The following table sets forth information concerning the compensation
earned for services rendered to us in 1999 by both individuals who served as
our Chief Executive Officer during 1999 and by our four other most highly
compensated executive officers who earned more than $100,000 in 1999 and were
serving as executive officers at the end of 1999, referred to in this section
and the section entitled "Security Ownership by Principal Stockholders,
Management and Directors" as the "named executive officers." Mr. Long was our
Chief Executive Officer until November 1999 and was also one of the four most
highly compensated executive officers at the end of 1999. Under the rules of
the 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 $50,000 or 10% of any officer's salary and bonus
disclosed in this table.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------- ------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS (#) COMPENSATION(1)
--------------------------- ---- --------- -------- ----------- ---------------
W. Michael Long (2)
Chairman of the Board of Directors.. 1999 $250,000 $ -- 1,000,000 $ --
1998 458,337 -- -- --
Jeffrey T. Arnold (3)
Chief Executive Officer............. 1999 41,667 -- -- 1,000
1998 -- -- -- --
Pavan Nigam
Executive Vice President, Chief
Technology Officer.................. 1999 225,000 -- 300,000 122,356
1998 225,000 -- 325,000 --
John L. Westermann III
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary........................... 1999 175,000 -- 20,000 4,848
1998 75,000 -- 500,000 --
Steven E. Curd
Executive Vice President, Chief
Information Officer................. 1999 206,558 -- 400,000 216,519
1998 -- -- -- --
(1) For Mr. Arnold, consists of amount paid related to automobile allowance.
For Mr. Nigam, consists of forgiveness of principal and interest on a loan
made by us to Mr. Nigam. For Mr. Westermann, consists of personal travel
expenses reimbursement. For Mr. Curd, consists of $107,591 of imputed
interest on an interest-free loan made by us to Mr. Curd in March 1999 to
purchase his residence and an amount sufficient to pay the taxes payable by
him with respect to the loan and $108,928 of relocation expense
reimbursement and an amount sufficient to pay the taxes payable by
him on his residence.
(2) Mr. Long served as our Chief Executive Officer until our WebMD merger in
November 1999.
(3) Mr. Arnold was named our Chief Executive Officer in connection with our
WebMD merger in November 1999 and was employed by WebMD prior to that
time.
4
OPTION GRANTS IN FISCAL 1999
The following table sets forth certain information for the year ended
December 31, 1999, with respect to grants of stock options to each of the named
executive officers. These options have a term of 10 years and generally vest
over four years, with 25% vesting at the end of one year and 1/48 per month
thereafter. We granted options to purchase common stock and issued shares of
common stock under restricted stock purchase agreements equal to a total of
7,407,738 shares during 1999. Options were granted at an exercise price equal to
the fair market value of our common stock. Potential realizable values are net
of exercise price before taxes, and are based on the assumption that our common
stock appreciates at the annual rate shown, compounded annually, from the date
of grant until the expiration of the ten-year term. These numbers are calculated
based on Securities Exchange Commission requirements and do not reflect our
projection or estimate of future stock price growth.
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED IN 1999 PER SHARE DATE 5% 10%
---- ------- ---------- --------- ---- -- ---
W. Michael Long ...... 1,000,000 4.83% $ 5.40 01/28/09 $3,396,030 $8,606,209
Jeffrey T. Arnold(1) . -- -- -- -- -- --
Pavan Nigam .......... 300,000 1.45 5.40 01/28/09 1,018,809 2,581,863
John L. Westermann III 20,000 0.09 5.85 02/02/09 73,580 186,468
Steven E. Curd ....... 400,000 1.93 5.40 01/28/09 1,358,413 3,442,483
(1) Represents options assumed in connection with our WebMD merger to purchase
1,384,600 shares of WebMD common stock, which options now represent
options to purchase 2,486,741 shares of our common stock.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning exercisable and unexercisable options held as of
December 31, 1999. The values of in-the-money options are based on the fair
market value of our common stock as of December 31, 1999 of $37.50 and are net
of the option exercise price.
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
SHARES DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999
ACQUIRED ON VALUE ------------------------------- ----------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
---- ----------- ----------- ----------- ------------- -------------- ----------------
W. Michael Long ......... 400,000 $3,100,000 710,416 1,989,584 $26,462,996 $68,962,004
Jeffrey T. Arnold ....... -- -- 1,243,369 1,243,372 39,116,389 39,116,483
Pavan Nigam ............. 10,000 436,250 172,812 567,188 5,939,774 18,647,726
John L. Westermann III .. 50,000 2,012,840 20,833 149,167 687,489 4,895,511
Steven E. Curd .......... -- -- -- 400,000 -- 12,840,000
Except in the case of Messrs. Long and Arnold, options shown above were
granted under our 1996 stock plan and vest at a rate of 1/4 of the shares on
the first anniversary of the date of grant and 1/48 of the shares each month
thereafter. The options granted to Mr. Long were granted under our 1996 plan
and vested immediately as to 1/4 of the shares and vest ratably each month
during the second through fourth years of his employment as to the remainder of
the shares. The options granted to Mr. Arnold were granted pursuant to his
employment agreement with WebMD
5
and outside of any stock plan and were assumed by us in connection with our
WebMD merger. These options vested as to 1/3 immediately and vest as to 1/6,
1/6 and 1/3 on the first three anniversaries of the date of grant.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the board or
any board committee, but they are entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with their attendance at board
and board committee meetings. All board members are eligible to receive stock
options under the 1996 stock plan, and outside directors receive stock options
pursuant to automatic grants of stock options under the 1996 stock plan.
