corporation or any transfer agent for such Preferred Stock, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Original Issue Price by the Conversion Price (as hereinafter defined) at the time in effect for a share of such series of Preferred Stock. The Original Issue Price per share of Series A Preferred Stock is $6.00. The Conversion Price per share of Series A Preferred Stock initially shall be $6.00. The Conversion Price of each series of Preferred Stock (the "Conversion Price") shall be subject to adjustment from time to time as provided below. (b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect immediately upon the earlier of (A) the consummation of this corporation's sale of its Common Stock in a firm commitment underwriting pursuant to a registration statement under the Securities Act of 1933, as amended (the "Act"), the aggregate proceeds of which are not less than $10,000,000 at a public offering price of not less than $10.00 per share (as adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like) or (B) the date upon which this corporation obtains the consent of the holders of a majority of the then outstanding shares of Preferred Stock. (c) MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Preferred Stock, and shall give written notice by mail, postage prepaid, to this corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued; provided, however, that in the event of an automatic conversion pursuant to paragraph (b) of Section 3 hereof, 3 the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the corporation or its transfer agent; and provided further that the corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless and until the certificates evidencing such shares of Preferred Stock are either delivered to the corporation or its transfer agent as provided above, or the holder notifies the corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection with such certificates. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any declared and unpaid dividends payable pursuant to paragraph (a) of Section 3 hereof, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or, in the case of automatic conversion, immediately prior to the occurrence of the event leading to such automatic conversion, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Act, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriter of the sale of securities pursuant to such offering; in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) SPECIAL DEFINITIONS. For purposes of this Section 3(d), the following definitions shall apply: (1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (3) "Additional Shares of Common" shall mean all shares of Common Stock issued (or, pursuant to Section 3(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (A) upon conversion of shares of the Preferred Stock; 4 (B) to officers, directors or employees of, or consultants to, the corporation pursuant to a stock grant, stock option, restricted stock purchase agreement, stock appreciation right, option plan, purchase plan or other employee stock incentive program or agreement approved by the Board; (C) as a dividend or distribution on Preferred Stock; or (D) upon exercise or conversion of options or warrants to purchase shares of Common Stock or Preferred Stock issued in connection with equipment lease financing transactions or bank financing transactions approved by the Board of Directors, where the issuance of such options or warrants is not principally for the purpose of raising additional equity capital for the corporation. (E) in a transaction described in Section 3(d)(vi). (4) "ORIGINAL ISSUE DATE" with respect to each series of Preferred Stock shall mean the date on which the first share of such series of Preferred Stock was first issued. (ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share (determined pursuant to Section 3(d)(v) hereof) for an Additional Share of Common issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to, such issue. (iii)DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON. In the event the corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the exercise of such Options and conversion or exchange of such Convertible Securities shall be deemed to be Additional Shares of Common issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3(d)(v) hereof) of such Additional Shares of Common would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: (1) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; 5 (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease the consideration payable to the corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (other than under or by reason of provisions designed to protect against dilution), the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof or upon the occurrence of a record date with respect thereto, and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (A) in the case of Convertible Securities or Options for Common Stock, the only additional shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities, whether or not converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (4) no readjustment pursuant to clauses (2) and (3) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (1) the Conversion Price on the original adjustment date or (2) the Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date; and (5) in the case of any Option or Convertible Security with respect to which the maximum number of shares of Common Stock issuable upon exercise or conversion or exchange thereof is not determinable, no adjustment to the Conversion Price shall be made until such number becomes determinable. 6 (iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON. In the event this corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to Section 3(d)(iii)) without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issue, then and in each such event such Conversion Price shall be reduced to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued; provided that, for the purposes of this Section 3(d)(iv), all shares of Common Stock issuable upon conversion of all outstanding Preferred Stock, all outstanding Options and all outstanding Convertible Securities shall be deemed to be outstanding, and, immediately after any Additional Shares of Common are deemed issued pursuant to Section 3(d)(iii), such Additional Shares of Common shall be deemed to be outstanding. (v) DETERMINATION OF CONSIDERATION. For purposes of this Section 3(d), the consideration received by the corporation for the issue of any Additional Shares of Common shall be computed as follows: (1) CASH AND PROPERTY: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the corporation; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in the good faith by the Board of Directors ; and (C) in the event Additional Shares of Common are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the corporation for Additional Shares of Common deemed to have been issued pursuant to Section 3(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing (A) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or 7 exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) OTHER ADJUSTMENTS TO CONVERSION PRICE. The Conversion Prices shall be subject to adjustments from time to time as follows: (1) ADJUSTMENTS FOR SUBDIVISIONS OR COMBINATIONS OF COMMON STOCK. In the event the outstanding shares of Common Stock shall be subdivided by stock split, stock dividend or otherwise, into a greater number of shares of Common Stock, the Conversion Price of each series of Preferred Stock then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated into a lesser number of shares of Common Stock, the Conversion Price of each series of Preferred Stock then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (2) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. In the event the corporation makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any distribution (excluding repurchases of securities by the corporation not made on a pro rata basis) payable in property or in securities of the corporation other than shares of Common Stock, and other than as otherwise adjusted for in this Section 3 or as provided in Section 1 in connection with a dividend, then and in each such event the holders of Preferred Stock shall receive, at the time of such distribution, the amount of property or the number of securities of the corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event. (3) ADJUSTMENTS FOR REORGANIZATIONS, RECLASSIFICATIONS OR SIMILAR EVENTS. Except as provided in Section 2 upon any liquidation, dissolution or winding up of the corporation, if the Common Stock shall be changed into the same or a different number of shares of any other class or classes of stock or other securities or property, whether by capital reorganization, reclassification or otherwise, then each share of Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the corporation deliverable upon conversion of such shares of Preferred Stock shall have been entitled upon such reorganization, reclassification or other event. (vii)MISCELLANEOUS. (1) All calculations under this Section 3(d) shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. 8 (2) No adjustment in the Conversion Prices need be made if such adjustment would result in a change in such Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in such Conversion Price. (e) NO IMPAIRMENT. This corporation will not, by amendment of this Amended Certificate or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such actions as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (f) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon conversion of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Prices pursuant to this Section 3, this corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of such holder's Preferred Stock. (g) NOTICES OF RECORD DATE. In the event that this corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; 9 (iii)to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge with or into any other corporation (other than a merger in which the holders of the outstanding voting equity securities of the corporation immediately prior to such merger hold more than fifty percent (50%) of the voting power of the surviving entity immediately following such merger), or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this corporation shall send to the holders of the Preferred Stock: (1) at least twenty (20) days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (i) and (ii) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). (h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. (i) NOTICES. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Preferred Stock shall be deemed given if delivered by confirmed facsimile or electronic transmission (with duplicate original sent by United States mail) or three business days after such notice is deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this corporation. 4. VOTING RIGHTS. Except as otherwise required by law, each holder of Common Stock shall have one vote for each share of Common Stock so held, and each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the share of Preferred Stock could then be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as required by law or 10 as otherwise set forth herein, all shares of all series of Preferred Stock and all shares of Common Stock shall vote together as a single class. Fractional votes by holders of Preferred Stock shall not, however, be permitted, and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number. 5. PROTECTIVE PROVISIONS. So long as any shares of Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of at least a majority of the then outstanding shares of Preferred Stock, voting together as a single class, on an as-converted basis: ( ) sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than 50% of the voting power of this corporation is disposed of; (a) create any new class or series of stock or any other securities convertible into equity securities of the corporation having a preference over, or being on a parity with, the Preferred Stock with respect to voting, dividends or upon liquidation; (b) amend or repeal any provision of, or add any provision to, this corporation's Amended Certificate if such action would change adversely the preferences rights, privileges or powers of, or restrictions provided for the benefit of, the Preferred Stock. 6. STATUS OF CONVERTED STOCK. In the event any shares of Preferred Stock shall be converted into Common Stock pursuant to Section 3 hereof, the shares of Preferred Stock so converted shall be canceled and shall not be issuable by this corporation. This Amended Certificate shall be appropriately amended to effect the corresponding reduction in this corporation's authorized capital stock. ARTICLE V To the fullest extent permitted by the General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach fiduciary duty as a director. The corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the corporation or any predecessor of the corporation or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article V, nor the adoption of any provision of this Amended Certificate inconsistent with this Article V, shall eliminate or reduce the effect of this Article V, in respect of any matter occurring, or any cause of action, suit, claim or proceeding that, 11 but for this Article V, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE VI This corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended Certificate, in the manner now or hereafter prescribed by statute or this Amended Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. ARTICLE VIII The number of directors which constitute the whole Board of Directors of the corporation shall be as specified in the Bylaws of the corporation. ARTICLE IX Elections of directors need not be by written ballot unless the Bylaws of this corporation shall so provide. ARTICLE X Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of this corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this corporation. ARTICLE XI This corporation is to have perpetual existence. * * * FOURTH: That said amendments were duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law. I hereby further declare and certify under penalty of perjury under the laws of the State of Delaware that the facts set forth in the foregoing certificate are true and correct of my own knowledge and that this certificate is my act and deed. 12 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been signed by the President of this corporation this ____ day of October 1998. Healtheon Corporation By: /s/ W. Michael Long ------------------------------- W. Michael Long Chief Executive Officer Attest: By: /s/ Jack Dennison ------------------------------- Jack Dennison Assistant Secretary 13 EX-3.2 6 EX-3.2 EXHIBIT 3.2 HEALTHEON CORPORATION a Delaware corporation AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (PURSUANT TO SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) Healtheon Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law") DOES HEREBY CERTIFY: FIRST: That this corporation was originally incorporated on December 26, 1995 under the name Healthscape Corporation, pursuant to the General Corporation Law. The corporation changed its name to "Healtheon Corporation" on June 17, 1996. SECOND: The Restated Certificate of Incorporation of Healtheon Corporation, in the form set forth below, has been duly adopted in accordance with the provisions of Sections 228, 242, and 245 of the General Corporation Law by the directors and the stockholders of the corporation. THIRD: The Restated Certificate of Incorporation, as so adopted, reads in full as set forth below: ARTICLE I The name of this corporation is Healtheon Corporation. ARTICLE II The address of the registered office of this corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV This corporation is authorized to issue one class of stock to be designated "Common Stock" and another class of stock to be designated "Preferred Stock," the rights, preferences and privileges of which may from time to time be determined by the Board of Directors. The total number of shares of Common Stock that this corporation is authorized to issue is 150,000,000 with a par value of $0.0001 per share. The total number of shares of Preferred Stock that this corporation is authorized to issue is 5,000,000 with a par value of $0.0001 per share. ARTICLE V To the fullest extent permitted by the General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director or officer of the corporation or any predecessor or the corporation or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article V, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article V, shall eliminate or reduce the effect of this Article V, in respect of any matter occurring, or any cause of action, suit, claim or proceeding that, but for this Article V, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE VI This corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute or this Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE VII In furtherance and not in limitation of powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. ARTICLE VIII Section 1. At any time following the closing of the first sale of Common Stock of the Corporation pursuant to a registration statement declared effective by the Securities and Exchange Corporation under the Securities Act of 1933, as amended, stockholders of the Corporation may not take any action by written consent in lieu of a meeting and any action contemplated by stockholders after such time must be taken at a duly called annual or special meeting of stockholders. Section 2. The number of directors which constitute the whole Board of Directors of the Corporation shall be fixed exclusively by one or more resolution adopted from time to time by the Board of Directors. The Board of Directors shall be divided into three classes designated as Class I, Class II, and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Section 3. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. ARTICLE IX Elections of directors need not be by written ballot unless the Bylaws of this corporation shall so provide. ARTICLE X Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of this corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this corporation. ARTICLE XI This corporation is to have perpetual existence. *** FOURTH: That said amendments were duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law. I hereby further declare and certify under penalty of perjury under the laws of the State of Delaware that the facts set forth in the foregoing certificate are true and correct of my own knowledge and that this certificate is my act and deed. IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed by the President of this corporation this ___ day of _______ 1998. Healtheon Corporation By: /s/ W. Michael Long --------------------------------- W. Michael Long Chief Executive Officer Attest: By: /s/ John L. Westermann III -------------------------------- John L. Westermann III Secretary EX-3.3 7 EX-3.3 EXHIBIT 3.3 BYLAWS OF HEALTHSCAPE CORPORATION TABLE OF CONTENTS
PAGE ARTICLE I - CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.1 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE II - MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . .1 2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . .2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . .2 2.6 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 2.7 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . . . . .2 2.8 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.9 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. . . . . . .4 2.12 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE. . . . . . . . . . . . . . . . . .5 ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . .5 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . . . . . .6 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . .7 3.6 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 3.7 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 3.8 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . .8 3.9 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 3.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 3.11 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . . . . .8 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . . . . . .9 3.13 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . .9 3.14 APPROVAL OF LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . .9 3.15 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . .9 ARTICLE IV - COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 10 4.2 COMMITTEE MINUTES. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.3 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . . . . . 11 ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . . . . . 12 5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . 12 5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.8 VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.10 TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.11 ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.12 ASSISTANT TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.13 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . 14 ARTICLE VI - INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . 15 6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . . . . . . 15 6.3 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE VII - RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 16 7.1 MAINTENANCE AND INSPECTION OF RECORDS. . . . . . . . . . . . . . . . . 16 7.2 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 17 7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 17 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . 17 ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.1 CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS . . . . . . . . . . . 18 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . . . . . . . . 18 8.4 SPECIAL DESIGNATION ON CERTIFICATES. . . . . . . . . . . . . . . . . . 18 8.5 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.6 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 19 8.7 DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.8 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.9 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.10 TRANSFER OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.11 STOCK TRANSFER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 20 8.12 REGISTERED STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE IX - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE X - DISSOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE XI - CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES. . . . . . . . . . . . . . 22 11.2 DUTIES OF CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 22
BYLAWS OF HEALTHSCAPE CORPORATION ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be in the City of Dover, County of Kent, State of Delaware. The name of the registered agent of the corporation at such location is Incorporating Services, Ltd. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of stockholders shall be held on the third Tuesday of April in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called, at any time for any purpose or purposes, by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or the bylaws. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such -2- meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. -3- 2.12 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be not less than three (3) nor more than five (5). The exact number of directors shall be four (4). This number may be changed, within the limits specified above, by a duly adopted amendment to the certificate of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of the holders of a majority of the stock issued and outstanding and entitled to vote or by resolution of a majority of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS -4- Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. -5- Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors may be called by the president on three (3) days' notice to each director, either personally or by mail, telegram, telex, or telephone; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two (2) directors unless the board consists of only one (1) director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. 3.9 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. -6- 3.11 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.13 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.14 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.15 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously -7- appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), and Section 3.12 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, one or more vice presidents, a secretary, and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more assistant vice presidents, assistant secretaries, assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. -8- 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. -9- 5.8 VICE PRESIDENT In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 TREASURER The treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The treasurer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.11 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. -10- 5.12 ASSISTANT TREASURER The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.13 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any -11- such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its shareholders listing their names and addresses and the number and class of shares held by each shareholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS -12- The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. -13- The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the 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 shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the 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. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. -14- 8.8 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL The seal of the corporation shall be such as from time to time may be approved by the board of directors. 8.10 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of shareholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. ARTICLE X -15- DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. -16- 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. CERTIFICATE OF ADOPTION OF BYLAWS OF HEALTHSCAPE CORPORATION ADOPTION BY INCORPORATOR The undersigned person appointed in the Certificate of Incorporation to act as the Incorporator of HealthScape Corporation hereby adopts the foregoing bylaws, comprising twenty-two (22) pages, as the Bylaws of the corporation. Executed this 1st day of January 1996. /s/ Ivan J. Brockman ------------------------------ Ivan J. Brockman, Incorporator CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of HealthScape Corporation and that the foregoing Bylaws, comprising twenty-two (22) pages, were adopted as the Bylaws of the corporation on January 1, 1996, by the person appointed in the Certificate of Incorporation to act as the Incorporator of the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 1st day of January 1996. /s/ Michael Curry ------------------------------ Michael Curry, Secretary CERTIFICATE OF AMENDMENT OF BYLAWS OF HEALTHEON CORPORATION Section 2.3 of the Bylaws of this corporation was amended, effective April 22, 1996, by the Board of Directors and a majority of the stockholders to provide in its entirety as follows: "ARTICLE II MEETING OF STOCKHOLDERS 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at the meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Section 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held." Dated: April 22, 1996 /s/ Michael S. Curry ------------------------------ Michael S. Curry, Secretary CERTIFICATE OF AMENDMENT OF BYLAWS OF HEALTHEON CORPORATION Section 3.2 of the Bylaws of this corporation was amended, effective May 19, 1998, by the Board of Directors and a majority of the stockholders to provide in its entirety as follows: "ARTICLE III DIRECTORS 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be not less than six (6) nor more than eight (8). The exact number of directors shall be eight (8). This number may be changed, within the limits specified above, by a duly adopted amendment to the certificate of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of the holders of a majority of the stock issued and outstanding and entitled to vote or by resolution of a majority of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires." Dated: May 19, 1998 /s/ Kallen Chan -------------------------------- Kallen Chan, Assistant Secretary EX-3.4 8 EX-3.4 EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS OF HEALTHEON CORPORATION TABLE OF CONTENTS
Page ----- ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1- 1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . .-1- 1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1- ARTICLE II MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . .-1- 2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . .-1- 2.2 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1- 2.3 SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1- 2.4 NOTICE OF STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . .-2- 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. . . . . . . . . . . . . .-2- 2.6 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-2- 2.7 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . .-2- 2.8 VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-2- 2.9 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .-3- 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . .-3- 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . .-3- 2.12 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-4- 2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . . . . . . .-4- ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-5- 3.1 POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-5- 3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . .-5- 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . . . . . . .-5- 3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . . . . . . .-6- 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. . . . . . . . . . . . . . . .-6- 3.6 FIRST MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-6- 3.7 REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .-6- 3.8 SPECIAL MEETINGS; NOTICE. . . . . . . . . . . . . . . . . . . . . . . .-6- 3.9 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-6- 3.10 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .-7- 3.11 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . .-7- 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . .-7- 3.13 FEES AND COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . .-7- 3.14 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . .-7- 3.15 REMOVAL OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . .-8- ARTICLE IV COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
-i- TABLE OF CONTENTS (continued)
Page ----- 4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . .-8- 4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . . . . . . .-8- 4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . . . . . . .-9- 4.4 ADVISORY COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . .-9- ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9- 5.1 OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9- 5.2 ELECTION OF OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . .-9- 5.3 SUBORDINATE OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . .-9- 5.4 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . . . . . . -10- 5.5 VACANCIES IN OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . -10- 5.6 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . -10- 5.7 CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . . . . . . . -10- 5.8 PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10- 5.9 VICE PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 5.10 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11- 5.11 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . -11- 5.13 ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . -12- 5.14 ASSISTANT TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . -12- 5.15 AUTHORITY AND DUTIES OF OFFICERS. . . . . . . . . . . . . . . . . . . -12- ARTICLE VI INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . -12- 6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . . . . . . -12- 6.3 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13- 7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . . . . . . -13- 7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . -14- 7.3 ANNUAL STATEMENT TO STOCKHOLDERS. . . . . . . . . . . . . . . . . . . -14- 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. . . . . . . . . . . . -14- ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 8.1 CHECKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14- 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. . . . . . . . . . . -14- 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. . . . . . . . . . . . . . . . -15- 8.4 SPECIAL DESIGNATION ON CERTIFICATES . . . . . . . . . . . . . . . . . -15-
-ii- TABLE OF CONTENTS (continued)
Page ----- 8.5 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . -15- 8.6 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . -16- 8.7 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 8.8 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 8.9 SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 8.10 TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 8.11 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . -16- 8.12 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . -16- ARTICLE IX AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- ARTICLE X DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- ARTICLE XI CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES . . . . . . . . . . . . . -17- 11.2 DUTIES OF CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . -18-
-iii- AMENDED AND RESTATED BYLAWS OF HEALTHEON CORPORATION ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation shall be at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal office of the corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called, at any time by the board of directors, or by the president, or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.6 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.7 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Section 2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING of the Bylaws of this corporation was removed, in its entirety, effective as of the initial public offering of the corporation, by the Board of Directors. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.12 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.14 NOMINATIONS AND PROPOSALS Nominations of persons for election to the board of directors of the corporation and the proposal of business to be considered by the stockholders may be made at any meeting of stockholders only (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the board of directors or (c) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in these bylaws, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.14. For nominations or other business to be properly brought before a stockholders meeting by a stockholder pursuant to clause (c) of the preceding sentence, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the meeting; provided, however, that in the event that less than 65 days notice of the meeting is given to stockholders, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. In no event shall the public announcement of an adjournment of a stockholders meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder (or any successor thereto) (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. Notwithstanding any provision herein to the contrary, no business shall be conducted at a stockholders meeting except in accordance with the procedures set forth in this Section 2.14. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation shall be not less than six (6) nor more than eight (8). The exact number of directors shall be eight (8). This number may be changed, within the limits specified above, by a duly adopted amendment to the certificate of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of the holders of a majority of the stock issued and outstanding and entitled to vote or by resolution of a majority of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS The Board of Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Section 3.3, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 3.4 RESIGNATION AND VACANCIES Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors and not by the stockholders. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be determined by the directors. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors may be called by the chief executive officer on three (3) days' notice to each director, either personally or by mail, telegram, telex, or telephone; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two (2) directors unless the board consists of only one (1) director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. 3.9 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.11 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.13 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.14 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.15 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), and Section 3.12 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. 4.4 ADVISORY COMMITTEES The board of directors may, by resolution passed by a majority of the whole board, designate one or more advisory committees, with each committee to consist of one or more of the directors of the corporation or any other such persons as the board may appoint. The board may designate one or more persons as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Members who are not board members shall not have the responsibilities or obligations of board members nor be deemed directors of the corporation for any other purpose. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a chief executive officer ("CEO"), a president, one or more vice presidents, a secretary, a chief financial officer ("CFO") and a treasurer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more assistant vice presidents, assistant secretaries, assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or empower the CEO to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no CEO, then the chairman of the board shall also be the CEO of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 CHIEF EXECUTIVE OFFICER Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the CEO of the corporation shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the CEO of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 PRESIDENT The president may assume and perform the duties of the chief executive officer in the absence or disability of the chief executive officer or whenever the office of the chief executive officer is vacant. The president of the corporation shall exercise and perform such powers and duties as may from time to time be assigned to him by the board of directors, the CEO or as may be prescribed by these bylaws. The president shall have authority to execute in the name of the corporation bonds, contracts, deeds, leases and other written instruments to be executed by the corporation. In the absence or nonexistence of the chairman of the board and chief executive officer, he shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board and the chief executive officer, at all meetings of the board of directors and shall perform such other duties as the board of directors may from time to time determine. 5.9 VICE PRESIDENT In the absence or disability of the CEO and the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.10 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.11 CHIEF FINANCIAL OFFICER The CFO shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The CFO shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.12 TREASURER The treasurer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.13 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.14 ASSISTANT TREASURER The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.15 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation or any subsidiary of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or any of its subsidiaries or of another enterprise at the request of such predecessor corporation or subsidiary. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation or any subsidiary of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or any of its subsidiaries or of another enterprise at the request of such predecessor corporation or subsidiary. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation or its subsidiaries as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its shareholders listing their names and addresses and the number and class of shares held by each shareholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the CEO, the CFO or any other person authorized by the board of directors or the CEO, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the 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 shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the 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. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL The seal of the corporation shall be such as from time to time may be approved by the board of directors. 8.10 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of shareholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders or the board of directors. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. EX-4.1 9 EX-4.1 COMMON STOCK COMMON STOCK NUMBER SHARES HLT HEALTHEON SEE REVERSE FOR CERTAIN DEFINITIONS AND A STATEMENT AS TO THE RIGHTS, INCORPORATED UNDER THE LAWS OF PREFERENCES, PRIVILEGES AND THE STATE OF DELAWARE RESTRICTIONS ON SHARES CUSIP 422209 10 6 THIS CERTIFIES THAT IS THE RECORD HOLDER OF FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.0001 PAR VALUE, OF HEALTHEON CORPORATION transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS, the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ John L. Westermann III [HEALTHEON CORPORATE /s/ W. Michael Long SECRETARY SEAL] CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE A statement of 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 as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of designation, and the number of shares constituting each class and series and the designations thereof, may be obtained by the holder hereof upon request and without charge from the Corporation at its principal office. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- _______________ Custodian _______________ (Cust) (Minor) under Uniform Gifts to Minors Act _____________________________________ (State) UNIF TRF MIN ACT -- _______________ Custodian (until age_____) (Cust) ___________________under Uniform Transfers ([ILLEGIBLE]) to Minors Act ___________________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ___________________ __________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By _______________________________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO [THE REST OF THIS IS ILLEGIBLE]. EX-5.1 10 EX-5.1 EXHIBIT 5.1 , 1999 Healtheon Corporation 4600 Patrick Henry Drive Santa Clara, CA 95054 RE: Registration Statement on Form S-1 Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 filed by you with the Securities and Exchange Commission on , 199 (Registration No. 333- ), as amended (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of up to shares of your common stock (the "Shares"), including an over-allotment option granted to the underwriters of the offering to purchase up to shares. We understand that you are selling the Shares to the underwriters for resale to the public as described in the Registration Statement. As your legal counsel, we have examined the proceedings taken, and are familiar with the proceedings proposed to be taken, by you in connection with the sale and issuance of the Shares. It is our opinion that, upon completion of the proceedings being taken or proposed to be taken by us, as your legal counsel, prior to the issuance of the Shares, the Shares will be legally issued, fully paid and non-assessable when sold in the manner described in the Registration Statement. We are members of the Bar of the State of California only and express no opinion as to any matter relating to the laws of any jurisdiction other than the laws of the State of California and the federal laws of the United States. Without limiting the foregoing, we express no opinion as to the securities laws of the State of Delaware. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendments thereto. Very truly yours, -------------------------------------- WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-10.1 11 EX-10.1 Exhibit 10.1 HEALTHEON CORPORATION a Delaware corporation INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of ___________, 1998 by and between Healtheon Corporation, a Delaware corporation (the "Company"), and ___________ ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Delaware law; NOW, THEREFORE, the Company and Indemnitee hereby agree to the following: 1. CERTAIN DEFINITIONS. (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Company" shall include, in addition to Healtheon Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Healtheon Corporation (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (e) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, -2- being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. (f) "Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (i) "Reviewing Party" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. (j) "Section" refers to a section of this Agreement unless otherwise indicated. (k) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. -3- 2. INDEMNIFICATION. (a) INDEMNIFICATION OF EXPENSES. Subject to the provisions of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. (b) REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid in indemnifying Indemnitee; PROVIDED, HOWEVER, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon. (c) INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING EFFECT. If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (d) SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in -4- effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. EXPENSE ADVANCES. (a) OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefor by the Company, the Company shall make Expense Advances to Indemnitee. (b) FORM OF UNDERTAKING. Any written undertaking by the Indemnitee to repay any Expense Advances hereunder shall be unsecured and no interest shall be charged thereon. (c) DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES. (a) TIMING OF PAYMENTS. All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by -5- Indemnitee therefor is presented to the Company, but in no event later than forty-five (45) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than twenty (20) business days after such written demand by Indemnitee is presented to the Company. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of NOLO CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) NOTICE TO INSURERS. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of -6- such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. (b) NONEXCLUSIVITY. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder. -7- 7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9. LIABILITY INSURANCE. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 10. EXCEPTIONS. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement: (a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law; PROVIDED, HOWEVER, that notwithstanding any limitation set forth in this Section 10(a) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law. (b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of -8- Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. (c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. (d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute; PROVIDED, HOWEVER, that notwithstanding any limitation set forth in this Section 10(d) regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has violated said statute. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR INTERPRETATION. In the event that any action is instituted by Indemnitee under this Agreement or under any liability -9- insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be -10- construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. CHOICE OF LAW. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. 18. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. HEALTHEON CORPORATION By: ------------------------------ Name: ---------------------------- Title: --------------------------- Address: AGREED TO AND ACCEPTED ------------------------------ -11- EX-10.2 12 EX-10.2 EXHIBIT 10.2 HEALTHEON CORPORATION 1996 STOCK PLAN AS AMENDED ON MARCH 1, 1998 AND JULY 8, 1998 1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Stock Purchase Rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan. (e) "COMMON STOCK" means the Common Stock of the Company. (f) "COMPANY" means Healtheon Corporation, a Delaware corporation. (g) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any Director of the Company whether compensated for such services or not. If the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include Directors who are not compensated for their services or are paid only a Director's fee by the Company. (h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the employment or consulting relationship with the Company, any Parent or Subsidiary is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. (i) "DIRECTOR" means a member of the Board of Directors of the Company. (j) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (l) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination and reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. -2- (o) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" means a stock option granted pursuant to the Plan. (q) "OPTIONED STOCK" means the Common Stock subject to an Option or a Stock Purchase Right. (r) "OPTIONEE" means an Employee or Consultant who receives an Option or Stock Purchase Right. (s) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (t) "PLAN" means this 1996 Stock Plan. (u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (v) "SECTION 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (w) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (x) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock pursuant to Section 11 below. (y) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be Optioned Stock and sold under the Plan is 15,000,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if either (i) Shares of Restricted Stock or (ii) Shares issued upon exercise of unvested Options and subject to a repurchase right at cost, are repurchased by the Company at their original purchase -3- price, and the original purchaser of such Shares under clause (i) or (ii) did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 4. ADMINISTRATION OF THE PLAN. (a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or a Committee appointed by the Board. (b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT. (i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to Directors, Officers and Employees who are neither Directors nor Officers. (ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With respect to grants of Options and Stock Purchase Rights to Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with the rules under Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made, or (B) a Committee designated by the Board to administer the Plan, which Committee shall be constituted to comply with the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the disinterested administration of employee benefit plans under which Section 16(b) exempt discretionary grants and awards of equity securities are to be made. (iii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES AND CONSULTANTS. With respect to grants of Options and Stock Purchase Rights to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of Delaware corporate and securities laws, of the Code, and of any applicable stock exchange (the "Applicable Laws"). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may -4- increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. (c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan; (ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof are granted hereunder; (iv) to determine the number of Shares to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(f) instead of Common Stock; (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights. 5. ELIGIBILITY. -5- (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right may, if otherwise eligible, be granted additional Options or Stock Purchase Rights. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuation of his or her employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. (d) Upon the Company or a successor corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act or upon the Plan being assumed by a corporation having a class of common equity securities required to be registered under Section 12 of the Exchange Act, the following limitations shall apply to grants of Options and Stock Purchase Rights to Employees: (i) No Employee shall be granted, in any fiscal year of the Company, Options and Stock Purchase Rights to purchase more than 500,000 Shares. (ii) In connection with his or her initial employment, an Employee may be granted Options and Stock Purchase Rights to purchase up to an additional 500,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. (iv) If an Option or Stock Purchase Right is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the cancelled Option or Stock Purchase Right shall be counted against the limit set forth in subsection (i) above. For this purpose, if the exercise price of an Option or Stock Purchase Right is reduced, such reduction will be treated as a cancellation of the Option or Stock Purchase Right and the grant of a new Option or Stock Purchase Right. -6- 6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. TERM OF OPTION. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any other person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. -7- (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and a broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan, but in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) hereof. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote, receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 hereof. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. -8- (b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. In the event of termination of an Optionee's Continuous Status as an Employee or Consultant as a result of his or her disability, the Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that the Optionee was not entitled to exercise the Option at the date of termination, or if the Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant) by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option on the date of death, or such greater extent as the Administrator may determine. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option and the Administrator does not determine a greater extent to which such Option may be exercised, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after the Optionee's death, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) RULE 16b-3. Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or -9- restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. STOCK PURCHASE RIGHTS. (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator makes the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine, but in no case at a rate of less than 20% per year over five years from the date of purchase. (c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with respect to each purchaser. (d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when -10- his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right shall terminate immediately prior to the consummation of such proposed action. (c) MERGER. In the event of a merger of the Company with or into another corporation, each outstanding Option or Stock Purchase Right may be assumed or an equivalent option or right may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, an Option or Stock Purchase Right is not assumed or substituted, the Option or Stock Purchase Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger, the Option or Stock Purchase Right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger by holders of Common Stock for each Share held on the effective date of the transaction (and if the holders are offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such -11- consideration received in the merger is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. 13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options or Stock Purchase Rights already granted, and such Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the -12- Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by written agreements in such form as the Administrator shall approve from time to time. 18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. 19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -13- HEALTHEON CORPORATION 1996 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- ____________________________ ____ You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number Date of Grant Vesting Commencement Date Exercise Price per Share $ Total Number of Shares Granted Total Exercise Price $ Type of Option: X Incentive Stock Option --- --- Nonstatutory Stock Option Term/Expiration Date: VESTING SCHEDULE: You may exercise this Option, in whole or in part, according to the following vesting schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48th of the Shares subject to the Option shall vest each month thereafter. TERMINATION PERIOD: You may exercise this Option for three (3) months after your employment or consulting relationship with the Company terminates, or for such longer period upon your death or disability as provided in the Plan. If your status changes from Employee to Consultant or Consultant to Employee, this Option Agreement shall remain in effect. In no case may you exercise this Option after the Term/Expiration Date as provided above. II. AGREEMENT 1. GRANT OF OPTION. Healtheon Corporation, a Delaware corporation (the "Company"), hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the total number of shares of Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price") subject to the terms, definitions and provisions of the 1996 Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). 2. EXERCISE OF OPTION. (a) RIGHT TO EXERCISE. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. In the event of Optionee's death, disability or other termination of the employment or consulting relationship, this Option shall be exercisable in accordance with the applicable provisions of the Plan and this Option Agreement. (b) METHOD OF EXERCISE. This Option shall be exercisable by written notice (in the form attached as EXHIBIT A) which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised upon receipt by the Company of such written notice accompanied by the Exercise Price. No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable pursuant to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Repre-sentation Statement in the form attached hereto as EXHIBIT B, and shall read the applicable rules of the Commissioner of Corporations attached to such Investment Representation Statement. 4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) if, at the time of exercise, the Company has registered its Common Stock under the Exchange Act, by surrender of other shares of Common Stock of the Company which (A) in the case of Shares acquired pursuant to the exercise of a Company option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the Exercise Price of the Shares as to which the Option is being exercised; or (d) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the Exercise Price. 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. 6. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the -3- date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 8. DEATH OF OPTIONEE. In the event of termination of Optionee's Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 11 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period. 11. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. The limitations set out in Section 7 of the Plan regarding Options designated as -4- Incentive Stock Options and Options granted to more than ten percent (10%) stockholders shall apply to this Option. 12. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal and California tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (b) EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee's Continuous Status as an Employee or Consultant terminates as a result of disability that is not total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within three months of such termination for the ISO to be qualified as an ISO. (c) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular federal income tax liability and California income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities including, if required, withholding for FICA, FUTA and similar statutes an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (d) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal and California income tax purposes. If Shares purchased under an ISO are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. -5- (e) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. 13. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by California law except for that body of law pertaining to conflict of laws. HEALTHEON CORPORATION a Delaware corporation By: ____________________________________ Its: ____________________________________ OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. Dated: _____________________ ____________________________ Optionee -6- Residence Address: _____________________________ _____________________________ -7- EXHIBIT A --------- 1996 STOCK PLAN EXERCISE NOTICE Healtheon Corporation 87 Encina Avenue Palo Alto, CA 94301 Attention: Secretary 1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Healtheon Corporation (the "Company") under and pursuant to the 1996 Stock Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ________, 19 ___ (the "Option Agreement"). 2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. Optionee shall enjoy rights as a stockholder until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Shares so purchased except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). (b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) PAYMENT. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate as to any Shares 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. 5. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. (a) LEGENDS. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO -3- RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Optionee understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner, a copy of which is attached to EXHIBIT B, the Investment Representation Statement. (b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instruc-tions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. 7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 8. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee. 9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and construed in accordance with the laws of the State of California excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 10. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the other party at its address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. -4- 11. FURTHER INSTRUMENTS. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 12. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the full Exercise Price for the Shares. 13. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee Submitted by: Accepted by: OPTIONEE: HEALTHEON CORPORATION By: ______________________ (Signature) Its: _____________________ ADDRESS: ADDRESS: ___________________________ 87 Encina Avenue ___________________________ Palo Alto, CA 94301 -5- EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE : COMPANY : HEALTHEON CORPORATION SECURITY : COMMON STOCK AMOUNT : SHARES DATE : In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the Securities Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period. (e) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such -2- transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. (f) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached. Signature of Optionee: ___________________________________ Date:_______________________, 19___ -3- ATTACHMENT 1 STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE Title 10. Investment - Chapter 3. Commissioner of Corporations 260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (1) to the issuer; (2) pursuant to the order or process of any court; (3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; (4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (5) to holders of securities of the same class of the same issuer; (6) by way of gift or donation inter vivos or on death; (7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (14) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; or (15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." EX-10.3 13 EX-10.3 ACTAMED CORPORATION 1997 STOCK OPTION PLAN ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN. The purpose of the ActaMed Corporation 1997 Stock Option Plan (the "Plan") is to assist ActaMed Corporation (the "Company") in securing and retaining Key Employees and Consultants of outstanding ability by making it possible to offer them an increased incentive to advise, join or continue in the service of the Company and to increase their efforts for its welfare through participation or increased participation in the ownership and growth of the Company. 1.2 DEFINITIONS. (a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMITTEE" means the committee referred to in Section 1.3. (d) "COMMON STOCK" means the common stock of the Company. (e) "CONSULTANT" means any person not employed by the Company rendering consulting or advisory services to the Company who is expected or determined by the Committee to contribute significantly to the management, growth or direction of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Consultant for purposes of this Plan is reserved solely for the Committee. (f) "FAIR MARKET VALUE" means the closing price of the shares on a national securities exchange on which the Common Stock is primarily traded on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Inc. or other national quotation service. If the shares of Common Stock are traded in the over-the-counter market, "fair market value" means the closing "asked" price of the shares in the over-the-counter market on the day on which such value is to be determined or, if such "asked" price is not available, the last sales price on such day or, if no shares were traded on such day, on the next preceding day on which the shares were traded, as reported by the National Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. Nevertheless, if the Board of Directors determines that the fair market value of the Common Stock cannot be accurately determined pursuant to the methodologies described above or if shares of Common Stock are not traded on an exchange or in the over-the-counter market, Fair Market Value shall be the value determined by the Board of Directors or Committee administering the Plan, taking into consideration those factors affecting or reflecting value which they deem appropriate. (g) "INCENTIVE STOCK OPTION" means an option to purchase shares of Common Stock which is intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted solely to a Key Employee. (h) "KEY EMPLOYEE" means any person, including officers and directors in the regular employment of the Company or its subsidiaries, who is designated a Key Employee by the Committee and is or is expected to be primarily responsible for or to contribute significantly to the management, growth, or supervision of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Key Employee is reserved solely for the Committee. (i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of Common Stock which is not intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted to Key Employees and Consultants. (j) "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option. (k) "OPTIONEE" means a Key Employee or Consultant to whom an Option is granted under the Plan. (l) "PARENT" means any corporation which qualifies as a parent of a corporation under the definition of "parent corporation" contained in Section 424(e) of the Code. (m) "SUBSIDIARY" means any corporation which qualifies as a subsidiary of a corporation under the definition of "subsidiary corporation contained in Section 424(f) of the Code. (n) "TERM" means the period during which a particular Option may be exercised as determined by the Committee and as provided in the option agreement. 1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors. In the absence of an appointment of a Committee, the Board shall serve as the Committee. Subject to the control of the Board, and without limiting the control over decisions described in Section 1.7, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which Key Employees and Consultants shall be granted Options and the terms of such Options. When granting Options, the Committee shall designate the Option as either an Incentive Stock -2- Option or a Nonqualified Stock Option. Determinations by the Committee under the Plan (including, without limitation, determinations of the person to receive Options, the form, amount and timing of such Options, and the terms and provisions of such Options and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. In serving on the Committee, members thereof shall be considered to be acting in their capacity as members of the Board of Directors and shall be entitled to all rights of indemnification provided by the Bylaws of the Company or otherwise to members of the Board of Directors. 1.4 SHARES SUBJECT TO THE PLAN. The total number of shares that may be purchased pursuant to Options under the Plan shall not exceed 500,000 shares of Common Stock. Shares subject to the Options which terminate or expire prior to exercise shall be available for future Options under the Plan without being charged against the limitation of 500,000 shares set forth above. Shares issued pursuant to the Plan may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 TERMS AND CONDITIONS OF OPTIONS. All Options shall be evidenced by option agreements in such form as the Committee shall approve from time to time subject to the provisions of Article II and Article III, as appropriate, and the following provisions: (a) EXERCISE PRICE. Except as provided in Section 3.1, the exercise price of the Option shall not be less than the Fair Market Value (as determined by the Committee) of the Common Stock at the time the Option is granted. In making such determination, if the Board of Directors believes that the Company will engage in an initial public offering within 90 days of the date an Option is granted, the Board of Directors may designate the Fair Market Value as the initial offering price in such public offering after finding that such initial offering price will reflect an amount no less than the fair market value of the Common Stock on the date of Option grant. If the anticipated public offering does not occur within such 90 day period, the Board of Directors shall determine the Fair Market Value as of the date of the grant in the manner set forth in Section 1.2 hereof. (b) EXERCISE. The Committee shall determine whether the Option shall be exercisable in full at any time during the Term or in cumulative or noncumulative installments during the Term. (c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire on the expiration of the Term specified in Section 2.1 or 3.1, as the case may be, or upon the occurrence of such events as are specified in the option agreement. If the option agreement permits exercise of the Option after termination of employment, the Optionee may exercise the Option only with respect to the shares which could have been purchased by the Optionee at the date of termination of employment. However, the Committee may, but is not required to, waive any requirements made -3- pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. An Optionee's employment shall be deemed to terminate on the last date for which he receives a regular wage or salary payment. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment shall not occur where the Optionee transfers from the Company to one of its Subsidiaries or transfers from a Subsidiary to the Company or transfers between Subsidiaries. (d) DEATH OR DISABILITY. Upon termination of an Optionee's employment by reason of death or disability (as determined by the Committee consistent with the definition of Section 422(c)(6) of the Code), the Option shall expire on the earlier of the expiration of (i) the date specified in the option agreement which in no event shall be later than 12 months after the date of such termination, or (ii) the Term specified in Section 2.1 or 3.1, as the case may be. The Optionee or his successor in interest, as the case may be, may exercise the Option only as to the shares that could have been purchased by the Optionee at the date of his termination of employment. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. (e) PAYMENT. Payment for shares as to which an Option is exercised shall be made in such manner and at such time or times as shall be provided in the option agreement, including cash, Common Stock of the Company which was previously acquired by the Optionee, or any combination thereof. The Fair Market Value of the surrendered Common Stock as of the date of exercise shall be determined in valuing Common Stock used in payment for Options. (f) NONTRANSFERABILITY. No Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. (g) CHANGE IN CONTROL. In the discretion of the Committee, an option agreement may contain provisions providing that in the event of a "change in control" of the Company, such Option shall become immediately exercisable in full notwithstanding any provisions in the option agreement to the contrary. For the purposes of this paragraph (g), a "change in control" of the Company shall be deemed to occur if (i) the Company is a party to a merger, share exchange or other business combination pursuant to which the Company does not survive or survives only as a subsidiary of another corporation; or (ii) all or substantially all of the assets of the Company are sold or otherwise disposed of. (h) ADDITIONAL PROVISIONS. Each option agreement may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time, including cash awards for such purposes as the Committee may determine, including but not limited to cash awards for the payment of any income or excise tax -4- directly or indirectly attributable to the exercise or acceleration of exercise of an Option (including, without limitation, any tax under Code Section 280G). 1.6 STOCK ADJUSTMENTS; MERGERS. (a) GENERALLY. Notwithstanding Section 1.4, in the event the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, share exchange, stock dividend, or transaction having similar effect, the total number of shares of Common Stock set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. (b) OPTIONS. Following a transaction described in subsection (a) above, if the Company continues in existence, the number and kind of shares that are subject to any Option and the option price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon exercise of the Option. If the Company will not remain in existence or substantially all of its Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all Options shall terminate 30 days after the Committee gives written notice to all Optionees of their immediate right to exercise all Options then outstanding (without regard to limitations on exercise otherwise contained in the Options), or (ii) notify all Optionees that all Options granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such Options would have been entitled, or (iii) take action that is some combination of aspects of (i) and (ii). Except as provided in the last sentence of this paragraph (b), the determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Any fractional shares resulting from any of the foregoing adjustments under this paragraph shall be disregarded and eliminated. Notwithstanding anything else contained in this Section 1.6(b), if an option agreement permits the immediate exercise in full of an Option upon a change in control as provided in Section 1.5(g) above, the provisions of such option agreement may not be revised by the Committee pursuant to this Section 1.6(b) without the consent of the Optionee. 1.7 NOTIFICATION OF EXERCISE. Options shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall be accompanied by any payment required pursuant to Section 1.5(e) and shall be effective upon receipt by the Secretary of the Company received during normal business hours or if not so received, such exercise shall be effective on the next regular business day of the Company. Exercise by an Optionee's heir or the representative of his estate shall be accompanied by evidence of his authority to so act in form reasonably satisfactory to the Company. -5- ARTICLE II INCENTIVE STOCK OPTIONS 2.1 TERMS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted under the Plan to a Key Employee shall be exercisable only during a Term fixed by the Committee; provided, however, that the Term shall end no later than 10 years after the date the Incentive Stock Option is granted. 2.2 LIMITATION ON OPTIONS. The aggregate Fair Market Value of Common Stock (determined at the time the Incentive Stock Option is granted) subject to Incentive Stock Options granted to a Key Employee under all plans of the Key Employee's employer corporation and its Parent or Subsidiary corporations and that become exercisable for the first time by such Key Employee during any calendar year may not exceed $100,000. 2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER. If at the time an Incentive Stock Option is granted, an employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of his employer corporation or of its Parent or any of its Subsidiaries, as determined using the attribution rules of Section 424(d) of the Code, then the terms of the Incentive Stock Option shall specify that the option price shall be at least 110% of the Fair Market Value of the stock subject to the Incentive Stock Option, and such Incentive Stock Option shall not be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. 2.4 INTERPRETATION. In interpreting this Article II of the Plan and the provisions of individual option agreements, the Committee shall be governed by the principles and requirements of Sections 421, 422 and 424 of the Code, and applicable Treasury Regulations. ARTICLE III NONQUALIFIED STOCK OPTIONS 3.1 TERMS AND CONDITIONS OF OPTIONS. In addition to the requirements of Section 1.5, each Nonqualified Stock Option granted under the Plan to a Key Employee or Consultant shall be subject to the following provisions: -6- (a) TERM. Each Nonqualified Stock Option granted under the plan shall be exercisable only during a term fixed by the Committee. (b) EXERCISE PRICE. The Company may elect to grant Nonqualified Stock Options at a price less than the Fair Market Value of the Common Stock at the time the Option is granted. 3.2 SECTION 83(b) ELECTION. The Company recognizes that certain persons who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under applicable securities laws. Such restrictions may cause Optionees exercising such Options not to be taxable under the provisions of Section 83(c) of the Code. Accordingly, Optionees exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of the Option under Section 83(b) of the Code and to effect such election will file such election with the Internal Revenue Service within thirty (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE IV ADDITIONAL PROVISIONS 4.1 STOCKHOLDER APPROVAL. The Plan shall be submitted for the approval of the stockholders of the Company as soon as reasonably practicable following the adoption of the Plan by the Board of Directors or the Compensation Committee and in all events within one year of its approval by such Board or Committee. If the stockholders of the Company do not approve the Plan as provided in this Section 4.1, the Plan shall terminate. 4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options hereunder, and the obligation of the Company to sell and deliver shares under such Options, shall be subject to all applicable Federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such shares on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification (or determination of the availability of an exemption therefrom) of such shares under any Federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. -7- 4.3 AMENDMENTS. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. However, except as permitted under Section 1.6, no amendment, without approval by stockholders, may (a) increase the total number of shares which may be issued under the Plan or to any individual under the Plan, (b) extend the date on which the Plan will terminate, (c) reduce the Option price for shares which may be purchased pursuant to Options under Articles II or III of the Plan, (d) extend the period during which Options may be granted, (e) change the class of eligible persons to whom Options may be granted under the Plan, or (f) change the provisions of the Plan in such a manner so as to increase materially the benefits accruing under the Plan. Other than as expressly permitted under the Plan, no outstanding Option may be revoked or altered in a manner unfavorable to the Optionee without the consent of the Optionee. 4.4 NO RIGHTS AS SHAREHOLDER. No Optionee shall have any rights as a shareholder with respect to any share subject to his Option prior to the date of issuance to him of a certificate or certificates for such shares. 4.5 WITHHOLDING. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax liability in such form as the Company may determine or accept in its sole discretion, including payment by surrender or retention of shares of Common Stock prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any Federal, state, or local withholding tax liability. 4.6 CONTINUED EMPLOYMENT NOT PRESUMED. This Plan and any document describing this Plan and the grant of any Option hereunder shall not give any Optionee or other employee or Director a right to continued employment by the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate the employment of any such person with or without cause. 4.7 EFFECTIVE DATE; DURATION. The Plan shall become effective as of February 9, 1997, subject to stockholder approval pursuant to Section 4.1, and shall expire at midnight (eastern standard time) on February 9, 2006. No Options may be granted under the Plan after February 9, 2006, but Options granted on or before that date may be exercised according to the terms of the related agreements and shall continue to be governed by and interpreted consistent with the terms hereof. * * * -8- The foregoing Plan was approved and adopted by the Board of Directors of the Company on December 31, 1997. -9- EX-10.4 14 EX-10.4 ACTAMED CORPORATION 1996 STOCK OPTION PLAN ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN. The purpose of the ActaMed Corporation 1996 Stock Option Plan (the "Plan") is to assist ActaMed Corporation (the "Company") in securing and retaining Key Employees and Consultants of outstanding ability by making it possible to offer then an increased incentive to advise, join or continue in the service of the Company and to increase their efforts for its welfare through participation or increased participation in the ownership and growth of the Company. 1.2 DEFINITIONS. (a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMITTEE" means the committee referred to in Section 1.3. (d) "COMMON STOCK" means the common stock of the Company. (e) "CONSULTANT" means any person not employed by the Company rendering consulting or advisory services to the Company who is expected or determined by the Committee to contribute significantly to the management, growth or direction of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Consultant for purposes of this Plan is reserved solely for the Committee. (f) "FAIR MARKET VALUE" means the closing price of the shares on a national securities exchange on which the Common Stock is primarily traded on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Inc. or other national quotation service. If the shares of Common Stock are traded in the over-the-counter market, "fair market value" means the closing "asked" price of the shares in the over-the-counter market on the day on which such value is to be determined or, if such "asked" price is not available, the last sales price on such day or, if no shares were traded on such day, on the next preceding day on which the shares were traded, as reported by the National Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. Nevertheless, if the Board of Directors determines that the fair market value of the Common Stock cannot be accurately determined pursuant to the methodologies described above or if shares of Common Stock are not traded on an exchange or in the over-the-counter market, Fair Market Value shall be the value determined by the Board of Directors or Committee administering the Plan, taking into consideration those factors affecting or reflecting value which they deem appropriate. (g) "INCENTIVE STOCK OPTION" means an option to purchase shares of Common Stock which is intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted solely to a Key Employee. (h) "KEY EMPLOYEE" means any person, including officers and directors in the regular employment of the Company or its subsidiaries, who is designated a Key Employee by the Committee and is or is expected to be primarily responsible for or to contribute significantly to the management, growth, or supervision of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Key Employee is reserved solely for the Committee. (i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of Common Stock which is not intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted to Key Employees and Consultants. (j) "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option. (k) "OPTIONEE" means a Key Employee or Consultant to whom an Option is granted under the Plan. (l) "PARENT" means any corporation which qualifies as a parent of a corporation under the definition of "parent corporation" contained in Section 424(e) of the Code. (m) "SUBSIDIARY" means any corporation which qualifies as a subsidiary of a corporation under the definition of "subsidiary corporation" contained in Section 424(f) of the Code. (n) "TERM" means the period during which a particular Option may be exercised as determined by the Committee and as provided in the option agreement. 1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors. In the absence of an appointment of a Committee, the Board shall serve as the Committee. Subject to the control of the Board, and without limiting the control over decisions described in Section 1.7, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which Key Employees and Consultants shall be granted Options and the terms of such Options. When granting Options, the Committee shall designate the Option as either an Incentive Stock -2- Option or a Nonqualified Stock Option. Determinations by the Committee under the Plan (including, without limitation, determinations of the person to receive Options, the form, amount and timing of such Options, and the terms and provisions of such Options and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. In serving on the Committee, members thereof shall be considered to be acting in their capacity as members of the Board of Directors and shall be entitled to all rights of indemnification provided by the Bylaws of the Company or otherwise to members of the Board of Directors. 1.4 SHARES SUBJECT TO THE PLAN. The total number of shares that may be purchased pursuant to Options under the Plan shall not exceed 500,000 shares of Common Stock. Shares subject to the Options which terminate or expire prior to exercise shall be available for future Options under the Plan without being charged against the limitation of 500,000 shares set forth above. Shares issued pursuant to the Plan may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 TERMS AND CONDITIONS OF OPTIONS. All Options shall be evidenced by option agreements in such form as the Committee shall approve from time to time subject to the provisions of Article II and Article III, as appropriate, and the following provisions: (a) EXERCISE PRICE. Except as provided in Section 3.1, the exercise price of the Option shall not be less than the Fair Market Value (as determined by the Committee) of the Common Stock at the time the Option is granted. In making such determination, if the Board of Directors believes that the Company will engage in an initial public offering within 90 days of the date an Option is granted, the Board of Directors may designate the Fair Market Value as the initial offering price in such public offering after finding that such initial offering price will reflect an amount no less than the fair market value of the Common Stock on the date of Option grant. If the anticipated public offering does not occur within such 90 day period, the Board of Directors shall determine the Fair Market Value as of the date of the grant in the manner set forth in Section 1.2 hereof. (b) EXERCISE. The Committee shall determine whether the Option shall be exercisable in full at any time during the Term or in cumulative or noncumulative installments during the Term. (c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire on the expiration of the Term specified in Section 2.1 or 3.1, as the case may be, or upon the occurrence of such events as are specified in the option agreement. If the option agreement permits exercise of the Option after termination of employment, the Optionee may exercise the Option only with respect to the Shares which could have been purchased by the Optionee at the date of termination of employment. However, the Committee may, but is not required to, waive any requirements made -3- pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. An Optionee's employment shall be deemed to terminate on the last date for which he receives a regular wage or salary payment. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment shall not occur where the Optionee transfers from the Company to one of its Subsidiaries or transfers from a Subsidiary to the Company or transfers between Subsidiaries. (d) DEATH OR DISABILITY. Upon termination of an Optionee's employment by reason of death or disability (as determined by the Committee consistent with the definition of Section 422(c)(6) of the Code), the Option shall expire on the earlier of the expiration of (i) the date specified in the option agreement which in no event shall be later than 12 months after the date of such termination, or (ii) the Term specified in Section 2.1 or 3.1, as the case may be. The Optionee or his successor in interest, as the case may be, may exercise the Option only as to the shares that could have been purchased by the Optionee at the date of his termination of employment. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. (e) PAYMENT. Payment for shares as to which an Option is exercised shall be made in such manner and at such time or times as shall be provided in the option agreement, including cash, Common Stock of the Company which was previously acquired by the Optionee, or any combination thereof. The Fair Market Value of the surrendered Common Stock as of the date of exercise shall be determined in valuing Common Stock used in payment for Options. (f) NONTRANSFERABILITY. No Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. (g) CHANGE IN CONTROL. In the discretion of the Committee, an option agreement may contain provisions providing that in the event of a "change in control" of the Company, such Option shall become immediately exercisable in full notwithstanding any provisions in the option agreement to the contrary. For the purposes of this paragraph (g), a "change in control" of the Company shall be deemed to occur if (i) the Company is a party to a merger, share exchange or other business combination pursuant to which the Company does not survive or survives only as a subsidiary of another corporation; or (ii) all or substantially all of the assets of the Company are sold or otherwise disposed of. (h) ADDITIONAL PROVISIONS. Each option agreement may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time, including cash awards for such purposes as the Committee may determine, including but not limited to cash awards for the payment of any income or excise tax -4- directly or indirectly attributable to the exercise or acceleration of exercise of an Option (including, without limitation, any tax under Code Section 280G). 1.6 STOCK ADJUSTMENTS; MERGERS. (a) GENERAL. Notwithstanding Section 1.4, in the event the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, share exchange, stock dividend, or transaction having similar effect, the total number of shares of Common Stock set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. (b) OPTIONS. Following a transaction described in subsection (a) above, if the Company continues in existence, the number and kind of shares that are subject to any Option and the option price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon exercise of the Option. If the Company will not remain in existence or substantially all of its Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all Options shall terminate 30 days after the Committee gives written notice to all Optionees of their immediate right to exercise all Options then outstanding (without regard to limitations on exercise otherwise contained in the Options), or (ii) notify all Optionees that all Options granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such Options would have been entitled, or (iii) take action that is some combination of aspects of (i) and (ii). Except as provided in the last sentence of this paragraph (b), the determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Any fractional shares resulting from any of the foregoing adjustments under this paragraph shall be disregarded and eliminated. Notwithstanding anything else contained in this Section 1.6(b), if an option agreement permits the immediate exercise in full of an Option upon a change in control as provided in Section 1.5(g) above, the provisions of such option agreement may not be revised by the Committee pursuant to this Section 1.6(b) without the consent of the Optionee. 1.7 NOTIFICATION OF EXERCISE. Options shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall be accompanied by any payment required pursuant to Section 1.5(e) and shall be effective upon receipt by the Secretary of the Company received during normal business hours or if not so received, such exercise shall be effective on the next regular business day of the Company. Exercise by an Optionee's heir or the representative of his estate shall be accompanied by evidence of his authority to so act in form reasonably satisfactory to the Company. -5- ARTICLE II INCENTIVE STOCK OPTIONS 2.1 TERMS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted under the Plan to a Key Employee shall be exercisable only during a Term fixed by the Committee; provided, however, that the Term shall end no later than 10 years after the date the Incentive Stock Option is granted. 2.2 LIMITATION ON OPTIONS. The aggregate Fair Market Value of Common Stock (determined at the time the Incentive Stock Option is granted) subject to Incentive Stock Options granted to a Key Employee under all plans of the Key Employee's employer corporation and its Parent or Subsidiary corporations and that become exercisable for the first time by such Key Employee during any calendar year may not exceed $100,000. 2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER. If at the time an Incentive Stock Option is granted, an employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of his employer corporation or of its Parent or any of its Subsidiaries, as determined using the attribution rules of Section 424(d) of the Code, then the terms of the Incentive Stock Option shall specify that the option price shall be at least 110% of the Fair Market Value of the stock subject to the Incentive Stock Option, and such Incentive Stock Option shall not be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. 2.4 INTERPRETATION. In interpreting this Article II of the Plan and the provisions of individual option agreements, the Committee shall be governed by the principles and requirements of Sections 421, 422 and 424 of the Code, and applicable Treasury Regulations. ARTICLE III NONQUALIFIED STOCK OPTIONS 3.1 TERMS AND CONDITIONS OF OPTIONS. In addition to the requirements of Section 1.5, each Nonqualified Stock Option granted under the Plan to a Key Employee or Consultant shall be subject to the following provisions: -6- (a) TERM. Each Nonqualified Stock Option granted under the plan shall be exercisable only during a term fixed by the Committee. (b) EXERCISE PRICE. The Company may elect to grant Nonqualified Stock Options at a price less than the Fair Market Value of the Common Stock at the time the Option is granted. 3.2 SECTION 83(b) ELECTION. The Company recognizes that certain persons who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under applicable securities laws. Such restrictions may cause Optionees exercising such Options not to be taxable under the provisions of Section 83(c) of the Code. Accordingly, Optionees exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of the Option under Section 83(b) of the Code and to effect such election will file such election with the Internal Revenue Service within thirty (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE IV ADDITIONAL PROVISIONS 4.1 STOCKHOLDER APPROVAL. The Plan shall be submitted for the approval of the stockholders of the Company as soon as reasonably practicable following the adoption of the Plan by the Board of Directors or the Compensation Committee and in all events within one year of its approval by such Board or Committee. If the stockholders of the Company do not approve the Plan as provided in this Section 4.1, the Plan shall terminate. 4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options hereunder, and the obligation of the Company to sell and deliver shares under such Options, shall be subject to all applicable Federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such shares on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification (or determination of the availability of an exemption therefrom) of such shares under any Federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. -7- 4.3 AMENDMENTS. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. However, except as permitted under Section 1.6, no amendment, without approval by stockholders, may (a) increase the total number of shares which may be issued under the Plan or to any individual under the Plan, (b) extend the date on which the Plan will terminate, (c) reduce the Option price for shares which may be purchased pursuant to Options under Articles II or III of the Plan, (d) extend the period during which Options may be granted, (e) change the class of eligible persons to whom Options may be granted under the Plan, or (f) change the provisions of the Plan in such a manner so as to increase materially the benefits accruing under the Plan. Other than as expressly permitted under the Plan, no outstanding Option may be revoked or altered in a manner unfavorable to the Optionee without the consent of the Optionee. 4.4 NO RIGHTS AS SHAREHOLDER. No Optionee shall have any rights as a shareholder with respect to any share subject to his Option prior to the date of issuance to him of a certificate or certificates for such shares. 4.5 WITHHOLDING. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax liability in such form as the Company may determine or accept in its sole discretion, including payment by surrender or retention of shares of Common Stock prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any Federal, state, or local withholding tax liability. 4.6 CONTINUED EMPLOYMENT NOT PRESUMED. This Plan and any document describing this Plan and the grant of any Option hereunder shall not give any Optionee or other employee or Director a right to continued employment by the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate the employment of any such person with or without cause. 4.7 EFFECTIVE DATE; DURATION. The Plan shall become effective as of February 9, 1996, subject to stockholder approval pursuant to Section 4.1, and shall expire at midnight (eastern standard time) on February 9, 2006. No Options may be granted under the Plan after February 9, 2006, but Options granted on or before that date may be exercised according to the terms of the related agreements and shall continue to be governed by and interpreted consistent with the terms hereof. * * * -8- The foregoing Plan was approved and adopted by the Board of Directors of the Company on February 9, 1996. -9- EX-10.5 15 EX-10.5 ACTAMED CORPORATION 1995 STOCK OPTION PLAN ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN. The purpose of the ActaMed Corporation 1995 Stock Option Plan (the "Plan") is to assist ActaMed Corporation (the "Company") in securing and retaining Key Employees and Consultants of outstanding ability by making it possible to offer them an increased incentive to advise, join or continue in the service of the Company and to increase their efforts for its welfare through participation or increased participation in the ownership and growth of the Company. 1.2 DEFINITIONS. (a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMITTEE" means the committee referred to in Section 1.3. (d) "COMMON STOCK" means the common stock of the Company. (e) "CONSULTANT" means any person not employed by the Company rendering consulting or advisory services to the Company who is expected or determined by the Committee to contribute significantly to the management, growth or direction of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Consultant for purposes of this Plan is reserved solely for the Committee. (f) "FAIR MARKET VALUE" means the closing price of the shares on a national securities exchange on which the Common Stock is primarily traded on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Inc. or other national quotation service. If the shares of Common Stock are traded in the over-the-counter market, "fair market value" means the closing "asked" price of the shares in the over-the-counter market on the day on which such value is to be determined or, if such "asked" price is not available, the last sales price on such day or, if no shares were traded on such day, on the next preceding day on which the shares were traded, as reported by the National Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. Nevertheless, if the Board of Directors determines that the fair market value of the Common Stock cannot be accurately determined pursuant to the methodologies described above or if shares of Common Stock are not traded on an exchange or in the over-the-counter market, Fair Market Value shall be the value determined by the Board of Directors or Committee administering the Plan, taking into consideration those factors affecting or reflecting value which they deem appropriate. (g) "INCENTIVE STOCK OPTION" means an option to purchase shares of Common Stock which is intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted solely to a Key Employee. (h) "KEY EMPLOYEE" means any person, including officers and directors in the regular employment of the Company or its subsidiaries, who is designated a Key Employee by the Committee and is or is expected to be primarily responsible for or to contribute significantly to the management, growth, or supervision of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Key Employee is reserved solely for the Committee. (i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of Common Stock which is not intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted to Key Employees and Consultants. (j) "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option. (k) "OPTIONEE" means a Key Employee or Consultant to whom an Option is granted under the Plan. (l) "PARENT" means any corporation which qualifies as a parent of a corporation under the definition of "parent corporation" contained in Section 424(e) of the Code. (m) "SUBSIDIARY" means any corporation which qualifies as a subsidiary of a corporation under the definition of "subsidiary corporation" contained in Section 424(f) of the Code. (n) "TERM" means the period during which a particular Option may be exercised as determined by the Committee and as provided in the option agreement. 1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors. In the absence of an appointment of a Committee, the Board shall serve as the Committee. Subject to the control of the Board, and without limiting the control over decisions described in Section 1.7, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which Key Employees and Consultants shall be granted Options and the terms of such Options. When granting Options, the Committee shall designate the Option as either an Incentive Stock -2- Option or a Nonqualified Stock Option. Determinations by the Committee under the Plan (including, without limitation, determinations of the person to receive Options, the form, amount and timing of such Options, and the terms and provisions of such Options and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. In serving on the Committee, members thereof shall be considered to be acting in their capacity as members of the Board of Directors and shall be entitled to all rights of indemnification provided by the Bylaws of the Company or otherwise to members of the Board of Directors. 1.4 SHARES SUBJECT TO THE PLAN. The total number of shares that may be purchased pursuant to Options under the Plan shall not exceed 975,000 shares of Common Stock. Shares subject to the Options which terminate or expire prior to exercise shall be available for future Options under the Plan without being charged against the limitation of 975,000 shares set forth above. Shares issued pursuant to the Plan may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 TERMS AND CONDITIONS OF OPTIONS. All Options shall be evidenced by option agreements in such form as the Committee shall approve from time to time subject to the provisions of Article II and Article III, as appropriate, and the following provisions: (a) EXERCISE PRICE. Except as provided in Section 3.1, the exercise price of the Option shall not be less than the Fair Market Value (as determined by the Committee) of the Common Stock at the time the Option is granted. In making such determination, if the Board of Directors believes that the Company will engage in an initial public offering within 90 days of the date an Option is granted, the Board of Directors may designate the Fair Market Value as the initial offering price in such public offering after finding that such initial offering price will reflect an amount no less than the fair market value of the Common Stock on the date of Option grant. If the anticipated public offering does not occur within such 90 day period, the Board of Directors shall determine the Fair Market Value as of the date of the grant in the manner set forth in Section 1.2 hereof. (b) EXERCISE. The Committee shall determine whether the Option shall be exercisable in full at any time during the Term or in cumulative or noncumulative installments during the Term. (c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire on the expiration of the Term specified in Section 2.1 or 3.1, as the case may be, or upon the occurrence of such events as are specified in the option agreement. If the option agreement permits exercise of the Option after termination of employment, the Optionee may exercise the Option only with respect to the shares which could have been purchased by the Optionee at the date of termination of employment. However, the Committee may, but is not required to, waive any requirements made -3- pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. An Optionee's employment shall be deemed to terminate on the last date for which he receives a regular wage or salary payment. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment shall not occur where the Optionee transfers from the Company to one of its Subsidiaries or transfers from a Subsidiary to the Company or transfers between Subsidiaries. (d) DEATH OR DISABILITY. Upon termination of an Optionee's employment by reason of death or disability (as determined by the Committee consistent with the definition of Section 422(c)(6) of the Code), the Option shall expire on the earlier of the expiration of (i) the date specified in the option agreement which in no event shall be later than 12 months after the date of such termination, or (ii) the Term specified in Section 2.1 or 3.1, as the case may be. The Optionee or his successor in interest, as the case may be, may exercise the Option only as to the shares that could have been purchased by the Optionee at the date of his termination of employment. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. (e) PAYMENT. Payment for shares as to which an Option is exercised shall be made in such manner and at such time or times as shall be provided in the option agreement, including cash, Common Stock of the Company which was previously acquired by the Optionee, or any combination thereof. The Fair Market Value of the surrendered Common Stock as of the date of exercise shall be determined in valuing Common Stock used in payment for Options. (f) NONTRANSFERABILITY. No Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. (g) CHANGE IN CONTROL. In the discretion of the Committee, an option agreement may contain provisions providing that in the event of a "change in control" of the Company, such Option shall become immediately exercisable in full notwithstanding any provisions in the option agreement to the contrary. For the purposes of this paragraph (g), a "change in control" of the Company shall be deemed to occur if (i) the Company is a party to a merger, share exchange or other business combination pursuant to which the Company does not survive or survives only as a subsidiary of another corporation; or (ii) all or substantially all of the assets of the Company are sold or otherwise disposed of. (h) ADDITIONAL PROVISIONS. Each option agreement may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time, including cash awards for such purposes as the Committee may determine, including but not limited to cash awards for the payment of any income or excise tax -4- directly or indirectly attributable to the exercise or acceleration of exercise of an Option (including, without limitation, any tax under Code Section 280G). 1.6 STOCK ADJUSTMENTS; MERGERS. (a) GENERAL. Notwithstanding Section 1.4, in the event the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, share exchange, stock dividend, or transaction having similar effect, the total number of shares of Common Stock set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. (b) OPTIONS. Following a transaction described in subsection (a) above, if the Company continues in existence, the number and kind of shares that are subject to any Option and the option price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon exercise of the Option. If the Company will not remain in existence or substantially all of its Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all Options shall terminate 30 days after the Committee gives written notice to all Optionees of their immediate right to exercise all Options then outstanding (without regard to limitations on exercise otherwise contained in the Options), or (ii) notify all Optionees that all Options granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such Options would have been entitled, or (iii) take action that is some combination of aspects of (i) and (ii). Except as provided in the last sentence of this paragraph (b), the determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Any fractional shares resulting from any of the foregoing adjustments under this paragraph shall be disregarded and eliminated. Notwithstanding anything else contained in this Section 1.6(b), if an option agreement permits the immediate exercise in full of an Option upon a change in control as provided in Section 1.5(g) above, the provisions of such option agreement may not be revised by the Committee pursuant to this Section 1.6(b) without the consent of the Optionee. 1.7 NOTIFICATION OF EXERCISE. Options shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall be accompanied by any payment required pursuant to Section 1.5(e) and shall be effective upon receipt by the Secretary of the Company received during normal business hours or if not so received, such exercise shall be effective on the next regular business day of the Company. Exercise by an Optionee's heir or the representative of his estate shall be accompanied by evidence of his authority to so act in form reasonably satisfactory to the Company. -5- ARTICLE II INCENTIVE STOCK OPTIONS 2.1 TERMS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted under the Plan to a Key Employee shall be exercisable only during a Term fixed by the Committee; provided, however, that the Term shall end no later than 10 years after the date the Incentive Stock Option is granted. 2.2 LIMITATION ON OPTIONS The aggregate Fair Market Value of Common Stock (determined at the time the Incentive Stock Option is granted) subject to Incentive Stock Options granted to a Key Employee under all plans of the Key Employee's employer corporation and its Parent or Subsidiary corporations and that become exercisable for the first time by such Key Employee during any calendar year may not exceed $100,000. 2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER. If at the time an Incentive Stock Option is granted, an employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of his employer corporation or of its Parent or any of its Subsidiaries, as determined using the attribution rules of Section 424(d) of the Code, then the terms of the Incentive Stock Option shall specify that the option price shall be at least 110% of the Fair Market Value of the stock subject to the Incentive Stock Option, and such Incentive Stock Option shall not be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. 2.4 INTERPRETATION. In interpreting this Article II of the Plan and the provisions of individual option agreements, the Committee shall be governed by the principles and requirements of Sections 421, 422 and 424 of the Code, and applicable Treasury Regulations. ARTICLE III NONQUALIFIED STOCK OPTIONS 3.1 TERMS AND CONDITIONS OF OPTIONS. In addition to the requirements of Section 1.5, each Nonqualified Stock Option granted under the Plan to a Key Employee or Consultant shall be subject to the following provisions: -6- (a) TERM. Each Nonqualified Stock Option granted under the plan shall be exercisable only during a term fixed by the Committee. (b) EXERCISE PRICE. The Company may elect to grant Nonqualified Stock Options at a price less than the Fair Market Value of the Common Stock at the time the Option is granted. 3.2 SECTION 83(b) ELECTION. The Company recognizes that certain persons who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under applicable securities laws. Such restrictions may cause Optionees exercising such Options not to be taxable under the provisions of Section 83(c) of the Code. Accordingly, Optionees exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of the Option under Section 83(b) of the Code and to effect such election will file such election with the Internal Revenue Service within thirty (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE IV ADDITIONAL PROVISIONS 4.1 STOCKHOLDER APPROVAL. The Plan shall be submitted for the approval of the stockholders of the Company as soon as reasonably practicable following the adoption of the Plan by the Board of Directors or the Compensation Committee and in all events within one year of its approval by such Board or Committee. If the stockholders of the Company do not approve the Plan as provided in this Section 4.1, the Plan shall terminate. 4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options hereunder, and the obligation of the Company to sell and deliver shares under such Options, shall be subject to all applicable Federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such share on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification (or determination of the availability of an exemption therefrom) of such shares under any Federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. -7- 4.3 AMENDMENTS. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. However, except as permitted under Section 1.6, no amendment, without approval by stockholders, may (a) increase the total number of shares which may be issued under the Plan or to any individual under the Plan, (b) extend the date on which the Plan will terminate, (c) reduce the Option price for shares which may be purchased pursuant to Options under Articles II or III of the Plan, (d) extend the period during which Options may be granted, (e) change the class of eligible persons to whom Options may be granted under the Plan, or (f) change the provisions of the Plan in such a manner so as to increase materially the benefits accruing under the Plan. Other than as expressly permitted under the Plan, no outstanding Option may be revoked or altered in a manner unfavorable to the Optionee without the consent of the Optionee. 4.4 NO RIGHTS AS SHAREHOLDER. No Optionee shall have any rights as a shareholder with respect to any share subject to his Option prior to the date of issuance to him of a certificate or certificates for such shares. 4.5 WITHHOLDING. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax liability in such form as the Company may determine or accept in its sole discretion, including payment by surrender or retention of shares of Common Stock prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any Federal, state, or local withholding tax liability. 4.6 CONTINUED EMPLOYMENT NOT PRESUMED. This Plan and any document describing this Plan and the grant of any Option hereunder shall not give any Optionee or other employee or Director a right to continued employment by the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate the employment of any such person with or without cause. 4.7 EFFECTIVE DATE; DURATION. The Plan shall become effective as of November 29, 2005 subject to stockholder approval pursuant to Section 4.1, and shall expire at midnight (eastern standard time) on November 29, 2005. No Options may be granted under the Plan after November 29, 2005 but Options granted on or before that date may be exercised according to the terms of the related agreements and shall continue to be governed by and interpreted consistent with the terms hereof. * * * -8- The foregoing Plan was approved and adopted by the Board of Directors of the Company on Novemver 29, 1995. -9- EX-10.6 16 EX-10.6 ACTAMED CORPORATION 1994 STOCK OPTION PLAN ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN. The purpose of the ActaMed Corporation 1994 Stock Option Plan (the "Plan") is to assist ActaMed Corporation (the "Company") in securing and retaining Key Employees and Consultants of outstanding ability by making it possible to offer them an increased incentive to advise, join or continue in the service of the Company and to increase their efforts for its welfare through participation or increased participation in the ownership and growth of the Company. 1.2 DEFINITIONS. (a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMITTEE" means the committee referred to in Section 1.3. (d) "COMMON STOCK" means the common stock of the Company. (e) "CONSULTANT" means any person not employed by the Company rendering consulting or advisory services to the Company who is expected or determined by the Committee to contribute significantly to the management, growth or direction of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Consultant for purposes of this Plan is reserved solely for the Committee. (f) "FAIR MARKET VALUE" means the closing price of the shares on a national securities exchange on which the Common Stock is primarily traded on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Inc. or other national quotation service. If the shares of Common Stock are traded in the over-the-counter market, "fair market value" means the closing "asked" price of the shares in the over-the-counter market on the day on which such value is to be determined or, if such "asked" price is not available, the last sales price on such day or, if no shares were traded on such day, on the next preceding day on which the shares were traded, as reported by the National Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. Nevertheless, if the Board of Directors determines that the fair market value of the Common Stock cannot be accurately determined pursuant to the methodologies described above or if shares of Common Stock are not traded on an exchange or in the over-the-counter market, Fair Market Value shall be the value determined by the Board of Directors or Committee administering the Plan, taking into consideration those factors affecting or reflecting value which they deem appropriate. (g) "INCENTIVE STOCK OPTION" means an option to purchase shares of Common Stock which is intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted solely to a Key Employee. (h) "KEY EMPLOYEE" means any person, including officers and directors in the regular employment of the Company or its subsidiaries, who is designated a Key Employee by the Committee and is or is expected to be primarily responsible for or to contribute significantly to the management, growth, or supervision of some part or all of the business of the Company or its subsidiaries. The power to determine who is and who is not a Key Employee is reserved solely for the Committee. (i) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of Common Stock which is not intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted to Key Employees and Consultants. (j) "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option. (k) "OPTIONEE" means a Key Employee or Consultant to whom an Option is granted under the Plan. (l) "PARENT" means any corporation which qualifies as a parent of a corporation under the definition of "parent corporation" contained in Section 424(e) of the Code. (m) "SUBSIDIARY" means any corporation which qualifies as a subsidiary of a corporation under the definition of "subsidiary corporation" contained in Section 424(f) of the Code. (n) "TERM" means the period during which a particular Option may be exercised as determined by the Committee and as provided in the option agreement. 1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors. In the absence of an appointment of a Committee, the Board shall serve as the Committee. Subject to the control of the Board, and without limiting the control over decisions described in Section 1.7, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which Key Employees and Consultants shall be granted Options and the terms of such Options. When granting Options, the Committee shall designate the Option as either an Incentive Stock -2- Option or a Nonqualified Stock Option. Determinations by the Committee under the Plan (including, without limitation, determinations of the person to receive Options, the form, amount and timing of such Options, and the terms and provisions of such Options and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. In serving on the Committee, members thereof shall be considered to be acting in their capacity as members of the Board of Directors and shall be entitled to all rights of indemnification provided by the Bylaws of the Company or otherwise to members of the Board of Directors. 1.4 SHARES SUBJECT TO THE PLAN. The total number of shares that may be purchased pursuant to Options under the Plan shall not exceed 2,370,438 shares of Common Stock. Shares subject to the Options which terminate or expire prior to exercise shall be available for future Options under the Plan without being charged against the limitation of 2,370,438 shares set forth above. Shares issued pursuant to the Plan may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 TERMS AND CONDITIONS OF OPTIONS. All Options shall be evidenced by option agreements in such form as the Committee shall approve from time to time subject to the provisions of Article II and Article III, as appropriate, and the following provisions: (a) EXERCISE PRICE. Except as provided in Section 3.1, the exercise price of the Option shall not be less than the Fair Market Value (as determined by the Committee) of the Common Stock at the time the Option is granted. In making such determination, if the Board of Directors believes that the Company will engage in an initial public offering within 90 days of the date an Option is granted, the Board of Directors may designate the Fair Market Value as the initial offering price in such public offering after finding that such initial offering price will reflect an amount no less than the fair market value of the Common Stock on the date of Option grant. If the anticipated public offering does not occur within such 90 day period, the Board of Directors shall determine the Fair Market Value as of the date of the grant in the manner set forth in Section 1.2 hereof. (b) EXERCISE. The Committee shall determine whether the Option shall be exercisable in full at any time during the Term or in cumulative or noncumulative installments during the Term. (c) TERMINATION OF EMPLOYMENT. An Optionee's Option shall expire on the expiration of the Term specified in Section 2.1 or 3.1, as the case may be, or upon the occurrence of such events as are specified in the option agreement. If the option agreement permits exercise of the Option after termination of employment, the Optionee may exercise the Option only with respect to the Shares which could have been purchased by the Optionee at the date of termination of employment. However, the Committee may, but is not required to, waive any requirements made -3- pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. An Optionee's employment shall be deemed to terminate on the last date for which he receives a regular wage or salary payment. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment shall not occur where the Optionee transfers from the Company to one of its Subsidiaries or transfers from a Subsidiary to the Company or transfers between Subsidiaries. (d) DEATH OR DISABILITY. Upon termination of an Optionee's employment by reason of death or disability (as determined by the Committee consistent with the definition of Section 422(c)(6) of the Code), the Option shall expire on the earlier of the expiration of (i) the date specified in the option agreement which in no event shall be later than 12 months after the date of such termination, or (ii) the Term specified in Section 2.1 or 3.1, as the case may be. The Optionee or his successor in interest, as the case may be, may exercise the Option only as to the shares that could have been purchased by the Optionee at the date of his termination of employment. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. (e) PAYMENT. Payment for shares as to which an Option is exercised shall be made in such manner and at such time or times as shall be provided in the option agreement, including cash, Common Stock of the Company which was previously acquired by the Optionee, or any combination thereof. The Fair Market Value of the surrendered Common Stock as of the date of exercise shall be determined in valuing Common Stock used in payment for Options. (f) NONTRANSFERABILITY. No Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. (g) CHANGE IN CONTROL. In the discretion of the Committee, an option agreement may contain provisions providing that in the event of a "change in control" of the Company, such Option shall become immediately exercisable in full notwithstanding any provisions in the option agreement to the contrary. For the purposes of this paragraph (g), a "change in control" of the Company shall be deemed to occur if (i) the Company is a party to a merger, share exchange or other business combination pursuant to which the Company does not survive or survives only as a subsidiary of another corporation; or (ii) all or substantially all of the assets of the Company are sold or otherwise disposed of. (h) ADDITIONAL PROVISIONS. Each option agreement may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time, including cash awards for such purposes as the Committee may determine, including but not limited to cash awards for the payment of any income or excise tax -4- directly or indirectly attributable to the exercise or acceleration of exercise of an Option (including, without limitation, any tax under Code Section 280G). 1.6 STOCK ADJUSTMENTS; MERGERS. (a) GENERAL. Notwithstanding Section 1.4, in the event the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, share exchange, stock dividend, or transaction having similar effect, the total number of shares of Common Stock set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. (b) OPTIONS. Following a transaction described in subsection (a) above, if the Company continues in existence, the number and kind of shares that are subject to any Option and the option price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon exercise of the Option. If the Company will not remain in existence or substantially all of its Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all Options shall terminate 30 days after the Committee gives written notice to all Optionees of their immediate right to exercise all Options then outstanding (without regard to limitations on exercise otherwise contained in the Options), or (ii) notify all Optionees that all Options granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such Options would have been entitled, or (iii) take action that is some combination of aspects of (i) and (ii). Except as provided in the last sentence of this paragraph (b), the determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Any fractional shares resulting from any of the foregoing adjustments under this paragraph shall be disregarded and eliminated. Notwithstanding anything else contained in this Section 1.6(b), if an option agreement permits the immediate exercise in full of an Option upon a change in control as provided in Section 1.5(g) above, the provisions of such option agreement may not be revised by the Committee pursuant to this Section 1.6(b) without the consent of the Optionee. 1.7 NOTIFICATION OF EXERCISE. Options shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall be accompanied by any payment required pursuant to Section 1.5(e) and shall be effective upon receipt by the Secretary of the Company received during normal business hours or if not so received, such exercise shall be effective on the next regular business day of the Company. Exercise by an Optionee's heir or the representative of his estate shall be accompanied by evidence of his authority to so act in form reasonably satisfactory to the Company. -5- ARTICLE II INCENTIVE STOCK OPTIONS 2.1 TERMS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted under the Plan to a Key Employee shall be exercisable only during a Term fixed by the Committee; provided, however, that the Term shall end no later than 10 years after the date the Incentive Stock Option is granted. 2.2 LIMITATION ON OPTIONS. The aggregate Fair Market Value of Common Stock (determined at the time the Incentive Stock Option is granted) subject to Incentive Stock Options granted to a Key Employee under all plans of the Key Employee's employer corporation and its Parent or Subsidiary corporations and that become exercisable for the first time by such Key Employee during any calendar year may not exceed $100,000. 2.3 SPECIAL RULE FOR TEN PERCENT SHAREHOLDER. If at the time an Incentive Stock Option is granted, an employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of his employer corporation or of its Parent or any of its Subsidiaries, as determined using the attribution rules of Section 424(d) of the Code, then the terms of the Incentive Stock Option shall specify that the option price shall be at least 110% of the Fair Market Value of the stock subject to the Incentive Stock Option, and such Incentive Stock Option shall not be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. 2.4 INTERPRETATION. In interpreting this Article II of the Plan and the provisions of individual option agreements, the Committee shall be governed by the principles and requirements of Sections 421, 422 and 424 of the Code, and applicable Treasury Regulations. ARTICLE III NONQUALIFIED STOCK OPTIONS 3.1 TERMS AND CONDITIONS OF OPTIONS. In addition to the requirements of Section 1.5, each Nonqualified Stock Option granted under the Plan to a Key Employee or Consultant shall be subject to the following provisions: -6- (a) TERM. Each Nonqualified Stock Option granted under the plan shall be exercisable only during a term fixed by the Committee. (b) EXERCISE PRICE. The Company may elect to grant Nonqualified Stock Options at a price less than the Fair Market Value of the Common Stock at the time the Option is granted. 3.2 SECTION 83(b) ELECTION. The Company recognizes that certain persons who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under applicable securities laws. Such restrictions may cause Optionees exercising such Options not to be taxable under the provisions of Section 83(c) of the Code. Accordingly, Optionees exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of the Option under Section 83(b) of the Code and to effect such election will file such election with the Internal Revenue Service within thirty (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE IV ADDITIONAL PROVISIONS 4.1 STOCKHOLDER APPROVAL. The Plan shall be submitted for the approval of the stockholders of the Company as soon as reasonably practicable following the adoption of the Plan by the Board of Directors or the Compensation Committee and in all events within one year of its approval by such Board or Committee. If the stockholders of the Company do not approve the Plan as provided in this Section 4.1, the Plan shall terminate. 4.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options hereunder, and the obligation of the Company to sell and deliver shares under such Options, shall be subject to all applicable Federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such shares on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification (or determination of the availability of an exemption therefrom) of such shares under any Federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. -7- 4.3 AMENDMENTS. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. However, except as permitted under Section 1.6, no amendment, without approval by stockholders, may (a) increase the total number of shares which may be issued under the Plan or to any individual under the Plan, (b) extend the date on which the Plan will terminate, (c) reduce the Option price for shares which may be purchased pursuant to Options under Articles II or III of the Plan, (d) extend the period during which Options may be granted, (e) change the class of eligible persons to whom Options may be granted under the Plan, or (f) change the provisions of the Plan in such a manner so as to increase materially the benefits accruing under the Plan. Other than as expressly permitted under the Plan, no outstanding Option may be revoked or altered in a manner unfavorable to the Optionee without the consent of the Optionee. 4.4 NO RIGHTS AS SHAREHOLDER. No Optionee shall have any rights as a shareholder with respect to any share subject to his Option prior to the date of issuance to him of a certificate or certificates for such shares. 4.5 WITHHOLDING. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax liability in such form as the Company may determine or accept in its sole discretion, including payment by surrender or retention of shares of Common Stock prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any Federal, state, or local withholding tax liability. 4.6 CONTINUED EMPLOYMENT NOT PRESUMED. This Plan and any document describing this Plan and the grant of any Option hereunder shall not give any Optionee or other employee or Director a right to continued employment by the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate the employment of any such person with or without cause. 4.7 EFFECTIVE DATE; DURATION. The Plan shall become effective as of February 9, 1996, subject to stockholder approval pursuant to Section 4.1, and shall expire at midnight (eastern standard time) on February 9, 2006. No Options may be granted under the Plan after February 9, 2006, but Options granted on or before that date may be exercised according to the terms of the related agreements and shall continue to be governed by and interpreted consistent with the terms hereof. * * * -8- The foregoing Plan was approved and adopted by the Board of Directors of the Company on May 3, 1994. -9- EX-10.7 17 EX-10.7 ACTAMED CORP. 1993 CLASS B COMMON STOCK OPTION PLAN The 1993 Class B Common Stock Option Plan (the "Plan") is hereby adopted as follows: 1. PURPOSE OF PLAN. The purpose of the Plan is to provide corporate officers and key employees of Actamed Corp. ("Actamed"), and its Subsidiaries (collectively the "Company"), as the Administrator hereinafter referred to shall designate, with a strong incentive for individual creativity and contribution to insure the future growth of the Company. The Plan is designed to reward those whose ability and diligence permit such persons to make important contributions to the success of the Company by enabling such persons to acquire shares of Actamed Common Stock in the manner contemplated by the Plan. Actamed believes that the Plan will also aid the Company in attracting and retaining outstanding key employees and in stimulating the efforts of such employees to work for the success of the Company. This Plan covers the grant of options [including nonstatutory stock options and options intended to qualify as incentive stock options under Section 422 of the Code ("Incentive Options")] to acquire shares which may or may not be subject to restrictions ("Option Stock"). 2. DEFINITIONS. For purposes of this Plan, the following terms where appearing with initial capitalization shall be applicable: (a) "ADMINISTRATOR" means either the Board of Directors or the Committee, whichever is so designated by the Board of Directors to administer the Plan. (b) "BOARD OF DIRECTORS" means the Board of Directors of Actamed. (c) "CODE" means the Internal Revenue Code of 1986, as amended from time to time. (d) "COMMITTEE" means a committee appointed by the Board of Directors and which shall consist of not less than two persons, all of whom shall be "disinterested persons" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended from time to time, or any law, rule, regulation or other provisions that may hereafter replace such Rule. If the Plan is administered by a Committee, the members of the Committee shall serve at the pleasure of the Board of Directors. Sixty percent (60%) of the Committee members shall constitute a quorum, and the action of a majority of the members of the Committee present at any meeting at which a quorum is present, or acts unanimously adopted in writing without holding a meeting, shall be the acts of the Committee. The Committee shall report all actions taken by it to the Board of Directors. (e) "COMMON STOCK" means Actamed's Class B Common Stock. (f) "SUBSIDIARY" means any corporation (other than Actamed) in an unbroken chain of corporations beginning with Actamed if, at the time of the sale or award of any shares or the grant of any option under the Plan, each of the corporations other than the last in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one or the other corporations in such chain. 3. ADMINISTRATION OF PLAN. This Plan shall be administered, construed and interpreted by the Administrator. The Administrator shall have full and final authority, in its discretion, (a) to determine those corporate officers and key employees who shall be eligible to participate in the Plan and the number of shares to be covered by any options granted and the time or times at which such options shall be granted to each participant or exercised by each optionee (it being understood that more than one option may relate to the same participant), (b) to determine the terms and provisions of any Stock Option Agreement (the terms of which need not be identical) and the restrictions, if any, to be placed upon the shares of Common Stock issued under the Plan, (c) to accelerate the date on which any option granted under the Plan becomes exercisable and to waive (including in the event of a change-in-control of Actamed) any restriction, term or provision imposed by any Stock Option Agreement, (d) to employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and rely upon any opinions received from any such counsel or consultant and any computation received from any such consultant or agent, and (e) to make all other determinations and take all other actions deemed necessary and advisable for the proper administration of the Plan. The Administrator may adopt, alter and repeal such rules and regulations for the administration of the Plan as it from time to time deems advisable. The Administrator may act by a meeting in person or by telephone or by written determinations signed by all of the members of the Administrator. All actions, interpretations and determinations with respect to the administration of the Plan taken by the Administrator shall be conclusively binding for all purposes and upon all persons. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Administrator. 4. ELIGIBLE PARTICIPANTS. Employees, including but not limited to officers and directors who are employees, of the Company as determined by the Administrator shall be eligible for participation under the Plan. However, with respect to Incentive Options, persons eligible to receive Incentive Options shall be limited to key employees (including officers and directors who are employees) of Actamed and its Subsidiaries. -2- 5. SHARES SUBJECT TO PLAN. An aggregate of 1,250,000 shares of Common Stock shall be subject to this Plan either from authorized but unissued shares or from issued shares reacquired by Actamed, including shares purchased in the open market, and such number of shares subject to the Plan shall be appropriately adjusted, in the discretion of the Administrator in the event of any one or more stock dividends, stock splits or any other forms of recapitalization, or spin-off, spin-out or other distribution of assets to shareholders of Actamed. The Administrator in its sole discretion may provide in any Stock Option Agreement or otherwise for adjustments to be made with respect to options granted hereunder. If prior to the termination of the Plan, shares issued pursuant hereto shall have been repurchased by or redelivered to Actamed in connection with the restrictions imposed on such shares pursuant to this Plan or any Stock Option Agreement under the Plan, such repurchase or redelivered shares shall again become available for option under the Plan. To the extent any options granted hereunder terminate, are canceled or expire unexercised in whole or in part, the shares with respect to which such options were not exercised shall again become available for option under the Plan. Any shares that are reacquired or become available due to termination, cancellation or expiration of options may be used to replace options that are canceled by the Administrator (with the consent of the optionee) due to the fact that the option exercise price is higher than the then current market value of the Common Stock. 6. PRICE. The Administrator in its absolute discretion shall determine the price at which any options granted to purchase shares of Option Stock hereunder shall become exercisable (which price may be less than the fair market value of a share of Common Stock), provided that such sale or exercise price with respect to Incentive Options is not less than the fair market value of a share of Common Stock at the time such option is granted, except as otherwise provided in Section 8(b)(vii). For the purposes hereof, fair market value shall be determined by the Administrator and the Administrator may make such determination: (a) in case the Common Stock is publicly traded but shall not then be listed and traded upon a recognized national market system, upon the basis of the mean between the bid and asked quotations for such stock on the date of grant of such option as reported by the National Association of Securities Dealers Automated Quotation system (NASDAQ) or, in the event that there shall be no bid or asked quotations on the date of grant of such option, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding such date of grant, and upon any other factors which the Administrator shall deem appropriate, or (b) in case the Common Stock is publicly traded and shall then be listed and traded upon a recognized securities exchange or shall be quoted on a recognized national market system, upon the basis of the mean between the highest and lowest selling prices at which shares of Common Stock were traded on such recognized securities exchange or national market system on such date of grant or, if the Common Stock was not traded on said date, upon the basis of the mean of such prices on the date nearest preceding such date of grant, and upon any other factors which the Administrator shall deem appropriate, or -3- (c) in case the Common Stock is not listed or traded as referred to in Sections 6(a) or 6(b) above, in good faith and taking into consideration factors which the Administrator determines are applicable in the determination of such fair market value. 7. PAYMENT. (a) Payment for shares purchased under this Plan shall be payable in cash, by check, by promissory note, or in addition to the above, in shares of Common Stock as provided in 7(d) below, or in any combination thereof, as shall be determined by the Administrator and provided in the applicable Stock Option Agreement. (b) If the payment is made in cash or by check, such payment shall be made at the time the shares are sold. (c) If the payment is made by promissory note, such note, containing terms and conditions satisfactory to the Administrator and Actamed, shall be delivered at the time the shares are sold and shall bear interest, if any, at such rate and shall be payable upon such terms as the Administrator shall determine. Certificates for the purchased shares shall be registered in the name of the participant and may be delivered to the purchaser or held by Actamed as security for payment of the promissory note as determined in the discretion of the Administrator. (d) In connection with any options granted pursuant to this Plan, the Administrator, in its discretion, may accept as payment for all or any portion of the option price of any Option Stock, shares of Common Stock previously acquired by the participant (including shares received upon the prior exercise of any options regardless of the amount of time such previously acquired shares have been held by the participant) having a fair market value equal to the required payment. The participant shall deliver to Actamed a certificate or certificates representing such shares duly endorsed to Actamed or accompanied by a separate stock power so endorsed. (e) In addition to the foregoing, the exercise price of an option also may be paid by delivery to Actamed of a written notice of election to exercise, subject to the approval of the Administrator and in accordance with the requirements of Regulation T as promulgated by the Federal Reserve Board. 8. OPTION STOCK. (a) All options granted pursuant to the Plan shall have such terms and conditions as the Administrator shall determine, including the period during which they may be exercised in whole or in part and the conditions under which they may be terminated or canceled and such other provisions as may be advisable to comply with the law or the rules of any such stock exchange, and each option shall have the following additional conditions: (i) The options shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the participant's lifetime only by him and, -4- except as otherwise determined by the Administrator, shall only be exercisable prior to termination of employment with the Company. (ii) Actamed shall not issue any fractional shares upon the exercise of options granted under the Plan. (iii) No optionee will be deemed to be a holder of any shares of Common Stock or shall have any rights of a shareholder of Actamed with respect to the Common Stock until the issuance of certificates after the exercise thereof. No adjustment shall be made for any dividends or distributions or other rights for which the record date is prior to the date of such stock certificates so issued except as provided in 8(a)(iv) below. (iv) The number of shares subject to an option and the price per share shall be appropriately adjusted by the Administrator to reflect any stock splits, stock dividends or other form of recapitalization. (v) The Administrator shall have sole discretion to determine in the Stock Option Agreement whether shares of Option Stock (including any shares received thereon as a result of stock dividends, stock splits and any other forms of recapitalization) shall be free of any restrictions (other than those advisable to comply with the law) or shall be subject to any restrictions as may be determined by the Administrator, in its sole discretion. (vi) The granting of an option shall impose no obligation upon the participant to exercise such option. (b) All Incentive Options granted hereunder, in addition to the conditions required by Section 8(a) and the other Sections of the Plan applicable to Incentive Options, must meet the following additional conditions where applicable: (i) The Plan must be approved by the shareholders of Actamed within 12 months after its adoption by the Board of Directors. (ii) Any Incentive Option must be granted within 10 years from the date the Plan is adopted by the board of Directors. (iii) Any Incentive Option must be exercised only within 10 years of the date it is granted, except as otherwise provided in 8(b)(vii) below. (iv) A maximum of 1,250,000 shares of Common Stock may be issued under Incentive Options. (v) The aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time -5- by such individual during any calendar year (under all plans of Actamed and its Subsidiaries) shall not exceed $100,000. (vi) Any Incentive Option granted hereunder shall be consistent with the provisions of Sections 421, 422 and 424 and related Sections of the Code and applicable Treasury Regulations. The Stock Option Agreements authorized under this Plan in connection with the grant of Incentive Options may contain other provisions, not inconsistent with the Plan and Section 422 of the Code, as the Administrator shall deem advisable. (vii) If the participant owns (subject to applicable ownership attribution rules of Section 424(d) of the Code and Treasury Regulations promulgated thereunder) stock possessing more than 10 percent of the total combined voting power of all classes of stock of Actamed or of stock of any parent or subsidiary of Actamed at the time the Incentive Option is granted, the option price shall be not less than 110 percent of the fair market value of the stock subject to the Incentive Option and the Incentive Option by its terms shall not be exercisable after the expiration of five years from the date the Incentive Option is granted. 9. WITHHOLDING OF TAXES. (a) Upon the grant or exercise of any option hereunder and should Actamed determine that the participant will be considered to have received income subject to withholding due to such event and the Company will be required to withhold amounts for federal and state income tax purposes, the distribution of any such shares to the participant may be deferred by Actamed until the participant makes satisfactory arrangements to provide Actamed with the funds to meet any such tax withholding obligation. If the participant fails to provide such funds to Actamed the time required to pay such withholding tax or should Actamed and the participant agree that such tax withholding obligation may be paid with shares to be distributed to the participant, Actamed may retain and sell a sufficient number of the participant's shares which are otherwise to be distributed to the participant as may be required to discharge, or reimburse Actamed for, the payment of such withholding obligation and any interest and penalty which may have accrued in connection therewith. Actamed shall have and retain a security interest in such shares of the participant for the purpose of securing the participant's obligation hereunder and the participant shall take such steps and execute such documents to perfect such security interest as Actamed shall reasonably request. (b) In the event a participant makes an election to be taxed under Section 83(b) of the Code and files such election with the Internal Revenue Service, the participant shall be required to notify the Company in writing within 10 days of making such election. 10. COMPLIANCE WITH SECURITIES LAW. (a) Actamed shall be under no obligation to effect the registration pursuant to any federal or state securities laws of any shares of Common Stock to be issued hereunder. Notwithstanding anything herein to the contrary, Actamed shall not be obligated to issue any shares pursuant to this Plan unless the shares to be distributed are at that time effectively registered or -6- exempt from registration, in the opinion of Actamed, under the applicable federal and state securities laws. (b) Unless the shares covered by the Plan have been registered under the applicable federal and state securities laws, or Actamed has determined that such registration is unnecessary, each person receiving shares under the Plan may be required by Actamed to give a representation in writing that he is acquiring such shares for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. (c) The exercise of any option granted hereunder shall only be effective at such time as Actamed shall have determined that the issuance and delivery of shares of Common Stock pursuant to such exercise is in compliance with all applicable federal and states securities laws. Actamed may, in its sole discretion, defer the effectiveness of any exercise of an option granted hereunder in order to allow the issuance of shares of Common Stock pursuant thereto to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. Actamed shall inform the participant of its decision to defer the effectiveness of the exercise of an option granted hereunder. During the period that the effectiveness of the exercise of an option has been deferred, the participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid or consideration tendered with respect thereto. 11. INDEMNIFICATION. In addition to any other rights of indemnification that they may have as directors of Actamed or as members of the Committee, the directors of Actamed and members of the Committee shall be indemnified by Actamed against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of action taken or failure to act under or in connection with the Plan, or any securities sold or issued hereunder, and against all amounts paid by them in settlement thereof (provided the settlement is approved by Actamed) or paid by them in satisfaction of a judgment in any action, suit or proceeding; provided that within 20 days after the institution of any action, suit or proceeding, the director or the Committee member shall in writing offer Actamed the opportunity, at its own expense to handle and defend the same. 12. EXPENSES OF PLAN. The expenses of administering the Plan shall be borne by Actamed. 13. NO EFFECT ON EMPLOYMENT. Nothing herein contained, including the grant of any option, shall affect the right of the Company to terminate any participant's employment at any time for any reason. -7- 14. EXEMPTION FROM PENSION COMPUTATION AND NON-EXCLUSIVITY OF THE PLAN. (a) By acceptance of options granted under this Plan, each participant shall be deemed to agree that it is special incentive compensation and that it will not be taken into account as "wages" or "salary" in retirement or deferred profit sharing plans, if any, of the Company. (b) In addition, each beneficiary of a deceased participant shall be deemed to agree that such grant will not affect the amount of any life insurance coverage available to such beneficiary under any life insurance plan, if any, covering employees of the Company. (c) Nothing contained in the Plan is intended to amend, modify or rescind any previously approved compensation plans or programs entered into by the Company. This Plan shall be construed to be an addition to any and all such other plans or programs. Neither the adoption of the Plan by Actamed nor the submission of the Plan to the shareholders of Actamed for approval shall be construed as creating any limitations on the power of authority of Actamed to adopt such additional or other compensation arrangements as Actamed may deem desirable. 15. LEGEND. In order to enforce the restrictions imposed upon shares sold or awarded hereunder the Administrator may cause a legend or legends to be placed on any certificates representing shares sold or awarded pursuant to this Plan, which legend or legends shall make appropriate reference to the restrictions imposed hereunder. 16. AMENDMENTS. This Plan may be amended at any time by the Board of Directors consistent with applicable laws and regulations, provided that without the approval of the shareholders of Actamed, no such amendment shall become effective if it would (a) extend the termination date of the Plan set forth in Section 17, (b) materially increase the number of shares of Common Stock which may be sold under the Plan, except as provided in Section 5, or (c) materially modify the requirements as to eligibility for participation in the Plan. Any amendment to the Plan shall not, without the written consent of the participant, affect such participant's rights under any Stock Option Agreement entered into prior to such amendment. 17. TERMINATION. This Plan shall terminate and no further shares shall be sold or issued hereunder after September 1, 2002, or such earlier date as may be determined by the Board of Directors. The termination of this Plan, however, shall not affect any restrictions previously imposed on shares of Option Stock issued pursuant to this Plan, or alter the rights of participants with respect to options granted or shares of Option Stock issued pursuant to this Plan. 18. RIGHTS OF PARTICIPANTS AS SHAREHOLDERS. Each participant acquiring shares of Option Stock hereunder shall, upon the issuance of certificates with respect to such shares, be the registered owner of such shares and, except as otherwise provided herein, in any related Stock Option Agreement or in the Articles of Incorporation of Actamed, shall be entitled to full dividend and distribution rights like any other holder of Actamed Common Stock as long as such participant remains the registered owner thereof. -8- 19. GOVERNING LAW. This Plan shall be governed and construed in accordance with the laws of Georgia in all respects. 20. CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine and neuter genders, unless the context clearly indicates to the contrary; the singular includes the plural, and the plural shall include the singular. 21. VALIDITY AND LEGALITY. If any provision of this Plan for any reason is declared invalid, illegal or unenforceable, in whole or in part, such declaration shall not affect the validity, legality or enforceability of any remaining provision or portion thereof, which remaining provisions or portion thereof shall remain in force and effect as if this Plan had been adopted with the invalid, illegal or, unenforceable provision or portion thereof eliminated. 22. EFFECTIVE DATE. This Plan shall become effective upon its adoption by the Board of Directors and approval by the shareholders of Actamed and the filing of the Articles of Amendment to the Articles of Incorporation authorizing the Common Stock. -9- I. EXHIBIT A AMENDMENT TO THE 1993 CLASS B COMMON STOCK OPTION PLAN The Plan is hereby amended as follows: 1. Paragraph 5 is hereby amended by deleting the number "1,250,000" from the first line of said paragraph and replacing it with the number "1,500,000." 2. Paragraph 8(b)(iv) is hereby deleted in its entirety and replaced with the following: "A maximum of 1,500,000 shares of Common Stock may be issued under Incentive Options." 3. All other provisions of the Plan shall remain in full force and effect. -10- EX-10.8 18 EX-10.8 ACTAMED CORP. 1992 STOCK OPTION PLAN The 1992 Stock Option Plan (the "Plan") is hereby adopted as follows: 1. PURPOSE OF PLAN. The purpose of the Plan is to provide corporate officers and key employees of Actamed Corp. ("Actamed"), and its Subsidiaries (collectively the "Company"), as the Administrator hereinafter referred to shall designate, with a strong incentive for individual creativity and contribution to insure the future growth of the Company. The Plan is designed to reward those whose ability and diligence permit such persons to make important contributions to the success of the Company by enabling such persons to acquire shares of Actamed Common Stock in the manner contemplated by the Plan. Actamed believes that the Plan will also aid the Company in attracting and retaining outstanding key employees and in stimulating the efforts of such employees to work for the success of the Company. This Plan covers the grant of options [including nonstatutory stock options and options intended to qualify as incentive stock options under Section 422 of the Code ("Incentive Options")] to acquire shares which may or may not be subject to restrictions ("Option Stock"). 2. DEFINITIONS. For purposes of this Plan, the following terms where appearing with initial capitalization shall be applicable: (a) "ADMINISTRATOR" means either the Board of Directors or the Committee, whichever is so designated by the Board of Directors to administer the Plan. (b) "BOARD OF DIRECTORS" means the Board of Directors of Actamed. (c) "CODE" means the Internal Revenue Code of 1986, as amended from time to time. (d) "COMMITTEE" means a committee appointed by the Board of Directors and which shall consist of not less than two persons, all of whom shall be "disinterested persons" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended from time to time, or any law, rule, regulation or other provisions that may hereafter replace such Rule. If the Plan is administered by a Committee, the members of the Committee shall serve at the pleasure of the Board of Directors. Sixty percent (60%) of the Committee members shall constitute a quorum, and the action of a majority of the members of the Committee present at any meeting at which a quorum is present, or acts unanimously adopted in writing without holding a meeting, shall be the acts of the Committee. The Committee shall report all actions taken by it to the Board of Directors. (e) "COMMON STOCK" means Actamed's Common Stock. (f) "SUBSIDIARY" means any corporation (other than Actamed) in an unbroken chain of corporations beginning with Actamed if, at the time of the sale or award of any shares or the grant of any option under the Plan, each of the corporations other than the last in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one or the other corporations in such chain. 3. ADMINISTRATION OF PLAN. This Plan shall be administered, construed and interpreted by the Administrator. The Administrator shall have full and final authority, in its discretion, (a) to determine those corporate officers and key employees who shall be eligible to participate in the Plan and the number of shares to be covered by any options granted and the time or times at which such options shall be granted to each participant or exercised by each optionee (it being understood that more than one option may relate to the same participant), (b) to determine the terms and provisions of any Stock Option Agreement (the terms of which need not be identical) and the restrictions, if any, to be placed upon the shares of Common Stock issued under the Plan, (c) to accelerate the date on which any option granted under the Plan becomes exercisable and to waive (including in the event of a change-in-control of Actamed) any restriction, term or provision imposed by any Stock Option Agreement. (d) to employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and rely upon any opinions received from any such counsel or consultant and any computation received from any such consultant or agent, and (e) to make all other determinations and take all other actions deemed necessary and advisable for the proper administration of the Plan. The Administrator may adopt, alter and repeal such rules and regulations for the administration of the Plan as it from time to time deems advisable. The Administrator may act by a meeting in person or by telephone or by written determinations signed by all of the members of the Administrator. All actions, interpretations and determinations with respect to the administration of the Plan taken by the Administrator shall be conclusively binding for all purposes and upon all persons. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Administrator. 4. ELIGIBLE PARTICIPANTS. Employees, including but not limited to officers and directors who are employees, of the Company as determined by the Administrator shall be eligible for participation under the Plan. However, with respect to Incentive Options, persons eligible to receive Incentive Options shall be limited to key employees (including officers and directors who are employees) of Actamed and its Subsidiaries. 5. SHARES SUBJECT TO PLAN. An aggregate of 25,000 shares of Common Stock shall be subject to this Plan either from authorized but unissued shares or from issued shares reacquired by Actamed, including shares purchased in the open market, and such number of shares subject to the Plan shall be appropriately adjusted, in the discretion of the Administrator in the event of any one or more stock dividends, stock splits or any other forms of recapitalization, or spin-off, spin-out or other distribution of assets to shareholders of Actamed. The Administrator in its sole discretion may provide in any Stock Option Agreement or otherwise for adjustments to be made with respect to options granted hereunder. If prior to the termination of the Plan, shares issued pursuant hereto shall have been repurchased by or redelivered to Actamed in connection with the restrictions imposed on such shares pursuant to this Plan or any Stock Option Agreement under the Plan, such repurchase or redelivered shares shall again become available for option under the Plan. To the extent any options granted hereunder terminate, are canceled or expire unexercised in whole or in part, the shares with respect to which such options were not exercised shall again become available for option under the Plan. Any shares that are reacquired or become available due to termination, cancellation or expiration of options may be used to replace options that are canceled by the Administrator (with the consent of the optionee) due to the fact that the option exercise price is higher than the then current market value of the Common Stock. 6. PRICE. The Administrator in its absolute discretion shall determine the price at which any options granted to purchase shares of Option Stock hereunder shall become exercisable (which price may be less than the fair market value of a share of Common Stock), provided that such sale or exercise price with respect to Incentive Options is not less than the fair market value of a share of Common Stock at the time such option is granted, except as otherwise provided in Section 8(b)(vii). For the purposes hereof, fair market value shall be determined by the Administrator and the Administrator may make such determination: (a) in case the Common Stock is publicly traded but shall not then be listed and traded upon a recognized national market system, upon the basis of the mean between the bid and asked quotations for such stock on the date of grant of such option as reported by the National Association of Securities Dealers Automated Quotation system (NASDAQ) or, in the event that there shall be no bid or asked quotations on the date of grant of such option, then upon the basis of the mean between the bid and asked quotations on the date nearest preceding such date of grant, and upon any other factors which the Administrator shall deem appropriate, or b) in case the Common Stock is publicly traded and shall then be listed and traded upon a recognized securities exchange or shall be quoted on a recognized national market system, upon the basis of the mean between the highest and lowest selling prices at which shares of Common Stock were traded on such recognized securities exchange or national market system on such date of grant or, if the Common Stock was not traded on said date, upon the basis of the mean of such prices on the date nearest preceding such date of grant, and upon any other factors which the Administrator shall deem appropriate, or (c) in case the Common Stock is not listed or traded as referred to in Sections 6(a) or 6(b) above, in good faith and taking into consideration factors which the Administrator determines are applicable in the determination of such fair market value. 7. PAYMENT. (a) Payment for shares purchased under this Plan shall be payable in cash, by check, by promissory note, or in addition to the above, in shares of Common Stock as provided in 7(d) below, or in any combination thereof, as shall be determined by the Administrator and provided in the applicable Stock Option Agreement. (b) If the payment is made in cash or by check, such payment shall be made at the time the shares are sold. (c) If the payment is made by promissory note, such note, containing terms and conditions satisfactory to the Administrator and Actamed, shall be delivered at the time the shares are sold and shall bear interest, if any, at such rate and shall be payable upon such terms as the Administrator shall determine. Certificates for the purchased shares shall be registered in the name of the participant and may be delivered to the purchaser or held by Actamed as security for payment of the promissory note as determined in the discretion of the Administrator. (d) In connection with any options granted pursuant to this Plan, the Administrator, in its discretion, may accept as payment for all or any portion of the option price of any Option Stock, shares of Common Stock previously acquired by the participant (including shares received upon the prior exercise of any options regardless of the amount of time such previously acquired shares have been held by the participant) having a fair market value equal to the required payment. The participant shall deliver to Actamed a certificate or certificates representing such shares duly endorsed to Actamed or accompanied by a separate stock power so endorsed. (e) In addition to the foregoing, the exercise price of an option also may be paid by delivery to Actamed of a written notice of election to exercise, subject to the approval of the Administrator and in accordance with the requirements of Regulation T as promulgated by the Federal Reserve Board. 8. OPTION STOCK. (a) All options granted pursuant to the Plan shall have such terms and conditions as the Administrator shall determine, including the period during which they may be exercised in whole or in part and the conditions under which they may be terminated or canceled and such other provisions as may be advisable to comply with the law or the rules of any such stock exchange, and each option shall have the following additional conditions: (i) The options shall not be transferable other than by will or the laws of descent and distribution and shall be exercisable during the participant's lifetime only by him and, except as otherwise determined by the Administrator, shall only be exercisable prior to termination of employment with the Company. (ii) Actamed shall not issue any fractional shares upon the exercise of options granted under the Plan. (iii) No optionee will be deemed to be a holder of any shares of Common Stock or shall have any rights of a shareholder of Actamed until the issuance of certificates after the exercise thereof. No adjustment shall be made for any dividends or distributions or other rights for which the record date is prior to the date of such stock certificates so issued except as provided in 8(a)(iv) below. (iv) The number of shares subject to an option and the price per share shall be appropriately adjusted by the Administrator to reflect any stock splits, stock dividends or other form of recapitalization. (v) The Administrator shall have sole discretion to determine in the Stock Option Agreement whether shares of Option Stock (including any shares received thereon as a result of stock dividends, stock splits and any other forms of recapitalization) shall be free of any restrictions (other than those advisable to comply with the law) or shall be subject to any restrictions as may be determined by the Administrator, in its sole discretion. (vi) The granting of an option shall impose no obligation upon the participant to exercise such option. (b) All Incentive Options granted hereunder, in addition to the conditions required by Section 8(a) and the other Sections of the Plan applicable to Incentive Options, must meet the following additional conditions where applicable: (i) The Plan must be approved by the shareholders of Actamed within 12 months after its adoption by the Board of Directors. (ii) Any Incentive Option must be granted within 10 years from the date the Plan is adopted by the board of Directors. (iii) Any Incentive Option must be exercised only within 10 years of the date it is granted, except as otherwise provided in 8(b)(vii) below. (iv) A maximum of 25,000 shares of Common Stock may be issued under Incentive Options. (v) The aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by such individual during any calendar year (under all plans of Actamed and its Subsidiaries) shall not exceed $100,000. (vi) Any Incentive Option granted hereunder shall be consistent with the provisions of Sections 421, 422 and 424 and related Sections of the Code and applicable Treasury Regulations. The Stock Option Agreements authorized under this Plan in connection with the grant of Incentive Options may contain other provisions, not inconsistent with the Plan and Section 422 of the Code, as the Administrator shall deem advisable. (vii) If the participant owns (subject to applicable ownership attribution rules of Section 424(d) of the Code and Treasury Regulations promulgated thereunder) stock possessing more than 10 percent of the total combined voting power of all classes of stock of Actamed or of stock of any parent or subsidiary of Actamed at the time the Incentive Option is granted, the option price shall be not less than 110 percent of the fair market value of the stock subject to the Incentive Option and the Incentive Option by its terms shall not be exercisable after the expiration of five years from the date the Incentive Option is granted. 9. WITHHOLDING OF TAXES. (a) Upon the grant or exercise of any option hereunder and should Actamed determine that the participant will be considered to have received income subject to withholding due to such event and the Company will be required to withhold amounts for federal and state income tax purposes, the distribution of any such shares to the participant may be deferred by Actamed until the participant makes satisfactory arrangements to provide Actamed with the funds to meet any such tax withholding obligation. If the participant fails to provide such funds to Actamed the time required to pay such withholding tax or should Actamed and the participant agree that such tax withholding obligation may be paid with shares to be distributed to the participant, Actamed may retain and sell a sufficient number of the participant's shares which are otherwise to be distributed to the participant as may be required to discharge, or reimburse Actamed for, the payment of such withholding obligation and any interest and penalty which may have accrued in connection therewith. Actamed shall have and retain a security interest in such shares of the participant for the purpose of securing the participant's obligation hereunder and the participant shall take such steps and execute such documents to perfect such security interest as Actamed shall reasonably request. (b) In the event a participant makes an election to be taxed under Section 83(b) of the Code and files such election with the Internal Revenue Service, the participant shall be required to notify the Company in writing within 10 days of making such election. 10. COMPLIANCE WITH SECURITIES LAW. (a) Actamed shall be under no obligation to effect the registration pursuant to any federal or state securities laws of any shares of Common Stock to be issued hereunder. Notwithstanding anything herein to the contrary, Actamed shall not be obligated to issue any shares pursuant to this Plan unless the shares to be distributed are at that time effectively registered or exempt from registration, in the opinion of Actamed, under the applicable federal and state securities laws. (b) Unless the shares covered by the Plan have been registered under the applicable federal and state securities laws, or Actamed has determined that such registration is unnecessary, each person receiving shares under the Plan may be required by Actamed to give a representation in writing that he is acquiring such shares for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. (c) The exercise of any option granted hereunder shall only be effective at such time as Actamed shall have determined that the issuance and delivery of shares of Common Stock pursuant to such exercise is in compliance with all applicable federal and states securities laws. Actamed may, in its sole discretion, defer the effectiveness of any exercise of an option granted hereunder in order to allow the issuance of shares of Common Stock pursuant thereto to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. Actamed shall inform the participant of its decision to defer the effectiveness of the exercise of an option granted hereunder. During the period that the effectiveness of the exercise of an option has been deferred, the participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid or consideration tendered with respect thereto. 