<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
HEALTHEON/WEBMD CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3236644
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
400 THE LENOX BUILDING
3399 PEACHTREE ROAD NE
ATLANTA, GEORGIA 30326
(404) 495-7600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
W. MICHAEL LONG
CHAIRMAN OF THE BOARD
HEALTHEON/WEBMD CORPORATION
400 THE LENOX BUILDING
3399 PEACHTREE ROAD NE
ATLANTA, GEORGIA 30326
(404) 495-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
H. BRYAN IVES III, ESQ. GARY J. KOCHER, ESQ.
C. MARK KELLY, ESQ. CHRISTOPHER H. CUNNINGHAM, ESQ.
TIMOTHY P. VEITH, ESQ. PRESTON GATES & ELLIS LLP
ALSTON & BIRD LLP 701 FIFTH AVENUE
1211 EAST MOREHEAD STREET SUITE 5000
CHARLOTTE, NORTH CAROLINA 28204 SEATTLE, WASHINGTON 98104-7078
(704) 331-6000 (206) 623-7580
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger described herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock $0.0001 par value....... 4,717,859 shares(1) not applicable $56,036,011(2) $14,793.51
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</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to shareholders of OnHealth Network Company, a Washington
corporation, pursuant to the transactions described herein.
(2) Pursuant to Rule 457(f)(1) and Rule 457(c) under the Act, the maximum
aggregate offering price is the product of (i) $2.25, the average of the
high and low prices per share of OnHealth Network Company Common Stock on
July 25, 2000 as reported on the Nasdaq National Market and (ii) 24,904,894
shares of OnHealth Network Company Common Stock to be cancelled in the
merger described herein.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this proxy statement/prospectus is not complete and may
be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This proxy statement/prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION -- DATED JULY 28, 2000
PROXY STATEMENT/PROSPECTUS
ONHEALTH NETWORK COMPANY
808 HOWELL STREET, SUITE 400
SEATTLE, WASHINGTON 98101
Dear Shareholder:
We cordially invite you to attend a special meeting of our shareholders,
which will be held on a.m. local time, at
, Seattle, Washington. At the meeting, you will be asked to
approve a merger agreement that will combine our company with Healtheon/WebMD
Corporation. In the merger, you will be entitled to receive 0.189435 of a share
of Healtheon/WebMD common stock for each share of OnHealth common stock you own.
Whether or not you plan to attend the meeting, we urge you to complete,
sign and date the enclosed proxy card and return it in the enclosed postage-paid
envelope to ensure that your shares are represented at the meeting. If you
attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy card.
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless the
holders of at least a majority of the outstanding shares of OnHealth common
stock as of the record date approve the merger agreement. Your vote is important
because failing to vote will have the effect of voting against the merger. Only
holders of OnHealth common stock at the close of business on
, 2000, the record date, will be entitled to vote at the special
meeting.
OnHealth's board of directors has determined that the merger is advisable
and is fair to, and in the best interests of, OnHealth and its shareholders. THE
BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND MERGER.
Attached is a notice of special meeting to shareholders and a proxy
statement/prospectus, which describes the merger in detail. For your
convenience, the first three pages of the proxy statement/prospectus contain
frequently asked questions and related answers about the proposed merger. Please
review the proxy statement/prospectus carefully. IN PARTICULAR, YOU SHOULD
CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" ON PAGE
15.
If you would like assistance in completing your proxy card, or if you have
any questions about the procedure for voting your shares described in the
attached proxy statement/prospectus, please contact OnHealth Investor Relations
at (206) 652-0308.
Sincerely,
Ronald M. Stevens
President and Chief Financial Officer
Seattle, Washington
, 2000
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE> 3
ONHEALTH NETWORK COMPANY
808 HOWELL STREET, SUITE 400
SEATTLE, WASHINGTON 98101
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-------------------------
To the Shareholders of OnHealth Network Company:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of OnHealth
Network Company will be held on , 2000, at a.m. local time,
at , Seattle, Washington, for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of February 15, 2000, among Healtheon/WebMD Corporation, Tech
Acquisition Corporation, a wholly owned subsidiary of Healtheon/WebMD, and
OnHealth. Under the merger agreement, OnHealth will become a wholly owned
subsidiary of Healtheon/WebMD and each outstanding share of OnHealth common
stock, other than dissenters' shares, will be converted into the right to
receive 0.189435 shares of Healtheon/WebMD common stock. This proposal is more
fully described in the attached proxy statement/prospectus, which you should
read carefully.
OnHealth's board of directors has determined that the merger is advisable
and is fair to, and in the best interests of, OnHealth and its shareholders. THE
BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND MERGER.
We will conduct no other business at the OnHealth shareholders' special
meeting, except business that may be properly brought before the special meeting
and that is within the purpose of the special meeting described above.
We cannot complete the merger unless the holders of at least a majority of
the shares of OnHealth common stock outstanding on the record date vote to
approve the merger agreement. Holders of OnHealth common stock are entitled to
assert dissenters' rights with respect to the merger.
Only holders of record of OnHealth common stock at the close of business on
, 2000, the record date, are entitled to vote at the special meeting
or any adjournment or postponement of the meeting. This notice and the attached
proxy statement/prospectus is being sent to OnHealth shareholders on or about
, 2000.
By Order of the Board of Directors
of OnHealth Network Company
C. Kent Carlson, Secretary
Seattle, Washington
, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE
PROVIDED. YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 4
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS FOR SHAREHOLDERS...................... 1
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS................... 4
The companies........................................... 4
Summary of the merger................................... 6
Summary selected historical and summary selected
unaudited pro forma condensed combined financial
data.................................................. 9
Comparative historical and unaudited pro forma per share
data.................................................. 13
RISK FACTORS................................................ 15
Risks relating to the proposed merger................... 15
Risks relating to the combined company's business....... 16
Risks associated with Healtheon/WebMD's acquisitions of
Medical Manager and CareInsite........................ 28
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 32
THE ONHEALTH SPECIAL MEETING................................ 33
THE MERGER.................................................. 36
Background of the merger................................ 36
Joint reasons for the merger............................ 38
OnHealth's reasons for the merger....................... 38
Opinion of OnHealth's financial advisor................. 40
Interests of OnHealth's directors, executive officers
and affiliates in the merger.......................... 45
Completion and effectiveness of the merger.............. 46
Structure of the merger and conversion of OnHealth
common stock.......................................... 46
Exchange of OnHealth stock certificates for
Healtheon/WebMD stock certificates.................... 46
Material U.S. federal income tax considerations of the
merger................................................ 47
Accounting treatment of the merger...................... 48
Regulatory filings and approvals required to complete
the merger............................................ 48
Restrictions on sales of shares by affiliates of
Healtheon/WebMD and OnHealth.......................... 49
Listing on the Nasdaq National Market of Healtheon/WebMD
common stock to be issued in the merger............... 49
Delisting and deregistration of OnHealth common stock
after the merger...................................... 49
Operations after the merger............................. 49
Rights of dissenting OnHealth shareholders.............. 49
THE MERGER AGREEMENT........................................ 51
ONHEALTH RELATED TRANSACTION AGREEMENTS..................... 58
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 60
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 61
COMPARISON OF RIGHTS OF HOLDERS OF ONHEALTH COMMON STOCK AND
HEALTHEON/ WEBMD COMMON STOCK............................. 77
INFORMATION REGARDING HEALTHEON/WEBMD....................... 88
INFORMATION REGARDING ONHEALTH.............................. 90
LEGAL OPINION............................................... 91
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXPERTS..................................................... 91
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 92
WHERE YOU CAN FIND MORE INFORMATION......................... 93
ANNEX A The OnHealth Merger Agreement...................... A-1
ANNEX B Opinion of OnHealth's Financial Advisor............ B-1
ANNEX C Chapter 23B.13 of the Revised Code of Washington
(Dissenters' Statute)..................................... C-1
</TABLE>
ii
<PAGE> 6
QUESTIONS AND ANSWERS FOR SHAREHOLDERS
Q. WHAT ARE THE BENEFITS OF THE MERGER?
A. Healtheon/WebMD believes that the merger will enhance Healtheon/WebMD's
consumer healthcare content and services and increase traffic on WebMD
Health, Healtheon/ WebMD's consumer portal, by adding OnHealth's
complementary health and wellness information and services. The merger
also offers OnHealth shareholders the opportunity to continue to
participate in the growth of the business conducted by Healtheon/WebMD
following the merger.
For more information regarding the expected benefits of the merger, see
"Joint reasons for the merger" and "OnHealth's reasons for the merger,"
each on page 38.
Q. HOW WILL THE MERGER BE STRUCTURED?
A. In the merger, Tech Acquisition Corporation, a wholly owned subsidiary
of Healtheon/ WebMD, will merge into OnHealth, and OnHealth will become
a wholly owned subsidiary of Healtheon/WebMD Corporation.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. You will receive 0.189435 shares of Healtheon/WebMD common stock for
each share of OnHealth common stock you own, except if you exercise
dissenters' rights under Washington law. For example, if you own 1,000
shares of OnHealth common stock, you will receive 189 shares of
Healtheon/ WebMD common stock. Healtheon/WebMD will not issue
fractional shares of its common stock. Instead of any fractional
shares, you will receive cash based on the average market price of
Healtheon/WebMD common stock on the first trading day after the closing
of the merger.
Options to purchase shares of OnHealth common stock will be assumed by
Healtheon/WebMD and will become options to purchase shares of
Healtheon/WebMD common stock on the same terms and conditions as the
assumed OnHealth options. The number of shares subject to the option
and exercise price will be adjusted to reflect the 0.189435 exchange
ratio.
Q. WHAT ARE THE MEDICAL MANAGER AND CAREINSITE MERGERS?
A. Healtheon/WebMD has entered into merger agreements to acquire Medical
Manager Corporation and CareInsite, Inc. These mergers are not
described in detail in this proxy statement/prospectus, however, for
more information on these mergers, see "Information Regarding
Healtheon/ WebMD -- Recent developments" on page 88. The merger between
OnHealth and Healtheon/WebMD is not dependent upon completion of the
Medical Manager and CareInsite mergers.
The section entitled "Unaudited Pro Forma Condensed Combined Financial
Information" on page 61 illustrates the possible outcome from mergers
of Healtheon/WebMD with Medical Manager and CareInsite. Pro forma
information regarding the merger with OnHealth is not reflected in that
section in accordance with applicable regulations of the Securities and
Exchange Commission, or SEC.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A. The holders of at least a majority of the outstanding shares of
OnHealth common stock must approve the merger agreement.
As of the record date of the special meeting, the holders of
approximately % of the outstanding shares of common stock have agreed
to vote in favor of the merger pursuant to voting agreements entered
into in connection with the execution of the merger agreement. These
shareholders have executed irrevocable proxies in favor of Healtheon/
WebMD to vote in favor of the merger. Healtheon/WebMD stockholders are
not required to approve the merger and will not vote on the merger.
You are entitled to cast one vote per share of OnHealth common stock
you owned at the close of business on , 2000, the record
date.
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<PAGE> 7
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A. Yes. In evaluating the merger, you should carefully consider the
factors discussed in "Risk Factors" on page 15.
Q. WHAT DO I NEED TO DO NOW?
A. After you read and consider carefully the information contained in this
document, please cast your vote on the merger agreement by completing,
signing and dating your proxy card. You should return your completed
proxy card as soon as possible in the enclosed postage-paid envelope.
If you return your signed proxy card but do not include instructions on
how to vote, your shares will be voted FOR approval of the merger
agreement and merger. You can also attend the special meeting and vote
in person.
If you abstain from voting or do not vote, it will have the effect of
voting against approval of the merger agreement and merger.
The board of directors of OnHealth unanimously recommends that you vote
FOR approval of the merger agreement and merger.
Q. IF MY ONHEALTH SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares by
following the directions provided to you by your broker or in the
materials forwarded. Without instructions, your shares will not be
voted.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. If you want to change your vote, send a later-dated, signed proxy card
before the shareholders' meeting to the secretary of OnHealth, or
attend the special meeting and vote in person. You may also revoke your
proxy by sending written notice to the secretary of OnHealth before the
meeting. If you have instructed a broker to vote your shares, you must
follow instructions from your broker to change your vote. Shareholders
who have signed voting agreements may not revoke the proxies given by
them in the voting agreement. If you are a shareholder who executed a
voting agreement, the proxy that you granted Healtheon/WebMD with
respect to the special meeting is irrevocable.
Q. SHOULD I SEND IN MY ONHEALTH STOCK CERTIFICATES NOW?
A. No. After the merger is completed, you will receive written
instructions for exchanging your OnHealth stock certificates for
Healtheon/WebMD stock certificates. DO NOT SEND IN YOUR STOCK
CERTIFICATES WITH YOUR PROXY CARD.
Q. AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A. Under Washington law, OnHealth shareholders are entitled to dissent
from the merger and receive cash equal to the fair value of their
OnHealth common stock instead of receiving shares of Healtheon/ WebMD
common stock.
You may obtain more information regarding your dissenters' or appraisal
rights discussed in "The Merger -- Rights of dissenting OnHealth
shareholders" on page 49.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. The parties are working toward completing the merger as quickly as
possible. Healtheon/WebMD and OnHealth hope to complete the merger
during the third calendar quarter of 2000. However, if conditions to
the merger are not satisfied, the merger may be completed later.
Q. WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE TRANSACTION?
A. It is expected that if the merger is completed, you will not recognize
a gain or loss for United States federal income tax purposes as a
result of the merger, except that you will recognize a gain or loss
with respect to cash received instead of a fractional share. However,
you are urged to consult your own tax advisor to determine the tax
consequences particular to your situation.
2
<PAGE> 8
Q. WHOM SHOULD I CALL WITH QUESTIONS?
A. If you have any questions about the merger or if you need additional
copies of the proxy statement/prospectus, you should contact:
OnHealth Investor Relations
808 Howell Street, Suite 400
Seattle, Washington 98104
(206) 652-0308
You may also obtain additional information about Healtheon/WebMD and
OnHealth from documents filed with the SEC, by following the
instructions in the section entitled "Where You Can Find More
Information" on page 93.
3
<PAGE> 9
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and does not contain all of the information that may be
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the other documents to which you have been referred. Page
references are included parenthetically to direct you to a more complete
description of the topics presented in this summary.
THE COMPANIES
HEALTHEON/WEBMD CORPORATION (PAGES 88 THROUGH 89)
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
(404) 495-7600
http://www.webmd.com
Healtheon/WebMD provides web-based healthcare information and services to
facilitate connectivity and transactions among physicians, patients, payers and
other healthcare industry participants. Healtheon/WebMD's Internet-based
information and transaction platform allows for the secure exchange of
information among the disparate information systems used by healthcare industry
participants and supports Healtheon/WebMD's administrative transaction services,
including patient enrollment, eligibility determination, referrals and
authorizations, laboratory and diagnostic test orders and results, clinical data
retrieval and claims processing. Healtheon/WebMD's web site, WebMD.com, offers a
single destination for the exchange of healthcare information and supports a
broad range of healthcare transactions delivered over Healtheon/WebMD's secure,
Internet-based platform. Healtheon/WebMD designs its service offerings to help
integrate and manage administrative, clinical, research and information needs of
healthcare industry participants.
On February 13, 2000, Healtheon/WebMD entered into merger agreements to
acquire Medical Manager and CareInsite. Medical Manager operates three principal
lines of business: physician practice management through Medical Manager Health
Systems, healthcare electronic commerce, or e-commerce, services through
CareInsite and plastics and filtration technologies through Porex Corporation.
Medical Manager Health Systems is a leading provider of integrated healthcare
automation solutions. Medical Manager Health Systems develops, markets,
implements and supports The Medical Manager(R) physician practice management
system, which addresses the financial, administrative, clinical and practice
management needs of healthcare providers. Medical Manager indirectly owns
approximately 67.4% of CareInsite. CareInsite is developing and provides
innovative healthcare network and clinical communications services that leverage
Internet technology to enable the confidential exchange of clinical,
administrative and financial information among physicians and their patients,
and affiliated health plans, providers and suppliers. Porex designs,
manufactures and distributes porous and solid plastic components and products.
These products are used in life sciences, healthcare, industrial and consumer
applications. For more information, see "Information Regarding
Healtheon/WebMD -- Recent developments" and "Where You Can Find More
Information," on pages 88 and 93, respectively.
ONHEALTH NETWORK COMPANY (PAGE 90)
808 Howell Street, Suite 400
Seattle, Washington 98101
(206) 583-0100
http://www.onhealth.com
OnHealth Network Company is a leading Internet health information and
services resource that empowers consumers with integrated solutions to
effectively manage their health and well-being. In association with leading
medical institutions, OnHealth's health journalists and medical contributors
offer health resources through reference guides, up-to-date news feeds,
research, personalization and interactive tools. OnHealth.com is the most
trafficked consumer health site on the Internet with 5.2 million unique users
and the 47th largest property online,
4
<PAGE> 10
according to the May 2000 Media Metrix report. The web site was recently named
"Best Health & Medicine Web Site" by US News and World Report, "Best Overall
Health Content Site" by Gomez Advisors, a leading e-commerce report provider,
and won three gold medals including "The Best Consumer Healthcare Portal Site"
at the November 1999 eHealthcare World Awards. Over 500 different sites drive
traffic to OnHealth.com through various strategic alliances with other companies
including America Online, Inc.'s Digital City, Inc., Ask Jeeves, Inc.,
About.com, Inc., Better Homes and Gardens, Yahoo!, Inc. and Microsoft
Corporation's Hot Mail Web Courier. OnHealth also attracts leading advertisers
such as Glaxo Wellcome, Johnson & Johnson, Pfizer Inc., The Procter & Gamble
Company, SmithKline Beecham, American Express Company, AIG Insurance, Fidelity
Investments, Ford Motor Company, Kellogg Company and Neiman Marcus. As part of
its strategic expansion, OnHealth acquired Health Decisions International, LLC,
or Health Decisions, and BabyData.com Inc. in 1999.
5
<PAGE> 11
SUMMARY OF THE MERGER
THE SHAREHOLDERS' MEETING
(PAGES 33 THROUGH 35).
The OnHealth special meeting will be held at , at
on , 2000. At the special meeting, OnHealth shareholders will be
asked to consider and vote on the merger agreement and merger.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
(PAGES 38 THROUGH 40)
The OnHealth board of directors concluded that the terms of the merger were
fair to, and in the best interests of, OnHealth and its shareholders after
considering the potential benefits and potential negative effects of the merger
described in "Joint reasons for the merger" and "OnHealth's reasons for the
merger," each on page 38.
The OnHealth board has unanimously approved and adopted the merger
agreement and merger and recommends a vote FOR approval of the merger agreement
and merger.
SHAREHOLDERS ENTITLED TO VOTE AT THE MEETING (PAGE 33)
Holders of record of OnHealth common stock at the close of business on
, 2000, the record date, are entitled to vote at the meeting.
VOTE REQUIRED FOR APPROVAL
(PAGE 33)
The holders of a majority of the outstanding shares of OnHealth common
stock must approve and adopt the merger agreement and the merger. OnHealth
shareholders are entitled to cast one vote per share of OnHealth common stock
owned as of , 2000, the record date. Executive officers, directors
and significant shareholders of OnHealth holding approximately % of the
outstanding OnHealth common stock as of the record date have agreed to vote in
favor of this proposal under a voting agreement executed as of the date the
merger agreement was executed.
INTERESTS OF DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
(PAGE 45)
When considering the recommendations of OnHealth's board of directors, you
should be aware that some OnHealth directors, officers and affiliates have
interests in the merger that are different from, or are in addition to, yours.
These interests include, among other things, indemnification rights,
acceleration of option vesting and other benefits and payments under some
agreements and employee benefit and retention plans.
OPINION OF ONHEALTH'S FINANCIAL ADVISOR
(PAGES 40 THROUGH 45)
In connection with the merger, OnHealth's board considered the opinion of
its financial advisor, FleetBoston Robertson Stephens Inc., or Robertson
Stephens, as to the fairness from a financial point of view of the exchange
ratio to the holders of OnHealth's common stock. The full text of the written
opinion of Robertson Stephens is attached to the back of this document as Annex
B, and should be read carefully in its entirety for a description of the
assumptions made, matters considered and limitations on the review undertaken.
THE OPINION OF ROBERTSON STEPHENS IS DIRECTED TO THE ONHEALTH BOARD OF
DIRECTORS, AND THIS OPINION DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW TO
VOTE TO ANY SHAREHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE MERGER.
CONDITIONS TO COMPLETION OF THE MERGER
(PAGES 55 THROUGH 56)
Healtheon/WebMD's and OnHealth's respective obligations to complete the
merger are subject to the satisfaction or waiver of closing conditions.
If OnHealth waives any conditions, it will consider the facts and
circumstances at that time and make a determination as to whether a
resolicitation of proxies from shareholders is appropriate.
THE VOTING AGREEMENTS AND WARRANT TO PURCHASE ONHEALTH COMMON STOCK
(PAGE 58)
On the date of the execution of the merger agreement, executive officers,
directors and significant shareholders of OnHealth who collectively held %
of OnHealth's common stock as of the record date entered into voting agreements
with Healtheon/WebMD that require them to vote all of their shares in favor of
the approval and adoption of the merger agreement and the merger. These
shareholders have executed irrevocable proxies in favor of Healtheon/WebMD to
vote in favor of the merger agreement and merger.
6
<PAGE> 12
In addition, OnHealth granted to Healtheon/WebMD upon the execution of the
merger agreement a warrant to purchase up to 5,800,000 shares of OnHealth common
stock at an exercise price of $10.75, the market price on that date. The warrant
became exercisable on February 15, 2000 and may be exercised at any time during
the three years after February 15, 2000.
THE LOANS BY HEALTHEON/WEBMD
(PAGES 58 THROUGH 59)
Healtheon/WebMD agreed to lend up to $30 million to OnHealth in order to
fund necessary business operating expenses of OnHealth. OnHealth pledged all of
its assets as security for the loan. In addition, OnHealth granted
Healtheon/WebMD warrants to purchase up to 500,000 shares of OnHealth common
stock with an exercise price of $0.01 per share in the event the merger
agreement is terminated and amounts remain outstanding under the loans for
specified periods of time after termination.
TERMINATION OF THE MERGER AGREEMENT
(PAGES 56 THROUGH 57)
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after approval of the merger agreement and merger
by the shareholders of OnHealth:
- by mutual consent of Healtheon/WebMD and OnHealth
- by either party, if the merger is not completed before October 31, 2000,
unless that party is the cause of the failure of the merger to occur on
or before that date
- by either party, if there is any order of a court or governmental
authority restraining, enjoining or prohibiting the completion of the
merger or if any court or governmental authority fails to take action
necessary to fulfill the conditions to completion of the merger
- by Healtheon/WebMD, if the board of directors of OnHealth withdraws or
modifies its recommendation of the adoption and approval of the merger
agreement and merger in a manner adverse to Healtheon/WebMD, fails to
convene its shareholders meeting for the purpose of voting on the merger
within 30 days of the effectiveness of the registration statement or
recommends to the shareholders of OnHealth an acquisition proposal
- by Healtheon/WebMD if it is determined by the board of directors of
Healtheon/WebMD after receipt of written advice from counsel that, as a
result of developments in In the Matter of OnHealth Network Company
before the SEC, there is a reasonable probability that there will be a
material delay in the effectiveness of the registration statement filed,
or contemplated to be filed, by Healtheon/WebMD with the SEC with respect
to any transaction described in Rule 145(a) under the Securities Act of
1933, as amended, if the delay is not resolved to the reasonable
satisfaction of Healtheon/WebMD within 20 days of notice to OnHealth
- by either party, upon a breach of any representation, warranty, covenant
or agreement of the other party.
TERMINATION FEES
(PAGE 57)
Unless Healtheon/WebMD is then in breach of the merger agreement, OnHealth
is obligated to pay a termination fee of $9 million if an alternate third party
acquisition proposal exists related to:
- a direct or indirect acquisition of 15% of OnHealth's voting securities
- a merger or business combination with OnHealth
- an acquisition or sale of more than 15% of OnHealth's assets
- a transaction creating a minority interest in a subsidiary of OnHealth
exceeding 15% of OnHealth's assets or
- any liquidation or dissolution of OnHealth,
and
- the board of directors of OnHealth:
-- adversely withdraws or modifies its approval or recommendation of
the merger agreement and merger
-- fails to convene the required shareholders' meeting to approve the
merger agreement and merger or
-- recommends or has resolved to recommend to OnHealth shareholders
any of the alternate third party acquisition proposals, or
7
<PAGE> 13
- the OnHealth shareholders fail to adopt and approve the merger agreement
and merger
ACCOUNTING TREATMENT OF THE MERGER
(PAGE 48)
Healtheon/WebMD will account for the merger as a purchase for financial
accounting purposes, in accordance with generally accepted accounting
principles.
DISSENTERS' RIGHTS
(PAGES 49 THROUGH 51)
OnHealth shareholders are entitled under Washington law to dissent from the
merger and receive payment in cash for the fair value of their shares.
COMPARATIVE MARKET PRICE INFORMATION
(PAGE 60)
Shares of both Healtheon/WebMD common stock and OnHealth common stock are
listed on the Nasdaq National Market. On February 15, 2000, the last full
trading day prior to the public announcement of the merger, Healtheon/WebMD's
common stock closed at $68.625 per share, and OnHealth's common stock closed at
$9.969 per share. On , 2000, the last practicable trading day prior
to the printing of this proxy statement/prospectus, Healtheon/WebMD's common
stock closed at $
per share, and OnHealth's common stock closed at $ per share. We urge you to
obtain current market quotations.
8
<PAGE> 14
SUMMARY SELECTED HISTORICAL AND SUMMARY SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following summary selected historical financial data of
Healtheon/WebMD, Medical Manager and CareInsite have been derived from their
respective historical financial statements and should be read in conjunction
with the financial statements and the related notes, which are incorporated by
reference in this proxy statement/ prospectus. No selected historical data for
OnHealth is presented in this summary section in accordance with applicable
regulations of the SEC. The selected unaudited pro forma condensed combined
financial data of Healtheon/WebMD, Medical Manager and CareInsite are derived
from the unaudited pro forma condensed combined financial information, which
gives effect to the transactions as purchases, and should be read in conjunction
with the unaudited pro forma condensed combined financial information and
related notes, which are included elsewhere in or incorporated by reference into
this prospectus/proxy statement.
Healtheon/WebMD's fiscal year ends on December 31, while Medical Manager's
and CareInsite's fiscal years end on June 30. Medical Manager's consolidated
financial statements include its wholly owned subsidiaries and its majority
owned consolidated subsidiary, CareInsite. The pro forma statement of operations
for the year ended December 31, 1999 combine the statements of operations of
Healtheon/WebMD and Medical Manager and give effect to Healtheon/WebMD's mergers
with WebMD, Inc., MedE America Corporation, Greenberg News Networks, Inc., which
is referred to as Medcast, Kinetra LLC and Envoy and its strategic alliance with
The News Corporation Limited and to Medical Manager's acquisition of Physician
Computer Network, Inc. as if the mergers had occurred as of January 1, 1999. The
pro forma statement of operations for the three months ended March 31, 2000
combine the statements of operations of Healtheon/WebMD and Medical Manager and
give effect to Healtheon/WebMD's mergers with Kinetra and Envoy and its
strategic alliance with News Corporation and to Medical Manager's acquisition of
Physician Computer Network as if these transactions had occurred as of January
1, 2000. Pro forma information regarding the OnHealth merger are not required to
be reflected in this summary section in accordance with applicable regulations
of the SEC.
The unaudited pro forma condensed combined balance sheet data assumes that
the Medical Manager and CareInsite mergers took place as of March 31, 2000 and
combine Healtheon/WebMD's balance sheet, after giving effect to the acquisition
of Envoy, and Medical Manager's balance sheet at that date.
The total estimated purchase prices of the Medical Manager and CareInsite
mergers have been allocated on a preliminary basis to assets and liabilities
based on management's best estimates of their fair value with the excess over
the net tangible assets acquired allocated to goodwill and other intangible
assets. These allocations are subject to change pending a final determination
and analysis of the total purchase prices and the fair value of the assets
acquired and liabilities assumed. The impact of any of these changes could be
material.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not indicative of the operating results or
financial positions that would have actually occurred if the mergers, either
individually or combined, had been consummated as of the dates indicated, nor is
it necessarily indicative of future operating results or financial condition of
the combined company.
9
<PAGE> 15
HEALTHEON/WEBMD'S SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Revenue............................................ $ 2,175 $ 11,013 $ 13,390 $ 48,838 $ 102,149 $ 17,555 $ 65,881
Cost of operations................................. 1,916 6,669 10,446 43,014 88,576 15,518 59,365
Development and engineering........................ 2,446 8,332 12,267 19,002 29,669 7,041 11,574
Sales, general and administrative.................. 1,749 8,400 10,096 24,715 82,315 8,901 100,526
Depreciation and amortization...................... -- 4,153 6,004 16,055 193,067 5,225 338,710
------- -------- -------- -------- --------- -------- ---------
Total operating costs and expenses................. 6,111 27,554 38,813 102,786 393,627 36,685 510,175
------- -------- -------- -------- --------- -------- ---------
Loss from operations............................... (3,936) (16,541) (25,423) (53,948) (291,478) (19,130) (444,294)
Other income (expense), net........................ (522) (2,065) (2,582) (100) 3,486 561 12,829
Net loss........................................... $(4,458) $(18,606) $(28,005) $(54,048) $(287,992) $(18,569) $(431,465)
======= ======== ======== ======== ========= ======== =========
Basic and diluted net loss per common share........ $ (0.85) $ (2.83) $ (3.88) $ (1.54) $ (3.58) $ (0.30) $ (2.47)
======= ======== ======== ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- ----------
1995 1996 1997 1998 1999 2000
-------- -------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 9,386 $ 7,539 $21,804 $36,817 $ 291,286 $1,160,682
Working capital............................................. 7,244 2,505 14,790 27,934 216,304 1,108,479
Total assets................................................ 10,801 34,407 53,747 79,940 4,242,462 5,748,267
Long-term obligations, net of current portion............... -- 1,210 932 2,984 121,489 121,409
Convertible redeemable preferred stock...................... 16,029 39,578 50,948 -- -- --
Stockholders' equity (net capital deficiency)............... (7,698) (14,553) (9,930) 59,413 3,973,672 5,487,166
</TABLE>
MEDICAL MANAGER'S SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS DATA:
Net revenues $91,779 $116,063 $135,623 $216,609 $296,096 $213,007 $264,808
Income (loss) from continuing operations before
provision for income taxes.......................... 6,734 19,569 (18,516) 36,626 30,955 23,024 11,136
Provision for income taxes............................ 483 4,862 2,844 13,706 12,311 8,661 12,742
------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations.............. 6,251 14,707 (21,360) 22,920 18,644 $ 14,363 $ (1,606)
Income from discontinued operations................... 15,459 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. $21,710 $ 14,707 $(21,360) $ 22,920 $ 18,644 $ 14,363 $ (1,606)
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share -- basic
Continuing operations............................... $ 0.28 $ 0.64 $ (0.90) $ 0.72 $ 0.54 $ 0.42 $ (0.04)
Discontinued operations............................. 0.68 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) per share -- basic.......... $ 0.96 $ 0.64 $ (0.90) $ 0.72 $ 0.54 $ 0.42 $ (0.04)
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share -- diluted
Continuing operations............................... $ 0.26 $ 0.60 $ (0.90) $ 0.67 $ 0.50 $ 0.39 $ (0.04)
Discontinued operations............................. 0.66 -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss) per share -- diluted................ $ 0.92 $ 0.60 $ (0.90) $ 0.67 $ 0.50 $ 0.39 $ (0.04)
======= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
---------------------------------------------------- ----------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Working capital............................................. $104,478 $166,241 $ 89,769 $160,465 $235,029 $ 147,054
Total assets................................................ 204,655 221,375 407,004 517,646 818,196 1,061,906
Long term debt, net of current portion...................... 2,315 2,634 168,119 162,960 170,041 14,241
Stockholders' equity........................................ 170,724 185,762 190,374 291,677 485,343 756,614
</TABLE>
10
<PAGE> 16
CAREINSITE'S SELECTED FINANCIAL DATA
(A DEVELOPMENT STAGE COMPANY)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AVICENNA SYSTEMS CORPORATION
PREDECESSOR BUSINESS CAREINSITE
-------------------------------------------- -------------------------------------
PERIOD FROM
INCEPTION PERIOD FROM
(SEPTEMBER 20, JANUARY 1, INCEPTION
1994) THROUGH YEAR ENDED 1996 THROUGH (DECEMBER 24, YEARS ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, DECEMBER 23, 1996) THROUGH ---------------------
1994 1995 1996 JUNE 30, 1997 1998 1999
-------------- ------------ ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Revenue.................. $ -- $ -- $ 20 $ -- $ -- $ 1,364
Loss from operations..... (32) (167) (3,298) (42,366) (10,382) (23,061)
Net loss applicable to
common stockholders.... (32) (167) (3,539) (42,357) (10,335) (22,798)
Basic and diluted net
loss per common
share.................. $(0.08) $(0.44) $ (9.34) $ (0.85) $ (0.21) $ (0.40)
<CAPTION>
CAREINSITE
------------------------------------
CUMULATIVE
FROM INCEPTION
NINE MONTHS ENDED (DECEMBER 24,
MARCH 31, 1996) THROUGH
------------------- MARCH 31,
1999 2000 2000
-------- -------- --------------
<S> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Revenue.................. $ 213 $ 4,809 $ 6,173
Loss from operations..... (15,591) (49,303) (125,112)
Net loss applicable to
common stockholders.... (15,481) (19,857) (95,347)
Basic and diluted net
loss per common
share.................. $ (0.29) $ (0.28) $ (1.69)
</TABLE>
<TABLE>
<CAPTION>
AVICENNA SYSTEMS CORPORATION CAREINSITE
PREDECESSOR BUSINESS ----------------------------------------
----------------------------- JUNE 30,
DECEMBER 31, DECEMBER 23, ---------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
------------- ------------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Working capital........................................ $ 998 $(1,257) $(1,592) $ 775 $114,837 $ 62,265
Total assets........................................... 1,201 1,263 3,476 10,883 179,953 289,437
Long-term obligations, net of current portion.......... -- -- -- -- -- 3,644
Redeemable securities.................................. -- -- -- -- -- 41,342
Total stockholders' equity (net capital deficiency).... (206) (3,744) 1,566 7,798 173,424 219,482
</TABLE>
11
<PAGE> 17
HEALTHEON/WEBMD SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
1999 MARCH 31, 2000
------------ ------------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS DATA:
Revenue..................................................... $ 811,168 $ 224,451
Loss from operations........................................ (3,408,900) (875,195)
Net loss applicable to common stockholders.................. (3,527,814) (856,527)
Basic and diluted net loss per common share................. $ (10.84) $ (2.47)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
2000
-----------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 874,527
Working capital............................................. 804,819
Total assets................................................ 11,121,659
Long-term obligations, net of current portion............... 200,503
Total stockholders' equity.................................. 10,537,146
</TABLE>
------------------
(1) For detailed information see "Unaudited pro forma condensed combined
financial information" on page 61.
12
<PAGE> 18
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following presents historical and unaudited pro forma per share data
for the Medical Manager and CareInsite mergers. No comparative data for OnHealth
is presented in accordance with applicable regulations of the SEC.
MEDICAL MANAGER MERGER:
The following table sets forth:
- historical net loss per share and historical net tangible book value per
share data of Healtheon/WebMD
- historical net income (loss) per share and historical net tangible book
value per share of Medical Manager
- unaudited pro forma combined net loss per share and unaudited pro forma
combined net tangible book value per share data of Healtheon/WebMD after
giving effect to the Medical Manager and CareInsite mergers.
The information in the table should be read in conjunction with the
historical financial statements of Healtheon/WebMD, Medical Manager and
CareInsite and the related notes incorporated by reference in this proxy
statement/prospectus and the unaudited pro forma condensed combined financial
information and related notes included elsewhere in this proxy
statement/prospectus. The unaudited pro forma condensed combined financial
information is not necessarily indicative of the net loss per share or book
value per share that would have been achieved had the mergers been consummated
as of the beginning of the periods presented and should not be construed as
representative of these amounts for any future dates or periods.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED OF
HISTORICAL ------------------
--------------------------------- HEALTHEON/WEBMD
HEALTHEON/WEBMD MEDICAL MANAGER MEDICAL MANAGER(4)
--------------- --------------- ------------------
<S> <C> <C> <C>
Net income (loss) per share for the year ended December 31,
1999 and June 30, 1999 for Healtheon/WebMD and Medical
Manager, respectively:
Basic..................................................... $(3.58) $ 0.54 $(10.84)
Diluted................................................... (3.58) 0.50 (10.84)
Equivalent pro forma net loss per share for the year ended
December 31, 1999......................................... (27.10)(3)
Net loss per share for the three months ended March 31,
2000:
Basic and diluted......................................... (2.47) (0.25) (2.47)
Equivalent pro forma net loss per share for the three months
ended March 31, 2000...................................... (6.18)(3)
Book value per share at March 31, 2000:..................... 9.47(1) 7.21(1) 4.85(2)
Equivalent pro forma book value per share at March 31,
2000...................................................... 12.13(3)
</TABLE>
---------------
(1) Historical net tangible book value per share is computed by dividing
stockholders' equity less goodwill and other intangible assets by the number
of shares of common stock outstanding at the end of each period.
(2) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity less goodwill and other intangible assets,
including the effect of pro forma adjustments, by the pro forma number of
shares of Healtheon/WebMD common stock which would have been outstanding had
the mergers been consummated as of March 31, 2000.
(3) The Medical Manager equivalent pro forma combined per share amounts are
calculated by multiplying the pro forma condensed combined per share amounts
by the exchange ratio of 2.5 shares of Healtheon/WebMD common stock for each
share of Medical Manager common stock.
(4) Medical Manager's consolidated financial statements include CareInsite.
For detailed information see unaudited pro forma condensed combined financial
information on page 61.
13
<PAGE> 19
CAREINSITE MERGER:
The following table sets forth:
- historical net loss per share and historical net tangible book value per
share data of Healtheon/WebMD
- historical net loss per share and historical net tangible book value per
share of CareInsite
- unaudited pro forma combined net loss per share and unaudited pro forma
combined net tangible book value per share data of Healtheon/WebMD after
giving effect to the Medical Manager and CareInsite mergers.
The information in the table should be read in conjunction with the
historical financial statements of Healtheon/WebMD, Medical Manager and
CareInsite and the related notes incorporated by reference in this proxy
statement/prospectus and the unaudited pro forma condensed combined financial
information and related notes included elsewhere in this proxy
statement/prospectus. The unaudited pro forma condensed combined financial
information is not necessarily indicative of the net loss per share or book
value per share that would have been achieved had the mergers been consummated
as of the beginning of the periods presented and should not be construed as
representative of these amounts for any future dates or periods.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED OF
HISTORICAL ------------------
---------------------------- HEALTHEON/WEBMD
HEALTHEON/WEBMD CAREINSITE MEDICAL MANAGER(4)
--------------- ---------- ------------------
<S> <C> <C> <C>
Net loss per share for the year ended December 31, 1999 and
June 30, 1999 for Healtheon/WebMD and CareInsite,
respectively:
Basic and diluted......................................... $(3.58) $(0.40) $(10.84)
Equivalent pro forma net loss per share for the year ended
December 31, 1999......................................... (14.09)(3)
Net loss per share for the three months ended March 31,
2000:
Basic and diluted......................................... (2.47) (0.34) (2.47)
Equivalent pro forma net loss per share for the three months
ended March 31, 2000...................................... (3.21)(3)
Book value per share at March 31, 2000:..................... 9.47(1) 0.49(1) 4.85(2)
Equivalent pro forma book value per share at March 31,
2000...................................................... 6.31(3)
</TABLE>
---------------
(1) Historical net tangible book value per share is computed by dividing
stockholders' equity less goodwill and other intangible assets by the number
of shares of common stock outstanding at the end of each period.
(2) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity less goodwill and other intangible assets,
including the effect of pro forma adjustments, by the pro forma number of
shares of Healtheon/WebMD common stock which would have been outstanding had
the mergers been consummated as of March 31, 2000.
(3) The CareInsite equivalent pro forma combined per share amounts are
calculated by multiplying the pro forma condensed combined per share amounts
by the exchange ratio of 1.3 shares of Healtheon/WebMD common stock for each
share of CareInsite common stock not owned directly or indirectly by Medical
Manager.
(4) Medical Manager's consolidated financial statements include CareInsite.
For detailed information see unaudited pro forma condensed combined financial
information on page 61.
14
<PAGE> 20
RISK FACTORS
Shareholders of OnHealth voting in favor of the merger will be choosing to
invest in Healtheon/WebMD common stock. An investment in Healtheon/WebMD common
stock involves a high degree of risk. In addition to the other information
contained or incorporated by reference in this proxy statement/prospectus, you
should carefully consider the following risk factors in deciding whether to vote
for the merger.
RISKS RELATING TO THE PROPOSED MERGER
THE MARKET VALUE OF THE MERGER CONSIDERATION MAY FLUCTUATE PRIOR TO AND
FOLLOWING THE MERGER AND HEALTHEON/WEBMD'S STOCK PRICE COULD BE VOLATILE
FOLLOWING THE MERGER
OnHealth shareholders are not assured of receiving consideration in the
merger with a set market value or a maximum or minimum market value. If the
merger is completed, each share of OnHealth common stock will be converted into
0.189435 shares of Healtheon/WebMD common stock. No adjustment will be made to
the number of shares of Healtheon/WebMD common stock to be received by OnHealth
shareholders in the event of any increase or decrease in the market prices per
share of Healtheon/WebMD common stock or OnHealth common stock.
The market prices of Healtheon/WebMD common stock and OnHealth common stock
when the merger takes place may vary from the market prices at the date of this
proxy statement/prospectus or the date of the shareholders' meeting.
- On February 15, 2000, the last full trading day prior to the public
announcement of the merger agreement, the closing market prices per share
of Healtheon/WebMD common stock and OnHealth common stock were $68.625
and $9.969, respectively.
- On , 2000, the last practicable date prior to the printing
of this proxy statement/prospectus, the closing market prices per share
of Healtheon/WebMD common stock and OnHealth common stock were
$ and $ , respectively.
- During the twelve-month period ending on , 2000, the last
practicable date prior to the printing of this proxy
statement/prospectus, the closing market price of Healtheon/WebMD common
stock varied from a low of $ per share to a high of $ per share,
and the closing market price of OnHealth common stock varied from a low
of $ per share to a high of $ per share.
Changes in market prices of Healtheon/WebMD or OnHealth common stock may
result from, among other things:
- quarter-to-quarter variations in operating results
- operating results being less than analysts' estimates
- changes in analysts' earnings estimates
- announcements of new technologies, products and services or pricing
policies by Healtheon/WebMD or its competitors
- announcements of acquisitions or strategic partnerships by
Healtheon/WebMD or its competitors
- developments in existing customer or strategic relationships
- actual or perceived changes in Healtheon/WebMD's business strategy
- sales of large amounts of the common stock of Healtheon/WebMD or OnHealth
- changes in market conditions in the Internet and healthcare industries
- changes in prospects for healthcare reform
- changes in general economic conditions
15
<PAGE> 21
- fluctuations in the securities markets in general.
The market value of the Healtheon/WebMD common stock may be volatile after
the merger is completed for the reasons described above.
In addition, the trading price of Internet and healthcare information
technology stocks in general, and Healtheon/WebMD in particular, has experienced
extreme price and volume fluctuations in recent months. These fluctuations often
may be unrelated or disproportionate to the operating performance of these
companies. Any negative change in the public's perception of the prospects of
these companies, as well as other broad market and industry factors, may result
in decreases in the price of Healtheon/WebMD common stock.
HEALTHEON/WEBMD WILL FACE TECHNICAL AND OPERATIONAL CHALLENGES THAT MAY PREVENT
IT FROM SUCCESSFULLY INTEGRATING ONHEALTH
The merger involves risks related to the integration and management of
acquired technology, operations and personnel. Following the merger,
Healtheon/WebMD must operate as a combined organization utilizing common
information and communication systems, operating procedures, financial controls
and human resources practices. Healtheon/WebMD may encounter difficulties, costs
and delays involved in integrating the operations of Healtheon/WebMD and
OnHealth, including as a result of:
- potential incompatibility of business cultures
- potential conflicts among or loss of sponsor, advertising or strategic
relationships
- the loss of key employees
- diversion of management's attention from other ongoing business concerns.
HEALTHEON/WEBMD'S BUSINESS MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE
MERGER
The success of the merger will depend, in part, on the ability of
Healtheon/WebMD to realize the anticipated synergies and growth opportunities
from combining the businesses of Healtheon/WebMD with the business of OnHealth.
Even if Healtheon/WebMD is able to integrate the business operations of the
companies successfully, Healtheon/WebMD cannot assure you that this integration
will result in the realization of the full benefits expected from the merger or
that these benefits will be achieved within the time frame that are currently
expected.
RISKS RELATING TO THE COMBINED COMPANY'S BUSINESS
HEALTHEON/WEBMD AND ONHEALTH HAVE INCURRED AND HEALTHEON/WEBMD MAY CONTINUE TO
INCUR SUBSTANTIAL LOSSES
Healtheon/WebMD began operations in January 1996 and has incurred net
losses from operations in each fiscal period since its inception. OnHealth was
formed in 1990 and has incurred net losses from operations in each fiscal year
since inception. As of March 31, 2000, and assuming completion by
Healtheon/WebMD of its acquisitions of Medical Manager and CareInsite as of that
date, Healtheon/WebMD and OnHealth combined had accumulated net losses of
approximately $920 million. In addition, Healtheon/WebMD currently intends to
invest heavily in infrastructure development, applications development and sales
and marketing in order to deploy its services to a growing number of potential
customers and strategic partners. Moreover, if the OnHealth merger and the
Medical Manager and CareInsite mergers occur, the purchase price of these
acquisitions will be amortized over the useful life of the tangible and
intangible assets. As of March 31, 2000, Healtheon/WebMD had approximately $3.8
billion of unamortized goodwill and other intangible assets reflected on its
financial statements as a result of previous acquisitions.
Although Healtheon/WebMD anticipates synergies and growth opportunities
resulting from the acquisitions of OnHealth, Medical Manager and CareInsite and
elimination of duplicative costs currently being incurred by the parties to the
transactions, Healtheon/WebMD cannot give you assurances that these synergies,
growth
16
<PAGE> 22
opportunities or cost savings will be achieved in the amounts or time frames
currently anticipated. Failure to realize these benefits may adversely affect
Healtheon/WebMD's ability to achieve profitability.
HEALTHEON/WEBMD'S BUSINESS MODEL IS UNPROVEN, AND HEALTHEON/WEBMD MAY NOT
ACHIEVE FAVORABLE OPERATING RESULTS
Healtheon/WebMD's business model is evolving, and Healtheon/WebMD's revenue
and profit potential is unproven. Healtheon/WebMD currently derives a
significant portion of its revenue from non-Internet network services,
management and consulting services and management and operation of some of its
customers' information technology infrastructures. Healtheon/WebMD's
profitability depends upon its ability to migrate provider and payer customers
to its Internet-based transaction services, building its online physician
subscriber base, increasing traffic to its web site and generating e-commerce
revenue from the sale of healthcare products or services over the Internet.
The provision of services over the Internet to the healthcare industry is a
developing business that is inherently riskier than businesses in industries
where companies have established operating histories. If Healtheon/WebMD's
Internet-based services do not achieve or sustain broad market acceptance among
participants in the healthcare industry, its business, results of operations and
financial condition will be significantly harmed, and Healtheon/WebMD may never
achieve favorable operating results.
HEALTHEON/WEBMD'S QUARTERLY OPERATING RESULTS MAY VARY, WHICH COULD AFFECT THE
MARKET PRICE OF HEALTHEON/WEBMD'S COMMON STOCK
Healtheon/WebMD's operating results have varied on a quarterly basis during
its limited operating history, and Healtheon/WebMD expects to experience
significant fluctuations in future quarterly operating results. These
fluctuations have been and may in the future be caused by numerous factors, many
of which are outside of Healtheon/WebMD's control, including, but not limited
to:
- market acceptance of and demand for Healtheon/WebMD's products and
services
- Healtheon/WebMD's ability to attract and retain payer and provider
customers and subscribers
- expenses relating to acquisitions and strategic partnerships
- usage of the Internet and Healtheon/WebMD's ability to maintain and
increase traffic on its web site
- Healtheon/WebMD's ability to continue to develop and extend its brand
- Healtheon/WebMD's ability to effectively integrate the operations and
technologies of acquired businesses with its operations
- introduction and timing of new products and services or enhancements by
Healtheon/WebMD or its competitors
- capacity constraints and dependencies on computer infrastructure
- economic conditions affecting the Internet or healthcare industries
- general economic conditions.
