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This excerpt taken from the WBMD 8-K filed Jul 2, 2009. Risks
Related to the Relationship between WebMD and HLTH
The
concentrated ownership of our common stock by HLTH and certain
corporate governance arrangements prevent our other stockholders
from influencing significant corporate decisions
We have two classes of common stock:
HLTH owns 100% of our Class B Common Stock, which
represented, as of December 31, 2008, approximately 83.6%
of our outstanding common stock and approximately 96% of the
combined voting power of our outstanding common stock. Given its
ownership interest, HLTH is able to control the outcome of all
matters submitted to our shareholders for approval, including
the election of directors. Accordingly, either in its capacity
as a stockholder or through its control of our Board of
Directors, HLTH is able to control all key decisions regarding
our company, including mergers or other business combinations
and acquisitions, dispositions of assets, future issuances of
our common stock or other securities, the incurrence of debt by
us, the payment of dividends on our common stock (including the
frequency and the amount of dividends that would be payable on
our common stock, a substantial majority of which HLTH owns) and
amendments to our certificate of incorporation and bylaws.
Further, as long as HLTH and its subsidiaries (excluding our
company and our subsidiaries) continue to beneficially own
shares representing at least a majority of the votes entitled to
be cast by the holders of our outstanding voting stock, it may
take actions required to be taken at a meeting of stockholders
without a meeting or a vote and without prior notice to holders
of our Class A Common Stock. In addition, HLTH’s
controlling interest may discourage a change of control that the
holders of our Class A Common Stock may favor. Any of these
provisions could be used by HLTH for its own advantage to the
detriment of our other stockholders and our company. This in
turn may have an adverse effect on the market price of our
Class A Common Stock.
The
interests of HLTH may conflict with the interests of our other
stockholders
We cannot assure you that the interests of HLTH will coincide
with the interests of the other holders of our Common Stock. For
example, HLTH could cause us to make acquisitions that increase
the amount of our indebtedness or outstanding shares of common
stock or sell revenue-generating assets. Also, HLTH or its
directors and officers may allocate to HLTH or its other
affiliates corporate opportunities that could have been directed
to us. So long as HLTH continues to own shares of our Common
Stock with significant voting power, HLTH will continue to be
able to strongly influence or effectively control our decisions.
Some
of our directors, officers and employees may have potential
conflicts of interest as a result of having positions with or
owning equity interests in HLTH
Martin J. Wygod, in addition to being Chairman of the Board of
our company, is Chairman of the Board and Acting Chief Executive
Officer of HLTH. Some of our other directors, officers and
employees also serve as directors, officers or employees of
HLTH. In addition, some of our directors, officers and employees
own shares of HLTH’s Common Stock. Furthermore, because our
officers and employees have participated in HLTH’s equity
compensation plans and because service at our company will, so
long as we are a majority-owned subsidiary of HLTH, qualify
those persons for continued participation and continued vesting
of equity awards under HLTH’s equity plans, many of our
officers and employees and some of our directors hold, and may
continue to hold, options to purchase HLTH’s Common Stock
and shares of restricted HLTH common stock.
These arrangements and ownership interests or cash- or
equity-based awards could create, or appear to create, potential
conflicts of interest when directors or officers who own
HLTH’s stock or stock options or who participate in
HLTH’s benefit plans are faced with decisions that could
have different implications for HLTH than they do for us. We
cannot assure you that the provisions in our restated
certificate of incorporation will adequately address potential
conflicts of interest or that potential conflicts of interest
will be resolved in our favor.