11. INDEMNIFICATION. In addition to any other rights of indemnification that they may have as directors of Actamed or as members of the Committee, the directors of Actamed and members of the Committee shall be indemnified by Actamed against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of action taken or failure to act under or in connection with the Plan, or any securities sold or issued hereunder, and against all amounts paid by them in settlement thereof (provided the settlement is approved by Actamed) or paid by them in satisfaction of a judgment in any action, suit or proceeding; provided that within 20 days after the institution of any action, suit or proceeding, the director or the Committee member shall in writing offer Actamed the opportunity, at its own expense, to handle and defend the same. 12. EXPENSES OF PLAN. The expenses of administering the Plan shall be borne by Actamed. 13. NO EFFECT ON EMPLOYMENT. Nothing herein contained, including the grant of any option, shall affect the right of the Company to terminate any participant's employment at any time for any reason. 14. EXEMPTION FROM PENSION COMPUTATION AND NON-EXCLUSIVITY OF THE PLAN. (a) By acceptance of options granted under this Plan, each participant shall be deemed to agree that it is special incentive compensation and that it will not be taken into account as "wages" or "salary" in retirement or deferred profit sharing plans, if any, of the Company. (b) In addition, each beneficiary of a deceased participant shall be deemed to agree that such grant will not affect the amount of any life insurance coverage available to such beneficiary under any life insurance plan, if any, covering employees of the Company. (c) Nothing contained in the Plan is intended to amend, modify or rescind any previously approved compensation plans or programs entered into by the Company. This Plan shall be construed to be an addition to any and all such other plans or programs. Neither the adoption of the Plan by Actamed not the submission of the Plan to the shareholders of Actamed for approval shall be construed as creating any limitations on the power of authority of Actamed to adopt such additional or other compensation arrangements as Actamed may deem desirable. 15. LEGEND. In order to enforce the restrictions imposed upon shares sold or awarded hereunder the Administrator may cause a legend or legends to be placed on any certificates representing shares sold or awarded pursuant to this Plan, which legend or legends shall make appropriate reference to the restrictions imposed hereunder. 16. AMENDMENTS. This Plan may be amended at any time by the Board of Directors consistent with applicable laws and regulations, provided that without the approval of the shareholders of Actamed, no such amendment shall become effective if it would (a) extend the termination date of the Plan set forth in Section 17, (b) materially increase the number of shares of Common Stock which may be sold under the Plan, except as provided in Section 5, or (c) materially modify the requirements as to eligibility for participation in the Plan. Any amendment to the Plan shall not, without the written consent of the participant, affect such participant's rights under any Stock Option Agreement entered into prior to such amendment. 17. TERMINATION. This Plan shall terminate and no further shares shall be sold or issued hereunder after September 1, 2002, or such earlier date as may be determined by the Board of Directors. The termination of this Plan, however, shall not affect any restrictions previously imposed on shares of Option Stock issued pursuant to this Plan, or alter the rights of participants with respect to options granted or shares of Option Stock issued pursuant to this Plan. 18. RIGHTS OF PARTICIPANTS AS SHAREHOLDERS. Each participant acquiring shares of Option Stock hereunder shall, upon the issuance of certificates with respect to such shares, be the registered owner of such shares and, except as otherwise provided herein or in any related Stock Option Agreement, shall be entitled to full voting, dividend and distribution rights like any other holder of Actamed Common Stock as long as such participant remains the registered owner thereof. 19. GOVERNING LAW. This Plan shall be governed and construed in accordance with the laws of Georgia in all respects. 20. CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine and neuter genders, unless the context clearly indicates to the contrary; the singular includes the plural, and the plural shall include the singular. 21. VALIDITY AND LEGALITY. If any provision of this Plan for any reason is declared invalid, illegal or unenforceable, in whole or in part, such declaration shall not affect the validity, legality or enforceability of any remaining provision or portion thereof, which remaining provisions or portion thereof shall remain in force and effect as if this Plan had been adopted with the invalid, illegal or unenforceable provision or portion thereof eliminated. 22. EFFECTIVE DATE. This Plan shall become effective upon its adoption by the Board of Directors and approval by the shareholders of Actamed. AMENDMENT TO ACTAMED CORP. 1992 STOCK OPTION PLAN Pursuant to paragraph 16 of the 1992 Stock Option Plan, (the "Plan"), the Plan is hereby amended as follows: 1. Paragraph 2(e) is deleted in its entirety and replaced with the following: '"COMMON STOCK" means Actamed's Class A Common Stock."' 2. Paragraph 5 is hereby amended by deleting the number "25,000" from the first line of said paragraph and replacing it with the number "1,250,000". 3. Paragraph 8(b)(iv) is hereby deleted in it entirety and replaced with the following: "A maximum of 1,250,000 shares of Common Stock may be issued under Incentive Options." 4. All other provisions of the Plan shall remain in full force and effect. EX-10.9 19 EX-10.9 ACTAMED CORPORATION 1996 DIRECTOR STOCK OPTION PLAN (AMENDED AND RESTATED DECEMBER __, 1997) ARTICLE I GENERAL 1.1 PURPOSE OF THE PLAN. The purpose of the ActaMed Corporation 1996 Director Stock Option Plan (the "Plan") is to assist ActaMed Corporation (the "Company") in securing and retaining non-employee directors of outstanding ability by making it possible to offer them an increased incentive to advise, join or continue in the service of the Company and to increase their efforts for its welfare through participation or increased participation in the ownership and growth of the Company by granting non-employee directors, and Non-Employee Director's Designees (as defined below), Options under this Plan. 1.2 DEFINITIONS. (a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMITTEE" means the committee referred to in Section 1.3. (d) "COMMON STOCK" means the common stock of the Company. (e) "FAIR MARKET VALUE" means the closing price of the shares on a national securities exchange on which the Common Stock is primarily traded on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Inc. or other national quotation service. If the shares of Common Stock are traded in the over-the-counter market, "fair market value" means the closing "asked" price of the shares in the over-the-counter market on the day on which such value is to be determined or, if such "asked" price is not available, the last sales price on such day or, if no shares were traded on such day, on the next preceding day on which the shares were traded, as reported by the National Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. Nevertheless, if the Board of Directors determines that the fair market value of the Common Stock cannot be accurately determined pursuant to the methodologies described above or if shares of Common Stock are not traded on an exchange or in the over-the-counter market, Fair Market Value shall be the value determined by the Board of Directors or Committee administering the Plan, taking into consideration those factors affecting or reflecting value which they deem appropriate. (f) "NON-EMPLOYEE DIRECTOR'S DESIGNEE" means the corporation, partnership, proprietorship or other entity (including an investment fund) by whom the non-employee director is employed or with whom the non-employee director is affiliated as an officer, partner, director, manager, principal, or associate, at the time the non-employee director is a director of the Corporation and is determined by the Committee to receive options under the Plan. (g) "NONQUALIFIED STOCK OPTION" means an option to purchase shares of Common Stock which is not intended to qualify as an incentive stock option as defined in Section 422 of the Code and which may be granted to non-employee directors and a Non-Employee Director's Designees. (h) "OPTION" means a Nonqualified Stock Option. (i) "OPTIONEE" means a non-employee director or a Non-Employee Director's Designee to whom an Option is granted under the Plan. (j) "PARENT" means any corporation which qualifies as a parent of a corporation under the definition of "parent corporation" contained in Section 424(e) of the Code. (k) "SUBSIDIARY" means any corporation which qualifies as a subsidiary of a corporation under the definition of "subsidiary corporation contained in Section 424(f) of the Code. (l) "TERM" means the period during which a particular Option may be exercised as determined by the Committee and as provided in the option agreement. 1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors. In the absence of such an express appointment of a Committee, the Board shall serve as the Committee. Subject to the control of the Board, and without limiting the control over decisions described in Section 1.7, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which non-employee directors shall be granted Options and the terms of such Options. All Options granted under the Plan shall be Nonqualified Stock Options. Determinations by the Committee under the Plan (including, without limitation, determinations of the person to receive Options, the form, amount and timing of such Options, and the terms and provisions of such Options and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. In serving on the Committee, members thereof shall be considered to be acting in their capacity as members of the Board of Directors and shall be entitled to all rights of -2- indemnification provided by the Bylaws of the Company or otherwise to members of the Board of Directors. At the time that the Committee determines that a non-employee director shall be granted Options under the Plan, the non-employee director may promptly notify the Committee of the Non-Employee Director's Designee who shall be granted all or a portion of the Options in place of the non-employee director. The Committee shall retain at all times, before the Options are granted, the discretion as to whether or not to grant the Options to the Non-Employee Director's Designee. 1.4 SHARES SUBJECT TO THE PLAN. The total number of shares that may be purchased pursuant to Options under the Plan shall not exceed 100,000 shares of Common Stock. Shares subject to the Options which terminate or expire prior to exercise shall be available for future Options under the Plan without being charged against the limitation of 100,000 shares set forth above. Shares issued pursuant to the Plan may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 TERMS AND CONDITIONS OF OPTIONS. All Options shall be evidenced by option agreements in such form as the Committee shall approve from time to time subject to the provisions of Article II and the following provisions: (a) EXERCISE PRICE. The exercise price of an Option shall be determined by the Committee; provided, however, such exercise price shall not be less than the Fair Market Value (as determined by the Board of Directors) of the Common Stock at the time the Option is granted without the unanimous approval of all members of the Board of Directors. (b) EXERCISE. The Committee shall determine whether the Option shall be exercisable in full at any time during the Term or in cumulative or noncumulative installments during the Term. (c) TERMINATION OF DIRECTORSHIP. An Optionee's Option shall expire on the expiration of the Term specified in Section 2.1 or upon the occurrence of such events as are specified in the option agreement. If the option agreement permits exercise of the Option after termination of directorship (or after the termination of the directorship of the non-employee director on whose behalf the Non-Employee Director's Designee has been granted the Option), the Optionee may exercise the Option only with respect to the shares which could have been purchased by the Optionee at the date of termination of such directorship. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. An Optionee's directorship (or the directorship of the non-employee director on whose behalf the Non-Employee Director's Designee has been granted the Option) shall be deemed to terminate on the effective date of his or her resignation or removal or, in the alternative, on the date determined by the Committee to constitute the date of the termination of directorship of the Optionee (or the non-employee director on whose behalf the Non-Employee Director's Designee has been granted the Option). Whether military, government or other service or other leave of absence shall constitute a termination of -3- directorship shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. (d) DEATH OR DISABILITY. Upon termination of the directorship of the Optionee (or the non-employee director on whose behalf the Non-Employee Director's Designee has been granted the Option) by reason of death or disability (as determined by the Committee consistent with the definition of Section 422(c)(6) of the Code), the Option shall expire on the earlier of the expiration of (i) the date specified in the option agreement which in no event shall be later than 12 months after the date of such termination, or (ii) the Term specified in Section 2.1. The Optionee or his successor in interest, as the case may be, may exercise the Option only as to the shares that could have been purchased by the Optionee at the date of the termination of directorship of the Optionee (or the non-employee director on whose behalf the Non-Employee Director's Designee has been granted the Option). However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. (e) PAYMENT. Payment for shares as to which an Option is exercised shall be made in such manner and at such time or times as shall be provided in the option agreement, including cash, Common Stock of the Company which was previously acquired by the Optionee, or any combination thereof. The Fair Market Value of the surrendered Common Stock as of the date of exercise shall be determined in valuing Common Stock used in payment for Options. (f) NONTRANSFERABILITY. No Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution; provided, however, a non-employee director may designate that his or her Options be granted to the Non-Employee Director's Designee subject to the approval by the Committee. During the lifetime of the Optionee (or the lifetime of the non-employee director on whose behalf the Non-Employee Director's Designee has been granted the Option), an Option shall be exercisable only by the Optionee. (g) CHANGE IN CONTROL. In the discretion of the Committee, an option agreement may contain provisions providing that in the event of a "change in control" of the Company, such Option shall become immediately exercisable in full notwithstanding any provisions in the option agreement to the contrary. For the purposes of this paragraph (g), a "change in control" of the Company shall be deemed to occur if (i) the Company is a party to a merger, share exchange or other business combination pursuant to which the Company does not survive or survives only as a subsidiary of another corporation; or (ii) all or substantially all of the assets of the Company are sold or otherwise disposed of. (h) ADDITIONAL PROVISIONS. Each option agreement may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time, including cash awards for such purposes as the Committee may determine, including but not limited to cash awards for the payment of any income or excise tax directly or indirectly attributable to the exercise or acceleration of exercise of an Option (including, without limitation, any tax under Code Section 280G). -4- 1.6 STOCK ADJUSTMENTS; MERGERS. (a) GENERAL. Notwithstanding Section 1.4, in the event the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, share exchange, stock dividend, or transaction having similar effect, the total number of shares of Common Stock set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. (b) OPTIONS. Following a transaction described in subsection (a) above, if the Company continues in existence, the number and kind of shares that are subject to any Option and the option price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon exercise of the Option. If the Company will not remain in existence or substantially all of its Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all Options shall terminate 30 days after the Committee gives written notice to all Optionees of their immediate right to exercise all Options then outstanding (without regard to limitations on exercise otherwise contained in the Options), or (ii) notify all Optionees that all Options granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such Options would have been entitled, or (iii) take action that is some combination of aspects of (i) and (ii). Except as provided in the last sentence of this paragraph (b), the determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Any fractional shares resulting from any of the foregoing adjustments under this paragraph shall be disregarded and eliminated. Notwithstanding anything else contained in this Section 1.6(b), if an option agreement permits the immediate exercise in full of an Option upon a change in control as provided in Section 1.5(g) above, the provisions of such option agreement may not be revised by the Committee pursuant to this Section 1.6(b) without the consent of the Optionee. 1.7 NOTIFICATION OF EXERCISE. Options shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall be accompanied by any payment required pursuant to Section 1.5(e) and shall be effective upon receipt by the Secretary of the Company received during normal business hours or if not so received, such exercise shall be effective on the next regular business day of the Company. Exercise by an Optionee which is a corporation, partnership or other entity, or by an Optionee's heir or the representative of his estate shall be accompanied by evidence of its or his authority to so act in form reasonably satisfactory to the Company. -5- ARTICLE II NONQUALIFIED STOCK OPTIONS 2.1 TERMS AND CONDITIONS OF OPTIONS. In addition to the requirements of Section 1.5, each Option granted under the Plan to a non-employee director or a Non-Employee Director's Designee shall be a Nonqualified Stock Option and subject to the following provisions: (a) TERM. Each Nonqualified Stock Option granted under the plan shall be exercisable only during a term fixed by the Committee. (b) EXERCISE PRICE. Subject to the terms of Section 1.5(a), the Company may elect to grant Nonqualified Stock Options at a price less than the Fair Market Value of the Common Stock at the time the Option is granted. 2.2 SECTION 83(b) ELECTION. The Company recognizes that certain persons who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under Applicable securities laws. Such may cause Optionee's exercising such Options not to be taxable under the provisions of Section 83(c) of the Code. Accordingly, Optionees exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of the Option under Section 83(b) of the Code and to effect such election will file such election with the Internal Revenue Service within (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE III ADDITIONAL PROVISIONS 3.1 SHAREHOLDER APPROVAL. The Plan shall be submitted for the approval of the shareholders of the Company as soon as reasonably practicable following the adoption of the Plan by the Board of Directors or the Committee and in all events within one year of its approval by such Board or Committee. If the shareholders of the Company do not approve the Plan as provided in this Section 3.1, the Plan shall terminate. 3.2 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options hereunder, and the obligation of the Company to sell and deliver shares under such Options, shall be subject to all applicable Federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of -6- Common Stock prior to (a) the listing of such share on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification (or determination of the availability of an exemption therefrom) of such shares under any Federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. 3.3 AMENDMENTS. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. However, except as permitted under Section 1.6, no amendment, without approval by stockholders, may (a) increase the total number of shares which may be issued under the Plan or to any individual under the Plan, (b) extend the date on which the Plan will terminate, (c) reduce the Option price for shares which may be purchased pursuant to Options under Articles II of the Plan, (d) extend the period during which Options may be granted, (e) change the class of eligible persons to whom Options may be granted under the Plan, or (f) change the provisions of the Plan in such a manner so as to increase materially the benefits accruing under the Plan. Other than as expressly permitted under the Plan, no outstanding Option may be revoked or altered in a manner unfavorable to the Optionee without the consent of the Optionee. 3.4 NO RIGHTS AS SHAREHOLDER. No Optionee shall have any rights as a shareholder with respect to any share subject to his or her Option prior to the date of issuance to him or her of a certificate or certificates for such shares. 3.5 WITHHOLDING. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax liability in such form as the Company may determine or accept in its sole discretion, including payment by surrender or retention of shares of Common Stock prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any Federal, state, or local withholding tax liability. 3.6 CONTINUED SERVICE AS A DIRECTOR NOT PRESUMED. This Plan and any document describing this Plan and the grant of any Option hereunder shall not give any Optionee a right to continued service as a director of the Company or its Subsidiaries. 3.7 EFFECTIVE DATE; DURATION. The Plan shall become effective as of February 9, 1996, subject to shareholder approval pursuant to Section 3.1, and shall expire at midnight on February 9, 2006. No Options may be granted under the Plan after February 9, 2006, but Options granted on or before that date may be -7- exercised according to the terms of the related agreements and shall continue to be governed by and interpreted consistent with the terms hereof. The foregoing Plan was approved and adopted by the Board of Directors and the Shareholders of the Company on February 9, 1996 and the Plan was amended and restated by the Board of Directors of the Company on December __, 1997. -8- EX-10.10 20 EX-10.10 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amended and Restated Investors' Rights Agreement (the "Agreement") is entered into as of May 19, 1998, by and between Healtheon Corporation, a Delaware corporation (the "Company") and the persons and entities listed on Schedules A and B hereto. WHEREAS, the Company and certain of the persons and entities listed on Schedules A and B hereto entered into certain Securities Purchase Agreements during the period from January 26, 1996 through December __, 1997 (the "Securities Purchase Agreements") pursuant to which the Company sold and issued to such persons and entities (the "Healtheon Investors") shares of its Common Stock and Series A, Series B, Series C and Series D Preferred Stock and issued certain warrants with respect thereto; and WHEREAS, in order to induce the Healtheon Investors to invest funds in the Company pursuant to the Securities Purchase Agreements, the Company and the Healtheon Investors entered into certain Investors' Rights Agreements pursuant to which the Company granted certain rights to the Healtheon Investors; and WHEREAS, the Company entered into an Agreement and Plan of Reorganization (the "Merger Agreement") with ActaMed Corporation ("ActaMed") dated February 24, 1998, in connection with the acquisition of ActaMed by the Company (the "Merger"), pursuant to which the Company will issue and exchange 0.6272 shares of Company Common Stock for each share of ActaMed Capital Stock outstanding at the time the Merger is consummated; and WHEREAS, as a condition to closing of the Merger, the Healtheon Investors have agreed to convert all of their shares of Original Preferred Stock and warrants to acquire Original Preferred Stock into Common Stock and warrants to acquire Common Stock; and WHEREAS, certain shareholders of ActaMed Capital Stock listed on Schedules A and B hereto possess certain registration and other rights with respect to their shares of ActaMed Capital Stock, and desire to maintain certain rights following the Merger with respect to their shares of Company Common Stock (the "ActaMed Holders"); and WHEREAS, pursuant to the Merger Agreement, in order to induce the ActaMed Holders to approve the Merger, the Company and the ActaMed Holders have entered into this Agreement. NOW, THEREFORE, in consideration of the premises, covenants, and conditions set forth herein, the parties agree as follows: 1. REGISTRATION RIGHTS. The parties covenant and agree as follows: 1.1 DEFINITIONS. For purposes of this Agreement: (a) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document. 1 (b) The term "Registrable Securities" means (i) the Company's Common Stock issued pursuant to the Securities Purchase Agreements, (ii) the Company's Common Stock issued upon conversion of the Original Preferred Stock and issued upon the exercise of the warrants issued in substitution for the Series B Preferred Stock Warrants (together, the "Conversion Stock"), (iii) the Company's Common Stock issued to the ActaMed Holders pursuant to the Merger Agreement (the "Merger Stock"), and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Common Stock, Conversion Stock and Merger Stock described in (i), (ii) and (iii), excluding in all cases, however, (A) any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not assigned or (B) shares of any Registrable Securities that have been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction. (c) The number of shares of "Registrable Securities then outstanding" shall be equal to the sum of (i) the number of shares of Common Stock outstanding that are Registrable Securities and (ii) the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are exercisable or convertible into Registrable Securities. (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any transferee or assignee thereof in accordance with Section 1.14 hereof. (e) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the Securities and Exchange Commission ("SEC") that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (f) The term "Initial Public Offering" means the first sale of Common Stock of the Company to the public effected pursuant to a registration statement (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock plan, stock purchase or similar plan or a SEC Rule 145 transaction) filed with, and declared effective by, the SEC under the Act on Form S-1 (or any subsequently adopted similar form). (g) The term "Original Preferred Stock" shall mean the Series A Preferred Stock and the Series A-1 Preferred Stock (including Series A-2, Series A-3, etc.); the Series B Preferred Stock and the Series B-1 Preferred Stock (including Series B-2, Series B-3, etc.); the Series C Preferred Stock and the Series C-1 Preferred Stock (including Series C-2, Series C-3, etc.), and the Series D Preferred Stock and the Series D-1 Preferred Stock (including Series D-2, Series D-3, etc.) of the Company issued and sold to pursuant to the Securities Purchase Agreements or upon the exercise of the Series B Preferred Stock Warrants. (h) The term "Principal Holder" shall mean each Holder which, together with its affiliated entities, holds at least two hundred and fifty thousand (250,000) shares of Registrable Securities. 1.2 REQUEST FOR REGISTRATION. (a) If the Company shall receive at any time after the earlier of (i) January 26, 2001, or (ii) twelve (12) months after consummation of the Company's Initial Public Offering, a written request from the Holders of forty percent (40%) of the Registrable Securities then outstanding that the Company file a registration statement under the Act covering the registration of Registrable Securities with an aggregate gross offering price of at least ten million dollars ($10,000,000), then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), effect as soon as practicable, and in any event shall use its best efforts to effect within one hundred twenty (120) days of the receipt of such request, the registration under the Act of all Registrable Securities that the Holders request 2 to be registered within twenty (20) days of the mailing of such notice by the Company. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter or underwriters will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities requesting to be included in the underwriting, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders requesting to be included in the underwriting, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder at the time of filing the registration statement; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities, including, without limitation, any shares offered by the Company, are first entirely excluded from the underwriting. No Registrable Securities excluded from the underwriting by reason of the managing underwriters' marketing limitation shall be included in such registration. To facilitate the allocation of Shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) Shares. (c) The Company is obligated to effect only one (1) registration pursuant to this Section 1.2 (counting for this purpose only registrations that have been declared or ordered effective and pursuant to which Registrable Securities have been sold). (d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and that it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided, however, that the Company may defer its obligations for this reason only once in any twelve (12) month period. (e) Notwithstanding anything to the contrary in this Section 1.2, the Company shall not be obligated to take an action to effect such registration pursuant to this Section 1.2 for a period of six (6) months following the effective date of a registration statement previously filed by the Company (other than a registration of securities in a SEC Rule 145 transaction or with respect to an employee benefit plan). (f) If any registration statement prepared pursuant to this Section 1.2 is not filed or does not become effective or fails to close as a result of the decision of the Initiating Holders or any underwriter designated by them, the obligation of the Company to prepare and file a registration statement at the request of such Initiating Holders shall nevertheless have been satisfied unless such Initiating Holders shall reimburse the Company for its registration expenses set forth in Section 1.6 herein incurred in connection with the preparation and filing of such registration statement. If the registration statement otherwise fails to become effective or fails to close, the registration rights of the Holders provided in Section 1.2 shall remain fully available as if the registration had not been requested by the Initiating Holders. 3 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) (i) the Company proposes to register any of its Common Stock or other securities under the Act in connection with a public offering of such securities solely for cash (including a registration effected by the Company for stockholders other than the Holders, but not including a registration relating solely to the Company's employee benefit plans, or a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), and (ii) the Company has consummated its Initial Public Offering, the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 OBLIGATIONS OF THE COMPANY. Whenever required pursuant to this Section 1 to effect the registration of any Registrable Securities, the Company shall perform the following obligations as expeditiously as reasonably possible: (a) The Company shall prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, to keep such registration statement effective for up to one hundred twenty (120) days. (b) The Company shall prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) If requested by a selling Holder which holds at least five percent (5%) of the Registrable Securities then outstanding, the Company shall provide the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, of the shares being sold and counsel for such underwriters and not more than one counsel for all of such selling Holders (which counsel shall be subject to approval by the Company, such approval not to be unreasonably withheld) the opportunity to participate in the preparation of the registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; and make available for inspection by such underwriters and the applicable counsel such financial and other information, books and records of the Company and cause the officers, directors and employees of the Company and counsel and independent certified public accountants of the Company to respond to such inquiries as shall be reasonably necessary, in the opinion of respective counsel to such selling Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. (d) The Company shall promptly notify (in writing, if so requested) the selling Holders and the underwriters, if any, (i) when the registration statement, the prospectus or any prospectus supplement or post-effective amendment has been filed, and with respect to the registration statement or any post-effective amendment, when the same has become effective, (ii) request by the Commission for amendments or supplements to the registration statement or the prospectus, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt of the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. (e) The Company shall, if requested by the managing underwriter or underwriters or by selling Holders, promptly incorporate in a prospectus, prospectus supplement or post-effective amendment such 4 information or such managing underwriter or underwriters as such selling Holders specify should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the number or amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus, prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus, prospectus supplement or post-effective amendment, provided that the Company and its counsel are reasonably satisfied that such additional information does not constitute an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. (f) The Company shall furnish to the Holders such numbers of copies of the prospectus, including a prospectus subject to completion, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (g) The Company shall use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (h) The Company shall prepare and file with the applicable exchange or securities market an appropriate listing application with respect to the Registered Securities. (i) In the event of any underwritten public offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (j) The Company shall notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes 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 not misleading in the light of the circumstances then existing. (k) Notwithstanding the foregoing, the Company shall have no obligation with respect to any registration requested pursuant to Sections 1.2 or 1.13 if the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.13(b)(ii), as applicable. 1.5 OBLIGATIONS OF THE HOLDERS. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (b) In the event of any underwritten public offering, each Holder participating in such 5 underwriting shall enter into and perform its obligations under an underwriting agreement in customary form with the managing underwriter of such offering. 1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders not to exceed twenty five thousand dollars ($25,000), shall be borne by the Company. Notwithstanding the foregoing, the Company shall not be required to pay for expenses of any registration proceeding begun under Section 1.2, the request for which has been subsequently withdrawn by the Holders of a majority of the Registrable Securities or is not completed due to failure to meet the gross offering price requirement set forth in such section unless Holders representing a majority of Registrable Securities agree to forfeit their right to a registration under Section 1.2, provided however, that if at the time of such withdrawal by the Holders of a majority of the Registrable Securities, the Holders have learned of a material adverse change in the operating results, financial condition or business of the Company from that known to the Holders at the time of the request and have withdrawn the request with promptness following disclosure by the Company of such material adverse change. 1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.14), including (without limitation) all registration, filing, and qualification fees, fees and disbursements of Company counsel, printers' and accounting fees relating or apportionable thereto and the reasonable fees and disbursements of one counsel for the selling Holders not to exceed twenty five thousand dollars ($25,000), but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8 UNDERWRITING REQUIREMENTS. (a) In connection with any offering involving an underwriting of shares of the Company's Common Stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the managing underwriter determines in its sole discretion will not, due to marketing factors, jeopardize the success of the offering by the Company. (b) If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering (excluding an offering effected pursuant to Section 1.2) exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the Holders requesting inclusion in such registration according to the total amount of securities entitled to be included therein owned by each such Holder on a pro rata basis); provided, however, that any such limitation or "cut-back" shall be first applied to all shares proposed to be sold in such offering, other than for the account of the Company, which are not Registrable Securities. In no event shall any securities of the Company be excluded from such registration prior to the cut back of all shares proposed to be sold in such offering by the stockholders of the Company. 1.9 WITHDRAWAL RIGHTS AND REALLOCATION. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriters. If such Holder's shares are withdrawn from registration, or if the number of shares of Registrable 6 Securities was previously reduced due to marketing factors, the Company shall offer to all Holders retaining the right to include securities in the registration the right to include additional Registrable Securities in the registration, with such shares being allocated on a pro rata basis among the Holders of Registrable Securities. 1.10 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.11 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers, directors and general partners of each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, including any of the foregoing incurred in settlement of any litigation, commenced or threatened, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each of which is referred to herein as a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any prospectus subject to completion or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws. In addition, the Company will promptly reimburse each such Holder, officer, director or general partner, underwriter or controlling person for any legal or other expenses reasonably incurred by them, on an as-incurred basis, in connection with investigating or defending any such loss, claim, damage, liability, or action. Notwithstanding the foregoing, the indemnity provisions contained in this Section 1.11(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the written consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation that results from reliance upon written information furnished expressly for use in connection with such registration by any such Holder, officer, director, general partner, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder shall indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter and any Holder selling securities in such registration statement or any of its directors, officers or general partners or each person, if any, who controls such Holder, against any losses, claims, damages, or liabilities (joint or several) to which the Company (or any director, officer, controlling person), or underwriter (or controlling person), or Holder (or director, officer, general partner or controlling person thereof) may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or action in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation results from reliance upon written information furnished by such Holder expressly for use in connection with such 7 registration. Each such Holder will promptly reimburse any legal or other expenses reasonably incurred, on an as-incurred basis, by the Company (or any director, officer, controlling person), underwriter (or controlling person), Holder (or any director, officer, general partner, or controlling person thereof) in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.11(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the written consent of the Holder, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, the liability of each Holder under this Section 1.11(b) shall be limited to an amount equal to the aggregate proceeds of the shares sold by such Holder in the offering pursuant to which the Violation is claimed to have occurred, unless such liability arises out of or is based on willful misconduct of such Holder. (c) Within a reasonable time after receipt by an indemnified party of notice of the commencement of any action (including any governmental action) under this Section 1.11, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.11, deliver to the indemnifying party a written notice of the commencement thereof. Such indemnifying party shall have the right to participate in and subject to the consent of the indemnified party, which consent shall not be unreasonably withheld, the indemnifying party shall have the right to enter into settlement of such action, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense of such action with counsel approved by the indemnified party (whose approval shall not be unreasonably withheld); provided, however, that the indemnified party shall cooperate with the indemnifying party, and that if representation of an indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding, such indemnified party shall have the right to retain its own counsel, with the reasonable fees and reasonable expenses to be paid by the indemnifying party. The failure of an indemnified party to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if such failure is prejudicial to the indemnifying party, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.11 to the extent such party is prejudiced. However, the omission of the indemnified party to deliver such written notice to the indemnifying party will not relieve such indemnifying party of any liability that it may have to any indemnified party otherwise than under this Section 1.11. (d) If the indemnification provided for in this Section 1.11 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability, or action referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the violation of law or the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to acts of or information supplied by the indemnifying party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 1.11(d) were determined by pro rata allocation (even if the selling Holders or any underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take 8 account of the equitable considerations referred to in the immediately preceding paragraph. In no event shall the contribution obligations of each selling Holder exceed the amount of proceeds received by such selling Holder from the date of his, her or its Registrable Securities covered by the registration statement. 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. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and of the Holders under this Section 1.11 shall survive the conversion, if any, of the Series A Preferred and the completion of any offering of Registrable Securities in a registration statement under this Section 1 or otherwise. 1.12 REPORTS UNDER THE 1934 ACT. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees: (a) to make and keep public information available, as those terms are defined under SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) use its best efforts to file with the SEC all reports and other documents required of the Company under the Act and the 1934 Act (at any time after it has become subject to such reporting requirements) in a timely manner; and (c) to furnish to any Holder, so long as such Holder owns Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the Company's most recent annual or quarterly report and (iii) such other information as may be reasonably requested by such Holder in order to avail itself of any rule or regulation of the SEC that permits the selling of any such securities without registration. 1.13 FORM S-3 REGISTRATION. At any time following the second anniversary of the Company's Initial Public Offering, in case the Company shall receive from any Holder or Holders holding a written request that the Company effect a registration on Form S-3 or any successor form and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall comply with the following obligations: (a) The Company shall promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders. In the event the registration is proposed to be part of a firm commitment underwritten public offering, the substantive provisions of paragraph (b) of Section 1.2 hereof shall be applicable to each such registration initiated under this Section 1.13. (b) As soon as practicable, the Company shall effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company. Notwithstanding the foregoing, the Company shall not be obligated to effect any such registration, qualification 9 or compliance, pursuant to this Section 1.13 if: (i) the Company has previously effected three (3) registrations pursuant to this Section 1.13, (ii) Form S-3 is not available for such offering by the Holders; (iii) the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than one million dollars ($1,000,000); (iv) the Company furnishes to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.13, notwithstanding the foregoing, the Company shall not have the right to exercise this right more than twice in any twelve (12) month period; (v) the Company has, within the twelve (12) month period preceding the date of such request, already effected a registration on Form S-3 for the Holders pursuant to this Section 1.13; (vi) the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance in a particular jurisdiction; or (vii) a registration statement respecting securities of the Company has been declared effective within one hundred eighty (180) days of such request. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with the registrations requested pursuant to this Section 1.13, including (without limitation) all registration, filing, qualification, printers' and accounting fees, fees and disbursements of counsel for the selling Holder or Holders and any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the selling Holder or Holders. Registrations effected pursuant to this Section 1.13 shall not be counted as demands for registration effected pursuant to Section 1.2. 1.14 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities granted under this Section 1 may be assigned by a Holder to a transferee or assignee who acquires two hundred fifty thousand (250,000) shares (as adjusted for stock splits, combinations, dividends and the like) of the Registrable Securities held by such Holder, provided the Company is, within a reasonable time prior to such transfer, furnished with written notice of the name and address of such proposed transferee or assignee and the securities with respect to which such registration rights are being assigned; provided further that such assignment shall be effective only if the transferee enters into a written agreement providing that such transferee shall be bound by the provisions of Section 1 of this Agreement. Notwithstanding the foregoing or any other provision contained herein to the contrary, the right to cause the Company to register Registrable Securities may be assigned by a Holder to any constituent partner of a partnership Holder and any affiliate, subsidiary or parent of a corporate Holder provided that such transferee agrees in writing to be bound by the terms and conditions of this Agreement. 1.15 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it shall not, to the extent specified by the Company and an underwriter of Common Stock (or other securities) of the Company, sell, offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company (other than securities already registered) during a reasonable and customary period of time not to exceed one hundred and eighty (180) days, as agreed to by the Company and the underwriters, following the effective date of the Company's Initial Public Offering; provided, however, that all officers and directors of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to the securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such one hundred and eighty (180) day period. 10 1.16 TERMINATION OF THE COMPANY'S OBLIGATIONS. The rights to cause the Company to register securities granted to Holders pursuant to Sections 1.2 and 1.3 shall terminate as to any Holder at such time as the Holder has the ability to sell all of the Registrable Securities owned by such stockholder under SEC Rule 144 within a three (3) month period. 1.17 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company which would grant rights to have securities other than Registrable Securities registered under the Act that are PARI PASSU or senior to the registration rights granted herein. 2. COVENANTS. 2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall, as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, furnish to each Principal Holder a consolidated profit and loss statement for such fiscal year, a consolidated balance sheet of the Company and a consolidated statement of stockholders' equity as of the end of such year, and a consolidated statement of cash flows for such year, such year-end financial reports to be prepared in accordance with generally accepted accounting principles and audited and certified by independent public accountants of nationally recognized standing selected by the Company. In the event that the Company is involved in a material corporate transaction which is likely to have an effect on the Company's financial reports, the Company shall have an additional thirty (30) days in order to fulfill its obligations hereunder. 2.2 DELIVERY OF QUARTERLY FINANCIAL STATEMENTS. The Company shall, as soon as practicable, but in no event within forty-five (45) days after the end of each fiscal quarter of the Company (except for the fiscal quarter ending December 31 of each year) furnish to each Principal Holder a consolidated profit and loss statement for such quarter and year-to-date, a consolidated balance sheet of the Company and a consolidated statement of cash flows for such quarter and year-to-date prepared in accordance with generally accepted accounting principles consistently applied. In the event that the Company is involved in a material corporate transaction which is likely to have an effect on the Company's financial reports, the Company shall have an additional thirty (30) days in order to fulfill its obligations hereunder. 2.3 DELIVERY OF MONTHLY FINANCIAL STATEMENTS. The Company shall furnish each Principal Holder upon request (commencing with the month ending July 31, 1998), within thirty (30) days of the end of each month, an unaudited consolidated profit and loss statement, consolidated statement of cash flows and consolidated balance sheet for and as of the end of such month, and comparison to year-end results (if any). In the event that the Company is involved in a material corporate transaction which is likely to have an effect on the Company's financial reports, the Company shall have an additional thirty (30) days in order to fulfill its obligations hereunder. 2.4 LIMITATION ON INFORMATION RIGHTS. The rights to receive financial information set forth in Sections 2.1, 2.2 and 2.3 above may be assigned by each Principal Holder to a subsequent transferee or assignee of at least two hundred fifty thousand (250,000) shares (as adjusted for stock splits, combinations, dividends and the like) of such Principal Holder's Registrable Securities, provided that the transferee or assignee of such rights is not deemed by the Board of Directors, in its reasonable judgment, to be a current or potential competitor of the Company. Notwithstanding the foregoing or any other provision contained herein to the contrary, the information rights contained in Section 2.1, 2.2 and 2.3 above may be assigned by a Holder to any constituent partner of a partnership Holder or any affiliate, subsidiary or parent of a corporate Holder provided that such transferee agrees in writing to be bound by the terms and conditions of this Agreement. 11 2.5 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Principal Holder, the right of first refusal to purchase a pro rata share of New Securities (as defined in this Section 2.5) which the Company may, from time to time, propose to sell and issue after the date hereof. A Principal Holder's pro rata share, for purposes of this right of first refusal, is the ratio of (i) the number of shares of Registrable Securities held by such Principal Holder; and (ii) the total number of shares of Registrable Securities then outstanding. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock (including Common Stock and/or preferred stock) of the Company whether now authorized or not, and rights, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided that the term "New Securities" does not include (i) securities issued upon conversion of the any preferred stock; (ii) securities issued pursuant to the acquisition of another business entity or business segment of any such entity by the Company by merger, purchase of substantially all the assets or other reorganization whereby the Company will own not less than fifty-one percent (51%) of the voting power of such business entity or business segment of any such entity; (iii) any borrowing, direct or indirect, from financial institutions or other persons by the Company, whether or not presently authorized, including any type of loan or payment evidenced by any type of debt instrument, provided that such borrowing does not have any equity features including warrants, options or other rights to purchase capital stock and are not convertible into capital stock of the Company; (iv) securities issued to employees, consultants, officers or directors of the Company pursuant to any stock option, stock purchase or stock bonus plan, agreement or arrangement approved by the Board of Directors; (v) securities issued in connection with obtaining lease financing, whether issued to a lessor, guarantor or other person and is for purposes other than equity financing of the Company; (vi) securities issued in connection with one or more strategic development, licensing or technology transactions, up to an aggregate of three million (3,000,000) shares of Company capital stock or rights to purchase Company capital stock pursuant to all transactions pursuant to this subsection (vi); (vii) up to one million three hundred thirty-six thousand four hundred twenty-two (1,336,422) shares of Company common stock to be issued to SmithKline Beechham Clinical Laboratories, Inc.(SBLC), issued pursuant to the First Amendment to the Asset Purchase Agreement dated December 31, 1997 between SBLC and ActaMed; (viii) securities issued in a firm commitment underwritten public offering pursuant to a registration under the Act; (ix) securities issued in connection with any stock split, stock dividend or recapitalization of the Company so long as such issuance results in adjustments to the conversion rate under the Restated Certificate of Incorporation of the Company with respect to any preferred stock; and (x) any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (i) through (ix) above. (b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Principal Holder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Principal Holder shall have fifteen (15) days after any such notice is effective to agree to purchase up to such Principal Holder's pro rata share, as the case may be, of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) In the event the Principal Holders fail to exercise the right of first refusal, in full or in part, within said fifteen (15)-day period, the Company shall have sixty (60) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within sixty (60) days from the date of said agreement) to sell the New Securities respecting which the Principal Holders' right of first refusal option set forth in this Section 2.4 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Principal Holders pursuant to Section 2.5(b). In the event the Company has not sold within said 60-day period or entered into an agreement to sell the New Securities within said 60-day period (or sold and issued New Securities in accordance with the foregoing within sixty (60) days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Principal Holders in the manner provided in 12 Section 2.5(b) above. (d) The right of first refusal set forth in this Section 2.5 may be assigned by a Principal Holder to a transferee or assignee who acquires two hundred and fifty thousand (250,000) shares (as adjusted for stock splits, combinations, dividends and the like) of such Principal Holder's Conversion Stock or such Principal Holder's Merger Stock, as the case may be, provided, the Company is, within a reasonable time prior to such transfer, furnished with written notice of the name and address of such proposed transferee or assignee and the securities with respect to which such rights of first refusal are being assigned; provided further that such assignment shall be effective only if the transferee enters into a written agreement providing that such transferee shall be bound by the provisions of Section 2.5 of this Agreement. Notwithstanding the foregoing or any other provision contained herein to the contrary, the right of first refusal may be assigned by a Principal Holder to any constituent partner of a partnership Principal Holder and any affiliate, subsidiary or parent of a corporate Principal Holder provided that such transferee agrees in writing to be bound by the terms and conditions of this Agreement. 2.6 TERMINATION OF COVENANTS. Unless terminated earlier, the covenants set forth in these Sections 2.1, 2.2, 2.3 and 2.5 shall terminate and be of no further force or effect upon the consummation of the Company's Initial Public Offering. 3. MISCELLANEOUS. 3.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 3.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto (including transferees of any shares of Registrable Securities sold under their respective stock purchase agreements). 3.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof, and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. 3.4 SEVERABILITY. Any invalidity, illegality, or limitation of the enforceability with respect to any Holder of any one or more of the provisions of this Agreement, or any part thereof, whether arising by reason of the law of any such Holder's domicile or otherwise, shall in no way affect or impair the validity, legality, or enforceability of this Agreement with respect to any other Holder. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 3.5 AMENDMENT AND WAIVER. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holders of a majority of the Registrable Securities then outstanding, provided that the effect of such amendment or waiver is to treat all Holders equally. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder of Registrable Securities at the time outstanding (including securities exercisable for or convertible into Registrable 13 Securities), each future holder of all such securities, and the Company. 3.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power, or remedy accruing to any Holder or any permitted transferee upon any breach, default or noncompliance of the Company 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 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 the Holders' part of any breach, default or noncompliance of this Agreement or any waiver on the Holders' part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing, and that all remedies, either under this Agreement, by law, or otherwise afforded to each Holder, shall be cumulative and not alternative. 3.7 NOTICES, ETC. Unless otherwise provided, any notice required or permitted under this Agreement shall be given to the party to be so notified in writing and shall be deemed effective upon personal delivery, upon delivery by confirmed facsimile or electronic transmission (with duplicate original sent by United States mail), or three business days after deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on Schedule A hereto (or, if to the Company, at the address of its principal executive offices), or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 3.8 TITLES AND SUBTITLES. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 3.9 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, expenses and necessary disbursements in addition to any other relief to which such party may be entitled. 3.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 3.11 AGGREGATION OF STOCK. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purposes of determining the availability of any right under this Agreement. 3.12 SPECIFIC PERFORMANCE. The parties hereto agree that limitations on the purchase and sale of the Registrable Securities of the Company exist and that, for that reasons, among others, the Holders of the Registrable Securities may be irreparably damaged in the event of a breach or prospective breach of the terms and provisions of this Agreement and, therefore, the parties hereto consent to the application of equitable remedies, including, without limitation, specific performance, to enforce the terms and provisions of this Agreement. The rights granted in this Section 3.12 shall be cumulative and not exclusive, and shall be in addition to any and all other rights which the parties hereto may have hereunder, at law or in equity. IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors' Rights Agreement as of the date first above written. HEALTHEON CORPORATION 14 By: /s/ Michael Long ------------------------------------- Michael Long President and Chief Executive Officer Address: 4600 Patrick Henry Drive Santa Clara, CA 95054 HEALTHEON CORPORATION SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT The undersigned amends the Amended and Restated Investors' Rights Agreement dated October 13, 1997 and hereby executes and delivers this Amended and Restated Investors' Rights Agreement dated May ___, 1998 (the "Agreement") to which this Signature Page is attached, effective as of the date of the Agreement, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. _____________________________________________________ Name of Stockholder By:__________________________________________________ Print Name:__________________________________________ Title:_______________________________________________ 16 EX-10.11 21 EX-10.11 LEASE DATED: DECEMBER 2, 1997 BY AND BETWEEN LARVAN PROPERTIES, A CALIFORNIA GENERAL PARTNERSHIP AS LANDLORD AND HEALTHEON CORPORATION, A DELAWARE CORPORATION AS TENANT AFFECTING PREMISES COMMONLY KNOWN AS 4600 PATRICK HENRY DRIVE SANTA CLARA, CALIFORNIA [1/15/97 TRIPLE NET INDUSTRIAL/COMMERCIAL LEASE] TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS PAGE: - ----------------------- ----- 1.1 General 1 1.2 Additional Rent 1 1.3 Address for Notices 1 1.4 Agents 1 1.5 Agreed Interest Rate 1 1.6 Base Monthly Rate 1 1.7 Building 1 1.8 Commencement Date 1 1.9 Common Area 1 1.10 Common Operating Expense 1 1.11 Consumer Price Index 1 1.12 Effective Date 1 1.13 Event of Tenant's Default 1 1.14 Hazardous Materials 1 1.15 Insured and Uninsured Peril 1 1.16 Law 1 1.17 Lease 1 1.18 Lease Term 1 1.19 Lender 1 1.20 Permitted Use 2 1.21 Premises 2 1.22 Project 2 1.23 Private Restrictions 2 1.24 Real Property Taxes 2 1.25 Scheduled Commencement Date 2 1.26 Security Instrument 2 1.27 Summary 2 1.28 Tenant's Alterations 2 1.29 Tenant's Share 2 1.30 Trade Fixtures 2 ARTICLE 2 - DEMISE, CONSTRUCTION, AND ACCEPTANCE 2 - ------------------------------------------------ 2.1 Demise of Premises 2 2.2 Commencement Date 2 2.3 Construction of Improvements 2 2.4 Delivery and Acceptance of Possession 2 2.5 Early Occupancy 3 ARTICLE 3 - RENT 3 - ---------------- 3.1 Base Monthly Rent 3 3.2 Additional Rent 3 3.3 Payment of Rent 3 3.4 Late Charge and Interest on Rent in Default 3 3.5 Security Deposit 3 ARTICLE 4 - USE OF PREMISES 3 - --------------------------- 4.1 Limitation on Use 3 4.2 Compliance with Regulations 4 4.3 Outside Areas 4 4.4 Signs 4 4.5 Parking 4 4.6 Rules and Regulations 4
ii TABLE OF CONTENTS (CONTINUED)
PAGE: ----- ARTICLE 5 - TRADE FIXTURES AND ALTERATIONS 4 5.1 Trade Fixtures 4 5.2 Tenant's Alterations 4 5.3 Alterations Required by Law 5 5.4 Amortization of Certain Capital Improvements 5 5.5 Mechanic's Liens 5 5.6 Taxes on Tenant's Property 5 ARTICLE 6 - REPAIR AND MAINTENANCE 6 6.1 Tenant's Obligation to Maintain 6 6.2 Landlord's Obligation to Maintain 6 6.3 Control of Common Area 6 ARTICLE 7 - WASTE DISPOSAL AND UTILITIES 7 7.1 Waste Disposal 7 7.2 Hazardous Materials 7 7.3 Utilities 8 7.4 Compliance with Governmental Regulations 8 ARTICLE 8 - COMMON OPERATING EXPENSES 8 8.1 Tenant's Obligation to Reimburse 8 8.2 Common Operating Expenses Defined 8 8.3 Real Property Taxes Defined 9 ARTICLE 9 - INSURANCE 9 9.1 Tenant's Insurance 9 9.2 Landlord's Insurance 10 9.3 Tenant's Obligation to Reimburse 10 9.4 Release and Waiver of Subrogation 10 ARTICLE 10 - LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY 10 10.1 Limitation on Landlord's Liability 10 10.2 Limitation on Tenant's Recourse 11 10.3 Indemnification of Landlord 11 ARTICLE 11 - DAMAGE TO PREMISES 11 11.1 Landlord's Duty to Restore 11 11.2 Landlord's Right to Terminate 11 11.3 Tenant's Right to Terminate 12 11.4 Abatement of Rent 12 ARTICLE 12 - CONDEMNATION 12 12.1 Landlord's Termination Right 12 12.2 Tenant's Termination Right 12 12.3 Restoration and Abatement of Rent 12 12.4 Temporary Taking 12 12.5 Division of Condemnation Award 12 iii TABLE OF CONTENTS (CONTINUED) PAGE: ----- ARTICLE 13 - DEFAULT AND REMEDIES 13 13.1 Events of Tenant's Default 13 13.2 Landlord's Remedies 13 13.3 Waiver 14 13.4 Limitation on Exercise of Rights 14 13.5 Waiver by Tenant of Certain Remedies 14 ARTICLE 14 - ASSIGNMENT AND SUBLETTING 14 14.1 Transfer by Tenant 14 14.2 Transfer by Landlord 16 ARTICLE 15 - GENERAL PROVISIONS 16 15.1 Landlord's Right to Enter 16 15.2 Surrender of the Premises 17 15.3 Holding Over 17 15.4 Subordination 17 15.5 Mortgagee Protection and Attornment 17 15.6 Estoppel Certificates and Financial Statements 17 15.7 Reasonable Consent 18 15.8 Notices 18 15.9 Attorney's Fees 18 15.10 Corporate Authority 18 15.11 Miscellaneous 18 15.12 Termination by Exercise of Right 18 15.13 Brokerage Commissions 19 15.14 Force Majeure 19 15.15 Entire Agreement 19
EXHIBITS Exhibit A - Site plan of the Project containing a description of the Premises Exhibit B - Space Plan Exhibit C - Intentionally Omitted Exhibit D - Acceptance Agreement Exhibit E - Intentionally Omitted Exhibit F - Intentionally Omitted Exhibit G - Form of Subordination Agreement Exhibit H - Asbestos Disclosure
iv SUMMARY OF BASIC LEASE TERMS SECTION TERMS (LEASE REFERENCE) A. LEASE REFERENCE DATE: December 3, 1997 (Introduction) B. LANDLORD: LARVAN PROPERTIES, A CALIFORNIA GENERAL (Introduction) PARTNERSHIP C. TENANT: HEALTHEON CORPORATION, A DELAWARE CORPORATION (Introduction) D. PREMISES: That area consisting of 49,837 square feet (Section 1.21) of gross leasable area the address of which is 4600 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA, comprising the Building shown on EXHIBIT A. E. PROJECT: The land and improvements shown on EXHIBIT (Section 1.22) A consisting of 1 building the aggregate gross leasable area of which is 49,837 square feet. F. BUILDING: The building in which the Premises are (Section 1.7) located known as 4600 Patrick Henry Drive, Santa Clara, California containing 49,837 square feet of gross leasable area. G. TENANT'S SHARE: 100% (Section 1.29) H. TENANT'S ALLOCATED PARKING STALLS: TENANT SHALL HAVE (Section 4.5) THE RIGHT TO ALL PARKING SPACES I. SCHEDULED COMMENCEMENT DATE: FEBRUARY 1, 1998, (Section 1.26) OR THE DATE ON WHICH TENANT OCCUPIES THE PREMISES FOR BUSINESS, WHICHEVER IS EARLIER. J. LEASE TERM: 120 calendar months (plus the partial (Section 1.18) month following the Commencement Date of such date is not the first day of a month). K. BASE MONTHLY RENT: (Section 3.1) INCLUSIVE PERIOD BASE MONTHLY RENT 2/1/98 THROUGH 12/31/98 $72,263.69 PER MONTH NNN 1/1/99 THROUGH 12/31/99 $74,257.17 PER MONTH NNN 1/1/2000 THROUGH 12/31/2000 $76,250.65 PER MONTH NNN 1/1/2001 THROUGH 12/31/2001 $78,244.13 PER MONTH NNN 1/1/2002 THROUGH 12/31/2002 $80,237.61 PER MONTH NNN 1/1/2003 THROUGH 12/31/2003 $82,231.09 PER MONTH NNN 1/1/2004 THROUGH 12/31/2004 $84,224.57 PER MONTH NNN 1/1/2005 THROUGH 12/31/2005 $86,218.05 PER MONTH NNN 1/1/2006 THROUGH 12/31/2006 $88,211.53 PER MONTH NNN 1/1/2007 THROUGH 12/31/2008 $90,205.01 PER MONTH NNN L. PREPAID RENT: $72,263.69 (Section 3.3) M. SECURITY DEPOSIT: $72,263.69 (THE "PERMANENT SECURITY (Section 3.5) DEPOSIT") PLUS A LETTER OF CREDIT AS SET FORTH IN THE FIRST ADDENDUM TO LEASE, PARAGRAPH 1. N. PERMITTED USE: RESEARCH AND DEVELOPMENT, SALES, (Section 4.1) ADMINISTRATION, GENERAL OFFICE AND STORAGE, AND OTHER DIRECTLY RELATED USES AS WELL AS OTHER LEGAL USES IF APPROVED IN WRITING BY LANDLORD, APPROVAL NOT TO BE UNREASONABLY WITHHELD. O. PERMITTED TENANT'S ALTERATIONS LIMIT: $10,000 (Section 5.2) P. TENANT'S LIABILITY INSURANCE MINIMUM: $5,000,000 (Section 9.1) Q. LANDLORD'S ADDRESS: LARVAN PROPERTIES (Section 1.3) ATTN: DONN BYRNE 1960 THE ALAMEDA SAN JOSE, CALIFORNIA 95128 R. TENANT'S ADDRESS: HEALTHEON CORPORATION (Section 1.3) ATTENTION: KALLEN CHEN 4600 PATRICK HENRY DRIVE SANTA CLARA, CALIFORNIA 95054 S. RETAINED REAL ESTATE BROKERS: Cornish and Carey (Section 15.13) Commercial (representing only Tenant and not representing Landlord) shall receive 50% of the commission, and Cooper-Brady and Colliers Parrish International (representing only the Landlord and not representing Tenant) shall receive 50% of the commission. T. LEASE: This Lease includes the summary of the Basic (Section 1.17) Lease Terms, the Lease, and the following exhibits and addenda: First Addendum to Lease, EXHIBIT A (site plan of the Project), EXHIBIT B (Space Plan), EXHIBIT C (intentionally omitted), EXHIBIT D (acceptance agreement), EXHIBIT E (intentionally omitted), EXHIBIT F (intentionally omitted), EXHIBIT G (form of subordination agreement), EXHIBIT H (asbestos disclosure). The foregoing Summary of Basic Lease Terms ("Summary") is incorporated into and made a part of this Lease. Each initially capitalized word used in this Lease or any Addendum or Amendment shall have the meaning ascribed to such words in this Summary, unless the context clearly indicates another meaning. In the event of any conflict between the Summary and the Lease, the provision of this Summary shall control. LANDLORD: TENANT: LARVAN PROPERTIES, HEALTHEON CORPORATION, A DELAWARE A CALIFORNIA GENERAL PARTNERSHIP CORPORATION By: VANDERSON CONSTRUCTION, INC. a By: /s/ Kallen Chan California corporation, its --------------------------------- General Partner KALLEN CHEN, Controller --------------------------------- By: /s/ George F. Van Sickle [Typed or printed name and title] ---------------------------------- Dated: 12/5/97 ------------------------------ George F. Van Sickle-President ---------------------------------- [Typed or printed name and title] By: Larscom Incorporated, a Delaware corporation its General Partner By: /s/ Bruce Horn ---------------------------------- Bruce Horn VP Finance ---------------------------------- [Typed or printed name and title] By: /s/ Donn Byrne ---------------------------------- Donn Byrne, General Partner Dated: 12/8/97 ------------------------------- 2 LEASE - ------------------------------------------------------------------------------- This Lease is dated as of the lease reference date specified in SECTION A of the Summary and is made by and between the party identified as Landlord in SECTION B of the Summary and the party identified as Tenant in SECTION C of the Summary. ARTICLE 1 DEFINITIONS 1.1 GENERAL: Any initially capitalized term that is given a special meaning by this Article 1, the Summary, or by any other provision of this Lease (including the exhibits attached hereto) shall have such meaning when used in this Lease or any addendum or amendment hereto unless otherwise clearly indicated by the context. 1.2 ADDITIONAL RENT: The term "Additional Rent" is defined in PARA 3.2. 1.3 ADDRESS FOR NOTICES: THe term "Address for Notices" shall mean the addresses set forth in the SECTIONS Q AND R of the Summary; provided, however, that after the Commencement Date, Tenant's Address for Notices shall be the address of the Premises. 1.4 AGENTS: The term "Agents" shall mean the following: (i) with respect to Landlord or Tenant, the agents, employees, contractors, and invitees of such party; and (ii) in addition with respect to Tenant, Tenant's subtenants and their respective agents, employees, contractors, and invitees. 1.5 AGREED INTEREST RATE: The term "Agreed Interest Rate" shall mean that interest rate determined as of the time it is to be applied that is equal to the lesser of (i) 3% in excess of the discount rate established by the Federal Reserve Bank of San Francisco as it may be adjusted from time to time, or (ii) the maximum interest rate permitted by Law. 1.6 BASE MONTHLY RENT: The term "Base Monthly Rent" shall mean the fixed monthly rent payable by Tenant pursuant to PARA 3.1 which is specified in SECTION K of the Summary. 1.7 BUILDING: The term "Building" shall mean the building in which the Premises are located which Building is identified in SECTION F of the Summary, the gross leasable area of which is referred to herein as the "Building Gross Leasable Area." 1.8 COMMENCEMENT DATE: The term "Commencement Date" is the date the Lease Term commences, which term is defined in PARA 2.2. 1.9 COMMON AREA: The term "Common Area" means the area of the Project outside the walls of the Building. 1.10 COMMON OPERATING EXPENSES: The term "Common Operating Expenses" is defined in PARA 8.2. 1.11 INTENTIONALLY OMITTED. 1.12 EFFECTIVE DATE: The term "Effective Date" shall mean the date the last signatory to this Lease whose execution is required to make it binding on the parties hereto shall have executed this Lease. 1.13 EVENT OF TENANT'S DEFAULT: The term "Event of Tenant's Default" is defined in PARA 13.1. 1.14 HAZARDOUS MATERIALS: The term "Hazardous Materials" and "Hazardous Materials Laws" are defined in PARA 7.2E. 1.15 INSURED AND UNINSURED PERIL: The terms "Insured Peril" and "Uninsured Peril" are defined in PARA 11.2E. 1.16 LAW: The term "Law" shall mean any judicial decision, statutes, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal or other government agency or authority having jurisdiction over the parties to this Lease or the Premises, or both, in effect either at the Effective Date or any time during the Lease Term. 1.17 LEASE: The term "Lease" shall mean the Summary, this Lease which is attached to the Summary and all elements of this Lease identified in SECTION I of the Summary, all of which are attached hereto and incorporated herein by this reference. 1.18 LEASE TERM: The term "Lease Term" shall mean the term of this Lease which shall commence on the Commencement Date and continue for the period specified in SECTION J of the Summary. 1.19 LENDER: The term "Lender" shall mean any beneficiary, mortgagee, secured party, lessor, or other holder of any Security Instrument. 1.20 PERMITTED USE: The term "Permitted Use" shall mean the use specified in SECTION N of the Summary. 1.21 PREMISES: The term "Premises" shall mean that building area described in SECTION D of the Summary that is within the Building. 1.22 PROJECT" The term "Project" shall mean that real property and the improvements thereon which are specified in SECTION E of the Summary the aggregate gross leasable area of which is referred to herein as the "Project Gross Leasable Area." 1.23 PRIVATE RESTRICTIONS: The term "Private Restrictions" shall mean all recorded covenants, conditions and restrictions, private agreements, reciprocal easement agreements, and any other recorded instruments affecting the use of the Premises which (i) exists as of the Effective Date, or (ii) are recorded after the Effective Date and are approved by Tenant. 1.24 REAL PROPERTY TAXES: The term "Real Property Taxes" is defined in PARA 8.3. 1.25 SCHEDULED COMMENCEMENT DATE: The term "Scheduled Commencement Date" shall mean the date specified in SECTION I of the Summary. 1.26 SECURITY INSTRUMENT: The term "Security Instrument" shall mean any underlying lease, mortgage or deed of trust which now or hereafter affects the Project, and any renewal, modification, consolidation, replacement or extension thereof. 1.27 SUMMARY: The term "Summary" shall mean the Summary of Basic Lease Terms executed by Landlord and Tenant that is part of this Lease. 1.28 TENANT'S ALTERATIONS: The term "Tenant's Alterations" shall mean all improvements, additions, alterations, and fixtures installed in the Premises by Tenant at its expense which are not Trade Fixtures. 1.29 TENANT'S SHARE: The term "Tenant's Share" shall mean the percentage obtained by dividing Tenant's Gross Leasable Area by the Building Gross Leasable Area, which as of the Effective Date is the percentage identified in SECTION G of the Summary. 1.30 TRADE FIXTURES: The term "Trade Fixtures" shall mean (i) Tenant's inventory, furniture, signs, and business equipment, and (ii) anything affixed to the Premises by Tenant at its expense for purposes of trade, manufacture, ornament or domestic use (except replacement of similar work or material originally installed by Landlord) which can be removed without material injury to the Premises unless such thing has, by the manner in which it is affixed, become an intregal part of the Premises. ARTICLE 2 DEMISE, CONSTRUCTION, AND ACCEPTANCE 2.1 DEMISE OF PREMISES: Landlord hereby leases to Tenant, and Tenant leases from Landlord, for the Lease Term upon the terms and conditions of this Lease, the Premises for Tenant's own use in the conduct of Tenant's business together with the right to use all of the Parking Stalls within the Project (subject to the limitations set forth in PARA 4.5. Landlord reserves the use of the exterior walls, the roof and the area beneath and above the Premises, together with the right to install, maintain, use, and replace ducts, wires, conduits and pipes leading through the Premises in locations which will not materially interfere with Tenant's use of the Premises. 2.2 COMMENCEMENT DATE: On the Scheduled Commencement Date, the Lease Term shall commence, and such date shall be referred to herein as the "Commencement Date." 2.3 INTENTIONALLY OMITTED. 2.4 DELIVERY AND ACCEPTANCE OF POSSESSION: If this Lease provides that Landlord must deliver possession of the Premises to Tenant on a certain date, then if Landlord is unable to deliver possession of the Premises to Tenant on or before such date for any reason whatsoever, this Lease shall not be voidable for a period of 60 days thereafter, and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom. If Landlord has not delivered possession within such 60 day period, Tenant may terminate this Lease without further liability to Landlord by giving Landlord ten (10) days written notice to deliver possession or have the Lease terminated. If Landlord does not deliver possession within such ten (10) day period, then the Lease shall be terminated, and Landlord shall forthwith return to Tenant any Rent or Security Deposit which Tenant has paid or provided to Landlord. Tenant shall accept possession and enter into good faith occupancy of the entire Premises on the Commencement Date. Tenant acknowledges that it has had an opportunity to conduct, and has conducted, such inspections of the Premises as it deems necessary to evaluate its condition. Except as otherwise specifically provided herein, Tenant agrees to accept possession of the Premises in its then existing condition, "as-is", including all patent and latent defects. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance by Tenant of the improvements. At the time Landlord delivers possession of the Premises to Tenant, Landlord and Tenant shall together execute an Acceptance Agreement in the form attached as EXHIBIT D, appropriately completed. Landlord shall have no obligation to deliver possession, nor shall Tenant be entitled to take occupancy, of the Premises until such Acceptance Agreement has been executed, but Tenant's obligation to pay Base Monthly Rent and Additional Rent shall not be excused or delayed because of Tenant's failure to execute such Acceptance Agreement. 2.5 EARLY OCCUPANCY: From the Effective Date to the Commencement Date, Tenant shall have the right to enter and use the Premises for the purpose of deliveries, interior renovation and installation of improvements, equipment, and furniture, phone installation, and general setup (the "Early Occupancy Period"). Occupancy during the Early Occupancy Period shall be subject to all of the terms, covenants and conditions of the Lease (including but not limited to provisions for insurance and indemnity; provided; however, that the rent payable during the Early Occupancy Period shall be waived. During the Early Occupancy Period, Tenant shall pay for all utility services for the Premises, including but not limited to gas, electric, water, cleaning and janitorial, and trash disposal, and shall have such services billed directly to Tenant for payment. During the Early Occupancy Period, Tenant shall at all times make the Project and the Premises available for Landlord's Agents to conduct needed repair and construction work to carry out Landlord's responsibilities under the Lease and the First Addendum to Lease, including but not limited to Landlord's obligation to remove asbestos containing materials under Paragraph 5 of the First Addendum to Lease, and otherwise to improve the Building as needed. Neither time required for such matters nor any delays in Landlord's completion of the improvements to building systems which are contemplated hereby shall affect, delay, or extend the Commencement Date. Tenant shall not be entitled to begin early occupancy until the Letter of Credit required by Paragraph 1 of the First Addendum to Lease is posted as required therein. ARTICLE 3 RENT 3.1 BASE MONTHLY RENT: Commencing on the Commencement Date and continuing throughout the Lease Term. Tenant shall pay to Landlord the Base Monthly Rent set forth in SECTION K of the Summary. 3.2 ADDITIONAL RENT: Commencing on the Commencement Date and continuing throughout the 2 Lease Term, Tenant shall pay the following as additional rent (the "Additional Rent"): (i) any late charges or interest due Landlord pursuant to PARA 3.4; (ii) Tenant's Share of Common Operating Expenses as provided in PARA 8.1; (iii) Landlord's share of any Subrent received by Tenant upon certain assignments and sublettings as required by PARA 14.1 and any costs and attorney's fees required by said Paragraph; (iv) any legal fees and costs due Landlord pursuant to PARA 15.9; and (v) any other charges due Landlord pursuant to this Lease. 3.3 PAYMENT OF RENT: On or before the Commencement Date, Tenant shall pay to Landlord the amount set forth in SECTION L of the Summary as prepayment of rent for credit against the first installment(s) of Base Monthly Rent. All rent required to be paid in monthly installments shall be paid in advance on the first day of each calendar month during the Lease Term. If Section K of the Summary provides that the Base Monthly Rent is to be increased during the Lease Term and if the date of such increase does not fall on the first day of a calendar month, such increase shall become effective on the first day of the next calendar month. All rent shall be paid in lawful money of the United States, without any abatement, deduction or offset whatsoever (except as specifically provided in PARA 11.4 and PARA 12.3), and without any prior demand therefor. Rent shall be paid to Landlord at its address set forth in Section P of the Summary, or at such other place as Landlord may designate from time to time. Tenant's obligation to pay Base Monthly Rent and Tenant's Share of Common Operating Expenses shall be prorated at the commencement and expiration of the Lease Term. 3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT. If any Base Monthly Rent or Additional Rent is not received by Landlord from Tenant within five (5) calendar days after the date on which Landlord gives Tenant written notice that it is due and unpaid, then Tenant shall immediately pay to Landlord a late charge equal to Six Percent (6%) of such delinquent rent as liquidated damages for Tenant's failure to make timely payment (and not in lieu of interest due thereon). If Landlord gives such a notice on two occasions within any twenty four (24) month period, then the said late charge shall be payable thereafter and for the remainder of this Lease without notice, in the event that such Rent is not received by Landlord from Tenant within five (5) calendar days after the date on which it is due. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rent or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay any rent due under this Lease in a timely fashion, including any right to terminate this Lease pursuant to PARA 13.2B. If any rent remains delinquent for a period in excess of 30 days then, in addition to such late charge, Tenant shall pay to Landlord interest on such rent at the Agreed Interest Rate from the date on which such amount became due until fully paid. 3.5 SECURITY DEPOSIT: On the Effective Date, Tenant shall deposit with Landlord the amount set forth in SECTION M of the Summary as security for the performance by Tenant of its obligation under this Lease, and not as prepayment of rent, as well as any further Security Deposit required pursuant to the First Addendum to Lease (collectively the "Security Deposit"); subject to the provisions of Paragraph 1 of the First Addendum to Lease in regard to delayed provision of the further Security Deposit required by the First Addendum to Lease. Landlord may from time to time apply such portion of the Security Deposit as is reasonably necessary for the following purposes:(i) to remedy any default by Tenant in the payment of rent; (ii) to repair damage to the Premises caused by Tenant (provided, that any such application occurring prior to the expiration or earlier termination of this Lease shall be done only to remedy an Event of Tenant's default); (iii) to clean, repair, and restore the Premises upon termination of the Lease to the condition required hereby; and (iv) to remedy any other default of Tenant to the extent permitted by Law and, in this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be put contained in California Civil Code Section 1950.7. In the event the Security Deposit or any portion thereof is so used, Tenant agrees to pay to Landlord promptly upon demand an amount in cash sufficient to restore the Security Deposit to the full original amount. Landlord shall not be deemed a trustee of the Security Deposit, may use the Security Deposit in business, and shall not be required to segregate it from its general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Premises during the Lease Term, Landlord may pay the Security Deposit to any transferee of Landlord's interest in conformity with the provisions of California Civil Code Section 1950.7 and/or any successor statute, in which event the transferring Landlord will be released from all liability for the return of the Security Deposit. Upon expiration or sooner termination of the Lease, Landlord shall return to Tenant the balance of the Security Deposit held by Landlord on such date of expiration or termination, less any amounts used by Landlord in accordance with this Lease, within a commercially reasonable time (and Tenant waives the specific time requirements in regard to return of the Security Deposit which are contained in Civil Code Section 1950.7). As used in this Paragraph, a "commercially reasonable time" for return of the Security Deposit shall mean within thirty (30) days after Landlord recovers possession of the Premises, except that if Landlord in good faith claims or is investigating a claim to all or any portion of the Security Deposit by reason of the application thereof to defaults other than non-payment of Base Monthly Rent or Common Operating Expenses, then Landlord shall return any remaining portion of the Security Deposit within forty five (45) days after Landlord recovers possession of the Premises. ARTICLE 4 USE OF PREMISES 4.1 LIMITATION ON USE: Tenant shall use the Premises solely for the Permitted Use specified in SECTION N of the Summary. Tenant shall not do anything in or about the Premises which will (i) cause structural injury to the Building, or (ii) cause damage to any part of the Building except to the extent reasonably necessary for the installation of Tenant's Trade Fixtures and Tenant's Alterations, and then only in a manner which has been first approved by Landlord in writing. Tenant shall not operate any equipment within the 3 Premises which will (i) materially damage the Building or the Common Area, (ii) overload existing electrical systems or other mechanical equipment servicing the Building, (iii) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning ("HVAC") equipment within or servicing the Building, or (iv) damage, overload or corrode the sanitary sewer system. Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls or columns of the Building or set any load on the floor in excess of the load limits for which such items are designed nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Tenant's use of the Premises shall be contained and disposed so that they do not (i) create an unreasonable fire or health hazard, (ii) damage the Premises, or (iii) result in the violation of any Law. Except as approved by Landlord, Tenant shall not change the exterior of the Building or install any equipment or antennas on or make any penetrations of the exterior or roof of the Building. Tenant shall not commit any waste in or about the Premises, and Tenant shall keep the Premises in a neat, clean, attractive and orderly condition, free of any nuisances. If Landlord designates a standard window covering for use throughout the Building, Tenant shall use this standard window covering to cover all windows in the Premises. Tenant shall not conduct on any portion of the Premises or the Project any sale of any kind, including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale. 4.2 COMPLIANCE WITH REGULATIONS: Tenant shall not use the Premises in any manner which violates any Laws or Private Restrictions which affect the Premises. Tenant shall abide by and promptly observe and comply with all Laws and Private Restrictions. Tenant shall not use the Premises in any manner which will cause a cancellation of any insurance policy covering Tenant's Alterations or any improvements installed by Landlord at its expense or which poses an unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or permit to be kept, used, or sold in or about the Premises any article which may be prohibited by the standard form of fire insurance policy. Tenant shall comply with all reasonable requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain the insurance coverage carried by either Landlord or Tenant pursuant to this Lease. 4.3 OUTSIDE AREAS: No materials, supplies, tanks or containers, equipment, finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain outside of the Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Landlord for such use by Tenant. 4.4 SIGNS: Tenant shall not place on any portion of the Premises any sign, placard, lettering in or on windows, banner, displays or other advertising or communicative material which is visible from the exterior of the Building without the prior written approval of Landlord. All such approved signs shall strictly conform to all Laws and shall be installed at the expense of Tenant. Tenant shall maintain such signs in good condition and repair. 4.5 PARKING: Tenant is allocated and shall have the exclusive right to use all of the parking stalls contained within the Project for its use and the use of Tenant's Agents. Tenant shall not at any time park its vehicles or the vehicles of others in any portion of the Project not designated by Landlord as a parking area. All trucks and delivery vehicles shall be (i) parked at the rear of the Building, (ii) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (iii) permitted to remain on the Project only so long as is reasonably necessary to complete loading and unloading, and in no cases overnight. In the event Landlord elects or is required by any Law to limit or control parking in the Project or automobile commuting by Tenant's employees, by whatever method, Tenant agrees to participate in such program under such reasonable rules and regulations as are from time to time established by Landlord, and in whatever what is required for Landlord to comply with its legal obligations. ARTICLE 5 TRADE FIXTURES AND ALTERATIONS 5.1 TRADE FIXTURES: Throughout the Lease Term, Tenant may provide and install, and shall maintain in good condition, any Trade Fixtures required in the conduct of its business in the Premises. All Trade Fixtures shall remain Tenant's property. 5.2 TENANT'S ALTERATIONS: Construction by Tenant of Tenant's Alterations shall be governed by the following: A. Tenant shall not construct any Tenant's Alterations or otherwise alter the Premises without Landlord's prior written approval, to make Tenant's Alterations (i) which do not affect the structural or exterior parts or water tight character of the Building, and (ii) the reasonable estimated cost of which, plus the original cost of any part of the Premises removed or materially altered in connection with such Tenant's Alterations, together do not exceed the Permitted Tenant Alterations Limit specified in SECTION O of the Summary per work of improvement. In the event that Tenant makes Tenant's Alterations which do not require Landlord's approval pursuant to the preceding sentence, Tenant shall supply Landlord with notice of the work which has been done, and "as-built" drawings which show the work that has been done. In the event Landlord's approval for any Tenant's Alterations is required, Tenant shall not construct the Tenant's Alterations until Landlord has approved in writing the plans and specifications therefor, and such Tenant's Alterations shall be constructed substantially in compliance with such approved plans and specifications by a licensed contractor first approved by Landlord. All Tenant's Alterations constructed by Tenant shall be constructed by a licensed contractor in accordance with all Laws using new materials of good quality. B. Tenant shall not commence 4 construction of any Tenant's Alterations until (i) all required governmental approvals and permits have been obtained, (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant has given Landlord at least five days' prior written notice of its intention to commence such construction, and (iv) if reasonably requested by Landlord, Tenant has obtained contingent liability and broad form builders' risk insurance in an amount reasonably satisfactory to Landlord if there are any perils relating to the proposed construction not covered by insurance carried pursuant to Article 9. C. All Tenant's Alterations shall remain the property of Tenant during the Lease Term and may be altered or removed from the Premises, during the Lease Term provided that, in so doing, Tenant complies with all provisions of this Article 5 in doing so, and provided further that Tenant repairs any damage to the Premises or the Project caused by such alteration or removal, restoring the Premises and the Project to their condition prior to the installation of the removed Tenant's Alterations. At the expiration or sooner termination of the Lease Term, all Tenant's Alterations shall be surrendered to Landlord as part of the realty and shall then become Landlord's property, and Landlord shall have no obligation to reimburse Tenant for all or any portion of the value or cost thereof, provided, however, that if Landlord requires Tenant to remove any Tenant's Alterations, Tenant shall so remove such Tenant's Alterations prior to the expiration or sooner termination of the Lease Term. Notwithstanding the foregoing, Tenant shall not be obligated to remove any Tenant's Alterations with respect to which the following is true: (i) Tenant was required, or elected, to obtain the approval of Landlord to the installation of the Tenant's Alterations in question; (ii) at the time Tenant requested Landlord's approval, Tenant requested of Landlord in writing that Landlord inform Tenant of whether or not Landlord would require Tenant to remove such Tenant's Alterations at the expiration of the Lease Term; and (iii) at the time Landlord granted its approval, it did not inform Tenant that it would require Tenant to remove such Tenant's Alterations at the expiration of the Lease Term. 5.3 ALTERATIONS REQUIRED BY LAW: Tenant shall make any alteration, addition or change of any sort to the Premises that is required by any Law because of (i) Tenant's particular use or change of use of the Premises; (ii) Tenant's application for any permit or governmental approval; or (iii) Tenant's construction or installation of any Tenant's Alterations or Trade Fixtures. Any other alteration, addition, or change required by Law which is not the responsibility of Tenant pursuant to the foregoing shall be made by Landlord (subject to Landlord's right to reimbursement from Tenant specified in this Lease). 5.4 AMORTIZATION OF CERTAIN CAPITAL IMPROVEMENTS: Tenant shall pay Additional Rent in the event Landlord reasonably elects or is required to make any of the following kinds of capital improvements to the Project and the cost thereof is not reimbursable as a Common Operating Expense: (i) capital improvements required to be constructed in order to comply with any Law (excluding any Hazardous Materials Law) not in effect or applicable to the Project as of the Effective Date; (ii) modification of existing or construction of additional capital improvements or building service equipment for the purpose of reducing the consumption of utility services or Common Operating Expenses of the Project; (iii) replacement of capital improvements or building service equipment existing as of the Effective Date when required because of normal wear and tear; and (iv) restoration of any part of the Project that has been damaged by any peril to the extent the cost thereof is not covered by insurance proceeds (which shall include, for the purposes of this Paragraph 5.4 only, the amount of any "deductible" (allowed hereby) on the applicable policy(ies) of insurance) actually recovered by Landlord up to a maximum amount per occurrence of 10% of the then replacement cost of the Project. The amount of Additional Rent Tenant is to pay with respect to each such capital improvement shall be determined as follows: A. All costs paid by Landlord to construct such improvements (including commercially reasonable financing costs) shall be amortized over the useful life of such improvement (as reasonably determined by Landlord in accordance with generally accepted accounting principles) with interest on the unamortized balance at the then prevailing market rate Landlord would pay if it borrowed funds to construct such improvements from an institutional lender, and Landlord shall inform Tenant of the monthly amortization payment required to so amortize such costs, and shall also provide Tenant with the information upon which such determination is made B. As Additional Rent, Tenant shall pay at the same time the Base Monthly Rent is due an amount equal to Tenant's Share of that portion of such monthly amortization payment fairly allocable to the Building (as reasonably determined by Landlord) for each month after such improvements are completed until the first to occur of (i) the expiration of the Lease Term (as it may be extended), or (ii) the end of the term over which such costs were amortized. 5.5 MECHANIC'S LIENS: Tenant shall keep the Project free from any liens and shall pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant or Tenant's Agents relating to the Project. If any claim of lien is recorded (except those caused by Landlord or Landlord's Agents), Tenant shall bond against or discharge the same within 10 days after Tenant has notice that the same has been recorded against the Project. Should any lien be filed against the Project or any action be commenced affecting title to the Project, the party receiving notice of such lien or action shall immediately give the other party written notice thereof. 5.6 TAXES ON TENANT'S PROPERTY: Tenant shall pay before delinquency any and all taxes, assessments, license fees and public charges levied, assessed or imposed against Tenant or Tenant's estate in this Lease or the property of Tenant situated within the Premises which become due during the Lease Term. If any tax or other charge is assessed by any governmental agency because of the execution of this Lease, such tax shall be paid by Tenant. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. 5 ARTICLE 6 REPAIR AND MAINTENANCE 6.1 TENANT'S OBLIGATION TO MAINTAIN: Except as otherwise provided in PARA 6.2, PARA 11.1, and PARA 12.3, Tenant shall be responsible for the following during the Lease Term: A. Except as to those items which are Landlord's responsibility under Paragraph 6.2, Tenant shall clean and maintain in good order, condition, and repair when necessary the Premises and the Building and every part thereof, through regular inspections and servicing, including, but not limited to: (i) all plumbing and sewage facilities (including all sinks, toilets, faucets and drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing system; (ii) all fixtures, interior and exterior walls, floors, carpets and ceilings; (iii) all windows, doors, entrances, plate glass, showcases and skylights (including cleaning both interior and exterior surfaces); (iv) all electrical facilities and all equipment (including all lighting fixtures, lamps, bulbs, tubes, fans, vents, exhaust equipment and systems); (vi) any automatic fire extinguisher equipment on the Project; (vii)the exterior surfaces (including painting) of the Building, (ix) utility facilities and other building service equipment; (x) the parking area, including cleaning, painting, restriping and resurfacing; (xi) the landscaping and other exterior facilities of the Project, including replacement or installation of lighting fixtures, directional or other signs and signals, irrigation systems, trees, shrubs, ground cover and other plant materials; and B. With respect to utility facilities servicing the Premises (including electrical wiring and conduits, gas lines, water pipes, and plumbing and sewage fixtures and pipes), Tenant shall be responsible for the maintenance and repair of all such facilities, including all such facilities that are within the walls or floor, or on the roof of the Premises, and any part of such facility that is within the Project. Tenant shall replace any damaged or broken glass in the Premises (including all interior and exterior doors and windows) with glass of the same kind, size and quality. Tenant shall repair any damage to the Premises or the Project (including exterior doors, walls, windows, parking areas, trash areas, and landscaping) caused by vandalism or any unauthorized entry, provided, that if and only to the extent that Tenant is not covered by insurance for the losses described in this sentence, Landlord will, at no cost or expense to itself, make a claim against any applicable policy of insurance carried by the Landlord and covering such damages from vandalism or unauthorized entry, and provide Tenant with the benefit of any recovery or payment received in that regard. Landlord shall have no duty to make any claim unless, in Landlord's reasonable judgment, the claim is meritorious. In the event that the claim is wholly or partially denied, Landlord shall not have further responsibility for prosecuting the claim, but on Tenant's written request, Landlord will assign the claim, without warranty, to Tenant, which may prosecute the claim (provided further, that Tenant shall at all times meet any of its own expenses of prosecuting any assigned claim against any insurance carrier, and hold Landlord harmless and indemnify Landlord against any damage to Landlord resulting from the making or prosecution of such a claim). C. Tenant shall (i) maintain and repair all HVAC equipment for the Building, and shall keep the same in good condition through regular inspection and servicing, and (ii) maintain continuously throughout the Lease Term a service contract for the maintenance of all such HVAC equipment with a licensed HVAC repair and maintenance contractor approved by Landlord, which contract provides for the periodic inspection and servicing of the HVAC equipment at least once every 60 days during the Lease Term. Notwithstanding the foregoing, Landlord may elect at any time to assume responsibility for the maintenance, repair and replacement of such HVAC equipment. Tenant shall furnish Landlord with copies of all such service contracts, which shall provide that they may not be canceled or changed without at least 30 days' prior written notice to Landlord. D. All repairs and replacements required of Tenant shall be promptly made with new materials of like kind and quality. If the work affects the structural parts of the Building or if the estimated cost of any item of repair or replacement is in excess of the Permitted Tenant's Alterations Limit, then Tenant shall first obtain Landlord's written approval of the scope of the work, plans therefor materials to be used and the contractor Notwithstanding anything to the contrary in Paragraph 6.1, Landlord shall perform and construct, and Tenant shall have no responsibility to perform or construct, any repair, maintenance or improvement to the Premises (i) necessitated by the acts or omissions of Landlord, or its Agents, (ii) required under Landlord's Corrective Responsibility (as defined herein), or (iii) for which Landlord has a right of reimbursement from others. Restoration of damage which is covered by Articles 11 or 12 shall be determined as set forth in such Articles. Whenever the proper repair and maintenance required of Tenant rises to the level of replacement of the roof, building systems, HVAC systems, or other matters which are otherwise Tenant's responsibility, Landlord shall have the responsibility to conduct such replacement, which shall be (i) treated as a "capital expenditure" if it is a capital expenditure under generally accepted accounting principles, in which case the costs thereof shall be amortized and paid by Tenant in accordance with the provisions of Paragraph 5.4; or (ii) treated as an item of Common Operating Expenses if it is not a capital expenditure under generally accepted accounting principles Determination of whether such an item is a capital expense or not under generally accepted accounting principles shall be conclusively made by Landlord's certified public accountant. To the extent that any of Tenant's repair and maintenance responsibilities involve matters which are wholly or partially covered under any warranty by a third party to Landlord, Landlord will, at no cost or expense to itself, make a claim against any applicable warranty available to Landlord and covering such damages and provide Tenant with the benefit of any recovery or payment received in that regard. Landlord shall have no duty to make any claim unless, in Landlord's reasonable judgment, the claim is meritorious. In the event that the claim is wholly or 6 partially denied, Landlord shall not have further responsibility for prosecuting the claim, but on Tenant's written request, Landlord will assign the claim, without warranty, to Tenant, which may prosecute the claim (provided further, that Tenant shall at all times meet any expenses of prosecuting any assigned claim against any warrantor, and hold Landlord harmless and indemnify Landlord against any damage to Landlord resulting from the making or prosecution of such a claim). 6.2 LANDLORD'S OBLIGATION TO MAINTAIN: Landlord shall repair and maintain in good order and replace when necessary (i) the structural parts of the Building, including, without limitation, the foundation, load-bearing walls, the structural members of the roof, and the floor slab, (ii) the plumbing lines, pipes, and conduits serving the Premises, including the fire protection loop, to the point of entry into the Building; and (iii) the roof membrane, so that the same are kept in good order and repair. Landlord shall further be responsible for the correction of defects in design and construction of the Project existing as of the Commencement Date (unless caused by the acts or omissions of Tenant or Tenant's Agents, and in the case of the roofing system and membrane and the HVAC system, only to the extent provided in the First Addendum to Lease) and corrections of violations of any Laws relating to the Premises which were in existence as of the Commencement Date (except as otherwise provided in this Lease, including, but not limited to, those provisions which assign responsibility for compliance with the Americans with Disabilities Act to Tenant as regards the interior of the Premises). The responsibility for correction of defects and legal violations set forth in the preceding sentence is referred to herein as "Landlord's Corrective Responsibility". Landlord shall not be responsible for repairs required by an accident, fire or other peril or for damage caused to any part of the Project by any act or omission of Tenant or Tenant's Agents except as otherwise required by Article 11. Landlord may engage contractors of its choice to perform the obligations required of it by this Article, and the necessity of any expenditure to perform such obligations shall be at the sole, but reasonable, discretion of Landlord. Landlord's expenses in complying with this Paragraph shall be reimbursed by Tenant according to the following provisions: (i) such expense shall be treated as a "capital expenditure" if it is a capital expenditure under generally accepted accounting principles, in which case the costs thereof shall be amortized and paid by Tenant in accordance with the provisions of Paragraph 5.4; or (ii) such expense shall be treated as an item of Common Operating Expenses if it is not a capital expenditure under generally accepted accounting principles. Determination of whether such an item is a capital expense or not under generally accepted accounting principles shall be conclusively made by Landlord's certified public accountant. Landlord shall be solely responsible for the expense of complying with Landlord's Corrective Responsibility, and shall not be entitled to any reimbursement from Tenant with respect to such matters. 6.3 CONTROL OF EXTERIOR AREA: Landlord shall have the right, without the same constituting an actual or constructive eviction and without entitling Tenant to any abatement of rent, to: (i) close any part of the exterior area of the Project to whatever extent required in the opinion of Landlord's counsel to prevent a dedication thereof or the accrual of any prescriptive rights therein so long as the same does not unreasonably and adversely affect Tenant's access to and use of the Premises and Tenant's parking rights; (ii) temporarily close all or part of the exterior area of the Project for any reason deemed sufficient by Landlord so long as the same does not unreasonably and adversely affect Tenant's access to and use of the Premises and Tenant's parking rights; (iii) make changes to the exterior area of the Project, including, without limitation, changes in the location of driveways, entrances, exits, parking spaces, parking areas, sidewalks or the direction of the flow of traffic in any reasonable way, so long as same does not unreasonably and adversely affect Tenant's use and enjoyment of the Premises; and/or (iv) remove unauthorized persons from the Project. Tenant shall keep the exterior area of the Project clear of all obstructions created or permitted by Tenant. If in the opinion of Landlord unauthorized persons are using any of the exterior area of the Project by reason of the presence of Tenant in the Building, Tenant, upon demand of Landlord, shall restrain such unauthorized use by appropriate proceedings. In exercising any such rights regarding the exterior area of the Project, (i) Landlord shall make a reasonable effort to minimize any disruption to Tenant's business, and (ii) Landlord shall not exercise its rights in a manner that would materially interfere with Tenant's use of the Premises without first obtaining Tenant's consent. Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project or the safety of Tenant, Tenant's Agents, or others. Tenant assumes all responsibility for the protection of Tenant and Tenant's Agents, and others on the Project, from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project. ARTICLE 7 WASTE DISPOSAL AND UTILITIES 7.1 WASTE DISPOSAL: Tenant shall store its waste either inside the Premises or within outside trash enclosures that are fully fenced and screened in compliance with all Private Restrictions, and designed for such purpose. All entrances to such outside trash enclosures shall be kept closed, and waste shall be stored in such manner as not to be visible from the exterior of such outside enclosures. Tenant shall cause all of its waste to be regularly removed from the Premises at Tenant's sole cost. Tenant shall keep all fire corridors and mechanical equipment rooms in the Premises free and clear of all obstructions at all times. 7.2 HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to the existence or use of Hazardous Materials on the Project: A. Any handling, transportation, storage, treatment, disposal or use of Hazardous Materials by Tenant and Tenant's Agents after the Effective Date in or about the Project shall strictly comply with all applicable Hazardous Materials Laws. Tenant shall indemnify, defend upon demand with counsel reasonably acceptable to Landlord, and hold harmless Landlord from and against any liabilities, 7 losses, claims, damages, lost profits, consequential damages, interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees, court costs, remediation costs, investigation costs, and other expenses to the extent the same arise in any manner whatsoever out of the use, storage, treatment, transportation, release or disposal of Hazardous Materials on or about the Project by Tenant or Tenant's Agents after the Effective Date. B. If the presence of Hazardous Materials on the Project caused or knowingly or actively negligently permitted by Tenant or Tenant's Agents after the Effective Date results in contamination or deterioration of water or soil resulting in a level of contamination greater than the levels established as acceptable by any governmental agency having jurisdiction over such contamination, then Tenant shall promptly take any and all action necessary to investigate and remediate such contamination if required by Law or as a condition to the issuance or continuing effectiveness of any governmental approval which relates to the use of the Project or any part thereof. Tenant shall further be solely responsible for, and shall defend, indemnify and hold Landlord and its agents harmless from and against, all claims, costs and liabilities, including attorneys' fees and costs, to the extent the same arise out of or in connection with any investigation and remediation required hereunder to return the Project to its condition existing prior to the appearance of such Hazardous Materials. C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Project, and (ii) any contamination of the Project by Hazardous Materials which constitutes a violation of any Hazardous Materials Law. Tenant may use small quantities of household chemicals such as adhesives, lubricants, and cleaning fluids in order to conduct its business at the Premises and such other Hazardous Materials as are necessary for the operation of Tenant's business of which Landlord receives notice prior to such Hazardous Materials being brought onto the Premises and which Landlord consents in writing may be brought onto the Premises. At any time during the Lease Term, Tenant shall, within ten (10) business days after written request therefor received from Landlord, disclose in writing all Hazardous Materials that are being used by Tenant on the Project, the nature of such use, and the manner of storage and disposal. D. Landlord, at its sole cost and expense except as set forth below in this Subparagraph D, may cause testing wells to be installed on the Project, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. If Tenant so requests, Landlord shall supply Tenant with copies of such test results. The cost of such tests and of the installation, maintenance, repair and replacement of such wells shall be paid by Tenant if such tests disclose the existence of facts which give rise to liability of Tenant pursuant to its indemnity given in PARA 7.2A and/or PARA 7.2B. E. As used herein, the term "Hazardous Material," means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. The term "Hazardous Material," includes, without limitation, petroleum products, asbestos, PCB's, and any material or substance which is (i) listed under Article 9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20, (ii) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903), or (iii) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response; Compensation and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term "Hazardous Material Law" shall mean any statute, law, ordinance, or regulation of any governmental body or agency (including the U.S. Environmental Protection Agency, the California Regional Water Quality Control Board, and the California Department of Health Services) which regulates the use, storage, release or disposal of any Hazardous Material. F. LANDLORD'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Landlord shall indemnify Tenant from its actual out of pocket cost of complying with any administrative order (a "Compliance Order") issued by any governmental agency pursuant to the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. 9601 et seq. or the Carpenter/Presley/Tanner Hazardous Substances Account Act, California Health and Safety Code Section 25300, et seq., which is issued against Tenant and with which Tenant is obligated to comply solely because of Tenant's status as an "owner" or "operator" of the Premises, if such Compliance Order results from the presence on the Premises of Hazardous Materials which is not caused, exacerbated, or contributed to by Tenant or Tenant's Agents, provided that one of the following conditions is met: 1. Tenant proves by clear and convincing evidence that the Compliance Order arises solely from a release of Hazardous Materials which took place before the first date on which Tenant occupied the Premises; or 2. Tenant proves by clear and convincing evidence (1) that such Compliance Order does not result from the presence on the Premises of Hazardous Materials which was caused, exacerbated, or contributed to by Tenant or Tenant's Agents, and (2) that such Compliance Order does not result from a release of Hazardous Materials which was caused, exacerbated, or contributed to by Tenant or Tenant's Agents. Landlord's obligation under this indemnity is limited to Tenant's actual, out of pocket costs incurred in complying with a Compliance Order and attorney's fees incurred in defending against a proposed Compliance Order, provided that one of the preceding conditions is met, so long as Landlord may select the attorney to defend Tenant and have sole authority to make all settlement and decisions in regard to the proceedings, including the decision whether to challenge administrative orders by appeal or court challenge. Landlord shall have no liability under this 8 Paragraph for any other claims, costs, damages, or losses incurred by Tenant, including without limitation personal injury, property damage, punitive damages, damage to business, lost profits, or other consequential damages incurred by Tenant or any third party. G. Except as otherwise disclosed to Tenant in writing prior to the Effective Date, to the best of Landlord's knowledge (i) no underground storage tanks are present on the Premises or Project; and (ii) no action or proceeding is pending or threatened regarding the Premises or Project concerning any Hazardous Material. H. The obligations of Landlord and Tenant under this PARA 7.2 shall survive the expiration or earlier termination of the Lease Term. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this PARA 7.2. In the event of any inconsistency between any other part of this Lease and this PARA 7.2, the terms of this PARA 7.2 shall control. 7.3 UTILITIES: Tenant shall promptly pay, as the same become due, all charges for water, gas, electricity, telephone, sewer service, janitorial and cleaning services, waste pick-up and any other utilities, materials or services furnished directly to or used by the Tenant on or about the Premises during the Lease Term, including, without limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee (excluding any connection fees or hook-up fees which relate to making the existing electrical, gas, and water service accessible to the Premises as of the Commencement Date), and (ii) penalties for discontinued to interrupted service. Landlord shall not have any duty to provide or pay for janitorial, cleaning, or maintenance of the Premises. 7.4 COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Landlord and Tenant shall comply with all rules, regulations and requirements promulgated by national, state or local governmental agencies or utility suppliers concerning the use of utility services, including any rationing limitation or other control. Tenant shall not be entitled to terminate this Lease not to any abatement in rent by reason of such compliance. ARTICLE 8 COMMON OPERATING EXPENSES 8.1 TENANT'S OBLIGATION TO REIMBURSE: As Additional Rent, Tenant shall pay Tenant's Share (specified in SECTION G of the Summary) of all Common Operating Expenses. Tenant shall pay such share of the actual Common Operating Expenses incurred or paid by Landlord but not theretofore billed to Tenant within 30 days after receipt of a written bill therefor from Landlord, on such periodic basis as Landlord shall designate, but in no event more frequently than once a month. Alternatively, Landlord may from time to time require that Tenant pay Tenant's Share of Common Operating Expenses in advance in estimated monthly installments, in accordance with the following: (i) Landlord shall deliver to Tenant Landlord's reasonable estimate of the Common Operating expenses it anticipates will be paid on incurred for the Landlord's fiscal year in question; (ii) during such Landlord's fiscal year Tenant shall pay such share of the estimated Common Operating Expenses in advance in monthly installments as required by Landlord due with the installments of Base Monthly Rent; and (iii) within 90 days after the end of each Landlord's fiscal year, Landlord shall furnish to Tenant a statement in reasonable detail of the actual Common Operating Expenses paid or incurred by Landlord during the just ended Landlord's fiscal year and thereupon there shall be an adjustment between Landlord and Tenant, with payment to Landlord or credit by Landlord against the next installment of Base Monthly Rent (or payment to Tenant by Landlord if the Lease has terminated or expired and there are no other or further amounts due from Tenant to Landlord against which such amounts can be credited),as the case may require, within 10 days after delivery by Landlord to Tenant of said statement, so that Landlord shall receive the entire amount of Tenant's Share of all Common Operating Expenses for such Landlord's Fiscal year and no more. Tenant shall have the right at its expense, exercisable upon reasonable prior written notice to Landlord, to inspect the Landlord's office during normal books and records as they relate to Common Operating Expenses. Such inspection must be within 30 days of Tenant's receipt of Landlord's annual statement for the same (and is waived as to any year where such an inspection is not timely conducted), and shall be limited to verification of the charges contained in such statement. Tenant may not withhold payment of such bill pending completion of such inspection. 8.2 COMMON OPERATION EXPENSES DEFINED: The term "Common Operating Expenses" shall mean the following: A. Except as otherwise provided herein, all costs and expenses paid or incurred by Landlord in doing the following (including payments to independent contractors providing services related to the performance of the following): (i) performing all maintenance required of Landlord under this Lease and performing any other maintenance which is necessitated by Tenant's failure to maintain as obliged hereunder;(ii) maintenance of the liability, fire and property damage insurance covering the Project carried by Landlord pursuant to PARA 9.2 (including the prepayment of premiums for coverage of up to one year); (iii) complying with all applicable Laws; and (iv) providing security to the extent that Landlord may see fit in its sole discretion, to do so. B. The following costs, (i) Real Property Taxes as defined in PARA 8.3; (ii) the amount of any "deductible" paid by Landlord with respect to damage caused by any insured Peril (unless the damage causes termination of the Lease under the provisions of Article 11 hereof); (iii) the cost to repair damage caused by an Uninsured Peril up to a maximum amount in any 12 month period equal to 2% of the replacement cost of the buildings or other improvements damaged; and (iv) that portion of all compensation (including benefits and premiums for workers' compensation and other insurance) paid to or on behalf of employees of Landlord but only to the extent they are involved in the performance of the work described by PARA 8.2A that is fairly allocable to the Project (and not including compensation of executive personnel of Landlord). 9 C. Fees for management services rendered by either Landlord or a third party manager engaged by Landlord (which may be a party affiliated with Landlord), except that the total amount charged for management services and included in Tenant's Share of Common Operating Expenses shall not exceed the monthly rate of Two Percent (2%) of the Base Monthly Rent. D. All additional costs and expenses incurred by Landlord with respect to the operation, protection, maintenance, repair and replacement of the Project which are not specified in the preceding Subparagraphs of this Paragraph 8.2 and which are current expenses, not capital expenses, according to generally accepted accounting principles as determined conclusively by Landlord's independent certified public accountant; provided, however, that Common Operating Expenses shall not include any of the following: (i) payments on any loans or ground leases affecting the Project; (ii) depreciation of any buildings or any major systems of building service equipment within the Project; (iii) any cost incurred in complying with Hazardous Materials Laws, which subject is governed exclusively by PARA 7.2, (iv) costs (a) for which Landlord has a right of reimbursement from others, or (b) which Tenant reimburses Landlord directly or which Tenant pays directly to a third person, or (v) costs to comply with Landlord's Corrective Responsibility (as defined in Paragraph 6.2). 8.3 REAL PROPERTY TAXES DEFINED; The term "Real Property Taxes" shall mean all taxes, assessments, levies, and other charges of any kind or nature whatsoever, general and special, foreseen and unforseen (including all installments of principal and interest required to pay any existing or future general or special assessments for public improvements, services or benefits, and any increases resulting from reassessments resulting from a change in ownership, new construction, or any other cause and including any interest and/or penalties accruing thereon, except as set forth below), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct of indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of all or any portion of the Project (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein, the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located on the Project, the gross receipts, income, or rentals from the Project, or the use of parking areas, public utilities, or energy within the Project, or Landlord's business of leasing the Project. If at any time during the Lease Term the method of taxation or assessment of the Project prevailing as of the Effective Date shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Project of Landlord's interest therein, or (ii) on or measured by the gross receipts, income or rentals from the Project, on Landlord's business of leasing the Project, or computed in any manner with respect to the operation of the Project, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Project, then only that part of such Real Property Tax that is fairly allocable to the Project shall be included within the meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include (i) estate, inheritance, transfer, gift or franchise taxes of Landlord (ii) the federal or state net income tax imposed on Landlord's income from all sources, or (iii) taxes, assessments or any other governmental levies, or any increases in the foregoing occasioned by or relating to (a) land and improvements not reserved for Tenant's exclusive or nonexclusive use, (b) assessments and other fees for improvement and services which do not benefit the Project, or (c) Hazardous Materials except to the extent caused by Tenant's storage, use or disposal of Hazardous Materials or (iv) interest or penalties caused by Landlord's late payment of non-payment of Real Property Taxes, provided, that on the occasion when such were due to be paid, Tenant had paid all of its Rent obligations to Landlord. Notwithstanding any provision to contrary contained herein, if Landlord elects to pay any tax, assessment or levy in total which Landlord could have elected to pay in installments without incurring any additional expense, but Landlord does not make such election, Tenant shall be required to pay only Tenant's Share of each installment payable with respect to the period of time covered by the Lease Term, as each such installment would have become due. Additionally, Tenant shall have the right, by appropriate proceedings, to protest or contest any assessment, reassessment or allocation of property taxes or any change therein. Landlord shall notify Tenant in writing of any change in property taxes within sufficient time to allow Tenant to review and, if it so desires, to contest or protest such change. In the contest or proceedings, Tenant may act in its own name and/or the name of the Landlord and Landlord will, at Tenant's request and expense cooperate with Tenant in any way Tenant may reasonably require in connection with such contest, provided that Landlord shall not be required to incur any expense (unless Tenant agrees to reimburse Landlord for such expense) or to incur any risks (unless Tenant agrees to indemnify against such risks). If Tenant does not pay the property taxes when due which are the subject of such protest or contest, Tenant shall post a bond in lieu thereof in an amount reasonably determined by Landlord but not less than one hundred twenty-five percent (125%) of the amount demanded by the taxing authorities, which bond shall be in a form satisfactory to Landlord, written by an approved surety, and which shall hold Landlord and the Project harmless from any damage arising out of the contest and ensure the payment of any judgment that may be rendered. With respect to any contest of property taxes or Laws, Tenant shall hold Landlord and the Premises harmless from any damage arising out of such protest or contest and shall pay any judgment that may be rendered for which Tenant would otherwise be liable under this Lease without such contest or protest. Any contest conducted by Tenant under this Paragraph shall be at Tenant's expense and if interest or late charges become payable as a result of such contest or protest, Tenant 10 shall pay the same. Tenant shall receive the net benefit (after Landlord's expenses of obtaining the refund are paid) of all refunds of property taxes received with respect to the Lease Term, to the extent that Tenant paid such property taxes. ARTICLE 9 INSURANCE 9.1 TENANT'S INSURANCE: Tenant shall maintain insurance complying with all of the following: A. Tenant shall procure, pay for and keep in full force and effect the following: (1) Commercial general liability insurance, including property damage, against liability for personal injury, bodily injury, death and damage to property occurring in or about, or resulting from an occurrence in or about, the Premises with combined single limit coverage of not less than the amount of Tenant's Liability Insurance Minimum specified in SECTION P of the Summary, which insurance shall contain a "contractual liability" endorsement insuring Tenant's performance of Tenant's obligation to indemnify Landlord contained in PARA 10.3 (provided, however, that Tenant may satisfy all but $1,000,000.00 of this commercial general liability insurance coverage requirement by an "umbrella policy" of excess liability coverage which meets all of the other requirements hereof, which covers at least the same losses and damages as a commercial general liability policy, and which is in a form approved by Landlord); (2) Fire and property damage insurance in so-called "all risk" form insuring Tenant's Trade Fixtures and Tenant's Alterations for the full actual replacement cost thereof; (3) Such other insurance that is either (i) reasonably required by any Lender, or (ii) reasonably required by Landlord and customarily carried by tenants of similar property in similar businesses. In the event that Tenant believes that a Lender's requirement is unreasonable, Tenant shall nevertheless obtain the required insurance, but Landlord shall be reasonable for the cost thereof if it is established that requirement was unreasonable. B. Where applicable and required by Landlord, each policy of insurance required to be carried by Tenant pursuant to this PARA 9.1: (i) shall name Landlord and such other parties in interest as Landlord reasonably designates as additional insured; (ii) shall be primary insurance which provides that the insurer shall be liable for the full amount of the loss up to and including the total amount of liability set forth in the declarations without the right of contribution from any other insurance coverage of Landlord; (iii) shall be in a form satisfactory to Landlord; (iv) shall be carried with companies reasonably acceptable to Landlord; (v) shall provide that such policy shall not be subject to cancellation, lapse, or reduction in coverage except after at least 30 days prior written notice to Landlord so long as such provision of 30 days notice is reasonably obtainable, but in any event not less than 10 days prior written notice; (vi) shall not have a "deductible" in excess of such amount as is reasonably approved by Landlord; (vii) shall contain a cross liability endorsement; and (viii) shall contain a "severability" clause. If Tenant has in full force and effect a blanket policy of liability insurance with the same coverage for the Premises as described above, as well as other coverage of other premises and properties of Tenant, or in which Tenant has some interest, such blanket insurance shall satisfy the requirements of this PARA 9.1. C. A copy of each certificate of the insurer, certifying that such policy has been issued, providing the coverage required by this PARA 9.1, and containing the provisions specified herein, shall be delivered to Landlord prior to the time Tenant or any of its Agents enters the Premises and upon renewal of such policies, but not less than 5 days prior to the expiration of the term of such coverage. Landlord may, at any time, and form time to time, inspect and/or copy any and all insurance policies required to be procured by Tenant pursuant to this PARA 9.1. If any Lender or insurance advisor reasonably determines at any time that the amount of coverage required for any policy of insurance Tenant is to obtain pursuant to this PARA 9.1 is not adequate, then Tenant shall increase such coverage for such insurance to such amount as such Lender or insurance advisor reasonably deems adequate, not to exceed the level of coverage for such insurance commonly carried by comparable businesses similarly situated. 9.2 LANDLORD'S INSURANCE: Landlord shall have the following obligations and options regarding insurance: A. Landlord shall maintain a policy or policies of fire and property damage insurance in so-called "all risk" form insuring Landlord (and such others as Landlord may designate) against loss of rents for a period of not less than 12 months and from physical damage to the Project with coverage of not less than the full replacement cost thereof. Landlord may so insure the Project separately, or may insure the Project with other property owned by Landlord which Landlord elects to insure together under the same policy or policies. Such fire and property damage insurance (i) may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and to provide such additional coverage as Landlord reasonably requires, (provided, that the cost of earthquake and flood insurance coverage shall not exceed a commercially reasonable sum and (ii) shall contain reasonable "deductibles" which, in the case of earthquake and flood insurance, may be up to 10% of the replacement cost of the property insured or such higher amount as is then commercially reasonable. Landlord shall not be required to cause such insurance to cover any Trade Fixtures or Tenant's Alterations of Tenant. B. Landlord may maintain a policy or policies of commercial general liability insurance insuring Landlord (and such others as are designated by Landlord) against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Project, with combined single limit coverage in such amount as Landlord from time to time determines is reasonably necessary for its protection. 11 9.3 TENANT'S OBLIGATION TO REIMBURSE: If Landlord's insurance rates for the Building are increased at any time during the Lease Term as a result of the nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for the full amount of such increase immediately upon receipt of a bill from Landlord therefor. 9.4 RELEASE AND WAIVER OF SUBROGATION: Notwithstanding anything to the contrary contained in this Lease, the parties hereto release each other, and their respective agents and employees, from any liability for injury to any person or damage to property that is caused by or results from any risk insured against under any valid and collectible insurance policy carried by either of the parties which contains a waiver of subrogation by the insurer and is in force at the time of such injury or damage; subject to the following limitations: (i) the foregoing provision shall not apply to the commercial general liability insurance described by subparagraphs PARA 9.1A and PARA 9.2B; (ii) such release shall apply to liability resulting from any risk insured against or covered by self-insurance maintained or provided by Tenant to satisfy the requirements of PARA 9.1 to the extent permitted by this Lease; and (iii) Tenant shall not be released from any such liability to the extent any damages resulting from such injury or damage are not covered by the recovery obtained by Landlord from such insurance, but only if the insurance in question permits such partial release in connection with obtaining a waiver of subrogation from the insurer. This release shall be in effect only so long as the applicable insurance policy contains a clause to the effect that this release shall not affect the right of the insured to recover under such policy. Each party shall use reasonable efforts to cause each insurance policy obtained by it to provide that the insurer waives all right of recovery by way of subrogation against the other party and its agents and employees in connection with any injury or damage covered by such policy. However, if any insurance policy cannot be obtained with such a waiver of subrogation, or if such waiver of subrogation is only available at additional cost and the party for whose benefit the waiver is to be obtained does not pay such additional cost, then the party obtaining such insurance shall notify the other party of that fact and thereupon shall be relieved of the obligation to obtain such waiver of subrogation rights from the insurer with respect to the particular insurance involved. Landlord and Tenant agree to consider, in good faith, the request of either of them addressed to the other in writing, to extend the provisions of this Paragraph 9.4 to a contractor or subcontractor engaged by or through the requesting party, upon the offer of such contractor or subcontractor to enter into a similar agreement acceptable to the party to whom the request is addressed, but neither Landlord nor Tenant shall be obligated to grant such a request, and the decision to grant or deny such request shall be in the sole but reasonable discretion of the party to whom the request is addressed, and shall not be subject to any standard of reasonableness, anything to the contrary contained in this Lease to the contrary notwithstanding. Neither party shall lose the benefit of the waivers contained in this Paragraph 9.4 solely on account of the fact that a loss is not covered by insurance, if such fact is due to the other party's failure to obtain such insurance in breach of the other party's obligations under this Lease. ARTICLE 10 LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY 10.1 LIMITATION ON LANDLORD'S LIABILITY: Landlord shall not be liable to Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement of rent (except as expressly provided otherwise herein), for any injury to Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents, or loss to Tenant's business resulting from any cause, including without limitation any: (i) failure, interruption or installation of any HVAC or other utility system or service; (ii) failure to furnish or delay in furnishing any utilities or services when such failure or delay is caused by fire or other peril, the elements, labor disturbances of any character, or any other accidents or other conditions beyond the reasonable control of Landlord; (iii) limitation, curtailment, rationing or restriction on the use of water or electricity, gas or any other form of energy or any services or utility servicing the Project; (iv) vandalism or forcible entry by unauthorized persons or the criminal act of any person; or (v) penetration of water into or onto any portion of the Premises or the Building through roof leaks or otherwise. Notwithstanding the foregoing but subject to PARA 9.4, Landlord shall be liable for any such injury, damage or loss which is proximately caused by Landlord's willful misconduct or gross or active negligence. 10.2 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation, trust, partnership, joint venture, unincorporated association or other form of business entity: (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint ventures, members owners, stockholders, or other principals or representatives of such business entity; and (ii) Tenant shall not have recourse to the assets of such officers, directors, trustees, partners, joint venturers, members, owners, stockholders, principals or representatives except to the extent of their interest in the Project. Tenant shall have recourse only to the interest of Landlord in the Project (or, if the Project is sold, the proceeds of sale) for the satisfaction of the obligations of Landlord and shall not have recourse to any other assets of Landlord for the satisfaction of such obligations. 10.3 INDEMNIFICATION OF LANDLORD: Tenant shall hold harmless, indemnify and defend Landlord, and its employees agents and contractors, with competent counsel reasonably satisfactory to Landlord (and Landlord agrees to accept counsel that any insurer requires be used), from all liability, penalties, losses, damages, costs, expenses, causes of action, claims and/or judgements arising by reason of any death, bodily injury, personal injury or property damage resulting from (i) any cause or causes whatsoever (other than the willful misconduct or gross or active negligence of Landlord) occurring on or resulting from an occurrence on the Project during the Lease Term, (ii) the negligence or willful misconduct of Tenant or its agents, employees and contractors, wherever the same may occur, or (iii) and Event of Tenant's Default. The provisions of this PARA 10.3 shall survive the expiration or 12 sooner termination of this Lease. 10.4 INDEMNIFICATION OF TENANT: Landlord shall hold harmless, indemnify and defend Tenant, and its employees and Agents from all liability, penalties, losses, damages, costs, expenses, causes of action, claims and/or judgments not covered by insurance (including reasonable attorney's fees) arising by reason of any death, bodily injury, personal injury or property damage resulting from the gross or active negligence or willful misconduct of Landlord or its Agents or employees and for which Tenant is not, pursuant to Paragraph 10.3, obligated to indemnify Landlord. The provisions of this Paragraph 10.4 shall survive the expiration or sooner termination of this Lease. ARTICLE 11 DAMAGE TO PREMISES 11.1 LANDLORD'S DUTY TO RESTORE: If the Premises are damaged by any peril after the Effective Date, Landlord shall restore the Premises unless the Lease is terminated by Landlord pursuant to PARA 11.2 or by Tenant pursuant to PARA 11.3. All insurance proceeds available from the fire and property damage insurance carried by Landlord pursuant to PARA 9.2 shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either PARA 11.2 or PARA 11.3, then all insurance proceeds available from insurance carried by Tenant which covers loss to property that is Landlord's property or would become Landlord's property on termination of this Lease shall be paid or assigned to and become the property of Landlord. If this Lease is not so terminated, then upon receipt of the insurance proceeds (if the loss is covered by insurance) and the issuance of all necessary governmental permits, Landlord shall commence and diligently prosecute to completion the restoration of the Premises, to the extent then allowed by Law, to substantially the same condition in which the Premises were immediately prior to such damage. Landlord's obligation to restore shall be limited to the Premises and interior improvements constructed by Landlord as they existed as of the Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or personal property constructed or installed by Tenant in the Premises. Tenant shall forthwith replace or fully repair all Tenant's Alterations and Trade Fixtures installed by Tenant and existing at the time of such damage or destruction, and all insurance proceeds received by Tenant from the insurance carried by it pursuant to PARA 9.1A(2) shall be used for such purpose. Landlord agrees to consult with Tenant in good faith in regard to the replacement or repair of Tenant's Alterations or Trade Fixtures which have been damaged, and to approve or disapprove Tenant's proposals for Tenant's Alterations or Trade Fixtures not to be replaced or repaired using a standard of commercial reasonableness. 11.2 LANDLORD'S RIGHT TO TERMINATE: Landlord shall have the right to terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Tenant of a written notice of election to terminate within 30 days after the date of such damage: A. Either the Project or the Building is damaged by an Insured Peril to such an extent that the estimated cost to restore exceeds 33% of the then actual replacement cost thereof; B. Either the Project or the Building is damaged by an Uninsured Peril to such an extent that the estimated cost to restore exceeds 5% of the then actual replacement cost thereof; provided, however, that Landlord may not terminate this Lease pursuant to this PARA 11.2B if one or more tenants of the Project agree in writing to pay the amount by which the cost to restore the damage exceeds such amount and subsequently deposit such amount with Landlord within 30 days after Landlord has notified Tenant of its election to terminate this Lease; C. The Premises are damaged by any peril within 12 months of the last day of the Lease Term to such an extent that the estimated cost to restore equals or exceeds an amount equal to six times the Base Monthly Rent then due; provided, however, that Landlord may not terminate this Lease pursuant to this PARA 11.2C if Tenant, at the time of such damage, has a then valid express written option to extend the Lease Term and Tenant exercises such option to extend the Lease Term within 15 days following the date of such damage; or D. Either the Project or the Building is damaged by any peril and, because of the Laws then in force, (i) cannot be restored at reasonable cost to substantially the same condition in which it was prior to such damage, or (ii) cannot be used for the same use being made thereof before such damage if restored as required by this Article. E. As used herein, the following terms shall have the following meanings: (i) the term "Insured Peril" shall mean a peril actually or required to be insured against for which the insurance proceeds actually received by Landlord are sufficient (except for any "deductible" amount specified by such insurance) to restore the Project under then existing building codes to the condition existing immediately prior to the damage; and (ii) the term "Uninsured Peril" shall mean any peril which is not an Insured Peril. Notwithstanding the foregoing, if the "deductible" for earthquake or flood insurance exceeds 2% of the replacement cost of the improvements insured, such peril shall be deemed an "Uninsured Peril". 11.3 TENANT'S RIGHT TO TERMINATE: If the Premises are damaged by any peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to PARA 11.2, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord's architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the right to terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Landlord of a written notice of election to terminate within 10 days after Tenant receives from Landlord the estimate of the time needed to complete such restoration. A. The Premises are damaged by any peril and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of the Premises cannot be substantially completed within 13 180 days after the date of the report of Landlord's architect or construction consultant; or B. The Premises are damaged by any peril within 12 months of the last day of the Lease Term and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of the Premises cannot be substantially completed within 90 days after the date of such damage and such damage renders unusable more than 30% of the Premises. 11.4 ABATEMENT OF RENT: In the event of damage to the Premises which does not result in the termination of this Lease, the Base Monthly Rent and the Additional Rent shall be temporarily abated during the period of restoration in proportion to the degree to which Tenant's use of the Premises is impaired by such damage. Tenant shall not be entitled to any compensation or damages from Landlord for loss of Tenant's business or property or for any inconvenience or annoyance caused by such damage or restoration. Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and the provisions of any similar law hereinafter enacted. ARTICLE 12 CONDEMNATION 12.1 LANDLORD'S TERMINATION RIGHT: Landlord shall have the right to terminate this Lease if, as a result of a taking by means of the exercise of the power of eminent domain (including a voluntary sale or transfer by Landlord to a condemnor under threat of condemnation), (i) more than 10% of the Building Leasable Area is so taken, or (ii) more than 50% of the Common Area (which in this Article means the area of the Project outside the Premises) is so taken. Any such right to terminate by Landlord must be exercised within a reasonable period of time, to be effective as of the date possession is taken by the condemnor. 12.2 TENANT'S TERMINATION RIGHT: Tenant shall have the right to terminate this Lease if, as a result of any taking by means of the exercise of the power of eminent domain (including any voluntary sale or transfer by Landlord to any condemnor under threat of condemnation), (i) 10% or more of the Premises is so taken and that part of the Premises that remains is not or cannot be restored within a reasonable period of time and thereby made reasonably suitable for the continued operation of the Tenant's business, or (ii) there is a taking affecting the Common Area and, as a result of such taking, Landlord cannot provide parking spaces within reasonable walking distance of the Premises equal in number to at least 80% of the number of spaces allocated to Tenant by PARA 2.1, whether by rearrangement of the remaining parking areas in the Common Area (including construction of multi-deck parking structures or restriping for compact cars where permitted by Law) or by alternative parking facilities on other land. Tenant must exercise such right within a reasonable period of time, to be effective on the date that possession of that portion of the Premises or Common Area that is condemned is taken by the condemnor. 12.3 RESTORATION AND ABATEMENT OF RENT: If any part of the Premises or the Common Area is taken by condemnation and this Lease is not terminated, then Landlord shall restore the remaining portion of the Premises and Common Area and interior improvements constructed by Landlord as they existed as of the Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or personal property constructed or installed by Tenant. Thereafter, except in the case of a temporary taking, as of the date possession is taken (i) the Base Monthly Rent shall be reduced in the same proportion that the floor area of that part of the Premises so taken (less any addition thereto by reason of any reconstruction) bears to the original floor area of the Premises and/or (ii) there shall be an equitable adjustment of Base Monthly Rent to reflect any taking of the Common Area, to the extent such taking results in material diminishment of the value and useability of Tenant's's Lease; and in either event, Tenant shall be entitled to the benefit of any actual reduction in Common Operating Expenses which Landlord obtains as a result thereof (not including any condemnation award). 12.4 TEMPORARY TAKING: If any portion of the Premises is temporarily taken for one hundred eighty (180) days or less, this Lease shall remain in effect. If any portion of the Premises is temporarily taken by condemnation for a period which exceeds one hundred eighty (180) days or which extends beyond the natural expiration of the Lease Term, and such taking materially and adversely affects Tenant's ability to use the Premises for the Permitted Use, then Tenant shall have the right to terminate this Lease, effective on the date possession is taken by the condemnor. 12.5 DIVISION OF CONDEMNATION AWARD: Any award made as a result of any condemnation of the Premises or the Common Area shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be entitled to receive any condemnation award that is made directly to Tenant for the following so long as the award made to Landlord is not thereby reduced; (i) for the taking of personal property or Trade Fixtures belonging to Tenant, (ii) for the interruption of Tenant's business or its moving costs, (iii) for loss of Tenant's goodwill; or (iv) for any temporary taking where this Lease is not terminated as a result of such taking. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Article, and each party hereby waives the provisions of California Code of Civil Procedure Section 1265.130 and the provisions of any similar law hereinafter enacted allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises. ARTICLE 13 DEFAULT AND REMEDIES 13.1 EVENTS OF TENANT'S DEFAULT: Tenant shall be in default of its obligations under this Lease if any of the following events occurs (an "Event of Tenant's Default"): A. Tenant shall have failed to pay Base Monthly Rent or Additional Rent when due, and such failure is not cured within five (5) days after delivery of written notice from Landlord specifying such failure to 14 pay, or B. Tenant shall have failed to perform any term, covenant, or condition of this Lease except those identified in Subparagraphs C through F of this Paragraph or requiring the payment of Base Monthly Rent or Additional Rent, and Tenant shall have failed to cure such breach within 30 days after written notice from Landlord specifying the nature of such breach where such breach could reasonably be cured within said 30 day period, or if such breach could not be reasonably cured within said 30 day period, Tenant shall have failed to commence such cure within said 30 day period and thereafter continue with due diligence to prosecute such cure to completion within such time period as is reasonably needed but not to exceed 120 days from the date of Landlord's notice; or C. Tenant shall have sublet the Premises or assigned its interest in the Lease in violation of the provisions contained in Article 14; or D. Tenant shall have abandoned the Premises; or E. The occurrence of the following: (i) the making by Tenant of any general arrangements or assignments for the benefit of creditors; (ii) Tenant becomes a "debtor" as defined in 11 USC Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this Section 13.1E is contrary to any applicable Law, such provision shall be of no force or effect; or F. Tenant shall have failed to deliver documents required of it pursuant to PARA 15.4 to PARA 15.6 within the time periods specified therein, and shall have further failed to deliver such documents within five (5) days after Landlord's further written notice declaring that Tenant must either perform its obligations under PARA 15.4 or PARA 15.6 or an Event of Tenant's Default will have occurred. 13.2 LANDLORD'S REMEDIES: If an Event of Tenant's Default occurs, Landlord shall have the following remedies, in addition to all other rights and remedies provided by any Law or otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative: A. So long as Landlord does not terminate Tenant's right to possession of the Premises, Landlord may keep this Lease in effect and enforce by an action at law or in equity all of its rights and remedies under this Lease, including (i) the right to recover the rent and other sums as they become due by appropriate legal action, (ii) the right to make payments required of Tenant or perform Tenant's obligations and be reimbursed by Tenant for the cost thereof with interest at the Agreed Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive relief and specific performance to compel Tenant to perform its obligations under this Lease. Notwithstanding anything contained in this Lease, in the event of a breach of an obligation by Tenant which results in a condition which poses an imminent danger to safety of persons or damage to property, an unsightly condition visible from the exterior of the Building, or a threat to insurance coverage, then if Tenant does not cure such breach within five (5) days after delivery to it of written notice from Landlord identifying the breach, Landlord may cure the breach of Tenant and be reimbursed by Tenant for the cost thereof with interest at the Agreed Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. B. Landlord may enter the Premises and release them to third parties for Tenant's account for any period, whether shorter or longer than the remaining Lease Term (provided, that in no event shall Tenant remain liable for longer than the Lease Term). Tenant shall be liable immediately to Landlord for all costs Landlord incurs in releasing the Premises, including brokers' commissions, expenses of altering and preparing the Premises required by the releasing. Tenant shall pay to Landlord the rent and other sums due under this Lease on the date the rent is due, less the rent and other sums Landlord received from any releasing. No act by Landlord allowed by this subparagraph shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease. Notwithstanding any releasing without termination, Landlord may later elect to terminate this Lease because of the default by Tenant. C. Landlord may terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date set forth for termination in such notice. Any termination under this PARA 13.2C shall not relieve Tenant from its obligation to pay sums then due Landlord or from any claim against Tenant for damages or rent previously accrued or then accruing. In no event shall any one or more of the following actions by Landlord, in the absence of a written election by Landlord to terminate this Lease or Tenant's right to possession of the Premises, constitute a termination of this Lease: (i) appointment of a receiver or keeper in order to protect Landlord's interest hereunder; (ii) consent to any subletting of the Premises or assignment of this Lease by Tenant, whether pursuant to the provisions hereof or otherwise; or (iii) any other action by Landlord or Landlord's Agents intended to mitigate the adverse effects of any breach of this Lease by Tenant, including without limitation any action taken to maintain and preserve the Premises or any action taken to relet the Premises or any portions thereof to the extent such actions do not affect a termination of Tenant's right to possession of the Premises. D. In the event Tenant breaches this Lease and abandons the Premises, this Lease shall not terminate unless Landlord gives Tenant written notice of its election to so terminate this Lease. No act by or on behalf of Landlord intended to mitigate the adverse effect of such breach, including those described by PARA 13.C, shall constitute a termination of Tenant's right to 15 possession unless Landlord gives Tenant written notice of termination. Should Landlord not terminate this Lease by giving Tenant written notice, Landlord may enforce all its rights and remedies under this Lease, including the right to recover the rent as it become due under the Lease as provided in California Civil Code Section 1951.4. E. In the event Landlord terminates this Lease, Landlord shall be entitled, at Landlord's election to damages in an amount as set forth in California Civil Code Section 1951.2 as in effect on the Effective Date. For purposes of computing damages pursuant to California Civil Code Section 1951.2, (i) an interest rate equal to the Agreed Interest Rate shall be used where permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional Rent. Such damages shall include: (1) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%); and (2) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom, including the following: (i) expenses for cleaning, repairing or restoring the Premises; (ii) expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting, including installation of leasehold improvement (whether such installation be funded by a reduction of rent, direct payment or allowance to a new tenant, or otherwise); (iii) broker's fees applicable to the remaining term of the Lease, advertising costs and other expenses of reletting the Premises; (iv) costs of carrying the Premises, such as taxes, insurance premiums, utilities and security precautions; (v) expenses in retaking possession of the Premises, and (vi) attorneys' fees and court costs incurred by Landlord in retaking possession of the Premises and in releasing the Premises or otherwise incurred as a result of Tenant's default. F. Nothing in this PARA 13.2 shall limit Landlord's right to indemnification from Tenant as provided in PARA 7.2 and PARA 10.3. Any notice given by Landlord in order to satisfy the requirements of PARA 13.1A or PARA 13.1B above shall also satisfy the notice requirements of California Code of Civil Procedure Section 1161 regarding unlawful detainer proceedings, if Landlord gives such notice(s) in compliance with the legal provisions relating to notices in unlawful detainer proceedings. 13.3 WAIVER: One party's consent to or approval of any act by the other party requiring the first party's consent or approval shall not be deemed to waive or render unnecessary the first party's consent to or approval of any subsequent similar act by the other party. The receipt by Landlord of any rent or payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach unless such waiver is in writing and signed by Landlord. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by either party of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or of any other provisions herein contained. 13.4 LIMITATION ON EXERCISE OF RIGHTS: At any time that an Event of Tenant's Default has occurred and remains uncured, (i) it shall not be unreasonable for Landlord to deny or withhold any consent or approval requested of it by Tenant which Landlord would otherwise be obligated to give, and (ii) Tenant may not exercise any option to extend, right to terminate this Lease, or other right granted to it by this Lease which would otherwise be available to it. 13.5 WAIVER BY TENANT OF CERTAIN REMEDIES: Tenant waives the provisions of Sections 1932(1), 1941 and 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under this Lease. Tenant hereby waives any right of redemption or relief from forfeiture under the laws of the State of California, or under any other present or future law, including the provisions of Sections 1174 and 1179 of the California Code of Civil Procedure. ARTICLE 14 ASSIGNMENT AND SUBLETTING 14.1 TRANSFER BY TENANT: The following provisions shall apply to any assignment, subletting or other transfer by Tenant or any subtenant or assignee or other successor in interest of the original Tenant (collectively referred to in this PARA 14.1 as "Tenant") A. Tenant shall not do any of the following (collectively referred to herein as a "Transfer"), whether voluntarily, involuntarily or by operation of law, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed: (i) sublet all or any part of the Premises or allow it to be sublet, occupied or used by any person or entity other than Tenant; (ii) assign its interest in this Lease; (iii) mortgage or encumber the Lease (or otherwise use the Lease as a security device) in any manner; or (iv) materially amend or modify an assignment, sublease or other transfer that has been previously approved by Landlord. Landlord's disapproval of a proposed Transfer shall be conclusively presumed reasonable if (i) the proposed subtenant or assignee requires a change in the Permitted Use or Landlord's consent to or approval of an "other legal use" under Paragraph N of the Summary; or (ii) if the proposed subtenant or assignee uses Hazardous Materials in its business (other than insignificant amounts used for ordinary office purposes and cleaning); or (iii) if the proposed assignee does not have at least as much net worth and creditworthiness, in Landlord's reasonable judgment, as the greater of Tenant's net worth and creditworthiness on the 16 Effective Date or the date on which the request to Transfer is made, whichever shall be greater, or in the ease of a sublease, if the proposed subtenant does not have net worth and creditworthiness, in Landlord's reasonable judgment, commensurate with the financial obligations of the proposed sublease. Tenant shall reimburse Landlord for all reasonable costs and attorneys' fees (which attorney's fees shall not exceed $1,500 in regard to any one application for Transfer) incurred by Landlord in connection with the evaluation, processing, and/or documentation of any requested Transfer, whether or not Landlord's consent is granted. Landlord's reasonable costs shall include the cost of any review or investigation performed by Landlord or consultant acting on Landlord's behalf of (i) Hazardous Materials (as defined in Section 7.2E of this Lease) used, stored, released, or disposed of by the potential Subtenant or Assignee, and/or (ii) violations of Hazardous Materials Law (as defined in Section 7.2E of this lease) by the Tenant or the proposed Subtenant or Assignee. Any Transfer so approved by Landlord shall not be effective until Tenant has delivered to Landlord an executed counterpart of the document evidencing the Transfer which (i) is in a form reasonably approved by Landlord, (ii) contains the same terms and conditions as stated in Tenant's notice given to Landlord pursuant to PARA 14.1B, and (iii) in the case of an assignment of the Lease, contains the agreement of the proposed transferee to assume all obligations of Tenant under this Lease arising after the effective date of such Transfer and to remain jointly and severally liable therefor with Tenant. Any attempted Transfer without Landlord's consent shall constitute an Event of Tenant's Default and shall be voidable at Landlord's option. Landlord's consent to any one Transfer shall not constitute a waiver of the provisions of this PARA 14.1 as to any subsequent Transfer or a consent to any subsequent Transfer. No Transfer, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease nor to be a consent to any Transfer. B. At least 15 days before a proposed Transfer is to become effective, Tenant shall give Landlord written notice of the proposed terms of such Transfer and request Landlord's approval, which notice shall include the following: (i) the name and legal composition of the proposed transferee; (ii) a current financial statement of the transferee, financial statements of the transferee covering the preceding three years if the same exist, and (if available) an audited financial statement of the transferee for a period ending not more than one year prior to the proposed effective date of the Transfer, all of which statements are prepared in accordance with generally accepted accounting principles; (iii) the nature of the proposed transferee's business to be carried on in the Premises; (iv) all consideration to be given on account of the Transfer; (v) a current financial statement of Tenant; and (vi) an accurately filled out response to a Hazardous Materials questionnaire. Tenant shall provide to Landlord such other information as may be reasonably requested by Landlord within seven days after Landlord's receipt of such notice from Tenant. Landlord shall respond in writing to Tenant's request for Landlord's consent to a Transfer within the later of (i) 10 days of receipt of such request together with the required accompanying documentation, or (ii) seven days after Landlord's receipt of all information which Landlord reasonably requests within seven days after it receives Tenant's first notice regarding the Transfer in question. If Landlord fails to respond in writing within said period, Landlord will be deemed to have withheld consent to such Transfer. Tenant shall immediately notify Landlord of any material modification to the proposed terms of such Transfer. C. In the event that Tenant seeks to make any Transfer, Landlord shall have the right, in the case of a proposed assignment or a proposed sublease of all or substantially all of the Premises, to terminate this Lease or, in the case of a sublease of less than all of the Premises for all or substantially all of the remainder of the Lease Term, terminate this Lease as to that part of the Premises proposed to be so sublet, either (i) on the condition that the proposed transferee immediately enter into a direct lease of the Premises with Landlord (or, in the case of a partial sublease of less than all of the Premises but for all or substantially all of the remaining balance of the Lease Term, a lease for the portion proposed to be so sublet) on the same terms and conditions contained in Tenant's notice, or (ii) so that Landlord is thereafter free to lease the Premises (or, in the case of a partial sublease of less than all of the Premises but for all or substantially all of the remaining balance of the Lease Term, the portion proposed to be so sublet) to whomever it pleases on whatever terms are acceptable to Landlord. In the event Landlord elects to so terminate or partially terminate this Lease, then (i) if such termination is conditioned upon the execution of a lease between Landlord and the proposed transferee, Tenant's obligations under this Lease shall not be terminated until such transferee executes a new lease with Landlord, enters into possession and commences the payment of rent, and (ii) if Landlord elects simply to terminate this Lease (or, in the case of a partial sublease of less than all of the Premises but for all or substantially all of the remaining balance of the Lease Term, terminate this Lease as to the portion to be so sublet), the Lease shall so terminate in its entirety (or as to the space to be so sublet) fifteen (15) days after Landlord has notified Tenant in writing of such election. Upon such termination, Tenant shall be released from any further obligation under this Lease if it is terminated in its entirety, or shall be released from any further obligation under the Lease with respect to the space proposed to be sublet in the case of a proposed partial sublease of less than all of the Premises but for all or substantially all of the remaining balance of the Lease Term. In the case of the partial termination of the Lease, the Base Monthly Rent and Tenant's Share shall be reduced to an amount which bears the same relationship to the original amount thereof as the area of that part of the Premises which remains subject to the Lease bears to the original area of the Premises. Landlord and Tenant shall execute a cancellation and release with respect to the Lease to effect such termination. D. If Landlord consents to a Transfer proposed by Tenant, Tenant may enter into such Transfer, and if Tenant does so, the following shall apply: (1) Tenant shall not be released 17 of its liability for the performance of all of its obligations under the Lease. (2) If Tenant assigns its interest in this Lease, then Tenant shall pay to Landlord 50% of all Subrent (as defined in PARA 14.1D(5)) received by Tenant over and above (i) the assignee's agreement to assume the obligations of Tenant under this Lease, and (ii) all Permitted Transfer Costs related to such assignment. In the case of assignment, the amount of Subrent owned to Landlord shall be paid to Landlord on the same basis, whether periodic or in lump sum, that such Subrent is paid to Tenant by the assignee. (3) If Tenant sublets any part of the Premises, then with respect to the space so subleased, Tenant shall pay to Landlord 50% of the positive difference, if any, between (i) all Subrent paid by the subtenant to Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable to the space sublet and all Permitted Transfer Costs related to such sublease. Such amount shall be paid to Landlord on the same basis, whether periodic or in lump sum, that such Subrent is paid to Tenant by its subtenant. In calculating Landlord's share of any periodic payments, all Permitted Transfer Costs shall be first recovered by Tenant. (4) Tenant's obligations under this PARA 14.1D shall survive any Transfer, and Tenant's failure to perform its obligations hereunder shall be an Event of Tenant's Default without notice or opportunity to cure. At the time Tenant makes any payment to Landlord required by this PARA 14.1D, Tenant shall deliver an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right at reasonable intervals to inspect Tenant's books and records relating to the payments due hereunder. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based. Landlord may condition its approval of any Transfer upon obtaining a certification from both Tenant and the proposed transferee of all Subrent and other amounts that are to be paid to Tenant in connection with such Transfer. (5) As used in this PARA 14.1D, the term "Subrent" shall mean any consideration of any kind received, or to be received, by Tenant as a result of the Transfer, if such sums are received by Tenant in return for Tenant's Transfer of this Lease or the right to occupy all or part of the Premises, or in lieu of rent payments, including payments from or on behalf of the transferee (in excess of the book value thereof) for Tenant's assets, fixtures, leasehold improvements, inventory, accounts, goodwill, equipment, furniture, and general intangibles. As used in this PARA 14.1D, the term "Permitted Transfer Costs" shall mean (i) all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the Transfer in question, and (ii) all reasonable attorneys' fees incurred by Tenant with respect to the Transfer in question. E. If Tenant is a corporation, the following shall be deemed a voluntary assignment of Tenant's interest in this Lease: (i) any dissolution, merger, consolidation, or other reorganization of or affecting Tenant, whether or not Tenant is the surviving corporation except as provided in Paragraph 14.1F, and (ii) if the capital stock of Tenant is not publicly traded, the sale or transfer to one person to entity (or to any group of related persons or entities) of stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors. If Tenant is a partnership, any withdrawal or substitution (whether voluntary, involuntary or by operation of law, and whether occurring at one time or over a period of time) of any partner owning 25% of more (cumulatively) of any interest in the capital or profits of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment of Tenant's interest in this Lease. F. Notwithstanding anything contained in PARA 14.1, so long as Tenant otherwise complies with the provisions of PARA 14.1 Tenant may enter into a transfer (a "Permitted Transfer") without Landlord's prior written consent, and Landlord shall not be entitled to terminate the Lease pursuant to PARA 14.1C or to receive any part of any Subrent resulting therefrom that would otherwise be due it pursuant to PARA 14.1D, if Tenant is (i) subleasing all or part of the Premises or assigning its interest in this Lease to any corporation which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of more than 50%, or (ii) assigning this Lease to a successor corporation related to Tenant by a merger in which Tenant is not the surviving corporation, or by a consolidation or nonbankruptcy reorganization, or which purchases all or substantially all of the assets of Tenant, which assignee in each such case has at least as much net worth and creditworthiness, in Landlord's reasonable judgment, as the greater of Tenant's net worth and creditworthiness on the Effective Date or the date on which the merger, reorganization, or consolidation is to take place, whichever shall be greater; or (iii) any transaction relating to Tenant's stock which does not meet the requirements of Paragraph 14.1E(ii). In order to have a Transfer treated as a Permitted Transfer, Tenant must provide Landlord with (i) at least fifteen (15) days advance written notice of the proposed Transfer, including therewith sufficient documentation and information so that Landlord may reasonably determine that the Transfer is a Permitted Transfer; (ii) any further information reasonably requested by Landlord relating to the Transfer; and (iii) written notice and documentation that the Transfer has taken place, including documentation executed by the Transferee acknowledging that it has assumed Tenant's responsibilities under the Lease, within fifteen (15) days after the Transfer takes legal effect, and any Transfer made in violation of this requirement shall not be a Permitted Transfer. 14.2 TRANSFER BY LANDLORD: Landlord and its successors in interest shall have the right to transfer their interest in this Lease and the Project at any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and, in the case of any subsequent transfer, the transferror) from the date of such transfer, shall be automatically relieved, without any further act by any person or entity, of all liability for the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer. After the date of any such transfer, the 18 term "Landlord" as used herein shall mean the transferee of such interest in the Premises. ARTICLE 15 GENERAL PROVISIONS 15.1 LANDLORD'S RIGHT TO ENTER: Landlord and its agents may enter the Premises at any reasonable time after giving at least 24 hours' prior notice to Tenant (and immediately in the case of emergency) for the purpose of: (i) inspecting the same; (ii) posting notices of non-responsibility; (iii) supplying any service to be provided by Landlord to Tenant; (iv) showing the Premises to prospective purchasers, mortgagees or tenants (but in regard to Tenants, only during the last 180 days of the Lease Term, or during periods when an uncured Event of Tenant's Default has occurred); (v) making necessary alterations, additions or repairs; (vi) performing Tenant's obligations when Tenant has failed to do so after written notice from Landlord; (vii) placing upon the Premises ordinary "for lease" signs (but only within the last 180 days of the Lease Term) or "for sale" signs; and (viii) responding to an emergency. Landlord shall have the right to use any and all means Landlord may deem necessary ad proper to enter the Premises in an emergency. Any entry into the Premises obtained by landlord in accordance with this PARA 15.1 shall not be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises. Any such entry by Landlord and Landlord's Agents shall comply with all reasonable security measures of Tenant and shall not impair Tenant's operations more than reasonably necessary. During any such entry, Landlord and Landlord's agents shall at all times be accompanied by Tenant, so long as Tenant remains in physical occupancy of the Premises. 15.2 SURRENDER OF THE PREMISES: Upon the expiration or sooner termination of this Lease, Tenant shall vacate and surrender the Premises to Landlord in the same condition as existed at the Commencement Date, except for (i) reasonable wear and tear, (ii) damage caused by any peril or condemnation, and (iii) contamination by Hazardous Materials for which Tenant is not responsible pursuant to PARA 7.2A or PARA 7.2B. In this regard, normal wear and tear shall be construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the best reasonable standards for maintenance, repair and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the expiration or the sooner termination of this Lease: (i) all interior walls shall be painted or cleaned so that they appear freshly painted; (ii) all tiled floors shall be cleaned and waxed; (iii) all carpets shall be cleaned and shampooed; (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced; (v) all windows shall be washed; (vi) the HVAC system should be serviced by a reputable and licensed service firm and left in good operating condition and repair as so certified by such firm; and (vii) the plumbing and electrical systems and lighting shall by placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses). If Landlord so requests, Tenant shall, prior to the expiration or sooner termination of this Lease, (i) remove any Tenant's Alterations which Tenant is required to remove pursuant to PARA 5.2 and repair all damage caused by such removal, and (ii) return the Premises or any part thereof to its original configuration existing as of the time the Premises were delivered to Tenant (provided, however, that Landlord agrees that removal of Tenant's Alterations shown in Exhibit "B" is not required). If the Premises are not so surrendered at the termination of this Lease, Tenant shall be liable to Landlord for all costs incurred by landlord in returning the Premises to the required condition, plus interest on all costs incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant or losses to Landlord due to lost opportunities to lease to succeeding tenants. 15.3 HOLDING OVER: This Lease shall terminate without further notice at the expiration of the Lease Term. Any holding over by Tenant after expiration of the Lease Term shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the Premises except as expressly provided in this Lease. Any holding over after such expiration with the written consent of Landlord shall be construed to be a tenancy from month to month on the same terms and conditions herein specified insofar as applicable except that Base Monthly Rent shall be increased to an amount equal to 125% of the Base Monthly Rent payable during the last full calendar month of the Lease Term. 15.4 SUBORDINATION: The following provisions shall govern the relationship of this Lease to any Security Instrument: A. The Lease is subject and subordinate to all Security Instruments existing as of the Effective Date. However, if any Lender so requires, the Lease shall become prior and superior to any such Security Instrument. Landlord will make its best efforts to obtain for Tenant, within forty five (45) days of the Effective Date, (i) a subordination and non-disturbance agreement in the form attached hereto as Exhibit G from Landlord's current lender, including the changes requested by Tenant in Exhibit G, and (ii) a subordination and non-disturbance agreement on the standard form of Landlord's proposed bridge loan lender (currently expected to be Wells Fargo Bank), with such commercially reasonable changes as Tenant shall request. B. At Landlord's election, this Lease shall become subject and subordinate to any Security Instrument created after the Effective Date. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed so long as Tenant is not in default and performs all of its obligations under this Lease, unless this Lease is otherwise terminated pursuant to its terms. C. Tenant shall upon request execute any documentation or instrument reasonably required by any Lender to make this Lease either prior or subordinate to a Security Instrument, which may include such other matters as the Lender customarily and reasonably requires in connection with such agreements, including provisions that the Lender not be liable for (i) the return of any security deposit unless the Lender receives it 19 from Landlord, and (ii) any defaults on the part of Landlord occurring prior to the time the Lender takes possession of the Project in connection with the enforcement of its Security Instrument. Tenant's failure to execute any such document or instrument within 10 days after written demand therefor shall constitute an Event of Tenant's Default. 15.5 MORTGAGEE PROTECTION AND ATTORNMENT: In the event of any default on the part of the Landlord, Tenant will use reasonable efforts to give notice by certified mail to any Lender whose name has been provided to Tenant and shall offer such Lender a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or judicial foreclosure or other appropriate legal proceedings, if such should prove necessary to effect a cure. Tenant shall attorn to any purchaser of the Premises at any foreclosure sale or private sale conducted pursuant to any Security Instrument encumbering the Premises, or to any grantee or transferee designated in any deed given in lieu of foreclosure. 15.6 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS: At all times during the Lease Term, each party agrees, following any request by the other party, promptly to execute and deliver to the requesting party within 15 days following delivery of such request an estoppel certificate: (i) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this lease, as so modified, is in full force and effect, (ii) stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to the certifying party's knowledge, any uncured defaults on the part of any party hereunder or, if there are uncured defaults, specifying the nature of such defaults, and (iv) certifying such other information about the Lease as may be reasonably required by the requesting party. A failure to deliver an estoppel certificate within 15 days after delivery of a request therefor shall be a conclusive admission that, as of the date of the request for such statement: (i) this Lease is unmodified except as may be represented by the requesting party in said request and is in full force and effect, (ii) there are no uncured defaults in the requesting party's performance, and (iii) no rent has been paid more than 30 days in advance. At any time during the Lease Term Tenant shall, upon 15 days' prior written notice from Landlord, provide Tenant's most recent financial statement and financial statements covering the 24 month period prior to the date of such most recent financial statement to any existing Lender or to any potential Lender or buyer of the Premises, provided, that any such statements are to be held by Landlord and any potential buyer or Lender in the strictest confidence, unless the same are already public knowledge or available to the public. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. 15.7 REASONABLE CONSENT: Except as otherwise provided herein, whenever any party's approval or consent is required by this Lease before an action may be taken by the other party, such approval or consent shall not be unreasonably withheld or delayed. 15.8 NOTICES: Any notice required or desired to be given regarding this Lease shall be in writing and may be given by personal delivery, by facsimile telecopy, by courier service, or by mail. A notice shall be deemed to have been given (i) on the third business day after mailing if such notice was deposited in the United States mail, certified or registered, postage prepaid, addressed to the party to be served at its Address for Notices specified in SECTION Q or SECTION R of the Summary (as applicable), (ii) when delivered if given by personal delivery, and (iii) in all other cases when actually received at the party's Address for Notices. Either party may change its address by giving notice of the same in accordance with this PARA 15.8, provided, however, that any address to which notices may be sent must be a California address. 15.9 ATTORNEY'S FEES. In the event either Landlord or Tenant shall bring any action or legal proceeding for an alleged breach of any provision of this Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect or establish any term or covenant of this Lease, the prevailing party shall be entitled to recover as a part of such action or proceeding, or in a separate action brought for that purpose, reasonable attorneys' fees, court costs, and experts' fees as may be fixed by the court. 15.10 CORPORATE AUTHORITY: If Tenant is a corporation (or partnership), each individual executing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of such corporation in accordance with the by-laws of such corporation (or partnership in accordance with the partnership agreement of such partnership) and that this Lease is binding upon such corporation (or partnership) in accordance with its terms. Each of the persons executing this Lease on behalf of a corporation does hereby covenant and warrant that the party for whom it is executing this Lease is a duly authorized and existing corporation, that it is qualified to do business in California, and that the corporation has full right and authority to enter into this Lease. 15.11 MISCELLANEOUS: Should any provision of this Lease prove to be invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provision hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. The captions used in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. Any executed copy of this Lease shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. This Lease shall be construed and enforced in accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against either Landlord or Tenant. When the context of 20 this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. The terms "shall", "will" and "agree" are mandatory. The term "many" is permissive. When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless a provision of this Lease expressly requires reimbursement. Landlord and Tenant agree that (i) the gross leasable area of the Premises includes any atriums, depressed loading docks, covered entrances or egresses, and covered loading areas, (ii) each has had an opportunity to determine to its satisfaction the actual area of the Project and the Premises, (iii) all measurements of area contained in this Lease are conclusively agreed to be correct and binding upon the parties, even if a subsequent measurement of any one of these areas determines that it is more or less than the amount of area reflected in this Lease, and (iv) any such subsequent determination that the area is more or less than shown in this Lease shall not result in a change in any of the computations of rent, improvement allowances, or other matters described in this Lease where area is a factor. Where a party hereto is obligated not to perform any act, such party is also obligated to restrain any others within its control from performing said act, including the Agents of such party. Landlord shall not become or be deemed a partner or a joint venture with Tenant by reason of the provision of this Lease. 15.12 TERMINATION BY EXERCISE OF RIGHT: If this Lease is terminated pursuant to its terms by the proper exercise of a right to terminate specifically granted to Landlord or Tenant by this Lease, then this Lease shall terminate 30 days after the date the right to terminate is properly exercised (unless another date is specified in that part of the Lease creating the right, in which event the date so specified for termination shall prevail), the rent and all other charges due hereunder shall be proacted as of the date of termination, and neither Landlord nor Tenant shall have any further rights or obligations under this Lease except for those that have accrued prior to the date of termination or those obligations which this Lease specifically provides are to survive termination. This PARA-15.12 does not apply to a termination of this Lease by Landlord as a result of an Event of Tenant's Default. 15.13 BROKERAGE COMMISSIONS: Each party hereto (i) represents and warrants to the other that it has not had any dealings with any real estate brokers, leasing agents or salesmen, or incurred any obligations for the payment of real estate brokerage commissions or finder's fees which would be earned or due and payable by reason of the execution of this Lease, other than to the Retained Real Estate Brokers described in SECTION S of the Summary, and (ii) agrees to indemnify, defend, and hold harmless the other party from any claim for any such commission of fees which result from the actions of the indemnifying party. Landlord shall be responsible for the payment of any commission owed to the Retained Real Estate Brokers. 15.14 FORCE MAJEURE: Any prevention, delay or stoppage due to strikes, lock-outs, inclement weather, labor disputes, inability to obtain labor, materials, fuels or reasonable substitutes therefor, governmental restrictions, regulations, controls, action or inaction, civil commotion, fire or other acts of God, and other causes beyond the reasonable control of the party obligated to perform (except financial inability) shall excuse the performance, for a period equal to the period of any said prevention, delay or stoppage, of any obligation hereunder except the obligation of Tenant to pay rent or any other sums due hereunder. 15.15 ENTIRE AGREEMENT: This Lease constitutes the entire agreement between the parties and there are no binding agreements or representations between the parties except as expressed herein. Tenant acknowledges that neither Landlord nor Landlord's Agents has made any legally binding representation or warranty as to any matter except those expressly set forth herein, including any warranty as to (i) whether the Premises may be used for Tenant's intended use under existing Law, (ii) the suitability of the Premises or the Project for conduct of Tenant's business, or (iii) the condition of any improvements. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. This instrument shall not be legally binding until it is executed by both Landlord and Tenant. No subsequent change or addition to this Lease shall be binding unless in writing and signed by Landlord and Tenant. 21 15.16 EXECUTION IN COUNTERPART AND BY FAX: This Lease may be executed in counterpart, whereby different signatories execute this document on different signature pages, and when so executed and all signature ages are attached hereto, the resulting document shall be fully executed and shall be considered a signed document. The parties agree that faxed copies of actual signatures shall be as binding as if the party had received an executed original, provided, that each party will, following the tender of any faxed copy signature, promptly supply an original signature page. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the intent to be legally bound thereby, to be effective as of the Effective Date. LANDLORD: TENANT: LARVAN PROPERTIES HEALTHEON CORPORATION, A DELAWARE A CALIFORNIA GENERAL PARTNERSHIP CORPORATION By: VANDERSON CONSTRUCTION, INC. By: /s/ Kallen Chan A California corporation, its ----------------------------- General Partner Kallen Chan, Controller By: /s/ George F. Van Sickle ------------------------------------ --------------------------- [Typed or printed name and title] George F. Van Sickle - PRESIDENT Dated: 12/5/97 --------------------------------- ---------------------------- [Typed or printed name and title] By: LARSCOM INCORPORATED a Delaware corporation its General Partner By: /s/ Bruce Horn ----------------------------- Bruce Horn V.P. Finance -------------------------------- [Typed or printed name and title] By: /s/ Donn Byrne ------------------------------- DONN BYRNE, General Partner Dated: 12/8/97 ------------------------- FIRST ADDENDUM TO LEASE This First Addendum to Lease is dated for reference purposes as of December 3, 1997, and is made a part of that Lease Agreement (the "Lease") dated December 3, 1997, by and between Larvan Properties, a California general partnership ("Landlord") and Healtheon Corporation, a Delaware corporation ("Tenant") affecting certain real property commonly known as 4600 Patrick Henry Drive, Santa Clara, California. Landlord and Tenant agree that the Lease is hereby amended and supplemented as follows: 1. SECURITY DEPOSIT: In addition to the cash portion of the Security Deposit set forth in the Summary of Basic Lease Terms, Paragraph K, and Paragraph 3.3 of the Lease, Tenant shall provide to Landlord the additional and further amount of $867,000.00 as a further Security Deposit, and said amount shall be deemed to be and treated in all respects as a part of the Security Deposit. A. This amount, or any portion thereof, can be provided, at Tenant's sole cost and option, by providing Landlord an irrevocable Letter of Credit which (i) is for an initial term of at least twelve (12) months; (ii) is drawn upon a local commercial bank reasonably acceptable to Landlord; (iii) is in the amount of $867,000.00; (iv) is in a form satisfactory to Landlord ; and (v) may be drawn on by Landlord solely upon submission of a written certification of Landlord that there exists an Event of Tenant's Default (as defined in Paragraph 13.1 or other applicable provisions of this Lease or as defined in this Addendum), that Tenant has not, as of the date of Landlord's draw request, cured such Event of Default, and that the amount drawn on the Letter of Credit is the net amount due Landlord after first applying any cash Security Deposit then being held by Landlord. Tenant and Landlord acknowledge that Landlord is in the process of obtaining a bridge loan secured by the Project, that Landlord's lender (the "Bridge Loan Lender") has required that Landlord assign this Lease to the Bridge Loan Lender as part of the security for the loan, that the Bridge Loan Lender is further requiring that the Letter of Credit be assigned to the Bridge Loan Lender in conjunction with the assignment of this Lease. Accordingly, Landlord and Tenant agree that they will work together reasonably to replace or restructure the Letter of Credit in order to meet Landlord's lender Page 1 of 10 requirements, and that Tenant will reasonably cooperate with Landlord in providing documentation and taking action requested by the Bridge Loan Lender in regard to such an assignment, at no cost to Tenant, including but not limited to any necessary issuance of the Letter of Credit in the name of the Bridge Loan Lender or jointly in the name of Landlord and the Bridge Loan Lender, provided always, that no such arrangement shall be required of Tenant without adequate protection of Tenant's rights under the Letter of Credit provisions hereof. B. Except as provided in Subparagraph H of this Paragraph, Tenant shall keep the Letter of Credit in effect during the entire Lease term plus a period of (30) days thereafter. C. Tenant shall renew the Letter of Credit for an additional period of at least twelve (12) months, and shall deliver the new or renewed original Letter of Credit, in the required amount and in keeping with all of the requirements hereof, to Landlord not later than 5:00 P.M. on the thirty-first (31st) day before each date on which the then existing Letter of Credit expires (such 31st day being referred to herein as the "Renewal Date"). D. Tenant's failure to renew the Letter of Credit by the Renewal Date shall be deemed an Event of Tenant's Default under this Lease, without Landlord being required to give any notice or opportunity to cure, except that Landlord shall give Tenant five (5) days written notice of such failure to renew, and no Event of Default shall be deemed to have occurred if, within such five (5) day period, Tenant renews the Letter of Credit as required hereunder. Upon such an Event of Tenant's Default, Landlord shall be immediately entitled to draw all of the funds available under the Letter of Credit, which sum when received shall remain a part of the Security Deposit until and unless applied by Landlord pursuant to the provisions of Paragraph 3.5 of the Lease. E. If Tenant shall allow the Letter of Credit to expire or to be revoked at any time when it is required to be maintained hereunder, this shall constitute an independent Event of Tenant's Default; provided, however, that before such shall be deemed an Event of Tenant's Default, Landlord shall give Tenant five (5) days written Page 2 of 10 notice to cure or have committed an Event of Tenant's Default, and Tenant fails within such five (5) day period to cure by causing the Letter of Credit to be reissued or renewed. Tenant's failure to replenish any cash Security Deposit which is applied by Landlord, within ten (10) days after notice that it has been applied, shall be an immediate Event of Tenant's Default (for purposes of this Paragraph only), without further notice or opportunity to cure, which shall entitle Landlord to resort to the Letter of Credit to replenish its cash Security Deposit. F. Any proceeds received by Landlord by drawing upon the Letter of Credit shall be applied in accordance with the provisions of Paragraph 3.5 of the Lease. G. If Landlord transfers the Premises during the Lease Term, and if a Letter of Credit is still posted as part of the Security Deposit, Tenant agrees, promptly on receipt of a written request from Landlord, to take such actions as are necessary to have the Letter of Credit redrawn in favor of the new owner of the Premises, at Tenant's sole cost and expense. H. Notwithstanding the foregoing, the Letter of Credit shall be wholly or partially (as the case may be) released by Landlord upon the achievement by Tenant of the following milestones: 1. Provided that Tenant is not in material default of any obligations under the Lease on any one year anniversary of the Commencement Date, has not been in material default more than one time during the preceding one (1) year period, and is not in material default as of the final date following such one year anniversary on which Landlord must execute any documents authorizing such reduction, and provided that as of such anniversary date, Tenant's financial condition is, in Landlord's judgment reasonably applied, equal to or better than its financial condition on the Execution Date, Tenant shall be allowed to reduce the Letter of Credit by the amount of $289,000.00, and Landlord shall execute such documents as are required by the issuing bank to effectuate such Page 3 of 10 reduction and such review procedures shall occur on each anniversary of the Commencement Date until the Letter of Credit is extinguished or the Lease has expired or been terminated according to its terms, except that no such reduction shall occur on an anniversary date which is within 6 months of the expiration date of the Lease. 2. Notwithstanding any of the foregoing, if Tenant provides Landlord with documentation establishing to Landlord's reasonable satisfaction that Tenant has successfully completed an initial public offering of Tenant's stock and requests extinguishment of the Letter of Credit, and further provided that Tenant has not been in material default more than one time during the one (1) year period preceding the date on which Tenant makes its request for extinguishment, and Tenant is not in material default of any obligations under the Lease as of the final date on which Landlord must execute any documents authorizing such extinguishment, Tenant shall be allowed to extinguish the Letter of Credit, and Landlord shall execute such documents as are required by the issuing bank to effectuate such extinguishment. In the event that, as of the date of the IPO, Tenant cannot satisfy the requirements hereof because it has been in material default on more than one occasion during the one (1) year preceding the date of the EPO, then Tenant may apply for and obtain such an extinguishment at a later time, provided that (i) Tenant has not been in material default on more than one occasion within the one (1) year immediately preceding the date of such extinguishment application and (ii) Tenant satisfies the other requirement hereof that it not be in material default as of the date on which Landlord must execute the extinguishment documents. For purposes of this Subparagraph H, Tenant shall be deemed to be in "material default" under the Lease if (a) Tenant has failed to make any payment required hereunder or under the Lease within five (5) calendar days of Landlord giving written notice that said payment is due and unpaid or Page 4 of 10 committed any financial Event of Tenant's Default; and/or (b) Tenant has committed a material non-financial Event of Tenant's Default hereunder. I. All additional costs and expenses incurred by Landlord in regard to the Letter of Credit, including but not limited to any reasonable attorney's fees incurred by Landlord in the administration of this Paragraph, shall be paid by Tenant to Landlord as Additional Rent within ten (10) days after Landlord provides its written invoice for such costs and expenses. J. If Tenant cannot post the Letter of Credit on or before the Effective Date, Tenant shall provide the Letter of Credit no later than seven (7) days thereafter. In the event that Tenant fails to do so (or to provide equivalent cash security) within such period, Landlord may, at its option, deem this failure to be an Event of Tenant's Default or declare the Lease to be terminated, provided, however, that before such shall be deemed an Event of Tenant's Default or before the Lease is terminated, Landlord must give Tenant five (5) days written notice to cure or, as the case may be, have the Lease terminate or have committed an Event of Tenant's Default. If Tenant falls within such five (5) day period to cure by causing the Letter of Credit to be posted, then Landlord shall have the right to exercise the remedy of which Tenant has been notified. Tenant shall not be entitled to early occupancy under Paragraph 2.5 of the Lease until the Letter of Credit is posted. 2. TENANT IMPROVEMENT ALLOWANCE: Landlord shall provide to Tenant a Tenant Improvement Allowance (defined below) for the purpose of improving the Premises, on the following terms and conditions: A. The term "Tenant Improvement Allowance" shall mean the maximum amount Landlord is required to spend toward the payment of costs for all Tenant's Alterations constructed in the Premises, which amount is $249,185.00 (i.e., $5.00 per square foot for Tenant's Gross Leasable Area within the Premises). B. Tenant shall obtain Landlord's written consent, which shall not unreasonably be withheld, for all proposed improvements, which shall be conducted according to the standards set forth in Paragraph 5.2 Page 5 of 10 of the Lease. Tenant shall construct the Tenant's Alterations as set forth in the Space Plan and description of Tenant's Alterations which is attached to the Lease as Exhibit B, or as otherwise approved in writing by Landlord. However, Tenant is not required to construct all or any of the specified Tenant's Alterations (and if Tenant does not do so, Landlord is not obligated to provide the portion of the Tenant Improvement Allowance relating to Tenant's Alterations which Tenant has elected not to construct). C. Upon completion of all work on the initial Tenant's Alterations outlined in Exhibit "B", Landlord shall inspect the improvements, and if satisfactorily constructed in accordance with Exhibit "B" and the approved plans and specifications, and as required by Paragraph 5.2 (or any modifications thereto approved in writing by Landlord), shall approve the improvements. On receipt of Landlord's approval, Tenant will submit invoices, lien releases, and other documentation reasonably required or requested by Landlord in regard to the improvements, and Landlord shall, within fifteen (15) days of receipt of all requested documentation, reimburse Tenant for all documented expenses of constructing the improvements up to the limit of the Tenant Improvement Allowance. Provided that Tenant can so arrange with its contractors, Landlord will make payments under the Tenant Improvement Allowance directly to the contractors, upon receipt of appropriate lien releases reasonably satisfactory to Landlord. Under such circumstances, Landlord will not require that expenses of the Tenant's Alterations be actually paid by Tenant to the contractor. In the event that the construction of Tenant's Alterations cannot reasonably be completed by the Commencement Date, Landlord will make a single progress payment of such part of the Tenant Improvement Allowance as shall be merited by the progress toward completion of the initial Tenant's Alterations as of the Commencement Date, on a reasonable basis to be determined by mutual agreement of Landlord and Tenant, to include such inspections and lien releases as Landlord shall reasonably request. 3. INTERIOR IMPROVEMENTS: Except as otherwise set forth herein or in the Lease, the Premises shall be delivered to Tenant in their then existing "as-is" condition. Tenant acknowledges that it has had the opportunity to inspect the Premises prior to execution of the Lease, and agrees that the Premises are to be Page 6 of 10 leased and accepted by Tenant in their condition existing as of the Effective Date of this Lease, "as is", without implied or expressed warranty or representation and with all patent and latent defects. Landlord shall not have any obligation to make any alterations or improvements to the Premises prior to the commencement of the Lease Term except as otherwise specified herein and in the Lease. Notwithstanding anything to the contrary contained herein or in the Lease, Landlord represents and warrants to Tenant that the plumbing and electrical systems of the Building and any other building systems other than the HVAC and roof systems, which are dealt with below in Paragraph 4, will be in good operating condition upon the Commencement Date. Tenant shall not make any claims under any warranties set forth herein unless the defect is brought to the Landlord's attention within one (1) year of the Commencement Date, in the case of defects discovered by Tenant, or discoverable by a reasonable Tenant's inspection (including the engagement of appropriate expert consultants with regard to matters not within Tenant's expertise); and within two (2) years for defects not so discovered or discoverable. 4. CONDITION OF PREMISES: Landlord shall provide the Premises with all existing electrical, plumbing, and building systems (other than the HVAC and roof systems, which are dealt with below) in good and workable condition. Landlord shall provide roof and HVAC systems as set forth below: A. Prior to the Commencement Date, at its sole cost and expense, Landlord will replace HVAC mechanical units and make other capital improvements to the HVAC system as necessary, but Landlord's expense thereof (measured by Landlord's out of pocket payments to third parties) shall not exceed $35,000.00. Should any capital improvements to the HVAC system be required after the Commencement Date, then Landlord will continue to pay for such improvements so long as the total expense (measured by Landlord's out of pocket payments to third parties) of all capital improvements to the HVAC system (both before and after the Commencement Date) does not exceed $35,000.00 in the aggregate. Any costs incurred by Landlord in making any replacements to the HVAC system (both before and after the Commencement Date) in excess of $35,000.00 in the aggregate will be considered a capital expenditure, which shall be paid for by Landlord and reimbursed to Landlord by Tenant on an amortized basis under the provisions set forth in Paragraph 5.4 of the Lease. Page 7 of 10 B. Landlord shall promptly consult with Tenant as to the best date for re-roofing the Building, and thereafter, as soon as reasonably possible within the time guidelines of this Subparagraph, shall apply, at Landlord's expense and on a schedule to be determined by Landlord (depending on the weather and availability of a highly qualified roofing company), not to be reimbursed as a Common Operating Expense, a new roof. Landlord and Tenant acknowledge that such roof win not be applied prior to the currently approaching rainy season, and that until the roof is replaced, there may be leaks. Provided that Landlord has used commercially reasonably efforts to replace the roof in accordance with this Paragraph, Landlord shall not be liable for any roof leaks that may occur prior to the roof's replacement, provided, however, that such waiver shall not apply unless Landlord has used commercially reasonable efforts to repair any leaks in a prompt and reasonable manner. 5. ASBESTOS CONTAINING MATERIALS. Tenant acknowledges that Landlord has provided notification of possible asbestos containing materials in the form attached hereto as Exhibit "H". Notwithstanding anything to the contrary in this Lease, Landlord, at its sole cost and expense, shall (i) be responsible keeping and maintaining the Premises in compliance with all Laws (including all health and safety rules and regulations) concerning the presence of asbestos-containing materials in commercial buildings and (ii) performing any and all asbestos abatement and removal work required in the Premises during the Lease term; provided, however, that if the removal, encapsulation, or other treatment of asbestos containing materials in the Building will be required as a result of improvements to be constructed by Tenant in the Premises, then such abatement work, shall be at Tenant's sole cost and expense, and without cost or liability on the part of Landlord. However, such matters may be paid for, at Tenant's election, from any Tenant Improvement Allowance granted by this Lease, to the extent that such Allowance is sufficient to cover such costs. Notwithstanding anything above, Landlord will, at its sole cost and expense, cause the asbestos containing materials shown in Exhibit "H" to be removed during the Early Occupancy Period, in compliance with all Laws relating to such removal, in a prompt and diligent manner, and coordinating its work in regard to asbestos with Tenant's contractor for maximum convenience and speed of work. 6. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord shall, at its sole cost and expense, keep and maintain the exterior areas of the Project in Page 8 of 10 compliance with the Americans With Disabilities Act of 1990 ("ADA") and the regulations in force thereunder. Landlord shall deliver the Project in such a state of compliance at Landlord's sole cost and expense as of the Commencement Date, notwithstanding whether some improvements of the exterior areas are required to be constructed solely as a result of any Tenant's Alterations being constructed by Tenant prior to the Commencement Date (or thereafter, if such construction is a continuation of construction begun prior to the Commencement Date and continuously pursued thereafter), but in the event that, thereafter, further work is required by changes in Law or good practices, Landlord shall continue to take responsibility for compliance, but any expenses thereof shall be Common Operating Expenses. Tenant shall design, keep, and maintain the interior portions of the Premises, including but not limited to the floor plan, design, and furnishing thereof, in compliance with the ADA, at Tenant's sole cost and expense. Each party shall indemnify, defend with counsel reasonably acceptable to the indemnified party, and hold harmless the other party against any claims, losses, liabilities, or damages which are incurred by the other party by reason of a breach of the duties assumed in this Paragraph. 7. BROKER DISCLOSURE: Tenant understands that agents and/or brokers associated with Cooper-Brady and Colliers Parrish International, to wit, Jon Brady and Donn Byrne, are partners in Landlord. 8. SUBORDINATION TO GROUND LEASE: Tenant acknowledges that Landlord leases a portion of the land within the Project from the City and County of San Francisco pursuant to a Lease dated July 26, 1977 (referred to herein as the "Ground Lease", a copy of which has been read and approved by Tenant) and that this Lease is subject and subordinate to the terms of the Ground Lease and to any extension, modifications or amendments thereof. The portion of the Project to which this Ground Lease is applicable is as defined in said Ground Lease. Landlord will at all times pay all amounts due and satisfy any obligations under the Ground Lease, including but not limited to payment of all rent thereunder and removal and/or restoration of parking surfaces or landscaping as required thereunder, and such costs shall not be reimbursed by Tenant as Common Operating Expenses or otherwise. In the event that Landlord loses possession of the portion of the Project to which the Ground Lease is applicable, then Tenant shall be entitled as its sole remedy to an equitable adjustment of its Base Monthly Rent (as well as any actual decrease in Common Operating Expenses), to the extent such taking results in material diminishment of the value and useability of Tenant's Lease. Page 9 of 10 9. EFFECT OF ADDENDUM: Each term used herein with initial capital letters shall have the meaning ascribed to such term in the Lease unless specifically otherwise defined herein. In the event of any inconsistency between this First Addendum to the Lease and the Lease, the terms of this First Addendum to the Lease shall prevail. LANDLORD: TENANT: Larvan Properties, a California general Healtheon Corporation, a Delaware partnership corporation By: VANDERSON CONSTRUCTION, INC. By: /s/ Kallen Chan a California corporation, its ------------------------------ General Partner Kallen Chan, Controller --------------------------------- [Print Name and Title] By: /s/ George F. Van Sickle --------------------------- Dated: 12/8/97 George F. Van Sickle - President --------------------------- ------------------------------ [Print Name and Title] By: LARSCOM INCORPORATED, a Delaware corporation its General Partner By: /s/ Bruce Horn ------------------------------ Bruce Horn V.P. Finance ------------------------------ [Print Name and Title] By: Donn Byrne, its General Partner /s/ Don H. Byrne ------------------------------ Dated: 12/8/97 --------------------------- Page 10 of 10 TENANT ESTOPPEL CERTIFICATE TENANT: Healtheon Corporation, a Delaware Corporation DATE OF LEASE: December 2, 1997 AMENDED: None PREMISES: 49,837 square feet located at 4600 Patrick Henry Drive, Santa Clara, California ESTOPPEL CERTIFICATE RE: Lease dated December 2, 1997 between Larvan Properties, a California general Partnership, as Landlord, and Healtheon Corporation, a Delaware corporation, as Tenant. The undersigned hereby certifies to MELP VII L.P., a California limited partnership ("Buyer") as follows: 1 . The undersigned is the "Tenant" under the above-referenced lease ("Lease"), a true and complete copy of which is attached hereto as Exhibit "A", covering the above-referenced Premises ("Premises") located in that certain building commonly known as 4600 Patrick Henry Drive, Santa Clara, California ("Property"). 2. The Lease is in full force and effect and constitutes the entire agreement between the Landlord under the Lease and Tenant with respect to the Premises, and the Lease has not been modified, changed, altered or amended in any respect except as set forth in Exhibit "A". 3. The term of the Lease commenced on February 1, 1997, and will expire on January 31, 2008. Tenant has accepted possession of the Premises and is the actual occupant in possession and has not sublet, assigned or hypothecated Tenant's leasehold interest. Landlord has no obligation to construct any tenant improvements in the Premises (except as provided with respect to roof in Paragraph 4 of the First Addendum) and the only allowances to be paid by Landlord in connection with any improvements to be made to the Premises are in the amount of $249,815 for tenant improvements and $35,000 for HVAC work pursuant to Paragraphs 2 and 4 of the First Addendum to the Lease. Tenant is not currently aware of any defects in the existing electrical, plumbing and other building systems serving the Premises; provided, however that (i) Tenant is aware of a split puralin in the roof structure of the Premises and the exterior loading dock is not level and may not comply with building code requirements, and (ii) Landlord is performing, at Landlord's sole cost and expense, certain seismic and other structural upgrades to the building. Except as otherwise provided herein, to Tenant's knowledge, the building systems serving the Premises were delivered by Landlord in good and workable condition as required by Paragraph 4 of the First Addendum to Lease. Nothing herein shall constitute of a waiver of any Landlord's obligations under the Lease with respect to maintenance and repair of the Premises. Tenant acknowledges that it is completing certain tenant improvements and that rent obligations under the Lease have commenced even though construction is not yet complete. 4. As of the date of this Estoppel Certificate, to Tenant's knowledge there exists no breach or default, nor any state of facts which, with notice, the passage of time, or both, would result in a breach or default on the part of either Tenant or Landlord. 5. Tenant is currently obligated to pay annual rental of $867,164.28 in monthly installments of $72,263.69 per month and monthly installments of annual rental have been paid through March 31, 1998. Tenant's pro rata share of real estate taxes and "Common Operating Expenses" as defined in the Lease for the Property is one hundred percent (100%). Tenant's pro rata share of real estate taxes and Common Operating Expenses for the Property are due from February 1, 1998 and thereafter. No other rent has been paid in advance and Tenant presently has no claim or defense against Landlord under the Lease and is asserting no offset or credits against either the rent or Landlord. Tenant has no claim against Landlord for any security or other deposits except $72,203.69 plus a letter of credit as set forth in the First Addendum to Lease in the amount of $867,000 which was paid or deposited with Landlord pursuant to the Lease. 6. Tenant has no option or preferential right to purchase all or any part of the Premises (or the real property of which the Premises are a part) nor any right or interest with respect to the Property other than as Tenant under the Lease. 7. Tenant has no option, right of first offer or right of first refusal to lease or occupy any other space within the Property, and Tenant has no right to renew or extend the terms of the Lease except as follows: NO EXCEPTIONS. 8. Tenant has made no agreement with Landlord or any agent, representative or employee of Landlord concerning free rent, partial rent, rebate or rental payments or any other type of rental or other concession except as expressly set forth in the Lease. 9. To Tenant's knowledge, there has not been filed by or against Tenant a petition in bankruptcy, voluntary or otherwise, any assignment for the benefit of creditors, any petition seeking reorganization or arrangement under the bankruptcy laws of the United States, or any state thereof, or any other action brought under said bankruptcy laws with respect to Tenant. This Estoppel Certificate is made to Buyer in connection with the prospective purchase by Buyer, or Buyer's assignee, of the Property. This Estoppel Certificate may be relied on by Buyer or Buyer's assignee and any other party who acquires an interest in the Premises in connection with such purchase or any person or entity which may finance such purchase. The statements made herein shall be binding upon us, our successors and assigns. Nothing contained herein shall constitute or be deemed to constitute an amendment or modification of any term or condition of the Lease or any right or remedy of Tenant thereunder all of which are expressly reserved. The officers or persons executing this letter have been duly empowered to do so on behalf of Tenant. -2- Dated this 11 day of March, 1998. "TENANT" HEALTHEON CORPORATION, a Delaware corporation By: /s/ Kallen Chan ------------------------------------- Print Name: Kallen Chan ----------------------------- Its: Corporate Controller ------------------------------------ -3- EX-10.12 22 EX-10.12 CENTRAL PARK LEASE AGREEMENT BY AND BETWEEN ZML-CENTRAL PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("LANDLORD") AND ACTAMED CORP., A GEORGIA CORPORATION ("TENANT") DATED NOVEMBER 6, 1995 FOR SUITE NUMBER 400 SUITE NUMBER 600 CONTAINING 41,292 SQUARE FEET OF RENTABLE FLOOR AREA AT BUILDING 7000 TERM: 60 MONTHS TABLE OF CONTENTS
PAGE ---- 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Lease of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6. Base Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7. Rental Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8. Additional Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9. Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 10. Tenant Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 12. Late Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 13. Use Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 15. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 16. Landlord's Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . 7 17. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 18. Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . 7 19. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 20. Waiver of Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 21. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . 8 22. Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 24. Services by Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . .10 25. Attorneys' Fees and Homestead . . . . . . . . . . . . . . . . . . . . . .10 26. Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 27. Subordination and Attornment. . . . . . . . . . . . . . . . . . . . . . .10 28. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .11 29. No Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 30. Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 31. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 32. Surrender of Premises . . . . . . . . . . . . . . . . . . . . . . . . . .11 33. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 34. Damage or Theft of Personal Property. . . . . . . . . . . . . . . . . . .11 35. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 36. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 39. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 40. Landlord's Liability. . . . . . . . . . . . . . . . . . . . . . . . . . .13 41. Landlord's Covenant of Quiet Enjoyment. . . . . . . . . . . . . . . . . .13 42. Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 43. Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . . . .13 44. Submission of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . .14 45. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 46. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 47. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 48. Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 49. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 50. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 51. Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . .14 52. Special Stipulations. . . . . . . . . . . . . . . . . . . . . . . . . . .14
RULES AND REGULATIONS EXHIBIT "A" - Legal Description EXHIBIT "B" - Floor Plan EXHIBIT "C" - Supplemental Notice EXHIBIT "D" - Landlord's Construction EXHIBIT "E" - Building Standard Services EXHIBIT "F" - Special Stipulations LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") is made and entered into this 6th day of November 1995, by and between Landlord and Tenant. W I T N E S S E T H: 1. CERTAIN DEFINITIONS. For purposes of this Lease, the following terms shall have the meanings hereinafter ascribed thereto: (a) LANDLORD: The Equitable Life Assurance Society of the United States (b) LANDLORD'S ADDRESS: LANDLORD'S ADDRESS FOR PAYMENTS: c/o Equity Office Holding, c/o Equity Office Properties, L.L.C. L.L.C. Suite 1040 Two North Riverside Plaza 7000 Central Parkway, N.E. 22nd Floor Atlanta, Georgia 30328 Chicago, Illinois 60606 Attention: General Counsel (c) TENANT: ActaMed Corp., a Georgia corporation (d) TENANT'S ADDRESS: Suite 400 7000 Central Parkway Atlanta, Georgia 30328 Attn: Chief Financial Officer (e) BUILDING ADDRESS: 7000 Central Parkway Atlanta, Georgia 30328 (f) SUITE NUMBERS: Suite 400: 25,331 rentable square feet Suite 600: 15,961 rentable square feet Total: 41,292 rentable square feet (g) RENTABLE FLOOR AREA OF DEMISED PREMISES: Total 41,292 square feet. (h) RENTABLE FLOOR AREA OF BUILDING: 410,490 square feet. (i) LEASE TERM: Suite 400 - 60 months Suite 600 - 55 months (j) BASE RENTAL RATE: $19.95 per square foot of Rentable Floor Area of Demised Premises per year. (k) RENTAL COMMENCEMENT DATE: Suite 400 - August 1, 1996 Suite 600 - January 1, 1997 See Special Stipulation No. 34. (l) TENANT IMPROVEMENT ALLOWANCE: $7.83 per square foot of rentable floor area in Demised Premises. See Special Stipulation No. 11. (m) SECURITY DEPOSITS: (i) $43,875.04 [Article 42(a)]. (ii) $ N/A [Article 42(b)]. (n) BROKER(S): CB Commercial Real Estate Group, Inc. 2. LEASE OF PREMISES. Landlord, in consideration of the covenants and agreements to be performed by Tenant, and upon the terms and conditions hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does hereby rent and lease from Landlord, certain premises (the "Demised Premises") in the building (the "Building") located on that certain tract of land (the "Land") more particularly described on EXHIBIT "A" attached hereto and by this reference made a part hereof, which Demised Premises are outlined in red or cross-hatched on the floor plan attached hereto as EXHIBIT "B" and by this reference made a part hereof, with no easement for light, view or air included in the Demised Premises or being granted hereunder. The "Project" is comprised of the Building, the Land, the Building's parking facilities, any walkways, covered walkways, tunnels or other means of access to the Building and the Building's parking facilities, all common areas, including any lobbies or plazas, and any other improvements or landscaping on the Land. 3. TERM. The term of this Lease (the "Lease Term") shall commence on the date first hereinabove set forth (the "Term Commencement Due"), and, unless sooner terminated as provided in this Lease, shall end on the expiration of the period designated in Article 1(i) above, which period shall commence on the Rental Commencement Date, unless the Rental Commencement Date shall be other than the first day of a calendar month, in which event such period shall commence on the first day of the calendar month following the month in which the Rental Commencement Date occurs. Promptly after the Rental Commencement Date, Landlord or Landlord's agent shall send to Tenant a Supplemental Notice in the form of EXHIBIT "C" attached hereto and by this reference made a part hereof, specifying the Rental Commencement Date, the date of expiration of the Lease Term in accordance with Article 1(i) above and certain other matters as therein set forth. Notwithstanding anything herein to the contrary, if the Additional Space is not substantially complete within sixty (60) days after the scheduled Rental Commencement Date, Tenant shall have the option of terminating this Lease upon written notice to Landlord, provided that if any delay in Landlord's completion of the Demised Premises shall be caused by Tenant the deadline for substantial completion shall be adjusted accordingly. See Special Stipulation No. 34. 4. POSSESSION. The obligations of Landlord and Tenant with respect to the initial leasehold improvements to the Additional Space are set forth in EXHIBIT "D" attached hereto and by this reference made a part hereof. Taking of possession by Tenant of the Additional Space shall be deemed conclusively to establish that Landlord's construction obligations with respect to the Additional Space have been completed in accordance with the plans and specifications approved by Landlord and Tenant and that the Additional Space, to the extent of Landlord's construction obligations with respect thereto, are in good and satisfactory condition, except as to latent defects and any items Tenant notifies Landlord of in writing within ten (10) days of Tenant's taking possession of the Additional Space. Landlord shall repair any such defects and items within a reasonable period following receipt of notice from Tenant. 5. RENTAL PAYMENTS. (a) Commencing on the Rental Commencement Date, and continuing thereafter throughout the Lease Term, Tenant hereby agrees to pay all Rent due and payable under this Lease. As used in this Lease, the term "Rent" shall mean the Base Rental, Rental Adjustment, Tenant's Forecast Additional Rental, Tenant's Additional Rental, and any other amounts that Tenant assumes or agrees to pay under the provisions of this Lease that are owed to Landlord, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure on Tenant's part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant. Base Rental, together with Tenant's Forecast Additional Rental, shall be due and payable in twelve (12) equal installments on the first day of each calendar month, commencing on the Rental Commencement Date and continuing thereafter throughout the Lease Term and any extensions or renewals thereof. Tenant hereby agrees to pay such Rent to Landlord at Landlord's address as provided herein (or such other address as may be designated by Landlord from time to time) monthly in advance. Tenant shall pay all Rent and other sums of money as shall become due from and payable by Tenant to Landlord under this Lease at the times and in the manner provided in this Lease, without demand, set-off or counterclaim, except as specifically set forth in this Lease. (b) If the Rental Commencement Date is other than the first day of a calendar month or if this Lease terminates on a day other than the last day of a calendar month, then the installments of Base Rental and Tenant's Forecast Additional Rental for such month or months shall be prorated on a daily basis and the installment or installments so prorated shall be paid in advance. Also, if the Rental Commencement Date occurs on a day other than the first day of a calendar year, or if this Lease expires or is terminated on a day other than the last day of a calendar year, Tenant's Additional Rental shall be prorated for such commencement or termination year, as the case may be, by multiplying such Tenant's Additional Rental by a fraction, the numerator of which shall be the number of days of the Lease Term (from and after the Rental Commencement Date) during the commencement or expiration or termination year, as the case may be, and the denominator of which shall be 365, and the calculation described in Article 8 hereof shall be made as soon as possible after the expiration or termination of this Lease, Landlord and Tenant hereby agreeing that the provisions relating to said calculation shall survive the expiration or termination of this Lease, by not more than three (3) years. 6. BASE RENTAL. From and after the applicable Rental Commencement Date, Tenant shall pay to Landlord a base annual rental (herein called "Base Rental") equal to the Base Rental Rate set forth in Article 1(j) above multiplied by the Rentable Floor Area of the portion of the Demised Premises as set forth in Article 1(f) above. 2 7. RENTAL ADJUSTMENT. (a) Tenant shall pay to Landlord as additional rental a rental adjustment (the "Rental Adjustment") which shall be determined as of the first anniversary of the Rental Commencement Date and as of each January 1 thereafter during the Lease Term in the manner hereinafter provided (each such date being hereinafter in this Article 7 called an "Adjustment Date", and each period of time from any given Adjustment Date through the day before the next succeeding Adjustment Date being herein called an "Adjustment Period"). Each such Rental Adjustment shall be payable in monthly installments in advance on the first day of every such calendar month during the Adjustment Period for which such Rental Adjustment was determined. A prorated monthly installment, based on the number of days in the partial month, shall be paid for any fraction of a month if the Rental Commencement Date falls on any day other than the first day of a calendar month, or if the Lease Term is terminated or expires on any other day than the last day of a calendar month. Landlord shall use reasonable efforts to notify Tenant in writing of the monthly amount of the Rental Adjustment for each Adjustment Period at least ten (10) days prior to the date on which the first installment of such Rental Adjustment is due and payable, or as soon thereafter as is practicable. Failure by Landlord to notify Tenant of the monthly amount of such Rental Adjustment shall not prejudice Landlord's right to collect the full amount of such Rental Adjustment, nor shall Landlord be deemed to have forfeited or surrendered its rights to collect such Rental Adjustment which may have become due pursuant to this Article 7, and Tenant agrees to pay within thirty (30) days after notice all accrued but unpaid Rental Adjustment. (b) For each Adjustment Period, each monthly installment of the Rental Adjustment shall be an amount equal to one-twelfth (1/12th) of the product of: (i) the annual Base Rental set forth in Article 6 hereof, multiplied by (ii) .50, multiplied by (iii) the "percentage increase" (as hereinafter defined), if any, in the "index" (as hereinafter defined), as such percentage increase is determined with respect to the Adjustment Date beginning such Adjustment Period. (c) For purposes of Articles 7(a) and (b) above, the "percentage increase," if any, in the Index for each Adjustment Date shall mean and equal the quotient (expressed as a decimal) determined by dividing (i) the difference obtained by subtracting the Index for the calendar month in which the Rental Commencement Date falls from the Index for the calendar month of October immediately preceding the Adjustment Date in question [if the difference so obtained is negative, then this factor (i) shall be deemed to be zero], by (ii) the Index for the calendar month in which the Rental Commencement Date falls. (d) The term "Index" as used in Articles 7(b) and (c) above shall mean the Consumer Price Index for All Urban Consumers, U.S. City Average, All Items (1982-84 = 100), published by the Bureau of Labor Statistics of the United States Department of Labor. If the Bureau of Labor Statistics should discontinue the publication of the Index, or publish the same less frequently, or alter the same in some manner, then Landlord shall adopt a substitute Index or substitute procedure which reasonably reflects and monitors consumer prices. (e) Nothing contained in this Article 7 shall be construed at any time so to reduce the monthly installments of Base Rental payable hereunder below the amount set forth in Article 6 of this Lease. Notwithstanding anything contained in this Lease to the contrary, it is agreed that (i) the Rental Adjustment for any given Adjustment Period shall not be less than the Rental Adjustment for the immediately preceding Adjustment Period, and (ii) Tenant's payments pursuant to this Article 7 shall not be deemed payments of rent as that term is construed relative to governmental wage and price controls or analogous governmental actions affecting the amount of rent which Landlord may charge Tenant. See Special Stipulation No. 3 8. ADDITIONAL RENTAL. (a) For purposes of this Lease, "Tenant's Forecast Additional Rental" shall mean Landlord's reasonable estimate of Tenant's Additional Rental for each calendar year or portion thereof during the Lease Term. If at any time it appears to Landlord that Tenant's Additional Rental for the current calendar year then at hand will vary from Landlord's estimate, Landlord shall have the right to revise, by notice to Tenant, its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate of Tenant's Additional Rental. Failure to make a revision contemplated by the immediately preceding sentence shall not prejudice Landlord's right to collect the full amount of Tenant's Additional Rental. "Prior to the Rental Commencement Date, and thereafter prior to the beginning of each calendar year during the Lease Term, including any extensions or renewals thereof, Landlord shall present to Tenant a statement of Tenant's Forecast Additional Rental for such calendar year; provided, however, that if such statement is not given prior to the beginning of any calendar year as aforesaid, Tenant shall continue to pay during the next ensuing calendar year on the basis of the amount of Tenant's Forecast Additional Rental payable during the calendar year just ended until the month after such statement is delivered to Tenant." (b) For purposes of this Lease, "Tenant's Additional Rental" shall mean for each calendar year (or portion thereof) during the Lease Term the excess of (x) the Operating Expense Amount (defined below) multiplied by the number of square feet of Rentable Floor Area of the Demised Premises, over (y) the Operating Expense Stop (as hereinafter defined). As used herein, "Operating Expense Amount" shall mean an amount equal to the amount of Operating Expenses (as defined below) for such calendar year divided by the greater of (i) ninety-five percent (95%) of the number of square feet of Rentable Floor Area of the Building, or (ii) the total number of square feet of Rentable Floor Area occupied in the Building for such calendar year on an average annualized basis; provided, however, if the amount is calculated under (i) above, the Operating Expenses actually incurred with respect to such calendar year shall be adjusted to reflect the amount of Operating Expenses which would have been incurred if the Building were ninety-five percent (95%) occupied throughout such calendar year. As used herein, "Operating Expense Stop" shall be determined by calculating the Operating Expenses during the first twelve (12) months following the Rental Commencement Date for Suite 400. (c) Within one hundred fifty (150) days after the end of the calendar year in which the Rental Commencement Date occurs and of each calendar year thereafter during the Lease Term, or as soon thereafter as practicable, Landlord shall provide Tenant a statement showing the Operating 3 Expenses for said calendar year, as prepared by an authorized representative of Landlord, and a statement prepared by Landlord comparing Tenant's Forecast Additional Rental with Tenant's Additional Rental. In the event Tenant's Forecast Additional Rental exceeds Tenant's Additional Rental for said calendar year, Landlord shall credit such amount against the Forecast Additional Rental next due hereunder or, if the Lease Term has expired or is about to expire, promptly refund such excess to Tenant if Tenant is not in default under this Lease (in the instance of a default, such excess shall be held as additional security for Tenant's performance, may be applied by Landlord to cure any such default, and shall not be refunded until any such default is cured). In the event that the Tenant's Additional Rental exceeds Tenant's Forecast Additional Rental for said calendar year, Tenant shall pay Landlord, within thirty (30) days of receipt of the statement, an amount equal to such difference. The provisions of this Lease concerning the payment of Tenant's Additional Rental shall survive the expiration or earlier termination of this Lease. (d) Landlord's books and records pertaining to the calculation of Operating Expenses for any calendar year within the Lease Term may be audited by Tenant or its representatives at Landlord's office where Operating Expense records are kept, at Tenant's expense, at any time within ninety (90) days after Landlord's annual statement is delivered to Tenant for such calendar year; provided that Tenant shall give Landlord not less than thirty (30) days' prior written notice of any such audit. If Landlord's calculations of Tenant's Additional Rental for the audited calendar year was incorrect, then Tenant shall be entitled to a prompt refund of any overpayment or Tenant shall promptly pay to Landlord the amount of any underpayment, as the case may be. See Special Stipulation No. 21. 9. OPERATING EXPENSES. (a) For the purposes of this Lease, "Operating Expenses" shall mean all expenses, costs and disbursements (but not specific costs billed or billable to specific tenants of the Building) of every kind and nature, computed on an accrual basis and in conformity with generally accepted accounting principles consistently applied, relating to or incurred or paid in connection with the ownership, management, operation, repair and maintenance of the Project, including but not limited to, the following: (1) wages, salaries and other costs of all on-site and off-site employees engaged either full or part time in the operation, management, maintenance or access control of the Project, including taxes, insurance and benefits relating to such employees, allocated based upon the time such employees are engaged directly in providing such services; (2) the cost of all supplies, tools, equipment and materials used in the operation, management, maintenance and access control of the Project; (3) the cost of all utilities for the Project, including but not limited to the cost of electricity, gas, water, sewer services and power for heating, lighting, air conditioning and ventilating; (4) the cost of all maintenance and service agreements for the Project and the equipment therein, including, but not limited to, security service, garage operators, window cleaning, elevator maintenance, HVAC maintenance, janitorial service, landscaping maintenance and customary landscaping replacement; (5) the cost of inspections, repairs and general maintenance of the Project; (6) amortization (together with reasonable financing charges, whether or not actually incurred) of the cost of acquisition and/or installation of capital investment items (including security equipment), amortized over their respective useful lives, which are installed for the purpose of reducing operating expenses (providing that such amortization charge shall not exceed the cost reduction attributable to the capital investment item for the related period), promoting safety, complying with governmental requirements, or maintaining the first-class nature of the Project; (7) the cost of casualty, rental loss, liability and other insurance applicable to the Project and Landlord's personal property used in connection therewith; (8) the cost of trash and garbage removal, vermin extermination, and snow, ice and debris removal; (9) the cost of legal and accounting services incurred by Landlord in connection with the management, maintenance, operation and repair of the Project, excluding the owner's or Landlord's general accounting, such as partnership statements and tax returns, and excluding services described in Article 9(b)(14) below; (10) all taxes, assessments and governmental charges, whether or not directly paid by Landlord, whether federal, state, country or municipal and whether they be by taxing districts or authorities presently taxing the Project or by others subsequently created or otherwise, and any other taxes and assessments attributable to the Project or its operation (and the costs of monitoring and contesting any of the same), including business license taxes and fees (all of the foregoing are herein sometimes collectively referred to as "Taxes"), excluding, however, taxes and assessments imposed on the personal property of the tenants of the Project, federal and state taxes on income, death taxes, franchise taxes, and any taxes (other than business license taxes and fees) imposed or measured on or by the income of Landlord from the operation of the Project; provided, however, that if at any time during the Lease Term, the present method of taxation or assessment shall be so changed that the whole or any part of the taxes, assessments, levies, impositions or charges now levied, assessed or imposed on real estate and the improvements thereon shall be discontinued and as a substitute therefor, or in lieu of or in addition thereto, taxes, assessments, levies, impositions or charges shall be 4 levied, assessed and/or imposed wholly or partially as a capital levy or otherwise on the rents received from the Project or the rents reserved herein or any part thereof, then such substitute or additional taxes, assessments, levies, impositions or charges, to the extent so levied, assessed or imposed, shall be deemed to be included within the Operating Expenses to the extent that such substitute or additional tax would be payable if the Project were the only property of the Landlord subject to such tax; and it is agreed that Tenant will be responsible for ad valorem taxes on its personal property and on the value of the leasehold improvements in the Demised Premises to the extent that the same exceed building standard allowances, if said taxes are based upon an assessment which includes the cost of such leasehold improvements in excess of building standard allowances (and if the taxing authorities do not separately assess Tenant's leasehold improvements, Landlord may make an appropriate allocation of the ad valorem taxes allocated to the Project to give effect to this sentence) (for purposes of this subparagraph only, "building standard allowances" shall mean the improvements which exist in the Demised Premises as of the Term Commencement Date plus all additional improvements constructed using the Tenant Improvement Allowances); (11) the cost of operating the management office for the Project, including cost of office supplies, telephone expenses and non-capital investment equipment and amortization (together with reasonable financing charges) of the cost of capital investment equipment; and (12) management fees consistent with those charged for comparable buildings in the north central submarket of Atlanta, Georgia. Tenant acknowledges that the Project is part of a development, which will or may include other improvements and that the costs of management, operation and maintenance of the development shall, from time to time, be allocated among and shared by two or more of the improvements in the development (including the Project). The determination of such costs and their allocation shall be made by Landlord in its reasonable discretion. In addition, Landlord reserves the right to recompute and adjust the base year of any component of Operating Expenses at any time during the Lease Term as a result of any reallocation within the Project. Accordingly, the term "Operating Expenses" as used in this Lease shall, from time to time, include some costs, expenses and taxes enumerated above which were incurred with respect to other improvements in the development but which were allocated to and shared by the Project in accordance with the foregoing. Notwithstanding the foregoing, Tenant understands and agrees that its right to use other portions of the development of which the Project is a part are those available to the general public and that this Lease does not grant to Tenant additional rights of use. (b) For purposes of this Lease, and notwithstanding anything in any other provision of this Lease to the contrary, "Operating Expenses" shall not include the following: (1) the cost of any special work or service performed for any tenant (including Tenant) at such tenant's cost; (2) the cost of installing, operating and maintaining any specialty service, such as an observatory, broadcasting facility, luncheon club, restaurant, cafeteria, retail store, sundry shop, newsstand, or concession, but only to the extent such costs exceed those which would normally be expected to be incurred had such space been general office space; (3) the cost of correcting defects in construction; (4) compensation paid to officers and executives of Landlord (but it is understood that the on-site building manager and other on-site employees below the grade of building manager may carry a title such as vice president and the salaries and related benefits of these officers/employees of Landlord would be allowable Operating Expenses under Article 9[a][1] above); (5) the cost of any items for which Landlord is reimbursed by insurance, condemnation or otherwise, except for costs reimbursed pursuant to provisions similar to Articles 8 and 9 hereof; (6) the cost of any additions, changes, replacements and other items which are made in order to prepare for a new tenant's occupancy; (7) the cost of repairs incurred by reason of fire or other casualty; (8) insurance premiums to the extent Landlord may be directly reimbursed therefor, except for premiums reimbursed pursuant to provisions similar to Articles 8 and 9 hereof; (9) interest on debt or amortization payments on any mortgage or deed to secure debt (except to the extent specifically permitted by Article 9[a]) and rental under any ground lease or other underlying lease; (10) any real estate brokerage commissions or other costs incurred in procuring tenants or any fee in lieu of such commission; (11) any advertising expenses incurred in connection with the marketing of any rentable space; (12) rental payments for base building equipment such as HVAC equipment and elevators; (13) any expenses for repairs or maintenance which are covered by warranties and service contracts, to the extent such maintenance and repairs are made at no cost to Landlord; 5 (14) legal expenses arising out of the construction of the improvements on the Land or the enforcement of the provisions of any lease affecting the Land or Building, including without limitation this Lease; and (15) amortization or depreciation of the cost of acquisition of the Building, project and any improvements thereto (other than those described in section 9(a)(6). See Special Stipulation No. 22. 10. TENANT TAXES. Tenant shall pay promptly when due all taxes directly or indirectly imposed or assessed upon Tenant's gross sales, business operations, machinery, equipment, trade fixtures and other personal property or assets, whether such taxes are assessed against Tenant, Landlord or the Building. In the event that such taxes are imposed or assessed against Landlord or the Building, Landlord shall furnish Tenant with all applicable tax bills, public charges and other assessments or impositions and Tenant shall forthwith pay the same either directly to the taxing authority or, at Landlord's option, to Landlord. 11. PAYMENTS. All payments of Rent and other payments to be made to Landlord shall be made on a timely basis and shall be payable to Landlord or as Landlord may otherwise designate. All such payments shall be mailed or delivered to Landlord's Address designated in Article 1(b) above or at such other place as Landlord may designate from time to time in writing. If mailed, all payments shall be mailed in sufficient time and with adequate postage thereon to be received in Landlord's account by no later than the due date for such payment. 12. LATE CHARGES. Any Rent or other amounts payable to Landlord under this Lease, if not paid by the fifth day of the month for which such Rent is due, or by the due date specified on any invoices from Landlord for any other amounts payable hereunder, shall incur a late charge of Fifty Dollars ($50.00) for Landlord's administrative expense in processing such delinquent payment and in addition thereto shall bear interest at the rate of fifteen percent (15%) per annum from and after the due date for such payment. Notwithstanding anything to the contrary contained in this Lease, in no event shall the rate of interest payable on any amount due under this Lease exceed the legal limits for such interest enforceable under applicable law. 13. USE RULES. The Demised Premises shall be used for executive, general administrative and office space purposes, including, without limitation, sales offices, training facilities for Tenant's customers and employees, ancillary kitchen facilities (including use of vending machines), and no other purposes and in accordance with all applicable laws, ordinances, rules and regulations of governmental authorities and the Rules and Regulations attached hereto and made a part hereof. Tenant covenants and agrees that it will, at its expense, comply with all laws, ordinances, orders, directions, requirements, rules and regulations of all governmental authorities (including Federal, State, county and municipal authorities), now in force or which may hereafter be in force ("Legal Requirements"), which shall impose any duty upon Landlord or Tenant with respect to the use, occupancy or alteration of the Demised Premises, and of all insurance bodies applicable to the Demised Premises or to the Tenant's use or occupancy thereof. Notwithstanding the foregoing, nothing in this Lease shall be construed to require Tenant to make any structural repairs, alterations or modifications to the Demised Premises, the Building (including the bathrooms and Common Areas) or the Project, in connection with any Legal Requirements. Tenant covenants and agrees to abide by the Rules and Regulations in all respects as now set forth and attached hereto or as hereafter promulgated by Landlord, provided that such rules do not materially and adversely affect Tenant's rights hereunder. Landlord shall have the right at all times during the Lease Term to publish and promulgate and thereafter enforce such rules and regulations or changes in the existing Rules and Regulations as it may reasonably deem necessary in its sole discretion to protect the tenantability, safety, operation, and welfare of the Demised Premises and the Project. See Special Stipulation No. 27. 14. ALTERATIONS. Except for any initial improvement of the Demised Premises pursuant to EXHIBIT "D", which shall be governed by the provisions of said EXHIBIT "D", Tenant shall not make, suffer or permit to be made any alterations, additions or improvements to or of the Demised Premises or any part thereof, or attach any fixtures or equipment thereto, without first obtaining Landlord's written consent. With respect to any alteration, addition or improvement which does not affect the structure of the Building, does not affect any of the Building's systems (e.g., mechanical, electrical or plumbing), does not diminish the capacity of such Building systems available to other portions of the Building, is not visible from the common areas or exterior of the Building, and is in full compliance with all laws, orders, ordinances, directions, requirements, rules and regulations of all governmental authorities. Landlord's consent shall not be unreasonably withheld (and Landlord's consent shall not be required if the cost of the aforesaid type of alteration is less than $15,000.00). Any such alterations, additions or improvements to the Demised Premises consented to by Landlord shall be made by Landlord or under Landlord's supervision for Tenant's account and Tenant shall reimburse Landlord for all costs thereof (including a reasonable charge for Landlord's overhead), as Rent, within ten (10) days after receipt of a statement. All such alterations, additions and improvements (except for Tenant's trade fixtures and computer and electronic equipment) shall become Landlord's property at the expiration or earlier termination of the Lease Term and shall remain on the Demised Premises without compensation to Tenant unless Landlord elects by notice to Tenant to have Tenant remove such alterations, additions and improvements, in which event, notwithstanding any contrary provisions respecting such alterations, additions and improvements contained in Article 32 hereof, Tenant shall promptly restore, at its sole cost and expense, the Demised Premises to its condition prior to the installation of such alterations, additions and improvements, normal wear and tear excepted. Tenant shall under no circumstances be required to remove any alterations, additions and improvements which are part of the initial improvement of the Demised Premises which do not require Landlord's consent, or which are made with Landlord's consent (unless the removal requirement is specified by Landlord at the time of initial approval). See Special Stipulation No. 39. 6 15. REPAIRS. (a) Landlord shall maintain in good order and repair, subject to normal wear and tear and subject to casualty and condemnation, the Building (excluding the Demised Premises, other than the structural portions thereof, and other portions of the Building leased to other tenants, other than the structural portions thereof), the Building parking facilities, the public areas and the landscaped areas. Notwithstanding the foregoing obligation, the cost of any repairs or maintenance to the foregoing necessitated by the intentional acts or negligence of Tenant or its agents, contractors, employees, invitees, licensees, tenants or assigns, shall be borne solely by Tenant and shall be deemed Rent hereunder and shall be reimbursed by Tenant to Landlord upon demand. Landlord shall not be required to make any repairs or improvements to the Demised Premises except structural repairs necessary for safety and tenantability. (b) Tenant covenants and agrees that it will take good care of the Demised Premises and all alterations, additions and improvements thereto and will keep and maintain the same in good condition and repair, except for normal wear and tear (Covered Repairs" (as defined in Special Stipulation No. 36), condemnation and casualty. To the fullest extent permitted by law, Tenant hereby waives all rights to make repairs at the expense of Landlord or in lieu thereof to vacate the Demised Premises as may be provided by any law, statute or ordinance now or hereafter in effect. Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Demised Premises or any part thereof, except as specifically and expressly herein set forth. 16. LANDLORD'S RIGHT OF ENTRY. Landlord shall retain duplicate keys to all doors of the Demised Premises and Landlord and its agents, employees and independent contractors shall have the right to enter the Demised Premises at reasonable hours to inspect and examine same, to make repairs, additions, alterations and improvements, to exhibit the Demised Premises to mortgagees, prospective mortgagees, purchasers or tenants, and to inspect the Demised Premises to ascertain that Tenant is complying with all of its covenants and obligations hereunder, all without being liable to Tenant in any manner whatsoever for any damages arising therefrom, unless caused by Landlord's negligence or willful misconduct; provided, however, that Landlord shall, except in case of emergency, afford Tenant such prior notification of any entry into the Demised Premises as shall be reasonably practicable under the circumstances. Landlord shall be allowed to take into and through the Demised Premises any and all materials (except hazardous substances as defined in Article 43) that may be required to make such repairs. During such time as such work is being carried on, in or about the Demised Premises, the Rent provided herein shall not abate, and Tenant waives any claim or cause of action against Landlord for damages by reason of interruption of Tenant's business or loss of profits therefrom because of the prosecution of any such work or any part thereof. See Special Stipulation No. 23. 17. INSURANCE. Tenant shall procure at its expense and maintain throughout the Lease Term a policy or policies of commercial property insurance, issued on an "all risks" basis insuring the full replacement cost with a reasonable deductible amount of its furniture, equipment, supplies and other property owned, leased, held or possessed by it and contained in the Demised Premises, together with the excess value of the improvements to the Demised Premises over the "building standard allowances" as defined in subparagraph 9(a)(10) (with a replacement cost endorsement sufficient to prevent Tenant from becoming a co-insurer), and workmen's compensation insurance as required by applicable law. Tenant shall also procure at its expense and maintain throughout the Lease Term a policy or policies of commercial general liability insurance, written on an occurrence basis and insuring Tenant, and naming as an additional insured, Landlord and any mortgagee identified by written notice to Tenant, against any and all liability for injury to or death of a person or persons and for damage to property occasioned by or arising out of any construction work being done on the Demised Premises by Tenant or its agent or contractors, or arising out of the use or occupancy of the Demised Premises, or in any way occasioned by or arising out of the activities of Tenant, its agents, contractors, employees, guests or licensees in the Demised Premises, or other portions of the Building or the Project, the limits of such policy or policies to be in combined single limits for both damage to property and personal injury and in amounts not less than Three Million Dollars ($3,000,000.00) for each occurrence. Such insurance shall, in addition, extend to any liability of Tenant arising out of the indemnities provided for in this Lease. Landlord shall keep and maintain in effect fire insurance with extended coverage in an amount equal to at least eighty percent (80%) of the insurable amount of the Building. Such insurance company (an "Eligible Company") shall be solvent, authorized to do business in Atlanta, Georgia, and be acceptable to prudent landlords of first class office buildings in the Atlanta, Georgia, area similar to the Building. Landlord shall keep and maintain comprehensive general liability insurance, including contractual liability coverage issued by an Eligible Company. The insurance policies evidencing the coverages described above shall contain such terms and conditions as similar policies obtained by landlords of similar first class office buildings in the Atlanta, Georgia, area. All insurance policies procured and maintained by Tenant pursuant to this Article 17 shall name Landlord and any mortgagee as additional insured, shall be carried with companies licensed to do business in the State of Georgia reasonably satisfactory to Landlord and shall be non-cancelable and not subject to material change except after twenty (20) days' written notice to Landlord. Duly executed certificates of insurance with respect to such policies, accompanied by proof of payment of the premium therefor, shall be delivered to Landlord prior to the Rental Commencement Date, and renewals of such policies shall be delivered to Landlord at least thirty (30) days prior to the expiration of each respective policy term. 18. WAIVER OF SUBROGATION. Landlord and Tenant shall each have included in all policies of commercial property insurance, commercial general liability insurance, and business interruption and other insurance respectively obtained by them pursuant to this Lease, a waiver by the insurer of all right of subrogation against the other in connection with any loss or damage thereby insured against. Any additional premium for such waiver shall be paid by the primary insured. To the full extent permitted by law, Landlord and Tenant each waives all right of recovery against the other for, and releases the other from liability for, loss or damage to the extent such loss or damage is covered by valid and collectible insurance in effect at the time of such loss or damage or, in the event of self-insurance or a failure to insure, would be covered by the insurance required to be maintained under this Lease by the party seeking recovery. 7 19. DEFAULT (a) The following events shall be deemed to be events of default by Tenant under this Lease: (i) Tenant shall fail to pay any installment of Rent or any other charge or assessment against Tenant pursuant to the terms hereof within five (5) days following written notice by Landlord to Tenant of its failure to pay such installments, provided that Landlord shall not be obligated to send to Tenant such written notice more often than twice in any calendar year during the term hereof; (ii) Tenant shall fail to comply with any term, provision, covenant or warranty made under this Lease by Tenant, other than the payment of the Rent or any other charge or assessment payable by Tenant, and shall not cure such failure within twenty (20) days after notice thereof to Tenant; (iii) Tenant or any guarantor of this Lease shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file a petition in any proceeding seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file an answer admitting or fail timely to contest the material allegations of a petition filed against it in any such proceeding; (iv) a proceeding is commenced against Tenant or any guarantor of this Lease seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, and such proceeding shall not have been dismissed within forty-five (45) days after the commencement thereof; (v) a receiver or trustee shall be appointed for the Demised Premises or for all or substantially all of the assets of Tenant or of any guarantor of this Lease (unless such receiver is removed within thirty (30) days after appointment thereof); and (vi) Tenant shall do or permit to be done anything which creates a lien upon the Demised Premises or the Project and such lien is not removed or discharged within fifteen (15) days after the filing thereof. Notwithstanding the foregoing, in the case of a non-monetary default which is subject to cure but which cannot by its very nature be cured within said twenty (20) day period, Tenant shall be granted an additional period of time, not to exceed twenty-five (25) days, in which to effect such cure, provided Tenant promptly commences to cure such default and diligently pursues said cure to completion. (b) Upon the occurrence of any of the aforesaid events of default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (i) terminate this Lease, in which event Tenant shall immediately surrender the Demised Premises to Landlord and if Tenant fails to do so, Landlord may without prejudice to any other remedy which it may have for possession or arrearages in Rent, enter upon and take possession of the Demised Premises and expel or remove Tenant and any other person who may be occupying said Demised Premises or any part thereof, in accordance with applicable law, without being liable for prosecution or any claim of damages therefor; Tenant hereby agreeing to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Demised Premises on satisfactory terms or otherwise; (ii) terminate Tenant's right of possession (but not this Lease) and enter upon and take possession of the Demised Premises and expel or remove Tenant and any other person who may be occupying said Demised Premises or any part thereof, by entry (in accordance with applicable law), dispossessory suit or otherwise, without thereby releasing Tenant from any liability hereunder, without terminating this Lease, and without being liable for prosecution or any claim of damages therefor and, if Landlord so elects, make such alterations, redecorations and repairs as, in Landlord's judgment, may be necessary to relet the Demised Premises, and Landlord may, but shall be under no obligation to do so, relet the Demised Premises or any portion thereof in Landlord's or Tenant's name, but for the account of Tenant, for such term or terms (which may be for a term extending beyond the Lease Term) and at such rental or rentals and upon such other terms as Landlord may deem advisable, with or without advertisement, and by private negotiations, and receive the rent therefor, Tenant hereby agreeing to pay to Landlord the deficiency, if any, between all Rent reserved hereunder and the total rental applicable to the Lease Term hereof obtained by Landlord re-letting, and Tenant shall be liable for Landlord's expenses in redecorating and restoring the Demised Premises and all costs incident to such re-letting, including broker's commissions and lease assumptions, and in no event shall Tenant be entitled to any rentals received by Landlord in excess of the amounts due by Tenant hereunder; or (iii) enter upon the Demised Premises, in accordance with applicable law, without being liable for prosecution or any claim of damages therefor, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses including, without limitation, reasonable attorneys' fees which Landlord may incur in this effecting compliance with Tenant's obligations under this Lease and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action. If this Lease is terminated by Landlord as a result of the occurrence of an event of default, Landlord may declare due and payable immediately an amount determined as follows: (x) the entire amount of Rent and other charges and assessments which would have become due and payable during the remainder of the Lease Term (including, without limitation, increases in Rent pursuant to Article 7 hereof), discounted to present value by using a discount factor of eight percent (8%) per annum, plus (y) all of Landlord's costs and expenses (including, without limitation, Landlord's expenses in redecorating and restoring the Demised Premises and all costs relating to such reletting, including broker's commissions and lease assumptions) reasonably incurred in connection with or related to the reletting of the Demised Premises, minus (z) the market rental value of the Demised Premises for the remainder of the Lease Term, based on Landlord's reasonable determination of both future rental value and the probability of reletting the Demised Premises for all or part of the remaining Term, discounted to present value by using a discount factor of eight percent (8%) per annum. Such payment shall not constitute a penalty or forfeiture but shall constitute liquidated damages for Tenant's failure to comply with the terms and provisions of this Lease (Landlord and Tenant agreeing that Landlord's exact damages in such event are impossible to ascertain and that the amount set forth above is a reasonable estimate thereof). For purposes of determining what could be collected by Landlord by reletting under this subsection, Landlord is not required to relet when other comparable space in the Building is available. The term "remaining Lease Term" as used in this subsection shall mean the period which otherwise would have (but for the termination of this Lease) constituted the balance of the Lease Term from the date of the termination of this Lease. (c) Pursuit of any of the foregoing remedies shall not preclude pursuit of any other remedy herein provided or any other remedy provided by law or at equity, nor shall pursuit of any remedy herein provided constitute an election of remedies thereby excluding the later election of an alternate remedy, or a forfeiture or waiver of any Rent or other charges and assessments payable by Tenant and due to Landlord hereunder or of any damages accruing to Landlord by reason of violation of any of the terms, covenants, warranties and provisions herein contained. No reentry or taking possession 8 of the Demised Premises by Landlord or any other action taken by or on behalf of Landlord shall be construed to be an acceptance of a surrender of this Lease or an election by Landlord to terminate this Lease unless written notice of such intention is given to Tenant. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. In determining the amount of loss or damage which Landlord may suffer by reason of termination of this Lease or the deficiency arising by reason of any reletting of the Demised Premises by Landlord as above provided, allowance shall be made for the expense of repossession. Tenant agrees to pay to Landlord all costs and expenses incurred by Landlord in the enforcement of this Lease, including without limitation, the fees of Landlord's attorneys as provided in Article 25 hereof. 20. WAIVER OF BREACH. No waiver of any breach of the covenants, warranties, agreements, provisions, or conditions contained in this Lease shall be construed as a waiver of said covenant, warranty, provision, agreement or condition or of any subsequent breach thereof, and if any breach shall occur and afterwards be compromised, settled or adjusted, this Lease shall continue in full force and effect as if no breach had occurred. 21. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord, assign this Lease or any interest herein or in the Demised Premises, or mortgage, pledge, encumber, hypothecate or otherwise transfer or sublet the Demised Premises or any part thereof or permit the use of the Demised Premises by any party other than Tenant. Consent to one or more such transfers or subleases shall not destroy or waive this provision, and all subsequent transfers and subleases shall likewise be made only upon obtaining the prior written consent of Landlord. Without limiting the foregoing prohibition, in no event shall Tenant assign this Lease or any interest herein, whether directly, indirectly or by operation of law, or sublet the Demised Premises or any part thereof or permit the use of the Demised Premises or any part thereof by any party if such proposed assignment, subletting or use would contravene any restrictive covenant (including any exclusive use) granted to any other tenant of the Building or would contravene the provisions of Article 13 of this Lease. Sublessees or transferees of the Demised Premises for the balance of the Lease Term shall become directly liable to Landlord for all obligations of Tenant hereunder, without relieving Tenant (or any guarantor of Tenant's obligations hereunder) of any liability therefor, and Tenant shall remain obligated for all liability to Landlord arising under this Lease during the entire remaining Lease Term including any extensions thereof, whether or not authorized herein. If Tenant is a partnership, a withdrawal or change, whether voluntary, involuntary or by operation of law, of partners owning a controlling interest in the Tenant shall be deemed a voluntary assignment of this Lease and subject to the foregoing provisions. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or the sale or transfer of a controlling interest in the capital stock of Tenant, whether in a single transaction or in a series of transactions, shall be deemed a voluntary assignment of this Lease and subject to the foregoing provisions. Landlord may, as a prior condition to considering any request for consent to an assignment or sublease, require Tenant to obtain and submit current financial statements of any proposed subtenant or assignee and such other financial documentation relative to the proposed subtenant or assignee as Landlord may reasonably require. In the event Landlord consents to an assignment or sublease, Tenant shall pay to Landlord a fee to cover Landlord's accounting costs plus any legal fees actually incurred by Landlord as a result of the assignment or sublease (not to exceed $1,000.00). The consent of Landlord to any proposed assignment or sublease may be withheld by Landlord in its sole and absolute discretion. Any consideration, in excess of the Rent and other charges and sums due and payable by Tenant under this Lease, paid to Tenant by any assignee of this Lease for its assignment, or by any sublessee under or in connection with its sublease, or otherwise paid to Tenant by another party for use and occupancy of the Demised Premises or any portion thereof (after deducting Tenant's reasonable costs associated therewith, including brokerage fees, attorneys' fees and remodeling costs), shall be promptly remitted by Tenant to Landlord as additional rent hereunder and Tenant shall have no right or claim thereto as against Landlord. No assignment of this Lease consented to by Landlord shall be effective unless and until Landlord shall receive an original assignment and assumption agreement, in form and substance satisfactory to Landlord, signed by Tenant and Tenant's proposed assignee, whereby the assignee assumes due performance of this Lease to be done and performed for the balance of the then remaining Lease Term of this Lease. No subletting of the Demised Premises, or any part thereof, shall be effective unless and until there shall have been delivered to Landlord an agreement, in form and substance satisfactory to Landlord, signed by Tenant and the proposed sublessee, whereby the sublessee acknowledges the right of Landlord to continue or terminate any sublease, in Landlord's sole discretion, upon termination of this Lease, and such sublessee agrees to recognize and attorn to Landlord in the event that Landlord elects under such circumstances to continue such sublease. Upon Landlord's receipt of a request by Tenant to assign this Lease or any interest herein or in the Demised Premises or to transfer or sublet the Demised Premises or any part thereof or permit the use of the Demised Premises by any party other than Tenant, Landlord shall exercise in writing one of the following options: (a) to terminate this Lease as to the portion of the Demised Premises proposed to be assigned or sublet; (b) to consent to the proposed assignment or sublease, subject to the other terms and conditions set forth in this Article 21; or (c) to refuse to consent to the proposed assignment or sublease, which refusal shall be deemed to have been exercised unless Landlord gives Tenant written notice providing otherwise. Landlord agrees to respond to any such request within ten (10) days after receipt of such request, together with such information as may be reasonably necessary to enable Landlord to make an informed decision with respect to such request. See Special Stipulation No. 5. 22. DESTRUCTION. (a) If the Demised Premises are damaged by fire or other casualty, the same shall be repaired or rebuilt as speedily as practical under the circumstances as the expense of Landlord, unless this Lease is terminated as provided in this Article 22, and during the period required for restoration, a just and proportionate part of Base Rental shall be abated until the Demised Premises are repaired or rebuilt. (b) If the Demised Premises are (i) damaged to such an extent that repairs cannot be completed within one hundred eighty (180) days after the date of the casualty, or (ii) damaged or destroyed as a result of a risk which is not insured under the insurance policies required hereunder, or (iii) damaged or destroyed during the last eighteen (18) months of the Lease Term, or (iv) if the Building is damaged in whole or in part (whether or not the Demised Premises are damaged) to such an extent that the Building cannot, in Landlord's reasonable judgment, be operated economically as an integral unit, then and in any such event Landlord may at its option terminate this Lease by notice in writing to Tenant within sixty (60) days after the day of such occurrence. With respect to condition (iv) above, Landlord must terminate all other leases 9 in the Building in order to terminate this Lease. If the Demised Premises are damaged to such an extent that repairs cannot reasonably be anticipated to be to be or are not completed within one hundred eighty (180) days after the date of the casualty or if the Demised Premises are substantially damaged during the last eighteen (18) months of the Lease Term, then in either such event Tenant may elect to terminate this Lease by notice in writing to Landlord given within forty-five (45) days after the date of such occurrence (or within thirty (30) days of the conclusion of such one hundred eighty (180) day period if the repairs are not completed within such period). Unless Landlord or Tenant elects to terminate this Lease as hereinabove provided, this Lease will remain in full force and effect and Landlord shall repair such damage at its expense to the extent required under subparagraph (c) below as expeditiously as possible under the circumstances. (c) If Landlord should elect or be obligated pursuant to subparagraph (a) above to repair or rebuild because of any damage or destruction, Landlord's obligation shall be limited to the original Building and any other work or improvements which were originally performed or installed at Landlord's expense as described in EXHIBIT "D" hereto or with the proceeds of the Tenant Improvement Allowance. If Landlord's mortgagee or the lessor under a ground or underlying lease shall require that any insurance proceeds from a casualty loss be paid to it, Landlord may terminate this Lease unless Tenant, within fifteen (15) days after demand therefor, deposits with Landlord a sum of money sufficient to pay the difference between the cost of repair and the proceeds of the insurance available to Landlord for such purpose. (d) In no event shall Landlord be liable for any loss or damage sustained by Tenant by reason of casualties mentioned hereinabove or any other accidental casualty. (e) In the event of a minor casualty (i.e., one which can be fully repaired in less than thirty (30) days), Landlord shall not be entitled to terminate this Lease and shall restore the Demised Premises in accordance with the provisions of this Article 22. See Special Stipulation No. 37. 23. LANDLORD'S LIEN. [INTENTIONALLY DELETED.] 24. SERVICES BY LANDLORD. Landlord shall provide the Building Standard Services described on EXHIBIT "E" attached hereto and by this reference made a part hereof. 25. ATTORNEYS' FEES AND HOMESTEAD. [INTENTIONALLY DELETED.] See Special Stipulation No. 18. 26. TIME. Time is of the essence of this Lease and whenever a certain day is stated for payment or performance of any obligation of Tenant or Landlord, the same enters into and becomes a part of the consideration hereof. 27. SUBORDINATION AND ATTORNMENT. (a) Tenant agrees that this Lease and all rights of Tenant hereunder are and shall be subject and subordinate to any ground or underlying lease which may now or hereafter be in effect regarding the Project or any component thereof, to any mortgage now or hereafter encumbering the Demised Premises or the Project or any component thereof, to all advances made or hereafter to be made upon the security of such mortgage, to all amendments, modifications, renewals, consolidations, extensions and restatements of such mortgage, and to any replacements and substitutions for such mortgage. The terms of this provision shall be self-operative and no further instrument of subordination shall be required. Tenant, however, upon request of any party in interest, shall execute promptly such instrument or certificates as may be reasonably required to carry out the intent hereof, whether said requirement is that of Landlord or any other party in interest, including, without limitation, any mortgagee. (b) If any mortgagee or lessee under a ground or underlying lease elects to have this Lease superior to its mortgage or lease and signifies its election in the instrument creating its lien or lease or by separate recorded instrument, then this Lease shall be superior to such mortgage or lease, as the case may be. The term "mortgage", as used in this Lease, includes any deed to secure debt, deed of trust or security deed and any other instrument creating a lien in connection with any other method of financing or refinancing. The term "mortgagee", as used in this Lease, refers to the holder(s) of the indebtedness secured by a mortgage. (c) In the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under, any mortgage covering the Demised Premises or the Project, or in the event the interests of Landlord under this Lease shall be transferred by reason of deed in lieu of foreclosure or other legal proceedings, or in the event of termination of any lease under which Landlord may hold title, Tenant shall, at the option of the transferee or purchaser at foreclosure or under power of sale, or the lessor of the Landlord upon such lease termination, as the case may be (sometimes hereinafter called "such person"), attorn to such person and shall recognize and be bound and obligated hereunder to such person as the Landlord under this Lease; provided, however, that no such person shall be (i) bound by any payment of Rent for more than one (1) month in advance, except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease; (ii) bound by any amendment or modification of this Lease made without the express written consent of the mortgagee or lessor of the Landlord, as the case may be (provided that Tenant was notified in writing of such mortgagee or lessor of Landlord); (iii) obligated to cure any defaults under this Lease of any prior landlord (including Landlord); (iv) liable for any act or omission of any 10 prior landlord (including Landlord); (v) subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord); or (vi) bound by any warranty or representation of any prior landlord (including Landlord) relating to work performed by any prior landlord (including Landlord) under this Lease. Landlord's successor shall not be liable for the matters described in clauses (iii) through (vi) of the preceding sentence, provided Landlord shall remain liable to Tenant for the matters described therein. Tenant agrees to execute any attornment agreement reasonable in form and content and not in conflict herewith requested by Landlord, the mortgagee or such person. Tenant's obligation to attorn to such person shall survive the exercise of any such power of sale, foreclosure or other proceeding. Tenant agrees that the institution of any suit, action or other proceeding by any mortgagee to realize on Landlord's interest in the Demised Premises or the Building pursuant to the powers granted to a mortgagee under its mortgage, shall not, by operation of law or otherwise, result in the cancellation or termination of the obligations of Tenant hereunder. Landlord and Tenant agree that notwithstanding that this Lease is expressly subject and subordinate to any mortgages, any mortgagee, its successors and assigns, or other holder of a mortgage or of a note secured thereby, may sell the Demised Premises or the Building, in the manner provided in the mortgage and may, at the option of such mortgagee, its successors and assigns, or other holder of the mortgage or note secured thereby, make such sale of the Demised Premises or Building subject to this Lease. See Special Stipulation No. 6. 28. ESTOPPEL CERTIFICATES. Within twenty (20) days after written request therefor by Landlord, Tenant agrees to execute and deliver to Landlord in recordable form an estoppel certificate addressed to Landlord, any mortgagee or assignee of Landlord's interest in, or purchaser of, the Demised Premises or the Building or any part thereof, certifying (if such be the case) that this Lease is unmodified and is in full force and effect (and if there have been modifications, that the same is in full force and effect as modified and stating said modifications); that there are no defenses or offsets against the enforcement thereof to Tenant's knowledge or stating those claimed by Tenant; and stating the date to which Rent and other charges have been paid. Such certificate shall also include such other information concerning the Lease and Tenant's occupancy as may reasonably be required by such mortgagee, proposed mortgagee, assignee, purchaser or Landlord. Any such certificate may be relied upon by Landlord, any mortgagee, proposed mortgagee, assignee, purchaser and any other party to whom such certificate is addressed. Upon written request from Tenant, Landlord agrees to provide estoppel certificates to Tenant generally in the same manner as set forth herein above. 29. NO ESTATE. This Lease shall create the relationship of landlord and tenant only between Landlord and Tenant and no estate shall pass out of Landlord. Tenant shall have only an usufruct, not subject to levy and sale and not assignable in whole or in part by Tenant except as herein provided. 30. CUMULATIVE RIGHTS. All rights, powers and privileges conferred hereunder upon the parties hereto shall be cumulative to, but not restrictive of, or in lieu of those conferred by law. 31. HOLDING OVER. If Tenant remains in possession after expiration or termination of the Lease Term with or without Landlord's written consent, Tenant shall become a tenant-at-sufferance, and there shall be no renewal of this Lease by operation of law. During the period of any such holding over, all provisions of this Lease shall be and remain in effect except that the monthly rental shall be one hundred fifty percent (150%) of Rent (including any adjustments as provided herein) payable for the last full calendar month of the Lease Term including renewals or extensions. The inclusion of the preceding sentence in this Lease shall not be construed as Landlord's consent for Tenant to hold over. 32. SURRENDER OF PREMISES. Upon the expiration or other termination of this Lease, Tenant shall quit and surrender to Landlord the Demised Premises and every part thereof and all alterations, additions and improvements thereto, broom clean and in good condition and state of repair, reasonable wear and tear and damage caused by casualty or condemnation excepted. Tenant shall remove all personalty and equipment not attached to the Demised Premises which it has placed upon the Demised Premises, and Tenant shall restore the Demised Premises to the condition immediately preceding the time of placement thereof. If Tenant shall fail or refuse to remove all of Tenant's effects, personalty and equipment from the Demised Premises upon the expiration or termination of this Lease for any cause whatsoever or upon Tenant being dispossessed by process of law or otherwise, such effects, personalty and equipment shall be deemed upon three (3) business days prior written notice to Tenant to be abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without written notice to Tenant or any other party and without obligation to account for them. Tenant shall pay Landlord on demand any and all reasonable expenses incurred by Landlord in the removal of such property, including, without limitation, the cost of repairing any damage to the Building or Project caused by the removal of such property and storage charges (if Landlord elects to store such property). The covenants and conditions of this Article 32 shall survive any expiration or termination of this Lease. See Special Stipulation No. 39. 33. NOTICES. All notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been fully given, whether actually received or not, when delivered in person, or one (1) days after being deposited with an overnight commercial courier, or three (3) days after being deposited, postage prepaid, in the United States Mail, certified, return receipt requested, and addressed to Landlord or Tenant at their respective address set forth hereinabove or at such other address as either party shall have theretofore given to the other by notice as herein provided. See Special Stipulation No. 33. 34. DAMAGE OR THEFT OF PERSONAL PROPERTY. All personal property brought into the Demised Premises by Tenant, or Tenant's employees, agents, or business visitors, shall be at the risk of Tenant only, and Landlord shall not be liable for theft thereof or any damage thereto occasioned by any act 11 of co-tenants, occupants, invitees or other users of the Building or any other person unless damage or theft is caused by Landlord's negligence or misconduct. Landlord shall not at any time be liable for damage to any personal property of Tenant, its employees, sublessees, or invitees in or upon the Demised Premises, which results from gas, smoke, water, rain, ice or snow which issues or leaks from or forms upon any part of the Building or from the pipes or plumbing work of the same, or from any other place whatsoever unless damage is caused by Landlord's negligence or misconduct. 35. EMINENT DOMAIN. (a) If all or part of the Project shall be taken for any public or quasi-public use by virtue of the exercise of the power of eminent domain or by private purchase in lieu thereof, this Lease shall terminate as to any part of the Demised Premises so taken as of the date of taking, and, in the case of a partial taking, either Landlord or Tenant shall have the right to terminate this Lease by written notice to the other within thirty (30) days after such date; provided, however, that a condition to the exercise by Tenant of such right to terminate shall be that the portion of the Project taken shall be of such extent and nature as to materially impair Tenant's use of the balance of the Demised Premises (i.e. insufficient parking, lack of access, non-availability of essential services). If title to so much of the Project is taken that a reasonable amount of reconstruction thereof will not in Landlord's sole discretion result in the Building being a practical improvement and reasonably suitable for use for the purpose for which it is designed, then this Lease shall terminate on the date that the condemning authority actually takes possession of the part so condemned or purchased; provided, however, that as a condition to terminating this Lease, Landlord must also terminate all other leases in the Building. If a temporary taking has a material, adverse effect on the Demised Premises and will extend beyond one hundred eighty (180) days, then Tenant shall have the right to terminate this Lease by timely notice to Landlord. If any part of the Demised Premises is taken and Tenant elects not to terminate the Lease, rent will be reduced in proportion to the area of the Demised Premises so taken. (b) If this Lease is terminated under the provisions of this Article 35, Rent shall be apportioned and adjusted as of the date of termination. Tenant shall have no claim against Landlord or against the condemning authority for the value of any leasehold estate or for the value of the unexpired Lease Term provided that the foregoing shall not preclude any claim that Tenant may have against the condemning authority for the unamortized cost of leasehold improvements, to the extent the same were installed at Tenant's expense (and not with the proceeds of the Tenant Improvement Allowance), or for loss of business, moving expenses or other consequential damages, in accordance with subparagraph (d) below. (c) If there is a partial taking of the Project and this Lease is not thereupon terminated under the provisions of this Article 35, then this Lease shall remain in full force and effect, and Landlord shall, within a reasonable time thereafter, repair or reconstruct the remaining portion of the Project or Building to the extent necessary to make the same a complete architectural unit; provided, that in complying with its obligations hereunder, Landlord shall not be required to expend more than the net proceeds of the condemnation award which are paid to Landlord. Upon any such partial taking, Landlord shall have the right to reduce the figure described in Article 8(b)(y) hereof by an amount equal to the product of (x) the amount of tax savings arising from such partial taking, as determined by Landlord in its reasonable discretion, divided by the number of square feet of Rentable Floor Area of the Building, multiplied by (y) the number of square feet of Rentable Floor Area of the Demised Premises. Landlord shall give Tenant notice of such adjustment and a statement setting forth a reasonably detailed explanation of how the adjustment was calculated. (d) All compensation awarded or paid to Landlord upon a total or partial taking of the Demised Premises or the Project shall belong to and be the property of Landlord without any participation by Tenant. Nothing herein shall be construed to preclude Tenant from prosecuting any claim directly against the condemning authority for loss of business, for damage to, and cost of removal of, trade fixtures, furniture and other personal property belonging to Tenant, and for the unamortized cost of leasehold improvements to the extent the same were installed at Tenant's expense (and not with the proceeds of the Tenant Improvement Allowance); provided, however, that no such claim shall diminish or adversely affect Landlord's award. (e) Notwithstanding anything to the contrary contained in this Article 35, if, during the Lease Term, the use or occupancy of any part of the Project or the Demised Premises shall be taken or appropriated temporarily for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Lease Term. In the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the loss of use or occupancy of the Demised Premises during the Lease Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration and compensation for the loss of use or occupancy of the Demised Premises after the end of the Lease Term. 36. PARTIES. The term "Landlord", as used in this Lease, shall include Landlord and its successors and assigns. It is hereby covenanted and agreed by Tenant that should Landlord's interest in the Demised Premises cease to exist for any reason during the Lease Term, then notwithstanding the happening of such event, this Lease nevertheless shall remain in full force and effect, and Tenant hereby agrees to attorn to the then owner of the Demised Premises. The term "Tenant" shall include Tenant and its heirs, legal representatives and successors, and shall also include Tenant's assignees, if this Lease shall be validly assigned for the balance of the Lease Term or any renewals or extensions thereof. In addition, Landlord and Tenant covenant and agree that Landlord's right to transfer or assign Landlord's interest in and to the Demised Premises, or any part or parts thereof, shall be unrestricted, and that in the event of any such transfer or assignment by Landlord which includes the Demised Premises, Landlord's obligations to Tenant hereunder shall cease and terminate, and Tenant shall look only and solely to Landlord's assignee or transferee for performance thereof, provided Landlord's successor assumes all of Landlord's liability hereunder. 37. [INTENTIONALLY DELETED.] 12 See Special Stipulation No. 17. 38. RELOCATION OF THE PREMISES. [INTENTIONALLY DELETED.] 39. FORCE MAJEURE. In the event of strike, lockout, labor trouble, civil commotion, Act of God, or any other cause beyond a party's control (collectively "force majeure") resulting in Landlord's inability to supply the services or perform the other obligations required of Landlord hereunder, this Lease shall not terminate and Tenant's obligation to pay Rent and all other charges and sums due and payable by Tenant shall not be affected or excused and Landlord shall not be considered to be in default under this Lease. If, as a result of force majeure, Tenant is delayed in performing any of its obligations under this Lease, other than Tenant's obligation to take possession of the Demised Premises on or before the Rental Commencement Date and to pay Rent and all other charges and sums payable by Tenant hereunder, Tenant's performance shall be excused for a period equal to such delay and Tenant shall not during such period be considered to be in default under this Lease with respect to the obligation, performance of which has thus been delayed. 40. LANDLORD'S LIABILITY. Landlord shall have no personal liability with respect to any of the provisions of this Lease. If Landlord is in default with respect to its obligations under this Lease, Tenant shall look solely to the interest of Landlord in and to the Building and the Land (including net rental income and net sales, insurance and condemnation proceeds) for satisfaction of Tenant's remedies, if any. It is expressly understood and agreed that Landlord's liability under the terms of this Lease shall in no event exceed the amount of its interest in and to said Land and Building. In no event shall any partner of Landlord nor any joint venturer in Landlord, nor any officer, director or shareholder of Landlord or any such partner or joint venturer of Landlord be personally liable with respect to any of the provisions of this Lease. 41. LANDLORD'S COVENANT OF QUIET ENJOYMENT. Provided Tenant performs the terms, conditions and covenants of this Lease, and subject to the terms and provisions hereof, Landlord covenants and agrees that Tenant shall have the quiet and peaceful possession of the Demised Premises, for the Lease Term, without hindrance, claim or molestation by Landlord or any other person lawfully claiming under Landlord. 42. SECURITY DEPOSITS. (a) As security for Tenant's obligations to take possession of the Demised Premises in accordance with the terms of this Lease and to comply with all of Tenant's covenants, warranties and agreements hereunder, Tenant shall deposit with Landlord the sum set forth in Article 1(m)(i) above on the date Tenant executes and delivers this Lease to Landlord as prepaid rent. Such amount shall be applied by Landlord, without interest, to the first monthly installment(s) of Base Rental as they become due hereunder. In the event Tenant fails to take possession of the Demised Premises as aforesaid, said sum shall be retained by Landlord for application in reduction, but not in satisfaction, of damages suffered by Landlord as a result of such breach by Tenant. (c) In the event of a sale or transfer of Landlord's interest in the Demised Premises or the Building or a lease by Landlord of the Building, Landlord shall have the right to transfer the within described security deposits to the purchaser or lessor, as the case may be, and Landlord shall be relieved of all liability to Tenant for the return of such security deposits. Tenant shall look solely to the new owner or lessor for the return of said security deposits. The security deposits shall not be mortgaged, assigned or encumbered by Tenant. In the event of a permitted assignment under this Lease by Tenant, the security deposits shall be held by Landlord as a deposit made by the permitted assignee and Landlord shall have no further liability with respect to the return of said security deposits to the original Tenant. (d) Neither Landlord nor its agents shall be required to keep the security deposits separate from their general accounts, it being agreed that the security deposits may be commingled with other funds of Landlord or of its agents. It is further agreed and acknowledged by Tenant that Landlord or its agents shall have the right to deposit the security deposits in an interest-bearing account, and all interest accrued on the security deposits shall belong to Landlord and will be retained by Landlord as its property. 43. HAZARDOUS SUBSTANCES. Tenant hereby covenants and agrees that Tenant shall not bring or cause to be brought any "Hazardous Substances" (as hereinafter defined) or knowingly permit to be generated, placed, held, stored, used, located or disposed of at the Project or any part thereof, except for Hazardous Substances as are commonly and legally used or stored as a consequence of using the Demised Premises for general office and administrative purposes, but only so long as the quantities thereof do not pose a threat to public health or to the environment or would necessitate a "response action", as that term is defined in CERCLA (as hereinafter defined), and so long as Tenant strictly complies or causes compliance with all 13 applicable governmental rules and regulations concerning the use or production of such Hazardous Substances, at the time such materials are placed in or on the Land, Building or the Demised Premises. For purposes of this Article 43, "Hazardous Substances" shall mean and include those elements or compounds which are contained in the list of Hazardous Substances adopted by the United States Environmental Protection Agency (EPA) or the list of toxic pollutants designated by Congress or the EPA which are defined as hazardous, toxic, pollutant, infectious or radioactive by any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability (including, without limitation, strict liability) or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereinafter in effect (collectively "Environmental Laws"). Tenant hereby agrees to indemnify Landlord and hold Landlord harmless from and against any and all losses, liabilities, including strict liability, damages, injuries, expenses, including reasonable attorneys' fees, costs of settlement or judgment and claims of any and every kind whatsoever paid, incurred or suffered by, or asserted against, Landlord by any person, entity or governmental agency for, with respect to, or as a direct or indirect result of Tenant's breach of this paragraph 43 (including, without limitation, any losses, liabilities, including strict liability, damages, injuries, expenses, including reasonable attorneys' fees, costs of any settlement or judgment or claims asserted or arising under the Comprehensive Environmental Response, Compensation and Liability Act ["CERCLA"], any so-called federal, state or local "Superfund" or "Superlien" laws or any other Environmental Law); provided, however, that the foregoing indemnity is limited to matters arising solely from Tenant's violation of the covenant contained in this Article. The obligations of Tenant under this Article shall survive any expiration or termination of this Lease. See Special Stipulation No. 16. 44. SUBMISSION OF LEASE. The submission of this Lease for examination does not constitute an offer to lease and this Lease shall be effective only upon execution hereof by Landlord and Tenant. 45. SEVERABILITY. If any clause or provision of the Lease is illegal, invalid or unenforceable under present or future laws, the remainder of this Lease shall not be affected thereby, and in lieu of each clause or provision of this Lease which is illegal, invalid or unenforceable, there shall be added as a part of this Lease a clause or provision as nearly identical to the said clause or provision as may be legal, valid and enforceable. 46. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with any obligation of Tenant hereunder, and no custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. This Lease may not be altered, waived, amended or extended except by an instrument in writing signed by Landlord and Tenant. This Lease is not in recordable form, and Tenant agrees not to record or cause to be recorded this Lease or any short form or memorandum thereof. 47. HEADINGS. The use of headings herein is solely for the convenience of indexing the various paragraphs hereof and shall in no event be considered in construing or interpreting any provision of this Lease. 48. BROKER. Broker(s) [as defined in Article 1(n)] is(are) entitled to a leasing commission from Landlord by virtue of this Lease, which leasing commission shall be paid by Landlord to Broker(s) in accordance with the terms of a separate agreement between Landlord and Broker(s). Tenant represents and warrants to Landlord that [except with respect to any Broker(s) identified in Article 1(n) hereinabove, which has(have) acted as agent for Tenant (and not for Landlord) in this transaction] no broker, agent, commission salesperson, or other person has represented Tenant in the negotiations for and procurement of this Lease and that [except with respect to any Broker(s) identified in Article 1(n) hereinabove] no commissions, fees or compensation of any kind are due and payable in connection herewith to any broker, agent, commission salesperson or other person as a result of any act or agreement of Tenant. Tenant agrees to indemnify and hold Landlord harmless from all loss, liability, damage, claim, judgment, cost or expense (including reasonable attorneys' fees and court costs) suffered or incurred by Landlord as a result of a breach by Tenant of the representation and warranty contained in the immediately preceding sentence or as a result of Tenant's failure to pay commissions, fees or compensation due to any broker who represented Tenant, whether or not disclosed, or as a result of any claim for any fee, commission or similar compensation with respect to this Lease made by any broker, agent or finder [other than the Broker(s) identified in Article 1(n) hereinabove] claiming to have dealt with Tenant with respect to the Lease, whether or not such claim is meritorious. The parties hereto do hereby acknowledge and agree that COMPASS Management and Leasing, Inc., a subsidiary of Equitable Real Estate Investment Management, Inc., has acted as agent for Landlord in this transaction and shall be paid a commission by Landlord in connection with this transaction pursuant to the terms of a separate written commission agreement. COMPASS Management and Leasing, Inc. has not acted as agent for Tenant in this transaction. Landlord hereby warrants and represents to Tenant that Landlord has not dealt with any broker, agent or finder other than COMPASS Management and Leasing, Inc. and Broker as defined in subparagraph 1(n) in connection with this Lease, and, Landlord hereby agrees to indemnify and hold Tenant harmless from and against any and all loss, damage, liability, claim, judgment, cost or expense (including, but not limited to, reasonable attorneys' fees and court costs) that may be incurred or suffered by Tenant because of any claim for any fee, commission or similar compensation with respect to this Lease made by any broker, agent or finder claiming to have represented Landlord. 49. GOVERNING LAW. The laws of the State of Georgia shall govern the validity, performance and enforcement of this Lease. 50. AUTHORITY. If Tenant executes this Lease as a corporation, Tenant does hereby represent and warrant that Tenant is a duly incorporated or a duly qualified (if a foreign corporation) corporation and is fully authorized and qualified to do business in the State in which the Demised Premises are located, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is an officer of the corporation and is authorized to sign on behalf of the corporation. If Tenant signs as a partnership, joint venture or sole proprietorship or other 14 business entity (each being herein called "Entity"), each of the persons executing on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing Entity, that Tenant has full right and authority to enter into this Lease, that all persons executing this Lease on behalf of the Entity are authorized to do so on behalf of the Entity, and that such execution is fully binding upon the Entity and its partners, joint venturers or principal, as the case may be. Upon the request of Landlord, Tenant shall deliver to Landlord documentation satisfactory to Landlord evidencing Tenant's compliance with this Article, and Tenant agrees to promptly execute all necessary and reasonable applications or documents as reasonably requested by Landlord, required by the jurisdiction in which the Demised Premises is located, to permit the issuance of necessary permits and certificates for Tenant's use and occupancy of the Demised Premises. 51. JOINT AND SEVERAL LIABILITY. If Tenant comprises more than one person, corporation, partnership or other entity, the liability hereunder of all such persons, corporations, partnerships or other entities shall be joint and several. 52. SPECIAL STIPULATIONS. The special stipulations attached hereto as EXHIBIT "F" are hereby incorporated herein by this reference as though fully set forth (if none, so state). To the extent the special stipulations conflict with or are inconsistent with the foregoing provisions of this Lease or any exhibit to this Lease, the special stipulations shall control. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of the day, month and year first above written. "LANDLORD": ZML-CENTRAL PARK, L.L.C., a Delaware Limited Liability Company BY: EQUITY OFFICE HOLDINGS, L.L.C., as agent Date executed by Landlord By: /s/ Arvid Povilaitis ------------------------------------------- 11/6/95 Arvid Povilaitis - ------------------- Title: Vice President ---------------------------------------- "TENANT": ACTAMED CORP., a Georgia corporation Date executed by Tenant By: /s/ Nancy J. Ham 10/2/95 ------------------------------------------- - ----------- Title: Chief Financial Officer ---------------------------------------- Attest: --------------------------------------- Title: --------------------------------------- [CORPORATE SEAL] Exhibits Attached Rules and Regulations Exhibit "A" - Legal Description of Building 7000 Exhibit "A-1" - Storage Space Exhibit "B" - Floor Plan Exhibit "C" - Supplemental Notice Exhibit "D" - Landlord's Construction Exhibit "E" - Building Standard Services Exhibit "F" - Special Stipulations Exhibit "G" - Janitorial Specifications 15 ADDENDUM This Addendum is entered into as of the 6th day of November, 1995 by and between ZML-Central Park, L.L.C., a Delaware Limited Liability Company ("Landlord") by its agent Equity Office Holdings, L.L.C., a Delaware Limited Liability Company, and Actamed Corp., a Georgia Corporation ("Tenant"). WITNESSETH: WHEREAS, simultaneously with the execution of this Addendum, Landlord and Tenant have entered into that certain lease of even date herewith (the "Lease") for approximately 41,292 square feet of Rentable Floor Area on the 4th and 6th floors of the building located at 7000 Central Parkway, Atlanta, Georgia and commonly known as Central Park (the "Building"), all as more particularly described in the Lease; and WHEREAS, Landlord and Tenant desire to modify certain terms and conditions of the Lease as set forth herein; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the sufficiency and receipt of which is acknowledge, Landlord and Tenant agree as follows: 1. TERM. Article 3 of the Lease is hereby amended by adding the following language at the end thereof: "Notwithstanding anything herein to the contrary, if Landlord determines that it will be unable to substantially complete the Additional Space by sixty (60) days after the scheduled Rental Commencement Date for the Additional Space (the "Outside Completion Date"), Landlord shall have the right to provide Tenant with written notice (the "Outside Extension Notice") of such inability, which Outside Extension Notice shall set forth the date on which Landlord reasonably believes that it will be able to substantially complete the Additional Space. Upon receipt of the Outside Extension Notice, Tenant shall have the right to terminate this Lease by providing written notice of termination to Landlord within five (5) business days after the date of the Outside Extension Notice. In the event that Tenant does not terminate this Lease within such five (5) business day period, the Outside Completion Date shall automatically be amended to be the date set forth in Landlord"s Outside Extension Notice." 2. RELOCATION OF PREMISES. Article 38 of the Lease is hereby amended by deleting the words "INTENTIONALLY DELETED" and adding the following in lieu thereof: "In the event that: (i) Tenant leases First Refusal Space (as defined in Exhibit F) on any floor of the Building other than the 4th and 6th floors; and (ii) such First Refusal Space, when combined with any other space already leased by Tenant on such floor, equals a total of less than 6,000 rentable square feet, then Landlord, at its expense, shall be entitled to cause Tenant to relocate from such First Refusal Space to space containing comparable improvements and approximately the same Rentable Area as the First Refusal Space (the "Relocation Space") SECOND AMENDMENT This Second Amendment (the "Amendment") is made and entered into as of the 22nd day of April 1996, by and between ZML-Central Park, L.L.C., a Delaware limited liability company "Landlord") by its agent, Equity Office Holdings, L.L.C., a Delaware limited liability company and ActaMed Corporation, a Georgia corporation ("Tenant"). WITNESSETH A. WHEREAS, Landlord and Tenant are parties to that certain Lease Agreement dated the 4th day of November, 1995 as amended by that certain Addendum dated the 6th day of November, 1995, for approximately 41,292 rentable square feet of space described as Suite No(s). 400 and 600 on the fourth (4th) and sixth (6th) floor(s) of the building commonly known as 7000 Central Park and the address of which is 7000 Central Parkway, Atlanta, Georgia (the "Building"); and B. WHEREAS, Tenant has requested that additional space consisting of 2,404 rentable square feet on the third (3rd) floor of the Building shown on Exhibit A hereto (the "Expansion Space") be added to the Premises and that the Lease be appropriately amended, and Landlord is willing to do the same on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: I. EXPANSION AND EFFECTIVE DATE. Effective as of the Expansion Effective Date (as hereinafter defined), the Premises is increased from 41,292 rentable square feet on the fourth (4th) and sixth (6th) floor(s) to 43,696 rentable square feet on the third (3rd), fourth (4th) and sixth (6th) floor(s) by the addition of the Expansion Space. The lease term for the Expansion Space shall commence on the Expansion Effective Date and end at 5:00 p.m. on the last day following thirty-six (36) calendar months following the Expansion Effective Date (the "Expansion Space Termination Date"). The Expansion Space is subject to all the terms and conditions of the Lease except as expressly modified herein and except that Tenant shall not be entitled to receive any allowances, abatement or other financial concession granted with respect to the Premises unless such concessions are expressly provided for herein with respect to the Expansion Space. A. The Expansion Effective Date shall be April 22, 1996 ("Expansion Effective Date"). II. MONTHLY BASE RENTAL. In addition to Tenants' obligation to pay Base Rental for the Premises, Tenant shall pay Landlord the sum of One Hundred Sixty-two Thousand Two Hundred Seventy and 00/100's Dollars ($165,539.40) as Base Rental for the Expansion Space in Thirty-six monthly installments as follows: A. Twelve equal installments of Four Thousand Five Hundred Seven and 50/100's Dollars ($4,507.50) each payable on or before the first day of each month during the period beginning April 22, 1996 and ending April 21, 1997. B. Twelve equal installments of Four Thousand Five Hundred Ninety-seven and 65/100's Dollars ($4,597.65) each payable on or before the first day of each month during the period beginning April 22, 1997 and ending April 21, 1998. C. Twelve equal installment of Four Thousand Six Hundred Eighty-nine and 80/100's Dollars ($4,689.80) each payable on or before the first day of each month during the period beginning April 22, 1998 and ending April 21, 1999. All such Base Rental shall be payable by Tenant in accordance with the terms of Article V of the Lease. III. TENANT'S PRO RATA SHARE. For the period commencing with the Expansion Effective Date and ending on the Expansion Space Termination Date unless terminated sooner as provided herein, Tenants Pro Rata Share for purposes of calculating Tenant's Additional Rental for the Expansion Space is Fifty-nine One Hundredths percent (.59%). IV. BASE YEAR, BASE AMOUNT, TAX BASE, AND EXPENSE BASE. For the period commencing with the Expansion Effective Date and ending on the Expansion Space Termination Date, the Base Year for the computation of Tenant's Pro Rata Share of Basic Costs applicable to the Expansion Space is 1996. V. IMPROVEMENTS TO EXPANSION SPACE. A. ACCEPTANCE OF EXPANSION SPACE. Tenant has inspected the Expansion Space and agrees to accept the same "as is" without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in this Amendment. B. OCCUPANCY OF EXPANSION SPACE. Tenant shall have the right to take occupancy of the Expansion Space on April 22, 1996. Tenant may elect to perform improvements or have Landlord perform improvements to the Expansion Space thereafter. C. COST OF IMPROVEMENTS TO EXPANSION SPACE. Provided Tenant is not in default, Tenant shall be entitled to receive an improvement allowance (the "Expansion Improvement Allowance") in an amount not to exceed Nineteen Thousand Five Hundred Ninety-two and 60/100 Dollars ($19,592.60) to be applied toward the cost of performing initial construction, alteration or improvement of the Expansion Space, including but not limited to the cost of space planning, design and related architectural and engineering services and a five percent (5%) construction management fee if Tenant elects to have Landlord manage the construction of the Expansion Space. In the event the total cost of the initial improvements to the Expansion Space exceeds the Expansion Improvement Allowance, Tenant shall pay for such excess upon demand. Any unused Expansion Improvement Allowance may be used by Tenant for improvements in the original Premises within eight (8) months after the Expansion Effective Date or if not used within said eight (8) months, accrue to the sole benefit of Landlord. Landlord shall pay such Expansion Improvement Allowance directly to the contractors retained to perform the construction, design or related improvement work to the Expansion Space. D. RESPONSIBILITY FOR IMPROVEMENTS TO EXPANSION SPACE. (i) WORK PERFORMED BY OR ON BEHALF OF LANDLORD PURSUANT TO PLANS YET TO BE PREPARED. If Tenant elects to have Landlord manage the construction of the Expansion Space, Landlord shall enter into a direct contract for the initial improvements to the Expansion Space with a general contractor selected by Landlord. Tenant shall devote such time in consultation with Landlord or Landlord's architect as may be required to provide all information Landlord deems necessary in order to enable Landlord to complete, and obtain Tenant's written approval of, the plans for the initial improvements to the Expansion Space in a timely manner. All plans for the initial improvements to the Expansion Space shall be subject to Landlord's consent, which consent shall not be unreasonably withheld. If the cost of such improvements exceeds the Expansion Improvement Allowance, then prior to commencing any construction of improvements to the Expansion Space, Landlord shall submit to Tenant a written estimate setting forth the anticipated cost, including but not limited to the cost of space planning, design and related architectural and engineering services, labor and materials, contractor's fees, and permit fees. Within a reasonable time thereafter, Tenant shall either notify Landlord in writing of its approval of the cost estimate or specify its objections thereto and any desired changes to the proposed improvements. In the event Tenant notifies Landlord of such objections and desired changes, Tenant shall work with Landlord to reach a mutually acceptable alternative cost estimate. VI. RIGHT TO TERMINATE. Provided Tenant is not in default under the Lease, as amended, Tenant shall have a one-time right to terminate the Lease with respect to the Expansion Space only as defined by this Second Amendment effective as of October 21, 1997 (the "Early Termination Date") subject to the following terms and conditions: A. Tenant shall notify Landlord in writing of its desire to terminate the Lease with respect to the Expansion space no less than six (6) months prior to the Early Termination Date. B. Tenant shall pay to Landlord no later than October 1, 1997 a termination fee equal to Thirty-five Thousand three Hundred Ninety-eight and 90/100 Dollars ($35,398.90) which is the (i) unamortized Expansion Improvement Allowance (at 13%), (ii) the difference between a Base Rental Rate of $22.50 and $25.00 for twelve (12) months and the difference between a Base Rental Rate of $22.95 and $25.00 for six (6) months and (iii) three (3) months rent at $25.00 per rentable square foot. C. Tenant shall vacate the Expansion Space effective October 21, 1997 and leave same in broom clean condition. VII. MISCELLANEOUS. A. This Second Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. B. Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. C. In the case of any inconsistency between the provisions of the Lease and this Second Amendment, the provisions of this Amendment shall govern and control. D. Submission of this Second Amendment by Landlord is not an offer to enter into this Second Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Second Amendment until Landlord has executed and delivered the same to Tenant. E. The capitalized terms used in this Second Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Second Amendment. F. This Second Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing. G. Landlord and Tenant each warrant and represent to the other that CB Commercial Real Estate Services ("Broker") has represented Tenant in connection with the negotiations of the Second Amendment and that Equity Office Properties, L.L.C. ("Co-Broker"), collectively "Brokers", has represented Landlord, and it knows of no other real estate broker, agent or finder other than the Brokers who is entitled to any commission in connection with this Second Amendment. Landlord and Tenant each covenant and agree to defend, indemnify and hold the other harmless from and against any and all loss, liability, damage, claim, judgment, cost or expense (including, but not limited to, reasonable attorneys' fees and expenses and court costs) that may be incurred or suffered by the other because of any claim for any fee, commission or similar compensation with respect to the Second Amendment made by any broker, agent or finder claiming to have dealt with the indemnifying party whether or not such claim is meritorious. Landlord agrees to pay the commission due Brokers in connection with this Second Amendment pursuant to a separate written commission agreement. The parties hereby acknowledge CB Commercial Real Estate Services has represented Tenant and Equity Office Properties, L.L.C. has represented Landlord in this transaction. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Second Amendment as of the day and year first above written. WITNESSES; ATTESTATION LANDLORD:ZML-Central Park, L.L.C., a Delaware limited liability company BY: EQUITY OFFICE HOLDINGS, L.L.C., a Delaware limited liability company as agent By: /s/ Arvid A. Povilaitis -------------------------------- /s/ Angel Rivera - ---------------------------- Name (print): Angel Rivera Name: /s/ Arvid A Povilaitis -------------- ------------------------------ /s/ illegible - ---------------------------- Title: VP -- ASSET MANAGEMENT ----------------------------- Name (print): illegible - ---------------------------- Date: ------------------------------ TENANT: ActaMed Corporation, a Georgia corporation /s/ Mary Lee Lockhart - ---------------------------- By: /s/ Nancy J. Ham -------------------------------- Name (print): Mary Lee Lockhart /s/ Katherine B. Grissom Its: CFO - ---------------------------- ------------------------------- Name (print): Katherine B. Grissom Date: 4/22/96 --------------------- ------------------------------ EXHIBIT A This Exhibit is attached to and made a part of the Third Amendment dated April 22nd, 1996, by and between ZML-Central Park, L.L.C., a Delaware limited liability company ("Landlord"), by its agent Equity Office Holdings, L.L.C., a Delaware limited liability company and ActaMed Corporation, a Georgia corporation ("Tenant") for space in the Building located at 7000 Central Parkway, Atlanta, Georgia. The Expansion Space shall consist of 2,404 rentable square feet located on the third (3rd) floor in the Building commonly known as 7000 Central Park in the approximate location outlined below. [MAP] THIRD AMENDMENT This Third Amendment (the "Amendment") is made and entered into as of the 9th day of February, 1998, by and between EOP-Central Park, L.L.C., a Delaware limited liability company ("Landlord"), and ActaMed Corporation, a Georgia corporation ("Tenant"). WITNESSETH A. WHEREAS, Landlord (f/k/a ZML-Central Park, L.L.C.) and Tenant are parties to that certain lease dated the 6th day of November, 1995, for space currently containing approximately 43,696 rentable square feet of space (the "Original Premises") described as Suite No(s). 370, 400, and 600 on the Third, Fourth, and Sixth floor(s) of the building commonly known as Central Park and the address of which is 7000 Central Parkway, Atlanta, GA 30328 (the "Building"), which lease has been previously amended or assigned by instrument(s) dated November 6, 1995 and April 22, 1996 (collectively, the "Lease"); and B. WHEREAS, Tenant desires to surrender a portion of the Premises to Landlord containing approximately 2,404 rentable square feet on the Third floor(s) of the Building as shown on EXHIBIT A hereto (the "Reduction Space") and that the Lease be appropriately amended, and Landlord is willing to accept such surrender on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: I. REDUCTION. Effective as of December 31, 1997 (the "Reduction Effective Date"), the Premises is decreased from 43,696 rentable square feet on the Third, Fourth and Sixth floor(s) to 41,292 rentable square feet on the Fourth and Sixth floor(s) by the elimination of the Reduction Space. As of the Reduction Effective Date, the Reduction Space shall be deemed surrendered by Tenant to Landlord, the Lease shall be deemed terminated with respect to the Reduction Space, and the "Premises", as defined in the Lease, shall be deemed to mean the Original Premises, less the Reduction Space. Tenant shall fully comply with all obligations under the Lease respecting the Reduction Space through the Reduction Effective Date, including those provisions relating to the condition of the Reduction Space and removal of Tenant's Property therefrom upon termination or expiration of the Lease. Landlord acknowledges that Tenant has surrendered the Reduction Space as of the Reduction Effective Date and Tenant will not be subject to any holdover provisions as defined in the Lease, as it relates to the Reduction Space. Landlord also acknowledges that the Reduction Space was returned to it in broom clean condition. II. MONTHLY BASE RENTAL. As of the Reduction Effective Date, the schedule of monthly installments of Base Rental contained in the Second Amendment is hereby deleted. III. TENANT'S PRO RATA SHARE. For the period commencing with the Reduction Effective Date, Tenant's Pro Rata Share as contained in the Second Amendment is hereby deleted. IV. REPRESENTATIONS. Each party represents to the other that it has full power and authority to execute this Amendment. Tenant represents that it has not made any assignment, sublease, transfer, conveyance of the Lease or any interest therein or in the Reduction Space other than those explicitly recited herein and further represents that there is not and will not hereafter be any claim, demand, obligation, liability, action or cause of action by any other party respecting, relating to or arising out of the Reduction Space, and Tenant agrees to indemnify and hold harmless Landlord and the Landlord Related Parties (as defined in the "Miscellaneous" Section below) from all liabilities, expenses, claims, demands, judgments, damages or costs arising from any of the same, including without limitation, attorneys' fees. Tenant acknowledges that Landlord will be relying on this Amendment in entering into leases for the Reduction Space with other parties. VII. MISCELLANEOUS. A. This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. This Amendment shall not be relied upon by any other party, individual, corporation, partnership or entity as a basis for reducing its lease obligations with Landlord. Tenant agrees that it shall not disclose any matters set forth in this Amendment or disseminate or distribute any information concerning the terms, details or conditions hereof to any person, firm or entity without obtaining the express written consent of Landlord. B. Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. C. In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control. D. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. E. The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment. F. Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment. Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents (collectively, the "Landlord Related Parties") harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment. Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents (collectively, the "Tenant Related Parties") harmless from all claims of any brokers claiming to have represented Landlord in connection with this Amendment. 2 IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written. WITNESS/ATTEST: LANDLORD: EOP-CENTRAL PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY By: EOP Operating Limited Partnership, a Delaware limited partnership, its managing member By Equity Office Properties Trust, a Maryland real estate investment trust, its managing general partner By: - ----------------------------------- -------------------------------- Name (print): Name: ---------------------- ------------------------------ Title: - ----------------------------------- ----------------------------- Name (print): ---------------------- TENANT: ACTAMED CORPORATION, a Georgia corporation /s/ Katherine B. Grissom By: /s/ Lewis R. Belote - ----------------------------------- -------------------------------- Name: Lewis R. Belote, II -------------------------------- Pat N. Daer - ----------------------------------- Title: Senior VP & CFO ----------------------------- 3 EX-10.13 23 EX-10.13 EXHIBIT 10.13 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Services and License Agreement Between ActaMed Corporation and United HealthCare Corporation This Services and License Agreement (the "Agreement") is made and entered into as of April 4, 1996 (the "Effective Date"), by and between ActaMed Corporation ("ActaMed") and United HealthCare Corporation ("UHC"), for itself and on behalf of each of the Managed Plans which has given its written consent (as hereinafter defined). RECITALS A. ActaMed is in the business of providing electronic data interchange products and services to the health care industry. B. UHC, for itself on and behalf of its Affiliates (including The MetraHealth Companies, Inc.), and other entities that UHC may hereafter acquire, and on behalf of the health maintenance organizations identified in Exhibit A hereto that are managed by UHC or an Affiliate thereof and which have given their consent to be bound by this Agreement (which plans which give their consent are referred to herein as the "Managed Plans"), desires to obtain from ActaMed certain software and materials and access to the Network, on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, the parties agree as follows. 1. DEFINITIONS. 1.1 "Affiliate" means with respect to a party, an entity directly or indirectly controlling, controlled by or under common control with such party where control means the ownership or control, directly or indirectly, of more than fifty percent of all of the voting power of the shares (or other securities or rights) entitled to vote for the election of directors or other governing authority, as of the Effective Date or hereafter during the term of this Agreement; provided that such entity shall be considered an Affiliate only for the time during which such control exists. The Managed Plans shall be considered to be Affiliates of UHC. 1.2 "Cosmos" means the computer program owned by UHC which is commonly known as Cosmos, and which UHC operates for health care claims adjudication and other business functions. 1 1.3 "Enhancements" means changes or additions to application software and documentation that improve existing Functions, add new Functions, or improve performance through changes in the system design or coding. 1.4 "Functions" means the tasks employed by users to exchange information within the Network. 1.5 "Licensed Materials" shall mean the Network Software, the ORBIT software (i.e., the ProviderLink billing and registration system), and the documentation, training materials, and other materials related to the Network Software or the Network which are listed on Exhibit B attached to this Agreement. All updates and new versions of such materials are also included in the definition of "Licensed Materials". 1.6 "Network" means the electronic data interchange ("EDI") system and network operated by ActaMed, which includes the Network Software, including any future versions of the EDI network or products substituting for it which include the basic functionality of the Network Software and network as of the Effective Date, regardless of the name under which it is marketed. The term "Network" specifically excludes any telecommunications network. 1.7 "Network Software" means the personal computer version of the ProviderLink and ActaLink presentation and network software programs, and all updates to them, which are licensed to users and which allow access to the Network for the transmission and reception of information. 1.8 "Provider" means a provider of health care services, which is not UHC, an Affiliate of UHC, or operated by UHC. 1.9 "UHC" means United HealthCare Corporation and its Affiliates. 2. LICENSE AND NETWORK ACCESS. 2.1 ActaMed grants UHC the nonexclusive, nontransferable right to use the Licensed Materials, to reproduce and modify those of the Licensed Materials so designated on Exhibit B, and to access and utilize the services of the Network, for UHC's internal use, on the terms set forth in this Agreement. UHC's internal use shall include use by and/or on behalf of (a) UHC or any UHC Affiliate; and (b) third parties that are purchasers of UHC's products and/or services, including management services, as well as UHC's health care service providers (including, without limitation, NYH Health Plan Services, Inc. ("NYHHPS") and its subsidiaries and/or affiliates pursuant to the First Restated Administrative Services Agreement between UHC and NYHHPS, dated September 1, 1994, as amended from time to time). UHC's access to use the Network will be on the same operational basis which ActaMed offers the Network to its other customers of the Network, except as otherwise provided in this Agreement. 2 2.2 UHC shall submit all permitted modifications it makes to the Licensed Materials for ActaMed's approval, prior to distributing the modifications. If ActaMed does not respond to UHC within fourteen days after UHC submits modifications to ActaMed for approval, the modifications shall be deemed approved. On the copies of the Licensed Materials UHC makes, UHC shall reproduce all notices or legends appearing on the original copy, including the copyright notice. All copies of the Licensed Materials made by UHC can be used only as permitted under this Agreement. At any time within ten days after ActaMed's written request, UHC shall inform ActaMed of the number and location of all copies of the Licensed Materials UHC has made. 2.3 UHC shall have the right to install the Network Software at any UHC location and at any locations of Providers working with UHC, and to connect such locations to the Network. ActaMed will install the Network Software at UHC or Provider sites and connect them to the Network, when mutually agreed by the parties. UHC and ActaMed will do agreed upon installations in a timely manner. UHC and ActaMed must continue to use the installation procedures developed by UHC or other mutually agreeable installation procedures (except as provided in any agreements directly between ActaMed and a UHC health plan, such as UHC Georgia) for such sites. UHC shall not be obligated under paragraph 12.1 to pay a monthly site fee or transaction fees for any Provider connected to the Network by ActaMed, unless UHC has agreed to be responsible for such Provider and fees. 2.4 Any development work on the Licensed Materials or the Network which was in progress on the date of this Agreement, will be provided to UHC upon completion and included within the definition of "Licensed Materials", at no charge to UHC, if it is set forth on Exhibit C attached to this Agreement. 2.5 UHC shall not act as a clearinghouse for health care claims going to payors other than UHC, other than as required by a UHC client, such as UBS misdirected Railroad Retirement claims and Medicare cross-over claims. 2.6 If UHC desires to and ActaMed agrees that UHC may use and implement the Licensed Materials or the Network technology outside North America, UHC and ActaMed shall mutually agree upon the terms and conditions of such use and implementation. 2.7 Except as otherwise provided in this Agreement, ActaMed provides the Licensed Materials to UHC on an "AS IS, WHERE IS" basis. ACTAMED EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, RELATING TO THE LICENSED MATERIALS, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF TITLE, NONINFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE. 2.8 Except as otherwise provided in this Agreement, UHC shall not (a) copy, reproduce, modify, or excerpt any of the Licensed Materials for any purpose; (b) distribute, 3 rent, sublicense, share, transfer or lease the Licensed Materials or access to the Network, to any person or entity which is not a party to this Agreement; or (c) attempt to reverse engineer or otherwise obtain copies of the source code for the Licensed Materials. 2.9 UHC acknowledges that the Licensed Materials may contain embedded runtime modules of products licensed to ActaMed by Sybase, Inc. ("Sybase") and, accordingly, that Sybase as an interested third party beneficiary of this Agreement, may enforce this Agreement directly against UHC and shall have no liability to UHC. In addition, UHC agrees that Sybase shall have the right to direct a recognized independent accounting firm to conduct, during normal business hours, an audit of appropriate records of UHC to verify (a) the number of copies of the Licensed Materials in use by UHC, and the computer systems on which such copies are installed, the number of processors in such computer systems, and the number of users using such copies; and (b) UHC's compliance with this Agreement. Representatives of the auditing firm shall protect the confidentiality of UHC's confidential information and abide by UHC's reasonable security regulations while on UHC's premises. 2.10 ActaMed agrees that ActaMed does not own and cannot use, distribute or publish any data transmitted over the Network either to or from UHC, except to the extent such data originates with ActaMed. Notwithstanding the above, ActaMed shall have the right to collect and distribute data transmitted over the Network back to the originator of such data. 3. MARKETING AND IMPLEMENTATION OF NETWORK PRODUCTS. 3.1 UHC will identify the business needs, goals and objectives of UHC for ActaMed, and will establish targets for the number and volume of Providers submitting electronic transactions. These numbers will be estimates, and not guarantees, for any amount of business for ActaMed. UHC will provide this information to ActaMed no less often than quarterly, and shall respond to additional requests for information within thirty days of ActaMed's request. The parties shall mutually agree upon any other information or data which UHC may give to ActaMed under this Agreement. 3.2 ActaMed will appoint at least one representative dedicated to the UHC account, who will have decision making capabilities for ActaMed. This person will attend planning meetings with UHC, keep UHC updated on national trends in EDI, and consult with UHC regarding ActaMed's software and network strategy. ActaMed will provide a representative to WEDI and ANSI to represent UHC, upon UHC's request. UHC shall also designate a representative to work with ActaMed and to coordinate UHC's activities with ActaMed, who will have decision making capabilities for UHC. This person will attend planning meetings with ActaMed, keep ActaMed updated on technical developments with respect to Cosmos, and coordinate UHC's activities with ActaMed. J.R. Hughes will be the initial representative for ActaMed and Joy Bahnemann will be the initial representative for UHC. Each party will consult with the other before changing its designated representative. 4 3.3 Exhibit D to this Agreement specifies the reports UHC will deliver to ActaMed and ActaMed will deliver to UHC daily, weekly, monthly, quarterly and annually. The parties shall also provide ad hoc reports to each other at no cost to the requesting party. 3.4 ActaMed will submit to UHC for its input and comments a comprehensive disaster recovery plan and documentation within 90 days after the date of this Agreement. The plan shall include testing of the plan no less often than annually and agreed upon time constraints within which full recovery will be expected. ActaMed will accept comments from UHC and make reasonable commercial efforts within the context of the Network to incorporate such comments. ActaMed will use its best efforts to establish a hot site under its disaster recovery plan which is not at a UHC data center within one year after the date of this Agreement. ActaMed will submit amended disaster recovery plans to UHC, for its information and input, any time that ActaMed makes substantial changes to its plan. ActaMed will participate in UHC's annual test of the UHC disaster recovery plan, with up to forty hours of ActaMed personnel time at no cost to UHC. For any additional time beyond the forty hours which UHC requests from ActaMed for this purpose, UHC will pay ActaMed an agreed upon price. 3.5 ActaMed will establish a user group, to consult on priorities and provide direction to ActaMed on system initiatives, which will include representation from UHC, Providers and payors. ActaMed will solicit user suggestions, input and feedback regarding the Network. ActaMed will provide to UHC copies of customer satisfaction surveys and other similar information regarding use of the Network at sites for which UHC is paying the monthly site fee or any transaction fees. 3.6 UHC will make its sales and Provider relations personnel available to work with ActaMed to develop new sites for use of the Network by Providers working with UHC, to the same extent that such personnel work with UHC's EDI Services to develop new sites as of the Effective Date. Pursuant to paragraph 12.2, UHC shall have the option of performing installations and implementations of the Network software itself, rather than contracting for them through ActaMed. In such circumstances where UHC has decided not to out-source such functions to ActaMed, UHC will continue to use health plan ProviderLink representatives to install and implement the Network for new and existing UHC-sponsored sites. UHC will also continue to use health plan ProviderLink representatives to train and provide technical support to the extent required under Exhibit F and section 8. 3.7 UHC shall sponsor a reasonable number of reference inquiries and visits (not to exceed two visits in any calendar month) by customers and potential customers of the Network, pursuant to ActaMed's Showcase Program, on mutually agreeable terms. UHC shall retain the right to reasonably refuse a site visit to any competitor or potential competitor of UHC, and ActaMed shall inform all customers and potential customers allowed on UHC's premises under this paragraph 3.7 that they are required to abide by 5 UHC's security procedures and policies. 4. ACTAMED'S OBLIGATIONS REGARDING, NETWORK PRODUCT LINE. 4.1 ActaMed will, during the term of this Agreement, continue maintaining the Licensed Materials and the Network, or other ActaMed products which provide, at a minimum, substantially the same functionality as provided by the Licensed Materials and the Network, on the Effective Date. 4.2 ActaMed will update the licensed Materials and the Network with changes mandated by state or federal law and other changes required in the reasonable opinion of the parties to meet market expectations for EDI, including the ANSI X12N standard. The parties will mutually agree upon any additional standards which ActaMed will need to maintain. If the changes mandated by this paragraph apply to substantially all of ActaMed's customers, then ActaMed will make such changes as part of a release of the Network or the Licensed Materials pursuant to paragraph 8.1 or paragraph 8.2. 4.3 Subject to section 9, both parties will continue to work with practice management system vendors to develop interfaces between practice management programs and the Network, in order to be able to market the Network to Providers. UHC will assist ActaMed in its attempts to establish relationships with and work with practice management system vendors. 4.4 ActaMed will work with and cooperate with Allina and UHC to formulate a plan allowing Allina to use the Network to operate its LaborLink product, at UHC's request. 4.5 ActaMed will be responsible for notifying all Providers, practice management vendors and other entities which are signatories to Network agreements to be assigned by UHC to EDI Services, Inc. that the assignee will be merged with and into ActaMed. UHC shall have the right to review and approve the notice prior to ActaMed sending it to any Providers or other signatories. 4.6 ActaMed shall place a copy of the source code, object code and technical documentation for all software used in the operation of the Network in escrow, including the Network Software, for the benefit of UHC, pursuant to the escrow agreement attached to this Agreement as Exhibit E (the "Escrow Agreement"). ActaMed shall cause UHC to be listed as a "Licensee" under the Escrow Agreement and shall cause the Licensed Materials and all operational computer software and documentation ActaMed uses to operate the Network to be listed as a "System" under the Escrow Agreement, as soon as practical after the Effective Date. In the event ActaMed ceases operating the Network for any reason defined in such Escrow Agreement during the duration of this Agreement, ActaMed shall deliver to UHC, for UHC's nonexclusive use, one then-current copy of all operational computer software and documentation ActaMed uses to operate the Network. 6 5. UIHC'S OBLIGATIONS REGARDING THE NETWORK. 5.1 UHC shall generate or receive transaction data in the standard format and the protocol set forth in such format which is in use as of the Effective Date, or as otherwise mutually agreed upon by the parties. In the event that ActaMed changes such format, UHC shall provide ActaMed with standard output and test messages for ActaMed's use. 5.2 UIHC shall provide, at its own expense, all necessary hardware, including terminal equipment, compatible with and suitable for its communications with the Network. UIHC shall prepare the proper operating environment as described in Exhibit J attached to this Agreement. ActaMed shall verify UHC's operating environment with the testing procedure established by ActaMed and agreed to by UHC. 6. ACCESS TO COSMOS AND OTHER PROPRIETARY UHC SOFTWARE. 6.1 ActaMed will not have access to Cosmos or any other UHC proprietary systems, and will have no right to modify the computer code in Cosmos, except as mutually agreed by the parties in writing. ActaMed will not receive any part of the Cosmos code, except as mutually agreed by the parties in writing. The Network will deliver claims and information to Cosmos, and UHC is solely responsible for the operation of Cosmos. 