Fluctuations in Healtheon/WebMD's quarterly results could adversely affect
the market price of its common stock in a manner unrelated to its long-term
operating performance. Healtheon/WebMD will base its expense levels in part upon
its expectations concerning future revenue, and these expense levels will be
relatively fixed in the short term. If Healtheon/WebMD has lower revenue, it may
not be able to respond by reducing spending in the short term. Any shortfall in
revenue would have a direct impact on Healtheon/WebMD's results of operations.
As a result, Healtheon/WebMD believes that period-to-period comparisons of its
results of operations will not necessarily be meaningful and should not be
relied upon as an indicator of future performance. For these and other reasons,
it is likely that in some future quarter or quarters Healtheon/WebMD may not
meet the earnings estimates of securities analysts or investors, which would
materially and adversely affect its stock price.
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HEALTHEON/WEBMD'S BUSINESS WILL SUFFER IF IT FAILS TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES AND TECHNOLOGIES
Healtheon/WebMD has in the past acquired, and, in addition to the pending
mergers with OnHealth, Medical Manager and CareInsite, may in the future
acquire, businesses, technologies, services, product lines or content databases.
For example, Healtheon/WebMD completed its mergers with WebMD, MedE America and
Medcast, in November 1999 and its acquisitions of Kinetra in January 2000 and
Envoy in May 2000. Healtheon/WebMD entered into agreements in the first quarter
of 2000 to acquire Medical Manager and CareInsite. The completion of the Medical
Manager and CareInsite mergers is subject to regulatory approval and other
customary closing conditions. Healtheon/WebMD expects to complete the Medical
Manager and CareInsite mergers in the third quarter of 2000. We cannot assure
you that any of the pending mergers will be completed in a timely manner, if at
all.
Healtheon/WebMD is in the process of completing the integration and
consolidation of the operations, products and services, technologies and
personnel of WebMD, MedE America, Medcast, Kinetra and Envoy. Healtheon/WebMD
will need to integrate and consolidate the operations, products and services,
technologies and personnel of OnHealth, Medical Manager and CareInsite upon its
completion of these pending mergers. Healtheon/WebMD cannot guarantee that any
acquired businesses will be successfully integrated with its operations in a
timely manner, or at all. The successful integration of the acquired businesses
into Healtheon/WebMD's operations is critical to its future performance. Failure
to successfully integrate acquired businesses or to achieve operating synergies
could have a material adverse effect on Healtheon/WebMD's business, financial
condition and results of operation.
Integrating any newly acquired organizations and technologies in the future
could be expensive, time consuming and may strain Healtheon/WebMD's resources.
Healtheon/WebMD's pending and any future acquisitions could divert management's
attention from other business concerns and expose Healtheon/WebMD to unforeseen
liabilities or risks associated with entering new markets. In addition,
Healtheon/WebMD may lose key employees while integrating these new companies.
Healtheon/WebMD may also lose its relationships with payers, providers and
strategic partners if any acquired companies have relationships with competitors
of these payers, providers and strategic partners.
Challenges to the successful integration of acquired businesses include,
but are not limited to:
- centralization and consolidation of financial, operational and
administrative functions
- integration of platforms, networks and service centers
- ability to cross-sell products and services to payers and providers with
which Healtheon/WebMD has established relationships and those with which
acquired companies have established relationships
- integration of healthcare transaction processing services not currently
offered via the Internet with Healtheon/WebMD's Internet-based platform
- integration and retention of personnel
- potential conflicts in payer, provider, strategic partner, sponsor or
advertising relationships
- coordination of geographically diverse organizations
- compliance with regulatory requirements.
Consequently, Healtheon/WebMD may not be successful in integrating acquired
businesses or technologies and may not achieve anticipated revenue and cost
benefits. Healtheon/WebMD also cannot guarantee that these acquisitions will
result in sufficient revenues or earnings to justify its investment in, or
expenses related to, these acquisitions or that any synergies will develop.
ACQUISITIONS AND STRATEGIC RELATIONSHIPS COULD RESULT IN THE DILUTION OF
HEALTHEON/WEBMD'S STOCKHOLDERS
Healtheon/WebMD intends to pay for some of its acquisitions and strategic
relationships by issuing additional common stock, which could dilute its
stockholders. Future acquisitions could also result in the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could
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harm Healtheon/WebMD's business. Future acquisitions may require Healtheon/WebMD
to obtain additional equity or debt financing, which may not be available on
favorable terms or at all. Even if available, the financing may be dilutive.
Healtheon/WebMD cannot guarantee that these acquisitions or strategic
relationships will generate or result in sufficient revenues or earnings to
justify the dilution which could occur.
HEALTHEON/WEBMD EXPECTS TO DEVOTE SIGNIFICANT RESOURCES TO INTEGRATING
APPLICATIONS THAT ARE NOT INTERNET-ENABLED
Some of Healtheon/WebMD's applications, including Envoy's EDI transaction
processing services, were acquired by Healtheon/WebMD and are not
Internet-enabled. Healtheon/WebMD intends to integrate many of these
applications, as well as the applications that it will acquire upon completion
of the mergers with Medical Manager and CareInsite, with its Internet-based
platform and WebMD Practice product and to consolidate its transaction networks.
Integrating these applications and platforms may be expensive and may divert
Healtheon/WebMD's attention from other activities.
MANAGING HEALTHEON/WEBMD'S GROWTH MAY STRAIN ADMINISTRATIVE, TECHNICAL AND
FINANCIAL RESOURCES
Healtheon/WebMD has rapidly and significantly expanded its operations
recently and expects to continue to do so. Healtheon/WebMD's growth has been
accomplished primarily through acquisitions, including Healtheon/WebMD's mergers
with WebMD, MedE America, Medcast and Envoy. Healtheon/WebMD expects that future
growth may also be accomplished through internal expansion. This past and future
growth has placed and will continue to place a significant strain on
Healtheon/WebMD's managerial, operational, financial and other resources. If
Healtheon/WebMD is unable to respond to and manage this expected growth, then
the quality of its services and its results of operations could be materially
adversely affected.
Healtheon/WebMD's current information systems, procedures and controls may
not continue to support its operations, and may hinder its ability to exploit
the market for healthcare applications and services. Healtheon/ WebMD is in the
process of completing the integration of its accounting and management
information systems following the mergers of Healtheon Corporation, WebMD, MedE
America and Medcast in November 1999 and Healtheon/WebMD's acquisitions of
Kinetra in January 2000 and Envoy in May 2000 and will need to integrate the
systems of OnHealth and the systems of Medical Manager and CareInsite, if those
mergers are completed. Healtheon/WebMD could experience interruptions to its
internal information systems while Healtheon/WebMD transitions to new systems.
Healtheon/WebMD cannot guarantee that its systems, procedures and controls will
be adequate to support expansion of its operations.
HEALTHEON/WEBMD'S ABILITY TO GENERATE REVENUE WILL SUFFER IF IT DOES NOT QUICKLY
EXPAND ITS SUITE OF APPLICATIONS AND SERVICE OFFERINGS
Healtheon/WebMD currently offers a limited number of applications on its
Internet-based platform and some of its service offerings are not fully
developed or launched. Healtheon/WebMD must quickly introduce new applications
and services and improve the functionality of its existing services in a timely
manner in order to attract and retain subscribers and consumers and payer and
provider customers. Healtheon/WebMD expects that its advertising revenue will be
dependent on the level of usage of its services by subscribers and consumers,
and believes that levels of usage will not increase unless it improves
functionality of its service offerings and increases payer connectivity.
Healtheon/WebMD relies on a combination of internal development, strategic
relationships, licensing and acquisitions to develop these applications and
services. Each of Healtheon/WebMD's applications, regardless of how it was
developed, must be integrated and customized to operate with the existing legacy
computer systems of payer and provider customers and Healtheon/WebMD's platform.
Healtheon/WebMD is currently in the process of migrating many of its acquired
applications and products and services to its Internet-based platform.
Developing, integrating and customizing these applications and services will be
time consuming, and these applications and services may never achieve market
acceptance, which could also cause Healtheon/WebMD's business to suffer.
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HEALTHEON/WEBMD IS DEPENDENT ON STRATEGIC RELATIONSHIPS TO GENERATE SOME OF ITS
REVENUE
Healtheon/WebMD's ability to generate revenue will suffer if it cannot
establish and maintain strategic relationships
Healtheon/WebMD must establish and maintain strategic relationships with
leaders in a number of healthcare and Internet industry segments.
Healtheon/WebMD has entered into strategic relationships with leading online and
media distribution and healthcare partners. Healtheon/WebMD's strategic
relationships are critical to its success because Healtheon/WebMD believes that
these relationships will enable Healtheon/WebMD to enhance its brand, increase
the number of transactions processed over its platform, generate traffic on its
web site and capitalize on additional distribution and revenue opportunities.
Healtheon/WebMD expects that it will face intensified competition for strategic
relationships. Healtheon/WebMD may not be able to establish commercial
acceptance of its platform, applications and services unless it maintains its
existing strategic relationships and establishes and maintains additional
strategic relationships in the future.
Healtheon/WebMD shares revenue with its strategic partners and will incur
significant expense in connection with its strategic relationships, and this
expense may exceed the net revenue these relationships generate
Healtheon/WebMD intends to use a significant amount of cash to fund
branding and advertising, including promotional arrangements with its strategic
partners. At March 31, 2000, Healtheon/WebMD estimated that it will make the
following aggregate guaranteed payments under its current relationships with its
strategic partners in the calendar years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- -------------
<S> <C>
2000........................................................ $78.3 million
2001........................................................ 82.6 million
2002........................................................ 51.4 million
2003........................................................ 34.4 million
2004........................................................ 8.8 million
</TABLE>
Healtheon/WebMD has agreed to share some of its transaction processing,
advertising, carriage fee and e-commerce revenues, net of specified costs
applicable to the particular revenue category, with Microsoft and DuPont for
their sponsorship of physician subscriptions to WebMD Practice and with several
physician practice management system vendors who have agreed to promote
Healtheon/WebMD's services to their physician customers. This revenue sharing
applies only to the extent the revenues are derived from Microsoft- or DuPont-
sponsored physicians or from physicians subscribing to the particular vendor's
practice management system. The percentage of revenue shared varies from
contract to contract and based on the type of revenue generated.
Healtheon/WebMD may enter into additional promotional arrangements with
current and future strategic partners that may require it to pay consideration
in amounts that significantly exceed the amounts Healtheon/ WebMD is required to
pay under its current arrangements. These guaranteed payments and promotional
and other arrangements may require Healtheon/WebMD to share revenue or incur
significant expenses. Healtheon/WebMD cannot give you assurances that it will
generate sufficient revenue from these arrangements to offset these expenses, in
particular after Healtheon/WebMD shares some of its net revenue with its
strategic partners. Failure to do so could have a material adverse effect on
Healtheon/WebMD.
Healtheon/WebMD invests in some of its strategic partners, many of which
are in early stages of development
Healtheon/WebMD has made equity investments in some of its strategic
partners. In many instances, these investments are in the form of illiquid
securities of private companies engaged in e-Health and are made in conjunction
with the parties entering into a strategic agreement. Typically, these strategic
partners enter into agreements that obligate them to purchase advertising or
other services from Healtheon/WebMD. These companies are typically in an early
stage of development and may be expected to incur substantial losses and may not
generate sufficient revenue to pay the advertising and e-commerce fees due
Healtheon/WebMD. In addition, due to recent market volatility, some of these
companies may alter any plans to go public, and others that have
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gone public may experience significant decreases in the trading prices of their
common stock adversely affecting the value of Healtheon/WebMD's investments.
Healtheon/WebMD has granted exclusive rights to strategic partners
Healtheon/WebMD has agreed that some of its strategic partners will be its
exclusive providers of some of its applications and content. For example,
Healtheon/WebMD has entered into strategic agreements with e-commerce companies
to be its exclusive partners supplying online pharmacy services and medical
supplies and to be its exclusive providers of various categories of content and
services. These agreements may limit Healtheon/WebMD's access to other
applications and content it might otherwise be able to make available to
subscribers and consumers or to payer and provider customers. Healtheon/WebMD's
inability to offer other applications and content could cause its business to
suffer.
In addition, Healtheon/WebMD has granted exclusive rights to strategic
partners which restrict its ability to pursue some business opportunities. For
example, in connection with the acquisition of Envoy from Quintiles
Transnational Corp., Healtheon/WebMD granted to Quintiles the exclusive license
to use some of the de-identified data available to Healtheon/WebMD by virtue of
Healtheon/WebMD's transaction services and some exclusive rights in the
pharmaceutical market.
HEALTHEON/WEBMD'S ABILITY TO GENERATE REVENUE WILL SUFFER IF IT CANNOT ATTRACT
AND RETAIN SUBSCRIBERS
Healtheon/WebMD must attract and retain subscribers to WebMD Practice, its
physician portal, in order to generate subscription revenue. In addition,
Healtheon/WebMD's ability to generate advertising revenue and transaction
revenue will be dependent on the number of subscribers and level of usage by
those subscribers of Healtheon/WebMD's Internet-based services, including its
administrative transaction and clinical information services. Healtheon/WebMD
cannot guarantee that it will be able to attract new or retain existing
subscribers. In particular, Healtheon/WebMD cannot guarantee that it will retain
subscribers whose subscriptions are initially paid for by Healtheon/WebMD's
strategic partners once those subscribers are required to pay for their
subscriptions themselves or that these subscribers will actually use its
services.
IF HEALTHEON/WEBMD IS UNABLE TO GENERATE SIGNIFICANT ADVERTISING REVENUE, ITS
FUTURE RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED
Healtheon/WebMD derives a portion of its revenue from advertising
activities. Advertising revenue is generally derived from short-term advertising
contracts in which Healtheon/WebMD typically guarantees a minimum number of
impressions or pages to be delivered over a specified period of time for a fixed
fee. Advertising revenue may also include barter transactions, which are
exchanges by Healtheon/WebMD of advertising space on its web site for goods and
services from strategic partners and which might not generate any cash receipts.
The Internet advertising market is new and rapidly evolving, and no
standards have been widely accepted to measure its effectiveness as compared to
traditional media advertising. If no standards develop, existing advertisers may
not continue their current level of Internet advertising, and advertisers that
have traditionally relied on other advertising media may be reluctant to
advertise on the Internet. Moreover, filter software programs that limit or
prevent advertising from being delivered to a web user's computer are available.
Widespread adoption of this software could adversely affect the commercial
viability of Internet advertising. Healtheon/WebMD's business would be adversely
affected if the market for Internet advertising fails to develop or develops
more slowly than expected.
Various pricing models are used to sell advertising on the Internet. It is
difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project Healtheon/WebMD's future advertising
rates and revenues. The level of traffic on Healtheon/WebMD's web site is likely
to be a factor in determining advertising rates. Healtheon/WebMD cannot predict
whether those of its subscribers whose subscriptions are paid for by its
strategic partners will actually use Healtheon/WebMD's services. In addition,
there can be no assurances that Healtheon/WebMD will continue to generate
significant revenue from its advertising activities.
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<PAGE> 27
LENGTHY SALES AND IMPLEMENTATION CYCLES FOR HEALTHEON/WEBMD'S APPLICATIONS COULD
ADVERSELY AFFECT ITS ABILITY TO GENERATE REVENUE
A key element of Healtheon/WebMD's strategy is to market its solutions
directly to large healthcare organizations. Healtheon/WebMD will be unable to
control many of the factors that will influence the buying decisions of these
organizations. Healtheon/WebMD expects that the sales and implementation process
will be lengthy and will involve a significant technical evaluation and
commitment of capital and other resources by its customers. The sale and
implementation of Healtheon/WebMD's solutions are subject to delays due to its
payer and provider customers' internal budgets and procedures for approving
large capital expenditures and deploying new technologies within their networks.
Healtheon/WebMD will need to expend substantial resources to integrate its
applications with the existing legacy and client-server architectures of large
healthcare organizations. Healtheon/WebMD has limited experience in integrating
its applications with large, complex architectures, and it may experience delays
in the integration process. These delays would, in turn, delay Healtheon/WebMD's
ability to generate revenue from these applications and could adversely affect
its results of operations.
HEALTHEON/WEBMD'S BUSINESS WILL SUFFER IF HEALTHCARE INDUSTRY PARTICIPANTS DO
NOT ACCEPT INTERNET SOLUTIONS
Healtheon/WebMD's business model depends on the adoption of Internet
solutions by providers, patients, payers and other healthcare industry
participants. Healtheon/WebMD's ability to generate revenues could suffer
dramatically if Internet solutions are not accepted or not perceived to be
effective.
The adoption of Internet solutions by healthcare participants will require
the acceptance of a new way of conducting business and exchanging information.
To maximize the benefits of Healtheon/WebMD's platform, healthcare participants
must be willing to allow sensitive information to be stored in Healtheon/WebMD's
databases and to conduct healthcare transactions over the Internet. There can be
no assurance that healthcare participants will accept Internet solutions in a
timely manner or at all.
FAILURE TO CONTINUE TO EXPAND AND ADAPT HEALTHEON/WEBMD'S PLATFORM TO
ACCOMMODATE INCREASED USAGE COULD MAKE IT DIFFICULT TO SUCCESSFULLY IMPLEMENT
ITS INTERNET-BASED SERVICES
To successfully implement its Internet-based services, Healtheon/WebMD must
continue to expand and adapt its platform and transaction networks to
accommodate additional users, increased transaction volumes and changing
customer requirements. Healtheon/WebMD's infrastructure may not accommodate
increased use while maintaining acceptable overall performance. To date,
Healtheon/WebMD has processed a limited number and variety of Internet-based
transactions. In addition, Healtheon/WebMD's Internet-based products and
services have only been used by a limited number of physicians and healthcare
consumers. An unexpectedly large increase in the volume of traffic on
Healtheon/WebMD's web site, the number of physicians using WebMD Practice or
transactions processed over Healtheon/WebMD's networks may require
Healtheon/WebMD to expand and further upgrade its platform. This expansion could
be expensive and could divert Healtheon/WebMD's attention from other activities.
PERFORMANCE PROBLEMS WITH HEALTHEON/WEBMD'S SYSTEMS COULD DAMAGE ITS BUSINESS
Healtheon/WebMD's payer and provider customer satisfaction and its business
could be harmed if Healtheon/ WebMD or its customers experience system delays,
failures or loss of data. Healtheon/WebMD currently processes its payer and
provider transactions and data at its facilities and relies on a data center
operated by a third party to perform transaction processing for Envoy's EDI
business, other than real-time EDI transaction processing. This data center is
located in Tampa, Florida and is operated by GTE Data Services Incorporated,
with whom Envoy has contracted for these processing services. Healtheon/WebMD
assumed this contract upon its acquisition of Envoy. Envoy relies primarily on
this facility to process batch claims and other medical EDI transaction sets.
Envoy's contract with GTE requires GTE to maintain continuous processing
capability and a "hot site" disaster recovery system. Healtheon/WebMD has a
contingency plan for emergencies with its systems; however, it has limited
backup facilities to process information if these facilities are not
functioning. The occurrence of a major catastrophic event or other system
failure at any of Healtheon/WebMD's facilities or at the GTE facility could
interrupt data processing or result in the loss of stored data, which could have
an adverse impact on Healtheon/
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WebMD's business. While Healtheon/WebMD has general liability insurance that it
believes is adequate, including coverage for errors and omissions,
Healtheon/WebMD may not be able to maintain this insurance on reasonable terms
in the future. In addition, Healtheon/WebMD's insurance may not be sufficient to
cover large claims and its insurer could deny coverage on claims. If
Healtheon/WebMD is liable for an uninsured or underinsured claim or if
Healtheon/WebMD's premiums increase significantly, its financial condition could
be materially harmed.
PERFORMANCE PROBLEMS WITH THE SYSTEMS OF HEALTHEON/WEBMD'S SERVICE AND CONTENT
PROVIDERS COULD HARM HEALTHEON/WEBMD'S BUSINESS
Healtheon/WebMD depends on service and content providers to provide
information and data feeds on a timely basis. Healtheon/WebMD's web sites could
experience disruptions or interruptions in service due to the failure or delay
in the transmission or receipt of this information. In addition,
Healtheon/WebMD's customers who utilize its web-based services depend on
Internet service providers, online service providers and other web site
operators for access to its web sites. All of these providers have experienced
significant outages in the past and could experience outages, delays and other
difficulties in the future due to system failures unrelated to Healtheon/
WebMD's systems. Any significant interruptions in Healtheon/WebMD's services or
increases in response time could result in a loss of potential or existing users
of and advertisers and sponsors on its web site and, if sustained or repeated,
could reduce the attractiveness of Healtheon/WebMD's services.
IF HEALTHEON/WEBMD'S SYSTEMS EXPERIENCE SECURITY BREACHES OR ARE OTHERWISE
PERCEIVED TO BE INSECURE, HEALTHEON/WEBMD'S REPUTATION WILL SUFFER
A material security breach could damage Healtheon/WebMD's reputation or
result in liability. Healtheon/ WebMD retains confidential information,
including patient health information in its processing centers. Healtheon/ WebMD
may be required to expend significant capital and other resources to protect
against security breaches or to alleviate problems caused by breaches. Any
well-publicized compromise of Internet security could deter people from using
the Internet or from conducting transactions that involve transmitting
confidential information, including confidential healthcare information.
Therefore, it is critical that these facilities and infrastructure remain secure
and are perceived by the marketplace to be secure. Despite the implementation of
security measures, this infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors, attacks by third parties or similar
disruptive problems.
HEALTHEON/WEBMD'S BUSINESS IS DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF
THE INTERNET INFRASTRUCTURE
Healtheon/WebMD's ability to deliver its Internet-based services is
dependent on the development and maintenance of the infrastructure of the
Internet by third parties. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity and security, as well as timely
development of complimentary products such as high-speed modems, for providing
reliable Internet access and services. The Internet has experienced, and is
likely to continue to experience, significant growth in the number of users and
the amount of traffic. If the Internet continues to experience increased numbers
of users, increased frequency of use, or more complex requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
the performance of the Internet may be harmed by increased users or more complex
requirements.
The Internet has experienced a variety of outages and other delays as a
result of damages to portions of its infrastructure, and it could face outages
and delays in the future. These outages and delays could reduce the level of
Internet usage as well as the availability of the Internet to Healtheon/WebMD
for delivery of its Internet-based services. In addition, the Internet could
lose its viability due to delays in the development or adoption of new standards
and protocols to handle increased levels of activity or due to increased
governmental regulation. The infrastructure and complimentary products or
services necessary to make the Internet a viable commercial marketplace for the
long-term may not be developed successfully or in a timely manner.
Healtheon/WebMD's financial condition could be materially harmed if the Internet
is not available to it for the delivery of its services and products.
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HEALTHEON/WEBMD'S BUSINESS WILL BE HARMED IF IT IS UNSUCCESSFUL IN RESPONDING TO
RAPID TECHNOLOGY CHANGES IN ITS MARKETS
Healthcare information exchange and transaction processing is a relatively
new and evolving market. The pace of change in Healtheon/WebMD's markets is
rapid and there are frequent new product introductions and evolving industry
standards. Healtheon/WebMD may be unsuccessful in responding to technological
developments and changing customer needs. In addition, Healtheon/WebMD's
applications and services offerings may become obsolete due to the adoption of
new technologies or standards.
HEALTHEON/WEBMD'S PLATFORM INFRASTRUCTURE AND SCALABILITY ARE NOT PROVEN AND IT
MAY NOT BE ABLE TO ADEQUATELY ACCOMMODATE INCREASED FUNCTIONALITY OR USAGE
To date, Healtheon/WebMD has processed a limited number and variety of
transactions over its platforms. Similarly, a limited number of healthcare
participants use these platforms. Healtheon/WebMD's systems may not accommodate
increased use while maintaining acceptable overall performance. Healtheon/WebMD
must continue to expand and adapt its network infrastructure to accommodate
additional users, increased transaction volumes and changing payer and provider
customer requirements. This expansion and adaptation will be expensive and will
divert Healtheon/WebMD's attention from other activities.
HEALTHEON/WEBMD FACES SIGNIFICANT COMPETITION
Healtheon/WebMD faces significant competition for its products and
services.
Healthcare transaction and information services
The market for healthcare transaction and information services is intensely
competitive, rapidly evolving and subject to rapid technological change. Many of
Healtheon/WebMD's competitors have greater financial, technical, product
development, marketing and other resources than Healtheon/WebMD. These
organizations may be better known and have more customers than Healtheon/WebMD.
Many of Healtheon/WebMD's competitors have also announced or introduced Internet
strategies that will compete with Healtheon/WebMD's applications and services.
Healtheon/WebMD may be unable to compete successfully against these
organizations.
Healtheon/WebMD has many competitors, including:
- healthcare information software vendors
- healthcare EDI companies
- large information technology consulting service providers
- online services or web sites targeted to the healthcare industry,
physicians and healthcare consumers generally
- publishers and distributors of traditional offline media, including those
targeted to healthcare professionals, many of which have established or
may establish web sites
- general purpose consumer online services and portals and other
high-traffic web sites which provide access to healthcare-related content
and services
- public sector and non-profit web sites that provide healthcare
information without advertising or commercial sponsorships
- vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging.
Healtheon/WebMD expects that major software information systems companies
and others specializing in the healthcare industry will offer competitive
applications or services. In addition, some of Healtheon/WebMD's existing and
potential payer and provider customers and strategic partners may also compete
with Healtheon/ WebMD. For example, in April 2000, it was reported that a
consortium of six health insurance companies may join together to develop an
online project which links insurers, doctors and patients. If this consortium
decides to
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proceed with its plans to allow patients to enroll in health plans and choose
doctors online while also taking care of administrative tasks such as processing
payment claims, it could compete with Healtheon/WebMD.
In addition, some payers currently offer electronic data transmission
services to healthcare providers that establish a direct link between the
provider and the payer, bypassing third-party EDI service providers such as
Healtheon/WebMD and CareInsite. Any significant increase in the utilization of
direct links between healthcare providers and payers could have a material
adverse effect on the combined company's business and results of operations.
HEALTHCARE REGULATION COULD ADVERSELY AFFECT HEALTHEON/WEBMD'S BUSINESS
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in Healtheon/WebMD's applications and services. Healtheon/WebMD does
not know what effect any proposals would have on its business.
Regulation regarding patient confidentiality
Numerous state and federal laws govern the collection, dissemination, use,
access to and confidentiality of patient health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the federal Department of Health and Human
Services has proposed regulations implementing the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, concerning standards for electronic
transactions, security and electronic signatures and privacy of individually
identifiable health information. The proposed regulations, among other things,
would require companies to develop security standards for all health information
that is used electronically. The proposed regulations would impose significant
obligations on companies that send or receive electronic health information. The
application of these laws to the personal information Healtheon/WebMD collects
could create potential liability under these laws. Healtheon/ WebMD has designed
its services to comply with these proposed regulations. However, Healtheon/WebMD
cannot predict when these proposed regulations will be finalized and whether
they will be changed before they are finalized. Any changes could cause
Healtheon/WebMD to use additional resources to revise its platform and services.
Additional legislation governing the distribution of medical records exists
and has been proposed at both the state and federal levels. Healtheon/WebMD will
be subject to extensive regulation relating to the confidentiality and release
of patient records, and it may be expensive to implement security or other
measures to comply with new legislation and final regulations. Further,
Healtheon/WebMD may be restricted or prevented from maintaining or delivering
patient records electronically, which would have an adverse effect on
Healtheon/WebMD's business.
For additional information, see "Regulation of the Internet could adversely
affect Healtheon/WebMD's business" on page 27.
Regulation of healthcare relationships
There are federal and state laws that govern patient referrals, physician
financial relationships and inducements to beneficiaries of federal healthcare
programs. The federal anti-kickback law prohibits any person or entity from
offering, paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare, Medicaid and other
federal healthcare programs or the leasing, purchasing, ordering or arranging
for or recommending the lease, purchase or order of any item, good, facility or
service covered by these programs. The anti-kickback law is broad and may apply
to some of our activities. Penalties for violating the anti-kickback law include
imprisonment, fines and exclusion from participating, directly or indirectly, in
Medicare, Medicaid and other federal healthcare programs. Many states also have
similar anti-kickback laws that are not necessarily limited to items or services
for which payment is made by a federal healthcare program. Healtheon/WebMD
carefully
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reviews its practices with regulatory experts to ensure that Healtheon/WebMD
complies with all applicable laws. However, the laws in this area are both broad
and vague and it is often difficult or impossible to determine precisely how the
laws will be applied, particularly to new services similar to those of
Healtheon/WebMD. Any determination by a state or federal regulatory agency that
any of Healtheon/WebMD's practices violate any of these laws could subject
Healtheon/WebMD to civil or criminal penalties and require Healtheon/Web MD to
change or terminate certain portions of its business.
Healtheon/WebMD currently provides billing services and intends to provide
repricing services to providers and, therefore, may be subject to state and
federal laws that govern the submission of claims for medical expense
reimbursement. These laws generally prohibit an individual or entity from
knowingly presenting or causing to be presented a claim for payment from
Medicare, Medicaid or other third party payers that is false or fraudulent, or
is for an item or service that was not provided as claimed. These laws also
provide civil and criminal penalties for noncompliance. Healtheon/WebMD has
designed its current transaction services and will design any future services to
place the responsibility for compliance with these laws on provider customers.
However, Healtheon/ WebMD cannot guarantee that state and federal agencies will
regard billing errors processed by Healtheon/ WebMD as inadvertent and not in
violation of these laws. In addition, changes in current healthcare financing
and reimbursement systems could cause Healtheon/WebMD to make unplanned
modifications of applications or services, or result in delays or cancellations
of orders or in the revocation of endorsement of Healtheon/WebMD's applications
and services by healthcare participants.
Regulation by the U.S. Food and Drug Administration
The Food and Drug Administration has jurisdiction under the 1976 Medical
Device Amendments to the Federal Food, Drug and Cosmetic Act, which is referred
to herein as the FDA Act, to regulate computer products and software as medical
devices if they are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans. The FDA has issued a final rule
under which manufacturers of medical image storage devices and related software
are required to submit to the FDA premarket notification applications, which are
each referred to in this document as a 510(k) Application, and otherwise comply
with the requirements of the FDA Act applicable to medical devices.
Healtheon/WebMD has attempted to design its services so that its computer
applications and software are not considered to be medical devices. However, the
FDA may take the position that Healtheon/WebMD's services are subject to FDA
regulation. In addition, Healtheon/WebMD may expand its services in the future
to areas that subject it to FDA regulation. Healtheon/WebMD has no experience in
complying with FDA regulations. Healtheon/WebMD believes that complying with FDA
regulations may be time consuming, burdensome and expensive and could delay its
introduction of new applications or services.
Regulation of transaction services
State and federal statutes and regulations governing transmission of claims
may affect Healtheon/WebMD's operations. For example, Medicaid rules require
certain processing services and eligibility verification to be maintained as
separate and distinct operations. Healtheon/WebMD believes that its practices
are in compliance with applicable state and federal laws. These laws, though,
are complex and changing, and the government may take positions that are
inconsistent with Healtheon/WebMD's practices.
Professional regulation
The practice of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states prohibit business
entities from practicing medicine, which is referred to as the prohibition
against the corporate practice of medicine. Healtheon/WebMD has attempted to
structure its web site, strategic relationships and other operations to avoid
violating these state licensing and professional practice laws. A state,
however, may determine that some portion of Healtheon/WebMD's business violates
these laws and may seek to have Healtheon/WebMD discontinue those portions or
subject it to penalties or licensure requirements. Healtheon/WebMD employs and
contracts with physicians who provide only medical information to consumers, and
Healtheon/WebMD has no intent to provide medical care or advice. Healtheon/WebMD
does not maintain professional liability insurance because it believes it is not
a healthcare provider. Any determination that
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Healtheon/WebMD is a healthcare provider and acted improperly as a healthcare
provider may result in liability for which Healtheon/WebMD is not insured.
REGULATION OF THE INTERNET COULD ADVERSELY AFFECT HEALTHEON/WEBMD'S BUSINESS
Laws and regulations may be adopted with respect to the Internet or other
online services covering user privacy, patient confidentiality and other issues,
including:
- pricing
- content
- copyrights and patents
- distribution
- characteristics and quality of products and services.
Healtheon/WebMD cannot predict whether these laws will be adopted and how
they will affect its business.
Internet user privacy has become an issue both in the U.S. and abroad.
Whether and how existing privacy or consumer protection laws in various
jurisdictions apply to the Internet is uncertain and may take years to resolve.
Any legislation or regulations of this nature could affect the way
Healtheon/WebMD conducts its business, particularly in its collection or use of
personal information, and could harm its business. Further, activities on or
using the Internet have come under increased scrutiny, including increased
investigation in the healthcare arena by the FTC and heightened media attention.
Similar to many other Internet healthcare companies, Healtheon/WebMD has
recently received a request for information from the FTC concerning its web site
privacy policies and practices. While Healtheon/WebMD believes it is in
compliance with all applicable laws, all third party contractual commitments and
its published privacy commitments, government inquiries like this inquiry can
divert management's attention from other matters and create unfavorable
publicity.
THIRD PARTIES MAY BRING CLAIMS AGAINST HEALTHEON/WEBMD AS A RESULT OF CONTENT
PROVIDED ON ITS WEB SITE, WHICH MAY BE EXPENSIVE AND TIME CONSUMING TO DEFEND
Healtheon/WebMD could be subject to third party claims based on the nature
and content of information supplied on its web site by Healtheon/WebMD or third
parties, including content providers, medical advisors or users. Healtheon/WebMD
could also be subject to liability for content that may be accessible through
its web sites or third party web sites linked from its web sites or through
content and information that may be posted by users in chat rooms or bulletin
boards. Even if these claims do not result in liability to Healtheon/WebMD,
investigating and defending against these claims could be expensive and time
consuming and could divert management's attention away from operating the
business.
HEALTHEON/WEBMD'S INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT CLAIMS OR
MAY BE INFRINGED UPON
Healtheon/WebMD's intellectual property is important to its business.
Healtheon/WebMD could be subject to intellectual property infringement claims as
the number of its competitors grows and the functionality of its applications
overlaps with competitive offerings. These claims, even if not meritorious,
could be expensive and divert management's attention from Healtheon/WebMD's
operations. If Healtheon/WebMD becomes liable to third parties for infringing
their intellectual property rights, it could be required to pay a substantial
damage award and to develop noninfringing technology, obtain a license or cease
selling the applications that contain the infringing intellectual property.
Healtheon/WebMD may be unable to develop noninfringing technology or obtain a
license on commercially reasonable terms, or at all. In addition,
Healtheon/WebMD may not be able to protect against misappropriation of its
intellectual property. Third parties may infringe upon Healtheon/WebMD's
intellectual property rights. If Healtheon/WebMD does not detect any
unauthorized use, it may be unable to enforce its rights.
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HEALTHEON/WEBMD'S BUSINESS WILL BE ADVERSELY AFFECTED IF IT CANNOT ATTRACT AND
RETAIN KEY PERSONNEL
Healtheon/WebMD's future operating results will substantially depend on the
ability of its officers and key employees to manage changing business conditions
and to implement and improve its technical, administrative, financial control
and reporting systems. Healtheon/WebMD needs to attract, integrate, motivate and
retain additional highly skilled technical people. In particular,
Healtheon/WebMD needs to attract experienced professionals capable of
developing, selling and installing complex healthcare information systems.
Healtheon/WebMD faces intense competition for these people. Healtheon/WebMD's
executive management team, including W. Michael Long, Healtheon/WebMD's Chairman
and Jeffrey T. Arnold, its Chief Executive Officer will be important to
Healtheon/WebMD's success.
HEALTHEON/WEBMD'S BUSINESS COULD BE ADVERSELY AFFECTED AS A RESULT OF ITS
INTERNATIONAL EXPANSION
One element of Healtheon/WebMD's strategic alliance with News Corporation
is the formation of WebMD International as a joint venture with News Corporation
to launch Healtheon/WebMD's services worldwide, other than in the U.S. and
Japan. In addition, Healtheon/WebMD has entered into an agreement with one of
its strategic partners to form an international joint venture in Japan.
Healtheon/WebMD has extremely limited experience in developing localized
versions of its products and services. WebMD International and any future
international ventures may not be successful in launching Healtheon/WebMD's
services into foreign markets.
HEALTHEON/WEBMD'S AND ONHEALTH'S WEB SITES RELY ON SOME CONTENT THAT THEY DO NOT
CREATE AND WHICH MAY NOT BE AVAILABLE IN THE FUTURE
While each of Healtheon/WebMD and OnHealth produce much of the editorial
content found on their respective web sites, some of the content is licensed
from third parties. Accordingly, in the consumer health information segment of
their business, the parties rely to a significant degree on the expertise,
technical capability, name recognition and willingness to syndicate content for
branding and distribution of others. As health-related content grows on the
Internet, there will be increasing competition for the best health information
suppliers. This competition may result in some content becoming unavailable or
in significantly higher content prices. Such an outcome could make their
combined web site less attractive or useful for a user and could have a material
adverse effect on its business and financial performance.
RISKS ASSOCIATED WITH HEALTHEON/WEBMD'S ACQUISITIONS OF MEDICAL MANAGER AND
CAREINSITE
If the Medical Manager and CareInsite mergers are completed,
Healtheon/WebMD may be subject to the following risks to which it would not
otherwise be subject.
HEALTHEON/WEBMD'S BUSINESS AND STOCK PRICE MAY SUFFER IF IT FAILS TO COMPLETE
PENDING MERGERS
In addition to the OnHealth merger agreement, Healtheon/WebMD entered into
agreements in the first quarter of 2000 to acquire Medical Manager and
CareInsite. The completion of the Medical Manager and CareInsite mergers are
subject to regulatory approval and other customary closing conditions.
Healtheon/WebMD expects to complete these mergers in the third quarter of 2000.
We cannot assure you that these pending mergers will occur in a timely manner or
at all or, that if the mergers do occur, what effect that they will have on
Healtheon/WebMD's business, operations or stock price. If these mergers occur,
Healtheon/WebMD's business will include the current businesses of Medical
Manager and CareInsite. For a discussion of the Medical Manager and CareInsite
mergers, see "Healtheon/WebMD's business -- Recent developments" on page 88. You
are encouraged to read the documents filed by Healtheon/WebMD with the SEC that
are incorporated by reference into this proxy statement/prospectus, including
the Medical Manager and CareInsite merger agreements, as amended, filed in our
current reports on Form 8-K/A on February 24, 2000 and on Form 8-K/A on July 24,
2000 and the historical financial statements of Medical Manager and CareInsite
filed in our current report on Form 8-K on July 27, 2000. For more information
on locating these documents, see "Where You Can Find More Information" on page
93. The merger between OnHealth and Healtheon/WebMD is not dependent upon
completion of the Medical Manager and CareInsite mergers.
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RELATIONSHIPS WITH CUSTOMERS AND STRATEGIC PARTNERS MAY CONFLICT
Each of Healtheon/WebMD, Medical Manager and CareInsite has developed and
relies upon important relationships with payers, providers, practice management
system vendors and strategic partners, some of which may involve conflicting
contractual rights, including conflicts which may result from the acquisitions
of Medical Manager and CareInsite. For example, in January and February 2000,
Healtheon/WebMD entered into strategic alliances with three practice management
system vendors that compete with Medical Manager. As a result of the Medical
Manager and CareInsite mergers, the combined company may lose relationships with
some customers and strategic partners, who may then establish relationships with
Healtheon/WebMD's competitors. In addition, Healtheon/WebMD may not be able to
maintain or establish relationships with key participants in the healthcare and
Internet industries if Healtheon/WebMD, Medical Manager or CareInsite has
already established relationships with competitors of these key participants.
For example, Healtheon/WebMD has entered into a five-year strategic
alliance with Microsoft pursuant to which Healtheon/WebMD develops, hosts,
maintains on its servers and provides content for the health channels on MSN,
MSNBC and WebTV. Similarly, CareInsite has entered into a strategic alliance
with AOL, pursuant to which CareInsite is AOL's exclusive provider of a
comprehensive suite of services that connect AOL and CompuServe members and
visitors to AOL's web-based brands Netscape, AOL.COM and Digital City, to
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. As a result of the completion of the Medical Manager merger and the
CareInsite merger, Microsoft will be able to terminate its strategic alliance
with Healtheon/WebMD for a limited period of time if Microsoft and
Healtheon/WebMD are unable to resolve conflicts that may arise as a result of
the mergers. Healtheon/WebMD and Microsoft have agreed that for a 60-day period
following the completion of these mergers, they will work together to identify
and resolve any conflicts that result from the mergers. If these potential
conflicts cannot be resolved, however, Microsoft could terminate the strategic
alliance. Similarly, as a result of the mergers, AOL will be able to terminate
its strategic alliance with CareInsite, as a result of which guaranteed payments
of approximately $20 - 30 million due to AOL will accelerate. Healtheon/WebMD
cannot assure you that the conflicts arising under either of these strategic
alliances as a result of the mergers with Medical Manager and CareInsite will be
resolved. If either or both strategic alliances are terminated, and
Healtheon/WebMD is unable to replace the terminated alliance with a comparable
one, Healtheon/WebMD could experience a material decrease in revenue.
If contractual or relationship conflicts cannot be resolved, the combined
company could lose the benefits of some of its relationships with payers,
providers or strategic partners. Losses of any significant relationships could
harm the combined company's business or results of operations.
THE COMBINED COMPANY WILL FACE INCREASED COMPETITION
Practice management information systems business
The market for practice management systems such as The Medical Manager
practice management system is highly competitive. Medical Manager Health
Systems' competitors vary in size and in the scope and breadth of the products
and services that they offer. Medical Manager Health Systems competes with
different companies in each of its target markets. Many of Medical Manager
Health Systems' competitors have greater financial, development, technical,
marketing and sales resources than Medical Manager Health Systems. In addition,
other entities not currently offering products and services similar to those
offered by Medical Manager Health Systems, including claims processing
organizations, hospitals, third-party administrators, insurers, healthcare
organizations and others, may enter markets in which Medical Manager Health
Systems competes. We cannot assure you that future competition will not have a
material adverse effect on Medical Manager Health Systems', and thus
Healtheon/WebMD's, results of operations, financial condition or business.
Plastics and filtration technologies business
Competition in Porex's plastic products business is characterized by the
introduction of competitive products at lower prices. We believe that Porex's
principal competitive strengths are its manufacturing processes, quality
control, relationships with its customers and distribution of its proprietary
health care products.
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In the porous plastics area, Porex's competitors include other producers of
porous plastic materials as well as companies that manufacture and sell products
made from materials other than porous plastics which can be used for the same
purposes as Porex's products. In this field, Porex has several direct
competitors in the U.S., Europe and Asia. Porex's porous plastic pen nibs
compete with felt and fiber tips manufactured by a variety of suppliers
worldwide. Other Porex industrial products made of porous plastic compete,
depending on the industrial application, with porous metals, metal screens,
fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other
substances and devices.
The market for Porex's injection molded solid plastic components and
products, including its medical products, is highly competitive and highly
fragmented. Porex's pipette tips and racks also compete with similar products
manufactured by domestic and foreign manufacturers. Porex's injection molding
and mold making services compete with services offered by several foreign and
domestic companies. The MEDPOR(R) Biomaterial products compete for surgical use
against autogenous and allograph materials and alloplastic biomaterials. Porex's
surgical drains and markers compete against a variety of products from several
manufacturers.
THE COMBINED COMPANY WILL BE SUBJECT TO ADDITIONAL GOVERNMENT REGULATION
Regulation by the U.S. Food and Drug Administration
In addition to the risks associated with FDA compliance discussed in "Risks
Relating to the Combined Business -- Healthcare regulation could adversely
affect Healtheon/WebMD's business" on page 25, Healtheon/WebMD may expand its
services in the future to areas that subject it to further FDA regulation. For
example, Medical Manager Health Systems is distributing in the U.S. a medical
image management device, which is referred to in this document as the "image
module," which was cleared by the FDA on April 4, 1997 and is manufactured by a
third party in accordance with specifications set forth in the cleared 510(k)
Application. Medical Manager Health Systems has created an interface between The
Medical Manager practice management system and the image module and is marketing
the interface and the image module as the Document Image Module System. Medical
Manager Health Systems believes that the addition of its practice management
system to the image module does not change the image module's intended use or
significantly change the safety or efficacy of the product to the extent that a
new 510(k) Application is required. The FDA is currently reviewing its policy
for the regulation of computer software, and there is a risk that The Medical
Manager software could in the future become subject to some or all of the above
requirements. Healtheon/WebMD has no experience in complying with FDA
regulations. Healtheon/WebMD believes that complying with FDA regulations may be
time-consuming, burdensome and expensive and could delay its introduction of new
applications or services.
Plastics and filtration technologies business
Porex manufactures and distributes medical/surgical devices, such as
plastic and reconstructive surgical implants and tissue expanders, which are
subject to government regulations, under the FDA Act and additional regulations
promulgated by the FDA. Future healthcare products may also be subject to these
regulations and approval processes. Compliance with these regulations and the
process of obtaining approvals can be costly, complicated and time-consuming,
and there can be no assurance that these approvals will be granted on a timely
basis, if ever.
MEDICAL MANAGER'S PRACTICE MANAGEMENT SYSTEMS BUSINESS IS DEPENDENT ON MEDICAL
MANAGER HEALTH SYSTEMS' PRINCIPAL PRODUCTS AND MEDICAL MANAGER IS EXPOSED TO
RISKS RELATED TO PROBLEMS WITH ANY OF THESE PRODUCTS
Medical Manager Health Systems currently derives a significant percentage
of its revenue from sales of The Medical Manager core physician practice
management system. As a result, any event adversely affecting its core product
could have a material adverse effect on Medical Manager's results of operations,
financial condition or business. Although Medical Manager Health Systems has
experienced increasing annual sales, on a pro forma basis, revenue associated
with existing products could decline as a result of several factors, including
price competition. Beginning in calendar year 2000, the physician practice
management system industry began to experience a slowdown in demand. This trend
has impacted Medical Manager Health Systems' operating results for the three
months ended March 31, 2000, and Medical Manager expects the trend to continue
for the near term.
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Medical Manager Health Systems intends to introduce new software products at the
end of calendar year 2000, and Medical Manager anticipates that demand for
software products will increase. Healtheon/WebMD cannot assure you that Medical
Manager Health Systems will continue to be successful in marketing its current
products or any new or enhanced products.
THE NATURE OF POREX'S PRODUCTS EXPOSE IT TO PRODUCT LIABILITY CLAIMS AND MAY
MAKE IT DIFFICULT TO GET ADEQUATE INSURANCE COVERAGE
The products sold by Porex expose it to potential risk for product
liability claims, particularly with respect to Porex's life sciences, clinical,
surgical and medical products. Medical Manager believes that Porex carries
adequate insurance coverage against product liability claims and other risks.
Healtheon/WebMD cannot assure you, however, that claims in excess of Porex's
insurance coverage will not arise. In addition, Porex's insurance policies must
be renewed annually. Although Porex has been able to obtain adequate insurance
coverage at an acceptable cost in the past and believes that it is adequately
indemnified for products manufactured by others and distributed by it,
Healtheon/WebMD cannot assure you that in the future Porex will be able to
obtain this insurance at an acceptable cost or be adequately protected by this
indemnification.
THE MARKET FOR CAREINSITE'S SERVICES IS UNPROVEN
CareInsite is a development stage company. CareInsite is developing and
intends to deploy an Internet-based network for interactive use by physicians,
payers, suppliers and patients. CareInsite only recently began to generate
revenue. CareInsite's business model contemplates generating a significant
portion of its revenue from payers and suppliers who are expected to pay initial
set-up and ongoing maintenance fees associated with organizing, loading and
maintaining their content and transaction fees associated with the processing of
healthcare transactions. CareInsite also expects to generate revenue from
physicians who are expected to pay a monthly fee for access to a range of
services. However, the market for CareInsite's services is unproven. These
factors make it difficult to evaluate CareInsite's business and prospects.
CareInsite has incurred substantial operating losses since its inception and
there can be no assurance that CareInsite's business will generate significant
revenues or profitability in the future.