Provisions
in our organizational documents and Delaware law may inhibit a
takeover, which could adversely affect the value of our
Class A Common Stock
Our Certificate of Incorporation and Bylaws, as well as Delaware
corporate law, contain provisions that could delay or prevent a
change of control or changes in our management and Board of
Directors that holders of our Class A Common Stock might
consider favorable and may prevent them from receiving a
takeover premium for their shares. These provisions include, for
example, our classified board structure, the disproportionate
voting rights of the Class B Common Stock (relative to the
Class A Common Stock) and the authorization of our Board of
Directors to issue up to 50 million shares of preferred
stock without a stockholder vote. In addition, our Restated
Certificate of Incorporation provides that after the time HLTH
and its affiliates cease to own, in the aggregate, a majority of
the combined voting power of our outstanding capital stock,
stockholders may not act by written consent and may not call
special meetings. These provisions apply even if an offer may be
considered beneficial by some of our stockholders. If a change
of control or change in management is delayed or prevented, the
market price of our Class A Common Stock could decline.
We may
be prevented from issuing stock to raise capital, as acquisition
consideration or to provide equity incentives to members of our
management and Board of Directors
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for HLTH to
continue to include us in its consolidated group for federal
income tax purposes, and beneficial ownership of at least 80% of
the total voting power of our capital stock and 80% of each
class of any non-voting capital stock that we may issue is
required in order for HLTH to effect a tax-free split-off,
spin-off or other similar transaction. Under the terms of the
Tax Sharing Agreement that we have entered into with HLTH, we
have agreed that we will not knowingly take or fail to take any
action that could reasonably be expected to preclude HLTH’s
ability to undertake a tax-free split-off or spin-off. This may
prevent us from issuing additional equity securities to raise
capital, as acquisition consideration or to provide management
or director equity incentives.
We are
included in HLTH’s consolidated tax return and, as a
result, both we and HLTH may use each other’s net operating
loss carryforwards
Due to provisions of the U.S. Internal Revenue Code and
applicable Treasury regulations relating to the manner and order
in which net operating loss (NOL) carryforwards are utilized
when filing consolidated tax returns, a portion of our NOL
carryforwards may be required to be utilized by HLTH before HLTH
would be permitted to utilize its own NOL carryforwards.
Correspondingly, in some situations, such as where HLTH’s
NOL carryforwards were generated first, we may be required to
utilize a portion of HLTH’s NOL carryforwards before we
would have to utilize our own NOL carryforwards. On
October 19, 2008, pursuant to the terms of a Termination
Agreement, HLTH and WebMD mutually agreed, in light of turmoil
in financial markets, to terminate the Agreement and Plan of
Merger between HLTH and WebMD. Pursuant to the Termination
Agreement, HLTH and WebMD amended the Tax Sharing Agreement
between them so that, for tax years beginning after
December 31, 2007, HLTH is no longer required to reimburse
WebMD for use of NOL carryforwards attributable to WebMD that
may result from certain extraordinary transactions by HLTH. The
Tax Sharing Agreement had not, other than with respect to
certain extraordinary transactions by HLTH, required either HLTH
or WebMD to reimburse the other party for any net tax savings
realized by the consolidated group as a result of the
group’s utilization of WebMD’s or HLTH’s NOL
carryforwards during the period of consolidation, and that will
continue following the amendment.
If
certain transactions occur with respect to our capital stock or
HLTH’s capital stock, we may be unable to utilize our net
operating loss carryforwards and tax credits to reduce our
income taxes
As of December 31, 2008, we had NOL carryforwards of
approximately $141 million for federal income tax purposes
and federal tax credits of approximately $3.6 million,
which excludes the impact of any unrecognized tax benefits,
residing within the WebMD legal entities. If certain
transactions occur with respect to our capital stock or
HLTH’s capital stock, including issuances, redemptions,
recapitalizations, exercises of options, conversions of
convertible debt, purchases or sales by 5%-or-greater
shareholders and similar transactions, that result in a
cumulative change of more than 50% of the ownership of capital
stock, over a three-year period, as determined under rules
prescribed by the U.S. Internal Revenue Code and applicable
Treasury regulations, an annual limitation would be imposed with
respect to the ability to utilize our NOL carryforwards and
federal tax credits. On November 25, 2008, HLTH repurchased
83,699,922 shares of its common stock in a tender offer.
