Filed Pursuant to Rule 424(B)(4)
Registration No: 333-153451
Registration No: 333-161270

 

23,700,000 Shares

 

Emdeon Inc.

 

Class A Common Stock

 

 

This is an initial public offering of shares of Class A common stock of Emdeon Inc. The company is offering 10,725,000 shares of its Class A common stock and the selling stockholders are offering 12,975,000 shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.

 

To the extent the underwriters sell more than 23,700,000 shares of Class A common stock, the underwriters have the option to purchase up to an additional 3,555,000 shares from the selling stockholders at the initial public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus.

 

Prior to this offering, there has been no public market for the Class A common stock. The initial offering price will be $15.50 per share.

 

Investing in our Class A common stock involves risks.  See “Risk Factors” beginning on page 16 to read about factors you should consider before buying shares of our Class A common stock.

 

We have been approved to list our Class A common stock on the New York Stock Exchange under the symbol “EM.”

 

 

 

The underwriters expect to deliver the shares to purchasers against payment in New York, New York on August 17, 2009.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

Prospectus dated August 11, 2009.

 

You should rely only on the information contained in this prospectus and any free writing prospectus we provide to you. Neither we nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date stated in this prospectus.

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

Until September 6, 2009 (25 days after the date of this prospectus), all dealers that buy, sell or trade our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties, and industry and general publications. The information contained in “Business” is based on studies, analyses and surveys prepared by American Hospital Association, American Health Insurance Plans, CAQH, Frost & Sullivan, Health Insurance Association of America, McKinsey & Company, PNC Financial Services Group Inc., Medical Group Management Association (MGMA), the National Health Care Anti-Fraud Association and Susquehanna Research Group. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

 

PROSPECTUS SUMMARY

	•	Pre-Care/Medical Treatment:  The provider verifies insurance benefits available to the patient, ensures treatment will adhere to medical necessity guidelines, confirms patient personal financial and demographic information and obtains any required pre-authorization prior to delivery of care.
	•	Claim Management/Adjudication:  The provider prepares and submits paper or electronic claims to a payer for services rendered directly or through a clearinghouse, such as ours. Before submission, claims are validated for payer-specific rules and corrected as necessary.
	•	Payment Distribution:  The payer sends payment and a payment explanation (i.e., remittance advice) to the provider and sends an explanation of benefits (“EOB”) to the patient.
	•	Payment Posting/Denial Management:  The provider posts payments internally, reconciles payments with accounts receivable and submits any claims to secondary insurers if secondary coverage exists.
	•	Patient Billing and Payment:  The provider sends a bill to the patient for any remaining balance and posts payments received.

	•	Limited exposure to the broader economic cycle given that the majority of our revenues are driven by healthcare transaction volumes. Our transaction volumes increased in 2008 to 4.0 billion from 3.7 billion in 2007.

	•	Healthcare industry trends, including demographic changes, continuing healthcare cost escalation, and related governmental and private focus on cost savings, and increasing administrative complexity.
	•	Recurring revenue base with significant visibility. In 2008, approximately 90-95% of our revenue was recurring in nature.
	•	Limited customer concentration. In 2008, no single customer represented more than 5.6% of our total revenue.
	•	Favorable positioning for our business model as evidenced by recent public policy efforts to increase efficiency and improve healthcare quality through the adoption of healthcare information technology solutions and the use of electronic transactions rather than more costly paper-based transactions.

	•	Continue to Drive Healthcare’s Transition from Paper-Based to Electronic Transactions
	•	Increase Customer Penetration by Executing on Significant Cross-Selling Opportunities
	•	Develop New High-Value Solutions for our Customers’ Revenue and Payment Cycle Needs
	•	Continue to Capitalize on Efficiencies of Scale and Rationalize Costs to Improve Profitability

	•	Leverage Our Expansive Data to Create Business Intelligence and Analytics Solutions
	•	Pursue Selective Acquisitions

Class A common stock outstanding before this offering		77,762,776 shares.
Class A common stock offered by us		10,725,000 shares.
Class A common stock offered by the selling stockholders		12,975,000 shares.
Class A common stock to be outstanding immediately after this offering		88,487,776 shares. If, immediately after this offering and the application of the net proceeds from this offering, all of the EBS Post-IPO Members elected to exchange their EBS Units for shares of our Class A common stock, 115,062,033 shares of Class A common stock would be outstanding.
Class B common stock to be outstanding immediately after this offering		26,574,257 shares. Shares of our Class B common stock have voting but no economic rights (including rights to dividends and distributions upon liquidation) and will be issued in an amount equal to the number of EBS Units held by the EBS Post-IPO Members. When an EBS Unit is exchanged by an EBS Post-IPO Member for a share of Class A common stock, the corresponding share of our Class B common stock will be cancelled.
Voting Rights		One vote per share; Class A common stock and Class B common stock vote together as a single class. See “Description of Capital Stock.”
Exchange		EBS Units held by the EBS Post-IPO Members (along with a corresponding number of shares of our Class B common stock) may be exchanged with EBS Master for shares of our Class A common stock on a one-for-one basis. The EBS Post-IPO Members will hold 26,574,257 EBS Units following this offering and the application of the net proceeds from this offering.
Use of proceeds		We estimate that the net proceeds to us from the sale of our Class A common stock in this offering, after deducting offering expenses and underwriting discounts and commissions, will be approximately $145.9 million. We intend to use approximately $5.8 million of the proceeds from this offering to purchase 399,458 EBS Units (at a price equal to the price paid by the underwriters for shares in this offering) held by certain of the EBS Equity Plan Members, including Messrs. Lazenby, Newport, Stuart and Hardin, and will use any remaining proceeds for working capital and general corporate purposes, which may include the repayment of indebtedness and future acquisitions.
		We will not receive any proceeds from the sale of our Class A common stock by the selling stockholders.
		See “Use of Proceeds.”
Proposed New York Stock Exchange symbol		“EM.”
Risk Factors		You should read the “Risk Factors” section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our Class A common stock.

	•	5,295,205 shares issuable under options to purchase shares of Class A common stock and 733,598 restricted stock units (each of which will represent the right to receive a share of our Class A common stock upon vesting) that will be granted in connection with this offering under the Emdeon Inc. 2009 Equity Incentive Plan (the “2009 Equity Plan”). The options will permit holders to purchase the underlying shares of Class A common stock at the initial public offering price and will generally vest in equal installments over either three or four years from the date of grant. See “Executive Compensation — 2009 Equity Plan — Awards Granted in Connection with this Offering;”
	•	shares of Class A common stock we may repurchase from EBS Phantom Plan Participants in order to satisfy tax obligations that may arise as a result of the conversion of EBS Phantom Plan Awards into Class A common stock and restricted stock units; and
	•	26,574,257 shares of Class A common stock reserved for issuance upon the exchange of EBS Units (along with the corresponding shares of our Class B common stock).

		Emdeon					Emdeon Inc.
		Business Services					(Successor)(1)
		(Predecessor)(1)																	Unaudited
		Period					Period																								Pro Forma
		from					from												Pro Forma				Six				Six				Six
		January 1,					November 16,				Year				Year				Year				Months				Months				Months
		2006-					2006-				Ended				Ended				Ended				Ended				Ended				Ended
		November 15,					December 31,				December 31,				December 31,				December 31,				June 30,				June 30,				June 30,
		2006					2006				2007				2008				2008				2008				2009				2009
		(In thousands)
Statement of Operations Data:
Revenues		$	663,186				$	87,903			$	808,537			$	853,599			$	853,496			$	422,859			$	444,426			$	444,426
Costs and expenses:
Cost of operations			425,108					56,628				514,577				540,570				542,460				270,972				271,607				272,394
Development and engineering			21,782					2,782				28,539				29,618				30,340				13,716				14,382				14,685
Sales, marketing, general and administrative			76,154					12,762				94,475				91,212				95,306				47,089				51,322				53,029
Depreciation and amortization(2)			30,440					7,127				62,811				97,864				101,430				46,269				50,384				50,384
Other expense, net			4,198					—				—				3,081				3,081				—				260				260
Total costs and expenses			557,682					79,299				700,402				762,345				772,617				378,046				387,955				390,752
Operating income			105,504					8,604				108,135				91,254				80,879				44,813				56,471				53,674
Interest income			(67	)				(139	)			(1,567	)			(963	)			(963	)			(603	)			(53	)			(53	)
Interest expense(2)			25					10,113				74,325				71,717				72,402				29,491				35,111				35,111
Income (loss) before income taxes			105,546					(1,370	)			35,377				20,500				9,440				15,925				21,413				18,616
Income tax provision (benefit)(2)			42,004					1,014				18,101				8,567				4,490				7,690				3,640				2,614
Net income (loss)			63,542					(2,384	)			17,276				11,933				4,950				8,235				17,773				16,002
Net income (loss) attributable to noncontrolling interest			—					—				—				2,702				1,910				1,854				4,116				3,818
Net income (loss) attributable to Emdeon Inc.		$	63,542				$	(2,384	)		$	17,276			$	9,231			$	3,040			$	6,381			$	13,657			$	12,184
Basic and diluted earnings (loss) per share to Class A common stockholders:
Basic			—				$	(0.05	)		$	0.33			$	0.12			$	0.04			$	0.09			$	0.18			$	0.14
Diluted			—				$	(0.05	)		$	0.17			$	0.12			$	0.04			$	0.08			$	0.18			$	0.14
Weighted average number of shares used in computing earnings per share:
Basic			—					52,000,000				52,000,000				74,775,039				85,684,945				72,107,472				77,413,610				88,528,166
Diluted			—					52,000,000				100,000,000				100,000,000				85,684,945				100,000,000				77,413,610				88,528,166
Unaudited Financial Data:
Adjusted EBITDA(3)		$	146,286				$	18,540			$	182,678			$	205,154			$	205,154			$	99,724			$	117,484			$	117,484

		Emdeon Inc.
							Unaudited
							Pro Forma As Adjusted
		At June 30, 2009					At June 30, 2009
		(in thousands)
Balance Sheet Data:
Cash and cash equivalents(4)		$	96,062				$	242,960
Total assets		$	2,003,444				$	2,143,588
Total debt (net of unamortized debt discount)(5)		$	801,136				$	801,136
Total equity		$	919,914				$	926,130