6.2 UHC produces new releases of Cosmos four to five times each year, and new releases of other UHC host computer systems (including host computer systems operated by third party out-sources on behalf of UHC), from time to time. UHC will give ActaMed notice of such changes and information regarding them, and, if the changes require any modifications to the Network or the Licensed Materials, the parties will mutually agree on the scope of the project, the deliverables, deadlines, any fees ActaMed will charge UHC, a test plan and an acceptance test plan. 6.3 If, at any point, UHC agrees that ActaMed needs access to any other proprietary UHC software or systems, the parties shall negotiate a limited license allowing ActaMed such access to be used only for UHC's benefit. 6.4 ActaMed agrees that UHC shall be the sole and exclusive owner of any and all changes ActaMed makes to the code in Cosmos or any other computer system proprietary to UHC. ActaMed agrees to assign and hereby assigns and transfers to UHC any and all rights which ActaMed may have in such code, including any copyright, patent, trademark, trade secret and other intellectual property rights. ActaMed will cooperate with UHC and will execute any documentation reasonably required by UHC to assert or protect its property rights in such code. 7. DEVELOPMENT OF NEW FUNCTIONALITY. 7.1 When ActaMed develops new functionality for the Network that ActaMed 7 offers generally to its customers, which is not included in a maintenance release that ActaMed offers generally to its customers pursuant to paragraph 8.1, [*] 7.2 When UHC specifically requests development work from ActaMed, for UHC's own use, the parties will negotiate a price at the time such work is requested. If ActaMed will be permitted to use this custom work for other customers, the price UHC pays ActaMed for such work [*] that [*] and [*] 7.3 When ActaMed performs development work on the Network at the request of another customer, [*] to [*] at [*] for the [*] as long as ActaMed has the legal right to [*] and such [*] is [*]. 7.4 If, at any time, UHC chooses to contract with ActaMed for a dedicated services team from ActaMed to handle development of new functionality and other changes to the Network, the Licensed Materials, or UHC's proprietary systems which are not covered under maintenance, ActaMed will provide the dedicated team on mutually agreeable terms and conditions. 8. ACTAMED'S MAINTENANCE AND SUPPORT OBLIGATIONS. 8.1 ActaMed's maintenance releases for the Network and the Licensed Materials shall be denoted by a three digit number where the first number is the version number, the second number is the level number, and the third number (if it is greater than 1) is the build number. For example, release 2.1.2 is a maintenance release for the version 2.1.1 software. ActaMed will provide new maintenance releases at no charge to all its Network maintenance customers, including, without limitation, UHC. 8.2 The price UHC will pay ActaMed under paragraph 12.1 for ActaMed's maintenance services under this Agreement does not include Enhancements to the Network Software, such as new Functions, significant redesigns or improvements of current Functions, or significant advances in system performance. Enhancements are contained in Actamed's new versions which are denoted by a three digit number, the first digit of which is the version number, the second digit of which is a level number, and the third digit of which is 1. For example, version 2.1.1 is followed by new version numbers 2.2.1, 2.3.1, 2.4.1, 3.0.1, etc. ActaMed will make new versions of the Network Software available to UHC upon payment in accordance with paragraph 7.1. 8.3 ActaMed will provide free Network maintenance and support services to UHC at a minimum level which will meet or exceed the free Network maintenance and support [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 8 ActaMed provides to its other customers for the Network. ActaMed will also provide the support and maintenance services to UHC which are specified on Exhibit F attached to this Agreement. ActaMed will notify UHC of any technical errors in the Network Software reported to the ActaMed help desk, and will use reasonable efforts to provide customers with corrections of such technical errors in a timely manner. ActaMed will provide all support and maintenance services directly to UHC and the Providers who subscribe to the Network, as required. UHC shall have no obligation to provide any support, training or maintenance services to Providers, other than as specified on Exhibit F attached to this Agreement. In order to allow UHC to implement a new release of the Network or the Licensed Materials on an orderly schedule, ActaMed shall maintain the current release and one prior release of the Network and the Licensed Materials, at all times. The maintenance services specified in this Agreement shall be provided at no cost to UHC beyond the fees set forth below in section 12. 8.4 UHC inquiries and appeals will be handled by ActaMed within time frames specified on Exhibit F or as mutually agreed to, and with the utmost customer focus in mind. 8.5 ActaMed will maintain the security standards for the Network which are set forth on Exhibit G attached to this Agreement. 9. EXCLUSIVITY. 9.1 UHC agrees to use the services of the Network under this Agreement. UHC agrees that it will accept and attempt to process all transactions listed on Exhibit H and intended for UHC which the Network delivers to UHC. UHC will pay ActaMed for all such transactions pursuant to paragraph 12.1 of this Agreement. 9.2 For [*] term of this Agreement (except as otherwise permitted under this Agreement), UHC will not promote, develop, sell or distribute any product [*] except as permitted under this Agreement. UHC also agrees that it will not develop an interface for any third party, or provide any third party with access to Cosmos or any other host computer under the control of UHC for the purpose of developing an interface for any network that competes with the Network, except to the extent UHC is allowed to work with other vendors under this section 9 or UHC is allowed to continue existing projects under paragraph 9.6. 9.3 For [*] term of this Agreement, UHC will not promote or contract for services providing essentially the same functionality as the Network from third party providers of [*] PROVIDED, HOWEVER, that UHC shall not be required to terminate any existing contracts with vendors of services similar to the Network (including, specifically, the contracts entered into by The MetraHealth Companies, Inc.), which are listed on Exhibit K attached to this Agreement. Prior to automatic or optional renewal of any such contracts, however, UHC shall give ActaMed 15 business days in which to bid on such contracts, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 9 pursuant to paragraph 9.7 of this Agreement. UHC shall cease actively promoting any products similar to the Network from vendors other than ActaMed in markets where ActaMed's services are available; provided, however, that UHC may promote products similar to the Network in markets where ActaMed has waived its rights under this section 9. Nothing in this paragraph shall limit UHC's ability to meet its contractual obligations in such existing contracts, such as a contractual obligation to perform specified promotional activities. 9.4 UHC agrees that, for [*] term of this Agreement, UHC will not and will not permit any of its subsidiaries to, directly or indirectly, (a) engage in or (b) have any ownership or equity interest exceeding five percent in any business, firm, corporation, joint venture, or other entity engaged in any business which competes with ActaMed's Network product (a "Competitive Business"). However, nothing contained herein shall prohibit UHC from acquiring any business, the principal line of business of which is not a Competitive Business and less than fifty percent of the revenues of which are derived from a Competitive Business. In such case, UHC shall use its reasonable efforts to cause the competitive portion of such business to be sold or disposed of as soon as reasonably possible, and, pending such sale, shall not use such business in such manner as would violate the provisions of this section 9 or seek to expand such business in a manner that would substantially adversely affect ActaMed's rights hereunder. Not later than one month following such acquisition, UHC shall give to ActaMed a notice of the acquisition of such Competitive Business and set forth the net purchase price (collectively, a "Sale Proposal") at which UHC would be prepared to sell such Competitive Business to ActaMed. ActaMed she have the right to purchase such Competitive Business for such terms or on such other basis as UHC and ActaMed may actually agree. In the event that, within 60 days after ActaMed's receipt of a Sale Proposal, UHC and ActaMed shall not have reached agreement that ActaMed will acquire such Competitive Business, each of UHC and ActaMed shall appoint an appraiser, which two appraisers shall select a mutually acceptable third appraiser. As promptly as practicable such three appraisers shall determine the fair value of the Competitive Business and shall notify UHC and ActaMed of their determination. ActaMed shall have sixty days after such notification in which to determine whether to acquire the CompetitiveBusiness at the value so determined. If ActaMed does not elect to acquire the Competitive Business at the appraised value, UHC shall be free to sell such Competitive Business to another entity; PROVIDED, HOWEVER, that UHC shall not sell such Competitive Business to another entity within six months after the appraisers' determination on terms and conditions which are substantially more favorable to such other entity than the terms and conditions last offered to ActaMed. 9.5 The restrictions set forth in this section 9 shall apply only to activities within North America. 9.6 Nothing in this section 9 shall be construed to prohibit UHC from engaging in activities relating to or contracting with third parties relating to the following, as long as each of the following is not intended primarily as a connection from a Provider's desk to a [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 10 network for communication of data: (a) promoting, developing, using, selling, and distributing its EmployerLink and LaborLink products and future versions of them, and any other initiatives for employers and brokers, and shall retain the right to contract with third parties to perform any work relating to these products. UHC agrees, however, that EmployerLink, LaborLink and such other initiatives shall not be intended for use primarily as connections to Providers' desk tops; (b) using and developing Internet connections; (c) electronic medical records and clinical data; (d) electronic mail (other than e-mail to and from a Provider's desk top); (e) financial or banking electronic data interchange, telecommunications networks, or EDI used by the UHC purchasing department or other internal departments which are not connecting to a Provider's desk top; (f) EDI between clinics and other facilities owned and/or operated by UHC; (g) claims repricing; or (h) UHC's "Total Recall" project, AdjudiPro product, or Q-Star product, and all future versions of them. 9.7 In the event that this section 9 requires UHC to offer any business opportunities or new development work to ActaMed, ActaMed shall notify UHC of ActaMed's prices and terms for such business or work. If ActaMed declines such business or work, or if ActaMed cannot provide the requested business or work to UHC [*] [*] UHC shall have the right to contract with a third party for such business or work or to do such business or work itself, and the provisions of this section 9 shall not apply to such business or work. To [*] ActaMed's [*] is [*] the parties [*] among other things, the [*] by [*] from [*] the [*] and the [*] offered by [*] and whether [*]. If the parties cannot agree upon [*] the parties shall resolve the dispute pursuant to section 15. In the event that any customer and/or supplier, including an integrated delivery system, of UHC or a UHC Affiliate requires, as a condition of doing business with the customer or supplier, that a different EDI system be-used in regard to that customer or supplier, UHC shall use all reasonable efforts to encourage the customer or supplier to utilize ActaMed's EDI system. In the event the customers or [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 11 supplier [*], UHC or the UHC Affiliate [*] with [*]. 9.8 For the initial five year term of this Agreement, ActaMed agrees that it will not sell or distribute the Network in the Republic of South Africa, except with UHC's prior, written approval. 9.9 This section 9 shall not preclude UHC from providing factual information on other EDI vendors to Providers, as long as this section 9 permits UHC to work with such vendors and provided UHC does not promote such vendors. 10. PERFORMANCE STANDARDS. 10.1 Exhibit I to this Agreement specifies the performance standards and measurements ActaMed must achieve and the applicable time periods for measuring compliance with the performance standards (the "Performance Standards"). The parties shall measure, at a minimum, performance of ActaMed's help desk and customer support and the Network. The goal of these Performance Standards is to ensure that the performance of the Network during the term of this Agreement meets or exceeds the performance of the ProviderLink Network immediately prior to the Effective Date. In addition, ActaMed shall develop and deliver to UHC, from time to time, ActaMed's plans to increase performance of the Network beyond the minimum levels specified in Exhibit I. 10.2 The Performance Standards on Exhibit I apply only to transactions sent from or to Cosmos. At any time that UHC uses a different host computer to connect to the Network, the parties shall mutually agree upon performance standards for the Network and its connection to the different host computer, which shall become an amendment to this Agreement. 10.3 Any time that UHC's host computers are down and/or the down time on UHC computers will not be counted as down time for the Network. 10.4 In the event that ActaMed fails to meet any Performance Standard on Exhibit I in any month, ActaMed shall begin to diagnose the cause of the failure to meet the Performance Standard promptly after being notified of or discovering the failure to perform. Thereafter, ActaMed shall work continuously and diligently to correct such failure to perform until it is corrected. The failures to meet the Performance Standards which occur while ActaMed is working to remedy the problem shall continue to be counted for the purposes of paragraph 10.5. 10.5 In the event that ActaMed fails to meet any Performance Standard on Exhibit I for [*] in any [*] period, ActaMed shall be deemed to be in material breach of this Agreement, which allows UHC to terminate this Agreement under paragraph 14.2 of this Agreement. In this event, UHC shall also have the right, at its option, to [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 12 terminate section 9 of this Agreement and retain the rest of the Agreement in full force and effect, by giving the notice and opportunity to cure specified in paragraph 14.2 of this Agreement. 11. REPRESENTATIONS AND WARRANTIES. 11.1 The parties agree that ActaMed owns the Network and ActaMed represents that it has the right to license the Licensed Materials and grant access to the Network to UHC. All rights in patents, copyrights, trademarks and trade secrets encompassed in the Licensed Materials will remain in ActaMed or its licensors, as applicable. No title to or ownership of the Licensed Materials is transferred to UHC. UHC agrees that it does not obtain any rights in the Licensed Materials except the limited right to use the Licensed Materials as provided herein. 11.2 ActaMed agrees to defend UHC against and, to the extent of amounts paid to third parties in infringement damage awards and approved settlement awards, hold it harmless from all claims, damages and liabilities resulting from a claim that the Network or the Licensed Materials (other than the version of the Licensed Materials which ActaMed acquired from UHC) infringes a United States patent or United States copyright, provided that UHC gives ActaMed prompt, written notice of any such claim, sole control of the defense and settlement of such claim, and all reasonable assistance to defend such claim. UHC may appear in such action with counsel of its choice, at its own expense. ActaMed shall have no obligations under this paragraph if such claims, damages and liabilities result from UHC's breach of any term of this Agreement, UHC's unauthorized use of or modifications to the Licensed Materials or the Network, or the combination of the Licensed Materials with other materials not provided by ActaMed. 11.3 If UHC's right to use the Licensed Materials or the Network is enjoined or limited in any way, or if ActaMed believes that the Licensed Materials or the Network is likely to become subject to such action, then ActaMed, at its option and expense, may either: (a) procure for UHC the right to continue to use the Licensed Materials and the Network free from such limitations; (b) modify the Licensed Materials and the Network to be free from such limitations, but equivalent in all material functional and performance respects to the Licensed Materials and Network prior to such modification; (c) replace the Licensed Materials and the Network with materials that are free of claims, but equivalent in all material functional and performance respects to the Licensed Materials and the Network; or (d) if none of the above are reasonably possible or likely to be effective, 13 terminate this Agreement and the licenses granted herein. 11.4 Except as set forth in this Agreement, ACTAMED EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, RELATING TO THE NETWORK OR SERVICES TO BE PERFORMED BY ACTAMED HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE. 12. PRICES, PATENTS AND AUDITS. 12.1 For [*] after the date of this Agreement, UHC will pay ActaMed (a) [*] per user site identification number established by ActaMed at UHC; (b) [*] per user site identification number established by ActaMed for which UHC has agreed to be responsible; (c) [*] per transaction listed on Exhibit H attached to this Agreement, [*] and (d) [*] transaction listed on Exhibit H [*]. UHC shall not pay for any transactions a Provider sends to a different payor. ActaMed shall not charge UHC for any unclean transactions which are not able to access UHC's host computer. These payments cover all license fees, subscription fees, and access fees for usage of the Licensed Materials and the Network and all fees for the maintenance services set forth in section 8. 12.2 The fees set forth in paragraph 12.1 do not cover charges for any services UHC requests and obtains from ActaMed beyond the services specified in paragraph 12.1, including, without limitation, file transfer of data, installation, implementation or Enhancements of the Network, a particular sales effort from ActaMed which ActaMed would not otherwise be providing, or a telecommunications connection between the Network and UHC's host computers. For all services UHC requests from ActaMed for which this Agreement does not set forth a price (including, without limitation, UHC's request for a particular sales effort from ActaMed which ActaMed would not otherwise be providing), UHC shall pay ActaMed an agreed upon price. ActaMed shall not charge UHC anything for installation and implementation of the Network at sites where UHC chooses to do the installation and implementation itself. UHC shall pay all taxes levied in connection with this Agreement, except for any taxes based on ActaMed's net income. 12.3 After [*] after the date of this Agreement, the parties shall agree upon prices to supersede the prices in paragraph 12.1 of this Agreement, which new prices shall [*] [*]. To [*] is [*] the parties shall [*] among other things, the [*]. If the parties cannot agree upon [*] the parties shall resolve the dispute pursuant to section 15. 12.4 When ActaMed offers transactions other than those set forth on Exhibit H, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 14 UHC will decide, in its sole discretion, whether it will agree to receive and/or send such transactions. Upon deciding to receive and/or send any such new transaction, UHC shall pay ActaMed a mutually agreeable price for its own such transactions and for such transactions from any other user site identification number where UHC (in its sole discretion) decides to be responsible for the fees. 12.5 ActaMed will bill UHC monthly for the site and transaction fees for UHC and any Providers where UHC has asked ActaMed to bill UHC directly, in a mutually agreeable format. When ActaMed bills UHC for a Provider's site and transaction fees, ActaMed shall not bill the Provider directly for the same charges. Invoices will include any additional fees for other services purchased by UHC. UHC agrees to pay all undisputed fees and expenses invoiced by ActaMed within thirty days after receipt of each invoice, and to pay a late payment charge equal to the lesser of [*] per month or the maximum rate allowed by law on all amounts outstanding after thirty days. 12.6 ActaMed shall maintain accurate and complete books and records regarding the transactions to and from UHC and the amounts ActaMed is charging UHC under this Agreement, with a system of audit trails, records and controls sufficient to satisfy the requirements imposed on ActaMed by its external auditors and governmental regulators. UHC shall have the right, not more often than once in each calendar year, to have employees or mutually agreeable external auditors audit the books and records of ActaMed relating to UHC transactions and charges for which UHC is responsible, to determine the proper amounts which should have been billed to UHC, which were billed to UHC, and which UHC has paid under this Agreement, and ActaMed's procedures for handling transactions to and from UHC. UHC shall give ActaMed two weeks prior notice of any such audit, and shall abide by reasonable ActaMed security and confidentiality procedures during the audit. UHC shall bear the cost of such audit, provided that in the event the audit determines that ActaMed has overcharged UHC by more than five percent of the amount properly due ActaMed in any month beginning on or after July 1, 1996, ActaMed shall pay all costs of such audit. 12.7 ActaMed will, at its expense, provide UHC annually with a report produced in accordance with standards established by the American Institute of Certified Public Accounts' Statement on Auditing Standards Number 70: Reports on the Processing of Transactions by Service Organizations. ActaMed shall submit the first such report to UHC by the end of third quarter 1997. 13. CONFIDENTIALITY AND SECURITY. 13.1 "Proprietary Information" means information that is (a) confidential to the business of a party, including, without limitation, computer software source code, technical documentation and information regarding proprietary computer systems, marketing and product development plans, financial and personnel information, and other business information not generally known to the public; and (b) is designated and identified as such [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 15 by a party, or which the other party should have reasonably known was confidential. Proprietary Information belonging to ActaMed includes, without limitation, the Licensed Materials and the source code for its proprietary software used in connection with the Network. Proprietary Information belonging to UHC includes, without limitation, information relating to Cosmos or other UHC computer systems, and information regarding UHC's members, Providers or health plans. "Proprietary Information" does not include information which a party had in its possession prior to receiving it from the other party, or which a party properly receives from a third party, or which is or becomes available to the public, or which a party independently develops without reference to information received from the other party under this Agreement. 13.2 Proprietary Information and all physical embodiments thereof received by either party (the "Receiving Party") from the other party (the "Disclosing Party") during the term of this Agreement are confidential to and are and will remain the sole and exclusive property of the Disclosing Party. At all times, both during the term of this Agreement and after its termination, the Receiving Party shall hold all Proprietary Information of the Disclosing Party in confidence, and will not use, copy or disclose such Proprietary Information or any physical embodiment thereof (except as permitted by this Agreement), or cause any of the Proprietary Information to lose its character as confidential information. 13.3 The Disclosing Party's Proprietary Information shall be maintained under secure conditions by the Receiving Party, using reasonable security measures which shall be not less than the same security measures used by the Receiving Party for the protection of its own Proprietary Information of a similar kind, and any specific security measures required by this Agreement. The Receiving Party shall not remove, obscure or deface any proprietary legend relating to the Disclosing Party's rights, on or from any tangible embodiment of any Licensed Materials without the Disclosing Party's prior written consent. Within thirty days after the termination of this Agreement, the Receiving Party shall deliver to the Disclosing Party all Proprietary Information belonging to the Disclosing Party, and all physical embodiments thereof, then in the custody, control or possession of the Receiving Party. 13.4 If the Receiving Party is ordered by a court, administrative agency or other governmental body of competent jurisdiction to disclose Proprietary Information, or if it is served with or otherwise becomes aware of a motion or similar request that such an order be issued, then the Receiving Party will not be liable to the Disclosing Party for disclosure of Proprietary Information required by such order if the Receiving Party complies with the following requirements: (a) If an already-issued order calls for immediate disclosure, then the Receiving Party shall immediately move for or otherwise request a stay of such order to permit the Disclosing Party to respond as set forth in this paragraph 13.4; and (b) The Receiving Party shall immediately notify the Disclosing Party of the 16 motion or order by the most expeditious possible means; and (c) The Receiving Party shall join or agree to (or at a minimum shall not oppose) a motion or similar request by the Disclosing Party for an order protecting the confidentiality of the Proprietary Information including joining or agreeing to (or not opposing) a motion for leave to intervene by the Disclosing Party. 13.5 The Receiving Party shall immediately report to the Disclosing Party any attempt by any person of which the Receiving Party has knowledge (a) to use or disclose any portion of the Proprietary Information without authorization from the Disclosing Party; or (b) to copy, reverse assemble, reverse compile or otherwise reverse engineer any part of the Proprietary Information (except as permitted herein). 13.6 Each party agrees not to disclose or utilize individual health care claim information in any way that would violate any physician-patient confidence or any state or federal regulations. 13.7 The obligations of this section 13 shall survive termination or expiration of this Agreement as to any Proprietary Information which falls under the definition of "trade secret" under the Uniform Trade Secret Act, as adopted in the State of Georgia and as amended from time to time. For all other information which falls under the definition of Proprietary Information used in this Agreement, the obligations of this section 13 shall terminate five years after termination or expiration of this Agreement. 14. TERM AND TERMINATION. 14.1 This Agreement commences as of the date set forth above and continues for five years thereafter, unless earlier terminated as provided herein. The parties shall mutually agree upon any renewal of this Agreement, but the provisions of section 9 shall not be part of any renewal. Upon termination or expiration of this Agreement, UHC's rights to use the Licensed Materials and the Network shall cease. 14.2 If one party breaches any material provision of this Agreement, the nonbreaching party may terminate this Agreement by giving 60 days written notice of termination to the breaching party. If the breach is capable of being cured and the other party acts diligently and continuously to cure such breach within the 60 days, the termination shall not become effective. In the event ActaMed attempts to terminate this Agreement pursuant to this paragraph 14.2 due to UHC's failure to pay any undisputed amounts due, the sixty day notice and cure period set forth above shall be reduced to fifteen working days. 14.3 If UHC or an affiliate thereof shall, at any time, cease to manage or administer any Managed Plan, then, as of the date of such cessation, this Agreement shall terminate as to such Managed Plan. UHC shall inform ActaMed that an entity has ceased or will cease to be a Managed Plan promptly after such information is known to UHC. 17 14.4 Upon termination or expiration of this Agreement, the parties shall cooperate in the orderly and reasonable removal of UHC from the Network. The parties shall jointly develop a transition plan, which will allow UHC to use the Network services for a mutually agreeable time after termination or expiration, which shall be not less than three months. The transition plan will provide for a reasonable level of support to transition UHC off the Network. Each party will bear its own costs in developing the transition plan. During such additional time, UHC shall continue to pay ActaMed all fees due under section 12 of this Agreement. In the event that ActaMed has terminated this Agreement pursuant to paragraph 14.2 due to UHC's failure to pay amounts due to ActaMed, ActaMed will not be required to perform services for UHC or to allow UHC access to the Network during the transition period unless UHC pays ActaMed in advance for such services and Network access. UHC shall not be obligated to pay any site or transaction fees that accrue after the effective date of termination with respect to Providers that remain connected to the Network. 15. DISPUTE RESOLUTION. 15.1 In the event a dispute between ActaMed and UHC arises out of or is related to this Agreement, either party may request in writing that the representatives of the parties designated pursuant to paragraph 3.2 of this Agreement meet and negotiate in good faith to attempt to resolve the dispute without a formal proceeding. During the course of such negotiations, all reasonable requests made by one party to the other for information, including copies of relevant documents, will be honored. The specific format for such discussions will be left to the discretion of the designated representatives. 15.2 If the designated representatives conclude in good faith that amicable resolution through continued negotiation in this forum does not appear likely, then the matter will be escalated to a joint panel of ActaMed and UHC senior executives, by formal written notification by either party to the other. This panel will meet as required to attempt to resolve the dispute. The number and nature of the senior executives will depend on the issues in dispute, but will include those senior executives with authority to resolve all matters in dispute. At either party's election, this panel will be facilitated by an external facilitator designated by both parties. 15.3 Formal proceedings for the resolution of a dispute may not be commenced until the earlier of (a) the panel referred to in paragraph 15.2 concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (b) 30 days after the first notice of the dispute was sent under paragraph 15.1 or paragraph 15.2. However, nothing in this section 15 shall preclude either party from seeking temporary or preliminary injunctive relief where a party determines in good faith that such relief is necessary to limit its damage or injury under this Agreement. 15.4 In the event the dispute is not resolved as outlined in paragraphs 15.1 and 15.2, and if either party wishes to pursue the dispute, either party may submit it to binding 18 arbitration in accordance with the rules of the American Arbitration Association. In no event may arbitration be initiated more than one year following the sending of written notice of the dispute. The parties shall request a list from the American Arbitration Association of five possible arbitrators who shall each have had at least five years experience in some aspect of computer networking matters or health care. Each of the parties will select one of these arbitrators and the parties or their selected arbitrators shall jointly select the third arbitrator from the proposed list. Any arbitration proceeding under this Agreement shall be conducted in Hennepin County, Minnesota, Atlanta, Georgia, or in a mutually agreeable location. The arbitrators shall have no authority to award any punitive or exemplary damages, or to vary or ignore the terms of this Agreement, and shall be bound by controlling law. 16. LIMITATION ON DAMAGES AND ALLOCATION OF RISK. 16.1 Except to the extent of ActaMed's obligation to indemnify UHC as provided in [*] IN NO EVENT SHALL EITHER PARTY'S LIABILITY TO THE OTHER PARTY (INCLUDING LIABILITY TO ANY PERSON WHOSE CLAIM OR CLAIMS ARE BASED ON OR DERIVED FROM A RIGHT OR RIGHTS CLAIMED BY THE OTHER PARTY) WITH RESPECT TO ANY AND ALL CLAIMS ARISING FROM OR RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT IN CONTRACT, TORT OR OTHERWISE, EXCEED [*]. 16.2 NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY (NOR TO ANY PERSON CLAIMING RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KING (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF BUSINESS OR OTHER ECONOMIC DAMAGE) AS A RESULT OF BREACH OF THIS AGREEMENT. 16.3 Notwithstanding anything to the contrary set forth in this Agreement, ActaMed shall not be responsible for any breach of this Agreement or loss to UHC to the extent such breach or loss is caused by materials that ActaMed purchased from UHC or services provided by UHC. 17. GENERAL. 17.1 This Agreement, including the Exhibits to it, constitutes the entire understanding between the parties and supersedes all proposals, communications and agreements between the parties relating to its subject matter. However, this Agreement does not supersede the UHC Outsourcing Agreement between ActaMed and UHC, dated December 4, 1995, as amended from time to time. No amendment, change, or waiver of any provision of this Agreement will be binding unless in writing and signed by both parties. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 19 17.2 This Agreement will be governed by and construed in accordance with the laws of the State of Georgia applicable to contracts made and performed therein. 17.3 Neither party may assign this Agreement without the prior, written consent of the other party, which shall not be unreasonably withheld. Any attempted assignment without such consent shall be void. Any assignment with consent does not release the assigning party from any of its obligations under this Agreement unless the consent so states. Notwithstanding the above, however, ActaMed may assign this Agreement without UHC's consent to the purchaser of all or substantially all the business or assets of ActaMed related to the Licensed Materials and the Network, as long as the purchaser is not a company which competes with UHC in any of the businesses UHC owns or operates at the time of the assignment. If the parties cannot agree upon whether a company competes with UHC in any of the businesses UHC owns or operates at the time of the assignment, the parties shall resolve the dispute pursuant to section 15. 17.4 Any notices relating to this Agreement shall be in writing and will be sent by certified United States mail, postage prepaid, return receipt requested, or by facsimile transmission or overnight courier service, addressed to the party at the address set forth below, or at such different address as a party has advised to the other party in writing and shall be deemed given and received when actually received: United HealthCare Corporation ActaMed Corporation 9900 Bren Road East 7000 Central Parkway Minneapolis, MN 55440 Suite 600 Attn: Chief Information Officer Atlanta, Georgia 30328 Attn: President 17.5 In the event one or more of the provisions of this Agreement are found to be invalid, illegal or unenforceable by a court with jurisdiction, the remaining provisions shall continue in full force and effect. 17.6 The obligations of the parties under this Agreement (other than the obligation to make payments) shall be suspended to the extent a party is hindered or prevented from complying therewith because of labor disturbances (including strikes or lockouts), war, acts of God, fires, storms, accidents, governmental regulations, failure of telecommunications vendors or suppliers, or any other cause whatsoever beyond a party's control. For so long as such circumstances prevail, the party whose performance is delayed or hindered shall continue to use all commercially reasonable efforts to recommence performance without delay and shall declare a disaster under its disaster recovery plan. 17.7 Each party shall have the right to include the other party's name on its customer or vendor list and to disclose the nature of the services and products provided under this Agreement, so long as such services and products are accurately represented; provided, however, that neither party has the right to use the other's name, trademarks or 20 trade names for other advertising, sales promotion, or publicity purposes without the other's prior written consent. 17.8 During the term of this Agreement, neither party will solicit or attempt to hire any individual who is then currently an employee of the other party or who has been an employee of the other party within the six months prior to the solicitation or hiring, without the other party's prior, written consent. This paragraph 17.8 shall only apply to individuals who, in the case of ActaMed, have performed services for UHC under this Agreement or worked in connection with the Network or the Licensed Materials, or who, in the case of UHC, have worked with ActaMed or received services from ActaMed, on behalf of UHC. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES. This Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. UNITED HEALTHCARE CORPORATION ACTAMED CORPORATION By: /s/ Travers H. Wills By: /s/ Michael K. Hoover ------------------------------- ------------------------------- Its: Chief Operating Officer Its: President ------------------------------ ------------------------------ Date: Date: April 4, 1996 ----------------------------- ----------------------------- 21 EXHIBIT LIST Exhibit A: Managed Plans Exhibit B: Licensed Materials Exhibit C: Development Work in Progress Exhibit D: Reports Exhibit E: Escrow Agreement Exhibit F: Network Maintenance and Support Services Exhibit G: Security Exhibit H: Transactions Exhibit 1: Performance Standards and Methods of Measurement Exhibit J: UHC Operating Environment Exhibit K: MetraHealth EDI Contracts 22 EXHIBIT A MANAGED PLANS Community Health Network of Louisiana, Inc. (purchase pending) PHP, Inc. (Michigan) PHP of Mid Michigan PHP of South Michigan PHP of Southwest Michigan PHP of West Michigan PHP of South Carolina PHP of North Carolina, Inc. (purchase pending) Physicians Plus Insurance Corporation Allina EXHIBIT B LICENSED MATERIALS
Right to Right to Reproduce Modify --------- ------ *User Manual, versions 2.1 and 2.2.5 No No Portal Specifications No No Communications Interface Document HCFA Claim Validations HCFA National Standard Format Claims ANSI X12 837 Claims Format Implementation Guide for Claims ANSI Xl 2 835 Electronic Remittance Advice UB92 Hospital Claim Format DOS Command Line Routines UNIX Command Line Routines Training Materials Version 2.2.5 Demo Disks and CSI Demo Disks Yes Yes PL Training Manual Yes Yes Network: EDI TCP/IP Interface Specification No No Promotional Material ProviderLink Brochure Yes Yes ProviderLink Send Back Card Yes Yes
*ActaMed will, upon request from UHC, identify UHC as the sponsor and promoter of these materials. EXHIBIT C DEVELOPMENT WORK IN PROGRESS Projects which are completed or will be completed by ActaMed as part of the sale: 1. COSMOS Distributed 'A' 2. Ohio health plan merger 3. Separation of the EmployerLink-ProviderLink network. At that time, a comprehensive list of hardware and software products required will be provided to ActaMed. 4. ORBIT 5. MHS "Mail Rules" EMPLOYERLINK SPLIT FROM PROVIDERLINK NETWORK PRODUCTION ENVIRONMENT
ACQUIRE ALTERNATE HARDWARE: [*] 20 hours, UHC [*] 4 hours, UHC [*] 2 hours, UHC [*] 20 hours, UHC [*] 10 hours, PL ACQUIRE ALTERNATE SOFTWARE: [*] 10 hours, UHC [*] 6 hours, UHC [*] 2 hour, UHC INSTALL VENDOR HARDWARE/SOFTWARE: [*] 40 hours, UHC [*] 40 hours, UHC [*] 10 hours, UHC [*] 10 hours, PL SPLIT PRODUCTION EMPLOYERLINK NETWORK SOFTWARE FROM PROVIDERLINK: [*] 30 UHC, 15 PL [*] 30 UHC, 8 PL [*] 30 UHC, 8 PL [*] 50 UHC [*] 40 UHC, 20 PL [*] 15 hours, PL
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXHIBIT D REPORTS REPORTS ACTAMED WILL PROVIDE TO UHC The following reports will be provided to UHC from ActaMed on a routine schedule as indicated. - - Orbit reports Three [*] core operating reports, for each market, will be sent to each health plan lead ProviderLink/EDI representative and a central UHC corporate resource. (Available electronically or on paper as requested.) UNI Access Status Report [*] Monthly Detail Transaction report by source UNI [*] Monthly Detail Transaction report by Destination Market [*] - - Intercompany billing detail reports for use in determining allocation of transaction expensed to the proper health plan or business unit. Summary of fees by health plan detailed by plan and DIV [*] Intercompany Billing Details-site fees, mail and Era transactions [*] Intercompany Billing Details-transaction charges [*]
- - Help Desk Reports The following problem notification procedures will be performed by the ActaMed Help Desk staff by call priority level. Severity levels are defined in Exhibit 1. Reporting on these activities will be provided to UHC upon request. Severity 1 - High priority calls will be reported to a health plan on a [*] basis. A report listing each call and its status will be electronically mailed or faxed the following morning. For a specific high priority call, if closure is not expected within [*], a call will be placed to the UHC health plan ProviderLink representative. If the call is closed within [*], notification to UHC health plan ProviderLink representative via the next morning's E-mail report is acceptable. If an UHC health plan ProviderLink representative cannot be accessed "live", a voice mail will be left. [*] contact with the customer is required until closure. Severity 2 - Normal priority calls will also be reported on a [*] report listing each call and its status. No telephone calls will be placed to the plan for these calls except on and as needed basis. Regular customer contact is required until closure. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Severity 3 - Low-priority calls will also be reported in a [*] report to UHC health plan ProviderLink representative containing all calls and status. Customer contact is required as needed or when a course of action has been determined. - - In the event that the ActaMed Help Desk computerized on-line problem management tool is down, call information will be recorded manually and entered into the system as soon as it becomes available. - - Required problem resolution timeframes are outlined in Exhibit D. - - ActaMed should prepare a quarterly Executive Summary report for UHC management detailing the customer issues raised during this time frame and the resolution of these problems. - - Network Availability Reports Modem connectivity-actual performance to standard Monthly Network Transaction Success rate by plan, and in the aggregate Monthly Host and Modem availability Monthly - - Itemization and accounting for the hours worked by the UHC Dedicated Team, and a project status report on each item worked. Reports UHC will provide to ActaMed These reports will include data from health plans centralized on COSMOS, those plans with decentralized UHC host systems including, but not limited to, Complete, PrimeCare, Ramsay, UHC Illinois, etc., and all ex-MetraHealth systems including the previous Travelers and Met Life systems. UHC will provide a resource to coordinate the assembly of this data and will serve as the contact for all questions regarding these reports. - - Membership data by health plan or market provided on paper or Monthly electronically where available. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. - - Claims receipts or processed claims, for all commercial UHC Monthly health plans or markets, offices or systems, including the total volume of claims received electronically by month and year-to-date, if available, actual penetration percentages by plans, market, offices or systems, and desired percentage of electronic claim receipts. - - Decision Support System (DSS) Data will be extracted from UHC Monthly health plans and markets to support the market analysis done by ActaMed and for the prioritization of target providers and potential prospects. (A sample report is provided on Attachment 1) - - Physician and Hospital claims volume data for each health Quarterly plan/market by Provider Number and/or submitting Entity Tax ID including: * total claims volumes received by each provider/tax ID * volume received electronically (EDI) by each provider/tax ID * volume received on tape/other by each provider/tax ID, Monthly if applicable and available This information will be provided electronically, as available. - - Other data to be determined in the future to support the analysis of new transactions as mutually agreed by both parties. - - Strategic information from UHC related to EDI growth goals Quarterly and objectives by health plan/market will be provided to ActaMed as needed. This will include pertinent project plans and other material/documentation that will assist ActaMed to enhance and increase electronic transactions for UHC. EXHIBIT E MASTER ESCROW AGREEMENT BETWEEN PRODUCER AND FORT KNOX This escrow agreement is intended for use by a Producer (Developer) and Fort Knox Escrow Services, Inc. The Producer may escrow multiple products under this agreement. In addition, multiple Licensees (End Users) may be registered as beneficiaries of this agreement. Although each Licensee does not sign the agreement, Fort Knox does notify them of the service. Master Escrow Agreement This Master Escrow Agreement ("Agreement") is made as of this 20th day of February, 1995, by and between ActaMed Corp. ("Producer") and Fort Knox Escrow Services, Inc. ("Fort Knox"). PRELIMINARY STATEMENT. Producer intends to deliver to Fort Knox a sealed package containing magnetic tapes, disks, disk packs, or other forms of media, in machine readable form, and the written documentation prepared in connection therewith, and any subsequent updates or changes thereto (the "Deposit Materials") for the computer software products (the "System(s)"), all as identified from time to time on Exhibit B hereto. Producer desires Fort Knox to hold the Deposit Materials, and, upon certain events, deliver the Deposit Materials (or a copy thereof) to those persons or entities listed from time to time on Exhibit C hereto as a licensee of Producer ("Licensee"), in accordance with the terms hereof. Now, therefore, in consideration of the foregoing, of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DELIVERY BY PRODUCER. Producer shall be solely responsible for delivering to Fort Knox the Deposit Materials as soon as practicable. Fort Knox shall hold the Deposit Materials in accordance with the terms hereof. Except as provided in Section 10 below, Fort Knox shall have no obligation to verify the completeness or accuracy of the Deposit Materials. 2. DUPLICATION; UPDATES. (a) Fort Knox may duplicate the Deposit Materials by any means in order to comply with the terms and provisions of this Agreement, provided that the Licensee to whom a copy of the Deposit Materials is to be delivered pursuant to the terms hereof shall bear the expense of duplication. (b) Producer shall deposit with Fort Knox any modifications, updates, new releases or documentation related to the Deposit Materials by delivering to Fort Knox an updated version of the Deposit Materials ("Additional Deposit") as soon as practicable after the modifications, updates, new releases and documentation have become generally available to Producer's Licensees, but in any event within thirty (30) days following the first delivery to any Licensee. When Producer delivers an Additional Deposit to Fort Knox, Fort Knox shall return to Producer the previous Deposit Materials it held in custody, except for the Deposit Materials that were the subject of the most recent previous deposit. Except as provided in Section 10 below, Fort Knox shall have no obligation to verify the accuracy or completeness of any Additional Deposit or to verify that any Additional Deposit is in fact a copy of the Deposit Materials or any modification, update, or new release thereof. 3. NOTIFICATION OF DEPOSITS. Simultaneous with the delivery to Fort Knox of the Deposit Materials or any Additional Deposit, as the case may be, Producer shall deliver to Fort Knox and to each Licensee a written statement specifically identifying all items deposited and stating that the Deposit Materials or any Additional Deposit, as the case may be, so deposited have been inspected by Producer and are complete and accurate. Within five (5) days of receipt by Fort Knox of the Deposit Materials or any 1 Additional Deposit, Fort Knox will send notification of such receipt via certified or registered mail to the Licensee(s). 4. DELIVERY BY FORT KNOX 4.1 DELIVERY BY FORT KNOX TO LICENSEES. Fort Knox shall deliver the Deposit Materials, or a copy thereof, to a Licensee only in the event that: (a) Producer notifies Fort Knox to effect such delivery to a Licensee or Licensees at a specific address or addresses, the notification being accompanied by a check payable to Fort Knox in the amount of one hundred dollars ($100.00); or (b) Fort Knox receives from any Licensee: (i) written notification that Producer has failed in a material respect to support the applicable Systems as required by a valid and existing license agreement ("License Agreement") between Licensee and Producer or that Producer has generally ceased its business of supporting the applicable systems ("Producer Default"); (ii) evidence satisfactory to Fort Knox that Licensee has notified Producer, at least ten (10) days prior to the notice to Fort Knox, of such Producer Default in writing; (iii) a written demand that the Deposit Materials be released and delivered to Licensee; (iv) a written undertaking from the Licensee that the Deposit Materials being supplied to the Licensee will be used only as permitted under the terms of the License Agreement; (v) specific instructions from the Licensee for this delivery; and (vi) a cashier's check payable to Fort Knox in the amount of five hundred dollars ($500.00). (c) If the provisions of paragraph 4.1(a) are satisfied, Fort Knox shall, within five (5) business days after receipt of the notification and check specified in paragraph 4.1(a), deliver the Deposit Materials in accordance with the applicable instructions. (d) If the provisions of paragraph 4.1(b) are met, Fort Knox shall, within five (5) business days after receipt of all the documents specified in paragraph 4.1(b), send by certified mail to Producer a photostat copy of all such documents. Producer shall have thirty (30) days from the date on which Producer receives such documents ("Objection Period") to notify Fort Knox of its objection ("Objection Notice") to the release of the Deposit Materials to a Licensee and to request that the issue of Licensee's entitlement to a copy of the Deposit Materials be submitted to arbitration in accordance with the following provisions: 2 (i) If Producer shall send an Objection Notice to Fort Knox during the Objection Period, the matter shall be submitted to, and settled by arbitration by, a panel of three (3) arbitrators chosen by the Atlanta Regional Office of the American Arbitration Association in accordance with the rules of the American Arbitration Association. The arbitrators shall apply Georgia law. At least one (1) arbitrator shall be reasonably familiar with the computer software industry. The decision of the arbitrators shall be binding and conclusive on all parties involved, and judgment upon their decision may be entered in a court of competent jurisdiction. All costs of the arbitration incurred by Fort Knox, including reasonable attorneys' fees and costs, shall be paid by the non-prevailing party. (ii) Producer may, at any time prior to the commencement of arbitration proceedings, notify Fort Knox that Producer has withdrawn the Objection Notice. Upon receipt of any such notice from Producer, Fort Knox shall reasonably promptly deliver the Deposit Materials to the Licensee in accordance with the instructions specified in paragraph 4.1(b)(v). (e) If, at the end of the Objection Period, Fort Knox has not received an Objection Notice from Producer, then Fort Knox shall reasonably promptly deliver the Deposit Materials to the Licensee in accordance with the instructions specified in paragraph 4.1(b)(v). 4.2 DELIVERY BY FORT KNOX TO PRODUCER. Fort Knox shall release and deliver the Deposit Materials to Producer upon termination of this Agreement in accordance with paragraph 7(a) hereof. 5. INDEMNITY. Producer and any party claiming beneficiary status under this Agreement shall indemnify and hold harmless Fort Knox and each of its directors, officers, agents, employees and stockholders ("Fort Knox Indemnities") absolutely and forever, from and against any and all claims, actions, damages, suits, liabilities, obligations, costs, fees, charges, and any other expenses whatsoever, including reasonable attorneys' fees and costs, that may be asserted against Fort Knox Indemnitee in connection with this Agreement or the performance of Fort Knox or any Fort Knox Indemnitee hereunder, except as a result of the negligent act or omission on the part of Fort Knox or any Fort Knox Indemnitee. 6. DISPUTES AND INTERPLEADER. (a) In the event of any dispute between any of Fort Knox, Producer and/or any Licensee relating to delivery of the Deposit Materials by Fort Knox or to any other matter arising out of this Agreement, Fort Knox may submit the matter to any court of competent jurisdiction in an interpleader or similar action. Any and all costs incurred by Fort Knox in connection therewith, including reasonable attorneys' fees and costs, shall be borne by the party seeking the copy of the Deposit Materials. (b) Fort Knox shall perform any acts ordered by any court of competent jurisdiction, without any liability or obligation to any party hereunder by reason of such act. 3 7. TERM AND RENEWAL. (a) The initial term of this Agreement shall be two (2) years, commencing on the date hereof (the "Initial Term"). This Agreement shall be automatically extended for an additional term of one year ("Additional Term") at the end of the Initial Term and at the end of each Additional Term hereunder unless, on or before ninety (90) days prior to the end of the Initial Term or an Additional Term, as the case may be, either party notifies the other party that it wishes to terminate the Agreement at the end of such term. (b) In the event of termination of this Agreement, Producer shall pay all fees due Fort Knox and Fort Knox shall promptly notify all Licensees that this Agreement has been terminated and that Fort Knox shall promptly return to Producer all copies of the Deposit Materials then in its possession. 8. FEES. Producer shall pay to Fort Knox fees in accordance with Exhibit A as compensation for Fort Knox's services under this Agreement. (a) PAYMENT. Fort Knox shall issue an invoice to Producer following execution of this Agreement ("Initial Invoice"), on the commencement of any Additional Term hereunder, and in connection with the performance of any additional services hereunder. Payment is due upon receipt of invoice. All fees and charges are exclusive of, and Producer is responsible for the payment of, all sales, use and like taxes. Fort Knox shall have no obligations under this Agreement until the Initial Invoice has been paid in full by Producer. (b) NONPAYMENT. In the event of non-payment of any fees or charges invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any fee due and payable hereunder to the Producer and, in such an event, the Producer shall have the right to pay the unpaid fee within thirty (30) days after receipt of notice from Fort Knox. If Producer fails to pay in full all fees due during such thirty (30) day period, Fort Knox shall give notice of non-payment of any fee due and payable hereunder to the Licensee(s) and, in such event, the Licensee(s) shall have the right to pay the unpaid fee within ten (10) days of receipt of such notice from Fort Knox. Upon payment of the unpaid fee by either the Producer or the Licensee(s), as the case may be, this Agreement shall continue in full force and effect until the end of the applicable term. Failure to pay the unpaid fee under this paragraph 8(b) by both Producer and the Licensee(s) shall result in termination of this Agreement. 9. OWNERSHIP OF DEPOSIT MATERIALS. Fort Knox and Producer recognize and acknowledge that ownership of the Deposit Materials shall remain with Producer at all times. 10. BANKRUPTCY. Producer and Licensee acknowledge that this Agreement is an "agreement supplementary to" the License Agreement as provided in Section 365(n) of Title 11, United States Code (the "Bankruptcy Code"). Producer acknowledges that if Producer as a debtor in possession or a trustee in Bankruptcy in a case under the Bankruptcy Code rejects the License Agreement or this Agreement, Licensee may elect to retain its rights under the License Agreement and this Agreement as provided in Section 365(n) of the Bankruptcy Code. Upon written request of Licensee to Producer or the Bankruptcy Trustee, Producer or such Bankruptcy Trustee shall not interfere with the rights of Licensee as provided in the License Agreement and this Agreement, including the right to obtain the Deposit Material from Fort Knox in accordance with Section 3. 4 11. MISCELLANEOUS. (a) REMEDIES. Except for actual fraud, gross negligence or intentional misconduct, Fort Knox shall not be liable to Producer for any act, or failure to act, by Fort Knox in connection with this Agreement. Fort Knox will not be liable for special, indirect, incidental or consequential damages hereunder. Licensees are intended to be third party beneficiaries as to the express rights and subject to the obligations set forth herein. (b) NATURAL DEGENERATION; UPDATED VERSION. In addition, the parties acknowledge that as a result of the passage of time alone, the Deposit Materials are susceptible to loss of quality ("Natural Degeneration"). It is further acknowledged that Fort Knox shall have no liability or responsibility to any person or entity for any Natural Degeneration. For the purpose of reducing the risk of Natural Degeneration, Producer shall deliver to Fort Knox a new copy of the Deposit Materials at least once every three years. (c) PERMITTED RELIANCE AND ABSTENTION. Fort Knox may rely and shall be fully protected in acting or refraining from acting upon any notice or other document believed by Fort Knox in good faith to be genuine and to have been signed or presented by the proper person or entity. Fort Knox shall have no duties or responsibilities except those expressly set forth herein. (d) INDEPENDENT CONTRACTOR. Fort Knox is an independent contractor, and is not an employee or agent of either the Producer or any Licensee. The foregoing notwithstanding, nothing in this Agreement shall limit any remedies to which Producer may be entitled, whether at law or in equity, in connection with any claim relating to the misappropriation of confidential information or trade secrets (including the Deposit Materials) or the violation of any copyright or other intellectual property right of Producer. Licensee is a party to this Agreement. (e) AMENDMENTS. This Agreement shall not be modified or amended except by another agreement in writing executed by the parties hereto, except that Producer may modify this Agreement at any time without the consent of Fort Knox to designate additional "Systems" on Exhibit B hereto and additional Licensees on Exhibit C hereto, as appropriate. (f) ENTIRE AGREEMENT. This Agreement, including all exhibits hereto, supersedes all prior discussions, understandings and agreements between the parties with respect to the matters contained herein, and constitutes the entire agreement between the parties with respect to the matters contemplated herein. All exhibits attached hereto are by this reference made a part of this Agreement and are incorporated herein. (g) COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in two (2) counterparts, each of which when so executed shall be deemed to be an original and both of which when taken together shall constitute one and the same Agreement. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia. (h) CONFIDENTIALITY. Fort Knox will hold and release the Deposit Materials only in accordance with the terms and conditions hereof, and will maintain the confidentiality of the Deposit Materials. 5 (i) NOTICES. All notices, requests, demands or other communications required or permitted to be given or made under this Agreement shall be in writing and shall be delivered by hand or by commercial overnight delivery service which provides for evidence of receipt, or mailed by certified mail, return receipt requested, postage prepaid, and addressed as follows: (i) If to Producer: to the address listed on the signature page hereof (ii) If to Fort Knox: Fort Knox Escrow Services, Inc. 3539-A Church Street Clarkston, Georgia 30021-1717 Attn: Contracts Administrator Copy: Michael A. Payne Vice President If delivered personally or by commercial overnight delivery service, the date on which the notice, request, instruction or document is delivered shall be the date on which delivery is deemed to be made, and if delivered by mail, the date on which such notice, request, instruction or document is received shall be the date on which delivery is deemed to be made. Any party may change its address for the purpose of this Agreement by notice in writing to the other parties as provided herein. (j) SURVIVAL. Paragraphs 5, 6, 8, 9 and 10 shall survive any termination of this Agreement. (k) NO WAIVER. No failure on the part of any party hereto to exercise, and no delay in exercising any right, power or single or partial exercise of any right, power or remedy by any party will preclude any other or further exercise thereof or the exercise of any other right, power or remedy. No express waiver or assent by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or an assent to any succeeding breach of or default in the same or any other term or condition hereof. 6 IN WITNESS WHEREOF each of the parties has caused its duly authorized officer to execute this Agreement as of the date and year first above written. Fort Knox Escrow Services, Inc. By: /s/ Michael A. Payne --------------------------------------------- Title: V.P. ------------------------------------------ Producer By: /s/ Nancy J. Ham ------------------------------------------------------ Print Name: Nancy J. Ham ------------------------------------------------------ Title: CFO ------------------------------------------------------ Address: 7000 Central Parkway, Suite 620 ------------------------------------------------------ Atlanta, GA 30328 ------------------------------------------------------ ------------------------------------------------------ Phone: (404) 551-1600 ------------------------------------------------------ Fax: (404) 551-1601 ------------------------------------------------------ Attention: Nancy Ham ------------------------------------------------------ 7 EXHIBIT A Fees to be paid by Producer shall be as follows: Initialization fee (one time only) $750 (payable for initial term only) Annual maintenance/storage fee - includes one Deposit Material update $800/Product - includes two cubic feet of storage space Annual Licensee registration fee FULL SERVICE $ 150/Licensee (foreign licensee $250) Additional Updates $ 100/Product (above one per year) Additional Storage Space $ 150/Cubic foot Payable by Licensee or Producer: Due Upon Licensee's or Producer's Request for Release of Deposit Materials $ 500
Fees due in full, in US dollars, upon receipt of signed contract or deposit material, whichever comes first. Thereafter, fees shall be subject to their current pricing, provided that such prices shall not increase by more than 10% per year. 8 EXHIBIT B B1. Product Name:____________________________________________________________ Version #:_______________________________________________________________ Prepared/Confirmed by:________________________________________________________ Title:___________________________________ Date:__________________________ Signature:____________________________________________________________________ Type of deposit: ____ Initial Deposit ____ Update Deposit to replace current deposits ____ Other (please describe)_____________________________________________ ITEMS DEPOSITED: Quantity Media Type Description of Material A) ________ ____________ _______________________________________________ B) ________ ____________ _______________________________________________ C) ________ ____________ _______________________________________________ B2. Product Name:____________________________________________________________ Version #:_______________________________________________________________ Prepared/Confirmed by:________________________________________________________ Title:___________________________________ Date:__________________________ Signature:____________________________________________________________________ Type of deposit: ____ Initial Deposit ____ Update Deposit to replace current deposits ____ Other (please describe)_____________________________________________ ITEMS DEPOSITED: Quantity Media Type Description of Material A) ________ ____________ _______________________________________________ B) ________ ____________ _______________________________________________ C) ________ ____________ _______________________________________________ 9 EXHIBIT C Licensees Please list a primary contact person, company names, and address, as well as telephone and facsimile numbers. COMPANY NAME & ADDRESS A.____________________________ Contact Name:____________________ ______________________________ Telephone:_______________________ ______________________________ Facsimile:_______________________ ______________________________ Date:____________________________ Product Name and Version #_____________________________________ B.____________________________ Contact Name:____________________ ______________________________ Telephone:_______________________ ______________________________ Facsimile:_______________________ ______________________________ Date:____________________________ Product Name and Version #______________________________________ C.____________________________ Contact Name:____________________ ______________________________ Telephone:_______________________ ______________________________ Facsimile:_______________________ ______________________________ Date:____________________________ Product Name and Version #______________________________________ (PLEASE COPY PAGE AS NECESSARY) 10 FIRST AMENDMENT TO MASTER ESCROW AGREEMENT This First Amendment to Master Escrow Agreement (the "Agreement") is made to that certain Master Escrow Agreement dated February 1995 (the "master Escrow Agreement"), between Fort Knox Escrow Services, Inc. ("Fort Knox"), and ActaMed Corp. (the "Producer"), to provide certain amended or revised terms to the Master Escrow Agreement. The Master Escrow Agreement and this Amendment together constitute the "Agreement" referred to in the Master Escrow Agreement. All capitalized terms used in this Amendment and not defined herein have the meaning provided for in the Master Escrow Agreement. In the event of any conflict between the terms of this Amendment and the terms of the Master Escrow Agreement, the terms of this Amendment shall govern and control. In consideration of the sum of Ten Dollars ($10.00) in hand resolved, and other good and valuable considerations, the receipt and adequacy of which is hereby acknowledged, the parties hereby do agree as follows: Section 4.1(b)(i) of the Master Escrow Agreement is deleted in its entirety and the following is substituted thereafter: (I) written notification that Producer has failed in material respects to support the applicable Systems as required by a valid and existing License Agreement ("License Agreement") between Licensee and Producer, or that the terms of any other agreement to which Producer and Licensee are a party provides that Licensee is entitled to receive the Deposit Materials, or that Producer has ceased the business of supporting the applicable Systems ("Producer Default"); IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in duplicate originals by its duly authorized representative. Fort Knox Escrow Services, Inc. ActaMed Corporation By: /s/ Jane L. Elliott By: /s/ Nancy J. Ham -------------------------- ------------------------------- Name: Jane L. Elliott Name: Nancy J. Ham ------------------------ ----------------------------- Title: Senior Account Manager Title: CFO ----------------------- ---------------------------- Date: 9/27/95 Date: 9/27/95 ------------------------ ----------------------------- EXHIBIT F MAINTENANCE AND SUPPORT SERVICES ActaMed will provide United HealthCare Corporation with the following hardware, network and application (product) maintenance services which will be performed by ActaMed staff not dedicated to UHC enhancements. The cost of these maintenance services are provided as a part of the transaction and site fees, and include: - - Correction of identified system bugs in the network hardware or application; - - Changes and modifications to the ActaMed hardware, application and network required to manage scalability and capacity issues associated with increased transaction volumes; - - Changes required to maintain service level commitments as identified in Exhibit I; - - Help Desk services as defined in Exhibit I, including appropriate staffing, call response time, escalation procedures, reporting, availability, severity levels, problem log tracking and problem resolution, etc; - - Maintaining the ORBIT system and accurately performing the provider registration process on ORBIT to include the assignment of Site and Tax ID's; - - User Security set up and processing; - - Marketing Group Product Support for maintenance of a COMPUTERIZED DEFECT CONTROL SYSTEM problem log to include ongoing discussions between the Help Desk personnel and the ActaMed development staff to communicate customer needs and reactions to daily activity; - - Plan Rep Training for all current and future owned or managed plans as well as UHC corporate staff; - - Plan Rep and Corporate training will be conducted at ActaMed locations unless alternate locations are mutually agreed upon by both parties. - - Maintenance, monitoring and reporting of network and communication systems regarding stability and performance as specified in Exhibit D; F 1 - - Multi-Payor and Vendor technical and administrative support to insure collection and transmission of maximum volumes of electronic claims to UHC; Infrastructure will be upgraded by ActaMed as needed to accommodate provider transactions to UHC; - - Maintenance of appropriate connectivity to UHC host systems to maintain security provisions and data integrity of UHC transactions; - - Administer and maintain license agreement procedures with providers assuring appropriate signatures and approvals from UHC providers; - - Provide routine, updated application and network documentation for UHC sites and corporate; - - Maintain the network and application to assure data integrity of transactions; - - Maintenance releases shall be defined to include any emergency releases issued by ActaMed; - - Technology upgrades to the ActaMed hardware, network, and/or application (to include such things as fault tolerance products and services) will be included as part of ongoing maintenance; - - Provide ongoing support of and communication with the health plan representatives on electronic commerce issues, targets and strategies; - - Provide monthly billing detail by health plan, and in the aggregate, for all transaction activity. - - The following list of projects are "maintenance" and are part of the general support activities provided by ActaMed: 1. TCP/IP socket interface to ESN 2. Claim Batch Processing (CPB) - Report Generation Redesign 3. TALX Voice Response system support 4. Identification of health plans by payer ID 5. Menu navigation and file transfer 6. Accept physician claims using HCFA NSF 2.0 format F 2 EXHIBIT G ACTAMED PROVIDERLINK SECURITY FUNCTION OBJECTIVE To provide adequate data security given the confidential nature of the data and the types of transactions performed on the ActaMed ProviderLink network. Security related to ActaMeds ProviderLink is made up of multiple components: [*]. This document will concentrate on workstation and network security. FUNCTION FEATURES DATA OWNERSHIP The ActaMed ProviderLink network is a system that enables communication between a health care provider's place of business and payer host systems. While the ActaMed ProviderLink network enables the flow of data between these entities, it "owns" none of the data. [*] ActaMed ProviderLink [*]. [*] by the ActaMed ProviderLink network [*]. A [*] when installing the ActaMed ProviderLink application software. In [*] ProviderLink, this consisted of [*]. With [*] the ActaMed ProviderLink application, [*]. The [*] then [*] ActaMed ProviderLink application [*]. A [*] is used [*] to [*]. When the ActaMed ProviderLink application software [*]. It is the responsibility of [*] and the [*]. This allows [*] who [*] of ActaMeds ProviderLink. The [*] is [*] with all [*] the ActaMed's ProviderLink network, but only [*] is [*]. [*] The ActaMed ProviderLink [*] to manage security. ActaMed [*] will [*]. When [*] the [*] can perform and [*] that [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. G 1 the [*] are granted. The [*] also [*] with some of the [*] ActaMed's ProviderLink. The ActaMed ProviderLink [*] makes a [*] with [*] the ActaMed ProviderLink network. The [*] will return [*] requested transaction [*]. In addition, the [*] that make up the ActaMed ProviderLink [*] use a [*] to control access. Each [*] call will [*] as part of [*]. In this manner, we [*] to a [*] in effect, if you know the [*] of the ActaMed ProviderLink [*] you still cannot [*]. [*] In general, [*] is [*] to the [*]. As necessary, the ActaMed ProviderLink [*] will provide [*] to satisfy the [*]. In the case of [*] ActaMed ProviderLink [*]. Also associated with each [*] are [*]. When transactions are performed to [*] the [*] then the [*]. For [*] transactions (referrals, claim status, etc.), the [*]. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. G 2 ACTALINK SECURITY FUNCTION OBJECTIVE To provide adequate data security given the confidential nature of the data and the types of transactions performed on the ActaLink network. FUNCTION FEATURES [*] ActaLink is a distributed database system which operates as if it were centralized. It implements an [*] in a [*]. It supports operations that make it [*]. The user need not be concerned with [*]. [*] a given user is provided with a [*] the information in the system is [*]. [*] all of the details for [*]. The [*] is a set of [*]. The [*] of the detailed information [*]. The [*] of the database system makes [*] and intuitive, a [*]. [*] [*] have [*]. The [*] for [*] at a [*]. Once a [*] the network [*] who must [*] with a [*] for that purpose. From that time onward, until the end of the [*] the [*] must be used by the individual [*]. All [*] and [*] is managed [*]. [*] All ActaLink [*] wherever [*] become the [*]. This [*] which network users are [*] ActaLink [*]. ActaMed provides [*] and [*] that are used only for the [*]. The [*] uses this [*] to access ActaLink through [*]. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. G 3 The [*] does not have ActaLink [*] so the local [*] must use a different account for personal ActaLink network access. This reduces the probability that [*] could walk up to [*] and grant [*] without [*]. A given ActaLink [*] may be [*] a variety of [*] but only if [*] have [*]. Accordingly, a physician can [*] at [*] as [*] assuming that [*]. This [*] can be granted with [*]. [*] When a [*] the [*] is [*] and the [*] is returned to [*]. The [*] determines which [*] to be [*] to the user [*] and uses [*] to prevent [*] from [*]. The [*] only presents the user with [*]. [*] The ActaLink [*] is composed of [*] may [*] information in ActaLink [*]. All access to [*] in the ActaLink system [*] are [*]. The only method of [*] is through the ActaLink [*]. A [*] to the [*] governed by [*]. [*] The [*] of using particular [*] to each [*]. This permits the [*] to allow [*] and [*] allowing some [*]. [*] correspond to [*] each of which [*]. As stated in the [*] this [*] is accomplished by [*] to the user. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. G 4 EXHIBIT H TRANSACTION DEFINITIONS [*] and [*] allow a user to [*] and [*] to the [*]. [*] which allows a user to [*]. [*] which allows a user to [*] about the [*] and their [*]. A user can also [*] if available. [*] which allows a user to [*] for [*]. [*] which allows a user to [*]. [*] which allows a user to [*]. [*] allow [*]. [*] which allows a user to [*]. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. H EXHIBIT I PERFORMANCE STANDARDS AND METHODS OF MEASUREMENT NETWORK AVAILABILITY The network will be available 24 hours a day, 7 days a week with the exception of scheduled downtime. - - During this time, ActaMed will achieve the following performance standards: * [*] of the time or better, hardware and modems will be operational and available for receiving/accepting calls. Hardware specifically includes the ActaMed UNIX machines and the modems attached to the hardware. Measurement will be weekly with reporting monthly. * [*] or better successful modem connectivity, until 30 days after the network is moved and is under the complete control of ActaMed, at which time [*] or better successful modem connection performance will be required. Of the calls attempted, ActaMed's bank of modems will negotiate a successful connection and offer service [*] of the time. This measurement will be based on statistics generated by the HDMS modem rack network controller and will be measured weekly with reporting monthly. * [*] or better of transactions will be successful. Of the transactions submitted to ActaMed, [*] of these will be successfully serviced. Measurement will be weekly with reporting monthly. The definition for transaction success will be those transactions that do not result in a system generated, non-user created error. They may be categorized into the following: - - transactions that return valid data - - transactions that return a meaningful message, but not an error (i.e. "Name not found" when performing an eligibility inquiry by name.) - - transactions returning an error based on the information received (i.e. "Unknown Request Format" which indicates an incorrectly formatted transaction.) [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. I 1 Transaction failures are defined as those transactions that fail due to a system component failure (i.e. "Internal DCE Error" which identifies that a service necessary to complete the transaction was not available). Transaction failures will be recorded and measured according to the standards described above. AVAILABILITY MEASUREMENT Availability is measured as the number of ACTUAL hours available as a percentage of total AVAILABLE hours. Planned systems downtime is NOT included in the total availability time. The following definitions are used for calculating the availability measurement: - - DEFINED HOURS are the total days in the month multiplied by 24 hours. - - PLANNED HOURS are the planned and published hours that any system is down for maintenance or other planned outages. - - AVAILABLE HOURS are the Defined Hours minus the Planned Hours. - - UNPLANNED HOURS are the unplanned hours of downtime experienced during the month. - - ACTUAL HOURS are the Available Hours minus the Unplanned Hours. - - AVAILABILITY PERCENTAGE is determined by dividing the Actual Hours by Available Hours and multiplying the result by 100. - - CONNECTIVITY PERCENTAGE is determined by dividing the Total Successful Calls to the system by the Total Attempted Calls and multiplying the result by 100. UHC will consider these performance standards achieved if the network availability described above is achieved [*] of the time, or better. UHC will consider less than [*] performance achievement within [*] of any consecutive [*] period to be a material breach of this Service Level Agreement. Reporting as identified in Exhibit D will be the source documents from which these standards will be measured. Compliance to these standards will be determined by UHC upon reviewing the reports provided to the UHC/ActaMed liaison. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. I 2 In the event that ActaMed cannot perform according to the standards because of emergent situations. UHC will be notified following the emergency procedures outlined in this document. Reports on performance are due to UHC by no later than the 10th working day following the end of the month. LABORLINK SYSTEM ActaMed will continue to support the batch processing of Allinas LaborLink system, at the level of performance required for the ActaMed ProviderLink network. ActaMed will deliver files to the Third Party Administrator's (TPA) mailboxes as soon as UHC uploads the files to the network, usually available by 8:00 a.m. every Monday, which allows reports to be released to TPA's by noon on Monday, fifty-two weeks a year. DATA INTEGRITY ActaMed will uphold the highest standard of integrity with regard to the transmission and processing of transactions, reporting performance and service. Information received from ActaMed will be correct, and without errors, [*] of the time, measured monthly, unless otherwise stated in the SLA. All updates from COSMOS or other UHC host systems will be promptly and correctly applied [*] of the time. ACTAMED PROVIDERLINK HELP DESK Users, UHC health plans and business units agree to call the ActaMed ProviderLink Help Desk at 612-945-8500 or 1-800-446-8279 for all problem resolution when concerns cannot be resolved by the Health Plan, or a Health Plan representative is not available. The ActaMed ProviderLink Help Desk will be open from 7:00 a.m. - 5:00 p.m. CST, Monday through Friday. Voice mail is available for after hour calls. Messages left on voice mail after business hours will be retrieved the following business day. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. I 3 CALL DOCUMENTATION Utilizing the ActaMed ProviderLink Help Desk computerized problem management tool, the following information will be recorded on each call to the help desk: Site ID (PC ID) Site Name Caller Name Phone Number Health Plan Priority Level Date of Call Time of Call Problem Code Call Recipient Problem Definition Call Status Resolution Information The ActaMed ProviderLink Help Desk will attempt to accommodate any requests for additional information as long as the collection of the information does not add significant time and effort in logging the call. The ActaMed ProviderLink Help Desk statistics will be reported to UHC on a routine basis but will not be integrated into any individual health plan's call tracking statistics. DEFINITION OF THE PRIORITY LEVEL CLASSIFICATIONS All calls will be assigned to one of three priority levels. The following definitions will be used by the ActaMed ProviderLink Help Desk Representatives to assign priority to calls: SEVERITY 1 - A critical system or component is down or experiencing degraded service causing UHC's or a customer's business functions to be halted SEVERITY 2 - A single user is down, a component is experiencing degraded service, or scheduled deliverables are unavailable. This does not have a critical impact on the business, but may restrict function to some users and may impact normal business operations. SEVERITY 3 - A user's system is still operating but is experiencing difficulties or a specially requested deliverable is unavailable. The definition of each priority level and the classification of call types into priority levels will be determined through negotiation between ActaMed and UHC. The definitions may be reassessed and are subject to change. The ActaMed ProviderLink Help Desk's method of classifying calls into priority levels will be reviewed periodically with UHC. UHC will be responsible for defining additional situations and communicating to ActaMed any requests on how to classify particular call situations. 14 In the event that the ActaMed ProviderLink Help Desk computerized on-line problem management tool is down, call information will be recorded manually and entered into the system when it becomes available. MEASUREMENT Objectives have been set for both the maximum time required for communicating the current status and action plan to the user and to UHC for each priority level and for the percentage of call volumes that will meet these objectives. Measurement will begin when the problem is received by the ActaMed ProviderLink Help Desk and recorded into the computerized on-line problem management tool. Measurement will end when the call is closed, (i.e. the current status and action plan is communicated to the user and the appropriate UHC health plan has acknowledged the problem) by the ActaMed ProviderLink Help Desk representative. It is the responsibility of the UHC health plan personnel to notify ActaMed ProviderLink Help Desk when an open call has been resolved by a health plan resource, but not communicated to ActaMed by the user. The percent of calls closed within the time frame objectives will be measured by calculating, by priority level, the volume of calls closed within the time frame objectives as a percentage of total calls opened. SALES, INSTALLATION AND TRAINING When selling ProviderLink, UHC will ensure that the users conform to the technical standards that have been established in the current version of Schedule B of the ProviderLink License Agreement. UHC will continue to follow ProviderLink approved installation procedures and will provide an adequate level of user understanding of ProviderLink through appropriate training. The ProviderLink health plan representatives will be trained by ActaMed as described in Exhibit F. UHC recognizes that the quality of ActaMed's ProviderLink Help Desk support is partially dependent on UHC's sales and installation to sites with approved technical requirements and thorough training of users. CAPACITY PLANNING UHC is responsible for providing the ActaMed's ProviderLink Help Desk with as much information as possible to assist ActaMed in planning for the appropriate levels of staffing to meet the service level objectives. Forecasts of site sales, 15 installation scheduling and specific events that will impact ActaMed's ProviderLink volume of calls will be communicated to the best of UHC's ability. Major support requirements will be communicated with a 90 day lead time, whenever possible. TECHNICAL MAINTENANCE/ENHANCEMENT SCHEDULING OBJECTIVES PDR (PROVIDERLINK DEVELOPMENT REQUEST) PROCESS ActaMed will have an established process for documenting all ProviderLink user requests for correction of problems or the development of new functionality. All requests are recorded into a computerized defect control system software product including a detailed description of the requirements. All regular open requests are reviewed by the ActaMed ProviderLink development team on a routine basis, however, UHC will be responsible for establishing the development priorities. ActaMed assumes the responsibility to make the development and maintenance modifications based on UHC priorities. DURING THE TRANSITION, ACTAMED PROVIDERLINK PRODUCT MARKETING WILL AID AND CONTRIBUTE TO THE PRIORITIZATION OF UHC REQUESTS IF NEEDED. FOLLOWING THE TRANSITION PERIOD, ACTAMED WILL CONSIDER THIS ASSISTANCE A LONG TERM BILLABLE SERVICE. NETWORK MAINTENANCE RELEASES Regular ProviderLink network maintenance enhancements and fixes will be completed and certified on a regular basis. They will be released into production on Thursday evenings, AS AVAILABLE. Major software and hardware releases will be scheduled to go into production on weekends. ActaMed will communicate these changes to UHC on a regular, weekly basis. EMERGENCY MAINTENANCE RELEASES Emergency maintenance is defined as the correction of a technical bug or omission in the existing functionality of ActaMed's ProviderLink presentation software or network. The technical problem renders the ProviderLink feature or user inoperable. ActaMed will be responsible for ongoing monitoring and quality control of the network and application. UHC will expect ActaMed to have a well defined problem identification procedure to document and fix inoperable functionality before recognized by UHC or its users. However, when this has not been 16 accomplished, UHC will in cooperation with an ActaMed staff resource, complete a PDR with as much information as is available, designate it as emergency, and submit it to the ActaMed ProviderLink Product Marketing staff. The UHC/ActaMed liaison is responsible for supporting ActaMed with the initial research and documentation of the problem via the PDR. The service level performance objective for emergency correction will be within ten business days. Tracking of the fix will begin at the time of ActaMed's receipt of the PDR. Emergency changes will be released on any given day. These releases are not subject to the Thursday release schedule. The correction of the emergency technical problem will be in the control of the ActaMed development team. ActaMed is not responsible for correcting problems located outside of the ActaMed ProviderLink presentation software or network, i.e. a specific user's configuration, hardware problems, or technical problems located within another vendor's software. APPLICATION MAINTENANCE RELEASES Application Maintenance releases will include maintenance and fixes of presentation software bugs identified and documented in the PDR process. A software bug is defined as existing functionality that fails to perform as designed. Where applicable, it will be the responsibility of UHC to assist ActaMed/ProviderLink development in thoroughly researching user needs and determining the implication of product changes on all stakeholders within United HealthCare and ProviderLink end users. The registration, installation and training of ProviderLink users on the features of any maintenance release is the primary responsibility of UHC. ENHANCEMENT RELEASES All enhancements to the ActaMed ProviderLink software or network will be provided to UHC health plans or affiliates as outlined in the Service Level Agreement. Enhancements are defined as the addition of functionality that does not currently exist in the ProviderLink system, or is currently not supported. In addition, these releases may include maintenance and fixes of presentation or other software bugs not included in the routine application maintenance releases. An enhancement release may also include modifications to any or all of the current ProviderLink features of Claim Submissions, Eligibility, Referrals, Referral Status, Claims Status, ProviderLink E-mail/Fax, and Provider Directory. 17 Enhancements specific to UHC, and those created exclusively for UHC by the ActaMed/UHC dedicated team, will be released according to the agreed upon schedule. Information specific to the dedicated team and enhancements paid for by UHC, will be outlined in the Dedicated Team Agreement. It is the responsibility of UHC to assist ActaMed/ProviderLink development in thoroughly researching user needs and determining the implication of product enhancements on all stakeholders within United HealthCare and ProviderLink end users. The registration, installation and training of ProviderLink users on the features of any new release is the primary responsibility of UHC. All requests for the development of enhancements in functionality will be communicated to ActaMed through the PDR process. COMMUNICATION OF TECHNICAL REQUIREMENTS The ActaMed ProviderLink development team will formally communicate to UHC's health plan ProviderLink Managers, 90 days prior to release date, any anticipated changes in standard hardware requirements, as defined in the current version of schedule B of the ProviderLink License Agreement, that would impact UHC's users of new ProviderLink software releases. PLANNING FOR THE YEAR 2000 ActaMed will plan for, and successfully implement, changes to all applications and network tools and services to accommodate the transition to the year 2000. ActaMed will perform this task on internal software as part of the maintenance agreement with UHC and will be done at no extra cost. If UHC data formats change as a result of adding support for the year 2000, UHC will prioritize this exclusive change for ActaMed and submit the change request for completion by the UHC dedicated team. 18 ALLINA SERVICE LEVEL AGREEMENT (SLA) ActaMed will perform to the level of service described in the 1996 agreement negotiated with Allina by the UHC EDI Services Department through the duration of the 1996 calendar year. 19 EXHIBIT J UHC Operating Environment (a) [*] will provide [*] between ActaMed and [*]. (b) [*] will provide [*] between [*]. (c) [*] will provide [*]. UHC will provide [*] the communications between ActaMed and [*]. (d) [*] may [*] as appropriate [*]. ATTACHED DIAGRAMS: In the first diagram, labeled Attachment 1, the division of responsibility is identified by the vertical line. This division of responsibility is depicted in more detail by the second diagram, labeled 'ProviderLink Architecture'. In the second diagram, the cloud which represents [*] at the bottom of the page [*] are the responsibility of [*]. The [*] to connect the [*]. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 20 EXHIBIT K EMC CONTRACTS
- ------------------------------------------------------------------------------------------------------------------------------------ VENDOR CONTRACT RENEWAL PRODUCTION FEES PER CLAIM CHARGE TO PROVIDER DATE DATE DATE - ------------------------------------------------------------------------------------------------------------------------------------ [*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.14 24 EX-10.14 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. SERVICES AGREEMENT This SERVICES AGREEMENT (the "Services Agreement" or "Agreement") is made and entered into as of December 31, 1997 by and between ACTAMED CORPORATION, a Georgia Corporation ("ActaMed") and SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., a Delaware Corporation ("SBCL"). BACKGROUND ActaMed is in the business of providing electronic data interchange products and services to the health care industry, including its ProviderLink software, and desires to develop business involving automated laboratory order entry and results reporting services. SBCL provides laboratory testing services to certain Providers who use SBCL Software (as defined in the License Agreement) for electronic clinical laboratory test order entry and/or test result reporting between an SBCL Lab and such Provider. In addition, SBCL uses the SBCL Software to allow [*] to send laboratory test orders entered electronically to an SBCL Lab and/or to have the test results reported electronically back to the PSC or the Provider ordering the test. The parties previously entered into the Development Agreement pursuant to which ActaMed and SBCL are jointly developing the ActaLab Software. Simultaneously with the execution of this Agreement, ActaMed and SBCL are entering into the Purchase Agreement pursuant to which ActaMed is purchasing and SBCL is selling certain assets associated with SBCL's provision of Lab EDI Services, as more fully set forth therein. Also concurrently with the execution and delivery of this Agreement, SBCL and ActaMed are entering into the License Agreement whereby SBCL, among other things, grants ActaMed a license to the SBCL Software. This Agreement sets forth the parties' agreements relating to their rights and obligations following the date hereof relating to provision of Lab EDI Services to Automated Providers. Pursuant to the Purchase Agreement, the Parties contemplate that there will be a staged transfer to ActaMed of SCAN Assets. The transfer of Region One SCAN Assets is to occur on the Region One Transfer Date. The transfer of the other Regions will occur sequentially when the Transfer Benchmarks (as defined in the Purchase Agreement) have been met. NOW THEREFORE, in consideration of the premises and the mutual promises contained herein, the parties, intending to be legally bound, agree as follows: [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. I. DEFINITIONS. Capitalized terms used in this Agreement and not otherwise defined herein are defined in EXHIBIT A attached hereto. II. NETWORK READINESS SERVICES. A. GATEWAY REPLICATION. SBCL shall be responsible [*] to provide such reasonable and appropriate software development, installation and support services as are necessary to establish connectivity with an ActaMed gateway (the "ACTAMED GATEWAY") that works substantially as the SBCL gateway works as of the date hereof. In connection with such services from SBCL: 1. ActaMed shall [*] order, acquire, install and configure the necessary hardware and data communications lines required to install and operate the appropriate gateway systems, including without limitation a [*] modems, 800 phone service, [*] and data communications lines for connection to SBCL systems. SBCL will provide specifications and guidance to assist ActaMed in this effort. 2. SBCL will install the gateway software on ActaMed's computer and modify the gateway software as necessary to cause it to communicate with the SBCL systems. At SBCL's determination, this may include new enhancements or additional software as needed to allow the ActaMed Gateway to transmit Transmittal Information for Automated Providers using the SCAN Network. 3. At such time as the ActaMed Gateway has been adequately (in SBCL's determination) tested, including for compliance with applicable SBCL internal standards and using SBCL sample clinical laboratory test orders and/or test result report data, in which testing ActaMed and SBCL shall cooperate, SBCL shall so notify ActaMed. For a period of up to thirty (30) days after the date of such notice, ActaMed shall be entitled to perform such quality assurance testing as it shall reasonably deem appropriate. SBCL shall provide reasonable assistance to ActaMed in this process. If the system is not performing substantially the same as SBCL's gateway and as necessary to enable ActaMed to meet the Key Performance Standards and to provide the Lab EDI Services using the ActaMed Gateway, ActaMed shall provide timely notice to SBCL of such deficiency or performance problem within such thirty (30) day period. SBCL shall supply the appropriate personnel to investigate and correct any such reported deficiencies or performance problems. The acceptance period shall be extended to two (2) weeks beyond the time of such correction. When corrected to the reasonable satisfaction of ActaMed and SBCL, or if SBCL is notified of no further deficiencies or performance problems within such period, the ActaMed Gateway shall be deemed ready and accepted by ActaMed. 4. SBCL will provide reasonable training of ActaMed personnel and any available documentation to allow ActaMed to operate and support its gateway independently; [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- provided that SBCL will not provide [*] or other base-line training that may be required by ActaMed. 5. The foregoing procedures of this Section II.A shall be completed within one hundred twenty (120) days after the date hereof. 6. After acceptance of the ActaMed Gateway and until [*] SBCL shall, at ActaMed's written request, provide such maintenance and related support to the ActaMed Gateway as may be necessary to continue its effective operation at substantially the same performance levels as SBCL experienced on its gateway immediately prior to the date hereof. SBCL shall charge ActaMed for such services at the then industry standard rates for similar services. After [*] (i) SBCL makes no representation or warranty as to the performance of the ActaMed Gateway software systems so established by SBCL hereunder; and (ii) ActaMed may request SBCL to provide such support and, if SBCL elects to provide such support, SBCL may charge ActaMed for such services at the then industry standard rates for similar services. B. MIGRATION PERIOD. After the Transfer Date of a Region, SBCL and ActaMed shall have the following obligations with respect to SBCL Sites transferred to ActaMed in that Region: 1. ACTAMED TO MIGRATE SITES. ActaMed will use its good faith efforts to migrate the SBCL Sites so transferred from communicating with the SBCL gateway to communicating with the ActaMed Gateway as soon as practicable, and shall similarly use its best efforts, and take all steps reasonably necessary, to assign financial responsibility or otherwise change the billing of dedicated phone lines installed in Automated Providers' offices for Lab EDI Services from SBCL over to ActaMed. SBCL will support ActaMed in ActaMed's efforts to transfer the local phone lines to ActaMed's account and, subject to ActaMed's obligation under Section II.B.7.(g) hereof, pay any charges, assessments, fees or other amounts incurred by SBCL for such transfer. 2. EDI AGREEMENT AMENDMENTS. ActaMed shall obtain signed amendments to any existing CIS Agreement between a Provider and SBCL or a new CIS Agreement between the Provider and ActaMed containing the provisions set forth in EXHIBIT II.B.2(a). SBCL shall obtain a signed agreement from such Provider for Lab EDI Services by ActaMed in the form of EXHIBIT II.B.2(b). 3. ASSISTANCE FROM SBCL. SBCL will make available to ActaMed such resources as SBCL determines is reasonable and appropriate for the transfer of each Region, at no cost to ActaMed. After the earlier of (i) [*] after the Transfer Date for a particular Region or (ii) the full migration of SBCL Sites in such Region from communication with the SBCL gateway to communication with the ActaMed Gateway, SBCL will continue to use its good faith efforts to make such resources available to ActaMed and may charge ActaMed therefor at then industry standard rates for similar services. 4. SUPPORT SERVICES. From time to time prior to the [*] [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -3- a. ActaMed may request that SBCL's [*] provide services to ActaMed in [*] to assist ActaMed in the delivery of items relating to ActaMed's delivery of Lab EDI Services to Automated Providers (provided ActaMed delivers the item to [*] for such delivery to the Automated Provider), such services to be provided consistently with the manner and extent to which SBCL has used such [*] during the twelve (12) month period prior to the Transfer Date of the Region in [*] is located. SBCL shall direct its [*] to provide such services provided that SBCL shall not be responsible for any Losses incurred as a result of providing such services. Nothing in this Section III.B.4 shall require SBCL, ActaMed or [*] to provide any service if to do so would cause any party, including [*] to violate any Regulation. b. SBCL may request that ActaMed's employees provide services to SBCL in the course of their normal duties to assist SBCL in the delivery of items (E.G., [*]) to Automated Providers (provided SBCL delivers the item to the employee for such delivery to the Automated Provider), such services to be provided consistently with the manner and extent to which SBCL has used employees for such purposes during the twelve (12) month period prior to the Transfer Date of the Region in which such employee works. ActaMed shall direct its employees to provide such services provided that ActaMed shall not be responsible for any Losses incurred as a result of providing such services. Nothing in this Section III.B.4 shall require ActaMed, SBCL or such employee to provide any service if to do so would cause any party, including the respective employee, to violate any Regulation. 5. USE OF SBCL FACILITIES BY TRANSFERRED EMPLOYEES. ActaMed will employ the Transferred Employees in accordance with the provisions of Article VI of the Asset Purchase Agreement. From the Transfer Date of a Region until [*] after the Transfer Date of that Region, such Transferred Employees may continue to use such office space, office equipment, office telephones, office supplies, and have access to such office services as such Transferred Employees had immediately prior to the applicable Transfer Date (collectively, "OFFICE SPACE"), [*] whether or not such Transferred Employees are responsible for ActaMed Sites. No employees of ActaMed other than the Transferred Employees currently assigned to such Office Space shall be allowed to use such Office Space, and ActaMed may not place signage inside or outside of such Office Space or use such Office Space for any operations other than the transition contemplated by this Section II and the provision by ActaMed of Lab EDI Services. 6. SCAN NETWORK MAINTENANCE. SBCL shall continue to have and support Lab EDI Services between each SBCL Site and SBCL's gateway until migration of such SBCL Site to the ActaMed Gateway is completed. SBCL will continue to operate and maintain its gateway systems for such purposes. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -4- 7. ACTAMED PAYMENTS TO SBCL. In consideration of services provided under this Agreement, ActaMed will pay SBCL the following amounts (in addition to any other amounts which may be charged to ActaMed by SBCL as expressly set forth in this Agreement): a. A fee in the amount of [*] per month for each month after the Region One Transfer Date (prorated for any portion thereof); provided that no payment shall be made under this clause a. either (i) if a payment is made under clause b. below, after the third month after the Region One Transfer Date, or (ii) if a payment is not made under clause b. below, after the Region Two Transfer Date. b. A fee in the amount of [*] for each month prior to the Region Two Transfer Date (prorated for portion thereof) commencing with the fourth month after the Region One Transfer Date, provided, however, that payment under this Section II.B.7.b shall not be made unless the delay in the Region Two Transfer Date beyond the date three (3) months after the Region One Transfer Date is due to ActaMed's failure to meet the Transfer Benchmarks (with any dispute with respect thereto to be resolved in accordance with Section XV hereof). c. A fee in the amount of [*] per month for each month after the Region Two Transfer Date (prorated for any portion thereof), provided that no payment shall be made under this clause c. after the Region Three Transfer Date; d. A fee in the amount of [*] per month after the Region Three Transfer Date (prorated for any portion thereof), provided that no payment shall be made under this clause d. after the Region Four Transfer Date; e. Until the date which is twelve (12) months after the Transfer Date of a Region, reimbursement for any local and long distance telecommunication services (including 800 and 888 service other than 800 and 888 numbers used to [*]) billed to SBCL in respect of SBCL Sites in that Region; f. From and after the date which is twelve (12) months from the Transfer Date of a Region, an amount equal to [*] of the amount of any local and long distance telecommunication services (including 800 and 888 service other than 800 and 888 numbers used to [*]) billed to SBCL in respect of SBCL Sites in that Region; and g. Reimbursement for [*] of any charges, assessments, fees or other amounts incurred by SBCL for the transfer of any dedicated phone lines installed in Automated Providers' offices for Lab EDI Services into the ActaMed name, including without limitation any transfer fees or new installation fees. C. PAYMENT TERMS FOR ACTAMED PAYMENTS TO SBCL. SBCL shall invoice ActaMed monthly for the services rendered by it and chargeable to, or to be reimbursed by, ActaMed pursuant to this Section II. All amounts shown due on such invoice shall be paid within [*] after the date of the invoice. Late payments shall be subject to a late fee equal to [*] per [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -5- month on the overdue amount. In the event ActaMed disputes any amount shown due on such invoice, ActaMed shall pay timely any undisputed amounts and send a Dispute Notice to SBCL with respect to any disputed amounts. For a period of thirty (30) days after the date of the Dispute Notice, ActaMed shall have Audit Rights with respect to the portions of SBCL's books and records that relate to the subject of the dispute. In the event the parties are unable to resolve the disputed matter, the matter shall be resolved in accordance with Section XV hereof and application of any late fee to such disputed amount shall be tolled until conclusion of such proceedings and then applied only to the amount so determined to be due. III. SERVICES AFTER TRANSFER. A. PLANNING AND OVERSIGHT COMMITTEE. On or promptly after the Region One Transfer Date, SBCL and ActaMed will establish an Oversight Committee having the obligations set forth in this Section III (the "OVERSIGHT COMMITTEE"). The parties may thereafter, in their respective sole discretion, change the complement of the Oversight Committee, including without limitation to decrease or increase the number of members on the Oversight Committee, so long as the Oversight Committee shall continuously have equal numbers of persons representing ActaMed and SBCL, provided that SBCL may appoint a majority of the Oversight Committee members if ActaMed consents thereto. The Oversight Committee shall continue in effect through the term of the Agreement (including any applicable renewal period). Each member of the Oversight Committee will have responsibility to, among other things, 1. review the performance of ActaMed hereunder, as measured by the Performance Standards, 2. review the compliance of ActaMed with Regulations and report to ActaMed and SBCL with respect to compliance matters, 3. discuss trends in the health care information services industry and service type and quality offered by competitors of ActaMed, 4. exchange information regarding strategic needs and directions of the respective ActaMed and SBCL businesses that are relevant to the relationships contemplated by this Agreement, 5. exchange information about technological developments for electronic connectivity in the health care information services industry, 6. provide feedback to ActaMed and SBCL regarding the implementation and effect of ActaMed's preferred provider status pursuant to Section VII of this Agreement, 7. notify SBCL, ActaMed and other members of the Oversight Committee at any time such member has any knowledge that ActaMed has not performed in accordance with the Performance Standards, and make recommendations to ActaMed and SBCL as to remedying -6- performance that does not comply with this Agreement, including without limitation the Performance Standards, and 8. examine and, collectively with the other members, report to ActaMed and SBCL from time to time on ways in which Agreed Services can be improved. B. AGREED SERVICES. ActaMed will provide the following services to SBCL and Automated Providers at ActaMed Sites in accordance with the Performance Standards and will take all reasonable and appropriate action to preserve the Network and the goodwill of the Automated Providers utilizing such services: 1. NETWORK SUPPORT. ActaMed shall maintain and support the Network for Lab EDI Services between Automated Providers and an SBCL Lab and shall ensure that the Network meets or exceeds all Network Standards. 2. INSTALLATION AND TRAINING. ActaMed will provide installation, set up and training services at all ActaMed Sites as reasonably necessary to enable such ActaMed Sites to utilize the Network accurately and efficiently. In this connection, ActaMed will (i) install software, and if necessary and appropriate and consistent with contractual relationships between SBCL and ActaMed, hardware, (ii) confirm set up thereof, (iii) confirm the ability after set up to successfully transmit and receive modem communications with the applicable SBCL Lab and that requisitions and results functionality is accurate, and (iv) provide competent and timely training to the Automated Provider's personnel regarding Lab EDI Services. Such installation, set up and training services shall be provided to, and connectivity to the Network established for, any Provider or PSC designated by SBCL. If ActaMed identifies a Provider which is a potential new customer for Lab EDI Services, it shall so notify SBCL and SBCL shall determine if such installation, set up and training services shall be provided to such Provider. SBCL and ActaMed shall [*] to establish [*] to provide guidance on [*] of ActaMed suggested Automated Providers. Prior to any installation, set up and training services being rendered hereunder, SBCL and ActaMed shall have each entered into an agreement for such Lab EDI Services with such new customer which agreement shall contain the provisions set forth on EXHIBIT II.B.2(b). 3. SPECIAL SERVICES AT PIF SITES. At up to [*] (the "PIF NUMBER") sites selected by SBCL prior to the [*] [*] where installation training and set up services are required (the "PIF SITES"), SBCL shall be entitled, by written request to ActaMed and payment of the [*] set forth in Section IV.B.2, to require that installation, set up and training services be provided on a top priority accelerated basis. 4. INITIAL ROLL OUT OF ACTALAB SOFTWARE. After market launch of the ActaLab Software (which shall be only after the ActaLab Software functions, features and performance have been accepted by SBCL in accordance with the Development Agreement and the requirement in this Agreement that it comply with Regulations), ActaMed will begin to replace the SCAN Software at ActaMed Sites with the ActaLab Software in accordance with a roll out plan developed by ActaMed [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -7- which shall be designed to deploy the ActaLab Software as quickly as practicable with minimal disruption to Automated Providers. ActaMed shall submit the roll out plan to SBCL sufficiently in advance to allow SBCL reasonable opportunity to review and comment on the roll out plan prior to implementation, and shall use its good faith efforts to incorporate SBCL's comments thereon. Such roll out, however, shall not be made to any Provider which has not executed an agreement containing the provisions set forth in EXHIBIT II.B.2(a) or (b). 5. CUSTOMER SUPPORT. ActaMed will provide all reasonably necessary and appropriate end user support for issues relating to connectivity to the Network utilizing any Network Software in use at such time, including without limitation, help desk assistance to Automated Providers, hardware support to applicable Automated Providers, user training and bug fixes to the Network. All customer support services shall be performed in a competent and professional manner meeting or exceeding generally accepted industry standards for confidential EDI and will be rendered by qualified personnel who will perform the tasks assigned consistently with good professional practice and the state of the art involved. SBCL shall have the right to request the removal from Automated Providers accounts of any ActaMed personnel used by ActaMed to perform customer support services, provided such objection would not constitute unlawful discrimination, if SBCL becomes aware that such person is causing customer dissatisfaction. If an objection is raised by SBCL, ActaMed agrees to confer with SBCL and endeavor to furnish a replacement as quickly as is practicable. 6. MONITORING. ActaMed shall continuously monitor its performance against the Performance Standards and shall notify SBCL at any time when it fails to meet the Performance Standards. SBCL shall similarly notify ActaMed of any such failure, provided that the failure to notify shall not constitute a waiver of SBCL's rights hereunder. In the event that ActaMed fails to meet any Performance Standard at any time, ActaMed shall promptly diagnose the cause of the failure and shall work continuously and diligently to correct such failure to perform until it is corrected. Any failure to meet the Performance Standards which occurs while ActaMed is working to remedy the problem shall continue to be counted for the purposes of Section XII.B.1, Section VII.B.4 and IV.F. 7. REPORTS. ActaMed and SBCL will, at their own expense, provide the other with the reports specified on EXHIBIT III.B.7 hereto at the times specified thereon. C. PERFORMANCE STANDARDS. "Performance Standards" shall mean the Network Standards and the Customer Support Standards. EXHIBIT III.C-1 to this Agreement specifies the performance standards for the Network which must be maintained and the applicable time periods for measuring compliance with such standards (the "NETWORK STANDARDS"). EXHIBIT III.C-2 to this Agreement specifies the customer support standards ActaMed must achieve and maintain and the applicable time periods for measuring compliance with such standards (the "CUSTOMER SUPPORT STANDARDS"). In no event shall the Performance Standards be less than the comparable Network maintenance and support standards and services ActaMed utilizes for or provides to its other customers receiving services comparable to Lab EDI Services. ActaMed shall have sixty (60) days following the date -8- hereof to validate the metric performance level set forth in the Performance Standards as representative of SBCL's provision of services which are now Agreed Services. ActaMed shall perform the validation (with cooperation from and access to relevant records and data of SBCL) within such sixty (60) day period, and based upon the period of [*]. In the event that ActaMed's validation process yields a metric different from that set forth in the Performance Standards, a new metric for this Agreement shall be mutually agreed by SBCL and ActaMed, with any disputes with respect thereto resolved in accordance with Section XV hereof. D. SBCL OBLIGATIONS. SBCL shall have no obligation to provide any support, training or maintenance services to Automated Providers, other than as expressly set forth herein. E. Records and Audits. 1. ActaMed shall maintain accurate and complete records regarding the transmissions to and from Automated Providers and SBCL in accordance with accepted information storage practices in the clinical laboratories industry and in compliance with applicable Regulations, but in no event for less than [*] or such longer period as may be required by Regulations or the Integrity Agreement. 2. The records maintained pursuant to Section III.E.1 above shall include without limitation records of the amounts ActaMed charges SBCL under this Agreement, with a system of audit trails, records and controls sufficient to allow SBCL to audit such transactions and charges under this Agreement and to assure satisfaction of any requirements imposed on SBCL by their external auditors or on ActaMed or SBCL by government officials enforcing applicable Regulations. 3. In addition to the grant of Audit Rights pursuant to Sections IV.B, IV.C.3 and VI.B of this Agreement, SBCL shall have the right, exercisable not more often than twice in each calendar year for the first three years after the date hereof, and once in each calendar year thereafter, to have any of its agents or employees, who or which are reasonably acceptable to ActaMed, audit, in accordance with the Audit Rights, the books and records of ActaMed relating to such SBCL transactions to examine or determine the proper amounts which should have been billed to SBCL, the amounts which were billed to SBCL, and the amounts which SBCL has paid under this Agreement. 4. In any exercise of Audit Rights hereunder, including without limitation pursuant to Section III.E.3, SBCL shall give ActaMed two week's prior notice of any such audit, and shall abide by reasonable ActaMed security and confidentiality procedures during the audit. SBCL and ActaMed shall each bear their own costs associated with such audit, provided that in the event the audit determines that ActaMed has overcharged SBCL by more than ten percent (10%) of the amount properly due ActaMed in any month, ActaMed shall pay all costs of such audit. If the audit reveals an overpayment by SBCL to ActaMed, ActaMed shall promptly refund such overpayment to [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -9- SBCL. If the audit reveals an underpayment by SBCL, SBCL shall promptly pay to ActaMed the amount of such underpayment. IV. PAYMENTS TO ACTAMED BY SBCL. A. FEES FOR FIXED FEE SITES. SBCL will pay ActaMed for the Agreed Services rendered to Fixed Fee Sites as follows: 1. Fixed Fee payments shall be due [*] on the first (1st) business day of [*] beginning on January 2, 1998 and shall be in an amount equal to a. from January 2, 1998 until the day before the first business day of [*], [*] per month; b. from the first business day of [*] until [*]. B. TRANSACTION FEE FOR SITES OTHER THAN FIXED FEE SITES. From the Region One Transfer Date and continuing until the day before the [*] SBCL will pay to ActaMed, for Agreed Services in respect of sites which are not Fixed Fee Sites only, within thirty (30) days after receipt of an invoice from ActaMed detailing the charges then due, a fee equal to the sum of [*] SBCL in accordance with the Performance Standards during the period covered by the invoice (the "TRANSACTION FEE"). C. [*]. Provided the conditions set forth in Section IV.D are satisfied, SBCL shall pay the following amounts to ActaMed as hereinafter in this Section IV.C provided: 1. An amount (the "FIRST VARIABLE FEE") equal to (i) [*] minus the aggregate of the amount billed to SBCL pursuant to Section IV.B.1 above (the "TRANSACTION FEE AMOUNT") prior to the [*]; (ii) [*] minus the sum of (A) the Transaction Fee Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus the sum of (A) the Transaction Fee Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clauses (i) and (ii) above. 2. An amount (the "SECOND VARIABLE FEE" and together with the First Variable Fee, the "VARIABLE FEES") equal to (i) [*] minus the aggregate of the amount paid plus amounts owed (whether or not billed) pursuant to Section IV.M.1 below (the "PIF AMOUNT") prior to the [*]; (ii) [*] minus the sum of (A) the PIF Amount for the period from the date hereof to the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -10- [*] and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus the sum of (A) the PIF Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clauses (i) and (ii) above; PROVIDED THAT if the PIF Amount with respect to an annual period (other than the last such annual period) is at least [*] of the aforementioned dollar amount for that annual period, no payment shall be due under this Section IV.B.2 for such annual period. 3. Subject to Section IV.D, the Variable Fees shall be paid annually within thirty (30) days after invoice therefor from ActaMed, which shall be (i) submitted to SBCL within [*] (ii) detail the calculation thereof, and (iii) reflect the Variable Fees payable in respect of the most recently completed annual period only. SBCL shall have Audit Rights with respect to any disputed amount of the Variable Fees. D. CONDITIONS TO [*]. ActaMed and SBCL have agreed that the foregoing [*] with respect to the provision of Lab EDI Services after the date hereof shall apply (i) [*] and (ii) to the extent set forth in this Section IV.D: 1. With respect to [*] (i) such fees shall cease to be payable if (i) ActaMed shall fail to satisfy any of the Key Performance Standards, or (ii) such fees [*] for the applicable year shall not be payable (but shall be treated as paid for purposes of calculation of any amount payable in the following year) if any of the following shall occur: a. As of [*] shall [*] of [*] at [*] it has [*] as of [*]; b. As of [*] shall [*] of [*] at [*] it has [*] as of [*]; c. As of [*] shall [*] of [*] at [*] it has [*] as of [*]; 2. With respect to the [*] such fees shall be payable [*] in accordance with the Performance Standards [*] pursuant to Section [*]. E. LATE FEE. A late fee of [*] per month on the unpaid balance of any payments owing pursuant to this Section IV after expiration of the thirty (30) day period for payment thereof shall be due from SBCL. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -11- F. [*] OF PAYMENTS. After the [*] Anniversary, with respect to any month after ActaMed has [*] with the [*] for [*] SBCL may, at its option, [*] or other [*] to [*] for such month [*] established with [*] to be [*] the date as of which [*] with the [*]. G. DEFINITION OF FIXED FEE SITES. "Fixed Fee Sites" shall mean the [*] PROVIDED HOWEVER THAT: 1. if the number of SBCL Sites transferred to ActaMed on any Transfer Date, when added to the number of ActaMed Sites on the date of such Transfer, totals more than [*] any sites in excess of [*] (such excess to be identified as described in the next sentence) shall not be Fixed Fee Sites. The sites to be excluded from Fixed Fee Sites will be (i) from the Region transferred on such Transfer Date, and (ii) selected, in order, from a list of such sites that is sorted on the basis of the date of the first successful Requisition from each site, beginning with the site which had the most recent first successful Requisition, and continuing to the sites with the next most recent first successful Requisition; and 2. if, on the last day of [*] the number of sites that are Fixed Fee Sites [*] a number of sites, not to exceed [*] sites in any year, that are not Fixed Fee Sites [*] PROVIDED THAT the aggregate number of Fixed Fee Sites [*]. The [*] will be [*] in order, from a list of [*] that is sorted on the basis of the date of the first successful Requisition from a site, beginning with the site on such list which had the least recent first successful Requisition, and continuing to the sites with next least recent first successful Requisition; [*]. H. RENEGOTIATION OF PRICES. For a period of at least [*] prior to [*] the parties will negotiate new Transaction Fees which shall apply for the [*] period beginning on [*]. The parties will thereafter similarly negotiate new Transaction Fees for each two (2) year period thereafter for each renewal period in the term of this Agreement. [*] [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -12- [*]. I. EFFECT OF [*] CHANGES. If either of the following occurs, then the parties agree to negotiate in good faith to restructure the Transaction Fees payable or other provisions hereunder in a manner that will be fair to both parties while at the same time preserving the economic expectations of the parties under this Agreement to the greatest extent possible and in a manner consistent with the [*]. Any dispute as to the amendments to this Agreement to be made in the event of a [*] shall be settled in accordance with the procedures set forth in Article XV hereof. 1. Any [*] is [*] or determined to [*] including without limitation any significant reduction in SBCL's [*] or significant increase in the [*] as compared to SBCL's [*] and [*] as of the date of this Agreement as set forth on EXHIBIT IV.I hereto (which shall be delivered within thirty (30) days after the date hereof); or 2. if the Automated Providers' [*] such that the effective [*] for such period [*] with no corresponding [*]. J. PHONE LINE TRANSFER COSTS. SBCL shall reimburse ActaMed for [*] of any charges, assessments, fees or other amounts incurred by ActaMed for the transfer of any dedicated phone lines installed in Automated Providers' offices for Lab EDI Services into the ActaMed name, including without limitation any transfer fees or new installation fees. K. ActaMed Obligations Regarding Hardware. 1. ActaMed shall reimburse SBCL for the cost of hardware purchased by SBCL and located at SBCL Sites other than Fixed Fee Sites in a Region to be transferred to ActaMed on a Transfer Date. 2. Subject to the limitations of Section III.L.2(b) hereof, ActaMed and SBCL understand and agree that, [*] are to [*] for providing [*] to Providers, there will be situations where [*] is [*] for ActaMed to provide Lab EDI Services to certain Providers. ActaMed desires that the number of such new sites be capped. SBCL and ActaMed have therefore agreed that: [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -13- a. ActaMed shall provide [*], PC Systems for up to [*]. ActaMed may provide hardware for such [*] by either moving existing PC Systems from a canceled Fixed Fee Site or by providing new PC Systems, as it determines in its sole discretion. b. In addition, ActaMed shall provide, prior to the [*] Anniversary, [*] PC Systems for New Sites or [*] in excess of the [*]. Notwithstanding the above, this obligation shall be (a) limited to [*] PC Systems prior to the [*] and (b) reduced by each PC System the cost of which is reimbursed to SBCL subject to Section IV.K.1 above. c. Any PC Systems in excess of those required to be provided by ActaMed under (i) and (ii) above may be provided by SBCL to the Automated Provider, subject only to the Automated Provider entering into a contract with, and satisfactory to, SBCL for the use of such PC System. L. SPECIAL FEE FOR USE OF SCAN DEVELOPMENTS. SBCL will pay ActaMed a fee equal to [*], or [*] received by SBCL for [*] that use SCAN Developments for Lab EDI Services over the SCAN Network and which [*]. M. SPECIAL FEES FOR NEW SITES. From the Region One Transfer Date and continuing until the day before the [*], SBCL will pay to ActaMed, within thirty (30) days after receipt of an invoice from ActaMed detailing the charges then due, the following amounts: 1. a one time fee of [*] for [*] services at each PIF Site [*] or "PIF"); and 2. up to the first [*] of any out-of-pocket cost required to be incurred by ActaMed to provide the bar code label printer to be used for orders to SBCL Labs at any New Site or any [*] during the period covered by the invoice. ActaMed shall charge the Automated Provider [*] using the bar code label printer for anything other than Lab EDI Services for the fair market value of any such use. If an Automated Provider ceases to use Lab EDI Services, SBCL may direct where the printer previously installed at such Automated Provider will be next installed or ActaMed shall purchase, at its cost and without reimbursement under this Section IV.M.2, a bar code label printer for installation at another Automated Provider's location to be determined by SBCL. N. DISPUTED INVOICES. In the event SBCL disputes any amount shown due on such invoice, SBCL shall send a Dispute Notice to ActaMed. In such event, SBCL shall timely pay any undisputed amount to ActaMed and shall have Audit Rights with respect to the portions of ActaMed's books and records that relate to the subject of the dispute. In the event the parties are unable to resolve the disputed matter, the matter shall be resolved in accordance with Section XV [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -14- hereof and application of any late fee to such disputed amount shall be tolled until conclusion of such proceedings and then applied only to the amount so determined to be due. V. CHANGES AND DEVELOPMENT OF NEW FUNCTIONALITY. A. MAINTENANCE. ActaMed shall provide such maintenance upgrades and updates to the Network as set forth on EXHIBIT V.A and shall maintain and enhance the Network so as to improve from time to time the speed, accuracy, security and other features and functions available for Lab EDI Services. ActaMed shall make available to Automated Providers all such modified, upgraded, enhanced or improved services or software at no additional charge except as permitted by this Agreement or applicable agreement with Automated Providers. B. YEAR 2000 COMPLIANCE. ActaMed shall provide, without charge to SBCL or to Automated Providers (unless the Automated Providers own the PC Systems needing Year 2000 compliance), such maintenance and hardware upgrades and updates to the Network (other than the SBCL gateway), or other software relating (or which will relate) to Lab EDI Services as is necessary for all such software and related hardware to include acceptable design and performance specifications so that any or all such software will not abruptly end or provide invalid or incorrect results due to issues related to Year 2000 compliance and will otherwise be in compliance with the warranties set forth in EXHIBIT V.B hereto. Year 2000 compliance requires that the design and performance specifications of the hardware, software and/or other items include, without limitation: date data century recognition, calculations that accommodate same century and multi-century formulas and date values, and date data interface values that reflect the century change at the year 2000. SBCL shall provide specifications for Year 2000 compliance for SBCL systems in sufficient time to allow ActaMed and SBCL to mutually agree on and ActaMed to complete such modifications as are necessary to enable ActaMed to meet the requirements of this Section V.B. SBCL will also provide reasonable cooperation and assistance to ensure ActaMed's understanding of the requirements of this Section V.B. Prior to any sale of PC Systems to any Automated Provider or potential Automated Provider, ActaMed shall disclose to such Automated Provider any Year 2000 compliance problems of such PC System which are then known to ActaMed after reasonable inquiry. A condition of any such sale shall be appropriate arrangements for making the PC System to be sold Year 2000 compliant. In this regard, the sales price shall reflect the fair market value of the services required to make the PC System Year 2000 compliant. C. REQUIRED CHANGES. ActaMed shall be required to develop and implement, at its expense except to the extent hereinafter provided, as promptly as practicable and in no event later than thirty (30) days prior to the effective date of the applicable Regulatory Change, any Changes which (i) ActaMed determines are required for the Network Software to remain in compliance with all applicable Regulations, or (ii) SBCL requests in writing to ActaMed for compliance with Regulations of the Network Software. 1. If SBCL reasonably determines that ActaMed cannot provide such required work by thirty (30) days prior to a deadline imposed by governmental authority, SBCL shall have the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -15- right to contract with a third party for such work or to do such work itself. In such event, SBCL shall be reimbursed therefor by ActaMed, except as provided in Section V.C.3 below. 2. Upon reasonable advance written notice to ActaMed, SBCL may request, and if it so requests ActaMed shall use its good faith efforts to accommodate, prioritization of such Changes over any other software development work performed by or on behalf of ActaMed. 3. In any event, upon reasonable advance notice to ActaMed, SBCL shall be entitled to change the prioritization of required Changes from time to time and to resolve conflicts between Changes demanding equal prioritization to the extent necessary to deliver any such Change not less than thirty (30) days prior to any government imposed deadlines or as promptly as practicable. 4. If ActaMed disputes that Changes requested by SBCL pursuant to clause (ii) of Section V.C are required by Regulations, either ActaMed or SBCL shall be entitled to cause the dispute to be resolved in accordance with the procedures set forth in Section XV.B.1.a and XV.B.1.b thereof. If such process is used and results in substantial agreement with either (i) ActaMed, then [*] (including the cost of FTEs) in implementing such Changes, or (ii) SBCL, [*]. If such process is not used or does not result in an agreement as to whether or not such Change is required by Regulations, ActaMed and SBCL shall mutually agree on an outside counsel familiar with issues of the nature involved in the dispute and the opinion of such counsel shall be binding on the parties hereto. D. ACTAMED DEVELOPED NEW FUNCTIONALITY. When ActaMed develops new functionality for the Network that ActaMed offers generally to its customers, which is not included in a maintenance release that ActaMed offers generally to its customers pursuant to Section V.A. above, ActaMed will offer such new functionality to Automated Providers on the same basis [*] subject to SBCL's right to accept or reject such new functionality. E. Development Work Requested by SBCL. 1. SBCL at any time may request that ActaMed perform additional development work and, subject to the terms of this Section V.E, shall pay ActaMed for such work at no higher than the then industry standard rates for similar services. a. If SBCL requests in writing that ActaMed provide additional development work for use exclusively by SBCL and, regardless of whether ActaMed or a third party actually performs such development work, ActaMed shall either (i) [*] in which case such work shall be a "Perpetual Exclusive Development", or (ii) acting in good faith, [*] in which case such work shall be a "Temporary Exclusive Development". With respect to Perpetual Exclusive Developments, ActaMed will not use or license [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -16- the use of the Perpetual Exclusive Developments (without regard to whether they constitute SCAN Developments or ActaLab Software) other than in support of Lab EDI Services. With respect to Temporary Exclusive Developments, ActaMed will not use or license the use of Temporary Exclusive Developments (without regard to whether they constitute SCAN Developments or ActaLab Software) other than in support of Lab EDI Services for a period of [*] from the date on which ActaMed first makes available to SBCL such Temporary Exclusive Development for use on a commercial basis in support of SBCL's laboratory testing services. After expiration of such [*] period, subject to resolution of any dispute relating to ActaMed's initial designation of such development work as a Temporary Exclusive Development pursuant to Section V.E.1.b, such Temporary Exclusive Development shall no longer be an Exclusive Development. For purposes of this Section V.E, Perpetual Exclusive Developments and Temporary Exclusive Developments shall include any Changes made pursuant to Section V.C and paid for by SBCL by reason of Section V.C.4, to be designated as Perpetual Exclusive Developments or Temporary Exclusive Developments in accordance with the procedures set forth in this Section V.E.1.a. All such developments are herein referred to collectively as "Exclusive Developments." b. Within twenty (20) days after receiving SBCL's request pursuant to Section V.E.1.a, ActaMed shall notify SBCL of ActaMed's prices and terms for performing such development work, and whether such work will constitute a Perpetual Exclusive Development or a Temporary Exclusive Development. If SBCL provides notice ("Acceptance Notice") accepting ActaMed's price and performance terms, ActaMed shall perform such work at the accepted price and on the accepted performance terms. If SBCL provides notice that it disputes ActaMed's determination that the development work should constitute a Temporary Exclusive Development, the parties shall resolve the dispute in accordance with Section XV. If either (i) ActaMed declines any work requested pursuant to this Section V.E.1, or (ii) SBCL provides notice that it does not accept ActaMed's price and performance terms, then SBCL may engage a third party to perform such work. c. Any contract between ActaMed and SBCL (or a third party developer and SBCL) for development of Exclusive Developments shall allocate ownership of and other rights with respect to the Exclusive Developments as between ActaMed and SBCL, in the manner contemplated by the License Agreement and Development Agreement, including, without limitation, Sections 2.1.4 and 2.3.2 of the License Agreement. 2. If, at any time, SBCL chooses to contract with ActaMed for a dedicated services team from ActaMed to handle development of Changes to the Network, the Licensed Materials, or SBCL's proprietary systems which are not required to be performed by ActaMed pursuant to Section V.C and which are not requested pursuant to Section V.E, ActaMed may elect whether to provide the dedicated team and, if it so elects, shall do so only on terms and conditions agreed to in advance by SBCL. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -17- F. Development Work Requested or Used by Another ActaMed Customer. 1. When ActaMed performs development work on the Network at the request of another ActaMed customer, SBCL shall have the right to obtain [*] but only for so long as ActaMed has the legal right to [*] to SBCL and [*] is not proprietary to the contracting party. 2. When ActaMed performs development work on the Network at the request of SBCL and such work is usable in connectivity with Other Labs (and is not an Exclusive Development), [*]. G. ACCESS AND COOPERATION. Whenever SBCL shall use a third party developer, ActaMed shall allow such third party such access to the Network as shall be reasonably necessary to complete such work and shall cooperate with such third party, PROVIDED THAT such access and cooperation shall be subject to such third party (i) executing reasonable and appropriate security and confidentiality agreements with ActaMed, (ii) abiding by ActaMed's internal policies applicable to all third party developers, and (iii) agreeing to [*] in providing such access and cooperation. H. EMPLOYEE WAIVERS. ActaMed shall ensure that all employees or agents who perform customer support services or have access to any Network Software (whether in preliminary or final form) have signed non-disclosure and assignment agreements that, at minimum, contain provisions (i) prohibiting the disclosure of Confidential Information to the same extent as is set forth in Section X hereof, and (ii) effecting the complete transfer and assignment (without further consideration) by such employee or agent to SBCL or ActaMed, as appropriate, of all right, title and interest to all software and documentation and any proprietary rights thereto to the extent required pursuant to the License Agreement. I. STATEMENT OF WORK AND ACCEPTANCE FOR NEW WORK. In the event any Change projected to cost in excess of [*] is to be made by ActaMed pursuant to this Section V, ActaMed shall deliver a Statement of Work therefor within thirty (30) days after the Change becomes known to it and shall, subject to the other provisions of this Section V, dedicate sufficient resources to the development and implementation of such Change as shall be necessary to gain acceptance of and deploy the Change in accordance with such Statement of Work. VI. COMPLIANCE MATTERS. ActaMed is a computer technology company which provides electronic connectivity services, and is not a health care provider. ActaMed acknowledges that, for a laboratory services provider such as SBCL, the ability to assure that it complies with applicable laws, rules or regulations ("Applicable Laws"), including, but not limited to, the federal Physician Self-Referral Law, 42 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -18- U.S.C. 1395nn, and the regulations promulgated thereunder (together, the "Stark Law"), similar state physician self-referral laws and regulations (together with the Stark Law, the "Self-Referral Laws"), the federal Medicare/Medicaid Antikickback Law and regulations promulgated thereunder (the "Federal Antikickback Law"), and similar state antikickback laws and regulations (together with the Federal Antikickback Law, the "Antikickback Laws"), is of critical importance. SBCL and ActaMed intend that the outsourcing of the Lab EDI Services to ActaMed and the subsequent provision of the Agreed Services by ActaMed to SBCL be done in a manner that allows SBCL to maintain its compliance with Applicable Laws. Accordingly, SBCL and ActaMed have agreed to the provisions set forth in this Section VI, although SBCL and ActaMed understand and agree that the provisions of this Section VI and of the separate SOPs (as defined below) that may be agreed to from time to time by SBCL and ActaMed may not be necessary or may be more restrictive than necessary to assure SBCL's continued compliance with Applicable Laws. A. Representation, Warranty and Covenant. ActaMed represents, warrants, and covenants to SBCL as follows: 1. ActaMed will not directly or indirectly provide any remuneration, as defined in the applicable Self-Referral Laws or Antikickback Laws, to any Provider to whom any of such Self-Referral Laws or Antikickback Laws applies on behalf of SBCL, except for direct or indirect remuneration permitted by such law. 2. In furtherance and not in limitation of the foregoing, SBCL and ActaMed may, from time to time, agree upon certain principles, activities, agreements, standard operating procedures and/or actions (the "SOPs") that one or both parties, as applicable, will follow or undertake to help SBCL assure its compliance with Applicable Laws, and each party will follow any such SOPs applicable to it in the course of conducting its respective business. 3. With respect to [*] to which ActaMed is [*] in connection with the provision of Lab EDI Services, ActaMed will not [*] [*] unless and until SBCL has informed ActaMed in writing that it is willing to [*] and that ActaMed and SBCL have agreed upon [*]. 4. ActaMed will provide any reasonable assistance that SBCL may request from ActaMed, including the provision of information or other assistance, in order for SBCL to fulfill any obligation that SBCL, in its sole discretion, determines it has under the Integrity Agreement. Notwithstanding the foregoing, nothing in this provision is intended to or should be interpreted to mean that ActaMed is subject to any of the provisions of the Integrity Agreement. 5. In the event that SBCL becomes aware of an issue with respect to compliance with this Section VI, SBCL will promptly inform ActaMed of such issue and ActaMed will promptly address such issue and take action to remedy any such issue to the reasonable satisfaction of SBCL. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -19- 6. ActaMed will notify SBCL of any proposed changes in ActaMed's business practices with respect to EDI or the provision of LAB EDI Services that are likely to affect SBCL or Automated Providers (other than [*]) a reasonable period prior to the proposed implementation of such change or changes and will provide SBCL with a reasonable opportunity to review those proposed changes for compliance with this Section VI prior to implementation. If [*] any such [*] based on an [*] or the [*], [*] with [*] to [*] before [*]. B. AUDIT RIGHTS. SBCL shall have Audit Rights, exercisable [*] with respect to all of ActaMed's books, records and other materials that relate to any compliance issues covered by this Section VI in order for SBCL to determine ActaMed's fulfillment of its obligations hereunder or under any separately agreed upon SOPs. When ActaMed enters into agreements with Providers, it will use its best efforts to secure the right for ActaMed and, if such Provider is an SBCL client, for SBCL, to audit such Provider's books and records, and other materials and/or to inspect the Provider's premises to assure that any compliance requirements established with such Provider are being satisfied, and, upon request from SBCL, ActaMed will permit SBCL to exercise such rights. In any exercise of Audit Rights under this Section VI.B, SBCL shall give ActaMed two (2) weeks' prior written notice of any such audit, and shall abide by reasonable ActaMed security and confidentiality procedures during the audit. SBCL and ActaMed shall each bear their own expenses associated with such audit. C. DISPUTE RESOLUTION. Notwithstanding any other provision of this Agreement to the contrary, because of the critical nature of compliance to SBCL's business, disputes regarding compliance with this Section VI may not be susceptible to resolution following normal dispute resolution mechanisms. In the event that SBCL and ActaMed have a disagreement or dispute regarding compliance with this Section VI, ActaMed agrees to use its best efforts in working with SBCL to attempt to resolve that dispute as soon as possible. If the parties are not able promptly to resolve any such dispute, and the parties are not able to agree upon another mechanism, such as that provided for in Section V.C.4 hereof, to resolve the issue, SBCL shall have the right to exercise any and all remedies available to it under this Agreement, including the right to terminate the Agreement. VII. PREFERRED LAB EDI VENDOR. A. PREFERRED LAB EDI VENDOR RELATIONSHIP. Provided none of the events has occurred which is described in Section VII.B hereof, SBCL will, [*] afford ActaMed "preferred Lab EDI Vendor" status in the United States to the extent set forth in this Section VII. In this regard, SBCL will: 1. instruct its salespeople that when occasions arise where it is appropriate to do so, inform Providers interested in Lab EDI Services that ActaMed is its preferred vendor for all Lab EDI Services; [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -20- 2. indicate that ActaMed is SBCL's preferred vendor for Lab EDI Services in appropriate communications, whether internal or external, written or oral, as determined by SBCL that relate to the topic of Lab EDI Services and where a Lab EDI Services vendor is mentioned; 3. from the date when the ActaLab Software is approved by SBCL for use by Automated Providers, (i) cause the marketing materials for SCAN Software to be revised to feature the ActaLab Software; and (ii) train the SBCL salespeople at no direct expense to ActaMed regarding the general features and benefits of the ActaLab Software; 4. instruct its salespeople of the benefits to SBCL of ActaMed's preferred status so that whenever they undertake sales efforts or negotiations with a Provider whom SBCL believes to be a significant future customer for Lab EDI Services with an SBCL Lab, or with a significant Automated Provider serviced by ActaMed, insofar as it is known to the salesperson, for renewal or extension of lab testing services at an SBCL Lab, if appropriate, invite representatives from ActaMed to be included in such sales efforts and negotiations, so that ActaMed may promote the use of the ActaLab Software to such customer; 5. inform appropriate third parties, including but not limited to practice management system companies, electronic medical record vendors and other EDI clearinghouses interested in establishing Lab EDI Services (or services relating thereto) with SBCL, that, ActaMed is SBCL's preferred provider for Lab EDI Services, and suggest that, provided ActaMed has the capabilities sought by the third party, the third party pursue a contractual relationship with ActaMed regarding such Lab EDI Services. B. LIMITATIONS ON PREFERRED PROVIDER STATUS. The provisions of Section VII.A shall apply unless and until any of the following occurs: 1. ActaMed ceases to offer products and services which have features and functionality which are substantially comparable to other similar products and services of similar vendors for services in the nature of Lab EDI Services; SBCL provides written notice of same and, within thirty (30) days after such notice is given, ActaMed fails to demonstrate to SBCL's reasonable satisfaction that such determination is not accurate. 2. An Other Lab becomes a shareholder of ActaMed; provided that, after ActaMed has consummated a Qualified Public Offering (as defined in ActaMed's Fourth Amended and Restated Articles of Incorporation), this clause 2 shall apply only if the Other Lab becomes a shareholder of ActaMed by reason of either an issuance of equity to the Other Lab by ActaMed or waiver of restrictions in agreements between ActaMed and its stockholders which are comparable to the Standstill Agreement between ActaMed and SBCL dated the date hereof. 3. Any of the events described in clauses 2 through 5 of Section XII.B shall have occurred (without regard to grace periods otherwise applicable thereto and other than an event under clause 7 thereof which is based upon a failure of SBCL to pay amounts due from it hereunder). -21- 4. ActaMed fails to meet any of the Performance Standards in [*] or [*]. 5. Any of the events described in Article X of the Assets Purchase Agreement shall have occurred. 6. In the event that SBCL merges with or into, or acquires or is acquired by an entity, owning or operating a clinical laboratory, or sells substantially all of its assets to another entity in a transaction in which this Agreement is assigned to such entity, SBCL shall have the right to elect to have the preferred provider status removed with respect to such other entity, PROVIDED THAT the [*] set forth in Section IV.C and D hereof shall remain in effect after such transaction; and PROVIDED FURTHER THAT before exercising such right, SBCL shall have used its good faith efforts to preserve the original intention of the parties hereto. C. EXCLUSIONS. Notwithstanding anything to the contrary contained in this Agreement, including without limitation this Section VII, SBCL shall be entitled without restriction and in its sole discretion, to (i) utilize or change any EDI system for purposes of connectivity between an SBCL Lab and a Provider [*], or between SBCL Labs, utilizing Lab EDI Services that SBCL has already established or begun to establish connectivity capabilities as of the date hereof, including without limitation those set forth on EXHIBIT VII.C-1 which Exhibit shall be delivered by January 15, 1998 and shall represent SBCL's best efforts to identify all such capabilities which are significant to SBCL; (ii) terminate or not renew its current contracts or arrangements with third parties relating to Lab EDI Services; (iii) pursue future arrangements or relationships for Lab EDI for any exclusion described in EXHIBIT VII.C-2, and (iv) utilize or change any EDI system between SBCL Labs and other facilities owned, managed and/or operated by SBCL. D. EXCLUSIONS FOR [*]. Notwithstanding anything to the contrary contained in this Agreement, including without limitation this Section VII, SBCL shall be entitled without restriction and in its sole discretion, to change, continue to use or install [*]. At some time in the future, SBCL will consider a proposal from ActaMed for some or all of these [*] transactions and enter into reasonable negotiations, if appropriate. For a period of [*] from the date hereof, SBCL will not [*] Lab EDI Services without notifying ActaMed and affording ActaMed opportunity to propose to provide such services. E. FUTURE ACTAMED PARTICIPATION IN EXCLUDED ARRANGEMENTS. Notwithstanding Section VII.C above, SBCL will endeavor to include ActaMed in opportunities relating to the arrangements identified in Section VII.C(iii) to the extent feasible and appropriate as determined by SBCL for Lab EDI or physician connectivity. The nature and pricing of ActaMed's involvement will be negotiated on a case by case basis. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -22- F. ELIGIBILITY AND CLAIMS PROCESSING SERVICES. During the initial term of this Agreement, SBCL will use all reasonable business efforts, consistent with its competitive needs in the lab testing business, to utilize ActaMed as SBCL's preferred provider of electronic eligibility verification and claims processing services to provide connectivity with all third party payers with which SBCL desires connectivity and ActaMed is then connected, PROVIDED THAT this Section VII.F shall apply only if (i) SBCL desires to use an outside vendor for such services, and (ii) the prices proposed to be charged by ActaMed for such services are [*]. In furtherance of such "preferred" status, SBCL shall offer ActaMed as one of the potential providers of such services in any written response to a request for proposals for lab testing services. For each written SBCL proposal for the provision of such services, SBCL shall provide ActaMed with a copy of the sections thereof describing ActaMed's proposed services. SBCL shall provide ActaMed with such reasonable opportunity as circumstances permit to review and correct or comment on any such proposed language. Notwithstanding the foregoing, SBCL shall not be obligated to comply with the provisions of this Section VII.F in those cases in which (i) the payer designates (in the request for proposals or otherwise) a provider of such services other than ActaMed, or (ii) it would violate any Regulation, contractual provision or obligation by which SBCL is bound. G. FURTHER EXCLUSIONS FOR NON-LABORATORY EDI. Nothing contained herein shall prohibit SBCL from engaging in or contracting with third parties relating to non laboratory related EDI transactions including but not limited to the following, as long as each of the following is not intended primarily as a connection from an Automated Provider to a network for the purposes of Lab EDI Services (or services related thereto): [*]. VIII. COOPERATIVE RELATIONSHIP. A. COOPERATION. Upon SBCL request, ActaMed will work with SBCL's sales people to generate site connectivity and will use reasonable efforts to be available to perform the technical portions of sales presentations made by SBCL's sales people. B. USE OF OTHER PARTIES' NAME. Each party shall have the right to include the other party's name on its client or vendor list and to disclose the nature of the services and products provided under this Agreement, so long as such services and products are accurately represented; PROVIDED, HOWEVER, that neither party has the right to use the other's name, trademarks or trade names for other advertising, sales promotion, or publicity purposes without the other's prior written consent. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -23- C. USER GROUP. ActaMed will establish a user group, to consult on priorities and provide direction to ActaMed on system initiatives, which will include representation from SBCL, Automated Providers and payers. At regular intervals not less frequently than annually ActaMed will solicit user suggestions, input and feedback regarding the Network. D. ACTAMED'S OBLIGATION TO PROMOTE SB FOR DISEASE MANAGEMENT. For so long as ActaMed is SBCL's preferred vendor pursuant to Section VII, ActaMed will undertake actions similar to those set forth in Section VII.A to promote SmithKline Beecham Corporation's Healthcare Services Division for the Disease Management Business. "DISEASE MANAGEMENT BUSINESS" shall be defined in a separate writing reasonably agreed upon by the parties within thirty (30) days after the date hereof. E. REFERENCE CHECKS. SBCL shall designate one or two individuals who shall respond to a reasonable number of reference inquiries and visits (not to exceed two visits in any calendar month) by customers and potential customers of ActaMed on mutually agreeable terms. SBCL shall retain the right to refuse a visit to any competitor or potential competitor of SBCL or to terminate the visit of any customer or potential customer who does not abide by SBCL's policies and procedures. ActaMed shall inform all customers and potential customers allowed on SBCL's premises pursuant to this Section that they are required to abide by SBCL's policies and procedures. IX. SBCL'S OBLIGATIONS REGARDING THE NETWORK. A. STANDARD FORMATS AND PROTOCOLS. SBCL shall receive and generate transaction data and any other Lab EDI in a standard format and protocol mutually agreed upon by the parties. B. HARDWARE AND OPERATING ENVIRONMENT. SBCL shall provide, at its own expense, all necessary hardware, including terminal equipment, compatible with and suitable for its communications with the Network at the SBCL Labs. ActaMed shall verify SBCL's operating environment with testing procedures implemented by ActaMed from time to time, with advance notice to and approval from SBCL, which approval shall not be unreasonably withheld or delayed. C. NEW RELEASES OF SBCL PROPRIETARY SOFTWARE. SBCL will make available to ActaMed all new releases and specifications for the SBCL gateway so as to enable ActaMed to maintain the ActaMed Gateway substantially the same as the SBCL gateway, including for Year 2000 compliance. In addition, SBCL will give ActaMed advance notice of test code changes, new releases of SBCL proprietary software and other SBCL host computer system changes (including host computer systems operated by third party outsourcers on behalf of SBCL), if such changes or releases will affect ActaMed's ability to transmit information over the Network. If any changes are required to the Network by reason of such actions by or on behalf of SBCL, the parties will mutually agree (consistent with Section V hereof) in advance on the scope of the project, the deliverables, deadlines, any fees ActaMed will charge SBCL, a test plan and an acceptance test plan. -24- X. CONFIDENTIALITY AND SECURITY. A. DATA CONFIDENTIALITY. Each party agrees that patient clinical records are Confidential Information and each party shall not disclose or utilize individual lab test information in any way that would violate any patient confidentiality obligation or any Regulations. Without limiting ActaMed's obligations regarding Confidential Information which may be otherwise provided for in this Agreement, ActaMed shall be responsible to ensure the confidentiality of test results and patient information transmitted over the Network, in accordance with all applicable Regulations governing such patient confidential information, including to prevent anyone other than the sender and addressee of Transmittal Information or their respective authorized employees from monitoring, using, gaining access to or learning the import or contents of any Transmittal Information. B. DISTRIBUTION AND USE OF DATA. All Transmittal Information entered onto the Network by SBCL or any Automated Provider from tests referred to SBCL, shall be owned by SBCL and not by ActaMed. ActaMed shall not aggregate, integrate, compile, regenerate, merge, manipulate or otherwise use the Transmittal Information for any purposes and shall not provide the Transmittal Information to any other person or entity, other than as specifically required or allowed under the terms of this Agreement to perform the Agreed Services, without the prior written consent of SBCL. ActaMed agrees that such information cannot be aggregated for any Provider or among different customers' or other health care providers or laboratory service providers for any purpose, without SBCL's prior written consent. 1. If ActaMed is served with a warrant, subpoena or any other order or request from a governmental body or any other entity or person for any records or files of information transmitted over the Network, ActaMed will as soon as practicable, and not in violation of law, deliver to SBCL a copy of such warrant, subpoena, order or request and will not, without SBCL's prior written consent, accede to the same unless and until required to do so under applicable law. 2. ActaMed acknowledges and agrees that in the event it has access to confidential data relating to an Automated Provider and/or the Automated Providers's patients, employees and medical staffs, ActaMed will hold such information in the strictest confidence and will not, without SBCL's prior written consent, disclose any such information, including without limitation in any regeneration, recompilation, or reorganization thereof, or through any statistical analyses or provision of other excerpts thereof. Without limiting the foregoing, ActaMed agrees that it shall limit the ActaMed employees who have access to any patient identifiable health information, including without limitation, laboratory test order or results information, if any, to only those "need to know" employees of ActaMed as is required to perform the Agreed Services to the level of the Performance Standards set forth herein. Such employees shall be identified to SBCL in advance of such access and shall have executed and delivered to ActaMed and to SBCL, an agreement requiring non-disclosure of confidential information, compliance with all ActaMed policies and procedures with respect to Confidential Information and security of the Network (which shall be consistent with the requirements in this Agreement), if applicable, procedures established by SBCL and shall include an acknowledgment of immediate termination for breach of such agreement. To the extent any -25- employee of ActaMed acquires such access to patient health information through any SBCL computer systems, or [*] ("SBCL ACCESS"), ActaMed shall cause such employees to abide by SBCL's [*] Security Access procedures, and shall deliver to SBCL such agreements reflecting same as may be required by SBCL and identified to ActaMed in writing from time to time. ActaMed shall be responsible for promptly notifying SBCL if any employee with SBCL Access is terminated or leaves the employment of ActaMed. 3. Subject to the requirements of Section X.A, ActaMed may, at [*] of [*] to such [*] for which the [*] from such [*] without the [*] SBCL. There shall be [*] such [*]. 4. Subject to Section X.A and without limiting the above restrictions in this Section X.B, ActaMed [*] without the [*]. A copy of [*] shall be provided to SBCL. ActaMed agrees that, if SBCL's consent is obtained, [*] to Automated Providers shall be made available only in accordance with all applicable patient confidentiality laws of the states [*] the patient and SBCL Labs and ActaMed are located, and only [*] or [*]. SBCL shall have Audit Rights with respect to any disputed amounts hereunder. C. TRADE SECRET NONDISCLOSURE COVENANT. Without limiting the foregoing, Trade Secrets and Confidential Information and all physical embodiments thereof received by either party (the "RECEIVING PARTY") from the other party (the "DISCLOSING PARTY") during the term of this Agreement, including those received pursuant to the exercise of Audit Rights as described in Section III.E hereof, are confidential to and are and will remain the sole and exclusive property of the Disclosing Party. In furtherance of the foregoing: 1. At all times, both during the term of this Agreement and after its termination, the Receiving Party shall hold all Trade Secrets of the Disclosing Party in confidence, and will not use, copy or disclose such Trade Secrets, or any physical embodiment thereof, or cause any of such Trade Secrets to lose their character as Trade Secrets. At all times during the term of this Agreement and for a period of [*] following the termination of this Agreement, (except where a longer period is required pursuant to this Agreement or Regulations) the Receiving Party shall hold the Confidential Information of the Disclosing Party in confidence, and will not use, copy or disclose such Confidential Information, or any physical embodiments thereof, or cause any of such Confidential Information to lose its character or cease to qualify as Confidential Information. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -26- 2. Trade Secrets and Confidential Information shall be maintained under secure conditions by the Receiving Party, using reasonable security measures and in any event (1) not less than the same security measures used by the Receiving Party for the protection of its own Trade Secrets and Confidential Information of a similar kind, and (2) any specific security measures required by this Agreement. The Receiving Party shall not remove, obscure or deface any proprietary legend relating to the Disclosing Party's rights, on or from any tangible embodiment of any Licensed Materials without the Disclosing Party's prior written consent. Within thirty (30) days after termination of this Agreement, the Receiving Party shall deliver to the Disclosing Party all Trade Secrets and Confidential Information, and all physical embodiments thereof, then in the custody, control or possession of the Receiving Party. 3. If the Receiving Party is ordered by a court, administrative agency, or other governmental body of competent jurisdiction to disclose Trade Secrets or Confidential Information, or if it is served with or otherwise becomes aware of a motion or similar request that such an order be issued, then the Receiving Party will not be liable to the Disclosing Party for disclosure of Trade Secrets or Confidential Information required by such order if the Receiving Party complies with the following requirements: (i) if an already issued order calls for immediate disclosure, then the Receiving Party shall immediately move for or otherwise request a stay of such order to permit the Disclosing Party to take measures such as are described in clause (iii); (ii) the Receiving Party shall immediately notify the Disclosing Party of the motion or order by the most expeditious possible means; and (iii) the Receiving Party shall join or agree to (or at a minimum shall not oppose) a motion or similar request by the Disclosing Party for an order protecting the confidentiality of the Trade Secrets and Confidential Information, including joining or agreeing to (or non opposition to) a motion for leave to intervene by the Disclosing Party. 4. The Receiving Party shall immediately report to the Disclosing Party any attempt by any person of which the Receiving Party has knowledge (i) to use or disclose any portion of the Trade Secrets and Confidential Information without authorization from the Disclosing Party, or (ii) to copy, reverse assemble, reverse compile or otherwise reverse engineer any part of the Trade Secrets or Confidential Information (except as permitted herein). D. PERMITTED DISCLOSURES. Notwithstanding any provisions of this Agreement to the contrary, SBCL may disclose to the OIG as part of the disclosures SBCL makes under its Integrity Agreement the fact that SBCL and ActaMed have entered into the transactions contemplated by the parties and any information relating to such transaction or this Agreement which SBCL determines, in good faith upon advice of counsel, is required or, in light of SBCL's obligations under the Integrity Agreement, appropriate for SBCL to make, or SBCL proposes to make in response to a request for such information from the OIG, provided that ActaMed shall be given opportunity (which shall be reasonable in light of all facts and circumstances) to review and comment upon the information SBCL intends to include in any such submission. In the event that any such disclosure that SBCL intends to make includes any information that constitutes Confidential Information of ActaMed or Trade Secrets of ActaMed, SBCL will provide reasonable (in light of all facts and circumstances, including the time frame in which such disclosure is required to be made) assistance -27- to ActaMed to take reasonable steps to assure that such Confidential Information or Trade Secrets of ActaMed are maintained in confidence, including, but not limited to, (i) requesting that the OIG treat such information as trade secrets, confidential information or financial information within the meaning of the Freedom of Information Act, 5 U.S.C. Section 552(b)(4), (ii) requesting of the OIG that SBCL and ActaMed be given prior notice of any proposed release of such information to persons or entities outside of the OIG; (iii) requesting that the OIG otherwise assure the confidentiality of the information provided by ActaMed as if such information was confidential information of SBCL [*] and taking other reasonable steps that may be requested by ActaMed and to which SBCL may, in its sole discretion, agree to assure that the OIG honors its confidentiality obligations in that section; (iv) where such information is to be provided in response to a request by the OIG, take reasonable steps to narrow the request for information from the OIG in an appropriate manner in order to limit the amount of information, if any, that constitute Confidential Information or Trade Secrets of ActaMed covered by such request; and (v) make reasonable efforts to permit ActaMed with the concurrence of the OIG, to disclose such information directly to the OIG provided that in any such case, ActaMed shall give SBCL a timely opportunity to review, comment upon, and approve the information ActaMed intends to include in such submission. The additional safeguards described in subsections (i) through (v) above are designed to help assure the confidentiality of Confidential Information and Trade Secrets the disclosure of which would have a material adverse impact on ActaMed. These additional provisions are not intended to interfere with SBCL's ability to meet its disclosure obligations under the Integrity Agreement. Each party shall promptly notify the other in the event it receives an inquiry, investigation, or request for information from the OIG or other governmental agency into the matters relating to the proposed transaction. XI. RELATIONSHIP MANAGERS. ActaMed will designate a representative responsible for the SBCL account and who will have decision making authority for ActaMed (the "ACTAMED RELATIONSHIP MANAGER"). [*] will be the initial Relationship Manager for ActaMed. The ActaMed Relationship Manager will be a member of the Oversight Committee and shall attend planning meetings with SBCL, keep SBCL updated on national trends in EDI and Lab EDI, and consult with SBCL regarding ActaMed's software and Network strategy. SBCL will designate a representative responsible for SBCL's relationship with ActaMed who will have decision making authority for SBCL (the "SBCL RELATIONSHIP MANAGER"). [*] will be the initial Relationship Manager for SBCL. The SBCL Relationship Manager will be a member of the Oversight Committee and will coordinate SBCL's activities with ActaMed, attend planning meetings with ActaMed, and keep ActaMed updated on technical developments with respect to [*] and Lab EDI. Each party will consult with the other before changing its Relationship Manager. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -28- XII. TERM AND TERMINATION. A. INITIAL TERM AND RENEWALS. This Agreement shall continue for five (5) years from the Region One Transfer Date, unless earlier terminated as provided herein. Unless written notice of termination is given by SBCL not less than one hundred eighty (180) days, or by ActaMed not less than three hundred sixty (360) days, prior to the end of the term (including any extension or renewal of the term pursuant to this Section XII.A), the term of this Agreement will be automatically extended for successive two (2) year periods. B. TERMINATION. A party may cause a termination of all rights and obligations of the parties hereunder, except as provided in this Section XII hereof, as follows: 1. In the event that ActaMed fails to meet any of the Key Performance Standards in any [*] during any period of [*] SBCL may terminate this Agreement immediately by giving written notice of termination to ActaMed. 2. SBCL may terminate this Agreement immediately following a breach by ActaMed of its covenants set forth in Section VI hereof by giving written notice of termination to ActaMed. 3. Either party may terminate this Agreement if the other party shall fail to pay any amount when due from it hereunder (disregarding for this purpose any unpaid amount in dispute which dispute is being pursued with diligence) within thirty (30) days after written notice of a failure to pay is provided by the terminating party to the nonpaying party. 4. If one party breaches any material provision of this Agreement, which breach is not described in Sections XII.B.1-3 above (and which is not a breach of Performance Standards other than the Key Performance Standards), the nonbreaching party may terminate this Agreement by giving [*] written notice of termination to the breaching party. If such breach is (in the reasonable estimation of the terminating party) capable of being cured during such period and the other party acts diligently and continuously to cure such breach, the termination shall be suspended during such time, PROVIDED THAT such breach is actually cured prior to the end of such period; AND PROVIDED FURTHER THAT during the period from and after the time an ActaMed breach is discovered, SBCL may, at its election, pay all Fixed Fees, Transaction Fees, Variable Fees, PIFs and other amounts otherwise due ActaMed hereunder into an escrow account established with a nationally recognized financial institution selected by SBCL, to be released to ActaMed upon the later of the date within such [*] period when the breach is cured or the date prior to exercise of the termination right provided in this Section XII.B.4 as of which ActaMed shall have been not in breach of this Agreement for at least thirty (30) days. If ActaMed proves, to SBCL's reasonable satisfaction, that such amounts are needed in order to cure the breach, SBCL will release amounts to enable ActaMed to cure the breach, in which case such released amounts will be used by ActaMed exclusively for purposes of curing such breach. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -29- 5. If one party becomes insolvent, files bankruptcy, or has an involuntary bankruptcy case filed against it which is not dismissed within ninety (90) days, the other party may terminate this Agreement immediately by giving written notice of termination to the breaching party. C. EFFECT OF EXPIRATION. All rights and obligations of the parties hereunder shall cease upon the expiration of this Agreement except that (i) the obligations of the parties pursuant to Section X (relating to confidentiality), and (ii) the exclusive use rights of SBCL pursuant to Section V (relating to development work) shall continue in full force and effect indefinitely. In addition, the obligations of the parties pursuant to Section IV (relating to compliance with Regulations) shall continue for so long as SBCL shall have Long Term Access or Short Term Access. D. EFFECT OF TERMINATION. All rights and obligations of the parties hereunder shall cease upon the effective date of the termination of this Agreement except that (i) the obligations of the parties pursuant to Section X (relating to confidentiality), (ii) the exclusive use rights of SBCL pursuant to Section V (relating to development work), and (iii) the obligations of ActaMed pursuant to Section XII.E hereof (relating to termination transition), shall continue in full force and effect indefinitely. In addition, the obligations of the parties pursuant to Section IV (relating to compliance with Regulations) shall continue for so long as SBCL shall have Long Term Access or Short Term Access. In the event that ActaMed has terminated this agreement for SBCL's failure to pay undisputed amounts due under this Agreement, ActaMed will not be required to perform services for SBCL or to allow SBCL access to or use of the Network during the termination transition period unless SBCL pays ActaMed in advance for such services and Network access. Upon termination of this Agreement, any amount in escrow pursuant to Section IV.F or Section XII.B.4 hereof shall be paid to the terminating party. E. Transition Upon Termination. 1. If this Agreement terminates as a result of a notice of non-renewal given by ActaMed pursuant to Section XII.A, ActaMed will provide [*] or, at SBCL's option, a. SBCL may have [*] so long as ActaMed provides [*] (but not less than [*]), or b. SBCL may require ActaMed [*] prior to the effective date of such termination, and SBCL may exercise the right to [*] as granted by the License Agreement. 2. If this Agreement terminates as a result of a notice of non-renewal given by SBCL pursuant to Section XII.A, ActaMed will provide [*] and SBCL will have [*]. 3. If SBCL terminates this Agreement pursuant to Section XII.B, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -30- a. ActaMed will provide [*], b. SBCL may require ActaMed [*] within [*] after SBCL's notice of termination, c. SBCL may exercise the right to [*] as granted by the License Agreement, and d. until such time [*] by SBCL on a commercial basis, SBCL shall have Long Term Access. 4. [*] shall mean that [*] from [*] who have [*] or a version of [*]. For [*] SBCL will [*] on the date notice of termination is given. ActaMed will [*] and SBCL will [*] is rendered. If SBCL [*] (subject to [*] to those provided in Section [*] hereof), ActaMed will [*]. ActaMed will have [*] and SBCL will [*]. 5. [*] shall mean that ActaMed [*] the date of termination. For [*] SBCL will [*] the date of Termination. ActaMed will [*] the date the bill is rendered. If SBCL [*] (subject to [*] to those provided in Section [*] hereof), ActaMed will [*]. ActaMed will have [*] and SBCL will have [*]. 6. [*] shall mean [*] that will only provide [*] and allows [*], to provide [*] ActaLab Software at their sites. F. TRANSITION UPON TERMINATION. ActaMed's [*] shall mean (i) if the date of termination occurs [*] the transfer to SBCL of [*] requested by SBCL to [*] SBCL at such time [*] and (ii) providing SBCL, as promptly as practicable, with [*] used for [*] whether or not [*] to which ActaMed is in a position to [*] the effective date of the termination and to [*] to the transition. In furtherance of and in addition to the foregoing, upon termination or expiration of this Agreement, the parties shall effect, and shall cooperate with each other in effecting, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -31- the orderly and reasonable removal of ActaMed as a provider of Lab EDI Services to Automated Providers in the manner that is least disruptive to Automated Providers and which allows connectivity between SBCL Labs and Automated Providers to continue uninterrupted with SBCL or a separate vendor. The parties shall jointly develop a removal plan which will provide a reasonable level of support consistent with Section III hereof to transition SBCL off the Network. Each party shall bear its own expenses in developing and implementing the removal plan. G. LICENSE AGREEMENT. To the extent any provisions of the License Agreement depend for their interpretation or application upon provisions of this Agreement, such provisions shall survive termination or expiration of this Agreement but solely for purposes of the License Agreement. XIII. NONSOLICITATION. A. BY SBCL. Until the occurrence of any of the events described in Sections XIII.B, SBCL will not, directly or indirectly, solicit any ActaMed Site to use a clinical laboratory test ordering or results reporting product other than one serviced or distributed by or otherwise affiliated with ActaMed. B. EXCEPTIONS TO SBCL NONSOLICITATION. The restrictions set forth in Section XIII.A shall not apply from and after the occurrence of the following: 1. Any of the events described in clauses 1 through 5 of Section XII.B shall have occurred (without regard to notice or grace periods otherwise applicable thereto and disregarding for this purpose any termination event arising by reason of nonpayment by SBCL of any amount not in dispute). 2. Any of the events described in Article X of the Assets Purchase Agreement shall have occurred. 3. Notice of nonrenewal of this Agreement is given by (i) ActaMed pursuant to Section XII.A in which case Section XIII.A shall not apply for the last [*] of the then remaining term hereof, or (ii) SBCL in which case Section XIII.A shall not apply for the last [*] of the then remaining term hereof. C. Noncompetition by ActaMed. 1. [*] ActaMed shall not, either individually or through any affiliate, employee, director, officer or consultant, directly or indirectly, (i) [*], or (ii) compete with SBCL in the Disease Management Business. The specific terms of such noncompetition shall be detailed in the separate writing referred to in Section VIII.D to be delivered within thirty (30) days after the date hereof. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -32- 2. At any time prior to [*], ActaMed shall not [*] at the SBCL Sites transferred to ActaMed pursuant to the Purchase Agreement, including without limitation, to install or be instrumental in causing [*] to [*] located at such sites which enables the [*], or otherwise provide [*] which facilitate [*]. XIV. OBLIGATION TO INDEMNIFY. A. ACTAMED INDEMNITY. Subject to Section XIV.C hereunder, ActaMed agrees to indemnify and hold harmless each SBCL Indemnitee against and in respect of (i) all Losses, asserted against, imposed upon or incurred by any SBCL Indemnitee by reason of or resulting from any breach of any representation or warranty or covenant of ActaMed contained in this Agreement, as well as from any negligent act or omission of ActaMed; and (ii) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any Loss or to the enforcement of this Section XIV.A. B. SBCL INDEMNITY. Subject to Section XIV.C hereunder, SBCL agrees to indemnify and hold harmless each ActaMed Indemnitee against and in respect of (i) all Losses, asserted against, imposed upon or incurred by any ActaMed Indemnitee by reason of or resulting from any breach of any representation or warranty or covenant of SBCL contained in this Agreement, as well as from any negligent act or omission of SBCL; and (ii) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any Loss or to the enforcement of this Section XIV.B. C. ALLOCATION OF RISK. 1. ActaMed shall not be liable to SBCL (or to any person claiming to have been injured by SBCL) for any lab testing error, billing error, or other action or failure to act of SBCL, or any error or mistake not caused by ActaMed and made by SBCL in the reporting of lab testing results to ActaMed for delivery by the Network, and SBCL shall hold ActaMed harmless from all claims caused by such errors or mistakes to the extent made by SBCL. 2. SBCL shall not be liable to ActaMed (or to any person claiming to have been injured by ActaMed) for any error in Transmittal Information, billing error, or other action or failure to act of ActaMed, or any error or mistake not caused by SBCL and made by ActaMed in the transmission of test orders and results over the Network, and ActaMed shall hold SBCL harmless from all claims caused by such errors or mistakes to the extent made by ActaMed. 3. Neither party shall be liable to the other hereunder for consequential, special, punitive or exemplary damages of any kind (including, but not limited to, lost profits, loss of business or other similar damages) arising out of any action or proceeding except and only to the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -33- extent that such damages arise from or relate to (i) the failure of a party to comply with Regulations as required by this Agreement, (ii) an action in tort initiated by a third party against either or both of the parties hereto, or (iii) breach of a party's confidentiality undertakings set forth herein. 4. Neither party shall be liable to the other hereunder in connection with any action or proceeding arising from or relating to a matter covered by this Section XIV, or for breach of this Agreement, for an amount in excess of the greater of (i) [*] or (ii) the [*] prior to the date on which such breach occurs; PROVIDED THAT this limitation shall not apply to any Losses or other damages arising out of or relating to any action described in clauses [*]. D. CLAIMS NOTICE. A Claim shall be made by any Indemnitee by delivery of a Claims Notice to any Indemnifying Party requesting indemnification and specifying the basis on which indemnification is sought and the amount of asserted Losses and, in the case of a Third Party Claim, containing (by attachment or otherwise) such other information as such Indemnitee shall have concerning such Third Party Claim. E. PROCEDURES INVOLVING NON THIRD PARTY CLAIMS. If the Claim involves a matter other than a Third Party Claim, the Indemnifying Party shall raise any objection to such Claim within a reasonable period of time by delivery of a written notice of such objection to such Indemnitee specifying in reasonable detail the basis for such objection. If an objection is timely interposed by the Indemnifying Party, the Indemnifying Party and the Indemnitee shall cooperate in the compromise of the Claim or resolve any disagreement in accordance with Section XV hereof. F. PROCEDURES INVOLVING THIRD PARTY CLAIMS. The obligations and liabilities of the parties hereunder with respect to a Third Party Claim shall be subject to the following terms and conditions: 1. The Indemnitee shall give the Indemnifying Party written notice of a Third Party Claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnifying Party may undertake the defense, compromise and settlement thereof by representatives of its own choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee to notify the Indemnifying Party of such claim shall not relieve the Indemnifying Party of any liability that they may have with respect to such claim except to the extent the Indemnifying Party demonstrates that the defense of such claim is prejudiced by such failure. The assumption of the defense, compromise and settlement of any such Third Party Claim by the Indemnifying Party shall be an acknowledgment of the obligation of the Indemnifying Party to indemnify the Indemnitee with respect to such claim hereunder. If the Indemnitee desires to participate in, but not control, any such defense, compromise and settlement, it may do so at its sole cost and expense. If, however, the Indemnifying Party fails or refuses to undertake the defense of such Third Party Claim within ten (10) days after written notice of such claim has been given to the Indemnifying Party by the Indemnitee, the Indemnitee shall have the right to undertake the defense, compromise and settlement [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -34- of such claim with counsel of its own choosing. In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, make a Claim as specified in Sections XIV.A and XIV.B which shall be deemed a Claim that is not a Third Party Claim for the purposes of the procedures set forth herein. 2. If, in the reasonable opinion of the Indemnitee, any Third Party Claim or the litigation or resolution thereof involves an issue or matter which could have a material adverse effect on the business, operations, assets, properties or prospects of the Indemnitee, the Indemnitee shall have the right to control the defense, compromise and settlement of such Third Party Claim undertaken by the Indemnifying Party, and the reasonable costs and expenses of the Indemnitee in connection therewith shall be included as part of the indemnification obligations of the Indemnifying Party hereunder. If the Indemnitee shall elect to exercise such right, the Indemnifying Party shall have the right to participate in, but not control, the defense, compromise and settlement of such Third Party Claim at its sole cost and expense. 3. No settlement of a Third Party Claim involving the asserted liability of the Indemnifying Party under this Article shall be made without the prior written consent by or on behalf of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party assumes the defense of such a Third Party Claim, (1) no compromise or settlement thereof may be effected by the Indemnifying Party without the Indemnitee's consent unless (a) there is no finding or admission of any violation of law or any violation of the rights of any person and no effect on any other claim that may be made against the Indemnitee (b) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (c) the compromise or settlement includes, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a release, in form and substance satisfactory to the Indemnitee, from all liability in respect of such Third Party Claim, and (2) the Indemnitee shall have no liability with respect to any compromise or settlement thereof effected without its consent. G. NO RELEASE FOR FRAUD. Nothing contained in this Agreement shall relieve or limit the liability of a party or any officer or director of such party from any Liability arising out of or resulting from common law fraud or intentional misrepresentation in connection with the transactions contemplated by this Agreement or in connection with the delivery of this Agreement. Each ActaMed Indemnitee or SBCL Indemnitee, as the case may be, shall have a right to indemnification for any Loss incurred as the result of any common law fraud or intentional misrepresentation by SBCL or ActaMed, respectively, or any officer or director thereof. H. Payment. 1. If any party is required to make any payment under this Section XIV, such party shall promptly pay the Indemnified Party the amount so determined. If there is a dispute as to the amount or manner of determination of any indemnity obligation owed under this Section XIV, the Indemnifying Party shall nevertheless pay when due such portion, if any, of the obligation as shall not be subject to dispute. The difference, if any, between the amount of the obligation -35- ultimately determined as properly payable under this Section XIV and the portion, if any, theretofore paid shall bear interest as set forth in Section XIV.F.3. 2. Any items as to which an Indemnified Party is entitled to payment under this Article may be paid by setoff against amounts payable to the Indemnifying Party to the extent that such amounts are sufficient to pay such items. 3. If all or part of any indemnification obligation under this Agreement is not paid when due, then the Indemnifying Party shall pay the Indemnified Party interest on the unpaid principal amount of the obligation from the date the amount became due until payment in full, at the per annum rate of interest announced from time to time by NationsBank South, N.A., to be its "prime rate." XV. DISPUTE RESOLUTION; ARBITRATION. A. GENERAL. Except as otherwise provided in Section VI of this Agreement, disputes between ActaMed and SBCL relating to the interpretation or application of this provisions of this Agreement shall be resolved in accordance with this Section XV. B. INFORMAL DISPUTE RESOLUTION. Any dispute between the parties arising out of or with respect to this Agreement, either with respect to the interpretation of any provision of this Agreement or with respect to the performance by ActaMed or SBCL, shall be resolved as provided in this Article. 1. Prior to the initiation of formal dispute resolution procedures, the parties shall first attempt to resolve their dispute informally, as follows: a. The Representatives for each party shall meet for the purpose of endeavoring to resolve such dispute. They shall meet as often as the parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the parties believe to be appropriate and germane in connection with its resolution. The Representatives shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding. During the course of negotiations, all reasonable requests made by one party to another for nonprivileged information, reasonably related to this Agreement, shall be honored in order that each of the parties may be fully advised of the other's position. b. If, within fifteen (15) days after a matter has been identified for resolution pursuant to this Section XV, either of the Representatives concludes in good faith that amicable resolution through continued negotiation in this forum does not appear likely, the matter will be escalated by formal written notification to the SBCL President and the ActaMed President. The parties will use their respective best efforts to cause the SBCL President and the ActaMed President to meet to attempt to resolve the dispute. -36- c. Formal proceedings for the resolution of a dispute may not be commenced until the earlier of: (i) the date on which the SBCL President and the ActaMed President conclude in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (ii) thirty (30) days after the dispute has been referred to the SBCL President and the ActaMed President. 2. The provisions of this Section XV shall not be construed to prevent a party from instituting, and a party is authorized to institute, formal proceedings earlier to avoid the expiration of any applicable limitations period. C. ARBITRATION. If the parties are unable to resolve any controversy arising under this Agreement as contemplated by Section XV.A and if such controversy is not subject to Section XIV or Section XV.D, then such controversy shall be submitted to mandatory and binding arbitration at the election of either Party (the "DISPUTING PARTY") pursuant to the following conditions: 1. The Disputing Party shall notify the AAA and the other Party in writing describing in reasonable detail the nature of the dispute (the "DISPUTE NOTICE"). The parties shall each select a neutral arbitrator in accordance with the rules of AAA and the two (2) arbitrators selected shall select a third neutral arbitrator. The three (3) arbitrators so selected are herein referred to as the "PANEL." 2. The Panel shall allow reasonable discovery as permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. The Panel shall have no power or authority to amend or disregard any provision of this Section XV. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each of ActaMed and SBCL being allocated one-half of the time for the presentation of its case. Unless otherwise agreed to by the parties, an arbitration hearing shall be conducted on consecutive days. 3. Should any arbitrator refuse or be unable to proceed with arbitration proceedings as called for by this Section, such arbitrator shall be replaced by an arbitrator selected in accordance with the rules of the AAA and consistent with this Section XV. 4. The Panel rendering judgment upon disputes between parties as provided in this Section XV shall, after reaching judgment and award, prepare and distribute to the parties a writing describing the findings of fact and conclusions of law relevant to such judgment and award and containing an opinion setting forth the reasons for the giving or denial of any award. The award of the arbitrator shall be final and binding on the parties, and judgment thereon may be entered in a court of competent jurisdiction. 5. Arbitration hearings hereunder shall be held in Washington D.C. or other mutually agreeable location. 6. The Panel shall be instructed that time is of the essence in the arbitration proceeding. The Panel shall render its judgment or award within fifteen (15) days following the -37- conclusion of the hearing. Recognizing the express desire of the parties for an expeditious means of dispute resolution, the arbitrator shall limit or allow the parties to expand the scope of discovery as may be reasonable under the circumstances. D. LITIGATION. In the event of a breach of the confidentiality obligations set forth in this Agreement, or in the event a party makes a good faith determination that a breach of the terms of this Agreement by the other party is such that the damages to such party resulting from the breach will be so immediate, so large or severe, and so incapable of adequate redress after the fact that a temporary restraining order or other immediate injunctive relief is a necessary remedy, then such party may file a pleading with a court seeking immediate injunctive relief. If a party files a pleading with a court seeking immediate injunctive relief and this pleading is challenged by the other party and the injunctive relief sought is not awarded in substantial part (or in the event of a temporary restraining order is vacated upon challenge by the other party), the party filing the pleading seeking immediate injunctive relief shall pay all of the costs and attorneys' fees of the party successfully challenging the pleading. 1. ActaMed and SBCL each consent to venue in Philadelphia, Pennsylvania and to the nonexclusive jurisdiction of competent Pennsylvania state courts or federal courts located in Philadelphia for all litigation which may be brought, subject to the requirement for arbitration hereunder, with respect to the terms of, and the transactions and relationships contemplated by, this Agreement. XVI. MISCELLANEOUS. A. PUBLICITY. Each party hereto agrees that neither it, nor or any of its representatives, shall make any public announcement with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other party hereto unless required by law or judicial process, in which case notification shall be given to the other party hereto prior to such disclosure and the content of such disclosure approved by such other party, which approval shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, ActaMed agrees that nothing in this Section XVI.A shall prohibit SBCL from disclosing any information SBCL is permitted to disclose under Section X.D. B. ENTIRE AGREEMENT. This Agreement, including the Exhibits to it, constitutes the entire understanding between the parties and supersedes all proposals, communications and agreements between the parties relating to its subject matter. No amendment, change, or waiver of any provision of this Agreement will be binding unless in writing and signed by both parties. C. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Georgia applicable to contracts made and performed therein. D. ASSIGNMENTS. Neither party may assign this Agreement without the prior, written consent of the other party, which shall not be unreasonably withheld; PROVIDED, HOWEVER, that SBCL may assign its rights and obligations hereunder without approval of ActaMed to any of its affiliates, -38- or an acquiror of substantially all of its assets; PROVIDED FURTHER that ActaMed may assign its rights and obligations under this Agreement without the approval of SBCL to any person that acquires all or substantially all of the business or assets of ActaMed related to the ActaLab Software and the Network, if such person (or any affiliate of such person) is not engaged in the business of providing laboratory testing services. Any attempted assignment without such consent shall be void. If the parties cannot agree upon whether a company competes with SBCL for lab testing, the parties shall resolve the dispute pursuant to Section XV. Any assignment with consent does not release the assigning party from any of its obligations under this Agreement unless the consent so states. E. NOTICES. Any notices relating to this Agreement shall be in writing and will be sent by certified United States mail, postage prepaid, return receipt requested, or by facsimile transmission or overnight courier service, addressed to the party at the address set forth below, or at such different address as a party has advised to the other party in writing and shall be deemed given and received when actually received: If to SBCL: SmithKline Beecham Clinical Laboratories, Inc. 1201 South Collegeville Road Collegeville, Pennsylvania 19426 Attention: John B. Okkerse, Jr., Ph.D., President Telephone: [*] Telecopy: [*] With a copy to: SmithKline Beecham Corporation One Franklin Plaza 16th and Race Streets Philadelphia, PA 19103 Attention: General Counsel-U.S. Telephone: [*] Telecopy: [*] If to ActaMed: ActaMed Corporation Suite 600 7000 Central Parkway Atlanta, Georgia 30328 Attention: Chief Financial Officer Telephone: (770)352-1600 Telecopy: (770)352-1815 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -39- with a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: John C. Weitnauer, Esquire Telephone: (404) 881-7780 Telecopy Number: (404) 881-7777 F. SEVERABILITY. In the event one or more of the provisions of this Agreement are found to be invalid, illegal or unenforceable by a court with jurisdiction, the remaining provisions shall continue in full force and effect. G. FORCE MAJEURE. The obligations of the parties under this Agreement (other than the obligation to make payments) shall be suspended to the extent a party is hindered or prevented from complying therewith because of labor disturbances (including strikes or lockouts), war, acts of God, fires, storms, accidents, governmental regulations, failure of vendors or suppliers or any other cause whatsoever beyond a party's control. For so long as such circumstances prevail, the party whose performance is delayed or hindered shall continue to use all commercially reasonable efforts to recommence performance without delay. H. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES. -40- IN WITNESS WHEREOF, the parties have executed this Services Agreement as of the date set forth above. ACTAMED CORPORATION By: /s/ --------------------------------------- Its: President -------------------------------------- SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By: /s/ --------------------------------------- Its: President -------------------------------------- EXHIBITS Exhibit A -- Definitions- Exhibit II.B.2(a) -- Automated Provider Contract Amendment Provisions* Exhibit II.B.2(b) -- Automated Provider New Contract* Exhibit III.B.7 -- Reports- Exhibit III.C-1 -- Network Standards- Exhibit III.C-2 -- Customer Support Standards- Exhibit IV.G -- Average Revenue/Requisition & Monthly Average Number of Requisitions* Exhibit V.A. -- Required Maintenance Exhibit V.B. -- Year 2000 Warranties Exhibit VII.C-1 -- Current Connectivity Arrangements** Exhibit VII.C-2 -- Exclusions to Preferred Vendor Status
