DEF 14A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant þ
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Check the appropriate box:
o   Preliminary Proxy Statement
 
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
þ   Definitive Proxy Statement
 
o   Definitive Additional Materials
 
o   Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HLTH Corporation
 
(Name of Registrant as Specified In Its Charter)
N/A
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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o   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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HLTH CORPORATION
669 River Drive, Center 2
Elmwood Park, New Jersey 07407-1361
 
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 10, 2008
 
 
 
To the Stockholders of HLTH Corporation:
 
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of HLTH Corporation will be held at 9:30 a.m., Eastern time, on December 10, 2008, at The Waldorf-Astoria Hotel, 301 Park Avenue, New York, NY 10022, for the following purposes:
 
1. To elect two Class I directors, each to serve a three-year term expiring at our Annual Meeting of Stockholders in 2011 or until his successor is elected and has qualified or his earlier resignation or removal.
 
2. To consider and vote on a proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as HLTH’s independent auditor for the fiscal year ending December 31, 2008.
 
3. To consider and transact such other business as may properly be brought before the Annual Meeting or any adjournment or postponement thereof.
 
Only stockholders of record at the close of business on October 24, 2008 will be entitled to vote at this meeting. The stock transfer books will not be closed.
 
All stockholders are cordially invited to attend the Annual Meeting in person. However, to ensure your representation at the Annual Meeting, you are urged to complete, sign, date and return the enclosed proxy card in the enclosed postage-prepaid envelope as promptly as possible.
 
By Order of the Board of Directors
of HLTH Corporation
 
Charles A. Mele
Executive Vice President,
General Counsel and Secretary
 
Elmwood Park, New Jersey
November 3, 2008
 
 
YOUR VOTE IS IMPORTANT.
 
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
 
 


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FORWARD-LOOKING STATEMENTS
HLTH CORPORATION 2007 ANNUAL REPORT
HLTH CORPORATION 669 River Drive, Center 2 Elmwood Park, New Jersey 07407-1361
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 10, 2008
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING
VOTING RIGHTS AND RELATED MATTERS
Record Date and Outstanding Shares
Vote and Quorum Required
Voting of Proxies
Revocability of Proxies
Solicitation of Proxies
No Appraisal Rights
DIRECTORS AND EXECUTIVE OFFICERS
Directors
Executive Officers
SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
PROPOSAL 1: ELECTION OF DIRECTORS
CORPORATE GOVERNANCE
Board of Directors
Director Independence
Communications with HLTH Directors
Committees of the Board of Directors
NON-EMPLOYEE DIRECTOR COMPENSATION
2007 Director Compensation Table
Compensation for Service on WebMD Board
EXECUTIVE COMPENSATION
Overview
2007 Report of the Compensation Committee
Compensation Committee Interlocks and Insider Participation
Compensation Discussion and Analysis
Executive Compensation Tables
Potential Payments and Other Benefits upon Termination of Employment or a Change in Control
Employment Agreements with Named Executive Officers
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with WebMD
Other Related Party Transactions
Audit Committee Review of Related Party Transactions
REPORT OF THE AUDIT COMMITTEE
HLTH PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Services and Fees of Ernst & Young
STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING
WHERE YOU CAN FIND MORE INFORMATION
MISCELLANEOUS
ANNEX A-1
ANNEX A-2
ANNEX A-3
ANNEX A-4
ANNEX B


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FORWARD-LOOKING STATEMENTS
 
This proxy statement contains both historical and forward-looking statements. All statements, other than statements of historical fact, are or may be, forward-looking statements. For example, statements concerning projections, predictions, expectations, estimates or forecasts and statements that describe our objectives, future performance, plans or goals are, or may be, forward-looking statements. These forward-looking statements reflect management’s current expectations concerning future results and events and can generally be identified by the use of expressions such as “may,” “will,” “should,” “could,” “would,” “likely,” “predict,” “potential,” “continue,” “future,” “estimate,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” and other similar words or phrases, as well as statements in the future tense.
 
Forward-looking statements are not guarantees of future performance. They involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, those disclosed in the section entitled “Risk Factors” and in other reports filed by HLTH with the Securities and Exchange Commission.
 
The forward-looking statements included in this proxy statement are made only as of the date of this proxy statement. Except as required by applicable law or regulation, we do not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances.
 
 
HLTH CORPORATION 2007 ANNUAL REPORT
 
Annexes A-1 through A-4 and Annex B of this proxy statement constitute portions of the 2007 Annual Report required to be distributed with this proxy statement to stockholders of HLTH. For 2007, HLTH will not be distributing a stand-alone Annual Report document. The Annexes, together with other information contained in this proxy statement, contain all of the information that HLTH would have included in its Annual Report.
 


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HLTH CORPORATION
669 River Drive, Center 2
Elmwood Park, New Jersey 07407-1361
 
 
PROXY STATEMENT
 
 
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 10, 2008
 
This proxy statement and the enclosed form of proxy are furnished to stockholders of HLTH Corporation, a Delaware corporation, in connection with the solicitation of proxies by our board of directors from holders of outstanding shares of our Common Stock, par value $0.0001 per share, for use at our Annual Meeting of Stockholders to be held on December 10, 2008, at 9:30 a.m., Eastern time, at The Waldorf-Astoria Hotel, 301 Park Avenue, New York, NY 10022, and at any adjournment or postponement thereof. The date of this proxy statement is November 3, 2008 and it and a form of proxy are first being mailed or otherwise delivered to stockholders on or about November 5, 2008.
 
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING
 
The following proposals will be considered and voted on at the Annual Meeting:
 
  •  Proposal 1:  Election of two Class I directors of HLTH, each to serve a three-year term expiring at the Annual Meeting of Stockholders in 2011 or until his successor is elected and has qualified or his earlier resignation or removal. The two nominees are:
 
Neil F. Dimick
Joseph E. Smith
 
  •  Proposal 2:  A proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as HLTH’s independent auditor for the fiscal year ending December 31, 2008.
 
The board of directors of HLTH recommends a vote “FOR” the election of each of the nominees for director listed in Proposal 1 and “FOR” Proposal 2.
 
VOTING RIGHTS AND RELATED MATTERS
 
Record Date and Outstanding Shares
 
Only holders of record of HLTH Common Stock at the close of business on October 24, 2008, the record date, are entitled to notice of and to vote at the HLTH Annual Meeting. On the record date, approximately 185,602,915 shares of HLTH Common Stock were issued and outstanding and held by approximately 3,200 holders of record, although HLTH believes that there are approximately 45,000 beneficial owners of HLTH Common Stock. Unvested shares of restricted HLTH Common Stock granted under HLTH’s equity compensation plans (which we refer to as HLTH restricted stock) are entitled to vote at the Annual Meeting and are included in the above number of outstanding shares of HLTH Common Stock. No other voting securities of HLTH are outstanding.
 
As of the record date for the HLTH Annual Meeting, the directors and executive officers of HLTH held and are entitled to vote, in the aggregate, shares of HLTH Common Stock representing approximately 5.3% of the outstanding shares.


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Vote and Quorum Required
 
The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of HLTH Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the meeting. Abstentions will be counted as shares that are present and entitled to vote for purposes of determining whether a quorum is present. Shares held by nominees for beneficial owners will also be counted for purposes of determining whether a quorum is present if the nominee has the discretion to vote on at least one of the matters presented and even though the nominee may not exercise discretionary voting power with respect to other matters and voting instructions have not been received from the beneficial owner (sometimes referred to as a “broker non-vote”). If a quorum is not present, the Annual Meeting may be adjourned from time to time until a quorum is obtained.
 
On all matters to be considered at the Annual Meeting, each share of HLTH Common Stock is entitled to one vote per share.
 
Proposal 1 (Election of Directors).  Election of directors is by a plurality of the votes cast at the Annual Meeting with respect to such election. Accordingly, the two nominees receiving the greatest number of votes for their election will be elected. Abstentions and instructions on the accompanying proxy card to withhold authority to vote with respect to a nominee will result in that nominee receiving fewer votes for the election.
 
Proposal 2 (Ratification of Appointment of Independent Registered Public Accounting Firm).  The affirmative vote of the holders of a majority of the shares present or represented at the meeting and entitled to vote on the matter is required to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as HLTH’s independent auditor described in Proposal 2. Abstentions with respect to Proposal 2 will be treated as shares that are present or represented at the meeting, but will not be counted in favor of that proposal. Accordingly, an abstention from voting on Proposal 2 will have the same effect as a vote “AGAINST” that proposal.
 
Voting of Proxies
 
If you hold shares of HLTH Common Stock in your name, please sign, date and return your proxy card with voting instructions. All shares represented by properly executed proxies received in time for the HLTH Annual Meeting will be voted at the HLTH Annual Meeting in the manner specified by the stockholders giving those proxies. Unless your shares of HLTH Common Stock are held in a brokerage account, if you sign, date and send your proxy and do not indicate how you want to vote, your proxy will be voted “FOR” the election of each of the nominees for director listed in Proposal 1 and “FOR” Proposal 2.
 
If your stock is held in “street name” through a bank or a broker, please direct your bank or broker to vote your stock in the manner described in the instructions you have received from your bank or broker. Stockholders are urged to utilize telephone or Internet voting if their bank or broker has provided them with the opportunity to do so. See the relevant voting instruction form for instructions. If a stockholder’s bank or broker holds its shares and such stockholder attends the HLTH Annual Meeting in person, such stockholder should please bring a letter from its bank or broker identifying it as the beneficial owner of the shares and authorizing it to vote such shares at the meeting.
 
HLTH does not expect that any matters other than those discussed above will be brought before the HLTH Annual Meeting. If, however, other matters are properly presented at the HLTH Annual Meeting, the individuals named as proxies will vote on such matters in their discretion.


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Revocability of Proxies
 
Submitting a proxy on the enclosed form does not preclude a HLTH stockholder of record from voting in person at the HLTH Annual Meeting. A HLTH stockholder of record may revoke a proxy at any time before it is voted by taking any of the following actions:
 
  •  delivering to the Secretary of HLTH, at the address set forth above, prior to the vote at the HLTH Annual Meeting, a written notice, bearing a date later than the date of the 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 HLTH Annual Meeting; or
 
  •  attending the HLTH Annual Meeting and voting in person, although attendance at the meeting will not, by itself, revoke a proxy.
 
HLTH stockholders whose shares are held in street name should contact their broker, bank or nominee for instructions regarding voting at the HLTH Annual Meeting or revoking previously submitted instructions regarding how their shares are to be voted.
 
Solicitation of Proxies
 
HLTH will pay the expenses of soliciting proxies from its stockholders to be voted at the HLTH Annual Meeting and the cost of preparing and mailing this proxy statement to its stockholders. Following the original mailing of this proxy statement and other soliciting materials, HLTH and its agents also may solicit proxies by mail, telephone, facsimile or in person. In addition, proxies may be solicited from HLTH stockholders by HLTH’s directors, officers and employees in person or by telephone, facsimile or other means of communication. These officers, directors and employees will not be additionally compensated but may be reimbursed for reasonable out-of-pocket expenses in connection with the solicitation. Following the original mailing of this proxy statement and other soliciting materials, HLTH will request brokers, custodians, nominees and other record holders of HLTH Common Stock to forward copies of this proxy statement and other soliciting materials to persons for whom they hold shares of HLTH Common Stock and to request authority for the exercise of proxies. In these cases, HLTH will, upon the request of the record holders, reimburse these holders for their reasonable expenses. HLTH has retained Innisfree M&A Incorporated, a proxy solicitation firm, for assistance in connection with the solicitation of proxies for the Annual Meeting and will pay customary fees plus reimbursement of out-of-pocket expenses.
 
No Appraisal Rights
 
The stockholders of HLTH will not be entitled to exercise dissenters’ rights with respect to any matter to be voted upon at the Annual Meeting.


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DIRECTORS AND EXECUTIVE OFFICERS
 
The charts below list HLTH’s directors and executive officers and are followed by biographical information about them and a description of certain corporate governance matters.
 
Directors
 
             
Name
 
Age
  Positions
 
Mark J. Adler, M.D.(3)(4)
    52     Director; Chairman of the Compensation Committee
Paul A. Brooke(1)(2)(5)(6)
    62     Director
Kevin M. Cameron
    42     Director
Neil F. Dimick(4)(5)
    59     Director; Chairman of the Nominating Committee; Chairman of the Governance & Compliance Committee
James V. Manning(1)(2)(4)
    61     Director; Chairman of the Audit Committee
Herman Sarkowsky(3)(5)(6)
    82     Director
Joseph E. Smith(1)(2)(3)(6)
    69     Director
Martin J. Wygod(1)
    68     Chairman of the Board; Acting Chief Executive Officer
 
 
(1) Member of the Executive Committee
 
(2) Member of the Audit Committee
 
(3) Member of the Compensation Committee
 
(4) Member of the Governance & Compliance Committee
 
(5) Member of the Nominating Committee
 
(6) Member of the Related Parties Committee
 
For a description of each of the standing committees of the board of directors and other corporate governance matters, see “Corporate Governance” below. Dr. Adler and Messrs. Dimick, Manning and Wygod are also members of the board of directors of WebMD. HLTH, through its ownership of WebMD Class B Common Stock, owns approximately 84% of the total outstanding Common Stock of WebMD and approximately 96% of the combined voting power of WebMD’s outstanding Common Stock as of October 24, 2008.
 
Executive Officers
 
             
Name
 
Age
  Positions
 
Martin J. Wygod
    68     Chairman of the Board and Acting Chief Executive Officer
Mark D. Funston
    49     Executive Vice President and Chief Financial Officer
Wayne T. Gattinella
    56     CEO and President of the WebMD segment
Charles A. Mele
    52     Executive Vice President, General Counsel and Secretary
William G. Midgette
    52     CEO of the Porex segment
 
Mark J. Adler, M.D., has been a director of HLTH since September 2000. Since September 2005, he has also served as a member of the board of directors of WebMD. Dr. Adler is an oncologist and has, for more than five years, been CEO and Medical Director of the San Diego Cancer Center and a director of the San Diego Cancer Research Institute. Until April 2006, he had also been, for more than five years, the Chief Executive Officer of the internal medicine and oncology group of Medical Group of North County, which is based in San Diego, California, and he continues to be a member of that Medical Group.
 
Paul A. Brooke has been a director of HLTH since November 2000. Mr. Brooke has been Chairman of the Board of Alsius Corporation, a medical device company, since June 2007 and was Chairman and Chief Executive Officer of a predecessor company from 2005 to June 2007. Mr. Brooke has been the Managing Member of PMSV Holdings LLC, a private investment firm, since 1993. Mr. Brooke has also been a Senior


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Advisor to Morgan Stanley since April 2000. From 1997 through 2006, Mr. Brooke was a Venture Partner of MPM Capital, a venture capital firm specializing in the healthcare industry. From 1983 until April 1999, Mr. Brooke was a Managing Director and the Global Head of Healthcare Research and Strategy at Morgan Stanley. From April 1999 until May 2000, he was a Managing Director at Tiger Management LLC. He serves as a member of the boards of directors of the following other public companies: Incyte Corporation, a drug discovery company; and Viropharma Incorporated, a pharmaceutical company.
 
Kevin M. Cameron has served as a director of HLTH since October 2004. He also served as Chief Executive Officer of HLTH from October 2004 until February 2008, when he went on medical leave. From November 2005 until November 2006, Mr. Cameron also served as Acting CEO of Emdeon Business Services, which was then one of HLTH’s segments. From January 2002 until October 2004, Mr. Cameron was Special Advisor to the Chairman. From September 2000 to January 2002, he served as Executive Vice President, Business Development of HLTH and, in addition, from September 2001 through January 2002, was a member of the Office of the President. From April 2000 until its merger with HLTH in September 2000, Mr. Cameron served as Executive Vice President, Business Development of a predecessor to HLTH. Prior to April 2000, Mr. Cameron was a Managing Director of the Health Care Investment Banking Group of UBS and held various positions at Salomon Smith Barney, which is now part of Citigroup.
 
Neil F. Dimick has been a director of HLTH since December 2002. Since September 2005, he has also served as a member of the board of directors of WebMD. Mr. Dimick served as Executive Vice President and Chief Financial Officer of AmerisourceBergen Corporation, a wholesale distributor of pharmaceuticals, from 2001 to 2002 and as Senior Executive Vice President and Chief Financial Officer and as a director of Bergen Brunswig Corporation, a wholesale distributor of pharmaceuticals, for more than five years prior to its merger in 2001 with AmeriSource Health Corporation to form AmerisourceBergen. He also serves as a member of the boards of directors of the following companies: Alliance Imaging Inc., a provider of outsourced diagnostic imaging services to hospitals and other healthcare companies; Global Resources Professionals, an international professional services firm that provides outsourced services to companies on a project basis; Mylan Laboratories, Inc., a pharmaceutical manufacturer; and Thoratec Corporation, a developer of products to treat cardiovascular disease.
 
Mark D. Funston has served as Executive Vice President and Chief Financial Officer of HLTH since November 2006 and of WebMD since August 11, 2007. Prior to joining HLTH, Mr. Funston was Interim Chief Financial Officer of Digital Harbor, Inc., a privately held software company, from November 2005. Prior to that, Mr. Funston served as Chief Financial Officer of Group 1 Software, Inc., a publicly traded software company, from 1996 until its acquisition by Pitney Bowes in 2004. From 1989 to 1996, Mr. Funston was Chief Financial Officer of COMSAT RSI, Inc. (formerly Radiation Systems, Inc.), a publicly traded telecommunications manufacturing company acquired by COMSAT Corporation in 1994.
 
Wayne T. Gattinella has served as President of the WebMD segment since joining HLTH in 2001 and as its Chief Executive Officer since 2005. Since 2005, he has held the same positions at WebMD and has also served as a member of its board of directors. From 2000 to 2001, Mr. Gattinella was Executive Vice President and Chief Marketing Officer for People PC, an Internet services provider. Mr. Gattinella had previously held senior management positions with Merck-Medco (now Medco Health Solutions) and MCI Telecommunications. Mr. Gattinella currently serves on Drexel University’s LeBow College of Business Advisory Board.
 
James V. Manning has been a director of HLTH since September 2000 and, prior to that, was a member of a predecessor company’s board of directors for more than five years. Since September 2005, he has also served as a member of the board of directors of WebMD.
 
Charles A. Mele has been Executive Vice President, General Counsel and Secretary of HLTH since January 2001 and has served in senior executive positions for HLTH and predecessor companies since 1995.
 
William G. Midgette has been Chief Executive Officer of the Porex segment since August 2002. For more than five years prior to that, Mr. Midgette served in senior management positions at C. R. Bard, Inc., a healthcare products company, the last of which was President, Bard International.


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Herman Sarkowsky has been a director of HLTH since November 2000 and, prior to that, was a member of a predecessor company’s board of directors for more than five years. Mr. Sarkowsky has been President of Sarkowsky Investment Corporation, a private investment company, for more than five years.
 
Joseph E. Smith has been a director of HLTH since September 2000. Mr. Smith served in various positions with Warner-Lambert Company, a pharmaceutical company, from March 1989 to September 1997, the last of which was Corporate Executive Vice President and a member of the Office of the Chairman and the firm’s Management Committee. Mr. Smith serves on the board of directors of Par Pharmaceutical Companies, Inc., a manufacturer and distributor of generic and branded pharmaceuticals, and on the Board of Trustees of the International Longevity Center, a non-profit organization.
 
Martin J. Wygod has served as Acting Chief Executive Officer of HLTH since February 2008, as Chairman of the Board of HLTH since March 2001, and as a director since September 2000. Since May 2005, he has also served as Chairman of the Board of WebMD. From October 2000 until May 2003, Mr. Wygod also served as HLTH’s Chief Executive Officer. From September 2000 until October 2000, Mr. Wygod served as Co-Chief Executive Officer of HLTH. Mr. Wygod is also engaged in the business of racing, boarding and breeding thoroughbred horses, and is President of River Edge Farm, Inc.
 
No family relationship exists among any of HLTH’s directors or executive officers. No arrangement or understanding exists between any director or executive officer of HLTH and any other person pursuant to which any of them were selected as a director or executive officer.


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SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
 
The following table sets forth information with respect to the beneficial ownership of HLTH Common Stock, as of October 24, 2008 (except where otherwise indicated), by each person or entity known by HLTH to beneficially own more than 5% of HLTH Common Stock, by each of HLTH’s directors, by each of HLTH’s Named Executive Officers, and by all of HLTH’s directors and executive officers as a group. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons listed in the table below have sole voting and investment power with respect to all shares of HLTH Common Stock shown as beneficially owned by them. Unless otherwise indicated, the address of each of the beneficial owners identified is c/o HLTH Corporation, 669 River Drive, Center 2, Elmwood Park, New Jersey 07407-1361.
 
                                 
    Common
          Total
    Percent of
 
Name and Address of Beneficial Owner
  Stock(1)     Other(2)     Shares     Outstanding(2)  
 
FMR Corp.(3)
    14,821,042             14,821,042       8.0 %
82 Devonshire Street
Boston, MA 02109
                               
Ziff Asset Management, L.P.(4)
    13,409,998             13,409,998       7.2 %
283 Greenwich Avenue
Greenwich, CT 06830
                               
Baron Capital Group, Inc.(5)
    13,208,187             13,208,187       7.1 %
767 Fifth Avenue
New York, NY 10153
                               
Kensico Capital Management Corp.(6)
    12,054,389             12,054,389       6.5 %
55 Railroad Avenue, 2nd Floor
Greenwich, CT 06830
                               
Mark J. Adler, M.D. 
    10,600 (7)     219,749       230,349       *  
Paul A. Brooke
    371,667 (8)     193,749       565,416       *  
Kevin M. Cameron
    601,184 (9)     3,257,168       3,858,352       2.0 %
Neil F. Dimick
          41,665       41,665       *  
Mark D. Funston
    60,000 (10)     90,000       150,000       *  
Wayne T. Gattinella
    20,218       489,881       510,099       *  
James V. Manning
    568,515 (11)     231,749       800,264       *  
Charles A. Mele
    228,446 (12)     1,858,000       2,086,446       1.1 %
Herman Sarkowsky
    495,996       368,749       864,745       *  
Joseph E. Smith
    29,250       149,749       178,999       *  
Martin J. Wygod
    7,516,183 (13)     4,400,000       11,916,183       6.3 %
All executive officers and directors as a group (12 persons)
    9,788,073       11,610,459       21,398,532       10.9 %
 
 
Less than 1%.
 
(1) The amounts set forth in this column include 156, 1,855 and 236 shares of HLTH Common Stock held in the respective accounts of each of Messrs. Cameron, Mele and Wygod in the HLTH 401(k) Plan (which we refer to in this table as 401(k) Plan Shares), all of which are vested in accordance with terms of the Plan. The amount set forth in this column for “All executive officers and directors as a group” includes 2,247 401(k) Plan Shares, all of which are vested in accordance with the terms of the HLTH 401(k) Plan.
 
Messrs. Cameron, Funston, Mele and Wygod are beneficial owners of shares of HLTH restricted stock in the respective amounts stated in the footnotes below. Holders of HLTH restricted stock have voting power, but not dispositive power, with respect to unvested shares of HLTH restricted stock. For information regarding the vesting schedules of the HLTH restricted stock, see “Executive Compensation — Executive Compensation Tables — Outstanding Equity Awards at End of 2007” below.
 
(2) Beneficial ownership is determined under the rules and regulations of the SEC, which provide that shares of common stock that a person has the right to acquire within 60 days are deemed to be outstanding and beneficially owned by that person for the purpose of computing the total number of shares beneficially owned by that person and the percentage ownership of that person. However, those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Accordingly, we have set forth, in the column entitled “Other,” where applicable, the number of shares of HLTH Common Stock that the person has the right to acquire pursuant to options that are currently exercisable or that will be exercisable within 60 days of October 24, 2008. HLTH has calculated the percentages set forth in the column entitled “Percent of Outstanding” based on the number of shares outstanding as of October 24, 2008 (which was 185,602,915 including unvested shares of HLTH restricted stock) plus, for each listed person or group, the number of additional shares deemed outstanding, as set forth in the column entitled “Other.”


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(3) The information shown is as of February 29, 2008 and is based upon information disclosed by FMR Corp., Fidelity Management and Research Company, Fidelity Growth Company Fund and Edward C. Johnson, 3d in a Schedule 13G filed with the SEC. Such persons reported that FMR Corp. and the other members of the filing group had, as of February 29, 2008, sole power to dispose of or to direct the disposition of 14,821,042 shares of HLTH Common Stock. Sole power to vote the other shares of HLTH Common Stock beneficially owned by the filing group resides in the respective boards of trustees of the funds that have invested in the shares.
 