(1)		Our financial results prior to November 16, 2006 represent the financial results of the group of subsidiaries of HLTH that comprised its Emdeon Business Services segment. On November 16, 2006, HLTH sold a 52% interest in EBS Master (which was formed as a holding company for our business in connection with that transaction) to us. Accordingly, the financial information presented reflects the results of operations and financial condition of Emdeon Business Services before the 2006 Transaction (Predecessor) and of us after the 2006 Transaction (Successor).
(2)		As a result of purchase price adjustments in connection with the 2006 Transaction and the 2008 Transaction, depreciation, amortization, interest and income tax provision (benefit) amounts may not be comparable for each of the periods presented.
(3)		We define Adjusted EBITDA as EBITDA, (which is defined as net income (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization), plus certain other non-recurring, non-cash or non-operating items. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our U.S. generally accepted accounting principles, or “GAAP” results and the following reconciliation, we believe provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted EBITDA assists our board of directors, management and investors in comparing our operating performance on a consistent basis because it removes the impact of our capital structure (such as interest expense and 2006 Transaction costs), asset base (such as depreciation and amortization) and items outside the control of our management team (such as income taxes), as well as other non-cash (such as purchase accounting adjustments, equity-based compensation expense and lease termination charges) and non-recurring items (such as litigation expenses and acquisition costs), from our operations. We consider adjusted EBITDA as a consolidated measure of our operations and, as a result, do not adjust for any noncontrolling interest portion of such measure.
		Our board of directors and management use Adjusted EBITDA as one of the primary measures for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations. Adjusted EBITDA is also used as a performance evaluation metric in determining achievement of certain executive incentive compensation programs, as well as for incentive compensation plans for employees generally. See “Executive Compensation — Compensation Discussion and Analysis.” Finally, adjusted EBITDA, or a similar non-GAAP measure, is used by research analysts, investment bankers and lenders to assess our operating performance.
		Despite the importance of this measure in analyzing our business, measuring and determining incentive compensation and evaluating our operating performance, as well as the use of adjusted EBITDA measures by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP; nor is Adjusted EBITDA intended to be a measure of liquidity or free cash flow for our discretionary use. Some of the limitations of Adjusted EBITDA are:
		• Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
		• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
		• Adjusted EBITDA does not reflect the interest expense, or the cash requirements to service interest or principal payments under our credit agreements;
		• Adjusted EBITDA does not reflect income tax payments we are required to make; and
		• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
		To properly and prudently evaluate our business, we encourage you to review the financial statements included elsewhere in this prospectus, and not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of net income to Adjusted EBITDA. The Adjusted EBITDA, as presented in this prospectus, may differ from and may not be comparable to similarly titled measures used by other companies, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations.
		The following table sets forth a reconciliation of Adjusted EBITDA to net income, a comparable GAAP-based measure. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items (such as depreciation and amortization, equity-based compensation expense, purchase accounting adjustments and lease termination charges), (ii) items that management does not consider in assessing our on-going operating performance (such as income taxes and interest expense) or (iii) non-recurring items. In the case of the non-cash items, management believes that investors can better assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items, management believes that investors can better assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

		Emdeon Business Services													Emdeon Inc.
		(Predecessor)													(Successor)
																											Unaudited
										January 1,					November 16,												Pro Forma Fiscal												Pro Forma
		Fiscal Year Ended								2006 to					2006 to				Fiscal Year Ended								Year Ended				Six Months								Six Months
		December 31,								November 15,					December 31,				December 31,								December 31,				Ended June 30,								Ended June 30,
		2004				2005				2006					2006				2007				2008				2008				2008				2009				2009
		(In thousands)
Net income (loss)		$	50,553			$	65,493			$	63,542				$	(2,384	)		$	17,276			$	11,933			$	4,950			$	8,235			$	17,773			$	16,002
Depreciation			15,921				17,469				20,860					3,547				35,070				40,865				41,153				19,506				19,972				19,972
Amortization of intangibles			17,470				14,804				9,580					3,580				27,741				56,999				60,277				26,763				30,412				30,412
Amortization of non-cash advertising services(a)			2,351				939				—					—				—				—				—				—				—				—
Interest expense (income), net			80				(18	)			(42	)				9,974				72,758				70,754				71,439				28,888				35,058				35,058
Income tax provision (benefit)			26,686				31,526				42,004					1,014				18,101				8,567				4,490				7,690				3,640				2,614
EBITDA			113,061				130,213				135,944					15,731				170,946				189,118				182,309				91,082				106,855				104,058
Equity-based compensation(b)			—				—				—					—				4,486				4,145				10,818				5,064				8,944				11,741
HLTH equity compensation(c)			1,384				296				6,144					310				2,107				—				—				—				—				—
Compensation and other expense
funded by HLTH(d)			—				—				—					1,694				1,694				—				—				—				—				—
Purchase accounting adjustments(e)			—				—				—					805				3,445				5,579				5,715				3,467				878				878
Transaction costs(f)			—				—				4,198					—				—				750				750				—				250				250
Loss on abandonment of leased properties and related costs(g)			—				—				—					—				—				4,758				4,758				16				261				261
Acquisition costs(h)			—				—				—					—				—				804				804				95				296				296
Adjusted EBITDA		$	114,445			$	130,509			$	146,286				$	18,540			$	182,678			$	205,154			$	205,154			$	99,724			$	117,484			$	117,484

(a)		Represents non-cash advertising services arising from an asset that originated in a barter transaction between HLTH and a media company. This asset was charged against income over the beneficial period of the services. We do not believe that the costs of this transaction are representative of our on-going operations.

(b)		Represents non-cash equity-based compensation of EBS Master to both employees and directors. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of equity-based compensation expense, which varies from period to period based on the amount and timing of grants.

(c)		Represents non-cash equity-based compensation of HLTH to employees. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of equity-based compensation expense, which varies from period to period based on the amount and timing of grants.

(d)		Represents cash compensation to employees paid in conjunction with the 2006 Transaction that was subsequently funded by HLTH through a capital contribution. We believe it is appropriate to exclude these charges which are not considered an ongoing component of our operations.

(e)		Represents adjustments that arose out of purchase accounting related to business combinations. Historically, these adjustments have primarily related to the revaluation of deferred revenue to fair value at the dates of the 2006 Transaction and the 2008 Transaction and the subsequent reduction to revenue recognized. As the related revenue stream is an on-going component of our business, we believe it is appropriate to consider these items as revenue which would have been recorded had purchase accounting not been performed. We also believe that this reduction of the deferred revenue affects period-to-period financial performance comparability and is not indicative of the changes in our underlying results of operations. In the future, purchase method adjustments affecting other items may be reflected in our Adjusted EBITDA computation.
(f)		Represents charges imputed to us by HLTH in 2006 related to the 2006 Transaction and expenses in 2008 associated with this offering. We believe it is appropriate to exclude these charges which are not considered to be ongoing components of our operations.

(g)		Represents the charges recognized upon abandonment of two leased properties in December 2008 and related costs of the abandonments. We believe it is appropriate to exclude these charges and related costs because these items are not considered to be ongoing components of our operations.
(h)		Represents costs of failed acquisitions through December 31, 2008. Future acquisition costs, failed or successful, will be excluded based on SFAS 141R, effective January 1, 2009, which requires that successful acquisition costs also be expensed. We believe it is appropriate to exclude such costs because these items are not considered to be ongoing components of our operations.
(4)		Does not reflect the impact of approximately $75.0 million paid from our available cash in connection with the eRx Acquisition, which occured after June 30, 2009.
(5)		Our debt is reflected net of unamortized debt discount of $59.0 million related to original loan fees and purchase accounting adjustments to discount the debt to fair value in conjunction with the 2008 Transaction.

 

Investing in our Class A common stock involves substantial risks. In addition to the other information in this prospectus, you should carefully consider the following factors before investing in our Class A common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our Class A common stock could decline if one or more of these risks and uncertainties develop into actual events, causing you to lose all or part of the money you paid to buy our shares. While we believe these risks and uncertainties are most important for you to consider, we may face other risks or uncertainties which may adversely affect our business. Certain statements in “Risk Factors” are forward-looking statements. See “Forward-looking Statements.”

 

Risks Related to our Business

 

We face significant competition for our products and services.

 

The markets for our various products and services are intensely competitive, continually evolving and, in some cases, subject to rapid technological change. While we do not believe any single competitor offers a similarly expansive suite of products and services, we face competition from many healthcare information systems companies and other technology companies within segments of the revenue and payment cycle markets. We also compete with certain of our customers that provide internally some of the same products and services that we offer. Our key competitors include: (i) healthcare transaction processing companies, including those providing electronic data interchange (“EDI”) and/or Internet-based services and those providing services through other means, such as paper and fax; (ii) healthcare information system vendors that support providers, including physician practice management system and electronic medical record system vendors; (iii) large information technology consulting service providers; and (iv) health insurance companies, pharmacy benefit management companies and pharmacies that provide or are developing electronic transaction services for use by providers and/or by their members and customers. In addition, major software, hardware, information systems and business process outsourcing companies, both with and without healthcare companies as their partners, offer or have announced their intention to offer products or services that are competitive with products and services that we offer.

 

Within certain of the products and services markets in which we operate, we face competition from entities that are significantly larger and have greater financial resources than we do and have established reputations for success in implementing healthcare electronic transaction processing systems. Other companies have targeted these markets for growth, including by developing new technologies utilizing Internet-based systems. We may not be able to compete successfully with these companies, and these or other competitors may commercialize products, services or technologies that render our products, services or technologies obsolete or less marketable.

 

Some of our customers compete with us and some, instead of using a third party provider, perform internally some of the same services that we offer.

 

Some of our existing customers compete with us or may plan to do so or belong to alliances that compete with us or plan to do so, either with respect to the same products and services we provide to them or with respect to some of our other lines of business. For example, some of our payer customers currently offer, through affiliated clearinghouses, through Web portals and other means, electronic data transmission services to providers that allow the provider to bypass third party EDI service providers such as us, and additional payers may do so in the future. The ability of payers to replicate our products and services may adversely affect the terms and conditions we are able to negotiate in our agreements with them and our transaction volume with them, which directly relates to our revenues. We may not be able to maintain our existing relationships for connectivity services with payers or develop new relationships on satisfactory terms, if at all. In addition, some of our products and services allow payers to outsource business processes that they have been or could be performing internally and, in order for us to be able to compete, use of our products and services must be more efficient for them than use of internal resources.

 

If we are unable to retain our existing customers, our business, financial condition and results of operations could suffer.

 

Our success depends substantially upon the retention of our customers, particularly due to our transaction-based, recurring revenue model. We may not be able to retain some of our existing customers if we are unable to continue to provide products and services that our payer customers believe enable them to achieve improved efficiencies and cost-effectiveness, and that our provider customers believe allow them to more effectively manage their revenue cycle, increase reimbursement rates and improve cash flows. We also may not be able to retain customers if our electronic and/or paper-based solutions contain errors or otherwise fail to perform properly or if our pricing structure is no longer competitive. Historically, we have enjoyed high customer retention rates; however, we may not be able to maintain high retention rates in the future. Our transaction-based, recurring revenues depend in part upon maintaining this high customer retention rate, and if we are unable to maintain our historically high customer retention rate, our business, financial condition and results of operations could be adversely impacted.

 

If we are unable to connect to a large number of payers and providers, our product and service offerings would be limited and less desirable to our customers.