The tender offer resulted in a cumulative change of more than
50% of the ownership of HLTH’s capital, as determined under
rules prescribed by the U.S. Internal Revenue Code and
applicable Treasury regulations. As a result of this ownership
change, there will be an annual limitation imposed on the
ability to utilize our NOL carryforwards and federal tax
credits. Because substantially all of our NOL carryforwards are
reserved for by a valuation allowance, we would not expect an
annual limitation on the utilization of our NOL carryforwards to
significantly reduce our net deferred tax asset, although the
timing of our cash flows may be impacted to the extent any such
annual limitation deferred the utilization of our NOL
carryforwards to future tax years.
We are
included in HLTH’s consolidated group for federal income
tax purposes and, as a result, may be liable for any shortfall
in HLTH’s federal income tax payments
We will be included in the HLTH consolidated group for federal
income tax purposes as long as HLTH continues to own 80% of the
total value of our capital stock. By virtue of its controlling
ownership and our Tax Sharing Agreement with HLTH, HLTH
effectively controls all our tax decisions. Moreover,
notwithstanding the Tax Sharing Agreement, federal tax law
provides that each member of a consolidated group is jointly and
severally liable for the group’s entire federal income tax
obligation. Thus, to the extent HLTH or other members of the
group fail to make any federal income tax payments required of
them by law, we would be liable for the shortfall. Similar
principles generally apply for income tax purposes in some
state, local and foreign jurisdictions.
This excerpt taken from the WBMD 10-Q filed May 11, 2009. Risks
Related to the Relationship between WebMD and HLTH
The
concentrated ownership of our common stock by HLTH and certain
corporate governance arrangements prevent our other stockholders
from influencing significant corporate decisions
We have two classes of common stock:
HLTH owns 100% of our Class B Common Stock, which
represents approximately 83.5% of our outstanding common stock,
as of March 31, 2009. These Class B shares
collectively represent approximately 96% of the combined voting
power of our outstanding common stock. Given its ownership
interest, HLTH is able to control the outcome of all matters
submitted to our shareholders for approval, including the
election of directors. Accordingly, either in its capacity as a
stockholder or through its control of our Board of Directors,
HLTH is able to control all key decisions regarding our company,
including mergers or other business combinations and
acquisitions, dispositions of assets, future issuances of our
common stock or other securities, the incurrence of debt by us,
the payment of dividends on our common stock (including the
frequency and the amount of dividends that would be payable on
our common stock, a substantial majority of which HLTH owns) and
amendments to our certificate of incorporation and bylaws.
Further, as long as HLTH and its subsidiaries (excluding our
company and our subsidiaries) continue to beneficially own
shares representing at least a majority of the votes entitled to
be cast by the holders of our outstanding voting stock, it may
take actions required to be taken at a meeting of stockholders
without a meeting or a vote and without prior notice to holders
of our Class A Common Stock. In addition, HLTH’s
controlling interest may discourage a change of control that the
holders of our Class A Common Stock may favor. Any of these
provisions could be used by HLTH for its own advantage to the
detriment of our other stockholders and our company. This in
turn may have an adverse effect on the market price of our
Class A Common Stock.
The
interests of HLTH may conflict with the interests of our other
stockholders
We cannot assure you that the interests of HLTH will coincide
with the interests of the other holders of our Common Stock. For
example, HLTH could cause us to make acquisitions that increase
the amount of our indebtedness or outstanding shares of common
stock or sell revenue-generating assets. Also, HLTH or its
Table of Contents
directors and officers may allocate to HLTH or its other
affiliates corporate opportunities that could have been directed
to us. So long as HLTH continues to own shares of our Common
Stock with significant voting power, HLTH will continue to be
able to strongly influence or effectively control our decisions.
Some of
our directors, officers and employees may have potential
conflicts of interest as a result of having positions with or
owning equity interests in HLTH
Martin J. Wygod, in addition to being Chairman of the Board of
our company, is Chairman of the Board and Acting Chief Executive
Officer of HLTH. Some of our other directors, officers and
employees also serve as directors, officers or employees of
HLTH. In addition, some of our directors, officers and employees
own shares of HLTH’s Common Stock. Furthermore, because our
officers and employees have participated in HLTH’s equity
compensation plans and because service at our company will, so
long as we are a majority-owned subsidiary of HLTH, qualify
those persons for continued participation and continued vesting
of equity awards under HLTH’s equity plans, many of our
officers and employees and some of our directors hold, and may
continue to hold, options to purchase HLTH’s Common Stock
and shares of HLTH’s Restricted Stock.