Achieving market acceptance for CareInsite's services will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by participants in the healthcare industry. There can be no
assurances that CareInsite will be able to succeed in positioning its services
as a preferred method for healthcare e-commerce or that any pricing strategy
that CareInsite develops will be economically viable or acceptable to the
market.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements within the meaning of section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are not based
on historical facts, but rather reflect management's current expectations
concerning future results and events. These forward-looking statements generally
can be identified by use of statements that include phrases such as "believe,"
"expect," "anticipate," "intend," "plan," "foresee," "likely," "will" or other
similar words or phrases. Similarly, statements that describe our objectives,
plans or goals are or may be forward-looking statements. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of
Healtheon/WebMD, OnHealth, Medical Manager or CareInsite to be different from
any future results, performance and achievements expressed or implied by these
statements. You should review carefully all information, including the financial
statements and the notes to the financial statements, included or incorporated
by reference into this proxy statement/prospectus.
In addition to the risk factors described in the preceding section, the
following important risks and uncertainties could affect future results, causing
these results to differ materially from those expressed in the forward-looking
statements:
- the OnHealth, Medical Manager and CareInsite mergers not being completed
- expected benefits from the mergers, not being fully realized or not being
realized within the expected time frames
- the failure to achieve market acceptance of the combined company's
services
- the inability to quickly and successfully deploy the combined company's
applications
- general economic or business conditions affecting the Internet and
healthcare communications industries being less favorable than expected
- regulatory authorities making adverse determinations regarding the
Medical Manager and CareInsite mergers.
These factors and the risk factors described in the preceding section are
not necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could have material adverse effects
on the future results. The forward-looking statements included in the proxy
statement/prospectus are made only as of the date of this proxy
statements/prospectus and under section 27A of the Securities Act and section
21E of the Exchange Act. We do not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances. We
cannot assure you that projected results will be achieved.
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THE ONHEALTH SPECIAL MEETING
, 2000
A.M. LOCAL TIME
DATE, TIME, PLACE AND PURPOSE OF ONHEALTH'S SPECIAL MEETING
The special meeting of OnHealth's shareholders will be held at a.m.
local time on , 2000 at , Seattle, Washington.
The purpose of the OnHealth meeting is to consider and vote on a proposal to
approve and adopt the merger agreement and the merger. Pursuant to the merger
agreement, Tech Acquisition, a wholly-owned subsidiary of Healtheon/WebMD, will
be merged with and into OnHealth and 0.189435 shares of Healtheon/WebMD common
stock will be exchanged for each share of outstanding OnHealth common stock.
RECOMMENDATION OF THE ONHEALTH BOARD OF DIRECTORS
OnHealth's board of directors has unanimously approved and recommends a
vote FOR the merger agreement and merger.
RECORD DATE; OUTSTANDING SHARES; SHARES ENTITLED TO VOTE
Only holders of record of OnHealth common stock at the close of business on
the record date, , 2000, are entitled to notice of and to vote at
the special meeting. As of the record date, there were shares of
OnHealth common stock outstanding, held of record by approximately
shareholders. Each holder of OnHealth common stock is entitled to one vote for
each share of OnHealth common stock he or she owned as of the record date. If
you do not vote, either in person or by proxy, it will have the same effect as
voting against the merger agreement.
QUORUM AND VOTE REQUIRED
The required quorum for the transaction of business at the special meeting
is a majority of the shares of OnHealth common stock outstanding on the record
date, represented in person or by proxy.
The affirmative vote of the holders of at least a majority of the
outstanding shares of OnHealth common stock is required to approve the merger
agreement.
As of the record date of the special meeting, shareholders of OnHealth
holding in excess of % of the outstanding shares of common stock have
executed voting agreements whereby they have agreed to vote in favor of the
merger and these shareholders have executed a proxy in favor of Healtheon/WebMD
to this effect.
VOTING OF PROXIES
The OnHealth board of directors requests that you return the proxy card
accompanying this proxy statement/prospectus for use at the special meeting.
Please complete, date and sign the accompanying proxy and promptly return it in
the enclosed envelope or otherwise mail it to OnHealth. All properly signed
proxies that are received prior to the vote at the meeting and that are not
revoked will be voted at the meeting according to the instructions indicated on
the proxies or, if no direction is indicated, to approve the proposals relating
to the merger. OnHealth shareholders may revoke their proxy at any time before
it is exercised at the meeting by taking any of the following actions:
- delivering to the secretary of OnHealth, by any means, including
facsimile, a written notice, bearing a date later than the date of
proxy, stating that the proxy is revoked
- signing and so delivering a proxy relating to the same shares and
bearing a later date prior to the vote at the meeting, or
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<PAGE> 39
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the meeting, you must bring to the
meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
We do not expect that any matter other than approval of the merger
agreement and merger will be brought before the special meeting. If other
matters are properly presented and are within the purpose of the special
meeting, however, the persons named as proxies will vote in accordance with
their judgment with respect to those matters.
If you need assistance in completing your proxy card, please contact
OnHealth Investor Relations at (206) 652-0308 or write to the following address:
OnHealth Network Company
808 Howell Street, Suite 400
Seattle, Washington 98101
Attn: Investor Relations
SHARE OWNERSHIP OF MANAGEMENT
As of , the record date, OnHealth's directors and executive
officers as a group owned shares of OnHealth common stock, or
approximately % of OnHealth's outstanding shares on that date. All of
OnHealth's executive officers and directors have executed the voting agreement
referenced above with Healtheon/WebMD, under which they have agreed to vote
their shares in favor of the merger.
ABSTENTIONS AND BROKER NON-VOTES
Only shares affirmatively voted for approval of the merger agreement and
merger, including shares represented by properly executed proxies that do not
contain voting instructions, will be counted as votes FOR the merger agreement
and merger.
Brokers who hold shares of OnHealth common stock in street name for a
beneficial owner of those shares may not give a proxy to vote those shares
without specific instructions from the beneficial owner. These non-voted shares
are referred to as broker non-votes. If your broker holds your OnHealth stock in
street name, your broker will vote your shares only if you provide instructions
on how to vote by filling out the voter instruction form sent to you by your
broker with this proxy statement/prospectus.
Abstentions and broker non-votes will be included in determining the
presence of a quorum, but will have the same effect as voting against the merger
agreement.
EXPENSES OF PROXY SOLICITATION
The enclosed proxy is solicited by and on behalf of OnHealth's board of
directors. OnHealth will pay the expenses of soliciting proxies to be voted at
the meeting. Following the original mailing of the proxies and other soliciting
materials, OnHealth and its agents also may solicit proxies by mail, telephone,
facsimile or in person.
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<PAGE> 40
DISSENTERS' RIGHTS
Under Washington law, you have the right to dissent from the merger and to
receive payment in cash for the fair value of your shares of OnHealth common
stock. To preserve your rights if you wish to exercise your statutory
dissenters' rights, you must:
- deliver to OnHealth before the special meeting written notice of your
intent to demand payment for your shares of OnHealth common stock if the
merger is completed
- not vote your shares in favor of the merger agreement
- follow the statutory procedures for perfecting dissenters' rights under
Washington law, which are described in the section entitled "Rights of
dissenting OnHealth shareholders" on page 49.
Merely voting against the merger agreement will not preserve your
dissenters' rights. Chapter 23B.13 of the Washington law is reprinted in its
entirety and attached to this proxy statement/prospectus as Annex C. Failure to
precisely comply with all procedures required by Washington law will result in
the loss of your dissenters' rights.
YOU SHOULD NOT SEND IN ANY CERTIFICATES REPRESENTING ONHEALTH COMMON STOCK.
FOLLOWING THE EFFECTIVE TIME OF THE MERGER, YOU WILL RECEIVE INSTRUCTIONS FOR
THE SURRENDER AND EXCHANGE OF YOUR ONHEALTH STOCK CERTIFICATES.
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<PAGE> 41
THE MERGER
This section of the proxy statement/prospectus describes the proposed
merger. While we believe that the description covers the material terms of the
merger and the related transactions, this summary may not contain all of the
information that is important to you. You should carefully read this entire
document and the other documents we refer to for a more complete understanding
of the merger.
BACKGROUND OF THE MERGER
In early November 1998, Mr. Robert N. Goodman, then OnHealth's president
and chief executive officer, contacted Mr. Jeffrey T. Arnold, WebMD's chief
executive officer, to determine whether WebMD would be interested in discussing
a possible business combination between WebMD and OnHealth. On November 16,
1998, Mr. Arnold and other members of WebMD's senior management met with Mr.
Goodman and other members of OnHealth's senior management, at an industry
conference in Las Vegas, Nevada and discussed in general terms the possibility
of a business combination between the two companies. On November 19, 1998, WebMD
and OnHealth executed a confidentiality agreement prior to further discussions
between the parties. In late November, a representative of WebMD visited
OnHealth's corporate headquarters in Seattle, Washington, and in early December,
1998 members of senior management from WebMD and OnHealth met in Atlanta,
Georgia to discuss potential synergies of a business combination. In mid
December 1998, discussions of the potential acquisition were terminated due to
WebMD's decision to acquire two other companies and its pending initial public
offering.
Between December 1998 and January 2000, senior management from WebMD and
OnHealth met occasionally at conferences and engaged in informal discussions.
On November 11, 1999, WebMD merged with Healtheon, MedE America and
Medcast. Healtheon was the surviving corporation and changed its name to
Healtheon/WebMD Corporation. In late January 2000, Mr. Goodman contacted Mr. K.
Robert Draughon, Executive Vice President, Business Development, to determine if
Healtheon/WebMD would be interested in resuming their discussions of a possible
business combination. On February 3, 2000, in a telephone conversation with Mr.
Draughon, Mr. Goodman raised the possibility of Healtheon/WebMD acquiring
OnHealth, and the two discussed the potential synergies that could arise from
the acquisition.
On February 4, 2000, Mr. Draughon notified Mr. Goodman that Healtheon/WebMD
was interested in entering into discussions regarding the potential acquisition
of OnHealth by Healtheon/WebMD. The parties agreed to meet at Healtheon/WebMD's
offices in Atlanta, Georgia.
On February 7, 2000 senior management from Healtheon/WebMD and OnHealth met
in Atlanta, Georgia to discuss the potential acquisition. Members of
Healtheon/WebMD's management team met with their counterparts from OnHealth and
discussed potential significant synergies, benefits and cost savings from a
combination between the two companies. Following the meetings, representatives
of Healtheon/WebMD and OnHealth agreed to continue discussions and set a target
date for the following week to announce the proposed acquisition.
On February 8, 2000 and February 9, 2000 Mr. Goodman met with Mr. Arnold,
Mr. W. Michael Long, Healtheon/WebMD's chairman, and Mr. Draughon in New York,
New York and continued discussions of a possible acquisition. At that time, the
parties agreed to begin due diligence procedures at OnHealth's offices in
Seattle, Washington.
On February 9, 2000, Healtheon/WebMD and OnHealth executed a
confidentiality agreement prior to further discussions between the parties.
On February 11, 2000, senior management of Healtheon/WebMD and OnHealth met
in Seattle, Washington together with their legal and financial advisors to
conduct due diligence investigations of one another and begin the process of
negotiating the terms of the transaction. At a meeting on February 13, 2000,
Healtheon/WebMD's board heard a presentation by the company's senior management
concerning the results of the due diligence performed by Healtheon/WebMD on
OnHealth and the status of the negotiations of the terms of the transaction.
After this presentation, the Healtheon/WebMD board of directors appointed a
special committee of directors consisting of Mr. Long, Mr. Arnold and outside
director, U. Bertram Ellis, Jr., and authorized this committee to
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<PAGE> 42
oversee the completion of the negotiations between the senior management of
Healtheon/WebMD and OnHealth, and, upon the conclusion of the negotiations to
the special committee's satisfaction, to approve on behalf of the board of
directors of Healtheon/WebMD the acquisition of OnHealth through a merger of
newly formed wholly owned subsidiary of Healtheon/WebMD into and with OnHealth.
On February 14, 2000, Healtheon/WebMD announced that it had entered into a
merger agreement with each of Medical Manager and CareInsite.
Negotiations regarding the terms of the business combination with OnHealth
continued through February 15, 2000, between Healtheon/WebMD's senior management
and OnHealth's senior management. During this time, the OnHealth board of
directors and OnHealth's legal advisors began the review of drafts of the merger
agreement, and the parties continued their due diligence reviews. Senior
management of OnHealth made presentations concerning the proposed transaction to
the members of OnHealth's board of directors and representatives of its
financial and legal advisors.
On February 15, 2000, Healtheon/WebMD proposed an exchange ratio of 0.1894
shares of Healtheon/WebMD common stock for each share of OnHealth common stock
and indicated its willingness to provide up to $30 million in interim financing
between the signing of the definitive merger agreement and closing. Later that
evening, during further discussions, Healtheon/WebMD agreed that the exchange
ratio be set at 0.189435.
During the evening of February 15, 2000, OnHealth's board of directors held
a special meeting to discuss the proposed business combination with
Healtheon/WebMD. At this meeting, OnHealth's senior management and financial and
legal advisors presented to the board the results of their findings and the
terms of the proposed merger agreement, voting agreements, warrants, loan
commitment and other transaction agreements. Also, at this meeting,
representatives of Robertson Stephens presented analyses of the financial terms
of the proposed OnHealth merger and gave its opinion that the exchange ratio of
0.189435 shares of Healtheon/WebMD common stock for each outstanding share of
common stock of OnHealth was fair from a financial point of view to the holders
of common stock. In addition, the OnHealth board of directors reviewed a draft
of the OnHealth merger agreement, the voting agreements, the warrants, the loan
commitment from Healtheon/WebMD and other transaction agreements, and a
representative of Preston Gates & Ellis LLP answered questions from the board of
directors regarding the documents. Following these presentations and other
discussions, the OnHealth's board by unanimous vote:
- approved the terms of the merger
- approved the merger agreement, related voting agreements, warrant and
loan commitment and other transaction agreements substantially in the
forms presented
- authorized its officers to complete the final negotiations and to execute
and deliver the approved agreements to which OnHealth was to be a party
- authorized its president to call a meeting of OnHealth's shareholders as
soon as reasonably possible after the effectiveness of the registration
statement to vote on the merger and merger agreement
- resolved to recommend to the OnHealth shareholders that they approve the
merger and merger agreement.
On the evening of February 15, 2000, following the meeting of the board of
directors of OnHealth, the special committee of Healtheon/WebMD's board met to
consider the acquisition of OnHealth. At the meeting, members of
Healtheon/WebMD's senior management and its financial advisor, Gleacher & Co.,
LLC, discussed the results of the business, financial and legal due diligence
performed by Healtheon/WebMD and its advisors on OnHealth, the negotiations with
OnHealth and terms of the proposed OnHealth merger agreement, the voting
agreements, warrants, loan commitment and the other related transaction
agreements. The special committee of Healtheon/WebMD's board reviewed drafts of
the merger agreement and related transaction documents and posed questions to
representatives of management and Gleacher & Co. regarding terms of the
transaction. Following this review and discussion, the special committee of
Healtheon/WebMD's board approved the terms of the merger agreement and merger
and other transaction documents substantially in the forms presented, authorized
senior management to negotiate the remaining issues and to enter into the merger
agreement and related documents and
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<PAGE> 43
approved the issuance of shares of Healtheon/WebMD common stock to shareholders
of OnHealth in the merger, voting agreements, warrants, loan commitment and
related transactions.
JOINT REASONS FOR THE MERGER
Healtheon/WebMD and OnHealth believe that the merger will enhance
Healtheon/WebMD's consumer portal, WebMD Health, by combining the two companies'
complementary online healthcare content and services for consumers.
Healtheon/WebMD also expects to become the most trafficked health web site for
consumers on the Internet following the merger.
We believe that the benefits of combining Healtheon/WebMD and OnHealth
include the following, the order of which does not necessarily reflect their
relative significance:
- ACCELERATED CONSUMER AND PHYSICIAN ADOPTION OF INTERNET-BASED
SERVICES. With increasing numbers of consumers relying on the Internet
for healthcare information and services, Healtheon/WebMD believes that
the combined company will be well positioned to attract more consumers
and physicians to its Internet web-based services by leveraging
OnHealth's consumer base to facilitate connectivity among physicians and
their patients.
- ENRICHED CONSUMER EXPERIENCE. As a combined company, Healtheon/WebMD
believes that it will offer consumers a single resource for all of their
healthcare information and services needs through WebMD Health.
- INCREASED TRAFFIC AND ADVERTISING AND SPONSORSHIP REVENUE ON CONSUMER
HEALTHCARE PORTAL. Healtheon/WebMD intends to leverage OnHealth's
consumer base, female demographic reach, broad range of health and
wellness content and existing advertisers and sponsors to drive traffic
to WebMD Health and increase advertising and sponsorship revenue.
ONHEALTH'S REASONS FOR THE MERGER
In reaching its decision to approve and adopt the merger agreement and the
merger and to unanimously recommend that OnHealth shareholders approve the
merger agreement and the merger, the OnHealth board identified reasons why the
merger should be beneficial to OnHealth and its shareholders. These potential
benefits include the following:
- the opportunity for OnHealth shareholders to receive a premium over the
market price for shares of OnHealth common stock existing before the
public announcement of the merger. Based on the closing price for
Healtheon/WebMD common stock on February 15, 2000, the last full trading
day prior to the public announcement of the merger agreement between
OnHealth and Healtheon/WebMD, the exchange ratio in the merger
represented a 30% premium over the closing price for OnHealth common
stock on February 15, 2000, as well as 40.2%, 53.8% and 41.5% premiums
over the average closing price of OnHealth common stock for the 10, 30
and 60 trading days, respectively, ending on February 15, 2000
- the ability of OnHealth shareholders to continue to participate in the
growth of the business conducted by Healtheon/WebMD and OnHealth
following the merger
- the larger public float and trading volumes of shares of Healtheon/WebMD
common stock compared to the public float and trading volumes of shares
of OnHealth common stock, which would provide OnHealth shareholders, to
the extent that they receive Healtheon/WebMD common stock, with the
opportunity to gain greater liquidity in their investment.
In the course of deliberations, the OnHealth board also reviewed with its
executive management team and its legal and financial advisors a number of
additional factors relevant to the merger, including:
- the terms and conditions of the merger agreement and the interim loan
from Healtheon/WebMD, including termination fees and closing conditions
- the likelihood that the merger would be completed
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<PAGE> 44
- the expected qualification of the merger as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended, or
the tax code
- the opinion of Robertson Stephens that, as of the date of the merger
agreement and subject to the considerations set forth in the opinion, the
0.189435 exchange ratio is fair to shareholders of OnHealth from a
financial point of view
- information relating to the business, assets, management, competitive
position, operating performance, trading performance and prospects of
each of OnHealth and Healtheon/WebMD, including the prospects of OnHealth
if it were to continue as an independent company
- current economic and financial market conditions and historical market
prices, volatility and trading information for OnHealth common stock and
Healtheon/WebMD common stock
- the belief, based on presentations by OnHealth's legal and financial
advisors, that the terms of the merger agreement and the stock option
agreement, including the limited conditions to Healtheon/WebMD's
obligation to close the merger and the ability of OnHealth to consider
proposed alternative business combinations under some circumstances, are
generally customary for transactions such as the merger
- whether strategic alternatives to the merger, including operating as an
independent company and the short-term need to raise cash for operations,
would enhance long-term shareholder value
- Healtheon/WebMD's announced mergers with Medical Manager and CareInsite
and the potential effects of these mergers on OnHealth's combination with
Healtheon/WebMD
- the potential effects of Healtheon/WebMD's then pending merger with Envoy
- discussions with management and Robertson Stephens as to their due
diligence investigations of Healtheon/WebMD.
The OnHealth board also considered and balanced against the potential
benefits of the merger a number of potentially negative factors, including,
without limitation, the following:
- the risk that the merger would not be consummated and the effect of the
public announcement of the merger on OnHealth's sales and operating
results and OnHealth's ability to attract and retain key management,
marketing, technical, sales and other personnel
- the possibility that the market value of Healtheon/WebMD common stock
might decrease, causing less aggregate value to be paid to OnHealth
shareholders
- the potential volatility of Healtheon/WebMD common stock
- a recognition that Healtheon/WebMD common stock has traded at high
valuation multiples, and the risk that these multiples might not be
sustained in the future
- the fact that shareholders of OnHealth will not receive the full benefit
of any future growth in the value of their equity that OnHealth may have
achieved as an independent company, and the potential disadvantage to
OnHealth shareholders who receive Healtheon/WebMD common stock in the
event that Healtheon/WebMD does not perform as well in the future as
OnHealth may have performed as an independent company
- the possibility that some provisions of the merger agreement, including
the no-solicitation and termination fee warrant payment provisions,
together with the stock option agreement, might have the effect of
discouraging other persons potentially interested in merging with or
acquiring OnHealth from pursuing such an opportunity
- other matters described in the section entitled "Risk Factors" on page
15.
The above discussion of the information and factors considered by the
OnHealth board is not intended to be exhaustive but is believed to include all
material factors considered by the board. In view of the complexity and wide
variety of information and factors, both positive and negative, considered by
the OnHealth board, it did not
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find it practical to quantify, rank or otherwise assign relative or specific
weights to the factors considered. In addition, the OnHealth board did not reach
any specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor, but, rather, conducted an overall analysis of
the factors described above, including discussions with OnHealth's management
and legal, financial and accounting advisors. In considering the factors
described above, individual members of the OnHealth board may have given
different weight to different factors. The OnHealth board considered all these
factors as a whole and believed the factors supported its determination to
approve the mergers. After taking into consideration all of the factors set
forth above, OnHealth's board concluded that the merger was fair to, and in the
best interests of, OnHealth and that OnHealth should proceed with the merger.
AFTER CAREFULLY EVALUATING THESE FACTORS, BOTH POSITIVE AND NEGATIVE, THE
BOARD OF DIRECTORS OF ONHEALTH DETERMINED AT ITS MEETING ON FEBRUARY 15, 2000,
THAT THE MERGER IS IN THE BEST INTERESTS OF THE SHAREHOLDERS OF ONHEALTH AND
CONSISTENT WITH AND IN FURTHERANCE OF THE LONG-TERM BUSINESS STRATEGY OF
ONHEALTH AND RECOMMENDS THAT THE SHAREHOLDERS OF ONHEALTH VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND MERGER.
OPINION OF ONHEALTH'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated November 30, 1999, OnHealth engaged
Robertson Stephens to act as OnHealth's financial advisor in connection with the
proposed merger and to evaluate the fairness of the exchange ratio from a
financial point of view, to the holders of OnHealth common stock.
On February 15, 2000, at a meeting of the OnHealth board held to evaluate
the proposed merger, Robertson Stephens delivered to the OnHealth board its
written opinion that, as of February 15, 2000 and based on the assumptions made,
the matters considered and the limitations on the review undertaken described in
the opinion, the exchange ratio was fair to the holders of OnHealth common stock
from a financial point of view. No limitations were imposed by the OnHealth
board on Robertson Stephens with respect to the investigations made or
procedures followed by it in furnishing its opinion. The exchange ratio was
determined through negotiations between the respective managements of OnHealth
and Healtheon/WebMD. Although Robertson Stephens did assist the management of
OnHealth in those negotiations, it was not asked by, and did not recommend to,
OnHealth that any specific exchange ratio constituted the appropriate exchange
ratio for the merger.
THE FULL TEXT OF THE ROBERTSON STEPHENS OPINION, WHICH SETS FORTH, AMONG
OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY ROBERTSON STEPHENS, IS ATTACHED AS ANNEX B AND IS
INCORPORATED INTO THIS PROSPECTUS/PROXY STATEMENT BY REFERENCE. WE URGE ONHEALTH
SHAREHOLDERS TO READ THE ROBERTSON STEPHENS OPINION IN ITS ENTIRETY. THE
ROBERTSON STEPHENS OPINION WAS PREPARED FOR THE BENEFIT AND USE OF THE ONHEALTH
BOARD IN ITS CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO SHAREHOLDERS OF ONHEALTH AS TO HOW THEY SHOULD VOTE UPON, OR
TAKE ANY OTHER ACTION WITH RESPECT TO, THE MERGER.
The Robertson Stephens opinion does not address:
- the relative merits of the merger and the other business strategies that
the OnHealth board has considered or may be considering
- the decision of the OnHealth board to proceed with the merger.
The summary of the Robertson Stephens opinion set forth in this
prospectus/proxy statement is qualified in its entirety by reference to the full
text of the Robertson Stephens opinion.
In connection with the preparation of the Robertson Stephens opinion,
Robertson Stephens, among other things:
- reviewed publicly available financial statements and other business and
financial information of OnHealth and Healtheon/WebMD, respectively
- reviewed internal financial statements and other financial and operating
data concerning OnHealth and Healtheon/WebMD prepared by the managements
of OnHealth and Healtheon/WebMD, respectively
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- reviewed with OnHealth publicly available estimates of research analysts
relating to OnHealth
- reviewed publicly available estimates of research analysts relating to
Healtheon/WebMD
- held discussions with the respective managements of OnHealth and
Healtheon/WebMD concerning the businesses, past and current operations,
financial condition and future prospects of both OnHealth and
Healtheon/WebMD, independently and combined, including discussions with
the managements of OnHealth and Healtheon/WebMD concerning their views
regarding the strategic rationale for the merger
- reviewed the financial terms and conditions set forth in the draft merger
agreement
- reviewed the stock price and trading history of OnHealth common stock and
Healtheon/WebMD common stock
- compared the financial performance of OnHealth and the prices and trading
activity of OnHealth common stock with that of other publicly traded
companies comparable with OnHealth
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that Robertson
Stephens deemed relevant
- reviewed the pro forma impact of the merger on Healtheon/WebMD's revenue
per share, without assuming the closing of other pending acquisitions
- participated in discussions and negotiations among representatives of
OnHealth and Healtheon/WebMD and their financial and legal advisors
- reviewed Healtheon/WebMD's announced mergers with Medical Manager and
CareInsite and the potential effects of these mergers on OnHealth's
combination with Healtheon/WebMD
- reviewed the potential effects of the merger Healtheon/WebMD had pending
with Envoy
- made such other studies and inquiries, and reviewed such other data, as
Robertson Stephens deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it, including information furnished
to it orally or otherwise discussed with it by the managements of
Healtheon/WebMD and OnHealth or publicly available information, and neither
attempted to verify, nor assumed responsibility for verifying, any of such
information. Robertson Stephens relied upon the assurances of managements of
Healtheon/WebMD and OnHealth that they were not aware of any facts that would
make this information inaccurate or misleading. Furthermore, Robertson Stephens
did not obtain or make, or assume any responsibility for obtaining or making,
any independent evaluation or appraisal of the properties, assets or
liabilities, contingent or otherwise, of Healtheon/WebMD or OnHealth, nor was
Robertson Stephens furnished with any such evaluation or appraisal.
With respect to the publicity available estimates of research analysts, and
the assumptions and bases therefor, for each of Healtheon/WebMD and OnHealth
that Robertson Stephens reviewed, upon the advice of the managements of
Healtheon/WebMD and OnHealth, Robertson Stephens assumed that these forecasts
and projections:
- had been reasonably prepared in good faith on the basis of reasonable
assumptions
- reflected the best available estimates and judgments as to the future
financial condition and performance of Healtheon/WebMD and OnHealth,
respectively
- will be realized in the amounts and in the time periods estimated.
In addition, Robertson Stephens assumed that:
- the merger will be consummated upon the terms set forth in the draft
merger agreement dated February 15, 2000 made available to it without
material alteration thereof, including, among other things, that the
merger will be accounted for as a purchase method business combination in
accordance with U.S. generally accepted accounting principles, or GAAP
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<PAGE> 47
- the merger will be treated as a tax-free reorganization pursuant to the
tax code
- the historical financial statements of each of Healtheon/WebMD and
OnHealth reviewed by it had been prepared and fairly presented in
accordance with GAAP consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of counsel.
Although developments following the date of the Robertson Stephens opinion
may affect the opinion, Robertson Stephens assumed no obligation to update,
revise or reaffirm its opinion. Robertson Stephens' opinion is necessarily based
upon market, economic and other conditions as in effect on, and information made
available to Robertson Stephens as of, the date of the opinion. It should be
understood that subsequent developments may affect the conclusion expressed in
the opinion and that Robertson Stephens disclaims any undertaking or obligation
to advise any person of any change in any matter affecting the opinion which may
come or be brought to its attention after the date of the opinion. The opinion
is limited to the fairness, from a financial point of view and as of the date
thereof, of the exchange ratio to the holders of OnHealth common stock.
Robertson Stephens did not express any opinion as to:
- the value of any employee agreement or other arrangement entered into in
connection with the merger
- any tax or other consequences that might result from the merger
- what the value of Healtheon/WebMD common stock will be when issued to
OnHealth's shareholders pursuant to the merger or the price at which the
shares of OnHealth common stock that are issued pursuant to the merger
may be traded in the future.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering the Robertson Stephens opinion.
The summary of the financial analyses is not a complete description of all of
the analyses performed by Robertson Stephens. Certain of the information in this
section is presented in a tabular form. In order to better understand the
financial analyses performed by Robertson Stephens, these tables must be read
together with the text of each summary. The opinion is based upon the totality
of the various analyses performed by Robertson Stephens and no particular
portion of the analyses has any merit standing alone.
Comparable Companies Analysis. Using publicly available information,
Robertson Stephens analyzed, among other things, the market capitalization and
trading multiples of OnHealth and the following publicly traded companies in the
e-Health content industry that have similar business and operating profiles:
adam.com, Inc.
drkoop.com, Inc.
Healthcentral.com, Inc.
HealthGate Data Corp.
MediConsult.com, Inc.
Medscape, Inc., now MedicaLogic/Medscape, Inc.
Multiples compared by Robertson Stephens included market capitalization to
estimated revenues for calendar years 2000 and 2001. All multiples were based on
closing stock prices as of February 15, 2000.
Applying a range of multiples derived from multiples for these comparable
companies for calendar years 2000 and 2001 to corresponding revenue data for
OnHealth, the following ranges of OnHealth equity values, OnHealth
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equity values per share and exchange ratios, based on Healtheon/WebMD's spot
price of $68.63 on February 15, 2000, are implied:
<TABLE>
<CAPTION>
IMPLIED
ONHEALTH IMPLIED
IMPLIED ONHEALTH EQUITY VALUE EXCHANGE
CALENDAR YEAR EQUITY VALUE PER SHARE RATIO
------------- ------------------- ------------- -----------------
<S> <C> <C> <C>
Revenues:
2000 estimated......................... $182 - $257 million $7.39 - $9.82 0.1076x - 0.1432x
2001 estimated......................... $165 - $226 million $6.83 - $8.80 0.0995x - 0.1283x
</TABLE>
Control premium analysis. Based upon its review of the range of premiums
paid to the acquired company's closing market price one day prior to the
announcement of the transaction that have been paid in the precedent
transactions listed below, Robertson Stephens applied a range of control
premiums of 15% to 30% to the equity valuations implied by the foregoing
comparable companies analysis. The results of this analysis are summarized
below:
<TABLE>
<CAPTION>
IMPLIED
ONHEALTH IMPLIED
IMPLIED ONHEALTH EQUITY VALUE EXCHANGE
CALENDAR YEAR EQUITY VALUE PER SHARE RATIO
------------- ------------------- -------------- -----------------
<S> <C> <C> <C>
2000.................................. $209 - $334 million $8.27 - $12.33 0.1205x - 0.1797x
2001.................................. $190 - $293 million $7.63 - $11.00 0.1112x - 0.1603x
</TABLE>
Precedent transactions analysis. Using publicly available information,
Robertson Stephens analyzed the consideration offered, the premiums paid and the
implied transaction value multiples paid or proposed to be paid in selected
acquisition transactions in the Internet industry, including:
Target/Acquiror
Target/Acquiror
Silknet Software, Inc./Kana Communications, Inc.
InterVu Inc./Akamai Technologies, Inc.
Interleaf, Inc./BroadVision Inc.
Direct Hit Technologies, Inc./Ask Jeeves
Concentric Network Corporation/NEXTLINK Communications, Inc.
MapQuest.com, Inc./AOL
yesmail.com/CMGI, Inc.
Puma Technology, Inc./NetMind Technologies, Inc.
Net Effect Systems, Inc./Ask Jeeves
ProxiNet, Inc./Puma Technology, Inc.
Sandpiper Networks, Inc./Digital Island, Inc.
BlueMountain.com/At Home Corporation, now Excite@Home
ISOCOR/Critical Path, Inc.
Flycast Communications Corporation/CMGI
Earthlink Network, Inc./MindSpring Enterprises, Inc.
AdKnowledge Inc./Engage, Inc.
AdForce, Inc./CMGI
Egghead.com, Inc./Onsale, Inc.
NetGravity, Inc./DoubleClick Inc.
iMall, Inc./Excite@Home
Alta Vista Company/CMGI
Abacus Direct Corporation/DoubleClick Inc.
Telebanc Financial Corporation/E*TRADE Group, Inc.
SMART Technologies, Inc./i2Technologies Inc.
broadcast.com Inc./Yahoo!
Shopping.com/Compaq Computer Corporation
Zip2 Corporation/Compaq Computer
Lycos, Inc./USA Networks, Inc.
MovieFone, Inc./AOL
GeoCities, Inc./Yahoo!
Excite, Inc./At Home Corporation, @Home
Starfish Software, Inc./Motorola, Inc.
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<PAGE> 49
Based on this information and other publicly available information, the
following table illustrates ranges of the implied OnHealth equity valuations,
OnHealth equity valuations per share and exchange ratios, based on
Healtheon/WebMD's closing price of $68.63 on February 15, 2000, derived from
applying a range of one day and one month premiums that Robertson Stephens
derived from the precedent transactions:
<TABLE>
<CAPTION>
IMPLIED IMPLIED
ONHEALTH ONHEALTH
RANGE OF IMPLIED ONHEALTH EQUITY VALUE EXCHANGE
PREMIUM TO MARKET PREMIUMS EQUITY VALUE PER SHARE RATIO
----------------- ---------- --------------------------- --------------- -----------------
<S> <C> <C> <C> <C>
One day premium.......... 15% to 30% $308 million - $354 million $11.46 - $12.96 0.1671x - 0.1888x
One month premium........ 30% to 50% $242 million - $287 million $ 9.34 - $10.78 0.1362x - 0.1571x
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to OnHealth or
Healtheon/WebMD. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the comparable companies, precedent transactions or the business segment,
company or transactions to which they are being compared.
Historical exchange ratio analysis. Robertson Stephens applied a range of
control premiums of 15% to 30% to the historical ratios of the average closing
price of OnHealth common stock to the average closing price of Healtheon/WebMD
common stock over various periods ending February 15, 2000. The following table
sets forth the ranges of implied exchange ratios, OnHealth equity values per
share, based on Healtheon/WebMD's closing price of $68.63 on February 15, 2000,
and OnHealth equity values.
<TABLE>
<CAPTION>
IMPLIED
ONHEALTH
IMPLIED EXCHANGE EQUITY VALUE IMPLIED ONHEALTH
PERIOD ENDING FEBRUARY 15, 2000 RATIO PER SHARE EQUITY VALUE
------------------------------- ----------------- --------------- -------------------
<S> <C> <C> <C>
1 day................................ 0.1671x - 0.1888x $11.46 - $12.96 $308 - $354 million
5 days............................... 0.1911x - 0.2160x $13.11 - $14.82 $358 - $411 million
10 days.............................. 0.1772x - 0.2003x $12.16 - $13.75 $329 - $378 million
20 days.............................. 0.1657x - 0.1874x $11.37 - $12.86 $305 - $351 million
30 days.............................. 0.1889x - 0.2135x $12.96 - $14.65 $354 - $406 million
</TABLE>
Pro forma analyses. Robertson Stephens analyzed certain pro forma effects
resulting from the merger, including, among other things, the impact of the
merger on the projected revenues per share of the combined company for calendar
years 2000 and 2001. The following table summarizes the results of this
analysis:
<TABLE>
<S> <C>
Calendar year 2000 estimated revenue per share accretion.... 1.5%
Calendar year 2001 estimated revenue per share accretion.... 5.1%
</TABLE>
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
Other factors and comparative analyses. In rendering its opinion,
Robertson Stephens considered other factors and conducted other comparative
analyses, including, among other things a review of the history of trading
prices and volume for each of Healtheon/WebMD common stock and OnHealth common
stock for the period from February 12, 1999 to February 15, 2000.
While the foregoing summary describes analyses and factors that Robertson
Stephens deemed material in its presentation to the OnHealth board, it is not a
comprehensive description of all analyses and factors considered by Robertson
Stephens. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Robertson Stephens believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, would
create an
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<PAGE> 50
incomplete view of the evaluation process underlying the Robertson Stephens
opinion. Several analytical methodologies were employed and no one method of
analysis should be regarded as critical to the overall conclusion reached by
Robertson Stephens. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusions reached by Robertson Stephens
are based on all analyses and factors taken as a whole and also on application
of Robertson Stephens' own experience and judgment. These conclusions may
involve significant elements of subjective judgment and qualitative analysis.
Robertson Stephens therefore gives no opinion as to the value or merit standing
alone of any one or more parts of the analysis it performed. In performing its
analyses, Robertson Stephens considered general economic, market and financial
conditions and other matters, many of which are beyond the control of
Healtheon/WebMD and OnHealth. The analyses performed by Robertson Stephens are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by these analyses.
Accordingly, analyses relating to the value of a business do not purport to be
appraisals or to reflect the prices at which the business actually may be
purchased. Furthermore, no opinion is being expressed as to the prices at which
shares of Healtheon/WebMD common stock may be traded at any future time.
The engagement letter between Robertson Stephens and OnHealth provides
that, for its services, Robertson Stephens is entitled to receive a transaction
fee equal to 1.5% of the aggregate transaction value payable upon completion of
the merger and a fee of $250,000 payable upon delivery of the Robertson Stephens
opinion, which fee shall be credited against the transaction fee. OnHealth has
also agreed to reimburse Robertson Stephens for some of its out-of-pocket
expenses, including legal fees, and to indemnify and hold harmless Robertson
Stephens and its affiliates and any director, employee or agent of Robertson
Stephens or any of its affiliates, or any person controlling Robertson Stephens
or its affiliates for specified losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by Robertson
Stephens as financial advisor to OnHealth. The terms of the fee arrangement with
Robertson Stephens, which OnHealth and Robertson Stephens believe are customary
in transactions of this nature, were negotiated at arm's length between OnHealth
and Robertson Stephens, and the OnHealth board was aware of such fee
arrangements, including the fact that a significant portion of the fees payable
to Robertson Stephens is contingent upon completion of the merger. In the past,
Robertson Stephens has provided investment banking services to Healtheon/WebMD
for which it has been paid customary fees. Robertson Stephens maintains a market
in the shares of Healtheon/WebMD common stock. In the ordinary course of
business, Robertson Stephens may trade in OnHealth's securities and
Healtheon/WebMD's securities for its own account and the account of its
customers and, accordingly, may at any time hold a long or short position in
OnHealth's securities or Healtheon/WebMD's securities.
Robertson Stephens was retained based on Robertson Stephens' experience as
a financial advisor in connection with mergers and acquisitions and in
securities valuations generally.
Robertson Stephens is an internationally recognized investment banking
firm. As part of its investment banking business, Robertson Stephens is
frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and other purposes.
INTERESTS OF ONHEALTH'S DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES IN THE
MERGER
When considering the recommendation of OnHealth's board of directors, you
should be aware that some of OnHealth's directors and executive officers have
interests in the merger and have arrangements that are different from, or are in
addition to, your interests, and that may create potential conflicts of
interest. These interests include, among other things, indemnification rights,
acceleration of option vesting and other benefits and payments under some
agreements and employee benefit and retention plans.
The OnHealth board of directors was aware of and considered the interests
of OnHealth's directors, executive officers and affiliates in approving the
merger agreement and merger and recommending that OnHealth's shareholders
approve the merger agreement and merger.
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<PAGE> 51
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including approval and adoption of the
merger agreement and the merger by the shareholders of OnHealth. The merger will
become effective upon the filing of articles of merger and an agreement and plan
of merger with the Secretary of State of Washington.
STRUCTURE OF THE MERGER AND CONVERSION OF ONHEALTH COMMON STOCK
Tech Acquisition, a newly formed and wholly owned subsidiary of
Healtheon/WebMD, will be merged with and into OnHealth. As a result of the
merger, the separate corporate existence of Tech Acquisition will cease and
OnHealth will continue as the surviving corporation. Healtheon/WebMD common
stock will continue to be traded on the Nasdaq National Market and will be held
by the shareholders of Healtheon/WebMD and OnHealth.
Upon completion of the merger, each outstanding share of OnHealth common
stock will be converted into a right to receive 0.189435 shares of
Healtheon/WebMD common stock. The exchange ratio will be adjusted to reflect the
effect of any stock split, stock dividend, subdivision, reclassification,
recapitalization, combination of shares or similar recapitalization with respect
to Healtheon/WebMD common stock occurring prior to completion of the merger. No
fractional shares of Healtheon/WebMD common stock will be issued pursuant to the
merger. In lieu of the issuance of any fractional shares of Healtheon/WebMD
common stock, any shareholder who would otherwise receive a fractional share
will receive a cash payment equal to the product obtained by multiplying the
fractional share interest of such holder by the average of the high and low
sales prices for a share of Healtheon/ WebMD common stock on the Nasdaq National
Market on the first trading day after the effective date of the merger.
EXCHANGE OF ONHEALTH STOCK CERTIFICATES FOR HEALTHEON/WEBMD STOCK CERTIFICATES
When the merger is completed, Healtheon/WebMD's exchange agent will mail to
OnHealth shareholders a letter of transmittal and instructions for use in
surrendering OnHealth stock certificates in exchange for Healtheon/ WebMD stock
certificates. When a shareholder delivers an OnHealth stock certificate to the
exchange agent along with an executed letter of transmittal and any other
required documents, the delivered stock certificate will be canceled and the
OnHealth shareholder will receive Healtheon/WebMD stock certificates
representing the number of full shares of Healtheon/WebMD common stock to which
the shareholder is entitled under the merger agreement. An OnHealth shareholder
will receive payment in cash, without interest, in lieu of any fractional shares
of Healtheon/WebMD common stock which would have been otherwise issuable to the
shareholder in the merger.
YOU SHOULD NOT SUBMIT YOUR ONHEALTH STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU
RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT.
OnHealth shareholders are not entitled to receive any dividends or other
distributions on Healtheon/WebMD common stock until the merger is completed and
they have surrendered their OnHealth stock certificates in exchange for
Healtheon/WebMD stock certificates.
Subject to the effect of applicable laws, promptly following surrender of
OnHealth stock certificates and the issuance of the corresponding
Healtheon/WebMD certificates, OnHealth shareholders will be paid the amount of
dividends or other distributions, without interest, with a record date after the
completion of the merger which were previously paid with respect to their whole
shares of Healtheon/WebMD common stock. At the appropriate payment date,
OnHealth shareholders will also receive the amount of dividends or other
distributions, without interest, with a record date after the completion of the
merger and a payment date after they exchange their OnHealth stock certificates
for Healtheon/WebMD stock certificates.
Healtheon/WebMD will only issue a Healtheon/WebMD stock certificate or
direct its exchange agent to issue a check in lieu of a fractional share to
OnHealth shareholders in a name in which the surrendered OnHealth stock
certificate is registered. If OnHealth shareholders wish to have their
certificates issued in another name they must present the exchange agent with
all documents required to show and effect the unrecorded transfer of ownership
and show that they paid any applicable stock transfer taxes.
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<PAGE> 52
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
This section summarizes material U.S. federal income tax considerations
relevant to the merger that apply to OnHealth shareholders. This discussion is
based on existing provisions of the tax code, existing treasury regulations and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences of the merger to you. The Internal Revenue Service may adopt a
position contrary to the consequences described below.
We do not discuss all U.S. federal income tax considerations that may be
relevant to you in light of your particular circumstances. Factors that could
alter the tax consequences of the merger to you include:
- if you are a dealer in securities
- if you are a tax-exempt organization
- if you are subject to the alternative minimum tax provisions of the tax
code
- if you are a foreign person or entity
- if you are a financial institution or insurance company
- if you do not hold your OnHealth shares as capital assets
- if you acquired your shares in connection with stock option or stock
purchase plans, in exchange for services or in other compensatory
transactions
- if you hold OnHealth shares as part of an integrated investment,
including a straddle, comprised of shares of OnHealth common stock and
one or more other positions, or
- if you hold OnHealth shares subject to the constructive sale provisions
of Section 1259 of the tax code.
In addition, we do not discuss the tax consequences of the merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the merger, whether or
not any of these transactions are undertaken in connection with the merger,
including without limitation any transaction in which OnHealth shares are
acquired or shares of Healtheon/WebMD common stock are disposed of, or the tax
consequences to holders of options, warrants or similar rights to acquire
OnHealth capital stock. ACCORDINGLY, WE URGE YOU TO CONSULT YOUR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE
MERGER.
Tax implications for OnHealth shareholders
Counsel to Healtheon/WebMD, Alston & Bird LLP, and counsel to OnHealth,
Preston Gates & Ellis LLP, are of the opinion that the merger of
Healtheon/WebMD's wholly owned subsidiary with and into OnHealth will be a
reorganization for U.S. federal income tax purposes within the meaning of
section 368(a) of the tax code. This means that:
- OnHealth shareholders will not recognize gain or loss when they receive
Healtheon/WebMD common stock solely in exchange for their shares of
OnHealth common stock in the merger, except for cash received in lieu of
a fractional share of Healtheon/WebMD common stock.
- Cash payments received by OnHealth shareholders in lieu of a fractional
share of Healtheon/WebMD common stock should be treated as if these
fractional share had been issued in the merger and then redeemed by
Healtheon/WebMD. The OnHealth shareholders should generally recognize
gain or loss with respect to these cash payments, measured by the
difference, if any, between the amount of cash received and the basis in
such fractional share.
- The aggregate tax basis of the Healtheon/WebMD common stock received by
holders of OnHealth common stock will be the same as the aggregate tax
basis of the OnHealth common stock surrendered in exchange for the
Healtheon/WebMD common stock.
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<PAGE> 53
- The holding period of the Healtheon/WebMD common stock received by
holders of OnHealth stock in the merger will include the period the
exchanged OnHealth common stock was considered to be held, provided that
the OnHealth common stock surrendered is held as a capital asset at the
time of the merger.
Limitation on the tax opinions
Neither Healtheon/WebMD nor OnHealth has requested a ruling from the IRS
with regard to any of the federal income tax consequences of the merger.
The opinions described above do not bind the IRS nor preclude it from
adopting a contrary position. These opinions are subject to qualifications and
are conditioned upon assumptions, including the truth and accuracy of
representations provided by the parties to the merger agreement.
Consequences of a contrary Internal Revenue Service determination
A successful IRS challenge to the status of the merger as a reorganization
would result in a OnHealth shareholder recognizing gain or loss with respect to
each share of OnHealth common stock surrendered. This gain or loss would equal
the difference between the shareholder's basis in the shares and the fair market
value, at the time of the merger, of the Healtheon/WebMD common stock received.
In this event, a shareholder's aggregate basis in the Healtheon/WebMD common
stock received would equal its fair market value, and the shareholder's holding
period for the Healtheon/WebMD stock would begin the day after the merger.
Even if the merger qualifies as a reorganization, a shareholder who
receives shares of Healtheon/WebMD common stock would recognize gain to the
extent that those shares were considered received in exchange for services. Gain
would also have to be recognized to the extent that a holder of OnHealth common
stock was treated as receiving, directly or indirectly, consideration other than
Healtheon/WebMD common stock in exchange for the holder's OnHealth common stock.
All or a portion of those gain amounts may be taxable as ordinary income.
Dissenters' rights
OnHealth shareholders who exercise appraisal rights and receive payment for
their OnHealth common stock in cash should generally recognize gain or loss for
federal income tax purposes, measured by the difference, if any, between the
amount of cash received and the basis in such shares, provided that the payment
is not treated as a dividend distribution for tax purposes. A sale of OnHealth
common stock pursuant to an exercise of appraisal rights should generally not be
treated as a dividend if, as a result of such exercise, the shareholder owns no
shares of Healtheon/WebMD or OnHealth stock, either actually or constructively.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for as a purchase for financial reporting and
accounting purposes, under generally accepted accounting principles. After the
merger, the results of operations of OnHealth will be included in the
consolidated financial statements of Healtheon/WebMD. The purchase price will be
allocated based on the fair values of the assets acquired and the liabilities
assumed. Any excess of cost over fair value of the net tangible assets of
OnHealth acquired will be recorded as goodwill and other intangible assets and
will be amortized by charges to operations under generally accepted accounting
principles. These allocations will be made based upon valuations and other
studies that have not yet been finalized.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the HSR Act, which prevents
transactions from being completed until required information and materials are
furnished to the Antitrust Division of the DOJ and the FTC and the appropriate
waiting periods end or expire. Healtheon/WebMD and OnHealth and related parties
made their filings with the DOJ and the FTC, and the waiting period has expired.