 

Our business largely depends upon our ability to connect electronically to a substantial number of payers, such as insurance companies, Medicare and Medicaid agencies and pharmacy benefit managers, and providers, such as hospitals, physicians, dentists and pharmacies. The attractiveness of some of the solutions we offer to providers, such as our claims management and submission services, depends in part on our ability to connect to a large number of payers, which allows us to streamline and simplify workflows for providers. These connections may either be made directly or through a clearinghouse. We may not be able to maintain our links with a large number of payers on terms satisfactory to us and we may not be able to develop new connections, either directly or through other clearinghouses, on satisfactory terms. The failure to maintain these connections could cause our products and services to be less attractive to our provider customers. In addition, our payer customers view our connections to a large number of providers as essential in allowing them to receive a high volume of transactions and realize the resulting cost efficiencies through the use of our products and services. Our failure to maintain existing connections with payers, providers and other clearinghouses or to develop new connections as circumstances warrant, or an increase in the utilization of direct links between payers and providers, could cause our electronic transaction processing system to be less desirable to healthcare constituents, which would reduce the number of transactions that we process and for which we are paid, resulting in a decrease in revenues and an adverse effect on our financial condition and results of operations.

 

The failure to maintain our relationships with our channel partners or significant changes in the terms of the agreements we have with them may have an adverse effect on our ability to successfully market our products and services.

 

We have entered into contracts with other companies (“channel partners”), including healthcare information system vendors and electronic medical record vendors, to market and sell some of our products and services. Most of these contracts are on a non-exclusive basis. However, under contracts with some of our channel partners, we may be bound by provisions that restrict our ability to market and sell our products and services to potential customers. Our arrangements with some of these channel partners involve negotiated payments to them based on percentages of revenues they generate. If the payments prove to be too high, we may be unable to realize acceptable margins, but if the payments prove to be too low, the channel partners may not be motivated to produce a sufficient volume of revenues. The success of these contractual arrangements will depend in part upon the channel partners’ own competitive, marketing and strategic considerations, including the relative advantages of using alternative products being developed and marketed by them or our competitors. If any of these channel partners are unsuccessful in marketing our products and services or seek to amend the financial or other terms of the contracts we have with them, we will need to broaden our marketing efforts to increase focus on the solutions they sell and alter our distribution strategy, which may divert our planned efforts and resources from other projects. In addition, as part of the packages these channel partners sell, they may offer a choice to their customers between products and services that we supply and similar products and services offered by our competitors or by the channel partners directly. For example, one large payer customer terminated an MGA with us during 2007 in order to allow some of our channel

partners and provider customers to directly submit transactions to the payer. If our products and services are not chosen for inclusion in vendor packages, the revenues we earn from these relationships will decrease. Lastly, we could be subject to claims and liability, as a result of the activities, products or services of these channel partners or other resellers of our products and services. Even if these claims do not result in liability to us, investigating and defending these claims could be expensive, time-consuming and result in adverse publicity that could harm our business.

 

Our business and future success may depend on our ability to cross-sell our products and services.

 

Our ability to generate revenue and growth partly depends on our ability to cross-sell our products and services to our existing customers and new customers. We expect our ability to successfully cross-sell our products and services will be one of the most significant factors influencing our growth. We may not be successful in cross-selling our products and services because our customers may find our additional products and services unnecessary or unattractive. Our failure to sell additional products and services to existing customers could affect our ability to grow our business.

 

We have faced and will continue to face increasing pressure to reduce our prices, which may cause us to no longer be competitive.

 

As electronic transaction processing further penetrates the healthcare market or becomes highly standardized, competition among electronic transaction processors is increasingly focused on pricing. This competition has placed, and could place further, intense pressure on us to reduce our prices in order to retain market share. If we are unable to reduce our costs sufficiently to offset declines in our prices, or if we are unable to introduce new, innovative product and service offerings with higher margins, our results of operations could decline.

 

In addition, many healthcare industry constituents are consolidating to create integrated healthcare delivery systems with greater market power. As provider networks, such as hospitals, and payer organizations, such as private insurance companies, consolidate, competition to provide the types of products and services we provide will become more intense, and the importance of establishing and maintaining relationships with key industry constituents will become greater. These industry constituents have, in the past, and may, in the future, try to use their market power to negotiate price reductions for our products and services. If we are forced to reduce prices, our margins will decrease and our results of operations will decline, unless we are able to achieve corresponding reductions in expenses.

 

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

 

We must improve the functionality of our existing products and services in a timely manner and introduce new and valuable healthcare information technology and service solutions in order to respond to technological and regulatory developments and, thereby, retain existing customers and attract new ones. For example, from time to time, government agencies may alter format and data code requirements applicable to electronic transactions. We may not be successful in responding to technological and regulatory developments and changing customer needs. The pace of change in the markets we serve is rapid, and there are frequent new product and service introductions by our competitors and by channel partners who use our products and services in their offerings. If we do not respond successfully to technological and regulatory changes and evolving industry standards, our products and services may become obsolete. Technological changes may also result in the offering of competitive products and services at lower prices than we are charging for our products and services, which could result in our losing sales unless we lower the prices we charge. If we do lower our prices on some of our products and services, we will need to increase our margins on these products and services in order to increase our overall profitability. In addition, the products and services we develop or license may not be able to compete with the alternatives available to our customers.

Achieving market acceptance of new or updated products and services is necessary in order for them to become profitable and will likely require significant efforts and expenditures.

 

Our future financial results will depend in part on whether our new or updated products and services receive sufficient customer acceptance. These products and services include:

 

 

Achieving market acceptance for new or updated products and services is likely to require substantial marketing efforts and expenditure of significant funds to create awareness and demand by constituents in the healthcare industry. In addition, deployment of new or updated products and services may require the use of additional resources for training our existing sales force and customer service personnel and for hiring and training additional salespersons and customer service personnel. Failure to achieve broad penetration in target markets with respect to new or updated products and services could have an adverse effect on our business prospects and financial results.

 

There are increased risks of performance problems during times when we are making significant changes to our products and services or to systems we use to provide services. In addition, implementation of our products and services and efficiency measures and other cost savings initiatives may cost more, may not provide the benefits expected or may take longer than anticipated.

 

In order to respond to technological and regulatory changes and evolving industry standards, our products and services must be continually updated and enhanced. The software and systems that we sell and that we use to provide services are inherently complex and, despite testing and quality control, we cannot be certain that errors will not be found in any changes, enhancements, updates and new versions that we market or use. Even if new or modified products and services do not have performance problems, our technical and customer service personnel may have difficulties in installing them or in their efforts to provide any necessary training and support to customers.

 

Implementation of changes in our technology and systems may cost more or take longer than originally expected and may require more testing than originally anticipated. While the new hardware and software will be tested before it is used in production, we cannot be sure that the testing will uncover all problems that may occur in actual use. If significant problems occur as a result of these changes, we may fail to meet our contractual obligations to customers, which could result in claims being made against us or in the loss of customer relationships. In addition, changes in our technology and systems may not provide the additional functionality or other benefits that were originally expected.

 

In addition, we also periodically implement efficiency measures and other cost saving initiatives to improve our operating performance. These efficiency measures and other cost saving initiatives may not provide the benefits anticipated in the time frame expected, or at all.

 

Disruptions in service or damages to our data or other operation centers, or other software or systems failures, could adversely affect our business.

 

Our data centers and operation centers are essential to our business. Our operations depend on our ability to maintain and protect our computer systems, many of which are located in data centers that we operate in Memphis and Nashville, Tennessee, and one operated by a third party in Florida. Our business and results of operations are also highly dependent on our print and mail operations, which are primarily conducted in print and mail operations centers in Bridgeton, Missouri and Toledo, Ohio. We conduct business continuity planning and maintain insurance against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at one of our data centers, print and mail facilities or other locations; however, the situations we plan for and the amount of insurance coverage may not be adequate in any particular case. The occurrence of any of these events could result in interruptions, delays or cessations in service to users of our products and services, which could impair or prohibit our ability to provide our products and services,

reduce the attractiveness of our products and services to our customers and adversely impact our financial condition and results of operations.

 

In addition, despite the implementation of security measures, our infrastructure, data centers or systems that we interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, terrorist attacks or other attacks by third parties or similar disruptive problems. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions or increased response time for our products and services. As a result, we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.

 

We also rely on a limited number of suppliers to provide us with a variety of products and services, including telecommunications and data processing services necessary for our transaction services and processing functions and software developers for the development and maintenance of certain software products we use to provide our solutions. If these suppliers do not fulfill their contractual obligations or choose to discontinue their products or services, our business and operations could be disrupted, our brand and reputation could be harmed and our financial condition and operating results could be adversely affected.

 

We may be liable to our customers and may lose customers if we provide poor service, if our products and services do not comply with our agreements or if our software products or transmission systems contain errors or experience failures.

 

We must meet our customers’ service level expectations and our contractual obligations with respect to our products and services. Failure to do so could subject us to liability, as well as cause us to lose customers. In some cases, we rely upon third party contractors to assist us in providing our products and services. Our ability to meet our contractual obligations and customer expectations may be impacted by the performance of our third party contractors and their ability to comply with applicable laws and regulations. For example, our new electronic payment and remittance services depend in part on the ability of our vendors to comply with applicable banking and financial service requirements and their failure to do so could cause an interruption in the services we provide or require us to seek alternative solutions or relationships.

 

Errors in the software and systems we provide to customers or the software and systems we use to provide our products and services also could cause serious problems for our customers. In addition, because of the large amount of data we collect and manage, it is possible that hardware failures and errors in our systems would result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. For example, errors in our transaction processing systems can result in payers paying the wrong amount, making payments to the wrong payee or delaying payments. Since some of our products and services relate to laboratory ordering and reporting and electronic prescriptions, an error in our systems also could result in injury to a patient. If problems like these occur, our customers may seek compensation from us or may seek to terminate their agreements with us, withhold payments due to us, seek refunds from us of part or all of the fees charged under our agreements, a loan or advancement of funds, or initiate litigation or other dispute resolution procedures. In addition, we may be subject to claims against us by others affected by any such problems.

 

In addition, our activities and the activities of our third party contractors involve the storage, use and transmission of personal health information. Accordingly, security breaches of our computer systems or at print and mail operation centers could expose us to a risk of loss or litigation, government enforcement actions and contractual liabilities. We cannot assure you that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements. Any security breaches also could impact our ability to provide our products and services, as well as impact the confidence of our customers in our products and services, either of which could have an adverse effect on our business, financial condition and results of operations.

 

We attempt to limit, by contract, our liability for damages arising from our negligence, errors, mistakes or security breaches. However, contractual limitations on liability may not be enforceable or may otherwise not provide sufficient protection to us from liability for damages. We maintain liability insurance coverage, including coverage for errors and omissions. It is possible, however, that claims could exceed the amount of our applicable

insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay market acceptance of our products and services, including unrelated products and services, or may harm our reputation and our business. We are currently in discussions with HLTH to whom we provide de-identified data regarding the scope of, and the performance under, the agreement governing such relationship. See “Certain Relationships and Related Party Transactions — Agreements with HLTH Corporation and its Affiliates — Amended and Restated Data License Agreement”.

 

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

 

We have in the past acquired, and may in the future acquire, businesses, technologies, services, product lines and other assets. For example, in July 2009 we acquired eRx and intend to integrate its operations with our business. The successful integration of any businesses and assets we acquire into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected benefits of any acquisition, including potential synergies between our current business and the acquired business, are subject to significant risks and uncertainties. These risks and uncertainties include, but are not limited to, those relating to:

 

 

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

 

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

 

We have a substantial amount of indebtedness which could affect our financial condition.