In January 1999, we granted to each of Dr. Clark and Mr. Doerr and three
other persons who were serving as directors at that time an option to purchase
20,000 shares of its common stock under the 1996 stock plan with an exercise
price equal to $3.55 per share. In February 1999, we granted to each of two
persons who were serving as directors at such time an option to purchase 30,000
shares of its common stock under the 1996 stock plan with an exercise price
equal to $5.85 per share. The board also determined that under the 1996 stock
plan each outside director will automatically receive an option to purchase
20,000 shares of common stock annually on January 1.
COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS
In July 1997, we entered into an employment agreement with Mr. Long under
which Mr. Long became our President and Chief Executive Officer. We granted Mr.
Long an option to purchase 2,500,000 shares of common stock under the 1996
stock plan, 1/4 of which vested immediately, and the remainder of which vests
ratably each month during the second through the fourth years of his
employment. In addition, Mr. Long purchased 250,000 shares for $500,000,
$499,750 of which was represented by a promissory note to us, and was issued a
warrant to purchase an additional 750,000 shares at an exercise price of $2.00
per share. The shares issuable upon exercise of this warrant are subject to a
right of repurchase commencing on Mr. Long's employment start date and lapsing
as to 31,250 shares each month. The employment agreement provides that should
Mr. Long leave Healtheon/WebMD because he is no longer offered a position with
similar responsibility due to a change of control of Healtheon/WebMD, Mr.
Long's option vests immediately as to 625,000 shares and our repurchase right
lapses. Additionally, if we terminate Mr. Long's employment without cause, he
will receive six months' salary in installments, his option will vest
immediately as to 625,000 shares and our repurchase right will lapse.
In connection with the WebMD merger, we became party to an employment
agreement effective September 30, 1998 with Jeffrey T. Arnold. His employment
agreement has a two-year term and renews for consecutive one-year terms, unless
either party gives 360-days notice prior to the expiration of any term. We pay
Mr. Arnold an annual salary of $180,000, and we may pay him an annual bonus as
determined by our board or compensation committee. Mr. Arnold has agreed not to
compete with us during the term of his employment and for one year after his
termination. If we terminate Mr. Arnold without cause, Mr. Arnold will be
entitled to 12 months' salary as severance. WebMD granted Mr. Arnold options to
acquire 1,384,600 shares of common stock of WebMD which, in connection with our
WebMD merger, were assumed by us and became options to purchase 2,486,741
shares of our common stock. These options were granted pursuant to Mr. Arnold's
employment agreement and outside of any stock plan. His options vested 1/3 on
the date of grant and vest 1/6, 1/6 and 1/3 on the first three anniversaries of
the date of grant. In connection with the WebMD merger, Mr. Arnold agreed to
waive any change of control vesting which would occur as a result of the
merger. If Mr. Arnold is terminated after the merger for any reason other than
cause, all his options will immediately vest.
6
EMPLOYEE BENEFIT PLANS
1996 stock plan
In February 1996 our board adopted and our stockholders approved the 1996
stock plan. We initially reserved for issuance 9,000,000 shares of common stock
under the 1996 stock plan. In March 1998, our board and stockholders each
approved an amendment to the 1996 stock plan to increase the number of shares
of common stock reserved under the plan to 10,000,000 shares. In July 1998, our
board approved, and in October 1998, our stockholders approved, an amendment to
increase the number of shares of common stock issuable under the 1996 stock
plan to 15,000,000 shares plus annual increases equal to the lesser of 5% of
the outstanding shares or a lesser amount determined by our board. In January
1999, an additional 3,107,321 shares were reserved for issuance under the 1996
plan under the annual increase provision. In February 1999, our board and
stockholders approved an amendment to limit the automatic annual increase
provision to a maximum of 9,000,000 shares. In February 1999, our board and
stockholders also approved an amendment to increase the number of shares
reserved for issuance under the 1996 stock plan by an additional 1,000,000
shares. In November 1999, our board and stockholders approved an amendment to
increase the number of shares reserved for issuance under the 1996 stock plan
to 29,107,321 shares. Unless terminated sooner, the 1996 stock plan will
terminate automatically in February 2006. The 1996 stock plan provides for the
discretionary grant of incentive stock options, within the meaning of Section
422 of the tax code to employees and for the grant of nonstatutory stock
options and stock purchase rights to employees, directors and consultants. The
1996 stock plan also provides for annual grants of options to purchase 20,000
shares of common stock to each of our outside directors.