The requirements of the HSR Act will be satisfied if the merger is completed
within one year from termination of the waiting period.
The DOJ or the FTC may challenge the merger on antitrust grounds after
expiration of the waiting period. Accordingly, at any time before or after the
completion of the merger, either the DOJ or the FTC could take
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<PAGE> 54
action under the antitrust laws. Certain other persons could take action under
the antitrust laws, including seeking to enjoin the merger. Additionally, at any
time before or after the completion of the merger, notwithstanding that the
applicable waiting period expired, any state could take action under the
antitrust laws. A challenge to the merger could be made and if a challenge is
made we may not prevail.
Neither Healtheon/WebMD nor OnHealth is aware of any other material
governmental or regulatory approval required for completion of the merger, other
than the effectiveness of the registration statement of which this proxy
statement/prospectus is a part, and compliance with applicable corporate law of
the State of Washington.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF HEALTHEON/WEBMD AND ONHEALTH
The shares of Healtheon/WebMD common stock to be issued in the merger will
be registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares of Healtheon/WebMD common stock
issued to or held by any person who is an affiliate of either Healtheon/WebMD or
OnHealth. Persons who may be deemed to be affiliates include individuals or
entities that control, are controlled by, or are under common control of either
Healtheon/WebMD or OnHealth and may include some of their respective officers
and directors, as well as their respective principal shareholders. Affiliates
may not sell their shares of Healtheon/WebMD common stock acquired in the merger
except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares
- an exemption under paragraph (d) of Rule 145 under the Securities Act
- any other applicable exemption under the Securities Act.
LISTING ON THE NASDAQ NATIONAL MARKET OF HEALTHEON/WEBMD COMMON STOCK TO BE
ISSUED IN THE MERGER
It is a condition to the closing of the merger that Healtheon/WebMD shall
have the shares of Healtheon/WebMD common stock to be issued in the merger
authorized for quotation on the Nasdaq National Market, subject to official
notice of issuance.
DELISTING AND DEREGISTRATION OF ONHEALTH COMMON STOCK AFTER THE MERGER
If the merger is completed, OnHealth will use its best efforts to cause the
OnHealth common stock to be delisted from the Nasdaq National Market and
deregistered under the Securities Exchange Act.
OPERATIONS AFTER THE MERGER
Following the merger, OnHealth will be a wholly owned subsidiary of
Healtheon/WebMD. The shareholders of OnHealth will become stockholders of
Healtheon/WebMD, and their rights as stockholders will be governed by the
Healtheon/WebMD certificate of incorporation, the Healtheon/WebMD bylaws and the
laws of the State of Delaware. See "Comparison of Rights of Holders of OnHealth
Common Stock and Healtheon/WebMD Common Stock" on page 77.
RIGHTS OF DISSENTING ONHEALTH SHAREHOLDERS
The following is a brief summary of the rights of holders of OnHealth
common stock to dissent from the merger and receive cash equal to the fair value
of their OnHealth common stock instead of receiving shares of Healtheon/WebMD
common stock. This summary is not exhaustive, and you should read the applicable
sections of Chapter 23B.13 of Washington law, which is attached to this proxy
statement/prospectus as Annex C.
IF YOU ARE CONTEMPLATING THE POSSIBILITY OF DISSENTING FROM THE MERGER, YOU
SHOULD CAREFULLY REVIEW THE TEXT OF ANNEX C, PARTICULARLY THE PROCEDURAL STEPS
REQUIRED TO PERFECT DISSENTERS' RIGHTS, WHICH ARE COMPLEX. YOU SHOULD ALSO
CONSULT YOUR LEGAL COUNSEL. IF YOU DO NOT FULLY AND PRECISELY SATISFY THE
PROCEDURAL REQUIREMENTS OF WASHINGTON LAW, YOU WILL LOSE YOUR DISSENTERS'
RIGHTS.
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<PAGE> 55
Requirements for exercising dissenters' rights
To exercise dissenters' rights, you must:
- deliver to OnHealth before the vote is taken at the special meeting
written notice of your intent to demand the fair value for your OnHealth
common stock if the merger is consummated and becomes effective
- not vote your shares of OnHealth common stock at the special meeting in
favor of the proposal to approve the merger agreement.
If you do not satisfy each of these requirements, you cannot exercise
dissenters' rights and will be bound by the terms of the merger agreement.
Submitting a proxy card that does not direct how the OnHealth common stock
represented by that proxy is to be voted will constitute a vote in favor of the
merger and a waiver of your statutory dissenters' rights. In addition, voting
against the proposal to approve the merger will not satisfy the notice
requirement referred to above. You must file the written notice of the intent to
exercise dissenters' rights with OnHealth at: OnHealth Network Company, 808
Howell Street, Suite 400, Seattle, WA 98101, Attn: Chief Financial Officer.
Appraisal Procedure
Within ten days after the proposed merger has been approved, OnHealth will
send written notice to all shareholders who have given written notice under the
dissenters' rights provisions and have not voted in favor of the merger as
described above. The notice will contain:
- the address where the demand for payment and certificates representing
shares of OnHealth common stock must be sent and the date by which they
must be received
- any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received
- a form for demanding payment that states the date of the first
announcement to the news media or to shareholders of the proposed merger
and requires certification of the date the shareholder, or the beneficial
owner on whose behalf the shareholder dissents, acquired the OnHealth
common stock or an interest in it
- a copy of the dissenters' rights provisions of Washington law, attached
as Annex C.
If you wish to assert dissenters' rights, you must demand payment and
deposit your OnHealth certificates within 30 days after the notice is given. IF
YOU FAIL TO MAKE DEMAND FOR PAYMENT AND DEPOSIT YOUR ONHEALTH CERTIFICATES
WITHIN THE 30-DAY PERIOD, YOU WILL LOSE THE RIGHT TO RECEIVE FAIR VALUE FOR YOUR
SHARES UNDER THE DISSENTERS' RIGHTS PROVISIONS, EVEN IF YOU FILED A TIMELY
NOTICE OF INTENT TO DEMAND PAYMENT.
Except as provided below, within 30 days of the later of the effective time
of the merger or OnHealth's receipt of a valid demand for payment, OnHealth will
remit to each dissenting shareholder who complied with the requirements of
Washington law the amount OnHealth estimates to be the fair value of the
shareholder's OnHealth common stock, plus accrued interest. OnHealth will
include the following information with the payment:
- financial data relating to OnHealth
- OnHealth's estimate of the fair value of the shares and a brief
description of the method used to reach that estimate
- a copy of Chapter 23B.13 of Washington law
- a brief description of the procedures to be followed in demanding
supplemental payment.
For dissenting shareholders who were not the beneficial owner of their
shares of OnHealth common stock before , OnHealth may withhold
payment and instead send a statement setting forth its estimate of the fair
value of their shares and offering to pay such amount, with interest, as a final
settlement of the dissenting shareholder's demand for payment.
If you are dissatisfied with your payment or offer, you may, within 30 days
of the payment or offer for payment, notify OnHealth in writing of and demand
payment of your estimate of fair value of your shares and the
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<PAGE> 56
amount of interest due. If any dissenting shareholder's demand for payment is
not settled within 60 days after receipt by OnHealth of his or her payment
demand, Chapter 23B.13.300 of Washington law requires that OnHealth commence a
proceeding in King County Superior Court and petition the court to determine the
fair value of the shares and accrued interest, naming all the dissenting
shareholders whose demands remain unsettled as parties to the proceeding.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court as to the amount of the fair value of the shares.
The fair value of the shares as determined by the court is binding on all
dissenting shareholders and may be less than, equal to or greater than the
market price of the Healtheon/WebMD common stock to be issued to non-dissenting
shareholders for their OnHealth common stock if the merger is consummated. If
the court determines that the fair value of the shares is in excess of any
amount remitted by OnHealth, then the court will enter a judgment for cash in
favor of the dissenting shareholders in an amount by which the value determined
by the court, plus interest, exceeds the amount previously remitted.
The court will determine the costs and expenses of the court proceeding and
assess them against OnHealth, except that the court may assess part or all of
the costs against any dissenting shareholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith. If the court finds that OnHealth did not substantially comply
with the relevant provisions of Sections 23B.13.200 through 23B.13.280 of
Washington law, the court may also assess against OnHealth any fees and expenses
of attorneys or experts that the court deems equitable. The court may also
assess those fees and expenses against any party if the court finds that the
party has acted arbitrarily, vexatiously or not in good faith in bringing the
proceedings. The court may award, in its discretion, fees and expenses of an
attorney for the dissenting shareholders out of the amount awarded to the
shareholders, if it finds the services of the attorney were of substantial
benefit to the other dissenting shareholders and that those fees should not be
assessed against OnHealth.
A shareholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the shareholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
OnHealth in writing of the name and address of each person on whose behalf he or
she asserts dissenters' rights. The rights of the partial dissenting shareholder
are determined as if the shares as to which he or she dissents and his or her
other shares were registered in the names of different shareholders. Beneficial
owners of OnHealth common stock who desire to exercise dissenters' rights
themselves must obtain and submit the registered owner's written consent at or
before the time they file the notice of intent to demand fair value.
For purposes of Washington law, "fair value" means the value of OnHealth
common stock immediately before the effective time of the merger, excluding any
appreciation or depreciation in anticipation of the merger, unless that
exclusion would be inequitable. Under Section 23B.13.020 of Washington law, an
OnHealth shareholder has no right, at law or in equity, to set aside the
approval and adoption of the merger or the consummation of the merger except if
the approval, adoption or consummation fails to comply with the procedural
requirements of Chapter 23B.13, Sections 25.10.900 through 25.10.955 of
Washington law, OnHealth's articles of incorporation or OnHealth's bylaws or was
fraudulent with respect to that shareholder or OnHealth.
THE MERGER AGREEMENT
The provisions of the merger agreement are complicated and not easily
summarized. The merger agreement is attached to this proxy statement/prospectus
as Annex A, and you are urged to read it carefully.
REPRESENTATIONS AND WARRANTIES
Healtheon/WebMD and OnHealth each made representations and warranties in
the merger agreement regarding aspects of their businesses, financial condition,
structure and other facts pertinent to the merger, including:
- capitalization
- changes in Healtheon/WebMD's and OnHealth's businesses since September
30, 1999
- litigation
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<PAGE> 57
- financial statements
- filings with the SEC.
In general, the representations and warranties of OnHealth are more
detailed and cover topics not covered by the Healtheon/WebMD representations and
warranties. Additional representations and warranties regarding the business of
OnHealth not given by Healtheon/WebMD include:
- accounts receivable
- proprietary software of OnHealth
- material contracts
- benefit plans.
In addition, OnHealth made additional representations and warranties
regarding the fairness opinion received by OnHealth from its financial advisor
and state anti-takeover laws.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Healtheon/WebMD agreed that until the completion of the merger or unless
OnHealth consents in writing, Healtheon/WebMD will use reasonable efforts to
maintain its material rights and material franchises and preserve its material
relationships with customers, suppliers and others having business dealings with
it.
OnHealth agreed that until the completion of the merger or unless
Healtheon/WebMD consents in writing, OnHealth would conduct its business
substantially as presently conducted and refrain from entering into any
transactions or contracts other than in the ordinary course of business and
consistent with past practice, not make any material change in its methods of
management, and consult with Healtheon/WebMD prior to undertaking new business
opportunities outside the ordinary course of business.
OnHealth also agreed to specific restrictions on its business and
operations relating to the following:
- employees and employee benefits and remuneration
- the incurrence of indebtedness
- capital expenditures
- strategic alliances, sponsorship agreements and distribution, sale,
license or marketing agreements
- modification of OnHealth's articles of incorporation and bylaws
- accounting principles and procedures
- the issuance of securities
- the redemption of securities
- making any loans
- modification of options granted pursuant to any of its option plans
- intellectual property
- the acquisition of assets or other entities
- the disposition of assets
- material modification or termination of contracts
- actions which would cause the representations and warranties regarding
OnHealth's business, financial condition and structure in the merger
agreement to be untrue or incorrect in any material respect.
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<PAGE> 58
NO OTHER NEGOTIATIONS INVOLVING ONHEALTH
Until the merger is completed or the merger agreement is terminated,
OnHealth has agreed not to directly or indirectly take any of the following
actions without the consent of Healtheon/WebMD:
- solicit, initiate, encourage or induce any "acquisition proposal," as
defined below
- participate in any discussions or negotiations regarding any acquisition
proposal
- disclose any confidential information with respect to any acquisition
proposal
- take any other action to facilitate any inquiries or attempt to make or
implement any acquisition proposal
- engage in discussions with any person with respect to any acquisition
proposal
- accept or enter into any letter of intent contemplating any acquisition
proposal.
OnHealth has agreed to keep Healtheon/WebMD informed, on a current basis,
of the status and terms of any such proposals or offers and the status of any
such discussions or negotiations.
An "acquisition proposal" is any offer or proposal, other than an offer or
proposal by Healtheon/WebMD, relating to any transaction or series of
transactions involving:
- the purchase or sale of more than 15% of the outstanding voting equity
securities of OnHealth or any tender offer or exchange offer that if
consummated would result in any person or group beneficially owning 15%
or more of the total outstanding voting securities of OnHealth
- any merger, consolidation, business combination or similar transaction
involving OnHealth
- any sale, lease outside the ordinary course of business, exchange,
transfer license outside the ordinary course of business, acquisition or
disposition or more than 15% of the consolidated assets of OnHealth
- any transaction that results in the creation of a minority interest in a
subsidiary of OnHealth that exceeds 15% of the assets of OnHealth or
results in the disposition of a subsidiary which accounts for more than
15% of the consolidated assets of OnHealth
- any liquidation or dissolution of OnHealth.
The foregoing shall not prohibit OnHealth or its board of directors from
complying with SEC rules regarding communications about tender offers for its
securities by third parties. In addition, OnHealth and its board of directors
may engage in discussions or negotiations with, or provide information to, any
person in response to an unsolicited, bona fide written acquisition proposal by
a third party if, in any case:
- its board of directors concludes in good faith, after consultation with
its financial advisors, that such acquisition proposal is reasonably
capable of being completed on substantially the terms proposed, and
would, if consummated, result in a transaction that would provide greater
value to the holders of OnHealth common stock than the proposed merger
with Healtheon/WebMD
- its board of directors determines in the exercise of its reasonable good
faith judgment, after consultation with outside legal counsel, that
failure to take such action would be inconsistent with its fiduciary
duties to OnHealth shareholders under applicable law
- prior to furnishing any non-public information to any person in
connection with such acquisition proposal, it receives from such person
an executed confidentiality agreement with material terms no less
favorable to OnHealth than those contained in a similar agreement between
Healtheon/WebMD and OnHealth dated February 9, 2000
- prior to providing any information to any person or entering into
discussions or negotiations with any person in connection with such
acquisition proposal, OnHealth notifies Healtheon/WebMD promptly of the
receipt of a request for such information and the proposed acquisition
proposal indicating, in connection with such notice, the material terms
and conditions of the request or proposal, the name of the person or
group
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<PAGE> 59
making such acquisition proposal and keeping Healtheon/WebMD informed as
promptly as possible in all material respects of the status and details
of the request or proposal
- it has not taken any of the prohibited actions described above.
ONHEALTH'S EMPLOYEE BENEFIT PLANS
Individuals who are employed by OnHealth when the merger is completed will
become employees of Healtheon/WebMD or one of its subsidiaries, although
Healtheon/WebMD may terminate these employees at any time. The employees of
OnHealth will be provided employee benefits based on the positions they hold
with Healtheon/WebMD and its subsidiaries after the merger on terms and
conditions which are substantially similar in the aggregate to those provided by
Healtheon/WebMD and its subsidiaries to their similarly situated officers and
employees after the merger.
Prior to the consummation of the merger, OnHealth will terminate each
retirement plan which qualifies under Section 401(a) of the tax code, cease all
employee salary deferral contributions under each OnHealth retirement plan and
reserve the right to amend each OnHealth retirement plan.
With respect to any benefit plans of Healtheon/WebMD or its subsidiaries in
which the officers and employees of OnHealth and its subsidiaries participate
after the merger is effective, Healtheon or its applicable subsidiary will
- waive any pre-existing conditions, exclusions and waiting periods with
respect to participation and coverage under any welfare benefit plan in
which such employees may be eligible to participate except to the extent
such officer or employee was previously excluded from participation in
the OnHealth benefit plan by such pre-existing condition
- provide each officer and employee with credit for any co-payments and
deductibles paid prior to the closing of the merger during the year in
which the merger occurs in satisfying any applicable deductible or
out-of-pocket requirements under any benefit plan
- other than with respect to vesting credit with respect to Healtheon/WebMD
options granted to such officers and employees, recognize all service of
such officers and employees with OnHealth and its subsidiaries for all
purposes in any benefit plan in which such employees may be eligible to
participate after the merger is consummated, except that no duplicative
accruals may result.
TREATMENT OF ONHEALTH STOCK OPTIONS AND WARRANTS
All options outstanding at the effective time of the merger under
OnHealth's stock option plans and all warrants to purchase OnHealth common stock
will be assumed by Healtheon/WebMD and will be exercisable upon the same terms
and conditions as under the applicable OnHealth stock option plan or warrant,
except that:
- each such assumed option or warrant will be exercisable for, and
represent the right to acquire, a number of shares of Healtheon/WebMD
common stock, rounded to the nearest whole share, equal to the number of
shares of OnHealth common stock subject to such OnHealth option or
warrant multiplied by the exchange ratio
- the per share exercise price of the assumed option or warrant will be an
amount equal to the per share exercise price of such OnHealth option or
warrant divided by the exchange ratio, rounded to the nearest whole cent.
Healtheon/WebMD has agreed to file a registration statement on Form S-8 for
the shares of Healtheon/ WebMD common stock issuable with respect to options
under the OnHealth stock option plans and to maintain the effectiveness of that
registration statement for as long as any of the options remain outstanding.
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<PAGE> 60
CONDITIONS TO COMPLETION OF THE MERGER
Healtheon/WebMD's respective obligations to complete the merger are subject
to the satisfaction or waiver of each of the following conditions before
completion of the merger:
- the merger agreement and the merger must be approved and adopted by the
requisite vote of OnHealth's shareholders
- no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated
- Healtheon/WebMD and OnHealth must each receive from their respective tax
counsel an opinion to the effect that the merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the tax
code, however, if counsel to either Healtheon/WebMD or OnHealth does not
render this opinion, this condition will be satisfied if counsel to the
other party renders the opinion to the other party.
OnHealth's obligations to complete the merger are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- Healtheon/WebMD's representations and warranties must be true and correct
as of the date the merger is to be completed as if made as of that time
except:
- where the failure to be so true and correct would not have a material
adverse effect on Healtheon/WebMD
- to the extent Healtheon/WebMD's representations and warranties address
matters only as of a particular date or period of time, they must be
true and correct as of that date or period of time, except where the
failure to be so true and correct would not have a material adverse
effect on Healtheon/WebMD
- Healtheon/WebMD must perform or comply in all material respects with all
of its agreements and covenants required by the merger agreement to be
performed or complied with by it at or before completion of the merger
- No "material adverse effect," as defined below, with respect to
Healtheon/WebMD and its subsidiaries, taken as a whole, shall have
occurred since February 15, 2000.
A "material adverse effect" on Healtheon/WebMD means an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on the financial position, business,
or results of operations of Healtheon/WebMD and its subsidiaries, taken as a
whole, or the ability of Healtheon/WebMD to perform its obligations under the
merger agreement or to consummate the merger or the other transactions
contemplated by the merger agreement, but does not include events, changes or
occurrences generally affecting the healthcare information technology industry
or the overall U.S. economy.
Healtheon/WebMD's obligations to complete the merger are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- OnHealth's representations and warranties must be true and correct as of
the date the merger is to be completed as if made as of such time except:
- where the failure to be so true and correct would not have a "material
adverse effect," as defined below, on OnHealth
- to the extent OnHealth's representations and warranties address
matters only as of a particular date or period of time, they must be
true and correct as of that date or period of time, except where the
failure to be so true and correct would not have a material adverse
effect on OnHealth
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<PAGE> 61
- OnHealth must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by OnHealth at or before completion of the merger
- holders of less than 3% of OnHealth capital stock shall have elected to
seek their statutory dissenters rights under Washington law
- no material adverse effect with respect to OnHealth and its subsidiaries,
taken as a whole, shall have occurred since February 15, 2000
- no claims or litigation threatened in writing or pending arising out of
In the Matter of OnHealth Network Company before the SEC, late filing of
the OnHealth's Form 10-Q for the quarter ended June 30, 1997 or
restatement of earnings for compensation expenses associated with options
granted under OnHealth's stock plans for the period January 1, 1999
through December 31, 1999, which in the reasonable opinion of
Healtheon/WebMD can reasonably be expected to result in judgments,
settlements or recoveries against OnHealth for which Healtheon/WebMD
would be responsible, in excess of OnHealth's available insurance
coverage.
A "material adverse effect" on OnHealth means an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse effect on the financial position, business,
or results of operations of OnHealth and its subsidiaries, taken as a whole, or
the ability of OnHealth to perform its obligations under the merger agreement or
to consummate the merger or the other transactions contemplated by the merger
agreement, but does not include any adverse effect due to changes in conditions
generally affecting the healthcare or electronic commerce industries or the U.S.
economy as a whole, or any change or adverse effect caused by, or relating to,
the announcement of the merger agreement or the transactions contemplated
thereby, or any adverse effect due to legal or regulatory changes, other than an
order or regulatory action specifically related to OnHealth.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after approval of the merger agreement and merger
by the shareholders of OnHealth:
- by mutual consent of Healtheon/WebMD and OnHealth
- by Healtheon/WebMD or OnHealth, if the merger is not completed before
October 31, 2000, except that the right to terminate the merger agreement
is not available to any party whose failure to fulfill any obligation has
been the cause of or resulted in the failure of the merger to occur on or
before October 31, 2000
- by Healtheon/WebMD or OnHealth, if any court or governmental authority
having jurisdiction over either party issues an order, decree or ruling
or other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the merger which is final and nonappealable
- by Healtheon/WebMD, if the board of directors of OnHealth withdraws or
modifies its recommendation of the adoption and approval of the merger
agreement and merger in a manner adverse to Healtheon/WebMD, fails to
convene its stockholders meeting for the purpose of voting on the merger
within 30 days of the effectiveness of the registration statement or
recommends to the shareholders of OnHealth an acquisition proposal
- by Healtheon/WebMD if it is determined by the board of directors of
Healtheon/WebMD after receipt of written advice from counsel that, as a
result of developments in In the Matter of OnHealth Network Company
before the SEC, there is a reasonable probability that there will be a
material delay in the effectiveness of the registration statement filed,
or contemplated to be filed, by Healtheon/WebMD with the SEC with respect
to any transaction described in Rule 145(a) under the Securities Act, if
the delay is not resolved to the reasonable satisfaction of
Healtheon/WebMD within 20 days of notice to OnHealth
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<PAGE> 62
- by either Healtheon/WebMD or OnHealth, upon a breach of any
representation, warranty, covenant or agreement of the other party or if
any representation or warranty of the other party shall have become
untrue such that the conditions to closing applicable to representations,
warranties, covenants and agreement cannot be satisfied unless curable
through commercially reasonable efforts, provided a 30 days cure period
has expired following notice of such breach, except that Healtheon/WebMD
may not terminate the merger agreement for this reason if such failure is
cause by action or failure to act of Healtheon/WebMD and such action or
failure to act constitutes a material breach by Healtheon/WebMD of the
merger agreement.
PAYMENT OF TERMINATION FEES
OnHealth will pay Healtheon/WebMD a termination fee of $9 million not later
than two days after the merger agreement is terminated by Healtheon/WebMD:
- at a time when an acquisition proposal with respect to OnHealth exists,
and the board of directors of OnHealth has withdrawn or modified its
recommendation of the adoption and approval of the merger agreement and
merger in a manner adverse to Healtheon/WebMD, failed to either convene
the required meeting of shareholders to vote on adoption of the merger
agreement and the merger or recommended to the shareholders of OnHealth
the acquisition proposal, or
- at a time when an acquisition proposal with respect to OnHealth exists,
the merger agreement and the merger fail to receive the requisite vote of
the shareholders of OnHealth at the OnHealth special meeting.
Healtheon/WebMD will not be entitled to receive the termination fee if the
board of directors of OnHealth withdraws, modifies or changes its recommendation
of the merger agreement or the transactions contemplated thereby in a manner
adverse to Healtheon/WebMD due solely to:
- a breach by Healtheon/WebMD or Tech Acquisition of any representation or
warranty contained in the merger agreement such that the representations
and warranties of such parties are not true and correct in all material
respects, which breach is not cured by Healtheon/WebMD within ten days
following notice of such breach, or
- a breach by Healtheon/WebMD or Tech Acquisition of any covenant or
agreement contained in the merger agreement, which breach is not cured by
Healtheon/WebMD within ten days following notice of such breach.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
The merger agreement may be amended by mutual agreement of the parties
before completion of the merger provided there is compliance with applicable
state law in so doing.
Either party may extend the other party's time for the performance of any
of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other party with any of the agreements or conditions contained in the
merger agreement.
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ONHEALTH RELATED TRANSACTION AGREEMENTS
VOTING AGREEMENTS
Healtheon/WebMD required the directors, executive officers and some
significant OnHealth shareholders to enter into voting agreements with
Healtheon/WebMD in connection with execution of the merger agreement. The voting
agreements require these directors, executive officers and significant
shareholders to vote all of the shares of OnHealth common stock beneficially
owned by them in favor of the merger. As of the record date, the executive
officers, directors and OnHealth shareholders who entered into the voting
agreements collectively beneficially owned shares of OnHealth common stock,
including shares issuable upon the exercise of options and warrants. Thus, as of
the record date, shareholders of OnHealth holding in excess of % of the
outstanding shares of common stock have agreed to vote in favor of the merger,
and these shareholders have executed a proxy in favor of Healtheon/WebMD to this
effect.
Each OnHealth shareholder who is a party to a voting agreement agreed not
to, directly or indirectly, sell or otherwise transfer the OnHealth common stock
and options or warrants to purchase OnHealth common stock owned, controlled or
acquired by such shareholder prior to the termination of the voting agreements
without the written consent of Healtheon/WebMD.
The voting agreements will terminate upon the earlier to occur of:
- the completion of the merger
- the termination of the merger agreement in accordance with its terms
- October 31, 2000.
ONHEALTH WARRANTS ISSUED TO HEALTHEON/WEBMD
Upon entering into the merger agreement, OnHealth issued to Healtheon/WebMD
a warrant to purchase up to 5,800,000 shares of OnHealth common stock. Subject
to customary adjustments for stock splits, stock dividends and reverse stock
splits, the warrant shares are exercisable at a price per share equal to $10.75.
The warrant was fully vested and exercisable as of February 15, 2000 and expires
on February 15, 2003.
In the event of any reorganization, reclassification, consolidation or
merger or any sale of OnHealth pursuant to which the holders of OnHealth common
stock are entitled to receive stock, securities, cash or other assets with
respect to or in exchange for such common stock, Healtheon/WebMD has the right
to purchase such number, amount and like-kind of shares of stock, securities,
cash or other assets as may be issued or payable with respect to the shares of
OnHealth common stock into which the warrant may be converted upon exercise
pursuant to the terms of such transaction. In addition, in the event OnHealth
issues additional shares of its common stock for consideration less than the
exercise price for the warrant, then the per share exercise price of the warrant
will be adjusted according to price protection provisions set forth in the
warrant. The shares of OnHealth common stock received upon exercise of the
warrant are entitled to piggy-back and demand registration rights in accordance
with the terms of the warrant. In addition, on and after February 15, 2001,
OnHealth has the right to repurchase all warrant shares purchased by
Healtheon/WebMD in excess of 3,000,000 warrant shares for a purchase price equal
to the original exercise price paid by Healtheon/WebMD.
LOAN AGREEMENT BETWEEN HEALTHEON/WEBMD AND ONHEALTH AND RELATED ONHEALTH
WARRANTS
As an inducement to OnHealth to enter into the merger agreement,
Healtheon/WebMD, under a loan agreement entered into on February 15, 2000,
agreed to lend to OnHealth operating funds of $15 million immediately following
execution of the merger agreement. OnHealth delivered a promissory note for $15
million on February 15, 2000 in exchange for the initial operating funds from
Healtheon/WebMD. Under the loan agreement, Healtheon/WebMD also agreed to make
additional loans on one or more occasions after May 1, 2000, upon demonstration
of a reasonable business need by OnHealth in an aggregate additional amount of
up to $15 million. OnHealth received additional operating funds from
Healtheon/WebMD of $5 million on each of June 13, 2000 and July 19, 2000. The
principal of the loans accrue interest at a rate of the prime rate plus two
percentage points
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per annum and are due on February 15, 2001. After Healtheon/WebMD has advanced
OnHealth loans in the aggregate amount of $25 million any additional funds will
require the approval of the special committee of Healtheon/WebMD's board of
directors which approval may be withheld in the reasonable discretion of such
committee.
If the merger is not completed on or prior to July 31, 2000 and the merger
agreement has not terminated in accordance with its terms, Healtheon/WebMD has
agreed to consider in good faith making additional loans to OnHealth upon
demonstration of a reasonable business need by OnHealth. In the event that
Healtheon/WebMD declines to advance additional funds and OnHealth has less than
$8 million of cash, money market equivalents or other marketable securities,
Healtheon/WebMD agreed to consent to OnHealth incurring additional indebtedness
from third parties that may be treated equally without preference with the loans
made by Healtheon/WebMD. Healtheon/WebMD's obligation to make any additional
loan terminates on the earlier to occur of the date the merger closes or the
date the merger agreement is terminated.
As security for the loans, OnHealth agreed to grant to Healtheon/WebMD a
security interest in substantially all of its collateral consisting of
receivables, inventory, equipment, general intangibles, documents of title,
balances, deposits and other properties and any and all products and proceeds of
such property.
In addition, in connection with the loan agreement, OnHealth issued
additional rights to Healtheon/WebMD as of February 15, 2000 that provide in the
event that:
- the merger agreement has been terminated in accordance with its terms
- any principal and accrued interest arising under the loans referenced in
this section remain outstanding as of specified dates.
OnHealth will issue to Healtheon/WebMD on such specified dates warrants to
purchase additional shares of OnHealth common stock.
The exercise price for the additional warrants is $0.01 per share. The
additional warrants shall be issuable as follows:
- a warrant for 250,000 shares will be issued 90 days after the termination
date
- a warrant for 125,000 shares will be issued 180 days after the
termination date
- a warrant for 125,000 shares will be issued 270 days after the
termination date.
The other terms of the additional warrants shall be in a form and substance
identical to the warrants described in "OnHealth warrants issued to
Healtheon/WebMD" on page 58.
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COMPARATIVE PER SHARE MARKET PRICE DATA
Healtheon/WebMD common stock has been traded on the Nasdaq National Market
under the symbol HLTH since February 10, 1999, the date of Healtheon/WebMD's
initial public offering. OnHealth common stock has been traded on the Nasdaq
Stock Market under the symbol ONHN since June 16, 1998 and previously under the
symbol of OnHealth's predecessor, IVI Publishing, Inc., IVIP, since October 6,
1993, the date of IVI Publishing's initial public offering.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Healtheon/WebMD common stock and OnHealth
common stock as reported on the Nasdaq Stock Market.
<TABLE>
<CAPTION>
ONHEALTH
HEALTHEON/WEBMD COMMON
COMMON STOCK STOCK(1)
----------------- ---------------
HIGH LOW HIGH LOW
------- ------ ------ -----
<S> <C> <C> <C> <C>
Year Ending December 31, 1998:
First Quarter............................................. $ -- $ -- $ 6.00 $2.63
Second Quarter............................................ -- -- 3.63 4.88
Third Quarter............................................. -- -- 11.38 3.63
Fourth Quarter............................................ -- -- 6.63 2.19
Year Ending December 31, 1999:
First Quarter............................................. $ 49.38 $21.75 $21.88 $4.63
Second Quarter............................................ 126.19 37.50 22.75 8.25
Third Quarter............................................. 82.63 28.25 12.63 5.71
Fourth Quarter............................................ 51.50 31.50 13.50 5.75
Year Ending December 31, 2000:
First Quarter............................................. 75.19 21.06 12.25 4.13
Second Quarter............................................ 30.88 12.06 5.69 1.69
Third Quarter (through , 2000)................
</TABLE>
------------------
(1) From January 1, 1998 through August 31, 1999, OnHealth's common stock was
traded on the Nasdaq SmallCap Market. Beginning September 1, 2000,
OnHealth's common stock was traded on the Nasdaq National Market.
The following table sets forth the closing prices per share of
Healtheon/WebMD common stock and OnHealth common stock as reported on the Nasdaq
National Market on February 15, 2000, the business day preceding public
announcement that Healtheon/WebMD and OnHealth had entered into the merger
agreement and on , 2000, the last full trading day for which closing
prices were available at the time of the printing of this proxy
statement/prospectus. This table also sets forth the equivalent price per share
of OnHealth common stock on those dates. The equivalent price per share for
OnHealth common stock is equal to the closing price of a share of
Healtheon/WebMD common stock on that date multiplied by 0.189435, the number of
shares of Healtheon/WebMD common stock to be issued in exchange for each share
of OnHealth common stock.
<TABLE>
<CAPTION>
ONHEALTH
HEALTHEON/WEBMD ONHEALTH EQUIVALENT PER
COMMON STOCK COMMON STOCK SHARE PRICE
--------------- ------------ --------------
<S> <C> <C> <C>
February 15, 2000................................. $68.63 $ 9.97 $13.00
, 2000................................
</TABLE>
OnHealth shareholders are advised to obtain current market quotations for
Healtheon/WebMD common stock and OnHealth common stock, respectively. No
assurance can be given as to the market prices of Healtheon/WebMD common stock
or OnHealth common stock at any time before the consummation of the merger or as
to the market price of Healtheon/WebMD common stock at any time after the
merger.
Healtheon/WebMD and OnHealth have never paid cash dividends on their
respective shares of capital stock. Pursuant to the merger agreement, OnHealth
and Healtheon/WebMD each has agreed not to pay cash dividends pending the
consummation of the merger, without written consent of the other party.
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HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
is presented herein:
- unaudited pro forma condensed combined balance sheet as of March 31, 2000
reflecting the acquisition by Healtheon/WebMD of Envoy and the proposed
Medical Manager and CareInsite mergers, and unaudited pro forma condensed
combined statements of operations for the year ended December 31, 1999
and three months ended March 31, 2000 reflecting the proposed Medical
Manager and CareInsite mergers
- unaudited pro forma condensed combined statements of operations of
Healtheon/WebMD for the year ended December 31, 1999 and three months
ended March 31, 2000 reflecting the November 1999 acquisitions of WebMD,
MedE America and Medcast, the January 2000 acquisition of Kinetra, the
May 2000 acquisition of Envoy and the strategic alliance with News
Corporation
- unaudited pro forma condensed combined statements of operations of
Medical Manager and CareInsite for the year ended December 31, 1999 and
three months ended March 31, 2000 reflecting the March 30, 2000
acquisition of certain assets of Physician Computer Network.
Pro forma information regarding the merger with OnHealth are not required
to be reflected in the unaudited pro forma condensed combined financial
information in accordance with applicable regulations of the SEC.
The historical financial information has been derived from the respective
historical financial statements of Healtheon/WebMD and Medical Manager, which
contains the historical financial information of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite, and should be read
in conjunction with the financial statements and the related notes included in
or incorporated by reference into this proxy statement/prospectus.
The unaudited pro forma condensed combined balance sheet has been prepared
assuming the mergers with Medical Manager and CareInsite took place as of March
31, 2000 and combine the unaudited pro forma balance sheet of Healtheon/WebMD,
after giving effect to the May 2000 acquisition of Envoy as of March 31, 2000,
and the unaudited historical balance sheet of Medical Manager as of March 31,
2000, which contains the balance sheets of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite.
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of Healtheon/WebMD and Medical Manager,
which contains the statements of operations of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite, and give effect to
the mergers with Medical Manager and CareInsite, including the amortization of
goodwill and other intangible assets resulting from the mergers with Medical
Manager and CareInsite, as if they occurred on January 1, 1999. Medical
Manager's fiscal year end is June 30, and its financial information has been
presented on a December 31 calendar-year basis to conform to Healtheon/WebMD's
December 31 fiscal year end. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1999 combines the
unaudited pro forma consolidated statement of operations of Healtheon/WebMD for
the year ended December 31, 1999, after giving effect to the November 1999
mergers with WebMD, MedE America and Medcast, the January 2000 acquisition of
Kinetra and strategic alliance with News Corporation and the May 2000
acquisition of Envoy, and the unaudited pro forma consolidated statement of
operations of Medical Manager for the twelve months ended December 31, 1999,
after giving effect to the March 2000 acquisition of certain assets of Physician
Computer Network. The unaudited pro forma condensed combined statement of
operations for the three months ended March 31, 2000 combines the unaudited pro
forma combined condensed statement of operations of Healtheon/WebMD for the
three months ended March 31, 2000, after giving effect to the January 2000
acquisition of Kinetra and strategic alliance with News Corporation and the May
2000 acquisition of Envoy, and the unaudited pro forma consolidated statement of
operations of Medical Manager for the three months ended March 31, 2000, after
giving effect to the March 2000 acquisition of certain assets of Physician
Computer Network.
61
<PAGE> 67
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not indicative of the operating results or
financial position that would have actually occurred if the Medical Manager and
CareInsite mergers, either individually or combined, had been consummated as of
the dates indicated, nor is it necessarily indicative of the future operating
results or financial position of the combined companies of Healtheon/WebMD,
Medical Manager and CareInsite. The pro forma adjustments are based on the
information available at the time of the printing of this proxy
statement/prospectus.
62
<PAGE> 68
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH ENVOY, MEDICAL MANAGER AND CAREINSITE
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------------------------------------------------------------
HEALTHEON/WEBMD
-------------------------------------------------- MEDICAL
PRO FORMA PRO FORMA MANAGER PRO FORMA PRO FORMA
HISTORICAL ENVOY(5) ADJUSTMENTS COMBINED (I)(13) ADJUSTMENTS COMBINED
---------- -------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..... $1,160,682 $ 23,148 $ (400,000)(2) $ 783,830 $ 90,697 $ -- $ 874,527
Marketable securities......... -- -- -- -- 50,436 -- 50,436
Accounts and notes receivable,
net......................... 71,925 48,823 -- 120,748 75,859 -- 196,607
Inventories................... -- -- -- -- 20,041 -- 20,041
Other current assets.......... 15,564 6,138 -- 21,702 25,516 -- 47,218
---------- -------- ---------- ---------- ---------- ----------- -----------
Total current assets.... 1,248,171 78,109 (400,000) 926,280 262,549 -- 1,188,829
Property and equipment........ 65,103 15,852 -- 80,955 73,792 -- 154,747
Marketable securities......... -- -- -- -- 245,000 -- 245,000
Prepaid content and
services.................... 616,875 -- -- 616,875 -- -- 616,875
Goodwill and other intangible
assets, net................. 3,763,748 62,512 (62,512)(4) 6,145,964 463,594 (463,594)(4) 8,831,144
2,382,216(2) 2,685,180(1)
Other assets.................. 54,370 13,723 -- 68,093 16,971 -- 85,064
---------- -------- ---------- ---------- ---------- ----------- -----------
Total assets............ $5,748,267 $170,196 $1,919,704 $7,838,167 $1,061,906 $ 2,221,586 $11,121,659
========== ======== ========== ========== ========== =========== ===========
Current liabilities:
Accounts payable.............. $ 45,186 $ 4,991 $ -- $ 50,177 $ 20,941 $ -- $ 71,118
Other accrued liabilities..... 81,770 26,891 31,924(2) 140,585 62,574 64,860(1) 268,019
Deferred revenue.............. 10,532 -- -- 10,532 27,741 -- 38,273
Current portion of long-term
obligations................. 2,204 157 -- 2,361 4,239 -- 6,600
---------- -------- ---------- ---------- ---------- ----------- -----------
Total current
liabilities........... 139,692 32,039 31,924 203,655 115,495 64,860 384,010
Deferred tax liabilities........ 118,794 -- -- 118,794 35,959 -- 154,753
Long-term obligations........... 2,615 3,146 -- 5,761 29,989 -- 35,750
Minority interest............... -- -- -- -- 123,849 (123,849)(3) --
Convertible redeemable preferred
stock......................... -- -- -- -- -- 10,000(1) 10,000
Stockholders' equity:
Preferred stock............... 629,000 -- -- 629,000 -- -- 629,000
Common stock.................. 18 -- 4(2) 22 459 (459)(3) 35
13(1)
Paid in capital............... 5,684,964 191,525 (191,525)(3) 7,707,751 732,706 (732,706)(3) 10,734,927
2,022,787(2) 3,027,176(1)
Deferred compensation......... (3,931) -- -- (3,931) -- -- (3,931)
Retained earnings (accumulated
deficit).................... (822,885) (56,514) 56,514(3) (822,885) 61,736 (61,736)(3) (822,885)
Treasury stock................ -- -- -- -- (38,287) 38,287(3) --
---------- -------- ---------- ---------- ---------- ----------- -----------
Total stockholders'
equity................ 5,487,166 135,011 1,887,780 7,509,957 756,614 2,270,575 10,537,146
---------- -------- ---------- ---------- ---------- ----------- -----------
Total liabilities and
stockholders'
equity................ $5,748,267 $170,196 $1,919,704 $7,838,167 $1,061,906 $ 2,221,586 $11,121,659
========== ======== ========== ========== ========== =========== ===========
</TABLE>
------------------
(i) Includes the consolidated balance sheets of Medical Manager, its wholly
owned subsidiaries and its majority-owned subsidiary, CareInsite.
See accompanying notes.
63
<PAGE> 69
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH MEDICAL MANAGER AND CAREINSITE
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
HEALTHEON/WEBMD MEDICAL MANAGER
PRO FORMA PRO FORMA
COMBINED COMBINED PRO FORMA PRO FORMA
(I) (II)(13) ADJUSTMENTS COMBINED
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................................. $ 416,014 $ 401,328 $ (6,174)(9) $ 811,168
Operating costs and expenses:
Cost of operations.................... 271,673 217,795 (6,174)(9) 483,294
Development and engineering........... 81,507 27,153 -- 108,660
Sales and marketing................... 211,237 58,672 -- 269,909
General and administrative............ 98,674 66,770 -- 165,444
Litigation expenses................... -- 5,400 -- 5,400
Merger and related costs.............. 10,563 17,991 -- 28,554
Non-cash stock compensation........... 29,216 -- -- 29,216
Depreciation and amortization......... 2,221,059 36,485 (23,013)(8) 3,129,591
895,060(6)
----------- ---------- --------- -----------
Total operating costs and
expenses.................... 2,923,929 430,266 865,873 4,220,068
----------- ---------- --------- -----------
Loss from operations.................... (2,507,915) (28,938) (872,047) (3,408,900
Interest and other income, net.......... 7,865 17,107 (1,001)(12) 23,971
Gain (loss) on sale of investments...... -- 24,887 (25,511)(11) (624)
Income taxes............................ -- (9,956) 9,956(10) --
Dividends on preferred stock............ (139,525) -- -- (139,525)
Extraordinary loss...................... (2,198) -- -- (2,198)
Accretion of redeemable warrants to
redemption value...................... (538) -- -- (538)
----------- ---------- --------- -----------
Net loss applicable to common
stockholders.......................... $(2,642,311) $ 3,100 $(888,603) $(3,527,814)
=========== ========== ========= ===========
Basic and diluted net loss per common
share................................. $ (13.81) $ (10.84)
=========== ===========
Weighted-average shares outstanding used
in computing basic and diluted net
loss per common share................. 191,350 134,074(7) 325,424
=========== ========= ===========
</TABLE>
------------------
(i) Reflects the mergers of WebMD, MedE America and Medcast with
Healtheon/WebMD in November 1999, Healtheon/WebMD's January 2000
acquisition of Kinetra and strategic alliance with News Corporation, the
May 2000 acquisition of Envoy, and all pro forma adjustments associated
with these transactions. See page 69 for detailed information on
Healtheon/WebMD pro forma condensed combined statement of operations.
(ii) Includes the consolidated statements of operations of Medical Manager, its
wholly owned subsidiaries and its majority-owned subsidiary, CareInsite,
the acquisition by Medical Manager of Physician Computer Network on March
30, 2000 and all pro forma adjustments associated with this transaction.
See page 73 for detailed information on Medical Manager pro forma condensed
combined statement of operations.
See accompanying notes.
64
<PAGE> 70
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH MEDICAL MANAGER AND CAREINSITE
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------
HEALTHEON/WEBMD MEDICAL MANAGER
PRO FORMA PRO FORMA
COMBINED COMBINED PRO FORMA PRO FORMA
(I) (II)(13) ADJUSTMENTS COMBINED
--------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue................................ $ 126,082 $ 100,729 $ (2,360)(9) $ 224,451
Operating costs and expenses:
Cost of operations................... 90,357 55,280 (2,360)(9) 143,277
Development and engineering.......... 12,879 12,526 -- 25,405
Sales and marketing.................. 91,722 17,261 -- 108,983
General and administrative........... 21,772 20,531 -- 42,303
Litigation expenses.................. -- 350 -- 350
Depreciation and amortization........ 551,384 17,958 (13,779)(8) 779,328
223,765(6)
--------- --------- ------------ -----------
Total operating costs and
expenses................... 768,114 123,906 207,626 1,099,646
--------- --------- ------------ -----------
Loss from operations................... (642,032) (23,177) (209,986) (875,195)
Interest and other income, net......... 12,970 12,900 (7,202)(12) 18,668
Income taxes........................... -- (2,617) 2,617(10) --
--------- --------- ------------ -----------
Net loss applicable to common
stockholders......................... $(629,062) $ (12,894) $ (214,571) $ (856,527)
========= ========= ============ ===========
Basic and diluted net loss per common
share................................ $ (2.95) $ (2.47)
========= ===========
Weighted-average shares outstanding
used in computing basic and diluted
net loss per common share............ 213,187 134,074(7) 347,261
========= ============ ===========
</TABLE>
------------------
(i) Reflects Healtheon/WebMD's January 2000 acquisition of Kinetra and
strategic alliance with News Corporation and its May 2000 acquisition of
Envoy and all pro forma adjustments associated with these transactions. See
page 69 for detailed information on Healtheon/WebMD pro forma condensed
combined statement of operations.
(ii) Includes the consolidated statements of operations of Medical Manager, its
wholly owned subsidiaries and its majority-owned subsidiary, CareInsite,
the acquisition by Medical Manager of Physician Computer Network on March
30, 2000 and all pro forma adjustments associated with this transaction.
See page 73 for detailed information on Medical Manager pro forma condensed
combined statement of operations.
See accompanying notes.
65
<PAGE> 71
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The total estimated purchase prices of the acquisition of Envoy and the
Medical Manager and CareInsite proposed mergers have been allocated on a
preliminary basis to assets and liabilities based on management's estimate of
their fair values. The excess of the purchase prices over the fair value of the
net assets acquired has been allocated to goodwill and other intangible assets.
Although the purchase prices and their allocation are not final, it is
anticipated that a portion of the purchase prices will be allocated to assembled
workforce, strategic relationships, contracts, trademarks, customer lists and
relationships and technology. These allocations are subject to change pending
the completion of the final analysis of the total purchase prices and fair
values of the assets acquired and liabilities assumed. The impact of any of
these changes could be material.
Reclassifications have been made to the historical financial statements to
conform to the presentation of the combined companies of Healtheon/WebMD,
Medical Manager and CareInsite.