 

As of June 30, 2009, we had an aggregate of $860.1 million of outstanding indebtedness (before deduction of unamortized debt discount of $59.0 million) and we had the ability to borrow an additional $44.2 million under our revolving credit facility. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis or on terms satisfactory to us or at all.

 

Our substantial amount of indebtedness could limit our ability to:

 

 

Despite our substantial indebtedness, we may still be able to incur significantly more debt. The incurrence of additional debt could increase the risks associated with our substantial leverage, including our ability to service our indebtedness. In addition, because borrowings under our credit agreements bear interest at a variable rate, our interest expense could increase, exacerbating these risks. For instance, assuming an aggregate principal balance of $860.1 million outstanding under our credit agreements, which was the amount outstanding as of June 30, 2009, and considering the effect of our interest rate swap agreement, a 1% increase in the interest rate we are charged on our debt would increase our annual interest expense by $4.4 million.

 

Recent events in the credit markets may affect our ability to refinance our existing debt or obtain additional debt financing on acceptable terms.

 

We may need or seek additional financing in the future to either refinance our existing indebtedness, fund our operations, fund acquisitions, develop additional products and services or implement other projects. Given the state of the current credit environment resulting from, among other things, the general weakening of the global economy, it may be difficult to refinance our existing indebtedness or obtain any such additional financing on acceptable terms, which could have an adverse effect on our financial condition, including our results of operations and/or business plans. In addition, if as a result of the current conditions in the credit markets any of the lenders participating in our revolving credit facility are unable to fund borrowings under such facility, our liquidity could be adversely affected.

 

The terms of our credit agreements may restrict our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.

 

Our credit agreements contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

 

 

Our credit agreements also require us to maintain certain financial ratios, including a maximum total leverage ratio and a minimum interest coverage ratio. A failure by us to comply with the covenants or financial ratios contained in our credit agreements could result in an event of default under the applicable facility which could adversely affect our ability to respond to changes in our business and manage our operations. A change of control of our company is also an event of default under our credit agreements. Under our credit agreements, a change of control of our company will occur if any person other than the General Atlantic Equityholders or the H&F Equityholders (collectively, the “Permitted Holders”) or us or our subsidiaries acquires, directly or indirectly, more than 35% of the outstanding equity interests of EBS Master and at the time of the acquisition the Permitted Holders do not collectively hold equity interests of EBS Master representing greater voting power in EBS Master than such person. In the event of any default under our first lien credit agreement, the lenders under that agreement will not be

required to lend any additional amounts to us. In addition, upon the occurrence of an event of default under either of our credit agreements, the lenders under both credit agreements could elect to declare all amounts outstanding to be due and payable and require us to apply all of our available cash to repay these amounts. If the indebtedness under our credit agreements were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full.

 

Recent developments in the healthcare industry could adversely affect our business.

 

National healthcare reform is currently a major focus at the federal level, and congressional leaders are targeting legislation to be passed by the fall. There are currently numerous federal, state and private initiatives and studies seeking ways to increase the use of information technology in healthcare as a means of improving care and reducing costs. These initiatives may result in additional or costly legal and regulatory requirements that are applicable to us and our customers, may encourage more companies to enter our markets, may provide advantages to our competitors and may result in the development of technology solutions that compete with ours.

 

Any such reforms or initiatives, whether private or governmental, may result in a reduction of expenditures by customers or potential customers in the healthcare industry, which could have an adverse effect on our business. General reductions in expenditures by healthcare industry constituents could result from, among other things:

 

 

Even if general expenditures by industry constituents remain the same or increase, other developments in the healthcare industry may result in reduced spending on information technology and services or in some or all of the specific markets we serve or are planning to serve. In addition, our customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to the types of products and services we provide. For example, use of our products and services could be affected by:

 

 

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

 

Government regulation creates risks and challenges with respect to our compliance efforts and our business strategies.

 

The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Many healthcare laws are complex, and their application to specific services and relationships may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the healthcare information products and services that we provide, and these laws and regulations may be applied to our products and services in ways that we do not anticipate. Federal and state legislatures and agencies periodically consider proposals to reform or revise aspects of the healthcare industry or to revise or create additional statutory and regulatory requirements. Such proposals, if implemented, could impact our operations, the use of our products

or services and our ability to market new products and services, or could create unexpected liabilities for us. We may also be impacted by non-healthcare laws as a result of some of our products and services. For example, laws regulating the banking and financial services industry may impact our operations as a result of the new electronic payment and remittance services we offer, or plan to offer, through third party vendors. We are unable to predict what changes to laws or regulations might be made in the future or how those changes could affect our business or the costs of compliance.

 

We have attempted to structure our operations to comply with legal requirements applicable to us directly and to our clients and third party contractors, but there can be no assurance that our operations will not be challenged or impacted by enforcement initiatives. Any determination by a court or agency that our products and services violate, or cause our customers to violate, these laws or regulations could subject us or our customers to civil or criminal penalties. Such a determination could also require us to change or terminate portions of our business, disqualify us from serving customers who are or do business with government entities, or cause us to refund some or all of our service fees or otherwise compensate our customers. In addition, failure to satisfy laws or regulations could adversely affect demand for our products and services and could force us to expend significant capital, research and development and other resources to address the failure. Even an unsuccessful challenge by regulatory authorities or private whistleblowers could result in loss of business, exposure to adverse publicity and injury to our reputation and could adversely affect our ability to retain and attract clients. Laws and regulations impacting our operations include the following:

 

 

Violations of the HIPAA privacy and security standards may result in civil and criminal penalties, and ARRA has increased the penalties for HIPAA violations and strengthened the enforcement provisions of HIPAA. Recently, enforcement activities have appeared to increase, and ARRA may further increase such enforcement activities. For example, ARRA authorizes state attorneys general to bring civil actions seeking either injunctions or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents.

 

ARRA also provides that the U.S. Department of Health and Human Services (“HHS”) must issue regulations later this year requiring covered entities to report certain security breaches to individuals affected by the breach and, in some cases, to HHS or to the public via a website. This reporting obligation will apply broadly to breaches involving unsecured protected health information and will become effective 30 days from the date HHS issues these regulations. Effective February 17, 2010 or later (in the case of restrictions tied to the issuance of implementing regulations), ARRA will impose stricter limitations on certain types of uses and disclosures of individually identifiable health information, such as additional restrictions on marketing communications and the sale of individually identifiable health information.

 

In addition to the HIPAA privacy and security standards, most states have enacted patient confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering further legislation in this area, including privacy safeguards, security standards and data security breach notification requirements. Such state laws and regulations, if more stringent than the HIPAA standards, are not preempted by the federal requirements and may be applicable to us.

Further, some of our customers are subject to a new federal rule requiring financial institutions and creditors, which may include health providers and health plans, to implement identity theft prevention programs to detect, prevent, and mitigate identity theft in connection with customer accounts. We may be required to make changes to our operations to assist our customers in complying with this rule.

 

 

We rely on our customers to provide us with accurate and complete information. Errors and the unintended consequences of data manipulations by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations or could adversely impact the compliance of our customers.

 

 

Legislative changes may impede our ability to utilize our off-shore service capabilities.

 

In our operations, we have employees in Costa Rica and contractors in India who may have access to patient health information in order to assist us in performing services to our customers. In recent sessions, the U.S. Congress has considered legislation that would restrict the transmission of personally identifiable information regarding a U.S. resident to any foreign affiliate, subcontractor or unaffiliated third party without adequate privacy protections or without providing notice of the transmission and an opportunity to opt out. Some of the proposals considered would have required patient consent and imposed liability on healthcare businesses arising from the improper sharing or other misuse of personally identifiable information. Congress also has considered creating a private civil cause of action that would allow an injured party to recover damages sustained as a result of a violation of these proposed restrictions. A number of states have also considered, or are in the process of considering, prohibitions or limitations on the disclosure of medical or other information to individuals or entities located outside of the United States. If legislation of this type is enacted, our ability to utilize off-shore resources may be impeded, and we may be subject to sanctions for failure to comply with the new mandates of the legislation. Further, as a result of concerns regarding the possible misuse of personally identifiable information, some of our customers have contractually limited our ability to use our off-shore resources. Use of off-shore resources may increase our risk of violating our contractual obligations to our customers to protect the privacy and security of individually identifiable health information provided to us, which could adversely impact our reputation and operating results.

 

Failure by our customers to obtain proper permissions or provide us with accurate and appropriate data may result in claims against us or may limit or prevent our use of data which could harm our business.

 

We require our customers to provide necessary notices and to obtain necessary permissions for the use and disclosure of the information that we receive. If they do not provide necessary notices or obtain necessary permissions, then our use and disclosure of information that we receive from them or on their behalf may be limited or prohibited by state or federal privacy laws or other laws. Such failures by our customers could impair our functions, processes and databases that reflect, contain or are based upon such data. For example, as part of our claims submission services, we rely on our customers to provide us with accurate and appropriate data and directives for our actions. While we have implemented features and safeguards designed to maximize the accuracy and completeness of claims content, these features and safeguards may not be sufficient to prevent inaccurate claims data from being submitted to payers. In addition, such failures by our customers could interfere with or prevent creation or use of rules, analyses or other data-driven activities that benefit us. Accordingly, we may be subject to claims or liability for inaccurate claims data submitted to payers or for use or disclosure of information by reason of lack of valid notice or permission. These claims or liabilities could damage our reputation, subject us to unexpected costs and adversely affect our financial condition and operating results.

 

Certain of our products and services present the potential for embezzlement, identity theft or other similar illegal behavior by our employees or contractors with respect to third parties.

 

Among other things, our products and services include printing and mailing checks and/or facilitating electronic funds transfers for our payer customers, and handling mail and payments from payers and from patients for many of our customers which frequently includes original checks and/or credit card information, and occasionally, may include currency. Even in those cases in which we do not facilitate payments or handle original documents or mail, our services also involve the use and disclosure of personal and business information that could be used to impersonate

third parties or otherwise gain access to their data or funds. If any of our employees or contractors takes, converts or misuses such funds, documents or data or we experience a data breach creating a risk of identity theft, we could be liable for damages, and our business reputation could be damaged or destroyed. In addition, we could be perceived to have facilitated or participated in illegal misappropriation of funds, documents or data and therefore be subject to civil or criminal liability. Federal and state regulators may take the position that a data breach or misdirection of data constitutes an unfair or deceptive act or trade practice. We also may be required to notify individuals affected by any data breaches. Further, a data breach or similar incident could impact the ability of our customers that are creditors to comply with the federal “red flag” rules, which require the implementation of identity theft prevention programs to detect, prevent, and mitigate identity theft in connection with customer accounts.

 

Contractual relationships with customers that are governmental agencies or are funded by government programs may impose special burdens on us and provide special benefits to those customers.

