-----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, GeJbBniTabEC3phPjJ9xug5vHU2i5mtvwwb/XuKOmZt5MdEn5IRQVkB9s1G8LpJ5 BFZLRte0RQPOKrJFe7KCog== 0000950130-99-006502.txt : 19991117 0000950130-99-006502.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950130-99-006502 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREINSITE INC CENTRAL INDEX KEY: 0001082000 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 223630930 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26345 FILM NUMBER: 99755560 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE STREET 2: RIVER DRIVE CENTER II CITY: ELMWOOD PARK STATE: NJ ZIP: 07407 BUSINESS PHONE: 2017033400 FORMER COMPANY: FORMER CONFORMED NAME: SYNETIC HEALTHCARE COMMUNICATIONS INC DATE OF NAME CHANGE: 19990316 10-Q 1 FORM 10-Q DATED SEPTEMBER 30, 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 Commission File Number 0-26345 CareInsite, Inc. (Exact name of registrant as specified in its charter) DELAWARE 22-3630930 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 669 River Drive, Center Two 07407-1361 Elmwood Park, New Jersey (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (201) 703-3400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No _____ ----- The number of shares of the registrant's common stock outstanding at November 8, 1999 was 70,410,134. CAREINSITE, INC. (a Development Stage Company) Index ----- PART I FINANCIAL INFORMATION:
Item 1. Financial Statements Page ---- Consolidated Balance Sheets - September 30, 1999 and June 30, 1999.............................. 3 Consolidated Statements of Operations - Three months ended September 30, 1999 and 1998 and Cumulative from Inception (December 24, 1996) through September 30, 1999............................................. 5 Consolidated Statements of Changes in Stockholders' Equity - for the Period from Inception (December 24, 1996) through June 30, 1997, the Years ended June 30, 1998 and June 30, 1999 and the three months ended September 30, 1999.............................................. 6 Consolidated Statements of Cash Flows -Three months ended September 30, 1999 and 1998 and Cumulative from Inception (December 24, 1996) through September 30, 1999............................................. 7 Notes to Consolidated Financial Statements...................................................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 17 PART II OTHER INFORMATION: Item 1. Legal Proceedings..................................................................... 18 Item 2. Changes In Securities and Use of Proceeds............................................ 18 Item 6. Exhibits and Reports of Form 8-K...................................................... 18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate", "believe", "estimate", "expect", and similar expressions, as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events, are not guarantees of future performance and are subject to certain risks and uncertainties. These risks and uncertainties may include: product demand and market acceptance risks; the feasibility of developing commercially profitable Internet healthcare services; the effect of economic conditions; user acceptance; success of transactions with third parties; the impact of competitive products, services and pricing; product development, commercialization and technological difficulties; the effect of government regulation of the Internet or healthcare e-commerce services; the outcome of litigation; and other risks described elsewhere herein, including those set forth in "--Management's Discussion and Analysis of Financial Condition and Results of Operations" below, and in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, or expected. The Company does not intend to update these forward-looking statements. 2 CAREINSITE, INC. (a Development Stage Company) CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS
September 30, June 30, 1999 1999 ------------------ --------------- (unaudited) CURRENT ASSETS: Cash and cash equivalents..................................................... $ 1,384 $ 64,019 Marketable securities......................................................... 54,378 54,670 Accounts receivable, net of allowances of $16 and $6 at September 30, 1999 and June 30, 1999, respectively........................ 637 532 Receivable from affiliates.................................................... 2,971 1,448 Current portion of prepaid marketing and licensing agreements................. 9,272 - Other current assets.......................................................... 1,957 697 ------------------ --------------- Total current assets.................................................... 70,599 121,366 ------------------ --------------- PROPERTY, PLANT AND EQUIPMENT: Leasehold improvements........................................................ 755 732 Equipment..................................................................... 8,217 3,454 Furniture and fixtures........................................................ 437 427 ------------------ --------------- 9,409 4,613 Less: Accumulated depreciation................................................ (2,307) (2,033) ------------------ --------------- Property, plant and equipment, net...................................... 7,102 2,580 ------------------ --------------- CAPITALIZED SOFTWARE DEVELOPMENT COSTS................................................. 31,330 31,330 OTHER ASSETS: Intangible assets, net of accumulated amortization of $2,734 and $1,902 at September 30, 1999 and June 30, 1999, respectively................. 21,807 22,475 Marketable securities......................................................... 50,000 - Investment.................................................................... 2,000 2,000 Prepaid marketing and licensing agreements.................................... 4,878 - Other......................................................................... 937 202 ------------------ --------------- Total other assets...................................................... 79,622 24,677 ------------------ --------------- $ 188,653 $ 179,953 ================== ===============
The accompanying notes are an integral part of these consolidated statements. 3 CAREINSITE, INC. (a Development Stage Company) CONSOLIDATED BALANCE SHEETS (in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30, 1999 1999 ------------- ----------- (unaudited) CURRENT LIABILITIES: Accounts payable........................................................... $ 5,554 $ 764 Payable to Parent.......................................................... 743 853 Payable to affiliate....................................................... 1,972 497 Accrued liabilities........................................................ 3,256 4,415 -------- -------- Total current liabilities........................................ 11,525 6,529 -------- -------- CONVERTIBLE REDEEMABLE PREFERRED STOCK 4,791 - -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 4) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 30,000,000 shares authorized; 100 shares issued and outstanding....................................... - - Common stock, $.01 par value, authorized 300,000,000 shares; 70,410,134 shares issued and outstanding............................... 704 704 Additional paid-in capital................................................. 254,405 247,932 Deficit accumulated during the development stage........................... (82,757) (75,490) Accumulated other comprehensive (loss) income.............................. (15) 278 -------- -------- Total stockholders' equity....................................... 172,337 173,424 -------- -------- $188,653 $179,953 ======== ========
The accompanying notes are an integral part of these consolidated statements. 4 CAREINSITE, INC. (a Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Cumulative From Inception (Dec. 24, 1996) Three Months Ended September 30. Through ---------------------------------------- 1999 1998 September 30, 1999 ----------------- ----------------- --------------------- Net revenue...................................................... $ 780 $ - $ 1,151 Service revenue to affiliates.................................... 877 - 1,870 ----------------- ----------------- --------------------- Total revenues.................................... 1,657 - 3,021 ----------------- ----------------- --------------------- Costs and Expenses: Cost of revenues....................................... 254 - 323 Cost of services to affiliates......................... 877 - 1,870 Research and development expenses...................... 3,123 508 26,040 Sales and marketing expenses........................... 1,912 311 6,705 General and administrative expenses.................... 2,556 831 10,538 Litigation costs....................................... 650 - 4,950 Acquired in-process research and development........... - - 32,185 Depreciation and amortization.......................... 1,173 452 5,107 ----------------- ----------------- --------------------- Total costs and expenses......................... 10,545 2,102 87,718 ----------------- ----------------- --------------------- Loss from operations............................................. (8,888) (2,102) (84,697) Other income, net................................................ 1,679 44 1,998 ----------------- ----------------- --------------------- Net loss......................................................... (7,209) (2,058) (82,699) Accretion on Series A Preferred Stock............................ (58) - (58) ----------------- ----------------- --------------------- Net loss available to common stockholders........................ $ (7,267) $ (2,058) $ (82,757) ================= ================= ===================== Net loss per share available to common stockholders, basic and diluted............................................... $ (0.10) $ (0.04) $ (1.54) ================= ================= ===================== Weighted average shares outstanding, basic and diluted........... 70,410 50,063 53,825 ================= ================= =====================
The accompanying notes are an integral part of these consolidated statements. 5 CAREINSITE, INC. (a Development Stage Company) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
Common Stock Deficit Accumulated ----------------- Accumulated Other Number Additional Stock During the Comprehensive Total of Paid- In Subscription Development Income Stockholders' Shares Amount Capital Receivable Stage (Loss) Equity ------- ------ ----------- ---------- ----------- ----------- ------------ Capitalization at Inception, December 24, 1996 50,063 $ 501 $ 9,499 $ (10,000) $ - $ - $ - Contribution of Avicenna assets............. - - 28,817 - - - 28,817 Contribution of CareAgents stock............ - - 3,250 - - - 3,250 Net loss.................................... - - - - (42,357) - (42,357) Capital contributions from Parent........... - - 11,856 - - - 11,856 ------ ------- ----------- --------- ------------ ---------- -------- Balance at June 30, 1997......................... 50,063 501 53,422 (10,000) (42,357) - 1,566 ------ ------- ----------- --------- ------------ ---------- -------- Net loss.................................... - - - - (10,335) - (10,335) Capital contributions from Parent........... - - 16,567 - - - 16,567 ------ ------- ----------- --------- ------------ ---------- -------- Balance at June 30, 1998......................... 50,063 501 69,989 (10,000) (52,692) - 7,798 ------ ------- ----------- --------- ------------ ---------- -------- Net loss.................................... - - - - (22,798) - (22,798) Unrealized gains on marketable securities... - - - - - 278 278 -------- Total comprehensive loss............... (22,520) Settlement of stock subscription receivable. - - - 10,000 - - 10,000 Common stock issued to Cerner............... 13,148 131 32,455 - - - 32,586 Issuance of warrants to THINC............... - - 1,700 - - - 1,700 Issuance of warrants to Horizon............. - - 6,725 - - - 6,725 Sale of common stock in initial public offering, net of underwriting discount and offering expenses of $10,509.......... 6,498 65 106,381 - - - 106,446 Common stock issued to Parent............... 701 7 11,207 - - - 11,214 Capital contributions from Parent........... - - 19,475 - - - 19,475 ------ ------- ----------- --------- ------------ ---------- -------- Balance at June 30, 1999......................... 70,410 704 247,932 - (75,490) 278 173,424 ------ ------- ----------- --------- ------------- ---------- -------- Net loss applicable to common stockholders - - - - (7,267) - (7,267) Unrealized losses on marketable securities - - - - - (293) (293) -------- Total comprehensive loss............... (7,560) Issuance of warrants........................ - - 555 - - - 555 Issuance of Series A Preferred Stock........ - - 5,268 - - - 5,268 Contributions from Parent................... - - 650 - - - 650 ------ ------- ----------- --------- ------------ ---------- -------- Balance at September 30, 1999 (unaudited)........ 70,410 $ 704 $ 254,405 $ - $ (82,757) $ (15) $172,337 ====== ======= =========== ========= ============ ========== ========
The accompanying notes are an integral part of these consolidated statements. 6 CAREINSITE, INC. (a Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Cumulative From Inception (Dec. 24, 1996) Through Three Months Ended September 30, September 30, -------------------------------- 1999 1998 1999 ------------- --------------- -------------- Cash Flows (Used In) Provided By Operating Activities: Net loss available to common stockholders............................ $ (7,267) $ (2,058) $ (82,757) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization..................................... 1,173 452 5,107 Accretion on Series A Preferred Stock............................. 58 - 58 Write-off of acquired in-process research and development costs... - - 32,185 Write-off of acquired intellectual property and software technologies........................................... - - 5,228 Write-off of capitalized software costs........................... - - 2,381 Net loss from investment in unconsolidated affiliate.............. 391 - 987 Changes in operating assets and liabilities: Accounts and affiliate receivable, net.......................... (1,628) - (2,897) Prepaid and other current assets................................ (10,533) - (10,943) Other assets.................................................... (5,612) (21) (6,202) Accounts, Parent and affiliate payables......................... 6,156 4,408 7,743 Accrued liabilities............................................. (1,160) (229) (1,651) ------------- --------------- -------------- Net cash (used in) provided by operating activities........... (18,422) 2,552 (50,761) ------------- --------------- -------------- Cash Flows Used In Investing Activities: Purchases of property, plant and equipment........................ (4,863) (2,633) (8,259) Software development costs........................................ - - (12,741) Purchases of marketable securities................................ (50,000) - (104,392) Acquisition of Med-Link net of cash acquired...................... - - (13,980) Investment in unconsolidated affiliate............................ - - (1,350) ------------- --------------- -------------- Net Cash used in investing activities........................ (54,863) (2,633) (140,722) ------------- --------------- -------------- Cash Flows Provided By Financing Activities: Proceeds from stock subscription receivable...................... - - 10,000 Proceeds from sale of Series A Preferred Stock and Option........ 10,000 - 10,000 Net proceeds from initial public offering........................ - - 108,366 Proceeds from sale of common stock to Parent..................... - - 11,214 Proceeds from sale of common stock to Cerner..................... - - 11,786 Contributions from Parent........................................ 650 - 41,501 ------------- --------------- -------------- Net cash provided by financing activities.................... 10,650 - 192,867 ------------- --------------- -------------- Change in cash and cash equivalents....................................... (62,635) (81) 1,384 Cash and cash equivalents, beginning of period............................ 64,019 315 - ------------- --------------- -------------- Cash and cash equivalents, end of period.................................. $ 1,384 $ 234 $ 1,384 ============= =============== ============== Supplemental disclosure of non-cash investing and financing activities: Contribution of Avicenna assets from Parent.......................... $ - $ - $ 28,817 ============= =============== ============== Contribution of CareAgents stock from Parent......................... $ - $ - $ 3,250 ============= =============== ============== Contribution of acquired intellectual property and software technologies from Parent.......................................... $ - $ - $ 5,228 ============= =============== ============== Contribution of note receivable from Parent.......................... $ - $ - $ 2,000 ============= =============== ============== Issuance of equity for software technology licensed from Cerner...... $ - $ - $ 20,800 ============= =============== ============== Conversion of note receivable into a stock investment................ $ - $ - $ 2,000 ============= =============== ============== Issuance of warrants................................................. $ 555 $ - $ 8,980 ============= =============== ==============
The accompanying notes are an integral part of these consolidated statements. 7 CAREINSITE, INC. (a Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization and Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of CareInsite, Inc. and its subsidiaries ("CareInsite" or the "Company"), after elimination of intercompany accounts and transactions. These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended June 30, 1999. The results of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year. In the opinion of management, the information furnished reflects all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation of the results for the reported interim periods. On December 24, 1996, Medical Manager Corporation (formerly known as Synetic, Inc., herein referred to as "Medical Manager" or the "Parent") acquired Avicenna Systems Corporation, a privately held, development stage company that marketed and built Intranets for managed healthcare plans, integrated healthcare delivery systems and hospitals. The acquisition of Avicenna marked the inception of Medical Manager's healthcare electronic commerce business (the "Inception"). On January 23, 1997, Medical Manager acquired CareAgents, Inc. ("CareAgents"), a privately held, development stage company engaged in developing Internet-based clinical commerce applications. On November 24, 1998, Medical Manager formed Synetic Healthcare Communications, Inc., which was subsequently renamed CareInsite, Inc. On January 2, 1999, Medical Manager contributed the stock of CareAgents to Avicenna. Concurrently, Avicenna contributed the stock of CareAgents and substantially all of Avicenna's other assets and liabilities to the Company (the "Formation"). Medical Manager also contributed $10,000,000 in cash to the Company. The Formation has been accounted for using the carryover basis of accounting and the Company's financial statements include the accounts and operations of Avicenna and CareAgents for all periods presented from the date each entity was acquired. As of November 8, 1999, Medical Manager owned 72.1% of the outstanding common stock of the Company. On June 16, 1999, the Company completed its initial public offering of 6,497,500 shares of its common stock (the "Offering"). The net proceeds of the Offering were $106,446,000. The Company is in the development stage. The Company intends to provide a broad range of healthcare electronic commerce services which it believes will leverage Internet technology to improve communication among physicians, payers, suppliers and patients. The provision of products and services using Internet technology in the healthcare electronic commerce industry is subject to risks, including, but not limited to, those associated with competition from existing companies offering the same or similar services, uncertainty with respect to market acceptance of its products and services, rapid technological change, management of growth, availability of future capital and minimal previous record of operations or earnings. (2) America Online Agreement In September 1999, the Company entered into a strategic alliance with America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a comprehensive suite of services that connect AOL's 18 million members, as well as CompuServe members and visitors to AOL's Web-based services, Netcenter, AOL.COM and Digital City (collectively, "AOL Members"), to physicians, health plans, pharmacy benefit managers, covered pharmacies and labs. Under the agreement, the Company and 8 AOL have agreed to create co-branded sites which will enable AOL Members to manage their healthcare through online communication with their physicians, health plans, pharmacy benefit managers, covered pharmacies and labs. The agreement has an initial term of four years. Through this arrangement, AOL Members will have access to the Company's secure, real-time services being developed that allow them, among other things, to select and enroll in health plans, choose their providers, schedule appointments, renew and refill plan approved prescriptions, view lab results, review claims status, receive explanation of benefits, review patient education materials provided by their health plans, understand plan policies and procedures and receive plan treatment authorizations. The Company and AOL have also agreed to collaborate in sales and marketing to the healthcare industry, and they intend to leverage their alliance into cross-promotional and shared advertising revenue initiatives. Under the financial terms of the arrangement, the Company has agreed to make $30,000,000 of guaranteed payments to AOL over three years. The Company made the first payment of $10,000,000 in September 1999. The Company also entered into a four year agreement with Netscape Communications Corporation ("Netscape") under which the Company acquired a nonexclusive and nontransferable right and license for the use of an unlimited quantity of the Netscape and Sun Microsystems software offered via the Sun Microsystems-Netscape Alliance. The cost of the products was $3,750,000, with a maintenance fee of $750,000 in the initial year and an option to purchase maintenance at $1,000,000 per year in the second, third, and fourth years of the agreement. Under a separate agreement entered into in September 1999, AOL purchased 100 shares of the Company's newly issued Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") at a price of $100,000 per share, or $10,000,000 of Series A Preferred Stock in the aggregate, with an option to purchase up to an additional 100 shares of Series A Preferred Stock in September 2000 ("Series A Preferred Option") at the same price. At the option of AOL, in March 2002, the Series A Preferred Stock is either redeemable in whole for $100,000 per share in cash or convertible in whole, on a per share basis, into (i) the number of shares of the Company's common stock equal to $100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the same number of shares of the Company's common stock, or 2,030.5 shares, at a price of $49.25 per share. In the event that AOL elects to convert the 100 shares of Series A Preferred Stock it purchased in September 1999, it would receive 203,046 shares of the Company's common stock and a warrant exercisable into an additional 203,046 shares at $49.25 per share. Prior to March 2002, AOL has the right to require the Company to redeem the Series A Preferred Stock in whole at $100,000 per share in the event of a change in control of the Company. The Series A Preferred Stock is non-voting except under certain extraordinary circumstances and no dividend is payable on the Series A Preferred Stock unless the Company declares a dividend on its common stock. The proceeds received of $10,000,000 were allocated based on the relative fair values of the Series A Preferred Stock and the Series A Preferred Option, as determined by management. Accordingly, $7,608,000 was allocated to the Series A Preferred Stock and $2,392,000 was allocated to the Series A Preferred Option. Additionally, as the Series A Preferred Stock is convertible into equity securities with a value in excess of $10,000,000 (the "beneficial conversion feature"), a portion of the proceeds has been allocated to the beneficial conversion feature and is reflected as a discount to the Series A Preferred Stock. The value of the beneficial conversion feature, as determined by management was $5,268,000. The discount is being amortized through March 2002 using the effective interest method and is reflected in the accompanying statement of operations as accretion on Series A Preferred Stock. The Series A Preferred Stock and Series A Preferred Option are classified as Convertible Redeemable Preferred Stock in the accompanying balance sheets. 9 (3) Fair Value of Financial Instruments Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term and long-term marketable securities and accounts receivable. Cash, cash equivalents and short-term and long-term marketable securities are deposited with high quality financial institutions. 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 marketable securities are invested in various investment-grade commercial paper, money market accounts and certificates of deposit. All of the short-term marketable securities mature within twelve months. The Company's long-term marketable securities are invested in U.S. Federal Agency notes maturing in June 2001. The carrying value of the Company's cash and cash equivalents, short-term and long- term marketable securities is as follows (in thousands):