The adjustments to the unaudited pro forma condensed combined balance sheet
as of March 31, 2000 have been calculated as if the Medical Manager and
CareInsite mergers occurred on March 31, 2000 and are as follows:
(1) To reflect the acquisition of all of the outstanding capital stock of
Medical Manager and CareInsite by exchanging shares of Healtheon/WebMD
common stock for each outstanding share of Medical Manager and
CareInsite common stock for a total estimated combined purchase price
of approximately $3.1 billion. The purchase consideration consists of
the issuance of an estimated 134.1 million shares of Healtheon/WebMD's
common stock with a fair value of approximately $2.1 billion, the
issuance of $10 million of convertible redeemable preferred stock, the
assumption of options and warrants to purchase 78.0 million shares of
Healtheon/WebMD common stock with a fair value of approximately $886.2
million, and other merger costs related to the Medical Manager and
CareInsite transactions of approximately $64.9 million, consisting
primarily of approximately $50.5 million in investment banking, legal,
accounting and regulatory filing fees, and approximately $14.4 million
in costs anticipated to be incurred for employee retention, work force
reduction, facility consolidation and other merger-related costs.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
MEDICAL MANAGER CAREINSITE
---------------------------- --------------------------- TOTAL AGGREGATE
EQUIVALENT FAIR VALUE EQUIVALENT FAIR VALUE HEALTHEON/WEBMD FAIR VALUE
SHARES (IN THOUSANDS) SHARES (IN THOUSANDS) SHARES (IN THOUSANDS)
----------- -------------- ---------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares............... 102,015,858 $1,629,066 32,058,345 $511,931 134,074,203 $2,140,997
Stock Options........ 61,261,153 727,766 13,642,070 137,784 74,903,223 865,550
Convertible
Redeemable
Preferred Stock.... -- -- 263,900 10,000 263,900 10,000
Warrants............. 207,983 522 2,896,400 20,120 3,104,383 20,642
----------- ---------- ---------- -------- ----------- ----------
163,484,994 $2,357,354 48,860,715 $679,835 212,345,709 3,037,189
=========== ========== ========== ======== ===========
Merger Costs......... 64,860
----------
$3,102,049
==========
</TABLE>
The fair value of common stock to be issued was calculated using an
estimated per-share value of $16.50. The estimated fair value of the
options and warrants to be assumed is based on the Black-Scholes model
using the following assumptions:
- expected lives of 0.5 to 5.5 years
- expected volatility factor of 1.0
- risk-free interest rates ranging from 5.5% to 6.6%
- expected dividend rate of 0.0%.
66
<PAGE> 72
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION -- (CONTINUED)
The excess purchase price of approximately $2.7 billion over the fair
value of net tangible assets acquired has been recorded as goodwill and
other intangible assets.
(2) To reflect the acquisition of Envoy in exchange for 35 million shares
of Healtheon/WebMD common stock and $400 million in cash for a total
estimated combined purchase price of $2.5 billion and to reflect
merger costs related to the Envoy transaction of approximately $31.9
million, consisting primarily of investment banking fees, legal,
accounting and other merger-related costs. The excess purchase price
of approximately $2.4 billion over the fair value of net tangible
assets acquired has been recorded as goodwill and other intangible
assets.
(3) To reflect the elimination of the historical stockholders' equity
accounts of Envoy and Medical Manager and to eliminate the stockholder
interest in CareInsite not owned by Medical Manager.
(4) To reflect the elimination of the historical goodwill and other
intangible assets on the balance sheets of Envoy and Medical Manager
as of the acquisition date.
(5) Excludes the balance sheet of Envoy's subsidiary, Synergy Health Care,
Inc., which was not acquired by Healtheon/WebMD. The following
financial information combines Envoy's pro forma financial information
with Synergy's historical financial information to reconcile to
Envoy's historical financial information, which is incorporated by
reference in this proxy statement/prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------------------
(IN THOUSANDS)
ENVOY
ENVOY SYNERGY CONSOLIDATED
-------- ------- ------------
<S> <C> <C> <C>
Total current assets........................... $ 78,109 $ 1,319 $ 79,428
Total assets................................... 170,196 13,396 183,592
Total current liabilities...................... 32,039 357 32,396
Long-term obligations.......................... 3,146 66 3,212
Total stockholders' equity..................... 135,011 12,973 147,984
</TABLE>
The adjustments to the unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1999 and the three
months ended March 31, 2000 assume the Medical Manager and CareInsite
mergers occurred as of January 1, 1999 and are as follows:
(6) To reflect the amortization of goodwill and other intangible assets
resulting from the Medical Manager and CareInsite mergers. The
goodwill and other intangible assets are being amortized over periods
of approximately three years. Currently, management does not
anticipate that any significant value will be attributed to purchased
in-process research and development.
(7) Basic and diluted net loss per share have been adjusted to reflect the
issuance of approximately 134.1 million shares of Healtheon/WebMD's
common stock as if the shares had been outstanding for the entire
periods presented. Stock options and warrants assumed in the Medical
Manager and CareInsite mergers have not been included as their
inclusion would be anti-dilutive.
(8) To eliminate amortization related to historical intangible assets of
the acquired companies.
(9) To eliminate intercompany revenue and cost of operations.
(10) To eliminate income tax expense as a result of pro forma consolidated
loss.
(11) To eliminate the gain on sale of Healtheon/WebMD common stock by
Medical Manager.
(12) To eliminate the minority interest in CareInsite's net loss.
67
<PAGE> 73
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION -- (CONTINUED)
(13) The Medical Manager pro forma combined financial information includes
its majority-owned subsidiary CareInsite. Following financial
information is derived from CareInsite's stand alone financial
statements (in thousands):
Balance sheet information:
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
<S> <C>
Cash and cash equivalents................................... $ 19,064
Current assets.............................................. 83,752
Total assets................................................ 289,437
Current liabilities......................................... 21,487
Total liabilities and stockholders' equity.................. 289,437
</TABLE>
Statement of operations information:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
------------------- ------------------
<S> <C> <C>
Revenue.................................... $ 4,522 $ 1,651
Loss from operations....................... (37,655) (25,811)
Net loss applicable to common
stockholders............................. (9,138) (24,710)
</TABLE>
68
<PAGE> 74
HEALTHEON/WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS FOR HEALTHEON/WEBMD
COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST,
THE NEWS CORPORATION STRATEGIC ALLIANCE, KINETRA AND ENVOY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1999 and three months ended March 31,
2000 reflect Healtheon/WebMD's acquisitions of WebMD, MedE America, Medcast,
Kinetra and Envoy and the completion of its strategic alliance with News
Corporation as if the acquisitions and strategic alliance had been completed on
January 1, 1999. The following unaudited pro forma condensed combined statements
of operations also give effect to reclassifications to the unaudited historical
financial statements to conform the presentation of the historical operations of
the merged companies. The following is a brief description of the acquisitions
and strategic alliance:
- In November 1999, Healtheon merged with WebMD, exchanging 1.796 shares of
its common stock valued at $34.48 per share for each share of WebMD
outstanding capital stock in a transaction accounted for as a purchase.
The total purchase consideration was approximately $3,659,921 and
resulted in goodwill of $2,944,804, which is being amortized over three
years, and approximately $196,307 of intangible assets related to WebMD's
acquired technology, customer lists, trademarks and other intangibles.
- In November 1999, Healtheon acquired MedE America, exchanging 0.7494
shares of its common stock valued at $37.31 per share for each share of
MedE America outstanding capital stock in a transaction accounted for as
a purchase. The total purchase consideration was approximately $417,292
and resulted in goodwill of $324,983, which is being amortized over four
years, and approximately $105,545 of intangible assets related to MedE
America's customer lists, trademarks and acquired technology.
- In November 1999, Healtheon acquired Medcast, exchanging 2,692,501 shares
or options to purchase shares of its common stock valued at $40.10 per
share and approximately $2,336 in cash for all Medcast outstanding
capital stock in a transaction accounted for as a purchase. The total
purchase consideration was approximately $112,953 and resulted in
goodwill of approximately $109,755, which is being amortized over three
years, and intangible assets of approximately $17,700 related to
Medcast's customer lists, trademarks and acquired technology.
- In January 2000, Healtheon/WebMD completed the transactions contemplated
by its strategic alliance agreement with News Corporation, Fox
Entertainment Group and some of their affiliates, which are collectively
referred to in this proxy statement/prospectus as News Corporation. The
alliance included the transfer to Healtheon/WebMD of a 50% interest in
The Health Network and thehealthnetwork.com, a $100 million cash
investment commitment by News Corporation in an international joint
venture, a $300 million commitment to provide media branding services
over a ten year term, and a commitment by News Corporation to provide to
Healtheon/WebMD $400 million in media branding services over a ten-year
period in exchange for 155,951 shares of Healtheon/WebMD's Series A
preferred stock. The Series A preferred stock is convertible into an
aggregate of 21,282,645 shares of Healtheon/WebMD's common stock valued
at $629,000. Also in connection with this alliance, News Corporation
purchased 2,000,000 shares of Healtheon/WebMD's common stock at $50.00
per share for an aggregate purchase price of $100 million in cash. As a
result of the alliance, Healtheon/WebMD recorded goodwill of $185
million, which is being amortized over five years, and approximately $74
million of intangible assets related to The Health Network's trademarks,
acquired technology and other intangible assets.
- In January 2000, Healtheon/WebMD acquired Kinetra, exchanging 7,437,248
shares of Healtheon/WebMD's common stock valued at $38.49 per share for
all of Kinetra's membership interests in a transaction accounted for as a
purchase. The total purchase consideration was approximately $290 million
and resulted in goodwill and other intangibles of $270 million, which is
being amortized over three years.
- In May 2000, Healtheon/WebMD acquired Envoy, a subsidiary of Quintiles,
for 35,000,000 shares of Healtheon/WebMD's common stock valued at $57.79
per share and $400 million in cash in a transaction accounted for as a
purchase. The total purchase consideration was approximately $2.5 billion
and resulted in goodwill and other intangibles of $2.4 billion, which are
being amortized over three years.
69
<PAGE> 75
HEALTHEON/WEBMD CORPORATION
HEALTHEON/WEBMD UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST, THE NEWS CORPORATION STRATEGIC
ALLIANCE,
KINETRA AND ENVOY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------------
HEALTHEON/ MEDE NEWS
WEBMD WEBMD AMERICA MEDCAST CORPORATION KINETRA ENVOY(6)
---------- --------- ------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue......................................... $ 102,149 $ 16,579 $51,662 $ 211 $ 7,967 $ 18,661 $219,909
Operating costs and expenses:
Cost of operations............................. 88,576 3,362 20,050 13,016 26,055 22,969 98,769
Development and engineering.................... 29,669 36,676 4,189 1,130 -- 8,675 1,168
Sales and marketing expense.................... 54,556 104,853 12,409 12,041 8,001 4,024 15,353
General and administrative..................... 27,759 25,015 6,039 5,184 3,319 3,276 28,082
Merger and related costs....................... -- -- 1,507 -- -- -- 9,056
Non-cash stock compensation.................... -- 29,216 -- -- -- -- --
Depreciation and amortization.................. 193,067 16,257 8,034 795 2,513 3,236 19,237
--------- --------- ------- -------- -------- -------- --------
Total operating costs and expenses........ 393,627 215,379 52,228 32,166 39,888 42,180 171,665
--------- --------- ------- -------- -------- -------- --------
Income (loss) from operations................... (291,478) (198,800) (566) (31,955) (31,921) (23,519) 48,244
Interest and other income, net.................. 3,486 4,407 (1,279) 230 (515) 1,472 64
Income taxes.................................... -- -- -- -- -- -- (23,640)
Dividends on preferred stock.................... -- (139,281) (244) -- -- -- --
Extraordinary loss.............................. -- -- (2,198) -- -- -- --
Accretion of redeemable warrants and preferred
stock to redemption value...................... -- (538) -- (58,539) -- -- --
--------- --------- ------- -------- -------- -------- --------
Net income (loss) applicable to common
stockholders................................... $(287,992) $(334,212) $(4,287) $(90,264) $(32,436) $(22,047) $ 24,668
========= ========= ======= ======== ======== ======== ========
Basic and diluted net loss per common share..... $ (3.58)
=========
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share.......................................... 80,367
=========
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------
WEBMD MEDE MEDCAST NEWS KINETRA
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $ (515)(7) $ -- $ -- $ --
Operating costs and expenses:
Cost of operations............................. -- (609)(7) -- -- --
Development and engineering.................... -- -- -- -- --
Sales and marketing expense.................... -- -- -- -- --
General and administrative..................... -- -- -- -- --
Merger and related costs....................... -- -- -- -- --
Non-cash stock compensation.................... -- -- -- -- --
Depreciation and amortization.................. (14,031)(2) (3,952)(2) 37,929(1) 51,745(1) (3,236)(2)
917,137(1) 120,021(1) 89,945(1)
---------- --------- -------- -------- --------
Total operating costs and expenses........ 903,106 115,460 37,929 51,745 86,709
---------- --------- -------- -------- --------
Income (loss) from operations................... (903,106) (115,975) (37,929) (51,745) (86,709)
Interest and other income, net.................. -- -- -- -- --
Income taxes.................................... -- -- -- -- --
Dividends on preferred stock.................... -- -- -- -- --
Extraordinary loss.............................. -- -- -- -- --
Accretion of redeemable warrants and preferred
stock to redemption value...................... -- -- 58,539(4) -- --
---------- --------- -------- -------- --------
Net income (loss) applicable to common
stockholders................................... $ (903,106) $(115,975) $ 20,610 $(51,745) $(86,709)
========== ========= ======== ======== ========
Basic and diluted net loss per common share.....
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share.......................................... 55,350(3) 9,007(3) 2,189(3) 2,000(3) 7,437(3)
========== ========= ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------
ENVOY
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- -----------
<S> <C> <C>
Revenue......................................... (609)(7) $ 416,014
Operating costs and expenses:
Cost of operations............................. (515)(7) 271,673
Development and engineering.................... -- 81,507
Sales and marketing expense.................... -- 211,237
General and administrative..................... -- 98,674
Merger and related costs....................... -- 10,563
Non-cash stock compensation.................... -- 29,216
Depreciation and amortization.................. (11,710)(2) 2,221,059
794,072(1)
--------- -----------
Total operating costs and expenses........ 781,847 2,923,929
--------- -----------
Income (loss) from operations................... (782,456) (2,507,915)
Interest and other income, net.................. -- 7,865
Income taxes.................................... 23,640(5) --
Dividends on preferred stock.................... -- (139,525)
Extraordinary loss.............................. -- (2,198)
Accretion of redeemable warrants and preferred
stock to redemption value...................... -- (538)
--------- -----------
Net income (loss) applicable to common
stockholders................................... $(758,816) $(2,642,311)
========= ===========
Basic and diluted net loss per common share..... $ (13.81)
===========
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share.......................................... 35,000(3) 191,350
========= ===========
</TABLE>
See accompanying notes.
70
<PAGE> 76
HEALTHEON/WEBMD CORPORATION
HEALTHEON/WEBMD UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST, THE NEWS CORPORATION STRATEGIC
ALLIANCE,
KINETRA AND ENVOY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------
NEWS
HEALTHEON/ NEWS PRO FORMA
WEBMD CORPORATION KINETRA ENVOY(6) ADJUSTMENTS
---------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenue............................ $ 65,881 $ 1,026 $ 1,432 $59,407 $ --
Operating costs and expenses:
Cost of operations............... 59,365 2,031 2,227 28,398 --
Development and engineering...... 11,574 -- 1,002 303 --
Sales and marketing.............. 86,715 676 371 3,960 --
General and administrative....... 13,811 322 261 7,378 --
Depreciation and amortization.... 338,710 21 649 3,870 4,312(1)
--------- -------- ------- ------- -------
Total operating costs and
expenses................. 510,175 3,050 4,510 43,909 4,312
--------- -------- ------- ------- -------
Income (loss) from operations...... (444,294) (2,024) (3,078) 15,498 (4,312)
Interest and other income, net..... 12,829 (12) 153 --
Income taxes....................... -- -- -- (6,179) --
--------- -------- ------- ------- -------
Net income (loss) applicable to
common stockholders.............. $(431,465) $ (2,024) $(3,090) $ 9,472 $(4,312)
========= ======== ======= ======= =======
Basic and diluted net loss per
common share..................... $ (2.47)
---------
Weighted-average shares outstanding
used in computing basic and
diluted net loss per common
share............................ 175,041 667(3)
========= =======
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------------
KINETRA ENVOY
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS COMBINED
----------- ----------- ---------
<S> <C> <C> <C>
Revenue............................ $ -- $ (1,664)(7) $ 126,082
Operating costs and expenses:
Cost of operations............... -- (1,664)(7) 90,357
Development and engineering...... -- -- 12,879
Sales and marketing.............. -- -- 91,722
General and administrative....... -- -- 21,772
Depreciation and amortization.... (331)(2) (1,860)(2) 551,384
7,495(1) 198,518(1)
------- --------- ---------
Total operating costs and
expenses................. 7,164 194,994 768,114
------- --------- ---------
Income (loss) from operations...... (7,164) (196,658) (642,032)
Interest and other income, net..... -- -- 12,970
Income taxes....................... -- 6,179(5) --
------- --------- ---------
Net income (loss) applicable to
common stockholders.............. $(7,164) $(190,479) $(629,062)
======= ========= =========
Basic and diluted net loss per
common share..................... $ (2.95)
=========
Weighted-average shares outstanding
used in computing basic and
diluted net loss per common
share............................ 2,479(3) 35,000(3) 213,187
======= ========= =========
</TABLE>
See accompanying notes.
71
<PAGE> 77
HEALTHEON/WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR HEALTHEON/WEBMD COMBINED WITH WEBMD, MEDE AMERICA, MEDCAST,
THE NEWS CORPORATION STRATEGIC ALLIANCE, KINETRA AND ENVOY
The adjustments to the unaudited pro forma condensed combined statements of
operations for the three months ended March 31, 2000 and year ended December 31,
1999 assume the mergers occurred as of January 1, 1999 and are as follows:
(1) To reflect the amortization of goodwill and other intangible assets
resulting from the mergers. The goodwill and other intangible assets
are being amortized over periods of approximately three to five years.
Currently, management does not anticipate that any significant value
will be attributed to purchased in-process research and development.
(2) To reflect the elimination of amortization related to historical
intangible assets of the acquired companies.
(3) Basic and diluted net loss per share have been adjusted to reflect the
issuance of Healtheon/WebMD's common stock as if the shares had been
outstanding for the entire periods presented. The effects of stock
options and warrants assumed and preferred stock issued in the mergers
have not been included as their inclusion would be anti-dilutive.
(4) To reflect the reversal of accretion on redeemable preferred stock that
was forfeited by redeemable preferred stockholders upon the completion
of the Medcast merger.
(5) To eliminate income tax expense as a result of pro forma consolidated
loss.
(6) Excludes the statement of operations of Envoy's subsidiary, Synergy,
which was not acquired by Healtheon/WebMD. The following financial
information combines Envoy's pro forma financial information with
Synergy's historical financial information to reconcile to Envoy's
historical financial information which is incorporated by reference in
this proxy statement/prospectus:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 THREE MONTHS ENDED MARCH 31, 2000
----------------------------------- ----------------------------------
(IN THOUSANDS) (IN THOUSANDS)
ENVOY ENVOY
ENVOY SYNERGY CONSOLIDATED ENVOY SYNERGY CONSOLIDATED
-------- ------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $219,909 $ 2,547 $222,456 $59,407 $ 914 $60,321
Income (loss) from operations... 48,244 (1,557) 46,687 15,498 (1,444) 14,054
Net income (loss)............... 24,668 (1,664) 23,004 9,472 (881) 8,591
</TABLE>
(7) To eliminate intercompany revenue and cost of operations.
72
<PAGE> 78
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS OF MEDICAL MANAGER
AND CAREINSITE COMBINED WITH PHYSICIAN COMPUTER NETWORK
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1999 and three months ended March 31,
2000 reflect the acquisition of certain assets of Physician Computer Network on
March 30, 2000 for a purchase price of $60 million, including forgiveness of $7
million of outstanding loans made by Medical Manager to Physician Computer
Network, plus the assumption of certain liabilities. The acquisition is
considered a taxable transaction for federal, state and local income tax
purposes.
The Medical Manager unaudited pro forma combined condensed consolidated
statements of operations have been presented as if the Physician Computer
Network acquisition had been consummated on January 1, 1999. For purposes of
combining Medical Manager's historical financial data with Physician Computer
Network's historical financial data in the unaudited pro forma combined
condensed consolidated statement of operations, the unaudited financial data of
Medical Manager for the twelve months ended December 31, 1999 has been combined
with audited financial data of Physician Computer Network for the twelve months
ended December 31, 1999.
73
<PAGE> 79
MEDICAL MANAGER CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MANAGER PHYSICIAN COMPUTER
CORPORATION NETWORK PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
--------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue.................................. $333,045 $ 68,823 $ (540)(1) $401,328
Operating costs and expenses:
Cost of operations..................... 169,737 48,598 (540)(1) 217,795
Development and engineering............ 23,190 3,963 -- 27,153
Selling, general and administrative.... 105,969 19,473 -- 125,442
Litigation expenses.................... 5,400 23,400 (23,400)(2) 5,400
Merger and related costs............... 17,991 -- -- 17,991
Depreciation and amortization.......... 20,115 6,189 (4,719)(3) 36,485
14,900(4)
-------- -------- -------- --------
Total operating costs and
expenses..................... 342,402 101,623 (13,759) 430,266
-------- -------- -------- --------
Loss from operations..................... (9,357) (32,800) 13,219 (28,938)
Interest and other income, net........... 15,362 13,009 (1,426)(5) 17,107
(9,838)(6)
Gain on sale of investments.............. 24,887 -- -- 24,887
Income taxes............................. (14,474) (125) 4,643(7) (9,956)
-------- -------- -------- --------
Net income (loss) applicable to common
stockholders........................... $ 16,418 $(19,916) $ 6,598 $ 3,100
======== ======== ======== ========
Net income per share -- basic:
Net income per share................... $ 0.46 $ 0.08
======== ========
Weighted average shares outstanding.... 35,694 779(8) 36,473
======== ======== ========
Net income per share -- diluted:
Net income per share................... $ 0.43 $ 0.08
======== ========
Weighted average shares outstanding.... 38,414 779(8) 39,193
======== ======== ========
</TABLE>
See accompanying notes to financial statements
74
<PAGE> 80
MEDICAL MANAGER CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL MANAGER PHYSICIAN COMPUTER PRO
CORPORATION NETWORK PRO FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
--------------- ------------------ ----------- --------
<S> <C> <C> <C> <C>
Revenue................................... $88,401 $12,403 $ (75)(1) $100,729
Operating costs and expenses:
Cost of operations...................... 46,236 9,119 (75)(1) 55,280
Development and engineering............. 11,316 1,210 -- 12,526
Selling, general and administrative..... 34,982 2,810 -- 37,792
Litigation expenses..................... 350 -- -- 350
Depreciation and amortization........... 14,002 972 (741)(3) 17,958
3,725(4)
------- ------- ------- --------
Total operating costs and
expenses...................... 106,886 14,111 2,909 123,906
------- ------- ------- --------
Income (loss) from operations............. (18,485) (1,708) (2,984) (23,177)
Interest and other income, net............ 12,982 275 (357)(5) 12,900
Income taxes.............................. (3,953) -- 1,336(7) (2,617)
------- ------- ------- --------
Net loss applicable to common
stockholders............................ $(9,456) $(1,433) $(2,005) $(12,894)
======= ======= ======= ========
Basic and diluted net loss per common
share................................... $ (0.25) $ (0.33)
======= ========
Weighted-average shares outstanding used
in computing basic and diluted net loss
per common share........................ 37,981 779(8) 38,760
======= ======= ========
</TABLE>
See accompanying notes to financial statements
75
<PAGE> 81
MEDICAL MANAGER CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(UNAUDITED)
The total estimated purchase price of Physician Computer Network has been
allocated on a preliminary basis to the assets and liabilities based on
management's best estimates of their fair value with the excess over the net
tangible assets acquired allocated to goodwill. These allocations are subject to
change pending a final determination and analysis of the total purchase price
and the fair value of the assets acquired and liabilities assumed. The
acquisition will be accounted for under the purchase method of accounting. The
excess of the purchase price over the fair value of the net assets acquired is
being amortized over five years.
The following is a summary of the adjustments reflected in the unaudited
pro forma combined condensed consolidated statement of operations (in
thousands):
(1) Represents the elimination of intercompany revenue and cost of operations.
(2) Represents the elimination of the charge related to Physician Computer
Network's settlement of securities litigation, which resulted in
liabilities not assumed by Medical Manager in its acquisition of Physician
Computer Network.
(3) Represents the elimination of amortization related to historical intangible
assets of Physician Computer Network.
(4) Represents the amortization of the excess of the purchase price over the
net assets acquired of Physician Computer Network.
(5) Represents the decrease in interest income to reflect the payment of the
cash portion of the purchase price and the estimated expenses associated
with the acquisition.
(6) Represents the elimination of the gain on the sale of the Wismer Martin
division of Physician Computer Network to Medical Manager in July 1999.
(7) Represents the tax effect of the adjustments to the unaudited pro forma
combined condensed consolidated statement of operations, excluding the
elimination of the gain on the sale of the Wismer Martin division of
Physician Computer Network to Medical Manager in July 1999 and the charge
related to Physician Computer Network's settlement of securities
litigation, based on a combined federal and state effective tax rate of 40%
for all periods presented.
(8) Represents the increase in the number of outstanding shares of Medical
Manager common stock to reflect the payment of the stock portion of the
purchase price. The market price used in the calculation represents the
average of the average closing sale price during the ten trading days
ending on March 27, 2000 and the average closing sale price during the ten
trading days ending on March 28, 2000.
76
<PAGE> 82
COMPARISON OF RIGHTS OF HOLDERS OF ONHEALTH COMMON STOCK
AND HEALTHEON/WEBMD COMMON STOCK
After completion of the merger, the holders of OnHealth common stock will
become stockholders of Healtheon/WebMD. Because OnHealth is a Washington
corporation and Healtheon/WebMD is a Delaware corporation, the rights of former
OnHealth shareholders after the merger will be governed by Delaware law. Before
the merger, the rights of shareholders of OnHealth are governed by OnHealth's
articles of incorporation and bylaws. After the merger, as Healtheon/WebMD
stockholders, their rights will be governed by Healtheon/WebMD's certificate of
incorporation and bylaws, as those documents currently exist or may exist in the
future.
The following chart summarizes the material differences between the rights
of holders of Healtheon/WebMD common stock and holders of OnHealth common stock
under the certificate or articles of incorporation and bylaws of Healtheon/WebMD
and OnHealth. This summary is not complete and is qualified in its entirety by
reference to the Healtheon/WebMD certificate of incorporation and bylaws, the
OnHealth articles of incorporation and bylaws and the relevant provisions of
Washington and Delaware law. Copies of the charter documents are attached as
exhibits to OnHealth's and Healtheon/WebMD's filings with the SEC. See
"Incorporation of Documents by Reference" and "Where You Can Find More
Information" on pages 92 and 93, respectively.
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Common stock One class, consisting of One class of which 100,000,000
600,000,000 shares are shares are authorized.
authorized.
Preferred Stock Healtheon/WebMD's certificate of Washington law permits a
incorporation authorizes the corporation's articles of
board of directors to issue incorporation to grant the board
shares of preferred stock in one of directors the right to
or more series and to fix the authorize and issue series of
designations, preferences, preferred stock with the
powers and rights of the shares preferences, limitations, voting
to be included in each series. powers and relative rights that
The Healtheon/WebMD certificate the board deems appropriate.
of incorporation reserves for OnHealth's articles of
issuance 5,000,000 shares of incorporation reserves for
preferred stock. Of the issuance 1,000,000 shares of
5,000,000 shares of preferred preferred stock. No shares of
stock, 155,951 have been OnHealth preferred stock are
designated as Series A currently outstanding.
payment-in-kind convertible
preferred stock.
</TABLE>
77
<PAGE> 83
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Special meetings of stockholders Under Delaware law, a special OnHealth's bylaws provide that
meeting of stockholders may be special meetings of its
called by the board of directors shareholders shall be held
or any other person authorized whenever called by the OnHealth
to do so in the certificate of board of directors.
incorporation or the bylaws. The
Healtheon/WebMD bylaws authorize
the board of directors, the
president of Healtheon/WebMD, or
one or more stockholders holding
shares in the aggregate entitled
to cast no less than 10% of the
votes at that meeting to call a
special meeting of stockholders.
Action by written consent in Under Delaware law, stockholders Under Washington law, action by
lieu of a stockholders' meeting may take action by written shareholders of a privately held
consent in lieu of voting at a corporation may be taken without
stockholders' meeting. Delaware a meeting only if written
law permits a corporation, consents setting forth such
pursuant to a provision in such action are signed by all holders
corporation's certificate of of outstanding shares entitled
incorporation, to eliminate the to vote thereon, unless the
ability of stockholders to act articles of incorporation
by written consent. The provide for a lesser proportion,
Healtheon/WebMD certificate of which may not be less than a
incorporation eliminates the majority. The articles of
ability of stockholders to act incorporation of OnHealth
by written consent. require unanimous written
consent.
</TABLE>
78
<PAGE> 84
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Record date The Healtheon/WebMD bylaws Washington law provides that the
provide that the board of board record date set for a meeting of
of directors may fix a record shareholders must not be more
date that: than 70 days prior to the date
of the meeting.
- in the case of determination
of the stockholders entitled
to vote at any meeting of
stockholders or adjournment of
any meeting, shall not be more
than 60 days, nor less than 10
days before the date of the
meeting
- in the case of any other
action, shall not be more than
60 days prior to such other
action.
Furthermore, the bylaws provide
that if the board of directors
does not fix a record date in
the manner described above,
then:
- the record date for
determining stockholders
entitled to notice of or to
vote at a meeting of
stockholders shall be at the
close of business on the day
next preceding the day on
which notice is given, or, if
notice is waived, at the close
of business on the day next
preceding the day on which the
meeting is held
- the record date for
determining stockholders for any
other purpose shall be at the
close of business on the same
day on which the board of
directors adopts the related
resolution.
</TABLE>
79
<PAGE> 85
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Advance notice provisions for The Healtheon/WebMD bylaws Nominations of persons for
board nomination and other require that nominations of election to the board of
stockholder business -- annual persons for election to the directors may be made at a
meetings board of directors and the meeting of shareholders:
proposal of business to be
considered at an annual meeting - by or at the direction of the
of stockholders must be made by: board of directors, or
- by any shareholder who was a
- the corporation's notice of shareholder of record at the
meeting time of giving of notice, who
- the board of directors is entitled to vote for the
- a stockholder who gives proper election of directors at the
notice. meeting and who shall have
complied with the notice
If made by a stockholder, the procedures in the bylaws.
proposal must be made by advance
written notice given to In order for a shareholder to
Healtheon/WebMD between 60 and nominate a person for election
90 days prior to the meeting of to the board of directors at a
stockholders. meeting of shareholders, such
shareholder shall have delivered
timely notice of such
shareholder's intent to make
such nomination in writing to
the secretary of the
corporation. To be timely, a
shareholder's notice must be
delivered to or mailed and
received at the principal
executive offices:
- in the case of an annual
meeting, not less than 60 nor
more than 90 days prior to the
first anniversary of the
preceding year's annual
meeting; provided, however,
that in the event that the
date of the annual meeting is
changed by more than 30 days
from such anniversary date,
notice by the shareholder to
be timely must be so received
not later than the close of
business on the tenth day
following the earlier of the
day on which notice of the
date of the meeting was mailed
or public disclosure of the
meeting was made
- in the case of a special
meeting at which directors are
to be elected, not later than
the close of business on the
tenth day following the
earlier of the day on which
notice of the date of the
meeting was mailed or public
announcement of the meeting
was made.
</TABLE>
80
<PAGE> 86
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Number of directors The Healtheon/WebMD bylaws OnHealth's bylaws provide that
provide that the board of the number of directors on the
directors shall consist of not board shall be such as from time
fewer than six and not more than to time shall be fixed by
11 directors. In the event the resolution adopted by the
Medical Manager and CareInsite affirmative vote of two-thirds
mergers are completed, the terms 66.67% of the total number of
of those mergers require the directors then in office but in
Healtheon/WebMD bylaws to be no event shall such number be
amended to provide that the greater than nine directors.
board of directors shall consist
of 15 directors and that this
number may be changed
exclusively by a resolution duly
adopted by the affirmative vote
of a majority of the members of
the board of directors then
authorized by the bylaws, except
as may otherwise be provided by
the certificate of incorporation
or by law.
Classified board of directors Delaware law provides that a Washington law similarly
corporation's board of directors provides that a corporation's
may be divided into various board of directors may be
classes with staggered terms of divided into various classes
office. The board of directors with staggered terms of office.
of Healtheon/WebMD is divided OnHealth's board of directors is
into three classes, as nearly not divided into classes.
equal in size as possible, with
one class being elected
annually. Healtheon/WebMD
directors are elected to a term
of three years and until their
successors are elected and
qualified.
Removal of directors Except as otherwise provided in OnHealth's bylaws provide that
the corporation's certificate of its shareholders, at a special
incorporation, a director of a meeting called expressly for
corporation that has a that purpose, may remove from
classified board of directors office with or without cause one
may be removed only with cause. or more directors and elect
In addition, under Delaware law, their successors. OnHealth
when a corporation's certificate shareholders may remove one or
of incorporation provides that more directors without cause. A
holders of a series or class, director may be removed only if
voting as a class or series, are the number of votes cast for
entitled to elect one or more removal exceeds the number of
directors, then any director may votes cast against removal.
be removed, without cause, only
by the applicable vote of
holders of shares of that class
or series. The Healtheon/WebMD
bylaws provide that any director
or the entire board of directors
may be removed, with cause, by
the holders of a majority of the
shares then entitled to vote at
an election of directors.
</TABLE>
81
<PAGE> 87
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Board of director vacancies Under Delaware law, vacancies OnHealth's bylaws provide that
and newly created directorships vacancies and newly created
may be filled by a majority of directorships resulting from any
the directors then in office, increase in the total number of
even though less than a quorum, directors may be filled by the
unless otherwise provided in the board of directors. The term of
certificate of incorporation or a director elected to fill a
bylaws, and unless the vacancy expires at the next
certificate of incorporation shareholders' meeting at which
directs that a particular class directors are elected.
of stock is to elect such
director, in which case any
other directors elected by such
class, or a sole remaining
director so elected, may fill
such vacancy. The
Healtheon/WebMD bylaws provide
that vacancies on the board of
directors may only be filled by
the vote of the majority of
directors remaining in office.
Notice of special meetings of The Healtheon/WebMD bylaws OnHealth's bylaws provide that
the board of directors provide that the chief executive notice of special meetings of
officer may call special the board of directors, stating
meetings of the board of the date, time, and place
directors upon three days notice thereof, shall be given at least
of the meeting. The president or two days prior to the date of
secretary may call special the meeting. The purpose of the
meetings upon the written meeting need not be given in the
request of two directors and notice, and the notice may be
upon three days notice of the oral or written.
meeting.
Approval of loans to officers The Healtheon/WebMD bylaws OnHealth's bylaws provide that
provide that Healtheon/WebMD may OnHealth may lend money to, or
lend money to or otherwise guarantee any obligation of, or
assist any officer or other otherwise assist any officer or
employee whenever the directors other employee of the
judge such a loan or assistance corporation or of its
reasonably to be expected to subsidiaries, including any
benefit the corporation. officer or employee who is a
director of the corporation or
its subsidiaries, whenever, in
the judgment of the directors,
the loan, guaranty or assistance
may reasonably be expected to
benefit the corporation. The
loan, guaranty or other
assistance may be with or
without interest, and may be
unsecured, or secured in such
manner as the board of directors
shall approve, including,
without limitation, a pledge of
shares of stock of the
corporation.
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Indemnification The Healtheon/WebMD certificate Under Washington law, if
of incorporation and bylaws authorized by the articles of
provide that the directors and incorporation, a bylaw adopted
officers shall be indemnified to or ratified by shareholders, or
the fullest extent authorized by a resolution adopted or
law against any action, ratified, before or after the
proceeding or suit brought event, by the shareholders, a
against such a person by reason corporation has the power to
of the fact that he or she is or indemnify a director or officer
was a director or officer of the made a party to a proceeding, or
corporation or serves or served advance or reimburse expenses
at any other enterprise as at incurred in a proceeding, under
the request of the corporation. any circumstances, except that
The Healtheon/WebMD bylaws no such indemnification shall be
provide that the corporation may allowed on account of:
pay all expenses incurred by a
director or officer in defending - acts or omissions of a
any proceeding within the scope director finally adjudged to be
of the indemnification intentional misconduct or a
provisions. knowing violation of the law
- conduct of a director finally
adjudged to be an unlawful
distribution
- any transaction with respect
to which it was finally adjudged
that a director personally
received a benefit in money,
property or services to which
the director was not legally
entitled. Written commentary
by the drafters of Washington
law, which has the status of
legislative history,
specifically indicates that a
corporation may indemnify its
directors and officers for
amounts paid in settlement of
derivative actions, provided
that the director's or
officer's conduct does not
fall within one of the
categories set forth above.
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Stockholder approval of Under Delaware law, business Washington law contains a
specified business combinations combinations by corporations provision prohibiting a target
with interested stockholders are corporation, with specified
subject to a moratorium of three exceptions, from engaging in
or five years, respectively, some significant business
unless specified conditions are transactions, including a merger
met. The prohibited transactions or sale of assets, with an
include, a merger with, acquiring person who acquires
disposition of assets to, or the 10% or more of the voting
issuance stock to, the securities of a target
interested stockholder, or corporation for a period of five
certain transactions that have years after such acquisition,
the effect of increasing the unless the transaction is
proportionate share of the approved by a majority of the
outstanding securities held by members of the target
the interested stockholder. corporation's board of directors
Under Delaware law, an prior to the date of the
interested stockholder may avoid acquisition.
the prohibition against
effecting certain significant
transactions with the
corporation if the board of
directors, prior to the time
such stockholder becomes an
interested stockholder, approves
such transaction or the
transaction by which such
stockholder becomes an
interested stockholder or if at
or subsequent to such time the
board of directors and the
stockholders approve such
transaction. These provisions of
Delaware law apply to a Delaware
corporation unless the
corporation opts out of the
provisions in its certificate of
incorporation or bylaws.
Healtheon/WebMD has not opted
out of these provisions in its
certificate of incorporation or
bylaws and consequently is
subject to these provisions.
</TABLE>
84
<PAGE> 90
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Par value, dividends and The concepts of par value, The concept of par value,
repurchases of shares capital and surplus are retained capital and surplus are not
under Delaware law. Delaware law retained under Washington law.
permits a corporation to declare
and pay dividends out of surplus
or, if there is no surplus, out
of the net profits for the
fiscal year in which the
dividend is declared and/or for
the preceding fiscal year as
long as the amount of capital of
the corporation following the
declaration and payment of the
dividend is not less than the
aggregate amount of the capital
represented by the issued and
outstanding stock of all classes
having a preference upon the
distribution of assets. In
addition, Delaware law generally
provides that a corporation may
redeem or repurchase its shares
only if such redemption or
repurchase would not impair the
capital of the corporation.
Notwithstanding the foregoing, a
Delaware corporation may redeem
or repurchase shares having a
preference upon the distribution
of any of its assets if such
shares will be retired upon
acquisition, and provided that,
after the reduction in capital
made in connection with such
retirement of shares, the
corporation's remaining assets
are sufficient to pay any debts
not otherwise provided for.
</TABLE>
85
<PAGE> 91
<TABLE>
<CAPTION>
HEALTHEON/WEBMD ONHEALTH
(DELAWARE) (WASHINGTON)
-------------------------------- --------------------------------
<S> <C> <C>
Dissenters' or appraisal rights Under Delaware law, a Under Washington law, a
stockholder of a corporation shareholder is entitled to
participating in certain major dissent from and, upon
corporate transactions may be perfection of his or her
entitled to dissenters' or dissenters' rights, to obtain
appraisal rights pursuant to fair value of his or her shares
which such stockholder may in the event of specified
receive cash in the amount of corporate actions, including
the fair value of his or her some mergers, consolidations,
shares in lieu of the share exchanges, sales of
consideration he or she would substantially all assets of the
otherwise receive in the corporation, and amendments to
transaction. Under Delaware law, the corporation's articles of
such rights are not available: incorporation that materially
and adversely affect such
- with respect to the sale, shareholder's rights.
lease or exchange of all or
substantially all of the
assets of a corporation or an
amendment to the corporation's
certificate of incorporation
- with respect to a merger or
consolidation by a
corporation, the shares of
which are either listed on a
national securities exchange
or held of record by more than
2,000 stockholders if such
stockholders are required to
receive only shares of the
surviving corporation, shares
of any other corporation which
are either listed on a
national securities exchange
or held of record by more than
2,000 holders, cash in lieu of
fractional shares or a
combination of the foregoing,
or
- to stockholders of a
corporation surviving the merger
if no vote of the stockholder
of the surviving corporation
is required to approve the
merger because the merger does
not amend the certificate of
incorporation, and each share
of the surviving corporation
outstanding prior to the
merger is an identical
outstanding or treasury share
after the merger, and the
number of shares to be issued
in the merger does not exceed
20% of the shares of the
surviving corporation
outstanding immediately prior
to the merger.
</TABLE>
86
<PAGE> 92
DESCRIPTION OF HEALTHEON/WEBMD'S PREFERRED STOCK
Healtheon/WebMD's Series A payment-in-kind preferred stock has a face
amount of $5,000 per share. This preferred stock is not subject to any sinking
fund or mandatory redemption provision. With respect to dividend rights, rights
on liquidation, winding up or dissolution, whether voluntary or involuntary, the
Series A preferred stock ranks on a parity with Healtheon/WebMD's common stock.
If directed by the board of directors, Healtheon/WebMD will pay quarterly
dividends to the holders of Series A preferred stock in the form of additional
shares of Series A preferred stock. Whether or not the dividends are paid,
dividends on each share of the Series A preferred stock accrue at a rate of 10%
per annum in respect of the face amount. Dividends are only payable by issuance
of additional shares of Series A preferred stock.
Each share of Series A preferred stock is entitled to the number of votes
equal to the number of shares of common stock into which such share of preferred
stock would have been converted had the Series A preferred stock been converted
into common stock immediately before the date of determination of the
stockholders eligible to vote on any matter. Holders of Series A preferred stock
are entitled to vote on the same occasions the holders of common stock are
entitled to vote. Healtheon/WebMD cannot change the rights, preferences, or
privileges of the Series A preferred stock, or take any action which does so,
unless the action affects all capital stock of the corporation in a similar
manner, or authorize any additional Series A preferred stock without first
obtaining the consent of the holders of at least 90% of the outstanding shares
of Series A preferred stock.
Each outstanding share of Series A preferred stock will be automatically
converted into 100 shares of common stock plus the number of shares of common
stock equal to the dollar amount of the dividends accrued and declared through
the date of conversion divided by the share's face amount and multiplied by 100,
plus, if the date of conversion is not January 26, 2003, a premium amount equal
to the interest on $5,000 at 10.5% per annum compounded on each dividend date
from the date of conversion through January 26, 2003, divided by $5,000 and then
multiplied by 100. The conversion rate is subject to adjustment for stock
splits, stock dividends and other distributions. A conversion occurs
automatically upon the earlier occurrence of:
- a liquidation, dissolution or winding up (whether voluntary or
involuntary) of the corporation
- the consummation of a transaction resulting in a change of control
- the next business day following written notice from Healtheon/WebMD that
its board of directors has resolved to cause a conversion
- January 26, 2003.
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<PAGE> 93
INFORMATION REGARDING HEALTHEON/WEBMD
OVERVIEW
Healtheon/WebMD provides web-based healthcare information and services to
facilitate connectivity and transactions among physicians, patients, payers and
other healthcare industry participants. Healtheon/WebMD's Internet-based
information and transaction platform allows for the secure exchange of
information among the disparate information systems used by healthcare industry
participants and supports Healtheon/WebMD's administrative transaction services,
including patient enrollment, eligibility determination, referrals and
authorizations, laboratory and diagnostic test orders and results, clinical data
retrieval and claims processing.
Healtheon/WebMD's web site, WebMD.com, offers a single destination for the
exchange of healthcare information and supports a broad range of healthcare
transactions delivered over its secure, Internet-based platform. Healtheon/WebMD
designs its service offerings to help integrate and manage administrative,
clinical, research and information needs of healthcare industry participants.
Healtheon/WebMD believes that its web-based solution has the potential to create
significant improvements in the way that information is used by the healthcare
system, enabling improved workflow, better decision-making and, ultimately,
higher quality patient care at a lower cost.
Through WebMD.com, physician subscribers can access WebMD Practice,
Healtheon/WebMD's provider destination, and consumers can access WebMD Health,
Healtheon/WebMD's free consumer destination. WebMD Practice provides physicians
with administrative transaction services, medical news and research, continuing
medical education credits, customized web sites and e-mail accounts, among other
services. WebMD Health provides consumers with health and wellness news and
information, support communities, interactive tools and opportunities to
purchase health-related products and services. Healtheon/WebMD's communities
allow consumers to participate in real-time discussion and support networks over
the Internet.
Healtheon/WebMD currently provides services to over 250,000 physicians and
approximately 11,000 dentists, 4,500 hospitals, 46,000 pharmacies, 650 payers
and 8 laboratory companies. In addition, nearly 100,000 physicians have
subscriptions to WebMD Practice, and over 1.1 million consumers are enrolled in
Healtheon/WebMD's support communities on WebMD Health. In May 2000, WebMD.com
attracted approximately 4.7 million unique users, according to Media Metrix.
Page views exceeded approximately 30.0 million, according to commercial software
that Healtheon/WebMD utilized in May 2000.
Healtheon/WebMD was incorporated in December 1999 and commenced operations
in January 1996. In November 1999, Healtheon Corporation merged with WebMD, MedE
America and Medcast and changed its name to Healtheon/WebMD Corporation.
Healtheon/WebMD launched its integrated web site in November 1999 following the
closing of these mergers.
The address of Healtheon/WebMD's principal executive office is 400 The
Lenox Building, 3399 Peachtree Road, NE, Atlanta, Georgia 30324 and its
telephone number is (404) 495-7600. Healtheon/WebMD's web site is www.webmd.com.
The information on Healtheon/WebMD's web site is not a part of this proxy
statement/prospectus.
RECENT DEVELOPMENTS
In addition to the merger with OnHealth, Healtheon/WebMD has recently
agreed to or completed the significant acquisitions described below.
Proposed merger with Medical Manager. On February 13, 2000,
Healtheon/WebMD entered into a merger agreement to acquire Medical Manager, a
leading provider of physician practice management systems. Under the terms of
the Medical Manager merger agreements, Healtheon/WebMD will pay 2.5 shares of
Healtheon/WebMD common stock for each share of Medical Manager. Based on the
outstanding shares of Medical Manager on May 31, 2000, approximately 102 million
shares of Healtheon/WebMD common stock would be issued to Medical Manager
shareholders upon completion of this merger. Medical Manager, headquartered in
Elmwood Park, New
88
<PAGE> 94
Jersey, operates three principal lines of business: physician practice
management through Medical Manager Health Systems, healthcare electronic
commerce, or e-commerce, services through CareInsite and plastics and filtration
technologies through Porex. Medical Manager Health Systems is a leading provider
of integrated healthcare automation solutions. The company develops, markets,
implements and supports The Medical Manager(R) physician practice management
system, which addresses the financial, administrative, clinical and practice
management needs of healthcare providers. Medical Manager indirectly owns
approximately 67.4% of CareInsite, the business of which is described below.
Porex designs, manufactures and distributes porous and solid plastic components
and products. These products are used in life sciences, healthcare, industrial
and consumer applications. This combination will expand the critical mass in
clinical, financial and administrative transactions, which enhances a
comprehensive suite of services for physicians, consumers, payors, providers and
suppliers. Healtheon/WebMD expects to complete the merger in the third quarter
of 2000; however, if all applicable antitrust waiting periods have not expired
or if other conditions to the merger, and the merger with CareInsite, have not
been satisfied by then, the merger maybe completed later. However,
Healtheon/WebMD cannot assure you that the merger will be completed in a timely
manner, if at all.
Proposed merger with CareInsite. In connection with the merger agreement
to acquire Medical Manager, Healtheon/WebMD also entered into a merger agreement
on February 13, 2000 to acquire Medical Manager's publicly traded subsidiary,
CareInsite, a provider of innovative healthcare network and clinical
communication services. Under the terms of the merger agreements,
Healtheon/WebMD will pay 1.3 shares of Healtheon/WebMD common stock for each
share of CareInsite not owned by Medical Manager. Based on the number of
outstanding shares of CareInsite on May 31, 2000, but not held by Medical
Manager, approximately 32 million shares of Healtheon/WebMD would be issued to
CareInsite shareholders entitled to receive such shares upon completion of this
merger. The completion of the CareInsite merger is conditioned upon the
completion of the Medical Manager merger. CareInsite is developing and provides
innovative healthcare network and clinical communications services that leverage
Internet technology to enable the confidential exchange of clinical,
administrative and financial information among physicians and their patients,
and affiliated health plans, providers and suppliers. CareInsite's services are
designed to improve the quality of patient care and reduce the administrative
and clinical costs of healthcare. CareInsite is an approximately 67.4% owned
subsidiary of Medical Manager. Healtheon/WebMD expects to complete the merger in
the third quarter of 2000 as soon as practicable after completion of the Medical
Manager merger. However, Healtheon/WebMD cannot assure you that the merger will
be completed in a timely manner, if at all.