 

A portion of our revenues comes from customers that are governmental agencies or are funded by government programs. Our contracts and subcontracts may be subject to some or all of the following:

 

 

In addition, certain violations of federal and state law may subject us to having our contracts terminated and, under certain circumstances, suspension and/or debarment from future government contracts. We are also subject to conflict-of-interest rules that may affect our eligibility for some government contracts, including rules applicable to all U.S. government contracts, as well as rules applicable to the specific agencies with which we have contracts or with which we may seek to enter into contracts.

 

The protection of our intellectual property requires substantial resources.

 

We rely upon a combination of patent, trade secret, copyright and trademark laws, license agreements, confidentiality procedures, nondisclosure agreements and technical measures to protect the intellectual property used in our business. The steps we have taken to protect and enforce our proprietary rights and intellectual property may not be adequate. For instance, we may not be able to secure trademark or service mark registrations for marks in the U.S. or in foreign countries or take similar steps to secure patents for our proprietary applications. Third parties may infringe upon or misappropriate our patents, copyrights, trademarks, service marks and similar proprietary rights, which could have an adverse affect on our business, financial condition and results of operations. If we believe a third party has misappropriated our intellectual property, litigation may be necessary to enforce and protect those rights, which would divert management resources, would be expensive and may not effectively protect our intellectual property. As a result, if anyone misappropriates our intellectual property, it may have an adverse effect on our business, financial condition and results of operations.

 

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

 

We could be subject to claims that we are misappropriating or infringing intellectual property or other proprietary rights of others. These claims, even if not meritorious, could be expensive to defend and divert

management’s attention from our operations. If we become liable to third parties for infringing these rights, we could be required to pay a substantial damage award and to develop non-infringing technology, obtain a license or cease selling the products or services that use or contain the infringing intellectual property. We may be unable to develop non-infringing products or services or obtain a license on commercially reasonable terms, or at all. We may also be required to indemnify our customers if they become subject to third party claims relating to intellectual property that we license or otherwise provide to them, which could be costly.

 

A write-off of all or a part of our identifiable intangible assets or goodwill would hurt our operating results and reduce our net worth.

 

We have significant identifiable intangible assets and goodwill, which represents the excess of the total purchase price of our acquisitions over the estimated fair value of the net assets acquired. As of June 30, 2009, we had $940.6 million of identifiable intangible assets and $649.6 million of goodwill on our balance sheet, which represented in excess of 80% of our total assets. We amortize identifiable intangible assets over their estimated useful lives which range from 1 to 20 years. We also evaluate our goodwill for impairment at least annually using a combination of valuation methodologies. Because one of the valuation methodologies we use is impacted by market conditions, the likelihood and severity of an impairment charge increases during periods of market volatility, such as the one that recently occurred as a result of the general weakening of the global economy. We are not permitted to amortize goodwill under U.S. accounting standards. In the event an impairment of goodwill is identified, a charge to earnings would be recorded. Although it does not affect our cash flow, a write-off in future periods of all or a part of these assets would adversely affect our operating results and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Goodwill and Intangible Assets.”

 

We are dependent on the continued service of key executives, the loss of any of whom could adversely affect our business.

 

Our performance is substantially dependent on the performance of our senior management team including, George I. Lazenby, IV (Chief Executive Officer), Tracy Bahl (Executive Chairman), Bob A. Newport, Jr. (Chief Financial Officer), Gregory T. Stevens (Executive Vice President, General Counsel and Secretary), J. Philip Hardin (Executive Vice President — Provider Services) and Gary D. Stuart (Executive Vice President — Payer Services). We have entered into agreements with each member of our senior management team that restrict their ability to compete with us should they decide to leave our company. Even though we have entered into these agreements, we cannot be sure that any member of our senior management team will remain with us or that they will not compete with us in the future. The loss of any member of our senior management team could impair our ability to execute our business plan and growth strategy, cause us to lose customers and reduce revenues, or lead to employee morale problems and/or the loss of key employees.

 

Our success depends in part on our ability to identify, recruit and retain skilled management and technical personnel. If we fail to recruit and retain suitable candidates or if our relationship with our employees changes or deteriorates, there could be an adverse effect on our business

 

Our future success depends upon our continuing ability to identify, attract, hire and retain highly qualified personnel, including skilled technical, management, product and technology and sales and marketing personnel, all of whom are in high demand and are often subject to competing offers. Competition for qualified personnel in the healthcare information technology and services industry is intense, and we cannot assure you that we will be able to hire or retain a sufficient number of qualified personnel to meet our requirements, or that we will be able to do so at salary, benefit and other compensation costs that are acceptable to us. A loss of a substantial number of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for expansion of our business, could have an adverse effect on our business. In addition, while none of our employees are currently unionized, unionization of our employees is possible in the future. Such unionizing activities could be costly to address and, if successful, would likely adversely impact our operations.

A prolonged economic downturn could have a material adverse effect on our business, financial condition and results of operations.

 

The U.S. economy is currently undergoing a period of slowdown. We are unable to predict the likely duration or severity of the economic slowdown and there can be no assurance that current economic conditions will not worsen. A prolonged or further weakening of economic conditions could lead to reductions in demand for our products and services. For example, a sustained recession could reduce the amount of income patients are able to spend on healthcare services. As a result, patients may elect to delay or forgo seeking healthcare services, which could decrease our transaction volumes or decrease payer and provider demand for our products and services. In addition, as a result of the economic slowdown, we may experience the negative effects of increased financial pressures on our payer and provider customers. For instance, our business, financial condition and results of operations could be negatively impacted by increased competitive pricing pressure and a decline in our customers’ credit worthiness, which could result in us incurring increased bad debt expense. If we are not able to timely and appropriately adapt to changes resulting from the difficult macroeconomic environment, our business, results of operations and financial condition may be materially and adversely affected.

 

Lengthy sales, installation and implementation cycles for some of our applications may result in delays or an inability to generate revenues from these applications.

 

Sales of complex revenue cycle management and electronic medical records applications may result in longer sales, contracting and implementation cycles for our customers. These sales may be subject to delays due to customers’ internal procedures for deploying new technologies and processes and implementation may be subject to delays based on the availability of the internal customer resources needed. The use of our solutions may also be delayed due to reluctance to change or modify existing procedures. We are unable to control many of the factors that will influence the timing of the buying decisions of potential customers or the pace at which installation and training may occur. If we experience longer sales, contracting and implementation cycles for our applications, we may experience delays in generating, or an inability to generate revenue from these applications, which could have an adverse effect on our financial results.

 

Risks Related to our Organization and Structure

 

We are a holding company and our principal asset after completion of this offering will be our equity interests in EBS Master, and we are accordingly dependent upon distributions from EBS Master to pay dividends, if any, taxes and other expenses.

 

We are a holding company and, upon completion of the reorganization transactions and this offering, our principal asset will be our ownership of equity interests in EBS Master in the form of EBS Units. See “Organizational Structure.” We have no independent means of generating revenue. We intend to cause EBS Master to make distributions to its unitholders, including us, in an amount sufficient to cover all applicable taxes payable but are limited in our ability to cause EBS Master to make these and other distributions to us (including for purposes of paying corporate and other overhead expenses and dividends) due to the terms of our credit agreements. To the extent that we need funds and EBS Master is restricted from making such distributions under applicable law or regulation, as a result of the terms in our credit agreements or is otherwise unable to provide such funds, it could adversely affect our liquidity and financial condition.

 

We are controlled by our Principal Equityholders whose interest in our business may be different than yours, and certain statutory provisions afforded to stockholders are not applicable to us.

 

Together, our Principal Equityholders will control approximately 75.5% of the combined voting power of our common stock (or 72.4% if the underwriters exercise their over-allotment option in full) after the completion of this offering and the application of the net proceeds from this offering. In connection with the reorganization transactions, we have entered into the Stockholders Agreement with the General Atlantic Equityholders, the H&F Equityholders, the eRX Members and the EBS Equity Plan Members. Under the Stockholders Agreement, our Principal Equityholders are entitled to nominate a majority of the members of our board of directors and each of the Principal Equityholders has agreed to vote for all of such nominees. See “Management — Corporate Governance — Board Structure” and “Certain Relationships and Related Party Transactions — Stockholders Agreement” for additional detail on the composition of our board of directors and the rights of our Principal Equityholders under the Stockholders Agreement.

Accordingly, our Principal Equityholders can exercise significant influence over our business policies and affairs, including the power to nominate a majority our board of directors. In addition, the Principal Stockholders can control any action requiring the general approval of our stockholders, including the adoption of amendments to our certificate of incorporation and bylaws and the approval of mergers or sales of substantially all of our assets. The concentration of ownership and voting power of our Principal Equityholders may also delay, defer or even prevent an acquisition by a third party or other change of control of our company and may make some transactions more difficult or impossible without the support of our Principal Equityholders, even if such events are in the best interests of minority stockholders. The concentration of voting power among the Principal Equityholders may have an adverse effect on the price of our Class A common stock.

 

We have opted out of section 203 of the General Corporation Law of the State of Delaware, which we refer to as the “Delaware General Corporation Law,” which prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction which resulted in such stockholder becoming an interested stockholder. Therefore, after the lock-up period expires, the General Atlantic Equityholders and the H&F Equityholders are able to transfer control of us to a third party by transferring their common stock (subject to the restrictions in the Stockholders Agreement), which would not require the approval of our board of directors or our other stockholders.

 

Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply against the General Atlantic Equityholders, the H&F Equityholders or any of our directors who are employees of the Principal Equityholders, in a manner that would prohibit them from investing in competing businesses or doing business with our customers. To the extent they invest in such other businesses, our Principal Equityholders may have differing interests than our other stockholders. In addition, under the EBS Master LLC Agreement, the EBS Post-IPO Members have agreed that the H&F Continuing LLC Members and/or one or more of their respective affiliates are permitted to engage in business activities or invest in or acquire businesses which may compete with our business or do business with any client of ours.

 

For additional information regarding the share ownership of, and our relationship with, General Atlantic and H&F, you should read the information under the headings “Principal and Selling Stockholders” and “Certain Relationships and Related Transactions.”

 

We will be exempt from certain corporate governance requirements since we will be a “Controlled Company” within the meaning of the NYSE Rules and, as a result, our stockholders will not have the protections afforded by these corporate governance requirements.

 

Together, our Principal Equityholders will continue to control more than 50% of the voting power of our common stock upon completion of this offering. As a result, we will be considered a “controlled company” for the purposes of the NYSE listing requirements and therefore we will be permitted to, and we intend to, opt out of the NYSE listing requirements that would otherwise require our board of directors to have a majority of independent directors and our compensation and nominating and corporate governance committees to be comprised entirely of independent directors. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE governance requirements and the ability of our independent directors to influence our business policies and affairs may be reduced. See “Management — Corporate Governance — Controlled Company.”

 

We will be required to pay an affiliate of our Principal Equityholders and the EBS Equity Plan Members for certain tax benefits we may claim, and the amounts we may pay could be significant.

