According Emdeon Corporation’s (f/k/a WebMD Corporation) Form 10-Q for the quarterly period ended June 30, 2006, seven purported class action lawsuits were filed against Morgan Stanley & Co. Incorporated and Goldman Sachs & Co., underwriters of the initial public offering of the Company (then known as Healtheon) in the United States District Court for the Southern District of New York. Three of these suits also named the Company and certain former officers and directors of the Company as defendants. These suits were filed in the wake of reports of governmental investigations of the underwriters’ practices in the distribution of shares in certain initial public offerings. Similar suits were filed in connection with over 300 other initial public offerings that occurred in 1999, 2000 and 2001. After mediation, the issuer defendants in the consolidated action (including the Company), the affected insurance companies and the plaintiffs reached an agreement on a settlement to resolve the matter among the participating issuer defendants, their insurers and the plaintiffs. The settlement calls for the participating issuers’ insurers jointly to guarantee that plaintiffs recover a certain amount in the IPO litigation and certain related litigation from the underwriters and other non-settling defendants. Accordingly, in the event that the guarantee becomes payable, the agreement calls for the Company’s insurance carriers, not the Company, to pay the Company’s pro rata share. The Company and virtually all of the approximately 260 other issuer defendants who are eligible have also elected to participate in the settlement. On June 10, 2004, plaintiffs submitted to the court a Stipulation and Agreement of Settlement with Defendant Issuers and Individuals. On February 15, 2005, the court certified the proposed settlement class and preliminarily approved the settlement, subject to certain modifications, to which the parties agreed. On August 31, 2005, the court ordered that notice be mailed to the class members beginning on November 15, 2005, and no later than January 15, 2006, and scheduled a hearing for final approval of the settlement for April 24, 2006. On April 24, 2006, the court held a hearing for final approval of the settlement. The court has not yet decided the approval motion. As is usual in securities class action settlements, the Company has received a number of requests for exclusion (or “opt-outs”) from the settlement. Although the Company is not aware of any lawsuits filed against it by any opt-outs, the Company cannot predict whether any will file suit.
The complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) defendants had solicited and received excessive and undisclosed commissions from certain investors in exchange for which defendants allocated to those investors material portions of the restricted number of WebMD shares issued in connection with the WebMD IPO; and (ii) defendants had entered into agreements with customers whereby defendants agreed to allocate WebMD shares to those customers in the WebMD IPO in exchange for which the customers agreed to purchase additional WebMD shares in the aftermarket at pre-determined prices. The complaint also alleges that the underwriters of the IPO engaged in a pattern of conduct to surreptitiously extract inflated commissions greater than those disclosed in the Offering materials, among other acts of misconduct.