These arrangements and ownership interests or cash- or
equity-based awards could create, or appear to create, potential
conflicts of interest when directors or officers who own
HLTH’s stock or stock options or who participate in
HLTH’s benefit plans are faced with decisions that could
have different implications for HLTH than they do for us. We
cannot assure you that the provisions in our restated
certificate of incorporation will adequately address potential
conflicts of interest or that potential conflicts of interest
will be resolved in our favor.
Provisions
in our organizational documents and Delaware law may inhibit a
takeover, which could adversely affect the value of our
Class A Common Stock
Our Certificate of Incorporation and Bylaws, as well as Delaware
corporate law, contain provisions that could delay or prevent a
change of control or changes in our management and Board of
Directors that holders of our Class A Common Stock might
consider favorable and may prevent them from receiving a
takeover premium for their shares. These provisions include, for
example, our classified board structure, the disproportionate
voting rights of the Class B Common Stock (relative to the
Class A Common Stock) and the authorization of our Board of
Directors to issue up to 50 million shares of preferred
stock without a stockholder vote. In addition, our Restated
Certificate of Incorporation provides that after the time HLTH
and its affiliates cease to own, in the aggregate, a majority of
the combined voting power of our outstanding capital stock,
stockholders may not act by written consent and may not call
special meetings. These provisions apply even if an offer may be
considered beneficial by some of our stockholders. If a change
of control or change in management is delayed or prevented, the
market price of our Class A Common Stock could decline.
We may be
prevented from issuing stock to raise capital, as acquisition
consideration or to provide equity incentives to members of our
management and Board of Directors
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for HLTH to
continue to include us in its consolidated group for federal
income tax purposes, and beneficial ownership of at least 80% of
the total voting power of our capital stock and 80% of each
class of any non-voting capital stock that we may issue is
required in order for HLTH to effect a tax-free split-off,
spin-off or other similar transaction. Under the terms of the
Tax Sharing Agreement that we have entered into with HLTH, we
have agreed that we will not knowingly take or fail to take any
action that could reasonably be expected to preclude HLTH’s
ability to undertake a tax-free split-off or spin-off. This may
prevent us from issuing additional equity securities to raise
capital, as acquisition consideration or to provide management
or director equity incentives.
Table of Contents
We are
included in HLTH’s consolidated tax return and, as a
result, both we and HLTH may use each other’s net operating
loss carryforwards
Due to provisions of the U.S. Internal Revenue Code and
applicable Treasury regulations relating to the manner and order
in which net operating loss (NOL) carryforwards are utilized
when filing consolidated tax returns, a portion of our NOL
carryforwards may be required to be utilized by HLTH before HLTH
would be permitted to utilize its own NOL carryforwards.
Correspondingly, in some situations, such as where HLTH’s
NOL carryforwards were generated first, we may be required to
utilize a portion of HLTH’s NOL carryforwards before we
would have to utilize our own NOL carryforwards. On
October 19, 2008, pursuant to the terms of a Termination
Agreement, HLTH and WebMD mutually agreed, in light of recent
turmoil in financial markets, to terminate the Agreement and
Plan of Merger between HLTH and WebMD. Pursuant to the
Termination Agreement, HLTH and WebMD amended the Tax Sharing
Agreement between them so that, for tax years beginning after
December 31, 2007, HLTH is no longer required to reimburse
WebMD for use of NOL carryforwards attributable to WebMD that
may result from certain extraordinary transactions by HLTH. The
Tax Sharing Agreement had not, other than with respect to
certain extraordinary transactions by HLTH, required either HLTH
or WebMD to reimburse the other party for any net tax savings
realized by the consolidated group as a result of the
group’s utilization of WebMD’s or HLTH’s NOL
carryforwards during the period of consolidation, and that will
continue following the amendment.