* TO BE DELIVERED BY JANUARY 31, 1998. ** TO BE DELIVERED BY JANUARY 15, 1998. EXHIBIT A DEFINITIONS "AAA" means the American Arbitration Association. "ActaLab Software" means the ActaLab Software as defined under the License Agreement. [*] has the meaning set forth in Section XII.E.6 of the Services Agreement. "ActaMed" means ActaMed Corporation, a Georgia corporation. "ActaMed Gateway shall have the meaning set forth in Section II.A.1. "ActaMed Indemnitee" means ActaMed and its directors, officers, employees, affiliates and permitted assigns. "ActaMed Network" means the EDI system and network for electronic Transmissions, which includes the Network Software and ActaMed's gateway and hardware and computer systems needed to operate that software. "ActaMed President" shall mean the President of ActaMed, presently Michael K. Hoover, or should ActaMed be restructured in any manner, the officer of ActaMed having top authority over ActaMed's operations. "ActaMed Relationship Manager" shall have the meaning set forth in Section XI. "ActaMed Site" means an Automated Provider utilizing the Network for Lab EDI Services located in a transferred Region that was an SBCL Site on the Transfer Date of the Region or is a New Site or [*]. "Agreed Services" means all services to be rendered by ActaMed under this Services Agreement, including without limitation Lab EDI Services. "Anniversary" shall mean the anniversary date of the Region One Transfer Date. "Audit Rights" means the right to, or to have representatives, (1) examine all books of account, records, reports and other papers except to the extent that such action would, in the reasonable opinion of counsel, constitute a waiver of the attorney/client privilege or violate obligations of confidentiality to third parties, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-1 (2) make copies and take extracts from any thereof, except for information which is subject to a written confidentiality agreement with a third party, (3) discuss the affairs, finances and accounts of the party being audited with such party's officers and independent certified public accountants (and by this provision such audited party hereby authorizes said accountants to discuss with the auditing party and its representatives, the finances and accounts of such entity) and (4) visit and inspect, at reasonable times and on reasonable notice during normal business hours, the properties of the other party; PROVIDED THAT, the foregoing audit rights are in addition to any rights of a party under the Georgia Business Corporation Code in the case of ActaMed, or the Delaware General Corporation Law in the case of SBCL, and shall in no way limit such rights; and PROVIDED FURTHER THAT, the expenses incurred in connection with any such inspection shall be for the account of the auditing party, except that all reasonable expenses incurred by the audited party, or any of its officers, employees, agents or independent certified public accountants, shall be expenses payable by the audited party and shall not be expenses of the auditing party. "Automated Provider" means a Provider [*] who or which, on or after the Transfer Date of the Region in which the Provider [*] is located, uses the Network to send clinical laboratory test orders to an SBCL Lab or to receive test result reports from an SBCL Lab. "Changes" means any improvements, changes or additions to application software and documentation that improve existing functions, add new functions, or improve performance through changes in the software or system design or coding. "Claim" means any claim for indemnification under Section XIV of the Services Agreement. "Claims Notice" means a written notice of an indemnification claim delivered pursuant to Section XIV of the Services Agreement. "Confidential Information" means information that is (1) confidential to the business of a party, including without limitation, data regarding the extent of the Agreed Services provided hereunder to, or Transaction Fees, Fixed Fees or PIFs paid hereunder by, SBCL, (2) is designated and identified as such by such party, and (3) is not a Trade Secret; provided, however, that Confidential Information does not include any information which is or becomes generally known to the public without any breach by the Receiving Party of its duties to the Disclosing Party. Assuming that the foregoing criteria are met, Confidential Information also includes information which has been disclosed to a Receiving Party by another person and which the Receiving Party is obligated to treat as confidential. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-2 "Customer Support Standards" has the meaning set forth in Section III.C of the Services Agreement. "Development Agreement" means the Development Agreement between SBCL and ActaMed dated October 31, 1997 for the initial development of the ActaLab Software. "Disclosing Party" has the meaning set forth in Section X.C of the Services Agreement. "Disease Management Business" shall have the meaning set forth in Section VIII.D. "Dispute Notice" means a written notice by one party hereto notifying the other of the existence of a dispute, which notice shall delineate the disputed items and the factual basis for the dispute. "Disputing Party" has the meaning given in Section XV.B of the Services Agreement. "EDI" means electronic data interchange. "Exclusive Developments" has the meaning set forth in Section V.E.1.a of the Services Agreement. "First Variable Fee" has the meaning set forth in Section IV.C.1 of the Services Agreement. "Fixed Fee" means the amounts payable by SBCL pursuant to Section IV.A of the Services Agreement. "Fixed Fee Sites" has the meaning set forth in Section IV.G of the Services Agreement. "FTE" means "full time equivalent," i.e., the equivalent number of work hours that would be worked by one person working on a full time basis, treating eight (8) hours worked per day as a full work day. "Indemnifying Party" means the Party obligated to provide indemnification pursuant to Section XIV of the Services Agreement. "Indemnitee" means an ActaMed Indemnitee or an SBCL Indemnitee. "Integrity Agreement" means SBCL's Corporate Integrity Agreement with the OIG. "Intellectual Property" means copyrights, trademarks, service marks, trade names, patents, applications therefor, technology rights and licenses, computer software (including, without limitation, any source or object codes therefor or documentation relating thereto), computer software licenses, trade secrets, franchises, know-how, inventions and intellectual property rights. A-3 "Key Performance Standards" shall mean the Performance Standards under the headings of [*] "Lab EDI Services " means electronic connectivity services enabling an Automated Provider to send Transmittal Information electronically to an SBCL Lab and/or to receive electronically Transmittal Information from an SBCL Lab utilizing the Network. "Liability" means any direct or indirect liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of or by any person (other than endorsements of notes, bills and checks presented to banks for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute, contingent, matured, unmatured or other. "License Agreement" means the License Agreement between SBCL and ActaMed dated the date of the Services Agreement and described in the Preamble to the Services Agreement. "Licensed Materials" means the software licensed pursuant to the License Agreement. [*] has the meaning set forth in Section XII.E.4 of the Services Agreement. "Losses" means any and all demands, claims, actions or causes of action, assessments, losses, diminution in value, damages (including special and consequential damages), liabilities, costs, and expenses, including without limitation, interest, penalties, cost of investigation and defense, and reasonable attorneys' and other professional fees and expenses. [*] has the meaning set forth in Section XII.F of the Services Agreement. "Network" means the SCAN Network and/or the ActaMed Network. "Network Software" means ActaMed's personal computer version of the ProviderLink and ActaLink presentation and network software programs, under whatever name marketed, and the SCAN Software and the ActaLab Software, and all Changes to them, which are licensed to Automated Providers and which allow access to the Network for the transmission of laboratory test order entries and reception of test result information, or other software program for use by ActaMed in the transmission of test order entries and reception of test result information which is licensed to Automated Providers. "Network Standards" shall have the meaning set forth in Section III.C of the Services Agreement. "New Business Plan" shall mean the ActaMed business plan delivered pursuant to Section 5.1.8 of the Purchase Agreement. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-4 "New Site" shall mean an ActaMed Site added to the Network on or after the Transfer Date of the Region in which the ActaMed Site is located and which is not a Fixed Fee Site. "Office Space" has the meaning set forth in Section II.B.5 of the Services Agreement. "OIG" means the Office of Inspector General, U.S. Department of Health and Human Services. "Other Lab" means a commercial laboratory other than an SBCL Lab. "Oversight Committee" has the meaning set forth in Section III.A of the Services Agreement. "Panel" has the meaning given it in Section XV.B of the Services Agreement. "PC System" means the personal computer, modem, bar code readers, bar code label printers, requisition and results printers and other hardware peripherals required for a Provider to become an Automated Provider. [*] means an SBCL [*] or other [*]. "Performance Standards" shall have the meaning set forth in Section III.C of the Services Agreement. "PIF Amount" has the meaning given it in Section IV.C.2 of the Services Agreement. "PIF Number" has the meaning given it in Section III.B.3 of the Services Agreement. "PIF Sites" has the meaning given it in Section III.B.3 of the Services Agreement. [*] or "PIF" has the meaning given it in Section IV.M.1 of the Services Agreement. "Provider" means a physician, clinic, hospital, or other provider of clinical health care services other than [*]. "Purchase Agreement" means the Asset Purchase Agreement between ActaMed and SBCL dated the date of the Services Agreement and described in the Preamble to the Services Agreement. "Receiving Party" has the meaning given it in Section X.C of the Services Agreement. "Region" means any one of Region One, Region Two, Region Three, or Region Four. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-5 "Region Four" means the Region described on Schedule 2.2(d) to the Purchase Agreement. "Region Four Transfer Date" has the meaning given in Section 2.3.4 of the Purchase Agreement. "Region One" means the Region described on Schedule 2.2(a) to the Purchase Agreement. "Region One Transfer Date" means the date on which Region One is transferred to ActaMed pursuant to the Purchase Agreement. "Region Three" means the Region described on Schedule 2.2(c) to the Assets Purchase Agreement. "Region Three Transfer Date" has the meaning given in Section 2.3.3 of the Purchase Agreement. "Region Two" means the Region described on Schedule 2.2(b) to the Purchase Agreement. "Region Two Transfer Date" has the meaning given in Section 2.3.2 of the Purchase Agreement. "Regulation" means any statute, law, ordinance, regulation, requirement, order or rule of any federal, state, local government or other governmental agency or body or of any other type of regulatory body, or any governmental or administrative interpretation of any thereof, including, without limitation, (i) those covering health, safety, environmental, energy, transportation, bribery, record keeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters, (ii) requirements imposed by any governmental or regulatory body which must be satisfied to qualify for Medicare reimbursements, and (iii) any and all federal, state and local health care laws relating to or covering the methods and ways in which Lab EDI Services and other related or incidental services or benefits, if any, are provided to the Automated Providers, including, but not limited to, the Stark law (42 U.S.C. Section 1395nn) and the Clinical Laboratory Improvements Act of 1988, as amended. [*] has the meaning set forth in Section IV.G of the Services Agreement. [*] has the meaning set forth in Section IV.G.2 of the Services Agreement. "Representatives" means the ActaMed Relationship Manager and the SBCL Relationship Manager. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-6 "Requisition" shall mean an electronically transmitted clinical laboratory test order from an Automated Provider to SBCL which is entered utilizing SCAN Software, the ActaLab Software or other program for electronic lab order entry and results reporting and utilizing the Network, for one or more clinical laboratory tests for a single patient transmitted electronically at one time and the corresponding test results delivered electronically to an Automated Provider from SBCL at one or more times. The term "Requisition" shall include patient eligibility for third party payor benefits or reimbursement or claim status checking related to such order and available to ActaMed. "SBCL" means SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation. "SBCL Access" has the meaning set forth in Section X.B.2 of the Services Agreement. "SBCL Indemnitee" means SBCL and its directors, officers, employees, affiliates and permitted assigns. "SBCL Lab" means any location at which SBCL or its affiliates provide, or may in the future provide, clinical laboratory testing services, regardless of the computer systems or software, if any, used by such lab for lab order entry and results reporting. "SBCL President" shall mean the President of SBCL, presently John B. Okkerse, Jr., Ph.D., or should SBCL be restructured in any manner, the officer of SBCL having top authority over SBCL's operations. "SBCL Relationship Manager" has the meaning set forth in Section XI of the Services Agreement. "SBCL Site" means an Automated Provider utilizing the SCAN Network for Lab EDI Services on the Transfer Date of the Region in which such Automated Provider is located. "SCAN Assets" has the meaning set forth in the Purchase Agreement. "SCAN Developments" has the meaning set forth in the License Agreement. "SCAN Network" means the SCAN Software and SBCL's gateway and hardware and computer systems needed to operate the SCAN Software, excluding [*] which enables Providers or [*] to place laboratory test orders electronically to an SBCL Lab and/or to receive test result reports electronically from an SBCL Lab. "SCAN PSC" means a PSC which utilizes the Network to enter laboratory test orders electronically and/or to receive test result reports electronically. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-7 "SCAN Site" means either an SBCL Site or an ActaMed Site that has installed and is using SCAN Software for Lab EDI Services. "SCAN Software" means the SBCL SCAN-TM- software licensed to ActaMed pursuant to the License Agreement, and all Changes thereto after the date hereof. "Second Variable Fee" has the meaning set forth in Section IV.C.2 of the Services Agreement. [*] has the meaning set forth in Section XII.E.5 of the Services Agreement. "SOP" means a standard operating procedure. "Termination Transition" has the meaning given it in Section XII.D of the Services Agreement. "Third Party Claim" means any claim, suit or proceeding (including, without limitation, a binding arbitration or an audit by any taxing authority) that is instituted against an Indemnitee by a person or entity other than an Indemnitor and which, if prosecuted successful, would result in a Loss for which such Indemnitee is entitled to indemnification hereunder. "TopLab" means SBCL's proprietary laboratory systems which facilitate SBCL's internal automated laboratory test processing and reporting, including but not limited to SBCL's Total Order Processing Laboratory system. "Trade Secrets" means information related to the Disclosing Party (1) which derives economic value, actual or potential, from not being generally known to or readily ascertainable by other persons who can obtain economic value from its disclosure or use, and (2) which is the subject of efforts by the Disclosing Party that are reasonable under the circumstances to maintain its secrecy. Without limitation, for ActaMed, ProviderLink and the ActaLab Software are Trade Secrets, and for SBCL, the SBCL Software, SCAN Developments and TopLab are Trade Secrets. "Transaction Fee Amount" has the meaning set forth in Section IV.C.1 of the Services Agreement. "Transaction Fees" has the meaning set forth in Section IV.B of the Services Agreement. "Transfer Date" shall mean any one of, and "Transfer Dates" shall mean more than one of the Region One Transfer Date, the Region Two Transfer Date, the Region Three Transfer Date, and the Region Four Transfer Date. "Transferred Employees" shall have the meaning given such term in the Purchase Agreement. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-8 "Transmission" means the electronic transmittal over the Network of Transmittal Information in an approved document format. "Transmittal Information" means information which an Automated Provider gives ActaMed for communication to SBCL over the Network, or which SBCL gives ActaMed for communication to an Automated Provider over the Network, including all copies of same, and including without limitation, data relating to laboratory records, clinical data, encounter data, test information, test codes and provider identification numbers (other than UPINs) "Variable Fees" has the meaning given it in Section IV.C.2 of the Services Agreement. A-9 EXHIBIT II.B.2(a) LAB EDI SERVICE AGREEMENT AMENDMENT PROVISIONS III.B.2-1 EXHIBIT II.B.2(b) LAB EDI SERVICE AGREEMENT III.B.7-1 EXHIBIT III.B.7 REPORTS A. REPORTS ACTAMED WILL PROVIDE TO SBCL The following reports will be provided to SBCL by ActaMed on the indicated schedule. 1. BILLING REPORTS a. [*] SUMMARY REPORTS (POST-ACTAMED GATEWAY): (1) Fixed Fee Sites (a) Total Sites (b) Total Requisitions (c) Average Requisitions per Site (2) Transaction Fee Sites (a) Total Sites (b) Total Requisitions (c) Average Requisitions per Site (3) PIF Sites (a) Total Sites charged for the [*] that [*] (with appropriate supporting detail) (4) Label Printer Fees (a) Total Sites charged for the Label printer equipment fee (with appropriate supporting detail) b. [*] DETAILED FEES: (1) List of Fixed Fee sites by lab (2) List of Transaction Fee sites by lab III.B.7-1 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (3) List of PIF Sites by lab (4) List of sites with bar code printer paid by SBCL by lab c. CUSTOM DEVELOPMENT: (1) Monthly itemization and accounting for the hours worked for any projects active under a Custom Development Fee, and a project status report on each item worked d. MONTHLY EXPENSE BILLINGS: (1) Personnel in non-transferred regions, with supporting detail 2. PERFORMANCE REPORTS a. All reports necessary to verify and measure the Performance Standards, including, but not limited to, the following: (i) [*] help desk REPORTS, as set forth in Exhibit III.C-2 - Customer Support Standards showing performance statistics against the Performance Standards and the number of calls received by type of problem (detail problem coded); (ii) [*] network reports, as set forth in Exhibit III.C-1 - Network Standards; (iii) Performance Metrics reports against the Performance Standards described in Exhibit III.C-1 & 2, including comparison of actuals to standard for current month and rolling prior 12 months. b. Transfer BENCHMARK reports, as set forth in Exhibit 2.3.1(a) of the Assets Purchase Agreement. c. Monthly Gateway reports (format to be mutually determined once the ActaMed GATEWAY is active, but intended to be generally similar to the SBCL November 1997 Gateway Report). d. As APPROPRIATE from time to time, in light of technological advances, market conditions or industry standards or other facts and circumstances, a report describing ActaMed's plans to increase the performance and capabilities of the Network and to improve Customer Service beyond the minimum levels specified in Exhibits III.C-1 and III.C-2. e. Monthly report of SBCL clients that have deinstalled (discontinued to use) Lab EDI Services. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. III.B.7-2 f. An ongoing data base (to be created, kept current and available for reporting) report of the current list of clients approved for installation including date received, Lab, Client ID, Client demographics and expected date of installation. 3. SAS 70 REPORT ActaMed will provide a report produced in accordance with standards established by the American Institute of Certified Public Accountants' Statement on Auditing Standards Number 70: Reports on the Processing of Transactions by Service Organizations. ActaMed shall submit the first such report to SBCL by the end of 1998. B. REPORTS SBCL WILL PROVIDE TO ACTAMED 1. BILLING REPORTS A. SBCL WILL MAKE AVAILABLE TO ACTAMED ACCESS TO DATA RELATING TO: (1) Fixed Fee Sites (2) Total Sites (list of Fixed Fee Sites by Lab active that month) (3) List of Transaction Fee sites by Lab B. FOLLOWING ACTAMED GATEWAY, MONTHLY EXPENSE BILLINGS (with appropriate SUPPORTING detail): (1) Gateway 1-800 charges to ActaMed (2) Non-transferred local line charges (3) Service Fees for ongoing support of ActaMed Gateway, if any (4) Service Fees for SBCL Gateway Services for Transferred Sites, if any 2. PERFORMANCE REPORTS a. Prior to the ActaMed Gateway, SBCL will continue to provide ActaMed with copies of its standard monthly Gateway report. b. Timely reports on changes in SBCL that affect ActaMed and its PERFORMANCE hereunder, as set forth in Section IX. III.B.7-3 3. STRATEGIC INFORMATION Quarterly information on major trends within SBCL as appropriate that are relevant to ActaMed and its performance hereunder, such as new customers, lost customers, trends in lab requisition and result volumes, compliance related issues, etc. III.B.7-4 EXHIBIT III.C-1 NETWORK SUPPORT STANDARDS ACTAMED NETWORK AVAILABILITY The ActaMed Network will be available 24 hours a day, 7 days a week with the exception of Planned Down Hours. "Planned Down Hours" means that time which is reasonably required for maintenance and problem resolution as reasonably required and notwithstanding any other provision herein shall only occur during the hours of [*] or on Federally recognized holidays. HARDWARE AND MODEM AVAILABILITY For each month, ActaMed shall maintain an "Availability Percentage" of at least [*]. Hardware systems and modems are operational and available for receiving/accepting calls as measured by an ActaMed systems management and monitoring tool [*]. Hardware specifically includes the ActaMed host machines required to process Lab EDI Services transactions, ActaMed provisioned modems and circuit termination equipment servicing Automated Providers using the ActaMed Network, and other third party provisioned dial-in access service and devices relevant to the Lab EDI Services. The "Availability Percentage" for Lab EDI Services shall be calculated on [*] and will be based on data gathered through an automated Systems Management and Reporting tool [*]. Similar automated measurement and reporting will be implemented as soon as is practical for SCAN Sites transferred to the ActaMed Gateway, but not later than 180 days following such transfer of the first SCAN Site to the ActaMed Gateway. The Availability Percentage is calculated as set forth below: - Defined Hours are the total days in the month multiplied by 24 hours. - Unplanned Hours are the hours experienced during the month in which the ActaMed Network is not operable or otherwise not properly transmitting valid Transmission as provided in the Agreement excluding Planned Down Hours. - Actual Hours are the Defined Hours minus the Unplanned Hours. - Availability Percentage is determined by dividing the Actual Hours by Defined Hours and multiplying the result by 100. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. III.C-1-1 SUCCESSFULLY DELIVERED CALLS For each month, ActaMed shall maintain a "Successfully Delivered Call Percentage" of at least [*]. The "Successfully Delivered Call Percentage" is the total of all Successfully Delivered Calls divided by the total of attempted calls from all sources and multiplying the result by 100. A Successfully Delivered Call shall mean a call made to ActaMed's premise equipment from any source for the purpose of processing Lab EDI Services. as to which ActaMed's equipment successfully offers service, to be measured by the call service provider's equipment facilities including: - calls delivered by an Interexchange Carrier ("IXC"), such as Sprint, AT&T, Worldcom, etc., using toll-free dial-in service to will be measured by the IXC carrier switch; - calls delivered by a third party dial-in access provider will be measured by the management capabilities of that provider's modem pool; and - calls delivered by a local service provider or by dedicated toll-free dial-in service will be measured by ActaMed's terminating premise equipment. MODEM CONNECTIVITY For each month, ActaMed shall maintain a "Modem Connectivity Percentage" of at least [*]. The "Modem Connectivity Percentage" is determined by dividing the total number of Successfully Connected Calls by the total of Successfully Delivered Calls and multiplying the result by 100. A Successfully Connected Call is a Successfully Delivered Call that establishes and maintains successful modem connection as determined by the statistics generated by the management and reporting functionality of the ActaMed terminating modem bank and/or third party dial-in access equipment. TRANSACTION PROCESSING ActaMed acknowledges and agrees that all Transactions meeting the requirements set forth next to one or both of the bullet points below ("Proposed Transaction") will be processed by the ActaMed Network. If Proposed Transactions are not being processed by the ActaMed Network, it will be treated as a Severity 1 problem. It is expected by the Parties that [*] of connected and Proposed Transactions will be successfully processed within ActaMed Network. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. III.C-1-2 - - Any order transactions that are entered according to the applicable specifications and edits of the Lab EDI software such as SCAN Software or ActaLab Software or any other ordering software module approved by ActaMed and SBCL that is connected to the ActaMed Network for the purposes of entering lab orders and upon completion of the order entry indicates to the operator that the order has been accepted for Transmission to SBCL; and - - Any result transactions transmitted by SBCL systems in accordance with applicable specifications and containing sufficient information to allow the ActaMed Network to determine the approved system to which the transaction is to be delivered. [*] [*] The Parties agree that this is not a currently automated measurement and is not included as a requirement of Section III.B.7, Reports. HISTORICAL DATA FOR RE-TRANSMISSION ActaMed will store all result transmission data on, and make it available in accordance with the Services Agreement via, the ActaMed Gateway for a minimum of [*]. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. III.C-1-3 EXHIBIT III.C-2 CUSTOMER SUPPORT STANDARDS ACTAMED HELP DESK The ActaMed Help Desk for all Lab EDI Services will be staffed Monday through Friday 8:00 AM to 8:00 PM EST excluding federally recognized holidays. Issues of any severity level can be reported during this time via any one of the following methods: - Telephone via ActaMed toll-free service (800 line); - FAX; - Internet e-mail to ActaMed help desk personnel; or - Internet e-mail directly into the ActaMed Help Desk call tracking system. In addition, - Internet web pages are being constructed to answer frequently asked questions; - By special arrangement, limited direct access to the ActaMed Help Desk call tracking system is possible; and - Using Internet e-mail and the assigned tracking number, the status of calls can be retrieved at any time. There shall be after hours support, which is typically limited to issues that are defined as Severity 1 or Severity 2 as further defined below. These are either issues that involve multiple users and major communications or systems failures, or problems involving an outage of a single Automated Provider (i.e. non-critical issues such as training questions, enhancement requests and usage questions are usually handled during normal help desk hours.) Service is initiated by calling the main Help Desk 800 number and leaving a detailed message. Voice mail left after hours or on holidays will result in a page to the appropriate on call analyst who will retrieve the message and return the call and immediately initiate investigatory and corrective actions as appropriate in accordance with Severity Levels. III.C-2-1 CALL TRACKING Beginning at such time as the ActaMed SCAN help desk begins to accept client calls from ActaMed Sites, which shall occur at a date mutually agreed upon by the parties, all calls made to the ActaMed SCAN Help Desk will be logged into ActaMed's "Support Magic" call tracking system, and will include at a minimum the following information: - Site ID (Machine ID) - Site Name - Caller Name - Phone Number - Local Lab - Date of Call - Time of Call - Problem Code / Description - Call Recipient / Analyst - Problem Definition - Call Status - Solution Code / Clear Description of final resolution - Severity Code - Date and time of final resolution ActaMed shall be responsible only for calls related to ActaMed Sites. Calls from all other SCAN sites will continue to be supported by SBCL and will continue to be tracked by SBCL processes as in force at that time. SEVERITY CODES Help Desk calls will be logged and appropriate escalations will be made based upon severity codes assigned to each call. It is the responsibility of the analyst handling the call to assign the severity level in accordance with the severity level definitions described below. The definition of each III.C-2-2 severity level and the classification of call types into severity levels will initially be as set forth below, with more specific definitions to be determined through negotiation between ActaMed and SBCL. The definitions may be reassessed and are subject to change by mutual consent of the Parties. The ActaMed Help Desk's method of classifying calls into priority levels will be reviewed periodically with the Oversight Committee. SBCL will be responsible for defining additional situations and communicating to ActaMed any requests on how to classify particular call situations. SEVERITY 1 DEFINITION: A critical system or component is down or experiencing degraded service causing SBCL or a customer's business functions to be halted. Severity I issues will typically involve major system outages that affect the service provided to many users. REQUIRED ACTION: Immediate notification to those persons identified in the Crisis Management document. [*] of Severity 1 issues should be resolved within [*] with [*] updates between ActaMed and SBCL. SEVERITY 2 DEFINITION: A single user is down; a component is experiencing degraded service; consumable supplies are unavailable and does not have a critical impact on the business, but may restrict function to some users and may impact normal business operations. REQUIRED ACTION: The help desk will asses the situation and verify that setup or configuration problems are not the cause. After the original assessment has been made, an ActaMed CIS representative will normally be dispatched to correct or replace the failing component. In remote areas where localized support is not available, a replacement component will be shipped for next day delivery, and arrangements will be made to provide assistance setting up or installing that component. Arrangements will also be made to remove or arrange for the removal of the failed component. [*] of Severity 2 calls should be resolved within [*] with updates to the affected user every [*] or less. SEVERITY 3 DEFINITION: A user's system is still operating but is experiencing difficulties or a specially requested deliverable is unavailable. REQUIRED ACTION: The Help Desk will make every attempt to resolve the issue over the phone or using the tools available to them. If those attempts are not successful, a ActaMed CIS representative might be called upon to resolve the issue on site, but these issues will typically have a lower priority than the Severity 2 issues listed above. [*] of Severity 3 calls will be resolved within [*] with updates to the affected user every [*] or less. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. III.C-2-3 NEW SITE INSTALLATION In accordance with the agreed upon procedures for installing New Sites (or [*] Sites) that SBCL requests or approves for Lab EDI Services, ActaMed will: - If required, phone line installation and new service will be ordered on behalf of the Provider or SBCL on average within [*] of receipt of new site notification and, - Provide installation and training, including any hardware required under Section IV.L of the Services Agreement, to properly prepare and set up the new client to use Lab EDI Services within [*] of receipt of new site notification and phone line availability; or - PIF Sites will be installed within [*] from the time the notification is received and phone service is available. except that, (i) delays caused by the practice management system vendor or the Provider, shall not be the responsibility of ActaMed; and (ii) SBCL and ActaMed will, when necessary, cooperate in the development of site installation schedules to reflect periods of high volumes of new installations and remote installations (usually requiring air travel). DE-INSTALLATIONS When required by the Assets Purchase Agreement or this Agreement, ActaMed will deinstall any Automated Provider within [*] of receipt of SBCL's deinstallation request. Re-deployment of the deinstalled PC System for Lab EDI Services will be in accordance with Section IV of the Services Agreement and in accordance with the performance metrics of a New Site. RETAINING ActaMed will provide ongoing training support in a manner and at such frequency as is reasonably required to maintain client satisfaction and ability to continue to use Lab EDI Services effectively to process laboratory transactions. SCAN CONSUMABLE SUPPLIES ActaMed will provide, [*] consumable supplies required by all ActaMed Sites for use of Lab EDI Services including printer paper, toner cartridges, backup tape cartridges and labels that meet SBCL label specifications. ActaMed will deliver or arrange for delivery of these as required for uninterrupted use of Lab EDI Services. Client requests for such supplies that prevent use of Lab EDI Services will be considered a Severity [*] problem. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. II.C-2-4 MEASUREMENTS AND REPORTING Measurement will begin when the problem is received by the ActaMed Help Desk at which time it will be recorded into the computerized on-line problem management tool. Measurement will end when the call is resolved satisfactorily and closed by the ActaMed Help Desk representative. In the case of calls that have been forwarded to an SBCL facility for questions or issues not covered by the ActaMed Help Desk, the ActaMed Analyst will, except in those cases where the problem determination or resolution is clearly the responsibility of SBCL because of the nature of the call, take ownership of that call and follow it through any other path it may take. So long as SBCL provides the information needed to resolve such a call, ActaMed will also be made to document that call and close it out with a detailed explanation of the final resolution. Where it is not possible for the ActaMed Analyst to remain "on the call", it is the responsibility of the SBCL personnel to notify the ActaMed Help Desk if the outcome is to be documented in the help desk system. Other measurements that will be made available on a monthly basis will come from the ACD system. The variety of reports available based upon the call tracking system and the ACD statistics will include:
REPORT TARGET SERVICE LEVEL ------ -------------------- Number of calls by category N/A, will vary Calls by region N/A, will vary Abandoned call rate * Average hold time [*]
* since there is no currently available SBCL baseline to be used to set reasonable standards, ActaMed will record these metrics from the beginning of its operations of the help desk. After the first four months of help desk operation, ActaMed and SBCL will evaluate performance and set mutually-agreeable metrics based on SBCL's actual performance and generally accepted performance standards for similar services. In no case shall such metrics result in standards lower than those generally found in the industry for similar services. The percent of calls closed within the time frame objectives will be measured by calculating, by priority level, the volume of calls closed within the time frame objectives as a percentage of total calls opened. The ActaMed Help Desk will use best efforts to accommodate any requests for additional information as long as the collection of the information does not add significant time and effort in logging the call. The ActaMed Help Desk statistics will be reported to SBCL on a monthly basis. The means of distribution is yet to be determined. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. III.C-2-5 SATISFACTION LEVELS For each year during the term of the Services Agreement, ActaMed will perform client satisfaction surveys assessing Automated Providers' satisfaction with ActaMed's Lab EDI Services. The format and content of the annual surveys shall be determined by ActaMed except that ActaMed will afford SBCL reasonable opportunity to review and comment thereon prior to its use. The annual survey will be conducted at annual intervals. III.C-2-6 EXHIBIT IV.I AVERAGE REVENUE/REQUISITION & MONTHLY AVERAGE NUMBER OF REQUISITIONS IV.I-1 EXHIBIT V.A MAINTENANCE ActaMed will provide SBCL with the following hardware, network and application (product) maintenance services which will be performed by ActaMed staff not dedicated to SBCL enhancements. The cost of these maintenance services are provided as a part of the annual Fixed Fee and Transaction Fees, and include the following: PRODUCT MAINTENANCE - - Maintenance of the Network through both emergency and routine bug fixes and scheduled maintenance releases; - - Such changes and modifications to the Network required to manage scalability and capacity issues associated with increased transaction volumes; - - Provision of routine, updated application documentation and training materials; - - Provision of periodic product updates to improve usability and to improve existing features and functionality. PERFORMANCE - - Maintenance, monitoring and reporting of hardware, network and communication systems regarding stability and performance as specified in Exhibit III.C-1 Network Standards; - - Changes required to maintain above service level commitments, including changes and modifications required to manage scalability and capacity issues associated with increased transaction volumes; - - Technology upgrades to the Network (to include such things as fault tolerance produces and services) will be included as part of ongoing maintenance; and - - Maintenance of appropriate connectivity to SBCL host systems to maintain security provisions and the data integrity of Transmissions. IV.I-2 EXHIBIT V.B YEAR 2000 WARRANTIES ActaMed warrants that the SCAN Software and ActaLab Software as compiled on any hardware and operating system platform designated in its documentation ("Platforms") will satisfy all of the following: (a) Such software will properly process date-related information from different centuries (19th through 21st). Results utilizing such software will be consistent and correct whether or not dates being processed span different centuries and will be given with the proper indication of century. (b) Data involving date information which will be generated from use of the software will be coded in a manner that captures, stores and displays date-related information so that the software will properly access and process the data regardless of the century involved. (c) The software will properly process date-related data which had been generated by previous versions of thereof regardless of the century involved. (d) The software interfaces with the operating system and other software, and with devices, will properly exchange and use date-related information regardless of the century involved, so long as such other software, systems and devices provide date-related information in a compatible format. (e) The software will check any date-related information provided by the user, and by any devices, systems or software with which the software interfaces, and will reject any date-related information which is not provided in a format which the software will properly process. When data is rejected, the software will generate an explanatory error message. (f) The software will not have a feature which will cause it to stop operating or to limit or alter its functions or performance because of a date or time extending beyond 11:59:59 p.m. on December 31, 1999. (g) The software will process information relating to years beginning with 2000 properly, including recognizing that the year 2000 and every fourth year thereafter is a leap year. (h) The software (including but not limited to, runtime systems) will function correctly if executing at the moment when the year changes from 1999 to 2000. The software setup and updates will not be affected by the century change. V.B-1 EXHIBIT VII.C-1 CURRENT CONNECTIVITY ARRANGEMENTS EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Production No No Yes No Computer Based Patient Record [*] Specs Sent No No Yes No Physician Practice [*] Dormant No No No No Unknown [*] Dormant No Yes No No Physician Practice [*] Dormant No Yes No No CLinic [*] Letter Sent No No Yes No Physician Practice [*] Production No No Yes No Vendor Lab [*] Production No Yes No No Medical Network [*] Specs Sent No Yes No No CLinic [*] Specs Sent No Yes No No Physician Practice [*] Production No Yes No No ESRD [*] Dormant No No Yes No Medical Network [*] Specs Sent No No Yes No Medical Network [*] Specs Sent No No No No Unknown [*] Letter Sent No No No No Unknown [*] Production No Yes No No Physician Practice [*] Specs Sent No No No No Unknown [*] Production No No No No Unknown [*] Dormant No Yes No No Unknown [*] Letter Sent No Yes No No Physician Practice [*] Dormant No Yes No No Unknown [*] Specs Sent No No No No Unknown [*] Dormant No Yes No No Unknown [*] Letter Sent No Yes No No CLinic [*] Specs Sent No No No No Unknown [*] Dormant No Yes No No ESRD [*] Specs Sent No Yes No No CLinic
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-1 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Dormant No Yes No No Physician Practice [*] Dormant No Yes No No Physician Practice [*] Specs Sent No No No No Unknown [*] Specs Sent No Yes No No Unknown [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No No No No Unknown [*] Dormant No Yes No No Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No Yes No No Unknown [*] Production No No Yes No Physician Practice [*] Dormant No Yes No No Unknown [*] Dormant No Yes No No Unknown [*] Production No No Yes No Physician Practice [*] Dormant No Yes No No Physician Practice [*] Production No Yes No No Physician Practice [*] Beta No Yes No No Charting Program [*] Specs Sent No Yes No No Unknown [*] Section I Sent No No No No CLinic [*] Specs Sent No No Yes No Unknown [*] Specs Sent No Yes No No ESRD [*] Specs Sent No Yes No No Physician Practice [*] Dormant No Yes No No CLinic [*] Dormant No Yes No No CLinic [*] Dormant No Yes No No Nursing Home [*] Development No Yes No No Computer Based Patient Record [*] Specs Sent No No No No Unknown [*] Production No Yes No No ESRD
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-2 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Specs Sent No Yes No No Physician Practice [*] Production No Yes No No CLinic [*] Dormant No No No No Unknown [*] Specs Sent No Yes No No Unknown [*] Specs Sent No No No No Unknown [*] Dormant No Yes No No Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Development No No Yes No Physician Practice [*] Production No Yes No No Unknown [*] Production No Yes No No Physician Practice [*] Specs Sent No No Yes No Unknown [*] Specs Sent No Yes No No Physician Practice [*] Production No Yes No No Unknown [*] Dormant No Yes No No Unknown [*] Dormant No Yes No No Physician Practice [*] Dormant No Yes No No CLinic [*] Specs Sent No No Yes No CLinic [*] Specs Sent No Yes No No Unknown [*] Dormant No Yes No No CLinic [*] Dormant No Yes No No Physician Practice [*] Production No Yes No No Physician Practice [*] Letter Sent No Yes No No Physician Practice [*] Production No Yes No No Physician Practice [*] Production No No Yes No Occupational Health [*] No No No No Unknown [*] Production No Yes No No Unknown [*] Dormant No Yes No No Vendor Lab
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-3 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Production No Yes No No Medical Network [*] Production No Yes No No Medical Network [*] Dormant No No Yes No Medical Network [*] Dormant No No Yes No Medical Network [*] Development No No Yes No Medical Network [*] Specs Sent No No Yes No Physician Practice [*] Dormant No Yes No No CLinic [*] Specs Sent No Yes No No CLinic [*] Specs Sent No Yes No No CLinic [*] Letter Sent No No No No Unknown [*] Specs Sent No No No No Unknown [*] Specs Sent No No Yes Yes Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Production No Yes No No CLinic [*] Specs Sent No No Yes No Interface Engine [*] Dormant No Yes No No Unknown [*] Specs Sent No Yes No No Medical Network [*] Specs Sent No Yes No No Unknown [*] Specs Sent No No No No Physician Practice [*] Specs Sent No No Yes No Interface Engine [*] Specs Sent No No No No Unknown [*] Dormant No No No No Unknown [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No No No No Unknown [*] Specs Sent No Yes No No CLinic [*] Specs Sent Yes No No No Physician Practice [*] Dormant No Yes No No Unknown
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-4 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Production No Yes No No Physician Practice [*] Dormant No Yes No No Physician Practice [*] Production No No Yes Yes Medical Network [*] Production No Yes No No ESRD [*] Specs Sent No Yes No No Unknown [*] Specs Sent No No No No Unknown [*] Development No Yes No No Unknown [*] Dormant No Yes No No ESRD [*] Specs Sent No Yes No No Physician Practice [*] Development No Yes No No Physician Practice [*] Specs Sent No No Yes No Physician Practice [*] Production No Yes No No Medical Network [*] Specs Sent No No No No Unknown [*] Specs Sent No Yes No No Clinical Trials [*] Letter Sent No No No No Unknown [*] Development No No Yes No Medical Network [*] Production No No Yes No Occupational Health [*] Development No Yes No No Physician Practice [*] Beta No Yes No No Physician Practice [*] Specs Sent No No Yes No Medical Network [*] Specs Sent No Yes No No CLinic [*] Specs Sent No Yes No No Physician Practice [*] Development Yes No No No Unknown [*] Dormant No Yes No No Physician Practice [*] Development No No Yes No Physician Practice [*] Letter Sent No Yes No No Physician Practice [*] Production No Yes No No Physician Practice
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-5 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Specs Sent No No No No Physician Practice [*] Dormant No Yes No No Vendor Lab [*] Specs Sent No Yes No No CLinic [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No Yes No No Medical Network [*] QA No No Yes Yes Physician Practice [*] Production No Yes No No Physician Practice [*] Specs Sent No No Yes No CLinic [*] Specs Sent No No Yes No Physician Practice [*] Specs Sent No Yes No No Unknown [*] Production No No Yes Yes Physician Practice [*] Letter Sent No No No No Unknown [*] Dormant No Yes No No Unknown [*] Dormant No Yes No No Unknown [*] Dormant No Yes No No Unknown [*] Specs Sent No No No No Unknown [*] Production No Yes No No Physician Practice [*] Production No No Yes No ESRD [*] Dormant No Yes No No Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Beta No Yes No No Physician Practice [*] Specs Sent No Yes No No Unknown [*] Letter Sent No Yes No No Unknown [*] Development No No Yes No Unknown [*] Specs Sent No Yes No No Physician Practice
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-6 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No Yes No No Unknown [*] Dormant No No Yes No Vendor Lab [*] Letter Sent No No Yes No Physician Practice [*] Letter Sent No Yes No No Medical Network [*] Dormant No No No No Unknown [*] Specs Sent No No Yes No Vendor Lab [*] Specs Sent No No Yes No Computer Based Patient Record [*] Specs Sent No No No No Physician Practice [*] Development No Yes No No Physician Practice [*] No Yes No No Unknown [*] Specs Sent No No No No Unknown [*] Production No No Yes No Vendor Lab [*] No Yes No No ESRD [*] Specs Sent No Yes No No Pharmaceutical Services [*] Production No Yes No No Physician Practice [*] Production No No Yes No CLinic [*] Development No No No No Unknown [*] Production No Yes No No Unknown [*] Development No Yes No No ESRD [*] Dormant No Yes No No Physician Practice [*] Development No No Yes No Unknown [*] Dormant No No No No Medical Network [*] No No No No Unknown [*] Dormant No Yes No No CLinic [*] Specs Sent No Yes No No Pharmaceutical Services [*] Specs Sent No Yes No No Unknown
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-7 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Specs Sent No Yes No No Physician Practice [*] Production No Yes No No Physician Practice [*] Dormant No Yes No No Physician Practice [*] Dormant No No Yes No Nursing Home [*] Specs Sent No Yes No No Unknown [*] Development No No Yes No Physician Practice [*] Specs Sent No No No No Unknown [*] Production No Yes No No Physician Practice [*] No No No No Unknown [*] Dormant No Yes No No Physician Practice [*] Specs Sent No No No No Unknown [*] Specs Sent No No No No Unknown [*] Section I Sent No No No No Unknown [*] Production No Yes No No Physician Practice [*] Specs Sent No Yes No No Physician Practice [*] Specs Sent No No Yes No Unknown [*] Specs Sent No No Yes No Unknown [*] Specs Sent No Yes No No Physician Practice [*] Production No Yes No No ESRD [*] Specs Sent No No No No Unknown [*] Production No Yes No No Physician Practice [*] Specs Sent No Yes No No CLinic [*] Dormant No Yes No No Unknown [*] Specs Sent No Yes No No CLinic [*] Letter Sent No Yes No No ESRD [*] Production No No Yes Yes Unknown [*] Dormant No Yes No No Unknown
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-8 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Production No Yes No No Nursing Home [*] Dormant No Yes No No Physician Practice [*] Specs Sent No Yes No No Unknown [*] Beta No No Yes No Vendor Lab [*] Specs Sent No No No No Unknown [*] Development No Yes No No Physician Practice [*] Specs Sent No Yes No No CLinic [*] Dormant No No Yes No CLinic [*] Development No Yes No No Unknown [*] Dormant No No Yes No Unknown [*] Specs Sent No No No No Unknown [*] Dormant No Yes No No Physician Practice [*] Dormant No Yes No No Unknown [*] Specs Sent No No Yes No Physician Practice [*] No No No No Unknown [*] Letter Sent No Yes No No CLinic [*] Specs Sent No No No No Unknown [*] Dormant No No Yes No Unknown [*] Specs Sent No Yes No No CLinic [*] No No Yes No CLinic [*] Dormant No Yes No No CLinic [*] Dormant No Yes No No CLinic [*] Production No Yes No No ESRD [*] Specs Sent No No Yes No CLinic [*] Specs Sent No Yes No No Unknown [*] Production No Yes No No Unknown [*] Dormant No Yes No No CLinic
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-9 EXISTING VENDOR INTERFACE RELATIONSHIPS
ORDERS RESULTS ORDERS AND VENDOR NAME STATUS ONLY ONLY RESULTS BILLING DESCRIPTION ------------- -------------------- -------- --------- -------------- --------- ---------------------------------- [*] Specs Sent No No Yes No Unknown [*] Dormant No Yes No No Medical Network [*] Specs Sent No No No No Unknown [*] Specs Sent No No Yes No Physician Practice
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. VII.C-1-10 AMENDMENT NO. 1 TO SERVICES AGREEMENT This AMENDMENT NO. 1 TO SERVICES AGREEMENT ("Amendment No. 1") is made and entered into this 15th day of May, 1998 by and between ACTAMED CORPORATION, a Georgia Corporation ("ActaMed") and SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., a Delaware Corporation ("SBCL"). WHEREAS, ActaMed and SBCL entered into a Services Agreement on December 31, 1997 ("Services Agreement") and desire to amend same in connection with the merger a subsidiary of Healtheon Corporation with and into ActaMed, with the result that ActaMed will become a wholly-owned subsidiary of Healtheon. NOW THEREFORE, in consideration of the premises and the mutual promises contained herein, the parties, intending to be legally bound, agree as follows: 1 DEFINITIONS. Capitalized terms used in this Amendment No. 1 and not otherwise defined herein have the meanings set forth in the Services Agreement. 2 AMENDMENTS. 2.1 [*] REMOVED FROM [*]. Section IV.C is replaced in its entirety as follows: "1. An amount (the "FIRST VARIABLE FEE") equal to (i) [*] minus the aggregate of the amount billed to SBCL pursuant to Section IV.B. above, excluding amounts attributable to any Provider office with ProviderLink that is subsequently installed with the Scan Software or ActaLab Software (the "FIRST TRANSACTION FEE AMOUNT") prior to the [*] (ii) [*] minus the sum of (A) the First Transaction Fee Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus the sum of (A) the First Transaction Fee Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clauses (i) and (ii) above. 2. An amount (the "SECOND VARIABLE FEE") equal to (i) [*] minus the aggregate of the amount paid plus amounts owed (whether or not billed) pursuant to Section IV.M.1 below (the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. "PIF AMOUNT") prior to the [*]; (ii) [*] minus the sum of (A) the PIF Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus the sum of (A) the PIF Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clauses (i) and (ii) above; PROVIDED THAT if the PIF Amount with respect to an annual period (other than the last such annual period) is at least [*] of the aforementioned dollar amount for that annual period, no payment shall be due under this Section IV.C.2 for such annual period. 3. An amount (the "THIRD VARIABLE FEE" and together with the First Variable Fee and Second Variable Fee, the "VARIABLE FEES") equal to (i) [*] minus the aggregate of the amount billed to SBCL attributable to any Provider office with ProviderLink that is subsequently installed with the Scan Software or ActaLab Software (the "THIRD TRANSACTION FEE AMOUNT") prior to the [*]; (ii) [*] minus the sum of (A) the Third Transaction Fee Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clause (i) above; and (iii) [*] minus the sum of (A) the Third Transaction Fee Amount for the period from the date hereof to the [*] and (B) the amount paid pursuant to clauses (i) and (ii) above. 4. Subject to Section IV.D, the Variable Fees shall be paid annually within thirty (30) days after invoice therefor from ActaMed or Healtheon, which shall be (i) submitted to SBCL within [*] (ii) detail the calculation thereof, and (iii) reflect the Variable Fees payable in respect of the most recently completed annual period only. SBCL shall have Audit Rights with respect to any disputed amount of the Variable Fees." 2.2 CONDITIONS TO BUSINESS ASSURANCE PAYMENTS. Section IV.D.1 is hereby replaced in its entirety as follows: "1. With respect to all Variable Fees, (i) such fees shall cease to be payable if ActaMed shall fail to satisfy any of the Key Performance Standards, or (ii) such fees (excluding the portion of the First Variable Fee attributable to Transaction Fees generated from PIF Sites) for the applicable year shall not be payable (but shall be treated as paid for purposes of calculation of any amount payable in the following year) if any of the following shall occur: a. As of [*] ActaMed shall fail to have at least [*] ActaMed Sites; [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- b. As of [*] ActaMed shall fail to have at least [*] ActaMed Sites; and c. As of [*] ActaMed shall fail to have at least [*] ActaMed Sites. 2.3 CONDITIONS TO BUSINESS ASSURANCE PAYMENTS. Section IV.D is hereby further amended by adding the following Subsection 3 at the end of such Section: "3. With respect to the Third Variable Fee, such fees also shall not be payable (but shall be treated as paid for purposes of calculating any amount payable in the following year) if any of the following shall occur: a. As of [*] ActaMed shall fail to have at least [*] ActaMed Sites; b. As of [*] ActaMed shall fail to have at least [*] ActaMed Sites; and c. As of [*] ActaMed shall fail to have at least [*] ActaMed Sites. 2.4 [*] COSTS. Section IV.J is amended to insert at the end thereof: "SBCL is not responsible for paying any [*] incurred by ActaMed or a Provider relating to the provision of Lab EDI Services, including without limitation, any [*], [*] and [*]." 2.5 REMOVAL OF [*] HARDWARE PURCHASES. Section IV.K.2.b is replaced in its entirety as follows: "b. In addition, ActaMed shall provide, prior to the [*] up to [*] PC Systems for New Sites or Replacement Fixed Fee Sites in excess of the [*] set forth in (a) above. Notwithstanding the above, this obligation shall be reduced by each PC System the cost of which is reimbursed to SBCL subject to Section IV.K.1 above." [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -3- 2.6 EXCLUSIVE DEVELOPMENTS AMENDED. Section V.E is replaced in its entirety as follows: "E. DEVELOPMENT WORK REQUESTED BY SBCL. 1. SBCL may at any time request that ActaMed perform additional development work. Subject to the terms of this Section V.E, SBCL shall pay ActaMed for development services the work product from which constitutes an Exclusive Development at no higher than the then industry standard rates for similar services. a. SBCL shall be entitled to request in writing that ActaMed perform development services the resulting work from which shall be for the exclusive benefit of SBCL (an "EXCLUSIVE DEVELOPMENT"); provided that, except as provided in Section V.E.1.b, SBCL shall not be entitled to more than [*] Exclusive Development [*]. If ActaMed, before 9:00 AM (EST) of the [*] after the date on which such request is received by ActaMed, delivers to SBCL [*] then, notwithstanding that SBCL's request specified that the work would be an Exclusive Development, the work so requested by SBCL shall be a "COMMON DEVELOPMENT." Under no circumstances shall any SBCL requested development work that is required for purposes of complying with Applicable Laws, Regulations or any Regulatory Change constitute an Exclusive Development. Any SBCL requested work that is (i) classified as a Common Development in accordance with this Section V.E.1.a, or (ii) required to comply with Applicable Laws, Regulations or any Regulatory Change, shall not be counted for purposes of applying the limit on Exclusive Developments under this Section V.E.1.a. b. SBCL may request in writing that ActaMed provide additional development work at any time. Such work shall result in either a Common Development or Exclusive Development pursuant to price and terms agreed to by the parties in accordance with Section V.E.1.e below. Any work classified as an Exclusive Development in accordance with this Section V.E.1.b shall not be counted for purposes of applying the limit on Exclusive Developments under this Section V.E.1.a. c. ActaMed will not use or license the use of any Exclusive Development (without regard to whether it constitutes a SCAN Development or ActaLab Software) other than in support of Lab EDI Services. Subject to the ownership and license rights under the License Agreement, both [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -4- ActaMed and SBCL shall be entitled to make any use of a Common Development. The terms of the foregoing two sentences shall survive termination of this Agreement for any reason. ActaMed may charge SBCL [*] the work product from which constitutes a Common Development. Any such charge shall be [*] and shall be separately stated on invoices sent to SBCL. d. For purposes of this Section V.E, Exclusive Developments shall include any Changes made pursuant to Section V.C and paid for by SBCL by reason of Section V.C.4, to be designated as Exclusive Developments in accordance with the procedures set forth in this Section V.E.1. e. Within [*] days after receiving SBCL's request pursuant to Sections V.E.1.a or V.E.1.b, ActaMed shall notify SBCL of ActaMed's prices and terms (including estimated completion date) for performing such development work, which prices and terms SBCL shall not unreasonably reject. Within twenty (20) days after receiving ActaMed's notice, SBCL shall accept or reject ActaMed's prices and terms for performing the development work. If SBCL provides notice accepting (i) in respect of requests under Section V.E.1.a, ActaMed's prices and terms, or (ii) in respect of requests under Section V.E.1.b (A) ActaMed's prices and terms, and (B) ActaMed's designation of the work as an Exclusive Development or Common Development, then ActaMed shall perform such work (or cause such work to be performed) on the accepted terms, and shall integrate the developed work into the ActaLab Software or SCAN Developments, as applicable, and offer it as an additional feature or function of Lab EDI Services, as soon as is reasonably practicable. If SBCL provides notice that it does not accept ActaMed's prices and terms, SBCL and ActaMed shall negotiate in good faith an alternative arrangement to the mutual satisfaction of the parties. If within [*] SBCL and ActaMed cannot reasonably agree upon such an alternative arrangement, then SBCL may engage a third party to perform the development services for such work, subject to Section V.E.1.f. Work performed by such a third party shall be (i) an Exclusive Development without regard to the frequency limitation of Section V.E.1.a, subject to Section V.E.1.f below, (ii) integrated by ActaMed into the ActaLab Software or SCAN Developments, as applicable, as soon as is reasonably practicable, and (iii) offered by ActaMed as an additional feature or function of Lab EDI Services, as soon as is reasonably practicable. SBCL and ActaMed shall cooperate in developing acceptance standards and processes (the "ACCEPTANCE PROCESS") pursuant to which work prepared by a third party, in accordance with industry standard practices, shall be (i) reviewed, tested and modified, as necessary, to conform with ActaMed's professional standards, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -5- the Performance Standards and ActaMed's compliance obligations under Article VI, (ii) integrated into the ActaLab Software or SCAN Developments, as applicable, and (iii) offered by ActaMed as an additional feature or function of Lab EDI Services; provided, SBCL shall reimburse ActaMed (at no higher than the then industry standard rates for similar services) for any costs or expenses incurred by ActaMed in any such testing, integration and offering of an additional feature or function of Lab EDI Services under this Section V.E.1.e. f. Any contract between ActaMed and SBCL (or a third party developer and SBCL) for development of an Exclusive Development shall allocate ownership of and other rights with respect to the Exclusive Development, as between ActaMed and SBCL, in the manner contemplated by the License Agreement and Development Agreement, including, without limitation, Sections 2.1.4 and 2.3.2 of the License Agreement. 2. If, at any time, SBCL chooses to contract with ActaMed for a dedicated services team from ActaMed to handle development of Changes to the Network, the Licensed Materials, or SBCL's proprietary systems which are not required to be performed by ActaMed pursuant to Section V.C and which are not requested pursuant to Section V.E, ActaMed may elect whether to provide the dedicated team and, if it so elects, shall do so only on terms and conditions agreed to in advance by SBCL." 2.7 EXCLUSIVITY PERIOD. Section XIII.C.2 is hereby replaced in its entirety as follows: 2. At any time prior to [*] ActaMed shall not provide services to any Other Lab at the SBCL Sites transferred to ActaMed pursuant to the Purchase Agreement, including without limitation, to install or be instrumental in [*] located at such sites which [*] for services [*] or otherwise provide [*]. A full calendar month shall be added to the date set forth in the preceding sentence for each month after [*] in which ActaMed, determined as of the first day of each succeeding month, has failed to complete the development of a fully functional ActaLab Software (as described in the Development Agreement) and deploy a fully tested, accepted and operating version of such software at one or more ActaMed Sites. 3 MISCELLANEOUS. 3.1 ENTIRE AGREEMENT. This Amendment No. 1 constitutes the entire understanding between the parties with respect to amendment to the Services Agreement and supersedes all proposals, communications and agreements between the parties relating to such subject matter. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -6- No amendment, change, or waiver of any provision of this Amendment No. 1 will be binding unless in writing and signed by both parties. 3.2 GOVERNING LAW. This Amendment No. 1 will be governed by and construed in accordance with the laws of the State of Georgia applicable to contracts made and performed therein. 3.3 SERVICES AGREEMENT PROVISIONS. All provisions of the Services Agreement not modified by this Amendment No. 1 shall remain in full force and effect. Subsections D, E and F of Section XVI of the Services Agreement shall apply to this Amendment No. 1 as if fully set forth herein. 3.4 COUNTERPARTS. This Amendment No. 1 may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [INTENTIONALLY LEFT BLANK] -7- IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Services Agreement as of the date set forth above. ACTAMED CORPORATION By: /s/ --------------------------------------- Its: President & CEO -------------------------------------- SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By: /s/ --------------------------------------- Its: President -------------------------------------- -8- EX-10.15 25 EX-10.15 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ASSETS PURCHASE AGREEMENT between SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. and ACTAMED CORPORATION DATED DECEMBER 31, 1997 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 PURCHASE AND SALE ........................................................2 Section 1.1 Agreement to Sell ..............................................2 Section 1.2 Other Software .................................................2 Section 1.3 Excluded Assets ................................................3 Section 1.4 Agreement to Purchase ..........................................3 Section 1.5 The Purchase Price .............................................3 Section 1.6 Series D Price .................................................4 Section 1.7 Purchase Price Adjustment ......................................5 Section 1.8 Number of Sites Adjustment .....................................5 ARTICLE 2 CLOSINGS .................................................................6 Section 2.1 Initial Closing ................................................6 Section 2.2 Staging of the Transactions ....................................6 Section 2.3 Regions to be Transferred ......................................7 Section 2.4 Procedures Applicable if Transfer Benchmarks Are Not Met .......8 Section 2.5 Deliveries by SBCL at Each of the Transfer Dates ...............9 Section 2.6 Deliveries by ActaMed at Each of the Transfer Dates ............9 Section 2.7 Prorations ....................................................10 Section 2.8 Non-Transferable Assets .......................................10 ARTICLE 3 REPRESENTATIONS AND WARRANTIES ..........................................11 Section 3.1 By SBCL .......................................................11 Section 3.2 By ActaMed ....................................................16 ARTICLE 4 TRANSITION MATTERS ......................................................26 Section 4.1 Prior to Region Transfer ......................................26 Section 4.2 Region Transition Matters .....................................26 Section 4.3 General Covenants .............................................27 Section 4.4 Confidentiality of Trade Secrets ..............................29 Section 4.5 Efforts to Satisfy Conditions .................................30 Section 4.6 Expenses ......................................................31 Section 4.7 Antitrust Notification ........................................31 ARTICLE 5 ACTAMED COVENANTS TO SBCL ...............................................31 Section 5.1 Additional Covenants Of ActaMed ...............................31 Section 5.2 Informational Covenants Of ActaMed ............................35 -i- ARTICLE 6 EMPLOYEE MATTERS ........................................................38 Section 6.1 Termination of Employment by SBCL and Offer of Employment by ActaMed ..............................38 Section 6.2 Transitional Employee Leasing Arrangement .....................38 Section 6.3 ActaMed Compensation and Benefits .............................39 Section 6.4 Past Service Credit ...........................................39 Section 6.5 Termination of Employment; Nonsolicitation; Termination of Agreement ................................................39 Section 6.6 Payment of Wage and Benefit Costs .............................39 Section 6.7 Taxes, Unemployment Insurance and Related Items ...............40 Section 6.8 Examination and Audit .........................................41 ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED ..........................41 Section 7.1 Conditions Precedent To Obligations Of ActaMed ................41 Section 7.2 Conditions Precedent To The Obligations Of SBCL ...............42 ARTICLE 8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS ...................43 Section 8.1 Survival Of Representations, Warranties and Covenants .........43 Section 8.2 Obligation to Indemnify .......................................44 ARTICLE 9 DISPUTE RESOLUTION ......................................................49 Section 9.1 Informal Dispute Resolution ...................................49 Section 9.2 Arbitration ...................................................50 Section 9.3 Litigation ....................................................51 ARTICLE 10 TERMINATION ............................................................51 Section 10.1 Termination ...................................................51 Section 10.2 Risk of Loss ..................................................52 ARTICLE 11 MISCELLANEOUS ..........................................................53 Section 11.1 General Provisions ............................................53
-ii- CONFIDENTIAL TREATMENT REQUESTED ASSETS PURCHASE AGREEMENT This Assets Purchase Agreement (this "ASSETS PURCHASE AGREEMENT" or "AGREEMENT"), dated as of December 31, 1997, is an agreement by and between SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., a corporation organized and existing under the laws of Delaware ("SBCL") and ACTAMED CORPORATION, a corporation organized and existing under the laws of Georgia ("ACTAMED"). Capitalized terms used in this Assets Purchase Agreement and not otherwise defined herein are defined in EXHIBIT A attached to this Assets Purchase Agreement. PREAMBLE ActaMed is in the business of providing electronic data interchange products and services to the health care industry, including its ProviderLink software, and desires to develop business involving automated laboratory order entry and results reporting services. SBCL provides laboratory testing services to certain Providers who use SBCL Software for electronic clinical laboratory test order entry and/or test result reporting between an SBCL Lab and such Provider. In addition, SBCL uses the SBCL Software to allow certain [*] to send laboratory test orders entered electronically to an SBCL Lab and/or to have the test results reported electronically back to [*] or the Provider ordering the test. The Parties previously entered into a Development Agreement dated October 31, 1997 pursuant to which ActaMed and SBCL are jointly developing the ActaLab Software. ActaMed desires to purchase and SBCL desires to sell certain assets associated with SBCL's provision of Lab EDI Services, as more fully set forth herein. Concurrently with the execution and delivery of this Purchase Agreement, SBCL and ActaMed are entering into (i) a License Agreement whereby, among other things, SBCL grants ActaMed an irrevocable non-exclusive license to the SBCL Software (as defined therein); and (ii) a Services Agreement whereby ActaMed agrees, among other things, to provide Lab EDI Services to Automated Providers and SBCL agrees to pay certain compensation to ActaMed in connection therewith. This Assets Purchase Agreement states the parties' agreements relating to the purchase and sale of the SCAN Assets and certain transition matters. The Parties contemplate that there will be a staged transfer to ActaMed of the SCAN Assets. The transfer of Region One SCAN Assets is to occur on the Region One Transfer Date. The transfer of the other Regions will occur sequentially when the Transfer Benchmarks for transfer of such Regions have been met. AGREEMENT In consideration of the recitals and of the respective covenants, representations, warranties and agreements herein contained, and intending to be legally bound hereby, the parties hereto hereby agree as follows: [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ARTICLE 1 PURCHASE AND SALE SECTION 1.1 AGREEMENT TO SELL. SBCL hereby agrees to sell, convey, assign, transfer and deliver to ActaMed, upon and subject to the terms and conditions of this Assets Purchase Agreement, all right, title and interest of SBCL in and to the following assets located in Region One, and, subject in addition to fulfillment of the conditions precedent set forth in Section 2.3, the following assets in Regions Two, Three, and Four, in every case free and clear of all Liens: 1.1.1 The personal computers, modems, bar code readers, bar code label printers, requisition and results printers and other peripherals (not including [*]) and spare parts owned by SBCL and provided by SBCL to Automated Providers for Lab EDI Services (or which comprised all or part of such items located at an SBCL Site before the Applicable Transfer Date, but not located at an SBCL Site on the Applicable Transfer Date), including all documentation supplied to Automated Providers for purposes of utilizing SBCL Software; 1.1.2 SBCL's contractual right to use the telephone lines that are installed at an SBCL Site and are used by SBCL in providing Lab EDI Services to the extent assignable and assumed by ActaMed; 1.1.3 The letter agreements, as amended, between SBCL and Automated Providers relating to Automated Providers' use of SBCL's Lab EDI Services; 1.1.4 The vendor contracts between SBCL and various vendors who provide products or services to Automated Providers in connection with SBCL's provision of Lab EDI Services to SBCL Sites to the extent assignable and assumed by ActaMed; 1.1.5 All personal computers, peripherals, spare parts and other fixed assets not located at an SBCL Site on the Applicable Transfer Date, but used solely by the Transferred Employees and exclusively in connection with SBCL's provision of software development, field or remote support for SBCL Sites; and 1.1.6 SBCL's rights to the ActaLab Software. SECTION 1.2 OTHER SOFTWARE. 1.2.1 In conjunction with the sale of each PC System and each personal computer described in Section 1.1.5 (an "Employee Computer") to ActaMed in accordance herewith, SBCL shall assign to ActaMed all of SBCL's rights in the copies of Third Party Software (excluding any office software used by the Employees, including without limitation, cc:mail) that, as of the Applicable Transfer Date, are (i) installed by, or in accordance with the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- instructions of, SBCL and (ii) is resident on such PC System or Employee Computer, which rights shall be sufficient to permit ActaMed to: (a) continue using such copy of the Third Party Software on the applicable PC System or Employee Computer, (b) move such copy to a replacement computer so long as the copy is deleted from the PC System or Employee Computer on which it resides on the Applicable Transfer Date or subsequent transferee computer system, and (c) assign ActaMed's rights in such copy to a purchaser of the applicable components of the PC System (but not to a purchaser of any Employee Computer) on which it resides at the Applicable Transfer Date, or replacement computer with respect to any PC System; PROVIDED, that (A) ActaMed agrees to comply with any applicable terms and conditions imposed by the supplier of such Third Party Software, (B) except as expressly set forth herein, nothing in this Section 1.2 shall be construed as assigning to ActaMed, or granting to ActaMed, any rights under any agreements between SBCL and the vendors of such Third Party Software, and (C) nothing in this Agreement shall be construed as conveying to ActaMed or any other party any software installed on any PC System or Employee Computer other than by SBCL or pursuant to SBCL's instructions. 1.2.2 SBCL shall transfer to ActaMed, proportionately with the number of SBCL Sites transferred to ActaMed from time to time in accordance with this Agreement, all of SBCL's rights in, including the single-site licenses for, any copy of Microsoft Windows which was resident on a PC System when it was delivered to SBCL by the manufacturer or other supplier for installation at an SBCL Site, and subsequently removed by SBCL. SBCL shall deliver the licenses to ActaMed. SECTION 1.3 EXCLUDED ASSETS. The SCAN Assets shall not include computers, modems, bar code readers, bar code label printers, requisition and results printers and other peripherals and fixed assets acquired by SBCL for use in providing Lab EDI Services, but which have never been so used. SECTION 1.4 AGREEMENT TO PURCHASE. ActaMed hereby agrees to purchase the SCAN Assets from SBCL, upon and subject to the terms and conditions of this Assets Purchase Agreement and in reliance on the representations, warranties and covenants of SBCL contained herein, for the Purchase Price and the execution and delivery of the Assumption Agreement. ActaMed shall not assume or be responsible for any liabilities or obligations of SBCL other than the Liabilities assumed by virtue of the Assumption Agreement. SECTION 1.5 THE PURCHASE PRICE. Subject to any adjustment pursuant to Sections 1.7 or 1.8 hereof, the purchase price for the SCAN Assets and the rights granted to ActaMed -3- pursuant to the License Agreement shall be [*]. The Purchase Price shall be allocated among the SCAN Assets in the different Regions and the License granted pursuant to the License Agreement as set forth in Schedule 1.5 hereto (the "Purchase Price"). The Purchase Price shall be payable as follows: 1.5.1 on the Region One Transfer Date, in consideration for the grant of rights pursuant to the License Agreement, ActaMed will pay or issue to SBCL (A) [*] by wire transfer of immediately available funds to an account designated by SBCL prior to the Region One Transfer Date, and (B) [*] shares of ActaMed's Series D Preferred Stock; 1.5.2 on the Region One Transfer Date, in consideration of the transfer to ActaMed of the SCAN Assets located in Region One, ActaMed will issue to SBCL [*] shares of ActaMed's Series D Preferred Stock; 1.5.3 on the Region Two Transfer Date, in further consideration of the grant to ActaMed of rights under the License Agreement, and in consideration of the transfer to ActaMed of the SCAN Assets located in Region Two, ActaMed will issue to SBCL the number of shares of ActaMed's Series D Preferred Stock determined by dividing [*] plus [*] respectively, by the Series D Price on such date; 1.5.4 on the Region Three Transfer Date, in further consideration of the grant to ActaMed of rights under the License Agreement, and in consideration of the transfer to ActaMed of the SCAN Assets located in Region Three, ActaMed will issue to SBCL the number of shares of ActaMed's Series D Preferred Stock determined by dividing [*] plus [*] respectively, by the Series D Price on such date; and 1.5.5 on the Region Four Transfer Date, in further consideration of the grant to ActaMed of rights under the License Agreement, and in consideration of the transfer to ActaMed of the SCAN Assets located in Region Four, ActaMed will issue to SBCL the number of shares of ActaMed's Series D Preferred Stock determined by dividing [*] plus [*] respectively, by the Series D Price on such date. SECTION 1.6 SERIES D PRICE. For purposes hereof, the "Series D Price" shall mean: 1.6.1 prior to ActaMed's initial Public Offering: (a) [*] on the Region One Transfer Date and the Region Two Transfer Date, [*] on the Region Three Transfer Date, and [*] on the Region Four Transfer Date, subject to the provisions of subparagraphs (b) and (c) below; (b) if prior to any Transfer Date after the Region One Transfer Date, ActaMed issues Qualified Preferred Stock, the Series D Price on such Transfer Date shall be the Per Share Issue Price of such Qualified Preferred Stock, and the Series D Price shall [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -4- thereafter remain constant for all subsequent Transfer Dates unless adjusted (i) in accordance with this provision, upon a subsequent issuance of Qualified Preferred Stock or (ii) in accordance with subparagraph (c) below; or (c) notwithstanding anything to the contrary in this Section 1.6.1, if, on any Applicable Transfer Date, ActaMed has achieved less than [*] of the revenues for the cumulative months or quarters (as may be applicable based on the detail required for the New Business Plan) prior to such Applicable Transfer Date as set forth in the New Business Plan, then the Series D Price shall revert to [*] and 1.6.2 after ActaMed's initial Public Offering, if a Transfer Date occurs at least thirty (30) trading days after the effective date of such Public Offering, the average for such 30 days of (i) the mean between the reported high and low sales prices for ActaMed Common Stock on each such trading day, or (ii) if no sales are reported on any such trading day, the mean between the bid and offered prices for ActaMed Common Stock on such trading day; or, if the Transfer Date occurs prior to the 30th day following such initial Public Offering (including the initial day of trading when computing the number of days), the initial offering price for ActaMed Common Stock in such initial Public Offering less the amount of any underwriters' discounts or commissions on a per share basis, as set forth in the effective registration statement. 1.6.3 For purposes of Section 1.6, "Qualified Preferred Stock" shall mean shares of ActaMed's preferred stock issued in an arm's length transaction to one or more purchasers who are not ActaMed stockholders as of the Region One Transfer Date for an aggregate purchase price of not less than $7,000,000; and the "Per Share Issue Price" of such Qualified Preferred Stock shall be the consideration per equivalent share of Common Stock received by ActaMed for the Qualified Preferred Stock, adjusted backwards to the Region One Transfer Date for any subdivision or combination of shares of ActaMed capital stock or similar change in ActaMed's capital structure (whether by stock split, stock dividend, merger, share exchange, consolidation or otherwise) since the Region One Transfer Date. SECTION 1.7 PURCHASE PRICE ADJUSTMENT. SBCL shall transfer all of the SCAN Assets located in Region Three on the Region Three Transfer Date. In the event that, by [*] SBCL has not provided [*] to ActaMed [*] described in [*] of the Services Agreement, [*] to [*] by [*]. In such case, if, subsequent to [*] SBCL provides [*] ActaMed shall [*] that SBCL [*] pursuant to this provision [*]. SECTION 1.8 NUMBER OF SITES ADJUSTMENT. On any Transfer Date other than the Region One Transfer Date, if the aggregate number of SBCL Sites located in the Regions which were previously transferred to ActaMed in accordance herewith, plus the aggregate number of SBCL Sites located in Regions then being or subsequently to be transferred to ActaMed, is less than [*] then the portion of the Purchase Price [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -5- otherwise payable on such Transfer Date shall be reduced to an amount equal to the portion of the Purchase Price otherwise then payable times a fraction the numerator of which shall be the number of SBCL Sites to be transferred on such Transfer Date, and the denominator of which shall be [*] MINUS the number of SBCL Sites transferred on previous Transfer Dates, and MINUS the number of SBCL Sites located in Regions subsequently to be transferred; PROVIDED that no such adjustment shall be made if such fraction is [*] or more. ARTICLE 2 CLOSINGS SECTION 2.1 INITIAL CLOSING. Conveyance of SCAN Assets in each of the Regions by SBCL to ActaMed shall take place as set forth in this Article Two. Concurrently with the execution and delivery of this Assets Purchase Agreement, SBCL and ActaMed have executed and delivered the License Agreement, the First Amendment to the Development Agreement, the Services Agreement, the Third Amendment to the Stockholders Agreement, the Third Amendment to the Registration Rights Agreement, the Standstill Agreement, and such other documents as the parties have reasonably requested, each of which shall be effective as of the Region One Transfer Date. In addition, effective on or before such date, ActaMed shall file in the office of the Secretary of State of Georgia its Fourth Amended Articles. SECTION 2.2 STAGING OF THE TRANSACTIONS. 2.2.1 The parties shall effect the transfer of the SCAN Assets in as orderly a manner as possible and with minimal disruption to Automated Providers. This Assets Purchase Agreement provides benchmarks that will be used by the parties to measure the degree to which the transfer is orderly and without disruption and provides steps the parties will take if the benchmarks are not met to improve the transition process. Provided the benchmarks are satisfied, the parties intend that all of the transfers be completed as quickly as possible and that targeted transfer dates may be accelerated in such circumstances. 2.2.2 At any time, upon not less than fifteen (15) days written notice by SBCL to ActaMed, except to the extent a shorter period is provided for in Section 2.2.3 hereof, SBCL shall in its sole discretion have the right to accelerate the Region Two Transfer Date, the Region Three Transfer Date or the Region Four Transfer Date to a date immediately after expiration of such notice period (the "ACCELERATED TRANSFER DATE"). In such case, the transactions contemplated by Sections 1.5.3, 1.5.4 and 1.5.5 above shall take place on such Accelerated Transfer Date, in the manner specified in Sections 2.5 and 2.6 below, subject to the other terms and conditions of this Assets Purchase Agreement. 2.2.3 In the event of any proposed issuance of Qualified Preferred Stock, ActaMed shall provide SBCL with notice of its intent to consummate such a transaction not less [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -6- than forty-five (45) days prior to doing so, and shall provide SBCL notice of an affirmative obligation to issue Qualified Preferred Stock not less than fifteen (15) days prior to issuance. In such event, SBCL shall in its sole discretion have the right to notify ActaMed and cause one or more Accelerated Transfer Dates to occur thirty (30) days after the giving of such notice, and, if SBCL so designates, conditioned upon the occurrence of the proposed sale of Qualified Preferred Stock. The number of shares Series D Preferred Stock issued to SBCL on any such Accelerated Transfer Date(s) shall be calculated as if such Accelerated Transfer Date(s) occurred prior to the closing of the sale of such Qualified Preferred Stock. SECTION 2.3 REGIONS TO BE TRANSFERRED. 2.3.1 The SCAN Assets located in Region One will be transferred to ActaMed on the Region One Transfer Date. The parties will cooperate to identify and resolve any problems that arise after the transfer of such SCAN Assets to ActaMed. 2.3.2 Provided that the applicable Transfer Benchmarks have been met for Region One Sites, and subject to SBCL's rights under Section 2.2.2 hereof, the SCAN Assets located in Region Two will be transferred to ActaMed three (3) months after the Region One Transfer Date (the "REGION TWO TRANSFER DATE"). ActaMed shall notify SBCL's Relationship Manager that it is in compliance with the Transfer Benchmarks and wishes to close the transfer of the SCAN Assets located in Region Two fifteen (15) days prior to the scheduled Region Two Transfer Date. SBCL shall have seven (7) days to respond to ActaMed's notice, indicating that SBCL either (i) will close the transfer on the scheduled Region Two Transfer Date or (ii) that ActaMed's operations relative to the Region One Sites fail to meet the Transfer Benchmarks. If SBCL determines that ActaMed's operations relative to the Region One Sites fail to meet the Transfer Benchmarks to allow for the transfer of SCAN Assets located in Region Two, the provisions of Section 2.4 will apply. The parties will cooperate to identify and resolve any problems that arise after the transfer of the SCAN Assets located at Region Two Sites to ActaMed. 2.3.3 Provided that the applicable Transfer Benchmarks have been met for Region One Sites and Region Two Sites on and after the Region Two Transfer Date, and subject to SBCL's rights under Section 2.2.2 hereof, the SCAN Assets located in Region Three will be transferred to ActaMed three (3) months after the Region Two Transfer Date (the "REGION THREE TRANSFER DATE"). ActaMed shall notify SBCL's Relationship Manager that it is in compliance with the Transfer Benchmarks and wishes to close the transfer of the SCAN Assets located in Region Three fifteen (15) days prior to the scheduled Region Three Transfer Date. SBCL shall have seven (7) days to respond to ActaMed's notice, indicating that SBCL either (i) will close the transfer on the scheduled Region Three Transfer Date or (ii) that ActaMed's operations relative to the Region One Sites and Region Two Sites fail to meet the Transfer Benchmarks. If SBCL determines that ActaMed's operations relative to the Region One Sites and Region Two Sites fail to meet the Transfer Benchmarks to allow for the transfer of SCAN Assets located in Region Three, the provisions of Section 2.4 will apply. The parties will -7- cooperate to identify and resolve any problems that arise after the transfer of the SCAN Assets located at Region Three Sites to ActaMed. 2.3.4 Provided that the applicable Transfer Benchmarks have been met for Region One Sites, Region Two Sites and Region Three Sites on and after the Region Three Transfer Date, and subject to SBCL's rights under Section 2.2.2 hereof, the SCAN Assets located in Region Four will be transferred to ActaMed three (3) months after the Region Three Transfer Date (the "REGION FOUR TRANSFER DATE"). ActaMed shall notify SBCL's Relationship Manager that it is in compliance with the Transfer Benchmarks and wishes to close the transfer of the SCAN Assets located in Region Four fifteen (15) days prior to the scheduled Region Four Transfer Date. SBCL shall have seven (7) days to respond to ActaMed's notice, indicating that SBCL either (i) will close the transfer on the scheduled Region Four Transfer Date or (ii) that ActaMed's operations relative to the Region One Sites, Region Two Sites and Region Three Sites fail to meet the Transfer Benchmarks. If SBCL determines that ActaMed's operations relative to the Region One Sites, Region Two Sites and Region Three Sites fail to meet the Transfer Benchmarks to allow for the transfer of SCAN Assets located in Region Four, the provisions of Section 2.4 will apply. The parties will cooperate to identify and resolve any problems that arise after the transfer of the SCAN Assets located at Region Four Sites to ActaMed. SECTION 2.4 PROCEDURES APPLICABLE IF TRANSFER BENCHMARKS ARE NOT MET. If, prior to any scheduled Transfer Date after the Region One Transfer Date, SBCL determines that ActaMed has failed to meet the requisite Transfer Benchmarks, ActaMed shall, on or prior to five (5) business days following the scheduled Transfer Date, either (i) submit a written remediation plan to SBCL detailing the steps required to accomplish such Transfer Benchmarks and the means to achieving such steps, or (ii) notify SBCL, in writing, that ActaMed believes the failure to meet such Transfer Benchmarks is for reasons beyond the control of ActaMed, including without limitation, a failure by SBCL to perform in accordance with the terms and conditions of the Services Agreement. Within ten (10) business days following receipt of such a remediation plan or notice, SBCL shall make a determination, considering available resources and the contents of the plan or notice, as to whether the problem is remediable within a reasonable period of time. If SBCL determines that the problem is remediable as aforesaid, it shall set a date not less than thirty (30) nor more than ninety (90) days from the scheduled Transfer Date as a measurement date (the "Measurement Date") for satisfaction of the applicable Transfer Benchmarks. If SBCL determines that the applicable Transfer Benchmarks are met on or before the Measurement Date, then the original Transfer Date shall be reset for a date immediately following the date which is ten (10) days after such applicable Transfer Benchmarks were met, and on which date such applicable Transfer Benchmarks continue to be met. If ActaMed disagrees with SBCL's determination as to whether the problem is remediable, the dispute shall be resolved pursuant to the provisions of Article IX hereof. If a Transfer Date is extended or reset hereunder, all subsequent Transfer Dates will be rescheduled, subject to this Section 2.4, at three (3) month intervals after the extended or reset Transfer Date. -8- SECTION 2.5 DELIVERIES BY SBCL AT EACH OF THE TRANSFER DATES. At each of the Transfer Dates, SBCL shall execute and deliver to ActaMed the following documents to the extent relating to the SCAN Assets in the Region being transferred: 2.5.1 a Bill of Sale and Assignment (in the form attached as EXHIBIT 2.5.1) covering the SCAN Assets for the Region being transferred; 2.5.2 an SBCL Compliance Certificate (in the form attached as EXHIBIT 2.5.2) pursuant to which SBCL will make the representations and warranties as to itself and the SCAN Assets in the Region being transferred contained in Section 3.1 hereof (other than the representations and warranties contained in Sections 3.1.3, 3.1.4(a)-(e), 3.1.6(d) and 3.1.7(b), which shall be made only on the Region One Transfer Date), which certificate shall attach revised Disclosure Schedules to the extent necessary to make the representations and warranties made on such Transfer Date (with the exceptions noted above) true and correct in all material respects; PROVIDED that to the extent that any such representation and warranty is dependent upon information provided by Transferred Employee or other people employed by ActaMed, such representations and warranties shall be given only to the best of SBCL's knowledge; 2.5.3 an SBCL Secretary's Certificate (in the form attached as EXHIBIT 2.5.3); 2.5.4 any other consents or waivers obtained pursuant to Section 7.1.5 covering the Region transferred, including consents to the assignment and assumption of each of the Vendor Contracts applicable to the SCAN Assets in the Region that ActaMed is assuming; 2.5.5 all of the books and records, including but not limited to, books of account, leases, contracts, and customer lists, of SBCL relating exclusively to the SCAN Assets for the Region transferred; and 2.5.6 such other documents or certificates as may be reasonably requested by ActaMed. SECTION 2.6 DELIVERIES BY ACTAMED AT EACH OF THE TRANSFER DATES. At each of the Transfer Dates, ActaMed shall execute and deliver to SBCL the following documents to the extent relating to the Region being transferred: 2.6.1 the applicable number of shares of Series D Preferred Stock, as determined in accordance with Sections 1.5, 1.6 and 1.8 of this Assets Purchase Agreement; 2.6.2 an Assumption Agreement (in the form attached hereto as EXHIBIT 2.6.2) covering, for the Region transferred, (i) the Vendor Contracts for the Region transferred, (ii) the Phone Lines and (iii) the Provider Agreements for the Region transferred; -9- 2.6.3 an ActaMed Compliance Certificate (in the form attached hereto as EXHIBIT 2.6.3), pursuant to which ActaMed will make the representations and warranties contained in Section 3.2 hereof, which certificate shall attach revised Disclosure Schedules to the extent necessary to make the representations and warranties made on such Transfer Date true and correct in all material respects; 2.6.4 an ActaMed Secretary's Certificate (in the form attached hereto as EXHIBIT 2.6.4); and 2.6.5 such other documents or certificates as may be reasonably requested by SBCL. SECTION 2.7 PRORATIONS. All amounts previously paid or payable with respect to the items identified on Schedule 2.7, or for any other items reflecting actual costs incurred solely in connection with the provision of Lab EDI Services which are to be prorated on the basis of days, for or in respect of periods which straddle any Transfer Date shall be apportioned on a pro rata basis based on the respective number of days in the pre-Transfer Date and post-Transfer Date periods. SECTION 2.8 NON-TRANSFERABLE ASSETS. 2.8.1 To the extent that any SCAN Asset which would otherwise be transferred on an Applicable Transfer Date (a "TRANSFERRED ASSET") is not capable of being sold, assigned, transferred, conveyed or delivered without obtaining a Required Consent, or if such sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery would constitute a violation of any Contract or License constituting or relating specifically to a Transferred Asset, or a violation of any Regulation, or would result in the imposition of any significant additional Liability or obligation on SBCL or ActaMed, or a substantial diminution in the value or use of such Transferred Asset, this Assets Purchase Agreement shall not constitute a sale, assignment, transfer, conveyance or delivery of such Transferred Asset or an attempted sale, assignment, transfer, conveyance or delivery thereof, nor shall it constitute an assumption of any Liability under any Contract or License constituting or relating specifically to such Transferred Asset. Any such Transferred Asset and any Contract or License which constitutes or relates exclusively to any such Transferred Asset or Assets shall be a "NON-TRANSFERABLE ASSET". SBCL shall use its best efforts, and ActaMed shall reasonably cooperate therein, to provide ActaMed with the benefit of any such Non-Transferable Asset. 2.8.2 Anything in this Assets Purchase Agreement to the contrary notwithstanding, SBCL shall not be obligated to sell, assign, transfer, convey or deliver, or cause to be sold, assigned, transferred, conveyed or delivered to ActaMed, and ActaMed shall not be obligated to purchase or assume, any Non-Transferable Asset without first having obtained all Required Consents or prevented the imposition of such Liability or obligation or diminution in value or use. Both before and after the Applicable Transfer Date, SBCL and ActaMed shall use their collective best efforts to obtain any Required Consents or to prevent the imposition of any -10- such Liability or obligation or any such diminution in value or use so as to transfer each such Non-Transferable Asset to ActaMed without adversely modifying, amending or burdening such Non-Transferable Asset. Any costs associated with such efforts shall be borne by SBCL. 2.8.3 To the extent that on a given Transfer Date, there is any Non-Transferable Asset, SBCL shall, from and after such Transfer Date, cooperate with ActaMed in any reasonable and lawful arrangement designed to provide the benefit of such Non-Transferable Asset to ActaMed, and ActaMed, so long as such benefit is so provided, shall satisfy or perform any Liability under or in connection with such Non-Transferable Asset which would be a Liability assumed by ActaMed if such Non-Transferable Asset were a Transferred Asset. Any costs associated with such efforts shall be borne by SBCL. 2.8.4 At any time after a given Transfer Date, if any Non-Transferable Asset becomes capable of being sold, assigned, transferred, conveyed or delivered to ActaMed without a violating any Contract, License or Regulation or resulting in the imposition of any significant additional Liability or obligation on SBCL or ActaMed or a substantial diminution in the value or use of such Asset, then, at such time, such Non-Transferable Asset shall be deemed to have been sold, assigned, transferred, conveyed and delivered to ActaMed effective as of the Applicable Transfer Date hereof pursuant to the execution and delivery of a Bill of Sale and Assignment and an Assumption Agreement with respect to the Transferred Assets on such Applicable Transfer Date; PROVIDED, HOWEVER, that if and to the extent that SBCL has theretofore provided ActaMed with comparable assets or compensation for such Asset, an equitable adjustment shall be made between SBCL and ActaMed to effectuate fully the intent of the foregoing provision. ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 BY SBCL. Except as set forth on a Disclosure Schedule hereto, SBCL hereby represents and warrants to ActaMed, and shall (except as contemplated by Section 2.5.2 hereof) represent and warrant to ActaMed on each Transfer Date as to itself and the SCAN Assets being transferred on such Transfer Date, as follows: 3.1.1 CAPACITY AND VALIDITY. SBCL has the full power and corporate authority necessary to enter into and perform its obligations under this Assets Purchase Agreement and the other documents to be executed and delivered by SBCL hereunder or in connection herewith (the "SBCL DOCUMENTS") and to consummate the transactions contemplated hereby and thereby. This Assets Purchase Agreement and all other SBCL Documents have been or will be duly executed and delivered by SBCL, and constitute or will constitute the legal, valid and binding obligations of SBCL, enforceable in accordance with their respective terms except as enforceability may be limited by applicable equitable principles, or by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect -11- affecting the enforcement of creditors' rights generally. The execution, delivery and performance of this Assets Purchase Agreement or any other SBCL Document, and the consummation of the transactions contemplated hereby or thereby, will not violate any provisions of the articles of incorporation or bylaws of SBCL, or any Regulation or Court Order to which SBCL is subject. 3.1.2 ORGANIZATION, GOOD STANDING AND FOREIGN QUALIFICATION. SBCL is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has the corporate power and authority to carry on its business in such places as it has been and is now being conducted, and to own and lease the properties and assets which it now owns or leases, in each case in connection with its provision of Lab EDI Services. 3.1.3 PROJECTIONS. (a) The aggregate costs reflected by the line items [*] attached hereto as DISCLOSURE SCHEDULE 3.1.3 (the "PROJECTIONS") are accurate in all material respects and do not omit to state any material fact required to be stated therein to make such Projections not misleading; PROVIDED that such Projections are indicative only of general expenses (excluding one-time or transactional expenses, which include any expenses incurred with respect to this transaction) for [*] projected to be incurred in connection with SBCL's provision of Lab EDI Services to [*] SCAN Sites and assume that ActaMed will provide services to only such number of SCAN Sites and only in the same manner that SBCL did prior to transfer. (b) The Projections were prepared in accordance with the books and records of SBCL in all material respects, which books and records have been properly maintained and are complete and correct in all material respects. (c) SBCL has not received any advice or notification from its independent certified public accountants that SBCL has used any improper accounting practice that would have the effect of not reflecting or incorrectly reflecting in the Projections any expenses associated with SBCL's provision of Lab EDI Services. 3.1.4 ABSENCE OF CHANGES. Except as contemplated by this Assets Purchase Agreement, since December 1, 1997, SBCL's provision of Lab EDI Services has been carried on only in the ordinary course of SBCL's business, and there has not been any transaction or occurrence in which SBCL has: (a) suffered or experienced any event or condition materially increasing the expenses incurred by SBCL in the provision of Lab EDI Services; [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -12- (b) increased the rate of compensation payable or to become payable by it to any of the Transferred Employees or agreed to do so, except general hourly rate increases, normal merit increases and increases due to promotions; (c) failed to provide notice to ActaMed that it hired or committed to hire any Person who will perform services directly relating to SBCL's provision of Lab EDI Services, or terminated or received the resignation of any Transferred Employee; (d) through negotiation or otherwise, made any commitment or incurred any Liability, whether or not enforceable, to any labor organization affecting Transferred Employees; (e) directly or indirectly paid or entered into a Contract to pay any severance or termination pay to any Transferred Employee; (f) experienced problems with the SCAN Network or [*] (as defined in the Services Agreement) (such as network operations, quality assurance or software development problems) which have materially and adversely affected SBCL's provision of Lab EDI Services to SBCL Sites in Regions not yet transferred to ActaMed pursuant to this Assets Purchase Agreement. 3.1.5 REAL PROPERTY. SBCL neither owns nor leases (either as lessee or lessor) any real property related exclusively to its provision of Lab EDI Services. 3.1.6 PERSONAL PROPERTY. (a) SBCL owns and has good title to the SCAN Assets, free and clear of any and all Liens of any kind or nature. (b) DISCLOSURE SCHEDULE 3.1.6 contains (i) a sample configuration of a PC System which is representative of PC Systems provided to Automated Providers by SBCL for the provision of Lab EDI Services, and (ii) a list of the SCAN Assets in the Region being transferred, which list is true and complete in all material respects to the best of SBCL's knowledge. (c) SBCL does not lease any equipment, machinery or other items of tangible personal property for use exclusively in the provision of Lab EDI Services. SBCL does not lease any personal property as lessor in connection with its provision of Lab EDI Services. (d) As of the Region One Transfer Date, there are not less than [*] SBCL Sites located in all Regions. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -13- 3.1.7 COMPLIANCE WITH LAWS. (a) To the best knowledge of SBCL, in its provision of Lab EDI Services, SBCL has complied in all material respects with all applicable Regulations relating to the provision of Lab EDI Services. (b) To the best knowledge of SBCL, the SCAN Software complies as of the Region One Transfer Date with all applicable Regulations relating to SBCL's provision of Lab EDI Services. (c) SBCL has obtained all consents or approvals required from, has made all necessary filings with, and has provided all required notices to, any governmental body or agency or any other third party in connection with the execution and delivery of this Assets Purchase Agreement or any of the SBCL Documents. 3.1.8 LITIGATION AND CLAIMS. There are no outstanding Court Orders or quasi-judicial or administrative decisions to which SBCL is subject relating to the SCAN Assets located at SBCL Sites and there is no Litigation pending or, to SBCL's knowledge, threatened relating to (i) the SCAN Assets located at SBCL Sites or (ii) SBCL's provision of Lab EDI Services. SBCL has not been advised by any attorney representing it that there are any "loss contingencies" (as defined in FASB 5), which would be required by FASB 5 to be disclosed or accrued in SBCL's financial statements by reason of the Lab EDI Services provided by SBCL. 3.1.9 CONTRACTS AND COMMITMENTS; WARRANTIES. (a) DISCLOSURE SCHEDULE 3.1.9 contains, to the best knowledge of SBCL, a list, which is true and correct in all material respects, of all Vendor Contracts and all Contracts to which SBCL is a party solely because it provides Lab EDI Services using the SCAN Network, except for Contracts (other than Vendor Contracts) that (i) are terminable on thirty (30) days or less notice by SBCL without any Liability, (ii) are described in any other Section of the Disclosure Schedule hereto, or (iii) do not require payments in excess of $5,000 in the aggregate following the date hereof (unless renewed which renewal is at the discretion of ActaMed). (b) Each of the Contracts listed in DISCLOSURE SCHEDULE 3.1.9, or described in this Section 3.1.9, is in full force and effect. No Default by SBCL under any of the terms or conditions set forth in any of the Contracts to which SBCL is a party or any document or instrument related thereto has occurred or been asserted by any party which could result in acceleration of any obligations under or termination of the Contract. The execution, delivery and performance of this Assets Purchase Agreement or any other SBCL Document, and the consummation of the transactions contemplated hereby or thereby, will not conflict with, result in a breach of, or constitute a Default under any Contract to which SBCL is a party or by which it is bound, affect the continuation, validity and effectiveness of any of such Contracts, or any terms thereof, or result in the creation of any Lien upon any of the SCAN Assets located at SBCL Sites, or result in the acceleration of the maturity of any payment date of any of SBCL's -14- obligations, or increase or adversely affect the obligations of SBCL thereunder. SBCL has provided, upon request, true, correct and complete copies of the Contracts referred to in DISCLOSURE SCHEDULE 3.1.9 to ActaMed for review. 3.1.10 CONDITION OF ASSETS. To the best of SBCL's knowledge, the PC Systems located at SBCL Sites in a Region to be transferred on an Applicable Transfer Date are in good operating condition so as to allow, in the aggregate, a level of connectivity with the SCAN Network which is consistent with SBCL's historically experienced level of connectivity. No representation or warranty is hereby given as to the condition or state of repair of any individual component of a PC System. 3.1.11 BROKERS AND FINDERS. No third party is entitled to receive any commission, fees or similar consideration in connection with the transactions contemplated by this Assets Purchase Agreement based on any arrangement or agreement made by or on behalf of SBCL. 3.1.12 INVESTMENT REPRESENTATIONS; LEGEND ON SHARES. (a) SBCL hereby acknowledges that (i) the shares of Series D Preferred Stock (or, if applicable, Conversion Shares) delivered pursuant to this Assets Purchase Agreement have not been registered under the Securities Act, and the resale of such shares is therefore subject to restrictions imposed by federal and state securities laws including without limitation that such shares cannot be sold or otherwise disposed of except in a transaction which is registered under the Securities Act or exempted from registration; (ii) ActaMed has advised SBCL, a reasonable time prior to the execution of this Assets Purchase Agreement, that the shares have not been registered under the Securities Act; and (iii) all certificates representing the shares delivered to SBCL shall be stamped or otherwise imprinted with a legend substantially in the following form (together with any other legend required by state law), and that stop transfer orders will be given to ActaMed's transfer agent: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACTS OR EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE." (b) SBCL is an accredited investor (as such term is defined in Rule 506 of Regulation D promulgated by the SEC) and is acquiring the shares of Series D Preferred Stock (and, if applicable, Conversion Shares) for its own account for investment purposes only, and not with a view to the distribution, transfer, or assignment of the same in whole or in part. SBCL has been represented by counsel and advisers, each of whom has been -15- previously selected by SBCL, as SBCL has found necessary to consult concerning this Assets Purchase Agreement and the shares to be issued pursuant to this Assets Purchase Agreement. SBCL, either alone or with its representative(s), has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the prospective investment. SBCL and its counsel and other advisers have been provided with such information concerning ActaMed as they have deemed relevant with respect to SBCL's investment decision relating to the shares being delivered to it. SBCL has had a reasonable opportunity to ask questions and receive answers concerning the terms and conditions of the transactions contemplated by this Assets Purchase Agreement, to discuss ActaMed's business, management and financial affairs with the management of ActaMed, and to obtain any additional information which ActaMed possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished. SBCL has received satisfactory responses from management of ActaMed to SBCL's inquiries. 3.1.13 THIRD PARTY SOFTWARE. SBCL has sufficient rights and licenses in Third Party Software to convey the rights contemplated by Section 1.2 hereof, free and clear of any liens, claims or encumbrances, in each case subject to the exclusions and limitations expressly set forth in Section 1.2 hereof. 3.1.14 SCHEDULES. All Sections of the Disclosure Schedule referenced in this Section 3.1 are true, correct and complete as of the date of this Assets Purchase Agreement, and will be true, correct and complete as of each Transfer Date. Matters disclosed in each such Section of the Disclosure Schedule shall be deemed disclosed for purposes of the matters to be disclosed in any Section of the Disclosure Schedule. SECTION 3.2 BY ACTAMED. Except as set forth on a Disclosure Schedule hereto, ActaMed hereby represents and warrants to SBCL, and will represent and warrant to SBCL on each Transfer Date, as follows: 3.2.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. ActaMed is a duly organized and validly existing corporation in good standing under the laws of the State of Georgia and has full corporate power and authority to carry on its business, to own and operate its properties and assets, and to consummate the transactions contemplated by this Assets Purchase Agreement and the other documents to be executed and delivered by ActaMed hereunder (the "ACTAMED DOCUMENTS"). ActaMed is currently engaged in the ActaMed Business and is qualified to do business as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect. The Fourth Amended Articles have been duly filed and are currently in effect. ActaMed has delivered to SBCL true, correct and complete copies of the Fourth Amended Articles and the bylaws of ActaMed, including all amendments thereto, as presently in effect. ActaMed has all governmental licenses, authorizations, consents and approvals required to carry on the ActaMed Business as now conducted and as proposed to be conducted and to own, operate and lease its properties and -16- assets, except for those licenses, authorizations, consents and approvals the failure of which to have would not have a Material Adverse Effect. 3.2.2 AUTHORIZATION OF AGREEMENT, NO BREACH. The execution and delivery of this Assets Purchase Agreement have been duly authorized by all necessary corporate action on the part of ActaMed, and no further corporate action of any nature is required pursuant to the Articles or the bylaws of ActaMed. All Persons who have executed or will execute this Assets Purchase Agreement, or any other agreement or document called for by this Assets Purchase Agreement on behalf of ActaMed have been duly authorized to do so by all necessary corporate action. This Assets Purchase Agreement and the other ActaMed Documents have been duly executed and delivered by ActaMed and constitute legal, valid and binding obligations of ActaMed, enforceable against ActaMed in accordance with their respective terms, except as enforceability may be limited by applicable equitable principles, or by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. The execution, delivery and performance of this Assets Purchase Agreement and the other ActaMed Documents and the consummation of the transactions contemplated hereby and thereby will not (1) violate or result in a breach of or Default or acceleration under the Articles or the bylaws of ActaMed or any material contract to which ActaMed is a party or is bound, (2) violate any Court Order, quasi-judicial or administrative decision or award of any court, arbitrator, mediator, tribunal, administrative agency or governmental body applicable to or binding upon ActaMed or upon the securities, property or business of ActaMed or (3) violate any Regulation relating to ActaMed, or to the securities, property, or business of ActaMed. 3.2.3 ACTAMED FINANCIAL STATEMENTS. (a) DISCLOSURE SCHEDULE 3.2.3 hereto contains a true and correct copy of (i) the balance sheets of ActaMed at December 31, 1995 and December 31, 1996 and the statements of operations, statements of stockholders equity and statements of cash flows of ActaMed for the years ended December 31, 1995 and December 31, 1996, which have been audited by Deloitte & Touche, LLP independent accountants (the "ACTAMED FINANCIAL STATEMENTS"), and (ii) the unaudited balance sheets of ActaMed at September 30, 1997 and the statements of operations, statements of stockholders equity and statements of cash flows of ActaMed for quarter ended September 30, 1997 (the "ACTAMED UNAUDITED STATEMENTS"). (b) The ActaMed Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the respective periods covered thereby. The ActaMed Financial Statements are correct and complete and present fairly in all material respects the financial position of ActaMed at the date of the balance sheets included therein and the results of operations and cash flows of ActaMed for the respective periods covered by the statements of operations and cash flows included therein. ActaMed has no material obligations or liabilities of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or not due) which would be required by GAAP to be -17- disclosed in the ActaMed Financial Statements and which, either individually or in the aggregate, would have a Material Adverse Effect and which are not disclosed by the ActaMed Financial Statements. (c) The ActaMed Unaudited Statements have been prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as otherwise disclosed therein) and certified by the chief financial officer of ActaMed as presenting fairly the financial condition and results of operations of ActaMed and any of its Subsidiaries for the periods covered by the statements (subject to customary exceptions for interim unaudited financial statements). 3.2.4 CONSENTS. No consent, approval or authorization of, or qualification, designation, declaration or filing with, or notice to any governmental authority on the part of ActaMed is required in connection with (a) the valid execution and delivery of the ActaMed Documents and (b) the issuance of the shares of Series D Preferred Stock (and, if applicable, the Conversion Shares), except the filing of the Fourth Amended Articles in the office of the Secretary of State of the State of Georgia, which filing will be accomplished concurrently with the execution and delivery of this Assets Purchase Agreement. 3.2.5 CAPITALIZATION. (a) After giving effect to the authorization of the shares of Series D Preferred Stock, the capital stock of ActaMed, as authorized by its Articles consists of the authorized, issued and outstanding capital stock set forth on DISCLOSURE SCHEDULE 3.2.5. None of such issued shares is held in the treasury of ActaMed. ActaMed does not have outstanding any stock or securities convertible into or exchangeable for any shares of its capital stock and no Person has any right against ActaMed to subscribe for or to purchase, or any options for the purchase, or any agreements providing for the issuance, of any capital stock or any stock or securities convertible into capital stock of ActaMed. (b) All of the issued and outstanding shares of ActaMed capital stock have been validly issued and are fully paid and non-assessable. The shares of Series D Preferred Stock, when issued to SBCL pursuant to this Assets Purchase Agreement, will be validly issued, fully paid and nonassessable, will have the designations, preferences, limitations, and relative rights set forth in the Articles and will be free and clear of all liens, claims and encumbrances. Any and all of the Conversion Shares, when issued, will be validly issued, fully paid and nonassessable. 3.2.6 REGISTRATION RIGHTS. Except as set forth in the Registration Rights Agreement, ActaMed will not be under any obligation to register under the Securities Act any of its then outstanding securities or any of its securities which may thereafter be issued. 3.2.7 OFFERING. Subject to the accuracy of representations and warranties by SBCL in Section 3.1 hereof, the issuance of the shares of Series D Preferred Stock (and the -18- issuance of the Conversion Shares) on the Applicable Transfer Date constitutes a transaction exempt from the registration requirements of Section 5 of the Securities Act, and from the qualification requirements of any applicable state securities or "blue sky" laws. 3.2.8 CHANGES. Since the date of the latest ActaMed Unaudited Statements, there has not been (i) any adverse change in the assets, liabilities, financial condition or operations of the ActaMed Business from that reflected in the ActaMed Financial Statements, other than changes in the ordinary course of business, none of which individually or in the aggregate has had a Material Adverse Effect or (ii) any adverse change in the prospects of the ActaMed Business or any other event or condition (or events or conditions) of any character which, either individually or cumulatively, has had a Material Adverse Effect. 3.2.9 SUBSIDIARIES. Other than EDI Services Inc., ActaMed has no Subsidiaries. Except as set forth in this Assets Purchase Agreement, ActaMed does not own, or have the right to acquire, any securities or other equity or ownership interest in any corporation, association or other business entity or Person. 3.2.10 PENDING LITIGATION, ETC. There are no actions at law, suits in equity or other proceedings or, to the knowledge of ActaMed, investigations in any court, tribunal or by or before any other governmental or public authority or agency or any arbitrator or arbitration panel or any governmental or private third-party insurance agency, pending or, to the knowledge of ActaMed, threatened against or affecting ActaMed that either individually or in the aggregate, would have a Material Adverse Effect, or, would question the validity or enforceability of this Assets Purchase Agreement, the ActaMed Documents, or any of the transactions contemplated hereby and thereby. ActaMed is not in default with respect to any Court Order. 3.2.11 TITLE TO PROPERTIES. ActaMed has good and marketable title to its properties and assets and has good title to all its respective leasehold interests, in each case subject to no Lien, other than as set forth on DISCLOSURE SCHEDULE 3.2.11 hereto. DISCLOSURE SCHEDULE 3.2.11 accurately lists with respect to the personal property owned by ActaMed (i) each financing statement, deed, agreement or other instrument which has been filed, recorded or registered pursuant to any Regulation that names a business entity as debtor or lessee or as the grantor or the transferor of the interest created thereby, and (ii) as to each such financing statement, deed, agreement or other instrument, the names of the debtor, lessee, grantor or transferor and the secured party, lessor, grantee or transferee and the name of the jurisdiction in which such financing statement, deed, agreement or other instrument has been filed, recorded or registered. 3.2.12 INTELLECTUAL PROPERTY, ETC. ActaMed owns or possesses the rights to use, free from burdensome restrictions or conflicts with the rights of others, all Intellectual Property necessary for the conduct of the ActaMed Business as now conducted and as proposed to be conducted. All licenses constituting ActaMed's Intellectual Property are in full force and effect and constitute legal, valid and binding obligation of the respective parties thereto, and -19- there have not been and are not any Defaults thereunder by any party. There are no outstanding options, licenses, or material agreements of any kind relating to the foregoing, nor is ActaMed bound by or a party to any options, licenses or agreements of any kind with respect to such Intellectual Property. ActaMed has not received any communications alleging that it has violated or, by conducting its business as proposed, would violate any of the Intellectual Property rights of any other Person. To ActaMed's knowledge, none of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of their best efforts to promote the interests of ActaMed or that would conflict with the ActaMed Business as proposed to be conducted. Neither the execution nor delivery of this Assets Purchase Agreement, nor the carrying on of the ActaMed Business by the employees of ActaMed, nor the conduct of the ActaMed Business as proposed, will, to ActaMed's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a Default under, any Contract under which any of such employees is now obligated. ActaMed does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by ActaMed. 3.2.13 COMPLIANCE WITH OTHER INSTRUMENTS. ActaMed is not in violation of or in Default in any material respect under any term of its organizational documents, any term or provision of any mortgage, indenture, contract, agreement, instrument, judgment or decree, and is not in violation in any material respect of any applicable Regulation, and to ActaMed's knowledge, there is no state of facts which, with the passage of time or giving of notice or both, would constitute any such violation or Default that would in the aggregate have a Material Adverse Effect. The execution, delivery and performance of and compliance with the ActaMed Documents, the issuance of the shares of Series D Preferred Stock (and the Conversion Shares) and the consummation of any other transaction contemplated by the ActaMed Documents have not resulted and will not result in any such violation, or be in conflict with, or constitute a Default under any of the foregoing, or result in the creation of any Lien upon any of the properties or assets of ActaMed. 3.2.14 COMPLIANCE WITH LAW. ActaMed is in compliance with all Regulations to which it is subject, the violation of which, either individually or in the aggregate, would have a Material Adverse Effect. The execution, delivery or performance of this Assets Purchase Agreement or any of the other ActaMed Documents, and the consummation of the transactions contemplated by the ActaMed Documents, will not cause ActaMed to be in violation of any Regulation. 3.2.15 EMPLOYEES. To the knowledge of ActaMed, no employee of ActaMed is in violation of any term of any employment contract, patent disclosure agreement or any other Contract relating to the Intellectual Property of ActaMed or the relationship of any such employee with such entity or any other party. -20- 3.2.16 EMPLOYEE BENEFIT PLANS. (a) DISCLOSURE SCHEDULE 3.2.16 contains a current, correct and complete list of all the Employee Benefit Plans. (b) All Employee Benefit Plans conform (and at all times have conformed) in all material respects to, and are being administered and operated (and have at all times been administered and operated) in material compliance with, the requirements of ERISA, the Code and all other applicable Regulations. All returns, reports and disclosure statements required to be made under ERISA and the Code with respect to all such Employee Benefit Plans have been timely filed or delivered. There have not been any "prohibited transactions," as such term is defined in Section 4975 of the Code or Section 406 of ERISA, involving any of the Employee Benefit Plans, that could subject ActaMed to any material penalty or tax imposed under the Code or ERISA. (c) Any Employee Benefit Plan intended to be qualified under Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code has been determined by the Internal Revenue Service to be so qualified or an application for such determination is pending. Any such determination that has been obtained remains in effect and has not been revoked, and with respect to any application that is pending, ActaMed has no reason to suspect that such application for determination will be denied. Nothing has occurred since the date of any such determination that is reasonably likely to affect adversely such qualification or exemption, or result in the imposition of excise taxes or income taxes or unrelated business income under the Code or ERISA with respect to any such Employee Benefit Plan. (d) ActaMed and the ERISA Affiliates do not sponsor or contribute to, and have not in the past sponsored or contributed to, and have no Liability with respect to, any defined benefit plan subject to Title IV of ERISA or any multi-employer plan (as defined in Section 3(37) of ERISA). Neither ActaMed nor any ERISA Affiliate has any current or contingent obligation to any multi-employer plan (as defined in Section 3(37) of ERISA). ActaMed does not have any Liability with respect to any employee benefit plan or arrangement other than with respect to the Employee Benefit Plans listed in DISCLOSURE SCHEDULE 3.2.16. (e) There are no pending or, to the knowledge of ActaMed, threatened claims by or on behalf of any such Employee Benefit Plans, or by or on behalf of any individual participants or beneficiaries of any such Employee Benefit Plans, alleging any violation of ERISA or any other Applicable Regulations, or claiming benefit payments (other than those made in the ordinary operation of such plans), nor is there, to the knowledge of ActaMed, any basis for such claim. Such Employee Benefit Plans are not the subject of any pending (or to the knowledge of ActaMed, any threatened) investigation or audit by the Internal Revenue Service, the U.S. Department of Labor or the Pension Benefit Guaranty Corporation or any similar regulatory agency, foreign or domestic. -21- (f) ActaMed has timely made all required payments and contributions under the Employee Benefit Plans including the payment of all insurance premiums. All such payments and contributions have been deducted fully by ActaMed for federal income tax purposes. Such deductions have not been challenged or disallowed by any governmental entity and ActaMed has no reason to believe that such deductions are not properly allowable. ActaMed has not incurred any Liability for any tax, excise tax, penalty or fee with respect to any Employee Benefit Plan, and, to the best of ActaMed's knowledge, no event has occurred and no circumstance exists or has existed that could give rise to any such Liability. (g) The execution of and performance of the transactions contemplated by this Assets Purchase Agreement will not (either alone or upon the occurrence of any additional or subsequent events) result in any payment, acceleration, vesting or increase in benefits with respect to any employee or former employee of ActaMed, including one that would be an "excess parachute payment" under Section 280G of the Code. (h) ActaMed does not maintain any plan or arrangement that provides post retirement medical benefits, post retirement death benefits or other post retirement welfare benefits, other than to the extent required by Part 6 of Title I of ERISA. (i) ActaMed does not maintain or contribute to, nor has it in the past maintained or contributed to, any "welfare benefit fund" (within the meaning of Section 419 of the Code). (j) Any Employee Benefit Plan that is a group health plan (within the meaning of Section 4980B(g)(2) of the Code) complies and has been administered in material respects in accordance with all of the applicable requirements of Section 4980B of the Code, Part 6 of Title I of ERISA, Title XXII of the Public Health Service Act, the Social Security Act and all other applicable Regulations. (k) Any Employee Benefit Plan that is a group health plan (within the meaning of Section 4980D(f)(1) of the Code) complies and has been administered in material respects in accordance with all of the applicable requirements of Subtitle K of the Code, Part 7 of Title I of ERISA, the Public Health Service Act and all other applicable Regulations, and (l) Neither ActaMed nor any ERISA Affiliate has contributed to a non-conforming group health plan (as that term is defined in Code section 5000(c)) or incurred any tax liability under Code section 5000(a). 3.2.17 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) ActaMed is in compliance with all applicable environmental Regulations applicable to the ActaMed Business with respect to all discharges into the ground and surface water, emissions into the ambient air and generation, accumulation, -22- storage, treatment, recycling, transportation, labeling or disposal of waste materials or process by-products, except violations which, either individually or in the aggregate, would not have a Material Adverse Effect. ActaMed is not liable for any material penalties, fines or forfeitures for failure to comply with any of the foregoing. All licenses, permits or registrations required for the ActaMed Business as presently conducted and proposed to be conducted, under any environmental Regulations have been or will, in a timely manner, be obtained or made, other than such licenses, permits or registrations as to which the failure to obtain or make, either individually or in the aggregate, will not have a Material Adverse Effect, and ActaMed is in compliance therewith in all material respects. (b) No release, emission or discharge into the environment of hazardous substances, as defined under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, or hazardous waste, as defined under the Resource Conservation and Recovery Act, or air pollutants as defined under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by ActaMed has occurred or is presently occurring on or from any property owned or leased by ActaMed in excess of federal, state or local permitted releases or reportable quantities, or other concentrations, standards or limitations under the foregoing Regulations governing the protection of health and the environment or under any other Regulations (then or now applicable, as the case may be) other than such releases, emissions or discharges, either individually or in the aggregate, would not have a Material Adverse Effect. (c) To its knowledge, ActaMed has never (1) owned, occupied or operated a site or structure on or in which any hazardous substance was or is stored, transported or disposed of in violation of any environmental Regulations at such time as such site or structure was owned, occupied or operated by ActaMed or at any other time, or (2) transported or arranged for the transportation of any hazardous substance other than in full compliance with all applicable environmental Regulations governing the ActaMed Business or the storage, transportation or disposal of hazardous substances except for such violations as, either individually or in the aggregate, would not have a Material Adverse Effect. ActaMed has never caused or been held legally responsible for any release or threatened release of any hazardous substance, or received notification from any federal, state or other governmental authority of any such release or threatened release, or that ActaMed may be required to pay any costs or expenses incurred or to be incurred in connection with any efforts to mitigate the environmental impact of any release or threatened release, of any hazardous substance from any site or structure owned, occupied or operated by ActaMed, except such releases or threatened releases as, either individually or in the aggregate, would not have a Material Adverse Effect. 3.2.18 INSURANCE. The ActaMed Business has fire, casualty, liability, and business interruption insurance policies with recognized insurers, in such amounts and with such coverage as set forth on DISCLOSURE SCHEDULE 3.2.18. -23- 3.2.19 MATERIAL CONTRACTS AND AGREEMENTS. DISCLOSURE SCHEDULE 3.2.19 lists the parties to, and subject matter of, all material Contracts of the ActaMed Business, including without limitation, all employment or labor contracts, leases or compensation plans. Except as set forth on such Schedule, all Contracts set forth on such list are valid, binding, and in full force and effect, without any breach by ActaMed or, to ActaMed's knowledge, any other party thereto. 3.2.20 TAXES. All federal, state and other tax returns of ActaMed required by law to be filed have been duly filed and all federal, state and other Taxes, assessments, fees and other federal governmental charges upon ActaMed or any of the properties, incomes or assets of ActaMed that are due and payable have been paid. No extensions of the time for the assessment of deficiencies have been granted to ActaMed in connection with any federal tax, assessment, fee or other federal governmental charge. There are no Liens, on any properties or assets of the ActaMed Business imposed or arising as a result of the delinquent payment or the non-payment of any tax, assessment, fee or other governmental charge that, either individually or in the aggregate, would have a Material Adverse Effect. (a) ActaMed has not assumed and is not liable for any Tax liability of any other Person, including any predecessor corporation, as a result of any purchase of assets or other business acquisition transaction; (b) ActaMed has not indemnified or agreed to indemnify any other Person or otherwise agreed to pay on behalf of any other Person tax liability growing out of or which may be asserted on the basis of any tax treatment adopted with respect to all or any aspect of such a business acquisition transaction; (c) The charges, accruals and reserves, if any, on the books of ActaMed in respect of all Taxes for all fiscal periods to date are adequate in accordance with GAAP, and ActaMed knows of no additional unpaid assessments for such periods or other governmental charges payable by ActaMed in connection with the execution and delivery of this Assets Purchase Agreement, the ActaMed Documents or the issuance of the Shares of Series D Preferred Stock by ActaMed, other than stock transfer taxes, recording fees and filing fees in connection with state securities or "blue sky" filings. 3.2.21 INVESTMENT COMPANY. ActaMed is not an "investment company", or an "affiliated person" of an "investment company", or a company "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended, and ActaMed is not an "investment adviser" or an "affiliated person" of an "investment adviser" as such terms are defined in the Investment Advisers Act of 1940, as amended. -24- 3.2.22 LABOR RELATIONS. ActaMed is not engaged in any unfair labor practices. There is: (a) no unfair labor practice complaint pending or, to the best of ActaMed's knowledge, threatened against ActaMed before the National Labor Relations Board or any court or labor board, and no grievance or arbitration proceedings arising out of or under collective bargaining agreements is so pending or, to the best of ActaMed's knowledge, threatened, (b) no strike, lock-out, labor dispute, slowdown or work stoppage pending or, to the best of ActaMed's knowledge, threatened against ActaMed, and (c) no union representation or certification question existing or pending with respect to the employees of ActaMed, and, to the best knowledge of ActaMed, no union organization activity taking place, other than such actions or proceedings as, either individually or in the aggregate, would not have a Material Adverse Effect. 3.2.23 NO CONFLICT OF INTEREST. ActaMed is not indebted, directly or indirectly, to any Substantial Holder, or, to ActaMed's knowledge, to any Affiliate of a Substantial Holder, in any amount whatsoever. To the best knowledge of ActaMed, no Substantial Holders, or any of their Affiliates, are indebted to any firm or corporation with which ActaMed is affiliated or with which ActaMed has a business relationship, or any firm or corporation which competes with ActaMed. Except as contemplated by the ActaMed Documents, no Substantial Holder, or, to ActaMed's knowledge, any Affiliate of a Substantial Holder, is directly or indirectly interested in any contract with ActaMed or any of its Subsidiaries. 3.2.24 BROKERS OR FINDERS. No broker, agent, finder or consultant or other Person has been retained by or on behalf of ActaMed (other than legal or accounting advisors), or is or may be entitled to be paid based upon any agreements or understandings made by ActaMed in connection with the transactions contemplated hereby. 3.2.25 FULL DISCLOSURE. This Assets Purchase Agreement, the other ActaMed Documents, and any report or financial statement referred to in this Section 3.2 hereof and any certificate, report, statement or other writing furnished to SBCL by or on behalf of ActaMed in connection with the negotiation of this Assets Purchase Agreement and the other ActaMed Documents and the sale of the shares of Series D Preferred Stock, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact with respect to which disclosure has been requested and which is necessary to make the statements contained herein or therein not misleading. -25- ARTICLE 4 TRANSITION MATTERS SECTION 4.1 PRIOR TO REGION TRANSFER. 4.1.1 SBCL CONTINUED OPERATION. Except (i) as contemplated by the Implementation Plan, (ii) with the prior written consent of ActaMed, or (iii) as necessary to effect the transactions contemplated by this Assets Purchase Agreement, SBCL shall, with respect to all SBCL Sites in each Region which has not been transferred, until the Applicable Transfer Date for the Region: (a) provide Lab EDI Services using the SCAN Network in substantially the same manner as presently being conducted; (b) use its best efforts to preserve its present relationships with Automated Providers and vendors; and (c) notify ActaMed of any development materially and adversely affecting its ability to provide Lab EDI Services, and of any governmental complaints, investigations or hearings (or written communications indicating that the same is contemplated) or administrative proceedings, involving its ability to provide Lab EDI Services, and permit its representatives prompt access to all materials prepared in connection therewith. 4.1.2 SCAN EXPENSE STATEMENTS. SBCL will cooperate with ActaMed and Ernst & Young, or another of the "Big 6" national accounting firms chosen by ActaMed and approved by SBCL ("CPA"), and provide CPA access to SBCL's business and accounting records relating to SBCL's provision of Lab EDI Services so that CPA may prepare audited financial statements, as of December 31, 1995, December 31, 1996, and December 31, 1997, with respect to SBCL's provision of such services, to the extent required for ActaMed to complete a registration of the ActaMed Common Stock with the Securities Exchange Commission. ActaMed will be responsible for, and pay, the expense of said audit, and ActaMed and SBCL shall use their collective best efforts to cause said audit to be completed on or prior to April 30, 1998. SECTION 4.2 REGION TRANSITION MATTERS. 4.2.1 IMPLEMENTATION PLAN. (a) As a further condition precedent to the occurrence of the Region One Transfer Date, the parties have prepared a detailed plan regarding the transition of SBCL Sites into ActaMed Sites (the "IMPLEMENTATION PLAN"), a copy of which is attached hereto as SCHEDULE 4.2.1. SBCL's nominees to the Implementation Committee shall review the Implementation Plan and shall notify ActaMed as to any proposed changes to the Implementation Plan on or prior to January 15, 1998. ActaMed shall implement all such -26- changes, except to the extent its designees to the Implementation Committee reasonably believe that any such change would materially impact ActaMed's ability to meet the Transfer Benchmarks or the Performance Standards (as defined in the Services Agreement), or would have a Material Adverse Effect on ActaMed. If SBCL's designees to the Implementation Committee disagree with ActaMed's assessment of a proposed change, the dispute shall be resolved in accordance with the provisions of Article IX hereof. The Implementation Plan shall continue in force, without any modification in respect of the disputed change, until resolution of the matter. (b) In the event of any conflict between the terms of the Implementation Plan, on the one hand, and this Assets Purchase Agreement, the Services Agreement, the License or the Development Agreement, on the other, the terms of the relevant Transaction Document shall govern and control over those of the Implementation Plan. 4.2.2 IMPLEMENTATION COMMITTEE. ActaMed and SBCL shall form an implementation committee, consisting of an equal number of representatives of ActaMed and SBCL (the "IMPLEMENTATION COMMITTEE"), authorized and directed to (i) apply the Implementation Plan to each Region prior to it being transferred to ActaMed, (ii) oversee, manage and implement the transition of SBCL Sites into ActaMed Sites in accordance with the Implementation Plan; (iii) revise and adapt the Implementation Plan to changing circumstances; and (iv) determine the steps to be taken by the parties in those instances where the Implementation Plan does not address an issue or problem presented. The Implementation Committee shall initially be comprised of the people named on SCHEDULE 4.2.2 hereto. From such list, ActaMed and SBCL shall each designate one person (each an "RELATIONSHIP MANAGER") who together will manage the Implementation Committee. 4.2.3 ASSISTANCE FROM SBCL. SBCL will provide resources to assist ActaMed in the transition of SBCL Sites to ActaMed Sites as more fully provided in the Services Agreement. SECTION 4.3 GENERAL COVENANTS. 4.3.1 ACCESS TO PROPERTIES. At all times prior to the last Transfer Date, the Transferred Employees, attorneys, accountants, agents and other authorized and designated representatives of ActaMed will be allowed upon reasonable advance notice and with minimal disruption to SBCL's business operations, reasonable access to the properties, books and records of SBCL relating to the SCAN Assets located at SBCL Sites, including without limitation, title documents, leases, customer lists, and other data that, in the reasonable opinion of both ActaMed and SBCL, are required for ActaMed to obtain such information as it may reasonably request about the Transferred Employees or such SCAN Assets. ActaMed shall also be allowed reasonable opportunity to consult with the officers, employees, accountants, counsel and agents of SBCL in connection with such investigation. -27- 4.3.2 OTHER OFFERS AND EXCLUSIVE DEALING. Unless and until notice of termination of this Assets Purchase Agreement prior to the last Transfer Date pursuant to Article X hereof, SBCL shall not, acting in any capacity, directly or indirectly, through any officer, director, employee, agent, affiliate or otherwise of SBCL, (a) solicit, initiate or encourage submission of proposals or offers from any Person, corporation or other entity for the primary or specific purpose of selling the SCAN Assets located at SBCL Sites, or relating to the provision of Lab EDI Services to Automated Providers, (b) participate in any discussions or negotiations regarding, or, except as required by a legal or judicial process, furnish to any other Person, corporation or other entity any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to purchase the SCAN Assets located at SBCL Sites or to obtain the right to provide Lab EDI Services to Automated Providers, or (c) approve or undertake any such transaction. Nothing in this Section 4.3.2 shall restrict what SBCL may otherwise do under the Services Agreement. 4.3.3 CONSENTS AND APPROVALS. SBCL will use its best efforts to obtain the waiver, consent and approval of all Persons whose waiver, consent or approval (a) is required in order to consummate the transactions contemplated by this Assets Purchase Agreement, or (b) is required by any Contract to be assumed by ActaMed, or by any Court Order or License to which SBCL is a party or subject on any Transfer Date in connection with the provision of Lab EDI Services, and which would prohibit, or require the waiver, consent or approval of such transactions, or under which such transactions would, without such waiver, consent or approval, constitute a Default under the provisions thereof, result in the acceleration of any obligation thereunder, or give rise to a right of any party thereto to terminate its obligations thereunder. All written waivers, consents and approvals obtained by SBCL relating to a Region shall be provided to ActaMed on the Transfer Date relating to such Region in form and content reasonably satisfactory to ActaMed. Without limiting the generality of the foregoing, SBCL shall cause the [*] to sell to ActaMed in accordance with the terms and conditions of this Agreement the SCAN Assets located in Region Two on or prior to December 31, 1998. To the extent that SBCL's rights under any Contract or other SCAN Asset to be assigned to ActaMed hereunder may not be assigned without the consent of another Person which has not been obtained, this Assets Purchase Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful. If notwithstanding the best efforts of SBCL described above any such consent shall not be obtained, or if any attempted assignment would be ineffective or would impair ActaMed's rights under the SCAN Asset in question so that ActaMed would not in effect acquire the benefit of all such rights, ActaMed to the maximum extent permitted by law, shall act after the Applicable Transfer Date as SBCL's agent in order to obtain for it the benefits thereunder and shall cooperate, to the maximum extent permitted by law, with SBCL in any other reasonable arrangement designed to provide such benefits to ActaMed. 4.3.4 PUBLIC ANNOUNCEMENTS. The parties hereto are in the process of jointly developing a plan (the "COMMUNICATION PLAN") for communicating the transactions [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -28- contemplated by this Assets Purchase Agreement and the Services Agreement to Automated Providers, Transferred Employees and the public, a draft of which attached as SCHEDULE 4.3.4 hereto. The parties agree to use their collective best efforts to complete the Communication Plan by January 6, 1998, and each party agrees to abide by such Communication Plan. Without limiting the foregoing, neither party shall send any communication to any Automated Providers or Transferred Employee describing, or otherwise in connection with, the transactions and relationships contemplated by this Agreement (and such other agreements) unless the form and content of such communication shall have been approved in advance by the other unless required by law or judicial process, in which case notification shall be given to the other party hereto prior to such disclosure. 