September 30, June 30, 1999 1999 ------------- ---------- (unaudited) Cash and Cash equivalents: Corporate and other non-government debt securities........................ $ - $ 9,918 Cash and money market funds............................................... 1,384 54,101 -------- -------- 1,384 64,019 -------- -------- Short-term marketable securities: Corporate and other non-government debt securities........................ 19,379 19,253 U.S. Federal Agency notes................................................. 34,999 35,417 -------- -------- 54,378 54,670 -------- -------- Long-term marketable securities: U.S. Federal Agency notes................................................. 50,000 - -------- -------- $105,762 $118,689 ======== ========
Gross unrealized losses on the marketable securities were $15,000 at September 30, 1999 and gross unrealized gains on the marketable securities were $278,000 at June 30, 1999 and are included as part of accumulated other comprehensive income. 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 considered available-for-sale, and are carried at their fair value, with the unrealized gains and losses reported net-of-tax as other comprehensive income or loss. Realized gains and losses and declines in value judged to be other-than- temporary on available-for-sale securities are included in other income. The cost of securities sold is based on specific identification. Interest and dividends on securities classified as available-for-sale are included in other income. (4) Commitments and Contingencies 10 On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco Managed Care, L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of New Jersey against the Company, Medical Manager, Martin J. Wygod, Chairman of the Company and Medical Manager, and three officers and/or directors of the Company and Medical Manager, Paul C. Suthern, Roger C. Holstein and Charles A. Mele. The plaintiffs assert that the Company, Medical Manager and the individual defendants are in violation of certain non-competition, non-solicitation and other agreements with Merck and Merck-Medco, and seek to enjoin the Company and them from conducting the Company's healthcare e-commerce business and from soliciting Merck-Medco's customers. Medical Manager's and Mr. Wygod's agreements expired on May 24, 1999. Mr. Suthern's, Mr. Mele's and Mr. Holstein's agreements expire in December 1999, March 2000 and September 2002, respectively. A hearing was held on March 22, 1999 on an application for preliminary injunction filed by Merck and Merck-Medco. On April 15, 1999, the Superior Court denied this application. The Company believes that Merck's and Merck-Medco's positions in relation to it and the individual defendants are without merit and the Company intends to vigorously defend the litigation. However, the outcome of complex litigation is uncertain and cannot be predicted at this time. Any unanticipated adverse result could have a material adverse effect on the Company's financial condition and results of operations. The Company recorded $650,000 in litigation costs associated with the Merck and Merck-Medco litigation in the three-months ended September 30, 1999. Pursuant to an existing indemnification agreement between the Company and Medical Manager, the agreement provides that Medical Manager will bear both actual costs of conducting the litigation and monetary damages that may be awarded to Merck and Merck-Medco in the litigation. The costs borne by Medical Manager of $650,000 for the three months ended September 30, 1999 are reflected as a contribution from Parent in the accompanying consolidated statements of changes in stockholders' equity. In the normal course of business, the Company is involved in various claims and legal proceedings. While the ultimate resolution of these matters has yet to be determined, the Company does not believe that their outcome will have a material adverse effect on its financial condition or results of operations. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company's healthcare e-commerce services are still under development and no revenues have been generated from the sale of these services. Additionally, the market for the Company's services is unproven. These factors make it difficult to evaluate the Company's business and prospects. The Company has incurred substantial operating losses since the Company's inception and there can be no assurance that the Company will generate significant revenues or profitability in the future. The Company intends to significantly increase its expenditures primarily in the areas of development, sales and marketing, data center operations and customer support. As a result, the Company expects to incur substantial operating losses for at least the next two fiscal years. The Company expects to generate a significant portion of its revenue from payers and suppliers who are expected to pay initial set-up and ongoing maintenance fees associated with organizing, loading and maintaining their content and transaction fees associated with the processing of healthcare transactions. The Company also expects to generate revenue from physicians who are expected to pay a monthly fee for access to a range of the Company's services. Management believes that they have a unique understanding of the economic leverage inherent in facilitating the automation of certain clinical, administrative and financial processes. Accordingly, the Company also has contracted with certain payers and in the future may contract with other payers and suppliers to guarantee them incremental cost savings from the use of certain of the Company's services. If any of these payers or suppliers do not realize the guaranteed level of cost savings, the Company will be obligated to make a payment to that payer or supplier, which payment may exceed the Company's charges to that payer or supplier. In some cases, the Company intends to share in any cost savings in excess of the guaranteed cost savings. The amount and timing of transaction revenue generated under these arrangements may be impacted by the Company's guarantee of cost savings. In September 1999, the Company entered into a strategic alliance with America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a comprehensive suite of services that connect AOL's 18 million members, as well as CompuServe members and visitors to AOL's Web-based services, Netcenter, AOL.COM and Digital City (collectively, "AOL Members"), to physicians, health plans, pharmacy benefit managers, covered pharmacies and labs. Under the agreement, the Company and AOL have agreed to create co-branded sites which will enable AOL Members to manage their healthcare through online communication with their physicians, health plans, pharmacy benefit managers, covered pharmacies and labs. The agreement has an initial term of four years. Through this arrangement, AOL Members will have access to the Company's secure, real-time services being developed that allow them, among other things, to select and enroll in health plans, choose their providers, schedule appointments, renew and refill plan approved prescriptions, view lab results, review claims status, receive explanation of benefits, review patient education materials provided by their health plans, understand plan policies and procedures and receive plan treatment authorizations. The Company and AOL have also agreed to collaborate in sales and marketing to the healthcare industry, and they intend to leverage their alliance into cross-promotional and shared advertising revenue initiatives. Under the financial terms of the arrangement, the Company has agreed to make $30,000,000 of guaranteed payments to AOL over three years. The Company made the first payment of $10,000,000 in September 1999. The Company also entered into a four year agreement with Netscape Communications Corporation ("Netscape") under which the Company also acquired a nonexclusive and nontransferable 12 right and license for the use of an unlimited quantity of the Netscape and Sun Microsystems software products, offered via the Sun Microsystems--Netscape Alliance. The cost of the products was $3,750,000, with a maintenance fee of $750,000 in the initial year and an option to purchase maintenance at $1,000,000 per year in the second, third, and fourth years of the agreement. Results of Operations Total revenues for the three months ended September 30, 1999 were $1,657,000 and were comprised of (i) $780,000 of revenue attributable to the Company's electronic data interchange services and (ii) revenues of $877,000 consisting of management services provided to THINC. Cost of revenues, other than to affiliates, was $254,000. Cost of services to affiliates of $877,000 consisted primarily of employee compensation and benefits expense for those employees supporting the THINC business. Research and development expenses consist primarily of employee compensation, the cost of consultants and other direct expenses. Total research and development expenditures were $3,123,000 for the three months ended September 30, 1999 as compared to $2,874,000 in the prior year period. Of these expenditures, $2,366,000 were capitalized in the prior year period. There were no capitalized costs for the three months ended September 30, 1999. The increase in research and development expenditures relates to the continuing development of the Company's services. Sales and marketing expenses consist primarily of salaries and benefits, travel for sales, marketing and business development personnel and promotion related expenses such as advertising, marketing materials, and tradeshows. Sales and marketing expenses were $1,912,000 for the three months ended September 30, 1999 compared to $311,000 in the comparable prior year period. The increase is primarily related to (i) increased staffing, (ii) inclusion of expenses related to the acquisition of Med-Link, (iii) increased marketing activities and (iv) expenses related to the AOL agreement for which there are no comparable amounts in the prior period. Included in sales and marketing expenses are net charges from Medical Manager of $272,000 for the three months ended September 30, 1999 and $153,000 for the comparable prior year period. These charges represent an allocation of compensation costs for Medical Manager personnel who devoted a significant portion of their time to the Company, and primarily relate to business development and marketing support services. The increase in these allocated expenses is due to increased staffing to support the Company's business. General and administrative expenses consist primarily of compensation for legal, finance, management and administrative personnel. General and administrative expenses were $2,556,000 for the three months ended September 30, 1999 compared to $831,000 in the comparable prior year period. The increase in general and administrative expenses of $1,725,000 resulted primarily from (i) increased staffing in the finance, legal, and corporate development groups and (ii) inclusion of expenses related to the acquisition of Med-Link. Included in general and administrative expenses are net charges from Medical Manager of $264,000 for the three months ended September 30, 1999 compared to $84,000 in the comparable prior year period. These charges represent an allocation of compensation costs for Medical Manager personnel who devoted a significant portion of their time to the Company, and primarily relate to administrative and legal services. The increase in these allocated expenses is due to increased staffing to support the Company's business. The Company recorded $650,000 in litigation charges in the three months ended September 30, 1999, related to the Company's ongoing defense against assertions that it violated certain agreements with Merck & Co., Inc. ("Merck") and Merck-Medco Managed Care, L.L.C ("Merck-Medco"). Pursuant to an existing indemnification agreement between the Company and Medical Manager, the agreement provides, 13 among other things, that Medical Manager will bear both actual costs of conducting the litigation and monetary damages that may be awarded to Merck and Merck-Medco in the litigation. The costs borne by Medical Manager of $650,000 for the three months ended September 30, 1999 are reflected as a contribution from Parent in the accompanying consolidated statements of changes in stockholders' equity. Depreciation and amortization expense was $1,173,000 in the three months ended September 30, 1999 and $452,000 in the comparable prior year period. The increase is primarily due to (i) amortization of goodwill related to the acquisition of Med-Link and (ii) amortization related to certain contracts and other intangibles. Other income was $1,679,000 in three months ended September 30, 1999 and $44,000 in the comparable prior period. The increase is a due to interest income on the funds raised in connection with the Company's initial public offering on June 16, 1999. Liquidity and Capital Resources Prior to completing its initial public offering on June 16, 1999, the Company's operations since Inception (December 24, 1996) were funded through capital contributions from its parent company Medical Manager. On June 16, 1999, the Company completed its initial public offering of 6,497,500 shares of its common stock at $18.00 per share (the "Offering"). The net cash proceeds of the Offering were approximately $106,446,000, after deducting anticipated amounts for underwriting discounts and commissions and Offering expenses. As of September 30, 1999 the Company had $107,286,000 of cash and cash equivalents and short and long-term marketable securities, including accrued interest thereon. Cash used in operating activities was $18,422,000 for the three months ended September 30, 1999 compared to cash provided by operating activities of $2,552,000 in the comparable prior year period. The cash used during this period was primarily attributable to the losses associated with the development of the Company's business activities and the payment of $10,000,000 in connection with the Company's strategic alliance and agreement with AOL. Cash used in investing activities was $54,863,000 for the three months ended September 30, 1999 compared to $2,633,000 in the comparable prior year period. The cash used during the three months ended September 30, 1999 was primarily related to the purchases of marketable securities for $50,000,000 and the purchase of computer equipment primarily related to the establishment of Company's data center for $4,863,000. The Company's marketable securities are invested in various investment-grade commercial paper, money market accounts, certificates of deposit and Federal Agency Notes. Cash provided by financing activities was $10,650,000 for the three months ended September 30, 1999 and primarily relates to the purchase by AOL of 100 shares of the Company's newly issued Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") at a price of $100,000 per share, or $10,000,000 of Series A Preferred Stock in the aggregate, with an option to purchase up to an additional 100 shares of Series A Preferred Stock in September 2000 ("Series A Preferred Option") at the same price. At the option of AOL, in March 2002, the Series A Preferred Stock is either redeemable in whole for $100,000 per share in cash or convertible in whole, on a per share basis, into (i) the number of shares of the Company's common stock equal to $100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the same number of shares of the Company's common stock, or 2,030.5 shares, at a price of $49.25 per share. In the event that AOL elects to convert the 100 shares of Series A Preferred Stock it purchased in September 1999, it would receive 203,046 shares of the Company's common stock and a warrant exercisable into an additional 203,046 shares at $49.25 per share. Prior to March 2002, AOL has the right to require the Company to redeem the Series A Preferred Stock in whole at $100,000 14 per share in the event of a change in control of the Company. The Series A Preferred Stock is non-voting except under certain extraordinary circumstances and no dividend is payable on the Series A Preferred Stock unless the Company declares a dividend on its common stock. Under the terms of the strategic alliance and agreement with AOL, the Company is required to make guaranteed payments of $10,000,000 in August 2000 and 2001, respectively. The Company currently anticipates that its available cash resources, will be sufficient to meet the Company's presently anticipated working capital, capital expenditure and business expansion requirements for the next 18 - 24 months. There can be no assurance that the Company will not require additional capital prior to the expiration of this 18 - 24 month period. Even if such additional funds are required, the Company may seek additional equity or debt financing. There can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to the Company's stockholders. The Company continues to pursue an acquisition program pursuant to which it seeks to effect one or more acquisitions or other similar business combinations with businesses it believes have significant growth potential. Financing for such acquisitions may come from several sources, including, without limitation, (a) the Company's cash, cash equivalents and marketable securities and (b) proceeds from the incurrence of additional indebtedness or the issuance of common stock, preferred stock, convertible debt or other securities. There can be no assurance that the Company's acquisition program will be successful. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept or recognize only two digit entries for the year in the date code field. These systems and software products will need to accept four digit year entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with such Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. State of Readiness. The Company has made an assessment of the Year 2000 readiness of its information technology systems, including the hardware and software that enable the Company to develop and deliver its healthcare e-commerce services as well as its non-information technology systems. The Company's assessment consisted of: . quality assurance testing of the Company's internally developed proprietary software; . contacting third-party vendors and licensors of material hardware, software and services that are both directly and indirectly related to developing the Company's healthcare e-commerce network . contacting vendors of material non-IT systems; . assessment of repair or replacement requirements; . repair or replacement; and . implementation. 15 The Company has been informed by its vendors of material hardware and software components of its IT systems that the products used by the Company are currently Year 2000 compliant. The Company has also been informed by its non-IT system vendors that the products used by the Company are currently Year 2000 compliant. Costs. To date, the Company has not incurred any material expenditures in connection with identifying or evaluating Year 2000 compliance issues. Most of the Company's expenses have related to, and are expected to continue to relate to, the operating costs associated with time spent developing a Year 2000 compliant healthcare e-commerce channel. The Company is not currently aware of any Year 2000 compliance problems relating to its information technology or non-information technology systems that the Company believes would have a material adverse effect on its business, financial condition and results of operations. There can be no assurance that the Company will not discover Year 2000 compliance problems that will require substantial revisions to the Company's systems or services. In addition, there can be no assurance that third-party software, hardware or services incorporated into the Company's material information technology and non-information technology systems will not need to be revised or replaced, all of which could be time consuming and expensive. Any failure to fix the Company's information technology systems or to replace third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs, the loss of customers and other business interruptions, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, there can be no assurance that physicians, payers, suppliers, Internet access companies, third-party service providers, vendors, business partners and others outside the Company's control will be Year 2000 compliant. The failure by such entities to be Year 2000 compliant could result in a systemic failure beyond the Company's control, such as a prolonged Internet or communications failure, which could also prevent the Company from delivering the Company's services to its customers, decrease the use of the Internet or prevent users from accessing the Company's service. Such a failure could have a material adverse effect on the Company's business, results of operations and financial condition. Also, a general Year 2000 systemic failure could require healthcare companies to spend large amounts of money to correct any such failures, reducing the amount of money that might otherwise be available to be spent on the Company's services. Contingency plan. The Company is continuing to assess and test its systems for Year 2000 compliance. The Company has also developed contingency plans for system failure, service disruption and data corruption issues due to Year 2000 problems. In the event that there is a system problem due to a Year 2000 date, the Company will immediately attempt to diagnose and fix the problem. At the same time, the Company will change (a) the system clock back to 1999 while separately logging all transactions so affected and/or (b) the dates within transactions to 1999 while separately logging all transactions so affected. In the event that a Year 2000 problem occurs at an external entity, that entity will be informed of the problem and the Company will continue to review and repair the dates until the problem is fixed. The Company makes no assurance that it will be able to successfully diagnose and/or fix any Year 2000 problems that occur or that the cost of doing so will not be material. As the Year 2000 issue has many elements and potential consequences, some of which are not reasonably foreseeable, the ultimate impact of the Year 2000 on the Company's operations could differ materially from the Company's expectations. This discussion contains forward-looking information relating to the Company's operations that are based on management's current expectations, estimates and projections about the Company, and the 16 healthcare e-commerce industry. See "-- Disclosure Regarding Forward Looking Information" contained in this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest rate sensitivity The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investments in marketable securities. The Company does not use derivative financial instruments in its investments. The Company's investments consist primarily of U.S. Treasury Notes and Federal Agency Notes. The following table presents fair value amounts and related weighted- average interest rates by expected maturity date of the Company's investment portfolio. This table does not include money market funds because those funds are not subject to market risk. Fiscal Years (in thousands) (unaudited)
2000 2001 2002 2003 2004 Thereafter ----------- ----------- ---------- ----------- ------------ ---------- Short term investment: Fixed rate 54,378 -- -- -- -- -- Average interest rate 5.25% -- -- -- -- -- Long term investment: Fixed rate -- 50,000 -- -- -- -- Average interest rate -- 6.08% -- -- -- --