The 1996 stock plan may be administered by our board or a committee of our
board, which is referred to, as applicable, as the administrator. The
administrator has the power to determine the terms of the options or stock
purchase rights granted, including the exercise price of the options or stock
purchase rights, the number of shares subject to each option or stock purchase
right, the exercisability thereof, and the form of consideration payable upon
such exercise. In addition, the administrator has the authority to amend,
suspend or terminate the 1996 stock plan, provided that no share of common
stock previously issued and sold or any option previously granted under the
1996 stock plan is affected.
The exercise price of all incentive stock options granted under the 1996
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and
stock purchase rights granted under the 1996 stock plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the tax code, the exercise price must be at least equal to the fair
market value of the common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal 110% of the fair market value on
the grant date and its term must not exceed five years. The term of all other
options granted under the 1996 stock plan may not exceed ten years. Options
generally vest as to 25% at the end of the first year and monthly thereafter
over a period of three years so that the entire option is vested after four
years, based upon the optionee's continued employment or consulting
relationship with us.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with us 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 us. The repurchase option will lapse at a rate determined by
the administrator.
Options and stock purchase rights granted under the 1996 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 1996 stock plan must generally be exercised within 30
days after the end of
7
optionee's status as our employee, director or consultant, or within one year
after such optionee's termination by disability or death, respectively, but in
no event later than the expiration of the option's term.
The 1996 stock plan provides that, in the event of our merger with or into
another corporation, each outstanding option and stock purchase right must be
assumed or an equivalent option substituted by the successor corporation. If
the outstanding options and stock purchase rights are not assumed or
substituted by the successor corporation, the outstanding options and stock
purchase rights will terminate.
1998 employee stock purchase plan
Our 1998 employee stock purchase plan, or the 1998 purchase plan, was
adopted by our board in September 1998, and approved by our stockholders in
October 1998. A total of 1,000,000 shares of common stock was reserved for
issuance under the 1998 purchase plan, plus annual increases equal to the
lesser of 500,000 shares, 0.5% of the outstanding shares on such date, or a
lesser amount determined by the board. In November 1999, our board and
stockholders approved an amendment to increase the number of shares reserved
for issuance under the 1998 purchase plan to 2,000,000 shares and to change the
formula for annually increasing the number of shares available to be issued
under the 1998 purchase plan on the first day of each fiscal year by the lesser
of:
- 1,000,000 shares
- 0.5% of the outstanding shares on such date, or
- a lesser amount determined by our board of directors
The 1998 purchase plan contains consecutive, overlapping, 24-month
offering periods. Each offering period includes four six-month purchase
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first such offering
period which commenced on the first trading day after the effective date of our
initial public offering and will end on the last trading day on or before
October 31, 2000.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted an option
to purchase stock under the 1998 purchase plan if the employee immediately
after grant would own stock possessing 5% or more of the total combined voting
power or value of all classes of our capital stock, or holds rights to purchase
stock under any of our employee stock purchase plans that together accrue at a
rate which exceeds $25,000 worth of stock for each calendar year. The 1998
purchase plan permits each participant to purchase common stock through payroll
deductions of up to 15% of the participant's compensation. Compensation for
these purposes is defined as the participant's base straight time gross
earnings and commissions but excludes payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation. The
maximum number of shares a participant may purchase during a single purchase
period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each purchase period. The price of
stock purchased under the 1998 purchase plan is 85% of the lower of the fair
market value of the common stock at the beginning of the offering period or at
the end of the purchase period. In the event the fair market value at the end
of a purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
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 us.
8
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 our merger with or into
another corporation or a sale of substantially all of our 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. Our board has the authority to amend or terminate the 1998 purchase plan,
except that no amendment or termination may adversely affect any outstanding
options under the 1998 purchase plan. Our board may alter the purchase price
for any offering period or shorten an offering period at any time without
consent of our stockholders or of any participants.
401(k) plan
We participate in a tax-qualified employee savings and retirement plan, or
the 401(k) plan, which covers all of our full-time employees who have completed
three months of service. Under the 401(k) plan, eligible employees may defer up
to 20% of their pre-tax earnings, subject to the Internal Revenue Service's
annual contribution limit. The 401(k) plan permits additional discretionary
matching contributions by us on behalf of all participants in the 401(k) plan
in such a percentage amount as may be determined annually by our board. To
date, we have made no matching contributions. The 401(k) plan is intended to
qualify under Section 401 of the tax code, as amended, so that contributions by
employees or by us to the 401(k) plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) plan, and so that
contributions by us, if any, will be deductible by us when made. The trustee
under the 401(k) plan, at the direction of each participant, invests the assets
of the 401(k) plan in any of a number of investment options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William W. McGuire, M.D., a member of the compensation committee until his
resignation from our board in January 2000, is the Chairman and Chief Executive
Officer of UnitedHealth Group, which, with its affiliates, entered into service
and license agreements with us. Although UnitedHealth Group was one of our
principal shareholders, its holdings no longer constitute more than 5% of our
common stock. Eric J. Gleacher, a member of our compensation committee, is the
Chief Executive Officer and Chairman of the Board of Gleacher & Co. LLC, which
provides financial advisory services to us. For a more complete description of
these relationships, see "Related Party Transactions." No interlocking
relationship exists between our 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
Our certificate of incorporation and bylaws limit or eliminate the
personal liability of our directors for monetary damages for breach of the
directors' fiduciary duty of care. The duty of care generally requires that,
when acting on our behalf, 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 us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
- any breach of the director's duty of loyalty to us or our
stockholders
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions
- any transaction from which the director derived an improper personal
benefit
9
These provisions are permitted under Delaware law.