(4) The information shown is as of December 31, 2007 and is based upon information disclosed by Ziff Asset Management, L.P., PBK Holdings, Inc., Philip B. Korsant and ZBI Equities, L.L.C. in a Schedule 13G filed with the SEC. Such persons reported that they had, as of December 31, 2007, shared power to dispose of or to direct the disposition of 13,409,998 shares of HLTH Common Stock and sole power to vote or to direct the vote of 13,409,998 shares of HLTH Common Stock, except that Ziff Asset Management, L.P. had shared voting power and shared dispositive power with respect to only 12,278,030 of those shares.
 
(5) The information shown is as of December 31, 2007 and is based upon information disclosed by Baron Capital Group, Inc., BAMCO, Inc., Baron Capital Management and Ronald Baron in a Schedule 13G filed with the SEC. Such persons reported that they had, as of December 31, 2007, sole power to dispose or direct the disposition of 150,000 shares of HLTH Common Stock, shared power to dispose or direct the disposition of 13,058,187 shares of HLTH Common Stock, sole power to vote or to direct the vote of 150,000 shares of HLTH Common Stock and shared power to vote or to direct the vote of 11,556,876 shares of HLTH Common Stock, except that Baron Capital Management, Inc. had shared voting power with respect to only 475,800 of those shares and shared dispositive power with respect to only 491,100 of those shares and BAMCO, Inc. did not have sole voting or dispositive power with respect to any of those shares and had shared voting power with respect to only 11,081,076 of those shares and shared dispositive power with respect to only 12,567,087 of those shares.
 
(6) The information shown is as of December 31, 2007 and is based upon information disclosed by Kensico Capital Management Corp., Michael Lowenstein and Thomas J. Coleman in a Schedule 13G filed with the SEC. Such persons reported that they had, as of December 31, 2007, sole power to dispose of or to direct the disposition of 12,054,389 shares of HLTH Common Stock and sole power to vote or to direct the vote of 12,054,389 shares of HLTH Common Stock.
 
(7) Represents 10,000 shares held by Dr. Adler and 600 shares held by Dr. Adler’s son.
 
(8) Represents 170,000 shares held by Mr. Brooke and 201,667 shares held by PMSV Holdings LLC, of which Mr. Brooke is the managing member.
 
(9) Represents 318,778 shares held by Mr. Cameron, 156 401(k) Plan Shares and 282,250 unvested shares of HLTH restricted stock.
 
(10) Represents 15,000 shares held by Mr. Funston and 45,000 unvested shares of HLTH restricted stock.
 
(11) Represents 503,018 shares held by Mr. Manning (including 12,500 through an IRA), 3,000 shares held by Mr. Manning’s wife through an IRA, and 62,497 shares held by the WebMD Health Foundation, Inc., a charitable foundation of which Messrs. Manning and Wygod are trustees and share voting and dispositive power.
 
(12) Represents 88,591 shares held by Mr. Mele, 1,855 401(k) Plan Shares, 73,000 unvested shares of HLTH restricted stock and 65,000 shares held by the Rose Foundation, a private charitable foundation of which Messrs. Mele and Wygod are trustees and share voting and dispositive power.
 
(13) Represents 6,953,118 shares held by Mr. Wygod, 236 401(k) Plan Shares, 269,000 shares of unvested HLTH restricted stock, 5,000 shares held by Mr. Wygod’s spouse through an IRA, 161,332 shares held by SYNC, Inc., which is controlled by Mr. Wygod, 62,497 shares held by the WebMD Health Foundation, Inc., a charitable foundation of which Messrs. Wygod and Manning are trustees and share voting and dispositive power, and 65,000 shares held by the Rose Foundation, a private charitable foundation of which Messrs. Wygod and Mele are trustees and share voting and dispositive power.
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and directors, and persons who beneficially own more than ten percent of a registered class of HLTH’s equity securities, to file reports of ownership and changes in ownership of these securities with the SEC. Officers, directors and greater than ten percent beneficial owners are required by applicable regulations to furnish HLTH with copies of all Section 16(a) forms they file. Based solely upon a review of the forms furnished to HLTH during or with respect to the most recent fiscal year, all of HLTH’s directors and officers subject to the reporting requirements and each beneficial owner of more than ten percent of HLTH Common Stock satisfied all applicable filing requirements under Section 16(a).


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PROPOSAL 1: ELECTION OF DIRECTORS
 
Election of two Class I directors of HLTH, each to serve a three-year term expiring at the HLTH Annual Meeting of Stockholders in 2011 or until his successor is elected and has qualified or his earlier resignation or removal.
 
The HLTH board of directors has eight members and is divided into three classes, two of which currently have three directors and one of which currently has two directors. At each Annual Meeting, the term of one of the classes of directors expires and HLTH stockholders vote to elect nominees for the directorships in that class for a new three-year term. At this year’s Annual Meeting, the terms of the two Class I directors, Neil F. Dimick and Joseph E. Smith, will expire. The terms of Messrs. Brooke, Manning and Wygod will expire at the Annual Meeting in 2009; and the terms of Dr. Adler and Messrs. Cameron and Sarkowsky will expire at the Annual Meeting in 2010.
 
The board of directors, based on the recommendation of the Nominating Committee of the board of directors, has nominated Messrs. Dimick and Smith for re-election at the Annual Meeting, each to serve a three-year term expiring at the Annual Meeting in 2011 or until his successor is elected and has qualified or his earlier resignation or removal. For biographical information regarding the nominees and other directors, see “Directors and Executive Officers” above.
 
The persons named in the enclosed proxy intend to vote for the election of Messrs. Dimick and Smith, unless you indicate on the proxy card that your vote should be withheld.
 
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE ELECTION OF THESE NOMINEES AS DIRECTORS.
 
HLTH has inquired of each nominee and has determined that each will serve if elected. While the HLTH board of directors does not anticipate that any of the nominees will be unable to serve, if any nominee is not able to serve, proxies will be voted for a substitute nominee unless the board of directors chooses to reduce the number of directors serving on the board.
 
For information regarding corporate governance and related matters involving HLTH’s board of directors and its committees, see “Corporate Governance” below. For information regarding the compensation of non-employee directors, see “Non-Employee Director Compensation” below. Employees of HLTH who serve on the board of directors do not receive additional compensation for board service.


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CORPORATE GOVERNANCE
 
Board of Directors
 
HLTH’s board of directors has eight members. Two of the members are also employees of HLTH: Mr. Cameron, who served as Chief Executive Officer and is currently on medical leave, and Mr. Wygod, Chairman of the Board and Acting Chief Executive Officer. Six of the members are non-employee directors: Dr. Adler and Messrs. Brooke, Dimick, Manning, Sarkowsky and Smith. The board of directors has determined that each of the non-employee directors is also an independent director under applicable SEC rules and Nasdaq Global Select Market listing standards. See “Director Independence” below. The non-employee directors meet regularly in private sessions with the Chairman of the Board and also meet regularly without any employee directors or other HLTH employees present. For information regarding the compensation of non-employee directors, see “Non-Employee Director Compensation” below.
 
The board of directors met 11 times during 2007. During 2007, each of the directors attended 75% or more of the meetings held by the board and the board committees on which he served. In addition to meetings, the board and its committees reviewed and acted upon matters by unanimous written consent. HLTH’s board of directors encourages its members to attend the Annual Meetings of Stockholders. All but two of our directors attended the 2007 Annual Meeting.
 
Director Independence
 
HLTH’s board of directors has delegated to the Governance & Compliance Committee of the board the authority to make determinations regarding the independence of members of the board. The Governance & Compliance Committee has determined that Dr. Adler, and Messrs. Brooke, Dimick, Manning, Sarkowsky and Smith (all six of HLTH’s non-employee directors) are “independent” in accordance with the published listing requirements of the Nasdaq Global Select Market applicable generally to members of HLTH’s board and, with respect to the committees of HLTH’s board on which they serve, those applicable to the specific committees. The other two directors, Messrs. Cameron and Wygod, as officers of HLTH’s company, are not independent.
 
The Nasdaq independence definition includes a series of objective tests, including one that requires a three-year period to have elapsed since employment by the listed company and other tests relating to specific types of transactions or business dealings between a director (or persons or entities related to the director) and the listed company. In addition, as further required by the Nasdaq Marketplace Rules, the Governance & Compliance Committee of the HLTH board has made a subjective determination as to each non-employee director that no relationships exist which, in the opinion of the Governance & Compliance Committee, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In considering whether Mr. Manning qualified as “independent,” the Governance & Compliance Committee considered that (1) he had previously served as an executive officer of a predecessor of HLTH, more than nine years ago and (2) he and Mr. Wygod both serve as trustees of the WebMD Health Foundation, Inc., a charitable foundation. In considering whether Mr. Sarkowsky qualified as “independent,” the Governance & Compliance Committee considered the fact that he and Mr. Wygod have jointly owned race horses. Each member of the Governance & Compliance Committee abstained from voting with respect to his own independence.
 
Communications with HLTH Directors
 
The board of directors encourages HLTH’s security holders to communicate in writing to its directors. Security holders may send written communications to the board of directors or to specified individual directors by sending such communications c/o the Corporate Secretary’s Office, HLTH Corporation, 669 River Drive, Center 2, Elmwood Park, New Jersey 07407-1361. Such communications will be reviewed by HLTH’s Legal Department and, depending on the content, will be:
 
  •  forwarded to the addressees or distributed at the next scheduled board meeting; or


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  •  if they relate to financial or accounting matters, forwarded to the Audit Committee or discussed at the next scheduled Audit Committee meeting; or
 
  •  if they relate to the recommendation of the nomination of an individual, forwarded to the Nominating Committee or discussed at the next scheduled Nominating Committee meeting; or
 
  •  if they relate to the operations of HLTH, forwarded to the appropriate officers of HLTH, and the response or other handling reported to the board at the next scheduled board meeting.
 
Committees of the Board of Directors
 
This section describes the roles of each of the committees of the HLTH board in the corporate governance of HLTH. The board of directors currently has six standing committees: an Executive Committee, a Compensation Committee, an Audit Committee, a Governance & Compliance Committee, a Nominating Committee and a Related Parties Committee. The Compensation Committee, the Audit Committee, the Governance & Compliance Committee, the Nominating Committee and the Related Parties Committee each has the authority to retain such outside advisors as it may determine to be appropriate.
 
With respect to certain committees, including the Audit Committee, the Compensation Committee and the Nominating Committee, a portion of their responsibilities are specified by SEC rules and the listing standards of the Nasdaq Global Select Market. These committees work with their counterparts at WebMD where their responsibilities overlap or where they otherwise believe it is appropriate to do so. To assist in that coordination of responsibilities, the Chairpersons of the Audit Committee, Compensation Committee, Governance & Compliance Committee and Nominating Committee are the same persons who hold those positions on those committees of the WebMD board of directors.
 
Executive Committee.  The Executive Committee, which met once during 2007, is currently comprised of Messrs. Brooke, Manning, Smith and Wygod. Mr. Cameron was also a member of the Executive Committee until February 2008. The Executive Committee has the power to exercise, to the fullest extent permitted by law, the powers of the entire board.
 
Audit Committee.  The Audit Committee, which met nine times during 2007, is currently comprised of Messrs. Brooke, Manning and Smith; Mr. Manning is its Chairman. Each of the members of the Audit Committee meets the standards of independence applicable to audit committee members under applicable SEC rules and Nasdaq Global Select Market listing standards and is financially literate, as required under applicable Nasdaq Global Select Market listing standards. In addition, the board of directors of HLTH has determined that Mr. Manning qualifies as an “audit committee financial expert,” as that term is used in applicable SEC regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002, based on his training and experience as a certified public accountant, including as a partner of a major accounting firm, and based on his service as a senior executive and chief financial officer of public companies.
 
The Audit Committee operates under a written charter adopted by the board of directors, which sets forth the responsibilities and powers delegated by the board to the Audit Committee. A copy of the Audit Committee Charter, as amended through July 26, 2007, was included as Annex A to the Proxy Statement for HLTH’s 2007 Annual Meeting. The Audit Committee’s responsibilities are summarized below in “Report of the Audit Committee” and include oversight of the administration of HLTH’s Code of Business Conduct. A copy of the joint HLTH and WebMD Code of Business Conduct, as amended, was filed as Exhibit 14.1 to the Current Report on Form 8-K filed on February 9, 2006. The Code of Business Conduct applies to all directors and employees of HLTH and its subsidiaries. Any waiver of applicable requirements in the Code of Business Conduct that is granted to any of HLTH’s directors, principal executive officer, any senior financial officers (including the principal financial officer, principal accounting officer or controller) or any other person who is an executive officer of HLTH requires the approval of the Audit Committee and waivers will be disclosed on HLTH’s corporate Web site, www.hlth.com, in the “Investor Relations” section, or in a Current Report on Form 8-K.


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Compensation Committee.  The Compensation Committee, which met seven times during 2007, is currently comprised of Dr. Adler and Messrs. Sarkowsky and Smith; Dr. Adler is its Chairman. Each of these directors is a non-employee director within the meaning of the rules promulgated under Section 16 of the Securities Exchange Act, an outside director within the meaning of Section 162(m) of the Internal Revenue Code and an independent director under applicable Nasdaq Global Select Market listing standards. The responsibilities delegated by the board to the Compensation Committee include:
 
  •  oversight of the HLTH executive compensation program and its incentive and equity compensation plans;
 
  •  determination of compensation levels for and grants of incentive and equity-based awards to executive officers and the terms of any employment agreements with them;
 
  •  determination of compensation levels for non-employee directors; and
 
  •  review of and making recommendations regarding other matters relating to HLTH’s compensation practices.
 
The Compensation Committee operates under a written charter adopted by the board of directors, which sets forth the responsibilities and powers delegated by the board to the Compensation Committee. A copy of the Compensation Committee Charter, as amended through July 26, 2007, was included as Annex B to the Proxy Statement for HLTH’s 2007 Annual Meeting. For additional information regarding HLTH’s Compensation Committee and its oversight of executive compensation, see “Executive Compensation — Compensation Discussion and Analysis” below.
 
Nominating Committee.  The Nominating Committee, which met once during 2007, is currently comprised of Messrs. Brooke, Dimick and Sarkowsky; Mr. Dimick is its Chairman. Each of these directors is an independent director under applicable Nasdaq Global Select Market listing standards. The responsibilities delegated by the board to the Nominating Committee include:
 
  •  identifying individuals qualified to become board members;
 
  •  recommending to the board the director nominees for each Annual Meeting of Stockholders; and
 
  •  recommending to the board candidates for filling vacancies that may occur between Annual Meetings.
 
The Nominating Committee operates pursuant to a written charter adopted by the board of directors, which sets forth the responsibilities and powers delegated by the board to the Nominating Committee. A copy of the Nominating Committee Charter, as amended through July 26, 2007, was included as Annex C to the Proxy Statement for HLTH’s 2007 Annual Meeting. The Nominating Committee has not adopted specific objective requirements for service on the HLTH board. Instead, the Nominating Committee considers various factors in determining whether to recommend to the board potential new board members, or the continued service of existing members, including:
 
  •  the amount and type of the potential nominee’s managerial and policy-making experience in complex organizations and whether any such experience is particularly relevant to HLTH;
 
  •  any specialized skills or experience that the potential nominee has and whether such skills or experience are particularly relevant to HLTH;
 
  •  in the case of non-employee directors, whether the potential nominee has sufficient time to devote to service on the HLTH board and the nature of any conflicts of interest or potential conflicts of interest arising from the nominee’s existing relationships;
 
  •  in the case of non-employee directors, whether the nominee would be an independent director and would be considered a “financial expert” or to have “financial sophistication” under applicable SEC rules and the listing standards of the Nasdaq Global Select Market;


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  •  in the case of potential new members, whether the nominee assists in achieving a mix of board members that represents a diversity of background and experience, including with respect to age, gender, race, areas of expertise and skills; and
 
  •  in the case of existing members, the nominee’s contributions as a member of the board during his or her prior service.
 
The Nominating Committee will consider candidates recommended by stockholders in the same manner as described above. Any such recommendation should be sent in writing to the Nominating Committee, c/o Secretary, HLTH Corporation, 669 River Drive, Center 2, Elmwood Park, New Jersey 07407-1361. To facilitate consideration by the Nominating Committee, the recommendation should be accompanied by a full statement of the qualifications of the recommended nominee, the consent of the recommended nominee to serve as a director of HLTH if nominated and to be identified in HLTH’s proxy materials and the consent of the recommending stockholder to be named in HLTH’s proxy materials. The recommendation and related materials will be provided to the Nominating Committee for consideration at its next regular meeting.
 
Governance & Compliance Committee.  The Governance & Compliance Committee is currently comprised of Dr. Adler and Messrs. Dimick and Manning; Mr. Dimick is its Chairman. The Governance & Compliance Committee met twice in 2007. The responsibilities delegated by the board to the Governance & Compliance Committee include:
 
  •  evaluating and making recommendations to the board regarding matters relating to the governance of HLTH;
 
  •  assisting the board in coordinating the activities of the board’s other standing committees, including with respect to HLTH’s compliance programs and providing additional oversight of those compliance programs; and
 
  •  providing oversight of senior executive recruitment and management development.
 
As part of its responsibilities relating to corporate governance, the Governance & Compliance Committee evaluates and makes recommendations to the board regarding any proposal for which a stockholder has provided required notice that such stockholder intends to make at an Annual Meeting of Stockholders, including recommendations regarding the board’s response and regarding whether to include such proposal in HLTH’s proxy statement.
 
The Governance & Compliance Committee operates pursuant to a written charter adopted by the board of directors. A copy of the Governance & Compliance Committee Charter, as amended through July 26, 2007, was included as Annex D to the Proxy Statement for HLTH’s 2007 Annual Meeting. Pursuant to that Charter, the membership of the Governance & Compliance Committee consists of the Chairpersons of the Nominating, Audit and Compensation Committees and the Chairperson of the Nominating Committee serves as the Chairperson of the Governance & Compliance Committee, unless otherwise determined by the Governance & Compliance Committee.
 
Related Parties Committee.  In September 2005, HLTH’s board of directors established the Related Parties Committee. The Related Parties Committee is currently comprised of Messrs. Brooke, Sarkowsky and Smith. Each of the members of the Related Parties Committee is an independent director and none of its members serves as a director of WebMD. The Related Parties Committee met once during 2007. The responsibilities delegated by the board to the Related Parties Committee include:
 
  •  oversight of transactions between HLTH and WebMD; and
 
  •  oversight of other matters in which the interests of HLTH and WebMD conflict or may potentially conflict.


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Other Committees.  From time to time, HLTH’s board of directors forms additional committees to make specific determinations or to provide oversight of specific matters or initiatives. For example:
 
  •  Messrs. Brooke, Manning, Sarkowsky and Smith and Dr. Adler are members of a special committee of the board to oversee matters relating to the investigations described in “Legal Proceedings — Investigations by United States Attorney for the District of South Carolina and the SEC” in Note 12 to the Consolidated Financial Statements included as Annex A-1 to this proxy statement; and
 
  •  Messrs. Wygod, Manning and Smith are members of a special committee of the board authorized to make determinations relating to HLTH’s stock repurchase program.


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NON-EMPLOYEE DIRECTOR COMPENSATION
 
This section describes the compensation paid by HLTH during 2007 to the members of its board of directors who are not also HLTH or WebMD employees. These individuals are referred to as non-employee directors. The Compensation Committee of the HLTH board is authorized to determine the compensation of the non-employee directors.
 
As described below, only two types of compensation were paid by HLTH to non-employee directors in 2007 for their board and board committee service: (1) cash and (2) a grant of non-qualified options to purchase HLTH Common Stock. None of the non-employee directors received any other compensation from HLTH during 2007 and none of them provided any services to HLTH during 2007, except their service as a director. HLTH does not offer any deferred compensation plans or retirement plans to its non-employee directors.
 
2007 Director Compensation Table
 
This table provides information regarding the value of the compensation of the HLTH non-employee directors for 2007, as calculated in accordance with applicable SEC regulations. This table should be read together with the additional information under the headings “Cash Compensation” and “Option Grants” below.
 
                         
(a)
  (b)
  (c)
  (d)
    Fees Earned or
       
    Paid in Cash
  Option Awards
  Total
Name
  ($)   ($)(1)(2)   ($)
 
Mark J. Adler, M.D.(3)
    77,500       54,996       132,496  
Paul A. Brooke
    90,000       54,996       144,996  
Neil F. Dimick(3)
    57,500       54,996       112,496  
James V. Manning(3)
    95,000       54,996       149,996  
Herman Sarkowsky
    80,000       54,996       134,996  
Joseph E. Smith
    90,000       54,996       144,996  
 
 
(1) The amounts reported in Column (c) above reflect the aggregate dollar amounts recognized by HLTH in 2007 for stock option awards for income statement reporting purposes under Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-based Payments” (disregarding any estimate of forfeitures related to service-based vesting conditions). See Note 13 (Stock-Based Compensation) to the Consolidated Financial Statements included as Annex A-1 to this proxy statement for an explanation of the methodology and assumptions used in determining the fair value of stock option awards granted. The amounts reported in Column (c) reflect HLTH’s accounting expense for these stock option awards, not amounts realized by non-employee directors. The actual amounts, if any, ultimately realized by non-employee directors from options to purchase HLTH Common Stock will depend on the price of HLTH Common Stock at the time they exercise vested stock options.
 
(2) Under HLTH’s Amended and Restated 2000 Long-Term Incentive Plan (which we refer to as the 2000 Plan), each non-employee director of HLTH automatically receives a non-qualified option to purchase 20,000 shares of HLTH Common Stock on each January 1, with an exercise price equal to the closing price on the last trading date of the prior year. The grants made on January 1, 2007 each had an exercise price of $12.39 per share and each had a total grant date fair value equal to $77,774, based on the methodology and assumptions referred to in Footnote 1 above. The following lists the total number of shares of HLTH Common Stock subject to outstanding unexercised option awards held by each of non-employee directors as of December 31, 2007 and the weighted average exercise price of those options:
 
                 
    Number of Shares Subject
  Weighted Average
Name
  to Outstanding Options   Exercise Price
 
Mark J. Adler, M.D. 
    236,000     $ 10.16  
Paul A. Brooke
    210,000     $ 8.02  
Neil F. Dimick
    57,916     $ 9.82  
James V. Manning
    248,000     $ 8.89  
Herman Sarkowsky
    410,000     $ 10.65  
Joseph E. Smith
    166,000     $ 11.60  
 
See “Option Grants” below for additional information.
 
(3) These three non-employee directors of HLTH are also non-employee directors of WebMD, for which they received compensation from WebMD. For information regarding the compensation they received from WebMD, see below under “Compensation for Service on WebMD Board.”


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Cash Compensation
 
Overview.  For each of the HLTH non-employee directors, the amount set forth in Column (a) of the 2007 Director Compensation Table represents the sum of the following amounts, each of which is described below:
 
  •  an annual retainer for service on the board;
 
  •  annual fees for service on standing committees of the board;
 
  •  annual fees, if any, for serving as Chairperson of standing committees of the board; and
 
  •  quarterly fees for service on other committees of the board.
 
Non-employee directors do not receive per meeting fees but are reimbursed for out-of-pocket expenses they incur in connection with attending board and board committee meetings and the Annual Meeting of Stockholders.
 
Board Service.  Each HLTH non-employee director receives an annual retainer of $30,000 for service on the HLTH board.
 
Service on Standing Committees.  HLTH pays annual fees for service on some of the standing committees of the board, as well as an additional fee to the Chairperson of each of those committees, in the following amounts:
 
         
Type of Service
  Annual Fee  
 
Membership on Audit Committee (Messrs. Brooke, Manning and Smith)
  $ 15,000  
Membership on Compensation Committee (Dr. Adler and Messrs. Sarkowsky and Smith) or Nominating Committee (Messrs. Brooke, Dimick and Sarkowsky)
  $ 5,000  
Membership on Governance & Compliance Committee (Dr. Adler and Messrs. Dimick and Manning) or Related Parties Committee (Messrs. Brooke, Sarkowsky and Smith)
  $ 10,000  
Chairperson of Compensation Committee (Dr. Adler) or Nominating Committee (Mr. Dimick)
  $ 2,500  
Chairperson of Audit Committee (Mr. Manning) or Governance & Compliance Committee (Mr. Dimick)
  $ 10,000  
 
The amounts of the fees payable to HLTH non-employee directors for service on the board and its standing committees are determined by the Compensation Committee and may be changed by it from time to time. The Compensation Committee also has discretion to determine whether such compensation is paid in cash, in HLTH Common Stock or some other form of compensation.
 