17 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For legal proceedings, please refer to "Item 3-Legal Proceedings" filed in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 15, 1999 the Company issued to America Online, Inc. ("AOL") 100 shares of newly issued Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock") at a price of $100,000 per share, or $10,000,000 of Series A Preferred Stock in the aggregate, with an option to purchase up to an additional 100 shares of Series A Preferred Stock in September 2000 at the same price. At the option of AOL, in March 2002, the Series A Preferred Stock is either redeemable in whole for $100,000 per share in cash or convertible in whole, on a per share basis, into (i) the number of shares of the Company's common stock equal to $100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the same number of shares of the Company's common stock, or 2,030.5 shares, at a price of $49.25 per share. Prior to March 2002, AOL has the right to require the Company to redeem the Series A Preferred Stock in whole at $100,000 per share in the event of a change in control of the Company. The Series A Preferred Stock is non-voting except under certain extraordinary circumstances and no dividend is payable on the Series A Preferred Stock unless the Company declares a dividend on its common stock. On June 16, 1999, the Company completed the initial public offering (the "Offering") of 6,497,500 shares of its common stock at a price of $18.00 per share. The shares of common stock sold in the offering were registered under the Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (No. 333-75071). The Registration Statement was declared effective by the Securities and Exchange Commission on June 16, 1999. Concurrent with the Offering, the Company sold 537,634 shares of its common stock in a separate, private transaction to Cerner for net proceeds of approximately $9,000,000. The Company invested the proceeds from the Offering and this private sale to Cerner primarily in U.S. Treasury Notes and Federal Agency Notes. During the three months ended September 30, 1999, the Company used a portion of the proceeds for working capital. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. Exhibits ---------- -------- 4.1 Certificate of Designations of Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of CareInsite, Inc., par value $0.01 per share. 4.2 Warrant Agreement dated as of September 15, 1999 between America Online, Inc. and the Company. 4.3 Subscription Agreement dated as of September 15, 1999 between the Company and America Online, Inc. 27 Financial Data Schedule. (b) On August 24, 1999, the Company filed on Form 8-K a copy of the Company's press release announcing earnings for the quarter and year ended June 30, 1999. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAREINSITE, INC. Dated: November 15, 1999 /s/ James R. Love --------------------------------------- James R. Love Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 19 EX-4.1 2 CERTIFICATE OF DESIGNATIONS OF PREFERENCES EXHIBIT 4.1 Certificate of Designation of Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of CareInsite, Inc. par value $0.01 per share The undersigned, David C. Amburgey, Senior Vice President - General Counsel of CareInsite, Inc., a Delaware corporation, does hereby certify on behalf of the Corporation that pursuant to the provisions of Section 151 of the Delaware General Corporation Law and Article IV of the Amended and Restated Certificate of Incorporation, the Board of Directors of the Corporation adopted the following resolution: RESOLVED:That pursuant to Article IV of the Corporation's Amended and Restated Certificate of Incorporation dated June 11, 1999, the Board of Directors of the Corporation hereby creates and authorizes a series of serial convertible redeemable preferred stock, par value $0.01 per share, having the following rights and preferences, designations, voting powers and terms, in addition to those fixed by and set forth in such Article IV: As used herein, the following terms have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued or issuable (whether upon the exercise of warrants, Convertible Securities or otherwise) by the Corporation after the Issue Date, other than (a) the Conversion Shares and (b) any shares of Common Stock issued or issuable pursuant to evidences of indebtedness, shares of stock, warrants, rights or other securities entered into or issuable before the Issue Date. "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such specified Person. "AOL" shall mean America Online, Inc., a Delaware corporation. "Board of Directors" shall mean the board of directors of the Corporation. "Business Day" shall mean any day that is not a Saturday, Sunday or a Legal Holiday. 2 "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security whether or not it is exchangeable for or convertible into such capital stock). "Change of Control" shall mean the acquisition by a Person (other than by or through Medical Manager Corporation (or any successor thereof whether by merger, consolidation, sale of all or substantially all of its assets or otherwise) or any of its Affiliates) of beneficial ownership of more than 50% of the voting Capital Stock. For purposes hereof a Person shall be deemed the beneficial owner of Capital Stock if such Person would be deemed a beneficial owner under Rule 13d-3, as in effect on the date hereof, under the Exchange Act. "Common Stock" shall mean the common stock, $.01 par value per share, of the Corporation. "Control" (including the terms "Controlled by" and "under common Control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise. "Conversion Consideration" shall have the meaning specified in Section 9(b). "Conversion Determination Date" shall mean March 16, 2002. "Conversion Price" shall mean the applicable price at which Conversion Shares shall be delivered upon conversion of shares of the Series A Preferred Stock as specified in Section 9(b). "Conversion Shares" shall have the meaning specified in Section 9(b). "Conversion Time" shall have the meaning specified in Section 9(c). "Convertible Securities" shall mean evidences of indebtedness, shares of stock, warrants, rights or other securities entered into or issued after the Issue Date which are exercisable, convertible or exchangeable, (including, but not limited to, Options) with or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or the happening of a specified event or both. 3 "Corporation Redemption Date" shall have the meaning specified in Section 5(b)(ii). "Employee Options" shall mean the options to acquire Common Stock that may be granted to employees, consultants, officers and directors of the Corporation. "Encumbrance" shall mean any security interest, pledge, mortgage, lien, charge, adverse claim of ownership or other encumbrance of any kind. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall mean in respect of a share of Capital Stock of the Corporation on any date herein specified, the fair value as determined in good faith by the Board of Directors of the Corporation. "Group" shall have the meaning set forth in Rule 13d-5, as in effect on the date hereof, under the Exchange Act. "Holder Redemption Date" shall have the meaning specified in Section 5(a). "Holders" shall mean the holders of the Series A Preferred Stock. "Issue Date" shall mean the date the initial shares of Series A Preferred Stock are issued. "Legal Holiday" shall mean any day on which banking institutions are obligated or authorized to close in The City of New York. "Liquidation Amount" shall mean, as of any date, an amount equal to $100,000.00 per share of Series A Preferred Stock, plus all declared but unpaid dividends to such date. "Liquidation Right" shall mean for each share of Series A Preferred Stock the Liquidation Amount or, if prior to the Conversion Determination Date and if greater, the amount that would be received in liquidation following conversion of a share of Series A Preferred Stock into Common Stock. "Majority Holders" shall mean the Holders of a majority of the then outstanding shares of Series A Preferred Stock. "Notice" shall have the meaning specified in Section 5(b). 4 "Option" shall mean any right, warrant or option to subscribe for or purchase shares of Common Stock. "Other Property" shall have the meaning set forth in Section 9(d)(vii). "Outstanding" shall mean, when used with reference to the Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Corporation or its subsidiaries, and all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Person" means any individual, firm, corporation, partnership, limited partnership, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or Group that would be deemed to be a person under Section 13(d)(3), as in effect on the date hereof, of the Exchange Act. "Series A Preferred Stock" shall have the meaning specified in Section 1. "Third Party" shall have the meaning specified in Section 11(b). "Warrants" shall mean the Warrants subject to the Warrant Agreement, dated as of September 15, 1999, between the Corporation and AOL. Section 1. DESIGNATION AND AMOUNT. The designation of such series of Preferred Stock shall be the Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock"). The number of issuable shares of Series A Preferred Stock shall be two hundred (200); provided that shares of Series A Preferred Stock shall only be issued pursuant to the Subscription Agreement, dated as of September 15, 1999 between the Corporation and AOL. Section 2. RANK. All shares of Series A Preferred Stock, both as to payment of dividends and to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall rank (i) senior to all of the Corporation's now or hereafter issued Common Stock or any other common stock of any class of the Corporation and (ii) senior to all of the Corporation's now or hereafter issued Capital Stock which does not expressly rank pari passu with the Series A Preferred Stock. The Corporation shall not issue any Capital Stock senior to the Series A Preferred Stock. Section 3. DIVIDENDS. (a) The Holders shall not be entitled to receive dividends except in accordance with this Section 3. (b) If the Corporation declares and pays dividends on the Common Stock in cash or property of the Corporation (but not dividends in shares of Common Stock), then, in that 5 event, the Holders shall be entitled to share in such dividends on a pro rata basis, as if their shares of Series A Preferred Stock had been converted into shares of Common Stock pursuant to Section 9 immediately prior to the record date for determining the stockholders of the Corporation eligible to receive such dividends or, if such shares of Series A Preferred Stock are no longer convertible into Common Stock immediately prior to such record date, as if such shares of Series A Preferred Stock had been converted into Common Stock on the Conversion Determination Date. Section 4. LIQUIDATION RIGHT. Subject to the rights of holders of any Capital Stock of the Corporation ranking pari passu with the Series A Preferred Stock, in the event of a liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the Holders shall be entitled to receive out of the assets of the Corporation, whether such assets are stated capital or surplus of any nature, the Liquidation Right, before any payment shall be made or any assets distributed to the holders of Common Stock or any other class or series of the Corporation's Capital Stock ranking junior as to liquidation rights to the Series A Preferred Stock. If the assets of the Corporation available for distribution are not sufficient to pay an amount equal to the Liquidation Right to the holders of outstanding shares of Series A Preferred Stock (and any Capital Stock ranking pari passu with the Series A Preferred Stock), then the assets of the Corporation shall be distributed ratably among the Holders (and the holders of any Capital Stock ranking pari passu with the Series A Preferred Stock). Neither a consolidation, merger or other business combination of the Corporation with or into another corporation or other entity nor a sale or offer of all or part of the Corporation's assets for cash, securities or other property shall be considered a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4 (unless in connection therewith the liquidation of the Corporation is specifically approved). Section 5. REDEMPTION. (a) The Holders shall have the right to compel the Corporation to redeem all (but not less than all) of the outstanding shares of Series A Preferred Stock at the Liquidation Amount on either (i) the Conversion Determination Date or (ii) the 30th day following the Corporation's receipt of the notice described in the immediately following clause (A)(y) (such date under either clause (i) or (ii) being hereinafter the "Holder Redemption Date"); provided, however, that (A) the Corporation shall have received a written demand that the Corporation redeem the Series A Preferred Stock (x) no later than 30 days prior to the Conversion Determination Date in the case of a redemption pursuant to the immediately preceding clause (i) or (y) prior to such date occurring 30 days prior to the Conversion Determination Date and within 30 days of notification pursuant to Section 9(x)(D) of a Change of Control in the case of a redemption pursuant to the immediately preceding clause (ii), (B) the Holders shall not have given a Conversion Notice to the Corporation with respect to the shares of Series A Preferred Stock to be redeemed and (C) redemption shall be permitted only to the extent that it is permitted under the General Corporation Law of Delaware. Shares of Series A Preferred Stock which are subject to redemption but which have not been redeemed shall continue to be entitled to the dividend and other rights, preferences and privileges of the Series A 6 Preferred Stock until such shares have been redeemed and the Liquidation Amount has been paid or otherwise set aside with respect thereto; provided, however, that all rights to convert the Series A Preferred Stock shall cease on the receipt by the Corporation of the written demand referred to in clause (A) of the first sentence of this Section 5(a). If, on or prior to the Holder Redemption Date, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the account of the holders of the shares so to be redeemed (as to be and continue to be available therefor), then on and after the Holder Redemption Date, notwithstanding that any certificate for any such shares of the Series A Preferred Stock shall not have been surrendered for cancellation, all such shares of the Series A Preferred Stock with respect to which such funds shall have been set aside shall be deemed to be no longer outstanding and all rights with respect to such shares of the Series A Preferred Stock shall forthwith cease and terminate, except the right of the Holders to receive out of the funds so set aside in trust the amount payable on the redemption thereof (including an amount equal to accrued and unpaid dividends to the redemption date) without interest thereon. (b) (i) The Corporation shall have the right, at any time after the Conversion Determination Date, at its option, upon not less than 10 days' prior written notice ("Notice"), to redeem, out of funds legally available therefor, all (but not less than all) of the then outstanding shares of Series A Preferred Stock at the Liquidation Amount. (ii) The Notice shall be given to each Holder of record of the Series A Preferred Stock to be redeemed. Each such Notice of redemption shall specify the date fixed for redemption (the "Corporation Redemption Date"), the place or places of payment and that payment will be made upon presentation of and surrender of the certificates evidencing the shares of Series A Preferred Stock to be redeemed. Any failure to give such Notice, or any defect in such Notice, to a Holder of any shares designated for redemption shall not affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock owned by other Holders to whom such Notice was duly given. On or after the Corporation Redemption Date, each Holder of the shares called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in such Notice and shall thereupon be entitled to receive payment of the Liquidation Amount. If such Notice shall have been so given and if, on or prior to the Corporation Redemption Date, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the account of the holders of the shares so to be redeemed (as to be and continue to be available therefor), then on and after the Corporation Redemption Date, notwithstanding that any certificate for shares of the Series A Preferred Stock so called for redemption shall not have been surrendered for cancellation, all shares of the Series A Preferred Stock with respect to which such Notice shall have been given and such funds shall have been set aside shall be deemed to be no longer outstanding and all rights with respect to such shares of the Series A Preferred Stock so called for redemption shall forthwith cease and terminate, except the right of the Holders to receive out of the funds so set aside in trust the amount payable on the redemption thereof (including an amount 7 equal to accrued and unpaid dividends to the Corporation Redemption Date) without interest thereon. (c) The Holder of any shares of Series A Preferred Stock redeemed under Section 5(a) or Section 5(b) shall not be entitled to receive payment of the Liquidation Amount for such shares until such Holder shall cause to be delivered to the Corporation (i) the certificate(s) representing such shares of Series A Preferred Stock to be redeemed and (ii) transfer instrument(s) satisfactory to the Corporation and sufficient to transfer such shares of Series A Preferred Stock to the Corporation free of any Encumbrances; provided that the foregoing is subject to the other provisions of the Corporation's Amended and Restated By-laws governing lost certificates generally. Section 6. VOTING RIGHTS. (a) GENERAL. Except as provided in Section 6(b) or as provided by law, the Series A Preferred Stock shall not have any voting rights. (b) CLASS VOTING RIGHTS. (i) ACTIONS REQUIRING AFFIRMATIVE VOTE. So long as shares of Series A Preferred Stock are outstanding, the Corporation shall not, directly or indirectly, or through merger or consolidation with any other person, without the affirmative vote or consent of the Majority Holders, with the Holders voting separately as a class, (A) amend, alter or repeal (by merger, consolidation or otherwise) any provision of the Certificate of Incorporation or the By-laws of the Corporation, as amended, so as to affect adversely the relative rights, preferences, powers (including, without limitation, voting powers) and privileges of the Series A Preferred Stock, provided that nothing herein shall provide the Holders with a right to vote on the matters set forth in Section 9(d)(vii), (B) authorize or issue any new class of shares of Capital Stock having a preference with respect to dividends, redemption and/or liquidation over the Series A Preferred Stock, or (C) reclassify any of its Capital Stock into shares having a preference with respect to dividends, redemption and/or liquidation over the Series A Preferred Stock. In connection with any right to vote pursuant to this Section 6(b)(i), each Holder will have one vote for each share of Series A Preferred Stock held. 8 (ii) SPECIAL MEETING. Whenever the rights described in Section 6(b)(i) above shall vest, they may be exercised initially by the vote of the Majority Holders present and voting, in person or by proxy, at a special meeting of Holders or by written consent of the Majority Holders without a meeting. Unless such action shall have been taken by written consent as aforesaid, a special meeting of the Holders for the exercise of any such right shall be called by the Secretary of the Corporation as promptly as possible in compliance with applicable law and regulations, and in any event within 10 days after receipt of a written request signed by the Holders of record of at least 25% of the then outstanding shares of the Series A Preferred Stock, subject to any applicable notice requirements imposed by law or by any national securities exchange on which any Series A Preferred Stock is listed. Such meeting shall be held at the earliest practicable date thereafter. (iii) STOCKHOLDERS' RIGHT TO CALL MEETING. If any meeting of the Holders required by this subparagraph (b) to be called shall not have been called within 10 days after receipt of a written request therefor by the Secretary of the Corporation, subject to any applicable notice requirements imposed by law or any national securities exchange on which any Series A Preferred Stock is then listed, then the Holders of record of at least 25% of the then outstanding shares of the Series A Preferred Stock may designate in writing a Holder of the Series A Preferred Stock to call such meeting at the reasonable expense of the Corporation, and such meeting may be called by such Person so designated upon the notice required for annual meetings of stockholders or such shorter notice (but in no event shorter than permitted by law or any national securities exchange on which the Series A Preferred Stock is then listed) as may be acceptable to the Majority Holders. Any Holder of Series A Preferred Stock so designated shall have reasonable access to the stock books of the Corporation relating solely to the Series A Preferred Stock for the purpose of causing such meeting to be called pursuant to these provisions. Section 7. OUTSTANDING SHARES. For purposes of this Resolution, all shares of Series A Preferred Stock that have been issued shall be deemed outstanding except (a) from the Conversion Determination Date if a demand for redemption pursuant to Section 5(a) has been received by the Corporation or date fixed for redemption pursuant to Section 5(b), as the case may be, all shares of Series A Preferred Stock that are to be redeemed pursuant to Section 5 if funds necessary for payment of the amounts to be paid in connection with such redemption have been irrevocably deposited in trust, for the account of the Holders of the shares so to be redeemed (so as to be and continue to be available therefor), with a corporation organized and doing business under the laws of the United States or any State or territory thereof or of the District of Columbia (or a corporation or other person permitted to act as a trustee by the United States Securities and Exchange Commission), authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by Federal, State or District of Columbia or territorial authority; and (b) from the date of registration of transfer, all shares of Series A Preferred Stock held of record by the Corporation or any subsidiary of the Corporation. 9 Section 8. STATUS OF ACQUIRED SHARES. The Corporation shall take all such actions as are necessary to cause any shares of Series A Preferred Stock redeemed by the Corporation, received upon conversion pursuant to Section 9, or otherwise acquired by the Corporation, to be restored to the status of authorized and unissued shares of preferred stock, without designation as to series, and such shares may thereafter be issued, but not as shares of Series A Preferred Stock. Section 9. CONVERSION. (a) CONVERSION RIGHT. Except as otherwise provided herein, the Holders shall have the right to convert, on the Conversion Determination Date, all (but not less than all) of the then outstanding shares of Series A Preferred Stock into the Conversion Consideration; provided, however, that the Corporation shall have received, no later than 5:00 p.m., New York time, on the date that is 30 days prior to the Conversion Determination Date (the "Conversion Notice Deadline"), a notice (a "Conversion Notice") specifying the number of shares to be converted pursuant to this Section 9. In the event that the Corporation elects to exercise its right under Section 11(b) to require a sale of shares of Series A Preferred Stock to a Third Party, notwithstanding anything herein to the contrary, the Board of Directors, in its sole discretion, may change the Conversion Determination Date, effective upon the consummation of such sale, to a date that is after March 16, 2002. (b) CONVERSION PRICE. At the Conversion Time, each share of Series A Preferred Stock for which conversion has been requested in a Conversion Notice, shall be converted into (i) such number of fully paid and non-assessable shares of the Common Stock ("Conversion Shares") as is determined by dividing the Liquidation Amount by the Conversion Price, determined as hereinafter provided, in effect at the Conversion Time and rounding the result to the nearest 1/100th of a share and (ii) a Warrant (collectively, the "Conversion Consideration") to purchase such number of shares of Common Stock as shall be equal to the number of Conversion Shares received upon conversion of the share of Series A Preferred Stock pursuant to clause (i) of this Section 9(b). If a Holder converts more than one share at the same time, the number of full shares issuable upon the conversion shall be based upon the total number of shares converted. The Conversion Price shall initially be $49.25 per share. Such initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which the Series A Preferred Stock is convertible, as hereinafter provided. Upon the making of a demand to the Corporation for redemption pursuant to Section 5(a), all shares of Series A Preferred Stock shall cease to be convertible. (c) PROCEDURE. In order to convert shares of the Series A Preferred Stock into Conversion Consideration, the Holder thereof shall, in addition to delivering a timely Conversion Notice pursuant to Section 9(a), surrender at the office of any transfer agent for the Series A Preferred Stock (or in the absence of any transfer agent, the Corporation) the certificate or certificates therefor, duly endorsed to the Corporation or in blank prior to the close of business 10 on the Conversion Determination Date. Shares of the Series A Preferred Stock so surrendered shall be deemed to have been converted immediately prior to the close of business on the Conversion Determination Date or, if later, the time at which any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or shall have been terminated (hereinafter, the "Conversion Time"), and the person or persons entitled to receive Conversion Consideration issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Conversion Consideration at the Conversion Time. No later than 10 days after the Conversion Time, the Corporation shall issue and deliver to the Holder the certificate or certificates for the number of full Conversion Shares issuable upon such conversion, together with a cash payment in lieu of any fraction of a Conversion Share, as hereinafter provided, and the Warrant to the person or persons entitled to receive the same or to the nominee or nominees of such person or persons. (d) ADJUSTMENTS TO THE NUMBER OF CONVERSION SHARES AND/OR THE CONVERSION PRICE. The number of Conversion Shares and/or the Conversion Price shall be subject to adjustment from time to time as set forth in this Section 9(d) for events occurring prior to the Conversion Time. (i) Stock Dividends, Subdivisions and Combinations. If, at any time prior to the Conversion Time, the Corporation shall: (A) pay a dividend or make a distribution on its Common Stock in Additional Shares of Common Stock (this adjustment will be deemed to occur immediately after the record date); (B) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock; or (C) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock; then (1) the number of Conversion Shares into which a share of Series A Preferred Stock is convertible shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of Conversion Shares for which the Series A Preferred Stock is convertible immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Conversion Price shall be adjusted to equal (x) the Conversion Price multiplied by the number of Conversion Shares into which a share of Series A Preferred Stock is convertible immediately prior to the adjustment divided by (y) the number of Conversion Shares into which a share of Series A Preferred Stock is exercisable immediately after such adjustment. 