Our certificate of incorporation also provides that we will indemnify, to
the fullest extent permitted by law, any person made or threatened to be made a
party to any action or proceeding by reason of the fact that they are or were a
director or officer of us or serve or served at any other enterprise as a
director, officer or employee at our request.
Our bylaws provide that we will, to the maximum extent and in the manner
permitted by Delaware law, indemnify each of the following persons against
expenses, including attorneys' fees, judgments, fines, settlements, and other
amounts incurred in connection with any proceeding arising by reason of the
fact that they are or were our agent:
- a current or past director or officer of us or any of our
subsidiaries
- a current or past director or officer of another company who served
at our request
- a current or past director or officer of a corporation that was a
predecessor corporation of us or any of its subsidiaries or of
another company at the request of a predecessor corporation or
subsidiary
We have entered into indemnification agreements with each of our 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 our
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 their services to us, our subsidiaries
or any other company to which they provide services at our request. In
addition, we have obtained directors' and officers' insurance providing
indemnification for our directors, officers and some employees for specified
liabilities. We believe that these indemnification provisions and agreements
are necessary to attract and retain qualified directors and officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against directors and officers, even though
a derivative action, if successful, might otherwise benefit us and our
stockholders. Furthermore, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement and damage awards against
our directors and officers under these indemnification provisions.
At present, there is no pending or threatened litigation or proceeding
involving any of our directors, officers or employees where indemnification is
expected to be required or permitted, and we are not aware of any threatened
litigation or proceeding that might result in a claim for indemnification.
10
ITEM 12. SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 2000 by:
- each person known by us to own beneficially more than 5% of our
common stock
- each of our directors
- each of the named executive officers
- all of our directors and executive officers as a group
The number and percentage of our shares of common stock owned is based on
182,047,106 shares outstanding as of March 31, 2000. Beneficial ownership is
determined under the rules and regulations of the SEC. Shares of common stock
subject to options or warrants that are currently exercisable or exercisable
within 60 days of March 31, 2000 are deemed to be outstanding and beneficially
owned by the person holding the options or warrants for the purpose of
computing the number of shares beneficially owned and the percentage ownership
of that person. The shares subject to options or warrants held by a person are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnotes to this
table, and subject to applicable community property laws, these persons have
sole voting and investment power with respect to all shares of our common stock
shown as beneficially owned by them. Unless otherwise indicated, the address of
each of the beneficial owners identified is c/o Healtheon/WebMD Corporation,
400 The Lenox Building, 3399 Peachtree Street, NE, Atlanta, GA 30326.
COMMON EXERCISABLE EXERCISABLE
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK WARRANTS OPTIONS PERCENT
------------------------------------ ----- -------- ------- -------
Entities associated with Janus Capital
Corporation(1) .............................. 24,597,765 -- -- 13.5%
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Microsoft Corporation ....................... 11,933,340 13,676,387 -- 13.1
One Microsoft Way - Bldg. 8
North Office 2211
Redmond, WA 98052
Entities associated with The News Corporation
Limited(2) ................................. 23,282,645 -- -- 11.4
2 Holt Street
Sydney, New South Wales 2010
Australia
Entities associated with FMR Corp.(3) ....... 15,334,467 -- -- 8.4
82 Devonshire Street
Boston, MA 02109
W. Michael Long ............................. 1,165,125 750,000 904,165 1.5
Jeffrey T. Arnold(4) ........................ 6,503,458 -- 1,243,369 4.2
James H. Clark(5) ........................... 11,739,262 -- 6,666 6.5
c/o Healtheon/WeMD Corporation
4600 Patrick Henry Drive
Santa Clara, CA 95054
11
----------------------------------------------------------
COMMON EXERCISABLE EXERCISABLE
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK WARRANTS OPTIONS PERCENT
------------------------------------ ----- -------- ------- -------
L. John Doerr(6) ............................ 8,149,459 29,359 6,666 4.5
c/o Kleiner, Perkins, Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
U. Bertram Ellis, Jr ........................ 493,207 -- -- *
c/o iXL Enterprises, Inc.