Service on Other Committees.  HLTH non-employee directors may also receive additional fees for service on committees established by the board for specific purposes. Those fees are generally paid on a quarterly basis for the period that the committee exists and may be set by the board, the Compensation Committee or the committee itself. Messrs. Brooke, Manning, Sarkowsky and Smith and Dr. Adler were each paid $30,000 for their service in 2007 as members of a special committee of the board to oversee matters relating to the investigations described in “Legal Proceedings — Investigations by United States Attorney for the District of South Carolina and the SEC” in Note 12 to the Consolidated Financial Statements included as Annex A-1 to this proxy statement. Members of this special committee will continue to receive compensation for their service on the committee. The current quarterly payment is $3,750 per member.
 
Option Grants
 
Annual Stock Option Grants.  On January 1 of each year, each HLTH non-employee director receives a non-qualified option to purchase 20,000 shares of HLTH Common Stock pursuant to automatic annual grants of stock options under WebMD’s 2000 Plan. The annual stock option awards are granted with a per-share exercise price equal to the fair market value of a share of HLTH Common Stock on the grant date. For these purposes, and in accordance with the terms of the 2000 Plan and HLTH’s equity award grant practices, the fair market value is equal to the closing price of a share of HLTH Common Stock on the Nasdaq Global Select


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Market on the last trading day of the prior year. The vesting schedule for each automatic annual grant is as follows: 1/4 of the grant on the first anniversary of the date of grant and 1/48 of the grant on a monthly basis over the next three years (full vesting on the fourth anniversary of the date of grant). Each non-employee director received automatic annual grants of options to purchase 20,000 shares of HLTH Common Stock on January 1, 2007 (with an exercise price of $12.39 per share) and January 1, 2008 (with an exercise price of $13.40 per share). The options granted to non-employee directors do not include any dividend or dividend equivalent rights. Each such option will expire, to the extent not previously exercised, ten years after the date of grant or earlier if their service as a director ends.
 
Under the 2000 Plan, outstanding unvested options held by HLTH non-employee directors vest and become fully exercisable: (a) upon the non-employee director’s death or termination of service as a result of disability; and (b) upon a “Change in Control” of HLTH. Those options, and any others that had previously vested, will then continue to be exercisable or lapse in accordance with the other provisions of the 2000 Plan and the award agreement. For purposes of the 2000 Plan, a “Change in Control” generally includes (i) a change in the majority of the board of directors of HLTH without the consent of the incumbent directors, (ii) any person or entity becoming the beneficial owner of 25% or more of the voting shares of HLTH and the Compensation Committee determining that such transaction constitutes a change in control, taking into consideration all relevant facts, (iii) consummation of a reorganization, merger or similar transaction as a result of which HLTH’s stockholders prior to the consummation of the transaction no longer represent 50% of the voting power, and (iv) consummation of a sale of all or substantially all of HLTH’s assets.
 
Discretionary Grants.  Non-employee directors may receive discretionary grants of stock options under the 2000 Plan. No discretionary grants were made in 2007.
 
Compensation for Service on WebMD Board
 
Dr. Adler and Messrs. Dimick and Manning serve as non-employee directors of WebMD and receive compensation from WebMD for their service. The Compensation Committee of the WebMD board is authorized to determine the compensation of WebMD’s non-employee directors.
 
The HLTH directors serving on the WebMD board received two types of compensation in 2007 from WebMD for their board and board committee service: (1) annual fees paid in the form of shares of WebMD Class A Common Stock and (2) a grant of non-qualified options to purchase WebMD Class A Common Stock. None of these non-employee directors received any other compensation from WebMD during 2007 and none of them provided any services to WebMD during 2007, except their service as a director. WebMD does not offer any deferred compensation plans or retirement plans to its non-employee directors.
 
This table provides information regarding the value of the compensation from WebMD to the individuals listed for 2007, as calculated in accordance with applicable SEC regulations.
 
                         
(a)
  (b)
  (c)
  (d)
Name
  Stock Awards(1)   Option Awards(2)(3)   Total
 
Mark J. Adler, M.D. 
  $ 65,894     $ 134,519     $ 200,413  
Neil F. Dimick
    90,894       134,519       225,413  
James V. Manning
    83,394       134,519       217,913  
 
 
(1) Shares of WebMD Class A Common Stock were issued by WebMD on September 28, 2007 (the anniversary of WebMD’s initial public offering) in payment for annual fees for service on the WebMD board and its standing committees. These shares are not subject to vesting requirements or forfeiture. The amounts (expressed in dollars) of the fees are the same as those applicable to the HLTH board and its standing committees, as described above. For each individual listed in Column (a) of this table, the number of shares to be issued was determined by dividing the aggregate dollar amount of the fees by $52.10, the closing price of WebMD Class A Common Stock on the Nasdaq Global Select Market on September 28, 2007 (with cash paid in lieu of issuing fractional shares). Dr. Adler received 911 shares of WebMD Class A Common Stock; Mr. Dimick received 1,391 shares; and Mr. Manning received 1,247 shares. In addition, this column includes $18,394 for each individual, which reflects the aggregate dollar amounts recognized by WebMD in 2007, for income statement reporting purposes under SFAS No. 123R (based on the methodology and assumptions referred to in Footnote 2 below), for grants of WebMD restricted stock made to these directors at the time of WebMD’s initial public offering. That amount reflects WebMD’s accounting expense for these WebMD restricted stock awards, not amounts


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realized by non-employee directors. The actual amounts, if any, ultimately realized by non-employee directors from WebMD restricted stock will depend on the price of WebMD Class A Common Stock at the time the WebMD restricted stock vests.
 
(2) The amounts reported in Column (c) above reflect the aggregate dollar amounts recognized by WebMD in 2007 for stock option awards for income statement reporting purposes under SFAS No. 123R (disregarding any estimate of forfeitures related to service-based vesting conditions). See “WebMD Plans” in Note 13 (Stock-Based Compensation) to the Consolidated Financial Statements included as Annex A-1 to this proxy statement for an explanation of the methodology and assumptions used in determining the fair value of stock option awards granted. The amounts reported in Column (c) reflect WebMD’s accounting expense for these stock option awards, not amounts realized by the individuals listed in the table. The actual amounts, if any, ultimately realized by these individuals from WebMD equity compensation will depend on the price of WebMD Class A Common Stock at the time they exercise vested stock options or at the time of vesting of WebMD restricted stock.
 
(3) Under WebMD’s Amended and Restated 2005 Long-Term Incentive Plan (which we refer to as the WebMD 2005 Plan), each non-employee director of WebMD automatically receives a non-qualified option to purchase 13,200 shares of WebMD Class A Common Stock on each January 1, with an exercise price equal to the closing price on the last trading date of the prior year. The grants made on January 1, 2007 each had an exercise price of $40.02 per share and each had a total grant date fair value equal to $227,555, based on the methodology and assumptions referred to in Footnote 2 above. The Compensation Committee of the WebMD board has discretion to make other grants of options to purchase WebMD Class A Common Stock to WebMD’s non-employee directors, but did not do so in 2007. The following lists the total number of shares of WebMD Class A Common Stock subject to outstanding unexercised option awards held by the listed individuals as of December 31, 2007 and the weighted average exercise price of those options:
 
                 
    Number of Shares Subject
  Weighted Average
Name
  to Outstanding WebMD Options   Exercise Price
 
Mark J. Adler, M.D. 
    39,600     $ 28.86  
Neil F. Dimick
    39,600     $ 28.86  
James V. Manning
    39,600     $ 28.86  
 
In addition, as of December 31, 2007, each of the listed individuals held 2,200 shares of unvested WebMD restricted stock that were granted at the time of WebMD’s initial public offering.


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EXECUTIVE COMPENSATION
 
Overview
 
This section contains information regarding HLTH’s compensation programs and policies and, in particular, their application to a specific group of individuals that we refer to as HLTH’s Named Executive Officers. Under applicable SEC rules, HLTH’s Named Executive Officers for 2007 consist of the Chief Executive Officer during that year, the Chief Financial Officer during that year and the three other executive officers of HLTH who received the most compensation for 2007. This section is organized as follows:
 
  •  2007 Report of the Compensation Committee.  This section contains a report of the Compensation Committee of the board of directors regarding the “Compensation Discussion and Analysis” section described below. The material in the 2007 Report of the Compensation Committee will not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that HLTH specifically incorporates this information by reference, and will not otherwise be deemed filed under such Acts.
 
  •  Compensation Committee Interlocks and Insider Participation.  This section contains information regarding certain types of relationships involving HLTH’s Compensation Committee members.
 
  •  Compensation Discussion and Analysis.  This section contains a description of the specific types of compensation HLTH pays, a discussion of its compensation policies, information regarding how those policies were applied to the compensation of the Named Executive Officers for 2007 and other information that may be useful to investors regarding compensation of HLTH’s Named Executive Officers and other employees.
 
  •  Executive Compensation Tables.  This section provides information, in tabular formats specified in applicable SEC rules, regarding the amounts or value of various types of compensation paid to HLTH’s Named Executive Officers and related information.
 
  •  Potential Payments and Other Benefits upon Termination or Change in Control.  This section provides information regarding amounts that could become payable to HLTH’s Named Executive Officers following specified events.
 
  •  Employment Agreements with Named Executive Officers.  This section contains summaries of the employment agreements between HLTH (or its subsidiaries) and its Named Executive Officers. We refer to these summaries in various other places in this Executive Compensation section.
 
The parts of this Executive Compensation section described above are intended to be read together and each provides information not included in the others. In addition, for background information regarding the Compensation Committee of HLTH’s board of directors and its responsibilities, please see “Corporate Governance — Committees of the Board of Directors — Compensation Committee” above.
 
2007 Report of the Compensation Committee
 
The Compensation Committee of HLTH’s board of directors provides oversight of HLTH’s compensation programs and makes specific compensation decisions regarding compensation of the Named Executive Officers and HLTH’s other executive officers. Set out below is the Compensation Discussion and Analysis section of this proxy statement. That section contains a discussion of HLTH’s executive compensation programs and policies and their application by the Compensation Committee for 2007 to the Named Executive Officers. The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis. Based upon this review and the Compensation Committee’s discussions, the Compensation Committee has recommended to the board of directors that the Compensation Discussion and Analysis section be included in this proxy statement.
 
Mark J. Adler, M.D. (Chairperson)
Herman Sarkowsky
Joseph E. Smith


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Compensation Committee Interlocks and Insider Participation
 
Each of the Compensation Committee members whose name appears under the Compensation Committee Report was a committee member for all of 2007. No current member of the Compensation Committee is a current or former executive officer or employee of HLTH or had any relationships in 2007 requiring disclosure by HLTH or WebMD under the SEC’s rules requiring disclosure of certain relationships and related-party transactions.
 
None of HLTH’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee of the HLTH board or the Compensation Committee of the WebMD board during the fiscal year ended December 31, 2007.
 
Compensation Discussion and Analysis
 
This section contains a description of the specific types of compensation HLTH pays, a discussion of HLTH’s compensation policies, information regarding how the compensation of HLTH’s Named Executive Officers for 2007 was determined under those policies and other information that may be useful to investors regarding compensation of HLTH’s Named Executive Officers and other employees.
 
Overview of Types of Compensation Used by HLTH.  The compensation of HLTH’s Named Executive Officers consists primarily of the following:
 
  •  cash salary;
 
  •  an annual cash bonus, the amount of which was determined, for 2007, by the Compensation Committee in its discretion;
 
  •  special bonuses to provide recognition for specific accomplishments or at the time of a promotion, if determined by the Compensation Committee to be appropriate and in amounts determined by the Compensation Committee in its discretion;
 
  •  grants of non-qualified options to purchase shares of HLTH Common Stock, subject to vesting based on continued employment, with an exercise price that is equal to the fair market value of HLTH Common Stock on the grant date (and, in the case of certain Named Executive Officers, options to purchase shares of WebMD Class A Common Stock, with an exercise price that is equal to the fair market value of WebMD Class A Common Stock on the grant date); and
 
  •  grants of shares of restricted HLTH Common Stock (which we refer to as HLTH restricted stock), subject to vesting based on continued employment and, in the case of Messrs. Gattinella and Wygod only, shares of restricted WebMD Class A Common Stock (which we refer to as WebMD restricted stock), subject to vesting based on continued employment.
 
A discussion of the above types of compensation, to the extent used in 2007, follows under the heading “Use of Specific Types of Compensation in 2007.” The compensation of HLTH’s other executives generally consists of the same types (other than WebMD equity compensation), with the specific amounts determined by the Chief Executive Officer and other members of senior management.
 
In determining the forms of compensation to be used by HLTH, the Compensation Committee considers various factors, including the effectiveness of the incentives provided, tax and accounting considerations, the compensation practices of other companies and the expectations of employees and investors. In addition, the Compensation Committee believes that it is important that compensation be understood by the employees who receive it and by HLTH’s investors. The Compensation Committee believes that HLTH’s compensation programs, including the types of stock options and restricted stock that HLTH uses, are effective forms of compensation and well understood. HLTH has not offered any deferred compensation plans to its executive officers or other employees. HLTH has also not offered any retirement plans to its executive officers, other than 401(k) plans generally available to its employees. Subject to the terms of the HLTH 401(k) Savings and Employee Stock Ownership Plan (which we refer to as the HLTH 401(k) Plan), HLTH matches, in cash, 25%


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of amounts contributed to that Plan by each Plan participant, up to 6% of eligible pay. The matching contribution made by HLTH is subject to vesting, based on continued employment, with 50% scheduled to vest on each of the first and second anniversaries of an employee’s date of hire (with employees vesting immediately in any matching contribution made after the second anniversary). Messrs. Cameron, Funston and Gattinella are the Named Executive Officers who chose to participate in the HLTH 401(k) Plan in 2007. WebMD employees are eligible to participate in the HLTH 401(k) Plan. HLTH’s Porex subsidiary also sponsors a 401(k) plan for its employees, including one employee of Porex who is an executive officer of HLTH.
 
Discussion of Compensation Policies.  The Compensation Committee’s guiding philosophy is to establish a compensation program that is:
 
  •  Competitive with the market in order to help attract, motivate and retain highly qualified managers and executives.  HLTH seeks to attract and retain talent by offering competitive base salaries, annual incentive opportunities and the potential for long-term rewards through equity-based awards, such as stock options and restricted stock. HLTH has, in the past, granted and may continue to grant equity-based awards to a large portion of its employees, not just its executives. Those awards have been primarily in the form of non-qualified options to purchase HLTH Common Stock.
 
  •  Performance-based to link executive pay to company performance over the short-term and long-term and to facilitate shareholder value creation.  It is HLTH’s practice to provide compensation opportunities in addition to base salary that are linked to HLTH’s performance and the individual’s performance. Achievement of short-term goals is rewarded through annual cash bonuses, while achievement of long-term objectives is encouraged through nonqualified stock option grants and restricted stock awards that are subject to vesting over periods generally ranging from three to four years. Through annual and long-term incentives, a major portion of the total potential compensation of HLTH’s executive officers (and other members of senior management) is placed at risk in order to motivate them to improve the performance of HLTH’s businesses and to increase the value of the company.
 
  •  Designed to foster a long-term commitment by management.  The Compensation Committee believes that there is great value to HLTH in having a team of long-tenured, seasoned executives and managers. HLTH’s compensation practices are designed to foster a long-term commitment to HLTH by its management team. The vesting schedules attributable to equity grants are typically three to four years with, in some cases (particularly for more senior executives), scheduled vestings that are smaller in the early vesting periods and greater in the later vesting periods.
 
The Compensation Committee has not retained outside consultants to assist it in implementing these policies or making specific decisions relating to executive compensation. The Compensation Committee does, from time to time, review general information regarding the compensation practices of other companies, including some that are likely to compete with HLTH for the services of its executives and employees, and that information is a factor used by the Committee in its decisions and in its general oversight of compensation practices at HLTH. However, the Compensation Committee does not use that information to generate specific compensation amounts or targets and does not seek to create an objective standard for HLTH compensation based on what other companies have done. Instead, in each compensation decision, the committee exercises its business judgment regarding the appropriateness of types and amounts of compensation in light of the value to HLTH of specific individuals. With respect to 2007 compensation, the Compensation Committee took into account recommendations made by the Chairman of the Board and Chief Executive Officer of HLTH with respect to determinations of the types and amounts of compensation to be paid to the other executive officers and also discussed with the Chairman of the Board and the Chief Executive Officer the types and amounts such individuals believed would be appropriate to pay each of them in light of the amounts being recommended for the other executive officers and amounts being paid to other HLTH executives.


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HLTH’s senior management generally applies a similar philosophy and similar policies to determine the compensation of officers and managers who are not executive officers and reports to the Compensation Committee regarding these matters.
 
Use of Specific Types of Compensation in 2007
 
Base Salary.  The Compensation Committee reviews the base salaries of HLTH’s executive officers from time to time, but has made few changes in those salaries in recent years except upon a change in position. In 2007, no changes were made to the salaries of any of HLTH’s Named Executive Officers. In general, it is the Compensation Committee’s view that increases in the cash compensation of HLTH’s executive officers should be performance-based and achieved through the bonus-setting process, rather than through an increase in base salary. However, the Compensation Committee considers various factors when it contemplates an adjustment to base salary, including: company performance, the executive’s individual performance, scope of responsibility and changes in that scope (including as a result of promotions), tenure, prior experience and market practice. HLTH’s senior management considers similar factors in determining whether to make adjustments to salaries of other employees, and such changes are made more frequently.
 
Annual Cash Bonuses.  HLTH’s Named Executive Officers have the opportunity to earn annual cash bonuses. However, HLTH’s Named Executive Officers (and its other executive officers) do not participate in a formal annual bonus plan and the Compensation Committee did not set quantitative performance targets, in advance, for use in determining bonus amounts for executive officers for 2007. After the end of 2007, the Compensation Committee determined such amounts based on its subjective assessment of the performance of HLTH and its business segments in 2007, taking into consideration its views regarding the extent to which financial and operational goals discussed by management and the board at various times during 2007 were achieved. The Compensation Committee believes that, for HLTH at this time, a flexible annual bonus process is a more appropriate one for motivating HLTH’s executive officers than setting quantitative targets in advance because it allows the Compensation Committee to consider, in its bonus determinations:
 
  •  goals of any type set by the board and communicated to senior management at any point in the year;
 
  •  the effects of acquisitions and dispositions of businesses made during the year; and
 
  •  the effects of unexpected events and changes in HLTH’s businesses during the year.
 
The Compensation Committee may, at some point in the future, determine that it will use quantitative targets set in advance in determining executive officer bonuses. In addition, in some years, bonus awards for some of HLTH’s executive officers (particularly newly-hired executive officers) may be dictated by the terms of the executive’s employment agreement, providing for payment of a specified bonus amount or an amount within a specific range with respect to a specific employment period. No such requirements applied with respect to HLTH’s Named Executive Officers for 2007.
 
While the Compensation Committee does not set quantitative performance targets in advance, it does set individual target bonus opportunities, as a percentage of base salary, for each Named Executive Officer. In some cases, these percentages are reflected in the employment agreement for the Named Executive Officer approved by the Compensation Committee. The higher the target percentage of an individual’s salary that the annual bonus opportunity represents, the greater the percentage of total annual cash compensation that is not guaranteed for that individual. Generally, the target percentage (and therefore the percentage of annual compensation that is


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not guaranteed) increases with the level and scope of responsibility of the executive, as does salary. The target bonus opportunities for the Named Executive Officers for 2007 are set forth in the following table:
 
                             
                    Target Annual
 
              Target Annual
    Bonus Amount
 
        Annual
    Bonus
    as a Percent
 
Named Executive Officer
 
Title
  Salary     Opportunity     of Salary  
 
Kevin M. Cameron
  Chief Executive Officer   $ 660,000     $ 660,000       100 %
Mark D. Funston
  Executive Vice President and Chief Financial Officer   $ 375,000     $ 187,000       50 %
Wayne T. Gattinella
  CEO and President, WebMD   $ 560,000     $ 560,000       100 %
Charles A. Mele
  Executive Vice President, General Counsel & Secretary   $ 450,000     $ 225,000       50 %
Martin J. Wygod
  Chairman of the Board   $ 975,000     $ 975,000       100 %
 
However, the Compensation Committee (or, in the case of Mr. Gattinella, the WebMD Compensation Committee) retained discretion in 2007 regarding the actual annual bonus amounts to be paid, which could be less than, equal to or more than the target bonus opportunity. The following table lists the amount of the annual cash bonuses paid to the Named Executive Officers with respect to 2007 and 2006 and the percentage this represented of the target bonus opportunity:
 
                                     
        2007 Annual Bonus     2006 Annual Bonus  
Named Executive Officer
 
Title
  Amount     % of Target     Amount     % of Target  
 
Kevin M. Cameron
  Chief Executive Officer   $ 520,000       79 %   $ 780,000       173 %
Mark D. Funston
  Executive Vice President and Chief Financial Officer   $ 100,000       53 %   $ 35,000       n/a  
Wayne T. Gattinella
  CEO and President, WebMD   $ 270,000       48 %   $ 340,000       61 %
Charles A. Mele
  Executive Vice President, General Counsel & Secretary   $ 233,000       104 %   $ 350,000       106 %
Martin J. Wygod
  Chairman of the Board   $ 520,000       53 %   $ 780,000       80 %
 
For 2007, the Compensation Committee primarily considered HLTH’s financial performance in setting annual bonuses for its executive officers, including the Named Executive Officers. However, the Compensation Committee did not attempt to tie the amounts of the 2007 annual bonuses for the executive officers to any specific measures and, instead, based its bonus determinations on its subjective view of HLTH’s results. In addition, the Compensation Committee did not focus on making individualized determinations of each Named Executive Officer’s specific contributions for 2007 and instead relied primarily on its evaluation of the management team as a whole, as reflected in the financial results. Accordingly, differences in the amounts of 2007 bonuses among the Named Executive Officers result primarily from differences in their level of responsibility with the company. Because HLTH’s financial performance in 2007 did not fully achieve expectations, including publicly disclosed guidance issued by management, the Compensation Committee set bonus amounts at lower levels than in 2006. For Messrs Cameron, Mele and Wygod, their 2007 annual bonus amounts represented approximately 67% of their 2006 bonus amounts. Mr. Funston’s 2007 bonus represented approximately 50% of an annualized amount based on his 2006 annual bonus. Mr. Funston’s employment by HLTH began in November 2006 and the amount of his bonus for 2006 was set by the Compensation Committee based on that part-year employment period.
 
The WebMD Compensation Committee applied similar considerations in setting bonuses for its executive officers. For 2007, there were two separate bonus amounts for Mr. Gattinella: (1) a cash bonus of $135,000 paid in March 2008; and (2) an award of $135,000 under the Supplemental Bonus Program (the “SBP”) described below. In making comparisons to 2006 bonuses, the WebMD Compensation Committee considered the total of these two amounts, which represented approximately 80% of Mr. Gattinella’s 2006 bonus.


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Supplemental Bonus Program (SBP).  The Compensation Committee of the WebMD board approved the contribution, in March 2008, to a trust (which we refer to as the Supplemental Bonus Trust) of SBP Awards for WebMD’s executive officers, including a $135,000 contribution for Mr. Gattinella. The amounts of the SPB Awards were determined by the Compensation Committee of the WebMD board, in its discretion. The Supplemental Bonus Trust will distribute the SPB Awards, together with actual net interest earned on the respective amounts, to those receiving SPB Awards as promptly as practicable following March 1, 2009 (but in no event later than 21/2 months following such date); provided, however, that in order to receive such payment, the individual must continue to be employed by WebMD on March 1, 2009 (subject to limited exceptions for death, disability, or certain terminations in connection with a reduction in force or a sale of a subsidiary). Certain other WebMD officers and employees also received SBP Awards, subject to similar terms and conditions as apply to WebMD’s executive officers.
 
Special Bonuses.  None of the Named Executive Officers received any special bonuses in 2007.
 