If
certain transactions occur with respect to our capital stock or
HLTH’s capital stock, we may be unable to utilize our net
operating loss carryforwards and tax credits to reduce our
income taxes
As of December 31, 2008, we had NOL carryforwards of
approximately $141 million for federal income tax purposes
and federal tax credits of approximately $3.6 million,
which excludes the impact of any unrecognized tax benefits,
residing within the WebMD legal entities. If certain
transactions occur with respect to our capital stock or
HLTH’s capital stock, including issuances, redemptions,
recapitalizations, exercises of options, conversions of
convertible debt, purchases or sales by 5%-or-greater
shareholders and similar transactions, that result in a
cumulative change of more than 50% of the ownership of capital
stock, over a three-year period, as determined under rules
prescribed by the U.S. Internal Revenue Code and applicable
Treasury regulations, an annual limitation would be imposed with
respect to the ability to utilize our NOL carryforwards and
federal tax credits. On November 25, 2008, HLTH repurchased
83,699,922 shares of its common stock in a tender offer.
The tender offer resulted in a cumulative change of more than
50% of the ownership of HLTH’s capital, as determined under
rules prescribed by the U.S. Internal Revenue Code and
applicable Treasury regulations. As a result of this ownership
change, there will be an annual limitation imposed on the
ability to utilize our NOL carryforwards and federal tax
credits. Because substantially all of our NOL carryforwards are
reserved for by a valuation allowance, we would not expect an
annual limitation on the utilization of our NOL carryforwards to
significantly reduce our net deferred tax asset, although the
timing of our cash flows may be impacted to the extent any such
annual limitation deferred the utilization of our NOL
carryforwards to future tax years.
We are
included in HLTH’s consolidated group for federal income
tax purposes and, as a result, may be liable for any shortfall
in HLTH’s federal income tax payments
We will be included in the HLTH consolidated group for federal
income tax purposes as long as HLTH continues to own 80% of the
total value of our capital stock. By virtue of its controlling
ownership and our Tax Sharing Agreement with HLTH, HLTH
effectively controls all our tax decisions. Moreover,
notwithstanding the Tax Sharing Agreement, federal tax law
provides that each member of a consolidated group is jointly and
severally liable for the group’s entire federal income tax
obligation. Thus, to the extent HLTH or other members of the
group fail to make any federal income tax payments required of
them by law, we would be liable for the shortfall. Similar
principles generally apply for income tax purposes in some
state, local and foreign jurisdictions.
Table of Contents
This excerpt taken from the WBMD 10-K filed Feb 27, 2009. Risks
Related to the Relationship between WebMD and HLTH
The
concentrated ownership of our common stock by HLTH and certain
corporate governance arrangements prevent our other stockholders
from influencing significant corporate decisions
We have two classes of common stock:
HLTH owns 100% of our Class B Common Stock, which
represents approximately 83.5% of our outstanding common stock,
as of February 20, 2009. These Class B shares
collectively represent approximately 96% of the combined voting
power of our outstanding common stock. Given its ownership
interest, HLTH is able to control the outcome of all matters
submitted to our shareholders for approval, including the
election of directors. Accordingly, either in its capacity as a
stockholder or through its control of our Board of Directors,
HLTH is able to control all key decisions regarding our company,
including mergers or other business combinations and
acquisitions, dispositions of assets, future issuances of our
common stock or other securities, the incurrence of debt by us,
the payment of dividends on our common stock (including the
frequency and the amount of dividends that would be payable on
our common stock, a substantial majority of which HLTH owns) and
amendments to our certificate of incorporation and bylaws.
Further, as long as HLTH and its subsidiaries (excluding our
company and our subsidiaries) continue to beneficially own
shares representing at least a majority of the votes entitled to
be cast by the holders of our outstanding voting stock, it may
take actions required to be taken at a meeting of stockholders
without a meeting or a vote and without prior notice to holders
of our Class A Common Stock. In addition, HLTH’s
controlling interest may discourage a change of control that the
holders of our Class A Common Stock may favor. Any of these
provisions could be used by HLTH for its own advantage to the
detriment of our other stockholders and our company. This in
turn may have an adverse effect on the market price of our
Class A Common Stock.