2 Park Place
1888 Emery Street, NW
Atlanta, GA 31318
Eric J. Gleacher(7) ......................... 186,514 1,239,274 -- *
c/o Gleacher & Co., LLC
660 Madison Avenue
New York, NY 10021-8405
Charles G. V. Stevens ....................... *
c/o Microsoft Corporation
One Microsoft Way-Bldg. 8
North Office 2211
Redmond, WA 98052
William P. Payne ............................ -- -- 519,367 *
c/o PTEK Holdings, Inc.
The Lenox Building, Suite 600
3399 Peachtree Road, NE
Atlanta, GA 30326
John L. Westermann III ...................... 431,677 -- 30,988 *
Pavan Nigam(8) .............................. 315,010 -- 319,687 *
All executive officers and directors as a
group (17 persons) .......................... 29,144,760 2,018,633 4,278,834 18.8
* Less than 1%
(1) Represents:
- 6,986,475 shares held of record by Janus Capital Corporation
- 17,611,290 shares held of record by Janus Twenty Fund. As a result of
its role as investment advisor or sub-advisor to managed portfolios,
Janus Capital, a registered investment adviser furnishing investment
advice to investment companies and institutional clients, may be
deemed a beneficial owner of shares held by managed portfolios,
including Janus Twenty Fund. Janus Capital, however, has no right to
receive dividends from or proceeds from the sales of the securities
and disclaims ownership associated with such rights.
(2) Represents:
- 2,000,000 shares of common stock and an additional 7,383,168 shares
of common stock issuable upon conversion of 54,101 shares of Series A
preferred stock held of record by News America Incorporated, an
entity which is controlled through intermediaries by The News
Corporation Limited, approximately 30% of the voting stock of which
is owned by Rupert Murdoch, members of his family, companies owned by
Mr. Murdoch or trusts, the beneficiaries of which include Mr. Murdoch
and his family
12
- 9,844,269 shares of common stock issuable upon conversion of 72,135
shares of Series A preferred stock held of record by Fox Broadcasting
Company, a wholly owned subsidiary of Fox Entertainment Group, Inc.
- 3,892,945 shares of common stock issuable upon conversion of 28,526
shares of Series A preferred stock held of record by AHN/FIT Cable
LLC, an entity 50% owned and managed through intermediaries by Fox
Entertainment
- 162,263 shares of Common Stock issuable upon conversion of 1,189
shares of Series A preferred stock held of record by AHN/FIT
Internet, LLC, an entity 50% owned and managed through intermediaries
by Fox Entertainment
(3) Represents:
- 12,741,239 shares of record held by Fidelity Management & Research
Company, a wholly owned subsidiary of FMR Corp. Edward C. Johnson,
III, and members of his family are predominant owners of Class B
shares of common stock of FMR Corp., which represents approximately
49% of FMR Corp.'s voting power. Edward Johnson, Chairman of FMR
Corp. owns 12% of FMR Corp.'s aggregate outstanding voting stock and
Abigail Johnson owns 24.5%. Family members have a voting agreement
requiring that all shares of Class B common stock be voted in
accordance with the majority vote of Class B shareholders. As a
result, the Johnson family may be deemed to form a controlling group
with respect to the FMR Corp.
- 1,054,418 shares of record held by Fidelity Management Trust Company,
a wholly owned subsidiary of FMR Corp.
- 1,538,810 shares of record held by Fidelity International Limited, a
majority owned subsidiary of Fidelity Management & Research until
June 30, 1980, when Fidelity International Limited's shares held by
Fidelity Management & Research were distributed as a dividend to the
shareholders of FMR Corp. A partnership controlled by Edward C.
Johnson, III, and members of his family, own shares of voting stock
of Fidelity Management International entitled to cast 39.89% of the
total votes which could be cast by all Fidelity International stock.
Mr. Johnson is Chairman of Fidelity International.
(4) Represents:
- 5,057,812 shares held of record by Mr. Arnold
- 36,469 shares held of record by his wife
- 911,829 shares held of record by Arnold Family Irrevocable Trust
- 497,348 shares held of record by JT Arnold Enterprises LLLP, of which
Mr. Arnold is a general partner and in which he owns a 3% interest
with his wife
Mr. Arnold disclaims beneficial ownership of shares held by these entities
except to the extent of his or his wife's pecuniary interest in these
entities.
13
(5) Represents:
- 1,000,000 shares held of record by James H. Clark and Nancy Rutter
Clark 1995 Revocable Trust
- 9,362,369 shares held of record by Monaco Partners, LP, which is
wholly controlled by Dr. Clark
- 166,667 shares held of record by Atherton Properties Partnership,
which is wholly controlled by Dr. Clark
- 1,017,229 shares held of record by Clark Ventures, Inc., which is
wholly controlled by Dr. Clark
- 192,997 shares held of record by JHC Investment, LLC, which is wholly
controlled by Dr. Clark
(6) Represents:
- 3,677 shares held of record by Mr. Doerr
- 6,469,957 shares held of record and 26,423 in warrants held by
Kleiner Perkins Caufield & Byers VII L.P.