4.3.5 STANDSTILL. At all times prior to the last Transfer Date, ActaMed shall not consummate, or enter into any agreement with respect to a Sale of Assets (as that term is defined in the Articles), without the prior written consent of SBCL. If, at any time prior to the last Transfer Date, (i) ActaMed consummates any Merger, Share Exchange or Consolidation (as such terms are defined in the Articles) (a "Combination"); (ii) the holders of ActaMed stock immediately prior to the Combination are not the holders of a majority of the voting stock of the surviving company of the Combination, (iii) Michael K. Hoover no longer has (or has diminished) responsibility for overseeing and, directly or indirectly, managing the transfer of the Regions under Section 2.3, and (iv) the Transfer Date of any remaining Region does not occur as scheduled under Section 2.3, then SBCL may withhold [*] of the Fixed Fee (as defined in the Services Agreement) due on or after such scheduled date or dates until such time as all Regions have been transferred. SECTION 4.4 CONFIDENTIALITY OF TRADE SECRETS. Each party hereto agrees not to use, copy or disclose the Trade Secrets of the other party, except as permitted by this Assets Purchase Agreement and the other Transaction Documents. Each party shall treat the other's Trade Secrets with at least that degree of care it uses with respect to its own such Trade Secrets. SBCL will give access to its Trade Secrets relating to its provision of Lab EDI Services to those ActaMed personnel who have a need for such access and to no other Person whatsoever. ActaMed will give access to its Trade Secrets relating to the provision of Lab EDI Services to those SBCL personnel who have a need for such access and to no other Person whatsoever. The requirements herein contained with respect to non-disclosure and non-use and protection of each party's Trade Secrets shall permanently survive termination of any other provisions of this Assets Purchase Agreement or the other Transaction Documents. If any party is ordered by a court, administrative agency, or other governmental body of competent jurisdiction to disclose Trade Secrets, or if it is served with or otherwise becomes aware of a motion or similar request that such an order be issued, then such party will not be liable to the other party for disclosure of Trade Secrets required by such order if the disclosing party complies with the following requirements: (1) if an already issued order calls for immediate disclosure, then the disclosing party shall immediately move for or otherwise request a stay of such order to permit the other [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -29- party to respond; (2) the disclosing party promptly notifies the other party of the motion or order; and (3) the disclosing party does not oppose a motion or similar request by the other party for an order protecting the Trade Secrets including joining or agreeing to (or non-opposition to) a motion for leave to intervene by such other party. Notwithstanding anything to the contrary contained in this Assets Purchase Agreement, SBCL may disclose to the Office of Inspector General of the Department of Health and Human Services (the "OIG") as part of the disclosure SBCL makes under its Integrity Agreement the fact that SBCL and ActaMed have entered into the transactions contemplated by the parties and any information relating to such transaction or this Assets Purchase Agreement which SBCL determines, in good faith upon advice of counsel, is required or, in light of SBCL's obligations under the Integrity Agreement, appropriate for SBCL to make, or SBCL proposes to make in response to a request for such information from the OIG, provided that ActaMed shall be given opportunity (which shall be reasonable in light of all facts and circumstances) to review and comment upon the information SBCL intends to include in any such submission. In the event that any such disclosure that SBCL intends to make includes any information that constitutes Trade Secrets of ActaMed, SBCL will provide reasonable (in light of all facts and circumstances, including the time frame in which such disclosure is required to be made) assistance to ActaMed to take reasonable steps to assure that such Trade Secrets of ActaMed are maintained in confidence, including, but not limited to, (i) requesting that the OIG treat such information as trade secrets within the meaning of the Freedom of Information Act, 5 U.S.C. Section 552(b)(4), (ii) requesting of the OIG that SBCL and ActaMed be given prior notice of an proposed release of such information to Persons or entities outside of the OIG; (iii) requesting that the OIG otherwise assure the confidentiality of the information provided by ActaMed as if such information was a Trade Secret of SBCL [*] and taking other reasonable steps that may be requested by ActaMed and to which SBCL may, in its sole discretion, agree to assure that the OIG honors its confidentiality obligations in that section; (iv) where such information is to be provided in response to a request by the OIG, take reasonable steps to narrow the request from the OIG in an appropriate manner in order to limit the amount of information, if any, that constitutes Trade Secrets of ActaMed covered by such request; and (v) make reasonable efforts to permit ActaMed, with the concurrence of the OIG, to disclose such information directly to the OIG, provided that in any such case, ActaMed shall give SBCL a timely opportunity to review, comment upon and approv the information ActaMed intends to include in such submission. The additional safeguards described in subsections (i) through (v) above are designed to help assure the confidentiality of the Trade Secrets, the disclosure of which would have a material adverse impact on ActaMed. These additional provisions are not intended to interfere with SBCL's ability to meet its disclosure obligations under the Integrity Agreement. Each party shall promptly notify the other in the event it receives an inquiry, investigation or request for information from the OIG or other governmental agency into the matters relating to the proposed transactions. The provisions of this Section 4.4 shall apply in addition to similar provisions in the Services Agreement. SECTION 4.5 EFFORTS TO SATISFY CONDITIONS. SBCL and ActaMed each agree to use their respective best efforts to cause the Transfer Dates to occur as currently scheduled. In [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -30- addition, SBCL agrees to use its best efforts to satisfy the conditions set forth in Section 7.1 hereof, and ActaMed agrees to use its best efforts to satisfy the conditions set forth in Section 7.2 hereof. In furtherance of the foregoing, each party will use its best efforts to take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each condition to the obligations of the other party contained in this Assets Purchase Agreement and will not take or fail to take any commercially reasonable action that could reasonably be expected to result in the nonfulfillment of any such condition. Each of ActaMed and SBCL further agrees to use its best efforts to (i) satisfy any conditions to the transfer of a Region set forth in Section 2.3, and (ii) deliver any and all documents to be delivered upon the transfer of a Region, as set forth in Sections 2.5 and 2.6. SECTION 4.6 EXPENSES. Except as otherwise provided herein, each of the parties to this Assets Purchase Agreement shall bear its respective expenses incurred in connection with the preparation, execution and performance of this Assets Purchase Agreement and the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants. SECTION 4.7 ANTITRUST NOTIFICATION. The parties have filed with the United States Federal Trade Commission and the United States Department of Justice the notification and report form required for the transactions contemplated hereby and any supplemental or additional information which was requested in connection therewith pursuant to the HSR Act. The filing fee relating to such notification and report form will be borne equally. ARTICLE 5 ACTAMED COVENANTS TO SBCL SECTION 5.1 ADDITIONAL COVENANTS OF ACTAMED. ActaMed covenants and agrees that: 5.1.1 SECURITIES LAW FILINGS. From and after consummation of a Public Offering and for so long as a Permitted Owner holds any Conversion Shares, ActaMed will timely file the reports required to be filed by it under the Securities Act and the Exchange Act and the Regulations adopted by the SEC thereunder, to the extent required from time to time to enable the Permitted Owner to sell Conversion Shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (b) any similar Regulation hereafter adopted by the SEC. Upon the request of the Permitted Owner, ActaMed will deliver to the Permitted Owner a written statement as to whether it has complied with such requirements. 5.1.2 TRANSACTIONS WITH SUBSTANTIAL HOLDERS. ActaMed shall not, directly or indirectly, knowingly enter into any material transaction or agreement with any of its Substantial Holders or any Affiliate or officer of ActaMed or a Substantial Holder, or a material -31- transaction or agreement in which a Substantial Holder or Affiliate or officer of ActaMed or a Substantial Holder has a direct or indirect interest, unless such transaction or agreement is on terms and conditions no less favorable to ActaMed or any of its Subsidiaries than could be obtained at the time in an arm's length transaction with a third Person that is not such a Substantial Holder or Affiliate or officer of ActaMed or a Substantial Holder, and such transaction or agreement has been reviewed and approved by a majority of those members of ActaMed's Board of Directors who have no such interest in the transaction. Except as provided in Section 11.1.4, this Section shall not be enforceable against ActaMed by (i) any Person other than a Permitted Owner or (ii) any Person not a party to this Assets Purchase Agreement. 5.1.3 BUSINESS AND FINANCIAL COVENANTS. ActaMed covenants that: (a) Except for shares issued (i) upon exercise of options granted in accordance with the Stock Option Plans, the Articles and the Stockholders Agreement, (ii) upon conversion of shares of Preferred Stock, (iii) in connection with a Public Offering, (iv) upon exercise of the Warrant, or (v) as permitted under the Articles and the Stockholders Agreement, ActaMed will not, and will not permit any of its Subsidiaries, to hereafter issue or sell any shares or any securities convertible into, or any warrants, rights, or options to purchase shares of, the capital stock of ActaMed or such Subsidiary to any Person other than ActaMed, and ActaMed will not pledge any of the capital stock of any Subsidiary to any Person. ActaMed will not, in any event, issue or sell any shares of Series D Preferred Stock to any Person other than SBCL or its Affiliates. (b) Except as expressly permitted by the Articles or the Stockholders Agreement, ActaMed shall not (except for the advancement of money for expenses in the ordinary course of business) make, or permit any of its Subsidiaries to make, any loans or advances to any Person or have outstanding any investment in any Person, whether by way of loan or advance to, or by the acquisition of the capital stock, assets or obligations of, or any other interest in, any Person. (c) Except as expressly permitted herein or by the Articles or the Stockholders Agreement, neither ActaMed nor any of its Subsidiaries shall declare or make (i) any payment or the incurrence of any Liability to make any payment in cash, property or other assets as a dividend or other distribution in respect of any shares of capital stock of ActaMed or any Subsidiary, excluding, however, any dividends payable to ActaMed by a Subsidiary or dividends which may be payable solely in ActaMed Common Stock or the common stock of any Subsidiary and (ii) except as otherwise permitted by the Transaction Documents or a stock option agreement under the Stock Option Plans, any payment or the incurrence of any Liability to make any payment in cash, property or other assets for the purposes of purchasing, retiring or redeeming any shares of any class of capital stock of ActaMed or any Subsidiary or any warrants, options or other rights to purchase any such shares. (d) Neither ActaMed nor any of its Subsidiaries will amend or change its articles of incorporation or bylaws, or violate or breach any of the provisions thereof. -32- (e) Without the consent of a majority of the Board of Directors: (i) Other than debt in an amount no greater than $2,000,000 incurred to fund the cash portion of the Purchase Price, ActaMed shall not create, incur or suffer to exist, or permit any Subsidiary to create, incur or suffer to exist, any debt other than: (a) debt existing on the date hereof and included in the ActaMed Financial Statements or incurred in the ordinary course of business between the date of the ActaMed Financial Statements and the date hereof, and any renewals or replacements of such debt not exceeding the principal amount of the debt being replaced or renewed; and (b) debt not in excess of $1,000,000 in the aggregate in any one calendar year. (ii) ActaMed shall not create or suffer to exist, or permit any Subsidiary to create or suffer to exist, any obligations for the payment of rent for any property under leases or agreements to lease, other than obligations for (a) the payment of rent which, in the aggregate, do not exceed $1,000,000 annually and (b) payments under leases set forth on DISCLOSURE SCHEDULE 3.2.19. (iii) ActaMed shall not acquire, or permit any Subsidiary to acquire, directly or indirectly, the assets of or equity interests in any other business or entity, whether by purchase, merger consolidation or otherwise in excess of $1,000,000. (iv) ActaMed shall not effect an initial Public Offering of any equity securities, other than equity securities issued in a merger, totaling less than $15,000,000 (before discounts and commissions) in gross proceeds to ActaMed, and at a per share price of less than 2.5 times the then existing conversion price of the Series A Preferred Stock. 5.1.4 CORPORATE EXISTENCE, BUSINESS, MAINTENANCE, INSURANCE. (a) ActaMed will at all times preserve and keep in full force and effect its corporate existence and rights and franchises deemed material to its business and those of its Subsidiaries, except any Subsidiary of ActaMed may be merged into ActaMed or another Subsidiary. (b) ActaMed shall engage solely in the business of developing healthcare information networks (with a principle focus on the provision of lab order entry and results reporting services) and businesses closely related thereto. ActaMed (and any Subsidiary) will not purchase or acquire any property other than property useful in and related to such business. (c) ActaMed will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of ActaMed and any Subsidiary and from time to time will make or cause to be made all appropriate repairs, -33- renewals and replacements thereof. ActaMed and any Subsidiary will at all times comply in all material respects with the provisions of all material leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder. (d) ActaMed will maintain or cause to be maintained, with financially sound and reputable insurers, appropriate insurance with respect to its properties and business and the properties and business of any Subsidiary against loss or damage. 5.1.5 REPURCHASE OF SHARES OF PREFERRED STOCK. Except as provided in Article Three, Section 5.1 of the Fourth Amended Articles, ActaMed shall not, and shall not permit any of its Subsidiaries or any Affiliate of ActaMed to, directly or indirectly, redeem or repurchase or make any offer to redeem or repurchase any shares of (i) Preferred Stock other than Series D Preferred Stock, unless ActaMed, such Subsidiary or such Affiliate has offered to repurchase shares of Preferred Stock PRO RATA, from all holders of outstanding shares of Preferred Stock, including without limitation the Series D Preferred Stock, upon the same terms, or (ii) Series D Preferred Stock unless ActaMed, such Subsidiary or such Affiliate has offered to repurchase shares of Series D Preferred Stock PRO RATA, from all holders of outstanding shares of Series D Preferred Stock upon the same terms. 5.1.6 COMPENSATION. All awards of compensation, including, but not limited to, salary, bonus and awards of stock options made to executive officers and/or directors of ActaMed shall be determined by ActaMed in accordance with the terms of the Stockholders' Agreement and the Articles. 5.1.7 SFA AMENDMENT. ActaMed shall deliver to SBCL, within five (5) business days of the Region One Transfer Date, a duly executed and delivered Amendment to that certain Amended and Restated Development Agreement, dated the 21st day of November, 1996, but effective as of the 3rd day of December, 1993, by and between ActaMed and The SFA Limited Partnership, which Amendment shall provide, on terms satisfactory to SBCL and its counsel, that the SBCL Software, the ActaLab Software and any Intellectual Property developed under the Development Agreement shall not constitute "ActaMed Technology," as defined in such Amended and Restated Development Agreement with The SFA Limited Partnership. 5.1.8 NEW BUSINESS PLAN. Within thirty days after the Region One Transfer Date, the Board of Directors of ActaMed will approve and adopt a new business plan (the "NEW BUSINESS PLAN") for ActaMed covering the years 1998 and 1999, which shall include projected financial data, including statements of operations, and operational data, including number of sites and transactions per site. The new business plan shall provide monthly data for 1998 and quarterly data for 1999. By June 30, 1999, the Board of Directors of ActaMed will approve and adopt an addendum to the plan, covering the same items of financial and operational data, for the year 2000, presented on a monthly basis. The nominal values set forth in the New Business Plan shall not deviate from analogous figures presented in ActaMed's existing business plan, a copy of which was forwarded to SBCL prior to December 1, 1997, by more than seven percent (7%). -34- Section 5.2 INFORMATIONAL COVENANTS OF ACTAMED. ActaMed covenants and agrees that it shall deliver the following information to any Permitted Owner for so long as (except as set forth in Section 5.2.6) such Permitted Owner shall hold [*] of the aggregate outstanding shares of Preferred Stock or Conversion Shares (considered as a single class) or until such time as ActaMed shall have consummated a Public Offering: 5.2.1 AUDITED ANNUAL FINANCIAL STATEMENTS. As soon as practicable and, in any case, within one hundred and twenty (120) days after the end of each fiscal year, financial statements of ActaMed, consisting of the balance sheet of ActaMed as of the end of such fiscal year and the statements of operations, statements of stockholders equity and statements of cash flows of ActaMed for such fiscal year, setting forth in each case, in comparative form, the figures for the preceding fiscal year, all in reasonable detail and fairly presented in accordance with GAAP applied on a consistent basis throughout the periods reflected therein, except as stated therein, and accompanied by an opinion thereon of Ernst & Young, or other independent certified public accountants selected by ActaMed of good and recognized national standing in the United States. 5.2.2 QUARTERLY UNAUDITED FINANCIAL STATEMENTS. As soon as practicable and, in any case, within forty-five (45) days after the end of each of the first three fiscal quarters in each fiscal year, unaudited financial statements of ActaMed setting forth the balance sheet of ActaMed at the end of each such fiscal quarter and the statements of operations and statements of cash flows of ActaMed for each such fiscal quarter and for the year to date, and setting forth in comparative form figures as of the corresponding date and for the corresponding periods of the preceding fiscal year, all in reasonable detail and certified by an accounting officer of ActaMed as complete and correct, as having been prepared in accordance with GAAP consistently applied (except as otherwise disclosed therein) and as presenting fairly, in all material respects, the financial position of ActaMed and any of its Subsidiaries and results of operations and cash flows thereof subject, in each case, to customary exceptions for interim unaudited financial statements. 5.2.3 MONTHLY UNAUDITED FINANCIAL STATEMENTS. As soon as available, but in any event within thirty (30) days after the end of each calendar month, copies of the unaudited balance sheet of ActaMed as at the end of such calendar month and the related unaudited statements of operations and cash flows for such calendar month and the portion of the calendar year through such calendar month, in each case setting forth in comparative form the figures for the corresponding periods of (a) the previous calendar year and (b) the budget for the current year, prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as otherwise disclosed therein) and certified by the chief financial officer of ActaMed as presenting fairly the financial condition and results of operations of ActaMed and any of its Subsidiaries (subject to customary exceptions for interim unaudited financial statements). [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -35- 5.2.4 MANAGEMENT'S ANALYSIS. All the financial statements delivered pursuant to Sections 5.2.2 and Section 5.2.3 shall be accompanied by an informal narrative description of material business and financial trends and developments and significant transactions that have occurred in the appropriate period or periods covered thereby. 5.2.5 BUDGETS. As soon as practicable, but in any event within thirty (30) days prior to the commencement of a fiscal year, an annual operating budget for such fiscal year, approved by the Board of Directors, including monthly income and cash flow projections and projected balance sheets as of the end of each quarter within such fiscal year. Extensions of such due date shall not be unreasonably withheld. 5.2.6 INSPECTION. Upon reasonable notice, ActaMed shall, and shall cause any of its Subsidiaries to, permit any Permitted Owner (so long as it owns [*] or more of the outstanding capital stock of ActaMed) by its representatives, agents or attorneys: (a) to examine all books of account, records, reports and other papers of ActaMed or such Subsidiary except to the extent that such action would, in the reasonable opinion of counsel, constitute a waiver of the attorney/client privilege, (b) to make copies and take extracts from any thereof, except for information which is confidential or proprietary, (c) to discuss the affairs, finances and accounts of ActaMed or such Subsidiary with ActaMed's or such Subsidiary's officers and independent certified public accountants (and by this provision ActaMed hereby authorizes said accountants to discuss with the Permitted Owner and its representatives, agents or attorneys the finances and accounts of ActaMed or such Subsidiary), and (d) to visit and inspect, at reasonable times and on reasonable notice during normal business hours, the properties of ActaMed and such Subsidiary. Notwithstanding any provision herein to the contrary, the provisions of this Section 5.2.6 are in addition to any rights of a Permitted Owner under the Georgia Business Corporation Code and shall in no way limit such rights. The expenses of the Permitted Owner in connection with any such inspection shall be for the account of the Permitted Owner. Notwithstanding the foregoing sentence, it is understood and agreed by ActaMed that all reasonable expenses incurred by ActaMed or such Subsidiary, any officers, employees or agents thereof or the independent certified public accountants therefor, shall be expenses payable by ActaMed and shall not be expenses of the Permitted Owner making the inspection. Notwithstanding anything to the contrary, SBCL shall be permitted access to any information of, or related to, any customer of ActaMed that is a competitor of SBCL only to the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -36- extent ActaMed is not subject to confidentiality undertakings with respect to such information; PROVIDED that such limitation shall not prevent SBCL or auditors retained by SBCL, or if ActaMed so requires for reasons of confidentiality only auditors retained by SBCL, from confirming the amount of royalties payable to it under the License Agreement or Services Agreement by reason of connectivity between Providers and commercial laboratories other than SBCL Labs. 5.2.7 OTHER INFORMATION. ActaMed shall deliver the following provided that in the reasonable opinion of counsel to ActaMed such disclosure will not constitute a waiver of the attorney/client privilege, the breach of any secrecy covenant or the release of information regarding competitors of the Permitted Owner: (a) promptly after the submission thereof to ActaMed, copies of any detailed reports (including the auditors' comment letter to management, if any such letter is prepared) submitted to ActaMed by its independent auditors in connection with each annual or interim audit of the accounts of ActaMed made by such accountants; (b) promptly, and in any event within ten (10) days after obtaining knowledge thereof, notice of the institution of any suit, action or proceeding (other than a proceeding of general application which is not directly against ActaMed or one or more of the Subsidiaries), the happening of any event or, to the best knowledge of ActaMed, the assertion or threat of any claim against ActaMed or any of the Subsidiaries which, either individually or in the aggregate, would have a Material Adverse Effect; (c) promptly upon, and in any event within thirty (30) days after obtaining knowledge thereof, notice of any breach of, Default under or failure to comply with any material term under this Article V or any material adverse change in ActaMed's relationship with its major customers, suppliers, employees or other entity with which ActaMed has a business relationship; (d) with reasonable promptness, a notice of any default by ActaMed or any of its Subsidiaries under any material agreement to which it is a party; (e) with reasonable promptness, copies of all written materials furnished to directors; (f) promptly (but in any event within ten (10) days) after the filing of any document or material with the SEC, a copy of such document or material; (g) promptly after the record date set by the Board of Directors to determine the stockholders entitled to vote at ActaMed's annual meeting of stockholders (but in any event ten (10) days prior to such meeting), a list of all stockholders of ActaMed and their respective holdings; and -37- (h) promptly upon request therefor, such other data, filings and information as the Permitted Owner may from time to time reasonably request. ARTICLE 6 EMPLOYEE MATTERS SECTION 6.1 TERMINATION OF EMPLOYMENT BY SBCL AND OFFER OF EMPLOYMENT BY ACTAMED. Effective as of the close of business on January 1, 1998 or such later date as mutually agreed by SBCL and ActaMed, but not later than January 29, 1998 (the "Termination Date"), SBCL will terminate the employment of the individuals listed on Schedule VI. As soon as practicable following the Region One Transfer Date, ActaMed will offer employment to each of the individuals listed on Schedule VI, which employment shall become effective as of the day following the Termination Date (the "Hire Date"). Each individual listed on Schedule VI who accepts ActaMed's offer of employment shall be referred to herein as a "Transferred Employee." In connection with the termination of employment of the individuals listed on Schedule VI, SBCL shall take such action with respect to compensation and benefits for such individuals as described in the SBCL undertakings section of Schedule VI. SECTION 6.2 TRANSITIONAL EMPLOYEE LEASING ARRANGEMENT. For each Transferred Employee, the "Transitional Employee Leasing Arrangement" shall extend for the period from the Hire Date until the earlier of: 6.2.1 the Transfer Date for the Region to which a Transferred Employee is assigned; or 6.2.2 five business days after the date SBCL provides written notice to ActaMed with respect to such Transferred Employee, if SBCL determines that it no longer wishes to have a Transferred Employee assigned to provide leased services to SBCL pursuant to this Agreement. During the Transitional Employee Leasing Arrangement period, ActaMed shall require, as a condition of the continued employment of each Transferred Employee, that each Transferred Employee report to SBCL, and continue to comply with SBCL's policies and procedures in the course of each such Transferred Employee's employment by ActaMed. Notwithstanding the foregoing, Transferred Employees shall be under ActaMed's supervision, direction and control, subject to the general oversight and guidance of SBCL. In performing services for SBCL pursuant to this Article VI, the Transferred Employees shall have the status of common law employees of ActaMed, and neither the Transferred Employees nor ActaMed shall act as or be employees or agents of SBCL. -38- SECTION 6.3 ACTAMED COMPENSATION AND BENEFITS. ActaMed shall, out of its own funds, provide each Transferred Employee with compensation and benefits as set forth on Schedule VI. SECTION 6.4 PAST SERVICE CREDIT. The service of each Transferred Employee with SBCL or any of its Affiliates shall be counted for purposes of determining eligibility to participate or to vest in benefits under any compensation or benefit plan, program or arrangement now or hereafter maintained by ActaMed to the same extent that such service was credited or otherwise counted under any Benefit Plan in which such Transferred Employee was eligible to participate with SBCL immediately prior to the Region One Transfer Date. SECTION 6.5 TERMINATION OF EMPLOYMENT; NONSOLICITATION; TERMINATION OF AGREEMENT. 6.5.1 ActaMed will not terminate without cause the employment of any Transferred Employee before the date determined under Section 6.2.1 or 6.2.2, without the advance written consent of SBCL. 6.5.2 ActaMed shall be responsible for assigning Transferred Employees to principal work locations, which shall be the same as the locations to which such Transferred Employees were assigned as of December 31, 1997. Except as may otherwise be agreed by SBCL and ActaMed in a writing signed by the parties, SBCL shall make the business facilities to which Transferred Employees are currently assigned available to ActaMed for the purpose of location assignments of Transferred Employees until not later than the [*] anniversary of the Transfer Date of the Region to which a Transferred Employee is assigned. 6.5.3 SBCL shall not solicit the employment of, hire or employ any Transferred Employee until after the earlier of (i) such Transferred Employee's termination of employment by ActaMed with cause, (ii) such Transferred Employee's voluntary resignation from ActaMed, [*] (iii) [*] or (iv) the termination of this Assets Purchase Agreement pursuant to Section 10.1, in which event ActaMed shall, at SBCL's request, use its best efforts to cooperate with SBCL in facilitating SBCL's solicitation to re-hire such Transferred Employees. SECTION 6.6 PAYMENT OF WAGE AND BENEFIT COSTS. 6.6.1 PERIOD FROM JANUARY 1, 1998 THROUGH THE HIRE DATE. For the period beginning January 1, 1998 and extending through the Hire Date, with respect to each individual identified on SCHEDULE VI as a Transferred Employee, ActaMed shall reimburse SBCL for such individuals' base salary, paid time off, the employer-paid portion of employment and unemployment insurance or taxes, the employer-paid portion of premiums payable with respect to all insured benefits, with respect to medical and dental benefits for individuals who participate in the self-insured medical and dental program sponsored by SBCL, the pro rated portion of the excess, if any, of a reasonable premium cost for such coverage, as determined by [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -39- SBCL, over the amount paid by such individual for such coverage, the present value of additional accruals under the SmithKline Beecham Pension Plan, as determined by the Plan's actuary and employer contributions payable under the SmithKline Beecham Retirement Savings Plan. SBCL will bill such employee costs to ActaMed by or before January 31, 1998, and ActaMed will remit payment to SBCL for such employee costs within 30 days of receipt of the bill for such costs. 6.6.2 DURING TRANSITION. Except as otherwise provided in SCHEDULE VI, SBCL will reimburse ActaMed for certain direct compensation and benefit costs incurred by ActaMed with respect to each Transferred Employee during the Transitional Employee Leasing Arrangement period (as hereinafter defined, the "Employee Costs"). For purposes of this Article VI, Employee Costs will include base salary, paid time off pursuant to the paid time off policy described in SCHEDULE VI, the employer-paid portion of employment and unemployment insurance or taxes, the employer-paid portion of premiums payable with respect to the insured benefits set forth on SCHEDULE VI, employer contributions made under any ActaMed qualified defined contribution plan, and with respect to short term disability benefits for individuals who participate in the self-insured short term disability plan sponsored by ActaMed, the pro rated portion of the excess, if any, of a reasonable premium cost for such coverage, as determined by ActaMed, over the amount paid by such individual for such coverage. In addition, for each Transferred Employee, for each of 1998 and 1999, Employee Costs will include an amount equal to [*] of [*] to such Transferred Employee [*], the [*] is the [*] during which such Transferred Employee was [*], and the [*]. ActaMed will bill such Employee Costs to SBCL monthly, and SBCL will remit payment to ActaMed for such Employee Costs within 30 days of receipt of the bill for such costs. 6.6.3 STAY BONUS AND BONUS. (a) Stay Bonus. SBCL will reimburse ActaMed for [*] of the stay bonus payments described in SCHEDULE VI and actually made by ActaMed within thirty (30) days following SBCL's receipt of the bill for such costs. (b) Bonus. ActaMed will pay, and SBCL will reimburse ActaMed for, bonus payments as described in the bonus provisions of SCHEDULE VI. SECTION 6.7 TAXES, UNEMPLOYMENT INSURANCE AND RELATED ITEMS. ActaMed agrees to accept and hereby accepts full and exclusive responsibility for the payment of any and all contributions or taxes, or both, for any unemployment insurance or taxes, medical and old age retirement benefits, pensions or annuities now or hereafter imposed under any law of the United States or any State, which are measured by the wages, salaries or other remuneration paid to persons employed by ActaMed on the work covered by this Article VI or in any way connected [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -40- therewith; and ActaMed shall reimburse SBCL for any of the contributions or taxes, or both, or any part thereof, if SBCL may be required by law to pay the same or any part thereof. SECTION 6.8 EXAMINATION AND AUDIT. For the Transitional Employee Leasing Arrangement period, and for three calendar years after final payment is made to ActaMed by SBCL pursuant to Section 6.6, ActaMed shall establish and maintain relevant books, records, payroll records, receipts, documents, papers and any other data or information which support and substantiate the charges made to and payments received from SBCL under Section 6.2. During such time, SBCL or its designated representative shall have access to and the right to examine any relevant books, records, documents, papers, receipts and any other data or information of ActaMed relating to ActaMed's obligations under this Article VI. ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED SECTION 7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACTAMED. The obligations of ActaMed to consummate the transactions contemplated by this Assets Purchase Agreement shall be subject to the satisfaction, on or before the Applicable Transfer Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by ActaMed for purposes of consummating such transactions, but without prejudice to any other right or remedy which ActaMed may have hereunder as a result of any misrepresentation by, or breach of any agreement, covenant or warranty of SBCL contained in this Assets Purchase Agreement or any Schedule, certificate or instrument furnished or caused to be furnished by SBCL hereunder. 7.1.1 REPRESENTATIONS TRUE. The representations and warranties made by SBCL in this Assets Purchase Agreement, with any exceptions set forth in the Disclosure Schedules attached to the Compliance Certificate, shall be true and correct in all material respects on the Applicable Transfer Date, with the same force and effect as if such representations and warranties had been made on and as of such Applicable Transfer Date. The Disclosure Schedules shall not identify any item indicating that the business or financial condition of SBCL or SBCL's provision of or ability to provide Lab EDI Services to SBCL Sites has been materially and adversely impacted, or which would impair SBCL's ability to perform its obligations hereunder, including its ability to deliver the SCAN Assets to ActaMed. 7.1.2 COVENANTS. All of the terms, covenants and conditions in this Assets Purchase Agreement and the other SBCL Documents to be complied with or performed by SBCL on or prior to the Region One Transfer Date shall have been complied with and performed in all material respects. 7.1.3 NO INJUNCTION, ETC. No action, proceeding, investigation or Regulation shall have been instituted, threatened or proposed before any court, governmental -41- agency or legislative body to enjoin, restrain, prohibit, or obtain substantial damages in respect of, or which is related to, or arises out of, this Assets Purchase Agreement or the consummation of the transactions contemplated hereby, or which is related to or arises out of the provision of Lab EDI Services, if such action, proceeding, investigation or Regulation, in the reasonable judgment of ActaMed, would make it inadvisable to consummate the transactions contemplated on such Transfer Date. 7.1.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and documents deemed necessary or appropriate by ActaMed or their counsel to effectuate this Assets Purchase Agreement and the consummation of the transactions contemplated hereby, or incidental thereto, and all other related legal matters, shall have been approved by such counsel. 7.1.5 GOVERNMENTAL APPROVALS. All governmental and other consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Assets Purchase Agreement on such Transfer Date shall have been received by ActaMed. SECTION 7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SBCL. The obligations of SBCL to consummate the transactions contemplated by this Assets Purchase Agreement shall be subject to the satisfaction, on or before each Transfer Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by SBCL for purposes of consummating such transactions, but without prejudice to any other right or remedy which SBCL may have hereunder as a result of any misrepresentation by, or breach of any agreement, covenant or warranty of ActaMed contained in this Assets Purchase Agreement, or any certificate or instrument furnished by it hereunder. 7.2.1 REPRESENTATIONS TRUE. The representations and warranties made by ActaMed in this Assets Purchase Agreement, with any exceptions set forth in the Disclosure Schedules attached to the Compliance Certificate, shall be true and correct in all material respects on the Applicable Transfer Date, with the same force and effect as if such representations and warranties had been made on and as of such Applicable Transfer Date. The Disclosure Schedules shall not identify any item indicating that the business or financial condition of ActaMed has been materially and adversely impacted, or which would impair ActaMed's ability to perform its obligations hereunder. 7.2.2 COVENANTS. All of the terms, covenants and conditions in the ActaMed Documents to be complied with or performed by ActaMed on or prior to the Transfer Date shall have been complied with and performed in all material respects. 7.2.3 NO INJUNCTION, ETC. No action, proceeding, investigation or Regulation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, prohibit, or obtain substantial damages in respect of, or which is related to, or arises out of, this Assets Purchase Agreement or the consummation of the transactions contemplated hereby, or which is related to or arises out of the business of ActaMed, if such action, proceeding, investigation or Regulation, in the reasonable judgment of -42- SBCL, would make it inadvisable to consummate the transactions contemplated on such Transfer Date. 7.2.4 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and documents deemed necessary or appropriate by SBCL or its counsel to effectuate this Assets Purchase Agreement and the consummation of the transactions contemplated hereby, or incidental hereto, and all other related legal matters, shall have been approved by such counsel. 7.2.5 GOVERNMENTAL APPROVALS. All governmental and other consents and approvals, if any, necessary to permit the consummation of the transactions contemplated by this Assets Purchase Agreement shall have been received by SBCL. ARTICLE 8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS AND INDEMNIFICATION SECTION 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. 8.1.1 SURVIVAL OF SBCL REPRESENTATIONS, WARRANTIES AND COVENANTS. ActaMed and SBCL acknowledge and agree that, as contemplated by Section 4.3.1, prior to each of the Transfer Dates, ActaMed intends to perform such investigation of the SCAN Assets to be transferred on such Transfer Date and related Lab EDI Services provided by SBCL as ActaMed may deem appropriate; PROVIDED, HOWEVER, no investigation by ActaMed shall diminish or otherwise affect any of the representations, warranties, covenants or agreements made or to be performed by SBCL pursuant to this Assets Purchase Agreement or ActaMed's right to rely fully upon such representations, warranties, covenants and agreements. All such representations, warranties, covenants and agreements made or to be performed by SBCL pursuant to this Assets Purchase Agreement shall survive the execution and delivery hereof and each of the Transfer Dates hereunder indefinitely except to the extent limited by this Section 8.1.1. The representations and warranties shall terminate and expire, (a) with respect to any General Claim based on a breach thereof (other than one based on a breach of Section 3.1.3 hereof) with respect to which a Claims Notice has not been given, after [*] from the Transfer Date of the SCAN Assets as to which the representation and warranty was made, (b) with respect to any General Claim based upon a breach of Section 3.1.3 hereof, after the earlier of (i) [*] or (ii) [*] days after the Region Four Transfer Date, and (c) with respect to a Tax Claim, on the later of (i) the [*] after the date upon which the Liability to which any such Tax Claim may relate is barred by all applicable statutes of limitation and (ii) the [*] after the date upon which any claim for refund or credit related to such Tax Claim is barred by all applicable statutes of limitation. A Claims Notice for a General Claim based on a breach of covenant may be given at any time up to the [*] of the date on which the breach of such covenant occurred. With respect to any Ownership Claim, Undisclosed Liability Claim or any type of claim not specifically addressed [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -43- above, such representations, warranties, covenants and agreements shall survive without limit of time. 8.1.2 SURVIVAL OF ACTAMED REPRESENTATIONS, WARRANTIES AND COVENANTS. All the representations, warranties, covenants and agreements, made or to be performed by ActaMed pursuant to this Assets Purchase Agreement shall survive the execution and delivery hereof indefinitely except to the extent limited by this Section 8.1.2. No investigation by SBCL shall diminish or otherwise affect any of the representations, warranties, covenants or agreements made or to be performed by ActaMed pursuant to this Assets Purchase Agreement or SBCL's right to rely fully upon such representations, warranties, covenants and agreements. All such representations, warranties, covenants and agreements shall be considered to have been relied upon by SBCL and shall survive the delivery to SBCL of the shares of Series D Preferred Stock (and the Conversion Shares). The representations and warranties shall terminate and expire (a) with respect to a General Claim based on a breach thereof for which a Claims Notice has not been given, after [*] from the Transfer Date with respect to which such representation and warranty was made, (b) with respect to a Tax Claim, on the later of (i) the [*] after the date upon which the Liability to which any such Tax Claim may relate is barred by all applicable statutes of limitation and (ii) the [*] after the date upon which any claim for refund or credit related to such Tax Claim is barred by all applicable statutes of limitation and (c) with respect to the covenants of ActaMed set forth in Sections 5.1.3 and 5.1.6 hereof, upon the closing of a Public Offering. A Claims Notice for a General Claim based on a breach of covenant may be given at any time up to the [*] of the date on which the breach of such covenant occurred. With respect to any Ownership Claim, Undisclosed Liability Claim or any type of claim not specifically addressed above, such representations, warranties, covenants and agreements shall survive without limit of time. SECTION 8.2 OBLIGATION TO INDEMNIFY. 8.2.1 OBLIGATIONS OF SBCL TO INDEMNIFY. Subject to the limitations of Sections 8.1.1, 8.2.6 and 8.2.9, SBCL agrees to indemnify and hold harmless each ActaMed Indemnitee against and in respect of: (a) all Losses imposed upon or incurred by any ActaMed Indemnitee by reason of or resulting from: (i) a breach of any representation or warranty of SBCL contained in or made pursuant to this Assets Purchase Agreement other than the representation contained in Section 3.1.3(a); or (ii) any nonfulfillment of any covenant or agreement of SBCL contained in or made pursuant to this Assets Purchase Agreement; or (iii) any Liability of SBCL not assumed by ActaMed hereunder, including without limitation any Liability for any Taxes attributable to ownership of [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -44- SCAN Assets or SBCL's provision of Lab EDI Services in a Region prior to its Transfer Date in accordance herewith. (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any Loss in connection with Section 8.2.1(a) or to the enforcement of this Section 8.2.1; (c) all Losses imposed upon or incurred by any ActaMed Indemnitee by reason of or resulting from any Litigation pending or threatened, arising out of or relating to the provision of Lab EDI Services at an SBCL Site hereunder, regardless of whether it is disclosed in any Section of the Disclosure Schedule called for by Section 3.1 or Section 2.5.2 hereof; PROVIDED, HOWEVER that, to the extent that any such Loss arises out of the actions of a Transferred Employee, SBCL shall only be obligated to indemnify and hold harmless an ActaMed Indemnitee hereunder if such Transferred Employee was acting subject to SBCL's general oversight and guidance pursuant to Section 6.2 hereof. 8.2.2 OBLIGATION OF ACTAMED TO INDEMNIFY. Subject to the limitations of Section 8.1.2 and Section 8.2.6, ActaMed agrees to indemnify and hold harmless each SBCL Indemnitee against and in respect of: (a) all Losses imposed upon or incurred by any SBCL Indemnitee by reason of or resulting from: (i) a breach of any representation or warranty of ActaMed contained in or made pursuant to this Assets Purchase Agreement; or (ii) any nonfulfillment of any covenant or agreement of ActaMed contained in or made pursuant to this Assets Purchase Agreement; and (iii) any Liability of ActaMed (other than a Liability indemnified by SBCL pursuant to Section 8.2.1) attributable to ownership of SCAN Assets or ActaMed's provision of Lab EDI Services in a Region after its Transfer Date in accordance herewith; PROVIDED that if the Services Agreement provides for indemnification for any such Liability, then no such claim shall be brought hereunder. (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any Loss in connection with Section 8.2.2(a) or to the enforcement of this Section 8.2.2. (c) all Losses imposed upon or incurred by any SBCL Indemnitee by reason of or resulting from any Litigation pending or threatened, arising out of or relating to use of SCAN Assets at an ActaMed Site -45- after such site became an ActaMed Site hereunder, regardless of whether it is disclosed in the Disclosure Schedule by reason of Section 3.2 or Section 2.6.3 hereof. (d) all Losses imposed upon or incurred by SBCL by reason of SBCL premises being used by Transferred Employees on or after the Hire Date. 8.2.3 CLAIMS NOTICE. A Claim shall be made by any Indemnitee by delivery of a Claims Notice to the Indemnifying Party requesting indemnification and specifying the basis on which indemnification is sought and the amount of asserted Losses and, in the case of a Third Party Claim, containing (by attachment or otherwise) such other information as such Indemnitee shall have concerning such Third Party Claim. 8.2.4 PROCEDURES INVOLVING NON-THIRD PARTY CLAIMS. If the Claim involves a matter other than a Third Party Claim, the Indemnifying Party shall have forty-five (45) days to object to such Claim by delivery of a written notice of such objection to such Indemnitee specifying in reasonable detail the basis for such objection. If an objection is timely made by the Indemnifying Party, the Indemnifying Party and the Indemnitee shall cooperate in the compromise of the Claim with ultimate resolution of the validity of such Claim to be determined under Article IX. Failure to object in a timely manner shall constitute a final and binding acceptance of the Claim by the Indemnifying Party on behalf of all Indemnitors, and the Claim shall be paid in accordance with Section 8.2.8 hereof. 8.2.5 PROCEDURES INVOLVING THIRD PARTY CLAIMS. The obligations and liabilities of the parties hereunder with respect to a Third Party Claim shall be subject to the following terms and conditions: (a) The Indemnitee shall give the Indemnifying Party written notice of a Third Party Claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnifying Party may undertake the defense, compromise and settlement thereof by representatives of its own choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee to notify the Indemnifying Party of such claim shall not relieve the Indemnifying Party of any liability that it may have with respect to such claim except to the extent the Indemnifying Party demonstrates that the defense of such claim is prejudiced by such failure. The assumption of the defense, compromise and settlement of any such Third Party Claim by the Indemnifying Party shall be an acknowledgment of the obligation of the Indemnifying Party to indemnify the Indemnitee with respect to such claim hereunder. If the Indemnitee desires to participate in, but not control, any such defense, compromise and settlement, it may do so at its sole cost and expense. If, however, the Indemnifying Party fails or refuses to undertake the defense of such Third Party Claim within ten (10) days after written notice of such claim has been given to the Indemnifying Party by the Indemnitee, the Indemnitee shall have the right to undertake the defense, compromise and settlement of such claim with counsel of its own choosing. In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, make a Claim as specified in -46- Section 8.2.1(b) or 8.2.2(b) which shall be deemed a Claim that is not a Third Party Claim for the purposes of the procedures set forth herein. (b) If, in the reasonable opinion of the Indemnitee, any Third Party Claim or the litigation or resolution thereof involves an issue or matter which could have a material adverse effect on the business, operations, assets, properties or prospects of the Indemnitee (including, without limitation, the administration of the tax returns and responsibilities under the tax laws of the Indemnitee), the Indemnitee shall have the right to control the defense, compromise and settlement of such Third Party Claim undertaken by the Indemnifying Party, and the reasonable costs and expenses of the Indemnitee in connection therewith shall be included as part of the indemnification obligations of the Indemnifying Party hereunder. If the Indemnitee shall elect to exercise such right, the Indemnifying Party shall have the right to participate in, but not control, the defense, compromise and settlement of such Third Party Claim at its sole cost and expense. (c) No settlement of a Third Party Claim involving the asserted liability of the Indemnifying Party under this Article shall be made without the prior written consent by or on behalf of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party assumes the defense of such a Third Party Claim, (1) no compromise or settlement thereof may be effected by the Indemnifying Party without the Indemnitee's consent unless (a) there is no finding or admission of any violation of law or any violation of the rights of any Person and no effect on any other claim that may be made against the Indemnitee (b) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (c) the compromise or settlement includes, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a release, in form and substance reasonably satisfactory to the Indemnitee, from all liability in respect of such Third Party Claim, and (2) the Indemnitee shall have no liability with respect to any compromise or settlement thereof effected without its consent. 8.2.6 LIMITATIONS ON INDEMNIFICATION. (a) No Party to this Assets Purchase Agreement shall be entitled to indemnification under this Assets Purchase Agreement to the extent that such Party's Losses are increased or extended by the willful misconduct, violation of law or bad faith of such Party. (b) No Indemnifying Party shall be required to indemnify an Indemnitee with respect to any Loss arising out of or with respect to a Claim unless the amount of such Loss, when aggregated with all other such Losses, shall (i) exceed [*], at which time Claims may be asserted to the extent that all Losses or Asserted Liabilities are in excess of such threshold amount; PROVIDED, however, that such threshold amount shall not apply to any (a) Loss which results from or arises out of an Ownership Claim, a Tax Claim or Undisclosed Liability Claim, (b) Loss which results from or arises out of fraud or intentional misrepresentation or an intentional breach of a representation, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -47- warranty, covenant or agreement in this Assets Purchase Agreement; (c) Claim which is based upon Section 8.2.1(a)(iii) or 8.2.2(a)(iii) or (d) Loss which results from or arises out of any Litigation incident to any of the matters referred to in the foregoing clauses (a) and (b); and (ii) be less than [*], PROVIDED that such cap shall not apply to (a) a General Claim which is based upon a breach by SBCL of its representations and warranties set forth in Sections 3.1.7(a) or (b) hereof or a breach of its covenant set forth in Section 4.4 hereof, (b) a General Claim which is based upon a breach by ActaMed of its representation and warranty set forth in Section 3.2.14 or a breach of its covenant set forth in Section 4.4 hereof, or (c) a Claim which is based upon Section 8.2.1(a)(iii) or 8.2.2(a)(iii). Notwithstanding the foregoing, for any breach of Section 3.1.6(a)-(c), SBCL shall indemnify each ActaMed Indemnitee for any individual Loss in excess of [*] per item of tangible personal property and any aggregate Loss exceeding [*] for items of tangible personal property. 8.2.7 NO RELEASE FOR FRAUD. Nothing contained in this Assets Purchase Agreement shall relieve or limit the liability of any Party or any officer or director of such Party from any Liability arising out of or resulting from common law fraud or intentional misrepresentation in connection with the transactions contemplated by this Assets Purchase Agreement or in connection with the delivery of any of the Transaction Documents. Each Party shall have a right to indemnification for any Loss incurred as the result of any common law fraud or intentional misrepresentation by any other Party or any officer or director of such other Party without regard to the Threshold Amount, the maximum liability or any period of limitation. 8.2.8 PAYMENT. (a) If any Party is required to make any payment under this Article, such Party shall promptly pay the Indemnified Party the amount so determined. If there is a dispute as to the amount or manner of determination of any indemnity obligation owed under this Article, the Indemnifying Party shall nevertheless pay when due such portion, if any, of the obligation as shall not be subject to dispute. The difference, if any, between the amount of the obligation ultimately determined as properly payable under this Article and the portion, if any, theretofore paid shall bear interest as provided in Section 8.2.8(c). (b) Any items as to which an Indemnified Party is entitled to payment under this Article may be paid by set-off against amounts payable to the Indemnifying Party to the extent that such amounts are sufficient to pay such items. (c) If all or part of any indemnification obligation under this Assets Purchase Agreement is not paid when due, then the Indemnifying Party shall pay the Indemnified Party interest on the unpaid principal amount of the obligation from the date the amount became due until payment in full, at the per annum rate of interest announced from time to time by NationsBank South, N.A., to be its "prime rate." [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -48- 8.2.9 SPECIAL INDEMNITY AS TO PROJECTIONS. Notwithstanding Section 8.2.6(b), SBCL shall pay to ActaMed any amount by which (x) the aggregate general expenses incurred by ActaMed for goods and services reflected on SCHEDULE 3.1.3 under the Subtotals [*] in connection with ActaMed's provision of Lab EDI Services to the Fixed Fee Sites (as defined in the Services Agreement), taking into account that the Projections are based on [*] SCAN Sites, the number of SCAN Sites actually transferred to ActaMed and the staging of their transfer, excluding one-time or transactional expenses (which amount shall include any expenses incurred with respect to this transaction), and less any increased expenses incurred as a result of providing the Agreed Services (as defined in the Services Agreement) in a different manner than SBCL did prior to the transfer of such SCAN Sites exceeds (y) [*] of the Projections. 8.2.10 EXCLUSIVE REMEDY. Except for equitable remedies and any action for common law fraud, the remedies provided in this Article constitute the sole and exclusive remedies for recovery against the Indemnifying Party based upon this Assets Purchase Agreement. ARTICLE 9 DISPUTE RESOLUTION SECTION 9.1 INFORMAL DISPUTE RESOLUTION. Any dispute between the parties arising out of or with respect to this Assets Purchase Agreement, either with respect to the interpretation of any provision of this Assets Purchase Agreement or with respect to the performance by ActaMed or SBCL, shall be resolved as provided in this Article. 9.1.1 INFORMAL DISPUTE RESOLUTION. Prior to the initiation of formal dispute resolution procedures, the parties shall first attempt to resolve their dispute informally, as follows: (a) The Relationship Managers for each Party shall meet for the purpose of endeavoring to resolve such dispute. They shall meet as often as the parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the parties believe to be appropriate and germane in connection with its resolution. The Relationship Managers shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding. During the course of negotiations, all reasonable requests made by one Party to another for nonprivileged information, reasonably related to this Assets Purchase Agreement, shall be honored in order that each of the parties may be fully advised of the other's position. (b) If, within fifteen (15) days after a matter has been identified for resolution pursuant to this Article, either of the Relationship Managers concludes in good faith that amicable resolution through continued negotiation in this forum does not appear likely, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -49- the matter will be escalated by formal written notification to the SBCL President and the ActaMed President. The Parties will use their respective best efforts to cause the SBCL President and the ActaMed President to meet to attempt to resolve the dispute. (c) Formal proceedings for the resolution of a dispute may not be commenced until the earlier of: (i) the date on which the SBCL President and the ActaMed President conclude in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (ii) thirty (30) days after the dispute has been referred to the SBCL President and the ActaMed President. 9.1.2 FORMAL PROCEEDINGS PERMITTED. The provisions of this Section 9.1 shall not be construed to prevent a party from instituting, and a party being authorized to institute, formal proceedings earlier to avoid the expiration of any applicable limitations period or any period provided for in Section 8.1. SECTION 9.2 ARBITRATION. If the parties are unable to resolve any controversy arising under this Assets Purchase Agreement as contemplated by Section 9.1 and if such controversy is not subject to Article VIII or Section 9.3, then such controversy shall be submitted to mandatory and binding arbitration at the election of either party (the "Disputing Party") pursuant to the following conditions: 9.2.1 SELECTION AND REPLACEMENT OF ARBITRATORS. The Disputing Party shall notify the AAA and the other party in writing describing in reasonable detail the nature of the dispute (the "DISPUTE NOTICE"). Each of the parties shall select a neutral arbitrator in accordance with the rules of AAA, and the two arbitrators so selected shall select a third neutral arbitrator (the three arbitrators referred to in this Section being hereinafter referred to as the "PANEL"). 9.2.2 CONDUCT OF ARBITRATION. The Panel shall allow reasonable discovery as permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. The panel shall have no power or authority to amend or disregard any provision of this Section. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each of ActaMed and SBCL being allocated one-half of the time for the presentation of its case. Unless otherwise agreed to by the parties, an arbitration hearing shall be conducted on consecutive days. 9.2.3 REPLACEMENT OF ARBITRATOR. Should an arbitrator refuse or be unable to proceed with arbitration proceedings as called for by this Section, such arbitrator shall be replaced by an arbitrator selected in accordance with the rules of the AAA. 9.2.4 FINDINGS AND CONCLUSIONS. The Panel rendering judgment upon disputes between parties as provided in this Section shall, after reaching judgment and award, prepare and distribute to the parties a writing describing the findings of fact and conclusions of law relevant to such judgment and award and containing an opinion setting forth the reasons for -50- the giving or denial of any award. The award of the Panel shall be final and binding on the parties, and judgment thereon may be entered in a court of competent jurisdiction. 9.2.5 PLACE OF ARBITRATION HEARINGS. Arbitration hearings hereunder shall be held in Washington, D.C. 9.2.6 TIME OF THE ESSENCE. The Panel is instructed that time is of the essence in the arbitration proceeding. The Panel shall render its judgment or award within fifteen (15) days following the conclusion of the hearing. Recognizing the express desire of the parties for an expeditious means of dispute resolution, the Panel shall limit or allow the parties to expand the scope of discovery as may be reasonable under the circumstances. SECTION 9.3 LITIGATION. 9.3.1 IMMEDIATE INJUNCTIVE RELIEF. In the event of a breach of the confidentiality obligations set forth in this Assets Purchase Agreement, or in the event a party makes a good faith determination that a breach of the terms of this Assets Purchase Agreement by the other party is such that the damages to such party resulting from the breach will be so immediate, so large or severe, and so incapable of adequate redress after the fact that a temporary restraining order or other immediate injunctive relief is a necessary remedy, then such party may file a pleading with a court seeking immediate injunctive relief. If a party files a pleading with a court seeking immediate injunctive relief and this pleading is challenged by the other party and the injunctive relief sought is not awarded in substantial part (or in the event of a temporary restraining order is vacated upon challenge by the other party), the party filing the pleading seeking immediate injunctive relief shall pay all of the costs and attorneys' fees of the party successfully challenging the pleading. 9.3.2 JURISDICTION. ActaMed and SBCL each consent to venue in Philadelphia, Pennsylvania and to the nonexclusive jurisdiction of competent Pennsylvania state courts or federal courts located in Philadelphia for all litigation which may be brought, subject to the requirement for arbitration hereunder, with respect to the terms of, and the transactions and relationships contemplated by, this Assets Purchase Agreement. ARTICLE 10 TERMINATION SECTION 10.1 TERMINATION. 10.1.1 METHOD OF TERMINATION. This Assets Purchase Agreement and the transactions contemplated hereby may be terminated at any time prior to a Transfer Date: (a) by the mutual consent of SBCL and ActaMed; -51- (b) by SBCL by written notice of termination to ActaMed given after ActaMed shall have failed to meet the Transfer Benchmarks with respect to a Region by any applicable Measurement Date; (c) by ActaMed, if SBCL shall (1) fail to perform in any material respect its agreements contained herein required to be performed by it on or prior to such Transfer Date, or (2) materially breach any of its representations, warranties or covenants contained herein; (d) by SBCL, if ActaMed shall (1) fail to perform in any material respect its agreements contained herein required to be performed by it on or prior to such Transfer Date, or (2) materially breach any of its representations, warranties or covenants contained herein; (e) by either SBCL or ActaMed if there shall be any order, writ, injunction or decree of any court or governmental or regulatory agency binding on ActaMed or SBCL which prohibits or restrains ActaMed or SBCL from consummating the transactions contemplated by this Assets Purchase Agreement, provided that ActaMed and SBCL shall have used their best efforts to have any such order, writ, injunction or decree lifted and the same shall not have been lifted within thirty (30) days after entry; (f) by SBCL if SBCL terminates the Services Agreement; or (g) by ActaMed if ActaMed terminates the Services Agreement. 10.1.2 NOTICE OF TERMINATION. Notice of termination of this Assets Purchase Agreement, as provided for in this Article, shall be given by the party so terminating to the other party in accordance with Section 11.1.1 of this Assets Purchase Agreement. Any such termination shall be effective as of the date of such notice, unless otherwise provided in such notice. 10.1.3 EFFECT OF TERMINATION. If this Assets Purchase Agreement is terminated pursuant to Section 10.1 then, with respect to all transactions contemplated by this Assets Purchase Agreement as to which no Transfer Date has occurred (the "Future Transfers"), the obligations of the parties as to such Future Transfers shall become void and of no further force and effect, and each party shall pay the costs and expenses incurred by it in connection with this Assets Purchase Agreement as set forth herein and no party (nor any of its officers, directors, employees, agents, representatives or stockholders) shall be liable to any other party for any costs, expenses, damages (direct or indirect) or loss of anticipated profits for Future Transfers. SECTION 10.2 RISK OF LOSS. SBCL assumes all risk of destruction, loss or damage due to fire or other casualty to the SCAN Assets located at SBCL Sites. SBCL shall remit all insurance proceeds relating to SCAN Assets not transferred by reason of such destruction, loss or -52- damage to ActaMed. If ActaMed and SBCL are unable to agree upon the amount of such insurance proceeds applicable to the affected SCAN Assets, the dispute shall be resolved jointly by the independent accounting firms then employed by ActaMed and SBCL, and if said accounting firms do not agree, they shall appoint a nationally recognized accounting firm, whose determination of the dispute shall be final and binding. ARTICLE 11 MISCELLANEOUS SECTION 11.1 GENERAL PROVISIONS. 11.1.1 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been given if (1) delivered by hand or if mailed by United States registered or certified mail, return receipt requested, first class postage prepaid, (2) sent by Federal Express or similar overnight courier service to the parties or their assignees, or (3) sent by telecopy to the number set forth below and promptly followed by a written copy sent by any other means specified herein, addressed as follows: If to SBCL: SmithKline Beecham Clinical Laboratories, Inc. 1201 South Collegeville Road Collegeville, PA 19426 Attention: John B. Okkerse, Jr., PhD, President Telephone: [*] Telecopy: [*] with a copy to: SmithKline Beecham Corporation One Franklin Plaza 16th and Race Streets Philadelphia, PA 19103 Attention: General Counsel-U.S. Telephone: [*] Telecopy: [*] [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -53- If to ActaMed: ActaMed Corporation Suite 600 7000 Central Parkway Atlanta, Georgia 30328 Attention: Chief Financial Officer Telephone: (770) 352-1600 Telecopy: (770) 352-1815 with a copy to: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: John C. Weitnauer, Esq. Telephone: (404) 881-7780 Telecopy Number: (404) 881-7777 (a) If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made and, if delivered by mail, telecopy, Federal Express or other overnight courier, the date on which such notice, request, instruction or document is first received shall be the date of delivery. (b) Any party hereto may change its address specified for notices herein by designating a new address by notice in accordance with this Section 11.1. (c) Failure of any party to send a copy of any notice to counsel for the other Party shall not affect in any way the validity of such notice to other party. 11.1.2 FURTHER ASSURANCES. Each party covenants that at any time, and from time to time, after any Transfer Date, it will execute such additional instruments and take such actions as may be reasonably requested by the other party to confirm or perfect or otherwise to carry out the intent and purposes of this Assets Purchase Agreement. 11.1.3 WAIVER. Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder may be waived by any other party to whom such compliance is owed. No waiver of any provision of this Assets Purchase Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. 11.1.4 ASSIGNMENT. This Assets Purchase Agreement shall not be assignable by any of the parties hereto without the written consent of the other party hereto, and -54- no rights under this Assets Purchase Agreement may be transferred without the consent of the non-transferring party, except that: (a) the rights of ActaMed under this Assets Purchase Agreement may be transferred to any Person that acquires all or substantially all of the business or assets of ActaMed related to the ActaLab Software and the Network (whether by purchase of assets, merger or other corporate reorganization), [*]; (b) the rights of SBCL under this Assets Purchase Agreement may be transferred before or after the last Transfer Date in connection with a transfer of shares of Series D Preferred Stock made in accordance with the provisions of the Stockholders' Agreement; and (c) all the rights of SBCL may be transferred to an Affiliate of SBCL or an acquiror of substantially all of its assets (whether by purchase of assets, merger or other corporate reorganization). Any attempted assignment without such consent shall be void. If the parties cannot agree upon whether a company competes with SBCL, the parties shall resolve the dispute pursuant to Article IX. Any assignment with consent does not release the assigning party from any of its obligations under this Assets Purchase Agreement unless the consent so states. Any transferee of SBCL permitted pursuant to clause (b) above shall execute and deliver to ActaMed an instrument satisfactory to it agreeing to be bound by the provisions hereof and of the Stockholders' Agreement and the Registration Rights Agreement. 11.1.5 BINDING EFFECT. Subject to the limitations on transfer set forth in Section 11.1.4, this Assets Purchase Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, executors, administrators, successors and assigns. 11.1.6 KNOWLEDGE. The use of the terms "to ActaMed's knowledge" or words of similar import shall refer to the facts known to [*] Michael K. Hoover and [*] after reasonable inquiry. The use of the terms "to SBCL's knowledge" or words of similar import shall refer to the facts known to [*] after reasonable inquiry. 11.1.7 HEADINGS. The section and other headings in this Assets Purchase Agreement are inserted solely as a matter of convenience and for reference, and are not a part of this Assets Purchase Agreement. 11.1.8 ENTIRE AGREEMENT. This Assets Purchase Agreement and the Exhibits, Schedules, certificates and other documents delivered pursuant hereto or incorporated [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -55- herein by reference, contain and constitute the entire agreement among the parties hereto and supersede and cancel any prior agreements, representations, warranties, or communications, whether oral or written, among the parties hereto relating to the transactions contemplated hereby or the subject matter herein. This Assets Purchase Agreement may be changed, waived, discharged or terminated only by an agreement in writing signed by (a) ActaMed and (b) SBCL or, after the last of the Transfer Dates, the holder(s) of a majority of the Shares of Series D Preferred Stock and any Conversion Shares considered as a single class. 11.1.9 GOVERNING LAW. Except for the matters referred to by Section 9.3, this Assets Purchase Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. 11.1.10 COUNTERPARTS. This Assets Purchase Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.1.11 PRONOUNS. All pronouns used herein shall be deemed to refer to the masculine, feminine or neutral gender as the context requires. 11.1.12 TIME OF ESSENCE. Time is of the essence in this Assets Purchase Agreement. 11.1.13 SCHEDULES AND EXHIBITS. All Schedules and Exhibits attached to this Assets Purchase Agreement are by this reference made a part hereof. [SPACE INTENTIONALLY LEFT BLANK] -56- IN WITNESS WHEREOF, the parties hereto have executed this Assets Purchase Agreement under seal as of the day and year first above written. ActaMed Corporation /s/ ----------------------------------- By: Michael K. Hoover Its: President SmithKline Beecham Clinical Laboratories, Inc. /s/ ----------------------------------- By: John B. Okkerse Jr. Its: President -57- EXHIBIT A DEFINITIONS "AAA" means the American Arbitration Association. "ActaLab Software" means the ActaLab Software, as defined under the License Agreement. "ActaMed" means ActaMed Corporation, a Georgia corporation. "ActaMed Business" means the business of developing and selling information systems and related technology for the healthcare industry. "ActaMed Common Stock" means the $.01 par value common stock of ActaMed. "ActaMed Documents" has the meaning given in Section 3.2.1 of the Assets Purchase Agreement. "ActaMed Financial Statements" has the meaning given in Section 3.2.3(a) of the Assets Purchase Agreement. "ActaMed Indemnitee" means ActaMed and its directors, officers, employees, affiliates and permitted assigns. "ActaMed Network" means the EDI system and network operated by ActaMed for electronic laboratory test order entry and/or results reporting, which includes the Network Software and ActaMed's gateway and hardware and computer systems needed to operate that software. "ActaMed President" means the President of ActaMed, presently Michael Hoover, or should ActaMed be restructured in any manner, the officer of ActaMed having top authority over ActaMed's operations. "ActaMed Site" means a Provider [*] utilizing the Network for Lab EDI Services that was an SBCL Site on the Transfer Date of the Region in which such Provider [*] is located. "ActaMed Unaudited Statements" has the meaning given in Section 3.2.3(a) of the Assets Purchase Agreement. "Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-1 "Applicable Transfer Date" means, with respect to an SBCL Site, the Transfer Date of the Region in which the SBCL Site is located. "Articles" means the Fourth Amended and Restated Articles of Incorporation of ActaMed, as the same may be hereafter amended from time to time. "Assumption Agreement" the agreement attached as EXHIBIT 2.6.2 to the Assets Purchase Agreement. "Automated Provider" means a Provider [*] who or which, on the Transfer Date of the Region in which the Provider [*] is located, uses the SCAN Network to send clinical laboratory test orders to an SBCL Lab or to receive test result reports from an SBCL Lab. "Claim" means any claim for indemnification under Article VIII of the Assets Purchase Agreement, including but not limited to a General Claim, a Tax Claim or an Ownership Claim. "Claims Notice" means a written notice of an indemnification claim delivered pursuant to Section 8.2.3 of the Assets Purchase Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Communication Plan" shall have the meaning assigned in Section 4.3.4. "Contract" means any written contract, agreement, lease, plan, instrument or other document, commitment, arrangement, undertaking, practice or authorization that is or may be binding on any Person or its property under applicable law. "Conversion Shares" means the shares of ActaMed Common Stock issued or issuable upon the conversion of, unless specified otherwise, all of the Preferred Shares. "Court Order" means any judgment, decree, writ, injunction, order or ruling of any federal, state or local court or governmental or regulatory body or authority that is binding on any Person or its property under applicable law. "Default" means (a) a breach of or default under any Contract or License, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract or License or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract or License. "Development Agreement" means the Development Agreement between SBCL and ActaMed dated October 31, 1997 for the initial development of the ActaLab Software. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-2 "Dispute Notice" has the meaning given in Section 9.2.1 of the Assets Purchase Agreement. "Disputing Party" has the meaning given in Section 9.2 of the Assets Purchase Agreement. "EDI" means electronic data interchange. "Employee Benefit Plan" means any pension, retirement profit-sharing, deferred compensation, bonus, incentive, performance, stock option, phantom stock, stock purchase, restricted stock, medical, hospitalization, vision, dental or other health, life, disability, severance, termination or other employee benefit plan, program, arrangement, agreement or policy, whether written or unwritten, to which ActaMed contributes or is obligated to contribute, is a party to or is otherwise bound, or with respect to which ActaMed may have any Liability. "Employee Computer" shall have the meaning assigned in Section 1.2.1 of this Assets Purchase Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means (i) a member of any "controlled group," as defined in Section 414(b) of the Code, of which ActaMed is a member, (ii) a trade or business, whether or not incorporated, under common control (within the meaning of Section 414(c) of the Code) with ActaMed, or (iii) a member of any affiliated service groups (within the meaning of Section 414(m) of the Code) of which ActaMed is a member. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "FASB 5" means Statement of Financing Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975. "Fourth Amended Articles" means the Fourth Amended and Restated Articles of Incorporation of ActaMed. "GAAP" means generally accepted accounting principles. "General Claim" means any claim other than a Tax Claim, Ownership Claim or Undisclosed Liability Claim based upon, arising out of or otherwise in respect of any inaccuracy in any representation or warranty or any breach of any covenant or agreement made or to be performed by a Party pursuant to this Assets Purchase Agreement. "HSR Act" means Section 7A of the Clayton Act, as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Regulations promulgated thereunder. A-3 "Implementation Committee" has the meaning given in Section 4.2.2 of the Assets Purchase Agreement. "Implementation Plan" has the meaning given in Section 4.2.1 of the Assets Purchase Agreement. "Indemnifying Party" means the Party obligated to provide indemnification pursuant to Sections 8.2.1 or 8.2.2 of the Assets Purchase Agreement. "Indemnitee" means a Party seeking indemnification under Sections 8.2.1 or 8.2.2 of the Assets Purchase Agreement. "Integrity Agreement" shall have the meaning given in the Services Agreement. "Intellectual Property" means copyrights, trademarks, service marks, trade names, patents, applications therefor, technology rights and licenses, computer software (including, without limitation, any source or object codes therefor or documentation relating thereto), computer software licenses, trade secrets, franchises, know-how, inventions and intellectual property rights. "Lab EDI Services" means electronic connectivity services enabling an Automated Provider to send Transmittal Information electronically to an SBCL Lab and/or to receive electronically Transmittal Information from an SBCL Lab utilizing the Network. "Liability" means any direct or indirect liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills and checks presented to banks for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute, contingent, matured, unmatured or other. "License Agreement" means the License Agreement between SBCL and ActaMed dated the date of the Assets Purchase Agreement and described in the preamble to the Assets Purchase Agreement. "License" means any license, franchise, notice, permit, easement, right, authorization or filing. "Lien" means any mortgage, lien, security interest, pledge, encumbrance, restriction on transferability, defect of title, charge or claim of any nature whatsoever on any property or property interest. "Litigation" means any lawsuit, action, claim, arbitration, administrative or other proceeding, criminal prosecution or governmental investigation or inquiry involving or affecting a Party or its business, assets or Contracts to which it is a party or by which it or its business, assets or Contracts may be bound or affected. A-4 "Losses" means any and all demands, claims, actions or causes of action, assessments, losses, diminution in value, damages (including special and consequential damages), liabilities, costs, and expenses, including without limitation, interest, penalties, cost of investigation and defense, and reasonable attorneys' and other professional fees and expenses. "Material Adverse Effect" means a material adverse effect on the business or financial condition of ActaMed or on the ability of ActaMed to conduct the ActaMed Business or the impairment of ActaMed's ability to perform its obligations under the ActaMed Documents. "Network" means the SCAN Network and/or the ActaMed Network. "Network Software" means ActaMed's personal computer version of the ProviderLink and ActaLink presentation and network software programs, under whatever name marketed, and the SBCL Software and the ActaLab Software, and all Changes to them, which are licensed to Automated Providers and which allow access to the Network for the transmission of laboratory test order entries and reception of test result information. "New Business Plan" means the New Business Plan for ActaMed prepared in accordance with Section 5.1.8 of this Assets Purchase Agreement. "OIG" shall have the meaning assigned in Section 4.4 of this Assets Purchase Agreement. "Ownership Claim" means any claim arising out of or otherwise in respect of any inaccuracy in the representations and warranties set forth in Sections 3.1.1, 3.1.2, 3.1.6 or 3.1.13, or 3.2.1, 3.2.2, 3.2.11, or 3.2.12 of the Assets Purchase Agreement. "Panel" has the meaning set forth in Section 9.2.1. "PC Systems" means the assets described in Section 1.1.1 of the Assets Purchase Agreement. "Performance Standards" has the meaning given such term in the Services Agreement. "Permitted Owner" means SBCL or a successor owner of SBCL's Series D Preferred Stock or Conversion Shares permitted under the Stockholders Agreement among ActaMed and its stockholders, as amended from time to time. "Person" means any individual, corporation, trust, estate, business trust, general or limited partnership, limited liability company, limited liability partnership, unincorporated association or other legal entity. "Phone Lines" means SBCL's contractual right to use certain phone lines, as more fully described in Section 1.1.2 of this Assets Purchase Agreement. A-5 "Preferred Stock" means the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock. [*] means an [*]. "Projections" shall have the meaning assigned in Section 3.1.3 of this Assets Purchase Agreement. "Provider" means a physician, clinic, hospital, patient service center (other than [*]) or other provider of clinical health care services. "Provider Agreements" means the contracts described in Section 1.1.3 of this Assets Purchase Agreement. "Public Offering" means a bona fide firm commitment underwritten offering of ActaMed Common Stock pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission pursuant to the Securities Act. "Region" means any one of Region One, Region Two, Region Three, or Region Four. "Region Four" means the Region described on SCHEDULE 2.2(d) "Region Four Sites" are the SCAN Sites located in Region Four. "Region Four Transfer Date" has the meaning given in Section 2.3.4 of the Assets Purchase Agreement. "Region One" means the Region described on SCHEDULE 2.2(a) "Region One Sites" are the SCAN Sites located in Region One. "Region One Transfer Date" means December 31, 1997. "Region Three" means the Region described on SCHEDULE 2.2(c). "Region Three Sites" are the SCAN Sites located in Region Three. "Region Three Transfer Date" has the meaning given in Section 2.3.3 of the Assets Purchase Agreement. "Region Two" means the Region described on SCHEDULE 2.2(b). "Region Two Sites" are the SCAN Sites located in Region Two. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. A-6 "Region Two Transfer Date" has the meaning given in Section 2.3.2 of the Assets Purchase Agreement. "Registration Rights Agreement" means the Registration Rights Agreement dated May 3, 1994, as amended as of the date hereof and as the same may be amended from time to time, by and among ActaMed and the stockholders of ActaMed signatory thereto. "Regulation" means any statute, law, ordinance, regulation, requirement, order or rule of any federal, state, or local government or other governmental agency or body or of any other type of regulatory body, or any governmental or administrative interpretation of any thereof, including, without limitation, (i) those covering health, safety, environmental, energy, transportation, bribery, record keeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters, (ii) requirements imposed by any governmental or regulatory body which must be satisfied to qualify for Medicare reimbursements, and (iii) any and all federal, state and local health care laws relating to or covering the methods and ways in which Lab EDI Services and other related or incidental services or benefits, if any, are provided to the Automated Providers, including, but not limited to, 42 U.S.C. Section 1395nn and the Clinical Laboratory Improvements Act of 1988, as amended. "Relationship Manager" has the meaning given in Section 4.2.2 of the Assets Purchase Agreement. "Required Consents" means any and all licenses, waivers, consents or approvals from other parties to Contracts necessary to consummate the transactions contemplated hereby and by any Exhibit hereto. "SBCL" means SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation. "SBCL Documents" has the meaning given in Section 3.1.1 of the Assets Purchase Agreement. "SBCL Lab" means any location at which SBCL or its Affiliates provide, or may in the future provide, clinical laboratory testing services, regardless of the computer systems or software, if any, used by such lab for lab order entry and results reporting. "SBCL President" shall mean the President of SBCL, presently John B. Okkerse, Jr., Ph.D., or should SBCL be restructured in any manner, the officer of SBCL having top authority over SBCL's operations. "SBCL Site" means an Automated Provider utilizing the SCAN Network for Lab EDI Services on the Transfer Date of the Region in which such Automated Provider is located. "SBCL Software" means SBCL Software, as defined in the License Agreement. A-7 "SCAN Assets" means the assets described in subsections 1.1.1 through 1.1.6 of the Assets Purchase Agreement. "SCAN Network" means the SBCL Software and SBCL's hardware and computer systems needed to operate the SBCL Software which enables Automated Providers to place laboratory test orders electronically to an SBCL Lab and/or to receive test result reports electronically from an SBCL Lab. "SCAN Site" means either an SBCL Site or an ActaMed Site. "SCAN Software" means the SBCL SCAN-TM- software licensed to ActaMed pursuant to the License Agreement. "Schedule" means any of the lists or disclosure schedules referred to herein. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Series A Preferred Stock" means the Series A Convertible Preferred Stock of ActaMed. "Series B Preferred Stock" means the Series B Convertible Preferred Stock of ActaMed. "Series C Preferred Stock" means the Series C Convertible Preferred Stock of ActaMed. "Series D Preferred Stock" means the Series D Convertible Preferred Stock of ActaMed. "Services Agreement" means the Services Agreement, made and entered into as of the date hereof, between ActaMed and SBCL. "Standstill Agreement" means the Standstill Agreement, dated the date hereof between SBCL and ActaMed. "Stockholders Agreement" means the Stockholders Agreement, dated as of May 3, 1994, as amended as of the date hereof and as the same may be amended from time to time, between ActaMed and the stockholders of ActaMed who are signatories thereto. "Stock Option Plans" means ActaMed's 1997 Stock Option Plan, 1996 Directors Stock Option Plan, 1995 Stock Option Plan, 1994 Stock Option Plan, 1993 Stock Option Plan and 1992 Stock Option Plan. A-8 "Subsidiary" means a corporation, limited liability company, partnership, association, trust, joint venture or other entity in which ActaMed or SBCL, as the case may be, has, directly or indirectly, an equity, ownership or proprietary interest of greater than ten percent (10%). "Substantial Holder" means an officer or employee of ActaMed who is the beneficial owner of one percent (1%) or more of the outstanding voting power or the outstanding equity (on a fully diluted basis) of ActaMed. "Tax Claim" means any claim based upon, arising out of or otherwise in respect of any inaccuracy in any representation or warranty or breach of any covenant or agreement made or to be performed by a Party pursuant to this Assets Purchase Agreement related to any Taxes. "Taxes" means any federal, state, county, local and other taxes, including without limitation, income taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes, taxes on earnings and profits, employment and payroll related taxes, property taxes, real property transfer taxes, Federal Insurance Contributions Act taxes, taxes on value added and import duties, whether or not measured in whole or in part by net income, imposed by the United States or any political subdivision thereof or by any Jurisdiction other than the United States or any political subdivision thereof. "Third Party Claim" means any claim, suit or proceeding (including, without limitation, a binding arbitration or an audit by any taxing authority) that is instituted against an Indemnitee by a Person other than an Indemnitor and which, if prosecuted successful, would result in a Loss for which such Indemnitee is entitled to indemnification hereunder. "Third Party Software" means software that SBCL licensed from third parties for use in delivery of Lab EDI Services, including without limitation software known as pkZip and pkUnzip, ProCom, and Reach Out. "Trade Secrets" means information related to a Party (1) which derives economic value, actual or potential, from not being generally known to or readily ascertainable by other Persons who can obtain economic value from its disclosure or use, and (2) which is the subject of efforts by said Person that are reasonable under the circumstances to maintain its secrecy. Without limitation, for ActaMed, ProviderLink and the ActaLab Software are Trade Secrets, and for SBCL, the SBCL Software is a Trade Secret. "Transaction Documents" means the Assets Purchase Agreement, the Development Agreement, the License Agreement, the Services Agreement and all documents executed or delivered in connection with the foregoing. "Transfer Benchmarks" means the criteria set forth on EXHIBIT 2.3.1, timely achievement of which shall determine whether the SCAN Assets relating to SCAN Sites in the A-9 next Region to be transferred shall be transferred by SBCL to ActaMed pursuant to the Assets Purchase Agreement. "Transferred Employees" means the employees listed on SCHEDULE VI hereto. "Transfer Date" shall mean any one of and "Transfer Dates" shall mean more than one of the Region One Transfer Date, the Region Two Transfer Date, the Region Three Transfer Date, and the Region Four Transfer Date. "Transmittal Information" means information which an Automated Provider gives ActaMed for communication to SBCL over the Network, or which SBCL gives ActaMed for communication to an Automated Provider over the Network, including all copies of same, and including without limitation, data relating to laboratory records, clinical data, encounter data, test information, test codes and provider identification numbers (other than UPINs) "Undisclosed Liability Claim" means any claim arising out of or otherwise in respect of any inaccuracy in the representations and warranties set forth in Sections 3.2.3 or 3.2.8 of the Assets Purchase Agreement. "Vendor Contracts" means the Contracts described in Section 1.1.4 of the Assets Purchase Agreement. "Warrant" means the Warrant to purchase 450,450 shares of ActaMed Common Stock at an exercise price of $5.00 issued by ActaMed to International Business Machines Corporation in December 1996. A-10 Exhibit 2.3.1 TRANSFER BENCHMARKS CLIENT SATISFACTION MEASUREMENTS ActaMed will provide such level of satisfactory Agreed Services (as defined in the Services Agreement) measured as set forth below. The following "Transfer Benchmarks" will be used as the measurement for proceeding to the transfer of Region Two Sites, Region Three Sites and Region Four Sites. REQUISITION VOLUME The first Transfer Benchmark shall be sustaining the monthly average number of Requisitions on a per-Site basis. More specifically, ActaMed shall measure each month the volume of Requisitions for the ActaMed Sites in each Transferred Region. It shall then calculate the average monthly per-Site Requisition volume. This calculated average shall then be compared (i) to the mean of the average monthly per-Site Requisition volumes for the same Region for the twelve months immediately preceding the month for which the measurement was made and (ii) to the mean of the average monthly per-Site Requisition volumes for all non-Transferred Regions during the same time period. If ActaMed's average monthly per-Site Requisition volume for the measured period, as adjusted for seasonality, is within 90% of each of (i) and (ii), above, then ActaMed will have met this benchmark. For Region One, SBCL shall provide within thirty (30) days after the Region One Transfer Date the monthly Requisitions and Sites for January-December 1997. For all other Regions, the monthly Requisitions and Sites for the twelve months prior to the Applicable Transfer Date shall be provided on the Applicable Transfer Date. CUSTOMER SURVEYS The second Transfer Benchmark shall be sustaining levels of support and client acceptance satisfactory to SBCL, in its reasonable discretion, determined by comparing Transfer Surveys of the Automated Providers in each Transferred Region to a corresponding Initial Survey for such Automated Providers. The Initial Survey shall be a survey, in a format and with content approved by SBCL in advance, which shall be performed by ActaMed within thirty (30) days after each Transfer Date. Such survey shall solicity performance and service-related comments from the Automated Providers about SBCL's provision of Lab EDI Services for that Region. The initial survey shall be sent to ten percent (10%) of the Sites in each Region, selected at random by ActaMed. The Transfer Surveys for each Region shall be identical to the Initial Survey for such Region and shall be sent to the same Automated Providers, to the greatest extent possible, as the Initial Survey (and to replacement Automated Providers where not possible). The Transfer Surveys shall solicit performance and service-related comments from the Automated Providers about ActaMed's provision of Lab EDI Services for each Region. The Transfer Surveys shall be performed for each applicable Region within thirty (30) days prior to the each scheduled Transfer Date; provided, that a Transfer Survey for a given Region shall only solicit information pertaining to the period between the last Transfer Date and the next scheduled Transfer Date. CUSTOMER COMPLAINTS The third and final Transfer Benchmark will be the absence of a material number (materiality to be determined by SBCL in its reasonable discretion relative to the frequency and severity of complaints) of documented problems and Automated Providers ceasing to do business with SBCL Labs citing issues related to Lab EDI Services provided by ActaMed. SBCL will provide ActaMed with copies of any such documented problems within fifteen (15) days of their receipt. -2- Exhibit 2.5.1 BILL OF SALE AND ASSIGNMENT This is a Bill of Sale and Assignment from SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation ("SBCL"), to ActaMed Corporation, a Georgia corporation ("ActaMed"), pursuant to a certain Assets Purchase Agreement dated as of December ___, 1997 between SBCL and ActaMed (the "Assets Purchase Agreement"). Capitalized terms used and not defined herein shall have the meanings set forth in the Assets Purchase Agreement. 1. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, SBCL hereby sells, assigns, transfers, conveys and delivers to ActaMed, its successors and assigns, to have and to hold forever: (a) all of its right, title and interest in and to the SCAN Assets located at SCAN Sites in Region ___, listed on Exhibit A attached hereto, free and clear of all mortgages, liens, pledges, security interests, charges, claims and other encumbrances of any nature whatsoever other than those disclosed in the Assets Purchase Agreement or any Schedule thereto; and (b) all of its rights in the single-copy licenses granting the right to use the Third Party Software (i) installed by, or in accordance with the instructions of, SBCL and (ii) resident on a PC System conveyed to ActaMed in accordance with the preceding subparagraph (a), which rights are in accordance with the provisions of Section 1.2.1 of the Assets Purchase Agreement; and (c) all of its rights in the single-site licenses for Microsoft Windows to the extent contemplated by Section 1.2.2 of the Assets Purchase Agreement. The assets described in the foregoing subparagraphs (a) -- (c) are hereinafter referred to as the "Transferred Assets." 2. From and after the Region ___ Transfer Date, upon request of ActaMed, SBCL shall duly execute, acknowledge and deliver all such further assignments, documents of transfer or conveyance, powers of attorney and assurances and do such further acts as may be reasonably required to convey to and vest in ActaMed and protect its rights, title and interest in enjoyment of all the Transferred Assets and as may be appropriate otherwise to carry out the transactions contemplated by the Assets Purchase Agreement and this Bill of Sale and Assignment. 3. In the event of a conflict between the terms and conditions of this Bill of Sale and Assignment and the terms and conditions of the Assets Purchase Agreement, the terms of the Assets Purchase Agreement shall govern, supersede and prevail. 4. Notwithstanding anything herein to the contrary, the terms and conditions of the Assets Purchase Agreement shall survive the execution and delivery of this Bill of Sale and Assignment. 5. This instrument shall be governed by and construed in accordance with the laws of the State of Georgia. 6. This instrument shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, and intending to be legally bound, the undersigned have duly executed and delivered this Bill of Sale and Assignment as of this ___ day of _______________, 199_. SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By:_____________________________________ Title: Acknowledged and agreed: ACTAMED CORPORATION By: _____________________________ Title: -2- Exhibit 2.5.2 SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. COMPLIANCE CERTIFICATE The undersigned certifies that he is a __________________________ of SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation ("SBCL"), and that as such he is authorized to execute this certificate by and on behalf of the SBCL and, pursuant to Section 2.5.2 of the Assets Purchase Agreement, dated as of December __, 1997 (the "Asset Purchase Agreement"), between SBCL and ActaMed Corporation, a Georgia corporation ("ActaMed"), and further certifies that: a. The representations and warranties of SBCL, [other than the representations and warranties contained in Sections 3.1.3, 3.1.4(a) - (e), 3.1.6(d) and 3.1.7(b),] contained in the Assets Purchase Agreement, as supplemented by the Disclosure Schedule attached hereto, are true and correct in all material respects at and as of the date hereof as though such representation and warranties were made at and as of the date hereof. b. SBCL has duly performed and complied with each covenant and condition required by the Assets Purchase Agreement to be performed or complied with before or on the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand as of this ___ day of ____________, 199_. By: ____________________________________ Name: Title: ** Bracketed text to be included on Region Two Transfer Date, Region Three Transfer Date, and Region Four Transfer Date only. Exhibit 2.5.3 SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. CERTIFICATE OF THE ASSISTANT SECRETARY The undersigned certifies that he is the Secretary of SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation (the "Company"), and that as such he is authorized to execute and deliver this certificate by and on behalf of the Company, and further certifies that: a. Attached hereto as Exhibit "A" is a true, correct and complete copy of the Company's Certificate of Incorporation, as certified by the Secretary of State of the State of Delaware; said Certificate of Incorporation is in full force and effect as of the date hereof; since the date of certification by the Secretary of State of the State of Delaware there have been no amendments, alterations or modifications of such Certificate of Incorporation; and no action has been taken by the Company in contemplation of any such amendment or the dissolution, merger or consolidation of the Company. b. Attached hereto as Exhibit "B" is a true, correct and complete copy of the Bylaws of the Company as in effect on the date hereof, and there have been no additional amendments authorized with respect thereto. c. Attached hereto as Exhibit "C" is a copy of the resolutions duly adopted by the Board of Directors of the Company on December 29, 1997, with respect to the Asset Purchase Agreement and the transactions contemplated hereby, and such resolutions have not been rescinded or amended in any respect and are in full force and effect on the date hereof. d. Each of the following persons now is, and at all times including and since ___________________, 199_, has been a duly elected officer or employee of the Company, holding the office or position in the Company set forth opposite his name below, and the signature of each such person appearing opposite his name below is his genuine signature: [Name and title] _______________________________________ [Name and title] _______________________________________ IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of ____________, 199_. By: _________________________________ Assistant Secretary I, __________________________, ________________________ of SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation, do hereby certify that ____________________ is the duly elected Assistant Secretary of the Company, and that the signature appearing above is his genuine signature. IN WITNESS WHEREOF, I have herewith set my hand this ___ day of _____________, 199_. __________________________________________ [Title] -2- Exhibit 2.6.2 ASSUMPTION AGREEMENT This is an Assumption Agreement by ActaMed Corporation, a Georgia Corporation ("ActaMed"), in favor of SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation ("SBCL"), pursuant to and in accordance with Section 2.6.2 of the Assets Purchase Agreement, dated as of December ___, 199_ (the "Assets Purchase Agreement") between SBCL and ActaMed. Capitalized terms used and not defined herein shall have the meanings set forth in the Assets Purchase Agreement. 1. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, ActaMed hereby assumes: (a) all of SBCL's contractual liabilities arising on or after the date hereof with respect to the Phone Lines installed at SCAN Sites in Region ___; (b) all of SBCL's duties and obligations arising on or after the date hereof under such Provider Agreements as relate to Automated Providers located in Region ___; and (c) all of SBCL's duties and obligations arising on or after the date hereof pursuant to the Vendor Contracts relating to the provision of products or services in connection with SBCL's provision of Lab EDI Services in Region ________. ActaMed undertakes to perform the liabilities set forth in the preceding subparagraphs (the "Liabilities") in accordance with their respective terms, effective as of the date hereof. 2. From and after the Region ___ Transfer Date, ActaMed will, from time to time, at the reasonable request of SBCL, duly execute, acknowledge and deliver all such additional instruments, notices, releases, certificates, powers of attorney, assurances and other documents and do all such further acts as SBCL may reasonably require in order to effectively assume the Liabilities and as may be appropriate otherwise to carry out the transactions contemplated by the Assets Purchase Agreement and this Assumption Agreement. 3. In the event of any conflict between the terms and conditions of this Assumption Agreement and the terms of the Assets Purchase Agreement, the terms of the Assets Purchase Agreement shall govern, supersede and prevail. 4. If the assumption by ActaMed of any Liability is invalid or unenforceable in any jurisdiction, it shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the assumption by Purchaser of the remaining Liabilities. 5. Notwithstanding anything herein to the contrary, the terms and conditions of the Assets Purchase Agreement shall survive the execution and delivery of this Assumption of Liabilities. 6. This instrument shall be governed by and construed in accordance with the laws of the State of Georgia. 7. This instrument shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned have caused this Assumption Agreement to be executed this ___ day of ________________, ______. ACTAMED CORPORATION By: _________________________________ Name: Title: Acknowledged and agreed: SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By: ____________________________ Name: Title: -2- Exhibit 2.6.3 ACTAMED CORPORATION COMPLIANCE CERTIFICATE The undersigned certifies that he or she is a _______________________________ of ActaMed Corporation, a Georgia corporation ("ActaMed"), and that as such he or she is authorized to execute this certificate by and on behalf of ActaMed and, pursuant to Section 2.6.3 of the Assets Purchase Agreement, dated as of December ___, 1997 (the "Asset Purchase Agreement"), between SmithKline Beecham Clinical Laboratories, Inc. ("SBCL") and ActaMed, and further certifies that: a. The representations and warranties of ActaMed contained in the Assets Purchase Agreement, as supplemented by the Disclosure Schedule attached hereto are true and correct in all material respects at and as of the date hereof as though such representation and warranties were made at and as of the date hereof. b. ActaMed has duly performed and complied with each covenant and condition required by the Assets Purchase Agreement to be performed or complied with before or on the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand as of this ___ day of ____________, 199_. By: ______________________________ Name: Title: Exhibit 2.6.4 ACTAMED CORPORATION CERTIFICATE OF THE SECRETARY The undersigned certifies that he is the Secretary of ActaMed Corporation, a Georgia corporation (the "Company"), and that as such he is authorized to execute and deliver this certificate by and on behalf of the Company, and further certifies that: a. Attached hereto as Exhibit "A" is a true, correct and complete copy of the Company's Articles of Incorporation, as certified by the Secretary of State of the State of Georgia; said Articles of Incorporation are in full force and effect as of the date hereof; since the date of certification by the Secretary of State of the State of Georgia there have been no amendments, alterations or modifications of such Articles of Incorporation; and no action has been taken by the Company in contemplation of any such amendment or the dissolution, merger or consolidation of the Company. b. Attached hereto as Exhibit "B" is a true, correct and complete copy of the Bylaws of the Company as in effect on the date hereof, and there have been no additional amendments authorized with respect thereto. c. Attached hereto as Exhibit "C" is a copy of the resolutions duly adopted by the Board of Directors of the Company on December __, 1997, with respect to the Assets Purchase Agreement and the transactions contemplated hereby, and such resolutions have not been rescinded or amended in any respect and are in full force and effect on the date hereof. d. Each of the following persons now is, and at all times including and since ___________________, 199_, has been a duly elected officer or employee of the Company, holding the office or position in the Company set forth opposite his or her name below, and the signature of each such person appearing opposite his or her name below is his or her genuine signature: [Name and title] _______________________________________ [Name and title] _______________________________________ IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of ________________, 199_. By: ________________________________ Secretary I, _________________________, _________________________ of ActaMed Corporation, a Georgia corporation, do hereby certify that _________________ is the duly elected Secretary of the Company, and that the signature appearing above is his genuine signature. IN WITNESS WHEREOF, I have herewith set my hand this ___ day of _______________, 199_. _______________________________________ [Title] -2- ACTAMED CORPORATION CERTIFICATE OF THE SECRETARY The undersigned certifies that he is the Secretary of ActaMed Corporation, a Georgia corporation (the "Company"), and that as such he is authorized to execute and deliver this certificate by and on behalf of the Company, and further certifies that: a. Attached hereto as Exhibit "A" is a true, correct and complete copy of the Company's Articles of Incorporation, as certified by the Secretary of State of the State of Georgia; said Articles of Incorporation are in full force and effect as of the date hereof; since the date of certification by the Secretary of State of the State of Georgia there have been no amendments, alterations or modifications of such Articles of Incorporation; and no action has been taken by the Company in contemplation of any such amendment or the dissolution, merger or consolidation of the Company. b. Attached hereto as Exhibit "B" is a true, correct and complete copy of the Bylaws of the Company as in effect on the date hereof, and there have been no additional amendments authorized with respect thereto. c. Attached hereto as Exhibit "C" is a copy of the resolutions duly adopted by the Board of Directors of the Company on December 19, 1997, with respect to the Assets Purchase Agreement and the transactions contemplated hereby, and such resolutions have not been rescinded or amended in any respect and are in full force and effect on the date hereof. d. Each of the following persons now is, and at all times including and since January 1, 1997, has been a duly elected officer or employee of the Company, holding the office or position in the Company set forth opposite his or her name below, and the signature of each such person appearing opposite his or her name below is his or her genuine signature: Michael K. Hoover, President and CEO /s/ _________________________________________ Nancy J. Ham, Sr. Vice President /s/ _________________________________________ IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of December, 1997. By: /s/ _________________________________________ Lewis R. Belote Secretary I, Nancy J. Ham, Senior Vice President of ActaMed Corporation, a Georgia corporation, do hereby certify that Lewis R. Belote is the duly elected Secretary of the Company, and that the signature appearing above is his genuine signature. IN WITNESS WHEREOF, I have herewith set my hand this 31st day of December, 1997. /s/ _________________________________________ Nancy J. Ham Senior Vice President -2- AMENDMENT NO. 1 TO ASSETS PURCHASE AGREEMENT This AMENDMENT NO. 1 TO ASSETS PURCHASE AGREEMENT ("Amendment No. 1") is made and entered into this 18th day of May, 1998 by and between HEALTHEON CORPORATION, a Delaware corporation ("Healtheon"), ACTAMED CORPORATION, a Georgia corporation ("ActaMed") and SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., a Delaware corporation ("SBCL"). WHEREAS, ActaMed and SBCL entered into an Assets Purchase Agreement on December 31, 1997 ("Purchase Agreement"); and WHEREAS, ActaMed has entered into that certain "Agreement and Plan of Reorganization by and among Healtheon Corporation, MedNet Acquisition Corp. and ActaMed Corporation dated as of February 24, 1998, (the "Healtheon Merger Agreement"), and, in order to permit the closing of the Healtheon Merger Agreement, the parties wish to amend the Purchase Agreement as set forth below. NOW THEREFORE, in consideration of the premises and the mutual promises contained herein, the parties, intending to be legally bound, agree as follows: 1. DEFINITIONS. Capitalized terms used in this Amendment No.1 and not otherwise defined herein have the meanings set forth in the Purchase Agreement. 2. AMENDMENTS. 2.1 ACTAMED REFERENCES. Except as the context may require otherwise or this Amendment specifies otherwise, the term "ActaMed" shall be deemed to refer to Healtheon wherever it appears in the Purchase Agreement. 2.2 PURCHASE PRICE. Sections 1.5.4. and 1.5.5 are each amended by substituting the phrase "Common Stock of Healtheon" for the phrase "ActaMed's Series D Preferred" and by substituting the term "Healtheon Stock Price" for the term "Series D Price." 2.3 HEALTHEON STOCK PRICE. Section 1.6 is amended as follows: 2.3.1 The caption shall be changed to "HEALTHEON STOCK PRICE" and the term "Series D Price" in the lead-in clause shall be replaced with the term "Healtheon Stock Price". -1- 2.3.2 Section 1.6.1 (a) is amended by inserting the phrase "divided by the Exchange Ratio" after "[*]" and "[*]". 2.3.3 Section 1.6.1 (c) is amended by inserting the phrase "divided by the Exchange Ratio on the Region Three Transfer Date or the Region Four Transfer Date, as applicable" after "[*]". 2.3.4 Section 1.6.3 is replaced in its entirety as follows: "1.6.3 For purposes of Section 1.6, "Qualified Preferred Stock" shall mean shares of Healtheon's preferred stock issued in an arm's length transaction to one or more purchasers who are not ActaMed or Healtheon's stockholders as of the Merger Effective Date for an aggregate purchase price of not less than $7,000,000; and the "Per Share Issue Price" of such Qualified Preferred Stock shall be the consideration per equivalent share of Common Stock received by Healtheon for the Qualified Preferred Stock multiplied by the Exchange Ratio, adjusted backwards to the Merger Effective Date for any subdivision or combination of shares of Healtheon capital stock or similar change in Healtheon's capital structure (whether by stock split, stock dividend, merger, share exchange, consolidation or otherwise) since the Merger Effective Date." 2.4 DELIVERIES AT EACH OF THE TRANSFER DATES. Section 2.6 is replaced in its entirety as follows: "SECTION 2.6. DELIVERIES AT EACH OF THE TRANSFER DATES. At each of the Transfer Dates, the following documents shall be executed and delivered to SBCL to the extent relating to the region transferred: 2.6.1. by Healtheon, the applicable number of shares of Common Stock of Healtheon, as determined in accordance with Sections 1.5, 1.6 and 1.8 of this Assets Purchase Agreement; 2.6.2. by either Healtheon or ActaMed, an Assumption Agreement (in the form attached hereto as EXHIBIT 2.6.2) covering, for the Region transferred, (i) the Vendor Contracts for the Region transferred, (ii) the Phone Lines and (iii) the Provider Agreements for the Region transferred; 2.6.3 by Healtheon and ActaMed, a Compliance Certificate (in the form attached hereto as EXHIBIT 2.6.3), pursuant to which Healtheon and ActaMed will jointly and severally make the representations and warranties contained in Section 3.2 hereof, which certificate shall attach revised Disclosure Schedules to the [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- extent necessary to make the representations and warranties made on such Transfer Date true and correct in all material respects; 2.6.4 by Healtheon, a Secretary's Certificate (in the form attached hereto as EXHIBIT 2.6.4); and 2.6.5 by either Healtheon or ActaMed, such other documents or certificates as may be reasonably requested by SBCL." 2.5 REPRESENTATIONS AND WARRANTIES. 2.5.1 INVESTMENT REPRESENTATIONS OF SBCL. Section 3.1.12 is amended by deleting the parentheticals referencing the "Conversion Shares" in each of subsections (a) and (b), and by adding the words "or Common Stock of Healtheon" after the term "Series D Preferred Stock" in each of subsections (a) and (b). 2.5.2 BY ACTAMED AND HEALTHEON. The lead-in paragraph of Section 3.2 is replaced in its entirety as follows: "SECTION 3.2. BY ACTAMED AND HEALTHEON. Except as set forth on a Disclosure Schedule hereto, for representations to be made on any Transfer Date after the Merger Effective Date, ActaMed and Healtheon hereby jointly and severally represent and warrant to SBCL, and will jointly and severally represent and warrant to SBCL on each such Transfer Date, as follows:" Other than as specifically set forth in Sections 2.5.3 through 2.5.9 of this Amendment No. 1, each of the representations and warranties set forth in Sections 3.2.1 through 3.2.25 of the Purchase Agreement are amended as necessary to the effect that such representations and warranties shall be made on any Transfer Date after the Merger Effective Date by both ActaMed and Healtheon. 2.5.3 FINANCIAL STATEMENTS. Section 3.2.3 is amended as follows: 2.5.3.1 Subsection (a) is amended by adding the following text at the end of such subsection: "DISCLOSURE SCHEDULE 3.2.3 hereto also contains a true and correct copy of (i) the balance sheets of Healtheon at December 31, 1996 and December 31, 1997 and the statements of operations, statements of stockholders equity and statements of cash flows of Healtheon for the years ended December 31, 1996 and December 31, 1997, which have been audited by Ernst & Young, independent accountants (the "HEALTHEON FINANCIAL STATEMENTS"), and (ii) the -3- unaudited balance sheets of Healtheon at March 31, 1998 and the statements of operations, statements of stockholders equity and statements of cash flows of Healtheon for quarter ended March 31, 1998 (the "HEALTHEON UNAUDITED STATEMENTS")." 2.5.3.2 Subsection (b) is amended by adding the phrase "and the Healtheon Financial Statements" after the term "ActaMed Financial Statements" wherever such term appears in such subsection, by inserting the word "respective" prior to the phrase "financial position", by inserting the phrase "and Healtheon" after the term "ActaMed" wherever such term appears in such subsection, and by replacing the introduction to the final sentence, "ActaMed has" with the introduction "ActaMed and Healtheon have". 2.5.3.3 Subsection (c) is amended by adding the phrase "and the Healtheon Unaudited Statements after the term "ActaMed Unaudited Statements", by inserting the word "respective" prior to the term "chief financial officer", by inserting the phrase "and Healtheon" after the phase "chief financial officer of ActaMed" and by inserting the phrase "and Healtheon and its Subsidiaries" after the phrase "ActaMed and its Subsidiaries". 2.5.4 CONSENTS. Section 3.2.4 is amended by inserting the words "or Healtheon" after the word "ActaMed" in the third line thereof, by substituting the term "Common Stock of Healtheon" for the term "Series D Preferred Stock" in item (b), and by deleting the parenthetical in item (b) and the remainder of the Section following such parenthetical. 2.5.5 CAPITALIZATION. Section 3.2.5 is amended by substituting the term "Common Stock of Healtheon" for the term "Series D Preferred Stock" throughout the Section. Section 3.2.5 shall be further amended by deleting the phrase "will have the designations, preferences, limitations and relative rights set forth in the Articles" from subsection (b) and by deleting the final sentence of subsection (b). 2.5.6 REGISTRATION RIGHTS. Section 3.2.6 is amended by substituting the term "Investors' Rights Agreement" for "Registration Rights Agreement," and by adding the clause "except for such securities which may be granted registration rights pursuant to the terms of the Investors' Rights Agreement" at the end of such Section. 2.5.7 OFFERING. Section 3.2.7 is amended by substituting the term "Common Stock of Healtheon" for "Series D Preferred Stock" and by deleting the parenthetical. 2.5.8 CHANGES. Section 3.2.8 is amended by adding the subsection designation "(a)" at the beginning of such Section and by adding a new subsection (b) as follows: "Since the date of the latest Healtheon Unaudited Statements, there has not been (i) any adverse change in the assets, liabilities, financial condition or operations of Healtheon from that reflected in the Healtheon Financial Statements, other than changes in the ordinary course of business, none of which individually or in the -4- aggregate has had a Material Adverse Effect or (ii) any adverse change in the prospects of the business of Healtheon or any other event or condition (or events or conditions) of any character which, either individually or cumulatively, has had a Material Adverse Effect." 2.5.9 FULL DISCLOSURE. Section 3.2.25 is amended by inserting the words "and Common Stock of Healtheon" after the term "Series D Preferred Stock." 2.6 AUDIT. Section 4.1.2 is amended by replacing the term "ActaMed Common Stock" with "Common Stock of Healtheon" and by deleting the clause "on or prior to April 30, 1998" and replacing it with the clause "in an expedient fashion as required." 2.7 STANDSTILL. Section 4.3.5 is replaced in its entirety by the following: "4.3.5. STANDSTILL. At all times prior to the last Transfer Date, neither Healtheon nor ActaMed shall consummate, or enter into any agreement with respect to, any merger, share exchange or consolidation or sale of substantially all of its assets, nor shall Healtheon dispose of the capital stock of ActaMed, without the prior written consent of SBCL." 2.8 COVENANTS TO SBCL. Article V is replaced in its entirety by the following: "ARTICLE V COVENANTS TO SBCL SECTION 5.1 ADDITIONAL COVENANTS. ActaMed and Healtheon, as applicable, covenant and agree as follows: 5.1.1 TRANSACTIONS WITH AFFILIATES. For so long as either (i) SBCL is a stockholder of Healtheon or any successor to this agreement or (ii) the Services Agreement (or any successor agreement for Lab EDI Services), including all extensions and renewals thereof, remains in effect, Healtheon shall not, directly or indirectly, knowingly enter into any material transaction or agreement with any of its Affiliates, or a material transaction or agreement in which an Affiliate of Healtheon has a direct or indirect interest, unless such transaction or agreement is on terms and conditions no less favorable to Healtheon or any of its Subsidiaries than could be obtained at the time in an arm's length transaction with a third Person that is not such an Affiliate, or unless such transaction or agreement has been reviewed and approved by either a majority of those members of Healtheon's -5- Board of Directors who have no such interest in the transaction or a majority of the shareholders, voting in good faith. This Section is in furtherance and not in limitation of Healtheon's obligations under Section 144 of the Delaware Corporation Law. 5.1.2 CORPORATE EXISTENCE, BUSINESS, MAINTENANCE, INSURANCE. For so long as the Services Agreement (or any successor agreement for Lab EDI Services), including all extensions and renewals thereof, remains in effect: (a) Neither Healtheon nor ActaMed will enter into any agreement for the disposition of all or substantially all of the assets used in the provision of Lab EDI Services, including by way of a merger, consolidation, share exchange, or, in the case of Healtheon, sale of the capital stock of ActaMed, if such a sale will have a material impact on the provision of Lab EDI Services. (b) Healtheon, either independently or through ActaMed, shall continue to engage in the business of developing information networks (with a meaningful focus on the provision of lab order entry and results reporting services as one of Healtheon's core businesses) and businesses related thereto. (c) ActaMed and Healtheon will maintain or cause to be maintained in good repair, working order and condition all properties used in the business of Healtheon and any Subsidiary related to the provision of Lab EDI Services and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. Healtheon and any such Subsidiary will at all times comply in all material respects with the provisions of all material leases to which it is a party or under which it occupies property related to the provision of Lab EDI Services so as to prevent any loss or forfeiture thereof or thereunder. (d) Healtheon will maintain or cause to be maintained, with financially sound and reputable insurers, insurance in amounts approved by Healtheon's Board of Directors with respect to its properties and business and the properties and business of any Subsidiary against loss or damage. SECTION 5.2. INFORMATIONAL COVENANTS OF HEALTHEON. Healtheon covenants and agrees that it shall deliver the following information to SBCL so long as the Services Agreement remains in effect (including any extensions or renewal thereof) or until such time as Healtheon shall have consummated a Public Offering. -6- 5.2.1. MANAGEMENT'S ANALYSIS. All the financial statements delivered pursuant to the Investor Rights Agreement shall be accompanied by an informal narrative description of material business and financial trends and developments and significant transactions that have occurred in the appropriate period or periods covered thereby. 5.2.2. BUDGETS. As soon as practicable, but in any event within thirty (30) days prior to the commencement of a fiscal year, an annual operating budget for such fiscal year, approved by the Board of Directors, including monthly income and cash flow projections and projected balance sheets as of the end of each quarter within such fiscal year. Extensions of such due date shall not be unreasonably withheld. 5.2.3. INSPECTION. Except as provided in Section 5.2.5, below, upon reasonable notice, and no more frequently than two (2) times per year, Healtheon shall, and shall cause its Subsidiaries to, permit SBCL by its representatives, agents or attorneys: (a) to examine all books of account, records, reports and other papers of Healtheon or such Subsidiary, (b) to make copies and take extracts from any thereof, (c) to discuss the affairs, finances and accounts of Healtheon or such Subsidiary with Healtheon's or such Subsidiary's officers and independent certified public accountants (and by this provision Healtheon hereby authorizes said accountants to discuss with SBCL and its representatives, agents or attorneys the finances and accounts of Healtheon or such Subsidiary), and (d) to visit and inspect, at reasonable times and on reasonable notice during normal business hours, the properties of Healtheon and any Subsidiary. Notwithstanding any provision herein to the contrary, the provisions of this Section 5.2.3 are in addition to any rights which SBCL may have as a Healtheon stockholder under the Delaware Corporation Law and shall in no way limit such rights. The expenses of SBCL in connection with any such inspection shall be for the account of SBCL. Notwithstanding the foregoing -7- sentence, it is understood and agreed by Healtheon that all reasonable expenses incurred by Healtheon or such Subsidiary, any officers, employees or agents thereof or the independent certified public accountants therefor, shall be expenses payable by Healtheon and shall not be expenses of SBCL. 5.2.4 OTHER INFORMATION Except as provided in Section 5.2.5 below, for so long as SBCL continues to own at least [*] of the aggregate number of shares of Healtheon Common Stock now or hereafter acquired by it as a direct result of the Region transfers completed under this Agreement, Healtheon shall deliver courtesy copies of the following information, as requested by and furnished to the SBCL-nominated board member, or, if there is no such SBCL-nominated board member, as requested by the President of SBCL, to up to three employees of, or in-house counsel to, SBCL designated by SBCL in writing (and who initially shall be [*]): (a) promptly after the submission thereof to Healtheon, copies of any detailed reports (including the auditors' comment letter to management, if any such letter is prepared) submitted to Healtheon by its independent auditors in connection with each annual or interim audit of the accounts of Healtheon made by such accountants; (b) promptly, and in any event within ten (10) days after obtaining knowledge thereof, notice of the institution of any suit, action or proceeding (other than a proceeding of general application which is not directly against Healtheon or one or more of its Subsidiaries), the happening of any event or, to the best knowledge of Healtheon, the assertion or threat of any claim against Healtheon or any of its Subsidiaries which, either individually or in the aggregate, would have a Material Adverse Effect; (c) promptly upon, and in any event within thirty (30) days after, obtaining knowledge thereof, notice of any material breach of, Default under or failure to comply with any material term under this Article V of this Agreement or any change in Healtheon's relationship with its major customers, suppliers, employees or other entity with which Healtheon has a business relationship if such breach would have a Material Adverse Effect; [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -8- (d) with reasonable promptness, a notice of any material default by Healtheon or any of its Subsidiaries under any agreement to which it is a party if such breach would have a Material Adverse Effect; (e) with reasonable promptness, copies of all written materials furnished to directors; (f) promptly (but in any event within ten (10) days) after the filing of any document or material with the SEC, a copy of such document or material; (g) promptly after the record date set by the Board of Directors to determine the stockholders entitled to vote at Healtheon's annual meeting of stockholders (but in any event ten (10) days prior to such meeting), a list of all stockholders of Healtheon and their respective holdings; and (h) promptly upon request therefor, such other data, filings and information as the SBCL-nominated Healtheon Board representative may from time to time reasonably request, or, if there is no such SBCL-nominated board member, as the President of SBCL may from time to time reasonably request, in either case to the extent consistent with Section 220 of the Delaware Corporation Law. 5.2.5 EXCLUDED INFORMATION. Notwithstanding the provisions of Sections 5.2.3 and 5.2.4, SBCL shall not have the right to inspect, receive, review or otherwise have access to any information or documents which, in the reasonable opinion of Healtheon's counsel would constitute any of the following: (i) a waiver of the attorney-client privilege; (ii) the disclosure of any third-party confidential or proprietary information, disclosure of which is restricted by a written non-disclosure agreement or applicable law; or (iii) the disclosure of any confidential or proprietary information of Healtheon or any of its affiliated entities which relates to any areas of Healtheon's business, with which, in the reasonable opinion of the Board of Directors of Healtheon, SBCL or its affiliates compete (collectively, the "Excluded Information"). Notwithstanding Section 5.2.4 above, in the event of a Change of Control of Healtheon by an Acquirer that has a class of securities registered under the Exchange Act (a "Public Company"), SBCL shall no longer have the information rights set forth in this Section -9- 5.25. In the event of a Change in Control of Healtheon by an Acquirer (other than a Public Company) that is a direct competitor of SBCL, SBCL shall continue to have the information rights set forth in Section 5.2.4, but only insofar as the information to be obtained upon the exercise of such rights relates to Lab EDI Services provided, to be provided, or alleged by SBCL to have been required to be provided, by ActaMed or Healtheon. For purposes of this Section 5.2.5, a "Change of Control" shall mean the sale or other transfer in a single transaction or series of related transactions to a person or group of affiliated persons (the "Acquiror") of shares of Healtheon Common Stock representing more than 50% of the voting power of all Healtheon Common Stock then outstanding. Notwithstanding the foregoing limitations of this Section 5.2.5, independent auditors retained by SBCL shall have the right to review any Excluded Information which, in their reasonable opinion, is necessary to determine or confirm (i) the amount of royalties payable to SBCL under the License Agreement by reason of connectivity between Providers and commercial laboratories other than SBCL Labs or (ii) the revenues of ActaMed for purposes of Section 1.6 hereof. 5.2.6 CONFIDENTIALITY OBLIGATIONS. Subject to Section 4.4, all information disclosed to or obtained by SBCL pursuant to this Section 5.2 (including any Excluded Information which may be inadvertently disclosed to or obtained by SBCL hereunder) shall be deemed to be the confidential information of Healtheon and SBCL agrees that it shall treat such information with the same degree of care that it uses to protect its own confidential information of a similar nature and shall only disclose such information to those employees of SBCL who have a need to know such information in order to enforce SBCL's rights under this Agreement and the License Agreement. In the event that SBCL obtains any copies of any Excluded Information, SBCL shall promptly return all copies of such information to Healtheon upon request or promptly after the SBCL employees in possession of Excluded Information gain actual knowledge that it is Excluded Information." 2.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Section 8.1.2 is amended by deleting the word "ActaMed" from the caption, by replacing the word "ActaMed" with the words "ActaMed or Healtheon" throughout the Section and by replacing the term "Series D Preferred Stock" with the term "Common Stock of Healtheon." -10- 2.10 INDEMNITY OF SBCL. Section 8.2.1 is amended by adding the clause "including, without limitation, Section 5.2.6 hereof" at the end of subsection (a)(ii). 2.11 INDEMNITY OF ACTAMED AND HEALTHEON. Section 8.2.2 is amended by (i) deleting the word "ActaMed" in the caption and replacing it with the words "ActaMed and Healtheon", (ii) by replacing the words "ActaMed agrees" in the lead-in paragraph with the words "ActaMed and Healtheon, jointly and severally agree," (iii) by replacing the word "ActaMed" in subsections (a)(i), (ii) and (iii) with the words "ActaMed or Healtheon", and (iv) by adding the clause "including, without limitation, representations and warranties made by ActaMed prior to the Merger Effective Date" at the end of subsection (a)(i). 2.12 SPECIAL INDEMNITY AS TO PROJECTIONS. Section 8.2.9 is amended by inserting the clause "as such Lab EDI Services are presently provided, without regard to any additional expenses incurred as a result of the acquisition of ActaMed by Healtheon" after the parenthetical "(as defined in the Services Agreement)". 2.13 NOTICES. Section 11.1.1 is amended by adding the following: "If to Healtheon: Healtheon Corp. 4600 Patrick Henry Drive Santa Clara, CA 95054 Attention: General Counsel Telephone: (408) 876-5000 Telecopy: (408) 876-5175" 2.14 ASSIGNMENT. Section 11.1.4(b) is amended by replacing the term "Series D Preferred Stock" with the term "Common Stock of Healtheon" and by replacing the term "Stockholders' Agreement" with the term "Affiliate Agreement prior to a Public Offering." 2.15 ENTIRE AGREEMENT. Section 11.1.8 is amended by deleting the text after the term "SBCL." 2.16 ADDED DEFINITIONS. The following definitions are added to Exhibit A to the Purchase Agreement. If such terms are defined in said Exhibit A, the existing definitions shall be deleted in their entirety and the following shall replace the existing definitions: "Affiliate Agreement" means the ActaMed Corporation Affiliate Agreement, dated as of May , 1998, between Healtheon and SBCL. "Common Stock of Healtheon" means the common stock, $.0001 par value, of Healtheon. -11- "Exchange Ratio" shall have the meaning given to such term in the Healtheon Merger Agreement. "Healtheon Merger Agreement" means the Agreement and Plan of Reorganization, dated February 24, 1998, by and among Healtheon Corporation, MedNet Acquisition Corp. and ActaMed Corporation. "Investors' Rights Agreement" means the Amended and Restated Investors' Rights Agreement, dated as of May __, 1998, between Healtheon and the persons and entities listed on Schedules A and B thereto. "Material Adverse Effect" means a material adverse effect on the business or financial condition of either Healtheon or ActaMed or on the ability of either Healtheon or ActaMed to conduct the ActaMed Business, including to provide Lab EDI Services, or the impairment of the ability of either Healtheon or ActaMed to perform its respective obligations under the ActaMed Documents. "Merger Effective Date" means the date on which the transactions contemplated by the Healtheon Merger Agreement become effective. "New Business Plan" means for the business plan of ActaMed presented to SBCL on April 29, 1998, approved by the ActaMed board of directors on May 5, 1998 and in the form approved by the Healtheon board of directors on May 14, 1998, covering (i) for the years 1998 and 1999, projected financial data, including statements of operations, and operational data, including number of sites and transactions per site and (ii) for the year 2000, number of sites. "Public Offering" means a bona fide firm commitment underwritten offering of the Common Stock of Healtheon or the ActaMed Common Stock, as the case may be, pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission pursuant to the Securities Act. 2.17 DELETED DEFINITIONS. The definitions for the following terms set forth in Exhibit A to the Purchase Agreement are deleted in their entirety: "Conversion Shares" "Permitted Owner" -12- "Preferred Stock" and "Series A Preferred Stock," "Series B Preferred Stock" and "Series C Preferred Stock" "Stock Option Plans" 3. MISCELLANEOUS. 3.1 ENTIRE AGREEMENT. This Amendment No.1 constitutes the entire understanding between the parties with respect to amendment of the Purchase Agreement and supersedes all proposals, communications and agreements between the parties relating to such subject matter. No amendment, change, or waiver of any provision of this Amendment No.1 will be binding unless in writing and signed by all parties. 3.2 GOVERNING LAW. This Amendment No.1 will be governed by and construed in accordance with the laws of the State of Georgia applicable to contracts made and performed therein. 3.3 PURCHASE AGREEMENT PROVISIONS. Except as otherwise provided, all provisions of the Purchase Agreement not modified by this Amendment No. 1 shall remain in full force and effect. 3.4 COUNTERPARTS. This Amendment No. 1 may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [INTENTIONALLY LEFT BLANK] -13- IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the Purchase Agreement as of the date set forth above. HEALTHEON CORPORATION By: /s/ W. Michael Long ------------------------------------- Its: CEO ------------------------------------ ACTAMED CORPORATION By: /s/ Michael K. Hoover ------------------------------------- Its: President & CEO ------------------------------------ SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By: /s/ John B. Okkersee Jr. ------------------------------------- Its: President ------------------------------------ -14- EX-10.16 26 EX-10.16 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EXECUTION LICENSE AGREEMENT between SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. and ACTAMED CORPORATION December 31, 1997 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 ActaLab Software . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Confidential Information . . . . . . . . . . . . . . . . . . . . 2 1.4 Derivative Work. . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Exclusive Developments . . . . . . . . . . . . . . . . . . . . . 2 1.7 Health Care Field. . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Information Services . . . . . . . . . . . . . . . . . . . . . . 3 1.9 Object Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 Other Lab. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.11 ProviderLink . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.12 [*]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.13 Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.14 Related Entity . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.15 SBCL Software. . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.16 SBCL Trademark . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.17 SCAN Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 3 1.18 SCAN Developments. . . . . . . . . . . . . . . . . . . . . . . . 4 1.19 Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.20 Source Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.21 Specifications . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.22 Territory. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.23 Third Party Software . . . . . . . . . . . . . . . . . . . . . . 4 1.24 Trigger Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 2 - LICENSE GRANTS; RELATED PROVISIONS . . . . . . . . . . . . . . . 4 2.1 SCAN Development License . . . . . . . . . . . . . . . . . . . . 4 2.2 ActaLab Development License. . . . . . . . . . . . . . . . . . . 5 2.3 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4 Technology Transfer. . . . . . . . . . . . . . . . . . . . . . . 6 2.5 Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 3 - SCAN DEVELOPMENTS OWNERSHIP; RELATED PROVISIONS. . . . . . . . . 6 3.1 Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.2 Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 4 - LICENSE BACK . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 License Grant. . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.2 Term of License. . . . . . . . . . . . . . . . . . . . . . . . . 8 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -i- 4.3 Sublicenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.4 Usage Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.5 ActaLab Software Escrow. . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 5 - MARKINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 5.1 By ActaMed . . . . . . . . . . . . . . . . . . . . . . . . . . .10 5.2 By SBCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 ARTICLE 6 - DEVELOPMENT AGREEMENT AMENDMENTS . . . . . . . . . . . . . . . .11 ARTICLE 7 - WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . .11 7.1 Warranty of Title and Noninfringement. . . . . . . . . . . . . .11 7.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . .12 7.3 Disclaimers. . . . . . . . . . . . . . . . . . . . . . . . . . .12 ARTICLE 8 - INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .12 8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 8.2 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 8.3 Infringement . . . . . . . . . . . . . . . . . . . . . . . . . .13 8.4 Claims Notice. . . . . . . . . . . . . . . . . . . . . . . . . .13 8.5 Procedures Involving Non-Third Party Claims. . . . . . . . . . .13 8.6 Procedures Involving Third Party Claims. . . . . . . . . . . . .14 8.7 No Release for Fraud . . . . . . . . . . . . . . . . . . . . . .15 8.8 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 8.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 ARTICLE 9 - LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . .16 ARTICLE 10 - CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . .16 ARTICLE 11 - ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .16 11.1 By SBCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 11.2 By ActaMed . . . . . . . . . . . . . . . . . . . . . . . . . . .17 11.3 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ARTICLE 12 - DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . . .17 12.1 Informal Dispute Resolution. . . . . . . . . . . . . . . . . . .17 12.2 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . .18 12.3 Immediate Injunctive Relief. . . . . . . . . . . . . . . . . . .19 12.4 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . .19 12.5 Continued Performance; Continuation of Licenses. . . . . . . . .19 ARTICLE 13 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .20 13.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . .20 13.2 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . .20 -ii- 13.3 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . .20 13.4 No Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . .20 13.5 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .20 13.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . .21 13.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 13.8 Governing Law; Interpretation. . . . . . . . . . . . . . . . . .21
SCHEDULES Schedule A SBCL Software Schedule B Amendments to Development Agreement -iii- CONFIDENTIAL TREATMENT REQUESTED LICENSE AGREEMENT THIS LICENSE AGREEMENT ("License Agreement") dated December 31, 1997 (the "Effective Date") is by and between SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC., a Delaware corporation ("SBCL") and ACTAMED CORPORATION, a Georgia corporation ("ActaMed"). WHEREAS, SBCL and ActaMed have entered into an Assets Purchase Agreement dated of even date herewith (the "Purchase Agreement") pursuant to which ActaMed has agreed to purchase certain assets owned by SBCL and used to provide certain services to health care service providers; WHEREAS, the Purchase Agreement contemplates that the parties will enter into a license agreement substantially on the terms set forth herein, as well as a Services Agreement (the "Services Agreement") pursuant to which ActaMed shall provide certain services to SBCL and to health care service providers; WHEREAS, SBCL and ActaMed have previously entered into a Development Agreement dated October 31, 1997 (the "Development Agreement") pursuant to which ActaMed agreed to perform certain development services; and WHEREAS, the parties desire to amend the provisions of the Development Agreement pursuant to which SBCL authorized ActaMed to use SBCL software and related materials in the performance of work under the Development Agreement, and pursuant to which the parties allocated ownership of deliverables created under the Development Agreement and intellectual property rights therein; NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, SBCL and ActaMed agree as follows: ARTICLE 1 - DEFINITIONS 1.1 "ACTALAB SOFTWARE" means (i) any updated, upgraded, corrected, modified, or enhanced version of ProviderLink created by or for ActaMed, and any Derivative Works made from ProviderLink by or for ActaMed, and any other Software owned and employed by ActaMed in providing Information Services or related services in accordance with the terms of the Services Agreement, in each case embodying, incorporating or practicing the SBCL Software or any portion thereof, (ii) any compiler or other program reasonably required to create Object Code from the Source Code of the foregoing or use any of the foregoing in the provision of Information Services, and (iii) any Documentation relating to any of the foregoing created by or for ActaMed. Without limiting the foregoing, "ActaLab Software" shall include [*] (as the term is defined in the Services Agreement). 1.2 "AFFILIATE" of an entity means a company or other person controlling, controlled by or under common control with such entity. 1.3 "CONFIDENTIAL INFORMATION" means any and all proprietary information disclosed or made available by a party hereto to the other party pursuant to this License Agreement, whether in written, oral, magnetic, photographic, optical or other form and whether now existing or hereafter created, including, without limitation, all trade secrets, know-how, information systems, technology, data, computer programs, processes, methods, operational procedures, plans, strategies or results, and other information of a similar nature that is not generally disclosed by such party to the public. Without limiting the foregoing, ActaMed's Confidential Information shall include the Source Code and Documentation for the ProviderLink Software and ActaLab Software, and SBCL's Confidential Information shall include the Source Code and Documentation for the SBCL Software and the SCAN Developments. Confidential Information shall not include any information which (a) is proven by written evidence to have been in the receiving party's possession prior to disclosure by the other party; (b) is received from a third party having the right to disclose such information; (c) is or hereafter becomes public knowledge through no act or fault of the receiving party; or (d) is proven by written evidence to have been independently developed by the receiving party without access to the Confidential Information of the other party. 1.4 "DERIVATIVE WORK" means a work that is based upon one or more preexisting works, such as a revision, modification, translation, abridgment, condensation, expansion, or any other form in which such preexisting works may be recast, transformed, translated or adapted, and that, if prepared without authorization of the owner of the copyright in such preexisting work, would constitute a copyright infringement. 1.5 "DOCUMENTATION" means manuals (e.g., user, utility reference and language reference) and other written materials that relate to particular Software, including materials useful for the operation of the Software by a user (collectively, "USER DOCUMENTATION"), and information (e.g., data flows, data structures, control logic, flow diagrams, and principles of operation) useful for design, modification and maintenance of the Source Code by a programmer (collectively, "PROGRAMMER DOCUMENTATION"). 1.6 "EXCLUSIVE DEVELOPMENTS" shall have the meaning ascribed to it by Section V.E of the Services Agreement. 1.7 "HEALTH CARE FIELD" means the provision of electronic data interchange technology relating to patients, patient-related services or the practice of medicine, to Providers, Healthcare Payors and Healthcare Administrators. "Healthcare Payor," for the purposes of this definition, means any person or entity that pays for the provision of healthcare services, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- including without limitation employers, insurance companies, regional healthcare alliances, and federal, state and local governmental agencies. "Healthcare Administrator" means those entities engaged in the administration of healthcare services, including without limitation managed care companies, utilization review companies and third party administrators. Notwithstanding the foregoing, "Health Care Field" shall exclude services relating to or provided to [*]. 1.8 "INFORMATION SERVICES" means the transmission of orders for laboratory tests and/or laboratory test results and reports. 1.9 "OBJECT CODE" means the form of Software resulting from the translation or processing of the Source Code by a computer into machine language or intermediate code in a form that is not convenient to human understanding but which is appropriate for execution or interpretation by a computer, together with related User Documentation. 1.10 "OTHER LAB" shall have the meaning ascribed to it by the Services Agreement. 1.11 "PROVIDERLINK" means the ActaMed proprietary Software known as ProviderLink as it exists on the Effective Date, together with any updates, upgrades, enhancements, modifications or Derivative Works made thereto or therefrom by or for ActaMed other than under the licenses granted by this License Agreement, and the Specifications and Documentation relating to and of the foregoing prepared by or for ActaMed. 1.12 [*]. 1.13 "PROVIDERS" means physicians, clinics, hospitals and other providers of clinical health care services other than [*]. 1.14 "RELATED ENTITY" means an entity that is engaged in the laboratory testing business and in which SBCL or an SBCL affiliate has a legal or beneficial ownership of ten percent (10%) or more. 1.15 "SBCL SOFTWARE" means the Software described in Schedule A hereto. "SBCL Software" shall in no event be construed to include [*] or Third Party Software. 1.16 "SBCL TRADEMARK" means SBCL's trade names, logos, trademarks, trade devices, product names and/or service marks. 1.17 "SCAN AGREEMENTS" means the Development Agreement, Purchase Agreement, Services Agreement and this License Agreement. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -3- 1.18 "SCAN DEVELOPMENTS" means (i) any updated, upgraded, corrected, modified, or enhanced version of the SBCL Software created by or for ActaMed under the rights granted by this License Agreement, and (ii) any Documentation relating to any of the foregoing created by or for ActaMed, provided, that SCAN Developments shall in no event be construed to include the ActaLab Software. 1.19 "SOFTWARE" means computer programming code consisting of Object Code and/or Source Code and/or associated procedural code, as applicable, including updates and revisions thereto. 1.20 "SOURCE CODE" means program instructions and codes written by humans with the intention that the instructions and codes be compiled and interpreted by a computer, including all existing commentary, explanations, control procedures, record layouts for all files and program listings-source codes, design documentation, user manuals, programmers' guides, system guides, current compilation instructions, and all other User Documentation and Programmer Documentation. 1.21 "SPECIFICATIONS" means a description of the design, operating procedures, performance, functions and other requirements for Software. 1.22 "TERRITORY" means the United States of America, including all territories and possessions thereof. 1.23 "THIRD PARTY SOFTWARE" means Software that SBCL prior to the Effective Date licensed from third parties for use in delivery of automated order entry and results reporting services, including without limitation Software known as [*] and [*]. 1.24 "TRIGGER DATE" shall have the meaning ascribed to it by Section 4.4.1 hereof. ARTICLE 2 - LICENSE GRANTS; RELATED PROVISIONS 2.1 SCAN DEVELOPMENT LICENSE. Subject to the terms and conditions of this License Agreement, SBCL hereby grants ActaMed a perpetual, irrevocable, nonexclusive, non-transferable (except as otherwise expressly set forth herein) right and license in the Health Care Field in the Territory to: 2.1.1 possess and use the SBCL Software to update, upgrade, enhance, modify and create Derivative Works from the SBCL Software and otherwise create SCAN Developments; and 2.1.2 possess and use, update, upgrade, enhance, modify and create Derivative Works from the SBCL Software, SCAN Developments and ActaLab Software; [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -4- 2.1.3 possess and use the SBCL Software and SCAN Developments for the purposes of performing ActaMed's obligations under the SCAN Agreements; and 2.1.4 possess and use the SCAN Developments for the purpose of providing Information Services in support of the laboratory testing services offered by Other Labs only to the extent such SCAN Developments do not constitute Exclusive Developments under the Service Agreement. The foregoing license shall include the right to (i) sublicense the SBCL Software and/or SCAN Developments to one or more contractors performing the activities described in Sections 2.1.1 or 2.1.2 hereof for ActaMed's benefit and for ActaMed's account, and (ii) sublicense Providers, [*] and Other Labs to use the Object Code version of the SBCL Software and/or the SCAN Developments as ActaMed reasonably determines necessary or appropriate in connection with its provision of the services contemplated by Section 2.1.3, in each case provided that each sublicensee executes a written agreement (x) prohibiting such sublicensee from disclosing SBCL Confidential Information or using the same other than as contemplated by this Section 2.1, and (y) precluding the sublicensee or any of its employees or agents from gaining or holding any right or interest in the SBCL Software. 2.2 ACTALAB DEVELOPMENT LICENSE 2.2.1 GRANT. Subject to the terms and conditions of this License Agreement, SBCL hereby grants ActaMed a perpetual, irrevocable, nonexclusive, non-transferable (except as otherwise expressly set forth herein) right and license to possess and use the SBCL Software to update, upgrade, enhance, modify and create Derivative Works from ProviderLink and otherwise create ActaLab Software pursuant to the Development Agreement and otherwise. The license granted by this Section 2.2.1 shall survive the termination of this License Agreement. 2.2.2 OWNERSHIP. Ownership of Deliverables (as defined by the Development Agreement) relative to the ActaLab Software shall be governed by Section 5 of the Development Agreement, as amended. Ownership of all other ActaLab Software and all intellectual property rights therein (including but not limited to copyrights and all renewals and extensions thereof) shall vest in ActaMed, except that nothing in this Agreement shall be construed to transfer to ActaMed, or otherwise divest SBCL of SBCL's ownership of, the SBCL Software or SCAN Developments or the patents, copyrights, trade secrets and other intellectual property rights therein. ActaMed shall own the ActaLab Software Exclusive Developments. 2.3 CONDITIONS. 2.3.1 As a material inducement for SBCL's grant of the licenses contemplated by this Agreement and the amendments to the Development Agreement contemplated by [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -5- Article 6 of this Agreement, ActaMed hereby covenants and agrees that, except as SBCL may authorize in writing, ActaMed (and any sublicensee of ActaMed) shall use the ActaLab Software solely within the Territory and solely in the Health Care Field. 2.3.2 ActaMed further covenants and agrees that, except as SBCL may otherwise agree in writing, ActaMed shall not use or license the use of the ActaLab Software Exclusive Developments for the benefit of any party other than in support of SBCL's laboratory testing services. 2.4 TECHNOLOGY TRANSFER. SBCL, within thirty (30) days following the Effective Date, shall provide ActaMed with one copy of all currently existing SBCL Software not previously provided in connection with the Development Agreement or otherwise. Thereafter, during the term of the Services Agreement, SBCL shall promptly provide ActaMed with such updates, upgrades and enhancements to the SBCL Software as SBCL, in its sole discretion, may make or have made during the term of the Services Agreement. 2.5 ROYALTIES. 2.5.1 If ActaMed uses the SBCL Software, SCAN Developments or ActaLab Software in the provision of Information Services to [*] ActaMed shall agree to pay SBCL a royalty equal to [*] of Royalty Revenues for the Royalty Period applicable to such [*]. "Royalty Revenues," for these purposes, means the [*] ActaMed collects for such Information Services. The "Royalty Period," with respect to Software or services provided in support of a given [*] means the [*] period commencing on the date [*]. 2.5.2 The royalties accruing pursuant to this Section 2.4 shall be payable on a [*] basis, and shall be due within [*] days following the end of the [*] in which they accrue. Each such royalty payment shall be accompanied by a report showing, by each [*] the total Royalty Revenue collected during the applicable [*] and the royalty amount due in respect of such Royalty Revenue. ARTICLE 3 - SCAN DEVELOPMENTS OWNERSHIP; RELATED PROVISIONS 3.1 OWNERSHIP. 3.1.1 Subject to the provisions of Section 3.2 hereof, SBCL, as between ActaMed and SBCL, shall have sole and exclusive ownership in and title to the SBCL Software and SCAN Developments, including all intellectual property rights therein. Without limiting the foregoing, the SCAN Developments shall be "works made for hire" for [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -6- the benefit of SBCL. To the extent that any of the SCAN Developments, by operation of law, may not be works made for hire, or to the extent ActaMed otherwise would retain any rights in the SCAN Developments, ActaMed, subject to the provisions of Section 3.2.2 hereof, hereby assigns to SBCL the ownership of any patent or copyright in the SCAN Developments and SBCL shall have the right to obtain and hold in its own name copyrights, patents, registrations and similar protections which may be available with respect to the SCAN Developments. 3.1.2 Nothing in this Agreement shall be construed to transfer to SBCL, or otherwise divest ActaMed of ActaMed's ownership of, ProviderLink, the ActaLab Software or the patents, copyrights, trade secrets and other intellectual property rights therein, provided, that, subject to the provisions of Section 3.2.1 hereof, ActaMed hereby grants SBCL a perpetual, nonexclusive, royalty-free license (with right of sublicense) under such intellectual property rights to use, possess, update, upgrade, enhance, modify, reproduce, market, distribute and sell the SCAN Developments. 3.1.3 ActaMed shall provide SBCL with the Source Code for the SCAN Developments on or before the first release of the same to a commercial customer or the use of the same in providing a commercial service (the "Release Date") and, thereafter, on or before the Release Date of any updates, upgrades, enhancements or modifications thereto and, in any event, [*] during the term of the Services Agreement (including any renewal terms thereof). 3.2 LIMITATIONS. 3.2.1 SBCL covenants and agrees that, prior to the expiration or termination of the Services Agreement, it shall not use, or sublicense any other party to use, the SCAN Developments except (i) in the Territory solely for the purpose of performing Information Services in support of the laboratory testing services offered [*] that has not been transferred to ActaMed pursuant to the Purchase Agreement, and (ii) outside of the Territory. In the event SBCL uses the SCAN Developments to provide Information Services in support of [*] within the Territory, SBCL shall pay ActaMed a usage fee to be negotiated by the parties, such usage fee to be determined in accordance with the provisions, and during the term, of the Services Agreement. 3.2.2 Except to the extent such SCAN Developments constitute Exclusive Developments, nothing in this Agreement shall be construed to (i) grant SBCL or any other party ownership of such portions of the SCAN Developments as are devoted solely to the process of checking patient eligibility for third party payor benefits or reimbursement, or claim status checking (collectively, "Eligibility Services"), or (ii) grant SBCL any right or license to use the SCAN Developments for the purposes of performing or providing Eligibility Services, except that SBCL shall not be required to delete or [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -7- remove the Eligibility Code from the SCAN Developments prior to exercising the rights and licenses granted by this Article 3. ARTICLE 4 - LICENSE BACK 4.1 LICENSE GRANT. Subject to the provisions of this Article 4, ActaMed hereby grants SBCL an irrevocable, nonexclusive, non-transferable (except as expressly set forth herein) right and license in the Territory in the Health Care Field to: 4.1.1 possess and use the ActaLab Software to create [*] and update, upgrade, modify, enhance and create Derivative Works from [*] (such Derivative Works being referred to herein as the [*]) as SBCL reasonably determines necessary to perform Information Services in support of laboratory test services offered by SBCL and/or Related Entities, including without limitation to ensure compliance with laws and regulations applicable to the business of SBCL and Related Entities, PROVIDED, that SBCL covenants and agrees that it shall not exercise the licenses granted by this Section 4.1.1 prior to the earlier of [*] (the "Trigger Date"); and 4.1.2 possess and use [*] and [*] for internal business purposes of SBCL and Related Entities, including without limitation the provision of Information Services to Providers in support of their respective laboratory testing services, PROVIDED, that SBCL covenants and agrees that it shall not exercise the licenses granted by this Section 4.1.2 prior to the date on which the Services Agreement expires as a result of ActaMed's notice of nonrenewal or the date on which the Services Agreement terminates for ActaMed's breach, as applicable. 4.2 TERM OF LICENSE. The licenses granted by this Article 4 shall expire on the second anniversary of the date on which SBCL first uses ActaLabSB on a commercial basis in support of SBCLs laboratory testing services. 4.3 SUBLICENSES. The licenses granted by Section 4.1 shall include the right to (a) sublicense the ActaLab Software, and [*] to one or more contractors performing any of the foregoing for the benefit and account of SBCL or a Related Entity, and (b) sublicense Providers to use the Object Code version of [*] as reasonably may be required to provide the services contemplated by Section 4.1.2, in each case provided that each sublicensee executes a written agreement (x) prohibiting such sublicensee from disclosing ActaMed Confidential Information or using the same other than as contemplated [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -8- by this Article 4, and (y) precluding the sublicensee or any of its employees or agents from gaining or holding any right or interest in the ActaLab Software. 4.4 USAGE FEES. 4.4.1 SBCL, in addition to the other consideration contemplated by the SCAN Agreements, agrees to pay, as a royalty, a Usage Fee on each Royalty Transaction. For the purposes of this Section 4.4.1: (i) "Royalty Transaction" means a Requisition (as defined in the Services Agreement) entered [*] (pursuant to Sections XII.E.1.b or XII.E.3.c. of the Services Agreement) to or for a site other than one of the Permitted Number of sites. (ii) "Usage Fee" means the lesser of (i) [*] per Requisition and [*] of the Transaction Fee then prevailing under Article IV of the Services Agreement or (ii) [*] of an amount competitive with the market for Information Services, such amount [*] to be calculated in accordance with the principles established by Section IV of the Services Agreement. (iii) "Permitted Number" means [*] the number of sites [*] the largest number of sites with respect to which [*]. 4.4.2 The royalties accruing pursuant to this Section 4.4 shall be payable on a [*] and shall be due within [*] days following the end of the [*] in which they accrue. Each such royalty payment shall be accompanied by a report showing the manner in which the payment amount was calculated. 4.5 ACTALAB SOFTWARE ESCROW. 4.5.1 Promptly upon the execution of this License Agreement, ActaMed shall give written notice to Fort Knox Escrow Services, Inc. ("Fort Knox") instructing Fort Knox to add SBCL to the list of Licensees maintained pursuant to that certain Master Escrow Agreement dated February 20, 1995 (the "Escrow Agreement"). ActaMed shall deposit the Source Code for all ActaLab Software in accordance with the terms of the Escrow Agreement on or before the first release of the same to a commercial customer or the use of the same in providing a commercial service (the "Release Date") and, thereafter, on or before the Release Date of any updates, upgrades, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -9- enhancements or modifications thereto and, in any event, no less often than once [*] during the term of the Services Agreement (including any renewal terms thereof). 4.5.2 ActaMed, within thirty (30) days of the date of this Agreement shall enter into an amendment to the Escrow Agreement with Fort Knox, reasonably acceptable to SBCL in form and substance, to the effect that Fort Knox, at SBCL's request and expense, agrees to inspect the deposit materials supplied by ActaMed for the purpose of confirming their identity and completeness. 4.5.3 ActaMed, promptly upon SBCL's demand made at any time following the Trigger Date, shall notify Fort Knox in accordance with Section 4.1(a) of the Escrow Agreement to deliver the Source Code for the ActaLab Software to SBCL, which notice shall be accompanied by the fees specified in such Section 4.1(a). 4.5.4 ActaMed covenants and agrees to maintain the Escrow Agreement in full force and effect during the term of the Services Agreement, and acknowledges that its failure to do so will constitute a material breach of this License Agreement and the Services Agreement. 4.5.5 ActaLab hereby appoints SBCL as its attorney in fact for the limited purpose of providing to Fort Knox the notices contemplated by this Section 4.4.1 and 4.4.3. ARTICLE 5 - MARKINGS 5.1 BY ACTAMED. ActaMed shall reproduce SBCLs copyright notice on all SBCL Software and SCAN Developments in accordance with the practice prevailing in the software industry. Subject to the foregoing sentence: 5.1.1 ActaMed, on or before the date on which ActaMed switches any site from the SBCL gateway to the ActaMed gateway (as described in Section II.B of the Services Agreement), shall remove SBCL Trademarks from the sign-on screen for the ActaLab Software and SCAN Developments resident on the computer at such site, and from any other screens that might reasonably suggest that SBCL, rather than ActaMed, is the source of the Information Services provided using such Software; and 5.1.2 ActaMed, with the reasonable assistance of SBCL's Distribution Service Representatives in accordance with Section II.B.4 of the Services Agreement, shall remove SBCL Trademarks from any equipment owned or controlled by ActaMed and located at a given site within three (3) months of the Transfer Date for such site, but in any event prior to the date on which ActaMed transfers ownership of such equipment to any other party. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -10- 5.2 BY SBCL. SBCL shall reproduce ActaMeds copyright notice on all copies of the ActaLab Software in accordance with the practice prevailing in the software industry. ARTICLE 6 - DEVELOPMENT AGREEMENT AMENDMENTS The parties hereby agree to amend the Development Agreement as set forth in Schedule B hereto. ARTICLE 7 - WARRANTIES 7.1 WARRANTY OF TITLE AND NONINFRINGEMENT. 7.1.1 ActaMed represents and warrants to SBCL that: (i) Unless ActaMed provides SBCL with advance written notice to the contrary in accordance with Section 5.2(b) of the Development Agreement, ActaMed is and will be the sole author of all works used by ActaMed in preparing the ActaLab Software and SCAN Developments; (ii) ActaMed shall require all officers, employees, contractors, representatives and agents who provide services with respect to the ActaLab Software, SBCL Software or SCAN Developments under the SCAN Agreements to assign to ActaMed all intellectual property rights created or arising therein; (iii) Subject to the provisions of Section 7.1.2 hereof, ActaMed has and will have full and sufficient right in the ActaLab Software to grant the licenses and rights contemplated by Article 4 of this License Agreement, free and clear of any liens, claims or encumbrances; (iv) Subject to the provisions of Section 7.1.2 hereof, the terms and conditions set forth in Article 3 hereof are sufficient to convey to SBCL all right, title and interest in and to the SCAN Developments, and following such conveyance neither ActaMed nor any third party shall retain any right, title or interest in the SCAN Developments other than the licenses expressly set forth herein; and (v) Subject to the provisions of Section 7.1.2 hereof, none of the ActaLab Software or SCAN Developments infringes any patents, copyrights, trademarks, or other intellectual property rights (including trade secrets), privacy or similar rights of any third party, nor has any claim of such infringement been threatened or asserted. -11- 7.1.2 SBCL represents and warrants to ActaMed that: (i) SBCL is the sole author of the SBCL Software; (ii) SBCL has required all officers, employees, contractors, representatives and agents who prior to the date of this Agreement provided services with respect to the Software to assign to SBCL all intellectual property rights created or arising therein; (iii) SBCL has and will have full and sufficient right in the SBCL Software to grant the licenses and rights contemplated by Article 2 of this License Agreement, free and clear of any liens, claims or encumbrances; and (iv) none of the SBCL Software provided to ActaMed by SBCL hereunder infringes any patents, copyrights, trademarks, or other intellectual property rights (including trade secrets), privacy or similar rights of any third party, nor has any claim of such infringement been threatened or asserted. 7.2 AUTHORIZATION. Each of ActaMed and SBCL represents and warrants that, as of the Effective Date of this License Agreement (i) it is duly authorized to enter into this License Agreement, and (ii) it is free of any obligation or restriction that would prevent it either from entering into or performing this License Agreement. 7.3 DISCLAIMERS. THE FOREGOING WARRANTY IS IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WHICH ARE HEREBY SPECIFICALLY EXCLUDED AND DISCLAIMED. WITHOUT LIMITING THE FOREGOING, (i) NOTHING IN THIS LICENSE AGREEMENT SHALL BE CONSTRUED TO EXPAND OR EXTEND THE WARRANTIES ACTAMED GRANTS IN THE OTHER SCAN AGREEMENTS WITH RESPECT TO THE ACTALAB SOFTWARE OR SCAN DEVELOPMENTS, AND (ii) SUBJECT TO SUCH WARRANTIES AND REPRESENTATIONS AS ARE CONTAINED IN THE OTHER SCAN AGREEMENTS, ACTAMED ACKNOWLEDGES THAT SBCL IS LICENSING THE SBCL SOFTWARE TO ACTAMED ON AN AS IS BASIS, AND HEREBY DISCLAIMS ANY WARRANTIES WITH RESPECT TO THE OPERATION THEREOF. ARTICLE 8 - INDEMNITY 8.1 GENERAL. Each party hereto shall indemnify, defend and hold harmless the other party and its officers, employees, representatives and agents against any and all damages, losses, or expenses suffered or paid as a result of any claims, demands, suits, causes of action, -12- proceedings, awards, judgments, and liabilities (including reasonable attorneys fees) incurred in litigation, arbitration or otherwise, assessed, incurred, or sustained (each, a Claim) with respect to or arising out of the breach by the Indemnifying Party of any representation, warranty, covenant or agreement made herein. 8.2 SERVICES. ActaMed shall indemnify, defend and hold harmless SBCL and its officers, employees, representatives and agents against any Claim arising from or relating to ActaMeds provision of the ActaLab Software, SCAN Developments or any services, in each case in support of any Other Lab pursuant to this License Agreement. SBCL shall indemnify, defend and hold harmless ActaMed and its officers, employees, representatives and agents against any Claim arising from or relating to SBCLs provision of the SCAN Developments or any services outside the Territory or to [*] as contemplated by Section 3.2 hereof. 8.3 INFRINGEMENT. 8.3.1 ActaMed, subject to the provisions of Section 8.3.2 hereof, shall indemnify, defend and hold harmless SBCL and the Related Entities and their respective officers, employees, representatives and agents against any Claim alleging the ActaLab Software or any SCAN Development infringes or constitutes misappropriation of any U.S. or foreign patent or any other U.S. or foreign proprietary right of a third party. 8.3.2 SBCL shall indemnify, defend and hold harmless ActaMed and its Affiliates and their respective officers, employees, representatives and agents against any Claim alleging the SBCL Software infringes or constitutes misappropriation of any U.S. or foreign patent or any other U.S. or foreign proprietary right of a third party. 8.4 CLAIMS NOTICE. A Claim shall be made by any entity or individual eligible for indemnification pursuant to this Article 8 (an Indemnitee) by delivery of a Claims Notice to the party owing a duty of indemnification under this Article 8 (the Indemnifying Party) requesting indemnification and specifying the basis on which indemnification is sought and the amount of asserted Losses (as defined in the Services Agreement) and, in the case of a Third Party Claim (as defined in the Services Agreement), containing (by attachment or otherwise) such other information as such Indemnitee shall have concerning such Third Party Claim. 