The
interests of HLTH may conflict with the interests of our other
stockholders
We cannot assure you that the interests of HLTH will coincide
with the interests of the other holders of our Common Stock. For
example, HLTH could cause us to make acquisitions that increase
the amount of our indebtedness or outstanding shares of common
stock or sell revenue-generating assets. Also, HLTH or its
directors and officers may allocate to HLTH or its other
affiliates corporate opportunities that could have been directed
to us. So long as HLTH continues to own shares of our Common
Stock with significant voting power, HLTH will continue to be
able to strongly influence or effectively control our decisions.
Table of Contents
Some
of our directors, officers and employees may have potential
conflicts of interest as a result of having positions with or
owning equity interests in HLTH
Martin J. Wygod, in addition to being Chairman of the Board of
our company, is Chairman of the Board and Acting Chief Executive
Officer of HLTH. Some of our other directors, officers and
employees also serve as directors, officers or employees of
HLTH. In addition, some of our directors, officers and employees
own shares of HLTH’s Common Stock. Furthermore, because our
officers and employees have participated in HLTH’s equity
compensation plans and because service at our company will, so
long as we are a majority-owned subsidiary of HLTH, qualify
those persons for continued participation and continued vesting
of equity awards under HLTH’s equity plans, many of our
officers and employees and some of our directors hold, and may
continue to hold, options to purchase HLTH’s Common Stock
and shares of HLTH’s Restricted Stock.
These arrangements and ownership interests or cash- or
equity-based awards could create, or appear to create, potential
conflicts of interest when directors or officers who own
HLTH’s stock or stock options or who participate in
HLTH’s benefit plans are faced with decisions that could
have different implications for HLTH than they do for us. We
cannot assure you that the provisions in our restated
certificate of incorporation will adequately address potential
conflicts of interest or that potential conflicts of interest
will be resolved in our favor.
Provisions
in our organizational documents and Delaware law may inhibit a
takeover, which could adversely affect the value of our
Class A Common Stock
Our Certificate of Incorporation and Bylaws, as well as Delaware
corporate law, contain provisions that could delay or prevent a
change of control or changes in our management and Board of
Directors that holders of our Class A Common Stock might
consider favorable and may prevent them from receiving a
takeover premium for their shares. These provisions include, for
example, our classified board structure, the disproportionate
voting rights of the Class B Common Stock (relative to the
Class A Common Stock) and the authorization of our Board of
Directors to issue up to 50 million shares of preferred
stock without a stockholder vote. In addition, our Restated
Certificate of Incorporation provides that after the time HLTH
and its affiliates cease to own, in the aggregate, a majority of
the combined voting power of our outstanding capital stock,
stockholders may not act by written consent and may not call
special meetings. These provisions apply even if an offer may be
considered beneficial by some of our stockholders. If a change
of control or change in management is delayed or prevented, the
market price of our Class A Common Stock could decline.
We may
be prevented from issuing stock to raise capital, as acquisition
consideration or to provide equity incentives to members of our
management and Board of Directors
Beneficial ownership of at least 80% of the total voting power
and value of our capital stock is required in order for HLTH to
continue to include us in its consolidated group for federal
income tax purposes, and beneficial ownership of at least 80% of
the total voting power of our capital stock and 80% of each
class of any non-voting capital stock that we may issue is
required in order for HLTH to effect a tax-free split-off,
spin-off or other similar transaction. Under the terms of the
Tax Sharing Agreement that we have entered into with HLTH, we
have agreed that we will not knowingly take or fail to take any
action that could reasonably be expected to preclude HLTH’s
ability to undertake a tax-free split-off or spin-off. This may
prevent us from issuing additional equity securities to raise
capital, as acquisition consideration or to provide management
or director equity incentives.