 

Prior to this offering, we and two of our subsidiaries have purchased membership interests in EBS Master. Also, as described under “Use of Proceeds,” we intend to use a portion of the proceeds from this offering to purchase EBS Units (and corresponding shares of Class B common stock) from certain of the EBS Equity Plan Members. The purchases of these membership interests resulted in tax basis adjustments to the assets of EBS Master, and these basis adjustments have been allocated to us and two of our subsidiaries. In addition, the EBS Units (along with a corresponding number of shares of our Class B common stock) held by the H&F Continuing LLC Members and EBS Equity Plan Members will be exchangeable in the future for cash or shares of our Class A common stock. These future exchanges are likely to result in tax basis adjustments to the assets of EBS Master, which adjustments

would also be allocated to us. Both the existing and the anticipated basis adjustments are expected to reduce the amount of tax that we would otherwise be required to pay in the future.

 

We intend to enter into two tax receivable agreements with an entity controlled by the Principal Equityholders (the “Tax Receivable Entity”). One tax receivable agreement will generally provide for the payment by us to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from the purchases by us and our subsidiaries of EBS Units prior to this offering; (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement; and (iii) loss carryovers from prior periods (or portions thereof).

 

The second of these tax receivable agreements will generally provide for the payment by us to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) exchanges by the H&F Continuing LLC Members of EBS Units (along with the corresponding shares of our Class B common stock) for cash or shares of our Class A common stock or (b) payments under this tax receivable agreement to the Tax Receivable Entity and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

 

We will also enter into a third tax receivable agreement with the EBS Equity Plan Members which will generally provide for the payment by us to the EBS Equity Plan Members of 85% of the amount of the cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the purchases by us and our subsidiaries of EBS Units from the EBS Equity Plan Members using a portion of the proceeds from the offering, (b) the exchanges by the EBS Equity Plan Members of EBS Units (along with the corresponding shares of our Class B common stock) for cash or shares of our Class A common stock or (c) payments under this tax receivable agreement to the EBS Equity Plan Members and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

 

The actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreements, will vary depending upon a number of factors, including the timing of exchanges by the H&F Continuing LLC Members or the EBS Equity Plan Members, as applicable, the price of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable, our use of loss carryovers and the portion of our payments under the tax receivable agreements constituting imputed interest or amortizable basis.

 

The payments we will be required to make under the tax receivable agreements could be substantial. We expect that, as a result of the amount of the increases in the tax basis of the tangible and intangible assets of EBS Master and the loss carryovers from prior periods (or portions thereof), assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize in full the potential tax benefit described above, future payments under the tax receivable agreements in respect of the purchases and the loss carryovers will aggregate $150.1 million and range from approximately $5.2 million to $17.2 million per year over the next 15 years. These amounts reflect only the cash savings attributable to current tax attributes resulting from the purchases and the loss carryovers. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments from these tax attributes. Future payments under the tax receivable agreements in respect of subsequent acquisitions of EBS Units would be in addition to these amounts and would, if such exchanges took place at the initial public offering price, be of comparable magnitude.

 

In addition, although we are not aware of any issue that would cause the Internal Revenue Service (“IRS”) to challenge the tax basis increases or other benefits arising under the tax receivable agreements, the Tax Receivable Entity and the EBS Equity Plan Members will not reimburse us for any payments previously made if such basis increases or other benefits are subsequently disallowed, except that excess payments made to the Tax Receivable Entity or the EBS Equity Plan Members will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in such circumstances, we could make payments under the tax receivable agreements that are greater than our actual cash tax savings and may not be able to recoup those payments, which could adversely affect our liquidity.

Finally, because we are a holding company with no operations of our own, our ability to make payments under the tax receivable agreements is dependent on the ability of our subsidiaries to make distributions to us. Our credit agreements restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the tax receivable agreements. To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect our results of operations and could also affect our liquidity in periods in which such payments are made.

 

Rights to receive payments under the tax receivable agreements may be terminated by the Tax Receivable Entity or the EBS Equity Plan Members, as applicable, if as the result of an actual or proposed change in law, the existence of the agreements would cause recognition of ordinary income (instead of capital gain) in connection with future exchanges of EBS Units for cash or shares of our common stock or would otherwise have material adverse tax consequences to the Tax Receivable Entity, its owners or the EBS Equity Plan Members. There are legislative proposals pending in Congress that, if enacted in their present form, may result in such ordinary income recognition. Further, in the event of such a termination, the Tax Receivable Entity or the EBS Equity Plan Members would have the right, subject to the delivery of an appropriate tax opinion, to require us to determine a lump sum amount in lieu of the payments otherwise provided under the agreements. That lump sum amount would be calculated by increasing the portion of the tax savings retained by us to 30% (from 15%) and by calculating a present value for the total amount that would otherwise be payable under the agreements, using a discount rate equal to the lesser of LIBOR plus 100 basis points and 6.5% per annum and assumptions as to income tax rates and as to our ability to utilize the tax benefits (including the assumption that we will have sufficient taxable income). If the assumptions used in this calculation turn out not to be true, we may pay more or less than the specified percentage of our actual cash tax savings. This lump sum amount may be paid in cash or by a subordinated note with a seven-year maturity and an interest rate equal to the lesser of LIBOR plus 200 basis points and 6% per annum. Any such acceleration can occur only if the Tax Receivable Entity or any EBS Equity Plan Member, as applicable, has terminated a substantial portion of our obligations (or, in the case of an EBS Equity Plan Member, such Member’s share of our obligations) under the applicable tax receivable agreement with respect to exchanges of units. In view of the foregoing changes in the calculation of our obligations, we do not expect that the net impact of any such acceleration upon our overall financial condition would be materially adverse as compared to our obligations if laws do not change and the obligations are not accelerated. It is further possible that the net impact of such an acceleration would be beneficial to our overall financial condition. The ultimate impact of a decision to accelerate will depend on what the ongoing payments would have been under the tax receivable agreement absent acceleration, which will in turn depend on the various factors mentioned above.

 

In addition, the tax receivable agreements provide that, upon certain mergers, asset sales, or other forms of business combination or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits covered by the tax receivable agreements. As a result, upon a change of control, we could be required to make payments under the tax receivable agreements that are greater than or less than the specified percentage of our actual cash tax savings.

 

Risks Related to This Offering and our Class A Common Stock

 

Substantial future sales of shares of our Class A common stock in the public market could cause our stock price to fall.

 

Upon consummation of this offering, we will have 88,487,776 shares of Class A common stock outstanding, excluding 5,295,205 shares of Class A common stock underlying outstanding options and 733,598 restricted stock units (each of which will represent the right to receive a share of our Class A common stock upon vesting). Of these shares, the 23,700,000 shares sold in this offering (or 27,255,000 shares if the underwriters exercise their option in full) and the 349,166 shares we issue to the EBS Phantom Plan Participants will be freely tradable without further restriction under the Securities Act of 1933, as amended (the “Securities Act”). Upon completion of this offering, the remaining 64,438,610 outstanding shares of Class A common stock (or 60,883,610 shares if the underwriters exercise their option in full) will be deemed “restricted securities,” as that term is defined under Rule 144. Immediately following the consummation of this offering, the holders of these remaining 64,438,610 shares of our Class A common

stock will be entitled to dispose of their shares following the expiration of an initial 180-day underwriter “lock-up” period pursuant to the holding period, volume and other restrictions of Rule 144.

 

In addition, upon consummation of the offering and the application of the net proceeds from this offering, the EBS Post-IPO Members will own an aggregate of 26,574,257 EBS Units and 26,574,257 shares of our Class B common stock. Pursuant to the terms of the EBS LLC Agreement, each of the EBS Post-IPO Members will be able to exchange its EBS Units (and corresponding shares of our Class B common stock) for shares of our Class A common stock, on a one-for-one basis. Shares of our Class A common stock issuable to the EBS Post-IPO Members upon an exchange of EBS Units as described above would be considered “restricted securities,” as that term is defined in Rule 144 and saleable beginning in six months.

 

We intend to file a registration statement under the Securities Act registering 17.3 million shares of our Class A common stock reserved for issuance under our 2009 Equity Plan and we will enter into the Stockholders Agreement under which we will grant demand and piggyback registration rights to the EBS Post-IPO Members, including our Principal Equityholders and the EBS Equity Plan Members. See the information under the heading “Shares Eligible for Future Sale” for a more detailed description of the shares that will be available for future sale upon completion of this offering.

 

We do not intend to pay dividends in the foreseeable future, and, because we are a holding company, we may be unable to pay dividends.

 

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our board of directors considers relevant. Furthermore, because we are a holding company, any dividend payments would depend on the cash flow of our subsidiaries. However, our credit agreements limit the amount of distributions our subsidiaries (including EBS Master) can make to us and the purposes for which distributions could be made. Accordingly, we may not be able to pay dividends even if our board of directors would otherwise deem it appropriate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Description of Capital Stock.” For the foregoing reasons, you will not be able to rely on dividends on our Class A common stock to receive a return on your investment.

 

Provisions in our organizational documents may delay or prevent our acquisition by a third party.

 

Our amended and restated certificate of incorporation and by-laws contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their Class A common stock. The provisions include, among others:

 

 

These provisions of our amended and restated certificate of incorporation and by-laws could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our Class A common stock in the future which could reduce the market price of our Class A common stock. For more information, see “Description of Capital Stock.”

The stock price may be volatile, and you may be unable to resell your shares at or above the offering price or at all.

 

Prior to this offering, there has been no public market for our Class A common stock, and an active trading market may not develop or be sustained upon the completion of this offering. The initial public offering price of the Class A common stock offered hereby was determined through our negotiations with the underwriters and may not be indicative of the market price of the Class A common stock after this offering. The market price of our Class A common stock after this offering will be subject to significant fluctuations in response to, among other factors, variations in our operating results, research and reports that securities analysts publish about us or our business and market conditions specific to our business.

 

In addition, on July 2, 2009 we completed the eRx Acquisition. Under SEC rules we are required to file historical financial statements of eRx, as well as pro forma financial information, within 75 days after completion of the acquisition. We cannot predict how investors will react when we file these financial statements or what effect it will have on the market price of our Class A common stock.

 

Because the initial public offering price per common share is substantially higher than our book value per common share, purchasers in this offering will immediately experience a substantial dilution in net tangible book value.

 

Purchasers of our Class A common stock will experience immediate and substantial dilution in net tangible book value per share from the initial public offering price per share. After giving effect to the reorganization transactions described under “Organizational Structure,” the sale of the 10,725,000 shares of Class A common stock offered hereby by us and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds therefrom, our pro forma net tangible book value as of June 30, 2009, would have been a deficit of $664.0 million, or $(7.51) per share of Class A common stock. This represents an immediate dilution in net tangible book value of $23.01 per share to new investors purchasing shares of our Class A common stock in this offering. A calculation of the dilution purchasers will incur is provided below under “Dilution.”

 

We will incur increased costs as a result of being a public company.

 

As a public company, we will incur significant levels of legal, accounting and other expenses that we did not incur as a privately-owned corporation. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and related rules of the Securities and Exchange Commission (the “Commission”) and the NYSE corporate governance practices for public companies, impose significant requirements relating to disclosure controls and procedures and internal control over financial reporting. We expect that compliance with these public company requirements will increase our costs, require additional resources and make some activities more time consuming than they have been in the past when we were privately-owned. We will be required to expend considerable time and resources complying with public company regulations.