- 1,275,736 shares held of record by KPCB Java Fund
- 400,089 shares held of record and 2,936 shares issuable upon the
exercise of warrants held by KPCB Life Sciences Zaibatsu Fund II
KPCB Life Sciences Zaibatsu Fund II and KPCB VII are wholly controlled by
KPCB VII Associates. KPCB Java Fund is controlled by KPCB VIII. Mr. Doerr
is a general partner of KPCB VIII and KPCB VII Associates. Mr. Doerr
disclaims beneficial ownership of shares held by these entities except to
the extent of his pecuniary interest in the entities.
(7) Represents:
- 418,627 shares issuable upon the exercise of warrants held by Mr.
Gleacher
- 144,231 shares issuable upon the exercise of warrants held by Luna I
Investors, LLC
- 676,416 shares issuable upon the exercise of warrants held by
Gleacher & Co. LLC
Mr. Gleacher disclaims beneficial ownership of the warrants held by Luna I
Investors and Gleacher & Co. except to the extent of his pecuniary
interest in the entities.
(8) Represents:
- 47,500 shares held of record directly by Mr. Nigam
- 263,740 shares held of record by Nigam Living Trust
ITEM 13. RELATED PARTY TRANSACTIONS
Since January 1, 1999, there has not been, nor is there currently proposed
any transaction or series of similar transactions to which we or any of our
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 five
percent of our common stock or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest other
than the transactions described below.
14
Microsoft. We have entered into a five-year strategic alliance with
Microsoft which is described in detail under the heading "Business - Strategic
relationships - Microsoft." Microsoft is one of our principal stockholders.
Laura Jennings served as a member of our board of directors as Microsoft's
designee from November 1999 until she resigned in March 2000. Microsoft has
designated Charles G. V. Stevens to serve on our board of directors to fill
Laura Jennings' vacancy. In May 1999, Microsoft purchased 184,604 shares of
Series E preferred stock of WebMD and a warrant to purchase 7,614,916 shares of
Series D common stock of WebMD. In June 1999, Microsoft purchased 202,930 shares
of Series F preferred stock of WebMD pursuant to an offer to purchase. In
connection with the closing of the WebMD merger, Microsoft acquired an
additional 276,906 shares of Series E preferred stock of WebMD. As a result of
the WebMD merger, Microsoft owns 11,933,340 shares of our common stock and a
warrant to purchase an additional 13,676,387 shares of our common stock.
Quintiles. Upon the completion of our acquisition of Envoy Corporation
from Quintiles Transnational Corp., we will enter into a data rights agreement
and an Internet product development and marketing agreement with Quintiles.
Pursuant to the data rights agreement, Quintiles will license the data
available to us by virtue of our transaction services to develop and
commercialize data products, except that we are not required to provide, and
will not provide, data to Quintiles if we are prohibited from doing so by our
contracts with third parties or applicable law. All data licensed to Quintiles
will be de-identified data in that all data elements that would make the
licensed data individually identifiable to a particular person will be removed.
We will receive a royalty from Quintiles based upon the operating income
generated from these products. Under the Internet product development and
marketing agreement, we will engage in a collaborative effort with Quintiles to
develop, market and commercialize a portfolio of Internet-based products and
services for the pharmaceutical industry. Quintiles will pay the costs in
connection with our development activities and each of us will share revenues
with the other from the sale of these services. Pursuant to the Envoy merger
agreement, we will issue 35.0 million shares of our common stock to the
stockholders of Envoy which, if issued as of March 31, 2000 would have
represented approximately 16.1% of our common stock outstanding as of that
date. For more information regarding our proposed acquisition of Envoy, see
"Business - Recent events."
News Corporation. We have entered into various agreements in connection
with our strategic alliance with The News Corporation Limited and its
affiliates. Assuming conversion on March 31, 2000 of all of the shares of
Series A preferred stock held by affiliates of News Corporation, the holders of
the Series A preferred stock would receive 21,282,645 shares of common stock
which, together with the 2,000,000 shares of common stock held by News America,
would represent approximately 11.4% of our common stock outstanding on that
date. For more information regarding our strategic relationship with News
Corporation, see "Business - Recent events."
UnitedHealth Group. In April 1996, ActaMed, which we acquired in 1998,
entered into a services and license agreement with UnitedHealth Group that
granted UnitedHealth Group a license to specified technology and granted us the
responsibilities of managing the ProviderLink product and of providing other
information technology services to UnitedHealth Group. UnitedHealth Group pays
us fees based on the number of ProviderLink sites in use and transactions
processed. We are also obligated to provide support and maintenance services to
UnitedHealth Group. In October 1999, we entered into a new services and license
agreement with UnitedHealth Group pursuant to which UnitedHealth Group has
agreed to utilize us as its preferred vendor of electronic data interchange
services through our ProviderLink and WebMD Practice products, to UnitedHealth
Group's managed care providers and customers over the five-year term of our
agreement. We receive a monthly fee for each user site enrolled and a fee per
transaction for EDI and transaction processing services. In 1999, UnitedHealth
Group paid us an aggregate of approximately $14.7 million related to services,
transaction and license fees. This agreement superceded our prior agreement
with UnitedHealth Group. William W. McGuire, M.D., Chief Executive Officer and
Chairman of UnitedHealth Group, was one of our directors until his resignation
in January 2000.