We are
included in HLTH’s consolidated tax return and, as a
result, both we and HLTH may use each other’s net operating
loss carryforwards
Due to provisions of the U.S. Internal Revenue Code and
applicable Treasury regulations relating to the manner and order
in which net operating loss carryforwards are utilized when
filing consolidated tax returns, a portion of our net operating
loss carryforwards may be required to be utilized by HLTH before
HLTH would be permitted to utilize its own net operating loss
(NOL) carryforwards. Correspondingly, in some situations, such
as where HLTH’s NOL carryforwards were generated first, we
may be required to utilize a portion of HLTH’s NOL
carryforwards before we would have to utilize our own NOL
carryforwards. On October 19, 2008, pursuant to the terms
of a Termination Agreement, HLTH and WebMD mutually agreed, in
light of recent turmoil in financial markets, to terminate the
Agreement and Plan of Merger between HLTH and
Table of Contents
WebMD. Pursuant to the Termination Agreement, HLTH and WebMD
amended the Tax Sharing Agreement between them so that, for tax
years beginning after December 31, 2007, HLTH is no longer
required to reimburse WebMD for use of NOL carryforwards
attributable to WebMD that may result from certain extraordinary
transactions by HLTH. The Tax Sharing Agreement had not, other
than with respect to certain extraordinary transactions by HLTH,
required either HLTH or WebMD to reimburse the other party for
any net tax savings realized by the consolidated group as a
result of the group’s utilization of WebMD’s or
HLTH’s NOL carryforwards during the period of
consolidation, and that will continue following the amendment.
If
certain transactions occur with respect to our capital stock or
HLTH’s capital stock, we may be unable to utilize our net
operating loss carryforwards and tax credits to reduce our
income taxes
As of December 31, 2008, we had net operating loss
carryforwards of approximately $141 million for federal
income tax purposes and federal tax credits of approximately
$3.6 million, which excludes the impact of any unrecognized
tax benefits, residing within the WebMD legal entities.
If certain transactions occur with respect to our capital stock
or HLTH’s capital stock, including issuances, redemptions,
recapitalizations, exercises of options, conversions of
convertible debt, purchases or sales by 5%-or-greater
shareholders and similar transactions, that result in a
cumulative change of more than 50% of the ownership of capital
stock, over a three-year period, as determined under rules
prescribed by the U.S. Internal Revenue Code and applicable
Treasury regulations, an annual limitation would be imposed with
respect to the ability to utilize our net operating loss
carryforwards and federal tax credits. On November 25,
2008, HLTH repurchased 83,699,922 shares of its common
stock in a tender offer. The tender offer resulted in a
cumulative change of more than 50% of the ownership of
HLTH’s capital, as determined under rules prescribed by the
U.S. Internal Revenue Code and applicable Treasury
regulations. As a result of this ownership change, there will be
an annual limitation imposed on the ability to utilize our net
operating loss carryforwards and federal tax credits. Because
substantially all of our net operating loss carryforwards are
reserved for by a valuation allowance, we would not expect an
annual limitation on the utilization of our net operating loss
carryforwards to significantly reduce our net deferred tax
asset, although the timing of our cash flows may be impacted to
the extent any such annual limitation deferred the utilization
of our net operating loss carryforwards to future tax years.
We are
included in HLTH’s consolidated group for federal income
tax purposes and, as a result, may be liable for any shortfall
in HLTH’s federal income tax payments
We will be included in the HLTH consolidated group for federal
income tax purposes as long as HLTH continues to own 80% of the
total value of our capital stock. By virtue of its controlling
ownership and our Tax Sharing Agreement with HLTH, HLTH
effectively controls all our tax decisions. Moreover,
notwithstanding the Tax Sharing Agreement, federal tax law
provides that each member of a consolidated group is jointly and
severally liable for the group’s entire federal income tax
obligation. Thus, to the extent HLTH or other members of the
group fail to make any federal income tax payments required of
them by law, we would be liable for the shortfall. Similar
principles generally apply for income tax purposes in some
state, local and foreign jurisdictions.
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