Acquisition of Envoy. On May 26, 2000, Healtheon/WebMD completed its
acquisition of Envoy from Quintiles in exchange for 35 million shares of common
stock and $400 million in cash. Envoy is a leading provider of EDI transaction
processing services to participants in the healthcare market. In 1999, Envoy's
network processed more than 1.4 billion medical, pharmacy and dental
transactions involving approximately 250,000 physicians, 35,000 pharmacies,
47,000 dentists, 4,500 hospitals and 900 payers. Healtheon/WebMD accounted for
the Envoy acquisition as a purchase transaction. In connection with the
acquisition of Envoy, Healtheon/WebMD was also granted a warrant to purchase 10
million shares of Quintiles common stock at an exercise price of $40.00 per
share, which warrant is exercisable for a period of four years.
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<PAGE> 95
INFORMATION REGARDING ONHEALTH
OnHealth is a leading independent source of original, informative, timely
and trusted consumer-oriented health and wellness information, products and
services on the web. Its web site, onhealth.com, is a consumer-focused online
health destination dedicated to the management of personal and family health and
well-being. Its staff of full-time editors and writers as well as a constituency
of external health and medical writers and contributors, enables OnHealth to
update its web site daily with original health-related features. By providing
users with a broad range of original in-depth reporting, substantive resources
and references, community discussions, direct access to experts, interactive
tools and search capabilities, onhealth.com combines the strength of credible
journalism with the power of online interactivity.
OnHealth's predecessor was founded in August 1990 in the State of
Minnesota. IVI Publishing went public in 1993. Until January 1998, its
traditional line of business had been CD-ROM development, production and
distribution. The best known title, "Mayo Clinic Ultimate Medical Guide," along
with other CD-ROM works, has been distributed through retail and computer OEM
channels. OnHealth's predecessor was also a supplier of video, animation and
graphic assets to America's Health Network, a health and medical cable TV
channel, and published a book version of its CD-ROM, "Taking Control of Your
Health" in conjunction with Time Life Medical.
OnHealth's first foray onto the Internet was a web site, [email protected], which
it developed on a joint venture basis with the Mayo Foundation in July 1996. Due
to philosophical differences regarding the strategic direction of the web site,
full ownership of [email protected] was later transferred to the Mayo Foundation with
the Company receiving a $2.7 million termination settlement and the return of
IVI Publishing Inc. stock held by Mayo in 1997.
OnHealth launched onhealth.com in July 1998. Internet Profile Corporation,
or IPRO, reported that OnHealth's page views grew 66% to 34,942,000 in May 2000
from 21,694,000 in December 1999. According to Media Metrix, in May 2000,
onhealth.com attracted 5.2 million unique users and was the 47th largest
property online, which ranked onhealth.com as the most trafficked consumer
health content web site in May 2000. OnHealth has launched a coordinated
traditional media advertising and public relations campaign designed to build
OnHealth's brand through the use of television, radio, outdoor, print and online
media. OnHealth also distributes in excess of 100,000 daily and weekly broadcast
e-mails to registered users who have requested OnHealth's Daily Briefing, Weekly
Newsletter and Health Info Tracker. This private and personalized e-mail allows
OnHealth's users to stay current on the health-related subjects most important
to themselves and their families. To date, OnHealth has developed distribution
partnerships and content sharing relationships resulting in over 500 web sites
that drive traffic to its web site.
OnHealth provides an independent voice and serves as a consumer advocate
for health-related issues. OnHealth believes this will allow it to build a loyal
and dedicated audience that will fuel multiple revenue opportunities. While
OnHealth believes the demographics of its users are highly attractive to
advertisers, it is developing its web site to generate revenue opportunities
from multiple sources, including advertising and sponsorships, e-commerce
transactions, premium services and content syndication. OnHealth.com has a
shopping area designed to offer its users a wide variety of health and wellness
products including prescription and over-the-counter drugs, vitamins, herbs,
books, magazines, foods, home products and gifts, among others.
On September 9, 1999, OnHealth acquired all of the outstanding shares of
common stock of BabyData.com, a premier web site for pregnant couples and those
trying to conceive.
On November 30, 1999, OnHealth acquired Health Decisions. Health Decisions
develops, provides and supports a broad range of personal health information,
referral and nurse counseling services. The five key target audiences for such
services in the healthcare market are consumers, payers, employers, providers
and pharmaceutical companies. Health Decisions provides a wide range of demand
management tools that include symptom assessment, triage, provider selection and
referral, individualized self-care, and preventative counseling for its clients'
members.
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<PAGE> 96
LEGAL OPINION
The validity of the shares of Healtheon/WebMD common stock offered by this
proxy statement/prospectus will be passed upon for Healtheon/WebMD by Alston &
Bird LLP.
EXPERTS
The consolidated financial statements of Healtheon/WebMD Corporation
incorporated by reference from Healtheon/WebMD Corporation's annual report on
Form 10-K for the year ended December 31, 1999 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon and
incorporated herein by reference. The consolidated financial statements are
incorporated herein by reference in reliance upon the report given on the
authority of this firm as experts in accounting and auditing.
The consolidated financial statements of OnHealth Network Company appearing
in the OnHealth Network Company's amended annual report on Form 10-K/A for the
year ended December 31, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated herein
by reference in reliance upon the report given upon the authority of this firm
as experts in accounting and auditing.
The consolidated financial statements of Provider Technology Group (a
division of Blue Cross and Blue Shield of Massachusetts) incorporated by
reference from Healtheon/WebMD Corporation's Form 8-K, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
and incorporated herein by reference in reliance upon the report given on the
authority of this firm as experts in accounting and auditing.
The consolidated financial statements of ENVOY Corporation and subsidiaries
as of December 31, 1998 and for the two years in the period ended December 31,
1998, incorporated by reference from Healtheon/WebMD Corporation's Form 8-K,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon and incorporated herein by reference in reliance upon the
reports given on the authority of this firm as experts in accounting and
auditing.
The consolidated financial statements of Medical Manager Corporation,
formerly known as Synetic, Inc., as of June 30, 1999 and 1998 and for each of
the three years in the period ended June 30, 1999, the consolidated financial
statements of CareInsite, Inc. as of June 30, 1999 and 1998 and for each of the
two years in the period ended June 30, 1999 and for the period from inception
(December 24, 1996) through June 30, 1997, the consolidated financial statements
of The KippGroup as of December 31, 1998 and 1997 and for each of the two years
in the period ended December 31, 1998, the consolidated financial statements of
Physician Computer Network, Inc. as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999, the consolidated
financial statements of ENVOY Corporation as of December 31, 1999 and for the
year then ended, the financial statements for Professional Office Services, Inc.
as of December 31, 1997 and for the year then ended, and the financial
statements of XpiData, Inc. as of December 31, 1997 and for the year then ended,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated herein in
reliance upon the reports of said firm and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Point Plastics, Inc. and
subsidiaries that are incorporated herein by reference have been audited by
Linkenheimer LLP independent public accountants, indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
report of said firm and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of The Health Information Network Connection, LLC
that are incorporated herein by reference have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing.
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<PAGE> 97
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows Healtheon/WebMD and OnHealth to incorporate by reference the
information they file with the SEC, which means that Healtheon/WebMD and
OnHealth can disclose important information to you by referring you to documents
they have previously filed with the SEC. The information incorporated by
reference is considered a part of this proxy statement/prospectus, and any later
information that they file with the SEC will automatically update and supersede
this information from the date of filing of these documents.
Healtheon/WebMD and OnHealth each incorporate by reference the documents
listed below, and any additional documents filed by either of them with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the OnHealth shareholders' meeting. This proxy statement/prospectus is
part of a registration statement on Form S-4 filed by Healtheon/WebMD with the
SEC with respect to the Healtheon/WebMD common stock to be issued to OnHealth
shareholders in the merger. This proxy statement/prospectus does not contain all
of the information set forth in the registration statement because certain parts
of the registration statement are omitted as provided by the rules and
regulations of the SEC. You may obtain a copy of the registration statement from
the SEC as described in the section entitled "Where You Can Find More
Information" on page 93.
The documents Healtheon/WebMD incorporates by reference are:
- Healtheon/WebMD's annual report on Form 10-K and Form 10-K/A for the
fiscal year ended December 31, 1999
- Healtheon/WebMD's quarterly report on Form 10-Q for the quarter ended
March 31, 2000
- Healtheon/WebMD's current reports on Form 8-K or Form 8-K/A filed January
27, 2000, January 28, 2000, February 8, 2000, February 10, 2000, February
14, 2000, February 16, 2000, February 22, 2000, February 24, 2000, March
23, 2000, May 2, 2000, June 1, 2000, June 5, 2000, June 19, 2000 and July
24, 2000
- Healtheon/WebMD's current report on Form 8-K, filed July 27, 2000 (which
includes specified historical financial information for Medical Manager,
CareInsite and Envoy)
- The description of Healtheon/WebMD's common stock contained in
Healtheon/WebMD's Registration Statement on Form 8-A filed on February 8,
1999 pursuant to Section 12(g) of the Exchange Act, and any amendment or
report filed for the purpose of updating this description.
The documents OnHealth incorporates by reference are:
- OnHealth's annual report on Form 10-K for the fiscal year ended December
31, 1999, as amended
- OnHealth's quarterly report on Form 10-Q for the quarter ended March 31,
2000, as amended
- OnHealth's current reports on Form 8-K or Form 8-K/A filed February 14,
2000, February 18, 2000, February 22, 2000, March 16, 2000 and June 27,
2000
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<PAGE> 98
WHERE YOU CAN FIND MORE INFORMATION
Healtheon/WebMD and OnHealth file annual, quarterly and special reports,
proxy and information statements and other information with the SEC. You may
read and copy any document filed by Healtheon/WebMD or OnHealth at the SEC's
public reference facilities at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about
its public reference facilities. The SEC filings are also available to the
public at the SEC's web site at http://www.sec.gov. The Healtheon/WebMD common
stock and the OnHealth common stock are each quoted on the Nasdaq National
Market, and their trading symbols are "HLTH" and "ONHN," respectively. Reports,
proxy statements and other information concerning Healtheon/WebMD and OnHealth
can also be inspected at the Nasdaq National Market, Operations, 1735 K Street,
N.W., Washington, D.C. 20006.
Reports, proxy statements and other information concerning Medical Manager
and CareInsite can also be inspected at the Nasdaq National Market, Operations,
1735 K Street, N.W., Washington, D.C. 20006 and are also available to the public
at the SEC's web site at http://www.sec.gov. The Medical Manager common stock
and the CareInsite common stock also are each quoted on the Nasdaq National
Market; their trading symbols are "MMGR" and "CARI," respectively.
This proxy statement/prospectus incorporates certain documents be
reference. Documents incorporated by reference are available without charge,
excluding all exhibits unless the exhibit has been specifically incorporated by
reference in this proxy statement/prospectus. You can obtain copies of the
documents relating to Healtheon/WebMD by contacting the Healtheon/WebMD investor
relations department at:
Healtheon/WebMD Corporation
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
(404) 495-7600
http://www.webmd.com
You can obtain copies of the documents relating to OnHealth by contacting
the OnHealth investor relations department at:
OnHealth Network Company
808 Howell Street, Suite 400
Seattle, Washington 98101
(206) 652-0308
http.//www.onhealth.com
In order to ensure timely delivery of the documents, any requests should be
made by , 2000.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE HEALTHEON/WEBMD COMMON STOCK OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE THE OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
THAT JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED IN THIS DOCUMENT BY
REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO HEALTHEON/WEBMD AND
ITS SUBSIDIARIES WAS PROVIDED BY HEALTHEON/WEBMD AND THE INFORMATION CONTAINED
IN THIS DOCUMENT WITH RESPECT TO ONHEALTH AND ITS SUBSIDIARIES WAS PROVIDED BY
ONHEALTH.
93
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ANNEX A
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AGREEMENT AND PLAN OF MERGER
AMONG
HEALTHEON/WEBMD CORPORATION,
TECH ACQUISITION CORPORATION
AND
ONHEALTH NETWORK COMPANY
DATED AS OF FEBRUARY 15, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 -- TRANSACTIONS AND TERMS OF MERGER...................... A-1
1.1 Merger...................................................... A-1
1.2 Time and Place of Closing................................... A-1
1.3 Effective Time.............................................. A-1
ARTICLE 2 -- TERMS OF MERGER....................................... A-2
2.1 Charter..................................................... A-2
2.2 Bylaws...................................................... A-2
2.3 Directors and Officers...................................... A-2
2.4 Tax-Free Reorganization..................................... A-2
ARTICLE 3 -- MANNER OF CONVERTING SHARES........................... A-2
3.1 Conversion of Shares........................................ A-2
3.2 Anti-Dilution Provisions.................................... A-2
3.3 Dissenting Shares........................................... A-3
3.4 Conversion of Company Options............................... A-3
3.5 Company Warrants............................................ A-4
ARTICLE 4 -- EXCHANGE OF SHARES.................................... A-4
4.1 Exchange Procedures......................................... A-4
4.2 No Further Transfers of Company Common Stock................ A-6
4.3 Lost, Stolen or Destroyed Certificates...................... A-6
4.4 Rights of Former Stockholders............................... A-6
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF COMPANY............. A-6
5.1 Organization, Standing, and Power........................... A-6
5.2 Authorization of Agreement; No Breach....................... A-6
5.3 Capital Stock............................................... A-7
5.4 Company Subsidiaries........................................ A-8
5.5 SEC Filings; Financial Statements........................... A-8
5.6 Absence of Undisclosed Liabilities.......................... A-8
5.7 Absence of Changes.......................................... A-9
5.8 Tax Matters................................................. A-9
5.9 Intellectual Property....................................... A-9
5.10 Insurance................................................... A-11
5.11 Compliance with Laws........................................ A-11
5.12 Orders and Litigation....................................... A-11
5.13 Environmental Matters....................................... A-12
5.14 Contracts and Commitments................................... A-12
5.15 State Takeover Statutes..................................... A-12
5.16 Benefit Plans............................................... A-12
5.17 Board Approval.............................................. A-14
5.18 Governmental Approvals; Required Consents................... A-14
5.19 Accounts Receivable......................................... A-14
5.20 Tax Treatment............................................... A-14
5.21 Affiliate Transactions...................................... A-14
5.22 Customers................................................... A-14
5.23 Fairness Opinion............................................ A-15
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF HEALTHEON/WEBMD AND
MERGER CORP........................................... A-15
6.1 Organization, Standing, and Power........................... A-15
6.2 Authorization of Agreement; No Breach....................... A-15
6.3 Capital Stock............................................... A-16
6.4 Healtheon/WebMD SEC Filings; Financial Statements........... A-16
6.5 Absence of Undisclosed Liabilities.......................... A-17
6.6 Absence of Certain Changes or Events........................ A-17
6.7 Compliance with Laws........................................ A-17
6.8 Governmental Approvals; Required Consents................... A-17
6.9 Healtheon/WebMD Common Stock................................ A-17
6.10 Interim Operations of Merger Corp........................... A-17
6.11 Tax Treatment............................................... A-17
6.12 Orders and Litigation....................................... A-17
ARTICLE 7 -- CONDUCT OF BUSINESS PENDING CLOSING................... A-18
7.1 Conduct of Company's Business............................... A-18
7.2 Conduct of Healtheon/WebMD's Business....................... A-19
7.3 Adverse Changes in Condition................................ A-20
ARTICLE 8 -- ADDITIONAL AGREEMENTS................................. A-20
8.1 Stockholder Approval; Registration Statement................ A-20
8.2 Applications................................................ A-21
8.3 Filings with State Offices.................................. A-22
8.4 Agreement as to Efforts to Consummate....................... A-22
8.5 Investigation and Confidentiality........................... A-22
8.6 Nasdaq National Market Listing.............................. A-22
8.7 No Solicitation by Company.................................. A-22
8.8 Tax Treatment............................................... A-24
8.9 Employee Benefits........................................... A-24
8.10 Blue Sky Laws............................................... A-24
8.11 Non-solicitation of Employees............................... A-25
8.12 Press Releases.............................................. A-25
8.13 Directors and Officers Indemnification...................... A-25
8.14 Company Affiliates; Restrictive Legend; Restrictions on
Transfer.................................................... A-25
8.15 Voting Agreements........................................... A-26
8.16 Loan Agreement and Warrant.................................. A-26
ARTICLE 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE..... A-26
9.1 Conditions to Obligations of Each Party..................... A-26
9.2 Conditions to Obligations of Healtheon/WebMD and Merger
Corp........................................................ A-27
9.3 Conditions to Obligations of Company........................ A-28
ARTICLE 10 -- TERMINATION.......................................... A-28
10.1 Termination................................................. A-28
10.2 Notice of Termination; Effect of Termination................ A-29
10.3 Fees and Expenses........................................... A-29
ARTICLE 11 -- MISCELLANEOUS........................................ A-30
11.1 Definitions................................................. A-30
11.2 Brokers and Finders; Expenses............................... A-34
11.3 Entire Agreement............................................ A-35
11.4 Amendments.................................................. A-35
11.5 Waivers..................................................... A-35
</TABLE>
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<TABLE>
<S> <C> <C>
11.6 Assignment.................................................. A-35
11.7 Notices..................................................... A-35
11.8 Governing Law............................................... A-36
11.9 Counterparts................................................ A-36
11.10 Captions.................................................... A-36
11.11 Interpretations............................................. A-36
11.12 Enforcement of Agreement.................................... A-36
11.13 Severability................................................ A-36
11.14 Facsimile Signatures........................................ A-37
11.15 Nonsurvival of Representations and Warranties............... A-37
</TABLE>
EXHIBITS
Exhibit 8.15 -- Form of Voting Agreement
Exhibit 8.16A -- Form of Loan Agreement
Exhibit 8.16B -- Form of Common Stock Purchase Warrant
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<PAGE> 103
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of February 15, 2000, by and among HEALTHEON/WEBMD CORPORATION
("HEALTHEON/WEBMD"), a Delaware corporation; TECH ACQUISITION CORPORATION
("MERGER CORP"), a Washington corporation and a wholly owned subsidiary of
Healtheon/WebMD; and ONHEALTH NETWORK COMPANY ("COMPANY"), a Washington
corporation.
PREAMBLE:
This Agreement provides for the acquisition of Company by Healtheon/WebMD
by means of the merger of Merger Corp with and into Company, pursuant to which
the outstanding shares of Company Common Stock shall be converted into the right
to receive shares of Healtheon/WebMD Common Stock and Company shall become a
wholly owned subsidiary of Healtheon/WebMD. The Board of Directors of
Healtheon/WebMD has determined that the Merger is fair to Healtheon/WebMD and
the holders of Healtheon/WebMD Common Stock and is in the best interests of
Healtheon/WebMD and such stockholders. The Board of Directors of Company (i) has
determined that the merger of Merger Corp with and into Company is fair to
Company and the holders of shares of Company Common Stock and is in the best
interests of Company and such stockholders and (ii) has approved and determined
to be advisable this Agreement and the transactions contemplated hereby has
recommended that the stockholders of Company adopt this Agreement. The Board of
Directors of Merger Corp has determined that the merger of Merger Corp with and
into Company is in the best interests of Merger Corp and its sole stockholder
and Healtheon/WebMD has adopted this Agreement and approved the Merger as the
sole stockholder of Merger Corp. For Federal income tax purposes, it is intended
that the merger of Merger Corp with and into Company shall qualify as a
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE").
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Corp shall be merged with and into Company (the "MERGER")
in accordance with Section 23B.11.010 of the Washington Business Corporations
Act (the "WBCA"). Following the Merger, the separate corporate existence of
Merger Corp shall cease and Company shall be the Surviving Corporation resulting
from the Merger and shall become vested with all of the property, rights,
privileges, powers and franchises of Company and Merger Corp and shall assume
all of the debts, liabilities, obligations, restrictions, disabilities and
duties of each of Company and Merger Corp. The Merger shall be consummated
pursuant to the terms of this Agreement, which have been approved and adopted by
the respective Boards of Directors of Healtheon/WebMD, Merger Corp and Company.
1.2 Time and Place of Closing. Subject to the terms and conditions of
this Agreement, the closing of the transactions contemplated herein (the
"CLOSING") will take place at a time and date to be specified by the parties,
which shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in Article 9 (other than those that by their
nature will be satisfied on the Closing Date), or at such other time and date as
the parties hereto agree in writing (the "CLOSING DATE"). The place of Closing
shall be at the offices of Nelson Mullins Riley & Scarborough, L.L.P., Bank of
America Corporate Center, Suite 2600, 100 North Tryon Street, Charlotte, North
Carolina, or such other place as may be mutually agreed upon by the Parties.
1.3 Effective Time. Subject to the provisions of this Agreement, on the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the articles of merger (the "ARTICLES OF MERGER") with the Secretary of
State of the State of Washington, in such form as is required by, and executed
in accordance with,
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Section 23B.11.050 of the WBCA. The term "EFFECTIVE TIME" means the date and at
the time the Articles of Merger reflecting the Merger become effective with the
Secretary of State of the State of Washington.
ARTICLE 2
TERMS OF MERGER
2.1 Charter. The Articles of Incorporation of Company as in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation. Such Articles of Incorporation shall remain the
Articles of Incorporation of Surviving Corporation until otherwise amended or
repealed until otherwise amended or repealed in accordance with the WBCA.
2.2 Bylaws. The Bylaws of Merger Corp in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 Directors and Officers. The directors of Merger Corp immediately
prior to the Effective Time, together with such additional persons as may
thereafter be duly elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Corp in office immediately prior to the Effective Time, together with such
additional persons as may thereafter be duly elected, shall serve as the
officers of the Surviving Corporation from and after the Effective Time in
accordance with the Bylaws of the Surviving Corporation.
2.4 Tax-Free Reorganization. The Parties intend for the Merger to be a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
and to adopt this Agreement as a plan of reorganization within the meaning of
the regulations promulgated under Section 368 of the Internal Revenue Code.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of the Parties or the stockholders of any of the Parties, the shares of the
constituent corporations of the Merger shall be converted as follows:
(a) Conversion of Merger Corp Common Stock. Each share of Merger Corp
Common Stock issued and outstanding at the Effective Time shall be
converted into and become one (1) fully paid and nonassessable share of
Surviving Corporation Common Stock.
(b) Conversion of Company Common Stock. Excluding shares held by
stockholders who perfect their statutory dissenters' rights as provided in
Section 3.3 of this Agreement, each share of Company Common Stock issued
and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for the right to receive .189435
shares of Healtheon/WebMD Common Stock (as adjusted by Section 3.2, the
"EXCHANGE RATIO").
(c) Fractional Shares. No certificates representing fractional shares
of Healtheon/WebMD Common Stock will be issued as a result of the Merger.
Each holder of shares of Company Common Stock who would otherwise have been
entitled to receive a fraction of a share of Healtheon/WebMD Common Stock
(after aggregating all fractional shares of Healtheon/WebMD Common Stock
that otherwise would be received by such holder) shall, upon surrender of
such Company stock certificates, receive from Healtheon/WebMD an amount of
cash (rounded to the nearest whole cent), without interest, equal to the
product obtained by multiplying (i) such fractional share interest to which
such holder would otherwise be entitled by (ii) the average of the high and
low sales prices for a share of Healtheon/WebMD Common Stock on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") Composite Transaction Tape on the first trading day immediately
following the Effective Time.
3.2 Anti-Dilution Provisions. In the event the number of shares of
Healtheon/WebMD Common Stock issued and outstanding prior to the Effective Time
changes as a result of a stock split, stock dividend, subdivision,
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reclassification, recapitalization, combination of shares or similar
recapitalization with respect to such stock (an "ANTI-DILUTION EVENT") and the
record date therefor (in the case of a stock dividend) or the effective date
thereof (in the case of a stock split or similar recapitalization for which a
record date is not established) shall be prior to the Effective Time, the
Exchange Ratio shall be correspondingly adjusted so that each holder of Company
Common Stock will receive in the Merger the same proportionate amount of
Healtheon/WebMD Common Stock that such holder would have been entitled to
receive if the Effective Time had been immediately prior to such Anti-Dilution
Event.
3.3 Dissenting Shares. Any holder of shares of Company Capital Stock who
perfects its dissenters' rights in accordance with and as contemplated by
Section 23B.13.210 of the WBCA shall not be converted into Healtheon/WebMD
Common Stock but instead shall be entitled to receive such consideration as
determined pursuant to such provision of the WBCA; provided, that no such
payment shall be made to any dissenting stockholder unless and until such
dissenting stockholder has complied with the applicable provisions of the WBCA
and surrendered to the Surviving Corporation the certificate or certificates
representing the shares for which payment is being made. In the event that a
dissenting stockholder of Company fails to perfect, or effectively withdraws or
loses, its right to appraisal and payment for its shares under the WBCA,
Healtheon/WebMD shall issue and deliver the number of shares of Healtheon/WebMD
Common Stock to which such holder of shares of Company Capital Stock would
otherwise be entitled under this Article 3 (without interest) upon surrender by
such holder of the certificate or certificates representing such shares (or
compliance with Section 4.3) held by such holder.
3.4 Conversion of Company Options.
(a) At the Effective Time, each outstanding Company Option, whether or not
exercisable, shall be converted into and become rights with respect to
Healtheon/WebMD Common Stock, and Healtheon/WebMD shall assume Company's
obligations with respect to each Company Option and the related Company Stock
Plan, in accordance with its terms, except that from and after the Effective
Time, (i) Healtheon/WebMD and its compensation committee shall be substituted
for Company and the committee of Company's Board of Directors (including, if
applicable, the entire Board of Directors of Company) administering the Company
Stock Plan, if any, under which such Company Option was granted or otherwise
governed, (ii) each Company Option assumed by Healtheon/WebMD may be exercised
solely for shares of Healtheon/WebMD Common Stock, (iii) the number of shares of
Healtheon/WebMD Common Stock subject to such Company Option shall be equal to
the number of whole shares (rounded to the nearest whole share) of Company
Common Stock subject to such Company Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, (iv) the per share exercise price under
each such Company Option shall be adjusted by dividing the per share exercise
price under each such Company Option by the Exchange Ratio and rounding to the
nearest whole cent, and (v) all references in the Company Stock Plans and the
stock option certificates and agreements to Company (or its predecessors) shall
be deemed to refer to Healtheon/WebMD. Notwithstanding the provisions of clauses
(iii) and (iv) of the first sentence of this Section 3.4(a), each Company Option
which is an "incentive stock option" shall be adjusted as required by Section
424 of the Internal Revenue Code, and the regulations promulgated thereunder, so
as not to constitute a modification, extension or renewal of such Company
Option, within the meaning of Section 424(h) of the Internal Revenue Code.
(b) As soon as practicable after the Effective Time, Healtheon/WebMD shall
deliver to the holders of Company Options appropriate documentation evidencing
the foregoing assumption by Healtheon/WebMD of such Company Options and the
related Company Stock Plan and the agreements evidencing such Company Options
shall continue in effect on the same terms and conditions (subject to
adjustments required by this Section 3.4 after giving effect to the Merger and
the provisions set forth above). Healtheon/WebMD shall comply with the terms of
the Company Stock Plans and ensure, to the extent lawful, and subject to the
provisions of the applicable Company Stock Plan, that Company Options which
qualified as incentive stock options prior to the Effective Time of the Merger
continue to qualify as incentive stock options after the Effective Time of the
Merger.
(c) Healtheon/WebMD shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Healtheon/WebMD Common Stock for
delivery upon the exercise of Company Options.
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(d) Healtheon/WebMD agrees to file, if available for use by
Healtheon/WebMD, a registration statement on Form S-8 for the shares of
Healtheon/WebMD Common Stock issuable with respect to the Company Options as
soon as is reasonably practicable after the Effective Time and shall maintain
the effectiveness of such registration statement thereafter for so long as any
such Company Options remain outstanding.
3.5 Company Warrants.
(a) At the Effective Time, Healtheon/WebMD shall assume the obligations of
Company under the Company Warrants outstanding at the Effective Time, whether or
not the Company Warrants are then exercisable. Thereafter, the Company Warrants
shall represent the right to receive upon exercise the number of shares of
Healtheon/WebMD Common Stock equal to the product of (i) the Exchange Ratio and
(ii) the number of shares of Company Common Stock for which such Company Warrant
could have been exercised immediately prior to the Effective Time, with such
product rounded to the nearest whole share. The per share exercise price under
each such Company Warrant shall be adjusted by dividing the per share exercise
price under each such Company Warrant by the Exchange Ratio and rounding to the
nearest whole cent. At the Effective Time, (i) all references in the instruments
evidencing the Company Warrants to Company shall be deemed to refer to
Healtheon/WebMD and (ii) Healtheon/WebMD shall assume all of Company's
obligations under such instruments with respect to such Company Warrants as so
amended.
(b) As soon as practicable after the Effective Time of the Merger,
Healtheon/WebMD shall deliver to the holders of the Company Warrants
documentation evidencing the foregoing assumption by Healtheon/WebMD of such
Company Warrants.
(c) Healtheon/WebMD shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Healtheon/WebMD Common Stock for
delivery upon exercise of the Company Warrants.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures.
(a) Exchange Agent. Promptly after the Effective Time, Healtheon/WebMD and
the Surviving Corporation shall select an exchange agent (the "EXCHANGE AGENT")
to act as exchange agent for the Merger.
(b) Healtheon/WebMD to Provide Common Stock. Promptly after the Effective
Time, Healtheon/WebMD shall deposit with the Exchange Agent for exchange the
shares of Healtheon/WebMD Common Stock issuable pursuant to Section 3.1(b) in
exchange for outstanding shares of Company Common Stock, cash payable in lieu of
fractional shares pursuant to Section 3.1(d) and any dividends or distributions
to which holders of shares of Company Common Stock may be entitled pursuant to
Section 4.1(d) (such certificates for shares of Healtheon/WebMD Common Stock,
together with the amount of any dividends or other distributions payable with
respect thereto and any cash payable in lieu of fractional shares, being
hereinafter referred to as the "EXCHANGE FUND"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the Healtheon/WebMD Common Stock
contemplated to be issued pursuant to Section 3.1(b) out of the Exchange Fund.
The Exchange Fund shall not be used for any other purpose.
(c) Exchange Procedures. Promptly after the Effective Time,
Healtheon/WebMD shall cause the Exchange Agent to mail to each holder of record
(as of the Effective Time) of a certificate or certificates (the "CERTIFICATES")
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive
shares of Healtheon/WebMD Common Stock pursuant to Section 3.1(b), cash in lieu
of any fractional shares pursuant to Section 3.1(d) and any dividends or other
distributions pursuant to Section 4.1(d), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as
Healtheon/WebMD and Company may reasonably agree) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Healtheon/WebMD Common Stock, cash in lieu of any
fractional shares pursuant to Section 3.1(d) and any dividends or other
distributions pursuant to
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Section 4.1(d). Upon surrender of Certificates for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Healtheon/WebMD,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such Certificates shall
be entitled to receive in exchange therefor certificates representing the number
of whole shares of Healtheon/WebMD Common Stock which such holder has the right
to receive under Section 3.1(b) in respect of the shares of Company Common Stock
formerly represented by such Certificate and payment in lieu of fractional
shares which such holders have the right to receive pursuant to Section 3.1(d),
and any dividends or distributions payable pursuant to Section 4.1(d), and the
Certificates so surrendered shall forthwith be canceled. Until so surrendered,
outstanding Certificates will be deemed from and after the Effective Time, for
all corporate purposes, to evidence the ownership of the number of whole shares
of Healtheon/WebMD Common Stock into which such shares of Company Common Stock
shall have been so converted pursuant to Section 3.1(b) and the right to receive
an amount in cash in lieu of the issuance of any fractional shares in accordance
with Section 3.1(d) and any dividends or distributions payable pursuant to
Section 4.1(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Healtheon/WebMD Common Stock with a record date after the Effective
Time will be paid to the holders of any unsurrendered Certificates (other than
holders of shares to be canceled pursuant to Sections 3.3 of this Agreement)
with respect to the shares of Healtheon/WebMD Common Stock represented thereby
until the holders of record of such Certificates shall surrender such
Certificates. Subject to applicable law, following surrender of any such
Certificates, the Exchange Agent or Healtheon/WebMD shall deliver to the record
holders thereof, without interest, certificates representing whole shares of
Healtheon/WebMD Common Stock issued in exchange therefor pursuant to Section
3.1(b) hereof along with payment in lieu of fractional shares pursuant to
Section 3.1(d) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with respect
to such whole shares of Healtheon/WebMD Common Stock.
(e) Transfers of Ownership. If certificates for shares of Healtheon/WebMD
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Healtheon/WebMD or any agent
designated by it any transfer or other taxes required by reason of the issuance
of certificates for shares of Healtheon/WebMD Common Stock in any name other
than that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Healtheon/WebMD or any agent designated by it
that such tax has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Healtheon/WebMD and
the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Internal Revenue Code or under
any provision of state, local or foreign tax law or under any other applicable
legal requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the person to whom such amounts would otherwise have been paid.
(g) Termination of Exchange Fund, No Liability. Any portion of the
Exchange Fund (including the proceeds of any investments thereof and any
Healtheon/WebMD Common Stock) that remains unclaimed by the stockholders of
Company for 180 days after the Effective Time shall be paid to Healtheon/WebMD.
Any stockholders of Company who have not theretofore complied with this Article
4 shall thereafter look only to Healtheon/WebMD for payment of their shares of
Healtheon/WebMD Common Stock and any cash, dividends and other distributions in
respect thereof payable and/or issuable pursuant to Section 3.1(b) or this
Article 4 upon due surrender of their Certificates (or affidavits of loss in
lieu thereof), in each case, without any interest thereon. Notwithstanding
anything to the contrary in this Section 4.1, neither the Exchange Agent,
Healtheon/WebMD, the Surviving Corporation nor any party hereto shall be liable
to a holder of shares of Healtheon/WebMD Common Stock or Company Common Stock
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
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4.2 No Further Transfers of Company Common Stock. At the Effective Time,
the stock transfer books of Company shall be closed and no transfer of Company
Common Stock by any such former holder shall thereafter be made or recognized.
There shall be no further recordation of transfers on the stock books of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If after the Effective Time
Certificates are presented to the Surviving Corporation for any reason, they
shall be exchanged as provided in this Article 4.
4.3 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Healtheon/WebMD
Common Stock, cash for fractional shares, if any, as may be required pursuant to
Section 3.1(d) and any dividends or distributions payable pursuant to Section
4.1(d); provided, however the Exchange Agent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver an indemnity against any claim that
may be made against the Surviving Corporation, Healtheon/WebMD, Company or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
4.4 Rights of Former Stockholders. Former stockholders of record of
Company will not be entitled to vote or give their consent after the Effective
Time at any meeting or action by written consent of Healtheon/WebMD stockholders
until such holders have exchanged their certificates representing Company
Capital Stock (other than Company Common Stock to be canceled pursuant to
Sections 3.3 of this Agreement) for certificates representing Healtheon/WebMD
Common Stock in accordance with the provisions of this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANY
Subject to the exceptions set forth in the disclosure letter referencing
specific representations delivered to Healtheon/WebMD on the date of this
Agreement (the "COMPANY DISCLOSURE LETTER"), as of the date hereof and as of the
Closing Date, Company represents and warrants to Healtheon/WebMD and Merger Corp
as follows:
5.1 Organization, Standing, and Power. Company is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Washington and has the corporate power and authority to carry on its business as
it has been and is now being conducted. Company is duly qualified or licensed to
transact business as a foreign corporation and is in good standing in all
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed would not have
a Company Material Adverse Effect. Copies of the Charter and all amendments
thereto of Company and the bylaws, as amended, of Company and copies of all
resolutions adopted and action taken by the stockholders or Board of Directors
and all committees thereof of Company, which have been made available to
Healtheon/WebMD for review, are true and complete in all Material respects and
accurately reflect all proceedings of the stockholders and Board of Directors
(and all committees thereof) of Company. The stock record books of Company,
which have been made available to Healtheon/WebMD for review, contain true and
complete records of the record ownership of Company Capital Stock and all prior
issuances and transfers of record ownership of the shares of its capital stock.
5.2 Authorization of Agreement; No Breach. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action of Company, other than the meeting of the stockholders of
Company to approve this Agreement to be held pursuant to Section 8.1. This
Agreement constitutes, and all agreements and other instruments and documents to
be executed and delivered by Company pursuant to this Agreement will constitute,
legal, valid and binding obligations of Company enforceable against it in
accordance with their respective terms, except to the extent such enforceability
is subject to (i) Laws of general application relating to bankruptcy,
insolvency, moratorium and the relief of debtors, (ii) the availability of
specific performance, injunctive relief or other equitable remedies and (iii)
limitations on the enforceability of indemnification provisions under applicable
federal and state securities Laws. The execution, delivery and performance of
this Agreement and the agreements and other documents and instruments to be
executed and delivered by Company pursuant to this Agreement and the
consummation of the transactions contemplated hereby
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and thereby will not, subject to obtaining the Consents identified or
contemplated herein (including without limitation all filings or Consents under
the HSR Act, the Securities Laws and state securities Laws), (i) violate or
result in a breach of the Charter or bylaws of Company; (ii) violate any Law,
Order, administrative decision or award of any court, arbitrator, mediator,
tribunal or Regulatory Authority applicable to or binding upon Company or upon
the Assets or business of Company; (iii) conflict with or constitute a Default
under any Material Contract to which Company is a party or by which Company is
bound; or (iv) create a Material Lien upon the Assets or business of Company,
other than, in the case of clauses (ii), (iii) and (iv) above, any such
violation, conflict, Default, or Lien that, if occurring, would not have a
Company Material Adverse Effect and other than Liens created under the Security
Agreement executed by Company in connection with the Loan Agreement executed
pursuant to Section 8.16.
5.3 Capital Stock.
(a) As of the date hereof, the authorized capital stock of Company consists
of (i) 100,000,000 shares of Company Common Stock, of which 24,109,705 shares
are issued and outstanding, and (ii) 1,000,000 shares of Company Preferred
Stock, of which no shares are issued and outstanding. Company has no other
capital stock authorized, issued or outstanding. All of such shares are duly and
validly issued and outstanding, are fully paid and non-assessable, and were
issued in compliance with the 1933 Act and all applicable state securities Laws,
except where the failure to comply would not have a Company Material Adverse
Effect.
(b) As of the date hereof, 6,826,752 shares of Company Common Stock were
subject to issuance pursuant to outstanding Company Options, and as of the date
hereof, 140,878 shares of Company Common Stock were subject to issuance pursuant
to outstanding Company Warrants (exclusive of the Healtheon/WebMD Warrant issued
pursuant to Section 8.16). Section 5.3(b) of the Company Disclosure Letter sets
forth the following information with respect to the Company Options outstanding
as of the date hereof: (i) the aggregate number of shares of Company Common
Stock subject to Company Options under each Company Stock Plan; and (ii) the
exercise price of the Company Options outstanding under each Company Stock Plan.
As a result of the execution of the Voting Agreements, vesting of all Company
Options granted pursuant to the Company Stock Plans will accelerate (other than
those where employees have specifically waived acceleration). Section 5.3(b) of
the Company Disclosure Letter also lists the names of all individuals or
entities who own Company Warrants, together with the number of shares of Company
Common Stock subject to such Warrants, the exercise prices applicable to such
Company Warrants and indicates the extent of acceleration of such Company
Warrants in the context of the transactions contemplated hereby. The Company
Options that have been designated as "incentive stock options" under the Company
Stock Plans or Contracts pursuant to which such Company Options were granted
were authorized and granted in accordance with the rules applicable to incentive
stock options under the Internal Revenue Code.
(c) Except for the Company Options, the Company Warrants and as set forth
in Section 5.3(c) of the Company Disclosure Letter, there are no outstanding
warrants, options, rights, calls or other commitments of any nature to which
Company is a party relating to Company Common Stock, and there are no
outstanding securities of Company convertible into or exchangeable for shares of
Company Common Stock or any other capital stock (together with Company Options
and Company Warrants, the "Company Equity Rights"). All Company Equity Rights
were issued or granted in compliance with the 1933 Act and all applicable state
securities Laws, except where the failure to comply would not have a Company
Material Adverse Effect.
(d) To the Knowledge of Company, other than the Voting Agreements entered
into pursuant to Section 8.15, there are no voting agreements or voting trusts
between or among any Person or Persons relating to Company or the Company Common
Stock. Except for the Company Options, the Company Warrants and as set forth in
Section 5.3(c) of the Company Disclosure Letter, Company is not obligated to
issue or repurchase any shares of Company Capital Stock or Company Equity Rights
for any purpose and no Person has entered into any Contract (whether preemptive
or contractual) with Company for the purchase, subscription or issuance of any
unissued shares or other securities of Company, whether now or in the future.
(e) In Company's reasonable judgement, each Stockholder executing a Voting
Agreement is an affiliate of Company within the meaning of Rule 145 under the
1933 Act. The shares of Company Common Stock subject to the Voting Agreements,
together with the Company Common Stock issuable upon exercise of the
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Healtheon/WebMD Warrants (as defined in Section 8.16), are sufficient to approve
the Merger and the Agreement for all purposes under the WBCA and Company's
Certificate of Incorporation and Bylaws, regardless of the extent to which
Company Options, Company Warrants or other Company Equity Rights may be
exercised after the date hereof.
(f) On a fully exercised (for cash) and converted to Company Common Stock
basis, the number of shares of Company Common Stock outstanding on the date
hereof would be 31,077,335. The weighted average exercise price of the Company
Options and Company Warrants outstanding on the date hereof is no less than
$6.80 per share of Company Common Stock.
5.4 Company Subsidiaries. Section 5.4 of the Company Disclosure Letter
sets forth a list of all Subsidiaries of Company. Each Subsidiary of Company is
a corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization. Each Subsidiary of
Company has the corporate power and authority to carry on its business as it is
now being conducted. Each Subsidiary of Company is duly qualified as a foreign
corporation authorized to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a Company
Material Adverse Effect. All of the outstanding shares of capital stock or other
equity interests in each of Company's Subsidiaries have been validly issued, are
fully paid and nonassessable, and, except as set forth in the Company SEC
Documents, are owned by Company or another Subsidiary of Company free and clear
of all Liens, and none are subject to preemptive rights. Neither Company nor any
of its Subsidiaries has any equity or similar interest in any other Person
(other than Company's investments in its Subsidiaries).
5.5 SEC Filings; Financial Statements.
(a) Company has filed all reports, schedules, forms, statements and other
documents (which are publicly available) with the SEC pursuant to applicable
Securities Laws from January 1, 1997 to the date of this Agreement relating to
Company and its Subsidiaries (the "COMPANY SEC DOCUMENTS"), and the Company SEC
Documents constitute all of the documents required to have been filed by Company
pursuant to such Laws for such period. As of their respective dates, or if
amended, as of the date of the last such amendment, the Company SEC Documents
complied in all Material respects, with the requirements of the 1933 Act or the
1934 Act, as the case may be, and none of the Company SEC Documents contained
when filed any untrue statement of a Material fact or omitted to state any
Material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made not misleading
and did not at the time they were filed omit any documents required to be filed
as exhibits thereto. The consolidated financial statements of Company included
in the Company SEC Documents (the "COMPANY FINANCIAL STATEMENTS") fairly
presented the consolidated financial position of Company and its consolidated
Subsidiaries as at the respective dates thereof and the consolidated results of
their operations and their consolidated cash flows for the respective periods
then ended and have been prepared in conformity with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto). Since September 30, 1999, Company has not made any
change in the accounting practices or policies applied in the preparation of its
financial statements, except as have been required by GAAP.
(b) All documents required to be filed by Company with respect to Company
and its Subsidiaries with the SEC after the date hereof and prior to the
Effective Time (the "SUBSEQUENT COMPANY SEC DOCUMENTS") will comply, in all
Material respects, with the requirements of the 1933 Act or the 1934 Act, as the
case may be, and the Subsequent Company SEC Documents (including any and all
financial statements included therein) will not contain when filed, any untrue
statement of a Material fact with respect to Company and its Subsidiaries or
omit to state any Material fact with respect to Company and its Subsidiaries
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made not misleading.
5.6 Absence of Undisclosed Liabilities. Except for Liabilities which are
accrued or reserved against in the Company Financial Statements and liabilities
incurred in connection with the Loan Agreement entered into pursuant to Section
8.16, neither Company nor any of its Subsidiaries has any Material Liabilities,
other than Liabilities incurred in the ordinary course of the business
consistent with past practice since September 30, 1999 or Liabilities arising
under this Agreement.
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5.7 Absence of Changes. Except as set forth in the Company SEC Documents,
since September 30, 1999, Company and its Subsidiaries have conducted their
respective businesses and operations in the ordinary and usual course consistent
with past practice, except for such business and operations as have not resulted
and would not result in a Company Material Adverse Effect, and there has not
occurred (i) any event, condition or occurrence which has a Company Material
Adverse Effect or is reasonably likely to have a Company Material Adverse
Effect; or (ii) any event that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Section 7.1
hereof.
5.8 Tax Matters. (a) Company has filed all federal, and all Material
state, local, foreign and provincial tax returns, declarations, statements,
reports, schedules, bonus and information returns and any amendments to any of
the preceding ("TAX RETURNS") required to have been filed on or prior to the
date hereof, or appropriate extensions therefor have been properly obtained, and
such Tax Returns are in all Material respects true, correct and complete; (b)
all Taxes shown to be due on such Tax Returns either (x) have been timely paid
or (y) extensions for payment have been properly obtained or such Taxes are
being timely and properly contested and, in either case, adequate reserves
pursuant to GAAP have been established on Company's consolidated financial
statements with respect thereto; (c) Company and each of its Subsidiaries have
complied in all Material respects with all rules and regulations relating to the
withholding of Taxes; (d) neither Company nor any of its Subsidiaries has waived
any statute of limitations in respect of its Taxes or Tax Returns; (e) Section
5.8 of the Company Disclosure Letter sets forth all pending audits, examinations
or claims by any taxing authority of any Tax Returns; (f) except as have been
advanced in pending audits or examinations listed in Section 5.8 of the Company
Disclosure Letter, no claims that have been communicated in writing to Company
by a taxing authority in connection with the examination of any federal or
Material state Tax Returns of Company and its Subsidiaries are currently
pending; (g) all deficiencies asserted or assessments made as a result of any
examination of such Tax Returns by any taxing authority have been paid in full
or are being timely and properly contested and proper accruals pursuant to GAAP
have been established on Company's consolidated financial statements with
respect thereto; (h) neither Company nor any of its Subsidiaries has any
Material liability for Taxes of any Person other than Company and its
Subsidiaries (A) under Treasury Regulations Section 1.1502-6 (or any similar
provision of applicable Law), (B) as a transferee or successor, or (C) by virtue
of any express or implied agreement or otherwise; (i) neither Company nor any of
its Subsidiaries has been a member of any affiliated group within the meaning of
Section 1504(a) of the Internal Revenue Code other than the affiliated group of
which Company is the common parent corporation; (j) none of the property owned
or used by Company or its Subsidiaries is subject to a tax benefit transfer
lease executed in accordance with Section 168(f)(8) of the Internal Revenue Code
of 1954, as amended by the Economic Recovery Act of 1981; (k) none of the
property owned by Company or its Subsidiaries is "tax exempt use property"
within the meaning of Section 168(h) of the Internal Revenue Code; (l) except as
set forth in Section 5.8 of the Company Disclosure Letter, none of Company or
its Subsidiaries is obligated to make any payments or is a party to any
agreement that under any circumstances could obligate any of Company or its
Subsidiaries to make any payments that will not be deductible under either
Section 162(m) or Section 280G of the Internal Revenue Code (or cause Company or
any of its Subsidiaries to incur a payment to reimburse a person for a tax
imposed under Internal Revenue Code Section 4999); and (m) none of Company or
its Subsidiaries is a party to any Tax allocation agreement, any Tax sharing
agreement, or any Tax indemnity agreement.