Equity Compensation.  HLTH uses two types of long-term incentives: non-qualified stock options and restricted stock. Stock options are granted with an exercise price that is equal to the fair market value of HLTH Common Stock on the grant date. Thus, the Named Executive Officers will only realize value on their stock options if the price of HLTH Common Stock increases after the grant date. Historically, long-term incentives at HLTH consisted almost exclusively of stock option grants. However, in light of market trends and changes in the accounting treatment applicable to such option grants, HLTH has increased its use of HLTH restricted stock as part of the mix of equity compensation for its executives and certain other employees. The Compensation Committee believes that equity compensation, subject to vesting periods of three to four years, encourages employees to focus on the long-term performance of HLTH. The amount that employees receive from equity awards increases when the price of HLTH Common Stock increases, which rewards employees for increasing shareholder value. The vesting schedules applicable to these equity awards are intended to promote retention of employees during the vesting period.
 
The Compensation Committee does not make equity grants to HLTH’s Named Executive Officers on an annual or other pre-determined basis, and no such grants were made during 2007. In determining whether and when to make equity grants, the Compensation Committee expects to consider the history of prior grants made to individual Named Executive Officers, their vesting status and the amounts that have been or may be realized by those individuals from those grants. In addition, the Compensation Committee expects to consider factors similar to those it considers in its decisions relating to cash compensation, as described above, including factors relating to individual and company performance. Finally, the Compensation Committee expects that it will typically make larger grants to the executive officers it believes have the greatest potential to affect the value of HLTH and improve results for stockholders. Similar considerations will apply to grants made to other officers and employees.
 
Application of Compensation Policies to Individual Named Executive Officers.  Differences in compensation among the Named Executive Officers result from a number of factors and may vary from year to year. The primary factors that may create differences in compensation are disparities in: (a) the level of responsibility of the individual Named Executive Officers, (b) individual performance of the Named Executive Officers, and (c) HLTH’s need to motivate and retain specific individuals at specific points in time. In general, larger equity grants are made to the most senior executive officers because they have the greatest potential to affect the value of HLTH and to improve results for stockholders. Similarly, a greater portion of their total cash compensation is likely to come from their annual bonus. In 2007, no equity grants were made to HLTH’s Named Executive Officers and no changes were made to their salaries. Accordingly, the application of compensation policies to individual Named Executive Officers in 2007 related solely to their bonuses and is described under “Annual Cash Bonuses” above.
 
Benefits and Perquisites.  HLTH’s executive officers are generally eligible to participate in HLTH’s benefit plans on the same basis as other employees (including matching contributions to a 401(k) Plan and company-paid group term life insurance). HLTH, for the past several years, has maintained a sliding scale for the cost of employee premiums for its health plan, under which employees with higher salaries pay a higher amount. The limited perquisites (or “perks”) received by HLTH’s executive officers in 2007 are described in the footnotes to the Summary Compensation Table and consisted primarily of car allowances. In addition,


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HLTH’s executive officers (as part of a larger group of employees generally having a salary of $180,000 or more) receive company-paid supplemental disability insurance, the cost of which is listed in those footnotes.
 
Compensation Following Termination of Employment or a Change in Control
 
Overview.  HLTH does not offer any deferred compensation plans to its executive officers or other employees and does not offer any retirement plans to its executive officers, other than 401(k) plans generally available to other employees. Accordingly, the payment and benefit levels for HLTH’s Named Executive Officers applicable upon a termination or a change in control result from provisions in the employment agreements between HLTH and the individual Named Executive Officers. However, unlike annual or special bonuses or the amounts of equity grants (which the Compensation Committee generally determines in its discretion at the time of payment or grant), the terms of employment agreements are the result of negotiations between HLTH and those individuals, generally occurring at the time the individual joined HLTH or in connection with a promotion to a more senior position with HLTH (subject to the approval of the Compensation Committee in the case of executive officer employment agreements). The Compensation Committee has, in the past, usually been willing to include similar provisions relating to potential terminations and changes in control in connection with the renewal of or extensions to an employment agreement with an existing executive officer as those in the existing employment agreement with that executive officer. The employment agreements with HLTH’s Named Executive Officers are described under the heading “Employment Agreements with Named Executive Officers” below and summaries of the types of provisions relating to post-termination compensation included in those agreement are included in this section under the headings “Employment Agreement Provisions Regarding Termination Benefits” and “Employment Agreement Provisions Regarding Change in Control Benefits” below.
 
In determining whether to approve executive officer employment agreements (or renewals of or extensions to those agreements), the Compensation Committee considers HLTH’s need for the services of the specific individual and the alternatives available to HLTH, as well as potential alternative employment opportunities available to the individual from other companies. In considering whether to approve employment agreement terms that may result in potential payments and other benefits for executives that could become payable following a termination or change in control, the Compensation Committee considers both the costs that could potentially be incurred by HLTH, as well as the potential benefits to HLTH, including benefits to HLTH from post-termination confidentiality, non-solicit and non-compete obligations imposed on the executive and provisions relating to post-termination services required of certain Named Executive Officers. In the case of potential payments and other benefits that could potentially become payable following a change in control, the Compensation Committee considers whether those provisions would provide appropriate benefit to an acquiror, in light of the cost the acquiror would incur, as well as benefits to HLTH during the period an acquisition is pending.
 
Employment Agreement Provisions Regarding Termination Benefits.  HLTH’s employment agreements with Named Executive Officers provide for some or all of the following to be paid if the Named Executive Officer is terminated without cause or resigns for good reason (the definitions of which are typically set forth in the applicable employment agreement), dies or ceases to be employed as a result of disability:
 
  •  continuation of cash compensation (including salary and, in some cases, an amount based on past bonuses) for a period following termination;
 
  •  continuation of vesting and/or exercisability of some or all options or restricted stock; and
 
  •  continued participation in certain of HLTH’s health and welfare insurance plans or payment of COBRA premiums.
 
The amount and nature of these benefits vary by individual, with the most senior of the Named Executive Officers typically receiving more of these benefits and receiving them for a longer period. These benefits also vary depending on the reason for the termination. See “Employment Agreements with Named Executive Officers” below for a description of the specific provisions that apply to each of HLTH’s Named Executive Officers and “Potential Payments and Other Benefits upon Termination of Employment or Change in Control” below for a sample calculation, based on applicable SEC rules, of the amounts that would have been payable if termination for specified reasons had occurred as of December 31, 2007. No such post-termination benefits apply if a Named Executive Officer is terminated for cause (the definition of which is typically set forth in the


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applicable employment agreement). The Compensation Committee believes that the protections provided to executive officers by the types of employment agreement provisions described above are appropriate for the attraction and retention of qualified and talented executives and consistent with good corporate governance.
 
Employment Agreement Provisions Regarding Change in Control Benefits.  The Compensation Committee believes that executives should generally not be entitled to severance benefits solely upon the occurrence of a change in control, but that it is appropriate to provide for such benefits if a change in control is followed by a termination of employment or other appropriate triggering event. See “Employment Agreement Provisions Regarding Termination Benefits” above. However, as more fully described below under “Employment Agreements with the Named Executive Officers” and “Potential Payments and Other Benefits upon Termination of Employment or Change in Control” below, the Compensation Committee has approved the following exceptions:
 
  •  Mr. Wygod’s employment agreement includes terms providing that if there is a change in control of HLTH, all of his outstanding options and other equity compensation (including WebMD equity) would become immediately vested and the options would remain exercisable for the remainder of the originally scheduled term. The employment agreement also contains provisions providing that he may resign and receive severance payments, but it requires Mr. Wygod to provide consulting services during any period in which he is receiving severance.
 
  •  With respect to Messrs. Cameron and Mele, their employment agreements include terms providing that:
 
  —  they would be able to resign following a change in control, after the completion of a transition period with the successor, and receive the same benefits that they would be entitled to upon a termination without cause following the change in control (as set forth in the tables below and the descriptions of their respective employment agreements that follow); and
 
  —  they would receive accelerated vesting of the options to purchase shares of WebMD Class A Common Stock granted to them on September 28, 2005 in the event of a change in control of WebMD or if WebMD is no longer an affiliate of HLTH since, as a result of such a transaction, they would no longer have a direct involvement with WebMD’s business.
 
  •  In the case of Mr. Gattinella, his employment agreement provides that, so long as he remains employed for 6 months following a change in control of WebMD, his options to purchase WebMD Class A Common Stock would continue to vest until the next vesting date following the change in control, even if he resigns from the employ of WebMD prior to such vesting date.
 
In the negotiations with those Named Executive Officers regarding their employment agreements, the Compensation Committee recognized that, for those individuals, a change in control is likely to result in a fundamental change in the nature of their responsibilities. Accordingly, under their employment agreements, the Compensation Committee approved those Named Executive Officers having, following a change in control, the rights described above. The Compensation Committee believes that the rights provided are likely to be viewed as appropriate by a potential acquiror in the case of those specific individuals. In addition, the Compensation Committee sought to balance the rights given to those Named Executive Officers with certain requirements to provide transitional or consulting services in types and amounts likely to be viewed as reasonable by a potential acquiror.
 
If the benefits payable to Mr. Cameron, Mr. Mele, or Mr. Wygod in connection with a change in control would be subject to the excise tax imposed under Section 280G of the Internal Revenue Code of 1986 (“Section 280G”), HLTH has agreed to make an additional payment to the executive so that the net amount of such payment (after taxes) that such individual receives is sufficient to pay the excise tax due.
 
Application in 2007.  No changes were made during 2007 to the provisions of the employment agreements with the Named Executive Officers relating to post-termination compensation.
 
Deductibility of Compensation.  Section 162(m) of the Internal Revenue Code generally limits the ability of a publicly held corporation to deduct compensation in excess of $1 million per year paid to certain executive officers. It is the policy of the Compensation Committee to structure, where practicable,


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compensation paid to its executive officers so that it will be deductible under Section 162(m) of the Code. Accordingly, HLTH’s equity plans under which awards are made to officers and directors are generally designed to ensure that compensation attributable to stock options granted will be tax deductible by HLTH. However, cash bonuses for HLTH’s executive officers and grants of restricted stock do not qualify as performance-based within the meaning of Section 162(m) and, therefore, are subject to its limits on deductibility. In determining that the compensation of HLTH’s executive officers for 2007 was appropriate under the circumstances and in the best interests of HLTH and its stockholders, the Compensation Committee considered the amount of net operating loss carryforwards available to HLTH to offset income for federal income tax purposes. See Note 16 to the Consolidated Financial Statements included as Annex A-1 to this proxy statement.
 
Executive Compensation Tables
 
This section provides information, in tabular formats specified in applicable SEC rules, regarding the amounts of compensation paid to HLTH’s Named Executive Officers and related information. The tables included are:
 
  •  Summary Compensation Table, which presents information regarding HLTH’s Named Executive Officers’ total compensation and the types and value of its components; and
 
  •  three tables providing additional information regarding HLTH’s equity compensation, entitled: Grants of Plan-Based Awards in 2007; Outstanding Equity Awards at End of 2007; and Option Exercises and Stock Vested in 2007.
 
As permitted by the SEC rules relating to these tables, the tables reflect only the types of compensation that HLTH and WebMD paid to their Named Executive Officers. For example, since HLTH’s only retirement plan is a 401(k) plan, tables applicable to other types of retirement plans are not included. For a general description of the types of compensation paid by WebMD and HLTH, see “Compensation Discussion and Analysis — Overview of Types of Compensation.” In addition, since no grants of stock options or restricted stock were made to the Named Executive Officers during 2007, we have omitted the table that would otherwise appear under the heading “Grants of Plan-Based Awards in 2007.”


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Summary Compensation Table
 
Table.  The following table presents information regarding the amount of the total compensation of HLTH’s Named Executive Officers for services rendered during 2007 and 2006, as well as the amount of the specific components of that compensation. The compensation reported in the table reflects all compensation to the Named Executive Officers by HLTH and its subsidiaries (including WebMD and its subsidiaries). Amounts reflecting equity grants by HLTH are noted with an “H” and amounts reflecting equity grants by WebMD are noted with a “W.”
 
                                                         
(a)
                    (e)
    (f)
    (g)
       
Name and
  (b)
    (c)
    (d)
    Stock
    Option
    All Other
    (h)
 
Principal Position
  Year     Salary     Bonus(1)     Awards(2)     Awards(2)     Compensation     Total  
 
Kevin M. Cameron
    2007     $ 660,000     $ 520,000     $ 1,478,740 H   $ 2,227,811 H   $ 17,627 (4)   $ 5,038,119  
Chief Executive Officer(3)
                                    133,941 W                
                                                         
                                      2,361,752                  
                                                         
      2006       660,000       3,530,000       714,830 H     1,682,494 H     17,552 (5)     6,843,998  
                                      239,122 W                
                                                         
                                      1,921,616                  
                                                         
Mark D. Funston
    2007       375,000       100,000       173,881 H     182,503 H     169,948 (6)     1,001,332  
Executive VP and Chief Financial Officer
                                                       
      2006       46,875       35,000       22,867 H     24,000 H     526 (7)     129,268  
                                                         
Wayne T. Gattinella
    2007       560,000       270,000 (8)     7,457 H     84,850 H     9,214 (9)     1,699,682  
Chief Executive Officer
                            229,931 W     538,230 W                
                                                         
and President of WebMD
                            237,388       623,080                  
Segment
                                                       
      2006       560,000       340,000       46,977 H     229,800 H     8,313 (10)     2,585,752  
                              439,809 W     960,853 W                
                                                         
                              486,786       1,190,653                  
                                                         
Charles A. Mele
    2007       450,000       233,000       402,430 H     523,569 H     16,663 (11)     1,732,815  
Executive VP, General Counsel
                                    107,153 W                
                                                         
and Secretary
                                    630,722                  
                                                         
      2006       450,000       1,350,000       121,643 H     312,736 H     16,663 (11)     2,442,339  
                                      191,297 W                
                                                         
                                      504,033                  
                                                         
Martin J. Wygod
    2007       975,000       520,000       1,623,018 H     1,813,757 H     10,847 (12)     5,710,783  
Chairman of the Board(3)
                            229,931 W     538,230 W                
                                                         
                              1,852,949       2,351,987                  
                                                         
      2006       975,000       3,530,000       629,691 H     709,598 H     10,847 (12)     7,255,798  
                              439,809 W     960,853 W                
                                                         
                              1,069,500       1,670,451                  
 
 
(1) The amounts reported in Column (d) above for Messrs. Cameron, Mele and Wygod in 2006 reflect both regular annual bonuses for that year, as well as special bonuses that were made in recognition of the contributions of those Named Executive Officers to the completion of the sale of Emdeon Practice Services and the Emdeon Business Services Sale and the related repositioning of HLTH. The amounts of the special bonuses, which were determined by the Compensation Committee of the HLTH board in its discretion, were as follows: Mr. Cameron — $2,750,000; Mr. Mele — $1,000,000; and Mr. Wygod — $2,750,000. No special bonuses were granted for 2007.


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(2) The amounts reported in Columns (e) and (f) above reflect the aggregate dollar amounts recognized by HLTH for stock awards and option awards for income statement reporting purposes under SFAS No. 123R (disregarding any estimate of forfeitures related to service-based vesting conditions). See Note 13 (Stock-Based Compensation) to the Consolidated Financial Statements included as Annex A-1 to this proxy statement for an explanation of the methodology and assumptions used in determining the fair value of stock option awards granted. The amounts reported in Columns (e) and (f) reflect HLTH’s accounting expense for these equity awards, not amounts realized by its Named Executive Officers. The actual amounts, if any, ultimately realized by HLTH’s Named Executive Officers from equity compensation will depend on the price of HLTH Common Stock (or the price of WebMD Class A Common Stock in the case of WebMD equity awards) at the time they exercise vested stock options or at the time of vesting of restricted stock. Holders of shares of HLTH restricted stock and WebMD restricted stock have voting power and the right to receive dividends, if any, that are declared on those shares, but their ability to sell those shares is subject to vesting requirements based on continued employment.
 
(3) Mr. Cameron served as Chief Executive Officer of HLTH during all of 2007. In February 2008, he went on medical leave and Mr. Wygod began serving as HLTH’s Acting Chief Executive Officer, while also continuing as Chairman of the Board.
 
(4) Consists of: (a) $3,375 in company matching contributions under the HLTH 401(k) Plan; (b) $1,712 for company-paid supplemental disability insurance; (c) $540 for company-paid group term life insurance; and (d) an automobile allowance of $12,000.
 
(5) Consists of: (a) $3,300 in company matching contributions under the HLTH 401(k) Plan; (b) $1,712 for company-paid supplemental disability insurance; (c) $540 for company-paid group term life insurance; and (d) an automobile allowance of $12,000.
 
(6) Consists of: (a) $3,338 in company matching contributions under the HLTH 401(k) Plan; (b) $3,570 for company-paid supplemental disability insurance; (c) $810 for company-paid group term life insurance; and (d) $88,545 for reimbursement of relocation costs plus $73,685 for reimbursement of amounts required to pay income taxes resulting from the payment for such relocation costs.
 
(7) Consists of: (a) $433 in company matching contributions under the HLTH 401(k) Plan; and (b) $93 for company-paid group term life insurance.
 
(8) Consists of: (a) an annual bonus of $135,000 for 2007; and (b) an SBP Award of $135,000 (see “Additional Information” below).
 
(9) Consists of: (a) $2,906 in company matching contributions under the HLTH 401(k) Plan; (b) $3,986 for company-paid supplemental disability insurance; and (c) $2,322 for company-paid group term life insurance.
 
(10) Consists of: (a) $3,085 in company matching contributions under the HLTH 401(k) Plan; (b) $3,986 for company-paid supplemental disability insurance; and (c) $1,242 for company-paid group term life insurance.
 
(11) Consists of: (a) $3,421 for company-paid supplemental disability insurance; (b) $1,242 for company-paid group term life insurance; and (c) an automobile allowance of $12,000.
 
(12) Consists of: (a) $3,989 for company-paid supplemental disability insurance; and (b) $6,858 for company-paid group term life insurance.
 
Additional Information.  The Summary Compensation Table above quantifies the amount or value of the different forms of compensation earned by or awarded to HLTH’s Named Executive Officers in each of 2007 and 2006 and provides a dollar amount for total compensation. All amounts reported in the Summary Compensation Table for Mr. Gattinella reflect compensation from WebMD, except for amounts reflecting grants of HLTH restricted stock and options to purchase HLTH Common Stock which he received prior to WebMD’s initial public offering and which continue to vest in accordance with their terms. The amounts reported in the Summary Compensation Table for HLTH’s other Named Executive Officers reflect compensation from HLTH, except for amounts reflecting grants of WebMD restricted stock and options to purchase WebMD Class A Common Stock. In the case of Mr. Funston, the Summary Compensation Table reflects compensation beginning in mid-November 2006, when he joined HLTH.
 
The Compensation Committee of the WebMD board approved the contribution, in March 2008, to a trust (which we refer to Supplemental Bonus Trust) of Supplemental Bonus Plan (SBP) Awards for WebMD’s executive officers, including a $135,000 contribution for Mr. Gattinella. The amounts of the SPB Awards were determined by the Compensation Committee of the WebMD board, in its discretion. The Supplemental Bonus Trust will distribute the SPB Awards, together with actual net interest earned on the respective amounts, to those receiving SPB Awards as promptly as practicable following March 1, 2009 (but in no event later than 21/2 months following such date); provided, however, that in order to receive such payment, the individual must continue to be employed by WebMD on March 1, 2009 (subject to limited exceptions for death, disability, or certain terminations in connection with a reduction in force or a sale of a subsidiary).
 
Descriptions of the material terms of each Named Executive Officer’s employment agreement and related information is provided under “Employment Agreements with Named Executive Officers” below. The agreements provide the general framework and some of the specific terms for the compensation of the Named Executive Officers. Approval of the Compensation Committee is required prior to HLTH entering into


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employment agreements with its executive officers or amendments to those agreements. However, many of the decisions relating to compensation for a specific year made by the Compensation Committee (or, in the case of Mr. Gattinella, by the WebMD Compensation Committee) are implemented without changes to the general terms of employment set forth in those agreements. For a discussion of the salary, bonus and equity compensation of HLTH’s Named Executive Officers for 2007 and the decisions made by the Compensation Committee relating to 2007 compensation, see “Compensation Discussion and Analysis” above. In addition, the Named Executive Officers earned or were paid the other benefits listed in Column (g) of the Summary Compensation Table and described in the related footnotes to the table in this “Executive Compensation Tables” section.
 
Grants of Plan-Based Awards in 2007
 
During 2007, neither HLTH nor WebMD granted any restricted stock, stock options or other equity incentive awards to any of the Named Executive Officers.


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Outstanding Equity Awards at End of 2007
 
The following table presents information regarding the outstanding equity awards held by each Named Executive Officer as of December 31, 2007, including the vesting dates for the portions of these awards that had not vested as of that date. Awards of HLTH equity are indicated with “(H)” at the beginning of column (b) in the table and awards of WebMD equity are indicated with “(W)” at the beginning of that column.
 
                                                                         
(a)
  (b)
    (c)
    (d)
    (e)
    (f)
    (g)
    (h)
    (i)
 
    Option Awards(1)     Stock Awards(2)  
    Number of
    Number of
                                  Market
 
    Securities
    Securities
                      Number of
          Value of
 
    Underlying
    Underlying
                      Shares of
    Stock
    Shares of
 
    Unexercised
    Unexercised
    Option
    Option
    Option
    Stock That
    Award
    Stock
 
    Options
    Options
    Exercise
    Grant
    Expiration
    Have Not
    Grant
    That Have
 
Name
  Exercisable     Unexercisable     Price     Date     Date     Vested     Date     Not Vested(3)  
 
Kevin M. Cameron
    (H )     243,000       657,000 (4)   $ 11.86       10/23/06       10/23/16       219,000 (4)     10/23/06     $ 2,934,600  
      (H )     832,500       667,500 (5)     6.99       10/01/04       10/01/14       122,375 (5)     10/01/04       1,639,825  
      (H )     200,000             8.59       3/17/04       3/17/14                    
      (H )     87,168             3.43       9/20/01       9/20/11                    
      (H )     200,000             12.75       8/21/00       8/21/10                    
      (H )     125,000             11.55       6/05/00       6/05/10                    
      (H )     325,000             17.55       4/04/00       4/04/10                    
      (H )     625,000             12.21       4/04/00       4/04/10                    
      (W )     27,500       27,500 (6)     17.50       9/28/05       9/28/15                    
Mark D. Funston
    (H )     45,000       135,000 (6)     11.60       11/13/06       11/13/16       45,000 (6)     11/13/06       603,000  
Wayne T. Gattinella
    (H )     250,000             8.59       3/17/04       3/17/14                    
      (H )     239,881             4.81       8/20/01       8/20/11                    
      (W )     110,000       110,000 (6)     17.50       9/28/05       9/28/15       27,500 (6)     9/28/05       1,129,425  
Charles A. Mele
    (H )     81,000       219,000 (4)     11.86       10/23/06       10/23/16       73,000 (4)     10/23/06       978,200  
      (H )     250,000             8.59       3/17/04       3/17/14                    
      (H )     110,000             3.43       9/20/01       9/20/11                    
      (H )     200,000             12.75       8/21/00       8/21/10                    
      (H )     625,000             11.55       6/05/00       6/05/10                    
      (H )     97,500             34.23       10/04/99       10/04/09                    
      (H )     187,500             18.20       10/04/99       10/04/09                    
      (H )     208,000             13.85       6/15/99       6/15/09                    
      (H )     212,500             14.75       1/07/98       1/07/08                    
      (W )     22,000       22,000 (6)     17.50       9/28/05       9/28/15                    
Martin J. Wygod
    (H )     243,000       657,000 (4)     11.86       10/23/06       10/23/16       219,000 (4)     10/23/06       2,934,600  
      (H )     25,000       450,000 (6)     8.77       1/27/06       1/27/16       100,000 (7)     1/27/06       1,340,000  
      (H )     3,000,000             12.75       8/21/00       8/21/10                    
      (H )     585,000             13.85       6/15/99       6/15/09                    
      (H )     25,000             22.90       7/01/98       7/01/13                    
      (H )     25,000             15.50       7/01/97       7/01/12                    
      (H )     25,000             14.80       7/01/96       7/01/11                    
      (H )     25,000             10.00       7/03/95       7/03/10                    
      (W )     110,000       110,000 (6)     17.50       9/28/05       9/28/15       27,500 (6)     9/28/05       1,129,425  
 
 
(1) Each stock option grant reported in the table above was granted under, and is subject to, HLTH’s 2000 Plan, HLTH’s 1996 Stock Plan, WebMD’s 2005 Plan or another plan or agreement that contains substantially the same terms. The option expiration date shown in Column (f) above is the normal expiration date, and the last date that the options may be exercised. For each Named Executive Officer, the unexercisable options shown in Column (c) above are also unvested. Unvested shares are generally forfeited if the Named Executive Officer’s employment terminates, except to the extent otherwise provided in an employment agreement. For information regarding the effect on vesting of options on the death, disability or termination of employment of a Named Executive Officer or a change in control of HLTH, see “Potential Payments and Other Benefits upon Termination of Employment or a Change in Control” below. If a Named Executive Officer’s employment is terminated by HLTH for cause, options (including the vested portion) are generally forfeited. The exercisable options shown in Column (b) above, and any unexercisable options shown in Column (c) above


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that subsequently become exercisable, will generally expire earlier than the normal expiration date if the Named Executive Officer’s employment terminates, except as otherwise specifically provided in the Named Executive Officer’s employment agreement. For a description of the material terms of the Named Executive Officer’s employment agreements, see “Employment Agreements with Named Executive Officers” below.
 