11 (ii) Issuance of Additional Shares of Common Stock. (A) If, at any time prior to the Conversion Time, the Corporation shall (except as hereinafter provided in Section 9(d)(ii)(B)) issue or sell any Additional Shares of Common Stock and such Additional Shares of Common Stock are issued or sold for no consideration or for consideration in an amount per additional share of Common Stock less than the Fair Market Value, then the Conversion Price shall be reduced to a price determined by multiplying (1) the Conversion Price by (2) a fraction, (x) the numerator of which is the sum of (I) the number of shares of Common Stock Outstanding immediately prior to such issuance or sale, plus (II) an amount equal to the quotient arrived at by dividing the aggregate consideration, if any, received by the Corporation upon such issuance or sale, by the Fair Market Value per share of the shares so issued or sold, and (y) the denominator of which is the number of shares of Common Stock Outstanding immediately after such issuance or sale. (B) The provisions of Section 9(d)(ii)(A) shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Sections 9(d)(i) or 9(d)(vii). No adjustment of the number of Conversion Shares or the Conversion Price shall be made under Section 9(d)(ii)(A) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise, conversion or exchange of any Convertible Securities. (iii) Issuance of Convertible Securities. If, at any time prior to the Conversion Time, the Corporation shall issue or sell, any Convertible Securities, and the price per share for which Common Stock is initially issuable upon the exercise, conversion or exchange of such Convertible Securities shall be less than the Fair Market Value in effect immediately prior to the time of such issue or sale of Convertible Securities, then the Conversion Price shall be adjusted as provided in Section 9(d)(ii)(A) on the basis that (A) the maximum number of Additional Shares of Common Stock issuable pursuant to all such Convertible Securities shall be deemed to have been issued and outstanding, (B) the price per share for such Additional Shares of Common Stock shall be deemed to be the lowest possible price per share in any range of prices per share at which such Additional Shares of Common Stock are available to such holders, and (C) the Corporation shall have received all of the consideration payable therefor, if any, as of the date of the actual issuance of such Convertible Securities. No further adjustments of the Conversion Price shall be made upon the actual issue of Additional Shares of Common Stock upon exercise, conversion or exchange of such Convertible Securities. (iv) Superseding Adjustment. If, at any time after any adjustment of the Conversion Price and/or the number of Conversion Shares shall have been made pursuant to Section 9(d)(iii) as the result of any issuance of Convertible Securities, and either (A) the right of exercise, conversion or exchange for such Convertible Securities shall expire and all or a portion of such rights with respect 12 to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (B) the consideration per share for which shares of Common Stock are issuable pursuant to such Convertible Securities, shall be increased, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such Convertible Securities on the basis of (C) treating the number of Additional Shares of Common Stock theretofore actually issued or issuable pursuant to the previous exercise, conversion or exchange, as having been issued on the date or dates of any such exercise, conversion or exchange and for the consideration actually received and receivable therefor, and (D) treating any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock are issuable under such Convertible Securities. (v) Liquidation; Dissolution. If, at any time prior to the Conversion Notice Deadline, or, if a valid Conversion Notice has been delivered to the Corporation prior thereto, at any time prior to the Conversion Time, the Corporation shall dissolve, liquidate or wind up its affairs, the Holder shall have the right, but not the obligation, to convert the Series A Preferred Stock effective as of the date of such dissolution, liquidation or winding up; provided that written notice of such intent to exercise is delivered to the Corporation within ten (10) business days of the date that the Holder receives written notice of the Corporation's intent to dissolve, liquidate or wind up its affairs. (vi) Other Provisions Applicable to Adjustments Under This Section. The following provisions shall be applicable to the making of adjustments of the number of Conversion Shares and/or the Conversion Price provided for in this Section 9(d); (A) Computation of Consideration. To the extent that any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Corporation therefor shall be the amount of the cash received by the Corporation therefor, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Corporation for subscription, the subscription price, or, if such Additional Shares 13 of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Corporation for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Corporation. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration, if any, received by the Corporation for issuing such Convertible Securities, plus the consideration paid or payable to the Corporation in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Corporation upon the exercise, conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Corporation shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities consideration equal to the amount of such dividend so paid or satisfied. (B) When Adjustments Are Made. The adjustments required by this Section 9(d) shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of Conversion Shares or of the Conversion Price that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 9(d)(i)) up to, but not beyond, the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the Conversion Shares or of the Conversion Price immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 9(d) and not previously made, would result in a minimum adjustment, but in no event later than the Conversion Determination Date. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (C) Fractional Interests. In computing adjustments under this Section 9(d), fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. 14 (D) When Adjustment Not Required. If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. The adjustments pursuant to this Section 9(d) shall not apply to: (I) any Convertible Securities which are issued to officers, directors, employees, or consultants of the Corporation pursuant to a bona fide plan or plans adopted in good faith by the Board of Directors of the Corporation; (II) any Additional Shares of Common Stock issued to such officers, directors, employees, or consultants of the Corporation upon the exchange, conversion or exercise of the Convertible Securities described in the immediately preceding clause (I); (III) Additional Shares of Common Stock, Convertible Securities and other securities issued in connection with investments in, acquisitions of, or mergers, combinations or other strategic relationships with, other companies, provided, however, that if such issuance is to an Affiliate of the Corporation, the Board of Directors shall have determined in good faith that such issuance was made on fair and reasonable terms no less favorable to the Corporation than could be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate of the Corporation; (IV) Additional Shares of Common Stock issued in a bona fide public offering pursuant to a firm commitment underwriting or sales at the market pursuant to a continuous offering stock program; (V) Additional Shares of Common Stock issued in any private placement or other transaction exempt from the registration requirements of the Securities Act pursuant to a firm commitment underwriting; (VI) rights to purchase Additional Shares of Common Stock or issuance of Additional Shares of Common Stock pursuant to a dividend reinvestment plan or other plan hereafter adopted for the reinvestment of dividends or interest; (VII) a change in the par value or no par value of the Common Stock (other than as a consequence of an event described in Section 9(d)(i)(B), 9(d)(i)(C) or 9(d)(vii) for which an adjustment to the number of Conversion Shares or the Conversion Price is required pursuant to such Section; or (VIII) non-stock dividends or distributions paid by the Corporation, except to the extent otherwise provided in Section 9(d)(ix). In addition, to the extent that the Series A Preferred Stock becomes convertible into cash, no interest shall accrue on such cash. In addition, no adjustment need be made for a transaction if all Holders of Series A Preferred Stock are entitled to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. 15 (vii) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Corporation shall, at any time prior to the Conversion Time, reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Corporation is not the surviving corporation, a reverse triangular merger in which the Corporation is the surviving entity but the shares of the Corporation's Capital Stock outstanding immediately prior to the merger are converted, by virtue of the merger, into other property, whether in the form of cash, securities or otherwise, or where there is a change in or distribution with respect to the Common Stock of the Corporation), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another Person and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of Common Stock of any successor or acquiring corporation or of the Corporation (as applicable), or any cash, shares of stock or other securities or property of any nature whatsoever (including, warrants or other subscription or purchase rights) in addition to or in lieu of Common Stock of the successor or acquiring corporation or of the Corporation (as applicable) ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Corporation, then the Holder shall have the right thereafter to receive, upon conversion of a share of Series A Preferred Stock, the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Conversion Stock that would be received upon conversion of a share of Series A Preferred Stock immediately prior to such event; provided, however, that this Section 9(d)(vii) shall not apply to the extent any action causes an adjustment to be made pursuant to Sections 9(d)(i), (ii), (iii) or (v) hereof. For purposes of this Section 9(d)(vii) "Common Stock of any successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 9(d)(vii) shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or dispositions of assets at any time prior to the Conversion Time, and to the stock or securities of any other corporation that are at the time receivable by the Holders upon conversion of shares of Series A Preferred Stock. (viii) Reclassifications. If, at any time prior to the Conversion Time, the Corporation changes any of the securities into which shares of Series A Preferred Stock are convertible into the same or a different number of securities of any other class or classes, each share of Series A Preferred Stock shall thereafter be convertible into such number and kind of securities as would have been issuable as the result of such change with respect to the securities into which a share of Series A Preferred Stock was convertible immediately prior to such reclassification or other change and the Conversion Price therefore shall be appropriately adjusted. 16 (ix) Extraordinary Dividends. If, at any time prior to the Conversion Time, the Corporation declares and pays an extraordinary dividend (i.e., a dividend that is inconsistent with the Corporation's dividend policy adopted by the Board of Directors other than a customary initial dividend), and the failure thereupon to make any adjustment pursuant to this Section 9(d) would not fairly protect the conversion rights of the Holders of Series A Preferred Stock in accordance with the essential intent and principles hereof, then, in such case, the Corporation shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular independent auditors of the Corporation) or independent investment banking firm of recognized national standing, which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 9, necessary to preserve, without dilution, the conversion rights of the Holders of Series A Preferred Stock. Upon receipt of such opinion, the Corporation will promptly mail a copy thereof to each Holder of shares of Series A Preferred Stock and shall make the adjustment, if any, described therein. (x) Other Notices. In case at any time prior to the Conversion Time: (A) there shall be any capital reorganization, or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation (other than a subsidiary of the Corporation in which the Corporation is the surviving or continuing corporation and no change occurs in the Corporation's Common Stock), or sale of all or substantially all of its assets to, another corporation; (B) there shall be a voluntary or involuntary dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, or winding up of the Corporation; (C) the Corporation shall declare any non-cash dividend on its Common Stock; or (D) there shall be a Change of Control; then, in any one or more of said cases, the Corporation shall give written notice to the Holders of the date (or, if not then known, a reasonable approximation thereof by the Corporation) on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up or other action or dividend, as the case may be, shall take place. Such notice shall also specify (or, if not then known, reasonably approximate) the date as of which the holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, 17 assignment for the benefit of creditors, winding up, or other action, or the date of such dividend, as the case may be. Such notice shall be given to each Holder: at least twenty days prior to the record date for such action in the case of any action described in Subsection (A) or Subsection (B) above; in the case of any action described in Subsection (C) above, at least twenty days prior to the day on which the action described is to take place and at least twenty days prior to the record date for determining holders of Common Stock entitled to receive securities and/or other property in connection with such action; and in the case of a Change of Control, within 30 days of the occurrence of Change of Control. As soon as practicable following any adjustment of the Conversion Price and/or the number of Conversion Shares, a certificate, signed by (i) the Corporation's President or Chief Financial Officer, or (ii) any independent firm of certified public accountants, or investment banking firm, in either case of recognized national standing, which the Corporation selects at its own expense, setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated, shall be mailed to the Holders and shall specify the Conversion Price and/or the number of Conversion Shares after giving effect to the adjustment. (e) NO IMPAIRMENT. The Corporation shall not, by amendment of its charter or bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities or any other voluntary action, seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 9. Section 10. SEVERABILITY OF PROVISIONS. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law. Section 11. TRANSFERS. (a) Shares of the Series A Preferred Stock and the certificates representing such shares and all rights thereunder are non-transferable, and may not be sold, transferred, pledged, hypothecated, or assigned without the prior written consent of the Corporation (which may be withheld in the Corporation's sole discretion), except for a transfer of all or part of the shares of Series A Preferred Stock held by a Holder (i) to a majority owned Affiliate of a Holder or (ii) in connection with the distribution of all of the assets of a Holder pursuant to a liquidation, dissolution or winding up of the affairs of a Holder, or the sale of all or 18 substantially all of a Holder's assets or a merger or consolidation of a Holder where the Holder is not the surviving entity; provided, however, in no event (other than, in the case AOL is the Holder, in connection with the sale of all or substantially all of AOL's assets or a merger or consolidation of AOL where AOL is not the surviving entity) may a Holder make a transfer to a competitor of the Corporation. Any such prohibited transfer made without the Corporation's consent shall be void ab initio. (b) At any time after the Holders have made a valid demand for redemption of the Series A Preferred Stock pursuant to Section 5 and prior to the Holder Redemption Date, the Corporation may, to the fullest extent permitted by applicable law, require that, in lieu of such redemption, (i) the Holders sell, free and clear of any Encumbrances, all or any portion of the Series A Preferred Stock at the Liquidation Amount therefor to a third party identified by the Corporation in a notice given to each Holder of record of the Series A Preferred Stock no later than three Business Days prior to the Holder Redemption Date or (ii) the Holders sell, free and clear of any Encumbrances, all or any portion of the Series A Preferred Stock at an amount less than the Liquidation Amount therefor to a third party so identified by the Corporation (the "Third Party") no later than three Business Days prior to the Holder Redemption Date, provided that the Corporation shall pay to the Holders the difference between the amount paid by the Third Party and the Liquidation Amount therefor. The sale to the Third Party shall be made at a closing held at the offices of the Corporation at a time prior to the Holder Redemption Date, as mutually agreed by the Holders and the Corporation. At the closing, the Holder shall deliver stock certificates evidencing the shares of Series A Preferred Stock to be purchased, duly endorsed in blank, or accompanied by stock powers duly executed in blank, in form satisfactory to the Corporation and the Third Party and with all required stock transfer tax stamps affixed thereto and the Third Party (or the Third Party and the Corporation) shall pay an amount equal to the Liquidation Amount therefor by wire transfer of immediately available funds. Other than the foregoing, without the prior written consent of the Holders, the Holders shall have no obligations in connection with such sale other than delivery of such Series A Preferred Stock, free and clear of any Encumbrances. The Corporation shall pay all reasonable third party expenses (other than income and similar taxes) incurred by the Holders in connection with a sale hereunder. Section 12. NOTICES. (a) 45 days prior to the Conversion Determination Date, the Corporation shall give to the Holders a notice setting forth the Conversion Determination Date and soliciting from the Holders receipt of a notice of redemption pursuant to Section 5(a)(i) or a Conversion Notice. (b) All notices, demands or other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by registered or certified mail (post prepaid, return receipt requested) (i) to the Corporation, at the Corporation's principal executive offices and (ii) to a Holder, at such Holder's address as it shall appear upon the stock transfer books of the Corporation. 19 IN WITNESS WHEREOF, the undersigned has executed and subscribed this certificate this 17th day of September, 1999. CAREINSITE, INC. /s/ David C. Amburgey ---------------------------------------- Name: David C. Amburgey Title: Senior Vice President General Counsel EX-4.2 3 WARRANT AGREEMENT DATED SEPTEMBER 15, 1999 EXHIBIT 4.2 WARRANT AGREEMENT WARRANT AGREEMENT (this "Warrant Agreement"), dated as of September 14, 1999, between AMERICA ONLINE, INC., a Delaware corporation ("AOL"), and CAREINSITE, INC., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, the parties hereto are also parties to a Subscription Agreement, dated as of the date hereof (the "Subscription Agreement"), pursuant to which AOL has agreed to purchase 100 shares of the Company's Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") and has been granted an option to purchase an additional 100 shares of the Series A Preferred Stock on the first anniversary of the date of the Subscription Agreement and (b) an Interactive Marketing Agreement, dated as of the date hereof (the "Interactive Marketing Agreement"); and WHEREAS, each share of Series A Preferred Stock is convertible at the option of the holder thereof into (a) a number of the Conversion Shares (as defined in and determined in accordance with the form of Certificate of Designation for the Series A Preferred Stock attached as Annex A to the Subscription Agreement (the "Certificate of Designation")) and (b) a warrant to purchase the same number of shares of Common Stock (as defined below) as the number of Conversion Shares into which the share of Series A Preferred Stock is converted and otherwise having the terms and conditions specified in this Warrant Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, and intending to be legally bound hereby, AOL and the Company hereby agree as follows: ARTICLE I DEFINITIONS As used in this Warrant Agreement, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued or issuable (whether upon the exercise of warrants, Convertible Securities or otherwise) by the Company after the Effective Date, other than (a) Warrant Stock and (b) shares of Common Stock issued or issuable pursuant to evidences of indebtedness, shares of stock, warrants, rights or other securities entered into or issued before conversion of the Series A Preferred Stock. "Adverse Market Effect" shall have the meaning set forth in Section 6.3(a). "Affiliate" shall mean with respect to any person or entity, any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity. For purposes of this definition, the term Acontrol" (including correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. "AOL" shall have the meaning set forth in the Preamble hereof. "Applicable Warrant Price" shall mean the Conversion Price (as defined in the Certificate of Designation) of the Series A Preferred Stock at the time at which it is converted pursuant to its terms. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Certificate of Designation" shall have the meaning set forth in the Recitals hereof. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, par value $.01 per share, of the Company, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (a) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (b) shares of Common Stock of any successor or acquiring corporation (as defined in Section 4.7) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.7; provided, however, that this shall not include any shares of Common Stock acquired by the exercise of the Warrants. "Company" shall have the meaning set forth in the Preamble hereof. "Convertible Securities" shall mean evidences of indebtedness, shares of stock, warrants, rights or other securities entered into or issued after conversion of the Series A Preferred Stock which are exercisable, convertible or exchangeable (including, but not limited to, Options), with 2 or without payment of additional consideration in cash or property, for Additional Shares of Common Stock, either immediately or upon the occurrence of a specified date or the happening of a specified event or both. "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the lower of (a) the average of the daily market prices for 15 consecutive Business Days commencing twenty-five (25) days before such date and (b) the daily market price on the most recent Business Day prior to such date. The daily market price for each such Business Day shall be the last reported sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading or, if the Common Stock is not so listed or admitted, the last reported sale price on such day on the National Association of Securities Dealers, Inc. Automated Quotation National Market System ("NASDAQ") or any other over-the-counter market or trading facility on which such Common Stock is then listed; provided, however, that if no sale takes place on such day on any such exchange, market or trading facility, the average of the last reported closing bid and ask prices on such day as officially quoted on such exchange, market or trading facility shall be the daily market price for such Business Day; provided further that if the Common Stock is not listed or admitted to trade on a stock exchange and is not quoted on NASDAQ, or any other over-the-counter market or trading facility, the Current Market Price shall be the Fair Market Value. "Cut-Back Event" shall have the meaning set forth in Section 6.3(a). "Demand Registration" shall have the meaning set forth in Section 6.2. "Effective Date" shall mean the date of the initial issuance of shares of Series A Preferred Stock. "Exercise Period" shall mean the period from and including the date that all of the Company's outstanding Series A Preferred Stock has been converted, pursuant to its terms, into Common Stock until the Expiration Date. "Expiration Date" shall mean the eighth anniversary of the Effective Date. "Fair Market Value" shall mean, in respect of a share of Common Stock on any date herein specified, the fair value as determined in good faith by the Board of Directors of the Company. "Holder" shall mean the Person in whose name a Warrant is registered on the books of the Company maintained for such purpose. "Incidental Registration" shall have the meaning set forth in Section 6.3(a). "Liquidation Excess" shall have the meaning set forth in Section 4.5. 3 "Interactive Marketing Agreement" shall have the meaning set forth in the Recitals hereof. "Majority Holders" shall mean the Holders entitled to receive in excess of fifty percent (50%) of the aggregate number of shares of Common Stock then purchasable upon exercise of the Warrants, whether or not then exercisable. "NASDAQ" shall have the meaning set forth in the paragraph hereof defining "Current Market Price." "Option" means any right, warrant or option to subscribe for or purchase shares of Common Stock. "Other Property" shall have the meaning set forth in Section 4.7. "Outstanding" shall mean, when used with reference to the Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or its subsidiaries, and all shares issuable in respect of outstanding scrip or any certificates evidencing fractional interests in shares of Common Stock. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof) and other organizations, whether or not legal entities. "Register" shall have the meaning set forth in Section 2.1. "Registrable Shares" shall mean shares of Common Stock issued or issuable upon the exercise of the Warrants, until the earliest to occur of (i) the sale of all such shares by the Holder (pursuant to a registration statement or otherwise) or (ii) such shares being tradable pursuant to Rule 144(k) under the Securities Act (or any similar provision then in effect). "Registration Period" shall have the meaning set forth in Section 6.2. "Selling Shareholders" shall mean Persons holding Common Stock of the Company and entitled to register such Common Stock under the Securities Act pursuant to registration rights agreements with the Company, other than holders of Registrable Shares. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 4 "Series A Preferred Stock" shall have the meaning set forth in the Recitals hereof. "Subscription Agreement" shall have the meaning set forth in the Recitals hereof. "Warrants" shall mean the Warrants issued pursuant to this Agreement and all Warrants issued upon the partial exercise, transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. "Warrant Price" shall mean an amount equal to (a) the number of shares of Common Stock being purchased upon exercise of a Warrant pursuant to Section 2.2 multiplied by (b) the Applicable Warrant Price. "Warrant Stock" shall mean the shares of Common Stock purchased by the Holder upon the exercise of Warrants; provided that if under the terms hereof there shall be a change such that the securities purchasable hereunder shall be issued by an entity (other than the Company) or there shall be a change in the type or class of securities purchasable hereunder, then the term shall mean the securities issued or issuable upon the exercise of the rights granted hereunder. ARTICLE II REGISTRATION; EXERCISE OF THE WARRANTS; REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2.1 Registration; Warrant Certificate. (a) Upon conversion of the Series A Preferred Stock, the Company shall register the Warrants, upon records to be maintained by the Company for that purpose (the "Register"), in the name of the Holder of such Warrants. The Register shall include the Holder's name, address (as provided to the Company by the Holder), the number of Warrants registered in such Holder's name, and any other information pertaining to the Warrants or the Holder that the Board of Directors of the Company reasonably deems appropriate. The Company may deem and treat the registered Holder of the Warrants as the absolute owner thereof for the purpose of any exercise thereof or any distribution to the Holder thereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. (b) Upon conversion of the Series A Preferred Stock, the Company shall deliver to the Holder of the Warrants a certificate evidencing such Warrants substantially in a form to be mutually agreed upon and attached to this Warrant Agreement as soon as practicable following the date hereof. 2.2 Manner of Exercise. (a) Each Warrant may be exercised for all or any part of the number of shares of Common Stock purchasable thereunder at any time during the Exercise Period. 5 (b) In order to exercise a Warrant, in whole or in part, the Holder shall deliver to the Company at the office designated by the Company pursuant to Section 11.8, (i) a written notice of the Holder's election to exercise such Warrant, which notice shall specify the number of shares of Common Stock to be purchased, (ii) payment of the Warrant Price in the manner provided below, and (iii) the certificate evidencing such Warrant. Such notice shall be substantially in the form of the subscription form appearing attached as Exhibit A to the form of Warrant certificate attached hereto, duly executed by the Holder or its agent or attorney duly authorized in writing. Upon receipt thereof, the Company shall, as promptly as practicable, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates evidencing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder. A Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued and the Holder shall be deemed to have become a holder of record of such shares for all purposes, as of the date the notice, together with the cash or check or checks, if any, and the certificate evidencing such Warrant, are received by the Company as described above and all taxes required to be paid by the Holder, if any, prior to the issuance of such shares, have been paid. If a Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates evidencing Warrant Stock, deliver to the Holder a new Warrant certificate evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by such Warrant or, at the sole discretion of the Company, appropriate notation may be made on the certificate evidencing such Warrant and the same returned to the Holder. The issuance of Warrant Stock shall be made without charge to the Holder for any issuance tax with respect thereto or any other cost incurred by the Company in connection with the exercise of Warrants and the related issuance of Warrant Stock; provided the Holder provides the Company or its agent with any report, document or certificate required by applicable law in order to avoid the imposition of such taxes or other costs. Notwithstanding any provision herein to the contrary, the Company shall not be required to register shares in the name of any Person who acquired a Warrant (or part thereof) or any Warrant Stock otherwise than in accordance with this Warrant Agreement. Payment of the Warrant Price with respect to an exercise of Warrants shall be made in same-day funds by certified or official bank check, or wire transfer. 2.3 Payment of Taxes. The Company shall pay all stock transfer taxes and similar governmental charges that may be imposed with respect to the issuance of Warrant Stock upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or other charge imposed in connection with any transfer of any Warrant or the issuance or delivery of certificates for shares of Warrant Stock or other securities in respect of the shares of Warrant Stock upon the exercise of Warrants, to a person or entity other than a then existing Holder of Warrants; provided further that the Company shall not be required to pay any income or other similar tax levied on any Holder of Warrants. 6 2.4 Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of a Warrant. As to any fraction of a share which the Holder of a Warrant, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price on the date of notice of exercise. Payment of such amount shall be made in cash or by check payable to the order of the Holder at the time of delivery of any certificate or certificates arising upon such exercise. 2.5 Restrictive Legend. Each certificate for Warrant Stock issued upon the exercise of a Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER (1) SUCH SHARES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF SUCH SHARES (WHICH COUNSEL IS REASONABLY SATISFACTORY TO THE COMPANY) PROVIDES AN OPINION TO SUCH EFFECT TO THE COMPANY." The Company shall, upon the request of any holder of a stock certificate bearing the foregoing legend and the surrender of such certificate, issue a new stock certificate without such legend if such holder shall have delivered to the Company a legal opinion reasonably satisfactory to the Company to the effect that the restrictions set forth herein are no longer required or necessary under the Securities Act or any applicable state law. 2.6 Representations and Warranties. The Company represents and warrants to AOL as follows: (a) Due Authority. The execution and delivery of this Warrant Agreement by the Company, the performance by the Company of its obligations hereunder, and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all requisite action on the part of the Company. This Warrant Agreement has been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by the other parties hereto) this Warrant Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 7 (b) No Conflict. Except for any applicable filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the expiration or termination of any waiting period thereunder (and any extension thereof), the execution, delivery and performance of this Warrant Agreement by the Company do not and will not (a) violate, conflict with or result in the breach of any provision of its Certificate of Incorporation or By-laws, (b) conflict with or violate any law, governmental regulation or governmental order applicable to it or any of its assets, properties or businesses or (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any encumbrance on any of the Company's assets or properties pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Company is a party or by which any of its assets or properties is bound or affected; except to the extent that any conflict under (b) or (c) above would not have a material adverse effect on the financial condition, business or operations of the Company and its subsidiaries taken as a whole or prevent or materially delay the consummation of the transactions contemplated by this Warrant Agreement. ARTICLE III TRANSFERS The Warrants and all rights (including, without limitation, all rights under Article VI) thereunder and hereunder are non-transferable, and may not be sold, transferred, pledged, hypothecated, or assigned without the prior written consent of the Company (which may be withheld in the Company's sole discretion), except for a transfer of all or part of the Warrants held by a Holder (i) to a majority owned Affiliate of the Holder or (ii) in connection with the distribution of all of the assets of the Holder pursuant to a liquidation, dissolution or winding up of the affairs of the Holder, or the sale of all or substantially all of the Holder's assets or a merger or consolidation of the Holder where the Holder is not the surviving entity; provided, however, in no event (other than, in the case the Holder is AOL, in connection with a sale of all or substantially all of AOL's assets or a merger or consolidation of AOL where AOL is not the surviving entity) may a Holder make any transfer to a competitor of the Company. Any such prohibited transfer made without the Company's consent shall be void ab initio. Any permitted transferee shall agree to be bound by all provisions of this Warrant Agreement. 8 ARTICLE IV ADJUSTMENTS The number of shares of Common Stock for which a Warrant is exercisable, or the price at which such shares may be purchased upon exercise of a Warrant, shall be subject to adjustment from time to time as set forth in this Article IV for events occurring after conversion of the Series A Preferred Stock. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Article IV as soon as practicable following the occurrence of such event, which notice shall state the exercise price resulting from such adjustment and/or the increase or decrease, if any, in the number of shares of Common Stock or other stock or property issuable upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4.1 Stock Dividends, Subdivisions and Combinations. If, at any time after the conversion of the Series A Preferred Stock, the Company shall: (a) pay a dividend or make a distribution on its Common Stock in Additional Shares of Common Stock (this adjustment will be deemed to occur immediately after the record date); (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock; or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock; then (i) the number of shares of Common Stock for which each Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which a Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Applicable Warrant Price shall be adjusted to equal (A) the Applicable Warrant Price multiplied by the number of shares of Common Stock for which a Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which a Warrant is exercisable immediately after such adjustment. 4.2 Issuance of Additional Shares of Common Stock. (a) If, at any time after the conversion of the Series A Preferred Stock, the Company shall (except as hereinafter provided in Section 4.2(b)) issue or sell any Additional Shares of Common Stock and such Additional Shares of Common Stock are issued or sold for no consideration or for consideration in an amount per additional share of Common Stock less than the Fair Market Value, then the Applicable Warrant Price shall be reduced to a price determined by multiplying (i) the Applicable Warrant Price by (ii) a fraction, (A) the numerator of which is the sum of (1) the number of shares of Common 9 Stock Outstanding immediately prior to such issuance or sale, plus (2) an amount equal to the quotient arrived at by dividing the aggregate consideration, if any, received by the Company upon such issuance or sale, by the Fair Market Value per share of the shares so issued or sold, and (B) the denominator of which is the number of shares of Common Stock Outstanding immediately after such issuance or sale. (b) The provisions of Section 4.2(a) shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.7. No adjustment of the number of shares of Common Stock for which a Warrant shall be exercisable or the Applicable Warrant Price shall be made under Section 4.2(a) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise, conversion or exchange of any Convertible Securities. 4.3 Issuance of Convertible Securities. If, at any time after the conversion of the Series A Preferred Stock, the Company shall issue or sell any Convertible Securities, and the price per share for which Common Stock is initially issuable upon the exercise, conversion or exchange of such Convertible Securities shall be less than the Fair Market Value in effect immediately prior to the time of such issue or sale of Convertible Securities, then the Applicable Warrant Price shall be adjusted as provided in Section 4.2(a) on the basis that (a) the maximum number of Additional Shares of Common Stock issuable pursuant to all such Convertible Securities shall be deemed to have been issued and outstanding, (b) the price per share for such Additional Shares of Common Stock shall be deemed to be the lowest possible price per share in any range of prices per share at which such Additional Shares of Common Stock are available to such holders, and (c) the Company shall have received all of the consideration payable therefor, if any, as of the date of the actual issuance of such Convertible Securities. No further adjustments of the Applicable Warrant Price shall be made upon the actual issue of Additional Shares of Common Stock upon exercise, conversion or exchange of such Convertible Securities. 4.4 Superseding Adjustment. If, at any time after any adjustment of the number of shares of Common Stock for which a Warrant is exercisable and/or the Applicable Warrant Price shall have been made pursuant to Section 4.3 as the result of any issuance of Convertible Securities, and either (a) the right of exercise, conversion or exchange for such Convertible Securities shall expire and all or a portion of such rights with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised, or (b) the consideration per share for which shares of Common Stock are issuable pursuant to such Convertible Securities shall be increased, then such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have 10 been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such Convertible Securities on the then outstanding Warrants, but not on any then outstanding Warrant Stock, on the basis of (c) treating the number of Additional Shares of Common Stock theretofore actually issued or issuable pursuant to the previous exercise, conversion or exchange, as having been issued on the date or dates of any such exercise, conversion or exchange and for the consideration actually received and receivable therefor, and (d) treating any such Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock are issuable under such Convertible Securities. 4.5 Liquidation; Dissolution. If, after the conversion of the Series A Preferred Stock, the Company shall dissolve, liquidate or wind up its affairs, the Holder shall have the right, but not the obligation, to exercise the Warrants effective as of the date of such dissolution, liquidation or winding up; provided that written notice of such intent to exercise is delivered to the Company within ten (10) business days of the date that the Holder receives written notice of the Company's intent to dissolve, liquidate or wind up its affairs; provided, further, that if the amount that would be received by the Holder upon exercise of the Warrants, effective as of such dissolution, liquidation or winding up, is greater than the Warrant Price (such difference being hereinafter referred to as the "Liquidation Excess"), the Holder shall, upon such exercise, be entitled to receive such Liquidation Excess upon such dissolution, liquidation or winding up and, in such case, shall not be obligated to tender to the Company such Warrant Price. 4.6 Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which each Warrant is exercisable provided for in this Article IV; (a) Computation of Consideration. To the extent that any Additional Shares of Common Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Shares of Common Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Common Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. The consideration for any Additional Shares of Common Stock issuable 11 pursuant to the terms of any Convertible Securities shall be the consideration, if any, received by the Company for issuing such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise, conversion or exchange of such Convertible Securities. In case of the issuance at any time of any Additional Shares of Common Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such Additional Shares of Common Stock or Convertible Securities consideration equal to the amount of such dividend so paid or satisfied. (b) When Adjustments Are Made. The adjustments required by this Article IV shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which each Warrant is exercisable or of the Applicable Warrant Price that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond, the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which each Warrant is exercisable or of the Applicable Warrant Price immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Article IV and not previously made, would result in a minimum adjustment, but in no event later than the date of exercise of a Warrant. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) Fractional Interests. In computing adjustments under this Article IV, fractional interests in Common Stock shall be taken into account to the nearest 1/10th of a share. (d) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. The adjustments pursuant to this Article IV shall not apply to: (i) any Convertible Securities which are issued to officers, directors, employees, or consultants of the Company pursuant to a bona fide plan or plans adopted in good faith by the Board of Directors of the Company; (ii) any Additional Shares of Common Stock issued to such officers, directors, employees, or consultants of the Company upon the exchange, conversion or exercise of the Convertible Securities described in the immediately preceding clause (i); (iii) Additional Shares of Common Stock, Convertible Securities and other securities issued in connection with investments in, acquisitions of, or mergers, combinations or other strategic relationships with, 12 other companies, provided, however, if such issuance is to an Affiliate of the Company, the Board of Directors of the Company shall have determined in good faith that such issuance was made on fair and reasonable terms no less favorable to the Company than could be obtained in a comparable arm's length transaction with a Person that is not an Affiliate of the Company; (iv) Additional Shares of Common Stock issued in a bona fide public offering pursuant to a firm commitment underwriting or sales at the market pursuant to a continuous offering stock program; (v) Additional Shares of Common Stock issued in any private placement or other transaction exempt from the registration requirements of the Securities Act pursuant to a firm commitment underwriting; (vi) rights to purchase Additional Shares of Common Stock or issuance of Additional Shares of Common Stock pursuant to a dividend reinvestment plan or other plan hereafter adopted for the reinvestment of dividends or interest; (vii) a change in the par value or no par value of the Common Stock (other than as a consequence of an event described in Section 4.1(b), 4.1(c) or 4.7) for which an adjustment to the number of Shares of Common Stock for which each Warrant is exercisable is required pursuant to such Section 4.1(b), 4.1(c) or 4.7; (viii) non-stock dividends or distributions paid by the Company, except to the extent otherwise provided in Section 4.9; or (ix) any event or circumstance that occurred at or prior to the Conversion Time (as defined in the Certificate of Designation) of the Series A Preferred Stock and any other event or circumstance for which an adjustment in the Conversion Price (as defined in the Certificate of Designation) or the number of Conversion Shares (as defined in the Certificate of Designation) of the Series A Preferred Stock was made. In addition, to the extent that the Warrants become exercisable for cash, no interest shall accrue on such cash. 4.7 Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall, after the conversion of the Series A Preferred Stock, reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation, a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's Capital Stock outstanding immediately prior to the merger are converted, by virtue of the merger, into other property, whether in the form of cash, securities or otherwise, or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another Person and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of Common Stock of any successor or acquiring corporation or of the Company (as applicable), or any cash, shares of stock or other securities or property of any nature whatsoever (including, warrants or other subscription or purchase rights) in addition to or in lieu of Common Stock of the successor or acquiring corporation or of the Company (as applicable) ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive, upon exercise of such Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which such Warrant is exercisable immediately prior to such event; provided, however, that this Section 4.7 shall not apply to the extent any action causes an 13 adjustment to be made pursuant to Section 4.1, 4.2, 4.3 or 4.5 hereof. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets after the conversion of the Series A Preferred Stock, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant Agreement and the Warrants to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Article IV. For purposes of this Section 4.7, "Common Stock of any successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.7 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or dispositions of assets after the conversion of the Series A Preferred Stock and to the stock or securities of any other corporation that are at the time receivable by the Holders upon the exercise of Warrants. 4.8 Reclassifications. If, after the conversion of the Series A Preferred Stock, the Company changes any of the securities as to which purchase rights under the Warrants exist into the same or a different number of securities of any other class or classes, each Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under such Warrant immediately prior to such reclassification or other change and the Applicable Warrant Price therefore shall be appropriately adjusted. 4.9 Extraordinary Dividends. If, after the conversion of the Series A Preferred Stock, the Company declares and pays an extraordinary dividend (i.e., a dividend that is inconsistent with the Company's dividend policy adopted by the Board of Directors of the Company other than a customary initial dividend), and the failure thereupon to make any adjustment pursuant to this Article IV would not fairly protect the purchase rights represented by the Warrants in accordance with the essential intent and principles hereof, then, in such case, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the regular independent auditors of the Company) or independent investment banking firm of recognized national standing, which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Article IV, necessary to preserve, without dilution, the purchase rights represented by the Warrants. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holders of the Warrants and shall make the adjustment, if any, described therein. 14 4.10 Other Notices. In case at any time after the conversion of the Series A Preferred Stock: (a) there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation (other than a subsidiary of the Company in which the Company is the surviving or continuing corporation and no change occurs in the Company's Common Stock), or sale of all or substantially all of its assets to another corporation; (b) there shall be a voluntary or involuntary dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, or winding up of the Company; or (c) the Company shall declare any non-cash dividend on its Common Stock; then, in any one or more of said cases, the Company shall give written notice, addressed to the Holders at the respective addresses of such Holders as shown on the Register, of the date (or, if not then known, a reasonable approximation thereof by the Company) on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up or other action or dividend, as the case may be, shall take place. Such notice shall also specify (or, if not then known, reasonably approximate) the date as of which the holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up, or other action, or the date of such dividend, as the case may be. Such notice shall be mailed to the Holders at least twenty days prior to the record date for such action in the case of any action described in Subsection (a) or Subsection (c) above, and in the case of any action described in Subsection (b) above, at least twenty days prior to the day on which the action described is to take place and at least twenty days prior to the record date for determining holders of Common Stock entitled to receive securities and/or other property in connection with such action. As soon as practicable following any adjustment of the Applicable Warrant Price and/or the number of shares of Common Stock purchasable upon exercise of each Warrant, a certificate, signed by (i) the Company's President or Chief Financial Officer, or (ii) any independent firm of certified public accountants, or investment banking firm, in either case of recognized national standing, which the Company selects at its own expense, setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated, shall be mailed to the Holders and shall specify the adjusted Applicable Warrant Price and/or the number of shares of Common Stock purchasable upon exercise of each Warrant after giving effect to the adjustment. 4.11 No Impairment. The Company shall not, by amendment of its charter or bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, 15 dissolution, issuance or sale of securities or any other voluntary action, seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Article IV. ARTICLE V COVENANTS The Company covenants that the Company shall at all times reserve and keep available for issue upon the exercise of the Warrants such number of its authorized and unissued shares of Common Stock as will be sufficient to permit such exercise in full. All shares of Common Stock which shall be so issuable, when issued upon exercise of the Warrants and payment therefor in accordance with the terms of the Warrants, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. ARTICLE VI DEMAND AND INCIDENTAL REGISTRATION OF REGISTRABLE SHARES 6.1 Registration. Neither the Warrants nor the Registrable Shares have been registered under the Securities Act or applicable state securities laws. National represents that it is acquiring any Warrants to be issued to it for its own account and not with a view to the distribution thereof, and agrees not to sell, transfer, pledge or hypothecate any Warrants or any Registrable Shares unless a registration statement is effective for such Warrants or Registrable Shares under the Securities Act or in the opinion of AOL's counsel, which counsel must be acceptable to the Company (a copy of which opinion shall be delivered to the Company), such transaction is exempt from the registration requirements of the Securities Act and applicable state securities laws). 6.2 Demand Registration. At any time after commencement of the Exercise Period, holders of not less than fifty percent (50%) of the then total number of Registrable Shares, as to which Warrants have been exercised or are then exercisable, may make a written request for registration under the Securities Act of all or part of their Registrable Shares (a "Demand Registration") for the public disposition of such Registrable Shares. The Company shall, as soon as reasonably practicable after receipt of such written request, notify all other holders of Registrable Shares, as to which Warrants have been exercised or are then exercisable, of the Company's receipt of such written request, and offer such holders the opportunity to include their Registrable Shares, as to which Warrants have been exercised or are then exercisable, in such Demand Registration. The Company shall then use its reasonable best efforts to register under the Securities Act the Registrable Shares proposed to be sold by such holders and to keep such Demand Registration open for ninety (90) days (the "Registration Period"); provided, however, 16 that the Company shall not be obligated (i) to effect a Demand Registration covering less than fifty percent (50%) of the then total number of Registrable Shares, (ii) to effect more than two (2) Demand Registrations under this Section 6.2 or (iii) to effect the second Demand Registration within one (1) year after the effective date of the Registration Statement effected in response to the initial Demand Registration; provided that if the Registrable Shares proposed to be sold by such holders were not sold pursuant to such a Demand Registration, other than because such holders elected not to sell their Registrable Shares, the holders of any number of Registrable Shares shall be entitled to make a written request for an additional Demand Registration in accordance with the procedures of this Section 6.2 until such Registrable Shares initially proposed to be sold by such holders have been sold and notwithstanding the immediately preceding proviso, the Company shall be obligated to effect such an additional Demand Registration in accordance with the procedures of this Section 6.2 so long as such request is not made within six (6) months of the withdrawal or termination of the Demand Registration relating to the unsold Registrable Shares; and provided further that each Demand Registration shall be subject to the provisions of Section 6.4 hereof. A request for a Demand Registration will specify the number of Registrable Shares proposed to be sold. 6.3 Incidental Registration. (a) If the Company proposes to register under the Securities Act any Common Stock of any Selling Shareholder for sale to the public pursuant to a firm commitment underwriting (other than on a registration statement on Form S-4 or S-8 under the Securities Act), the Company will give written notice at such time to all holders of Registrable Shares as to which Warrants have been exercised or are then exercisable of its intention to do so. Upon the written request of any such holder, given within thirty (30) days after receipt of any such notice by the Company, to register any of its Registrable Shares, the Company will use its reasonable best efforts to cause the Registrable Shares as to which registration shall have been so requested, to be included in the securities to be covered by such registration statement (the "Incidental Registration"), all to the extent requisite to permit the sale or other disposition by the holder (in accordance with its written request) of such Registrable Shares so registered; provided, however, that nothing herein shall prevent the Company from abandoning or delaying any such registration at any time; and provided, further, that the Incidental Registration shall be subject to the provisions of Sections 6.3(b) and Section 6.4 to the extent indicated therein. Any request by a holder pursuant to this Section 6.3 to register Registrable Shares shall specify the number of Registrable Shares to be included in the underwriting and that such Registrable Shares are to be included in the underwriting on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters under such registration. If the managing underwriter or underwriters shall advise the Company in writing that, in the view of such underwriters, such holders of Registrable Shares shall have requested the registration of a number of Registrable Shares that exceeds the maximum number of Shares that can be sold without having a material adverse effect on the marketing of the Common Stock to be sold under such registration statement, including the price at which such Common Stock can be sold (an "Adverse Market Effect"), the Company shall not be required to register Shares in excess of such maximum number, subject to the provisions of Section 6.3(b) (a "Cut-Back Event"). 17 (b) In the event of a Cut-Back Event arising in connection with an Incidental Registration, then the Company shall include in such registration (i) first, all of the Common Stock proposed to be sold by the Company and such Selling Shareholder(s) initiating such registration, and (ii) second, the number of shares of Common Stock of the Company validly requested by all other Selling Shareholders and holders of Registrable Shares to be included in such registration that, in the opinion of the underwriters, can be sold without having an Adverse Market Effect, such amount to be allocated among all such other Selling Shareholders and holders of Registrable Shares pro rata on the basis of the respective number of shares of Common Stock each such other Selling Shareholder and holder of Registrable Shares has requested to be included in such registration. 6.4 Discretion. Notwithstanding any other provision hereof to the contrary, (a) the Company shall be entitled, in its reasonable discretion, to elect, once with respect to each Demand Registration which it may be requested to effect hereunder, to delay the filing or effectiveness of a registration statement pursuant to Section 6.2 for up to one hundred and twenty (120) days from the date of the request therefor under Section 6.2, so long as the Board of Directors of the Company shall have determined in good faith prior to effecting such delay that such delay would be in the best interests of the Company, (b) the Company shall have the right to select the managing underwriter or underwriters for any offer or sale of the Registrable Shares pursuant to Sections 6.2 or 6.3; provided, however, that the holders of a majority of the Registrable Shares participating in the Demand Registration shall have the right to approve such underwriters, such approval not to be unreasonably withheld or delayed, (c) in connection with a Demand Registration, the holders of Registrable Shares shall consult with the Company with respect to the method of sale of such Registrable Shares; and in any event, such holders shall use their best efforts to the effect that the sale of such Shares shall not have a material adverse effect on the market price of the Common Stock, (d) the Company shall pay all out-of-pocket expenses incident to the Company's effectuation of a Demand Registration, including without limitation, all registration and filing fees (including filing fees with respect to the National Association of Securities Dealers, Inc.), all fees and expenses of complying with state securities or "blue sky," laws, all printing expenses, all listing fees, all registrars' and transfer agents' fees, the fees and disbursements of counsel for the Company and of its independent certified public accountants, including the expenses of any special audits and/or "comfort" letters required by or incident to such performance and compliance; but excluding the fees and disbursements of counsel to the sellers of the Registrable Shares, underwriting discounts and commissions, and applicable transfer taxes, if any, which shall be borne by the sellers of the Registrable Shares being registered in all cases, and 18 (e) such holders agree to cooperate fully to facilitate the Demand Registration, and offer and sale of Registrable Shares covered thereby, including completing selling shareholder questionnaires, entering into customary underwriting and other agreements, and furnishing information for inclusion in any prospectus. 6.5 Payment of Exercise Price. The Company acknowledges that the Holder may desire to make cash payment of the Warrant Price with net proceeds received from the sale of the Warrant Stock. Accordingly, the Company agrees that the Holder shall be entitled to exercise the Warrant concurrent with the sale of the Warrant Stock and have the net proceeds applied directly to payment in full of the Warrant Price. ARTICLE VII REGISTRATION PROCEDURES If the Company is required by the provisions hereof to use commercially reasonable efforts to effect the registration of any Registrable Shares under the Securities Act, the Company will: (a) furnish to each seller of Registrable Shares and to any underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the intended disposition of the Registrable Shares covered by such registration statement; (b) use commercially reasonable efforts (i) to register or qualify the Registrable Shares covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Registrable Shares or, in the case of an underwritten public offering, the managing underwriter, reasonably shall request, (ii) to prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements, and take such other actions, as may be necessary to maintain such registration and qualification in effect at all times for the period of distribution contemplated thereby and (iii) to take such further action as may be necessary or advisable to enable the disposition of the Registrable Shares in such jurisdictions, provided that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (c) use commercially reasonable efforts to list the Registrable Shares covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed, or, if the Common Stock is not then listed on a national securities exchange, use its best efforts to facilitate the reporting of the Common Stock on NASDAQ; (d) notify each seller of Registrable Shares and each underwriter under such registration statement, at any time when a prospectus relating thereto is required to be delivered 19 under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes any 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 light of the circumstances then existing and promptly amend or supplement such registration statement to correct any such untrue statement or omission; (e) notify each seller of Registrable Shares 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 and make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time; (f) if the offering is an underwritten offering, enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are usual and customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature, including without limitation, customary indemnification and contribution provisions; (g) make available for inspection by each seller of Registrable Shares at such seller's expense, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (h) provide a transfer agent and registrar, which may be a single entity, for the Registrable Shares not later than the effective date of the registration statement; and (i) take all actions reasonably necessary to facilitate the timely preparation and delivery of certificates (not bearing any legend restricting the sale or transfer of such securities) evidencing the Registrable Shares to be sold pursuant to the registration statement and to enable such certificates to be in such denominations and registered in such names as the investors or any underwriters may reasonably request. In connection with any registration hereunder, the sellers of Registrable Shares will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. 20 ARTICLE VIII INDEMNIFICATION AND CONTRIBUTION 8.1 Indemnification by Company. In the event of a registration of any of the Registrable Shares under the Securities Act pursuant to the terms of this Agreement, the Company will indemnify and hold harmless and pay and reimburse, each seller of such Registrable Shares thereunder, each underwriter of such Registrable Shares thereunder, each officer, director, employee and agent of each seller and each underwriter and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, as and, when incurred, to which such seller, underwriter, officer, director, employee, agent or controlling person may become subject under the Securities Act or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Shares were registered under the Securities Act pursuant hereto or any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon 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 any violation or alleged violation of the Securities Act or any state securities or blue sky laws and will reimburse each such seller, underwriter officer, director, employee, agent and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon the Company's reliance on an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus. Notwithstanding the foregoing, the indemnity provided in this Section 8.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of such indemnifying party (which consent shall not be unreasonably withheld or delayed). 8.2 Indemnification of Company. In the event of a registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement each seller of such Registrable Shares thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, as and when incurred, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon reliance on any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Shares were registered under the Securities Act pursuant hereto or 21 any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon 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, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, that the liability of each seller hereunder shall be limited to the proceeds received by such seller from the sale of Registrable Shares covered by such registration statement. Notwithstanding the foregoing, the indemnity provided in this Section 8.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of such indemnifying party (which consent shall not be unreasonably withheld or delayed). 8.3 Notice of Action. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Article VIII and shall only relieve it from any liability which it may have to such indemnified party under this Article VIII if and to the extent the indemnifying party is materially prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Article VIII for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded based upon written advice of its counsel that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. 22 8.4 Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Registrable Shares exercising rights under this Warrant Agreement or any controlling person of any holder, makes a claim for indemnification pursuant to this Article VIII but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Article VIII provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any holder or any such controlling person in circumstances for which indemnification is provided under this Article VIII; then, and in each such case, the Company and holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Shares offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided that, in any such case, (a) no holder will be required to contribute any amount in excess of the public offering price of all such Registrable Shares offered by it pursuant to such registration statement and (b) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. ARTICLE IX LOSS OR MUTILATION Upon receipt by the Company from the Holder of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of a certificate evidencing a Warrant or Warrants and indemnity reasonably satisfactory to the Company and in case of mutilation upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new certificate evidencing such Warrant or Warrants to the Holder; provided, however, in the case of mutilation, no indemnity shall be required if the certificate evidencing such Warrant or Warrants in identifiable form is surrendered to the Company for cancellation. ARTICLE X NO STOCK RIGHTS No Holder of a Warrant, as such, shall be entitled to vote or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise thereof, nor shall anything contained herein be construed to confer upon the Holder of a Warrant, as such, the rights of a stockholder of the Company or the 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, to exercise any preemptive right, to receive notice of 23 meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise (except as provided herein), until the exercise of such Warrant shall have occurred. ARTICLE XI MISCELLANEOUS 11.1 Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 11.2 Nonwaiver; Cumulative Remedies. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder or the Company shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of the Holder or the Company. No single or partial waiver by the Holder or the Company of any provision of this Warrant Agreement or of any breach or default hereunder or thereunder or of any right or remedy shall operate as a waiver of any other provision, breach, default right or remedy or of the same provision, breach, default right or remedy on a future occasion. The rights and remedies provided in this Warrant Agreement are cumulative and are in addition to all rights and remedies which the Holder or the Company may have in law or in equity or by statute or otherwise. 11.3 Severability. If any term or other provision of this Warrant Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Warrant Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Warrant Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Warrant Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Warrant Agreement be consummated as originally contemplated to the fullest extent possible. 