5.9 Intellectual Property.
(a) Company or one of its Subsidiaries owns or has the right to use all
Intellectual Property which is Material to the operation of the business of
Company and its Subsidiaries as currently conducted or to products or services
currently under development by Company or any of its Subsidiaries (collectively,
"MATERIAL INTELLECTUAL PROPERTY"), and, except as set forth in Section 5.9 of
the Company Disclosure Letter, has the right to use and/or license, the same in
the ordinary course of Company's business without Material liability to, or any
requirement of consent from, any other person or party, which right to use or
license shall not be affected by the execution of this Agreement or the
consummation of the Merger. All Material Intellectual Property is either owned
by Company or its Subsidiaries free and clear of all Liens, is used pursuant to
a license agreement or is in the public domain; each such license agreement is
valid and enforceable and in full force and effect; neither Company nor any of
its Subsidiaries is in Material Default thereunder; and to the Knowledge of
Company, no corresponding licensor is in Material Default thereunder. Except as
set forth in Section 5.9 of the Company Disclosure Letter, none of the
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Material Intellectual Property of Company and its Subsidiaries infringes or
otherwise conflicts with any Intellectual Property or other right of any Person;
there is no pending or, to the Knowledge of Company, threatened (in writing)
litigation, adversarial proceeding, administrative action or other challenge or
claim relating to any Material Intellectual Property of Company or any of its
Subsidiaries; there is no outstanding Order relating to any Material
Intellectual Property of Company or any of its Subsidiaries; to the Knowledge of
Company, there is currently no infringement by any Person of any Material
Intellectual Property of Company or any of its Subsidiaries. Notwithstanding
anything to the contrary herein, Company's only warranties with respect to (i)
the Company's right to use or license third party patents, (ii) Company
agreements to license third party patents, and (iii) infringement of third party
patents are as follows: to the Knowledge of Company (which, for purposes of this
section only, shall include the knowledge of the Persons responsible for
Intellectual Property at Company, including without limitation the Chief
Technology Officer of Company), Company has the right to use and/or license its
Material Intellectual Property without liability to, or any requirement of
consent from, any third party under such third party's patent rights; and none
of the Material Intellectual Property of Company and its Subsidiaries infringes
or otherwise conflicts with any patent of any third party.
(b) Except as set forth in Section 5.9 of the Company Disclosure Letter,
Company and each of its Subsidiaries has taken reasonable steps to protect,
maintain and safeguard its respective Material Intellectual Property, including
any Material Intellectual Property of Company or any of its Subsidiaries for
which improper or unauthorized disclosure would impair its value or validity
Materially, and has executed and required appropriate nondisclosure agreements
and made appropriate filings and registrations in connection with the foregoing.
(c) Company or one of its Subsidiaries is the sole and exclusive owner of
all Owned Software (as defined in Section 5.9(e) below). A true and complete
list of all Material Owned Software of Company or any of its Subsidiaries has
heretofore been made available to Healtheon/WebMD and all Owned Software
acquired by Company at a cost in excess of $25,000 is set forth on the Company
Disclosure Letter. Except as set forth in Section 5.9 of the Company Disclosure
Letter and for Owned Software that is not licensed or no longer offered for
license to third parties, all of the Owned Software of Company and any of its
Subsidiaries is Year 2000 Compliant (as defined in Section 5.9(e) below). A true
and complete list of all Material Third Party Software (as defined in Section
5.9(e) below) used by Company or any of its Subsidiaries has heretofore been
made available to Healtheon/WebMD. The Company has no Knowledge that any
Material Third Party Software currently used by Company or any of its
Subsidiaries is not Year 2000 Compliant.
(d) Company or one of its Subsidiaries is the sole and exclusive owner of
all Owned Databases (as defined in Section 5.9(e) below). A true and complete
list of all Material Owned Databases of Company or any of its Subsidiaries has
heretofore been made available to Healtheon/WebMD. The Company has no Knowledge
that any of the Owned Databases of Company or any of its Subsidiaries are not
Year 2000 Compliant. A true and complete list of all Material Third Party
Databases (as defined in Section 5.9(f) below) used by Company or any of its
Subsidiaries has heretofore been made available to Healtheon/WebMD.
(e) As used in this Section 5.9:
(i) "Databases" means and includes all compilations of data and all
related documentation and written narratives of all procedures used in
connection with the collection, processing and distribution of data
contained therein, together with information that describes the attributes
of certain data and such data's relationship to other data, including,
without limitation, (A) whether the data must be numerical, alphabetic, or
alphanumeric, (B) range or type limitations of the data, (C) one-to-one,
one-to-many, or many-to-many relationships with other data, (D) file
layouts, and (E) data formats, that are required to conduct the businesses
of Company and its Subsidiaries to the extent such businesses are currently
conducted, including, without limitation, the products and services
currently under development by Company or any of its Subsidiaries.
(ii) "Owned Databases" means all Databases other than Third Party
Databases.
(iii) "Owned Software" means all Software other than Third Party
Software and Software in the public domain.
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(iv) "Software" means and includes all computer programs, whether in
source code, object code or other form (including without limitation any
embedded in or otherwise constituting part of a computer hardware device),
algorithms, edit controls, methodologies, applications, flow charts and any
and all systems documentation (including, but not limited to, data entry
and data processing procedures, report generation and quality control
procedures), logic and designs for all programs, and file layouts and
written narratives of all procedures used in the coding or maintenance of
the foregoing, that is required to conduct the businesses of Company and
its Subsidiaries to the extent such businesses are currently conducted,
including, without limitation, the products and services currently under
development by Company or any of its Subsidiaries.
(v) "Third Party Databases" means Databases licensed or leased to
Company or any of its Subsidiaries by third parties.
(vi) "Third Party Software" means Software licensed or leased to
Company or its Subsidiaries by third parties, including commonly available
"shrink wrap" software copyrighted by third parties.
(vii) "Year 2000 Compliant" means, when used with respect to any
Software, that such Software will accept, receive, input, calculate,
compare, sort, store, extract, sequence, and otherwise process data inputs
and date values, and return and display date values, in a correct and
accurate manner, without interruption or abnormal end of process resulting
from the use of such date values, regardless of the dates used, whether
before, on, or after January 1, 2000, for any date value or values in the
twentieth or twenty-first centuries until the year 2034.
5.10 Insurance. A complete and accurate list of all insurance policies
held by Company and now in force (including, without limitation, property
damage, public liability, communications liability, workers' compensation,
fidelity bonds, errors and omissions, theft, forgery and other coverage) is set
forth in Section 5.10 of the Company Disclosure Schedule, and true and correct
copies of all insurance policies have been made available to Healtheon/WebMD.
There is no Material claim by Company or any of its Subsidiaries pending under
any insurance policies of Company or any of its Subsidiaries as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies.
5.11 Compliance with Laws. (i) Each of Company and its Subsidiaries
holds, and is in compliance with the terms of, all Permits necessary for the
conduct or operation of their businesses as currently conducted (the "COMPANY
PERMITS"), except for failures to hold or to comply with the Company Permits
which would not have a Company Material Adverse Effect; (ii) with respect to the
Company Permits, no action or proceeding is pending or, to the Knowledge of
Company, threatened in writing, and no fact exists or event has occurred that
would have a Company Material Adverse Effect; (iii) the business of Company and
its Subsidiaries has been and is being conducted in compliance with all
applicable Laws, including without limitation all Laws concerning privacy and/or
data protection, except for violations or failures to so comply that would not
have a Company Material Adverse Effect; (iv) no investigation or review by any
Regulatory Authority with respect to Company or its Subsidiaries is pending or,
to the Knowledge of Company, threatened in writing, other than, in each case,
those which would not have a Company Material Adverse Effect; and (v) neither
Company nor any of its Subsidiaries has received any written communication in
the past two years from a Regulatory Authority that alleges that Company or any
of its Subsidiaries is not in compliance in any Material respect with any
applicable Law.
5.12 Orders and Litigation. Except as set forth in the Company SEC
Documents, there are no outstanding Orders against Company or any of its
Subsidiaries, any of their Assets or business, or, to the Knowledge of Company,
against any of Company's or its Subsidiaries' current or former directors or
officers (during the period served as such) or any other person whom Company or
any of its Subsidiaries has agreed to indemnify, as such, concerning such
Person's conduct as a director or officer of Company or any of its Subsidiaries.
Except as set forth in the Company SEC Documents, there is no Litigation pending
or, to the Knowledge of Company, threatened in writing against Company or any of
its Subsidiaries, any of their Assets or business, or, to the Knowledge of
Company, any of the Company's or its Subsidiaries' current or former directors
or officers or any other person whom Company or any of its Subsidiaries has
agreed to indemnify which, if adversely determined, would have a Company
Material Adverse Effect; nor is there any reasonable basis for any such
Litigation that could have an Company Material Adverse Effect.
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5.13 Environmental Matters.
(a) No Person (including any Regulatory Authority) has asserted against
Company or any of its Subsidiaries (i) any written requests, claims or demands
for damages, costs, expenses or causes of action arising out of Hazardous
Materials in connection with or related to any past or present facilities, or
Assets owned, leased or operated by Company or any of its Subsidiaries currently
or in the past (collectively, the "COMPANY FACILITIES"), or (ii) any actual or
alleged injury to human health or the environment by reason of the current
condition or operation of the Company Facilities, or past conditions and
operations or activities on the Company Facilities.
(b) Neither Company nor any Subsidiary is subject to any pending, or to the
Knowledge of Company, threatened (in writing) Litigation relating to or arising
from the generation, emission, disposal, discharge, release or threatened
release, treatment, or storage of any Hazardous Material associated with the
Company Facilities or Company's or any of its Subsidiaries' operations.
(c) There is no environmental condition, situation or incident on, at or
concerning any Company Facility or Company's or any of its Subsidiaries'
operations that has resulted in or could reasonably be expected to result in a
Company Material Adverse Effect.
5.14 Contracts and Commitments. Except for agreements listed as exhibits
to any Company SEC Document and on Section 5.14 of the Company Disclosure
Letter, none of Company or any of its Subsidiaries is a party to any: (a)
employment agreement (other than oral "at-will" employment of employees and the
Company's standard for Offer Letter, the form of which has been made available
to Healtheon/WebMD); (b) collective bargaining agreement; (c) Contract relating
to the borrowing of money in excess of $1,000,000 by Company or any Subsidiary
or the guaranty of any obligation for the borrowing of money in excess of
$1,000,000 by Company or any Subsidiary; (d) Material Contract which grants any
Person the exclusive right to any of the Material Assets of Company or any of
its Subsidiaries or purports to limit in any Material respect the manner in
which, or the localities in which, Company or any of its Subsidiaries is
entitled to conduct all or any Material portion of the business of Company or
any of its Subsidiaries; (e) Contract that requires the Consent of, or
terminates or becomes terminable by, any Person other than Company or any of its
Subsidiaries as a result of the transactions contemplated by this Agreement; (f)
Material Contract of any sort, other than in the ordinary course of business,
which (i) is not terminable by Company or a Subsidiary, as applicable, on ninety
(90) or fewer days' notice at any time without penalty and contemplates the
receipt, payment or rendering by or to Company or a subsidiary of more than
$500,000 in cash or fair market value of Assets or securities, (ii) contemplates
any joint venture, partnership, strategic alliance or similar arrangement
extending beyond six (6) months or involving equity or investments of more than
$500,000, or (iii) is otherwise Material to Company and its Subsidiaries taken
as a whole; or (g) any Material Contracts pursuant to which any of Company's
pages are linked with other web sites or pages therein, Material Contracts with
web site hosts or Internet access providers, Material Contracts regarding data
center hosting or security, Material Contracts relating to advertising or
sponsorships, Material Contracts providing for the acquisition, purchase,
license, use, display or distribution of content, information or data or the
provision of services through the Company's web pages, or Material Contracts
regarding the establishment or maintenance of networks, servers,
telecommunication links, virtual private networks or other similar non-public
networks. There is not, under any of the aforesaid obligations, any Default by
Company or any of its Subsidiaries except for Defaults or other events which
would not have a Company Material Adverse Effect.
5.15 State Takeover Statutes. The provisions of Section 23B.19.040 of the
WBCA will not apply to this Agreement or the Merger. No other state takeover
statutes or similar statute or regulation applies to the Merger and this
Agreement or the transactions contemplated by this Agreement.
5.16 Benefit Plans.
(a) Section 5.16 of the Company Disclosure Letter sets forth the name of
each Company Plan (as defined below) and of each bonus, deferred compensation
(together with a list of participants therein), incentive compensation, profit
sharing, salary continuation (together with a list of participants therein),
employee benefit, fringe benefit, stock purchase, stock option, employment,
severance, termination, golden parachute, consulting or supplemental retirement
plan or agreement relating to Company and its Subsidiaries or to their employees
or independent contractors (collectively, the "BENEFIT PLANS"), true copies of
which have heretofore been made
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available to Healtheon/WebMD. Company has also delivered to Healtheon/WebMD
true, complete and correct copies of (1) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (2) the two most recent
annual reports on Form 5500 (including all schedules and attachments thereto)
filed with the IRS with respect to each Benefit Plan (if any such report was
required by applicable Law), (3) the most recent summary plan description (or
similar document) for each Benefit Plan for which such a summary plan
description is required by applicable Law or was otherwise provided to plan
participants or beneficiaries and (4) each trust agreement and insurance or
annuity contract or other funding or financing arrangement relating to any
Benefit Plan. Each Company Plan and Benefit Plan has been administered in all
Material respects in accordance with its terms and complies in all Material
respects with ERISA, the Internal Revenue Code and all other applicable Laws.
All contributions to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the terms of the Benefit Plans, any
applicable collective bargaining agreement and, when applicable, Section 302 of
ERISA or Section 412 of the Internal Revenue Code, have been timely made. All
such contributions to, and payments from, the Benefit Plans, except those
payments to be made from a trust qualified under Section 401(a) of the Internal
Revenue Code, for any period ending before the Effective Time that are not yet,
but will be, required to be made, will be properly accrued and reflected in the
balance sheet included in the Company Financial Statements. No "reportable
event" (within the meaning of Section 4043 of ERISA) has occurred with respect
to any Company Plan for which the 30-day notice requirement has not been waived
(other than with respect to the transactions contemplated by this Agreement);
neither Company nor any of its ERISA Affiliates has withdrawn from any Company
Plan under Section 4063 of ERISA or Company Multiemployer Plan (as defined
below) under Section 4203 or 4205 of ERISA or has taken, or is currently
considering taking, any action to do so; and no action has been taken, or is
currently being considered, to terminate any Company Plan subject to Title IV of
ERISA. No Company Plan, nor any trust created thereunder, has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived. As of the most recent valuation date for each Company Plan that
is a "defined benefit plan" (as defined in Section 3(35) of ERISA (hereinafter a
"DEFINED BENEFIT PLAN")), there was not any amount of "unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA) under such Defined
Benefit Plan, and Company is not aware of any facts or circumstances that would
Materially change the funded status of any such Defined Benefit Plan. Company
has furnished to Healtheon/WebMD the most recent actuarial report or valuation
with respect to each Defined Benefit Plan. The information supplied to the plan
actuary by Company and any ERISA Affiliate (as defined below) for use in
preparing those reports or valuations was complete and accurate in all Material
respects and Company has no reason to believe that the conclusions expressed in
those reports or valuations are incorrect. Neither Company nor any ERISA
Affiliate has (a) engaged in a transaction described in Section 4069 of ERISA
that could subject Company to liability at any time after the date hereof or (b)
acted in a manner that could, or failed to act so as to, result in Material
fines, penalties, taxes or related charges under (x) Section 502(c)(i)(1) of
ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Internal Revenue Code.
There are no Material (individually or in the aggregate) actions, suits or
claims pending or, to the Knowledge of Company, threatened in writing (other
than routine claims for benefits) with respect to any Company Plan or Benefit
Plan. Neither Company nor any of its ERISA Affiliates has incurred or could
reasonably be expected to incur any Material liability under or pursuant to
Title IV of ERISA that has not been satisfied in full. To the Knowledge of
Company, no Material non-exempt prohibited transactions described in Section 406
of ERISA or Section 4975 of the Internal Revenue Code have occurred. All Company
Plans that are intended to be qualified under Section 401(a) of the Internal
Revenue Code have received a favorable determination letter as to such
qualification from the IRS, and no event has occurred, either by reason of any
action or failure to act, which could be expected to cause the loss of any such
qualification, and Company is not aware of any reason why any Company Plan and
Benefit Plan is not so qualified in operation. Company has delivered to
Healtheon/WebMD (i) a copy of the most recent determination letter received with
respect to each Company Plan for which such a letter has been issued, as well as
a copy of any pending application for a determination letter and (ii) a list of
all Company Plan amendments as to which a favorable determination letter has not
yet been received. None of Company, any of its ERISA Affiliates or, to the
Knowledge of Company, any trustee, administrator or other fiduciary of any
Benefit Plan or any agent of any of the foregoing has engaged in any transaction
or acted in a manner that could, or has failed to act so as to, subject Company,
any such ERISA Affiliate or any trustee, administrator or other fiduciary to any
Material liability for breach of fiduciary duty under ERISA or any other
applicable law. Neither Company nor any of its ERISA Affiliates knows or has
been notified by any Company Multiemployer Plan that such Company Multiemployer
Plan
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is currently in reorganization or insolvency under and within the meaning of
Section 4241 or 4245 of ERISA or that such Company Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA. As used herein:
(i) "COMPANY PLAN" means a "pension plan" (as defined in Section 3(2) of ERISA,
other than a Company Multiemployer Plan) or a "welfare plan" (as defined in
Section 3(l) of ERISA) established or maintained by Company or any Person that,
together with Company, is treated as a single employer under Section 414(b),
(c), (m) or (o) of the Internal Revenue Code (each, an "ERISA AFFILIATE") or to
which Company or any of its ERISA Affiliates has contributed in the last six
years or otherwise may have any liability; and (ii) "COMPANY MULTIEMPLOYER PLAN"
means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to
which Company or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability.
(b) Except as contemplated by this Agreement, the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with any other event that is reasonably likely to occur, (A) entitle
any current or former director, officer or employee of Company or any of its
ERISA Affiliates to severance pay, golden parachute payments, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (B) accelerate the time of payment or vesting, or increase the
amount of compensation due any such director, officer or employee.
(c) The list of welfare plans in Section 5.16 of the Company Disclosure
Letter discloses whether each welfare plan is (i) unfunded, (ii) funded through
a "welfare benefit fund", as such term is defined in Section 419(e) of the
Internal Revenue Code, or other funding mechanism or (iii) insured. Each such
welfare plan may be amended or terminated without Material liability to Company
at any time after the Effective Time. Company and its ERISA Affiliates comply in
all Material respects with the applicable requirements of Section 4980B(f) of
the Internal Revenue Code with respect to each Benefit Plan that is a group
health plan, as such term is defined in Section 5000(b)(1) of the Internal
Revenue Code.
5.17 Board Approval. The Board of Directors of Company has, as of the
date of this Agreement, (a) determined that the Merger is fair to, and in the
best interests of Company and its Stockholders, and (b) approved and determined
to be advisable this Agreement and the transactions contemplated hereby and has
recommended that the Stockholders of Company adopt this Agreement.
5.18 Governmental Approvals; Required Consents. No filing or registration
with, or Consent of, any Governmental Entity or any other third party is
required by or with respect to Company or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or is necessary for the
consummation of the transactions contemplated hereby (including, without
limitation, the Merger) except: (i) the filing of a notification under the HSR
Act, (ii) the filing of the Articles of Merger with the Secretary of State of
the State of Washington, (iii) the Consents, filings and notifications listed in
Section 5.14(e) of the Company Disclosure Letter; (iv) the effectiveness of the
Healtheon/WebMD Registration Statement and filing any notices required under
state securities laws in accordance with Section 8.1; and (v) such other
Consents, registrations and filings the failure of which to obtain or make would
not have a Company Material Adverse Effect.
5.19 Accounts Receivable. All accounts receivable of Company and its
Subsidiaries, whether or not reflected in the Company Financial Statements
represent in all Material respects sales made in the ordinary course of
business, and the reserves shown on the Company Financial Statements have been
established in accordance with GAAP, consistently applied, and are considered by
management of Company and Company to be adequate.
5.20 Tax Treatment. Neither Company nor, to the Knowledge of Company, any
Affiliate of Company has taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code.
5.21 Affiliate Transactions. Except as set forth in the Company SEC
Documents, there are no transactions involving Company of a nature that would be
required to be described under Item 404 of Regulation S-K promulgated under the
1933 Act.
5.22 Customers. Section 5.22 of the Company Disclosure Letter lists
Company's top 20 customers (collectively, the "CUSTOMERS"), by the unaudited
revenues received by Company from each such Customer during 1999. Company does
not have any Knowledge of any oral or written notice from any of the Customers
stating that
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such Customer intends to terminate its business relationship with Company or
Materially reduce the volume of business it does with Company.
5.23 Fairness Opinion. Company's Board of Directors has received an
opinion from FleetBoston Robertson Stephens Inc., dated as of the date hereof,
to the effect that as of the date hereof, the Exchange Ratio is fair to Company
Stockholders, other than Healtheon/WebMD, Merger Corp, any affiliates of
Healtheon/WebMD or Merger Corp or any Stockholders exercising dissenters' rights
under the WBCA, from a financial point of view, a written copy of which will be
delivered to Healtheon/WebMD promptly after receipt by Company.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF HEALTHEON/WEBMD AND MERGER CORP
Subject to the exceptions set forth in the disclosure letter referencing
specific representations delivered to Healtheon/WebMD on or prior to the date of
this Agreement (the "HEALTHEON/WEBMD DISCLOSURE LETTER"), as of the date hereof
and as of the Closing Date, Healtheon/WebMD and Merger Corp, jointly and
severally, represent and warrant to Company as follows:
6.1 Organization, Standing, and Power. (a) Healtheon/WebMD is a
corporation duly organized, validly existing, and in good standing under the
Laws of the State of Delaware, and has the power and authority to carry on its
business as it has been and is now being conducted. Healtheon/WebMD and each of
its Subsidiaries is duly qualified or licensed to transact business as a foreign
corporation and is in good standing in all jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed would not have a Healtheon/WebMD Material Adverse
Effect. Copies of the Certificate of Incorporation and all amendments thereto of
Healtheon/WebMD and the bylaws, as amended, of Healtheon/WebMD and copies of all
resolutions adopted and action taken by the stockholders or Board of Directors
and all committees thereof of Healtheon/WebMD, which have been made available to
Company for review, are true and complete in all Material respects and
accurately reflect all proceedings of the stockholders and Board of Directors
(and all committees thereof) of Healtheon/WebMD.
(b) Merger Corp is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Washington as a wholly owned
Subsidiary of Healtheon/WebMD.
6.2 Authorization of Agreement; No Breach. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
corporate action of Healtheon/WebMD. This Agreement constitutes, and all
agreements and other instruments and documents to be executed and delivered by
Healtheon/WebMD pursuant to this Agreement will constitute, legal, valid and
binding obligations of Healtheon/WebMD enforceable against it in accordance with
their respective terms, except to the extent such enforceability is subject to
(i) Laws of general application relating to bankruptcy, insolvency, moratorium
and the relief of debtors and (ii) the availability of specific performance,
injunctive relief or other equitable remedies. Each of Healtheon/WebMD and
Merger Corp has the corporate power and authority necessary to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Merger Corp. This Agreement
represents a legal, valid, and binding obligation of Merger Corp, enforceable
against Merger Corp in accordance with its terms. Except in such case that will
not result in a Healtheon/WebMD Material Adverse Effect, the execution, delivery
and performance of this Agreement and the agreements and other documents and
instruments to be executed and delivered by Healtheon/WebMD pursuant to this
Agreement and the consummation of the transactions contemplated hereby and
thereby will not, subject to obtaining the Consents identified or contemplated
herein (including without limitation all filings or Consents under the HSR Act,
the Securities Laws and state securities Laws and the rules and regulations of
the NASD), (i) violate or result in a breach of or Default under the certificate
of incorporation or bylaws of Healtheon/WebMD or any of its Subsidiaries or any
other Material Contract to which Healtheon/WebMD or any of its Subsidiaries is a
party or is bound; (ii) violate any Law, Order, administrative decision or award
of any court, arbitrator, mediator, tribunal or Regulatory Authority applicable
to or binding upon Healtheon/WebMD or its Subsidiaries or upon their respective
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securities, Assets or business; or (iii) create a Material Lien upon the
securities, Assets or business of Healtheon/ WebMD or any of its Subsidiaries.
6.3 Capital Stock.
(a) As of February 7, 2000, the authorized capital stock of Healtheon/WebMD
consists of: (i) 600,000,000 shares of Healtheon/WebMD Common Stock, of which
179,772,040 shares (plus any shares issued upon exercise of Healtheon/WebMD
Options and Warrants (as defined in Section 6.3(b) since February 7, 2000) are
issued and outstanding and (ii) 5,000,000 shares of Preferred Stock, $0.0001 par
value per share, of which 155,951 shares are issued and outstanding. All of the
outstanding shares of Healtheon/WebMD Common Stock have been duly authorized and
validly issued, and are fully paid and nonassessable, and were issued in
compliance with the 1933 Act and applicable state securities Laws, except where
the failure to comply would not have a Healtheon/WebMD Material Adverse Effect.
(b) The authorized capital stock of Merger Corp consists of 10,000 shares
of Merger Corp Common Stock, of which 100 shares are validly issued and
outstanding, fully paid and nonassessable, are owned directly by Healtheon/WebMD
free and clear of any Liens, and constitutes all of the outstanding shares of
capital stock of Merger Corp.
(c) As of February 7, 2000, an aggregate of 65,701,201 shares of
Healtheon/WebMD Common Stock (less any shares of Common Stock subject to
Healtheon/WebMD Options and Warrants that have been exercised since February 7,
2000) are subject to issuance pursuant to outstanding options to purchase
Healtheon/WebMD Common Stock under Healtheon/WebMD's stock option plans and
outstanding warrants to purchase Healtheon/WebMD Common Stock. (Stock options
granted by Healtheon/WebMD pursuant to its stock option plans and warrants are
referred to in this Agreement as "HEALTHEON/WEBMD OPTIONS AND WARRANTS".) All
Healtheon/WebMD Options and Warrants were issued or granted in Material
compliance with the 1933 Act and applicable state securities Laws, except where
the failure to comply would not have a Healtheon/WebMD Material Adverse Effect.
(d) Except as set forth above, in the Healtheon/WebMD SEC Documents and in
Section 6.3(d) of the Healtheon/WebMD Disclosure Letter, as of the date of this
Agreement, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which
Healtheon/WebMD or any of its Subsidiaries is a party or by which it is bound
obligating Healtheon/WebMD or any of its Subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of
Healtheon/WebMD or any of its Subsidiaries or obligating Healtheon/WebMD or any
of its Subsidiaries to grant, extend, accelerate the vesting of or enter into
any such subscription, option, warrant, equity security, call, right, commitment
or agreement.
6.4 Healtheon/WebMD SEC Filings; Financial Statements. Healtheon/WebMD
has filed all reports, schedules, forms, statements and other documents (which
are publicly available) with the SEC pursuant to applicable Securities Laws from
January 1, 1999 to the date of this Agreement relating to Healtheon/WebMD and
its Subsidiaries (the "HEALTHEON/WEBMD SEC DOCUMENTS"), and the Healtheon/WebMD
SEC Documents constitute all of the documents required to have been filed by
Healtheon/WebMD pursuant to such Laws for such period. As of their respective
dates, or if amended, as of the date of the last such amendment, the Healtheon/
WebMD SEC Documents complied, and all documents required to be filed by
Healtheon/WebMD with the SEC after the date hereof and prior to the Effective
Time (the "SUBSEQUENT HEALTHEON/WEBMD SEC DOCUMENTS") will comply, in all
Material respects, with the requirements of the 1933 Act or the 1934 Act, as the
case may be, and none of the Healtheon/WebMD SEC Documents contained when filed,
and the Subsequent Healtheon/ WebMD SEC Documents will not contain when filed,
any untrue statement of a Material fact or omitted, or will omit, to state any
Material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, or are to be
made, not misleading and did not at the time they were filed omit any documents
required to be filed as exhibits thereto. The consolidated financial statements
of Healtheon/WebMD included in the Healtheon/WebMD SEC Documents when filed
fairly presented, and those included in the Subsequent Healtheon/WebMD SEC
Documents when filed will fairly present, the consolidated
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financial position of Healtheon/WebMD and its consolidated Subsidiaries as at
the respective dates thereof and the consolidated results of their operations
and their consolidated cash flows for the respective periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein) and have been
prepared in conformity with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto).
6.5 Absence of Undisclosed Liabilities. Except as disclosed on the
Healtheon/WebMD SEC Documents, Healtheon/WebMD does not have any Material
Liabilities, other than Liabilities incurred in the ordinary course of business
since September 30, 1999 or Liabilities arising under this Agreement.
6.6 Absence of Certain Changes or Events. Except as disclosed in Section
6.6 of the Healtheon/WebMD Disclosure Letter, since September 30, 1999, there
has not occurred (i) any events, changes or occurrences (other than events or
condition affecting the economy generally) which have had, or are reasonably
likely to have a Healtheon/WebMD Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or distribution of any kind by
Healtheon/WebMD or Merger Corp on any class of its capital stock or (iii) any
change in Healtheon/WebMD's accounting methods, principles or practices utilized
by or affecting Healtheon/WebMD except as required by concurrent changes in
GAAP.
6.7 Compliance with Laws. The business of Healtheon/WebMD and Merger Corp
has been and is being conducted in compliance with all applicable Laws, except
for violations or failures to so comply that would not have Material Adverse
Effect on Healtheon/WebMD; and no investigation or review by any Governmental
Entity with respect to Healtheon/WebMD or Merger Corp is pending or, to the
Knowledge of Healtheon/WebMD, threatened in writing, other than, in each case,
those which would not have a Healtheon/WebMD Material Adverse Effect.
6.8 Governmental Approvals; Required Consents. No filing or registration
with, or Consent of, any Governmental Entity or any other third party is
required by or with respect to Healtheon/WebMD or Merger Corp in connection with
the execution and delivery of this Agreement or is necessary for the
consummation of the transactions contemplated hereby (including, without
limitation, the Merger) except: (i) the filing of a notification under the HSR
Act, (ii) the filing of Articles of Merger with the Secretary of State of the
State of Washington, (iii) the Consents, filings and notifications listed in
Section 6.8 of the Healtheon/WebMD Disclosure Letter; (iv) the effectiveness of
the Healtheon/WebMD Registration Statement and filing any notices required under
state securities laws in accordance with Section 8.1; and (v) such other
Consents, registrations and filings the failure of which to obtain or make would
not have a Healtheon/WebMD Material Adverse Effect.
6.9 Healtheon/WebMD Common Stock. The shares of Healtheon/WebMD Common
Stock to be issued in accordance with the terms and provisions of this Agreement
will, when so issued, be duly authorized, validly issued, fully paid and
non-assessable and will have been issued in compliance with the 1933 Act and
applicable state securities laws, except where the failure to comply would not
have a Material adverse effect.
6.10 Interim Operations of Merger Corp. Merger Corp was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated hereby. Merger Corp has no liabilities other than those existing
under this Agreement.
6.11 Tax Treatment. Neither Healtheon/WebMD nor, to the Knowledge of
Healtheon/WebMD, any Affiliate of Healtheon/WebMD has taken any action or has
any Knowledge of any fact or circumstance that is reasonably likely to prevent
the transactions contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code.
6.12 Orders and Litigation. Except as set forth in the Healtheon/WebMD
SEC Documents, there are no outstanding Orders against Healtheon/WebMD or any of
its Subsidiaries, any of their Assets or business, or, to the Knowledge of
Healtheon/WebMD, any of Healtheon/WebMD's or its Subsidiaries' current or former
directors or officers (during the period served as such) or any other person
whom Healtheon/WebMD or any of its Subsidiaries has agreed to indemnify, as
such. Except as set forth in the Healtheon/WebMD SEC Documents, there is no
Material Litigation pending or, to the Knowledge of Healtheon/WebMD, threatened
in writing against
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Healtheon/WebMD or any of its Subsidiaries, any of their Assets or business, or,
to the Knowledge Healtheon/WebMD, any of the Healtheon/WebMD's or its
Subsidiaries' current or former directors or officers or any other person whom
Healtheon/WebMD or any of its Subsidiaries has agreed to indemnify, as such; nor
is there any reasonable basis for any such Litigation that could reasonably be
expected to have a Healtheon/WebMD Material Adverse Effect.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CLOSING
7.1 Conduct of Company's Business. Except as set forth in Section 7.1 of
the Company Disclosure Letter, between the date hereof and the Closing Date,
except with the prior written consent of Healtheon/WebMD or as expressly
contemplated by this Agreement, Company shall, and shall cause its Subsidiaries
to:
(a) conduct its business in substantially the same manner as presently
being conducted and refrain from entering into any Material transaction or
Material Contract other than in the ordinary course of business and
consistent with past practices; and not make any Material change in its
methods of management, marketing, accounting, or operations;
(b) consult with Healtheon/WebMD prior to undertaking any Material new
business opportunity outside the ordinary course of business;
(c) not enter into any new employment Contract or make any commitment
to employees (including any commitment to pay severance, retirement or
other benefits) except in the ordinary course of business and consistent
with past practice;
(d) not increase the compensation (including fringe benefits) payable
or to become payable to any officer, director, employee, agent or
independent contractor of Company, except general hourly rate increases and
normal merit increases for employees other than (x) executive officers made
in the ordinary course of business and consistent with past practice and
(y) for increases committed to prior to the date of this Agreement and not
in contemplation thereof;
(e) except as contemplated in the Loan Agreement (as defined in
Section 8.16) or in the ordinary course of business and consistent with
past practices, not (i) create or incur any indebtedness for borrowed money
(or, even if in the ordinary course of business, not in excess of $500,000
in the aggregate), or (ii) create any Liens of any nature whatsoever other
than Liens created under the Security Agreement executed by Company in
connection with the Loan Agreement executed pursuant to Section 8.16;
(f) except in the ordinary course of business and, even if in the
ordinary course of business, then not in an amount to exceed $200,000
individually or $1,000,000 in the aggregate, not make or commit to make any
capital expenditure, or enter into any lease of capital equipment as lessee
or lessor;
(g) not enter into, terminate or Materially amend any Material
strategic alliance agreement or any other Material Contract relating to the
distribution, sale, license or marketing by third parties of Company's
products or services;
(h) not amend the Charter, Bylaws or other governing instruments of
Company, except as contemplated by this Agreement;
(i) not make any Material changes in its accounting methods or
practices or revalue its Assets, except for (i) those changes required by
the SEC or GAAP, and (ii) changes in its tax accounting methods or
practices that may be necessitated by changes in applicable Tax Laws;
(j) not issue, sell, pledge, encumber, authorize the issuance of,
enter into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, (i) any additional
shares of Company Common Stock, or any stock appreciation rights, or any
option, warrant, conversion, or other right to acquire any such stock, or
any security convertible into any such stock, or pay or declare or agree to
pay or declare any dividend or other distribution with respect to any
Company Common Stock,
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except for (A) shares of Company Common Stock which may be issued upon the
exercise of the Company Options or Company Warrants outstanding or issued
on the date hereof, including the Healtheon/WebMD Warrants; (B) options
issued to new employees of Company under the Company Stock Plans in the
ordinary course of business not to exceed 750,000 in the aggregate; and (C)
22,500 shares of Company Common Stock issuable to Jon L. Fisse; or (ii) any
Material Assets of Company or any of its Subsidiaries, except for sales in
the ordinary course of business and in a manner consistent with past
practice;
(k) not make any loan to any Person or increase the aggregate amount
of any loan currently outstanding to any Person, except for usual and
customary advances to employees made in the ordinary course of business;
(l) not purchase or redeem, or agree to purchase or redeem, any
Company Capital Stock or Company Equity Rights;
(m) except as provided by the terms of the Company Options on the date
hereof and except for obtaining waivers of acceleration of vesting of
Company Options triggered by the Voting Agreements entered into pursuant to
Section 8.15, not waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, reprice
options granted under any Company Stock Plans or authorize cash payments in
exchange for any options granted under any of such plans;
(n) not grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding or policies
existing on the date hereof or adopt any new severance plan;
(o) not transfer or license to any Person or otherwise extend, amend
or modify any rights to the Intellectual Property of Company, or enter into
any grants of future patent rights, other than in the ordinary course of
business consistent with past practice;
(p) not acquire or agree to acquire or, subject to Section 8.7, be
acquired, by merging or consolidating with, or by purchasing any Person,
interest in, portion of or the capital or the Assets of, or by any other
manner, any business or any Person or division thereof, otherwise acquire
or agree to acquire any Assets which are Material to the business of
Company or enter into any joint ventures, strategic partnerships or
alliances;
(q) not Materially modify or amend, or terminate any Material Contract
(including any of the Company Stock Plans) to which Company is a party or
waive, release, or assign any Material rights or claims thereunder, in any
such case in a manner Materially adverse to Healtheon/WebMD; and
(r) not make any agreement or commitment which will result in or cause
to occur a violation of any of the items contained in paragraphs (a)
through (q) above.
7.2 Conduct of Healtheon/WebMD's Business. Except as set forth in Section
7.2 of the Healtheon/WebMD Disclosure Letter, between the date hereof and the
Closing Date, except with the prior written consent of Company or as expressly
contemplated by this Agreement, Healtheon/WebMD shall, and shall cause its
Subsidiaries to:
(a) use reasonable efforts to maintain its material rights and
material franchises and preserve its material relationships with customers,
suppliers and others having business dealings with it;
(b) not to declare or pay any dividends on or make other distributions
in respect of any of its capital stock;
(c) not take any action that would prevent or impede the Merger from
qualifying as a reorganization under Section 368(a) of the Internal Revenue
Code;
(d) not take any action that would, or that could reasonably be
expected to, result in any of the conditions to the Merger set forth in
Article 9 not being satisfied;
(e) not take any action that would cause any of its representations
and warranties set forth in this Agreement to no longer be true and
correct; and
(f) not authorize, commit or agree to take any of the foregoing
actions.
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7.3 Adverse Changes in Condition. Each Party agrees (a) to give written
notice promptly to the other Parties upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have a Healtheon/WebMD Material
Adverse Effect or a Company Material Adverse Effect, respectively, or (ii) would
cause or constitute a breach of any of its representations, warranties,
agreements or covenants contained herein, such that the conditions set forth in
Sections 9.2(a) and (b) or Sections 9.3(a) and (b) with respect to such Party
(as appropriate) would not be satisfied as of the time of such breach or as of
the time of such representation or warranty shall have become untrue, and (b) to
use its reasonable efforts to prevent or promptly to remedy the same.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Stockholder Approval; Registration Statement.
(a) Unless this Agreement is terminated in accordance with its terms, the
Board of Directors of Company shall unanimously recommend to the Stockholders
that the Stockholders vote in favor of the adoption of this Agreement and the
Merger and the Board of Directors and officers of Company shall use their
reasonable best efforts to obtain such Stockholders' approval. Regardless of
whether the Board of Directors of Company recommends or withdraws its
recommendation to the Stockholders that the Stockholders vote in favor of the
adoption of this Agreement and the Merger, unless this Agreement is terminated
in accordance with Section 10.1 hereof, Company and its Board of Directors shall
take all action necessary and in accordance with the WBCA and its Charter and
Bylaws to convene a meeting of Company's Stockholders to consider adoption and
approval of this Agreement and approval of the Merger (the "STOCKHOLDERS
MEETING") to be held as promptly as practicable, in any event, within 30 days
after the declaration of the effectiveness of the Healtheon/WebMD Registration
Statement. Company will use its reasonable best efforts to solicit from its
Stockholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger, and will take all other action necessary or
advisable to secure the vote or consent of its Stockholders required by the WBCA
to obtain such approvals and shall ensure that the Stockholders Meeting is
called, noticed, convened, held and conducted, and that all proxies solicited by
Company in connection with the Stockholders Meeting are solicited, in compliance
with the WBCA, Company's Charter and Bylaws, and all other applicable legal
requirements. The Board of Directors of the Company (including any committee
thereof) may not withdraw, amend or modify, or propose to withdraw or modify, in
a manner adverse to Healtheon/WebMD the approval or recommendation by the
Company Board of Directors of this Agreement or the Merger unless, following the
receipt of a Superior Proposal (as defined in Section 8.7(c), below), in the
reasonable good faith judgment of the Company Board, after consultation with
outside legal counsel, the failure to do so would be inconsistent with its
fiduciary duties to the Company's Stockholders under applicable law; provided,
however, that, the Board of Directors of the Company shall submit this Agreement
to the Company's stockholders for approval, whether or not the Board of
Directors of the Company at any time subsequent to the date hereof determines
that this Agreement is no longer advisable or recommends that the stockholders
of the Company reject it or otherwise modifies or withdraws its recommendation.
Unless the Board of Directors of the Company has withdrawn its recommendation of
this Agreement in compliance herewith, the Company shall use its best efforts to
solicit from stockholders of the Company proxies in favor of the approval and
adoption of this Agreement and the Merger and to secure the vote or consent of
stockholders required by the WBCA and its Articles of Incorporation and Bylaws
to approve and adopt this Agreement and the Merger.
(b) Subject to Section 8.1(a), the Proxy Statement/Prospectus shall include
a statement to the effect that the Board of Directors of Company has recommended
that the Stockholders vote in favor of the approval and adoption of the
Agreement and the Merger. Notwithstanding anything permitted by Section 8.1(a),
neither Company nor its Board of Directors shall take any action that would
cause any Voting Agreement to be unenforceable in accordance with its terms
under applicable law.
(c) (i) As promptly as reasonably possible after the execution of this
Agreement, Company and Healtheon/WebMD shall prepare and cause to be filed with
the SEC the Proxy Statement/Prospectus and Healtheon/WebMD shall prepare and
cause to be filed with the SEC the Healtheon/WebMD Registration Statement in
which the Proxy Statement/Prospectus will be included as a prospectus. Each of
the Parties hereto
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shall provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
Party or its counsel, may be required or appropriate for inclusion in the Proxy
Statement/Prospectus and the Healtheon/WebMD Registration Statement or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the others' counsel and auditors in preparation of the Proxy
Statement/Prospectus and the Healtheon/WebMD Registration Statement.
Healtheon/WebMD will respond to any comments to the SEC, will use its respective
commercially reasonable best efforts to have the Healtheon/WebMD Registration
Statement declared effective under the 1933 Act as promptly as reasonably
practicable after such filing and Company will cause the Proxy
Statement/Prospectus to be mailed to Company's Stockholders at the earliest
practicable time after the Healtheon/WebMD Registration Statement is declared
effective by the SEC. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement/Prospectus or the
Healtheon/WebMD Registration Statement, the Parties hereto, as the case may be,
will promptly inform the other Parties hereto of such occurrence and cooperate
in filing with the SEC or its staff or any other governmental officials, and/or
mailing to Company's Stockholders, such amendment or supplement.
(ii) Each Party hereto hereby covenants that none of the information to be
supplied by it or on its behalf for inclusion or incorporation by reference in
the Healtheon/WebMD Registration Statement will, at the time such
Healtheon/WebMD Registration Statement becomes effective under the 1933 Act,
contain any untrue statement of a Material fact or omit to state any Material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. Each Party hereto hereby covenants that none of the
information to be supplied by it or on its behalf for inclusion or incorporation
by reference in the Proxy Statement/Prospectus will, at the time such documents
are filed, when such documents are first mailed to the Stockholders of Company,
at the time of the Stockholders Meeting and at the Effective Time, contain any
untrue statement of a Material fact or omit to state any Material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Healtheon/WebMD Registration Statement and Proxy Statement/Prospectus will
comply as to form in all Material respects with the provisions of the 1933 Act
and the 1934 Act, as applicable, and the rules and regulations promulgated by
the SEC thereunder.
(d) Company shall cause its certified public accountants to deliver a
comfort letter, in form and substance customary for transactions of this type
and reasonably satisfactory to Healtheon/WebMD, with respect to any financial
information relating to Company included in the Healtheon/WebMD Registration
Statement. In the event that the Company has not filed its 1999 audited
financial statements with the SEC on or before March 31, 2000, the Company will
deliver to Healtheon/WebMD customary review letters from its auditors with
respect to each of the first three fiscal quarters of 1999.
8.2 Applications.
(a) The Parties shall promptly prepare and file, and shall cooperate in the
preparation and, where appropriate, filing of, applications with any Regulatory
Authorities having jurisdiction over the transactions contemplated by this
Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. To the extent required by the HSR
Act, each of the Parties will promptly file with the United States Federal Trade
Commission and the United States Department of Justice the notification and
report form required for the transactions contemplated hereby and any
supplemental or additional information which may reasonably be requested in
connection therewith pursuant to the HSR Act and will comply in all Material
respects with the requirements of the HSR Act. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Healtheon/WebMD, Company or any Subsidiary or Affiliate of
any such Party to agree to any Material divestiture by itself or any of its
Affiliates of shares of capital stock or of any business or Assets, or the
imposition of any Material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such Assets or stock.
(b) Healtheon/WebMD shall use commercially reasonable best efforts to cause
the shares of Healtheon/WebMD Common Stock to be issued pursuant to this
Agreement in the Merger to be listed for trading on the Nasdaq National Market
no later than the Closing.
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8.3 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, the Articles of Merger shall be executed and filed
with the Secretary of State of the State of Washington in accordance with the
WBCA in connection with the Closing.
8.4 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including using its reasonable efforts to lift or rescind any
Order adversely affecting its legal ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 9 of this Agreement; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use, and
shall cause each of its Subsidiaries to use, its reasonable efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement (including without limitation any Consents listed
in Sections 5.18 and 6.8 of this Agreement). In connection with and without
limiting the foregoing, Company and its Board of Directors shall, if any state
takeover statute or similar Law is or becomes applicable to the Merger, this
Agreement or any of the transactions contemplated by this Agreement, use
commercially reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such Law on the Merger, this Agreement and the
transactions contemplated hereby.
8.5 Investigation and Confidentiality.
(a) Prior to the Effective Time, Healtheon/WebMD and Company shall each
advise the other of all Material developments relevant to its business and to
consummation of the Merger and shall permit each other to make or cause to be
made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
may reasonably request, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No information or Knowledge obtained in
any investigation pursuant to this Section 8.5(a) shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the Parties to consummate the Merger.
(b) Each Party shall, and shall cause its advisers and agents to, maintain
the confidentiality of all confidential information furnished to it by the other
Parties concerning or related to any such other Parties or their Subsidiaries
and shall not use or disclose such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Parties.
8.6 Nasdaq National Market Listing. The Surviving Corporation shall use
its best efforts to cause the Company Common Stock to be de-listed from the
Nasdaq National Market and de-registered under the Exchange Act as soon as
practicable following the Effective Time.
8.7 No Solicitation by Company.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article 10, Company and its
Subsidiaries will not, nor will they authorize or permit any of their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Company Acquisition Proposal (as hereinafter defined); (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Company Acquisition Proposal; (iii) engage in
discussions with any person with respect to any Company Acquisition Proposal,
except as to the existence of these provisions, or (iv) enter into any letter of
intent or similar document or any Contract contemplating or otherwise relating
to any Company Acquisition Proposal. For purposes of this Agreement, "COMPANY
ACQUISITION PROPOSAL" shall mean any offer or
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proposal (other than an offer or proposal by Healtheon/WebMD) relating to any
transaction or series of related transactions involving: (A) any purchase from
Company or acquisition by any person or "group" (as defined under Section 13(d)
of the Exchange Act and the rules and regulations thereunder) of more than a 15%
interest in the total outstanding voting securities of Company or any tender
offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 15% or more of the total outstanding
voting securities of Company or any merger, consolidation, business combination
or similar transaction involving Company; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15% of the
consolidated assets of Company; (C) any other transaction that results in the
creation of a minority interest in a subsidiary of Company that exceeds 15% of
the consolidated assets of Company or that results in a subsidiary of Company
which accounts for more than 15% of the consolidated assets of Company no longer
being a subsidiary of Company; or (D) any liquidation or dissolution of Company.
Company and its subsidiaries will immediately cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Company Acquisition Proposal. Company agrees that it will
take all necessary steps to promptly inform the individuals or entities referred
to in the first sentence of this Section 8.7(a) of the obligations undertaken in
this Section 8.7(a). Company also agrees that if it has not already done so it
will promptly request each person that has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring it or any of its
subsidiaries to return all confidential information heretofore furnished to such
person by or on behalf of it or any of its subsidiaries. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
this Section 8.7(a) by any officer, director or employee of Company or any of
its subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 8.7(a) by Company.