8.5 PROCEDURES INVOLVING NON-THIRD PARTY CLAIMS. If the Claim involves a matter other than a Third Party Claim, the Indemnifying Party shall raise any objection to such Claim within a reasonable period of time by delivery of a written notice of such objection to such Indemnitee specifying in reasonable detail the basis for such objection. If an objection is timely interposed by the Indemnifying Party, the Indemnifying Party and the Indemnitee shall cooperate in the compromise of the Claim or resolve any disagreement in accordance with Article 12 hereof. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -13- 8.6 PROCEDURES INVOLVING THIRD PARTY CLAIMS. The obligations and liabilities of the parties hereunder with respect to a Third Party Claim shall be subject to the following terms and conditions: 8.6.1 The Indemnitee shall give the Indemnifying Party written notice of a Third Party Claim promptly after receipt by the Indemnitee of notice thereof, and the Indemnifying Party may undertake the defense, compromise and settlement thereof by representatives of its own choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee to notify the Indemnifying Party of such claim shall not relieve the Indemnifying Party of any liability that they may have with respect to such claim except to the extent the Indemnifying Party demonstrates that the defense of such claim is prejudiced by such failure. The assumption of the defense, compromise and settlement of any such Third Party Claim by the Indemnifying Party shall be an acknowledgment of the obligation of the Indemnifying Party to indemnify the Indemnitee with respect to such claim hereunder. If the Indemnitee desires to participate in, but not control, any such defense, compromise and settlement, it may do so at its sole cost and expense. If, however, the Indemnifying Party fails or refuses to undertake the defense of such Third Party Claim within ten (10) days after written notice of such claim has been given to the Indemnifying Party by the Indemnitee, the Indemnitee shall have the right to undertake the defense, compromise and settlement of such claim with counsel of its own choosing. In the circumstances described in the preceding sentence, the Indemnitee shall, promptly upon its assumption of the defense of such claim, make a Claim as specified in Section 8.3 which shall be deemed a Claim that is not a Third Party Claim for the purposes of the procedures set forth herein. 8.6.2 If, in the reasonable opinion of the Indemnitee, any Third Party Claim or the litigation or resolution thereof involves an issue or matter which could have a material adverse effect on the business, operations, assets, properties or prospects of the Indemnitee, the Indemnitee shall have the right to control the defense, compromise and settlement of such Third Party Claim undertaken by the Indemnifying Party, and the reasonable costs and expenses of the Indemnitee in connection therewith shall be included as part of the indemnification obligations of the Indemnifying Party hereunder. If the Indemnitee shall elect to exercise such right, the Indemnifying Party shall have the right to participate in, but not control, the defense, compromise and settlement of such Third Party Claim at its sole cost and expense. 8.6.3 No settlement of a Third Party Claim involving the asserted liability of the Indemnifying Party under this Article shall be made without the prior written consent by or on behalf of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. If the Indemnifying Party assumes the defense of such a Third Party Claim, (1) no compromise or settlement thereof may be effected by the Indemnifying Party without the Indemnitee's consent unless (a) there is no finding or -14- admission of any violation of law or any violation of the rights of any person and no effect on any other claim that may be made against the Indemnitee (b) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (c) the compromise or settlement includes, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a release, in form and substance satisfactory to the Indemnitee, from all liability in respect of such Third Party Claim, and (2) the Indemnitee shall have no liability with respect to any compromise or settlement thereof effected without its consent. 8.7 NO RELEASE FOR FRAUD. Nothing contained in this Agreement shall relieve or limit the liability of a party or any officer or director of such party from any Liability arising out of or resulting from common law fraud or intentional misrepresentation in connection with the transactions contemplated by this Agreement or in connection with the delivery of this Agreement. Each ActaMed Indemnitee or SBCL Indemnitee, as the case may be, shall have a right to indemnification for any Loss incurred as the result of any common law fraud or intentional misrepresentation by SBCL or ActaMed, respectively, or any officer or director thereof. 8.8 PAYMENT. 8.8.1 If any party is required to make any payment under this Article 8, such party shall promptly pay the Indemnified Party the amount so determined. If there is a dispute as to the amount or manner of determination of any indemnity obligation owed under this Article 8, the Indemnifying Party shall nevertheless pay when due such portion, if any, of the obligation as shall not be subject to dispute. The difference, if any, between the amount of the obligation ultimately determined as properly payable under this Article 8 and the portion, if any, theretofore paid shall bear interest as set forth in Section 8.8.3 hereof. 8.8.2 Any items as to which an Indemnified Party is entitled to payment under this Article may be paid by set off against amounts payable to the Indemnifying Party to the extent that such amounts are sufficient to pay such items. 8.8.3 If all or part of any indemnification obligation under this Agreement is not paid when due, then the Indemnifying Party shall pay the Indemnified Party interest on the unpaid principal amount of the obligation from the date the amount became due until payment in full, at the per annum rate of interest announced from time to time by NationsBank South, N.A., to be its "prime rate." 8.9 SURVIVAL. The provisions of this Article 8 shall survive the termination of this License Agreement. -15- ARTICLE 9 - LIMITATION OF LIABILITY NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY IN TORT, CONTRACT OR OTHERWISE FOR ANY LOST PROFITS, SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF, OR IN CONNECTION WITH THIS LICENSE AGREEMENT THAT THE OTHER PARTY, OR ANY THIRD PARTY, MAY INCUR, EXPERIENCE OR CLAIM, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH CLAIM. ARTICLE 10 - CONFIDENTIALITY In the course of exercising this License Agreement each party will likely obtain Confidential Information of the other party. The parties agree to safeguard against the unauthorized use and disclosure of any Confidential Information and to use the same degree of care that each uses to protect its own information of a similar nature, but in no event less than a reasonable degree of care under the circumstances. Neither party to this License Agreement will disclose the other party's Confidential Information to any third person, except (i) with the prior written consent of the other party; (ii) to the extent necessary to comply with law or legal process, in which event the party making the disclosure will, subject to applicable law, notify the other party as promptly as practicable prior to making any disclosure and seek confidential treatment of the information; (iii) to the extent necessary, as a part of its normal reporting or review procedure to its parent company, or its auditors and attorneys on a confidential basis; or (iv) in connection with the enforcement of the party's rights hereunder or under any related agreements. The parties hereto agree to restrict disclosure of the Confidential Information solely to its employees or others under its control who have a need to know the same in furtherance of the purposes of this License Agreement and who have been directed and contractually or legally restricted from disclosing the Confidential Information at least to the degree required under this License Agreement. Each party shall be liable to the other for any breach of the covenants of confidentiality contained herein by its agents or employees. The provisions of this section shall survive the expiration or termination of this License Agreement. ARTICLE 11 - ASSIGNMENT 11.1 BY SBCL. SBCL may assign all of its rights and obligations under this License Agreement or any license granted hereunder to any Affiliate, or to any corporation or other entity pursuant to a merger, consolidation, or other reorganization. SBCL agrees to notify ActaMed of any such assignment, in writing, specifying the name and address of the other entity. -16- 11.2 BY ACTAMED. ActaMed may assign all of its rights and obligations under this License Agreement or any license granted hereunder to any Affiliate or to any other corporation or other entity pursuant to a merger, consolidation, or other reorganization. ActaMed agrees to notify SBCL at least thirty (30) days prior to the date of any such assignment, in writing, specifying the name and address of the assignee. Notwithstanding the foregoing: (i) Nothing in this License Agreement shall be construed to authorize ActaMed to assign this License Agreement to any assignee if such assignee or any Affiliate of the assignee is engaged in the business of performing laboratory services similar to those performed by SBCL as of the date of the assignment, and (ii) SBCL shall have the right to require ActaMed to void the assignment if the assignee or any Affiliate of the assignee enters the business of performing laboratory services similar to those performed by SBCL as of the date of this Agreement or the date of the assignment. 11.3 OTHER. Except as expressly set forth in this Article 11 and except as the other party may consent in writing, neither party may assign or transfer this License Agreement or any right or obligation hereunder to any third party, and any attempt to do so in contravention of this Article 11 shall be void and shall have no force or effect. ARTICLE 12 - DISPUTE RESOLUTION 12.1 INFORMAL DISPUTE RESOLUTION. Any dispute between the parties arising out of or with respect to this License Agreement, either with respect to the interpretation of any provision of this Agreement or with respect to the performance by ActaMed or SBCL, shall be resolved as provided in this Article. 12.1.1 Prior to the initiation of formal dispute resolution procedures, the parties shall first attempt to resolve their dispute informally, as follows: (i) The Representatives (as defined in the Services Agreement) for each party shall meet for the purpose of endeavoring to resolve such dispute. They shall meet as often as the parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the parties believe to be appropriate and germane in connection with its resolution. The Representatives shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding. During the course of negotiations, all reasonable requests made by one party to another for nonprivileged information, reasonably -17- related to this Agreement, shall be honored in order that each of the parties may be fully advised of the other's position. (ii) If, within fifteen (15) days after a matter has been identified for resolution pursuant to this Article, either of the Representatives concludes in good faith that amicable resolution through continued negotiation in this forum does not appear likely, the matter will be escalated by formal written notification to the SBCL President and the ActaMed President (both as defined in the Services Agreement). The parties will use their respective best efforts to cause the SBCL President and the ActaMed President to meet to attempt to resolve the dispute. (iii) Formal proceedings for the resolution of a dispute may not be commenced until the earlier of: (i) the date on which the SBCL President and the ActaMed President conclude in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (ii) thirty (30) days after the dispute has been referred to the SBCL President and the ActaMed President. 12.1.2 The provisions of this Article 12 shall not be construed to prevent a party from instituting, and a party is authorized to institute, formal proceedings earlier to avoid the expiration of any applicable limitations period. 12.2 ARBITRATION. If the parties are unable to resolve any controversy arising under this Agreement as contemplated by Section 12.1 and if such controversy is not subject to Section 12.3 or Section 12.4, then such controversy shall be submitted to mandatory and binding arbitration at the election of either Party (the Disputing Party) pursuant to the following conditions: 12.2.1 The Disputing Party shall notify the AAA and the other Party in writing describing in reasonable detail the nature of the dispute (the "DISPUTE NOTICE"). The parties shall each select a neutral arbitrator in accordance with the rules of AAA and the two (2) arbitrators selected shall select a third neutral arbitrator. The three (3) arbitrators so selected are herein referred to as the "PANEL." 12.2.2 The Panel shall allow reasonable discovery as permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. The Panel shall have no power or authority to amend or disregard any provision of this Article 12. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each of ActaMed and SBCL being allocated one-half of the time for the presentation of its case. Unless otherwise agreed to by the parties, an arbitration hearing shall be conducted on consecutive days. -18- 12.2.3 Should any arbitrator refuse or be unable to proceed with arbitration proceedings as called for by this Section, such arbitrator shall be replaced by an arbitrator selected in accordance with the rules of the AAA and consistent with this Article 12. 12.2.4 The Panel rendering judgment upon disputes between parties as provided in this Article 12 shall, after reaching judgment and award, prepare and distribute to the parties a writing describing the findings of fact and conclusions of law relevant to such judgment and award and containing an opinion setting forth the reasons for the giving or denial of any award. The award of the arbitrator shall be final and binding on the parties, and judgment thereon may be entered in a court of competent jurisdiction. 12.2.5 Arbitration hearings hereunder shall be held in Washington D.C. or another mutually agreeable location. 12.2.6 The Panel shall be instructed that time is of the essence in the arbitration proceeding. The Panel shall render its judgment or award within fifteen (15) days following the conclusion of the hearing. Recognizing the express desire of the parties for an expeditious means of dispute resolution, the arbitrator shall limit or allow the parties to expand the scope of discovery as may be reasonable under the circumstances. 12.3 IMMEDIATE INJUNCTIVE RELIEF. The nonbreaching party may file a pleading with a court seeking immediate injunctive relief in the event the other party commits a breach of the confidentiality obligations set forth in this Agreement, SBCL violates the limitations imposed by Section 3.2 hereof, ActaMed violates the limitations imposed by Section 2.2 or 2.3 hereof, or in the event a party makes a good faith determination that a breach of the terms of this Agreement by the other party is such that the damages to such party resulting from the breach will be so immediate, so large or severe, and so incapable of adequate redress after the fact that a temporary restraining order or other immediate injunctive relief is a necessary remedy. If a party files a pleading with a court seeking immediate injunctive relief and this pleading is challenged by the other party and the injunctive relief sought is not awarded in substantial part (or in the event of a temporary restraining order is vacated upon challenge by the other party), the party filing the pleading seeking immediate injunctive relief shall pay all of the costs and attorneys fees of the party successfully challenging the pleading. 12.4 JURISDICTION. ActaMed and SBCL each consent to venue in Philadelphia, Pennsylvania and to the nonexclusive jurisdiction of competent Pennsylvania state courts or federal courts located in Philadelphia for all litigation which may be brought, subject to the requirement for arbitration hereunder, with respect to the terms of, and the transactions and relationships contemplated by, this Agreement. 12.5 CONTINUED PERFORMANCE; CONTINUATION OF LICENSES. Each party agrees to continue performing its obligations under this Agreement while any dispute is being resolved unless -19- and until such obligations are terminated or expire in accordance with the provisions by the termination or expiration of this Agreement not in dispute. Nothing in this Agreement shall be construed as altering the perpetual and irrevocable nature of the licenses granted by this Agreement or as authorizing any arbitrator or court in any way to enjoin or otherwise interfere with the proper exercise of such licenses by either party hereto. ARTICLE 13 - MISCELLANEOUS 13.1 FURTHER ASSURANCES. From time to time SBCL and ActaMed and their respective officers, employees, contractors, representatives and agents, shall confirm the provisions of this Agreement by execution and delivery of such assignments, confirmations or other written instruments as may be reasonably requested by the other party in order to vest each party with the rights mentioned in this Agreement. ActaMed and SBCL shall obtain appropriate assignments, covenants and obligations from its officers, employees, representatives, agents and any contractors hired to carry out its obligations under the SCAN Agreements prior to their performance thereof to ensure SBCL or ActaMed, as the case may be, may own the rights specified in this Agreement. 13.2 INTEGRATION. This License Agreement (including all of the Schedules hereto) supersedes all prior agreements and understandings between the parties with respect to the subject matter of this License Agreement, and is intended by the parties as the complete and exclusive statement of their agreement, and supersedes all prior understandings and agreements, whether oral or written, between the parties with respect to the same subject matter. 13.3 FORCE MAJEURE. Each party shall be excused from delays in performing or from its failure to perform hereunder to the extent that such delays or failures result from causes beyond the reasonable control of such party; PROVIDED that, in order to be excused from delay or failure to perform, such party must act diligently to remedy the cause of such delay or failure. 13.4 NO AGENCY. Each party hereto, is acting solely as an independent contractor. In no way is either party to be construed as the agent or to be acting as the agent of the other party in any respect. Each party has the sole obligation to supervise, manage, contract, direct, procure, perform, or cause to be performed all work to be carried out by such party under any SCAN Agreement. 13.5 NO WAIVER. No delay or omission by either party to exercise any right arising upon any noncompliance with, or breach of, any covenant, condition or agreement to be performed by the other party shall impair any such right or be construed to be a waiver thereof. A waiver by either of the parties hereto of any noncompliance with, or breach of, any covenant, condition or agreement to be performed by the other party must be in writing and signed by both parties. No waiver of any right upon any one occurrence of noncompliance or breach -20- shall be construed to be a waiver of any succeeding noncompliance or breach. Unless stated otherwise, all remedies provided for in this License Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either party at law, in equity, or otherwise. 13.6 SEVERABILITY. If any term, covenant, condition or provision of this License Agreement or the application thereof to any circumstance shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this License Agreement shall not be affected thereby and each remaining term, covenant, condition and provision of this License Agreement shall be valid and enforceable to the fullest extent permitted by law. If any provision of this License Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only as broad as is enforceable. 13.7 NOTICES. If one party is required or desires to give notice to the other, such notice shall be deemed given if mailed by U.S. mail, first class, postage prepaid, or via a nationally recognized overnight carrier, with all freight charges prepaid, and addressed as follows (or as subsequently noticed to the other party): If to SBCL: SmithKline Beecham Clinical Laboratories, Inc. 1201 S. Collegeville Road Collegeville, PA 19426 ATTN: [*] If to ActaMed: ActaMed Corporation 7000 Central Parkway Suite 600 Atlanta, GA 30328 ATTN: MIKE HOOVER 13.8 GOVERNING LAW; INTERPRETATION. This License Agreement shall be construed, interpreted and enforced under the laws of the Commonwealth of Pennsylvania, excluding its provisions regarding conflicts of law. The section and subsection headings used herein are for reference and convenience only, and shall not enter into the interpretation hereof. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -21- IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed on the date set forth below. SMITHKLINE BEECHAM CLINICAL ACTAMED CORPORATION LABORATORIES, INC. BY: /s/ John B. Okkerse, Jr. BY: /s/ Michael K. Hoover --------------------------- ------------------------- NAME: John B. Okkerse, Jr. NAME: Michael K. Hoover --------------------------- ------------------------- TITLE: President TITLE: President --------------------------- ------------------------- DATE: 12-31-97 DATE: 12-31-97 --------------------------- ------------------------- SCHEDULE A SBCL SOFTWARE - - SBCL proprietary Software known as [*] (including without limitation the [*]) and [*]. - - Download programs and routines and other SBCL proprietary Software reasonably required to perform Information Services as SBCL is performing them as of the date of the License Agreement. - - Documentation owned by SBCL and related to any of the foregoing. - - Specifications owned and possessed by SBCL with respect to the foregoing. - - Such Specifications for the Software known as [*] and [*] as SBCL determines reasonably necessary for the SBCL Software, SCAN Developments and ActaLab Software [*] and [*]. - - Such updates, upgrades, corrections, modifications, and enhancements to any of the foregoing created during the term of the Services Agreement. - - All patents, patent applications, copyrights, trade secrets, know-how, information and other intellectual property rights that are currently owned or controlled by SBCL and that are embodied or practiced in the foregoing. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. SCHEDULE B AMENDMENTS TO DEVELOPMENT AGREEMENT SBCL and ActaMed hereby agree this day of December, 1997, to amend their Development Agreement October 31, 1997, as set forth herein as of the effective dates set forth herein. 1. Effective as of the date of the Development Agreement, Article I of the Development Agreement is hereby amended to include the following additional or revised definitions: "ActaLab Software" has the meaning ascribed to it by the License Agreement. "Deliverable" means all Software, Documentation and other materials developed by ActaMed under this Agreement and described in a Statement of Work. "License Agreement" means that certain License Agreement between SBCL and ActaMed dated December 22, 1997. "SBCL Software" has the meaning ascribed to it by the License Agreement. "SOW No. 1" shall mean the Statement of Work dated October 31, 1997. 2. The second "Whereas" clause is hereby deleted. 3. The fourth "Whereas" clause is hereby revised to delete the words "to SBCL." 4. Section 5.1(a) of the Development Agreement is hereby revised as of the date of the Development Agreement to read as follows: (a) The parties hereby acknowledge and agree that: (i) The Deliverables under SOW No. 1 do not [*] the SBCL Software, but instead [*] which will be used in conjunction with and/or will be integrated into ActaMed's ProviderLink software. All Deliverables (including but not limited to, the ActaLab Software) under SOW No. 1, and all intellectual property rights (including but not limited to copyrights and all renewals and extensions thereof) in such Deliverables, shall be [*]. Subject to the provisions of Section 5(a)(iv) hereof, SBCL hereby grants, transfers and assigns all of its right, title and interest in such Deliverables, including patents, copyrights, trade secrets and other intellectual property developed or acquired in the course of creating such Deliverables, to ActaMed and ActaMed shall have the right to obtain and hold in its own name copyrights, [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. patents, registrations and similar protections which may be available with respect to such Deliverables. (ii) The parties contemplate that additional SOWs may be entered into from time to time for the purpose of enhancing, modifying or upgrading the ActaLab Software (an "ActaLab SOW"). All Deliverables under an ActaLab SOW and all intellectual property rights (including but not limited to copyrights and all renewals and extensions thereof) in such Deliverables, shall be [*]. Subject to the provisions of Section 5(a)(iv) hereof, SBCL hereby grants, transfers and assigns all of its right, title and interest in such Deliverables, including patents, copyrights, trade secrets and other intellectual property developed or acquired in the course of creating such Deliverables, to ActaMed and ActaMed shall have the right to obtain and hold in its own name copyrights, patents, registrations and similar protections which may be available with respect to such Deliverables. (iii) The parties contemplate that additional SOWs may be entered into from time to time for the purpose of enhancing, modifying or upgrading the SBCL Software (a "SCAN Development SOW"). Ownership of any Deliverables under a SCAN Development SOW, and ownership of any intellectual property rights therein (including but not limited to copyrights and all renewals and extensions thereof), shall be governed in all respects by Article 3 of the License Agreement. Subject to the provisions of Section 5(a)(iv) hereof, ActaMed hereby grants, transfers and assigns all of its right, title and interest in such Deliverables, including patents, copyrights, trade secrets and other intellectual property developed or acquired in the course of creating such Deliverables, to SBCL. (iv) Nothing in this Section 5(a) shall be construed to transfer to ActaMed, or otherwise divest SBCL of SBCL's ownership of, the SBCL Software and, subject to the licenses granted by the License Agreement, SBCL (as between SBCL and ActaMed) shall be the sole owner of the patents, copyrights, trade secrets and other intellectual property rights therein. Nothing in this Section 5(a) shall be construed to transfer to SBCL, or otherwise divest ActaMed of ActaMed's ownership of, any software or work of authorship owned by ActaMed as of the effective date of the Development Agreement and, subject to the licenses granted by the License Agreement, ActaMed (as between SBCL and ActaMed) shall be the sole owner of any patent, copyright, trade secret right or other intellectual property right therein. (v) Any Statement of Work, by mutual agreement of the parties, may include limitations and restrictions on ActaMed's use of the applicable Deliverables in support of laboratory testing services of commercial laboratories other than SBCL. 6. Sections 5.1(d) and (e) and Section 5.2(a) as of the date of this Amendment are hereby deleted from the Development Agreement. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 7. In the event of conflict between the Development Agreement and the License Agreement, the License Agreement shall control. 9. Except as expressly set forth herein, the Development Agreement shall continue in full force and effect as originally executed by the parties. 10. Nothing in this Agreement shall be construed to modify or change in any respect the ownership and use rights with respect to Exclusive Developments (as defined in the Services Agreement between SBCL and ActaMed dated the date hereof) pursuant to the License Agreement and Section V of said Services Agreement. In witness whereof, the parties have caused this Amendment to be signed this day of December, 1997. SMITHKLINE BEECHAM CLINICAL ACTAMED CORPORATION LABORATORIES, INC. BY: /s/ BY: /s/ ---------------------------- --------------------------- NAME: John B. Okkersee Jr. NAME: Michael K. Hoover -------------------------- ------------------------- TITLE: President TITLE: President ------------------------- ------------------------ DATE: DATE: -------------------------- ------------------------- EX-10.17 27 EX-10.17 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. DEVELOPMENT AGREEMENT THIS AGREEMENT is made as of this 31 day of October, 1997, by and between SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation with offices located at 1201 S. Collegeville Road, Collegeville, PA 19426 ("SBCL"), and ActaMed Corporation, a Georgia corporation with offices located at 7000 Central Parkway, Suite 600, Atlanta, GA 30328 ("ACTAMED"). WHEREAS, ACTAMED has expertise in software development, installation and implementation, systems analysis and design, data processing and computer programming; WHEREAS, ACTAMED employs a staff of qualified technical personnel whose services ACTAMED is willing to provide to SBCL on a temporary or project basis; WHEREAS, SBCL desires to have ACTAMED provide certain services and personnel to SBCL for the project described in the attached Statement of Work; and WHEREAS, the parties desire to agree upon the terms and conditions under which ACTAMED may provide such services and personnel to SBCL. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following terms shall have the following meanings and shall include the plural as well as the singular: "Affiliate" means any corporation or other entity which controls, is controlled by, or is under common control with SBCL, and any joint venture or partnership in which SBCL is a partner or joint venturer, or any other entity in which SBCL has an interest and to which it supplies or receives information processing services. A corporation or other entity shall be deemed to control another corporation or entity if it owns, directly or indirectly, more than fifty percent (50%) of the voting shares or other interest, or has the power to elect more than half the directors, of such other corporation or entity. "Confidential Information" means any and all proprietary information disclosed or made available by a party hereto to the other party in the course of performing hereunder, whether in written, oral, magnetic, photographic, optical or other form and whether now existing or hereafter created, including, without limitation, all trade secrets, know-how, information systems, technology, data, computer programs, processes, methods, operational procedures, plans, strategies or results, and other information of a similar nature that is not generally disclosed by such party to the public. Confidential Information shall not include any information which (a) is proven by written evidence to have been in a receiving party's possession prior to disclosure by the other party; (b) is received from a third party having the right to disclose such information; (c) is or hereafter becomes public knowledge through no act or fault of a receiving party; or (d) is proven by written evidence to have been independently developed by a receiving party without access to the Confidential Information of the other party. "Deliverables" means all Software, Documentation and other materials developed for or delivered to SBCL by ACTAMED under this Agreement and described in a Statement of Work. "Derivative Work" means a work that is based upon one or more preexisting works, such as a revision, modification, translation, abridgment, condensation, expansion, or any other form in which such preexisting works may be recast, transformed, translated or adapted, and that, if prepared without authorization of the owner of the copyright in such preexisting work, would constitute a copyright infringement. "Documentation" means manuals (e.g., user, utility reference and language reference) and other written materials that relate to particular Software, including materials useful for the operation of the Software by a user, and information (e.g., data flows, data structures, control logic, flow diagrams, and principles of operation) useful for design, modification and maintenance of the source code by a programmer. Documentation also shall include any Maintenance Modifications or Enhancements thereto created by ACTAMED from time to time, and such additional materials as may be described in a Statement of Work. "Enhancements" means changes or additions, other than Maintenance Modifications, to Software and related Documentation, including all new releases, that improve functions, add new functions, or significantly improve performance by changes in system design or coding. "Error" means any error, problem, or defect resulting from (a) an incorrect functioning of Software, or (b) an incorrect or incomplete statement of diagram in Documentation, if such an error, problem or defect renders the Software inoperable, causes the Software to fail to meet the Specifications thereof, causes the Documentation to be inaccurate or incomplete in any material respect, causes incorrect results or causes incorrect functions to occur when any such materials are used. "Maintenance Modifications" means any modifications or revisions, other than Enhancements, to Software or Documentation that correct Errors, support new releases of the operating systems with which the Software is designed to operate, support new input/output devices or provide other incidental updates and corrections. "Services" means the software development, design, analysis, data processing, computer programming, consulting, training and/or such other services and duties to be provided to SBCL under this Agreement and described in a Statement of Work. -2- "Software" means computer programming code, including updates and revisions thereto, which conform to the Specifications and includes both object code (i.e., machine-readable) and source code (i.e., human-readable), and associated procedural code, all as more fully described in a Statement of Work. Software also shall include any Maintenance Modifications and Enhancements thereto created by ACTAMED from time to time. "Specifications" means the description of the design, operating procedures, performance, functions and other requirements for the Software set forth in a Statement of Work. "Statement of Work" or "SOW" means a written instrument in substantially the form of Exhibit A attached hereto which is signed on behalf of both parties by their authorized representatives. ARTICLE II SERVICES 2.1 SERVICES. SBCL hereby retains ACTAMED to provide the Services and Deliverables, and ACTAMED hereby agrees to provide the Services and Deliverables, in the manner described in this Agreement and in Statements of Work issued from time to time hereunder. The Services and Deliverables shall conform to the Specifications set forth in the applicable SOW. 2.2 SCHEDULE; LOCATION. SBCL, at its own expense, shall furnish to ACTAMED access to appropriate computer personnel, as well as all relevant Documentation, Specifications and source code in its possession and necessary for ACTAMED to provide the Services and Deliverables. ACTAMED will provide the Services and deliver the Deliverables on or before the dates (the "Schedule") and at the location(s) set forth in a SOW. Delivery of any intermediate Deliverables, or status reports thereon, also shall be on the dates specified in the Schedule. No variation or modification shall be made to the Schedule without the prior written consent of SBCL and ACTAMED. 2.3 Personnel. (a) ACTAMED shall provide fully trained, competent and skilled personnel for performance of the Services. (b) Promptly upon execution of this Agreement, each party shall notify the other party of the name, business address and telephone number of its Contract Administrator. The Contract Administrators of each party shall be responsible for arranging all meetings, visits and consultations between the parties that are of a nontechnical nature. The Contract Administrator also shall be responsible for receiving all notices under this Agreement and for all administrative matters such as invoices, payments and amendments. (c) Each SOW shall state the name, business address and telephone number of the Project Managers for each party. The Project Managers of each party designated for a particular -3- SOW shall, with respect to such SOW, be responsible for technical and performance matters, and the delivery, receipt and acceptance of the Deliverables and technical information. 2.4 PROGRESS REPORTS AND MEETINGS. At either party's reasonable written request from time to time during the performance of this Agreement, but at least once each month, and at no additional cost, the Project Managers and any other personnel either party may designate shall meet to review the progress of the project described in a particular SOW. At each such meeting, ACTAMED shall provide SBCL with a written status report, which shall include but not be limited to, any problem that, in ACTAMED's reasonable judgment, might cause any increase in the budgeted costs for such project or adversely affect ACTAMED's ability to meet the Schedule or the Specifications. 2.5 Change Order Procedures. (a) REQUIREMENT OF CHANGE ORDERS. All changes, modifications and additions to the obligations of either party under this Agreement or any SOW requires a written change order (a "Change Order"). Either party may initiate a Change Order by submitting a written request for a Change Order to the other party along with an explanation of reasons as to why such a modification is desirable or necessary. (b) CHANGE ORDER CONTENTS. All Change Orders must contain: (i) a description of any additional work to be performed and/or changes to the performance required of either party, including the estimated number and skill level of personnel necessary to make such changes and/or additions and the availability of such personnel over the ensuing period; (ii) a statement of the impact of the work or changes on the Services, Deliverables, Schedule, costs or other requirements of this Agreement or a SOW; (iii) acceptance test procedures for such work, if applicable; and (iv) signatures of duly authorized individuals of each party. (c) ACCEPTANCE OF CHANGE ORDER. Within ten (10) days of the submission of a Change Order request from one party to the other, the receiving party shall notify the other party of its acceptance or rejection. SBCL may, in its sole discretion, reject any Change Order requested by ACTAMED. ACTAMED may not decline to accept any Change Order requested by SBCL that, together with any prior accepted Change Orders, do not substantially affect the nature of the Deliverables, their performance or functionality, and does not change the Schedule by more than two man day or dollar amounts by more than 2%. 2.6 CONTROLLING DOCUMENT. In the event any provision contained in this Agreement conflicts with any part of a SOW, the provision set forth in the SOW shall take precedence. -4- ARTICLE III COMPENSATION; PAYMENT AND EXPENSES 3.1 COMPENSATION. Amounts and method of payment for all Services and Deliverables to be provided under this Agreement shall be set forth in each SOW. 3.2 PAYMENT. Unless otherwise specified in the applicable SOW, (a) ACTAMED shall submit invoices to SBCL for payment for Services and Deliverables within thirty (30) calendar days after the close of each month during which Services were rendered and/or Deliverables were delivered to SBCL; and (b) all undisputed invoices shall be due and payable within [*] days of SBCL's receipt of such invoice and acceptance of the Services and/or Deliverables. All invoices shall specifically refer to the applicable SOW, indicate the period of performance and provide reasonable detail with respect to the Services and Deliverables to which they relate, including, if applicable, time and labor spent in providing the Services, cost of materials and travel and living expenses. Supporting documentation called for by SBCL's standard reimbursement policies shall accompany any such invoice. Payment in accordance with these terms shall represent full and complete compensation for all Services and Deliverables provided pursuant hereto, and for any inventions, improvements, copyrights, patent rights and other intellectual property rights assigned, as more fully set forth below. 3.3 RECORDS AND AUDITS. ACTAMED shall maintain complete and accurate accounting records in accordance with sound accounting practices to substantiate ACTAMED's charges and shall preserve such records for a period of at least [*] after completion of the pertinent work. SBCL shall have access to such records for purposes of audit, either through its own representatives or through an accounting firm selected and paid by SBCL. Any such review of ACTAMED's records shall be conducted at reasonable times during business hours, and no more than twice annually. 3.4 TAXES. ACTAMED assumes all responsibility and liability for the payment of any federal, state, or local income taxes due on money received from SBCL hereunder, and shall be responsible for all employment taxes and withholding with respect to its employees and contractors. 3.5 EXPENSES. Except as otherwise agreed by SBCL in writing, ACTAMED shall bear all of its own expenses arising from performance of its obligations under this Agreement and each SOW, including, without limitation, expenses for transportation, living facilities, work spaces, utilities, management, clerical and reproduction services, supplies, and the like. ARTICLE IV DELIVERY; ACCEPTANCE AND MAINTENANCE 4.1 DELIVERY. ACTAMED shall deliver all Deliverables for testing and acceptance in the manner set forth in the applicable SOW. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -5- 4.2 TESTING. (a) Upon receipt of the Deliverables, SBCL shall test the Deliverables to determine whether they meet the Specifications and any other requirements set forth in the SOW. (b) Unless otherwise specified in the applicable SOW, such testing shall be conducted in accordance with the following testing procedures and criteria: (i) SBCL will notify ACTAMED, in writing, that it is accepting or rejecting the Deliverables within thirty (30) days after receipt. Any notice of rejection shall set forth the grounds for rejection. ACTAMED shall use its best efforts to remedy any failures of the Deliverables to meet the Specifications, and shall deliver corrected Deliverables to SBCL as soon as possible. (ii) Upon receipt of corrected Deliverables, SBCL shall have [*] within which to test them and inform ACTAMED of its acceptance or rejection. This procedure may be repeated any number of times; PROVIDED, HOWEVER, that if SBCL detects errors in the Deliverables or the Deliverables fail to meet the Specifications, SBCL may withhold payment under the applicable SOW until the errors in the Deliverables are corrected or the Deliverables meet the Specifications. (c) If SBCL detects errors in the Deliverables or the Deliverables fail to meet the Specifications after it has tested them twice, SBCL shall thereafter have, until it accepts the Deliverables, the right to terminate this Agreement or the applicable SOW upon written notice to ACTAMED. Upon such termination, ACTAMED shall retain all payments SBCL has made to it up to the date of termination, SBCL shall retain all Deliverables received by such date, and SBCL shall have no further obligations to pay any amounts to ACTAMED under this Agreement. 4.3 ACCEPTANCE. If SBCL does not detect any Errors or any failure of the Deliverables to meet the Specifications after a performance of the tests described in Section 4.2, SBCL shall accept the Deliverables by issuing a written confirmation of acceptance to ACTAMED, which shall be effective as of the date of successful completion of the tests. ARTICLE V OWNERSHIP AND CONFIDENTIALITY 5.1 OWNERSHIP OF WORK PRODUCT BY SBCL. (a) SBCL and ACTAMED agree that any Deliverables prepared under this Agreement, including modifications to software owned by ACTAMED, and ownership of all intellectual property rights, including but not limited to copyrights and all renewals and extensions thereof, in such works shall [*]. SBCL and ACTAMED agree to and hereby grant, transfer and assign such right, title and interest in the Deliverables, including patents, copyrights and trade secrets for purposes of, and to the extent necessary and [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -6- consistent with this Section 5.1(a). From time to time SBCL and ACTAMED, and their respective officers, employees, contractors, representatives and agents, shall confirm the foregoing assignment by execution and delivery of such assignments, confirmations or other written instruments as may be reasonably requested by the other party in order to vest each party with the rights mentioned in this Section 5.1(a). ACTAMED shall obtain appropriate assignments, covenants and obligations from its officers, employees, representatives, agents and any contractors hired to carry out its obligations under this Agreement prior to their performance under any SOW to ensure SBCL and ACTAMED may own the rights specified in this Section 5.1(a). (b) ACTAMED agrees that it shall not, directly or indirectly, produce, develop or participate in the production or development of any work, materials documentation or software similar to any Deliverable or Specification, or utilize any techniques, methods or know-how relating to the aforementioned items, for the period beginning as of the date hereof and ending on the date on which the last phase any Deliverable was scheduled under an SOW to be delivered to SBCL for testing and acceptance, or the date the last phase any such Deliverable was actually delivered to SBCL for testing and acceptance, whichever is later; PROVIDED, HOWEVER, nothing contained in this Section 5.1(b) shall prohibit ACTAMED from purchasing any work, documentation or software similar in function or purpose to any of the Deliverables or Specifications that is produced or developed independently by a third party without access, reference or knowledge of the Deliverables, Specifications or any other SBCL Confidential Information. SBCL reserves the right to audit and inspect any work, materials, documentation or software developed or purchased by ACTAMED at any time that is similar to any Deliverable or Specification for purposes of ensuring compliance with the confidentiality provisions of this Agreement. (c) ACTAMED agrees that if, during [*] beginning with the date on which the last phase of any Deliverable was scheduled under SOW No. 1 to be delivered to SBCL for testing and acceptance, or the date the last phase of any such Deliverable was actually delivered to SBCL for testing and acceptance, whichever is later, ACTAMED, directly or indirectly, produces, develops or participates in the production or development of any laboratory test ordering and result reporting software, ACTAMED will not permit any software engineer, designer or similar person (whether an employee or independent contractor) that participated in the production or development of the Services or Deliverables or who otherwise had access to SBCL Confidential Information to participate, directly or indirectly, in such production or development. (d) Notwithstanding anything to the contrary in this Agreement, both SBCL and ACTAMED agree not to exercise or to authorize any other party to exercise any of SBCL's or ACTAMED's ownership rights or privileges with respect to any of the Deliverables, including without limitation, the right to use, license, sell, deliver, transfer or incorporate such Deliverables into any other product for any reason without the prior written consent of the other party. Neither party shall have any obligation to give their consent for purposes of this Section 5.1(d). (e) SBCL and ACTAMED agree not to reveal any Deliverable, in whole or in part, to anyone outside of ACTAMED or SBCL without the prior written consent of the other party, or to any officer, employee, contractor, representative or agent of ACTAMED or SBCL who is not [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -7- covered by the restrictions on confidentiality and use contained herein. ACTAMED further agrees not to use, sell, deliver, transfer or reveal any Specification, in whole or in part, to anyone outside of ACTAMED without SBCL's prior written consent, or to any officer, employee, contractor, representative or agent of ACTAMED who is not covered by the restrictions on confidentiality and use contained herein. 5.2 PREEXISTING WORKS. (a) In the event that any Deliverable or part thereof constitutes a Derivative Work of any preexisting works owned by either party, or in the event either party requires the other party's preexisting works in order to perform under this Agreement, each party hereby grants to the other party and its Affiliates a non-exclusive, worldwide, royalty-free right and license to use, execute, reproduce, display, perform and distribute internally such preexisting works for the sole and limited purpose of developing the Deliverables and performing the Services in accordance with this Agreement. All rights not granted herein are specifically reserved. For purposes of this Section 5.2, "preexisting works" shall include, but not be limited to, the Specifications (including the specifications for the [*] and [*] systems) and "SBCL SCAN" software, in the case of SBCL, and the "Provider Link" software, in the case of ACTAMED. (b) In the event that any Deliverable or part thereof constitutes a Derivative Work of preexisting works not owned by SBCL or ACTAMED, SBCL or ACTAMED, as the case may be, shall ensure that the other party and its Affiliates have a non-exclusive, worldwide, royalty-free right and license to use, execute, reproduce, display, perform and distribute internally such preexisting works for the sole and limited purpose of developing the Deliverables and performing the Services in accordance with this Agreement. SBCL and ACTAMED each agree to notify the other party in writing of any pre-existing work, or portion thereof, which either or them does not own prior to the incorporation of such pre-existing work in the Deliverables. Such notice shall identify: (i) the pre-existing work which is not owned, (ii) the owner of such pre-existing work, (iii) SBCL's or ACTAMED's, as the case may be, right to use such pre-existing work, (iv) the nature of SBCL's or ACTAMED's right to grant to the other party the license contemplated herein, and (v) it shall grant the other party the aforesaid rights and license. 5.3 OBLIGATION OF CONFIDENTIALITY. (a) SBCL and ACTAMED each acknowledge and agree that during the term of this Agreement, they shall have access to certain Confidential Information of the other party. SBCL and ACTAMED each agree to keep such Confidential Information in strict confidence and shall not disclose it to any person, firm, partnership or corporation other than to its officers, employees, contractors, representatives and agents who have a need to know such information in order to perform hereunder or under a SOW, nor use the same for any purpose other than performance hereunder or under a SOW. SBCL and ACTAMED, respectively, shall advise all officers, employees, contractors, representatives and agents with access to the other party's Confidential Information of the confidentiality obligations with respect thereto under this Agreement. Notwithstanding the foregoing, SBCL and ACTAMED shall be and remain liable and responsible [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -8- for the confidentiality obligations of their respective officers, employees, contractors, representatives and agents. In addition to the foregoing, SBCL and ACTAMED shall protect and safeguard the other party's Confidential Information by using the same degree of care, but no less than a reasonable degree of care to prevent the unauthorized use, dissemination or publication of such Confidential Information as they each use to protect their own confidential or proprietary information of a like nature. Upon request by the other party, SBCL and ACTAMED shall require any or all of its officers, employees, contractors, representatives and agents to sign a confidentiality agreement prepared by the other party and approved by SBCL or ACTAMED, as the case may be, which affirms such officers, employees, contractors, representatives or agents obligations in regards to the Confidential Information. (b) SBCL and ACTAMED each acknowledge and agree that the terms and conditions with respect to confidentiality are reasonable and necessary for the protection of each of the party's Confidential Information and to prevent damage or loss to the other party. SBCL and ACTAMED further agree that any breach or threatened breach of such provisions will cause the other party irreparable harm for which there is no adequate remedy at law. Therefore, SBCL and ACTAMED each agree that the nondisclosing party shall be entitled, in addition to any other remedies available, to injunctive or other equitable relief to require specific performance or to prevent a breach of the foregoing confidentiality provisions. (c) Upon the breach of any provision, early termination or completion of this Agreement or any SOW, SBCL and ACTAMED each agree to cease all use and make no further use of the Confidential Information disclosed to it by the other party and shall, upon the written request of the other party, promptly return all such Confidential Information, including any copies used or distributed to any of its officers, employees, contractors, representatives and agents, and retain no copies. (d) The confidentiality obligations of this Section 5.3 shall survive termination of this Agreement. ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1 WARRANTY OF TITLE AND NONINFRINGEMENT. (a) ACTAMED represents and warrants to SBCL that: (i) unless ACTAMED provides SBCL with advance written notice to the contrary in accordance with Section 5.2(b), ACTAMED is and will be the sole author of all works used by ACTAMED in preparing any and all Deliverables; (ii) ACTAMED shall require all officers, employees, contractors, representatives and agents who provide Services or Deliverables hereunder to assign to ACTAMED all intellectual property rights created or arising in the performance of the Services and Deliverables for purposes consistent with Article V; -9- (iii) ACTAMED has and will have full and sufficient right to assign or grant the rights granted pursuant to this Agreement, free and clear of any liens, claims or encumbrances; and (iv) none of the Deliverables infringe any patents, copyrights, trademarks, or other intellectual property rights (including trade secrets), privacy or similar rights of any third party, nor has any claim of such infringement been threatened or asserted. (b) SBCL represents and warrants to ACTAMED that: (i) SBCL has and will have full and sufficient right to assign or grant the rights granted pursuant to this Agreement, free and clear of any liens, claims or encumbrances; and (ii) none of the Specifications, software and any other materials provided to ActaMed by SBCL hereunder infringe any patents, copyrights, trademarks, or other intellectual property rights (including trade secrets), privacy or similar rights of any third party, nor has any claim of such infringement been threatened or asserted. 6.2 WARRANTIES OF CONFORMITY, PERFORMANCE AND COMPLIANCE. ACTAMED represents and warrants to SBCL that: (a) all Services and Deliverables shall be performed or provided in a workmanlike manner and with professional diligence and skill; (b) no portion of the Software contains any unauthorized code such as a virus, Trojan horse, worm or other software routine or hardware component designed to permit unauthorized access to disable, erase or otherwise harm the Software, hardware, or data automatically, with the passage of time or under the control of a person other than SBCL; and (c) the Software includes acceptable Specifications so that any or all such Software and any related hardware will not abruptly end or provide invalid or incorrect results during the operation of SBCL's business due to issues related to Year 2000 compliance. "Year 2000 compliance" requires that the Specifications of the Software and related hardware include, but not be limited to: date data century recognition, calculations that accommodate same century and multi-century formulas and date values, and date data interface values that reflect the century. The Software and related hardware shall be used by SBCL prior to, during and after the calendar year 2000. The Specifications of the Software and related hardware to ensure Year 2000 compliance shall be supplied by ACTAMED at no additional cost to SBCL. 6.3 AVOIDANCE OF INFRINGEMENT. In performing Services under this Agreement, ACTAMED agrees to avoid designing or developing any items that infringe any patents, copyrights or other intellectual property rights of any third party. If SBCL or ACTAMED becomes aware of any such possible infringement in the course of performing work under any SOW issued hereunder, SBCL or ACTAMED, as the case may be, shall immediately so notify the other party in writing. -10- 6.4 INDEMNIFICATION. (a) SBCL and ACTAMED, respectively, shall indemnify and hold the other party harmless from and against all loss, liability, costs, charges, claims or damages to any persons or property, arising out of this Agreement, a SOW or the provision of the Services or Deliverables where caused by its own fault or negligence, or the fault or negligence of its officers, employees, contractors, representatives or agents. SBCL and ACTAMED also shall indemnify and hold the other party harmless from and against all loss, liability, costs, charges, claims or damages which may arise as a consequence of or grow out of any injury, illness or death of its officers, employees, contractors, representatives or agents who are engaged in the performance of the Services under this Agreement or a SOW. (b) ACTAMED shall defend or settle, at its own expense, any and all suits, actions, proceedings or claims against SBCL charging that any part of the Services infringes any patent, trademark, trade secret, copyright or other intellectual property right of any person or entity. SBCL and ACTAMED shall defend or settle, each at its own expense, any and all suits, actions, proceedings or claims against the other party charging that the use, copying, modification, disclosure or distribution of any part of the Deliverables or Documentation provided by SBCL or ACTAMED, as the case may be, infringes any patent, trademark, trade secret, copyright or other intellectual property right of any person or entity not a party hereto. Each party will pay actual costs of the other party, including all legal fees and any damages awarded in any such suit or proceeding, and will indemnify and hold that other party harmless from all other liability incurred in connection with such action. (c) SBCL and ACTAMED each agree to (i) promptly notify the other party in writing of any claim for which it is seeking indemnification; (ii) at the other party's request and expense, give assistance reasonably required for the defense of any such claim; and (iii) give the other party control of the defense and/or settlement of such claim; PROVIDED, HOWEVER, that the other party may participate in such defense and/or settlement at its option and expense. (d) If any part of the Services or Deliverables is or is likely to become the subject of such a suit, action or claim, at no expense to the other party, SBCL or ACTAMED may: (i) obtain sufficient rights to allow the other party to use the Services or Deliverables as contemplated hereunder; or (ii) substitute non-infringing services or deliverables acceptable to the other party and substantially similar to the Services and Deliverables described in the SOW. Any such replacement services and deliverables shall be subject to all of the terms and conditions of this Agreement, including without limitation, the foregoing indemnification provisions. 6.5 SURVIVAL. The provisions of this Section shall survive the termination of this Agreement. -11- ARTICLE VII TERM AND TERMINATION 7.1 TERM. This Agreement shall commence on the date hereof and shall remain in force for a period of one (1) year unless sooner terminated as provided herein; PROVIDED, HOWEVER, this Agreement shall remain in effect with respect to any Statements of Work already issued hereunder at the time of such termination until such Statements of Work are themselves terminated and/or performance thereunder is completed. 7.2 TERMINATION OF SOWS. SBCL may terminate any or all SOWs outstanding, or any portion thereof, upon fifteen (15) business days' written notice in the event that SBCL reasonably determines that ActaMed has failed to meet any of the milestone dates for completing a phase of work, as set forth in the project plan for the applicable SOW; provided however, that SBCL acknowledges that ActaMed's timely performance may be dependent upon SBCL's timely performance, and therefore SBCL may not so terminate if ActaMed's failure to meet a milestone date is (i) the result of SBCL's failure to timely perform, or (ii) because the parties are still engaged in the testing and acceptance process for that milestone. Upon receipt of notice of such termination, ACTAMED shall inform SBCL of the extent to which performance has been completed through such date, and collect and deliver to SBCL whatever work product then exists in the manner prescribed by SBCL. Subject to Section 4.2(c), ACTAMED shall be paid for all work performed and accepted through the date of termination, provided that such payment shall not be greater than the payment that would have become due if the work had been completed. ACTAMED may not terminate any SOW once ACTAMED has entered into such SOW. 7.3 TERMINATION OF AGREEMENT. SBCL or ACTAMED may terminate this Agreement for cause, as provided below, upon [*] prior written notice. SBCL and ACTAMED may terminate this Agreement or any SOW at any time upon mutually written agreement. This Agreement shall continue to remain in effect with respect to any SOW already issued hereunder until such SOW is itself terminated and/or performance thereunder is completed. 7.4 TERMINATION IN THE EVENT OF BREACH. In the event of any material breach of this Agreement or a SOW by either party, the other party may terminate this Agreement or the applicable SOW without waiving any remedies or rights available to such other party at law or in equity. Such termination shall be in writing upon at least [*] prior written notice to the party in breach specifying the nature of the breach. The party in breach shall have the opportunity to cure such breach during such [*] period. If the breach has been cured by the end of such period, this Agreement and the applicable SOW will not terminate. 7.5 INSOLVENCY. Either party may immediately terminate this Agreement if the other party is declared insolvent or bankrupt; the property of the other party is assigned for the benefit of creditors, levied upon under execution, or seized by virtue of any writ of any court of law; a petition for declaration of bankruptcy or reorganization is filed against the other party in any court and not dismissed in ninety (90) days; or a trustee or receiver is appointed for the other party. In the event of any such insolvency or bankruptcy, all licenses granted hereunder shall be considered licenses to [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -12- intellectual property, and SBCL shall be entitled to retain the licenses granted herein, subject to ACTAMED's right to terminate this Agreement for reasons other than bankruptcy or insolvency as expressly provided in this Agreement. In the event that a court or other legal or administrative tribunal, directly or through an appointed master, trustee or receiver, assumes partial or complete control over the assets of a party to this Agreement based on the insolvency or bankruptcy of such party, the bankrupt or insolvent party shall promptly notify the court or other tribunal of the confidentiality obligations under this Agreement, and that Confidential Information received from the other party under this Agreement remains the property of the other party. In addition, the bankrupt or insolvent party shall, to the extent permitted by law, take all steps necessary or desirable to maintain the confidentiality of the other party's Confidential Information and to insure that the court, other tribunal or appointee maintains such information in confidence in accordance with the terms of this Agreement. 7.6 CONSEQUENCES OF TERMINATION. Upon termination of this Agreement, ACTAMED shall: (a) immediately cease work as provided in the notice of termination, and shall cease to represent itself as providing services to SBCL; and (b) deliver to SBCL (i) a report describing the current state of the Services and Deliverables to be provided by ACTAMED under this Agreement and any applicable SOWs at the date of termination; (ii) all SBCL Confidential Information in its possession; and (iii) all work product, Software, materials and Documentation related to the Services and Deliverables in whatever state of development they may exist on the date of termination. ARTICLE VIII MISCELLANEOUS 8.1 FORCE MAJEURE. Each party shall be excused from delays in performing or from its failure to perform hereunder to the extent that such delays or failures result from causes beyond the reasonable control of such party; PROVIDED that, in order to be excused from delay or failure to perform, such party must act diligently to remedy the cause of such delay or failure. 8.2 NO AGENCY. ACTAMED, in rendering performance under this Agreement and any SOW, is acting solely as an independent contractor. SBCL does not undertake by this Agreement or otherwise to perform any obligation of ACTAMED, whether by regulation or contract. In no way is ACTAMED to be construed as the agent or to be acting as the agent of SBCL in any respect. ACTAMED has the sole obligation to supervise, manage, contract, direct, procure, perform, or cause to be performed all work to be carried out by ACTAMED hereunder. 8.3 NO WAIVER. No delay or omission by either party to exercise any right arising upon any noncompliance with, or breach of, any covenant, condition or agreement to be performed by the other party shall impair any such right or be construed to be a waiver thereof. A waiver by either of the parties hereto of any noncompliance with, or breach of, any covenant, condition or agreement to be performed by the other party must be in writing and signed by both parties. No waiver of any -13- right upon any one occurrence of noncompliance or breach shall be construed to be a waiver of any succeeding noncompliance or breach. Unless stated otherwise, all remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either party at law, in equity, or otherwise. 8.4 SEVERABILITY. If any term, covenant, condition or provision of this Agreement or the application thereof to any circumstance shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Agreement shall not be affected thereby and each remaining term, covenant, condition and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only as broad as is enforceable. 8.5 NOTICES. If one party is required or desires to give notice to the other, such notice shall be deemed given if mailed by U.S. mail, first class, postage prepaid, or via a nationally recognized overnight carrier, with all freight charges prepaid, and addressed as follows (or as subsequently noticed to the other party): If to SBCL: SmithKline Beecham Clinical Laboratories, Inc. 1201 S. Collegeville Road Collegeville, PA 19426 ATTN: [*] ---------------------------- If to ACTAMED: ActaMed Corporation 7000 Central Parkway Suite 600 Atlanta, GA 30328 ATTN: Mike Hoover ---------------------------- 8.6 ASSIGNMENT. SBCL may assign all of its rights and obligations under this Agreement, SOWs or any license granted hereunder to any Affiliate, or to any corporation or other entity pursuant to a merger, consolidation, or other reorganization. SBCL agrees to notify ACTAMED of any such assignment, in writing, specifying the name and address of the other entity. ACTAMED may not, without the prior written consent of SBCL, assign or transfer this Agreement or any right or obligation hereunder, and any attempt to do so in contravention of this Section 8.6 shall be void and of no force and effect. 8.7 GOVERNING LAW; INTERPRETATION. This Agreement and all SOWs shall be construed, interpreted and enforced under the laws of the Commonwealth of Pennsylvania, excluding its provisions regarding conflicts of law. The section and subsection headings used herein are for reference and convenience only, and shall not enter into the interpretation hereof. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -14- 8.8 ENTIRE AGREEMENT. This Agreement, the SOWs issued from time to time hereunder and the schedules and exhibits attached hereto or thereto, constitute the entire agreement concerning the subject matter covered herein and supersede all prior oral or written agreements, understandings and promises relating thereto. This Agreement may not be modified or amended except by an instrument in writing declared to be an amendment hereto and executed by both parties. This Agreement may be executed in several counterparts, all of which taken together shall constitute one single agreement between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in the manner appropriate to each as of the day and year first above written. ACTAMED CORPORATION SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By: /s/ By: /s/ ------------------------ -------------------------------- Mike Hoover Rich Davis President Vice President Information Resources Dated: 10/31/97 Dated: 10/30/97 --------------------- ----------------------------- -15- EXHIBIT A STATEMENT OF WORK This is a Statement of Work entered into on this 31st day of October, 1997, between SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation with offices located at 1201 S. Collegeville Road, Collegeville, PA 19426 ("SBCL"), and ActaMed Corporation, a Georgia corporation with offices located at 7000 Central Parkway, Suite 600, Atlanta, GA 30328 ("ACTAMED"), under the Development Agreement, dated as of October 31, 1997. 1. PROJECT MANAGERS: for SB: [*] 1201 So. Collegeville Rd. Collegeville, PA 19426 VOICE: [*] FAX: [*] E-MAIL: [*] for ACTAMED: [*] 7000 Central Parkway Suite 600 Atlanta, Georgia 30328 VOICE: [*] FAX: [*] E-MAIL: [*] 2. GENERAL DESCRIPTION OF PROJECT: ACTAMED will "port" the SBCL Scan system to its ActaLink architecture, substantially re-engineering the system by re-writing most if not all of the source code, thereby creating a new product, "ACTALAB," which incorporates all of the requirements and functionality [*] of SBCL SCAN as depicted by the actual SBCL SCAN system and its associated documentation. This re-engineering will also incorporate ActaLink architecture, functionality and components as appropriate to create a fully integrated product that benefits from the functionality of the ActaLink product. This will include functionality to perform an eligibility check at the time of order entry and to associate the resulting billing and eligibility information with each order for all payers available to ACTAMED. A complete description and overview of the project is provided as Attachment 1 to this Statement of Work, which includes: [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -16- - Description of Specifications - Description of Deliverables - Description and Location of Services - Project Schedule and Resources - Testing procedures and Acceptance Criteria 3. PAYMENT SCHEDULE For the Services and Deliverables to be provided hereunder, SBCL will pay ACTAMED the aggregate sum of [*] in accordance with the following schedule. The payment for each Deliverable shown below is due within [*] of receipt of the corresponding sign-off from SBCL, as set forth in more detail in Attachment 1, Section 5. The amount payable to ACTAMED by SBCL under this SOW is based on the estimates outlined in Attachment 2.
% OF TOTAL AMOUNT DELIVERABLE/MILESTONE ---------- ------ --------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
ACTAMED CORPORATION SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC. By: /s/ By: /s/ ------------------------ -------------------------------- Mike Hoover Rich Davis President Vice President Information Resources Dated: 10/31/97 Dated: 10/30/97 --------------------- ----------------------------- [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -17- AMENDMENT TO DEVELOPMENT AGREEMENT SBCL and ActaMed hereby agree this 31st day of December, 1997, to amend their Development Agreement October 31, 1997, as set forth herein as of the effective dates set forth herein. 1. Effective as of the date of the Development Agreement, Article I of the Development Agreement is hereby amended to include the following additional or revised definitions: "ActaLab Software" has the meaning ascribed to it by the License Agreement. "Deliverable" means all Software, Documentation and other materials developed by ActaMed under this Agreement and described in a Statement of Work. "License Agreement" means that certain License Agreement between SBCL and ActaMed dated December 31, 1997. "SBCL Software" has the meaning ascribed to it by the License Agreement. "SOW No. 1" shall mean the Statement of Work dated October 31, 1997. 2. The second "Whereas" clause is hereby deleted. 3. The fourth "Whereas" clause is hereby revised to delete the words "to SBCL." 4. Section 5.1(a) of the Development Agreement is hereby revised as of the date of the Development Agreement to read as follows: (a) the parties hereby acknowledge and agree that: (i) The Deliverables under SOW No. 1 do not constitute modifications or enhancements to the SBCL Software, but instead constitute a new Windows- and JAVA-based product which will be used in conjunction with and/or will be integrated into ActaMed's ProviderLink software. All Deliverables (including but not limited to, the ActaLab Software) under SOW No. 1, and all intellectual property rights (including but not limited to copyrights and all renewals and extensions thereof) in such Deliverables, shall be owned solely and exclusively by ActaMed. Subject to the provisions of Section 5(a)(iv) hereof, SBCL hereby grants, transfers and assigns all of its right, title and interest in such Deliverables, including patents, copyrights, trade secrets and other intellectual property developed or acquired in the course of creating such Deliverables, to ActaMed and ActaMed shall have the right to obtain and hold in its own name copyrights, patents, registrations and similar protections which may be available with respect to such Deliverables. (ii) The parties contemplate that additional SOWs may be entered into from time to time for the purpose of enhancing, modifying or upgrading the ActaLab Software (an "ActaLab SOW"). All Deliverables under an ActaLab SOW and all intellectual property rights (including but not limited to copyrights and all renewals and extensions thereof) in such Deliverables, shall be owned solely and exclusively by ActaMed. Subject to the provisions of Section 5(a)(iv) hereof, SBCL hereby grants, transfers and assigns all of its right, title and interest in such Deliverables, including patents, copyrights, trade secrets and other intellectual property developed or acquired in the course of creating such Deliverables, to ActaMed and ActaMed shall have the right to obtain and hold in its own name copyrights, patents, registrations and similar protections which may be available with respect to such Deliverables. (iii) The parties contemplate that additional SOWs may be entered into from time to time for the purpose of enhancing, modifying or upgrading the SBCL Software (a "SCAN Development SOW"). Ownership of any Deliverables under a SCAN Development SOW, and ownership of any intellectual property rights therein (including but not limited to copyrights and all renewals and extensions thereof). shall be governed in all respects by Article 3 of the License Agreement. Subject to the provisions of Section 5(a)(iv) hereof, ActaMed hereby grants, transfers and assigns all of its right, title and interest in such Deliverables, including patents, copyrights, trade secrets and other intellectual property developed or acquired in the course of creating such Deliverables, to SBCL. (iv) Nothing in this Section 5(a) shall be construed to transfer to ActaMed, or otherwise divest SBCL of SBCL's ownership of, the SBCL Software and, subject to the licenses granted by the License Agreement, SBCL (as between SBCL and actaMed) shall be the sole owner of the patents, copyrights, trade secrets and other intellectual property rights therein. Nothing in this Section 5(a) shall be construed to transfer to SBCL, or otherwise divest ActaMed of ActaMed's ownership of, any software or work of authorship owned by ActaMed as of the effective date of the Development Agreement and, subject to the licenses granted by the License Agreement, ActaMed (as between SBCL and ActaMed) shall be the sole owner of any patent, copyright, trade secret right or other intellectual property right therein. (v) Any Statement of Work, by mutual agreement of the parties, may include limitations and restrictions on ActaMed's use of the applicable 2 Deliverables in support of laboratory testing services of commercial laboratories other than SBCL. 6. Sections 5.1(d) and (e) and Section 5.2(a) as of the date of this Amendment are hereby deleted from the Development Agreement. 7. In the event of conflict between the Development Agreement and the License Agreement, the License Agreement shall control. 9. Except as expressly set forth herein, the Development Agreement shall continue in full force and effect as originally executed by the parties. 10. Nothing in this Agreement shall be construed to modify or change in any respect the ownership and use rights with respect to Exclusive Developments (as defined in the Services Agreement between SBCL and ActaMed dated the date hereof) pursuant to the License Agreement and Section V of said Services Agreement. In witness whereof, the parties have caused this Amendment to be signed this 31st day of December, 1997. SMITHKLINE BEECHAM CLINICAL ACTAMED CORPORATION LABORATORIES, INC. BY: /s/ John B. Okkenele Jr. BY: /s/ Michael K. Hoover ---------------------------- --------------------------- NAME: John B. Okkenele Jr. NAME: Michael K. Hoover ------------------------- ------------------------ TITLE: President TITLE: President ------------------------ ----------------------- DATE: 12-31-97 DATE: 12-31-97 ------------------------ ----------------------- 3 SECOND AMENDMENT TO DEVELOPMENT AGREEMENT SmithKline Beecham Clinical Laboratories, Inc. ("SBCL") and Healtheon Corporation ("Healtheon") hereby agree this 14th day of October, 1998, to amend the Development Agreement dated October 31, 1997, as amended, by and between ActaMed Corporation and SBCL, which was assumed by Healtheon on May 18, 1998, as follows: 1. Section 7.1 of the Development Agreement is hereby replaced in its entirety by the following: "7.1 TERM. This Agreement shall commence on the date hereof and shall remain in effect until October 31, 1999 or such later date as mutually agreed upon by the parties for the purposes of completing the work required under Statements of Work adopted hereunder." SMITHKLINE BEECHAM CLINICAL HEALTHEON CORPORATION LABORATORIES, INC. By: /s/ Donald F. Parmen By: /s/ Jack Dennison --------------------------- --------------------------- Name: Donald F. Parmen Name: Jack Dennison --------------------------- --------------------------- Title: Assistant Secretary Title: Vice President --------------------------- --------------------------- Date: October 14, 1998 Date: October 14, 1998 --------------------------- --------------------------- EX-10.18 28 EX-10.18 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. SERVICES, DEVELOPMENT AND LICENSE AGREEMENT This Agreement made this 15th day of December, 1997 (the "Effective Date"), is by and between Healtheon Corporation, a Delaware corporation with offices at 87 Encina Ave., Palo Alto, CA 94301 ("Healtheon") and Beech Street Corporation, a Georgia Corporation with offices at 173 Technology, Irvine, California 92618 ("BSC"). WHEREAS, the parties have agreed to form an alliance to address the information technology needs of BSC, develop new applications designed to address the information service needs of companies providing managed care and other administrative services and pursue other ventures which may be of mutual interest to the parties. The parties hereby agree as follows: 1. DEFINITIONS. 1.1 "ADDITIONAL APPLICATIONS" shall mean those applications which are developed by Healtheon, but excluding the Developed Applications and the Healtheon Platform Software, which are designed to run on the Healtheon Platform. 1.2 "BSH DIVISION" shall mean the division of Healtheon which shall be organized to perform the Services hereunder. 1.3 "BSC CLIENT" shall mean those clients of BSC including but not limited to, health care medical providers (E.G., physicians, hospitals, other care facilities, and ancillary providers), third party administrators, preferred provider organizations, health maintenance organizations, employers, unions, governmental entities, credit card companies, reinsurance companies, health benefit or workers' compensation software vendors, and medical management vendors, which use BSC Managed Care Services or as to which BSC has incorporated such entities' services into BSC Managed Care Services. 1.4 "BSC MANAGED CARE SERVICES" shall mean the following types of services provided by BSC to BSC Clients: personal health management (demand management), workers' compensation medical bill review, case management, pre-admission review, concurrent review, discharge planning, hospital bill audit, retrospective non-network bill review and fee negotiation, health care provider contracting and management, data reporting, computer operations, service bureau services, consulting and other support services and such other related new products/services that BSC shall develop subsequent to the execution of this Agreement. Notwithstanding the foregoing, Managed Care Services shall not include any service where the primary service provided by BSC is either (i) access to and/or use of the BSC On-Line Service to obtain repricing services or (ii) other repricing services offered by BSC to BSC Clients which use all or a portion of the repricing functionality of the Developed Applications The Management Committee shall determine whether services based upon other functionality of the Developed Applications shall be excluded from the definition of "BSC Managed Care Services" at the time that the relevant specifications for such Developed Applications are being developed. Notwithstanding the foregoing, workers' compensation medical bill review services shall be included as part of the BSC Managed Care Services regardless of whether such services are offered alone or in conjunction with other BSC Managed Care Services. 1.5 "BSC ON-LINE SERVICE" shall mean the on-line service provided by BSC to BSC Clients which incorporates all or a portion of the Developed Applications and any derivative works thereof. 1.6 "DEVELOPED APPLICATIONS" shall mean those applications and any improvements thereto which are developed by Healtheon hereunder and which are designed to run on the Healtheon Platform, as more fully described on Exhibit B. 1.7 "DEVELOPMENT WORK" shall mean the work to be performed hereunder by Healtheon to develop the Developed Applications. 1.8 "END USER" shall mean any employee, partner, agent or other representative of (i) BSC, or (ii) a BSC Client; who is authorized to access the BSC On-Line Service in conjunction with obtaining BSC Managed Care Services. 1.9 "HEALTHEON PLATFORM" shall mean the Healtheon Platform Software, as well as certain industry standard software applications, tools, and processes which provide the operating environment which enables the use of Healtheon developed applications as part of an on-line service which is accessible through the Internet by using industry standard web browsers. 1.10 "HEALTHEON PLATFORM SOFTWARE" shall mean the proprietary operating system and other software which has been developed by Healtheon (but excluding the Developed Applications and the Additional Applications) which is part of the operating system of the Healtheon Platform. 1.11 "SERVICES" shall mean those information technology services described on Exhibit A. 2. PERFORMANCE OF THE SERVICES AND THE DEVELOPMENT WORK 2.1 PERFORMANCE OF THE SERVICES. Healtheon, through personnel assigned to its BSH Division, shall perform the Services at certain sites controlled by BSC and/or Healtheon. The initial scope of the Services is set forth as Exhibit A. Exhibit A may be amended with the written consent of the parties. 2.2 PERFORMANCE OF THE DEVELOPMENT WORK. Healtheon shall design, develop, test, and complete the Developed Applications. The specifications for each Developed Application shall be developed jointly and mutually approved by the parties. In conjunction with the development of each set of specifications, the parties shall jointly develop a mutually agreeable detailed project plan, which shall be attached hereto as Exhibit B. Such project plan shall describe, in a degree of detail reasonably satisfactory to the parties, all tasks and responsibilities required for the successful and timely completion of the development and delivery of the applicable Developed Applications, including the projected costs. 3. PROJECT MANAGEMENT 3.1 PERSONNEL RESOURCES. Healtheon and BSC shall each commit the number of qualified and experienced personnel which are reasonably necessary to perform their respective obligations under this Agreement and as further outlined in the project plan(s). Healtheon shall have the sole right and obligation to hire, supervise, manage, contract, direct, procure, perform or cause to be performed all work to be performed by Healtheon and its personnel hereunder. Healtheon, at its option, may engage third parties to render services in connection with the performance of the Services and/or Development Work contemplated hereunder, which may include engaging the services of certain BSC employees to 2 provide certain information technology services. All Healtheon employees utilized to provide the Services shall have entered into Healtheon's standard form of employee nondisclosure agreement. 3.2 PROJECT MANAGEMENT. Each party shall designate a project manager (the "Project Managers") and appropriate technical resource persons to coordinate the development and implementation of the project plan(s). The Project Managers shall be responsible for resolving any matters arising under this Agreement and the Services and Development Work contemplated hereunder. In the event that the Project Managers are not able to resolve a dispute, such dispute shall be resolved by the Management Committee, as described in Section 3.3. 3.3 MANAGEMENT COMMITTEE. The parties shall each designate an equal number of management-level personnel to serve on the Management Committee. The Management Committee shall conduct status meetings on a monthly basis detailing the performance of the Services and Development Work during the prior four (4) week period and the work planned to be performed during the upcoming four (4) week period. The Management Committee shall be responsible for resolving any disputes which have not been resolved by the Project Managers. The Management Committee shall be responsible for determining whether services based upon the Developed Applications shall be included or excluded from the definition of "BSC Managed Care Services" for the purposes of this Agreement. If such services are not excluded, then the Management Committee shall be responsible for establishing the applicable financial arrangements, if any, pursuant to which such services may be offered by BSC. 3.4 CHANGES TO SERVICES, DEVELOPMENT WORK AND PROJECT PLAN. The scope of the Services, the Development Work and the project plans shall not be changed in any material respect without the prior written agreement of the parties, which agreement shall not be unreasonably withheld. 4. OWNERSHIP AND LICENSE RIGHTS. 4.1 OWNERSHIP. BSC acknowledges and agrees that all of the work product produced or developed by Healtheon in connection with Healtheon's performance of the Services and/or Development Work to be provided hereunder, including, but not limited to, all technology of any nature whatsoever, all notes, records, drawings, designs, inventions, improvements, developments, discoveries, trade secrets and any copyrightable material, including but not limited, to the Developed Applications, and all patentable inventions, conceived, made or discovered by Healtheon, solely or in collaboration with others, during the period of this Agreement and which relate in any manner to the Services and/or Development Work to be performed hereunder or which Healtheon may be directed to undertake or investigate in performing the Services and/or the Development Work, including any derivative works of any of the foregoing (collectively the "Work Product"), is the sole property of Healtheon, but excluding BSC's contracts and contracted rates with BSC's providers, which may be incorporated into the Work Product. Subject only to the license rights to be granted by Healtheon to BSC in Section 5.1, below, BSC acknowledges and agrees that Healtheon shall have all proprietary rights in and to the Work Product, including, without limitation, all copyrights, patents and trade secret rights, all moral rights, all contract and licensing rights, and all claims and causes of action of any kind with respect to any of the foregoing, whether now known or hereafter to become known, and that Healtheon shall have the sole and exclusive right to use, modify and exploit the Work Product in any manner that Healtheon may choose. 4.2 PROPRIETARY NOTICES. BSC shall not remove or alter any trademark, trade name, copyright, or other proprietary notices, legends, symbols, or labels appearing on or in materials pertaining to the Work Product. Each portion of the Healtheon documentation reproduced by BSC shall include the 3 intellectual property notice or notices appearing in or on the corresponding portion of such materials as delivered by Healtheon hereunder. 5. LICENSE AND SERVICE RIGHTS. 5.1 LICENSE RIGHTS. In consideration for the development fees paid to Healtheon pursuant to Section 7.1, Healtheon hereby grants to BSC a nonexclusive and nontransferable, fully-paid, perpetual right and license, exercisable at BSC's primary operations site, to: (i) install, use, copy, modify, create derivative works and maintain the Developed Applications, in object code and source code form, solely as (a) part of the BSC On-Line Services which are offered to BSC Clients in conjunction with the BSC Managed Care Services obtained by such BSC Clients and to enable world-wide remote access by End Users in conjunction with the BSC On-Line Service and (b) for BSC's internal use in providing BSC Managed Care Services to BSC Clients, and (ii) use the Work Product (excluding the Developed Applications and any derivative works thereof) delivered to BSC by Healtheon hereunder in conjunction with the operations of BSC's Managed Care Services. BSC shall not use, sublicense or otherwise distribute the Healtheon Platform Software or the Work Product, including the Developed Applications and any derivative works thereof, in any other manner except as expressly stated herein. The BSC's primary operations site is anticipated to be in Irvine, California. BSC may from time to time designate another site to be its primary operations site by providing Healtheon with thirty (30) days' prior written notice of such redesignation. Notwithstanding the foregoing, BSC shall make no more than two (2) copies of the source code relating to the Developed Applications (the "Source Code") and shall restrict access to such Source Code to only those employees who require such access to enable BSC to use the Source Code as in the manner contemplated herein and otherwise secure and protect such Source Code consistent with its own practices regarding its most highly confidential information. 5.2 OPTION TO LICENSE ADDITIONAL APPLICATIONS. Healtheon hereby agrees to grant to BSC a nonexclusive and nontransferable, right and license, to use the Additional Applications as may be licensed at the option of BSC, as part of the services to be offered to BSC Clients in conjunction with the BSC Managed Care Services, and to enable worldwide access to End Users in conjunction with the BSC On-Line Service. The fee for such license shall be [ * ] each such Additional Application as may be licensed by BSC, net of any third-party royalty obligations. Each such license agreement for Additional Applications shall be on commercially reasonable terms and conditions. BSC shall not use, sublicense or otherwise distribute the Additional Applications in any other manner except as expressly stated herein. 5.3 OPTION TO LICENSE HEALTHEON PLATFORM SOFTWARE. Subject to the payment of the license fee set forth below, Healtheon hereby grants to BSC a nonexclusive and nontransferable, right and license, exercisable at BSC's primary operational site, to use the Healtheon Platform Software as part of the Healtheon Platform to be deployed at BSC's primary operational site to run the Developed Applications and such Additional Applications which may be licensed from Healtheon, as part of the BSC On-Line service or other BSC Managed Care Service to be offered to BSC Clients in conjunction with the BSC Managed Care Services obtained by such BSC Client, and to enable world-wide access and use by End Users at remote locations in conjunction with the use of the BSC On-Line Service and to make a single back-up copy. The applicable one-time, up front fee for such license shall be [ * ] payable upon such commercially reasonable terms as the parties may agree to at the time of BSC's exercise of its rights hereunder. BSC shall not have the right to use, sublicense or otherwise distribute the Healtheon Platform Software in any other manner except as [ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4 expressly stated herein. BSC shall be solely responsible for the costs associated with acquiring all third-party hardware and software and implementation services necessary to deploy the Healtheon Platform at BSC's site. In the event the BSC exercises its rights hereunder, Healtheon shall make available to BSC maintenance services on such commercially reasonable terms and conditions as may be agreed to by the parties. 5.4 OPTION TO USE HEALTHEON SERVICE. If, following the completion of the Developed Applications, BSC declines to use its licensed rights under Section 5.1, Healtheon hereby agrees to enter into a Healtheon Service Agreement with BSC containing Healtheon's standard terms and conditions whereby Healtheon shall provide BSC and BSC Clients with access to an on-line service which includes the Developed Applications. Healtheon shall offer such service to BSC and the BSC Clients at a rate [ * ] as may be mutually agreed to by the parties, based upon the actual margins of the on-line service. 6. THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS 6.1 THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS. In order to perform the Services contemplated hereunder (but excluding Services relating solely to the Developed Applications), BSC represents that Healtheon will need to have access only to the third-party technology and software listed on Exhibit C which is licensed and/or deployed by BSC (the "Third-Party Technology and Software"). BSC hereby agrees to use commercially reasonable efforts to obtain, at its own expense, all necessary consents, licenses and/or assignments which may be necessary in order for Healtheon to perform the such Services. Healtheon shall use commercially reasonable efforts to cooperate with BSC to assist BSC in obtaining any necessary consents, licenses and/or assignments to Third-Party Technology and Software. In the event that any Development Work requires access to or use of any other third-party technology or software, the Management Committee shall be responsible for obtaining any necessary rights. 6.2 BSC TECHNOLOGY AND LICENSE RIGHTS. During the term of this Agreement, BSC hereby grants to Healtheon a nonexclusive and nontransferable right and license to use, modify and copy all technology and software owned by BSC which is necessary for Healtheon to perform the Services and Development Work. 7. FEES AND PAYMENT; GAIN SHARING 7.1 FEES AND EXPENSES, PAYMENT. BSC shall pay Healtheon the Fees and Expenses, as set forth in Exhibit D for the Services and the Development Work to be performed hereunder (the "Fees"). Healtheon shall submit invoices to BSC on a bi-weekly basis for the Fees when due, corresponding to applicable payroll cycles. Invoices shall be due and payable within ten (10) days after receipt. 7.2 OTHER EXPENSES. Healtheon shall have sole responsibility for payment of compensation to its personnel and shall pay and report, for all personnel assigned to perform services hereunder, federal and state income tax withholding, social security taxes, and unemployment insurance applicable to such personnel. Healtheon shall bear sole responsibility for any health or disability insurance, retirement benefits, or other welfare or pension benefits (if any) to which its own personnel may be entitled. 7.3 REVENUE SHARING. In the event that BSC declines to use its licensed rights under Section 5.1 and Healtheon provides services in accordance with Section 5.4 for any current or future BSC Client [ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5 which (i) utilizes any of the Developed Applications and (ii) such BSC Client has entered into a written contract for one or more of BSC's Managed Care Services (a "Qualified BSC Client"), then BSC shall pay to Healtheon the Applicable Percentage (as defined below) of Net Revenues (as defined below with respect to repricing services) with respect to each such Qualified BSC Client. "Net Revenues" shall mean the revenues received by BSC from a Qualified BSC Client for BSC Managed Care Services less any fees paid by BSC to any third party which facilitates the sale or delivery of BSC's Managed Care Services, including but not limited to leased network fees, broker fees, commissions paid to outside third parties, fees payable to Healtheon pursuant to Section 5.4, subcontractor vendor fees and other such reasonable and customary fees as may apply from time to time. The "Applicable Percentage" with respect to BSC's repricing services shall be as follows: [ * ] The revenue sharing described above will be reviewed by the Management Committee periodically, and at least on an annual basis, to determine that the cost savings objectives are being achieved and to determine the appropriate applicable percentage for other BSC Managed Care Services which are performed through the Healtheon service as the applicable Developed Applications are deployed as part of the Healtheon service. Additionally if other significant cost savings are identified they will be reviewed by the Management Committee to determine appropriate sharing. 7.4 THIRD-PARTY HARDWARE AND SOFTWARE. In the event that it is reasonably necessary for Healtheon to purchase or license any third-party hardware and/or software in order to perform the Services and/or the Development Work, the Project Managers shall determine whether such third-party hardware and/or software should be purchased and/or licensed by BSC or Healtheon and how the costs and ownership shall be allocated between the parties. 7.5 TAXES. All Fees and payments are exclusive of all taxes, duties or levies, however designated or computed. BSC shall be responsible for and pay all taxes upon payments due under this Agreement including, but not limited to, sales, use, or value-added taxes, duties, withholding taxes and other assessments now or hereafter imposed on or in connection with this Agreement, exclusive of taxes based upon Healtheon's net income. 7.6 AUDIT RIGHTS. Each of the parties shall have the right, exercisable no more frequently than once per calendar quarter and exercisable upon thirty (30) days prior written notice, to audit the appropriate books and records of the other party during regular business hours to review the calculations of the amounts payable pursuant to Section 7. The costs of such audit shall be borne by the auditing party, unless the results of such audit reveal an underpayment (or overpayment) of more than ten percent (10%) for a twelve month period, in which case the reasonable expenses of the auditing party shall be reimbursed by the other party. The parties shall promptly pay (or refund) to the other, the amounts of any underpayments (or overpayments). 8. CONFIDENTIALITY 8.1 CONFIDENTIAL INFORMATION. The parties acknowledge that in the course of performing under this Agreement, each party may be exposed to or acquire information which is proprietary to or confidential to the other party, its suppliers or customers ("Confidential Information"). Any and all such Confidential Information of one party in any form obtained by the other party or its employees, agents, [ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 6 or representatives in the performance of this Agreement shall be deemed to be confidential and proprietary information of such party. The parties agree to hold such Confidential Information in strict confidence, to only permit use of such Confidential Information by its employees and agents having a need to know in connection with performance under this Agreement, and not to copy, reproduce, sell, assign, license, market, transfer, give or otherwise disclose the Confidential Information of the other party to third parties or to use such Confidential Information for any purposes whatsoever, except as expressly contemplated by this Agreement, without the express written permission of the other party and to advise each of their employees, agents, and representatives of their obligations to keep such information confidential. Work Product shall be deemed to be the Confidential Information of Healtheon. 8.2 EXCEPTIONS TO CONFIDENTIAL INFORMATION. Confidential Information shall not include information that (i) was, as of the time of its disclosure, or thereafter becomes part of the public domain through a source other than the receiving party; (ii) the receiving party can demonstrate was known to the receiving party as of the time of its disclosure; (iii) the receiving party can demonstrate was independently developed by the receiving party without use of the Confidential Information; or (iv) the receiving party can demonstrate was subsequently learned from a third party not under a confidentiality obligation to the providing party. In the event that a receiving party is required to disclose certain Confidential Information of a disclosing party pursuant to applicable law, court order or government authority, the receiving party shall provide reasonable notice to the disclosing party prior to such disclosure and shall cooperate with the disclosing party to obtain protection from such disclosure. 9. REPRESENTATIONS AND WARRANTIES 9.1 WARRANTIES FOR SERVICES AND THE DEVELOPMENT WORK. Healtheon hereby represents and warrants that (i) each person assigned to perform the Services and/or the Development Work shall have the proper skill, training and background so as to be able to perform the such Services and/or Development Work in a competent and professional manner and (ii) all Services and/or Development Work and any Work Product and other materials or documentation delivered under this Agreement shall have been completed in a thorough and professional manner. In the event of a breach of Healtheon's representations and warranties under this Section 9.1, Healtheon's sole obligation shall be to promptly correct any defects identified by BSC, provided that BSC provides Healtheon with written notice within thirty (30) days of becoming aware of the defective work. 9.2 THIRD-PARTY TECHNOLOGY. BSC hereby represents and warrants that it has obtained all necessary consents, licenses and/or assignments with respect to the Third-Party Technology and Software which is licensed and/or deployed by BSC and which are necessary in order for Healtheon to perform the Services and Development Work to be performed hereunder. 9.3 AUTHORITY. Healtheon and BSC each hereby represents and warrants to the other that it is duly organized and validly existing under the laws of the jurisdiction in which it is organized, in good standing therein, and has the power to enter into this Agreement and to perform its obligations hereunder and, furthermore, that the performance by it of its obligations under this Agreement has been duly authorized by all necessary corporate or other action and will not violate any provision of law or regulation or of any corporate charter or bylaws. 9.4 INFRINGEMENT. Healtheon and BSC each hereby represents and warrants to the other that any information or technology provided by it to the other party in order to define the specifications or to accomplish the development objectives of this Agreement does not infringe, violate, misappropriate, or 7 in any manner contravene or breach any U.S. patent or any trademark, copyright, trade secret right, license or other property, or proprietary right of any third party. 9.5 NO IMPLIED WARRANTIES. THE WARRANTIES STATED ABOVE IN THIS SECTION 9 ARE THE ONLY WARRANTIES MADE BY EITHER PARTY. THE PARTIES DO NOT MAKE AND HEREBY DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE PARTIES ACKNOWLEDGES THAT COMPLEX COMPUTER SOFTWARE AND SERVICES, SUCH AS THE DEVELOPED APPLICATIONS AND THE SERVICES, ARE RARELY FREE OF DEFECTS OR ERRORS AND HEALTHEON DOES NOT WARRANT THE SAME. 10. LIMITATION OF LIABILITY EXCLUSION OF CERTAIN DAMAGES. [ * ] UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY SHALL EITHER PARTY HAVE ANY LIABILITY FOR LOSS OF PROFITS, CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 10.2 LIMITATION OF LIABILITY. [ * ] IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY FOR ALL MATTERS ARISING OUT OF THE SUBJECT MATTER OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE [ * ]. The remedies provided herein are the parties' sole and exclusive remedies. 11. INDEMNIFICATION 11.1 INDEMNIFICATION. Healtheon agrees to hold harmless and defend BSC from and against any and all claims, demands, suits, actions, or proceedings, arising out of any actual or alleged infringement by Healtheon of any copyright or any U.S. patent, trademark, or trade secret right or other proprietary right, with respect to the Work Product and Healtheon Platform Software, as delivered by Healtheon hereunder and used by BSC in accordance with the terms of this Agreement. BSC agrees to hold harmless and defend Healtheon from and against any and all claims, demands, suits, actions, or proceedings, arising out of any actual or alleged infringement by Healtheon of any copyright or any U.S. patent, trademark, or trade secret right or other proprietary right which arises out of BSC's failure to obtain any necessary consents, licenses, or assignments with respect to any Third-Party Technology or Software which has been licensed and/or deployed by BSC and which is necessary in order for Healtheon to perform the Services (but excluding Services relating solely to the Developed Applications). 11.2 LIMITATIONS. Healtheon shall have no indemnity obligation for claims resulting from or alleged to result from (i) development work performed by Healtheon in compliance with BSC's specifications where Healtheon's method of compliance has been specifically compelled by the terms of BSC's specifications; or (ii) BSC's use of the Work Product in combination with any hardware or software not furnished by or authorized by Healtheon hereunder, if such combination is the cause of such claim and the Work Product is not material to the claim, or any modifications which have been made by BSC if such modification is the cause of the claim. In addition, Healtheon shall have no indemnity [ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 8 obligation for claims of infringement resulting or alleged to result from BSC's failure within a reasonable time frame to implement any replacement or modification which conforms to the requirements of Section 11.4 herein. BSC shall have no indemnity obligations for claims resulting from or alleged to result from Healtheon's breach of any Third-Party Technology or Software rights where appropriate consents, licenses and/or assignments were obtained and provided to Healtheon and Healtheon failed to adhere to the terms of applicable consents, licenses and/or assignments. 11.3 PAYMENT AND COOPERATION. Subject to the limitations set forth in Section 11.2 above, the indemnifying party shall pay all losses, damages, damages, settlements, expenses, costs and reasonable attorney's fees, incurred by the indemnified party arising out of the matters set forth in Section 11.1 provided that such payment shall be contingent on: (i) cooperation by the indemnified party with the indemnifying party in the defense and or settlement thereof, at the indemnifying party's expense; and (ii) allowing the Indemnifying Party to control the defense and all related settlement negotiations. The indemnified party shall give the indemnifying party prompt written notice of any such claim to enable the indemnifying party to defend or mitigate the claim. 11.4 REMEDY. If, in the event of an infringement action pertaining to the Work Product, including the Developed Applications, and/or Healtheon Platform Software and BSC's use of the such Work Product and/or Healtheon Platform Software is disrupted, Healtheon shall, at its option, (i) provide BSC with access to software which is functionally equivalent to the infringing elements of the Work Product and/or Healtheon Platform Software as applicable, without additional charge; (ii) modify the infringing portions of the Work Product and/or Healtheon Platform Software, as applicable, to avoid the infringement; or (iii) obtain a license for BSC to continue use of such Work Product and/or Healtheon Platform Software, as applicable, for the term of the applicable license and pay, on an annual basis, if Healtheon elects not to acquire a perpetual license, the additional fee required for such license(s). 11.5 LIMITATIONS. SECTION 11 SETS FORTH THE PARTIES' SOLE OBLIGATION, AND THE SOLE RECOURSE AGAINST THE OTHER PARTY IN THE EVENT OF ANY CLAIM OF INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. 12. TERM AND TERMINATION 12.1. TERM. This Agreement shall continue for a fixed term of five (5) years from the date hereof (the "Term") unless terminated earlier under the provisions of this Section 12 or by the mutual agreement of the parties. Notwithstanding the foregoing, (i) the license granted in Section 5.1 shall have a perpetual term unless terminated earlier pursuant to Section 12.3 or 12.4, or by the mutual consent of the parties; and (ii) the license granted in Section 5.3, if exercised, shall continue for a term of [ * ] from the Effective Date and shall renew automatically for successive additional [ * ] terms unless terminated earlier pursuant to Section 12.3 or 12.4, or by the mutual consent of the parties. 12.2 TERMINATION FOR CONVENIENCE. Either party may terminate this Agreement upon one hundred-eighty (180) days prior written notice to the other for any reason. Promptly following the notice of termination the parties shall use good faith efforts to agree to a commercially reasonable transition plan which will enable the parties' to mitigate to on-going expenses during the notice period. 12.3 TERMINATION BY EITHER PARTY FOR DEFAULT. If either party defaults in the performance of any material provision of this Agreement, then the non-defaulting party may give written notice to the defaulting party that if the default is not cured within thirty (30) days of such notice the Agreement will be terminated. If the non-defaulting party gives such notice and the default is not cured during the thirty [ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 9 (30) day period, then the Agreement shall automatically terminate at the end of that thirty (30) day period. 12.4 INSOLVENCY. Either party may terminate this Agreement by written notice to the other, and may regard the defaulting party as in default of this Agreement, if the defaulting party becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits the appointment of a receiver for its business or assets, becomes subject to any proceeding under any bankruptcy or insolvency law whether domestic or foreign, or has wound up or liquidated, voluntarily or otherwise. 12.5 EFFECT OF TERMINATION. The provisions of Sections 7 (solely with respect to Fees and other payments which were due and payable as of the date of termination), 4, 8, 10, 11, and 13 (to the extent applicable) shall survive the termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon termination of this Agreement. In the event of a termination, neither party shall be entitled to any refund of the fees paid or cost incurred for the development performed hereunder. Provided that this Agreement is not terminated by Healtheon pursuant to either Section 12.3 or 12.4 or by BSC pursuant to Section 12.2, upon termination, Healtheon shall deliver to BSC a copy of each Developed Application which has been completed as of the date of termination, in source and object code form, and the related user documentation, and, in the event of the exercise of BSC's option pursuant to Section 5.3, Healtheon shall deliver to BSC a copy of Healtheon Platform Software in object code form. 12.6 RETURN OF MATERIALS. Within thirty (30) days after the termination of this Agreement, each party shall return to the other, all Confidential Information, and other material of any kind which is the property of the other party. 13. GENERAL 13.1 NO EXCLUSIVITY OR RESTRICTION ON OTHER ACTIVITY. Except as expressly set forth in this Agreement, nothing herein shall preclude either party from entering into agreements to obtain similar services or development work from third parties or from providing similar services or development work to third parties. 13.2 RELATIONSHIP OF PARTIES. The relationship of the parties shall be that of independent contractors. Neither party will represent that it has any authority to assume or create any obligation, express or implied, on behalf of the other party, or to represent the other party as agent, employee, or in any other capacity, except as specifically provided herein. 13.3 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of the respective parties and their permitted successors and assigns. Neither party shall not transfer, assign, sublicense or subcontract any right or obligation hereunder, except as expressly provided herein. In the event of a change in control of BSC, BSC shall be permitted to assign this Agreement to the surviving or new corporation acquiring all or substantially all of the business and assets of BSC by merger, acquisition, consolidation or otherwise, with the prior written consent of Healtheon, which consent shall not be unreasonably withheld. BSC may assign its rights under this Agreement to an entity which is controlled by BSC with the prior written consent of Healtheon, which consent shall not be unreasonably withheld. It shall not be unreasonable for Healtheon to withhold its consent if any proposed assignment would materially increase Healtheon's obligations under this Agreement or materially increase the scope of BSC's rights (including but not limited to the grant of rights contained in Section 5) or if such proposed assignee is a competitor of Healtheon. 10 13.4 NO WAIVER. Either party's failure to exercise any right under this Agreement shall not constitute a waiver of any other terms or conditions of this Agreement with respect to any other or subsequent breach, nor a waiver by such party of its right at any time thereafter to require exact and strict compliance with the terms of this Agreement. 13.5 NOTICES. All notices or other communications which are required or permitted to be given hereunder shall be in writing and shall be sent to the address of the recipient set forth below or such other address as the recipient may designate by notice given in accordance with the provisions of this Section with copies to: In the case of Healtheon: In the case of BSC: Healtheon Corporation Beech Street Corporation 87 Encina Avenue 173 Technology Palo Alto, California 94301 Irvine, California 92618 Attn: President Attn: President and COO Copy to: General Counsel Copy to: Chief Financial Officer Any such notice shall be delivered by either (i) first class registered or certified airmail, postage prepaid, and shall be deemed to have been served forty-eight (48) hours after posting; or (ii) express courier service, service fee prepaid, and shall be effective upon delivery. 13.6 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 13.7 SEVERABILITY. The invalidity of one or more phrases, sentences, clauses or articles contained in this Agreement shall not affect the remaining portions of this Agreement or any part thereof; and in the event that one or more phrases, sentences, clauses or articles shall be declared void or unenforceable this Agreement shall be amended to include only such portions of such phrases, sentences, clauses or articles that are not invalid, void or unenforceable. 13.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, along with the Exhibits attached hereto, sets forth the entire agreement between the parties and supersedes any other prior proposals, agreements and representations between them related to its subject matter, whether written or oral, including but not limited to the Letter of Intent between the parties. No modifications or amendments to this Agreement shall be binding upon the parties unless made in writing and duly executed by authorized officials of both parties. 13.9 ATTORNEYS FEES. The prevailing party in any dispute shall be entitled to collect from the other party the prevailing party's reasonable attorneys' fees and costs in connection with the enforcement of this Agreement. 13.10 NON-SOLICITATION OF EMPLOYEES. Neither party shall solicit the services or employment of any employee or agent of the other party for a period beginning at the Effective Date and ending on the termination date of this Agreement, without the prior written consent of the other party. The soliciting party, who violates this Section 13.10, shall pay to the other party an amount equal to one (1) year's salary for any solicited employee of the other party, as liquidated damages and not as a penalty. The amount of annual salary shall be the annual salary in effect at the date the employee was solicited. For 11 purposes of this Section, the term "employee" means current or former employees of the other party who were employed by the other party at any time during the period beginning on the Effective Date and ending on the date on which the nonsolicitation period above terminates. Initiation by an individual of contact regarding employment or response by an individual to an advertisement or other generally available notice, shall not constitute solicitation. 13.11 BANKRUPTCY. The parties agree that the Agreement and any related agreements are contracts under which Healtheon is a licensor of rights to intellectual property within the scope of Section 101 of the United States Bankruptcy Code and that BSC shall have all the rights of a licensee set forth in Section 365(n) of the Bankruptcy Code. Upon the commencement of a bankruptcy petition involving either party, the other party shall be entitled to retain and may fully exercise all rights and licenses available under the Bankruptcy Code. 13.12 USE OF NAME. Neither party shall use the name of the other party, or refer to the other party, directly or indirectly, in any advertising, sales presentation, news release, information provided to any profession or trade publication, or any other promotional or informational material, for any purpose whatsoever, or in any manner indicate any endorsement or support of any product, without such party's prior written approval. 13.13 RESIDUAL INFORMATION. Without prejudice to either party's proprietary rights, neither party shall be liable for using general ideas, concepts and know-how that may be gained as a result of exposure to or contact with the other party or its materials. 13.14 ESCROW. Healtheon agrees that it will put the Healtheon Platform Software and the Developed Applications, as they are developed, in escrow with an independent escrow agent. The escrow agreement will be on terms and conditions which are mutually agreeable to parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first written above. Healtheon Corporation Beech Street Corporation By: /s/ By: /s/ -------------------------------- -------------------------------- Title: President & CEO Title: President & CEO ----------------------------- ----------------------------- Date: 12/15/97 Date: 12/15/97 -------------------------------- -------------------------------- 12 EXHIBIT A SERVICES Healtheon will operate and maintain BSC's information technology infrastructure and data processing functionality and related services, including the following types of services, as necessary and agreed to by the parties: - maintain hardware operations - maintain software infrastructure - maintain data network(s) - desktop computing - provide internal and external technical support - provide project planning and management - software installation - hardware installation - provide user technical support - provide user training - provide IT personnel management services - provide IT consulting services - provide custom software solution design and development services 13 EXHIBIT B DEVELOPMENT WORK OVERVIEW Healtheon shall provide an engineering team staffed with up to forty engineers by December 31, 1998 to perform the general development tasks set forth below ( the "Development Team"). The Development Team will begin staffing during January, 1998 and is anticipated to be fully staffed by December 31, 1998. Unless otherwise agreed to by the parties, the Development Team will remain fully staffed during calendar years 1999, 2000 and 2001 and will reduce its staffing during calendar year 2002, depending upon the resources need to fulfill the Development Work in accordance with the project plans which are developed by the parties pursuant to Section 2.2. In the event that the applicable project plans, as they are agreed to by the parties pursuant to Section 2.2, require additional personnel resources, the parties will revise the Development Team staffing commitments hereunder. The Development Team will develop the following types of internet-based solutions, but not limited to, with the objective of creating a Network Computing PPO/Managed Care capability: - - Claims Repricing - - Integrated Provider Management System - - Demand Management(Personal Health Management) - - Interfaces to internal and external systems (which are not "custom development") Phase 1 of the Development Work will consist of developing appropriate Project Plans and related design specifications and cost estimates to be approved by Management Committee. The work products of this phase will consist of: 1. An overall Project Plan; 2. Specific Project Plans and general specifications for Claims Repricing and Integrated Provider Management; and 3. General specifications for the Demand Management service and internet integration of the Demand Management service. Phase 1 is anticipated to take approximately sixty work days to complete with interim deliverables as tasks are completed and submitted to the Management Committee for approval. 14 EXHIBIT C THIRD-PARTY TECHNOLOGY AND SOFTWARE 15 EXHIBIT D FEES AND EXPENSES 1. FEES AND EXPENSE FOR SERVICES AND "CUSTOM DEVELOPMENT" WORK. [ * ] of the "costs" incurred by Healtheon which are associated with performing the Services and any "custom" development work performed on behalf of BSC. For the purposes of this Agreement, "Custom" development work shall mean any development work performed to meet BSC's own specifications which is not anticipated to be reusable for other Healtheon clients. 2. FEES AND EXPENSE FOR DEVELOPMENT WORK FOR THE DEVELOPED APPLICATIONS [ * ] of the "costs" incurred by Healtheon which are associated with developing the Developed Applications. 3. DEFINITION OF "COST." For the purposes of this Agreement "cost" shall be defined as follows: A. For employees/contractors assigned to perform the Services and/or Development Work on a full-time basis, "cost" will include direct expenses (such as salary, benefits, recruiting, consulting, travel, etc.), support expenses (rent, phone, computing, office expenses) and allocated expenses (such as management, administration, other overhead cost, etc.). The average hourly loaded cost per employee is currently approximately [ * ] per hour. B. For Healtheon's employees that are not assigned to perform the Services and/or Development Work on a full-time basis, they will charge their time performing or supporting the Services and/or Development Work based on a set rate, which is subject to change based on the cost structure of Healtheon. The initial rates are :- Level 1 [ * ] per hour Level 2 [ * ] per hour Level 3 [ * ] per hour C. For Healtheon's employees that are not generally assigned to perform the Services and/or Development Work on a regular basis, they will charge their time providing short term consulting services to this project based on a reduced standard consulting rate. The current rates, [ * ] are :- Level 1 [ * ] per hour Level 2 [ * ] per hour Level 3 [ * ] per hour Cost for additional capital equipment or computer processing needed to perform the Services or Development Work will be invoiced separately. [ * ] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 16 EX-10.19 29 EX-10.19 CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. SERVICES, DEVELOPMENT AND LICENSE AGREEMENT This Agreement made this 30th day of September, 1997 (the "Effective Date"), is by and between Healtheon Corporation, a Delaware corporation with offices at 87 Encina Ave., Palo Alto, CA 94301 ("Healtheon") and Brown & Toland Physician Services Organization, with offices at 1388 Sutter Street, Suite 400, San Francisco, CA 94109 ("B&T"). WHEREAS, the parties have agreed to form an alliance to address the information technology needs of B&T, develop new applications designed to address the needs of physician practice groups, and pursue other ventures which may be of mutual interest to the parties. The parties hereby agree as follows: 1. DEFINITIONS. 1.1 "ADDITIONAL APPLICATIONS" shall mean those applications which are developed by Healtheon, but excluding the Developed Applications, which are designed to run on the Healtheon Platform. 1.2 "BTH DIVISION" shall mean the division of Healtheon which shall be organized to perform the Services hereunder. 1.3 "B&T SERVICE" shall mean B&T's physician practice management services, including the practice management services listed on Exhibit A. 1.4 "DEVELOPED APPLICATIONS" shall mean those applications and any improvements thereto which are developed by Healtheon hereunder and which are designed to run on the Healtheon Platform. 1.5 "DEVELOPMENT WORK" shall mean the work to be performed hereunder by Healtheon to develop the Developed Applications. 1.6 "END USER" shall mean any employee, partner, agent or other representative of a Physician Group who is authorized to access and use the B&T Service. 1.7 "HEALTHEON PLATFORM" shall mean the Healtheon Platform Software, as well as certain industry standard software applications, tools, and processes which provides the operating environment which enables the use of Healtheon developed applications as part of an on-line service which is accessible through the Internet by using industry standard web browsers. 1.8 "HEALTHEON PLATFORM SOFTWARE" shall mean the proprietary operating system and other software which has been developed by Healtheon which is part of the operating system of the Healtheon Platform. 1.9 "PHYSICIAN GROUPS" shall mean those physician practice groups for which B&T provides the B&T Service. 1.10 "SERVICES" shall mean those information technology services described on Exhibit B. -1- 2. PERFORMANCE OF THE SERVICES AND THE DEVELOPMENT WORK 2.1 PERFORMANCE OF THE SERVICES. Healtheon, through personnel assigned to its BTH Division, shall perform the Services at certain sites controlled by B&T and/or Healtheon. The initial scope of the Services is set forth as Exhibit B. Exhibit B may be amended with the written consent of the parties. Healtheon shall perform the Services in accordance with the guidelines set forth in Exhibit B. 2.2 PERFORMANCE OF THE DEVELOPMENT WORK. Healtheon shall design, develop and complete the Developed Applications. The specifications for each Developed Application shall be developed jointly and mutually approved by the parties. In conjunction with the development of each set of specifications, the parties shall jointly develop a mutually agreeable detailed project plan. Such project plan shall describe, in a degree of detail reasonably satisfactory to the parties, all tasks and responsibilities required for the successful and timely completion of the development and delivery of the applicable Developed Applications. 3. PROJECT MANAGEMENT 3.1 PERSONNEL RESOURCES. Healtheon shall commit the number of qualified and experienced personnel which are necessary to perform its obligations under this Agreement and as further outlined in the project plan(s). Healtheon shall have the sole right and obligation to hire, supervise, manage, contract, direct, procure, perform or cause to be performed all work to be performed by Healtheon and its personnel hereunder. Healtheon may engage third parties to render services in connection with the performance of the Services and/or Development Work contemplated hereunder. 3.2 MANAGEMENT BOARD. The parties shall establish a project executive committee consisting of three (3) senior level employees from each party (the "Management Board"). The Management Board shall have overall project oversight responsibility and management, shall establish appropriate project leadership, and shall be responsible for resolving any matters arising under this Agreement and the Services and Development Work contemplated hereunder. 3.3 STATUS MEETINGS. The parties shall conduct status meetings on a monthly basis detailing the performance of the Services and Development Work during the period and the work planned to be performed during the upcoming four (4) week period. 3.4 CHANGES TO SERVICES, DEVELOPMENT WORK AND PROJECT PLAN. The scope of the Services, the Development Work and the project plans shall not be changed in any material respect without the mutual written agreement of the parties, which agreement shall not be unreasonably withheld. 4. OWNERSHIP AND LICENSE RIGHTS. 4.1 OWNERSHIP. B&T acknowledges and agrees that all of the work product produced or developed by Healtheon in connection with Healtheon's performance of the Services and/or Development Work to be provided hereunder, including, but not limited to, all technology of any nature whatsoever, all notes, records, drawings, designs, inventions, improvements, developments, discoveries, trade secrets and any copyrightable material, including but not limited, to the Developed Applications, and all patentable inventions, conceived, made or discovered by Healtheon, solely or in collaboration with others, during the period of this Agreement and which relate in any manner to the Services and/or Development Work to be performed hereunder or which Healtheon may be directed to undertake or investigate, or which Healtheon may become associated with in performing the Services and/or the -2- Development Work, including any derivative works of any of the foregoing (collectively the "Work Product"), is the sole property of Healtheon. Subject only to the license rights to be granted by Healtheon to B&T in Section 5.1, below, B&T acknowledges and agrees that Healtheon shall have all proprietary rights in and to the Work Product, including, without limitation, all copyrights, patents and trade secret rights, all moral rights, all contract and licensing rights, and all claims and causes of action of any kind with respect to any of the foregoing, whether now known or hereafter to become known, and that Healtheon shall have the sole and exclusive right to use, modify and exploit the Work Product in any manner that Healtheon may choose. 4.2 PROPRIETARY NOTICES. B&T shall not remove or alter any trademark, trade name, copyright, or other proprietary notices, legends, symbols, or labels appearing on or in materials pertaining to the Work Product. Each portion of the Healtheon documentation reproduced by B&T shall include the intellectual property notice or notices appearing in or on the corresponding portion of such materials as delivered by Healtheon hereunder. 5. LICENSE AND SERVICE RIGHTS. 5.1 LICENSE RIGHTS. Healtheon grants to B&T a nonexclusive and nontransferable, fully-paid, right and license, exercisable at B&T's operational site(s), to: (i) use the Developed Applications, in object code form, as part of B&T's physician practice management services which are offered to the Physician Groups; and (ii) use the Work Product (excluding the Developed Applications) delivered to B&T hereunder in conjunction with the operations of B&T's physician practice management services. B&T shall not use, sublicense or otherwise distribute the Work Product, including the Developed Applications, in any other manner except as expressly stated herein. Notwithstanding the foregoing, nothing herein shall be construed so as to limit or interfere with B&T's ability to use the Developed Applications as part of the B&T Service to be offered to Physician Groups, and to enable access and use by End Users in conjunction with the B&T Service. 5.2 OPTION TO LICENSE HEALTHEON PLATFORM SOFTWARE. Healtheon hereby agrees to grant to B&T a nonexclusive and nontransferable, right and license, exercisable at B&T's operational site(s), to use the Healtheon Platform Software as part of the Healtheon Platform to be deployed at B&T's primary operational site(s) to run the Developed Applications (and any Additional Applications which may be licensed from Healtheon), as part of the B&T Service to be offered to Physician Groups, and to enable access and use by End Users in conjunction with the B&T Service. The applicable one-time, up-front fees for such license(s) shall be [*] net of any third-party royalty obligations. B&T shall not have the right to use, sublicense or otherwise distribute the Healtheon Platform Software in any other manner except as expressly stated herein. Notwithstanding the foregoing, nothing herein shall be construed so as to limit or interfere with B&T's ability to use the Developed Applications (and any Additional Applications which may be licensed from Healtheon) as part of the B&T Service to be offered to Physician Groups, and to enable access and use by End Users in conjunction with the B&T Service. B&T shall be solely responsible for the costs associated with acquiring all third-party hardware and software and implementation services necessary to deploy the Healtheon Platform at B&T's sites. 5.3 OPTION TO LICENSE ADDITIONAL APPLICATIONS. Healtheon hereby agrees to grant to B&T a nonexclusive and nontransferable, right and license, exercisable at B&T's primary operational site(s), to use the Additional Applications as may be licensed at the option of B&T, as part of the B&T Service to be offered to Physician Groups, and to enable access to End Users in conjunction with the B&T Service. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -3- The one-time up-front fee(s) for such license(s) shall be [*] to each such Additional Application as may be licensed by B&T, net of any third-party royalty obligations. B&T shall not use, sublicense or otherwise distribute the Additional Applications in any other manner except as expressly stated herein. Notwithstanding the foregoing, nothing herein shall be construed so as to limit or interfere with B&T's ability to use the Additional Applications which may be licensed from Healtheon as part of the B&T Service to be offered to Physician Groups, and to enable access and use by End Users in conjunction with the B&T Service. 5.4 OPTION TO USE HEALTHEON SERVICE. If, following the completion of the Developed Applications, B&T does not elect to exercise its license rights under Section 5.1, Healtheon hereby agrees to enter into a Healtheon Service Agreement with B&T whereby Healtheon shall provide B&T and its Physician Groups with access to an on-line service which includes the Developed Applications. Healtheon shall offer such service to B&T and its Physician Groups at [*]. 6. THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS 6.1 THIRD-PARTY TECHNOLOGY AND LICENSE RIGHTS. In order to perform the Services and/or Development Work contemplated hereunder, Healtheon may need to have access to the third-party technology and software listed on Exhibit C (the "Third-Party Technology and Software") which is licensed and/or deployed by B&T. B&T hereby agrees to use its best efforts to obtain, at its own expense, all necessary consents, licenses and/or assignment which may be necessary in order for Healtheon to perform the Services and/or Development Work, as contemplated hereunder. In the event that B&T fails to obtain any such necessary consent, license or assignment, B&T shall promptly notify Healtheon in writing and the parties will work together to attempt to find a reasonable accommodation to allow Healtheon to proceed with the work contemplated hereunder without violating any third party rights. In the event that the parties cannot find a reasonable accommodation, neither party shall have any obligation to proceed with any work which would infringe any third-party proprietary rights. Healtheon shall use reasonable efforts to cooperate with B&T to assist B&T in obtain any necessary consents, licenses and/or assignments. 6.2 B&T TECHNOLOGY AND LICENSE RIGHTS. B&T hereby grants to Healtheon a right and license to use, modify and copy all technology and software owned by B&T which is necessary for Healtheon to perform its obligations hereunder. 7. FEES AND PAYMENT 7.1 FEES AND EXPENSES, PAYMENT. B&T shall pay Healtheon the Fees and Expenses, as set forth in Exhibit D for the Services and the Development Work to be performed hereunder (the "Fees"). Healtheon shall submit invoices to B&T on a monthly basis for the Fees when due. Invoices shall be due and payable within ten (10) days after receipt. The Fees may be changed with the written consent of the parties. 7.2 OTHER EXPENSES. Healtheon shall have sole responsibility for payment of compensation to its personnel and shall pay and report, for all personnel assigned to perform services hereunder, federal and state income tax withholding, social security taxes, and unemployment insurance applicable to such personnel. Healtheon shall bear sole responsibility for any health or disability insurance, retirement benefits, or other welfare or pension benefits (if any) to which its own personnel may be entitled. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -4- 7.3 THIRD-PARTY HARDWARE AND SOFTWARE. In the event that it is reasonably necessary for Healtheon to purchase or license any third-party hardware and/or software in order to perform the Services and/or the Development Work, the Management Board shall determine whether such third-party hardware and/or software should be purchased and/or licensed by B&T or Healtheon and how the cost shall be allocated between the parties. 7.4 TAXES. All Fees and payments are exclusive of all taxes, duties or levies, however designated or computed. B&T shall be responsible for and pay all taxes upon payments due under this Agreement including, but not limited to, sales, use, or value-added taxes, duties, withholding taxes and other assessments now or hereafter imposed on or in connection with this Agreement, exclusive of taxes based upon Healtheon's net income, except as noted in Section 7.2. 8. CONFIDENTIALITY 8.1 CONFIDENTIAL INFORMATION. The parties acknowledge that in the course of performing under this Agreement, each party may be exposed to or acquire information which is proprietary to or confidential to the other party, its suppliers or customers. Any and all such information of one party in any form obtained by the other party or its employees, agents, or representatives in the performance of this Agreement shall be deemed to be confidential and proprietary information of such party. The parties agree to hold such information in strict confidence, to only permit use of such information by its employees and agents having a need to know in connection with performance under this Agreement, and not to copy, reproduce, sell, assign, license, market, transfer, give or otherwise disclose the confidential information of the other party to third parties or to use such information for any purposes whatsoever, without the express written permission of the other party and to advise each of their employees, agents, and representatives of their obligations to keep such information confidential. All such confidential and proprietary information described herein in whatever form, including but not limited to the Work Product, is hereinafter collectively referred to as "Confidential Information." Work Product shall be deemed to be the Confidential Information of Healtheon. B&T hereby agrees that it will not disclose any Confidential Information of Healtheon to any person or entity who is not an employee of B&T, without Healtheon's prior written consent and subject to such third party entering into a confidentiality agreement with Healtheon in a form acceptable to Healtheon. 8.2 EXCEPTIONS TO CONFIDENTIAL INFORMATION. Notwithstanding the obligations set forth in Section 8.1 above, the confidentiality obligations of Healtheon and B&T shall not extend to information that (i) was, as of the time of its disclosure, or thereafter becomes part of the public domain through a source other than receiving party; (ii) the receiving party can demonstrate was known to the receiving party as of the time of its disclosure; (iii) the receiving party can demonstrate was independently developed by the receiving party without use of the Confidential Information; or (iv) the receiving party can demonstrate was subsequently learned from a third party not under a confidentiality obligation to the providing party. In the event that a receiving party is required to disclose certain Confidential Information of a disclosing party pursuant to court order or government authority, the receiving party shall provide reasonable notice to the disclosing party prior to such disclosure and shall cooperate with the disclosing party to obtain protection from such disclosure. 9. REPRESENTATIONS AND WARRANTIES 9.1 WARRANTIES FOR SERVICES AND THE DEVELOPMENT WORK. Healtheon hereby represents and warrants that (i) each person assigned to perform the Services and/or the Development Work shall have -5- the proper skill, training and background so as to be able to perform the such Services and/or Development Work in a competent and professional manner and (ii) all Services and/or Development Work and any work product and other materials or documentation delivered under this Agreement shall have been completed in a thorough and professional manner. In the event of a breach of Healtheon's representations and warranties under this Section 9.1, Healtheon's sole obligation shall be to promptly correct any defects identified by B&T, provided that B&T provides Healtheon with written notice within thirty (30) days of becoming aware of the defective work. 9.2 THIRD-PARTY TECHNOLOGY. B&T hereby represents and warrants that it will use its best effort to obtain all necessary consents, licenses and/or assignments with respect to the third-party technology software which is licensed and/or deployed by B&T and which are necessary in order for Healtheon to perform the Services and Development Work to be performed hereunder. In the event that B&T has failed to obtain any necessary consent, license or assignment, B&T shall have notified Healtheon in writing. 9.3 AUTHORITY. Healtheon and B&T each hereby represents and warrants to the other that it is duly organized and validly existing under the laws of the jurisdiction in which it is organized, in good standing therein, and has the power to enter into this Agreement and to perform its obligations hereunder and, furthermore, that the performance by it of its obligations under this Agreement has been duly authorized by all necessary corporate or other action and will not violate any provision of law or regulation or of any corporate charter or bylaws. 9.4 NO IMPLIED WARRANTIES. THE WARRANTIES STATED ABOVE IN THIS SECTION 9 ARE THE ONLY WARRANTIES MADE BY EITHER PARTY. HEALTHEON DOES NOT MAKE AND HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. B&T ACKNOWLEDGES THAT COMPLEX COMPUTER SOFTWARE AND SERVICES, SUCH AS THE DEVELOPED APPLICATIONS AND THE SERVICES, ARE RARELY FREE OF DEFECTS OR ERRORS AND HEALTHEON DOES NOT WARRANT THE SAME. 10. LIMITATION OF LIABILITY 10.1 EXCLUSION OF CERTAIN DAMAGES. [*] UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY SHALL EITHER PARTY HAVE ANY LIABILITY FOR LOSS OF PROFITS, CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 10.2 LIMITATION OF LIABILITY. [*] IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY FOR ANY MATTER ARISING OUT OF THE SUBJECT MATTER OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE, EXCEED THE AMOUNT OF THE FEES PAID FOR THE PARTICULAR SERVICES OR DEVELOPMENT WORK WHICH GAVE RISE TO SUCH CLAIM UNDER THIS AGREEMENT. The remedies provided herein are the parties' sole and exclusive remedies. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -6- 11. INDEMNIFICATION 11.1 INDEMNIFICATION. Healtheon agrees to hold harmless and defend B&T from and against any and all claims, actions, or proceedings, arising out of any actual or alleged infringement by Healtheon of any copyright or any U.S. patent, trademark, or trade secret right or other proprietary right, with respect to the Work Product, as delivered by Healtheon hereunder and used by B&T in accordance with the terms of this Agreement. B&T agrees to hold harmless and defend Healtheon from and against any and all claims, actions, or proceedings, arising out of any actual or alleged infringement by Healtheon of any copyright or any U.S. patent, trademark, or trade secret right or other proprietary right which arises out of B&T's failure to obtain any necessary consents, licenses, or assignments with respect to any third-party technology or software which has been licensed and/or deployed by B&T and which is necessary in order for Healtheon to perform its obligations hereunder ("B&T Third-Party Technology Rights"). 11.2 LIMITATIONS. Healtheon shall have no indemnity obligation for claims resulting from or alleged to result from (i) development work performed by Healtheon in compliance with B&T's specifications where Healtheon's method of compliance has been compelled by the terms of B&T's specifications; or (ii) B&T's use of the Work Product in combination with any hardware or software not furnished by or authorized by Healtheon hereunder, if such combination is the cause of such claim, or any modifications which have been made by B&T. In addition, Healtheon shall have no indemnity obligation for claims of infringement resulting or alleged to result from B&T's failure within a reasonable time frame to implement any replacement or modification which conforms to the requirements of Section 11.4 herein. B&T shall have no indemnity obligations for claims resulting from or alleged to result from Healtheon's breach of any B&T Third-Party Technology Rights where appropriate consents, licenses and/or assignments were obtained and Healtheon failed to adhere to the terms of applicable consents, licenses and/or assignments. 11.3 PAYMENT AND COOPERATION. Subject to the limitations set forth in Section 11.2 above, the Indemnifying Party shall pay all damages settlements, expenses, costs and reasonable attorney's fees, incurred by the Indemnified Party arising out of the matters set forth in Section 11.1 provided that such payment shall be contingent on: (i) prompt notice to the Indemnifying Party in writing of such claim to enable it to defend or mitigate the same; (ii) cooperation by the Indemnified Party with the Indemnifying Party in the defense and or settlement thereof, at the Indemnifying Party's expense; and (iii) allowing the Indemnifying Party to control the defense and all related settlement negotiations. 11.4 REMEDY. If, in the event of an infringement action pertaining to the Work Product and B&T's use of the Work Product is disrupted, Healtheon shall, at its option, (i) provide B&T with access to software which is functionally equivalent to the infringing elements of the Work Product, without additional charge; (ii) modify the infringing portions of the Work Product to avoid the infringement; or (iii) obtain a license for B&T to continue use of the Work Product for the term of this Agreement and pay for any additional fee required for such license, subject to B&T's approval, which shall not be unreasonably withheld. 11.5 LIMITATIONS. SECTION 11 SETS FORTH THE PARTIES' SOLE OBLIGATION, AND THE SOLE RECOURSE AGAINST THE OTHER PARTY IN THE EVENT OF ANY CLAIM OF INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. -7- 12. TERM AND TERMINATION 12.1. TERM. This Agreement shall continue for a fixed term of three (3) years from the date hereof unless terminated earlier under the provisions of this Section 12 or by the mutual written agreement of the parties. Notwithstanding the foregoing, the licenses granted in Section 5.1 shall continue for a term of [*] from the Effective Date and shall renew automatically for successive additional [*] terms unless terminated earlier pursuant to Section 12.3 or 12.4, or by the mutual written consent of the parties. 12.2 TERMINATION FOR CONVENIENCE. Either party may terminate this Agreement upon one hundred twenty days (120) prior written notice to the other for any reason. 12.3 TERMINATION BY EITHER PARTY FOR DEFAULT. If either party defaults in the performance of any material provision of this Agreement, then the non-defaulting party may give written notice to the defaulting party that if the default is not cured within thirty (30) days of such notice the Agreement will be terminated. If the non-defaulting party gives such notice and the default is not cured during the thirty (30) day period, then the Agreement shall automatically terminate at the end of that period. 12.4 INSOLVENCY. Either party may terminate this Agreement by written notice to the other, and may regard the defaulting party as in default of this Agreement, if the defaulting party becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits the appointment of a receiver for its business or assets, becomes subject to any proceeding under any bankruptcy or insolvency law whether domestic or foreign, or has wound up or liquidated, voluntarily or otherwise. 12.5 EFFECT OF TERMINATION. The provisions of Sections 7(with respect to Fees and other payments which were due and payable as of the date of termination), 4, 8, 10, 11, and 13 (to the extent applicable) shall survive the termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon termination of this Agreement. In the event of a termination, neither party shall be entitled to any refund of the fees paid or cost incurred for the development performed hereunder. Provided that this Agreement is not terminated pursuant to Section 12.4 pursuant to B&T's insolvency, upon termination, Healtheon shall deliver to B&T a copy of (i) each Developed Application which has been completed as of the date of termination, in object code form, and the related user documentation, and (ii) all portions of Developed Applications which were under development but not yet completed as of the date of termination, in object code form, and the related user documentation, if any. Materials delivered pursuant to Section 12.5(ii) shall be delivered on an "as-is" basis. 12.6 RETURN OF MATERIALS. Within thirty (30) days after the termination of this Agreement, each party shall return to the other, all Confidential Information, and other material of any kind which is the property of the other party. 13. GENERAL 13.1 NO EXCLUSIVITY OR RESTRICTION ON OTHER ACTIVITY. Except as expressly set forth in this Agreement, nothing herein shall preclude either party from entering into agreements to obtain similar services or development work from third parties or from providing similar services or development work to third parties. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -8- 13.2 RELATIONSHIP OF PARTIES. The relationship of the parties shall be that of independent contractors. Neither party will represent that it has any authority to assume or create any obligation, express or implied, on behalf of the other party, or to represent the other party as agent, employee, or in any other capacity, except as specifically provided herein. 13.3 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of the respective parties and their permitted successors and assigns. Neither party shall not transfer, assign, sublicense or subcontract any right or obligation hereunder, except as expressly provided herein. 13.4 NO WAIVER. Either party's failure to exercise any right under this Agreement shall not constitute a waiver of any other terms or conditions of this Agreement with respect to any other or subsequent breach, nor a waiver by such party of its right at any time thereafter to require exact and strict compliance with the terms of this Agreement. 13.5 NOTICES. All notices or other communications which are required or permitted to be given hereunder shall be in writing and shall be sent to the address of the recipient set forth below or such other address as the recipient may designate by notice given in accordance with the provisions of this Section with copies to: In the case of Healtheon: In the case of B&T: Healtheon Corporation Brown & Toland 87 Encina Avenue 1388 Sutter Street, Suite 400 Palo Alto, California 94302 San Francisco, CA 94109 Attn: President Attn: President Copy to: General Counsel Copy to: General Counsel Any such notice shall be delivered by either (i) first class registered or certified airmail, postage prepaid, and shall be deemed to have been served forty-eight (48) hours after posting; or (ii) express courier service, service fee prepaid, and shall be effective upon delivery. 13.6 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 13.7 SEVERABILITY. The invalidity of one or more phrases, sentences, clauses or articles contained in this Agreement shall not affect the remaining portions of this Agreement or any part thereof; and in the event that one or more phrases, sentences, clauses or articles shall be declared void or unenforceable this Agreement shall be amended to include only such portions of such phrases, sentences, clauses or articles that are not invalid, void or unenforceable. 13.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, along with the Exhibits attached hereto, sets forth the entire agreement between the parties and supersedes any other prior proposals, agreements and representations between them related to its subject matter, whether written or oral. No modifications or amendments to this Agreement shall be binding upon the parties unless made in writing and duly executed by authorized officials of both parties. -9- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first written above. Healtheon Corporation Brown & Toland Physician Services Organization By: /s/ By: /s/ --------------------------------- ------------------------------- Title: President and CEO Title: President ------------------------------ ---------------------------- Date: Date: ------------------------------ ---------------------------- -10- EXHIBIT A B&T SERVICE "B & T Services" shall mean B & T's physician practice, physician group practice, and IPA management services which include, but not be limited to, the following services: - - Claims processing, adjudication, eligibility, and encounter data - - Risk pool management - - Utilization management - - Authorization and referral management - - Care management including inpatient and outpatient case management - - Inpatient physician program management - - Disease management and wellness programs - - Provider credentialling - - Health plan member marketing - - Provider relations - - Health plan and provider contracting - - Quality management - - Practice management including office management, billing and collections - - Financial services including accounting, audit, budget, financial reporting, and taxes - - Medical group and IPA administration - - Capitation management - - Health Plan Member services which are offered to "Physician Groups. -11- EXHIBIT B SERVICES - - Operate, maintain and enhance B&T applications - - Operate and maintain B&T hardware and software infrastructure, network and desktop environment - - Provide technical support to internal and external B&T users - - Provide support for B&T new site implementations - project planning and management - solution design - installation of hardware and software - user technical support and training -12- EXHIBIT C Third-Party Technology and Software -13- EXHIBIT D FEES AND EXPENSES 1. Fee and Expenses for Services B&T will pay [*] of all "cost" (as defined below) incurred by Healtheon in performing the Services. 2. Fee and Expenses for Development Work B&T will pay [*] of all "cost" (as defined below) incurred by Healtheon in performing the Development Work. DEFINITION OF COST Cost will include Healtheon's "fully loaded" cost (which include payroll, benefit, support services, corporate overhead and other appropriate expenses) for all full time employees assigned to the BTH Division, and all direct expenses (consultants, contractors, recruiting expenses and fees, outside services, travel, etc.). For Healtheon's employees that are not assigned full time to the Division, they will charged their time performing or supporting the Services based on a set rate, which is subject to change based on the cost structure of Healtheon. The initial rates are:- Level 1 [*] per hour Level 2 [*] per hour Level 3 [*] per hour For Healtheon's employees that are not involved in this project, they will charge their time providing short term consulting services to this project or B&T based on [*]. The current rates are :- Level 1 [*] per hour Level 2 [*] per hour Level 3 [*] per hour Cost for additional capital equipment or computer processing needed to perform the Services or Development Work will be paid by B&T. [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -14- EX-10.20 30 EX-10.20 HEALTHEON CORPORATION SECURITIES PURCHASE AGREEMENT INITIAL CLOSING: JANUARY 26, 1996 SUBSEQUENT CLOSING: August 15, 1996 TABLE OF CONTENTS
Page ---- SECTION 1 - Authorization and Sale of Stock. . . . . . . . . . . . 1 1.1 Authorization . . . . . . . . . . . . . . . . . . . . . 1 1.2 Sale of Stock . . . . . . . . . . . . . . . . . . . . . 1 SECTION 2 - Closing Date; Delivery . . . . . . . . . . . . . . . . 1 2.1 Closing Date. . . . . . . . . . . . . . . . . . . . . . 1 2.2 Subsequent Closing. . . . . . . . . . . . . . . . . . . 2 2.3 Delivery. . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3 - Representations and Warranties of the Company. . . . . 2 3.1 Organization and Standing; Certificate and Bylaws . . . 2 3.2 Corporate Power . . . . . . . . . . . . . . . . . . . . 2 3.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 3 3.4 Capitalization. . . . . . . . . . . . . . . . . . . . . 3 3.5 Authorization . . . . . . . . . . . . . . . . . . . . . 3 3.6 Title to Properties and Assets; Liens, etc. . . . . . . 3 3.7 Financial Statements. . . . . . . . . . . . . . . . . . 4 3.8 Activities Since Balance Sheet Date . . . . . . . . . . 4 3.9 Tax Returns and Payments. . . . . . . . . . . . . . . . 5 3.10 Patents, Trademarks, etc. . . . . . . . . . . . . . . . 5 3.11 Material Contracts and Commitments. . . . . . . . . . . 5 3.12 Compliance with Other Instruments, None Burdensome, etc. . . . . . . . . . . . . . . . . . . . 6 3.13 Litigation, etc.. . . . . . . . . . . . . . . . . . . . 6 3.14 Employees . . . . . . . . . . . . . . . . . . . . . . . 6 3.15 Registration Rights . . . . . . . . . . . . . . . . . . 6 3.16 Governmental Consent, etc.. . . . . . . . . . . . . . . 6 3.17 Brokers or Finders. . . . . . . . . . . . . . . . . . . 7 3.18 Disclosures . . . . . . . . . . . . . . . . . . . . . . 7 3.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 4 - Representations and Warranties of the Investors. . . . 7 4.1 Authorization . . . . . . . . . . . . . . . . . . . . . 7 4.2 Purchase Entirely for Own Account . . . . . . . . . . . 7 4.3 Investment Experience . . . . . . . . . . . . . . . . . 8 4.4 Accredited Investor . . . . . . . . . . . . . . . . . . 8 4.5 No Public Market. . . . . . . . . . . . . . . . . . . . 8 4.6 Receipt of Information. . . . . . . . . . . . . . . . . 8 4.7 Restricted Securities . . . . . . . . . . . . . . . . . 8 4.8 Further Limitations on Disposition. . . . . . . . . . . 9
-i- TABLE OF CONTENTS (continued)
Page ---- 4.9 Legends . . . . . . . . . . . . . . . . . . . . . . . . 9 4.10 Government Consents . . . . . . . . . . . . . . . . . .10 SECTION 5 - Conditions to Closing of Investors . . . . . . . . . .10 5.1 Representations and Warranties Correct. . . . . . . . .10 5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . .10 5.3 Opinion of Company's Counsel. . . . . . . . . . . . . .10 5.4 Compliance Certificate. . . . . . . . . . . . . . . . .10 5.5 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . .10 5.6 Board of Directors. . . . . . . . . . . . . . . . . . .10 5.7 Restated Certificate. . . . . . . . . . . . . . . . . .11 5.8 No Material Adverse Change. . . . . . . . . . . . . . .11 5.9 Investors' Rights Agreement . . . . . . . . . . . . . .11 SECTION 6 - Conditions to Closing of Company . . . . . . . . . . .11 6.1 Representations . . . . . . . . . . . . . . . . . . . .11 6.2 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . .11 6.3 Restated Certificate. . . . . . . . . . . . . . . . . .11 SECTION 7 - Miscellaneous. . . . . . . . . . . . . . . . . . . . .11 7.1 Governing Law . . . . . . . . . . . . . . . . . . . . .11 7.2 Survival. . . . . . . . . . . . . . . . . . . . . . . .11 7.3 Successors and Assigns. . . . . . . . . . . . . . . . .11 7.4 Entire Agreement; Amendment . . . . . . . . . . . . . .12 7.5 Notices, etc. . . . . . . . . . . . . . . . . . . . . .12 7.6 Delays or Omissions . . . . . . . . . . . . . . . . . .12 7.7 California Corporate Securities Law . . . . . . . . . .12 7.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . .13 7.9 Counterparts. . . . . . . . . . . . . . . . . . . . . .13 7.10 Severability. . . . . . . . . . . . . . . . . . . . . .13 7.11 Gender. . . . . . . . . . . . . . . . . . . . . . . . .13
-ii- EXHIBITS A. Schedule of Investors B. Restated Certificate of Incorporation C. Exceptions to Representations and Warranties of the Company D. Amended and Restated Investors' Rights Agreement E. Form of Opinion of Wilson Sonsini Goodrich & Rosati HEALTHEON CORPORATION AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT This Amended and Restated Securities Purchase Agreement (the "Agreement") is made as of August 15, 1996, by and among Healtheon Corporation, a Delaware corporation (the "Company"), with its principal office at 87 Encina Avenue, Palo Alto, California 94301, and the persons and entities listed on the Schedule of Investors attached as Exhibit A hereto (the "Investors"). SECTION 1 AUTHORIZATION AND SALE OF STOCK 1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up to 1,000,000 shares of its Common Stock ("Common Stock") and up to 10,285,000 shares of its Series A Preferred Stock ("Series A Preferred"), each having the rights, restrictions, privileges and preferences as set forth in the Company's Restated Certificate of Incorporation in the form attached to this Agreement as Exhibit B (the "Restated Certificate"). 1.2 SALE OF STOCK. Subject to the terms and conditions hereof, the Company will issue and sell to the Investors, and the Investors will buy from the Company, the number of shares (the "Shares") of Common Stock and Series A Preferred specified opposite each Investor's name on the Schedule of Investors, at a cash purchase price of $0.05 per share and $0.50 per share, respectively. The Company's agreements with each of the Investors are separate agreements, and the sales of the Shares to each of the Investors are separate sales. SECTION 2 CLOSING DATE; DELIVERY 2.1 CLOSING DATE. The initial closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held at 3:00 p.m. on January 26, 1996 or on such later date or dates as the Company and the Investors may agree to (the date of such Closing being referred to as the "Closing Date"). The place of the Closing (including the place of delivery to the Investors by the Company of the certificates evidencing all shares of Common Stock and Series A Preferred being purchased and the place of payment to the Company by the Investors of the purchase price therefor) shall be at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050, or such other place as the Investors and the Company may mutually agree. The date of any closing of the transactions contemplated by this Agreement is sometimes also referred to herein as the "Closing Date." 2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion, provide for deferred closings hereunder (the "Subsequent Closings"), to be held at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, at such time and dates as the Company may determine (the date of such Subsequent Closing being referred to as the "Subsequent Closing Date"). The persons entitled to purchase shares of Series A Preferred pursuant to this Section 2.2 will be limited to those individuals and entities who, based on their reputations, experience and contacts within the Company's business, the Board of Directors unanimously believes can contribute to the success of the Company (the "Friends of the Company"). The Closing(s) for the Friends of the Company will take place as promptly as possible following the initial Closing hereunder. The number of shares of Series A Preferred which each such Friend of the Company shall be entitled to purchase, shall be determined within the sole discretion of the Company, but in no event shall the total number of shares of Series A Preferred sold pursuant to this Agreement be more than 10,285,000. Upon completion of each Subsequent Closing, if any, all additional purchasers of shares of Series A Preferred shall be considered "Investors" within the meaning of this Agreement. 2.3 DELIVERY. At the Closing and any Subsequent Closing, the Company will deliver to each Investor a certificate or certificates representing the number of Shares designated in column 2 of the Schedule of Investors to be purchased by each Investor, against payment of the purchase price therefor, by check or wire transfer payable to the Company, or by cancellation of outstanding indebtedness from the Company to such Investor, or by a combination thereof, in the amount specified in column 3 of the Schedule of Investors. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on Exhibit C attached hereto, the Company hereby represents and warrants to the Investors as follows: 3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not qualified to do business as a foreign corporation in any jurisdiction and such qualification is not presently required. 3.2 CORPORATE POWER. The Company will have at the Closing Date all requisite corporate power to execute and deliver this Agreement and the Amended and Restated Investors' Rights Agreement attached hereto as Exhibit D (the "Investors' Rights Agreement"), to sell and issue the -2- Shares hereunder, to issue the underlying Series A-1 Preferred Stock (the "Series A-1 Preferred") and Common Stock (together, the "Conversion Stock") in accordance with the provisions of the Restated Certificate, and to carry out and perform its obligations under the terms of this Agreement and the Investors' Rights Agreement. 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists of 23,000,000 shares of Common Stock, 1,000,300 shares of which are issued and outstanding prior to the Closing, and 11,000,000 shares of Series A Preferred, 10,000,000 shares of which are issued and outstanding prior to the Closing and 11,000,000 shares of Series A-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing. The Company has reserved (i) 10,285,000 shares of Series A Preferred for issuance hereunder, (ii) sufficient shares of Common Stock for issuance upon conversion of the Series A Preferred and/or Series A-1 Preferred, (iii) 10,285,000 shares of Series A-1 Preferred for issuance upon conversion of the Series A Preferred, (iv) 1,000,000 shares of Common Stock for issuance hereunder and (v) 9,000,000 shares of Common Stock for issuance to employees iv) 9,000,000 shares of Common Stock for issuance to employees and consultants pursuant to the Company's 1996 Stock Plan (of which 3,389,800 shares have been granted prior to the date hereof). The Series A Preferred and the Series A-1 Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of capital stock or other securities of the Company. Assuming the accuracy of each Investor's representations in Section 4 below, upon issuance, the Shares will have been issued in compliance with all federal and state securities laws. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement and the Investors' Rights Agreement by the Company, the authorization, sale, issuance and delivery of the Shares and the Conversion Stock and the performance of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement and the Investors' Rights Agreement, when executed and delivered by the Company, shall constitute the valid and binding obligations of the Company enforceable in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, and other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal and state securities laws. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable; the Series A-1 Preferred issuable upon conversion of the Series A Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable and the Common Stock issuable upon conversion of the Series A Preferred and/or the Series A-1 Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully -3- paid and nonassessable, and free of any liens or encumbrances (assuming the Investors take the Shares with no notice thereof) other than any liens or encumbrances created by or imposed upon the holders; provided, however, that the Shares and the Conversion Stock may be subject to restrictions on transfer under state or federal securities laws and restrictions set forth herein. 3.6 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and valid title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor its unaudited financial statements (balance sheet and income statement) at June 30, 1996 and for the period from inception through June 30, 1996 (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other, except that the Financial Statements may not contain all footnotes required by generally accepted principles and are subject to normal year end adjustments. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to June 30, 1996, which individually or in the aggregate are not material to the financial condition or operating results of the Company, and (ii) obligations not required under generally accepted accounting principles to be reflected in the Financial Statements. 3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance sheet dated June 30, 1996 there has not been: (a) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, or business of the Company; (b) any waiver by the Company of a valuable right or of a material debt owed to it; (c) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement; (d) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances or other advances made in the ordinary course of business; -4- (e) any declaration, setting aside of payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any such stock by the Company; (f) any incurrance of indebtedness for money borrowed individually in excess of $50,000 or in excess of $100,000 in the aggregate; (g) any material change in any compensation arrangement or agreement with any employee; (h) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (i) any resignation or termination of employment of any key officer of the Company; and (j) to the Company's knowledge, any other event or condition or any character which would be reasonably likely to materially and adversely affect the assets, properties, financial condition, operating results or business of the Company; 3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns and reports when and as required by law and has never been audited by any state or federal taxing authority. All tax returns and reports of the Company, if applicable, are true and correct in all material respects. 3.10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or prior to the Closing will own or have the right, to use, free and clear of all liens, charges, claims and restrictions, all patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to its business as now conducted, and is not, to the best of its knowledge, infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any written communications alleging that the Company has violated or, by conducting its business as proposed, would violate any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument -5- under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to the best knowledge of the Company, any third party is in default under any material contract, agreement or instrument to which the Company is a party. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company is not in violation of any term of the Restated Certificate of Incorporation or Bylaws, or in any material respect of any term or provision of any material mortgage, indenture, contract, agreement or instrument to which it is a party or by which it is bound, and to the best of its knowledge, is not in violation of any order, statute, rule or regulation applicable to the Company, which violation reasonably would be expected to have a material adverse effect on the Company's business or financial condition. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Shares and the Conversion Stock, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, or result in the creation of, any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION, ETC. There are no actions, suits, proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any written threat thereof), which, either in any case or in the aggregate, reasonably would be expected to result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted, and none which questions the validity of this Agreement or the Investors' Rights Agreement or any action taken or to be taken in connection herewith. The Company is not a party to, or to the best of its knowledge named in any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. The Company does not have any collective bargaining agreements covering any of its employees. 3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights Agreement, the Company is not currently under any obligation to register under the Securities Act of 1933, as amended (the "Act") any of its presently outstanding securities or any of its securities which may hereafter be issued. -6- 3.16 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of, or designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement, or the offer, sale or issuance of the Shares and the Conversion Stock, or the consummation of any other transaction contemplated hereby, except (a) filing of the Restated Certificate in the office of the Secretary of State of the State of Delaware, and (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Shares and the Conversion Stock under the California Corporate Securities Law and other applicable Blue Sky laws, which filing and qualification, if required, will be accomplished in a timely manner prior to or promptly upon completion of the Closing. 3.17 BROKERS OR FINDERS. The Company has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.18 DISCLOSURES. No representation, warranty or statement by the Company in this Agreement, or in any written statement or certificate furnished to the Investors pursuant to this Agreement, contains any untrue statement of a material fact or, when taken together, omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, not misleading. However, as to any projections furnished to the Investors, such projections were prepared in good faith by the Company, but the Company makes no representation or warranty that it will be able to achieve such projections. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Shares. 3.19 PERMITS. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties or financial condition of the Company, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company with respect to its purchase of the Shares as follows: 4.1 AUTHORIZATION. Each of this Agreement and the Investors' Right Agreement, when executed and delivered by the Investor, will constitute the Investor's valid and legally binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement -7- of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Common Stock or Series A Preferred to be received by the Investor and the Common Stock and Series A-1 Preferred issuable upon conversion of the Series A Preferred (collectively, the "Securities") will be acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Investor represents that it has the full power and authority to enter into this Agreement. 4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Common Stock or Series A Preferred. If other than an individual, the Investor also represents it has not been organized solely for the purpose of acquiring the Common Stock or Series A Preferred, or if the Investor has been organized solely for the purpose of acquiring the Common Stock or Series A Preferred, that all of the equity owners of the Investor are "accredited investors" as defined below. 4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 4.5 NO PUBLIC MARKET. Each Investor understands that no public market now exists for any of the securities issued by the Company and that it is unlikely that a public market will ever exist for the Shares. 4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed this Agreement and all Exhibits thereto; it, its attorney and its accountant have had access to, and an opportunity to review all documents and other materials requested of, the Company; it and they have been given an opportunity to ask any and all questions of, and receive answers from, the Company concerning the terms and conditions of the offering and to obtain all information it or they believe necessary or appropriate to evaluate the suitability of an investment in the Common Stock or Series A Preferred; and, in evaluating the suitability of an investment in the Common Stock or Series A Preferred, it and they have not relied upon any representations or other information (whether oral or written) other than as set forth in the documents and answers referred to above. -8- 4.7 RESTRICTED SECURITIES. The Investor understands that the Securities 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 Act only in certain limited circumstances. In addition, the Investor represents that it is familiar with Rule 144 promulgated under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities unless: (a) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; (b) The Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and if requested by the Company, the Investor shall have furnished the Company with either (i) an unqualified written opinion of counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel to the effect that the proposed transfer may be effected without registration under the Act or (ii) a "No Action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Securities shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; or (c) The Investor shall have sold, assigned, transferred, pledged or otherwise disposed of the Securities in a transaction involving the distribution without consideration of the Securities by the Investor to any of its partners or retired partners, or to the estate of any of its partners or retired partners, or in a transaction involving the transfer or distribution of the Securities by a corporation to any subsidiary, parent or affiliated corporation of such corporation; provided in each case that the Investor shall give written notice to the Company of such Investor's intention to effect such transfer, sale, assignment, pledge or other disposition. The Investor will cause any such proposed purchaser, assignee, transferee or pledgee of any Securities held by the Investor to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Agreement. 4.9 LEGENDS. It is understood that the certificates evidencing the Securities may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR -9- SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT." (b) Any legend required by the laws of the State of Delaware or the State of California, including any legend required by the California Department of Corporations. 4.10 GOVERNMENT CONSENTS. Other than securities law filings required to be made by the Company, no consent, approval or authorization of or designation, declaration or filing with any state, federal or foreign governmental authority on the part of the Investor is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby. SECTION 5 CONDITIONS TO CLOSING OF INVESTORS The Investors' obligations to purchase the Shares at the Closing or at any Subsequent Closing are, at the option of each Investor, subject to the fulfillment on or prior to the Closing Date or at any Subsequent Closing Date of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date, or the Subsequent Closing Date, as the case may be, with the same force and effect as if they had been made on and as of said date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date or the Subsequent Closing Date, as the case may be, shall have been performed or complied with in all material respects. 5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to the Company, an opinion addressed to them, dated the Closing Date or the Subsequent Closing Date, as the case may be, in substantially the form attached hereto as Exhibit E. 5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the Investors a certificate executed by the President of the Company, dated the Closing Date or the Subsequent Closing Date, as the case may be, and certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.8 of this Agreement, and that he has made, or caused to be made, such investigations as he deemed necessary in order to permit him to verify the accuracy of the information set forth in such certificate. -10- 5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 5.6 BOARD OF DIRECTORS. On or before the Closing, the Bylaws of the Company shall provide for a flexible number of directors from three to five and fixing the current number of directors at four. The Board of Directors shall at the Closing consist of Jim Clark, Brook Byers, Hugh Reinhoff and David Schnell. 5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. 5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the Company's business or financial condition. 5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall have entered into the Investors' Rights Agreement in substantially the form attached hereto as Exhibit D. SECTION 6 CONDITIONS TO CLOSING OF COMPANY The Company's obligation to sell and issue the Shares at the Closing or at any Subsequent Closing, is at the option of the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Investors in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date or the Subsequent Closing Date, as the case may be. 6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. SECTION 7 MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California, without giving effect to the conflicts of laws principles thereof. -11- 7.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Investor and the closing of the transactions contemplated hereby. 7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto, provided, however, that the rights of a Investor to purchase Shares shall not be assignable without the written consent of the Company. 7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought; provided, however, that holders of a majority of the shares of Common Stock issued or issuable upon conversion of the Shares and/or the Series A-1 Preferred and (whether or not converted) not resold to the public may waive or amend, on behalf of all Investors, any provisions hereof benefiting Investors in respect of the Shares. 7.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon delivery to the party to be notified in person or by courier service or five days after deposit with the United States mail, by registered or certified mail, postage prepaid, addressed (a) if to a Investor, at such Investor's address set forth in Exhibit A, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Investors. 7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. -12- 7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE. 7.8 EXPENSES. The Company and the Investors shall each bear their own expenses and legal fees with respect to this Agreement and the transactions contemplated hereby except that, assuming a successful completion of the offering the Company will pay at the initial Closing the reasonable legal fees and reasonable expenses upon receipt of a bill therefor, incurred by one counsel to the Investors. 7.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.10 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.11 GENDER. The use of the neuter gender herein shall be deemed to include the masculine and the feminine gender, if the context so requires. -13- The foregoing Amended and Restated Securities Purchase Agreement is hereby executed as of the date first above written. COMPANY: HEALTHEON CORPORATION By: /s/ David Schnell, M.D. -------------------------------------------- David Schnell, M.D., President Address: 87 Encina Avenue Palo Alto, CA 94301 -14- HEALTHEON CORPORATION SIGNATURE PAGE TO AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT The undersigned hereby executes and delivers the Amended and Restated Securities Purchase Agreement (the "Agreement") to which this Signature Page is attached effective as of the date of the Agreement, which Agreement and Signature Page, together with all counterparts of said Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of said Agreement. -------------------------------------------- Name of Stockholder By: ----------------------------------------- Print Name: --------------------------------- Title: -------------------------------------- EX-10.21 31 EX-10.21 HEALTHEON CORPORATION AMENDED AND RESTATED SERIES B PREFERRED STOCK PURCHASE AGREEMENT OCTOBER 31, 1996 TABLE OF CONTENTS