 

Failure to establish and maintain effective internal controls over financial reporting could have an adverse effect on our business, operating results and stock price.

 

Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. To date, we have not identified any material weaknesses related to our internal control over financial reporting or disclosure controls and procedures, although we have not conducted an audit of our controls. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. We are also in the process of evaluating how to document and test our internal control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley and the related rules of the Commission, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2010. During the course of this documentation and testing, we may identify deficiencies that we may be unable to remedy before the requisite deadline for those reports. Our auditors have not conducted an audit of our internal control over financial reporting. Any failure to remediate material weaknesses noted by us or our

independent registered public accounting firm or to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If our management or our independent registered public accounting firm were to conclude in their reports that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information, and the trading price of our Class A common stock could drop significantly. Failure to comply with Section 404 of Sarbanes-Oxley could potentially subject us to sanctions or investigations by the Commission, the Financial Industry Regulatory Authority or other regulatory authorities.

 

This prospectus contains forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include but are not limited to:

 

 

 

These and other factors are more fully discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by forward-looking statements in this prospectus.

 

All information contained in this prospectus is materially accurate and complete as of the date of this prospectus. You should keep in mind, however, that any forward-looking statement made by us in this prospectus, or elsewhere, speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no obligation to update any forward-looking statements in this prospectus after the date of this prospectus, except as required by federal securities laws. In light of these risks and uncertainties, you should keep in mind that any event described in a forward-looking statement made in this prospectus or elsewhere might not occur.

 

Structure Prior to the Reorganization Transactions

 

Prior to November 2006, our business was owned by HLTH. We currently conduct our business through EBS Master and its subsidiaries. EBS Master was formed by HLTH to act as a holding company for the group of wholly-owned subsidiaries of HLTH that comprised its Emdeon Business Services segment. In November 2006, we purchased a 52% interest in EBS Master from HLTH. Prior to the commencement of the reorganization transactions, our stockholders consisted of investment funds organized and controlled by General Atlantic. In February 2008, HLTH sold its remaining 48% interest in EBS Master to affiliates of General Atlantic and H&F. In July 2009, EBS Master sold a 1.82% interest in itself to the eRx Members in connection with the eRx Acquisition. As a result, prior to giving effect to the reorganization transactions, EBS Master was owned 64.58% by the General Atlantic Equityholders, 33.60% by the H&F Equityholders and 1.82% by the eRx Members.

 

Prior to the commencement of the reorganization transactions, EBS Master was authorized to issue 125 million EBS Units and had 101.85 million EBS Units outstanding which were owned as follows:

 

 

In addition, participants in the EBS Equity Plan currently hold indirect interests in EBS Master in the form of profits interests, which we refer to as “Grant Units”. The Grant Units were issued directly to, and are currently held by, EBS Incentive Plan LLC (“EBS Plan LLC”). Currently, 16 members of our senior management, including our executive officers and directors who are not representatives of our Principal Equityholders, participate in the EBS Equity Plan and hold direct interests in EBS Plan LLC. Each Grant Unit represents an equity interest in EBS Master that entitles the holder to a percentage of the profits and appreciation in the equity value of EBS Master arising after the date of grant.

 

We have also issued awards (the “EBS Phantom Awards”) to the EBS Phantom Plan Participants under the Amended and Restated EBS Incentive Plan (the “EBS Phantom Plan”). EBS Phantom Awards represent the right to payments based on the appreciation in the equity value of EBS Master since the date of grant. Currently, 90 of our employees participate in the EBS Phantom Plan, none of whom are participants in the EBS Equity Plan.

 

The Reorganization Transactions

 

On August 4, 2009, we commenced an internal restructuring, which we refer to in this prospectus as the “reorganization transactions.”

 

We have not engaged in any business or other activities, except in connection with our investment in EBS Master and the reorganization transactions, and currently have no assets other than our interest in EBS Master. Following this offering, EBS Master and its subsidiaries will continue to operate the historical business. This structure is being implemented because certain of EBS Master’s current members desire that it maintain its existing tax treatment as a partnership for U.S. federal income tax purposes and, therefore, will continue to hold their

ownership interests in EBS Master until such time in the future as they may elect to exchange their EBS Units (and corresponding shares of our Class B common stock) with EBS Master for shares of our Class A common stock on a one-for-one basis.

 

Prior to the commencement of the reorganization transactions, we were authorized to issue a single class of common stock. In connection with the reorganization transactions, we amended and restated our certificate of incorporation and are now authorized to issue two classes of common stock, Class A common stock and Class B common stock, each of which is entitled to one vote on all matters submitted to a vote of stockholders. The Class B common stock does not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of Class A common stock. All shares of our common stock generally vote together, as a single class, on all matters submitted to a vote of stockholders.

 

As part of the reorganization transactions:

 

 

In addition, EBS Master will amend the Fifth Amended and Restated EBS Master LLC limited liability company agreement (the “EBS LLC Agreement”) so that after the pricing of this offering but prior to the completion of this offering, Grant Units will be converted into 2,537,325 vested and unvested EBS Units and the right to enter into a tax receivable agreement with us. These EBS Units will be subject to vesting based on the vesting schedule of the Grant Units. EBS Plan LLC will then liquidate and the participants in the EBS Equity Plan will receive their share of the vested and unvested EBS Units held by EBS Plan LLC prior to liquidation. Each EBS Equity Plan Member will also be issued a number of shares of our Class B common stock equal to the number of EBS Units that he or she receives in the liquidation. EBS Equity Plan Members (other than our directors) will also be granted options to purchase an aggregate of 3,241,769 shares of our Class A common stock at the initial public offering price in respect of Grant Units, which generally will vest in equal annual installments over a three or four year period following the date of grant, based on continued employment with us and will be subject to accelerated

vesting in connection with a change in control if the holder either (i) remains employed through the first year following the change in control or (ii) his employment is terminated during that year by us without cause or by him for good reason.

 

In connection with the reorganization transactions and after the pricing of this offering but prior to the completion of this offering, and in accordance with the terms of the EBS Phantom Plan, we, in our capacity as managing member of EBS Master, will cause the vested EBS Phantom Awards to be converted into 349,166 shares of our Class A Common Stock. The unvested EBS Phantom Awards will be converted into 733,598 unvested restricted stock unit awards (“RSUs”) under our 2009 Equity Plan, based on the price of the Class A common stock issued in this offering. The RSUs will entitle the holder to receive shares of Class A Common Stock upon vesting, and will maintain a vesting schedule based on unvested EBS Phantom Awards. In addition, we will issue the EBS Phantom Plan Participants options to purchase 1,603,436 shares of Class A common stock at the initial public offering price. These options will vest in equal annual installments over a three or four year period following the date of grant, based on continued employment with us and will be subject to accelerated vesting in connection with a change in control if the holder either (i) remains employed through the first year following the change in control or (ii) his employment is terminated during that year by us without cause or by him for good reason.

 

In addition, as a part of the reorganization transactions, we have entered into the Stockholders Agreement and we expect to amend and restate the Fifth Amended and Restated EBS Master LLC limited liability company agreement and enter into tax receivable agreements with the Tax Receivable Entity and the EBS Equity Plan Members. See “— Holding Company Structure and Tax Receivable Agreements” and “Certain Relationships and Related Transactions.”

 

Effect of the Reorganization Transactions and this Offering

 

The reorganization transactions are intended to create a holding company that will facilitate public ownership of, and investment in, our company and are structured in a manner that avoids adverse tax consequences to our investors. We have owned more than 50% of EBS Master since November 2006. We are retaining this interest in EBS Master, which is a partnership for U.S. federal income tax purposes, because a transfer by us of that interest could cause a technical “termination” of the partnership entity for U.S. federal income tax purposes, which could lead to adverse tax consequences. The mergers of EBS Acquisition and of H&F Harrington, Inc., respectively, with our newly-formed subsidiaries were structured to accomplish a transfer to us of their interests in EBS Master without current recognition of taxable gain to the owners of EBS Acquisition and H&F Harrington, Inc. The H&F Continuing LLC Members are retaining their interests in EBS Master so that they can continue to own interests in EBS Master directly, rather than through an entity subject to entity-level taxation.

 

Upon completion of the transactions described above, this offering and the application of the net proceeds from this offering:

 

 

 

The percentage of voting power and economic increases in us noted above is presented on a consolidated basis. Upon the consummation of this offering, we will use approximately $5.8 million of net proceeds from the sale of shares of Class A common stock sold by us in this offering to purchase 399,458 EBS Units from certain of the EBS Equity Plan Members, including Messrs. Lazenby, Newport, Hardin and Stuart, will use approximately $9.5 million to pay fees and expenses related to this offering and will invest the remaining proceeds in EBS Master. EBS Master will then use such proceeds as further described under “Use of Proceeds” and “Certain Relationships and Related Party Transactions — Purchase of EBS Units.”

 

Holding Company Structure and Tax Receivable Agreements

 

We are a holding company and, immediately after the consummation of the reorganization transactions and this offering, our principal asset will be our interest in EBS Master, which we will hold directly and indirectly through two of our subsidiaries. The number of EBS Units we will own, directly and indirectly, at any time will generally equal the aggregate number of outstanding shares of our Class A common stock. The economic interest represented by each EBS Unit that we will own will correspond to one share of our Class A common stock, and the total number of EBS Units owned directly or indirectly by us and the holders of our Class B common stock at any given time will generally equal the sum of outstanding shares of all classes of our common stock. Shares of our Class B common stock cannot be transferred except in connection with an exchange of an EBS Unit.

 

We do not intend to list our Class B common stock on any stock exchange.

 

We intend to enter into two tax receivable agreements with the Tax Receivable Entity. One tax receivable agreement will generally provide for the payment by us to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from the purchases by us and our subsidiaries of EBS Units prior to this offering; (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement; and (iii) loss carryovers from prior periods (or portions thereof).

 

The second of these tax receivable agreements will generally provide for the payment by us to the Tax Receivable Entity of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the exchanges by the H&F Continuing LLC Members of EBS Units (along with the corresponding shares of our Class B common stock) for cash or shares of our Class A common stock or (b) payments under this tax receivable agreement to the Tax Receivable Entity and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

 

We will also enter into a third tax receivable agreement with the EBS Equity Plan Members which will generally provide for the payment by us to the EBS Equity Plan Members of 85% of the amount of the cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize in periods after this offering as a result of (i) any step-up in tax basis in EBS Master’s assets resulting from (a) the purchases by us of EBS Units

from the EBS Equity Plan Members using a portion of the proceeds from the offering, (b) the exchanges by the EBS Equity Plan Members of EBS Units (along with the corresponding shares of our Class B common stock) for cash or shares of our Class A common stock or (c) payments under this tax receivable agreement to the EBS Equity Plan Members and (ii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

 

We are entering into the tax receivable agreements because favorable tax attributes have been or will be made available to us as a result of certain transactions before and after the offering. Specifically, the acquisitions of interests in EBS Master by us and by two of our subsidiaries in the 2006 Transaction and the 2008 Transaction produced favorable tax attributes for us, primarily amortization deductions. The Principal Equityholders believe that the value of these tax attributes should be considered in determining the value of their contribution to us. As it may be difficult to determine the present value of these tax attributes with a reasonable level of certainty, one of the tax receivable agreements with the Tax Receivable Entity obligates us to make payments to the Tax Receivable Entity equal to 85% of the actual tax savings in U.S. federal, state and local income tax or franchise tax as and when realized by us as a result of these attributes. We will retain the benefit of the remaining 15% of these tax savings. In addition, future exchanges of EBS Units for cash or shares of our common stock, as well as payments under the tax receivable agreements, will produce additional favorable tax attributes to us, which would not be available in the absence of such exchanges. The tax receivable agreements therefore obligate us to make payments to the parties making those exchanges equal to 85% of the actual tax savings as and when realized by us as a result of those additional tax attributes. We will also retain the benefit of the remaining 15% of these tax savings.