(b) In addition to the obligations of Company set forth in paragraph (a) of
this Section 8.7, Company shall immediately advise Healtheon/WebMD orally and in
writing of any request for information or other inquiry which Company reasonably
believes may lead to a Company Acquisition Proposal, the material terms and
conditions of such request, Company Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Company Acquisition
Proposal or inquiry. Company will keep Healtheon/WebMD informed as promptly as
practicable in all material respects of the status and details (including
material amendments or proposed material amendments) of any such request,
Company Acquisition Proposal or inquiry.
(c) Notwithstanding subsections (a) and (b), above, that nothing contained
in this Section 8.7 shall prevent the Company or the Company's Board of
Directors from furnishing non-public information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited,
bona fide written Company Acquisition Proposal by such person, if and only to
the extent that (1) such person has made a written proposal to the Company Board
of Directors to consummate a Company Acquisition Proposal, (2) the Company Board
of Directors determines in good faith, after consultation with the Company's
financial advisor, that such Company Acquisition Proposal is reasonably capable
of being completed on substantially the terms proposed, and would, if
consummated, result in a transaction that would provide greater value to the
holders of Company Common Stock than the transaction contemplated by this
Agreement (a "SUPERIOR PROPOSAL"), (3) the failure to take such action would, in
the reasonable good faith judgment of the Company Board of Directors, after
consultation with outside legal counsel, be inconsistent with its fiduciary
duties to the Company's stockholders under applicable law, and (4) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, the Company receives from such person
an executed confidentiality and standstill agreement with material terms no less
favorable to the Company than those contained in the Confidentiality and
Nonsolicitation Agreement between Company and Healtheon/WebMD dated February 9,
2000. The Company agrees not to release any party to, or waive any provision of,
any standstill agreement to which it is a party or any confidentiality agreement
between it and another person who has made, or who may reasonably be considered
likely to make, a Company Acquisition Proposal, unless the failure to take such
action would, in the reasonable good faith judgment of the Company Board, after
consultation with outside legal counsel, be inconsistent with its fiduciary
duties to the Company's stockholders under applicable law.
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Nothing contained in this Section 8.7 shall prohibit Company from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to Company's
stockholders if, in the good faith judgment of the Board of Directors of
Company, after consultation with outside counsel, failure so to disclose would
be inconsistent with its obligations under applicable law.
8.8 Tax Treatment. Each of the Parties undertakes and agrees to use its
reasonable efforts to take no action which would cause the Merger not to qualify
for treatment as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code for federal income tax purposes.
8.9 Employee Benefits.
(a) Following the Effective Time, Healtheon/WebMD shall provide to officers
and employees of Company and its Subsidiaries employee benefits based on the
positions they hold with Healtheon/WebMD and/or its Subsidiaries after the
Effective Time under employee benefit plans on terms and conditions which are
substantially similar in the aggregate to those provided by Healtheon/WebMD and
its Subsidiaries to their similarly situated officers and employees after the
Effective Time. With respect to any benefits plans of Healtheon/WebMD or its
Subsidiaries in which the officers and employees of Company and its Subsidiaries
participate after the Effective Time, Healtheon/WebMD shall, or shall cause the
Surviving Corporation to: (i) waive any limitations as to pre-existing
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to such officers and employees under any
welfare benefit plan in which such employees may be eligible to participate
after the Effective Time (provided, however, that no such waiver shall apply to
a pre-existing condition of any such officer or employee who was, as of the
Effective Time, excluded from participation in a Company benefit plan by nature
of such pre-existing condition), (ii) provide each such officer and employee
with credit for any co-payments and deductibles paid prior to the Effective Time
during the year in which the Effective Time occurs in satisfying any applicable
deductible or out-of-pocket requirements under any welfare benefit plan in which
such employees may be eligible to participate after the Effective Time, and
(iii) other than with respect to vesting credit with respect to Healtheon/WebMD
options granted to such officers and employees, recognize all service of such
officers and employees with Company and its Subsidiaries (and their respective
predecessors) for all purposes (including without limitation purposes of
eligibility to participate, vesting credit, entitlement for benefits, and
benefit accrual) in any benefit plan in which such employees may be eligible to
participate after the Effective Time, except to the extent such treatment would
result in duplicative accrual of benefits for the same period of service.
(b) Not later than the day immediately prior to the Closing Date (the
"TERMINATION DATE"), Company shall cause (i) the adoption of appropriate
resolutions which terminate each retirement plan of Company which qualifies or
is intended to qualify under Section 401(a) of the Internal Revenue Code (each,
an "COMPANY RETIREMENT PLAN"), effective as of the Termination Date, (ii) the
cessation of all employee salary deferral contributions under each Company
Retirement Plan, effective as of the Termination Date, and (iii) the adoption of
appropriate resolutions, contemporaneously with the adoption of resolutions
identified in clause (i) above, which reserve the right to amend each Company
Retirement Plan notwithstanding such applicable plan's termination. Company
represents and warrants that all contributions to each Company Retirement Plan
with respect to eligible Company employees which are required to be made by the
time set forth in such Company Retirement Plan or under ERISA (which evidences,
in part, each Company Retirement Plan) with respect to the period ending
December 31, 1999, have been paid to each applicable trust relating to a given
Company Retirement Plan, and that all such contributions required to be made by
such time in such Company Retirement Plan section with respect to the period
ending on the Closing Date will have been made to such trust on or before the
Closing Date. Nothing in this Agreement shall give any employee of Company any
third-party beneficiary or other rights under this Agreement.
8.10 Blue Sky Laws. Healtheon/WebMD shall take such reasonable steps as
may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the shares of
Healtheon/WebMD Common Stock in connection with the Merger. Company shall use
its reasonable commercial efforts to assist Healtheon/WebMD as may be necessary
to register, or qualify for valid exemptions from, the issuance of the shares of
Healtheon/WebMD Common Stock in the Merger under the securities and blue sky
laws of all jurisdictions which are applicable in connection with such issuance.
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8.11 Non-solicitation of Employees. Until the Effective Time or, in the
event this Agreement is terminated without completion of the Merger, for a
period of one (1) year from the date hereof, none of the Parties will solicit
for employment any current employee of the other Parties or any Subsidiary of
the other Parties unless such employee has been terminated previously by his or
her employer nor make any offer to such employee without prior notice to his or
her employer; provided that in no event will a general solicitation for
employment which is not principally directed at Company employees (whether by
general advertisement in any media or otherwise) be a violation of this Section
8.11.
8.12 Press Releases. Prior to the Effective Time, Healtheon/WebMD and
Company shall consult with each other as to the form and substance of any press
release or other public disclosure related to this Agreement or any other
transaction contemplated hereby and no Party shall issue any press release or
make any other public disclosure without the prior approval of the other Parties
(which approval shall not be unreasonably withheld or delayed); provided, that
nothing in this Section 8.12 shall be deemed to prohibit any Party from making
any disclosure which its counsel deems necessary or advisable in order to
satisfy such Party's disclosure obligations imposed by Law.
8.13 Directors and Officers Indemnification.
(a) Healtheon/WebMD and Company agree that all rights to indemnification
and exculpation now existing in favor of any employee, agent, director or
officer of Company and its Subsidiaries (the "INDEMNIFIED PARTIES"), as provided
in their respective charters or Bylaws and their respective Indemnification
Agreements, shall survive the Merger and shall continue in full force and effect
for a period of 3 years after the Effective Time; provided that in the event any
claim or claims are asserted or made within such 3 year period, all rights to
indemnification in respect of any such claim shall continue until final
disposition of such claim. Healtheon/WebMD hereby agrees, effective as of the
Effective Time, to guarantee Company's indemnification and exculpation
obligations existing in favor of the Indemnified Parties, as provided in
Company's and its Subsidiaries' respective applicable Charters or Bylaws and
their respective Indemnification Agreements, for the period of time set forth
under this Section 8.13(a).
(b) Healtheon/WebMD agrees that from and after the Effective Time, the
Surviving Corporation shall cause the policies of director and officer liability
insurance maintained by the Company on the date hereof to be maintained in
effect for the period of time directors and officers are entitled to
indemnification under Section 8.13(a) above; provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous to the
Indemnified Parties, provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time; and provided, further, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 150% of the last annual
premium paid by Company prior to the date hereof (the "Maximum Amount") (which
premium is set forth in Section 8.13 of the Company Disclosure Letter), and if
the Surviving Corporation is unable to obtain the insurance required by this
Section 8.13 for the Maximum Amount, it shall obtain as much comparable
insurance as possible for an annual premium equal to the Maximum Amount.
(c) In the event Healtheon/WebMD merges or is acquired in a transaction in
which it is not the surviving corporation, or if Healtheon/WebMD sells
substantially all of its assets, Healtheon/WebMD will cause proper provision to
be made in such transaction so that Healtheon/WebMD's successor or acquiror will
assume the obligations set forth in Sections 8.13(a) and (b) above. The parties
agree that Company's directors and officers are the third party beneficiaries
of, and entitled to enforce, the provisions of this Section 8.13.
8.14 Company Affiliates; Restrictive Legend; Restrictions on
Transfer. Not later than 30 days prior to the Company Stockholders Meeting,
Company shall deliver to Healtheon/WebMD a list of those persons who may be
deemed to be, in Company's reasonable judgment at the time this Agreement is
submitted for adoption by the Stockholders of Company, affiliates of Company
within the meaning of Rule 145 promulgated under the 1933 Act (each a "RULE 145
AFFILIATE"). Company will provide Healtheon/WebMD with such information and
documents as Healtheon/WebMD reasonably requests for purposes of reviewing such
list. Healtheon/WebMD will give stop transfer instructions to its transfer agent
with respect to any Healtheon/WebMD Common Stock received pursuant
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to the Merger by Company Stockholders who are Rule 145 Affiliates and there will
be placed on the certificates representing such Healtheon/WebMD Common Stock, or
any substitution therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, APPLIES AND MAY ONLY BE TRANSFERRED (A) IN
CONFORMITY WITH RULE 145(d) UNDER SUCH ACT, OR (B) IN ACCORDANCE WITH
A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN
FORM AND SUBSTANCE THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
Healtheon/WebMD will consider in good faith a request from a Rule 145 Affiliate
to remove such legend that is received on or after the one year anniversary of
the Closing Date.
8.15 Voting Agreements; Notice of Record Date. Simultaneously with the
execution and delivery of this Agreement, each of the Persons listed in Section
8.15 of the Company Disclosure Letter has executed and delivered a Voting
Agreement in the form of Exhibit 8.15 hereto pursuant to which such Person has
agreed, among other things, to vote all shares of Company Capital Stock held of
record by such Person and all shares of Company Capital Stock for which such
Person has been granted a proxy in favor of the Merger at the Stockholders
Meeting (the "VOTING AGREEMENTS"). As soon as reasonably practicable after the
date hereof, the Company shall use its reasonable best efforts to cause Ronald
Stevens, Robert N. Goodman and Rebecca Farwell to execute an agreement in favor
of Healtheon/WebMD to exercise their Company Options upon the request of
Healtheon/WebMD, provided that Healtheon/WebMD shall (a) loan the funds required
for such exercise and (b) indemnify such persons for any adverse tax
consequences resulting from such exercise, all on terms mutually acceptable to
all such parties. Prior to 10 a.m. eastern time on the official record date set
by the Board of Directors of the Company for the Stockholders entitled to notice
of and to vote at the special meeting of the Stockholders taken for the purposes
of voting on the approval of the Merger (the "Record Date"), the Company shall
provide Healtheon/WebMD with notice of the total number of issued and
outstanding shares of Company Common Stock as of 10 a.m. eastern time on the
Record Date.
8.16 Loan Agreement and Warrant. Simultaneously with the execution and
delivery of this Agreement, the Company and Healtheon/WebMD shall execute and
deliver a Loan Agreement in the form of EXHIBIT 8.16A (the "LOAN AGREEMENT") and
in connection therewith the Company shall issue and deliver to Healtheon/WebMD a
Common Stock Purchase Warrant in the form of EXHIBIT 8.16B (the "HEALTHEON/WEBMD
WARRANT").
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by the Parties pursuant to Section 11.5 of
this Agreement:
(a) Stockholder Approval. The Stockholders shall have approved this
Agreement, and the consummation of the transactions contemplated hereby,
including the Merger, as and to the extent required by Law and by Company's
Charter.
(b) Regulatory Approvals. All waiting periods, if any, under the HSR
Act relating to the transactions contemplated hereby will have expired or
terminated early.
(c) Legal Proceedings. No court or governmental or Regulatory
Authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
Materially restricts or makes illegal consummation of the transactions
contemplated by this Agreement.
(d) Tax Opinions. Each of Healtheon/WebMD and Company shall have
received the opinion of Nelson Mullins Riley & Scarborough, L.L.P. ("Nelson
Mullins") and Preston Gates & Ellis LLP ("Preston
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Gates"), respectively, to the effect that the Merger will constitute a
tax-free reorganization within the meaning of 368(a) of the Internal
Revenue Code, which opinion shall be in form and substance reasonably
satisfactory to Healtheon/WebMD and Company, respectively; provided,
however, that if counsel to either Healtheon/WebMD or Company does not
render such opinion, this condition shall nonetheless be deemed to be
satisfied with respect to such Party if counsel to the other Party renders
such opinion to such Party, which opinion shall be in form and substance
reasonably satisfactory to such Party. In rendering such opinion, Nelson
Mullins and Preston Gates shall be entitled rely upon representations of
the Parties hereto reasonably satisfactory in form and substance to such
counsel. The Parties to this Agreement agree to make reasonable
representations as required by Nelson Mullins and Preston Gates for the
purpose of rendering such opinion(s).
(e) Healtheon/WebMD Registration Statement; Nasdaq. All of the
shares of Healtheon/WebMD Common Stock to be issued in connection with the
Merger shall be authorized for quotation on the Nasdaq Stock Market upon
notice of issuance and the SEC shall have declared the Healtheon/WebMD
Registration Statement effective and no stop order suspending the
effectiveness of the Healtheon/WebMD Registration Statement or any part
thereof shall have been issued, and no proceeding for that purpose, or
similar proceeding with respect to the Proxy Statement/Prospectus, shall
have been initiated or threatened in writing by the SEC.
9.2 Conditions to Obligations of Healtheon/WebMD and Merger Corp. The
obligations of Healtheon/WebMD and Merger Corp to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are subject
to the satisfaction of the following conditions, unless waived by
Healtheon/WebMD pursuant to Section 11.5 of this Agreement:
(a) Representations and Warranties. The representations and
warranties of Company set forth in this Agreement shall be true and correct
in all Material respects (except that those representations and warranties
which are qualified as to Material, Materiality, Material Adverse Effect or
similar expressions, or are subject to the same or similar type exceptions,
shall be true and correct in all respects) as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date).
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Company to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all Material respects.
(c) Certificates. Company shall have delivered to Healtheon/WebMD (i)
a certificate, dated as of the Effective Time and signed on its behalf by
its chief executive officer and its chief financial officer, to the effect
that the conditions of its obligations set forth in Section 9.2(a) and
9.2(b) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Company's Board of Directors and stockholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as
Healtheon/WebMD and its counsel shall reasonably request.
(d) No Material Adverse Change. There shall not have been any
Material Adverse Change with respect to Company and its Subsidiaries, taken
as a whole, between the date hereof and the Closing Date, and Company shall
have delivered to Healtheon/WebMD a certificate, dated as of the Closing
Date, signed by its chief executive officer and chief financial officer
certifying to such effect.
(e) Dissenting Stockholders. Holders of less than three percent (3%)
of the Company Capital Stock shall have elected to seek their statutory
dissenters' rights as provided in Section 3.3 of this Agreement.
(f) Certain SEC Matters. There shall be no claims or litigation
threatened in writing or pending arising out of the Pending Matter (as
defined in Section 10.1(h)) or the matter set forth on Section 5.5 of the
Company Disclosure Letter which in the reasonable opinion of
Healtheon/WebMD can reasonably be expected to result in judgments,
settlements or recoveries against the Company for which Healtheon/WebMD
would be responsible, in excess of the Company's available insurance
coverage.
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9.3 Conditions to Obligations of Company. The obligations of Company to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Company pursuant to Section 11.5 of this Agreement:
(a) Representations and Warranties. The representations and
warranties of Healtheon/WebMD and Merger Corp set forth in this Agreement
shall be true and correct in all Material respects (except that those
representations and warranties which are qualified as to Material,
Materiality, Material Adverse Effect or similar expressions, or are subject
to the same or similar type exceptions, shall be true and correct in all
respects) as of the date of this Agreement and as of the Effective Time
with the same effect as though all such representations and warranties had
been made on and as of the Effective Time (provided that representations
and warranties which are confined to a specified date shall speak only as
of such date).
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Healtheon/WebMD and Merger Corp to be performed
and complied with pursuant to this Agreement and the other agreements
contemplated hereby (including without limitation, the Loan Agreement)
prior to the Effective Time shall have been duly performed and complied
with.
(c) Certificates. Healtheon/WebMD shall have delivered to Company (i)
a certificate, dated as of the Effective Time and signed on its behalf by a
duly authorized officer to the effect that the conditions of its
obligations set forth in Section 9.3(a) and 9.3(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly adopted by
Healtheon/WebMD's Board of Directors and Merger Corp's Board of Directors
and sole shareholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as Company and its counsel shall request.
(d) No Material Adverse Change. There shall not have been any
Material Adverse Change with respect to Healtheon/WebMD and its
Subsidiaries, taken as a whole, between the date hereof and the Closing
Date, and Healtheon/WebMD shall have delivered to Company a certificate,
dated as of the Closing Date, signed by its chief executive officer and
chief financial officer certifying to such effect.
ARTICLE 10
TERMINATION
10.1 Termination.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after the requisite approval of the Stockholders of Company;
(a) by mutual written consent duly authorized by the Boards of
Directors of Healtheon/WebMD and Company;
(b) by either Company or Healtheon/WebMD if the Merger shall not have
been consummated by October 31, 2000 (the "END DATE") for any reason;
provided, however, that the right to terminate this Agreement under this
Section 10.1(b) shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement;
(c) by either Company or Healtheon/WebMD if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action, in
any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, which order, decree, ruling or other
action is final and nonappealable;
(d) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Healtheon/WebMD set forth in this
Agreement, or if any representation or warranty of Healtheon/WebMD shall
have become untrue, in either case such that the conditions set forth in
Section 9.3(a) or Section 9.3(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have
become untrue, provided that if such inaccuracy in Healtheon/WebMD's
representations and warranties or breach by Healtheon/WebMD is curable by
Healtheon/WebMD through the exercise of its commercially
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reasonable efforts, then Company may not terminate this Agreement under
this Section 10.1(d) prior to the expiration of 30 days from the date of
notice of such breach, provided Healtheon/WebMD continues to exercise
commercially reasonable efforts to cure such breach (it being understood
that Company may not terminate this Agreement pursuant to this paragraph
(d) if it shall have materially breached this Agreement or if such breach
by Healtheon/WebMD is cured prior to the expiration of 30 days from the
date of notice of such breach);
(e) by Healtheon/WebMD, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement,
or if any representation or warranty of Company shall have become untrue,
in either case such that the conditions set forth in Section 9.2(a) or
Section 9.2(b) would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Company's representations and
warranties or breach by Company is curable by Company through the exercise
of its commercially reasonable efforts, then Healtheon/WebMD may not
terminate this Agreement under this Section 10.1(e) prior to the expiration
of 30 days from the date of notice of such breach, provided Company
continues to exercise commercially reasonable efforts to cure such breach
(it being understood that Healtheon/WebMD may not terminate this Agreement
pursuant to this paragraph (e) if it shall have materially breached this
Agreement or if such breach by Company is cured prior to the expiration of
30 days from the date of notice of such breach); or
(f) by Healtheon/WebMD, if (i) the Board of Directors of Company or
any committee thereof shall have withdrawn or modified in a manner adverse
to Healtheon/WebMD its approval or recommendation of the Merger or this
Agreement, (ii) Company shall fail to convene the Stockholders Meeting as
required pursuant to Section 8.1(a) hereof or (iii) the Board of Directors
of Company shall have recommended to the Stockholders of the Company a
Company Acquisition Proposal or shall have resolved to do so;
(g) by Healtheon/WebMD, if the Stockholders fail to adopt and approve
this Agreement and approve of the Merger at the Stockholders Meeting; or
(h) by Healtheon/WebMD if it is determined by the Board of Directors
of Healtheon/WebMD after receipt of written advice from counsel (which
counsel, prior to delivery of any such advice, shall consult with counsel
for Company) that, as a result of developments in In the Matter of OnHealth
Network Company (LA-1940) before the SEC (the "PENDING MATTER") after the
date hereof, there is a reasonable probability that there will be a
material delay in the effectiveness of the registration statement filed, or
contemplated to be filed, by Healtheon/WebMD with the SEC with respect to
any transaction described in Rule 145(a) promulgated under the 1933 Act (a
"RULE 145 TRANSACTION") or by any other Person with respect to a Rule 145
Transaction involving Healtheon/WebMD or any material assets of
Healtheon/WebMD (a "MATERIAL DELAY"), then Healtheon/WebMD may terminate
this Agreement if, within 20 days after notice by Healtheon/WebMD to the
Company of Healtheon/WebMD's intention to terminate the Agreement pursuant
to this Section, the Material Delay is not resolved to the reasonable
satisfaction of Healtheon/WebMD.
10.2 Notice of Termination; Effect of Termination.
Any termination of this Agreement under Section 10.1 above will be
effective immediately upon the delivery of a valid written notice of the
terminating party to the other parties hereto. In the event of the termination
of this Agreement as provided in Section 10.1, this Agreement shall be of no
further force or effect, except (i) as set forth in Section 8.5(b), Section
8.11, Section 8.12, Section 10.2, Section 10.3 and Article 11, each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
10.3 Fees and Expenses.
(a) Except as set forth in this Section 10.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees or expenses whether or not
the Merger is consummated; provided, however, that Healtheon/WebMD and Company
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred in relation to (i) the printing,
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filing (with the SEC) and mailing of the Prospectus/Proxy Statement (including
any preliminary materials related thereto) and the Healtheon/WebMD Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto (including filing fees) and (ii) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees).
(b) The Company agrees that:
(i) if (A) Healtheon/WebMD shall terminate this Agreement pursuant to
Section 10.1(f) and (B) at the time of the occurrence of the circumstance
permitting termination pursuant to such Section, there shall exist a
Company Acquisition Proposal, or
(ii) if (A) Healtheon/WebMD shall terminate this Agreement pursuant to
Section 10.1(g) and (B) at the time of such failure to so approve this
Agreement there shall exist a Company Acquisition Proposal,
then Company shall pay to Healtheon/WebMD an amount equal to the sum of
$9,000,000 (the "COMPANY ALTERNATIVE TRANSACTION FEE"); provided, however, that
Healtheon/WebMD shall not, upon a termination pursuant to Section 10.1(f) or
pursuant to Section 10.1(g), be entitled to receive the Company Alternative
Transaction Fee pursuant to this Section 10.3(b) if the Board of Directors of
Company shall, prior to such termination, have withdrawn or modified in a manner
adverse to Healtheon/WebMD its approval or recommendation of the Merger or this
Agreement or Company shall have failed to convene the Stockholders Meeting as
required pursuant to Section 8.1(a) hereof due (in each case) solely to a breach
by Healtheon/WebMD of any representation, warranty, covenant or agreement on the
part of Healtheon/WebMD set forth in this Agreement, which breach is not cured
by Healtheon/WebMD within 10 days following notice of such breach, and which
breach would cause the conditions set forth in Sections 9.1 and 9.3 to not be
satisfied.
(c) Each of the Company and Healtheon/WebMD agrees that the agreements
contained in Section 10.3(b) are an integral part of the transactions
contemplated by this Agreement. Each of the Company and Healtheon/WebMD agrees
that the payments provided for in Section 10.3(b) shall be the sole and
exclusive remedies of Healtheon/WebMD upon a termination of this Agreement
pursuant to Sections 10.1(f) and (g), as the case may be, and such remedies
shall be limited to the sums stipulated in Section 10.3(b), regardless of the
circumstances giving rise to such termination; provided, however, that nothing
herein shall relieve any Party from liability for any willful breach of any
representation, warranty, covenant or other agreement in this Agreement
occurring prior to termination.
(d) Any payment of a Company Alternative Transaction Fee required to be
made pursuant to Section 10.3(b) shall be made to Healtheon/WebMD not later than
two business days after termination of this Agreement. All payments to
Healtheon/WebMD under this Section 10.3 shall be made by wire transfer of
immediately available funds to an account designated by Healtheon/WebMD.
(e) In the event that the Company shall fail to pay any amount payable
pursuant to this Section 10.3 when due, Healtheon/WebMD shall be entitled to
collect and Company agrees to pay (i) the costs and expenses actually incurred
or accrued by Healtheon/WebMD (including, without limitation, fees and expenses
of counsel) in connection with the collection under and enforcement of this
Section 10.3, together with (ii) interest on such unpaid amounts, commencing on
the date that such amounts became due, at a rate equal to the rate of interest
publicly announced by Citibank, N.A., from time to time, in The City of New
York, as such bank's Base Rate plus 2.00%.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
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"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including
the Exhibits and Disclosure Letters delivered pursuant hereto and
incorporated herein by reference.
"Articles of Merger" shall mean the Articles of Merger to be executed
as contemplated by the WBCA and filed with the Secretary of State of the
State of Washington relating to the Merger as contemplated by Section 1.1
of this Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"Charter" shall mean the Articles of Incorporation of Company, as
amended.
"Closing Date" shall mean the date on which the Closing occurs.
"Company Capital Stock" shall mean the Company Common Stock and the
Company Preferred Stock.
"Company Common Stock" shall mean the Company common stock, $.01 par
value per share.
"Company Preferred Stock" shall mean the Company preferred stock, $.01
par value per share.
"Company Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations or business prospects of Company and its
Subsidiaries, taken as a whole, or (ii) the ability of Company to perform
its obligations under this Agreement or to consummate the Merger or the
other transactions contemplated by this Agreement; provided that "Material
Adverse Effect" shall not be deemed to include events, changes or
occurrences (x) generally affecting the healthcare information technology
industry, (y) generally affecting the overall U.S. economy, or (z)
resulting from the announcement of this Agreement or the transactions
contemplated herein.
"Company Option" shall mean any stock option granted pursuant to the
terms and conditions of the Company Stock Plans.
"Company Stock Plans" shall mean the Company's 1997 Stock Option Plan,
the Company's 1991 Stock Option Plan, the Company's Director Stock Option
Plan, the Company's 1997-1998 New Hire Stock Option Plan and the 1998-1999
New Hire Stock Option Plan.
"Company Warrants" shall mean any warrant or other rights to purchase
shares of Company Common Stock.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
commitment, contract, indenture, instrument, lease, obligation, plan,
restriction, understanding or undertaking of any kind or character, or
other document to which any Person is a party or by which such Person is
bound or affecting such Person's capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default under
any Contract, Order or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or
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revoke, change the current terms of, or renegotiate, or to accelerate,
increase, or impose any Liability under, any Contract, Order or Permit.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) and which
are administered, interpreted or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases or threatened releases of any Hazardous Substance, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous
Substance.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exhibits" shall mean the Exhibits so marked, copies of which are
attached to this Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof, and may be referred to in this
Agreement and any other related instrument or document without being
attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Governmental Entity" shall mean any government or any agency, bureau,
board, directorate, commission, court, department, official, political
subdivision, tribunal, or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
"Healtheon/WebMD Registration Statement" shall mean the Registration
Statement on Form-4 to be filed with the SEC by Healtheon/WebMD in
connection with the registration of shares of Healtheon/WebMD Common Stock
for issuance pursuant to the Merger as contemplated by this Agreement, and
all amendments and supplements thereto.
"Healtheon/WebMD Common Stock" shall mean the $0.0001 par value Common
Stock of Healtheon/WebMD.
"Healtheon/WebMD Material Adverse Effect" shall mean an event, change
or occurrence which, individually or together with any other event, change
or occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations or business prospects of Healtheon/WebMD
and its Subsidiaries, taken as a whole, or (ii) the ability of
Healtheon/WebMD to perform its obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this
Agreement; provided that "Material Adverse Effect" shall not be deemed to
include events, changes or occurrences (x) generally affecting the
healthcare information technology industry, or (y) generally affecting the
overall U.S. economy.
"Hazardous Material" shall mean the emission, disposal, discharge or
other release or threatened release of any hazardous substance, pollutant
or contaminant (in each case, as defined in or governed by any applicable
Law) or any other substance the release, disposal, treatment or storage of
which is regulated under applicable Law.
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"Intellectual Property" shall mean all rights, privileges and
priorities provided under applicable Law relating to intellectual property,
whether registered or unregistered, including without limitation all (i)
(a) inventions, discoveries, processes, formulae, designs, methods,
techniques, procedures, concepts, developments, technology, mask works, and
confidential information, new and useful improvements thereof and know-how
relating thereto, whether or not patented or eligible for patent
protection; (b) copyrights and copyrightable works, including computer
applications, programs, Software, Databases and related items; (c)
trademarks, service marks, trade names, brand names, product names,
corporate names, logos and trade dress, the goodwill of any business
symbolized thereby, and all common-law rights relating thereto; and
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(d) trade secrets, data and other confidential information; and (ii) all
registrations, applications, recordings, and licenses or other similar
agreements related to the foregoing
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"Knowledge" shall mean with respect to a Party, with respect to any
matter in question, that any of the Chief Executive Officer, Chief
Financial Officer, General Counsel or Controller of such Party has actual
knowledge of such matter.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business, including those promulgated, interpreted
or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
Asset, other than (i) Liens for current property Taxes not yet due and
payable, (ii) Liens reflected on the Company Financial Statements, (iii)
Liens which do not Materially detract from the value or Materially
interfere with the present use of the Asset subject thereto or affected
thereby; (iv) Liens which are licenses and related restrictions.
"Litigation" shall mean any action, suit, arbitration, filed cause of
action, filed claim, filed complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing, inquiry,
administrative or other proceeding, or notice (written or oral) by any
Person alleging potential Liability or requesting information relating to
or affecting a Party, its business, its Assets (including Contracts related
to it), or the transactions contemplated by this Agreement.
"Material" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"Material Adverse Change" with respect to a Party shall mean an event,
change or occurrence which, individually or together with any other event,
change or occurrence, has a Material Adverse Effect with respect to such
Party.
"Merger Corp Common Stock" shall mean the $.01 par value Common Stock
of Merger Corp.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"Party" shall mean either Healtheon/WebMD, Merger Corp or Company, and
"Parties" shall mean all of Healtheon/WebMD, Company and Merger Corp.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, consent, easement,
filing, franchise, letter of good standing, license, notice, permit,
qualification, registration or right of or from any Governmental Entity (or
any extension, modification, amendment or waiver of any of these) to which
any Person is a party or that is or may be binding upon or inure to the
benefit of any Person or its securities, Assets or business, or any notice,
statement, filing or other communication to be filed with or delivered to
any Governmental Entity.
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"Person" shall mean a natural person or any legal, commercial or
Governmental Entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"Proxy Statement/Prospectus" shall mean the Proxy Statement/Prospectus
to be contained in the Healtheon/WebMD Registration Statement and
distributed to the stockholders of Company as contemplated by Section 8.1.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, and all foreign,
federal, state and local regulatory agencies and other Governmental
Entities or bodies having jurisdiction over the Parties and their
respective Assets, employees, businesses and/or Subsidiaries, including the
NASD and the SEC.
"Representative" shall mean the accountants, lawyers and financial
advisors of any Party.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisers Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Stockholders" shall mean the holders of Company Common Stock.
"Subsidiaries" shall mean all those corporations, partnerships,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more of
the outstanding equity securities is owned directly or indirectly by its
parent; provided, there shall not be included any such entity acquired
through foreclosure or any such entity the equity securities of which are
owned or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean Company as the surviving
corporation resulting from the Merger.
"Surviving Corporation Common Stock" shall mean the Common Stock of
the Surviving Corporation in the Merger.
"Tax" or "Taxes" shall mean (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities relating to taxes, including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described in
clause (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period; and (iii) any liability for the
payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person
or as a result of any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
"Transactions" are the transactions contemplated by this Agreement and
the Exhibits attached hereto.
(b) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 Brokers and Finders; Expenses. Except for FleetBoston Robertson
Stephens Inc., the investment banker for Company, each of the Parties represents
and warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
or finders' fees in connection with this Agreement or the transactions
contemplated hereby. In the event of a claim by any broker or finder based upon
his or its representing or being retained by or allegedly representing or being
retained by Healtheon/WebMD or Company in connection with the transactions
contemplated hereby, each of Healtheon/WebMD or Company as the case may be,
agrees to indemnify and hold the other Parties harmless of and from any
Liability in respect of any such claim. Company
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hereby represents and warrants to Healtheon/WebMD that copies of all of its
Contracts with FleetBoston Robertson Stephens Inc. have been made available to
Healtheon/WebMD. Except as otherwise provided in this Agreement, Healtheon/WebMD
shall pay all fees, disbursements and expenses of Healtheon/WebMD's accountants
and counsel incurred in connection with this Agreement or the transactions
contemplated hereby, including the fees required to be paid by Healtheon/WebMD
by the Federal Trade Commission in connection with the filing under the HSR Act.
Except as otherwise provided in this Agreement, Company shall pay all fees,
disbursements and expenses of FleetBoston Robertson Stephens Inc., and the
accountants and counsel of Company incurred in connection with this Agreement or
the transactions contemplated hereby, including the fees required to be paid by
Company by the Federal Trade Commission in connection with the filing under the
HSR Act.
11.3 Entire Agreement. Except as otherwise expressly provided herein,
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
11.4 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties, whether before or after any
stockholder approval of has been obtained; provided, that after any such
approval by the holders of Company Common Stock, there shall be made no
amendment that pursuant to the WBCA requires further approval by such
Stockholders without the further approval of such Stockholders.
11.5 Waivers.
(a) Prior to or at the Effective Time, Healtheon/WebMD, acting through its
Board of Directors, chief executive officer or other authorized officers, shall
have the right to waive any Default in the performance of any term of this
Agreement by Company, to waive or extend the time for the compliance or
fulfillment by Company of any and all of their obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
Healtheon/WebMD under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by duly authorized officers of
Healtheon/WebMD.
(b) Prior to or at the Effective Time, Company, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Healtheon/WebMD, to waive or extend the time for the compliance or fulfillment
by Healtheon/WebMD of any and all of its obligations under this Agreement, and
to waive any or all of the conditions precedent to the obligations of Company
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of Company.
(c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
11.6 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Parties. This Agreement will be binding
upon, inure to the benefit of and be enforceable by the Parties and their
respective successors and assigns.
11.7 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-
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paid, or by courier or overnight carrier, to the persons at the addresses set
forth below (or at such other address as may be provided hereunder), and shall
be deemed to have been delivered as of the date so delivered:
<TABLE>
<S> <C> <C>
Healtheon/WebMD: Healtheon/WebMD Corporation
400 Lenox Building
3999 Peachtree Road, NE
Atlanta, GA 30326
Telecopy Number: (404) 495-7656
Attention: W. Michael Heekin
Copy to Counsel: Nelson Mullins Riley & Scarborough, L.L.P.
Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28202
Telecopy Number: (704) 377-4814
Attention: H. Bryan Ives III
C. Mark Kelly
Charles B. Simmons
Company: OnHealth Network Company
808 Howell Street, Suite 400
Seattle, WA 98101
Telecopy No. (206) 623-7922
Attention: Robert N. Goodman
Copy to Counsel: Preston Gates & Ellis LLP
701 Fifth Avenue
Suite 5000
Seattle, Washington 98104-7078
Telecopy No. (206) 623-7022
Attention: Gary J. Kocher
</TABLE>
11.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.10 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.11 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.12 Enforcement of Agreement. The Parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
11.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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11.14 Facsimile Signatures. Any signature page delivered by a facsimile
or telecopy machine will be binding to the same extent as an original signature
page. Any Party who delivers such a signature page agrees to later deliver an
original counterpart to any Party which requests it.
11.15 Nonsurvival of Representations and Warranties. None of the
representations and warranties of the Parties in this Agreement will survive the
Effective Time of the Merger. Nothing in this Section 11.15 shall limit any
covenant or agreement of the Parties which by its terms contemplates performance
after the Effective Time.
* * * * * * * * * *
In Witness Whereof, each of the Parties has caused this Agreement to be
executed on its behalf by officers thereunto as of the day and year first above
written.
HEALTHEON/WEBMD CORPORATION
By: /s/ W. MICHAEL HEEKIN
----------------------------------------
Name: W. Michael Heekin
Title: Executive Vice President
TECH ACQUISITION CORPORATION
By: /s/ W. MICHAEL HEEKIN
----------------------------------------
Name: W. Michael Heekin
Title: Vice President
ONHEALTH NETWORK COMPANY
By: /s/ ROBERT N. GOODMAN
----------------------------------------
Name: Robert N. Goodman
Title: President and CEO
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ANNEX B
FLEETBOSTON ROBERTSON STEPHENS INC.
February 15, 2000
Board of Directors
OnHealth Network Company
808 Howell Street, Suite 400
Seattle, WA 98101
Members of the Board:
We understand that OnHealth Network Company (the "Company"), Healtheon/WebMD
Corporation ("Acquiror") and Healtheon/WebMD Merger Corp. (a wholly owned
subsidiary of Acquiror, "Merger Sub") are proposing to enter into an Agreement
and Plan of Merger (the "Agreement") which will provide, among other things, for
the merger (the "Merger") of Merger Sub with and into the Company. Upon
consummation of the Merger, the Company will become a wholly owned subsidiary of
Acquiror. Under the terms set forth in a draft of the Agreement dated February
15, 2000 (the "Draft Agreement"), at the effective time of the Merger, the
outstanding shares of common stock of the Company, par value $.01 per share
("Company Common Stock") other than certain shares to be canceled pursuant to
the Agreement and shares held by stockholders who properly exercise dissenters'
rights ("Dissenting Shares"), will be converted into the right to receive
0.189435 shares (the "Exchange Ratio") of the common stock of Acquiror, par
value $.0001 per share ("Acquiror Common Stock"). The terms and conditions of
the Merger are set out more fully in the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view and as of the date hereof to the "Holders of Company
Common Stock". The "Holders of Company Common Stock" shall be defined as all
holders of Company Common Stock other than Acquiror, Merger Sub, any affiliates
of Acquiror or Merger Sub or any holders of Dissenting Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company and Acquiror,
respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company and Acquiror prepared by the
managements of the Company and Acquiror, respectively;
(iii) reviewed with the Company certain publicly available estimates of
research analysts relating to the Company;
(iv) reviewed certain publicly available estimates of research analysts
relating to Acquiror;
(v) held discussions with the respective managements of the Company and
Acquiror concerning the businesses, past and current operations, financial
condition and future prospects of both the Company and Acquiror,
independently and combined, including discussions with the managements of
the Company and Acquiror concerning their views regarding the strategic
rationale for the Merger;
(vi) reviewed the financial terms and conditions set forth in the Draft
Agreement;
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Board of Directors
OnHealth Network Company
February 15, 2000
Page 2
(vii) reviewed the stock price and trading history of Company Common Stock and
Acquiror Common Stock;
(viii) compared the financial performance of the Company and the prices and
trading activity of Company Common Stock with that of certain other
publicly traded companies comparable with the Company;
(ix) compared the financial terms of the Merger with the financial terms, to
the extent publicly available, of other transactions that we deemed
relevant;
(x) reviewed the pro forma impact of the Merger on Acquiror's revenue per
share;
(xi) participated in discussions and negotiations among representatives of the
Company and Acquiror and their financial and legal advisors; and
(xii) made such other studies and inquiries, and reviewed such other data, as
we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of the Company and Acquiror) or
publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the managements of the Company and Acquiror that they are not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of the Company or Acquiror, nor
were we furnished with any such evaluation or appraisal. With respect to the
publicly available estimates of research analysts (and the assumptions and bases
therefor) for each of the Company and Acquiror that we have reviewed, we have
assumed that such forecasts and projections have been reasonably prepared in
good faith on the basis of reasonable assumptions and reflect the best currently
available estimates and judgments as to the future financial condition and
performance of the Company and Acquiror, respectively, and we have further
assumed that such projections and forecasts will be realized in the amounts and
in the time periods currently estimated. In this regard, we note that each of
the Company and Acquiror face exposure to the Year 2000 problem. We have not
undertaken any independent analysis to evaluate the reliability or accuracy of
the assumptions made with respect to the potential effect that the Year 2000
problem might have on the Company's and Acquiror's respective forecasts. We have
assumed that the Merger will be consummated upon the terms set forth in the
Draft Agreement without material alteration thereof, including, among other
things, that the Merger will be accounted for as a "purchase method" business
combination in accordance with U.S. generally accepted accounting principles
("GAAP") and that the Merger will be treated as a tax-free reorganization
pursuant to the Internal Revenue Code of 1986, as amended. In addition, we have
assumed that the historical financial statements of each of the Company and
Acquiror reviewed by us have been prepared and fairly presented in accordance
with U.S. GAAP consistently applied. We have relied as to all legal matters
relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as of the date
hereof, to the Holders of Company Common Stock of the Exchange Ratio. We do not
express any opinion as to (i) the value of any employee agreement or other
arrangement entered into in connection with the Merger, (ii) any tax or other
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Board of Directors
OnHealth Network Company
February 15, 2000
Page 3
consequences that might result from the Merger, (iii) what the value of Acquiror
Common Stock will be when issued to the Company's stockholders pursuant to the
Merger or the price at which the shares of Acquiror Common Stock that are issued
pursuant to the Merger may be traded in the future or (iv) the terms of the
"Loan Agreement" or the "Healtheon/WebMD Warrant" (each as defined in the Draft
Agreement). Our opinion does not address the relative merits of the Merger and
the other business strategies that the Company's Board of Directors has
considered or may be considering, nor does it address the decision of the
Company's Board of Directors to proceed with the Merger.
We are acting as financial advisor to the Company in connection with the Merger
and will receive (i) a fee contingent upon the delivery of this opinion and (ii)
an additional fee contingent upon the consummation of the Merger. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of our engagement. In the past, we have provided certain investment banking
services to Acquiror for which we have been paid fees, including (a) acting as
the financial advisor to WebMD in its merger with Healtheon, (b) acting as the
financial advisor to WebMD in connection with strategic investments in WebMD
made by various investors including Microsoft and Intuit, (c) acting as the
financial advisor to Acquiror in connection with a strategic investment in
Acquiror made by News Corp. and (d) acting as co-financial advisor to Acquiror
in connection with its recently announced acquisitions of Medical Manager
Corporation and CareInsite, Inc. We maintain a market in the shares of Acquiror
Common Stock. In the ordinary course of business, we may trade in the Company's
securities and Acquiror's securities for our own account and the account of our
customers and, accordingly, may at any time hold a long or short position in the
Company's securities or Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote, or take any
other action, with respect to the Merger. This opinion may not be summarized,
described or referred to or furnished to any party except with our express prior
written consent.
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Exchange Ratio is fair to the Holders of Company
Common Stock from a financial point of view.
Very truly yours,
FLEETBOSTON ROBERTSON STEPHENS INC.
/s/ FLEETBOSTON ROBERTSON STEPHENS INC.
------------------------------------------
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ANNEX C
DISSENTERS' RIGHTS
CHAPTER 23B.13
OF THE
REVISED CODE OF WASHINGTON, OR RCW
RCW 23B.13.010
DEFINITIONS.
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
RCW 23B.13.020
RIGHT TO DISSENT.
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
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(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
RCW 23B.13.030
DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
RCW 23B.13.200
NOTICE OF DISSENTERS' RIGHTS.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
RCW 23B.13.210
NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
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RCW 23B.13.220
DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the notice in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter.
RCW 23B.13.230
DUTY TO DEMAND PAYMENT.
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
RCW 23B.13.240
SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
RCW 23B.13.250
PAYMENT.
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
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(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
RCW 23B.13.260
FAILURE TO TAKE ACTION.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
RCW 3B.13.270
AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
RCW 23B.13.280
PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
C-4
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RCW 3B.13.300
COURT ACTION.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
RCW 23B.13.310
COURT COSTS AND COUNSEL FEES.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware law authorizes a court to award, or a
corporation's board of directors to grant, indemnification to directors and
officers in terms sufficiently broad to permit such indemnification under
specified circumstances for liabilities, including reimbursement for expenses
incurred, arising under the Securities Act. The Registrant's bylaws provide for
the mandatory indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by Delaware law, and the Registrant has
entered into agreements with its officers, directors and certain key employees
implementing this indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of February 15, 2000
between Registrant, Tech Acquisition Corporation and
OnHealth Network Company (see Annex A)
4.1* Specimen Common Stock certificate
5.1+ Opinion of Alston & Bird LLP regarding the legality of the
securities being issued
8.1+ Tax Opinion of Alston & Bird LLP
8.2+ Tax Opinion of Preston Gates & Ellis LLP
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Arthur Andersen LLP
23.6 Consent of Ernst & Young LLP
23.7 Consent of Arthur Anderson LLP
23.8 Consent of Arthur Anderson LLP
23.9 Consent of KPMG LLP
23.10 Consent of Linkenheimer LLP
23.11 Consent of Ernst & Young LLP
23.12 + Consent of Alston & Bird LLP (included in Exhibit 5.1 and
Exhibit 8.1)
23.13 + Consent of Preston Gates & Ellis LLP (included in Exhibit
8.2)
24.1 Power of Attorney (see page II-3)
99.1 Form of proxy card for OnHealth
99.2 Consent of FleetBoston Robertson Stevens, Inc.
</TABLE>
---------------
* Incorporated by reference to Registrant's Registration Statement on Form S-1
filed January 14, 1999
+ To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements, management's discussion and analysis or notes thereto.
II-1
<PAGE> 149
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned Registrant undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(3) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(6) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 27th day of July,
2000.
HEALTHEON/WEBMD CORPORATION
By: /s/ JEFFREY T. ARNOLD
--------------------------------------
Jeffrey T. Arnold
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Jack D. Dennison and John L. Westermann
III and each of them, jointly and severally, as his attorneys-in-fact, each with
full power of substitution for him in any and all capacities, to sign any and
all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the SEC,
hereby ratifying and confirming all that each said attorneys-in-fact or his
substitute or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ JEFFREY T. ARNOLD Chief Executive Officer and Director July 27, 2000
------------------------------------------ (principal executive officer)
Jeffrey T. Arnold
/s/ JOHN L. WESTERMANN Executive Vice President, Chief Financial July 27, 2000
------------------------------------------ Officer, Treasurer and Secretary (principal
John L. Westermann III financial officer)
/s/ W. MICHAEL LONG Chairman of the Board of Directors July 27, 2000
------------------------------------------
W. Michael Long
Director July , 2000
------------------------------------------
James H. Clark
/s/ L. JOHN DOERR Director July 27, 2000
------------------------------------------
L. John Doerr
/s/ U. BERTRAM ELLIS, JR. Director July 27, 2000
------------------------------------------
U. Bertram Ellis, Jr.
/s/ DENNIS B. GILLINGS Director July 27, 2000
------------------------------------------
Dennis B. Gillings
/s/ ERIC J. GLEACHER Director July 27, 2000
------------------------------------------
Eric J. Gleacher
</TABLE>
II-3
<PAGE> 151
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM P. PAYNE Director July 27, 2000
------------------------------------------
William P. Payne
Director July , 2000
------------------------------------------
Charles G.V. Stevens
</TABLE>
II-4
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of February 15, 2000
between Registrant, Tech Acquisition Corporation and
OnHealth Network Company (see Annex A)
4.1* Specimen Common Stock certificate
5.1+ Opinion of Alston & Bird LLP regarding the legality of the
securities being issued
8.1+ Tax Opinion of Alston & Bird LLP
8.2+ Tax Opinion of Preston Gates & Ellis LLP
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Arthur Andersen LLP
23.6 Consent of Ernst & Young LLP
23.7 Consent of Arthur Anderson LLP
23.8 Consent of Arthur Anderson LLP
23.9 Consent of KPMG LLP
23.10 Consent of Linkenheimer LLP
23.11 Consent of Ernst & Young LLP
23.12 + Consent of Alston & Bird LLP (included in Exhibit 5.1 and
Exhibit 8.1)
23.13 + Consent of Preston Gates & Ellis LLP (included in Exhibit
8.2)
24.1 Power of Attorney (see page II-3)
99.1 Form of proxy card for OnHealth
99.2 Consent of FleetBoston Robertson Stevens, Inc.
</TABLE>
---------------
* Incorporated by reference to Registrant's Registration Statement on Form S-1
filed January 14, 1999
+ To be filed by amendment