(2) The stock awards held by some of HLTH’s Named Executive Officers are subject to accelerated or continued vesting in connection with a change in control of HLTH or WebMD, as the case may be, and upon certain terminations of employment, as described below in more detail under “Employment Agreements with Named Executive Officers” and “Potential Payments and Other Benefits upon Termination of Employment or a Change in Control.” Except as otherwise indicated in those sections, unvested stock awards will generally be forfeited if a Named Executive Officer’s employment terminates.
 
(3) The market or payout value of stock awards reported in Column (i) is computed by multiplying the number of shares of stock reported in Column (g) by (A) $13.40, the closing market price of HLTH Common Stock on December 31, 2007, the last trading day of 2007 for HLTH restricted stock, or (B) $41.07, the closing market price of WebMD Class A Common Stock on that date, for WebMD restricted stock.
 
(4) Vesting schedule is: 27% of the grant on first anniversary of the date of the grant, 33% on second anniversary and 40% on third anniversary.
 
(5) Vesting schedule is: 17% of the grant on first anniversary of the date of the grant, 18.5% on second anniversary, 20% on third anniversary, 21.5% on the fourth anniversary, and 23% on the fifth anniversary.
 
(6) Vesting schedule is: 25% of the grant on each of first, second, third and fourth anniversaries of the date of the grant.
 
(7) Vesting schedule is: 1/3 of the grant on each of the first, second and third anniversaries of the date of grant.
 
Option Exercises and Stock Vested in 2007
 
No options to purchase WebMD Class A Common Stock were exercised during 2007 by HLTH’s Named Executive Officers. The following table presents information regarding the exercise of options to purchase HLTH Common Stock by HLTH’s Named Executive Officers during 2007, and regarding the vesting during 2007 of WebMD restricted stock and HLTH restricted stock previously granted to HLTH’s Named Executive Officers. Amounts with respect to HLTH equity are noted with an “H” and amounts with respect to WebMD equity are noted with a “W.”
 
                                 
(a)
  (b)
    (c)
    (d)
    (e)
 
    Option Awards     Stock Awards  
    Number of Shares
    Value Realized
    Number of Shares
    Value Realized
 
Name
  Acquired on Exercise     on Exercise(1)     Acquired on Vesting     on Vesting(2)  
 
Kevin M. Cameron
        $       146,000 H   $ 2,076,360 H
Mark D. Funston
                15,000 H     216,600 H
Wayne T. Gattinella
                12,500 H     179,375 H
                      13,750 W     716,375 W
                                 
                              895,750  
                                 
Charles A. Mele
                39,500 H     557,645 H
Martin J. Wygod
    125,000 H     623,750 H(3)     131,000 H     1,802,810 H
                      13,750 W     716,375 W
                                 
                              2,519,185  
 
 
(1) The dollar amounts shown in Column (c) above for option awards are determined by multiplying (i) the number of shares of HLTH Common Stock to which the exercise of the option related, by (ii) the difference between (1) the per-share closing price of HLTH Common Stock on the date of exercise (or, for any shares sold on the date of exercise, the actual sale price received) and (2) the exercise price of the options.
 
(2) The dollar amounts shown in Column (e) above for stock awards are determined by multiplying the number of shares that vested by the per-share closing price of HLTH Common Stock or WebMD Class A Common Stock on the vesting date.
 
(3) The 125,000 shares acquired on exercise have not been sold by Mr. Wygod. The amount reported in column (c) was calculated as described in footnote 1 above, based on the closing price of HLTH Common Stock on the date of exercise.


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Potential Payments and Other Benefits upon Termination of Employment or a Change in Control
 
Background and Assumptions.  In this section, we provide tables containing estimates of amounts that may become payable to our Named Executive Officers under their employment agreements as a result of a termination of employment under specific circumstances, as well as estimates regarding the value of other benefits they may become entitled to receive as a result of such termination. For a general discussion of matters relating to compensation that may become payable by HLTH after termination of employment or a change in control, see “Compensation Discussion and Analysis — Compensation Following Termination of Employment or a Change in Control” above and for a detailed description of the applicable provisions of the employment agreements of the Named Executive Officers, see “Employment Agreements with Named Executive Officers” below. As prescribed by applicable SEC rules, in estimating the amount of any potential payments to Named Executive Officers under their employment agreements and the value of other benefits they may become entitled to receive, we have assumed that the applicable triggering event (i.e., termination of employment or change in control) occurred on December 31, 2007, that the price per share of HLTH Common Stock is $13.40 (the closing price per share on December 31, 2007, the last trading day in 2007); and that the price per share of WebMD Class A Common Stock is $41.07 (the closing price per share on December 31, 2007). We have also treated the right to continue to vest in options as accelerated to December 31, 2007 for purposes of this disclosure only.
 
If the benefits payable to Mr. Cameron, Mr. Mele, or Mr. Wygod in connection with a change in control would be subject to the excise tax imposed under Section 280G of the Internal Revenue Code of 1986, HLTH has agreed to make an additional payment to the executive so that the net amount of such payment (after taxes) that such individual receives is sufficient to pay the excise tax due. In the tables below, HLTH has calculated the Section 280G excise tax on the basis of IRS regulations and Rev. Proc. 2003-68 and has assumed that the Named Executive Officer’s outstanding equity awards would be accelerated and terminated in exchange for a cash payment upon the change in control. The value of this acceleration (and thus the amount of the additional payment) would be slightly higher if the accelerated awards were assumed by the acquiring company rather than terminated upon the transaction. For purposes other than calculating the Section 280G excise tax, we have calculated the value of any option or stock award that may be accelerated in connection with a change in control to be the amount the holder can realize from such award as of December 31, 2007: for options, that is the market price of the shares that would be received upon exercise, less the applicable exercise price; and for restricted stock, that is the market value of the shares that would vest. HLTH has also assumed that they have no accrued and unused vacation at December 31, 2007.
 
Tables.  The tables below set forth estimates (rounded to the nearest $1,000), based on assumptions described above and in the footnotes to the tables, of the potential payments and the potential value of other benefits applicable to each Named Executive Officer upon the occurrence of specified termination or change in control triggering events. The terms used in the tables have the meanings given to them in each Named Executive Officer’s employment agreement and described below under “Employment Agreements with Named Executive Officers.” In addition, the amounts set forth in each table reflect the following:
 
  •  In the column entitled “Permanent Disability or Death,” the amounts reflect both provisions in those employment agreements and the fact that HLTH’s and WebMD’s equity plans generally provide for acceleration of vesting of awards in the event of a termination of employment as a result of death or disability.
 
  •  Under their employment agreements, Messrs. Cameron, Mele and Wygod are eligible to continue to participate in HLTH’s health and welfare plans (or comparable plans) for a specified period and Messrs. Funston and Gattinella are eligible to receive payment for their COBRA premiums for a specified period. In the row entitled “Health and Welfare Benefits Continuation,” the amounts are based upon the current average cost to HLTH of these benefits per employee and are net of amounts that the executives would continue to be responsible for. We have not made any reduction in the amounts in this row to reflect the fact that the obligation to continue benefits ceases in the event the executive becomes eligible for comparable coverage with a subsequent employer.


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Kevin M. Cameron, Chief Executive Officer
 
                                                         
                                        Termination of
 
          Voluntary
                            Employment
 
          Termination
                            without “Cause” or
 
    Voluntary
    in Connection
                      Involuntary
    for “Good Reason”
 
    Termination
    with a
    Other
    Permanent
    Involuntary
    Termination
    Following a
 
    for “Good
    “Change in
    Voluntary
    Disability or
    Termination
    without
    “Change in
 
Executive Benefits and Payments
  Reason”     Control”(1)     Termination     Death     for “Cause”     “Cause”     Control”  
 
Cash Severance
  $ 2,760,000 (2)   $ 4,320,000     $ 780,000 (3)   $ 2,760,000     $ -0-     $ 2,760,000 (2)   $ 4,320,000  
Stock Options
    5,060,000       5,939,000       -0-       5,939,000       -0-       5,060,000       5,939,000  
Restricted Stock
    2,966,000       4,574,000       -0-       4,574,000       -0-       2,966,000       4,574,000  
Health and Welfare Benefits Continuation
    38,000       38,000       -0-       38,000       -0-       38,000       38,000  
280G Tax Gross-Up(4)
    -0-       4,264,000       -0-       -0-       -0-       -0-       4,264,000  
Other
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
TOTAL
    10,824,000       19,135,000       780,000       13,311,000       -0-       10,824,000       19,135,000  
 
 
(1) Mr. Cameron may resign from his employment upon 30 days notice after 11 months following a Change in Control of HLTH and receive the benefits as if he was terminated without Cause or for Good Reason following a Change in Control (three years of salary and bonus, plus the bonus for the year of termination). He may not unilaterally resign without Good Reason prior to such date and receive these benefits. However, for purposes of calculating the amounts included in the column for “Voluntary Termination in Connection with Change in Control,” we treat such resignation as occurring on December 31, 2007 and assume that the requirement for the transition period has been met.
 
(2) Represents three years of salary and an annual bonus for 2007. We have assumed, solely for purposes of preparing this table, that the amount of such annual bonus is $780,000 (based on what was actually paid for 2006, the year prior to the year of the assumed termination).
 
(3) Mr. Cameron is entitled to receive his bonus (if any) so long as he remains employed through December 31 of the applicable year. Solely for purposes of preparing this table, We have assumed that the amount of such bonus is $780,000, the actual amount of the annual bonus paid to him for 2006 (the year prior to the year of the assumed termination).
 
(4) We have assumed, solely for purposes of preparing this table, that 50% of the salary continuation portion of the severance (for up to two years) constitutes “reasonable compensation” for the restrictive covenants to which the executive is bound following the termination of employment. In addition, the portion of the cash severance attributable to his bonus for 2007 is excluded from the calculation as “reasonable compensation” for services rendered during such year. Accordingly, we have not treated that portion of the salary continuation or the 2007 bonus amount as a parachute payment for purposes of Section 280G. Such assumption may change at the time of an actual change in control.
 
Mark D. Funston, Executive VP and Chief Financial Officer
 
                                                         
          Voluntary
                            Termination of
 
          Termination
                            Employment
 
    Voluntary
    in Connection
                      Involuntary
    without “Cause”
 
    Termination
    with a
    Other
    Permanent
    Involuntary
    Termination
    Following a
 
Executive Benefits and
  for “Good
    “Change in
    Voluntary
    Disability
    Termination
    without
    “Change in
 
Payments
  Reason”     Control”     Termination     or Death     for “Cause”     “Cause”     Control”  
 
Cash Severance(1)
  $ -0-     $ -0-     $ -0-     $ 375,000     $ -0-     $ 375,000     $ 750,000  
Stock Options
    -0-       -0-       -0-       243,000       -0-       81,000       81,000  
Restricted Stock
    -0-       -0-       -0-       603,000       -0-       201,000       201,000  
Health and Welfare Benefits Continuation
    -0-       -0-       -0-       10,000       -0-       10,000       10,000  
280G Tax Gross-Up
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
Other
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
TOTAL
    -0-       -0-       -0-       1,231,000       -0-       667,000       1,042,000  
 
 
(1) $375,000 represents one year of salary; $750,000 represents two years of salary.


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Wayne T. Gattinella, Chief Executive Officer and President of WebMD Segment
 
                                                         
                                        Termination of
 
          Voluntary
                            Employment
 
          Termination
                            without “Cause” or
 
    Voluntary
    in Connection
                      Involuntary
    for “Good Reason”
 
    Termination
    with a
    Other
    Permanent
    Involuntary
    Termination
    Following a
 
Executive Benefits and
  for “Good
    “Change in
    Voluntary
    Disability
    Termination
    without
    “Change in
 
Payments
  Reason”     Control”(1)     Termination     or Death     for “Cause”     “Cause”     Control”  
 
Cash Severance(2)
  $ 900,000     $ -0-     $ -0-     $ -0-     $ -0-     $ 900,000     $ 900,000  
Stock Options
    1,296,000       1,296,000       -0-       2,593,000       -0-       1,296,000       1,296,000  
Restricted Stock
    -0-       -0-       -0-       1,129,000       -0-       -0-       -0-  
Health and Welfare Benefits Continuation
    10,000       -0-       -0-       -0-       -0-       10,000       10,000  
280G Tax Gross-Up
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
Other
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
TOTAL
    2,206,000       1,296,000       -0-       3,722,000       -0-       2,206,000       2,206,000  
 
 
(1) In the event of a Change in Control of WebMD, the unvested portion of the options granted to Mr. Gattinella at the time of WebMD’s initial public offering would continue to vest until the next vesting date following the Change in Control, so long as he remains employed for six months following the Change in Control. For purposes of calculating the amounts included in the column entitled “Voluntary Termination in Connection with Change in Control,” we treat such resignation as occurring on December 31, 2007 and assume that the requirement for the six month transition period has been met.
 
(2) Represents one year of salary and an annual bonus for 2007. We have assumed, solely for purposes of this table, that the amount of the annual bonus used for calculating the amounts in this line of the table, is $340,000, the amount of Mr. Gattinella’s bonus for 2006 (the year prior to the year of the assumed termination).
 
Charles A. Mele, Executive VP, General Counsel and Secretary
 
                                                         
                                        Termination of
 
                                        Employment
 
          Voluntary
                            without “Cause”
 
          Termination
                            or for
 
    Voluntary
    in Connection
                      Involuntary
    “Good Reason”
 
    Termination
    with a
    Other
    Permanent
    Involuntary
    Termination
    Following a
 
Executive Benefits and
  for “Good
    “Change in
    Voluntary
    Disability
    Termination
    without
    “Change in
 
Payments
  Reason”     Control”(1)     Termination     or Death     for “Cause”     “Cause”     Control”  
 
Cash Severance
  $ 2,750,000 (2)   $ 2,817,000     $ -0-     $ 2,750,000     $ -0-     $ 2,750,000 (2)   $ 2,817,000  
Stock Options
    412,000       856,000       -0-       856,000       -0-       412,000       856,000  
Restricted Stock
    442,000       978,000       -0-       978,000       -0-       442,000       978,000  
Health and Welfare Benefits Continuation
    38,000       38,000       -0-       38,000       -0-       38,000       38,000  
280G Tax Gross-Up(3)
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
Other
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
TOTAL
    3,642,000       4,689,000       -0-       4,622,000       -0-       3,642,000       4,689,000  
 
 
(1) Mr. Mele may resign from his employment after six months following a Change in Control of HLTH and receive the same benefits as if he was terminated without Cause or for Good Reason following a Change in Control (salary and bonus through February 1, 2011). He may not unilaterally resign without Good Reason prior to such date and receive these benefits. However, for purposes of calculating the amounts included in the column for “Voluntary Termination in Connection with a Change in Control,” we treat such resignation as occurring on December 31, 2007 and assume that the six month transition period requirement has been met.
 
(2) Represents three years of salary and three years of annual bonuses, plus an annual bonus for 2007. We have assumed, solely for purposes of preparing this table, that the amount of such annual bonus is $350,000 (based on what was actually paid for 2006, the year prior to the year of the assumed termination).
 
(3) We have assumed, solely for purposes of preparing this table, that 50% of the salary continuation portion of the severance (for up to two years) constitutes “reasonable compensation” for the restrictive covenants to which the executive is bound following the termination of employment. In addition, the portion of the cash severance attributable to his bonus for 2007 is excluded from the calculation as “reasonable compensation” for services rendered during such year. Accordingly, we have not treated that portion of the salary continuation or the 2007 bonus amount as a parachute payment for purposes of Section 280G. Such assumption may change at the time of an actual change in control.


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Martin J. Wygod, Chairman of the Board
 
                                                         
                                        Termination of
 
                                        Employment
 
          Voluntary
                            without “Cause”
 
          Termination
                            or for
 
    Voluntary
    in Connection
                      Involuntary
    “Good Reason”
 
    Termination
    with a
    Other
    Permanent
    Involuntary
    Termination
    Following a
 
Executive Benefits and
  for “Good
    “Change in
    Voluntary
    Disability
    Termination
    without
    “Change in
 
Payments
  Reason”     Control”     Termination     or Death     for “Cause”     “Cause”     Control”  
 
Cash Severance(1)
  $ 2,527,000     $ 2,527,000     $ -0-     $ 2,527,000     $ -0-     $ 2,527,000     $ 2,527,000  
Stock Options
    5,688,000       5,688,000       -0-       5,688,000       -0-       5,688,000       5,688,000  
Restricted Stock
    5,404,000       5,404,000       -0-       5,404,000       -0-       5,404,000       5,404,000  
Health and Welfare Benefits Continuation
    32,000       32,000       -0-       32,000       -0-       32,000       32,000  
280G Tax Gross-Up(2)
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
Other
    -0-       -0-       -0-       -0-       -0-       -0-       -0-  
TOTAL
    13,651,000       13,651,000       -0-       13,651,000       -0-       13,651,000       13,651,000  
 
 
(1) Represents salary through August 3, 2010. Mr. Wygod is required to provide consulting services during the period he is receiving severance payments. Please see the description of his employment agreement contained below under “Employment Agreements with Named Executive Officers.”
 
(2) We have assumed, solely for purposes of preparing this table, that the salary continuation portion of the severance is the only portion of the severance benefits that constitutes “reasonable compensation” for the consulting services required of Mr. Wygod and the restrictive covenants to which the executive is bound following the termination of employment. Accordingly, we have not treated the salary continuation portion as a parachute payment for purposes of Section 280G. Such assumption may change at the time of an actual change in control.
 
Employment Agreements with Named Executive Officers
 
The following are summaries of the employment agreements with HLTH’s Named Executive Officers. The agreements provide the general framework and some of the specific terms for the compensation of the Named Executive Officers. Approval of the Compensation Committee is required prior to HLTH entering into employment agreements with its executive officers. However, many of the decisions relating to the compensation of Named Executive Officers for a specific year made by the Compensation Committee (or, in the case of Mr. Gattinella, by the WebMD Compensation Committee) are implemented without changes to the general terms of employment set forth in those agreements. With respect to 2007, those decisions and their implementation are discussed earlier in this “Executive Compensation” section.
 
Kevin M. Cameron
 
HLTH is party to an employment agreement with Kevin M. Cameron entered into in September 2004, at the time he was elected by the board to be HLTH’s Chief Executive Officer, and amended on February 1, 2006. The following is a description of Mr. Cameron’s employment agreement, as amended:
 
  •  The agreement provides for an employment period through September 23, 2009.
 
  •  The agreement provides for an annual base salary of $660,000 and an annual bonus of up to 100% of base salary. For the fiscal year ended December 31, 2007, Mr. Cameron received an annual bonus of $520,000, an amount that was determined by the Compensation Committee in its discretion. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation in 2007 — Annual Cash Bonuses” above. The agreement provides that, for subsequent years, the amount of the annual bonus will be based upon performance goals to be approved by the Compensation Committee with respect to each such year. For information regarding Mr. Cameron’s equity compensation, see the “Executive Compensation Tables” above.


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  •  In the event of the termination of Mr. Cameron’s employment by HLTH without “Cause” or by Mr. Cameron for “Good Reason,” prior to a “Change in Control” (as those terms are described below), he would be entitled to:
 
  (a)  continue to receive his base salary at the rate in effect at the time of termination for a period of time equal to the length of his employment after the effective date of the agreement, rounded down to the nearest six months, but not longer than three years; and
 
  (b)  continue to participate in HLTH’s benefit plans (or comparable plans) for the duration of the severance period.
 
     In addition: (i) all options to purchase HLTH Common Stock and all HLTH restricted stock granted to Mr. Cameron at or prior to October 1, 2004 would remain outstanding and continue to vest, and would otherwise be treated as if Mr. Cameron remained employed by HLTH through the three year period that his salary is continued; and (ii) the portion of the options to purchase WebMD Class A Common Stock granted to Mr. Cameron by WebMD on September 28, 2005 that would have vested on the next vesting date following the date of termination will vest on the date of termination and the vested portion of those options will remain exercisable for 90 days plus an additional period of 21/2 months or, if longer, through the remainder of the calendar year during which the termination occurred, but not beyond the expiration of the original 10 year term (we refer to this period of extension, which is the period permitted by Section 409A of the Internal Revenue Code, as the “Permitted 409A Extension Period”). In addition, pursuant to the applicable award agreement, the option to purchase HLTH Common Stock granted to Mr. Cameron on October 23, 2006 would remain outstanding and continue to vest until the next vesting date, and the next vesting of the HLTH restricted stock grant made on the same date would accelerate to the date of termination.
 
  •  For purposes of the employment agreement: (a) “Cause” includes (i) any willful misconduct relating, directly or indirectly, to HLTH or any of its affiliates, that remains uncured, if susceptible to cure, after 30 days following written notice from HLTH detailing such misconduct; (ii) any breach of any material provision contained in the employment agreement or any material policy, which breach remains uncured, if susceptible to cure, after 30 days following written notice from HLTH detailing such breach, or (iii) conviction of a felony or crime involving moral turpitude; and (b) “Good Reason” includes any of the following which remains uncured 30 days after written notice is provided to HLTH: (i) HLTH’s material breach of the employment agreement, (ii) a material demotion of his position, and (iii) required relocation from his present residence or a requirement that he commute, on a regular basis, to HLTH’s headquarters and such headquarters is outside of the New York City metropolitan area.
 
  •  For purposes of the employment agreement:
 
  (a)  a “Change in Control” of HLTH includes (i) a change in the majority of the board of directors of HLTH without the consent of the incumbent directors, (ii) any person or entity becoming the beneficial owner of 25% or more of the voting shares of HLTH and the Compensation Committee determining that such transaction constitutes a change in control, taking into consideration all relevant facts, (iii) consummation of a reorganization, merger or similar transaction as a result of which HLTH’s stockholders prior to the consummation of the transaction no longer represent 50% of the voting power, and (iv) consummation of a sale of all or substantially all of HLTH’s assets; and
 
  (b)  a “Change in Control” of WebMD includes (i) a change in the majority of the board of directors of WebMD without the consent of the incumbent directors, (ii) any person or entity becoming the beneficial owner of 50% or more of the voting shares of WebMD, (iii) consummation of a reorganization, merger or similar transaction as a result of which WebMD’s stockholders prior to the consummation of the transaction no longer represent 50% of the voting power, (iv) consummation of a sale of all or substantially all of WebMD’s assets, and (v) adoption of a plan of liquidation by WebMD;


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provided that no public offering nor any split-off, spin-off, stock dividend or similar transaction as a result of which the voting securities of WebMD are distributed to HLTH’s stockholders will constitute a Change in Control of WebMD or HLTH.
 
  •  Mr. Cameron may terminate his employment upon 30 days’ notice after 11 months following a Change in Control of HLTH and, if this occurs:
 
  (a)  Mr. Cameron would be entitled to continue to receive his base salary at his then current rate for three years following the termination of his employment;
 
  (b)  Mr. Cameron would be entitled to annual bonus payments for the period of salary continuance in an amount equal to the amount of his bonus for the year prior to the termination or, if higher, the bonus paid for the year immediately prior to the Change in Control;
 
  (c)  his participation in HLTH’s benefit plans (or comparable plans) would continue for the duration of the salary continuation period;
 
  (d)  all options to purchase HLTH Common Stock and HLTH restricted stock granted to Mr. Cameron at or prior to October 1, 2004 that have not vested prior to the date of termination would be vested as of the date of termination and all such options would remain exercisable as if he remained in HLTH’s employ through the expiration date specified in the respective stock option plans and agreements;
 
  (e)  any remaining unvested portion of the option to purchase WebMD Class A Common Stock would be vested as of the date of termination and all such options would remain exercisable through the 90 day post-termination exercise period plus the Section 409A Extension Period; and
 
  (f)  pursuant to the applicable award agreement, Mr. Cameron would vest in the remaining unvested portion of the grants to him made on October 23, 2006.
 