SmithKline Labs. In December 1997, ActaMed entered into a series of
agreements with SmithKline Labs, which we assumed in connection with our merger
with ActaMed. Under our December 1997 services agreement with SmithKline Labs,
we render laboratory test order and results services to providers utilizing
SmithKline Labs' laboratory services through our SCAN product. SmithKline Labs
was obligated to pay us a minimum of
15
approximately $9.1 million in 1999 for laboratory test orders and results
transactions and is obligated to pay us approximately $9.1 million in 2000.
SmithKline Labs may be required to pay us additional fees for transactions we
process in the event the number of providers accessing SmithKline Labs'
laboratory services through SCAN increases. SmithKline Labs paid us an
aggregate of approximately $11.7 million in service and transaction fees during
1999 under this services agreement. This services agreement is effective
through December 2002, and provides for automatic successive two-year renewals,
subject to each party's right to elect not to renew the agreement no later than
180 days, in the case of SmithKline Labs, or 360 days, in our case, prior to
the end of a term. In the event that we give notice of non-renewal, SmithKline
Labs will be entitled to continue to receive long-term order entry and results
reporting services from us on a per transaction pricing basis or, in the
alternative, may require us to develop a service for SmithKline Labs that
duplicates the services we have been providing under the services agreement.
Also under our December 1997 services agreement, SmithKline Labs is
entitled, no more than once in any three consecutive month period, to request
that we engage in specified exclusive development work for SmithKline Labs. In
addition, SmithKline Labs has agreed to promote us as its preferred vendor for
laboratory electronic connectivity. The services agreement provides that the
parties will negotiate new rates as of January 1, 2001 and each two years after
that date. The services agreement states that the renegotiated rates must be
competitive with the marketplace and must be no higher than the lowest fees
charged by us to similarly situated customers.
In January 1999, we entered into a new services agreement with SmithKline
Labs under which we will provide electronic laboratory results delivery
services to approximately 20,000 provider sites, in addition to the sites
currently served through our SCAN product. The services agreement has a
five-year term. We received revenues of approximately $17.0 during 1999 with
respect to the January 1999 services agreement. We do not expect this
arrangement to significantly contribute to earnings in the near term. In
addition, we agreed to purchase, and in January 1999, we purchased, teleprinter
assets used by SmithKline Labs to provide laboratory results delivery services
in exchange for $2.0 million in cash and 1,833,333 shares of our common stock.
Profitability will depend on our ability to use these assets to provide results
delivery services for non-SmithKline labs and to transition these provider
sites to our Internet-based Dx product.
In August 1999, SmithKline Beecham Corporation sold SmithKline Labs to
Quest Diagnostics Incorporated. Although SmithKline Beecham was one of our
principal stockholders during 1999, it no longer beneficially owns more than 5%
of our common stock.
DuPont. DuPont has agreed to sponsor an aggregate of approximately 6.15
million subscriber months of WebMD Practice for physicians over the five-year
term of our alliance. We will share advertising, carriage fees and e-commerce
revenues with DuPont generated from our web site. DuPont's share of revenues
generally ranges from 15% to 50%, depending on the type of revenue. Although
DuPont was one of our principal stockholders immediately after the WebMD
merger, its holdings no longer constitute more than 5% of our common stock.
McKessonHBOC. In September 1999, we entered into an agreement with WebMD,
McKesson HBOC, Inc. and HBO & Company that terminated the prior strategic
agreements between WebMD and McKessonHBOC and its affiliates and provided for
an immediate cash payment by McKessonHBOC to WebMD of $3.6 million. In
consideration for this revised relationship, we provided for the issuance by
WebMD of warrants to HBOC to acquire 4,688,049 shares of WebMD nonvoting common
stock, which we assumed in connection with our WebMD merger and are exercisable
for shares of our common stock at the following per share exercise prices:
- 3,300,000 shares at $50.86
- 5,000,000 shares at $30.16
- 119,734 shares at $11.14
16
Although HBOC was one of our principal stockholders immediately after our
WebMD merger, its holdings no longer constitute more than 5% of our common
stock.