Page ---- SECTION 1 - Authorization and Sale of Stock.................................. 1 1.1 Authorization........................................................... 1 1.2 Sale of Stock........................................................... 1 SECTION 2 - Closing Date; Delivery........................................... 1 2.1 Closing Date............................................................ 1 2.2 Subsequent Closing...................................................... 1 2.3 Delivery................................................................ 2 SECTION 3 - Representations and Warranties of the Company.................... 2 3.1 Organization and Standing; Certificate and Bylaws....................... 2 3.2 Corporate Power......................................................... 2 3.3 Subsidiaries............................................................ 2 3.4 Capitalization.......................................................... 2 3.5 Authorization........................................................... 3 3.6 Title to Properties and Assets; Liens, etc.............................. 3 3.7 Financial Statements.................................................... 4 3.8 Activities Since Balance Sheet Date..................................... 4 3.9 Tax Returns and Payments................................................ 5 3.10 Patents, Trademarks, etc............................................... 5 3.11 Material Contracts and Commitments..................................... 5 3.12 Compliance with Other Instruments, None Burdensome, etc................ 5 3.13 Litigation, etc........................................................ 6 3.14 Employees.............................................................. 6 3.15 Registration Rights.................................................... 6 3.16 Governmental Consent, etc.............................................. 6 3.17 Brokers or Finders..................................................... 7 3.18 Disclosures............................................................ 7 3.19 Permits................................................................ 7 SECTION 4 - Representations and Warranties of the Investors.................. 7 4.1 Authorization........................................................... 7 4.2 Purchase Entirely for Own Account....................................... 7 4.3 Investment Experience................................................... 8 4.4 Accredited Investor..................................................... 8
-i- 4.5 No Public Market........................................................ 8 4.6 Receipt of Information.................................................. 8 4.7 Restricted Securities................................................... 8 4.8 Further Limitations on Disposition...................................... 8 4.9 Legends................................................................. 9 4.10 Government Consents.................................................... 9 4.11 Waiver of Right of First Refusal...................................... 10 SECTION 5 - Conditions to Closing of Investors.............................. 10 5.1 Representations and Warranties Correct................................. 10 5.2 Covenants.............................................................. 10 5.3 Opinion of Company's Counsel........................................... 10 5.4 Compliance Certificate................................................. 10 5.5 Blue Sky............................................................... 10 5.6 Board of Directors..................................................... 10 5.7 Restated Certificate................................................... 10 5.8 No Material Adverse Change............................................. 11 5.9 Investors' Rights Agreement............................................ 11 SECTION 6 - Conditions to Closing of Company................................ 11 6.1 Representations........................................................ 11 6.2 Blue Sky............................................................... 11 6.3 Restated Certificate................................................... 11 SECTION 7 - Miscellaneous................................................... 11 7.1 Governing Law.......................................................... 11 7.2 Survival............................................................... 11 7.3 Successors and Assigns................................................. 11 7.4 Entire Agreement; Amendment............................................ 11 7.5 Notices, etc........................................................... 12 7.6 Delays or Omissions.................................................... 12 7.7 California Corporate Securities Law.................................... 12 7.8 Expenses............................................................... 12 7.9 Counterparts........................................................... 13 7.10 Severability.......................................................... 13 7.11 Gender................................................................ 13
-ii- EXHIBITS A. Schedule of Investors B. Restated Certificate of Incorporation C. Form of Warrant D. Exceptions to Representations and Warranties of the Company E. Second Amended and Restated Investors' Rights Agreement F. Form of Opinion of Wilson Sonsini Goodrich & Rosati -iii- HEALTHEON CORPORATION AMENDED AND RESTATED SERIES B PREFERRED STOCK PURCHASE AGREEMENT This Amended and Restated Series B Preferred Stock Purchase Agreement (the "Agreement") is made as of October 31, 1996, by and among Healtheon Corporation, a Delaware corporation (the "Company"), with its principal office at 87 Encina Avenue, Palo Alto, California 94301, and the persons and entities listed on the Schedule of Investors attached as Exhibit A hereto (the "Investors"). This Agreement amends and restates, in its entirety, the Series B Preferred Stock Purchase Agreement dated as of October 1, 1996. SECTION I AUTHORIZATION AND SALE OF STOCK AND ISSUANCE OF THE WARRANTS 1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up to an aggregate of five million (5,000,000) shares of its Series B Preferred Stock (the "Series B Preferred"), having the rights, restrictions, privileges and preferences as set forth in the Company's Restated Certificate of Incorporation in the form attached to this Agreement as Exhibit B (the "Restated Certificate'). 1.2 SALE OF STOCK AND ISSUANCE OF WARRANTS. Subject to the terms and conditions hereof, the Company will issue and sell to the Investors, and the Investors will buy from the Company, the number of shares (the "Shares") of Series B Preferred specified opposite each Investor's name on the Schedule of Investors, at a cash purchase price of two dollars ($2.00) per share and the Company will issue warrants, in the form attached hereto as Exhibit C, with respect to the number of shares of Series B Preferred specified opposite the applicable Investors' names on the Schedule of Investors (the "Warrants"). The Company's agreements with each of the Investors are separate agreements, and the sales of the Shares, and the issuance of the warrant, if applicable, to each of the Investors are separate sales and issuances. SECTION 2 CLOSING DATE, DELIVERY 2.1 CLOSING DATE. The initial closing of the purchase and sale of an aggregate of one million eight hundred seventy five thousand (1,875,000) of the Shares hereunder was held at 1:00 p.m. on October 1, 1996 (the "First Closing"). The subsequent closing and the issuance of the Warrants hereunder shall be held on October 31, 1996 or on such later date or dates as the Company and the affected Investors may agree to (the "Second Closing"). The date of each such Closing being referred to as a "Closing Date". The place of the Closing (including the place of delivery to the Investors by the Company of the certificates evidencing all shares Series B Preferred being purchased and the Warrants being issued and the place of payment to the Company by the Investors of the purchase price therefor) shall be at the offices of the Company located at 87 Encina Avenue, Palo Alto, California 94301, or such other place as the Investors and the Company may mutually agree. 2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion, provide for deferred closings hereunder (a "Subsequent Closing"), to be held at the offices of the Company, at such time and dates as the Company may determine (the date of any such Subsequent Closing being referred to as a "Subsequent Closing Date"). Any Subsequent Closing(s) will take place as promptly as possible following the initial Closing hereunder. The number of shares of Series B Preferred which any Subsequent Investor shall be entitled to purchase, shall be determined within the sole discretion of the Company, but in no event shall the total number of shares of Series B Preferred sold pursuant to this Agreement and/or subject to the Warrants or any other purchase rights be more than an aggregate of five million (5,000,000) shares. Upon completion of any Subsequent Closing, if any, all additional purchasers of shares of Series B Preferred shall be considered "Investors" within the meaning of this Agreement. 2.3 DELIVERY. At each Closing the Company will deliver to each Investor a certificate or certificates representing the applicable number of Shares, as designated in column 2 of the Schedule of Investors to be purchased by such Investor at such Closing, against payment of the purchase price therefor, by check or wire transfer payable to the Company, or by cancellation of outstanding indebtedness from the Company to such Investor, or by a combination thereof, in the amount specified in column 3 of the Schedule of Investors and at the Second Closing the Company shall issue the Warrants as set forth in the Schedule of Investors. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on Exhibit D attached hereto, the Company hereby represents and warrants to the Investors as follows: 3.1 ORGANIZATION AND STANDING: CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not qualified to do business as a foreign corporation in any jurisdiction and such qualification is not presently required. 3.2 CORPORATE POWER. The Company will have at the Closing Date all requisite corporate power to execute and deliver this Agreement and the Second Amended and Restated Investors' Rights Agreement attached hereto as Exhibit E (the "Investors' Rights Agreement"), to sell and issue the Shares hereunder, to issue the underlying Series B-1 Preferred Stock (the "Series B-1 2 Preferred") and Common Stock (together, the "Conversion Stock") in accordance with the provisions of the Restated Certificate, and to carry out and perform its obligations under the terms of this Agreement and the Investors' Rights Agreement. 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists of 28,000,000 shares of Common Stock, 2,230,834 shares of which are issued and outstanding prior to the Closing, 10,305,000 shares of Series A Preferred, 10,285,000 shares of which are issued and outstanding prior to the Closing and 10,305,000 shares of Series A-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing, and 5,000,000 shares of Series B Preferred 1,875,000 of which were issued in the First Closing and are outstanding as of the date hereof, and 5,000,000 shares of Series B-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing. The Company has reserved (i) an aggregate of 5,000,000 shares of Series B Preferred for issuance hereunder and/or for issuance pursuant to the exercise of the Warrants which may be issued hereunder, (ii) sufficient shares of Common Stock for issuance upon conversion of the Series B Preferred and/or Series B-1 Preferred, (iii) 5,000,000 shares of Series B-1 Preferred for issuance upon conversion of the Series B Preferred, (iv) 10,285,000 shares of Series A-1 Preferred for issuance upon conversion of the Series A Preferred, (v) sufficient shares of Common Stock for issuance upon conversion of the Series A Preferred and/or Series A-1 Preferred and (vi) 9,000,000 shares of Common Stock for issuance to employees and consultants pursuant to the Company's 1996 Stock Plan (of which 4,268,934 shares have been issued and/or option granted with respect thereto, prior to the date hereof). The Series B Preferred and the Series B-1 Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorization but unissued shares of capital stock or other securities of the Company. Assuming the accuracy of each Investor's representations in Section 4 below, upon issuance, the Shares will have been issued in compliance with all federal and state securities laws. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement and the Investors' Rights Agreement by the Company, the authorization, sale, issuance and delivery of the Shares and the Conversion Stock and the performance of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement and the Investors' Rights Agreement, when executed and delivered by the Company, shall constitute the valid and binding obligations of the Company enforceable in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, and other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal and state securities laws. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable; the Series B-1 Preferred issuable upon conversion of the Series B Preferred has been 3 duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable and the Common Stock issuable upon conversion of the Series B Preferred and/or the Series B-1 Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable, and free of any liens or encumbrances (assuming the Investors take the Shares with no notice thereof) other than any liens or encumbrances created by or imposed upon the holders; provided, however, that the Shares and the Conversion Stock may be subject to restrictions on transfer under state or federal securities laws and restrictions set forth herein. 3.6 TITLE TO PROPERTIES AND ASSETS, LIENS, ETC. The Company has good and valid title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor its unaudited financial statements (balance sheet and income statement) at July 31, 1996 and for the period from inception through July 31, 1996 (the "Financial Statement"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other, except that the Financial Statements may not contain all footnotes required by generally accepted principles and are subject to normal year end adjustments. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to July 31, 1996, which individually or in the aggregate are not material to the financial condition or operating results of the Company, and (ii) obligations not required under generally accepted accounting principles to be reflected in the Financial Statements. 3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance sheet dated July 31, 1996 there has not been: (a) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, or business of the Company; (b) any waiver by the Company of a valuable right or of a material debt owed to it; (c) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement; 4 (d) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances or other advances made in the ordinary course of business; (e) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any such stock by the Company; (f) any incurrence of indebtedness for money borrowed individually in excess of $50,000 or in excess of $100,000 in the aggregate; (g) any material change in any compensation arrangement or agreement with any employee; (h) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (i) any resignation or termination of employment of any key officer of the Company; and (j) to the Company's knowledge, any other event or condition or any character which would be reasonably likely to materially and adversely affect the assets, properties, financial condition, operating results or business of the Company; 3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns and reports when and as required by law and has never been audited by any state or federal taxing authority. All tax and reports of the Company, if applicable, are true and correct in all material respects. 3. 10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or prior to the Closing will own or have the right, to use, free and clear of all liens, charges, claims and restrictions, all patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to its business as now conducted, and is not, to the best of its knowledge, infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any written communications alleging that the Company has violated or, by conducting its business as proposed, would violate any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying 5 on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to the best knowledge of the Company, any third party is in default under any material contract, agreement or instrument to which the Company is a party. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company is not in violation of any term of the Restated Certificate of Incorporation or Bylaws, or in any material respect of any term or provision of any material mortgage, indenture, contact, agreement or instrument to which it is a party or by which it is bound, and to the best of its knowledge, is not in violation of any order, statute, rule or regulation applicable to the Company, which violation reasonably would be expected to have a material adverse effect on the Company's business or financial condition. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Shares and the Conversion Stock, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, or result in the creation of, any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION, ETC. There are no actions, suits, proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any written threat thereof), which, either in any case or in the aggregate, reasonably would be expected to result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted, and none which questions the validity of this Agreement or the Investors' Rights Agreement or any action taken or to be taken in connection herewith. The Company is not a party to, or to the best of its knowledge named in any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. The Company does not have any collective bargaining agreements covering any of its employees. 3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights Agreement, the Company is not currently under any obligation to register under the Securities Act of 1933, as amended (the "Act) any of its presently outstanding securities or any of its securities which may hereafter be issued. 6 3.16 GOVERNMENTAL CONSENT ETC. No consent, approval or authorization of, or designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement, or the offer, sale or issuance of the Shares and the Conversion Stock, or the consummation of any other transaction contemplated hereby, except (a) filing of the Restated Certificate in the office of the Secretary of State of the State of Delaware, and (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Shares and the Conversion Stock under the California Corporate Securities Law and other applicable Blue Sky laws, which filing and qualification, if required, will be accomplished in a timely manner prior to or promptly upon completion of the Closing. 3.17 BROKERS OR FINDERS. The Company has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.18 DISCLOSURES. No representation, warranty or statement by the Company in this Agreement, or in any written statement or certificate furnished to the Investors pursuant to this Agreement, contains any untrue statement of a material fact or, when taken together, omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, not misleading. However, as to any projections furnished to the Investors, such projections were prepared in good faith by the Company, but the Company makes no representation or warranty that it will be able to achieve such projections. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Shares. 3.19 PERMITS. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties or financial condition of the Company, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company with respect to its purchase of the Shares as follows: 4.1 AUTHORIZATION. This Agreement and the Investors' Right Agreement, when executed and delivered by the Investor, will each constitute the Investor's valid and legally binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific 7 performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Common Stock or Series B Preferred to be received by the Investor and the Common Stock and Series B-1 Preferred issuable upon conversion of the Series B Preferred (collectively, the "Securities') will be acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Investor represents that it has the full power and authority to enter into this Agreement. 4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Common Stock or Series B Preferred. If other than an individual, the Investor also represents it has not been organized solely for the purpose of acquiring the Common Stock or Series B Preferred or if the Investor has been organized solely for the purpose of acquiring the Common Stock or Series B Preferred that all of the equity owners of the Investor are "accredited investors" as defined below. 4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 4.5 NO PUBLIC MARKET. Each Investor understands that no public market now exists for any of the securities issued by the Company and that it is unlikely that a public market will ever exist for the Shares. 4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed this Agreement and all Exhibits thereto; it, its attorney and its accountant have had access to, and an opportunity to review all documents and other materials requested of, the Company; it and they have been given an opportunity to ask any and all questions of, and receive answers from, the Company concerning the terms and conditions of the offering and to obtain all information it or they believe necessary or appropriate to evaluate the suitability of an investment in the Common Stock or Series B Preferred; and, in evaluating the suitability of an investment in the Common Stock or Series B Preferred, it and they have not relied upon any representations or other information (whether oral or written) other than as set forth in the documents and answers referred to above. 4.7 RESTRICTED SECURITIES. The Investor understands that the Securities 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 Act only in certain limited circumstances. In addition, the Investor represents that it is familiar with Rule 144 promulgated under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities unless: (a) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; (b) The Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and if requested by the Company, the Investor shall have furnished the Company with either (i) an unqualified written opinion of counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel to the effect that the proposed transfer may be effected without registration under the Act or (ii) a "No Action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Securities shall be entitled to offer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; or (c) The Investor shall have sold, assigned, transferred, pledged or otherwise disposed of the Securities in a transaction involving the distribution without consideration of the Securities by the Investor to any of its partners or retired partners, or to the estate of any of its partners or retired partners, or in a transaction involving the offer or distribution of the Securities by a corporation to any subsidiary, parent or affiliated corporation of such corporation; provided in each case that the Investor shall give written notice to the Company of such Investor's intention to effect such transfer, sale, assignment, pledge or other disposition. The Investor will cause any such proposed purchaser, assignee, transferee or pledgee of any Securities held by the Investor to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Agreement. 4.9 LEGENDS. It is understood that the certificates evidencing the Securities may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT." 9 (b) Any legend required by the laws of the State of Delaware or the State of California, including any legend required by the California Department of Corporations. 4.10 GOVERNMENT CONSENTS. Other than securities law filings required to be made by the Company, no consent, approval or authorization of or designation, declaration or filing with any state, federal or foreign governmental authority on the part of the Investor is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby. 4.11 WAIVER OF RIGHT OF FIRST REFUSAL. Each Investor hereby waives all rights which it may have had under Section 2.5 of the Amended and Restated Investors' Rights Agreement, including notice rights, with respect to the sale of the Series B Preferred Stock and the issuance of the Warrants with respect thereto, hereunder. SECTION 5 CONDITIONS TO CLOSING OF INVESTORS The Investors' obligations to purchase the Shares at the Closing or at any Subsequent Closing are, at the option of each Investor, subject to the fulfillment on or prior to the Closing Date or at any Subsequent Closing Date of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date, or the Subsequent Closing Date, as the case may be, with the same force and effect as if they had been made on and as of said date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date or the Subsequent Closing Date, as the case may be, shall have been performed or compiled with in all material respects. 5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to the Company, an opinion addressed to them, dated the Closing Date or the Subsequent Closing Date, as the case may be, in substantially the form attached hereto as Exhibit F. 5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the Investors a certificate executed by the President of the Company, dated the Closing Date or the Subsequent Closing Date, as the case may be, and certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.8 of this Agreement, and that he has made, or caused to be made, such investigations as he deemed necessary in order to permit him to verify the accuracy of the information set forth in such certificate. 10 5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 5.6 BOARD OF DIRECTORS. The Board of Directors shall at the Closing consist of Jim Clark, Brook Byers, Hugh Reinhoff, Jr., M.D. and David Schnell, M.D. 5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. 5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the Company's business or financial condition. 5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall have entered into the Investors' Rights Agreement in substantially the form attached hereto as Exhibit E. SECTION 6 CONDITIONS TO CLOSING OF COMPANY The Company's obligation to sell and issue the Shares at the Closing or at any Subsequent Closing, is at the option of the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Investors in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date or the Subsequent Closing Date, as the case may be. 6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. SECTION 7 MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California, without giving effect to the conflicts of laws principles thereof. 7.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Investor and the closing of the transactions contemplated hereby. 11 7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto, provided, however, that the rights of a Investor to purchase Shares shall not be assignable without the written consent of the Company. 7.4 ENTIRE AGREEMENT, AMENDMENT. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought; provided, however, that holders of a majority of the shares of Common Stock issued or issuable upon conversion of the Shares and/or the Series B-1 Preferred and (whether or not converted) not resold to the public may waive or amend, on behalf of all Investors, any provisions hereof benefiting Investors in respect of the Shares. 7.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon delivery to the party to be notified in person or by courier service or five days after deposit with the United States mail, by registered or certified mail, postage prepaid, addressed (a) if to a Investor, at such Investor's address set forth in Exhibit A, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Investors. 7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS 12 OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE. 7.8 EXPENSES. The Company and the Investors shall each bear their own expenses and legal fees with respect to this Agreement and the transactions contemplated hereby except that, assuming a successful completion of the offering the Company will pay at the initial Closing the reasonable legal fees and reasonable expenses upon receipt of a bill therefor, incurred by one counsel to the Investors. 7.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.10 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.11 GENDER. The use of the neuter gender herein shall be deemed to include the masculine and the feminine gender, if the context so requires. The foregoing Amended and Restated Series B Preferred Stock Purchase Agreement is hereby executed as of the date first above written. COMPANY: HEALTHEON CORPORATION By: /s/ David Schnell, M.D. ------------------------------ David Schnell, M.D., President Address: 87 Encina Avenue Palo Alto, CA 94301 13 EX-10.22 32 EX-10.22 EXHIBIT 10.22 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT. HEALTHEON CORPORATION SERIES B PREFERRED STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received ________ ("Holder"), is entitled to purchase up to ________ shares of Series B Preferred Stock (the "Shares") of HEALTHEON CORPORATION, a Delaware corporation (the "Company"), subject to the terms and conditions of this Warrant set forth herein, at an exercise price per share of two dollars ($2.00) (the "Warrant Price"), as adjusted from time-to-time pursuant to Section 3 below. 1. TERM. The purchase right represented by this Warrant is exercisable, in whole or in part, only during the period (the "Exercise Period") commencing on July 1, 1997 and expiring automatically on June 30, 2002. 2. METHOD OF EXERCISE AND PAYMENT. (a) METHOD OF EXERCISE. Subject to Section I hereof and compliance with all applicable federal and state securities laws, the purchase right represented by this Warrant only may be exercised, in whole or in part, by the Holder by (i) surrender of this Warrant and delivery of the Notice of Exercise (the form of which is attached hereto as Exhibit A), duly executed, at the principal office of the Company during the Exercise Period and (ii) payment to the Company during the Exercise Period of an amount equal to the product of the then applicable Warrant Price multiplied by the number of Shares then being purchased pursuant to one of the payment methods permitted under Section 2(b) (or as set forth below in Section 2(c)). (b) METHOD OF PAYMENT. Payment shall be made by: (1) check drawn on a United States bank and for United States funds made payable to the Company, (2) wire transfer of United States funds to the account of the Company, (3) cancellation of indebtedness of the Company, or (4) any combination of the foregoing at the option of the Holder. (c) NET ISSUE EXERCISE. In lieu of paying the aggregate Warrant Price for the Shares by one of the payment methods specified in Section 2(b) above, the Holder may elect to receive Shares equal to the value of this Wan-ant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series B Preferred Stock computed using the following formula: Y (A - B) X = ---------- A Where X = the number of shares of Series B Preferred Stock to be issued to Holder. Y = the number of shares of Series B Preferred Stock purchasable under this Warrant. A = the fair market value of one share of the Company's Series B Preferred Stock (at the date of calculation). B = Warrant Price (as adjusted to the date of such calculations). For the purposes of the above calculation, the fair market value of the Series B Preferred Stock shall mean with respect to each share of Series B Preferred Stock: (i) the product of (x) the number of shares of Common Stock into which each share of Series B Preferred Stock is convertible at the time of exercise and (y) the average of the closing bid and asked prices of the Company's Common Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of the WALL STREET JOURNAL for the ten trading days prior to the date of determination of fair market value; or (ii) if the Company's Common Stock is not traded Over-The-Counter or on an exchange, fair market value of each share of the Series B Preferred Stock shall be determined in good faith by the Company's Board of Directors. Receipt and acknowledgment of this Warrant by the Holder shall be deemed to be an acknowledgment and acceptance of any such fair market value determination by the Company's Board of Directors as the final and binding determination of such value for purposes of this Warrant. (d) DELIVERY OF CERTIFICATE. In the event of any exercise of the purchase right represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder within thirty (30) days of delivery of the Notice of Exercise and, unless this Warrant has been fully exercised or has expired, a new warrant representing the portion of the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such thirty (30) day period. (e) NO FRACTIONAL SHARES. No fractional Shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional Shares the Company shall make a cash payment therefor upon the basis of the fair market value per Share as of the date of exercise (as determined above). 3. ADJUSTMENTS. The number and kind of securities issuable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) REORGANIZATION, CONSOLIDATION OR MERGER. In the case of any reorganization, consolidation or merger of the Company (including, without limitation, any change of control transaction whereby immediately following such transaction or series of transactions 50% or more of the Company's outstanding capital stock is held by new stockholders) with or into another corporation, the Company, or such successor entity, as the case may be, shall execute a new warrant providing that the Holder shall have the right to exercise such new warrant and, upon such exercise. to receive, in lieu of each Share issuable upon exercise of this Warrant, the number and kind of shares of stock, other securities, money or property receivable upon such reorganization, consolidation or merger by a holder of the number of Shares then purchasable with this Warrant. Such new warrant shall contain provisions relating to the rights and obligations of the Holder and the Company after such reorganization, consolidation or merger that shall have, as nearly as possible after appropriate adjustment, the same effect as the provisions of this Warrant, including the provisions of this Warrant relating to the exercise price and number and type of shares of stock deliverable upon exercise. (b) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall split, subdivide or combine its authorized stock that is of the 2 same class and/or series as the Shares, the Warrant Price shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. Any adjustment under this subsection (b) shall become effective at the close of business on the date the split, subdivision or combination becomes effective. (c) STOCK DIVIDENDS. If the Company at any time while this Warrant remains outstanding and unexpired shall pay a stock dividend with respect to the shares of stock of the same class and/or series as the Shares, or make any other distribution with respect to such shares (except any distribution specifically provided for in Sections 3(a) or 3(b) above) of similar shares, the Warrant Price shall be adjusted, from and after the date of determination of the stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of the shares of stock of the same class and/or series as the Shares outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of such shares outstanding immediately after such dividend or distribution. Any adjustment under this subsection (c) shall become effective at the close of business on the date such stock dividend becomes effective. (d) RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the Shares issuable upon exercise of this Warrant shall be changed into the same or a different number of shares of any other class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than a split, subdivision or combination of the Shares pursuant to Section 3(b)), the Holder shall, upon exercise of this Warrant, be entitled to purchase, in lieu of the shares which the Holder would have been entitled to purchase but for such change, the number and kind of shares of stock receivable upon such reclassification, exchange or substitution by a holder of shares of the shares of stock of the same class and/or series as the Shares. 4. NOTICE OF ADJUSTMENTS. Whenever the number or kind of Shares or the Warrant Price shall be adjusted pursuant to Section 3 hereof, the Company shall mail to the Holder, at least ten (10) days prior to the event requiring such adjustment, a notice setting forth, in reasonable detail, the event requiring the adjustment, and, within thirty (30) days after any such adjustment, the Company shall issue a certificate signed by its Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the number or kind of shares or the Warrant Price or Warrant Prices after giving effect to such adjustment, and shall cause a copy of such certificate to be delivered to the Holder. 5. COMPANY'S REPRESENTATIONS. All Shares which may be issued upon the exercise of the purchase right represented by this Warrant shall, upon issuance in accordance with this Warrant, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise right represented by this Warrant, a sufficient number of shares of Series B Preferred Stock to provide for the exercise of the purchase right represented by this Warrant. 6. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT; DISPOSITION OF SHARES. (a) COMPLIANCE WITH SECURITIES ACT. The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon the exercise hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon the exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the 3 "Securities Act"). Upon the exercise of this Warrant, the Holder shall confirm in writing, in a form reasonably satisfactory to the Company, that the Shares so issued are being acquired solely for its own account and not as a nominee for any other party and not with a view toward resale or distribution thereto. This Warrant and the Shares to be issued upon the exercise hereof (unless registered under the Act) shall be imprinted with a legend in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO T14E COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT. In addition, this Warrant and the Shares to be issued upon the exercise hereof shall bear any legends required by the securities laws of any applicable states. (b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including, if the transfer is being made other than in a transaction registered under the Securities Act or exempt from registration under Rule 144 under the Securities Act, the delivery of investment representation letters and, if the transfer is being made other than in a transaction registered under the Securities Act, the delivery of legal opinions satisfactory to the Company, if requested by the Company) and unless the transfer is to a transferee or assignee who the Company does not reasonably consider to be an actual or potential competitor of the Company. Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. The Company shall act promptly to record transfers of this Warrant on its books, but the Company may treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. (c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer or other disposition of any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Shares, the Holder and each subsequent holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of legal counsel for such holder, reasonably satisfactory to the Company and its legal counsel, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act or any other federal or state securities laws) of such Shares and indicating whether or not under the Act, certificates for such Shares to be sold or otherwise disposed of require any restrictive legend as to the applicable restrictions on transferability in order to insure compliance with the Securities Act. Promptly upon receiving such written notice and reasonably satisfactory opinion, if so requested, the Company, as promptly as practicable, shall notify such holder that such holder may sell or otherwise dispose of such Shares, all in accordance with the terms of the notice delivered to the Company. Each certificate representing the Shares thus transferred (except a transfer pursuant to Rule 144(k)) shall bear a restrictive legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of legal counsel for the holder, such legend is not required in order to insure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. 7. RIGHTS OF STOCKHOLDERS. The Holder shall not be entitled to vote or receive dividends or be deemed the holder of Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the 4 Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, consolidation, merger, transfer of assets or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the shares issuable upon exercise hereof shall have become deliverable, as provided herein. 8. NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or five (5) days after mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. 9. WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 10. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles regarding conflicts of law. 11. EXPIRATION. The right to exercise this Warrant shall expire at 5:00 P.M., Pacific Standard Time, on June 30, 2002, if not terminated earlier pursuant to any other provision of this Warrant. Dated: __________, 1997 HEALTHEON CORPORATION By: /s/ David Schnell, M.D. ----------------------------------- David Schnell, M.D. President 5 EXHIBIT A NOTICE OF EXERCISE TO: HEALTHEON CORPORATION 1. The undersigned Holder of the attached original, executed Series B Preferred Stock Purchase Warrant (the "Warrant") hereby elects to exercise its purchase right under such Warrant with respect to _____________________ shares of Series B Preferred Stock of Healtheon Corporation (the "Company"). 2. The undersigned Holder elects to exercise the Warrant for such shares (the "Exercise Shares") in the following manner: [ ] by the enclosed check drawn on a United States bank and for United States funds made payable to the Company in the amount of $___________; [ ] by wire transfer of United States funds to the account of the Company in the amount of which $____________, transfer has been made before or simultaneously with the delivery of this Notice pursuant to the instructions of the Company; [ ] by cancellation of indebtedness of the Company in the amount of $______________; [ ] by net issue exercise pursuant to Section 2(c) of the Warrant; [ ] by the combination of the foregoing indicated above or on the attached sheet. 3. Please issue a stock certificate or certificates representing the appropriate number of shares in the name of the undersigned or in such other names as is specified below: Name: ----------------------------------------- Address: ----------------------------------------- Tax Ident. No.: ------------------------------------ HOLDER: By: ------------------------------- Date: ------------------------------- EX-10.23 33 EX-10.23 HEALTHEON CORPORATION SERIES C PREFERRED STOCK PURCHASE AGREEMENT JULY 25, 1997 TABLE OF CONTENTS
PAGE ---- SECTION I - Authorization and Sale of Stock 1.1 Authorization.............................................. 1 1.2 Sale of Stock.............................................. 1 SECTION 2 - Closing Date; Delivery....................................... 1 2.1 Closing Date............................................... 1 2.2 Subsequent Closing......................................... 1 2.3 Delivery................................................... 2 SECTION 3 - Representations and Warranties of the Company................ 2 3.1 Organization and Standing; Certificate and Bylaws........... 2 3.2 Corporate Power............................................. 2 3.3 Subsidiaries................................................ 2 3.4 Capitalization.............................................. 2 3.5 Authorization............................................... 3 3.6 Title to Properties and Assets; Liens, etc.................. 3 3.7 Financial Statements........................................ 3 3.8 Activities Since Balance Sheet Date......................... 4 3.9 Tax Returns and Payments.................................... 5 3.10 Patents, Trademarks, etc.................................... 5 3.11 Material Contracts and Commitments.......................... 5 3.12 Compliance with Other Instruments, None Burdensome, etc..... 5 3.13 Litigation, etc............................................. 5 3.14 Employees................................................... 6 3.15 Registration Rights......................................... 6 3.16 Governmental Consent, etc................................... 6 3.17 Brokers or Finders.......................................... 6 3.18 Disclosures................................................. 6 3.19 Permits..................................................... 6 3.20 Real Property Holding Company............................... 6 SECTION 4 - Representations and Warranties of the Investors............... 7 4.1 Authorization............................................... 7 4.2 Purchase Entirely for Own Account........................... 7 4.3 Investment Experience....................................... 7 4.4 Accredited Investor......................................... 7 4.5 No Public Market............................................ 7 4.6 Receipt of Information...................................... 7
-i- 4.7 Restricted Securities....................................... 8 4.8 Further Limitations on Disposition.......................... 8 4.9 Legends..................................................... 8 4.10 Government Consents......................................... 9
SECTION 5 - Conditions to Closing of Investors............................ 9 5.1 Representations and Warranties Correct...................... 9 5.2 Covenants................................................... 9 5.3 Opinion of Company's Counsel................................ 9 5.4 Compliance Certificate...................................... 9 5.5 Blue Sky.................................................... 9 5.6 Board of Directors.......................................... 9 5.7 Restated Certificate........................................ 9 5.8 No Material Adverse Change.................................. 10 5.9 Investors' Rights Agreement................................. 10 SECTION 6 - Conditions to Closing of Company.............................. 10 6.1 Representations............................................. 10 6.2 Blue Sky.................................................... 10 6.3 Restated Certificate........................................ 10 SECTION 7 - Miscellaneous................................................ 10 7.1 Governing Law............................................... 10 7.2 Survival.................................................... 10 7.3 Successors and Assigns...................................... 10 7.4 Entire Agreement; Amendment................................. 10 7.5 Notices, etc................................................ 11 7.6 Delays or Omissions......................................... 11 7.7 California Corporate Securities Law......................... 11 7.8 Expenses.................................................... 11 7.9 Counterparts................................................ 11 7.10 Severability................................................ 11 7.11 Gender...................................................... 11 7.12 Information Rights.......................................... 12
-ii- EXHIBITS A. Schedule of Investors B. Restated Certificate of Incorporation C. Exceptions to Representations and Warranties of the Company D. Fourth Amended and Restated Investors' Rights Agreement -iii- HEALTHEON CORPORATION SERIES C PREFERRED STOCK PURCHASE AGREEMENT This Series C Preferred Stock Purchase Agreement (the "Agreement') is made as of July 25, 1997, by and among Healtheon Corporation, a Delaware corporation (the "Company"), with its principal office at 87 Encina Avenue, Palo Alto, California 94301, and the persons and entities listed on the Schedule of Investors attached as Exhibit A hereto (the "Investors"). SECTION I AUTHORIZATION AND SALE OF STOCK 1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up to two million six hundred thousand (2,600,000) shares of its Series C Preferred Stock (the "Series C Preferred"), having the rights, restrictions, privileges and preferences as set forth in the Company's Restated Certificate of Incorporation in the form attached to this Agreement as Exhibit B (the "Restated Certificate"). 1.2 SALE OF STOCK. Subject to the terms and conditions hereof, the Company will issue and sell to the Investors, and the Investors will buy from the Company, the number of shares (the "Shares") of Series C Preferred specified opposite each Investor's name on the Schedule of Investors, at a cash purchase price of two dollars and fifty cents ($2.50) per share. The Company's agreements with each of the Investors are separate agreements, and the sales of the Shares to each of the Investors are separate sales. SECTION 2 CLOSING DATE; DELIVERY 2.1 CLOSING DATE. The initial closing of the purchase and sale of two million four hundred thousand (2,400,000) shares of the Series C Preferred Stock was held at 11:00 a.m. on July 1, 1997 and the second closing with respect to two hundred thousand (200,000) shares of Series C Preferred is anticipated to be held on July 25, 1997 at 11:00 a.m. (the "Closing") or on such later date or dates as the Company and the applicable Investors may agree to (the date of such Closing being referred to as the "Closing Date"). The place of the Closing (including the place of delivery to the Investors by the Company of the certificates evidencing all shares Series C Preferred being purchased and the place of payment to the Company by the Investors of the purchase price therefor) shall be at the offices of the Company located at 87 Encina Avenue, Palo Alto, California 94301, or such other place as the Investors and the Company may mutually agree. 2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion, provide for deferred closings hereunder (a "Subsequent Closing"), to be held at the offices of the Company, at such time and dates as the Company may determine (the date of any such Subsequent Closing being referred to as a "Subsequent Closing Date"). Any Subsequent Closing(s) will take place as promptly as possible following the initial Closing hereunder. The number of shares of Series C Preferred which any Subsequent Investor shall be entitled to purchase, shall be determined within the sole discretion of the Company, but in no event shall the total number of shares of Series C Preferred sold pursuant to this Agreement be more than three million (3,000,000) shares. Upon completion of any Subsequent Closing, if any, all additional purchasers of shares of Series C Preferred shall be considered "Investors" within the meaning of this Agreement. 2.3 DELIVERY. At the Closing and any Subsequent Closing, the Company will deliver to each Investor a certificate or certificates representing the number of Shares designated in column 2 of the Schedule of Investors to be purchased by each Investor, against payment of the purchase price therefor, by check or wire transfer payable to the Company, or by cancellation of outstanding indebtedness from the Company to such Investor, or by a combination thereof, in the amount specified in column 3 of the Schedule of Investors. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on Exhibit C attached hereto, the Company hereby represents and warrants to the Investors as follows: 3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not qualified to do business as a foreign corporation in any jurisdiction and such qualification is not presently required. 3.2 CORPORATE POWER. The Company will have at the Closing Date all requisite corporate power to execute and deliver this Agreement and the Fourth Amended and Restated Investors' Rights Agreement attached hereto as Exhibit D (the "Investors' Rights Agreement"), to sell and issue the Shares hereunder, to issue the underlying Series C-1 Preferred Stock (the "Series C-1 Preferred") and Common Stock (together, the "Conversion Stock") in accordance with the provisions of the Restated Certificate, and to carry out and perform its obligations under the terms of this Agreement and the Investors' Rights Agreement. 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists of (a) 34,000,000 shares of Common Stock, 2,353,221 shares of which are issued and outstanding prior to the Closing; (b) 10,305,000 shares of Series A Preferred, 10,285,000 shares of which are issued and outstanding prior to the Closing and 10,305,000 shares of Series A-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing (c) 8,000,000 shares of Series B Preferred, 3,000,000 of which are issued and are outstanding as of the date hereof, 2,000,000 of which are subject to outstanding warrants as of the date hereof and up to 1,015,000 of which are subject to outstanding purchase and/or warrant rights as of the date hereof and 8,000,000 shares of Series B-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing; and (d) 3,000,000 shares of Series C Preferred, 2,400,000 of which will be issued and outstanding prior to the Closing and 3,000,000 shares of Series C-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing. The Company has reserved (i) 200,000 shares of Series C Preferred for issuance hereunder, (ii) sufficient shares of Common Stock for issuance upon conversion of the Series C Preferred and/or Series C-1 Preferred, (iii) an aggregate of 2,600,000 shares of Series C-1 Preferred for issuance upon conversion of the Series C Preferred, (iv) two million (2,000,000) shares of Series B Preferred for issuance pursuant to outstanding warrants; (v) 72,000 shares of Series B Preferred which will be subject to issuance upon the exercise of warrants issued pursuant to the Company's 2 April 1997 Bridge Loan; (vi) one million (1,000,000) shares of Series B Preferred for issuance pursuant to an outstanding purchase right and/or warrant right which has been granted to the Company's Chief Executive Officer candidate; (vii) fifteen thousand (15,000) shares of Series B Preferred for issuance pursuant to an outstanding purchase right which has been granted to a member of the Company's Board of Directors; (viii) sufficient shares of Common Stock for issuance upon conversion of the Series B Preferred and/or Series B-1 Preferred, (ix) sufficient number of shares of Series B-1 Preferred for issuance upon conversion of the Series B Preferred, (x) 10,285,000 shares of Series A-1 Preferred for issuance upon conversion of the Series A Preferred, (xi) sufficient shares of Common Stock for issuance upon conversion of the Series A Preferred and/or Series A-1 Preferred, and (xii) 9,000,000 shares of Common Stock for issuance to employees and consultants pursuant to the Company's 1996 Stock Plan (of which 4,130,608 shares have been issued and/or option granted with respect thereto, prior to the date hereof). There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of capital stock or other securities of the Company. The Series C Preferred and the Series C-1 Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of capital stock or other securities of the Company. Assuming the accuracy of each Investor's representations in Section 4 below, upon issuance, the Shares will have been issued in compliance with all federal and state securities laws. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement and the Investors' Rights Agreement by the Company, the authorization, sale, issuance and delivery of the Shares and the Conversion Stock and the performance of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement and the Investors' Rights Agreement, when executed and delivered by the Company, shall constitute the valid and binding obligations of the Company enforceable in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, and other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal and state securities laws. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable; the Series C-1 Preferred issuable upon conversion of the Series C Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable and the Common Stock issuable upon conversion of the Series C Preferred and/or the Series C-1 Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable, and free of any liens or encumbrances (assuming the Investors take the Shares with no notice thereof) other than any liens or encumbrances created by or imposed upon the holders; provided, however, that the Shares and the Conversion Stock may be subject to restrictions on transfer under state or federal securities laws and restrictions set forth herein. 3.6 TITLE TO PROPERTIES AND ASSETS; LIENS ETC. The Company has good and valid title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3 3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor its audited financial statements (balance sheet, income statement and statement of cashflow) for the period from inception through December 31, 1996 and its unaudited financial statements (balance sheet and income statement) for the period ended May 31, 1997 (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis, except that the Financial Statements may not contain all footnotes required by GAAP and the May 31, 1997 Financial Statement are subject to normal year end adjustments. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to May 31, 1997 which individually or in the aggregate are not material to the financial condition or operating results of the Company, and (ii) obligations not required under generally accepted accounting principles to be reflected in the Financial Statements. 3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance sheet dated May 3 1, 1997 there has not been: (a) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, or business of the Company; (b) any waiver by the Company of a valuable right or of a material debt owed to it; (c) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement; (d) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances or other advances made in the ordinary course of business; (e) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any such stock by the Company; (f) any incurrance of indebtedness for money borrowed individually in excess of $50,000 or in excess of $100,000 in the aggregate; (g) any material change in any compensation arrangement or agreement with any employee; (h) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (i) any resignation or termination of employment of any key officer of the Company; and (j) to the Company's knowledge, any other event or condition or any character which would be reasonably likely to materially and adversely affect the assets, properties, financial condition, operating results or business of the Company; 4 3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns and reports when and as required by law and has never been audited by any state or federal taxing authority. All tax returns and reports of the Company, if applicable, are true and correct in all material respects. 3.10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or prior to the Closing will own or have the right, to use, free and clear of all liens, charges, claims and restrictions, all patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to its business as now conducted, and is not, to the best of its knowledge, infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any written communications alleging that the Company has violated or, by conducting its business as proposed, would violate any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to the best knowledge of the Company, any third party is in default under any material contract, agreement or instrument to which the Company is a party. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company is not in violation of any term of the Restated Certificate of Incorporation or Bylaws, or in any material respect of any term or provision of any material mortgage, indenture, contract, agreement or instrument to which it is a party or by which it is bound, and to the best of its knowledge, is not in violation of any order, statute, rule or regulation applicable to the Company, which violation reasonably would be expected to have a material adverse effect on the Company's business or financial condition. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Shares and the Conversion Stock, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, or result in the creation of, any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION, ETC. There are no actions, suits, proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any written threat thereof), which, either in any case or in the aggregate, reasonably would be expected to result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted, and none which questions the validity of this Agreement or the Investors' Rights Agreement or any action taken or to be taken in connection herewith. The Company is not a party to, or to the best of its knowledge named in any order, writ, injunction, 5 judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. The Company does not have any collective bargaining agreements covering any of its employees. 3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights Agreement, the Company is not currently under any obligation to register under the Securities Act of 1933, as amended (the "Act") any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.16 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of, or designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement, or the offer, sale or issuance of the Shares and the Conversion Stock, or the consummation of any other transaction contemplated hereby, except (a) filing of the Restated Certificate in the office of the Secretary of State of the State of Delaware, and (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Shares and the Conversion Stock under the California Corporate Securities Law and other applicable Blue Sky laws, which filing and qualification, if required, will be accomplished in a timely manner prior to or promptly upon completion of the Closing. 3.17 BROKERS OR FINDERS. The Company has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.18 DISCLOSURES. No representation, warranty or statement by the Company in this Agreement, or in any written statement or certificate furnished to the Investors in connection with this Agreement, contains any untrue statement of a material fact or, when taken together, omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, not misleading. However, as to any projections furnished to the Investors, such projections were prepared in good faith by the Company, but the Company makes no representation or warranty that it will be able to achieve such projections. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Shares. 3.19 PERMITS. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties or financial condition of the Company, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 3.20 REAL PROPERTY HOLDING COMPANY. The Company is not a "real property holding company" as defined under Section 897 of the Internal Revenue Code. 6 SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company with respect to its purchase of the Shares as follows: 4.1 AUTHORIZATION. This Agreement and the Investors' Right Agreement, when executed and delivered by the Investor, will each constitute the Investor's valid and legally binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Common Stock or Series C Preferred to be received by the Investor and the Common Stock and Series C-1 Preferred issuable upon conversion of the Series C Preferred (collectively, the "Securities") will be acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Investor represents that it has the full power and authority to enter into this Agreement. 4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series C Preferred. If other than an individual, the Investor also represents it has not been organized solely for the purpose of acquiring the Series C Preferred, or if the Investor has been organized solely for the purpose of acquiring the Series C Preferred, that all of the equity owners of the Investor are "accredited investors" as defined below. 4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 4.5 NO PUBLIC MARKET. Each Investor understands that no public market now exists for any of the securities issued by the Company and that it is unlikely that a public market will ever exist for the Shares. 4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed this Agreement and all Exhibits thereto; it, its attorney and its accountant have had access to, and an opportunity to review all documents and other materials provided by or requested of, the Company; it and they have been given an opportunity to ask any and all questions of, and receive answers from, the Company concerning the terms and conditions of the offering and to obtain all information it or they believe necessary or appropriate to evaluate the suitability of an investment in the Common Stock or Series C Preferred; and, in evaluating the suitability of an investment in the Common Stock or Series C Preferred, it and they have not relied upon any 7 representations or other information (whether oral or written) other than as set forth in the documents and answers referred to above. 4.7 RESTRICTED SECURITIES. The Investor understands that the Securities 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 Act only in certain limited circumstances. In addition, the Investor represents that it is familiar with Rule 144 promulgated under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities unless: (a) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; (b) The Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and if requested by the Company, the Investor shall have furnished the Company with either (i) an unqualified written opinion of counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel to the effect that the proposed transfer may be effected without registration under the Act or (ii) a "No Action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Securities shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; or (c) The Investor shall have sold, assigned, transferred, pledged or otherwise disposed of the Securities in a transaction involving the distribution without consideration of the Securities by the Investor to any of its partners or retired partners, or to the estate of any of its partners or retired partners, or in a transaction involving the transfer or distribution of the Securities by a corporation to any subsidiary, parent or affiliated corporation of such corporation; provided in each case that the Investor shall give written notice to the Company of such Investor's intention to effect such transfer, sale, assignment, pledge or other disposition. The Investor will cause any such proposed purchaser assignee, transferee or pledgee of any Securities held by the Investor to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Agreement. 4.9 LEGENDS. It is understood that the certificates evidencing the Securities may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT." (b) Any legend required by the laws of the State of Delaware or the State of California, including any legend required by the California Department of Corporations. 8 4.10 GOVERNMENT CONSENTS. Other than securities law filings required to be made by the Company, no consent, approval or authorization of or designation, declaration or filing with any state, federal or foreign governmental authority on the part of the Investor is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby. SECTION 5 CONDITIONS TO CLOSING OF INVESTORS The Investors' obligations to purchase the Shares at the Closing or at any Subsequent Closing are, at the option of each Investor, subject to the fulfillment on or prior to the Closing Date or at any Subsequent Closing Date of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date, or the Subsequent Closing Date, as the case may be, with the same force and effect as if they had been made on and as of said date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date or the Subsequent Closing Date, as the case may be, shall have been performed or complied with in all material respects. 5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received from counsel to the Company, an opinion addressed to them, dated the Closing Date or the Subsequent Closing Date, as the case may be, in a form reasonably acceptable to the Investors. 5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the Investors a certificate executed by the President of the Company, dated the Closing Date or the Subsequent Closing Date, as the case may be, and certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.8 of this Agreement, and that he has made, or caused to be made, such investigations as he deemed necessary in order to permit him to verify the accuracy of the information set forth in such certificate. 5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 5.6 BOARD OF DIRECTORS. The Board of Directors shall at the Closing consist of Jim Clark, Brook Byers, Hugh Rienhoff, Jr., M.D. and John Doerr. 5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. 5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the Company's business or financial condition. 5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall have entered into the Investors' Rights Agreement in substantially the form attached hereto as Exhibit D. 9 SECTION 6 CONDITIONS TO CLOSING OF COMPANY The Company's obligation to sell and issue the Shares at the Closing or at any Subsequent Closing, is at the option of the Company, subject to the fulfillment of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Investors in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date or the Subsequent Closing Date, as the case may be. 6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. SECTION 7 MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California, without giving effect to the conflicts of laws principles thereof. 7.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Investor and the closing of the transactions contemplated hereby. 7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto, provided, however, that the rights of a Investor to purchase Shares shall not be assignable without the written consent of the Company. 7.4 ENTIRE AGREEEMNT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought; provided, however, that holders of a majority of the shares of Common Stock issued or issuable upon conversion of the Shares and/or the Series C-I Preferred and (whether or not converted) not resold to the public may waive or amend, on behalf of all Investors, any provisions hereof benefiting Investors in respect of the Shares. 7.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon delivery to the party to be notified in person or by courier service or five days after deposit with the United States mail, by registered or certified mail, postage prepaid, addressed (a) if to a Investor, at such Investor's address set forth in Exhibit A, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has 10 so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Investors. 7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair at such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE. 7.8 EXPENSES. The Company and the Investors shall each bear their own expenses and legal fees with respect to this Agreement and the transactions contemplated hereby except that, assuming a successful completion of the offering the Company will pay at the initial Closing the reasonable legal fees and reasonable expenses upon receipt of a bill therefor, incurred by one counsel to the Investors. 7.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.10 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severablility shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.11 GENDER. The use of the neuter gender herein shall be deemed to include the masculine and the feminine gender, if the context so requires. 7.12 INFORMATION RIGHTS. The Company hereby agrees to provide the Investors with the following information rights: a. The Company shall, as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, furnish to Investor a consolidated profit and loss statement for such fiscal year, a consolidated balance sheet of the Company and a consolidated statement of stockholders' equity as of the end of such year, and a consolidated statement of cash flows for such year, such year-end financial reports to be prepared in accordance with generally accepted accounting principles 11 and audited and certified by independent public accountants of nationally recognized standing selected by the Company. b. The Company shall furnish to Investor, as soon as practicable following the end of each quarter at such time as the Company furnishes to its other venture capital investors, a consolidated profit and loss statement for each quarter and year-to-date, a consolidated balance sheet of the Company and a consolidated statement of cash flows for such quarter and year-to-date prepared in accordance with generally accepted accounting principles consistently applied. c. The Company shall furnish Investor, provided Investor continues to hold all of the Shares purchased hereunder, upon request, within thirty (30) days of the end of each month, an unaudited consolidated profit and loss statement, consolidated statement of cash flows and consolidated balance sheet for and as of the end of such month, and comparison to year-end results (if any). d. The rights to receive financial information set forth herein above may be assigned by Investor to a subsequent transferee or assignee which holds in the aggregate at least two hundred fifty thousand (250,000) shares (as adjusted for stock splits, combinations, dividends and the like) of such Investor's Shares (or Common Stock issued upon conversion of such Preferred Stock), provided that the transferee or assignee of such rights is not deemed by the Board of Directors, in its reasonable judgment, to be a current or potential competitor of the Company. The foregoing Series C Preferred Stock Purchase Agreement is hereby executed as of the date first above written. HEALTHEON CORPORATE By: /s/ W. Michael Long ---------------------------- President 12 EX-10.24 34 EX-10.24 HEALTHEON CORPORATION SERIES D PREFERRED STOCK PURCHASE AGREEMENT This Series D Preferred Stock Purchase Agreement (the "Agreement") is made as of October 13, 1997, by and among Healtheon Corporation, a Delaware corporation (the "Company"), with its principal office at 87 Encina Avenue, Palo Alto, California 94301, and the persons and entities listed on the Schedule of Investors attached as Exhibit A hereto (the "Investors"). SECTION 1 AUTHORIZATION AND SALE OF STOCK 1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up to four million eight hundred seven thousand six hundred ninety-three (4,807,693) shares of its Series D Preferred Stock (the "Series D Preferred"), having the rights, restrictions, privileges and preferences as set forth in the Company's Restated Certificate of Incorporation in the form attached to this Agreement as Exhibit B (the "Restated Certificate"). 1.2 SALE OF STOCK. Subject to the terms and conditions hereof, the Company will issue and sell to the Investors, and the Investors will buy from the Company, the number of shares (the "Shares") of Series D Preferred specified opposite each Investor's name on the Schedule of Investors, at a cash purchase price of five dollars and twenty cents ($5.20) per share. The Company's agreements with each of the Investors are separate agreements, and the sales of the Shares to each of the Investors are separate sales. SECTION 2 CLOSING DATE; DELIVERY 2.1 CLOSING DATE. The initial closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held at 11:00 a.m. on October 13, 1997 or on such later date or dates as the Company and the Investors may agree to (the date of such Closing being referred to as the "Closing Date"). The place of the Closing (including the place of delivery to the Investors by the Company of the certificates evidencing all shares Series D Preferred being purchased and the place of payment to the Company by the Investors of the purchase price therefor) shall be at the offices of the Company located at 87 Encina Avenue, Palo Alto, California 94301, or such other place as the Investors and the Company may mutually agree. 2.2 SUBSEQUENT CLOSING. The Company may, in its sole discretion, provide for deferred closings hereunder (a "Subsequent Closing"), to be held at the offices of the Company, at such time and dates as the Company may determine (the date of any such Subsequent Closing being referred to as a "Subsequent Closing Date"). Any Subsequent Closing(s) will take place as promptly as possible following the initial Closing hereunder. The number of shares of Series D Preferred which any Subsequent Investor shall be entitled to purchase, shall be determined within the sole discretion of the Company, but in no event shall the total number of shares of Series D Preferred sold pursuant to this Agreement be more than three million (3,000,000) shares. Upon completion of any Subsequent Closing, if any, all additional purchasers of shares of Series D Preferred shall be considered "Investors" within the meaning of this Agreement. 1 2.3 DELIVERY. At the Closing and any Subsequent Closing, the Company will deliver to each Investor a certificate or certificates representing the number of Shares designated in column 2 of the Schedule of Investors to be purchased by each Investor, against payment of the purchase price therefor, by check or wire transfer payable to the Company, or by cancellation of outstanding indebtedness from the Company to such Investor, or by a combination thereof, in the amount specified in column 3 of the Schedule of Investors. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on Exhibit C attached hereto, the Company hereby represents and warrants to the Investors as follows: 3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not qualified to do business as a foreign corporation in any jurisdiction and such qualification is not presently required. 3.2 CORPORATE POWER. The Company will have at the Closing Date all requisite corporate power to execute and deliver this Agreement and the Amended and Restated Investors' Rights Agreement dated October 13, 1997 attached hereto as Exhibit D (the "Investors' Rights Agreement"), to sell and issue the Shares hereunder, to issue the underlying Series D-1 Preferred Stock (the "Series D-1 Preferred") and Common Stock (together, the "Conversion Stock") in accordance with the provisions of the Restated Certificate, and to carry out and perform its obligations under the terms of this Agreement and the Investors' Rights Agreement. 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists of (a) 37,00,000 shares of Common Stock, 2,167,804 shares of which are issued and outstanding prior to the Closing; (b) 10,305,000 shares of Series A Preferred, 10,305,000 shares of which are issued and outstanding prior to the Closing and 10,305,000 shares of Series A-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing (c) 6,105,000 shares of Series B Preferred, 3,277,500 of which are issued and are outstanding as of the date hereof, 2,811,947 of which are subject to outstanding warrants as of the date hereof and 6,105,000 shares of Series B-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing; (d) 2,600,000 shares of Series C Preferred, 2,600,000 of which are issued and outstanding prior to the Closing and 2,600,000 shares of Series C-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing; (e) 5,000,000 shares of Series D Preferred, none of which will be issued and outstanding prior to the Closing and 5,000,000 shares of Series D-1 Preferred, none of which has been or will be issued or outstanding prior to the Closing. The Company has reserved (i) 4,807,693 shares of Series D Preferred for issuance hereunder, (ii) sufficient shares of Common Stock for issuance upon conversion of the Series D Preferred and/or Series D-1 Preferred, (iii) 4,807,693 shares of Series D-1 Preferred for issuance upon conversion of the Series D Preferred, (iv) sufficient shares of Common Stock for issuance upon conversion of the Series C Preferred and/or Series C-1 Preferred, (v) 2,600,000 shares of Series C-1 Preferred for issuance upon conversion of the Series C Preferred, (vi) two million eight hundred eleven thousand nine hundred forty seven (2,811,947) shares of Series B Preferred for issuance pursuant to outstanding warrants; (vii) sufficient 2 shares of Common Stock for issuance upon conversion of the Series B Preferred and/or Series B-1 Preferred, (viii) sufficient number of shares of Series B-1 Preferred for issuance upon conversion of the Series B Preferred, (ix) 10,305,000 shares of Series A-1 Preferred for issuance upon conversion of the Series A Preferred, (x) sufficient shares of Common Stock for issuance upon conversion of the Series A Preferred and/or Series A-1 Preferred, and (xi) 9,000,000 shares of Common Stock for issuance to employees and consultants pursuant to the Company's 1996 Stock Plan (of which 7,928,191 shares have been issued and/or options granted,with respect thereto, prior to the date hereof). There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of capital stock or other securities of the Company. The Series D Preferred and the Series D-1 Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of capital stock or other securities of the Company. Assuming the accuracy of each Investor's representations in Section 4 below, upon issuance, the Shares will have been issued in compliance with all federal and state securities laws. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Agreement and the Investors' Rights Agreement by the Company, the authorization, sale, issuance and delivery of the Shares and the Conversion Stock and the performance of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement and the Investors' Rights Agreement, when executed and delivered by the Company, shall constitute the valid and binding obligations of the Company enforceable in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, and other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal and state securities laws. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable; the Series D-1 Preferred issuable upon conversion of the Series D Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable and the Common Stock issuable upon conversion of the Series D Preferred and/or the Series D-1 Preferred has been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable, and free of any liens or encumbrances (assuming the Investors take the Shares with no notice thereof) other than any liens or encumbrances created by or imposed upon the holders; provided, however, that the Shares and the Conversion Stock may be subject to restrictions on transfer under state or federal securities laws and restrictions set forth herein. 3.6 TITLE TO PROPERTIES AND ASSETS, LIENS, ETC. The Company has good and valid title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 3.7 FINANCIAL STATEMENTS. The Company has delivered to each Investor its audited financial statements (balance sheet, income statement and statement of cashflow) for the period from inception through December 31, 1996 and its unaudited financial statements (balance sheet and income statement) for the period ended August 31, 1997 (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis, except that the August 31, 1997 Financial Statements do not contain all footnotes required by GAAP and are subject to 3 normal year end adjustments. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to August 31, 1997 which individually or in the aggregate are not material to the financial condition or operating results of the Company, and (ii) obligations not required under generally accepted accounting principles to be reflected in the Financial Statements. 3.8 ACTIVITIES SINCE BALANCE SHEET DATE. Since the Company's balance sheet dated August 3 1, 1997 there has not been: (a) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, or business of the Company; (b) any waiver by the Company of a valuable right or of a material debt owed to it; (c) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement; (d) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances or other advances made in the ordinary course of business; (e) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any such stock by the Company; (f) any incurrance of indebtedness for money borrowed individually in excess of $50,000 or in excess of $100,000 in the aggregate; (g) any material change in any compensation arrangement or agreement with any employee; (h) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (i) any resignation or termination of employment of any key officer of the Company; and (j) to the Company's knowledge, any other event or condition or any character which would be reasonably likely to materially and adversely affect the assets, properties, financial condition, operating results or business of the Company; 3.9 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns and reports when and as required by law and has never been audited by any state or federal taxing authority. All tax returns and reports of the Company, if applicable, are true and correct in all material respects. 3.10 PATENTS, TRADEMARKS, ETC. The Company owns or has the right, or prior to the Closing will own or havee the right, to use, free and clear of all liens, charges, claims and restrictions, all patents, 4 trademarks, service marks, trade names, copyrights, licenses and rights necessary to its business as now conducted, and is not, to the best of its knowledge, infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any written communications alleging that the Company has violated or, by conducting its business as proposed, would violate any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 3.11 MATERIAL CONTRACTS AND COMMITMENTS. Neither the Company, nor, to the best knowledge of the Company, any third party is in default under any material contract, agreement or instrument to which the Company is a party. 3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation of any term of the Restated Certificate of Incorporation or Bylaws, or in any material respect of any term or provision of any material mortgage, indenture, contract, agreement or instrument to which it is a party or by which it is bound, and to the best of its knowledge, is not in violation of any order, statute, rule or regulation applicable to the Company, which violation reasonably would be expected to have a material adverse effect on the Company's business or financial condition. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Shares and the Conversion Stock, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, or result in the creation of, any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.13 LITIGATION, etc. There are no actions, suits, proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor, to the best of the Company's knowledge, is there any written threat thereof), which, either in any case or in the aggregate, reasonably would be expected to result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted, and none which questions the validity of this Agreement or the Investors' Rights Agreement or any action taken or to be taken in connection herewith. The Company is not a party to, or to the best of its knowledge named in any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 3.14 EMPLOYEES. To the best of the Company's knowledge, no employee of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company. The Company does not have any collective bargaining agreements covering any of its employees. 5 3.15 REGISTRATION RIGHTS. Except as set forth in the Investors' Rights Agreement, the Company is not currently under any obligation to register under the Securities Act of 1933, as amended (the "Act") any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.16 GOVERNMENTAL CONSENT ETC. No consent, approval or authorization of, or designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement, or the offer, sale or issuance of the Shares and the Conversion Stock, or the consummation of any other transaction contemplated hereby, except (a) filing of the Restated Certificate in the office of the Secretary of State of the State of Delaware, and (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Shares and the Conversion Stock under the California Corporate Securities Law and other applicable Blue Sky laws, which filing and qualification, if required, will be accomplished in a timely manner prior to or promptly upon completion of the Closing. 3.17 BROKERS OR FINDERS. The Company has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.18 DISCLOSURES. No representation, warranty or statement by the Company in this Agreement, or in any written statement or certificate furnished to the Investors in connection with this Agreement, contains any untrue statement of a material fact or, when taken together, omits to state a material fact necessary to make the statements made herein, in light of the circumstances under which they were made, not misleading. However, as to any projections furnished to the Investors, such projections were prepared in good faith by the Company, but the Company makes no representation or warranty that it will be able to achieve such projections. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Shares. 3.19 PERMITS. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties or financial condition of the Company, and believes it can obtain without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 3.20 REAL PROPERTY HOLDING COMPANY. The Company is not a "real property holding company" as defined under Section 897 of the Internal Revenue Code. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each Investor hereby represents and warrants to the Company with respect to its purchase of the Shares as follows: 4.1 AUTHORIZATION. This Agreement and the Investors' Right Agreement, when executed and delivered by the Investor, will each constitute the Investor's valid and legally binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, 6 moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Investor in reliance upon the Investor's representation to the Company, which by the Investor's execution of this Agreement the Investor hereby confirms, that the Common Stock or Series D Preferred to be received by the Investor and the Common Stock and Series D-1 Preferred issuable upon conversion of the Series D Preferred (collectively, the "Securities") will be acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Investor represents that it has the full power and authority to enter into this Agreement. 4.3 INVESTMENT EXPERIENCE. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series D Preferred. If other than an individual, the Investor also represents it has not been organized solely for the purpose of acquiring the Series D Preferred, or if the Investor has been organized solely for the purpose of acquiring the Series D Preferred, that all of the equity owners of the Investor are "accredited investors" as defined below. 4.4 ACCREDITED INVESTOR. The Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 4.5 NO PUBLIC MARKET. Each Investor understands that no public market now exists for any of the securities issued by the Company and that it is unlikely that a public market will ever exist for the Shares. 4.6 RECEIPT OF INFORMATION. Each Investor has received and reviewed this Agreement and all Exhibits thereto; it, its attorney and its accountant have had access to, and an opportunity to review all documents and other materials provided by or requested of, the Company; it and they have been given an opportunity to ask any and all questions of, and receive answers from, the Company concerning the terms and conditions of the offering and to obtain all information it or they believe necessary or appropriate to evaluate the suitability of an investment in the Common Stock or Series D Preferred; and, in evaluating the suitability of an investment in the Common Stock or Series D Preferred, it and they have not relied upon any representations or other information (whether oral or written) other than as set forth in the documents and answers referred to above. 4.7 RESTRICTED SECURITIES. The Investor understands that the Securities 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 Act only in certain limited circumstances. In addition, the Investor represents that it is familiar with Rule 144 promulgated under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 4.8 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities unless: 7 (a) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; (b) The Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and if requested by the Company, the Investor shall have furnished the Company with either (i) an unqualified written opinion of counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel to the effect that the proposed transfer may be effected without registration under the Act or (ii) a "No Action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Securities shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company; or (c) The Investor shall have sold, assigned, transferred, pledged or otherwise disposed of the Securities in a transaction involving the distribution without consideration of the Securities by the Investor to any of its partners or retired partners, or to the estate of any of its partners or retired partners, or in a transaction involving the transfer or distribution of the Securities by a corporation to any subsidiary, parent or affiliated corporation of such corporation; provided in each case that the Investor shall give written notice to the Company of such Investor's intention to effect such transfer, sale, assignment, pledge or other disposition. The Investor will cause any such proposed purchaser, assignee, transferee or pledgee of any Securities held by the Investor to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Agreement. 4.9 LEGENDS. It is understood that the certificates evidencing the Securities may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT." (b) Any legend required by the laws of the State of Delaware or the State of California, including any legend required by the California Department of Corporations. 4.10 GOVERNMENT CONSENTS. Other than securities law filings required to be made by the Company, no consent, approval or authorization of or designation, declaration or filing with any state, federal or foreign governmental authority on the part of the Investor is required in connection with the valid execution and delivery of this Agreement and the Investors' Rights Agreement by the Investor and the consummation by the Investor of the transactions contemplated hereby and thereby. 4.11 WAIVER OF RIGHT OF FIRST REFUSAL. Each Investor hereby waives all rights which it may have had under Section 2.5 of the Amended and Restated Investors' Rights Agreement, including notice rights, with respect to the sale of the Series D Preferred Stock hereunder. 8 SECTION 5 CONDITIONS TO CLOSING OF INVESTORS The Investors' obligations to purchase the Shares at the Closing or at any Subsequent Closing are, at the option of each Investor, subject to the fulfillment on or prior to the Closing Date or at any Subsequent Closing Date of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date, or the Subsequent Closing Date, as the case may be, with the same force and effect as if they had been made on and as of said date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date or the Subsequent Closing Date, as the case may be, shall have been performed or complied with in all material respects. 5.3 OPINION OF COMPANY'S COUNSEL. The Investors shall have received from counsel to the Company, an opinion addressed to them, dated the Closing Date or the Subsequent Closing Date, as the case may be, in a form reasonably acceptable to the Investors. 5.4 COMPLIANCE CERTIFICATE. The Company shall have delivered to the Investors a certificate executed by the President of the Company, dated the Closing Date or the Subsequent Closing Date, as the case may be, and certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.8 of this Agreement, and that he has made, or caused to be made, such investigations as he deemed necessary in order to permit him to verify the accuracy of the information set forth in such certificate. 5.5 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 5.6 BOARD OF DIRECTORS. The Board of Directors shall at the Closing consist of Jim Clark, John Doerr, Richard Kramlich and W. Michael Long. 5.7 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. 5.8 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the Company's business or financial condition. 5.9 INVESTORS' RIGHTS AGREEMENT. The Investors and the Company shall have entered into the Investors' Rights Agreement in substantially the form attached hereto as Exhibit D. SECTION 6 CONDITIONS TO CLOSING OF COMPANY The Company's obligation to sell and issue the Shares at the Closing or at any Subsequent Closing, is at the option of the Company, subject to the fulfillment of the following conditions: 9 6.1 REPRESENTATIONS. The representations made by the Investors in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date or the Subsequent Closing Date, as the case may be. 6.2 BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured an exemption therefrom, required by any state for the offer and sale of the Shares and the Conversion Stock. 6.3 RESTATED CERTIFICATE. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware. SECTION 7 MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California, without giving effect to the conflicts of laws principles thereof. 7.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Investor and the closing of the transactions contemplated hereby. 7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto, provided, however, that the rights of a Investor to purchase Shares shall not be assignable without the written consent of the Company. 7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought; provided, however, that holders of a majority of the shares of Common Stock issued or issuable upon conversion of the Shares and/or the Series D-1 Preferred and (whether or not converted) not resold to the public may waive or amend, on behalf of all Investors, any provisions hereof benefiting Investors in respect of the Shares. 7.5 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon delivery to the party to be notified in person or by courier service or five days after deposit with the United States mail, by registered or certified mail, postage prepaid, addressed (a) if to a Investor, at such Investor's address set forth in Exhibit A, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Shares who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its address set forth on the cover page of this Agreement and addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished to the Investors. 7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any 10 waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 7.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE. 7.8 EXPENSES. The Company and the Investors shall each bear their own expenses and legal fees with respect to this Agreement and the transactions contemplated hereby. 7.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Investors, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 7.10 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 7.11 GENDER. The use of the neuter gender herein shall be deemed to include the masculine and the feminine gender, if the context so requires. The foregoing Series D Preferred Stock Purchase Agreement is hereby executed as of the date first above written. COMPANY: HEALTHEON CORPORATION By: /s/ W. Michael Long ------------------------------------- W. Michael Long President and Chief Executive Officer Address: 87 Encina Avenue Palo Alto, CA 94301 11 EX-10.25 35 EX-10.25 FULL RECOURSE PROMISSORY NOTE $499,750 Dated as of July 11, 1997 FOR VALUE RECEIVED, W. Michael Long ("BORROWER"), hereby promises to pay to the order of Healtheon Corporation, a Delaware corporation (the "LENDER"), its successors and assigns in lawful money of the United States of America, the principal sum of Four Hundred Ninety-Nine Thousand Seven Hundred Fifty ($499,750), or such lesser amount as may be outstanding from time to time, no later than July 16, 1998. (the "MATURITY DATE"). 1. PAYMENT. Borrower hereby agrees to repay this Promissory Note in a series of (i) twenty-five (25) semi-monthly installments commencing upon July 15, 1997 and concluding on July 15, 1998; and (ii) four (4) additional quarterly payments commencing on October 15, 1997 and concluding on July 15, 1998. The semimonthly payments shall be equal to the amount of net compensation due to Borrower from Lander after giving effect to all applicable payroll deductions for taxes, benefits, etc. The quarterly payments shall each be in an amount which is equal to the difference between (i) one hundred twenty-four thousand nine hundred thirty seven dollars and fifty cents ($124,937.50) and (ii) The amount which has been repaid under this Promissory Note during the preceding quarter. Each payment, when made hereunder, shall be added to Exhibit A. The unpaid balance under this Promissory Note shall be due and payable upon the termnination of Borrower's employment with the Company for any reason. Borrower shall repay the remaining outstanding balance within five (5) days of the termination of Borrower's employment. Borrower may pay any portion or all of this Promissory Note at any time, without penalty. In the event that Borrower shall fail to pay when due (whether at maturity, by reason of acceleration or otherwise) any principal of or interest on this Note, such overdue amounts shall bear interest at a rate equal to eight percent (8%) per annum. If this Note (or any interest payment hereunder) becomes due and payable on a day other than a business day, the maturity thereof shall be extended to the next succeeding business day. 2. WAIVER. The Borrower hereby waives diligence, demand, presentment, protest and notice of any kind, and all rights of set-off, and assents to extensions of the time of payment, release, surrender or substitution of security, or forbearance or other indulgence, without notice. 3. GENERAL. This Note may not be changed, modified or terminated or- ally, but only by an agreement in writing signed by the party to be charged. This Note shall be binding upon the heirs, executors, administrators, successors and assigns of the Borrower and inure to the benefit of the Lender and its permitted successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable the validity, legality and enforceability of all other terms and provisions hereof shall in no way be affected thereby. 4. LAW. This Note shall be governed by and construed in accordance of the State of California. /s/ W. Michael Long ----------------------------- W. Michael Long Healtheon Corporation: /s/ Jim Clark - ------------------------------- Jim Clark, Chairman of the Board EXHIBIT A SCHEDULE OF PAYMENTS
Payment Outstanding Balance ------- ------------------- $499,750.00 1. July 15, 1997 2. July 31, 1997 3. August 15, 1997 4. August 31, 1997 5. September 15, 1997 6. September 30, 1997 7 October 15, 1997 OCTOBER 15,1997, QUARTERLY PMT $374,812.50 8 October 31, 1997 9. November 15, 1997 10. November 30, 1997 11. December 15, 1997 12. December 31, 1997 13. January 15, 1998 JANUARY 15,1998 QUARTERLY PMT $249,875.00 14. January 31, 1998 15. February 15, 1998 16. February 28, 1998 17. March 15, 1998 18. March 31, 1998 19. April 15, 1998 APRIL 15,1998, QUARTERLY PMT $124,937.50 20. April 30, 1998 21. May 15,1998 22. May 31, 1998 23. June 15, 1998 24. June 30, 1998 25. July 15, 1998 JULY 15,1998, QUARTERLY PMT $0
EX-10.26 36 EX-10.26 PROMISSORY NOTE Dated as of ___________, 1997 For Value Received, Healtheon Corporation, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of _______________ (the "Payee"), the principal sum (the "Principal Amount") of ___________ dollars _______________, together with interest thereon at the rate set forth below, which shall be due and payable as hereinafter provided. This Promissory Note is one of a series of seven (7) Promissory Notes totaling two million dollars ($2,000,000.00) (the "Series"). 1. PAYMENT. This Promissory Note can be called by Payee at any time after thirty (30) days from the date of issuance upon ten (10) days notice to Borrower. Borrower may pay any portion or all of this Promissory Note at any time, without penalty. All payments will be applied first to interest due and then to principal. 2. INTEREST. Interest shall accrue on the unpaid Principal Amount of this Promissory Note from the date hereof until such Principal Amount is repaid in full, at an interest rate equal to six percent (6%) per annum. All computations of the interest rate hereunder shall be made on the basis of a year of three hundred sixty-five (365) days based on the actual number of days (including the first day but excluding the last day) any such Principal Amount is outstanding. 3. WARRANT. Simultaneously with the complete payment of this Promissory Note, if such payment occurs at least thirty (30) days from the date of issuance of this Promissory Note, Borrower shall issue to Payee a warrant exercisable for the number of shares of Borrowees Series B Preferred Stock equal to the number of full and pro rated partial months that any portion of this Promissory Note is outstanding, multiplied by five percent (5%) of the Principal Amount, divided by the lesser of: (i) two dollars ($2.00); or (ii) the price per share of the next equity financing following the issue date of this Promissory Note in which Borrower raises at least two million dollars ($2,000,000). Such warrant shall have an exercise price equal to two dollars ($2.00) per share, shall have a "net exercise" right, and shall be exercisable for five (5) years from the date of the issuance. 4. REPRESENTATIONS. This Promissory Note has been acquired for investment and not with a view to distribution and may not be resold without registration or pursuant to an exemption therefrom. 5. COLLECTION EXPENSES. Should the indebtedness evidenced by this Promissory Note or any part hereof be collected at law or in equity or in bankruptcy, receivership or other court proceedings, or this Promissory Note placed in the hands of attorneys for collection, the Borrower agrees to pay, in addition to principal and interest due and payable hereon, all costs of collection, including attorney's fees, incurred by the Payee in collecting or enforcing this Promissory Note. 6. WAIVER. Payee will not be deemed to waive any of its rights under this Promissory Note unless its waiver is in writing and signed by the Payee. No delay or omission by the Payee in exercising any of its rights will operate as a waiver of its rights. A waiver in writing on one occasion will not be construed as a consent to or a waiver of any of the Payee's right or remedy on any ftiture occasion. 7. GENERAL. This Promissory Note will be governed by and construed and enforced in accordance with the laws of the State of California. Whenever possible, each provision of this Promissory Note will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Promissory Note will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Promissory Note. Dated as of _________, 1997. Healtheon Corporation By: /s/ David Schnell, M.D. ------------------------------- David Schnell, M.D. President -2- EX-10.27 37 EX-10.27 EXHIBIT 10.27 July 2, 1997 PERSONAL AND CONFIDENTIAL - ------------------------- Mike Long 3 Stegner Lane Austin, Texas 78746 Dear Mike: The Board of Directors of the Company has approved an agreement for your services upon the terms set forth in this offer. On behalf of the Board of Directors, I am pleased to submit to you the following offer: 1. TITLE AND POSITION. You will have the position of President and Chief Executive Officer and you will report to the Board of Directors. We will elect you to the Board of Directors promptly upon your acceptance of this offer; and, upon your request, you will be elected as Chairman of the Board. The position shall be located at the offices of the Company, except as travel to other locations may be necessary to fulfill your responsibilities. 2. DUTIES AND OBLIGATIONS. During your employment, you shall devote your full time, interest and effort to the performance of the duties of the position. 3. COMMENCEMENT. It is anticipated that you will commence employment no later than July __, 1997. 4. COMPENSATION AND BENEFITS. (a) SALARY. The Company shall pay you for all services to be performed by you at a monthly salary of $ 41,667, adjusted as provided in Section 4(g) below, payable in periodic semi-monthly installments according to the Company's practice, subject to any applicable withholding taxes. Your base salary will be reviewed on an annual basis by the Board of Directors or its Compensation Committee. The first such review will occur no later than February, 1999. (b) STOCK PURCHASE RIGHT. At the Company's Board of Directors meeting following the start of your employment, the Board will grant you a stock award to purchase two million five hundred thousand (2,500,000) shares of the Company Common Stock under the Company's 1996 Stock Plan (the "Shares"). The purchase and/or exercise price for this right will be the then-current fair market value of the Company Common Stock at the date of grant or such other price as is consistent with the terms of the Company's 1996 Stock Plan. The vesting of the options to purchase Shares (and the lapsing of the Company's repurchase right, in the case of Shares purchased pursuant to a "restricted stock purchase agreement) will commence on the date of your full time employment with the Company. In the case of an option(s), twenty-five percent (25%) of the options to purchase Shares will be fully vested upon the date of grant, Shares issued pursuant to any options will not be subject to any right of repurchase, other than the right of first refusal as provided under the terms of the 1996 Stock Plan and/or the agreements issued thereunder. In the case of Shares purchased pursuant to a restricted stock agreement, 625,000 Shares will not be subject to any right of repurchase (other than the right of first refusal, as provided under the terms of the 1996 Stock Plan and/or the agreements issued thereunder). The balance of the options to purchase Shares will begin vesting and/or the repurchase right will lapse, in the case of a restricted stock purchase agreement, one (1) year after your start date at the rate of 1/36th of the aggregate number of options to purchase Shares (or Shares in the case of a restricted stock purchase) per month at the close of each month while you remain employed with the Company, over the remainder of the four (4) year vesting term. Upon the fourth anniversary of your start date, all of the options to purchase Shares shall be fully vested and, in the case of a restricted stock purchase, the Company's repurchase right will have lapsed in its entirety. The Board will respect your decision as to what portion of the Shares you wish to obtain in the form of: (i) an immediate purchase, subject to the Company's right of repurchase which lapses over time, with the right to make an election under Section 83 (b) of the Internal Revenue Code; (ii) an Incentive Stock Option, subject to the applicable rules and limitations under the Internal Revenue Code; and (iii) a Non-Qualified Option. An attorney from the Company's outside law firm of Wilson, Sonsini will be available to assist you in evaluating the tax benefits of these different stock and option programs. You have indicated that you want the above option in the form of an Incentive Stock Option to the extent of the annual limitation contained in section 422(d) of the Code, and to the extent the options exceed such limit in a calendar year the excess will be a Non-Qualified Option and subject to all terms of Non-Qualified Options, including price and time of exercise. The Company will cooperate with you in this allocation. Your stock award will be evidenced by Stock Option Agreement(s) (and/or a Restricted Stock Purchase Agreement, in the event that you decide to have a portion of your stock grant pursuant to a restricted stock purchase arrangement) subject to the terms of the Company's 1996 Stock Plan and consistent with the forms of agreements issued under the Company's 1996 Stock Plan. The terms of the Stock Option agreements shall be amended by the Board at such meeting to provide that Stock Option Agreements issued under the 1996 Stock Plan shall be exercisable for a period of ninety (90) days following the date of termination of employment rather than the Company's current thirty (30) day period. The terms of these agreements permit you to transfer the Shares which are not subject to a repurchase right or for which such right has lapsed, to a trust for the benefit of your immediate family or to a member of your immediate family. You shall have the right to exercise your options for any consideration which is permissible under the terms of the 1996 Stock Plan, including for shares of the Company's stock. (c) ADDITIONAL STOCK PURCHASE RIGHT. The Company has granted you the right to purchase up to one million (1,000,000) shares of the Company's Series B Preferred Stock (the "Series B Shares") and upon such purchase you shall become a party to the Company's Investors' Rights Agreement which shall grant you registration rights with respect to your Series B Shares. The 2 purchase price for such shares will be two dollars ($2.00) per share. The Company shall allow you to purchase two hundred and fifty thousand (250,000) of the Series B Shares, on the same terms and conditions as the Company's Series B investors, in exchange for a non-interest bearing promissory note payable in twelve (12) equal monthly installments. The Company shall apply the net amount of your compensation pursuant to Section 4(a) above to the payment of this Note and you shall pay the balance of any monthly installments to the Company. The Note shall be in a form and on terms which are acceptable to the Company and to you. The Company shall allow you to purchase seven hundred and fifty thousand (750,000) shares of the Series B Shares (the "Restricted Series B Shares") pursuant to, at your option: (i) a restricted stock purchase agreement in consideration for a full recourse note which is adequately secured by the collateral of your choice, which may include the Series B Shares; or (ii) a warrant with an exercise price of two dollars ($2.00) per share and a term of three (3) years. At your option, following the first anniversary of your employment with the Company, the second note can be repaid or the warrant can be exercised in periodic installments by applying your net compensation to make periodic payments to such Note or exercises of the Warrant, in accordance with terms and conditions which are acceptable to you and the Company. The Restricted Series B Shares will be subject to the Company's assignable repurchase right which shall lapse with respect to 1/24th of the Restricted Series B Shares per month during the period in which you continue to be employed by the Company, commencing upon the start date of your employment. In the event that that your employment is terminated for any reason, the note shall become due and payable. The Company's outside counsel shall be made available to discuss with you the legal and tax issues with respect to these options in order to assist you in deciding which option to select. (d) BENEFITS. Commencing with full time employment, you will be entitled to all medical, life insurance, disability insurance and other benefits as are provided to the Company's employees. Medical benefits will provide coverage with health care providers located in Austin, Texas. In your position, we would expect you to review and design the Company's benefits packages. (e) BUSINESS EXPENSES. The Company will reimburse you for all reasonable business expenses incurred on behalf of the Company upon submission of appropriate documentation in accordance with the Company's general policies, as they may be amended from time to time during the course of your employment. (f) MOVING EXPENSES. The Company acknowledges that neither you nor your family will be able to move to the San Francisco Bay area at any time prior to June 1998. Notwithstanding the foregoing, the Company will reimburse you for your reasonable and customary moving expenses incurred with respect to your move to the San Francisco bay area whether prior to June 1998 or otherwise. You agree that you will repay such reimbursed expenses in the event that you voluntarily terminate your employment prior to the one (1) year anniversary date of your family's move to California. (g) LIVING AND COMMUTING EXPENSES. The Company will pay all of the reasonable and customary living expenses incurred with respect to your living accommodations in the San Francisco bay area, including housing, meals and automobile expenses. The Company will also pay all commuting expenses for weekend trips to visit your family in Austin, Texas. In the event any of the 3 expenses advanced under this provision result in additional taxable income to you, the Company will "gross up" your salary to compensate you for additional state and Federal taxes and taxes on the increased salary. (h) 83(b) ELECTION. With respect to any Shares issued pursuant to this letter, to the extent allowable by law, upon your request, the Company will assist you in preparing an election under section 83(b) of the Internal Revenue Code of 1986. 5. CHANGE OF CONTROL. In the event that the Company is acquired by or merged into another company, if you are not offered a position with similar responsibility in the surviving company and if you decide to voluntarily terminate your employment with Healtheon at any time prior to the effective time of any such merger or acquisition, options to purchase 625,000 Shares shall immediately vest or in the case of Shares subject to repurchase, the Company will waive the Company's right of repurchase with respect to an aggregate of 625,000 of the Shares, and 500,000 of the Restricted Series B Shares. This provision shall not be applicable in the event of your termination for any reason other than in connection with a change of control and this waiver and/or vesting shall be in addition to any Shares or options to purchase Shares which have already vested and/or the Company's repurchase right has lapsed. 6. EMPLOYMENT RELATIONSHIP. Should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason at any time. Further, your participation in any stock incentive or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. However, in the event of the Company's termination of your employment without cause, you would receive six (6) months base salary, payable in semi-monthly installments and options to purchase 625,000 Shares would immediately vest and the Company would waive the Company's right of repurchase with respect to 625,000 of the Shares (if Shares are issued subject to a repurchase right) and 500,000 of the Restricted Series B Shares. This vesting and waiver shall be in addition to any options and/or Shares which have already vested and/or the Company's repurchase right has lapsed. Any assignment of the Company's Repurchase rights shall be subject to the waivers of such rights described in Sections 5 and 6 so that all assignees shall be bound by such waivers. For purposes of this Agreement, the term "cause" shall mean (i) willful and repeated failure to comply with the lawful directions of the Board of Directors, (ii) gross negligence or willful misconduct in the performance of duties to the Company, (iii) commission of any act of fraud with respect to the Company, or (iv) conviction of a felony or a crime causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the Board of Directors. The number of Shares and Restricted Shares shall be subject to adjustment, in accordance with the terms of the Company's 1996 Stock Plan and/or Certificate of Incorporation, as applicable, in the event of certain "dilutive" issuances of stock and the Share and Restricted Share numbers set forth herein and in Sections 4 and 5, above shall be adjusted accordingly in the event of any such "dilutive" stock issuance. 7. PROPRIETARY INFORMATION. As an employee of the Company, you will have access to Company confidential information and you may during the course of your employment develop certain information or inventions which will be the Company's property. As a condition of your employment, 4 you will be required to enter into the Company's Employee Inventions and Confidentiality Agreement. This agreement exists to assure the Company and its investors that the Company's valuable intellectual property is protected. We wish to impress upon you that we do not want you to bring with you any confidential or proprietary material of any former employer or third party or to violate any other obligation which you may have to any of your former employers or any third parties. 8. ENTIRE AGREEMENT. This Letter Agreement sets forth the entire understanding of the parties and supersedes all prior agreements, arrangements, and communications, whether oral or written, between the parties, including all prior employment agreements. No amendment to this Letter Agreement may be made except by a writing signed by the Company and you. If you find this offer acceptable, please sign the enclosed copy of this letter in the space indicated and return it to us. Very truly yours, __________________________________ John Doerr On behalf of the Board of Directors Healtheon Corporation Accepted and Agreed: ______________________________ Dated: _______________________ 5 EX-10.28 38 EX-10.28 EMPLOYMENT AGREEMENT THE AGREEMENT, entered into as of this 23rd day of September, 1992, by and between ACTAMED CORP., a Georgia corporation (the "Company") and MICHAEL K. HOOVER ("Employee"). W I T N E S S E T H : WHEREAS, the Company and Employee desire to enter into an employment agreement on the terms stated herein; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows: 1. DEFINITIONS. For purposes of this Agreement the following capitalized terms shall have the definition set forth below. (a) "CAUSE" means: (i) conviction of Employee of a felony; or (ii) Employee's use of alcohol or drugs to an extent that materially interferes with Employee's performance of his duties or employment; or (iii) Employee has engaged in fraud, misappropriation, embezzlement, or other acts involving moral turpitude; or (iv) Employee has committed a willful act of dishonesty in the course of his duties which injures the Company; or (v) Employee has repeatedly disregarded policy directives from the Company's Chief Executive Officer, President or Board of Directors; or (vi) Employee violates his covenants under paragraph 7(a) or breaches the nondisclosure agreement executed pursuant to paragraph 6. (b) "DISABILITY" means incapacity due to physical or mental illness or injury that is permanent in nature and prevents Employee from performing the substantial and material duties of his employment hereunder. Any such disability shall be deemed to be permanent in nature if any physician designated by the Company certifies in writing to the Company that such disability can be expected to last for a period of at least six (6) continuous months. 2. EMPLOYMENT AND DUTIES. Employee shall perform such duties and responsibilities as are assigned to him from time to time by the Chairman of the Board of the Company. Employee agrees that during the term of his employment, he will devote his full productive time to the Company, not work for anyone else, or engage in any activity in competition with or detrimental to the Company; provided, however, that Employee at the direction of the Chairman of the Board of the Company shall perform duties and services for Actamed Development Corp. 3. BASE COMPENSATION. (a) In consideration of the services rendered by Employee, the Company will pay Employee during the term of this Agreement an annual base salary of $85,000.00 or such other amount as determined from time to time by the Board of Directors of the Company ("Base Compensation"). Such Base Compensation shall be payable in accordance with the regular payroll practices of the Company. (b) The Company's Board of Directors may review the then-current level of Employee's annual base salary for potential adjustment and shall advise Employee, in writing, of such adjustment, if any, or may state, in writing, that no adjustment will be made. 4. STOCK OPTIONS. Simultaneously with the execution of this Agreement, Employee will be granted an option to purchase 10,000 shares of Company common stock pursuant to that certain Nonstatutory Stock Option Agreement of even date herewith between the Company and Employee (the "Option Agreement"). 5. TERM AND SEVERANCE PAY. (a) Employee's employment hereunder shall be effective as of the date of this Agreement and shall continue in force until terminated as set forth in paragraph 5(b) below. (b) Employee's employment hereunder may be terminated only: (i) by mutual agreement of the Company and Employee; (ii) by the Company immediately for Cause; (iii) by Employee, upon not less than ninety (90) days prior written notice to the Company; (iv) by the Company without Cause or without any reason upon not less than ninety (90) days prior written notice; provided, however, that the Company may, at its option, terminate Employee prior to the expiration of such ninety (90) day period subject to the obligation of paying Employee for the remainder of such period; (v) by the Company upon the Disability of Employee; or (vi) Upon the death of Employee. 2 (c) In the event of Employee's termination of employment with the Company in accordance with subparagraphs 5(b)(i), 5(b)(ii) or 5(b)(iii) above, then: (i) Employee's right to exercise any outstanding options pursuant to the Option Agreement shall terminate immediately upon such event; and (ii) If the common stock of the Company is not publicly traded (as described in Section 6(a) or 6(b) of the 1992 Stock Option Plan of the Company) ("Publicly Traded"), then, for a period of ninety (90) days following the occurrence of any event described in 5(b)(i), 5(b)(ii) or 5(b)(iii), the Company shall have an option to purchase any or all of the Option Shares acquired by Employee pursuant to the Option Agreement. The terms and conditions of such option to purchase shall be as provided in subparagraph 9(a)(i) of the Option Agreement. (d) If at a time when the common stock of the Company is not Publicly Traded, Employee's employment with the Company is terminated in accordance with subparagraphs 5(b)(iv), 5(b)(v) or 5(b)(vi) herein: (i) then Employee or his personal representative shall elect (hereinafter referred to as the "Severance Election") to: (A) Retain all of his Option Shares (as defined in the Option Agreement) subject to the terms and conditions of the Option Agreement, and to retain the option to purchase any remaining vested Option Shares pursuant to the terms of the Option Agreement (hereinafter the rights under this subparagraph 5(d)(i)(A) may be referred to as the "Option Feature"); or (B) Receive severance pay equal to the aggregate Base Compensation which Employee had received from the Company in the three (3) years (or such lesser period which Employee was employed by the Company) immediately prior to the event occurring which entitled Employee to elect such severance pay (hereinafter referred to as the "Severance Pay Feature"). If Employee or his personal representative elects to receive such Severance Pay Feature, such amount shall be paid to Employee or his personal representative in the same method as Employee was receiving Base Compensation while employed by the Company. By way of example, if Employee was paid Base Compensation in the amount of $30,000 in his first year of employment with the Company (paid in weekly installments), and was paid $20,000 over the following six (6) month period (in weekly installments) before being terminated by the Company without Cause; then, upon Employee or his personal representative electing to receive the Severance Pay Feature, Employee or his personal representative would be entitled to receive $30,000 paid over a one (1) year period in weekly installments, followed by $20,000 to be paid over the following six (6) month period in weekly installments. 3 The Severance Election must be exercised in writing by Employee or his personal representative within ten (10) days of Employee or his personal representative receiving written notification from the Company of such right to make such Severance Election. If Employee or his personal representative does not make such Severance Election in accordance with such requirements, the Company, and not Employee, shall have the right to make such Severance Election. In the event Employee or his personal representative makes the severance Election (or the Company elects, in the event Employee fails to elect as provided herein) to receive the Severance Pay Feature, all of Employee's option privileges under the Option Agreement shall expire as of the date of the event occurring which entitled Employee to make the Severance Election. Thereafter, neither Employee or his personal representative shall have the right to purchase any Option Shares and Employee or his personal representative shall promptly endorse in blank and deliver to the Company all Option Shares then owned by Employee. All such Option Shares shall be deemed canceled as of the date of such election. Neither Employee nor his personal representative shall be entitled to receive any consideration for the return of such Option Shares or the termination of the right to purchase any additional Option Shares under the Option Agreement. (ii) For a period of one hundred eighty (180) days following the date of exercise of the Severance Election by Employee to retain the Option Feature, the Company shall have an option to terminate all of Employee's option privileges under the Option Agreement and to purchase all of the Option Shares acquired by Employee pursuant to the Option Agreement. The terms and conditions of such option shall be as provided in subparagraph 9(a)(ii) of the Option Agreement. (e) If at a time when the Common Stock of the Company is Publicly Traded, Employee's employment with the Company is terminated in accordance with subparagraphs 5(b)(iv), 5(b)(v) or 5(b)(vi), then: (i) Employee shall not have any right to make the Severance Election; (ii) Employee's right to exercise any options for unvested Option Shares pursuant to the Option Agreement shall terminate immediately upon such event; (iii) Employee may retain all of his Option Shares subject to the terms and conditions of the Option Agreement; and (iv) Employee's right to exercise any options for Option Shares which are vested in accordance with paragraph 1(b) of the Option Agreement at the time of Employee's termination of employment shall continue to be effective until the termination of the options in accordance with the terms of the Option Agreement. 4 (f) Employee shall be entitled to be reimbursed in accordance with the policies of the Company, as adopted from time to time, for all reasonable and necessary expenses incurred by Employee in connection with the performance of Employee's duties of employment hereunder. (g) The obligations of the parties under subparagraphs 5(c), 5(d) and 5(e) shall survive the termination of Employee's employment hereunder and shall not be extinguished thereby. 6. CONFIDENTIAL RELATIONSHIP AND PROTECTION OF TRADE SECRETS AND CONFIDENTIAL INFORMATION. At the time of execution hereof, Employee shall execute a nondisclosure agreement in the form which is executed by other employees of the Company. 7. COVENANT NOT-TO-COMPETE. (a) During the term of his employment with the Company, Employee owes a duty of good faith and loyalty to the Company. (b) Employee agrees that, in the event of a termination of Employee's employment. Employee will not, for a period of one (1) year after such termination, without the prior written consent of the Company, (i) either directly or indirectly, on his own behalf or on the service of on behalf of others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, to any Competing Business, as hereinafter defined, any customer or prospective customer of the Company or Actamed Development Corp. with whom Employee had contact on behalf of the Company or Actamed Development Corp. within one (1) year prior to such termination of employment or (ii) perform similar services for a Competing Business as those which he performed for the Company or Actamed Development Corp. during the one (1) year period prior to such termination of employment. (c) Employee agrees that, in the event of a termination of Employee's employment hereunder, Employee will not, for a period of one year after such termination, without the prior written consent of the Company, either directly or indirectly, on his own behalf or on the service of or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert or hire away, to any Competing Business, as hereinafter defined, any person employed by the Company or Actamed Development Corp., whether or not such person is a full-time employee or a temporary employee of the Company or Actamed Development Corp. and whether or not such employment is pursuant to a written agreement and whether or not such employment is for a determined period or is at will. (d) As used in this Agreement, "Competing Business" means any person or entity that is principally engaged in a business substantially the same as the business of the Company or Actamed Development Corp. 5 (e) Each of the covenants and agreements of Employee set forth in this paragraph 7 hereof shall be deemed separate and severable, each from the other, and should any such separate and severable covenant or agreement, or any part thereof, be declared invalid or unenforceable by a court of competent jurisdiction from which no appeal is timely taken, such declaration of invalidity or enforceability shall not in any way affect or limit the validity or enforceability of any other covenant or agreement, or part thereof, not also declared invalid or unenforceable, each of which shall remain binding on Employee in accordance with its respective terms. Further, if any such covenant or agreement is so declared to be invalid or unenforceable, Employee shall, as soon as possible, execute a supplemental agreement with the Company granting to the Company, to the extent legally permissible, the protection intended to be afforded to the Company and Actamed Development Corp. by the covenant or agreement so declared invalid or unenforceable. 8. SPECIFIC ENFORCEMENT. The Company and Employee agree a violation of paragraph 7 of this Agreement will cause irreparable injury to the Company and its affiliates and that, accordingly, the Company will be entitled, in addition to any other rights and remedies it may have at law or in equity, to seek an injunction enjoining and restraining Employee from doing or planning to do any such act and any other violation or threatened violation of paragraph 7. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. Any action in law or equity regarding this Agreement or Employee's rights hereunder may only be brought in the State of Georgia. 10. SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be valid or unenforceable for any reason by final judgment of a court of competent jurisdiction, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. Failure to insist upon strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision of this Agreement. 11. NO SET-OFF. The existence of any claim, demand, action or cause of action of Employee against the Company, whether or not based upon this Agreement, will not constitute a defense to the enforcement by the Company of any covenant or agreement of Employee contained herein. 12. NO ATTACHMENT. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that this provision shall not prevent Employee from designating one or more beneficiaries to receive any amount after his death and shall not preclude his executor or administrator from assigning any right hereunder. 6 to the person or persons entitled thereto, and in the event of Employee's death or a judicial determination of Employee's incompetence, Employee's rights under this Agreement shall survive and shall inure to the benefit of Employee's heirs, beneficiaries and legal representatives. 13. SOURCE OF PAYMENTS. All payments provided under this Agreement shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established and no other segregation of assets shall be made to assure payment. 14. TAX WITHHOLDING. The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 15. NOTICES. Any notice or communication between the Company and Employee with respect to his Agreement or events covered thereby shall be performed or confirmed in writing and be deemed given when personally delivered or mailed by registered or certified mail, return receipt requested, postage prepaid or dispatched by any overnight delivery service as follows: If to the Company: Actamed Corp. 5 Concourse Parkway Suite 250 Atlanta, Georgia 30328 If to Employee: 5010 McPherson Drive Roswell, Georgia 30075 or at such other address as either party may have furnished to the other in accordance herewith except that notices of change of address shall be effective only upon receipt. 16. AMENDMENT, TERMINATION, WAIVER. No provision of this Agreement may be amended, modified or waived unless in writing executed by the Company and Employee. No waiver by either party hereto of any breach by the other party hereto of any condition or any provisions of this Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or waiver of a similar or dissimilar condition or provision at the same time or any subsequent time. 17. SUCCESSORS. (a) This Agreement may not be assigned, transferred or conveyed by the Company except to a person or entity that acquires all or substantially all of the business of the 7 Company (whether such acquisition is by way of acquisition or assets, acquisition of stock, merger, consolidation or otherwise). (b) Employee may not assign, transfer or convey this Agreement. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will constitute an original but all of which together will constitute but a single document. 19. PRIOR AGREEMENTS. Except for the nondisclosure agreement executed pursuant to paragraph 6, this Agreement supersedes all previous agreements between the Company and Employee concerning terms and conditions of the employment of Employer by the Company, and all such previous agreements are hereby canceled by mutual consent. 20. BINDING EFFECT. This Agreement shall be binding on the parties to this Agreement and on their respective heirs, administrators, executors, successors and assigns. IN WITNESS WHEREOF, Employee has hereunder set his hand and seal, and the Company has caused this Agreement to be executed by its duly authorized officer as of the day and year first above written. EMPLOYEE: /s/ Michael K. Hoover ------------------------------------ Michael K. Hoover Witness: - ------------------------------------- ACTAMED CORP. By: /s/ P.E. Sadler ------------------------------- P.E. Sadler, Chairman of Board 8 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT, entered into as of this 3rd day of December, 1993, by and between ACTAMED CORP., a Georgia corporation (the "Company") and MICHAEL K. HOOVER ("Employee") hereby amends that certain Employment Agreement, dated as of September 23, 1992, by and between the Company and Employee (the "Employment Agreement"). W I T N E S S E T H: WHEREAS, the Company and Employee entered into Nonstatutory Stock Option Agreements, dated September 23, 1992 (as amended March 23, 1993), March 23, 1993 and December 1, 1993, respectively (collectively the "Original Option Agreements"); and WHEREAS, the Company and Employee on the date hereof have amended and restated the Original Option Agreements and have entered into Amended and Restated Nonstatutory Stock Option Agreements of even date hereof (the "Restated Agreements"), which Restated Agreements replace and supersede the Original Option Agreements; and WHEREAS, the Company and Employee desire to amend the terms of the Employment Agreement on the terms stated herein, to conform with replacement of the Original Option Agreements with the Restated Agreements; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows: 1. Section 4 of the Employment Agreement is deleted in its entirety and replaced with the following new Section 4: "4. STOCK OPTIONS. Simultaneously with the execution of that certain Amendment to this Agreement, dated December 3, 1993, by and between the Company and Employee (the "Amendment"), the Company and Employee have terminated the Original Option Agreements (as defined in the Amendment) and have entered into the Restated Agreements (as defined in the Amendment)." 2. Paragraph (d) of Section 5 is deleted in its entirety and replaced with the following paragraph (d): "(d) Intentionally Deleted." 3. Paragraph (e) of Section 5 is deleted in its entirety and replaced with the following paragraph (e): "(e) Intentionally Deleted." 4. Paragraph (g) of Section 5 is deleted in its entirety and replaced with the following paragraph (g): "(g) The obligations of the parties under paragraph 5(c) shall survive the termination of Employee's employment hereunder and shall not be extinguished thereby." 5. Section 15 is changed by indicating the address of the Company as: ActaMed Corp. 7000 Central Parkway, Suite 620 Atlanta, Georgia 30328 6. this Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. Any action in law or equity regarding this Amendment or Employee's rights hereunder may only be brought in the State of Georgia. 7. No provision of this Amendment may be amended, modified or waived unless in writing executed by the Company and Employee. 8. This Amendment may not be assigned, transferred or conveyed by the Company except to a person or entity that acquires all or substantially all of the business of the Company (whether such acquisition is by way of acquisition of assets, acquisition of stock, merger, consolidation or otherwise). Employee may not assign, transfer or convey this Amendment. 9. This Amendment may be executed in one or more counterparts, each of which will constitute an original but all of which together will constitute but a single document. 10. This Amendment shall be binding on the parties to this Amendment and on their respective heirs, administrators, executors, successors and assigns. 11. Except as specifically amended hereby, the Employment Agreement shall remain in full force and effect as in force and effect on the date hereof. IN WITNESS WHEREOF, Employee has hereunder set his hand and seal, and the Company has caused this Agreement to be executed by its duly authorized officer as of the day and year first above written. EMPLOYEE: /s/ Michael K. Hoover ------------------------------------ Michael K. Hoover Witness: /s/ Nancy J. Ham - ------------------------------------ ACTAMED CORP. By: /s/ PE Sadler --------------------------------- P. E. Sadler, Chairman of Board EX-10.29 39 EX-10.29 HEALTHEON CORPORATION 1998 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1998 Employee Stock Purchase Plan of Healtheon Corporation. 1. PURPOSE. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. DEFINITIONS. (a) "BOARD" shall mean the Board of Directors of the Company. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the common stock of the Company. (d) "COMPANY" shall mean Healtheon Corporation and any Designated Subsidiary of the Company. (e) "COMPENSATION" shall mean all base straight time gross earnings and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "EMPLOYEE" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "ENROLLMENT DATE" shall mean the first Trading Day of each Offering Period. (i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase Period. (j) "FAIR MARKET VALUE" shall mean, as of any date, the value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board; or (4) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "OFFERING PERIODS" shall mean the periods of approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after May 1 and November 1 of each year and terminating on the last Trading Day in the periods ending twenty-four months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before April 30, 2000. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "PLAN" shall mean this 1998 Employee Stock Purchase Plan. (m) "PURCHASE PERIOD" shall mean the approximately six month period commencing after one Exercise Date and ending with the next Exercise Date, provided, that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date; provided further, that the first Purchase Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and shall end on the last Trading Day on or before April 30, 1999. -2- (n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Board pursuant to Section 20. (o) "RESERVES" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "TRADING DAY" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading. 3. ELIGIBILITY. (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. OFFERING PERIODS. The Plan shall be implemented by consecutive, overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 1 and November 1 of each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before April 30, 2000. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter. -3- 5. PARTICIPATION. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. PAYROLL DEDUCTIONS. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding 15% of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, -4- which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than 5,000 shares of the Company's Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company's Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period. 8. EXERCISE OF OPTION. (a) Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. (b) If the Board determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Board may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on -5- such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company's stockholders subsequent to such Enrollment Date. 9. DELIVERY. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. WITHDRAWAL. (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. -6- 12. INTEREST. No interest shall accrue on the payroll deductions of a participant in the Plan. 13. STOCK. (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 1999 equal to the lesser of (i) 500,000 shares, (ii) 0.5% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. 14. ADMINISTRATION. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more -7- dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. TRANSFERABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 17. USE OF FUNDS. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. REPORTS. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or -8- liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) MERGER OR ASSET SALE. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. AMENDMENT OR TERMINATION. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's -9- Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (1) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (2) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and (3) allocating shares. Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants. 21. NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. -10- 24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. -11- EXHIBIT A HEALTHEON CORPORATION 1998 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: ___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. _________________________________ hereby elects to participate in the Healtheon Corporation 1998 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (not to exceed [__]%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to stockholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only):__________ ___________________________________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print)______________________________________________ (First) (Middle) (Last) _______________________________ ____________________________________________ Relationship ____________________________________________ (Address) -2- Employee's Social Security Number: ____________________________________ Employee's Address: ____________________________________ ____________________________________ ____________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________ ________________________________________ Signature of Employee ________________________________________ Spouse's Signature (If beneficiary other than spouse) EXHIBIT B HEALTHEON CORPORATION 1998 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Healtheon Corporation 1998 Employee Stock Purchase Plan which began on ____________, 19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ________________________________ ________________________________ ________________________________ Signature: ________________________________ Date:___________________________ EX-10.30 40 EX-10.30 EXHIBIT 10.30 HEALTHEON CORPORATION 4600 Patrick Henry Drive, Santa Clara, California 95054 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (the "AGREEMENT") summarizes the terms and conditions with respect to the purchase of shares of Series A Preferred Stock (the "PREFERRED STOCK" or the "SHARES") of Healtheon Corporation (the "COMPANY") by certain investors (the "PURCHASERS") identified below. It is the intention of the parties hereto that this Agreement shall be binding on each party hereto. PURCHASE OF PREFERRED STOCK The Preferred Stock will be sold on the following terms: Amount: $46,100,046(1) Purchase Price: $6.00 per share Number of Shares: 7,638,341 Shares of Preferred Stock(1) Anticipated Closing Date: October 29, 1998 Terms of Preferred Stock: The Preferred Stock shall be substantially identical to the Company's Series D Preferred Stock in its Certificate of Incorporation dated October 14, 1997; provided, however, that the liquidation preference and initial conversion price shall be $6.00 per share; the dividend rate shall be 0.405 per share, when as and if declared by the Board of Directors; the minimum initial public offering price resulting in an Automatic Conversion shall be $10.00 per share and the terms of the Preferred Stock shall not contain the mandatory conversion features contained in Section 3(c) of such certificate of incorporation. Representations and Warranties The Company represents and warrants as of the date hereof and as of the Closing Date that the representations and warranties contained in Section 1 of Annex I are and will be true and correct in all material respects. The Purchasers separately and severally as to themselves represent and warrant as of the date hereof and as of the Closing Date that the representations and warranties contained in Section 2 of Annex I are and will be true and correct in all material respects. (1) Does not include shares issued in connection with the exercise of rights of first refusal held by certain of the Company's current stockholders. Closing Conditions: 1. The Purchasers shall have received a certificate dated the Closing Date and signed by the chief executive officer of the Company to the effect that the representations and warranties attached hereto in Section 1 of Annex I are true and correct in all material respects as of the Closing Date and that the Company has satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. 2. The Purchasers shall have received a certificate signed by the Secretary of the Company attesting to the Company's (a) certificate of incorporation, (b) bylaws and (c) Board of Directors' minutes authorizing the Agreement and the transactions contemplated hereby. 3. The Purchasers shall have received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion addressed to them containing the opinions substantially in the form specified on Annex II attached hereto. 4. The Company shall have delivered certificates of good standing for the Company issued by the Delaware Secretary of State, California Secretary of State and the Georgia Secretary of State. 5. The Company shall have taken such corporate and stockholder actions as are necessary (a) to approve the Agreement and the transactions contemplated hereby (b) to approve and file with the Delaware Secretary of State the certificate of incorporation, as amended, and (c) to obtain the waiver of the rights of first refusal contained in the Company's Amended and Restated Investors' Rights Agreement. Covenants: Each Purchaser that owns an aggregate of 250,000 shares of the Preferred Stock of the Company shall be entitled to the information rights contained in Sections 2.1 and 2.2 of the Amended and Restated Investors' Rights Agreement. Expenses: Each party shall bear its own legal and other expenses with respect to the financing. -2- The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, administrators and transferees of the parties hereto. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. By signing below, each of the Purchasers represents for that it has read the Representations, Warranties and Covenants contained in Section 2 of Annex I attached hereto and that such representations and warranties are true and correct in all material respects. Each such Purchaser agrees to be bound by the lock up provisions contained in Section 2 of Annex I and to cause each of its assignees or transferees to be bound by such provisions. This Agreement shall be governed by the laws of the State of California as applicable to contracts entered into and performed entirely within the State of California. This Agreement is made this November __, 1998. Healtheon Corporation Purchaser By: By: -------------------------------- -------------------------------- Title: Title: ----------------------------- ----------------------------- Address: --------------------------- --------------------------- -3- ANNEX I 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Purchasers that: (a) The registration statement on Form S-1, as amended to the date hereof, filed by the Company with the Securities and Exchange Commission (the "REGISTRATION STATEMENT") and the U.S. preliminary prospectus contained therein (the "PROSPECTUS") on the date filed and on the Closing Date did not and will not contain any untrue statement of a material fact or omit 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, except that certain information contained in the Registration Statement reflects the closing of the public offering of the Company's Common Stock which has not occurred. There can be no assurance that such public offering of the Company's securities will ever occur. (b) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to enter into the Agreement, to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries (as defined below), taken as a whole. (c) Other than Actamed Corporation, a Georgia corporation ("ACTAMED"), UHC Green Acquisition Corp., a Nevada corporation ("UHC"), Metis Acquisition Corp. ("METIS") and Healtheon Software Development India Private Limited ("HEALTHEON INDIA") (each of Actamed, UHC, Metis and Healtheon India are referred to herein as a "SUBSIDIARY" and collectively as the "SUBSIDIARIES"), the Company has no subsidiaries. Each Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. All of the issued shares of capital stock of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims. The Company does not own, directly or indirectly, an interest in any other corporation, partnership, business, trust or other entity. AI-1 (d) The Company and each of its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and the Subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries, taken as a whole; and any real property and buildings held under lease by the Company and each of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material to the Company and its Subsidiaries, taken as a whole, and do not interfere with the use made and proposed to be made of such property and buildings of the Company and each of its Subsidiaries, in each case except as described in the Prospectus, or which intervention is not material to the Company and its Subsidiaries, taken as a whole. (e) The Agreement has been duly authorized, executed and delivered by the Company. (f) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (g) The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable. Except as set forth in the Prospectus and in the Amended and Restated Investors' Rights Agreement, dated May 19, 1998, by and between the Company and the persons and entities listed therein, neither the Company nor any of its Subsidiaries has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. All outstanding shares of capital stock and options and other rights to acquire capital stock have been issued in compliance with the registration and qualification provisions of all applicable federal and state securities laws and were not issued in violation of any preemptive rights, rights of first refusal or other similar rights. (h) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (i) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, and the sale by the Company of the Shares as contemplated hereby, will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any of its Subsidiaries or any agreement or other instrument binding upon the Company or any of its Subsidiaries that is material to the Company and its Subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or AI-2 any Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (j) Each agreement or other instrument that is binding upon the Company or any of its Subsidiaries and that is material to the Company and its Subsidiaries, taken as a whole, has been filed as an exhibit to the Registration Statement. (k) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its Subsidiaries, taken as a whole, from that set forth in the Prospectus. (l) Subsequent to the respective dates as of which information is given in the Prospectus, (i) the Company and its Subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction not in the ordinary course of business; (ii) the Company has not purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock; and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its Subsidiaries, except in each case as described in the Prospectus. (m) There are no legal or governmental proceedings pending or threatened to which the Company or any of its Subsidiaries is a party or to which any of the properties of the Company or any of its Subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (n) Each of the Company and each of its Subsidiaries has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local, foreign and other governmental or regulatory authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has received any notice of proceedings related to the revocation or modification of any such consent, authorization, approval, order, certificate or permit which, singly or in the aggregate, if the subject of any unfavorable decision, ruling or finding, would result in a material adverse change in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its Subsidiaries, taken as a whole, except as described in the Prospectus. AI-3 (o) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (p) The Company and each of its 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 ("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, singly or in the aggregate, have a material adverse effect on the Company and its Subsidiaries, taken as a whole. (q) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and its Subsidiaries, taken as a whole. (r) Except as described in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company. (s) The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; neither the Company nor any of its Subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its Subsidiaries, taken as a whole. (t) The financial statements, including the notes thereto, included in the Prospectus fairly present, in all material respects, the financial position of the Company as of the dates indicated and the results of its operations for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. AI-4 (u) Neither the Company nor, to the Company's knowledge, any other party is in violation or breach of, or in default with respect to, complying with any material provision of any contract, agreement, instrument, lease, license, arrangement or understanding which is material to the Company and its Subsidiaries taken as a whole, and each such contract, agreement, instrument, lease, license, arrangement and understanding is in full force and is the legal, valid and binding obligation of the Company or its Subsidiary and, to the Company's knowledge, the other parties thereto and is enforceable against the Company or its Subsidiary and, to the Company's knowledge, against the other parties thereto in accordance with its terms. (v) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. (w) Except as disclosed in the Prospectus, (i) the Company and each of its Subsidiaries owns or possesses all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, technology and know-how currently employed by them to conduct their respective businesses in the manner described in the Prospectus, (ii) neither the Company nor any of its Subsidiaries has received any notice of infringement of or conflict with (and neither the Company nor any of its Subsidiaries knows of any infringement or conflict with) asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect upon the Company and its Subsidiaries, taken as a whole, and (iii) the discoveries, inventions, products or processes of the Company and each of its Subsidiaries referred to in the Prospectus do not, to the knowledge of the Company or any of its Subsidiaries, infringe or conflict with any right or patent of any third party, or any discovery, invention, product or process that would have a material adverse effect on the Company and ts Subsidiaries, taken as a whole. (x) The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (y) No material labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that could have a material adverse effect on the Company and its Subsidiaries, taken as a whole. AI-5 (z) Immediately prior to the closing of the transaction contemplated hereby, the authorized capital stock of the Company consists of (a) 150,000,000 shares of Common Stock, $0.0001 par value, 54,522,049 shares of which are issued and outstanding, and (b) 6,675,003 shares of Preferred Stock, all of which is designated Series A Preferred Stock and none of which is issued and outstanding. The Company has granted options and issued warrants to purchase 13,898,427 shares of Common Stock. Other than such stock options and warrants or as identified in the Registration Statement, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock following the Closing. All issued and outstanding shares of the Company's capital stock have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with applicable federal and state securities law. The Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. (aa) Subject to the accuracy of the Purchasers' representations in Section 2 of this Annex I, the offer, sale and issuance of the Shares constitute transactions exempt from the registration requirements under the Securities Act of 1933, as amended. (bb) The Company intends to use the proceeds from the sale of the Shares in a manner consistent with the "Use of Proceeds" section in the Prospectus. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. Each Purchaser represents, warrants and covenants to the Company the following: (a) Purchaser agrees that to the extent specified by the Company and an underwriter of Common Stock (or other securities) of the Company, it will at the time of an initial public offering execute a lock-up agreement to the effect that it will not sell, offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to funds or affiliates of such Purchasers or to donees who agree to be similarly bound) any securities of the Company (other than securities already registered) during a reasonable and customary period of time not to exceed one hundred and eighty (180) days, as agreed to by the Company and the underwriters, following the effective date of the Company's firm commitment initial public offering pursuant to a registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"); provided, however, that all officers and directors of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to the securities of each Purchaser (and the shares or securities of every other person subject to the foregoing restriction) until the end of such one hundred and eighty (180) day period. The Company agrees to remove such stop transfer instructions at the end of such 180-day period. AI-6 (b) Purchaser is acquiring the Shares for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Shares have not been, and will not be when issued, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the representations as expressed herein. (c) Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. (d) Purchaser understands that no public market now exists, and that a market may never exist, for any of the securities issued by the Company. AI-7 ANNEX II FORM OF LEGAL OPINION Wilson Sonsini Goodrich & Rosati shall deliver the following opinions in substantially the form set forth herein. For purposes of delivering opinion no. 8, such counsel may assume that all agreements and other instruments that are material to the Company have been filed as exhibits to the Registration Statement. In addition, such counsel shall be entitled to make such assumptions, to limit such opinions and to rely on such certificates as to factual matters as are standard in legal opinions given in connection with venture capital financings. 1. The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property, enter into the Agreement and to conduct its business as presently conducted and proposed to be conducted and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 2. Each Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as presently conducted and proposed to be conducted and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 3. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Registration Statement, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4. The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable. 5. All of the issued shares of capital stock of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims. 6. The Shares have been duly authorized and, when issued and delivered in accordance with the terms of the Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive right or rights of first refusal or similar rights which have not been waived or otherwise provided for us as set forth in the Agreement. 7. The Agreement has been duly authorized, executed and delivered by the Company. The Agreement constitutes a valid and binding obligation of the Company. AII-1 8. The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Agreement will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any agreement or other instrument binding upon the Company or any of its Subsidiaries that is an exhibit to the Registration Statement, or to such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under the Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. 9. Immediately prior to the closing of the transaction contemplated hereby, the authorized capital stock of the Company consists of (a) 150,000,000 shares of Common Stock, $0.0001 par value, 54,522,049 shares of which are issued and outstanding, and (b) 6,675,003 shares of Preferred Stock, all of which is designated Series A Preferred Stock and none of which is issued and outstanding. The Company has granted options and issued warrants to purchase 13,898,427 shares of Common Stock. Other than such stock options and warrants, there are no options, warrants or other rights to purchase any of the Company's authorized and unissued capital stock following the Closing. All issued and outstanding shares of the Company's capital stock have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with applicable federal and state securities law. The Company is not a party or subject to any agreement or understanding, and, to such counsel's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 10. After due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its Subsidiaries is a party or to which any of the properties of the Company or any of its Subsidiaries is subject that would question the validity of the Agreement or would be required to be described in the Registration Statement and are not so described or of any statutes, regulations, contracts or other documents that would be required to be described in the Registration Statement or to be filed as exhibits to the Registration Statement that are not described or filed as required. AII-2 EX-21.1 41 EX-21.1 EXHIBIT 21.1 ActaMed Corporation Georgia EDI Services, Inc. Nevada Metis Acquisition Corp. Delaware EX-27.1 42 EX-27.1
5 1,000 YEAR 9-MOS DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 SEP-30-1998 16,504 4,526 5,300 866 2,794 5,234 71 130 0 0 26,587 12,276 9,043 18,799 3,543 7,523 53,747 50,270 11,797 18,331 0 0 50,948 0 43,756 0 1 5 (53,687) 30,220 53,747 50,270 0 0 13,390 33,231 0 0 10,547 31,200 28,231 37,161 35 66 323 361 (28,005) (35,613) 0 0 (28,005) (35,613) 0 0 0 0 0 0 (28,005) (35,613) (3.88) (1.23) (3.88) (1.23)
-----END PRIVACY-ENHANCED MESSAGE-----