     In addition, Mr. Cameron would be entitled to these benefits if his employment is terminated without Cause following a Change in Control.
 
  •  In the event of a Change in Control of WebMD or if WebMD is no longer an affiliate of HLTH, the options granted to Mr. Cameron by WebMD on September 28, 2005 that have not vested prior to such event would be vested as of the date of such event and would remain exercisable for 90 days plus the Permitted 409A Extension Period.
 
  •  If Mr. Cameron’s employment is terminated by HLTH for Cause or by him without Good Reason, he (a) would not be entitled to any further compensation or benefits and (b) would not be entitled to any additional rights or vesting with respect to his stock options following the date of termination.
 
  •  In the event of the termination of Mr. Cameron’s employment as a result of his death or permanent disability, he (or his estate) would be entitled to three years of salary continuation, three years of benefits continuation and three years of vesting of the equity granted on or prior to October 1, 2004 and three years of continued exercisability of options to purchase HLTH Common Stock. In accordance with the WebMD 2005 Plan, the options to purchase WebMD Class A Common Stock would vest on the date of termination as a result of death or disability and remain outstanding for one year.
 
  •  The employment agreement contains confidentiality obligations that survive indefinitely and non-solicitation and non-competition obligations that end on the second anniversary of the date of cessation of Mr. Cameron’s employment. The severance payments and other post-employment benefits due to Mr. Cameron under the employment agreement are subject to Mr. Cameron’s continued compliance with these covenants.
 
  •  The employment agreement contains a tax gross-up provision relating to any excise tax that Mr. Cameron incurs by reason of his receipt of any payment that constitutes an excess parachute payment as defined in Section 280G of the Internal Revenue Code. Any excess parachute payments and related tax gross-up payments made to Mr. Cameron will not be deductible by HLTH for federal income tax purposes.
 
  •  The employment agreement is governed by the laws of New Jersey.


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Mark D. Funston
 
HLTH is party to an employment agreement with Mark Funston entered into on November 9, 2006, at the time he was initially hired to be HLTH’s Chief Financial Officer. Since August 2007, Mr. Funston has also been serving as WebMD’s Chief Financial Officer. The following is a description of Mr. Funston’s employment agreement:
 
  •  The agreement provides for an employment period for five years from November 13, 2006 (subject to earlier termination as described in the employment agreement).
 
  •  Under the agreement, Mr. Funston’s annual base salary is $375,000 and Mr. Funston is eligible to receive an annual bonus of up to 50% of his annual base salary. The amount of any bonus is in the discretion of the Compensation Committee of the board of HLTH. For 2007, Mr. Funston received a bonus of $100,000. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation in 2007 — Annual Cash Bonuses” above. For information regarding Mr. Funston’s equity compensation, see the “Executive Compensation Tables” above.
 
  •  In the event of the termination of Mr. Funston’s employment by HLTH without “cause” (as described below), he would be entitled to: (i) continuation of his base salary, as severance, for one year for each year of completed service with a minimum of one year and a maximum of three years (provided that if the termination occurs following a Change in Control (as defined in the 2000 Plan), the minimum severance pay period will be two years); (ii) payment of COBRA premiums as if he were an active employee with similar coverage during the period he is receiving severance (up to 18 months); (iii) the restricted stock described above will vest and the restrictions thereon will lapse on the date of termination for that portion of the award that would have vested on the next vesting date following the termination of employment or, if such termination occurs after the second anniversary of the grant date, the next two vesting dates (to the extent not previously vested); and (iv) the option described above will continue to vest and remain outstanding through the next vesting date following the termination of employment (or, if such termination occurs following the second anniversary of the grant date, the next two vesting dates (to the extent not previously vested). If his employment is terminated as a result of his becoming disabled or his death, he (or his estate) will be entitled to the payments and benefits as if his employment had been terminated by HLTH without cause.
 
  •  If Mr. Funston’s employment is terminated by HLTH for “cause” or by him, he (a) would not be entitled to any further compensation or benefits and (b) would not be entitled to any additional rights or vesting with respect to the restricted stock or the stock options following the date of termination.
 
  •  For purposes of Mr. Funston’s employment agreement, “cause” generally includes: (i) his bad faith in connection with the performance of his duties or his willful failure to follow the lawful instructions of the Chief Executive Officer, the board or the Audit Committee, following written notice and a 20 day period of time to remedy such failure; (ii) his engaging in any willful misconduct that is, or is reasonably likely to be, injurious to HLTH (or any of its affiliates) or which could reasonably be expected to reflect negatively upon HLTH or otherwise impair or impede its operations; (iii) his material breach of a policy of HLTH, which breach is not remedied (if susceptible to remedy) following written notice and a 20 day period of time to remedy such breach; (iv) his material breach of the employment agreement, which breach is not remedied (if susceptible to remedy) following written notice and a 20 day period of time to remedy such breach; or (v) his commission of a felony in respect of a dishonest or fraudulent act or other crime of moral turpitude.
 
  •  The employment agreement contains confidentiality obligations that survive indefinitely and non-solicitation and non-competition obligations that end on the second anniversary of the date employment has ceased for any reason. The severance payments and other post-employment benefits due to Mr. Funston under the employment agreement are subject to Mr. Funston’s continued compliance with these covenants.
 
  •  The employment agreement is governed by the laws of the State of New Jersey.


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Wayne T. Gattinella
 
A subsidiary of WebMD is party to an employment agreement, dated as of April 28, 2005, with Wayne Gattinella, who serves as CEO and President of the WebMD segment and of WebMD. The following is a description of Mr. Gattinella’s employment agreement:
 
  •  Mr. Gattinella currently receives an annual base salary of $560,000 and is eligible to earn a bonus of up to 100% of his base salary. For 2007, Mr. Gattinella received an annual bonus of $135,000, determined by WebMD’s Compensation Committee in its discretion (and ratified by HLTH’s Compensation Committee). In addition, WebMD’s Compensation Committee approved an SBP Award of $135,000 with respect to Mr. Gattinella. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation in 2007 — Annual Cash Bonuses” and “Supplemental Bonus Program (SBP)” above. With respect to subsequent years, the employment agreement provides that achievement of 50% of Mr. Gattinella’s bonus will be based upon WebMD’s attainment of corporate financial and strategic goals to be established by WebMD’s Compensation Committee, with the financial goals generally related to revenue and/or other measures of operating results and achievement of the remaining 50% of Mr. Gattinella’s bonus will be based on performance goals to be established by WebMD’s Compensation Committee. For information regarding Mr. Gattinella’s equity compensation, see the “Executive Compensation Tables” above.
 
  •  In the event of the termination of Mr. Gattinella’s employment, prior to April 30, 2009, by WebMD without “Cause” or by Mr. Gattinella for “Good Reason” (as those terms are described below), he would be entitled to continue to receive his base salary for one year from the date of termination, to receive any unpaid bonus for the year preceding the year in which the termination occurs, and to receive healthcare coverage until the earlier of one year following his termination and the date upon which he receives comparable coverage under another plan. Amounts with respect to Mr. Gattinella’s SBP Award are payable only in accordance with the terms of the Supplemental Bonus Program Trust (see “Compensation Discussion and Analysis — Use of Specific Types of Compensation in 2007 — Annual Cash Bonuses” and “Supplemental Bonus Program (SBP)” above). In addition, in the event that a termination of Mr. Gattinella’s employment by WebMD without Cause or by Mr. Gattinella for Good Reason occurs before the fourth anniversary of the grant of the options to purchase WebMD Class A Common Stock made in connection with WebMD’s initial public offering, 25% of such options would continue to vest on the next vesting date following the date of termination.
 
  •  In the event of a “Change in Control” of WebMD (as that term is described below), the unvested portion of the options to purchase WebMD Class A Common Stock would continue to vest until the next scheduled vesting date following the Change in Control. The continued vesting applies only if Mr. Gattinella remains employed until six months following such Change in Control or is terminated by WebMD’s successor without Cause or he resigns for Good Reason during such six-month period. For purposes of the employment agreement, a “Change in Control” would occur when: (i) a person, entity or group acquires more than 50% of the voting power of WebMD, (ii) there is a reorganization, merger or consolidation or sale involving all or substantially all of WebMD’s assets, or (iii) there is a complete liquidation or dissolution of WebMD.
 
  •  For purposes of the employment agreement: (a) “Cause” includes (i) a continued willful failure to perform duties after 30 days’ written notice, (ii) willful misconduct or violence or threat of violence that would harm WebMD, (iii) a material breach of WebMD’s policies, the employment agreement, or the Trade Secret and Proprietary Information Agreement (as described below), that remains unremedied after 30 days’ written notice, or (iv) conviction of a felony in respect of a dishonest or fraudulent act or other crime of moral turpitude; and (b) “Good Reason” includes any of the following conditions or events remaining in effect after 30 days written notice: (i) a reduction in base salary, (ii) a material reduction in authority, or (iii) any material breach of the employment agreement by WebMD.
 
  •  The employment agreement and the related agreement described below are governed by the laws of the State of New York.


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Mr. Gattinella is also a party to a related Trade Secret and Proprietary Information Agreement that contains confidentiality obligations that survive indefinitely. The agreement also includes non-solicitation provisions that prohibit Mr. Gattinella from hiring WebMD’s employees or soliciting any of WebMD’s clients or customers that he had a relationship with during the time he was employed by WebMD, and non-competition provisions that prohibit Mr. Gattinella from being involved in a business that competes with WebMD’s business or that competes with any other business engaged in by any affiliates of WebMD if he is directly involved in such business. The non-solicitation and non-competition obligations end on the first anniversary of the date his employment has ceased. The severance payments and other post-employment benefits due to Mr. Gattinella under the employment agreement are subject to Mr. Gattinella’s continued compliance with the covenants contained in the Trade Secret and Proprietary Information Agreement and the employment agreement that are described in this paragraph.
 
Charles A. Mele
 
HLTH is party to an employment agreement with Charles A. Mele, HLTH’s Executive Vice President, General Counsel and Secretary, which was amended and restated as of February 1, 2006. The following is a description of Mr. Mele’s employment agreement. In this description, the term “Change in Control” has the same meanings, as applied to HLTH and WebMD, as in the description of Mr. Cameron’s employment agreement, above.
 
  •  The agreement provides for an employment period through February 1, 2011.
 
  •  Mr. Mele receives an annual base salary of $450,000. The amount of any bonus is in the discretion of the Compensation Committee of the board of HLTH. For 2007, Mr. Mele received an annual bonus of $233,000, determined by the Compensation Committee in its discretion. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation in 2007 — Annual Cash Bonuses” above. For information regarding Mr. Mele’s equity compensation, see the “Executive Compensation Tables” above.
 
  •  If Mr. Mele’s employment is terminated due to his death or disability, by HLTH without “Cause” or by Mr. Mele for “Good Reason” (as those terms are described below), he would be entitled to: (a) continuation of his base salary, at the rate then in effect, for three years; (b) an amount for each of the three years equal to the greater of the average annual bonus he received in the three years prior to termination or the amount of the bonus he received in the last of those years; and (c) continued participation in HLTH’s benefit plans (or comparable plans) for three years; provided, however, that if the termination is for Good Reason or without Cause following a Change in Control of HLTH, the payments in (a) and (b) above will continue for the remainder of the term of the agreement, if longer. If such termination occurs after the end of a fiscal year but before payment of the bonus for that year, he would also be entitled to receive the bonus, if any, earned for that fiscal year. In addition:
 
  —  all options to purchase HLTH Common Stock and HLTH restricted stock granted to Mr. Mele by HLTH prior to the date of the agreement that have not vested prior to the date of termination would be vested as of the date of termination and the options would remain exercisable as if he remained in our employ through the expiration date specified in each applicable stock option agreement, except that the options granted to Mr. Mele on March 17, 2004 would remain exercisable only for 90 days plus the Permitted 409A Extension Period;
 
  —  the portion of the options to purchase WebMD Class A Common Stock granted to Mr. Mele by WebMD on September 28, 2005 that would have vested on the next vesting date following the date of termination will vest on the date of termination and the vested portion of those options will remain exercisable for 90 days plus the Permitted 409A Extension Period; provided, however, that, if termination is for Good Reason or without Cause following a Change in Control of HLTH, all of the options that have not vested prior to the date of termination would be vested as of the date of termination; and
 
  —  pursuant to the applicable award agreement, the option to purchase HLTH Common Stock granted to Mr. Mele on October 23, 2006 would remain outstanding and continue to vest until the next


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  vesting date and the next vesting of the HLTH restricted stock grant made on the same date would accelerate to the date of termination (provided, however, that if his employment is terminated without Cause or Good Reason following a Change in Control, then such awards are deemed fully vested on the date of termination).
 
  •  In the event of a Change in Control of WebMD or if WebMD is no longer an affiliate of HLTH, the options granted to Mr. Mele by WebMD on September 28, 2005 that have not vested prior to such event would be vested as of the date of such event and would remain exercisable for 90 days plus the Permitted 409A Extension Period.
 
  •  If Mr. Mele’s employment is terminated by HLTH for Cause or by him without Good Reason, he (a) would not be entitled to any further compensation or benefits and (b) would not be entitled to any additional rights or vesting with respect to the stock options or restricted stock following the date of termination.
 
  •  For purposes of Mr. Mele’s employment agreement: (a) “Cause” includes (i) a material breach of the employment agreement that remains unremedied after 30 days’ written notice, or (ii) conviction of a felony; and (b) “Good Reason” includes (i) a material reduction in title or responsibilities, (ii) a requirement that Mr. Mele report to anyone other than the Chief Executive Officer of HLTH, (iii) a reduction in base salary or material fringe benefits, (iv) a material breach of the employment agreement, (v) a requirement that Mr. Mele relocate to a location that is more than 25 miles from his current residence, or (vi) a Change in Control of HLTH occurs and he remains in the employ of HLTH for six months after the Change in Control.
 
  •  Mr. Mele is subject to confidentiality obligations that survive indefinitely and non-solicitation and non-competition obligations that survive for two years or, if applicable, for the three year period in which severance is payable under the agreement. The severance payments and other post-employment benefits due to Mr. Mele under the employment agreement are subject to Mr. Mele’s continued compliance with these covenants.
 
  •  There is a tax gross-up provision relating to any excise tax that Mr. Mele incurs by reason of his receipt of any payment that constitutes an excess parachute payment as defined in Section 280G of the Internal Revenue Code. Any excess parachute payments and related tax gross-up payments made to Mr. Mele will not be deductible by HLTH for federal income tax purposes.
 
Martin J. Wygod
 
On August 3, 2005, HLTH amended and restated its original employment agreement, dated October 8, 2001, with Martin J. Wygod. The agreement was further amended on February 1, 2006. Under the amended agreement, Mr. Wygod serves as HLTH’s Chairman of the Board, and also serves as the Chairman of the Board of WebMD. In these positions, Mr. Wygod focuses on the overall strategy, strategic relationships and transactions intended to create long-term value for stockholders. He is also currently serving as Acting Chief Executive Officer of HLTH. The following is a description of Mr. Wygod’s amended employment agreement. In this description, the term “Change in Control” has the same meanings, as applied to HLTH and WebMD, as in the description of Mr. Cameron’s employment agreement, above.
 
  •  The employment agreement provides for an employment period through August 3, 2010.
 
  •  Under the employment agreement, Mr. Wygod received an annual base salary of $1.26 million until the completion of WebMD’s initial public offering; when the initial public offering was completed in September 2005, Mr. Wygod’s base salary was reduced to $975,000 per year. The amount of any bonus is in the discretion of the Compensation Committee of the board of HLTH. For 2007, Mr. Wygod received an annual bonus of $520,000. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation in 2007 — Annual Cash Bonuses” above. For information regarding Mr. Wygod’s equity compensation, see the “Executive Compensation Tables” above.


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  •  In the event of the termination of Mr. Wygod’s employment by HLTH without “Cause” or by Mr. Wygod for “Good Reason” (as those terms are described below), Mr. Wygod would become a consultant for HLTH and would be entitled to receive his salary, at the rate then in effect, and continuation of benefits until the later of (i) two years following such termination or (ii) August 3, 2010. In addition, all options, or other forms of equity compensation, granted to Mr. Wygod by HLTH or any of our affiliates (which would include WebMD) that have not vested prior to the date of termination would become vested as of the date of termination and, assuming there has not been a Change in Control of HLTH or of WebMD, would continue to be exercisable as long as he remains a consultant (or longer if the plan or agreement expressly provided). The amount of past bonuses would not be included in the calculation of the amount of Mr. Wygod’s severance payments. In the event that Mr. Wygod’s employment is terminated due to death or disability, he or his estate would receive the same benefits as described above.
 
  •  The employment agreement provides that in the event there is a Change in Control of HLTH, all outstanding options and other forms of equity compensation (including equity compensation granted by WebMD) would become immediately vested on the date of the Change in Control and, if following the Change in Control, Mr. Wygod’s employment terminates for any reason other than Cause, they would continue to be exercisable until the tenth anniversary of the applicable date of grant. A Change in Control of HLTH is also an event that constitutes Good Reason for purposes of a termination by Mr. Wygod. In the event there is a Change in Control of WebMD, any portion of Mr. Wygod’s equity that relates to WebMD will fully vest and become exercisable on the date of such event, and if following such event, Mr. Wygod’s engagement with WebMD is terminated for any reason other than Cause, such equity will remain outstanding until the expiration of its original term.
 
  •  For purposes of the employment agreement: (a) “Cause” includes a final court adjudication that Mr. Wygod (i) committed fraud or a felony directed against HLTH or an affiliate relating to his employment, or (ii) materially breached any of the material terms of the employment agreement; and (b) the definition of “Good Reason” includes the following conditions or events: (i) a material reduction in title or responsibility that remains in effect for 30 days after written notice, (ii) a final court adjudication that HLTH materially breached any material provisions of the employment agreement, (iii) failure to serve on the board or Executive Committee of the board, or (iv) the occurrence of a Change in Control of HLTH.
 
  •  In the event Mr. Wygod terminates his engagement with WebMD for “Good Reason” (as described in the following sentence), any portion of equity that relates to WebMD will fully vest and become exercisable on the date his engagement terminates and will remain exercisable for the period beginning on such date and ending on the later of two years following such termination or August 3, 2010. For the purposes of a termination of Mr. Wygod’s engagement with WebMD by him, “Good Reason” means a material reduction in Mr. Wygod’s title or responsibilities as Chairman of the Board of WebMD.
 
  •  In the event that Mr. Wygod’s employment with HLTH is terminated for any reason, but he remains Chairman of the Board of WebMD, WebMD will have no obligation to pay a salary to Mr. Wygod.
 
  •  The employment agreement contains confidentiality obligations that survive indefinitely and non-solicitation and non-competition obligations that continue until the second anniversary of the date his employment has ceased. The consulting fees and other post-employment payments and benefits due to Mr. Wygod under the employment agreement are subject to Mr. Wygod’s continued compliance with these covenants.
 
  •  The employment agreement contains a tax gross-up provision relating to any excise tax that Mr. Wygod incurs by reason of his receipt of any payment that constitutes an excess parachute payment as defined in Section 280G of the Internal Revenue Code. Any excess parachute payments and related tax gross-up payments made to Mr. Wygod will not be deductible for federal income tax purposes.


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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Transactions with WebMD
 
This section describes the material provisions of agreements between WebMD (or one of its subsidiaries) and HLTH (or one of its subsidiaries other than WebMD and its subsidiaries). The Consolidated Financial Statements of HLTH include the accounts of HLTH and all of its majority-owned subsidiaries. Accordingly, transactions between HLTH and WebMD are eliminated in consolidation. For additional information regarding the financial terms of certain of these agreements and charges from WebMD to HLTH and from HLTH to WebMD under certain of these agreements and certain predecessor arrangements, see “Transactions with HLTH” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Item 7 of WebMD’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the WebMD Annual Report) and Note 5 to the Consolidated Financial Statements included in the WebMD Annual Report.
 
Termination Agreement
 
On October 19, 2008, pursuant to the terms of a termination agreement (the “Termination Agreement”), HLTH and WebMD mutually agreed, in light of recent turmoil in financial markets, to terminate the Agreement and Plan of Merger, dated as of February 20, 2008, between HLTH and WebMD, as amended by Amendment No. 1, dated as of May 6, 2008, and Amendment No. 2, dated as of September 12, 2008 (the “Merger Agreement”). The termination was by mutual agreement of the companies and was unanimously approved by the Board of Directors of each of the companies and by a special committee of independent directors of WebMD. The Termination Agreement maintains HLTH’s obligation, under the terms of the Merger Agreement, to pay the expenses of WebMD incurred in connection with the merger.
 
Services Agreement
 
HLTH has entered into a Services Agreement with WebMD pursuant to which HLTH charges WebMD for specified services provided by HLTH. Under the Services Agreement, HLTH receives an amount that reasonably approximates its cost of providing services to WebMD. The services that HLTH provides to WebMD include certain administrative services, including services relating to payroll, accounting, tax planning and compliance, employee benefit plans, legal matters and information processing. In addition, WebMD reimburses HLTH for an allocated portion of certain expenses that HLTH incurs for outside services and similar items, including insurance and audit fees, outside personnel, facilities costs, professional fees, software maintenance fees and telecommunications costs. HLTH has agreed to make the services available to WebMD for a term of up to five years following WebMD’s initial public offering. However, WebMD is not required, under the Services Agreement, to continue to obtain services from HLTH. In the event WebMD wishes to receive those services from a third party or provide them internally, WebMD has the option to terminate services, in whole or in part, at any time it chooses to do so, generally by providing, with respect to the specified services or groups of services, 60 days’ notice and, in some cases, paying a termination fee of not more than $30,000 to cover costs of HLTH relating to the termination. HLTH has the option to terminate the services that it provides to WebMD, in whole or in part, if it ceases to provide such services for itself, upon at least 180 days’ written notice to WebMD. WebMD paid HLTH approximately $3,340,000 for services under the Services Agreement in 2007.
 
Registration Rights Agreement
 
HLTH has entered into a Registration Rights Agreement with WebMD, which requires WebMD to use its reasonable best efforts, upon HLTH’s request, to register under the applicable federal and state securities laws any of the shares of WebMD’s equity securities owned by HLTH for sale in accordance with HLTH’s intended method of disposition, and to take such other actions as may be necessary to permit the sale in other jurisdictions, subject to specified limitations. HLTH has the right to include the shares of WebMD’s equity securities it beneficially owns in other registrations of these equity securities WebMD initiates. WebMD is required to pay all expenses incurred in connection with each registration, excluding underwriters’ discounts, if


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any. Subject to specified limitations, the registration rights are assignable by HLTH and its assignees. The Registration Rights Agreement contains customary indemnification and contribution provisions.
 
Tax Sharing Agreement
 
HLTH is a party to a Tax Sharing Agreement with WebMD that governs the respective rights, responsibilities, and obligations of HLTH and WebMD with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding taxes and related tax returns. In general, the Tax Sharing Agreement does not require HLTH or WebMD to reimburse the other party to the extent of any net tax savings realized by the consolidated group, as a result of the group’s utilization of WebMD’s or HLTH’s attributes, including net operating losses, during the period of consolidation. However, under the Tax Sharing Agreement, HLTH was required to compensate WebMD for any use of WebMD’s net operating losses that resulted from certain extraordinary transactions that occurred prior to January 1, 2008. Specifically, the Tax Sharing Agreement provides that, with respect such extraordinary transactions, if HLTH or any corporation that is controlled, directly or indirectly, by HLTH, other than WebMD or its subsidiaries, had income or gain from the sale of assets (including a subsidiary) outside the ordinary course of business, extinguishment of debt or other extraordinary transaction (“Extraordinary Gains”) that occurred prior to January 1, 2008, HLTH was required to make a payment to WebMD and its subsidiaries (collectively, the “WebMD Subgroup”) equal to 35% of the amount of the WebMD Subgroup’s NOL carryforwards that are absorbed in the consolidated tax return as a result of the incurrence of such Extraordinary Gains. Under the Tax Sharing Agreement, HLTH reimbursed WebMD approximately $150 million with respect to the sale of EPS to Sage Software, Inc. on November 14, 2006, which we refer to as the EPS Sale, and the 2006 EBS Sale.
 