Gleacher & Co. Gleacher & Co. LLC, formerly Gleacher NatWest, Inc.,
provided financial advisory services to WebMD prior to the WebMD merger and
continues to provide these services to us. WebMD and Gleacher & Co. entered
into a two-year agreement relating to these services, and WebMD issued to
Gleacher & Co. a warrant to purchase 1,038,450 shares of WebMD Series D common
stock, which we assumed in connection with our WebMD merger. As a result of
transfers of portions of the warrant, Gleacher & Co. currently holds a fully
vested warrant to purchase 676,416 shares of our common stock, Luna I
Investors, LLC currently holds a fully vested warrant to purchase 144,231
shares or our common stock, and Eric J. Gleacher currently holds a fully vested
warrant to purchase 418,627 shares of our common stock, in each case at an
exercise price of $8.04 per share. Mr. Gleacher, a member of our board of
directors, is the Chairman and Chief Executive Officer of Gleacher & Co. and a
member of Luna I Investors.
iXL. In June 1998, WebMD entered into strategic agreements with iXL
Enterprises, Inc. for iXL's provision of web development services to WebMD,
which agreements we assumed in connection with our WebMD merger. In 1999, we
paid to iXL approximately $356,000 for web development services. U. Bertram
Ellis, Jr. a member of our board of directors, is the Chairman, Chief Executive
Officer and a stockholder of iXL. Jeffrey T. Arnold, our Chief Executive Officer
and a member of our board of directors, serves on the board of iXL.
PTEK Holdings. We lease the space for our corporate headquarters located in
Atlanta, Georgia from a subsidiary of PTEK Holdings. These leases expire in
February 2002 and November 2004 and require aggregate monthly payments to PTEK
Holdings of approximately $130,000. We also lease equipment and other personal
property used in our call center from a subsidiary of PTEK Holdings. This lease
expires in February 2002 and requires monthly payments to PTEK Holdings of
approximately $24,000.
We provide our subscribers with the option of using PTEK Holdings'
enhanced communications services through our physician portal. Our agreement
with PTEK Holdings is effective until January 2001 and requires minimum
payments to PTEK Holdings of $80,000 per month. In addition, the agreement
requires that we spend an aggregate of $750,000 for joint marketing efforts
with PTEK Holdings. In connection with obtaining PTEK Holdings' agreement to
vote for the WebMD merger, WebMD agreed to use its best efforts to cause us to
honor WebMD's rights and obligations under this agreement, including provisions
regarding exclusivity of telecommunications services. William P. Payne, a
member of our board of directors, is the Vice Chairman of PTEK Holdings and
Chairman of a subsidiary of PTEK Holdings. Mr. Arnold, our Chief Executive
Officer and a member of our board of directors, serves on the board of PTEK
Holdings.
William P. Payne, one of our directors, is an employee and the Chairman of
the Board of Orchestrate.com, a subsidiary of PTEK Holdings. As Chairman of
Orchestrate.com, one of Mr. Payne's principal duties is to assist us in the
development of our business for the purpose of increasing revenue opportunities
for PTEK Holdings. In connection with our WebMD merger, we assumed an agreement
between Mr. Payne and WebMD pursuant to which, in consideration of Mr. Payne's
devotion of up to 60% of his time directly to our business, we reimburse PTEK
Holdings $375,000 per year for Mr. Payne's salary, $125,000 per year for Mr.
Payne's minimum bonus and $6,000 per year for Mr. Payne's automobile allowance,
in each case until May 2000. We also reimburse Mr. Payne for any expenses he
incurs in discharging his duties to us.
Officer loan. In March 1999, we loaned Steven E. Curd, our Chief
Information Officer, $2.5 million for the purchase of a residence upon his
relocation to the San Francisco Bay area. The loan is secured, bears no
interest, and must be repaid by Mr. Curd upon the earlier of the end of five
years, the sale of the residence, or the discontinuation of his employment with
us. Mr. Curd also must apply to the loan any proceeds received by him from the
sale of our common stock resulting from the exercise of his stock options. We
have agreed to repurchase the residence from Mr. Curd upon his request at a
price equal to Mr. Curd's purchase price of the residence plus the cost of any
improvements. Additionally, we will reimburse Mr. Curd for the amount of taxes
payable by him for his residence as well as resulting from the loan.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereto duly authorized, on the 28th day of
April, 2000.
HEALTHEON/WEBMD CORPORATION
By: *
Jeffrey T. Arnold
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchanges Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
*
---------------------------------- Chief Executive Officer and Director April 28, 2000
Jeffrey T. Arnold (principal executive officer)
*
---------------------------------- Executive Vice President, Chief Financial April 28, 2000
John L. Westermann III Officer, Treasurer and Secretary
(principal financial officer)
* Chairman of the Board of Directors April 28, 2000
----------------------------------
W. Michael Long
* Director April 28, 2000
----------------------------------
James H. Clark
* Director April 28, 2000
----------------------------------
L. John Doerr
* Director April 28, 2000
----------------------------------
U. Bertram Ellis, Jr.
* Director April 28, 2000
----------------------------------
Eric J. Gleacher
* Director April 28, 2000
----------------------------------
William P. Payne
18
SIGNATURE CAPACITY DATE
*By: /s/ Jack D. Dennison
-----------------------------------
Jack D. Dennison
Attorney-in-Fact
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