11.4 Entire Agreement. This Warrant Agreement, together with the Subscription Agreement, constitutes the entire agreement of the parties hereto and thereto with respect to the subject matter hereof and thereof and supersedes all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof and thereof. 11.5 Amendment. This Warrant Agreement may not be modified or amended except by written agreement of the Company and the Holder. 24 11.6 Headings. The headings of the Sections of this Warrant Agreement are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant Agreement. 11.7 Meanings. Whenever used in this Warrant Agreement, any noun or pronoun shall be deemed to include both the singular and plural and to cover all genders; and the words "herein," "hereof" and "hereunder" and words of similar import shall refer to this instrument as a whole, including any amendments hereto. 11.8 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11.8): (a) if to the Company: CareInsite, Inc. River Drive Center 2 669 River Drive Elmwood Park, NJ 07407-1361 Telecopy No.: (201) 703-3401 Attention: General Counsel (b) if to AOL: America Online, Inc. 22000 AOL Way Dulles, VA 20166 Telecopy No.: (703) 265-2208 Attention: General Counsel 11.9 Successors and Assigns. This Warrant Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and successors. 11.10 Survival of Rights and Duties. This Warrant Agreement shall terminate and be of no further force and effect on the earliest of (a) the Conversion Notice Deadline (as defined in the Certificate of Designation) if a timely Conversion Notice (as defined in the Certificate of Designation) has not by that time been delivered to the Company in accordance with the provisions of the Certificate of Designation, (b) 5:00 P.M., New York City time, on the last day of the Exercise Period, (c) the date on which all of the Warrants have been exercised or (d) the termination of the Subscription Agreement if such termination occurs prior to the Effective Date; 25 provided, however, that the provisions of Section 2.3 and Articles VI, VII and VIII (if any Warrants were exercised), and Article XI shall continue in full force and effect after such termination date. 11.11 Governing Law. This Warrant Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. 11.12 Counterparts. This Warrant Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Warrant Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Warrant Agreement. 11.13 Waiver of Jury Trial. Each of the parties hereto irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this Warrant Agreement or the transactions contemplated hereby and for any counterclaim therein. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26 IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be duly executed. CAREINSITE, INC. By:/s/ David C. Amburgey ---------------------------------- Name: David C. Amburgey Title: Senior Vice President General Counsel AMERICA ONLINE, INC. By:/s/ David M. Colburn --------------------------------- Name: David M. Colburn Title: President-Business Affairs ANNEX I TO THE WARRANT AGREEMENT [FORM OF WARRANT CERTIFICATE] Incorporated under the Laws of the State of Delaware No. ___ CAREINSITE, INC. ____ Warrants Warrants to Purchase Shares of Common Stock, Par Value $0.01 Per Share THIS CERTIFIES THAT-____________, or registered assigns (the "Registered Owner") is the registered owner of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the Registered Owner thereof to purchase one share of the Common Stock, par value $0.01 per share (the "Common Stock") of CareInsite, Inc. (the "Corporation") at the Warrant Price (as defined in that certain Warrant Agreement dated September 14, 1999 between the Corporation and the America Online, Inc. (the "Warrant Agreement")), subject to the terms and conditions as more particularly set forth in the Warrant Agreement. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its duly authorized officers this day of _________, _____. ________________________________ ________________________________ Chairman of the Board, President Treasurer, Assistant Treasurer, or Vice President Secretary or Assistant Secretary THE WARRANTS EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK TO BE ISSUED UPON CONVERSION OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER (1) SUCH WARRANTS OR SHARES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF SUCH WARRANTS OR SHARES (WHICH COUNSEL IS REASONABLY SATISFACTORY TO THE COMPANY) PROVIDES AN OPINION TO SUCH EFFECT TO THE COMPANY. THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A WARRANT AGREEMENT DATED AS OF SEPTEMBER 14, 1999, BETWEEN THE CORPORATION AND AMERICA ONLINE, INC. AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF THE WARRANTS EVIDENCED BY THIS CERTIFICATE WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH. FOR VALUE RECEIVED,_________________________________ does hereby sell, assign and transfer unto___________________________________________ (Please print or type name and address of assignee) __________________________________ Warrants evidenced by the within Certificate, and does hereby irrevocably constitute and appoint ________________ attorney to transfer the said Warrants on the books of the within-named Corporation, with full power of substitution in the premises. Dated __________________________. In presence of: _____________________________________________ ________________________________ EXHIBIT A TO THE WARRANT AGREEMENT SUBSCRIPTION FORM [To be executed only upon exercise of Warrant] The undersigned registered owner ("Subscriber") of the Warrants evidenced by the Warrant Certificate No. __ (the "Warrant Certificate") hereby irrevocably exercises _________ Warrants for the purchase of shares of Common Stock, par value $0.01 per share ("Common Stock") of CAREINSITE, INC. (the "Company"), and herewith makes payment therefor in the amount of $______, all at the price and on the terms and conditions specified in the Warrant Agreement dated September 14, 1999 between the Company and America Online, Inc. (the "Warrant Agreement") and requests that a certificate (or ___ certificates in denominations of shares) for the shares of Common Stock hereby purchased (and any securities or Other Property issuable upon such exercise) be issued in the name of and delivered to Subscriber and, if the number of Warrants being exercised is less than the number of Warrants represented by the Warrant Certificate of Common Stock issuable as provided in this Warrant, that a new certificate for the balance of such Warrants hereunder be delivered to Subscriber in accordance with the provisions of the Warrant Agreement. Subscriber hereby represents and warrants as follows: (a) The Common Stock to be acquired hereunder is being acquired by Subscriber for investment purposes only solely for its own account, and not with a view to, or in connection with, the distribution thereof in violation of securities laws. (b) Subscriber understands that the Common Stock has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under applicable state securities laws. Subscriber understands and agrees further that the Common Stock must be held indefinitely unless it is subsequently registered under the Securities Act or an exemption from registration under the Securities Act and applicable state securities laws covering the sale of the Common Stock is available. Subscriber understands that legends stating that the Common Stock have not been registered under the Securities Act, and setting out or referring to any other restrictions on transferability and sale of the Common Stock, will be placed on any and all documents evidencing the Common Stock. (c) Subscriber is aware that: (i) Investment in the Company involves a high degree of risk, lack of liquidity and substantial restrictions on transferability of the Common Stock; and (ii) No federal or state agency has made any finding or determination as to the fairness for investment by the public, nor has made any recommendation or endorsement, of the Common Stock. (d) Subscriber, either directly or indirectly, has sufficient financial resources available to support the loss of all of its investment in the Company, and has no need for liquidity in its investment in the Company. (e) Subscriber, either itself or through its advisers, is sophisticated and experienced in investment matters, and, as a result, Subscriber is in a position to evaluate an investment in the Company. (f) Subscriber has been furnished any materials Subscriber has requested relating to the Company and the Common Stock, and Subscriber has been afforded the opportunity to ask questions of the officers of the Company concerning the Company and the Common Stock. (g) Subscriber is an "accredited investor" as that term is defined in Rule 501 (a) of Regulation D under the Securities Act. (Subscriber should strike this subparagraph (g) in its entirety if not an "accredited investor.") (h) Subscriber, if not an accredited investor, hereby represents and affirms that (i) Subscriber has a net worth exceeding ten (10) times Subscriber's investment, or (ii) Subscriber has either alone or with Subscriber's professional advisor the capacity to protect Subscriber's interests in connection with this transaction, or (iii) Subscriber is able to bear the economic risk of the investment A-2 _______________________________________ (Name of Registered Owner) _______________________________________ (Signature of Registered Owner) _______________________________________ (Street Address) _______________________________________ (City) (State) (Zip Code) NOTICE: The signature on this subscription must correspond with the name as written upon the face of the Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. A-3 EX-4.3 4 SUBSCRIPTION AGREEMENT DATED SEPTEMBER 15, 1999 EXHIBIT 4.3 ================================================================================ SUBSCRIPTION AGREEMENT between CAREINSITE, INC. and AMERICA ONLINE, INC. dated as of September 15, 1999 ================================================================================ TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms................................................. 1 ARTICLE II PURCHASE AND SALE 2.01. Sale of Series A Preferred Stock; Option to Purchase Series A Preferred Stock.............................................. 4 2.02. Closings.............................................................. 4 2.03. Closing Deliveries by the Company..................................... 5 2.04. Closing Deliveries by the Investor.................................... 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.01. Due Organization and Authority........................................ 6 3.02. Capital Stock of Company.............................................. 7 3.03. No Conflict........................................................... 7 3.04. Governmental Consents and Approvals................................... 8 3.05. Compliance with Laws; Litigation...................................... 8 3.06. SEC Filings; Financial Statements; Absence of Undisclosed Liabilities. 8 3.07. No Material Adverse Change............................................ 9 3.08. Brokers............................................................... 9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTOR 4.01. Organization and Authority............................................ 9 4.02. No Conflict...........................................................10 4.03. Governmental Consents and Approvals...................................10 4.04. Brokers...............................................................10 ARTICLE V CONDITIONS TO THE INITIAL CLOSING 5.01. Conditions to the Initial Closing.....................................10 5.02. Conditions to the Subsequent Closing..................................11 ARTICLE VI TRANSFER OF SHARES 6.01. General Restriction...................................................12 6.02. Private Placement.....................................................12 6.03. Legends...............................................................12 ARTICLE VII ADDITIONAL AGREEMENTS 7.01. HSR...................................................................13 7.02. Survival; Indemnification.............................................13 7.03. Common Stock Issuable Upon Conversion.................................14 7.04. Certificate of Designation............................................14 7.05. Other Action..........................................................14 ARTICLE VIII MISCELLANEOUS 8.01. Termination...........................................................15 8.02. Expenses..............................................................15 8.03. Notices...............................................................16 8.04. Public Announcements..................................................16 8.05. Headings; Interpretation..............................................16 8.06. Severability..........................................................16 8.07. Entire Agreement......................................................17 8.08. Assignment............................................................17 8.09. Amendment.............................................................17 8.10. Governing Law.........................................................17 8.11. Counterparts..........................................................17 8.12. Non-Waiver; Cumulative Remedies.......................................17 8.13. Waiver of Jury Trial..................................................18 ii SUBSCRIPTION AGREEMENT This SUBSCRIPTION AGREEMENT, dated as of September 15, 1999, among CAREINSITE, INC., a Delaware corporation (the "Company") and AMERICA ONLINE, INC., a Delaware corporation (the "Investor"). W I T N E S S E T H: WHEREAS, on the terms and conditions set forth herein, the Investor wishes to subscribe for and purchase for cash from the Company, and the Company wishes to issue and sell to the Investor, 100 shares of Series A Convertible Redeemable Preferred Stock, face value $100,000 per share (the "Series A Preferred Stock"); WHEREAS, on the terms and conditions set forth herein, the Investor wishes to have the option to subscribe for and purchase for cash from the Company up to an additional 100 shares of Series A Preferred Stock on the first anniversary of the date of this Agreement, and the Company wishes to grant such option; WHEREAS, the parties hereto believe it is in their mutual best interest to enter into certain other agreements, as set forth herein; and WHEREAS, the parties hereto are, contemporaneously with entering into this Agreement, entering into (a) an Interactive Marketing Agreement (the "Interactive Marketing Agreement") and (b) a Warrant Agreement (the "Warrant Agreement") setting forth the terms of certain warrants (the "Warrants") included in the Conversion Consideration (as defined in the form of Certificate of Designation for the Series A Preferred Stock attached hereto as Annex A (the "Certificate of Designation")). NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such specified Person. "Agreement" means this Subscription Agreement, dated as of September 15, 1999. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close. "Capital Stock" means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited) or equivalent ownership interests in such Person. "Certificate of Designation" has the meaning specified in the Recitals. "Commission" means the Securities and Exchange Commission. "Common Stock" has the meaning specified in the Preamble. "Company" has the meaning specified in the Preamble. "Company Disclosure Schedule" means a confidential disclosure schedule to be delivered by the Company to the Investor at least three Business Days prior to the Subsequent Closing in order to supplement and modify the representations and warranties of the Company contained in Article III in connection with the Subsequent Closing. "Control" (including the terms "Controlled by" and "under common Control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnifiable Losses" has the meaning specified in Section 7.02(d)(i). "Initial Closing" has the meaning specified in Section 2.02(a). 2 "Initial Closing Representations" means the representations and warranties of the Company contained in Article III of this Agreement. "Interactive Marketing Agreement" has the meaning specified in the Recitals. "Investor" has the meaning specified in the Preamble. "Losses" has the meaning specified in Section 7.02(d)(ii). "Material Adverse Effect" has the meaning specified in Section 3.01. "NASDAQ" has the meaning specified in Section 3.05(a). "Permits" has the meaning specified in Section 3.05(b)(i). "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a Person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. "SEC Reports" has the meaning specified in Section 3.06(a). "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Series A Preferred Stock" has the meaning specified in the Recitals. "Subsequent Closing" has the meaning specified in Section 2.02(b). "Subsequent Closing Representations" means the representations and warranties of the Company contained in Article III of this Agreement, as modified and supplemented by the Company Disclosure Schedule. "Subsidiary" means any and all corporations, partnerships, joint ventures, associations and other entities Controlled by the Company directly or indirectly through one or more intermediaries. "Termination Date" has the meaning specified in Section 8.01(a)(ii). "Warrant Agreement" has the meaning specified in the Recitals. "Warrants" has the meaning specified in the Recitals. 3 ARTICLE II PURCHASE AND SALE SECTION 2.01. Sale of Series A Preferred Stock; Option to Purchase Series A Preferred Stock. (a) Upon the terms and subject to the conditions set forth in this Agreement, the Company shall issue and deliver to the Investor, and the Investor shall accept from the Company, 100 shares of Series A Preferred Stock. In consideration for the issuance of the Series A Preferred Stock pursuant to this Section 2.01(a), the Investor shall pay to the Company a purchase price of $100,000 per share. (b) Upon the terms and subject to the conditions set forth in this Agreement, the Investor shall have the option to purchase additional shares of Series A Preferred Stock on the first anniversary of the date of this Agreement, up to a maximum of 100 additional shares of Series A Preferred Stock; provided, however, that such option shall be exercisable by the Investor only if the Company receives, no later than the 30 days prior to the first anniversary of the date of this Agreement, a written notice from the Investor stating its intention to exercise the option to purchase additional shares pursuant to this Section 2.01(b) and the number of shares to be purchased by the Investor pursuant hereto; provided that the Investor shall have the right to rescind such notice until 5:00 p.m. New Jersey time on the second Business Day following receipt by the Investor of the Company Disclosure Schedule. In consideration for the issuance of the Series A Preferred Stock pursuant to this Section 2.01(b), the Investor shall pay to the Company a purchase price of $100,000 per share. SECTION 2.02. Closings. (a) Upon the terms and subject to the conditions set forth in this Agreement, the transactions provided for in Section 2.01(a) shall take place at a closing (the "Initial Closing") to be held at 10:00 a.m. New Jersey time on the later of September 16, 1999 or the Business Day following the satisfaction or waiver of all conditions to the obligations of the parties set forth in Article V, or at such other time or on such other date as the parties may mutually agree upon. (b) Upon the terms and subject to the conditions set forth in this Agreement, the transactions provided for in Section 2.01(b) shall, if the Investor exercises the option provided therein, take place at a closing (the "Subsequent Closing") to be held at 10:00 A.M. New Jersey time on the first anniversary of the date of this Agreement or at such other time or on such other date as the parties may mutually agree upon. 4 SECTION 2.03. Closing Deliveries by the Company. (a) At the Initial Closing, the Company shall deliver to the Investor: (i) a certificate evidencing 100 shares of Series A Preferred Stock in definitive form and registered in the name of the Investor; (ii) a certificate from the Company, signed by a duly authorized officer, to the effect that the Company's Initial Closing Representations are true and correct as of the Initial Closing, with the same force and effect as if made on the date of the Initial Closing, and that all covenants and agreements of the Company contained in this Agreement to be complied with on or prior to the Initial Closing have been complied with; and (iii) true and complete copies, certified by the Secretary of the Company, of the Charter and By-laws of the Company and of the resolutions duly and validly adopted by its Board of Directors, evidencing their authorization of the execution and delivery of this Agreement and the Warrant Agreement and the consummation of the transactions contemplated hereby and thereby. (b) At the Subsequent Closing, the Company shall deliver to the Investor: (i) a certificate evidencing the number of shares of Series A Preferred Stock purchased by the Investor pursuant to Section 2.01(b) of this Agreement, such certificate to be in definitive form and registered in the name of the Investor; (ii) a certificate from the Company, signed by a duly authorized officer, to the effect that the Company's Subsequent Closing Representations are true and correct as of the Subsequent Closing, with the same force and effect as if made on the date of the Subsequent Closing, and that all covenants and agreements of the Company contained in this Agreement to be complied with on or prior to the Subsequent Closing have been complied with; and (iii) true and complete copies, certified by the Secretary of the Company, of the Charter and By-laws of the Company and of the resolutions duly and validly adopted by its Board of Directors, evidencing their authorization of the execution and delivery of this Agreement and the Warrant Agreement and the consummation of the transactions contemplated hereby and thereby. 5 SECTION 2.04. Closing Deliveries by the Investor. (a) At the Initial Closing: (i) the Investor shall pay $10,000,000.00 by wire transfer of immediately available funds to an account designated in writing by the Company no later than the second Business Day prior to the date of the Initial Closing; and (ii) the Investor shall deliver a certificate, signed by a duly authorized officer, to the effect that the representations and warranties of such party contained in Article IV this Agreement are true and correct as of the Initial Closing, with the same force and effect as if made on the date of the Initial Closing, and that all covenants and agreements of such party contained in this Agreement to be complied with on or prior to the Subsequent Closing have been complied with and confirming, with respect to the shares of Series A Preferred Stock to be purchased at the Initial Closing, the understandings and statements contained in Section 6.02. (b) At the Subsequent Closing: (i) the Investor shall pay the aggregate purchase price for the number of additional shares of Series A Preferred Stock to be purchased at the Subsequent Closing, such payment to be made by wire transfer of immediately available funds to an account designated in writing by the Company no later than the second Business Day prior to the date of the Subsequent Closing; and (ii) the Investor shall deliver a certificate, signed by a duly authorized officer, to the effect that the representations and warranties of such party contained in Article IV of this Agreement are true and correct as of the Subsequent Closing, with the same force and effect as if made on the date of the Subsequent Closing, and that all covenants and agreements of such party contained in this Agreement to be complied with on or prior to the Initial Closing have been complied with and confirming, with respect to the shares of Series A Preferred Stock to be purchased at the Subsequent Closing, the understandings and statements contained in Section 6.02. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Investor as follows: SECTION 3.01. Due Organization and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into this Agreement and the Warrant Agreement, to carry out its obligations hereunder and thereunder, and to consummate the transactions 6 contemplated hereby and thereby. The Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except to the extent that the failure to be so licensed or qualified would not have a material adverse effect on the financial condition, business or operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect") or prevent or materially delay the consummation of the transactions contemplated by this Agreement or the Warrant Agreement. The execution and delivery of this Agreement and the Warrant Agreement by the Company, the performance by the Company of its obligations hereunder and thereunder, and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of the Company. This Agreement and the Warrant Agreement have been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by the other parties hereto and thereto) this Agreement and the Warrant Agreement constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. SECTION 3.02. Capital Stock of Company. The Series A Preferred Stock to be issued by the Company pursuant to this Agreement has been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable. No Person has any preemptive or similar rights with respect to the Series A Preferred Stock, and neither the parties hereto nor subsequent holders in due course of such Series A Preferred Stock will be entitled to any such preemptive or similar rights. The authorized capital stock of the Company consists of: (a) 300,000,000 shares of Common Stock, of which 70,410,134 shares were issued and outstanding on September 3, 1999; and (b) 30,000,000 shares of preferred stock, of which none are outstanding as of the date of this Agreement. SECTION 3.03. No Conflict. Assuming that all consents, approvals, authorizations and other actions described in Section 3.04 have been obtained, the execution, delivery and performance of this Agreement and the Warrant Agreement by the Company do not and will not (a) violate, conflict with or result in the breach of any provision of its Certificate of Incorporation or By-laws, (b) conflict with or violate any law, governmental regulation or governmental order applicable to it or any of its assets, properties or businesses or (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any encumbrance on any of the Company's assets or properties pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Company is a party or by which any of its assets or properties is bound or affected; except to the extent that any conflict under (b) or (c) above would not have a Material Adverse Effect or prevent or materially delay the consummation of the transactions contemplated by this Agreement or the Warrant Agreement. 7 SECTION 3.04. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and the Warrant Agreement by the Company do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any governmental authority, except such as are required by the HSR Act in connection with the acquisition of Common Stock prior to exercise of the Warrant. SECTION 3.05. Compliance with Laws; Litigation. (a) The Company is in compliance with all requirements of applicable law, all applicable requirements of The NASDAQ Stock Market, Inc. ("NASDAQ") and all orders issued by any court or governmental authority against the Company, except to the extent that any such failure to so comply would not have a Material Adverse Effect or prevent or materially delay the consummation of the transactions contemplated by this Agreement or the Warrant Agreement. (b) (i) The Company has all material licenses, permits and approvals of any governmental authority (collectively, "Permits") that are necessary for the conduct of the business of the Company; (ii) such Permits are in full force and effect; and (iii) no material violations are or have been recorded in respect of any Permit. (c) Except as set forth in the SEC Reports filed prior to the date of this Agreement, there is no pending or, to the knowledge of the Company, threatened action, suit or proceeding to which the Company or any of its subsidiaries is a party, before or by any court or governmental agency or body, that could reasonably be expected to result in a Material Adverse Effect or to prevent or materially delay the consummation of the transactions contemplated by this Agreement or the Warrant Agreement. SECTION 3.06. SEC Filings; Financial Statements; Absence of Undisclosed Liabilities. (a) The Company has filed all forms, reports and documents required to be filed by it with the Commission ("SEC Reports") since its initial public offering, including (but not limited to) its registration statement on Form S-1. Except as set forth in the SEC Reports filed prior to the date of this Agreement, as of the respective dates they were filed (or if amended or superseded by a filing prior to the date of this Agreement, on the date of such amending or superseding filing), (i) the SEC Reports were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No subsidiary of the Company is required to file any form, report or other document with the Commission. (b) Each of the consolidated financial statements (including, in each case, any notes and schedules thereto) contained in the SEC Reports complied as to form with the applicable accounting requirements and rules and regulations of the Commission and was prepared in accordance with United States generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto 8 or, in the case of unaudited financial statements, as permitted by the rules and regulations of the Commission), and each presented fairly, in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries at the respective dates thereof and their results of operations and cash flows for the respective periods indicated therein, all in accordance with United States generally accepted accounting principles (subject, in the case of unaudited statements, to normal and recurring year-end adjustments which were not and are not expected, individually or in the aggregate, to be material in amount). (c) Except for liabilities and obligations reflected on the March 31, 1999 consolidated balance sheet of the Company (including the notes thereto), liabilities and obligations disclosed in SEC Reports filed prior to the date of this Agreement and other liabilities and obligations incurred in the ordinary course of business since March 31, 1999 or that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise). SECTION 3.07. No Material Adverse Change. Except as otherwise disclosed in the SEC Reports filed prior to the date hereof, since March 31, 1999, there has not been a material adverse change in the financial condition, business or operations of the Company and its subsidiaries taken as a whole. SECTION 3.08. Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement or the Warrant Agreement based upon arrangements made by or on behalf of the Company or any of its Affiliates. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTOR The Investor represents and warrants to the Company as follows: SECTION 4.01. Organization and Authority. Such party is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all necessary power and authority to enter into this Agreement and the Warrant Agreement, to carry out its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Warrant Agreement by such party, the performance by it of its obligations hereunder and thereunder, and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on its part. This Agreement and the Warrant Agreement have been duly executed and delivered by such party, and (assuming due 9 authorization, execution and delivery by the other parties hereto and thereto) this Agreement and the Warrant Agreement constitute legal, valid and binding obligations of such party, enforceable against it in accordance with their respective terms. SECTION 4.02. No Conflict. Assuming that all consents, approvals, authorizations and other actions described in Section 4.03 have been obtained, the execution, delivery and performance of this Agreement and the Warrant Agreement by such party do not and will not (a) violate, conflict with or result in the breach of any provision of its Charter or By-laws (or similar organizational documents), (b) conflict with or violate any law, governmental regulation or governmental order applicable to such party or any of its assets, properties or businesses or (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights pursuant to, any contract, agreement or arrangement by which such party is bound; except to the extent that any conflict under (b) or (c) above would not prevent or materially delay the consummation of the transactions contemplated by this Agreement or the Warrant Agreement. SECTION 4.03. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and the Warrant Agreement by the Investor does not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any governmental authority, except such as are required by the HSR Act in connection with the acquisition of Common Stock prior to exercise of the Warrant. SECTION 4.04. Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement or the Warrant Agreement based upon arrangements made by or on behalf of the Investor or any of its Affiliates. ARTICLE V CONDITIONS TO THE INITIAL CLOSING SECTION 5.01. Conditions to the Initial Closing. The obligations of each party to this Agreement to consummate the transactions contemplated by Section 2.01(a) shall be subject to the fulfillment, at or prior to the Initial Closing, of each of the following conditions: (a) Representations, Warranties and Covenants. (i) In the case of the Investor, the Company's Initial Closing Representations shall have been true and correct when made and shall be true and correct as of the Initial Closing, with the same force and effect as if made on the date of the Initial Closing, and all covenants and agreements of the Company contained in this Agreement to be complied with on or prior to the Initial Closing shall have been complied with in all material respects. 10 (ii) In the case of the Company, the representations and warranties of the Investor contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Initial Closing, with the same force and effect as if made on the date of the Initial Closing, and all covenants and agreements of the Investor contained in this Agreement to be complied with on or prior to the Initial Closing shall have been complied with in all material respects. (b) No Prohibition. None of the transactions contemplated hereby or by the Warrant Agreement shall have been prohibited by any applicable law, court order or governmental regulation. (c) Warrant Agreement. The Warrant Agreement shall have been executed and shall remain in full force and effect. In addition, the obligation of the Investor to consummate the transactions contemplated by Section 2.01(a) is subject to the filing of the Certificate of Designation (substantially in the form attached as Annex A hereto) with the Secretary of State of the State of Delaware. SECTION 5.02. Conditions to the Subsequent Closing. The obligations of each party to this Agreement to consummate the transactions contemplated by Section 2.01(b) shall be subject to the fulfillment, at or prior to the Subsequent Closing, of each of the following conditions: (a) Representations, Warranties and Covenants. (i) In the case of the Investor, the Company's Subsequent Closing Representations shall have been true and correct when made and shall be true and correct as of the Subsequent Closing, and all covenants and agreements of the Company contained in this Agreement to be complied with on or prior to the Subsequent Closing shall have been complied with in all material respects. (ii) In the case of the Company, the representations and warranties of the Investor contained in Article IV of this Agreement are true and correct as of the Subsequent Closing, with the same force and effect as if made on the date of the Subsequent Closing, and all covenants and agreements of the Investor contained in this Agreement to be complied with on or prior to the Subsequent Closing shall have been complied with in all material respects. (b) No Prohibition. None of the transactions contemplated hereby or by the Warrant Agreement shall have been prohibited by any applicable law, court order or governmental regulation. (c) Warrant Agreement. The Warrant Agreement shall remain in full force and effect. 11 ARTICLE VI TRANSFER OF SHARES SECTION 6.01. General Restriction. Shares of the Series A Preferred Stock and the certificates evidencing such shares and all rights thereunder shall be non-transferable, and may not be sold, transferred, pledged, hypothecated, or assigned without the prior written consent of the Company (which may be withheld in the Company's sole discretion), except as specified in the Certificate of Designation. The Investor acknowledges and agrees that any such prohibited transfer made without the Company's consent shall be void ab initio. SECTION 6.02. Private Placement. (a) The Investor understands that (i) the offering and sale of the Series A Preferred Stock hereunder are intended to be exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act and (ii) there is no existing public or other market for the Series A Preferred Stock and there can be no assurance that such Investor will be able to sell or dispose of the Series A Preferred Stock. (b) The Investor hereby confirms to the Company that: (i) the Series A Preferred Stock is being acquired for the Investor's own account and without a view to the public distribution thereof or of the Common Stock or any interest therein; (ii) the Investor is an "accredited investor" as such term is defined in Regulation D, as amended, under the Securities Act; and (iii) the Investor has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Series A Preferred Stock, and is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Series A Preferred Stock. SECTION 6.03. Legends. (a) The Company shall affix to each certificate evidencing shares of Series A Preferred Stock a legend in substantially the following form: "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS EITHER (1) SUCH SHARES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND LEGAL COUNSEL OF THE HOLDER OF SUCH SHARES (WHICH COUNSEL IS REASONABLY SATISFACTORY TO THE COMPANY) PROVIDES AN OPINION TO SUCH EFFECT TO THE COMPANY. 12 THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A SUBSCRIPTION AGREEMENT DATED AS OF SEPTEMBER 14, 1999, AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER AND IN THE CERTIFICATE OF DESIGNATION FOR THE SERIES A PREFERRED STOCK FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE. NO REGISTRATION OF TRANSFER OF THESE SHARES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH." ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.01. HSR. Each of the parties hereto shall use reasonable efforts to cause any waiting period (and any extension thereof) under the HSR Act, applicable to the conversion of the Series A Preferred Stock or the exercise of the Warrants to expire or be terminated prior to the time of such conversion or exercise and shall cooperate in making any filings with the appropriate governmental entities in connection therewith. SECTION 7.02. Survival; Indemnification. (a) The Initial Closing Representations shall survive the Initial Closing for a period of one year after the date of the Initial Closing. (b) If the Subsequent Closing occurs, the Subsequent Closing Representations shall survive the Subsequent Closing for a period of one year after the date of the Subsequent Closing. (c) The Company shall indemnify and hold harmless the Investor from and against any and all Indemnifiable Losses (as defined below); provided, however, that no claim with respect to Indemnifiable Losses may be asserted unless written notice of such claim describing in detail the facts and circumstances with respect to the subject matter of such claim is received by the Company on or prior to: (i) in the case of Indemnifiable Losses with respect to the shares of Series A Preferred Stock purchased at the Initial Closing, the date on which the Initial Closing Representations cease to survive as set forth in Section 7.02(a); and (ii) in the case of Indemnifiable Losses with respect to the shares of Series A Preferred Stock purchased at the Subsequent Closing (if any), the date on which the Subsequent Closing Representations cease to survive as set forth in Section 7.02(b). The Company is not making any representations and 13 warranties other than the Initial Closing Representations in connection with the Initial Closing and the Subsequent Closing Representations in connection with the Subsequent Closing. (d) For purposes of this Section 7.02: (i) "Indemnifiable Losses" means (A) with respect to the shares of Series A Preferred Stock purchased by the Investor at the Initial Closing, Losses arising out of the failure of the Initial Closing Representations to be true and correct as of the date of the Initial Closing, provided, however, that in no event shall the amount of such Indemnifiable Losses exceed the purchase price of such shares of Series A Preferred Stock and (B) with respect to the shares of Series A Preferred Stock purchased by the Investor at the Subsequent Closing (if any), Losses arising out of the failure of the Subsequent Closing Representations to be true and correct as of the date of the Subsequent Closing, up to a maximum amount equal to the purchase price for the shares of Series A Preferred Stock purchased at the Subsequent Closing; and (ii) "Losses" means any and all losses, liabilities, damages, costs and expenses actually suffered or incurred by the Investor, but shall not include any consequential damages or any Losses that could have been avoided if the Investor had taken reasonable steps to mitigate its Losses. SECTION 7.03. Common Stock Issuable Upon Conversion. (a) The Company shall at all times reserve and keep available for issue upon the conversion of shares of Series A Preferred Stock such number of its authorized and unissued shares of Common Stock as will be sufficient to permit such conversion in full. All shares of Common Stock which shall be so issuable, when issued upon conversion of shares of Series A Preferred Stock in accordance with the terms of the Series A Preferred Stock, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. (b) The Company shall use all reasonable efforts to cause the shares of Common Stock to be issued upon conversion of the Series A Preferred Stock and upon exercise of Warrants to be approved for listing on NASDAQ prior to the issuance of such shares. SECTION 7.04. Certificate of Designation. The Investor acknowledges and agrees to comply with the terms of the Certificate of Designation, including, without limitation, Sections 5(b) and 11(b) thereof. SECTION 7.05. Other Action. Each of the parties hereto shall use reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws to consummate and make effective the transactions contemplated hereunder, including, without limitation, using reasonable efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of the competent governmental entities. 14 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Termination. (a) This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the Initial Closing, as follows: (i) by mutual written consent of each of the Investor and the Company; (ii) by either the Investor or the Company if the Initial Closing shall not have occurred on or before October 15, 1999 (the "Termination Date"); provided, however, that the right to terminate this Agreement under this Section 8.01(a)(ii) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Initial Closing to occur on or before the Termination Date; or (iii) by either the Investor or the Company, if any governmental entity (A) shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order or other action shall have become final and nonappealable, or (B) shall have failed to issue an order or to take any other action necessary to fulfill the conditions to the Initial Closing and such denial of a request to issue such order or take such other action shall have become final and nonappealable. (b) In the event of termination of this Agreement pursuant to Section 8.01, this Agreement and the Warrant Agreement shall forthwith become void and there shall be no liability under this Agreement or the Warrant Agreement on the part of the Investor or the Company or any of their respective officers or directors and all rights and obligations of each party hereto shall cease, except (a) the provisions of Sections 8.02 and 8.04 shall survive such termination and (b) nothing herein shall relieve any party from liability for any willful breach of any representation, warranty, covenant or other agreement in this Agreement occurring prior to termination. SECTION 8.02. Expenses. Except as otherwise specified in this Agreement or the Warrant Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the Warrant Agreement and the transactions contemplated hereby and thereby shall be paid by the party incurring such costs and expenses, whether or not the Initial Closing shall have occurred. 15 SECTION 8.03. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.03): (a) if to the Company: CareInsite, Inc. River Drive Center 2 669 River Drive Elmwood Park, NJ 07407-1361 Telecopy No.: (201) 703-3401 Attention: Senior Vice President - General Counsel (b) if to the Investor: America Online, Inc. 22000 AOL Way Dulles, VA 20166 Telecopy No.: (703) 265-2208 Attention: General Counsel SECTION 8.04. Public Announcements. Except as required by law, governmental regulation or by the requirements of any securities exchange on which the securities of a party hereto are listed, no party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the Warrant Agreement or the transactions contemplated hereby or thereby or otherwise communicate with any news media without the prior written consent of the other party, and the parties shall cooperate as to the timing and contents of any such press release or public announcement. SECTION 8.05. Headings; Interpretation. (a) The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. (b) Whenever used in this Agreement, any noun or pronoun shall be deemed to include both the singular and plural and to cover all genders; and the words "herein," "hereof" and "hereunder" and words of similar import shall refer to this Agreement as a whole. SECTION 8.06. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law, governmental regulation or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force 16 and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest possible extent. SECTION 8.07. Entire Agreement. This Agreement, together with the Warrant Agreement and the Interactive Marketing Agreement, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersedes all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof. SECTION 8.08. Assignment. This Agreement shall not be assigned by either party without the express written consent of the other party hereto (which consent may be granted or withheld in the sole discretion of any party); provided, however, that the Investor may, without the consent of the Company, assign all or a portion of its rights hereunder to any Person to whom the Investor would be permitted, pursuant to the Certificate of Designation, to transfer shares of Series A Preferred Stock without the consent of the Company. In the event that the Company shall be a party to a merger, consolidation or similar transaction that is consummated prior to the first anniversary of the date of this Agreement and in which the Company is not the surviving corporation, the Company's successor shall expressly assume the obligations of the Company under this Agreement with respect to the option contained in Section 2.01(b), subject to such modifications as may be deemed appropriate (as determined in good faith by the Board of Directors of the Company) in order to provide to the Investor, as nearly as practicable, the rights that the Investor would have had if such transaction had not occurred. SECTION 8.09. Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by, or on behalf of, each of the parties. SECTION 8.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. SECTION 8.11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.12. Non-Waiver; Cumulative Remedies. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Investor or the Company shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of the Investor or the Company. No single or partial waiver by the Investor or the Company of any provision of this Agreement or of any breach or default hereunder or of any right or remedy shall 17 operate as a waiver of any other provision, breach, default right or remedy or of the same provision, breach, default right or remedy on a future occasion. The rights and remedies provided in this Agreement are cumulative and are in addition to all rights and remedies which the Investor or the Company may have in law or in equity or by statute or otherwise. SECTION 8.13. Waiver of Jury Trial. Each of the parties hereto irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this Agreement or the transactions contemplated hereby and for any counterclaim therein. 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized signatories hereunto duly authorized as of the date first above written. CAREINSITE, INC. By:/s/ David C. Amburgey ---------------------------------- Name: David C. Amburgey Title: Senior Vice President General Counsel AMERICA ONLINE, INC. By:/s/ David M. Colburn ---------------------------------- Name: David M. Colburn Title: President-Business Affairs ANNEX A TO THE SUBSCRIPTION AGREEMENT SEE EXHIBIT 4.1 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLDIATED STATEMENT OF OPERATIONS AS REPORTED ON THE FIRST QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 1,384 0 653 16 0 70,599 9,409 2,307 188,653 11,525 0 4,791 0 704 171,633 188,653 0 1,657 0 1,131 4,946 10 0 (7,209) 0 (7,267) 0 0 0 (7,267) (0.10) (0.10)
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