WebMD has agreed in the Tax Sharing Agreement that it will not knowingly take or fail to take any action that could reasonably be expected to preclude HLTH’s ability to undertake a split-off or spin-off on a tax-free basis. WebMD has also agreed that, in the event that HLTH decides to undertake a split-off or spin-off of WebMD’s capital stock to HLTH’s stockholders, WebMD will enter into a new Tax Sharing Agreement with HLTH that will set forth the parties’ respective rights, responsibilities and obligations with respect to any such split-off or spin-off.
 
Beneficial ownership of at least 80% of the total voting power and value of WebMD’s capital stock is required in order for HLTH to continue to include the WebMD Subgroup in its consolidated group for federal income tax purposes. It is the present intention of HLTH to continue to file a single consolidated federal income tax return with its eligible subsidiaries. Each member of the consolidated group for federal income tax purposes will be jointly and severally liable for the federal income tax liability of each other member of the consolidated group. Accordingly, although the Tax Sharing Agreement allocates tax liabilities between WebMD and HLTH during the period in which WebMD is included in the consolidated group of HLTH, WebMD could be liable for the federal income tax liability of any other member of the consolidated group in the event any such liability is incurred and not discharged by such other member. The Tax Sharing Agreement provides, however, that HLTH will indemnify WebMD to the extent that, as a result of being a member of the consolidated group of HLTH, WebMD becomes liable for the federal income tax liability of any other member of the consolidated group, other than the WebMD Subgroup. Correspondingly, the Tax Sharing Agreement requires WebMD to indemnify HLTH and the other members of the consolidated group with respect to WebMD’s federal income tax liability. Similar principles generally will apply for income tax purposes in some state, local and foreign jurisdictions.
 
Indemnity Agreement
 
WebMD and HLTH have entered into an Indemnity Agreement, under which WebMD and HLTH have agreed to indemnify each other with respect to some matters. WebMD has agreed to indemnify HLTH against liabilities arising from or based on:
 
  •  the operations of WebMD’s business;


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  •  any material untrue statements or omissions in the Prospectus included in the IPO Registration Statement, other than material untrue statements or omissions contained in or pertaining to information relating solely to HLTH; and
 
  •  guarantees or undertakings made by HLTH to third parties in respect of WebMD’s liabilities or obligations or those of WebMD’s subsidiaries.
 
HLTH has agreed to indemnify WebMD against liabilities arising from or based on:
 
  •  the operations of HLTH’s business;
 
  •  any material untrue statements or omissions in the Prospectus included in the IPO Registration Statement, other than material untrue statements or omissions contained in or pertaining to information relating solely to WebMD; and
 
  •  certain pre-existing legal proceedings.
 
The agreement contains provisions governing notice and indemnification procedures.
 
Intellectual Property License Agreement
 
The Intellectual Property License Agreement governs certain rights, responsibilities, and obligations of HLTH and WebMD with respect to the name “WebMD” and related intellectual property that HLTH has used. Under the Intellectual Property License Agreement, HLTH transferred its rights to the name “WebMD” and related intellectual property to WebMD prior to the completion of WebMD’s initial public offering.
 
Private Portals License
 
HLTH has licensed WebMD’s private portal health and benefits management services for use by HLTH’s employees and the employees of its other subsidiaries for a period of three years, through June 30, 2008. The fees payable by HLTH to WebMD for this license for 2007 were approximately $250,000.
 
Product Development, Marketing and Related Arrangements
 
On January 31, 2006, HLTH and WebMD entered into agreements to support each other’s product development and marketing of certain product lines. The parties agreed that WebMD would, in general, manage the product development and marketing of HLTH’s and WebMD’s product lines in the following areas:
 
  •  online tools and applications that are displayed to physicians and consumers that provide “quality” ratings of providers and that analyze patient care (we refer to these types of applications as External Clinical Quality Applications); and
 
  •  online tools and applications that are displayed to end-user consumers, plan members and/or patients to assist in (a) communicating with, or viewing information from, providers or payers, (b) making informed benefit, provider and/or treatment choices, through access to content, personal health records, plan comparison tools, benefit comparison tools, cost treatment indicators, calculators, etc., or (c) managing and utilizing consumer-directed health plans and the related health savings accounts and other consumer directed financial accounts (we refer to all of these types of applications as Consumer-Directed Applications).
 
The agreements provided that HLTH could continue to develop and market products and services that were principally provided for internal use by healthcare payers. The provisions of these agreements applicable solely to relationships between HLTH and WebMD have been terminated. However, in connection with the EPS Sale and the 2006 EBS Sale and 2008 EBS Sale, separate agreements were entered into with EPS and


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EBS with respect to certain matters under those agreements, and the separate agreements continue in effect with respect to the following products and services:
 
  •  EPS has agreed to continue its relationship with WebMD to exclusively integrate WebMD’s personal health record with EPS’s clinical products, including EPS’s electronic medical record.
 
  •  EBS has agreed to continue its strategic relationship with WebMD and to offer WebMD the opportunity to provide EBS with External Clinical Quality Applications and Consumer Directed Applications subject to mutual agreement on certain terms. In addition, if WebMD determines to pursue a Consumer Directed Application for the financial administration of the patient encounter, such as clinical messaging or a personal financial record, and requests EBS to assist WebMD in that regard, WebMD and EBS have agreed to use reasonable efforts to integrate and market such applications. In addition, EBS agreed to license certain de-identified data to HLTH for use in the development and commercialization of certain applications. In the Termination Agreement relating to the merger with WebMD, HLTH agreed to assign this license to WebMD.
 
Other Business Arrangements with WebMD
 
HLTH has in the past entered into, and may from time to time in the future enter into, other ordinary course business arrangements with WebMD or its subsidiaries that are not material to either company and may not be the subject of any ongoing contract. For example, from time to time, HLTH has advertised some of its products and services on WebMD’s physician portals. In addition, from time to time, WebMD and ViPS have worked together on projects or provided services to each other.
 
Other Related Party Transactions
 
HLTH was reimbursed approximately $278,000 and $255,000 for 2007 and 2006, respectively, by Martin J. Wygod, HLTH’s Chairman of the Board, and a corporation that he controls, for personal use of certain of HLTH’s staff and office facilities and for the personal portion of certain travel expenses.
 
Affiliates of FMR Corp. provide services to HLTH in connection with the HLTH 401(k) Savings and Employee Stock Ownership Plan and the Porex 401(k) Savings Plan. FMR Corp. beneficially owned, based on its holdings as of December 31, 2007 shares representing approximately 13.6% of HLTH’s outstanding Common Stock and approximately 16.5% of the outstanding WebMD Class A Common Stock. The aggregate amount charged to HLTH for these services was approximately $37,000 for 2007 and approximately $82,000 for 2006. In 2004, the WebMD segment entered into an agreement with Fidelity Human Resources Services Company LLC (“FHRS”) (formerly known as Fidelity Employer Services Company LLC), an affiliate of FMR Corp., to integrate WebMD’s private portals product into the services FHRS provides to its clients. FHRS provides human resources administration and benefit administration services to employers. HLTH recorded revenue of $10,362,000 in 2007 and $7,802,000 in 2006 related to the FHRS agreement, and $1,544,000 and $2,145,000, respectively, were included in accounts receivable, related to the FHRS agreement, as of December 31, 2007 and December 31, 2006. For additional information, see “WebMD — Private Portals — Relationship with Fidelity Human Resources Services Company LLC” in Item 1 of HLTH’s Annual Report on Form 10-K for the year ended December 31, 2007 and Note 19 to the Consolidated Financial Statements included as Annex A-1 to this proxy statement.
 
Audit Committee Review of Related Party Transactions
 
Under HLTH’s Code of Business Conduct, directors and executive officers are required to disclose to HLTH’s General Counsel or Compliance Officer any transactions or relationships they are involved in that present or may present a conflict of interest with HLTH, including those that would be required to be disclosed as a related party transaction under applicable SEC rules. Under HLTH’s Code of Business Conduct and the Audit Committee Charter, the Audit Committee has authority to determine whether to approve or ratify such transactions and relationships on behalf of HLTH, other than transactions between HLTH and WebMD which, as described below, are overseen by the Related Parties Committee of the board. The Audit


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Committee considers whether to ratify or approve such transactions and relationships on a case-by-case basis, rather than pursuant to a general policy.
 
If not disclosed to the Audit Committee or if, after disclosure, not ratified or approved by the Audit Committee, a transaction or relationship presenting a conflict of interest or potential conflict of interest between a director or executive officer and HLTH may violate HLTH’s Code of Business Conduct and other company policies. When reviewing such a relationship or transaction, the Audit Committee will examine the terms of the transaction to determine how close they are to terms that would be likely to be found in a similar arm’s-length transaction and, if not, whether they are otherwise reasonable and fair to HLTH. In addition, the Audit Committee will consider the nature of the related party’s interest in the transaction and the significance of the transaction to the related party. If the transaction involves a non-employee director, the Audit Committee may also consider whether the transaction would compromise the director’s independence. The Audit Committee may condition its ratification or approval of a transaction or relationship on imposition of specified limitations on the transaction or relationship or specific monitoring requirements on an ongoing basis.
 
In the case of transactions and relationships between HLTH and WebMD, HLTH’s board has delegated ongoing authority to ratify, approve and monitor them to the Related Parties Committee of the board. See “Corporate Governance — Committees of the Board of Directors — Related Parties Committee” above. The Related Parties Committee of the HLTH board consists solely of non-employee directors who are not also directors of WebMD. WebMD has a similar committee with authority to ratify, approve and monitor those transactions and relationships on its behalf, consisting solely of non-employee directors who are not also directors of HLTH.


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REPORT OF THE AUDIT COMMITTEE
 
The current members of the Audit Committee of HLTH’s board of directors are Paul A. Brooke, James V. Manning and Joseph E. Smith and Mr. Manning is the Chairman. The Audit Committee is responsible for, among other things:
 
  •  retaining and overseeing the registered public accounting firm that serves as HLTH’s independent auditor and evaluating its performance and independence;
 
  •  reviewing the annual audit plan with HLTH’s management and registered public accounting firm;
 
  •  pre-approving any permitted non-audit services provided by HLTH’s registered public accounting firm;
 
  •  approving the fees to be paid to HLTH’s registered public accounting firm;
 
  •  reviewing the adequacy and effectiveness of HLTH’s internal controls with HLTH’s management, internal auditors and registered public accounting firm;
 
  •  reviewing and discussing the annual audited financial statements and the interim unaudited financial statements with HLTH’s management and registered public accounting firm;
 
  •  approving HLTH’s internal audit plan and reviewing reports of HLTH’s internal auditors;
 
  •  determining whether to approve related party transactions (see “Certain Relationships and Related Transactions — Audit Committee Review of Related Party Transactions” above); and
 
  •  overseeing the administration of HLTH’s Code of Business Conduct.
 
The Audit Committee operates under a written charter adopted by the board of directors.
 
This report reviews the actions taken by the Audit Committee with regard to HLTH’s financial reporting process for 2007 and particularly with regard to HLTH’s audited consolidated financial statements and the related schedule included in HLTH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
 
HLTH’s management has the primary responsibility for HLTH’s financial statements and reporting process, including the systems of internal controls. HLTH’s independent auditors are responsible for performing an independent audit of HLTH’s consolidated financial statements and the related schedule in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing a report thereon and a report on the effectiveness of internal control over financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes. In carrying out its oversight responsibilities, the Audit Committee is not providing any expert or special assurance as to HLTH’s financial statements or systems of internal controls or any professional certification as to the independent auditors’ work. The Audit Committee has implemented procedures to ensure that, during the course of each fiscal year, it devotes the attention that it deems necessary or appropriate to fulfill its oversight responsibilities under the Audit Committee’s charter.
 
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements and the Report of Management on Internal Control Over Financial Reporting included in HLTH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in HLTH’s Current Report on Form 8-K filed on June 27, 2008. In addition, the Audit Committee reviewed with HLTH’s independent auditors, Ernst & Young LLP, who are responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, their judgments as to the quality, rather than just the acceptability, of HLTH’s accounting principles and such other matters as are required to be discussed with the Audit Committee under Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, other standards of the Public Company Accounting Oversight Board (United States) SEC rules, and other professional standards. The Audit Committee also reviewed with Ernst & Young the “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” included in HLTH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in HLTH’s Current Report on Form 8-K filed on June 27, 2008. In


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addition, the Audit Committee discussed with Ernst & Young their independence from management and HLTH, including the matters in the written disclosures required of Ernst & Young by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee also considered whether the provision of non-audit services (see the section entitled “Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm — Services and Fees of Ernst & Young” below) during 2007 by Ernst & Young is compatible with maintaining Ernst & Young’s independence.
 
Additionally, the Audit Committee discussed with HLTH’s independent auditors the overall scope and plan for their audit of HLTH’s financial statements and their audits of its internal control over financial reporting. The Audit Committee met with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of HLTH’s internal controls and the overall quality of HLTH’s financial reporting.
 
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to our board of directors that the audited financial statements and related schedule and management’s assessment of the effectiveness of HLTH’s internal control over financial reporting be included in HLTH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the SEC. The Audit Committee has also approved the retention of Ernst & Young as HLTH’s independent auditors for 2008.
 
Paul A. Brooke
James V. Manning
Joseph E. Smith


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HLTH PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
A proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as HLTH’s independent auditor for the fiscal year ending December 31, 2008.
 
The Audit Committee has appointed the firm of Ernst & Young LLP, an independent registered public accounting firm, to be HLTH’s independent auditor for the current fiscal year and, with the endorsement of the board of directors, recommends to stockholders that they ratify that appointment. Ernst & Young has served as HLTH’s independent auditors since 1995.
 
Although stockholder approval of the Audit Committee’s appointment of Ernst & Young is not required by law, the board of directors believes that it is advisable and a matter of good corporate practice to give stockholders an opportunity to ratify this appointment. If this proposal is not approved at the Annual Meeting, the Audit Committee will reconsider its appointment of Ernst & Young.
 
A representative of Ernst & Young is expected to be present at the Annual Meeting. The representative will be afforded an opportunity to make a statement and will be available to respond to questions by stockholders. If the selection of Ernst & Young is ratified, the Audit Committee nevertheless retains the discretion to select different accounting firms in the future, should the Audit Committee then deem such selection to be in HLTH’s best interest and in the best interest of the stockholders. Any such selection need not be submitted to a vote of stockholders.
 
THE HLTH BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE APPROVAL OF PROPOSAL 2.
 
Services and Fees of Ernst & Young
 
In addition to retaining Ernst & Young LLP to audit its consolidated financial statements for 2007 and 2006 and to review its quarterly financial statements during those years, HLTH retained Ernst & Young to provide certain related services. The fees for Ernst & Young’s services to HLTH (including services to WebMD) were:
 
                 
Type of Fees
  2007     2006  
 
Audit Fees
  $ 1,903,198     $ 3,919,332  
Audit-Related Fees
    162,775       2,393,470  
Tax Fees
    353,561       280,982  
All Other Fees
    1,500       1,500  
                 
Total Fees
  $ 2,421,034     $ 6,595,284  
                 
 
In the above table, in accordance with applicable SEC rules:
 
  •  “audit fees” include: (a) fees billed for professional services (i) for the audit of the consolidated financial statements included in HLTH’s and WebMD’s Annual Reports on Form 10-K for that fiscal year, (ii) for review of the consolidated financial statements included in HLTH’s and WebMD’s Quarterly Reports on Form 10-Q filed during that fiscal year, and (iii) for the audits of internal control over financial reporting and management’s assessment of internal control over financial reporting for that fiscal year with respect to HLTH and WebMD; and (b) fees billed for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements for that year;
 
  •  “audit-related fees” are fees billed in the year for assurance and related services that are reasonably related to the performance of the audit or review of HLTH’s financial statements, which consisted of fees related to audits of HLTH’s employee benefit plans for that year and, for 2006, included fees for the audit, due diligence and other services related to the 2006 EBS Sale and the EPS Sale;


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  •  “tax fees” are fees billed in the year for professional services for tax compliance, tax advice, and tax planning and analysis; and
 
  •  “all other fees” are fees billed in the year for any products and services not included in the first three categories and consisted of a subscription to Ernst & Young’s online research tool.
 
None of these services was provided pursuant to a waiver of the requirement that such services be pre-approved by the Audit Committee. The Audit Committee has determined that the provision by Ernst & Young of non-audit services to HLTH in 2007 is compatible with Ernst & Young maintaining their independence.
 
The Audit Committee considers whether to pre-approve permissible non-audit services and fees on a case-by-case basis, rather than pursuant to a general policy, with the exception of acquisition-related due diligence engagements, which have been pre-approved by the Audit Committee and are subject to monitoring by the Chairman of the Audit Committee. To ensure prompt handling of unexpected matters, the Audit Committee has delegated to its Chairman the authority to pre-approve permissible non-audit services and fees and to amend or modify pre-approvals that have been granted by the entire Audit Committee. A report of any such actions taken by the Chairman is provided to the Audit Committee at the next Audit Committee meeting.


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STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING
 
HLTH expects to hold its 2009 Annual Meeting of Stockholders on September 24, 2009. Proposals that stockholders intend to present at that meeting must be received by HLTH not later than April 20, 2009 if they are to be eligible for consideration for possible inclusion in HLTH’s proxy statement and form of proxy relating to that meeting, unless the date of the meeting is changed to a later one, in which case such proposals must be received a reasonable time before a solicitation is made. In addition, HLTH’s bylaws establish an advance notice procedure with regard to director nominations and proposals by stockholders intended to be presented at an annual meeting, but not included in its proxy statement. For these nominations or other business to be properly brought before the meeting by a stockholder, the stockholder must provide written notice delivered to the Secretary of HLTH at least 60 days and not more than 90 days in advance of the annual meeting date, which notice must contain specified information concerning the matters to be brought before the meeting and concerning the stockholder proposing these matters. All notices of proposals by stockholders, whether or not intended to be included in HLTH’s proxy materials, should be sent to: Corporate Secretary, HLTH Corporation, 669 River Drive, Center 2, Elmwood Park, New Jersey 07407-1361. If a stockholder intends to submit a proposal at the next annual meeting of stockholders which is not intended for inclusion in the proxy statement relating to that meeting, notice from the stockholder in accordance with the requirements in HLTH’s bylaws must be received by HLTH no later than July 20, 2009 unless the date of the meeting is changed, in which case HLTH will announce any change in the date by which the notice must be received by HLTH when HLTH first announces the change in meeting date.
 
WHERE YOU CAN FIND MORE INFORMATION
 
HLTH files annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the public reference facilities the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. HLTH will provide its stockholders without charge a copy of its Annual Report on Form 10-K for the year ended December 31, 2007 and of its Quarterly Reports on Form 10-Q filed in 2007 and 2008, upon written request to Investor Relations, HLTH Corporation, 669 River Drive, Center 2, Elmwood Park, NJ 07407.
 
HLTH makes available free of charge at www.hlth.com (in the “Investor Relations” section) copies of materials it files with, or furnishes to, the SEC. You can also obtain copies of these materials at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information on the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site at www.sec.gov that makes available reports, proxy statements and other information regarding issuers that file electronically with it.
 
MISCELLANEOUS
 
Where information contained in this proxy statement rests particularly within the knowledge of a person other than HLTH, we have relied upon information furnished by such person or contained in filings made by such person with the SEC.
 
The material under the headings “Report of the Audit Committee” (other than the description of the responsibilities of the Audit Committee in the first paragraph of that Report) and “Report of the Compensation Committee” shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that HLTH specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.


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ANNEX A-1
 
HLTH CORPORATION 2007 ANNUAL REPORT
 
FINANCIAL STATEMENTS
 
 
Index to Consolidated Financial Statements and Supplemental Data
 
         
    Page
 
Historical Financial Statements:
       
Report of Management on Internal Control Over Financial Reporting
    2  
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
    3  
Report of Independent Registered Public Accounting Firm
    4  
Consolidated Balance Sheets at December 31, 2007 and 2006
    5  
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    6  
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005
    7  
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
    8  
Notes to Consolidated Financial Statements
    10  
Supplemental Financial Data:
       
Schedule II — Valuation and Qualifying Accounts
    S-1  
 
All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in the notes thereto. Columns omitted from the schedule filed have been omitted because the information is not applicable.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 1


Table of Contents

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Management of HLTH Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 (the Exchange Act) as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by its board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
 
  •  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
 
  •  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
 
  •  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
HLTH management assessed the effectiveness of HLTH’s internal control over financial reporting as of December 31, 2007. In making this assessment, HLTH management used the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment and those criteria, HLTH management concluded that HLTH maintained effective internal control over financial reporting as of December 31, 2007.
 
Ernst & Young LLP, the independent registered public accounting firm that audited and reported on the Company’s financial statements as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007, has audited the Company’s internal control over financial reporting as of December 31, 2007, as stated in their report which appears on page 3.
 
February 28, 2008
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 2


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
 
The Board of Directors and Stockholders of
HLTH Corporation
 
We have audited HLTH Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). HLTH Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, HLTH Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007 based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2007 consolidated financial statements of HLTH Corporation and our report dated February 28, 2008 expressed an unqualified opinion thereon.
 
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 28, 2008
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 3


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders of
HLTH Corporation
 
We have audited the accompanying consolidated balance sheets of HLTH Corporation (and subsidiaries) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HLTH Corporation (and subsidiaries) at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), “Share-Based Payment” using the modified prospective transition method. Also, as discussed in Note 1 to the consolidated financial statements, effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), HLTH Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2008 expressed an unqualified opinion thereon.
 