 

Rights to receive payments under the tax receivable agreements may be terminated by the Tax Receivable Entity or the EBS Equity Plan Members, as applicable, if as the result of an actual or proposed change in law, the existence of the agreements would cause recognition of ordinary income (instead of capital gain) in connection with future exchanges of EBS Units for cash or shares of our common stock or would otherwise have material adverse tax consequences to the Tax Receivable Entity, its owners or the EBS Equity Plan Members. There are legislative proposals pending in Congress that, if enacted in their present form, may result in such ordinary income recognition. Further, in the event of such a termination, the Tax Receivable Entity or the EBS Equity Plan Members would have the right, subject to the delivery of an appropriate tax opinion, to require us to determine a lump sum amount in lieu of the payments otherwise provided under the agreements. That lump sum amount would be calculated by increasing the portion of the tax savings retained by us to 30% (from 15%) and by calculating a present value for the total amount that would otherwise be payable under the agreements, using a discount rate equal to the lesser of LIBOR plus 100 basis points and 6.5% per annum and assumptions as to income tax rates and as to our ability to utilize the tax benefits (including the assumption that we will have sufficient taxable income). If the assumptions used in this calculation turn out not to be true, we may pay more or less than the specified percentage of our actual cash tax savings. This lump sum amount may be paid in cash or by a subordinated note with a seven-year maturity and an interest rate equal to the lesser of LIBOR plus 200 basis points and 6% per annum. Any such acceleration can occur only if the Tax Receivable Entity or any EBS Equity Plan Member, as applicable, has terminated a substantial portion of our obligations (or, in the case of an EBS Equity Plan Member, such Member’s share of our obligations) under the applicable tax receivable agreement with respect to exchanges of units. In view of the foregoing changes in the calculation of our obligations, we do not expect that the net impact of any such acceleration upon our overall financial condition would be materially adverse as compared to our obligations if laws do not change and the obligations are not accelerated. It is further possible that the net impact of such an acceleration would be beneficial to our overall financial condition. The ultimate impact of a decision to accelerate will depend on what the ongoing payments would have been under the tax receivable agreement absent acceleration, which will in turn depend on the various factors mentioned above.

 

In addition, the tax receivable agreements provide that, upon certain mergers, asset sales, or other forms of business combination or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits covered by the tax receivable agreements. As a result, upon a change of control, we could be required to make payments under the tax receivable agreements that are greater than or less than the specified percentage of our actual cash tax savings.

Although we are not aware of any issue that would cause the IRS to challenge the tax basis increases or other benefits arising under the tax receivable agreements, the Tax Receivable Entity and the EBS Equity Plan Members will not reimburse us for any payments previously made if such basis increases or other benefits are subsequently disallowed, except that excess payments made to the Tax Receivable Entity or the EBS Equity Plan Members will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in such circumstances we could make payments to the Tax Receivable Entity or the EBS Equity Plan Members under the tax receivable agreements that are greater than our actual cash tax savings. See “Certain Relationships and Related Transactions — Tax Receivable Agreements.”

 

As a member of EBS Master, we will incur U.S. federal, state and local income taxes on our allocable share of any net taxable income of EBS Master. As authorized by the EBS LLC Agreement and to the extent permitted under our credit agreements, we intend to cause EBS Master to continue to distribute cash, generally, on a pro rata basis, to its members (which after consummation of the reorganization transactions and this offering will consist of us, our two subsidiaries, and the EBS Post-IPO Members) at least to the extent necessary to provide funds to pay the members’ tax liabilities, if any, with respect to the taxable income of EBS Master. In addition, to the extent permitted under our credit agreements, EBS Master may make distributions to us without pro rata distributions to any other member in order to pay (i) consideration, if any, for redemption, repurchase, acquisition, cancellation or termination of our Class A common stock and (ii) payments in respect of indebtedness, preferred stock, the tax receivable agreements, operating expenses, overhead and other fees and expenses. See “Certain Relationships and Related Transactions — Sixth Amended and Restated EBS Master LLC Limited Liability Company Agreement” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facilities.”

 

We will account for the reorganization transactions using a carryover basis as the reorganization transactions are premised on a non-substantive exchange of ownership interests in order to facilitate our initial public offering. This is consistent with Financial Accounting Standards Board (“FASB”) No. 141 (Revised 2007), Business Combinations. The management and governance rights and economic interests that the General Atlantic Equityholders and the H&F Equityholders held in EBS Master before the reorganization transactions will not change as a result of the reorganization transactions until the consummation of this offering.

 

The obligations resulting from the tax receivable agreements that will be entered into are expected to be offset in part by the tax benefits that were transferred to us as a result of the reorganization transactions. Although not assured, we expect that the consideration that we will remit under the tax receivable agreements will not exceed the tax liability that we otherwise would have been required to pay absent the transfers of tax attributes to us as a result of the reorganization transactions and subsequent exchanges.

 

We estimate that our net proceeds from this offering will be approximately $145.9 million, after deducting underwriting discounts and commissions and estimated offering expenses of approximately $20.3 million.

 

We intend to use approximately $5.8 million of the net proceeds to us from this offering to purchase 399,458 EBS Units held by certain of the EBS Equity Plan Members at a price per unit equal to the price paid by the underwriters for shares in this offering and will use any remaining proceeds for working capital and general corporate purposes, which may include the repayment of indebtedness and future acquisitions.

 

We have broad discretion as to the application of the proceeds to be used for working capital and general corporate purposes. Prior to application, we may hold any net proceeds in cash or invest them in short term securities or investments. You will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions regarding the use of these proceeds.

 

We will not receive any proceeds from the sale of our Class A common stock by the selling stockholders, including any proceeds resulting from the underwriters’ exercise of their option to purchase additional shares from the selling stockholders.

 

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions contained in our credit agreements, business prospects and other factors that our board of directors considers relevant.

 

The following table sets forth our capitalization as of June 30, 2009 on an actual basis; on a pro forma basis to reflect the estimated impact of the tax receivable agreements and the conversion of (i) the EBS Equity Plan Members’ Grant Units into 2,537,325 EBS Units and 3,241,769 options to purchase shares of Class A common stock and (ii) phantom awards issued under the EBS Phantom Plan into 349,166 shares of Class A common stock, 733,598 restricted stock units and 1,603,436 options to purchase shares of Class A common stock in the reorganization transactions; and as further adjusted to reflect:

 

 

 

 

 

If you invest in our Class A common stock, you will experience dilution to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the book value per share attributable to the shares of Class A common stock held by existing equity holders.

 

Our net tangible book value as of June 30, 2009 was a deficit of approximately $670.3 million, or $(8.66) per share of our Class A common stock. Net tangible book value represents the amount of total tangible assets less total liabilities and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, in each case, after giving effect to (i) the reorganization transactions described under “Organization Structure,” (ii) the 2008 Transaction, (iii) the conversion of Grant Units held by the EBS Equity Plan Members into EBS Units and options to purchase shares of our Class A common stock, (iv) the conversion of phantom awards issued under the EBS Phantom Plan into shares of our Class A common stock, restricted stock units and options to purchase shares of our Class A common stock, and (v) the estimated impact of the tax receivable agreements.

 

After giving effect to the sale of 10,725,000 shares of Class A common stock in this offering by us at the initial public offering price of $15.50 per share and the application of the net proceeds from this offering, our pro forma as adjusted net tangible book value would have been a deficit of $664.0 million, or $(7.51) per share. This represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $1.73 per share to existing equityholders and an immediate dilution in net tangible book value of $23.01 per share to new investors.

 

The following table illustrates the per share dilution:

 

 

Dilution is determined by subtracting pro forma net tangible book value per share of Class A common stock after the offering from the initial public offering price per share of Class A common stock.

The following table summarizes, on the same pro forma basis as of June 30, 2009, the total number of shares of Class A common stock and EBS Units purchased from us, the total consideration paid to us and the average price per share paid by the existing equityholders and by new investors purchasing shares in this offering (amounts in thousands, except percentages and per share data):

 

 

 

 

The unaudited pro forma consolidated balance sheet at June 30, 2009 and the unaudited pro forma consolidated statement of operations for the six months ended June 30, 2009 give effect to (i) the creation or acquisition of amortizable tax assets in connection with this offering and the reorganization transactions and the creation of liabilities in connection with entering into the tax receivable agreements, (ii) the conversion of the EBS Equity Plan Members’ Grant Units into EBS Units and options to purchase shares of our Class A common stock, (iii) the conversion of EBS Phantom Awards into Class A common stock, restricted stock units and options to purchase shares of our Class A common stock and (iv) this offering and the use of proceeds from this offering (collectively, the “Pro Forma Offering Adjustments”) as if each had occurred on June 30, 2009 for the unaudited pro forma consolidated balance sheet and January 1, 2008 for the unaudited pro forma consolidated statement of operations.

 

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2008 gives effect to the Pro Forma Offering Adjustments and the step-up in value of the amortizable assets as a result of the 2008 Transaction as if each had occurred on January 1, 2008. The unaudited pro forma financial information does not give effect to the eRx Acquisition.

 

The unaudited pro forma financial information has been prepared by our management and is based on our historical financial statements and the assumptions and adjustments described herein and in the notes to the unaudited pro forma financial information below. The presentation of the unaudited pro forma financial information is prepared in conformity with Article 11 of Regulation S-X.

 

Our historical financial information for the year ended December 31, 2008 has been derived from our audited consolidated financial statements and accompanying notes included elsewhere in this prospectus. Our historical financial information as of and for the six months ended June 30, 2009 has been derived from our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this prospectus.

 

We based the pro forma adjustments on available information and on assumptions that we believe are reasonable under the circumstances. See “— Notes to Unaudited Pro Forma Financial Information” for a discussion of assumptions made. The unaudited pro forma financial information is presented for informational purposes and is based on management’s estimates. The unaudited pro forma consolidated statements of operations do not purport to represent what our results of operations actually would have been if the transactions set forth above had occurred on the dates indicated or what our results of operations will be for future periods.

Emdeon Inc.

 

Unaudited Pro Forma Consolidated Balance Sheet

June 30, 2009

(in thousands, except per share data)

 

 

See accompanying notes to the unaudited pro forma financial information.

Emdeon Inc.

Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2009
(in thousands, except per share data)