/s/  Ernst & Young LLP
 
MetroPark, New Jersey
February 28, 2008,
except for Notes 2 and 9, as to which the date is
June 26, 2008
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 4


Table of Contents

HLTH CORPORATION
 
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
                 
    December 31,  
    2007     2006  
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 536,879     $ 614,691  
Short-term investments
    290,858       34,140  
Accounts receivable, net of allowance for doubtful accounts of $1,165 at December 31, 2007 and $956 at December 31, 2006
    86,081       89,652  
Due from EBS Master LLC
    1,224       30,716  
Prepaid expenses and other current assets
    71,090       27,794  
Assets of discontinued operations
    262,964       274,232  
                 
Total current assets
    1,249,096       1,071,225  
Marketable equity securities
    2,383       2,633  
Property and equipment, net
    49,554       46,076  
Goodwill
    217,323       223,484  
Intangible assets, net
    36,314       45,268  
Investment in EBS Master LLC
    25,261       1,521  
Other assets
    71,466       80,159  
                 
TOTAL ASSETS
  $ 1,651,397     $ 1,470,366  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Accrued expenses
  $ 49,598     $ 102,781  
Deferred revenue
    76,401       76,086  
Liabilities of discontinued operations
    123,131       55,098  
                 
Total current liabilities
    249,130       233,965  
1.75% convertible subordinated notes due 2023
    350,000       350,000  
31/8% convertible notes due 2025
    300,000       300,000  
Other long-term liabilities
    21,137       13,246  
Minority interest in WHC
    131,353       101,860  
Convertible redeemable exchangeable preferred stock, $0.0001 par value; 10,000 shares authorized; no shares outstanding at December 31, 2007; 10,000 shares issued and outstanding at December 31, 2006
          98,768  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $0.0001 par value; 4,990,000 shares authorized; no shares outstanding
           
Common stock, $0.0001 par value; 900,000,000 shares authorized; 457,803,361 shares issued at December 31, 2007; 449,600,747 shares issued at December 31, 2006
    46       45  
Additional paid-in capital
    12,479,574       12,290,126  
Treasury stock, at cost; 275,786,634 shares at December 31, 2007; 287,770,823 shares at December 31, 2006
    (2,564,948 )     (2,585,769 )
Accumulated deficit
    (9,320,748 )     (9,341,985 )
Accumulated other comprehensive income
    5,853       10,110  
                 
Total stockholders’ equity
    599,777       372,527  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 1,651,397     $ 1,470,366  
                 
 
See accompanying notes.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 5


Table of Contents

HLTH CORPORATION
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
                         
    Years Ended December 31,  
    2007     2006     2005  
 
Revenue
  $ 331,693     $ 908,927     $ 852,010  
Costs and expenses:
                       
Cost of operations
    117,281       545,706       528,004  
Sales and marketing
    93,645       119,103       104,669  
General and administrative
    104,321       132,334       118,202  
Depreciation and amortization
    28,256       44,558       43,548  
Interest income
    42,035       32,339       21,527  
Interest expense
    18,593       18,794       16,321  
Gain on 2006 EBS Sale
    399       352,297        
Other income (expense), net
    3,406       (4,252 )     (27,965 )
                         
Income from continuing operations before income tax (benefit) provision
    15,437       428,816       34,828  
Income tax (benefit) provision
    (8,741 )     50,389       (2,170 )
Minority interest in WHC
    10,667       405       775  
Equity in earnings of EBS Master LLC
    28,566       763        
                         
Income from continuing operations
    42,077       378,785       36,223  
(Loss) income from discontinued operations (net of taxes of ($5,206), $36,531 and $6,109 in 2007, 2006 and 2005)
    (22,198 )     393,132       32,588  
                         
Net income
  $ 19,879     $ 771,917     $ 68,811  
                         
Basic income (loss) per common share:
                       
Income from continuing operations
  $ 0.24     $ 1.36     $ 0.11  
(Loss) income from discontinued operations
    (0.13 )     1.41       0.09  
                         
Net income
  $ 0.11     $ 2.77     $ 0.20  
                         
Diluted income (loss) per common share:
                       
Income from continuing operations
  $ 0.21     $ 1.20     $ 0.10  
(Loss) income from discontinued operations
    (0.12 )     1.18       0.10  
                         
Net income
  $ 0.09     $ 2.38     $ 0.20  
                         
Weighted-average shares outstanding used in computing income (loss) per common share:
                       
Basic
    179,330       279,234       341,747  
                         
Diluted
    188,763       331,642       352,852  
                         
 
See accompanying notes.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 6


Table of Contents

 
HLTH CORPORATION
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
 
                                                                         
    Stockholders’ Equity  
                                              Accumulated
       
                Additional
    Deferred
                      Other
    Total
 
    Common Stock     Paid-In
    Stock
    Treasury Stock     Accumulated
    Comprehensive
    Stockholders’
 
    Shares     Amount     Capital     Compensation     Shares     Amount     Deficit     Income     Equity  
 
Balances at January 1, 2005
    394,041,320     $ 39     $ 11,776,911     $ (7,819 )     80,849,495     $ (379,968 )   $ (10,182,244 )   $ 7,957     $ 1,214,876  
Net income
                                        68,811             68,811  
Net increase in unrealized gains on securities
                                              2,976       2,976  
Foreign currency translation adjustment
                                              (3,326 )     (3,326 )
                                                                         
Comprehensive income
                                                    68,461  
Issuance of common stock for option exercises, ESPP, 401(k) and other issuances
    11,385,269       1       48,570                                     48,571  
Gain on issuance of WHC Class A Common Stock
                82,275                                     82,275  
Conversion of 31/4% convertible subordinated notes
    23,197,650       3       214,014                                     214,017  
Accretion of convertible redeemable exchangeable preferred stock
                                        (234 )           (234 )
Deferred stock compensation
                2,241       (2,241 )                              
Stock-based compensation expense
                330       3,451                               3,781  
Purchase of treasury stock under repurchase program
                            2,541,000       (21,246 )                 (21,246 )
Purchase of treasury stock in tender offer
                            66,905,919       (549,268 )                 (549,268 )
Adjustment to deferred stock compensation for terminations
                (2,910 )     2,910                                
                                                                         
Balances at December 31, 2005
    428,624,239       43       12,121,431       (3,699 )     150,296,414       (950,482 )     (10,113,667 )     7,607       1,061,233  
Net income
                                        771,917             771,917  
Net decrease in unrealized gains on securities
                                              (1,108 )     (1,108 )
Foreign currency translation adjustment
                                              3,611       3,611  
                                                                         
Comprehensive income
                                                    774,420  
Issuance of common stock for option exercises, ESPP and other issuances
    20,976,508       2       151,237                                     151,239  
Accretion of convertible redeemable exchangeable preferred stock
                                        (235 )           (235 )
Reversal of deferred stock compensation — adoption of SFAS 123R
                (3,699 )     3,699                                
Stock-based compensation expense
                26,720                                     26,720  
Purchase of treasury stock under repurchase program
                            8,240,245       (83,167 )                 (83,167 )
Purchase of treasury stock in tender offer
                            129,234,164       (1,552,120 )                 (1,552,120 )
Gain on issuance of WHC Class A Common Stock
                16,779                                     16,779  
Minority interest impact of cash transferred to WHC
                (22,342 )                                   (22,342 )
                                                                         
Balances at December 31, 2006
    449,600,747       45       12,290,126             287,770,823       (2,585,769 )     (9,341,985 )     10,110       372,527  
Net income
                                        19,879             19,879  
Net decrease in unrealized gains on securities
                                              (249 )     (249 )
Foreign currency translation adjustment
                                              3,318       3,318  
HLTH’s share of EBSCo’s comprehensive loss
                                              (7,326 )     (7,326 )
                                                                         
Comprehensive income
                                                    15,622  
Cumulative effect to prior year related to the adoption of FIN 48
                                        1,475             1,475  
Issuance of stock for option exercises, ESPP and other issuances
    8,202,614       1       96,893             (4,715,883 )     22,840                   119,734  
Tax benefit realized from issuances of common stock and valuation reversal
                7,171                                     7,171  
Gain on issuance of WHC Class A Common Stock
                14,492                                     14,492  
Conversion and accretion of convertible redeemable exchangeable preferred stock
                53,781             (10,638,297 )     45,104       (117 )           98,768  
Stock-based compensation expense
                18,699                                     18,699  
Purchase of treasury stock under repurchase program
                            3,369,991       (47,123 )                 (47,123 )
Minority interest impact of cash transferred to WHC
                (1,588 )                                   (1,588 )
                                                                         
Balances at December 31, 2007
    457,803,361     $ 46     $ 12,479,574     $       275,786,634     $ (2,564,948 )   $ (9,320,748 )   $ 5,853     $ 599,777  
                                                                         
 
See accompanying notes.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 7


Table of Contents

 
HLTH CORPORATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
                         
    Years Ended December 31,  
    2007     2006     2005  
 
Cash flows from operating activities:
                       
Net income
  $ 19,879     $ 771,917     $ 68,811  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Loss (income) from discontinued operations, net of tax
    22,198       (393,132 )     (32,588 )
Depreciation and amortization
    28,256       44,558       43,548  
Minority interest in WHC
    10,667       405       775  
Equity in earnings of EBS Master LLC
    (28,566 )     (763 )      
Amortization of debt issuance costs
    2,916       2,906       2,541  
Non-cash advertising
    5,264       7,414       10,870  
Non-cash stock-based compensation
    32,652       42,145       4,713  
Deferred income taxes
    (10,136 )     26,841       4,247  
Gain on 2006 EBS Sale
    (399 )     (352,297 )      
Loss on investments
                6,365  
Loss on redemption of convertible debt
                1,902  
Changes in operating assets and liabilities:
                       
Accounts receivable
    3,840       (41,727 )     (22,151 )
Prepaid expenses and other, net
    5,329       (12,092 )     57  
Accounts payable
    (629 )     (722 )     (6,453 )
Accrued expenses and other long-term liabilities
    (43,689 )     21,727       4,809  
Deferred revenue
    314       17,516       4,016  
                         
Net cash provided by continuing operations
    47,896       134,696       91,462  
Net cash provided by discontinued operations
    27,497       64,324       69,824  
                         
Net cash provided by operating activities
    75,393       199,020       161,286  
Cash flows from investing activities:
                       
Proceeds from maturities and sales of available-for-sale securities
    670,326       928,284       1,063,606  
Purchases of available-for-sale securities
    (927,038 )     (686,815 )     (758,687 )
Purchases of property and equipment
    (19,053 )     (49,420 )     (47,241 )
Cash paid in business combinations, net of cash acquired
          (152,672 )     (93,622 )
Proceeds from the 2006 EBS Sale, net
    2,898       1,199,872        
Proceeds from advances to EBS Master LLC
    18,792       (20,016 )      
Proceeds from the sale of discontinued operations
    11,667       522,604        
                         
Net cash (used in) provided by continuing operations
    (242,408 )     1,741,837       164,056  
Net cash used in discontinued operations
    (4,741 )     (3,296 )     (15,124 )
                         
Net cash (used in) provided by investing activities
    (247,149 )     1,738,541       148,932  
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 8


Table of Contents

                         
    Years Ended December 31,  
    2007     2006     2005  
 
Cash flows from financing activities:
                       
Proceeds from issuance of HLTH and WHC common stock
    133,054       156,078       48,571  
Tax benefit on stock-based awards
    6,601              
Purchases of treasury stock under repurchase program
    (47,123 )     (83,167 )     (21,246 )
Purchases of treasury stock in tender offer
          (1,552,120 )     (549,268 )
Payments of notes payable and other
    (20 )     (337 )     (552 )
Net proceeds from issuance of convertible debt
                289,875  
Issuance of WHC common stock in initial public offering
                123,344  
Redemption of convertible debt
                (86,694 )
                         
Net cash provided by (used in) continuing operations
    92,512       (1,479,546 )     (195,970 )
Net cash used in discontinued operations
    (175 )     (100 )     (79 )
                         
Net cash provided by (used in) financing activities
    92,337       (1,479,646 )     (196,049 )
Effect of exchange rates on cash
    1,607       1,135       (678 )
                         
Net (decrease) increase in cash and cash equivalents
    (77,812 )     459,050       113,491  
Changes in cash of discontinued operations
          25       2,145  
Cash and cash equivalents at beginning of period
    614,691       155,616       39,980  
                         
Cash and cash equivalents at end of period
  $ 536,879     $ 614,691     $ 155,616  
                         
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 9


Table of Contents

HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
 
1.   Summary of Significant Accounting Policies
 
Background
 
HLTH Corporation (“HLTH” or the “Company”) is a Delaware corporation that was incorporated in December 1995 and commenced operations in January 1996 as Healtheon Corporation. HLTH’s Common Stock began trading on the Nasdaq National Market under the symbol “HLTH” on February 11, 1999 and now trades on the Nasdaq Global Select Market. The Company changed its name to Healtheon/WebMD Corporation in November 1999 and to WebMD Corporation in September 2000. In October 2005, WebMD Corporation changed its name to Emdeon Corporation in connection with the initial public offering of equity securities of WebMD Health Corp. (“WHC”). In connection with the November 2006 sale of a 52% interest in the Company’s Emdeon Business Services segment, the Company transferred its rights to the name “Emdeon” and related intellectual property to Emdeon Business Services. Accordingly, in May 2007, the Company changed its name to HLTH Corporation.
 
Basis of Presentation
 
The accompanying consolidated financial statements include the consolidated accounts of HLTH Corporation and its subsidiaries and have been prepared in United States dollars, and in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated accounts include 100% of the assets and liabilities of the majority-owned WHC and the ownership interests of minority stockholders of WHC are recorded as minority interest in WHC in the accompanying consolidated balance sheets.
 
The accompanying consolidated financial statements and footnotes are for the same periods as the consolidated financial statements that were included in the Company’s Annual Report on Form 10-K filed on February 29, 2008 (the “2007 Form 10-K”), however, they reflect the reclassification of its ViPS and Porex segments to discontinued operations (as described in Note 2) and reflect the reclassification of segment information for WebMD into two WebMD segments (as described in Note 9). In connection with the Registration Statement on Form S-4 that WHC intends to file relating to the proposed merger of the Company and WHC, the reclassifications described above are required with respect to the previously issued financial statements included in the 2007 Form 10-K. While the accompanying consolidated financial statements reflect the reclassifications described above, they do not reflect any other events occurring after the filing of the 2007 Form 10-K on February 29, 2008. Other events occurring after that date have been disclosed in other public filings made by the Company including various Current Reports on Form 8-K and the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008.
 
On September 14, 2006, the Company completed the sale of its Emdeon Practice Services (“EPS”) segment to Sage Software, Inc. (the “EPS Sale”). Accordingly, the historical results of EPS, including the gain related to the sale, have been reclassified as discontinued operations in the accompanying consolidated financial statements. See Note 2 for a further description of this transaction.
 
On November 16, 2006, the Company completed the sale of a 52% interest in its Emdeon Business Services segment, excluding the ViPS business unit (“EBS”) to an affiliate of General Atlantic LLC (the “2006 EBS Sale”). The Company’s remaining 48% ownership interest in EBS is being accounted for under the equity method since the transaction date. Additionally, in February 2008, the Company sold its remaining 48% ownership in EBS. See Notes 3 and 23 for further descriptions of these transactions.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 10


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of December 31, 2007, the Company, through WHC, entered into an Asset Sale Agreement and completed the sale of certain assets and certain liabilities of its medical reference publications business, including the publications ACP Medicine and ACS Surgery: Principles and Practice (“ACS/ACP Business”), to Decker Intellectual Properties Inc. and BC Decker Inc. Accordingly, the historical financial information of the ACS/ACP Business, including the gain related to the sale, has been reclassified as discontinued operations in the accompanying consolidated financial statements. See Note 2 for a further description of this transaction.
 
Business
 
As a result of the Company’s intention to divest its ViPS and Porex segments, the Company’s only remaining operating segments are WebMD Online Services and WebMD Publishing and Other Services (the “WebMD Segments”). Additionally, until the 2006 EBS Sale, EBS also represented an operating segment. These segments and the Company’s Corporate segment are described as follows:
 
  •  WebMD Online Services.  WebMD provides health information services to consumers, physicians, healthcare professionals, employees and health plans through its public and private online portals. WebMD’s public portals for consumers enable them to obtain detailed information on a particular disease or condition, check symptoms, locate physicians, store individual healthcare information, receive periodic e-newsletters on topics of individual interest, enroll in interactive courses and participate in online communities with peers and experts. WebMD’s public portals for physicians and healthcare professionals make it easier for them to access clinical reference sources, stay abreast of the latest clinical information, learn about new treatment options, earn continuing medical education (“CME”) credit and communicate with peers. WebMD’s private portals enable employers and health plans to provide their employees and plan members with access to personalized health and benefit information and decision-support technology that helps them make more informed benefit, provider and treatment choices. WebMD provides related services for use by such employees and members, including lifestyle education and personalized telephonic health coaching as a result of the acquisition of Summex Corporation on June 13, 2006. WebMD also provides e-detailing promotion and physician recruitment services for use by pharmaceutical, medical device and healthcare companies as a result of the acquisition of Medsite, Inc. on September 11, 2006.
 
  •  WebMD Publishing and Other Services.  WebMD publishes The Little Blue Book, a physician directory; and, since 2005, WebMD the Magazine, a consumer magazine distributed to physician office waiting rooms. WebMD also conducted in-person CME through December 31, 2006, as a result of the acquisition of the assets of Conceptis Technologies, Inc. in December 2005. WebMD also published medical reference textbooks until it divested this business on December 31, 2007. See Note 2 for further details.
 
  •  Corporate includes personnel costs and other expenses related to functions that are not directly managed by one of the Company’s segments or by the Porex and ViPS businesses included in discontinued operations. The personnel costs include executive personnel, legal, accounting, tax, internal audit, risk management, human resources and certain information technology functions. Other corporate costs and expenses include professional fees including legal and audit services, insurance, costs of leased property and facilities, telecommunication costs and software maintenance expenses. Corporate expenses are net of $3,340, $3,190 and $5,117 for the years ended December 31, 2007, 2006 and 2005, respectively, which are costs allocated to WebMD for services provided by the Corporate segment. In connection with the 2006 EBS Sale and EPS Sale, the Company entered into transition services agreements whereby the Company provided Sage Software and EBSCo certain administrative services, including payroll, accounting, purchasing and procurement, tax, and human resource services, as well as information technology support. Additionally, EBSCo provided certain administrative
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 11


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
  services to the Company. See Note 2 and Note 3. These services were provided through the Corporate segment, and the related transition services fees that the Company charged to EBSCo and Sage Software, net of the fee the Company paid to EBSCo, were also included in the Corporate segment, which approximates the cost of providing these services.
 
  •  Emdeon Business Services provides solutions that automate key business and administrative functions for healthcare payers and providers, including electronic patient eligibility and benefit verification; electronic and paper claims processing; electronic and paper paid-claims communication services; and patient billing, payment and communications services. In addition, EBS provides clinical communications services that improve the delivery of healthcare by enabling physicians to manage laboratory orders and results, hospital reports and electronic prescriptions. As a result of the 2006 EBS Sale, beginning November 17, 2006, the results of EBS are no longer included in the segment results. See Note 3.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. The results of operations for companies acquired or disposed of are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal. The Company has made certain reclassifications to the consolidated financial statements to provide comparative financial information for segments reflected as discontinued operations. All material intercompany balances and transactions have been eliminated in consolidation.
 
Accounting Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider in order to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors, and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect: the allowance for doubtful accounts, the carrying value of prepaid advertising, the carrying value of long-lived assets (including goodwill and intangible assets), the amortization period of long-lived assets (excluding goodwill), the carrying value, capitalization and amortization of software and Web site development costs, the carrying value of short-term and long-term investments, the provision for income taxes and related deferred tax accounts, certain accrued expenses, revenue recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and other stock-based awards.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 12


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Seasonality
 
The timing of the Company’s revenue is affected by seasonal factors. WebMD’s advertising and sponsorship revenue is seasonal, primarily as a result of the annual budget approval process of the advertising and sponsorship clients of the public portals. This portion of revenue is usually the lowest in the first quarter of each calendar year, and increases during each consecutive quarter throughout the year. WebMD’s private portal licensing revenue is historically highest in the second half of the year as new customers are typically added during this period in conjunction with their annual open enrollment periods for employee benefits. Additionally, the annual distribution cycle for certain publishing products results in a significant portion of WebMD’s publishing revenue being recognized in the second and third quarter of each calendar year.
 
Minority Interest
 
Minority interest represents the minority stockholders’ proportionate share of equity and net income of WHC. Additionally, minority interest includes the non-cash stock-based compensation expense related to stock options and other stock awards based on WHC Class A Common Stock that have been expensed since the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123, “(Revised 2004): Share-Based Payment” on January 1, 2006, and to a much lesser extent, the expense associated with these awards that were expensed in connection with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) prior to January 1, 2006. Additionally, as of December 31, 2006, minority interest includes the value of committed, but unissued WHC equity, in connection with the December 2006 Subimo acquisition. The minority stockholders’ proportionate share of the equity in WHC of $131,353 and $101,860, as of December 31, 2007 and 2006, respectively, is reflected as minority interest in WHC in the accompanying consolidated balance sheets. The minority stockholders’ proportionate share of net income for the years ended December 31, 2007, 2006 and 2005 was $10,667, $405 and $775, respectively, and is reflected as minority interest in WHC in the accompanying consolidated statements of operations.
 
Sale of Stock by a Subsidiary
 
The Company accounts for the sale of stock by a subsidiary of the Company in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 51, “Accounting for Sales of Stock by a Subsidiary” (“SAB 51”), which requires that the difference between the carrying amount of the parent’s investment in a subsidiary and the underlying net book value of the subsidiary after the issuance of stock by the subsidiary be reflected as either a gain or loss in the statement of operations or reflected as an equity transaction. The Company has elected to record gains or losses resulting from the sale of a subsidiary’s stock as equity transactions. The Company does not record any deferred taxes related to the SAB 51 gains associated with WHC, as it has under current federal tax rules and regulations, the ability to recover its investment in WHC on a tax free basis. On February 20, 2008, the Company and WHC entered into a Merger Agreement, pursuant to which the Company will merge into WHC. For federal income tax purposes, the merger is intended to qualify as a reorganization under the provisions of Section 368(a) of the United States Internal Revenue Code of 1986, as amended.
 
Cash and Cash Equivalents
 
All highly liquid investments with an original maturity from the date of purchase of three months or less are considered to be cash equivalents. These investments are stated at cost, which approximates market. The Company’s cash and cash equivalents are generally invested in various money market accounts.
 
HLTH 2007 Annual Report — Financial Statements Annex
 
ANNEX A-1 – PAGE 13


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Marketable Securities
 
The Company classifies its investments in marketable securities as either available-for-sale or held-to-maturity at the time of purchase and re-evaluates such classifications at each balance sheet date. The Company does not invest in trading securities. Debt securities in which the Company has the positive intent and ability to hold the securities to maturity are classified as held-to-maturity; otherwise they are classified as available-for-sale. Investments in marketable equity securities are also classified as available-for-sale.
 
Held-to-maturity securities are carried at amortized cost and available-for-sale securities are carried at fair value as of each balance sheet date. Unrealized gains and losses associated with available-for-sale securities are recorded as a component of accumulated other comprehensive income within stockholders’ equity. Realized gains and losses and declines in value determined to be other-than-temporary are recorded in the consolidated statements of operations. A decline in value of a debt security is deemed to be other-than-temporary if the Company does not have the intent and ability to retain the investment until any anticipated recovery in market value. The cost of securities is based on the specific identification method.
 
Equity Investment in EBS Master LLC
 
The Company accounts for its investment in EBS Master LLC in accordance with APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”), which stipulates that the equity method should be used to account for investments whereby an investor has “the ability to exercise significant influence over operating and financial policies of an investee,” but does not exercise control. APB 18 generally considers an investor to have the ability to exercise significant influence when it owns 20% or more of the voting stock of an investee.
 
The Company assesses the recoverability of the carrying value of its investments whenever events or changes in circumstances indicate a loss in value that is other than a temporary decline. A decline in value is deemed to be other-than-temporary, but not limited to, if the Company does not have the intent and ability to retain the investment until any anticipated recovery in carrying amount of the investment, inability of the investment to sustain an earnings capacity which would justify the carrying amount or the current fair value of the investment is less than its carrying amount.
 
Allowance for Doubtful Accounts
 
The allowance for doubtful accounts receivable reflects the Company’s best estimate of losses inherent in the Company’s receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.
 
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ANNEX A-1 – PAGE 14


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Long-Lived Assets
 
Property and Equipment
 
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The useful lives are generally as follows:
 
     
Computer equipment
  3 to 5 years
Office equipment, furniture, fixtures and other
  3 to 7 years
Software
  3 to 5 years
Web site development costs
  3 years
Leasehold improvements
  Shorter of useful life or lease term
 
Expenditures for maintenance, repair and renewals of minor items are charged to expense as incurred. Major betterments are capitalized.
 
Goodwill and Intangible Assets
 
Goodwill and intangible assets result from acquisitions accounted for under the purchase method. Goodwill is subject to impairment review by applying a fair value based test. Intangible assets with definite lives are amortized on a straight-line basis over the individually estimated useful lives of the related assets as follows:
 
     
Content
  2 to 5 years
Customer relationships
  2 to 12 years
Acquired technology and patents
  3 years
Trade names
  3 to 10 years
 
Recoverability
 
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the Company reviews the carrying value of goodwill annually and whenever indicators of impairment are present. The Company measures impairment losses by comparing the carrying value of its reporting units to the fair value of its reporting units determined using an income approach valuation. The Company’s reporting units are determined in accordance with SFAS 142, which defines a reporting unit as an operating segment or one level below an operating segment.
 
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. Long-lived assets held for sale are reported at the lower of cost or fair value less costs to sell.
 
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HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Software Development Costs
 
Internal Use Software
 
The Company accounts for internal use software development costs in accordance with Statement of Position (“SOP”) No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”). Software development costs that are incurred in the preliminary project stage are expensed as incurred. Once certain criteria of SOP 98-1 have been met, internal and external direct costs incurred in developing or obtaining computer software are capitalized in the accompanying consolidated balance sheets as property and equipment. Training and data conversion costs are expensed as incurred. Capitalized software costs are depreciated over a three-year period. The Company capitalized $5,423 and $18,391 during the years ended December 31, 2007 and 2006, respectively. Depreciation expense related to internal use software was $3,492, $7,307 and $7,122 for the years ended December 31, 2007, 2006 and 2005, respectively.
 
Web Site Development Costs
 
In accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-2, “Accounting for Web Site Development Costs,” costs related to the planning and post implementation phases of the Company’s Web site development efforts, as well as minor enhancements and maintenance, are expensed as incurred. Direct costs incurred in the development phase are capitalized. The Company capitalized $7,980 and $12,187 during the years ended December 31, 2007 and 2006, respectively. These capitalized costs are included in property and equipment in the accompanying consolidated balance sheets and are depreciated over a three-year period. Depreciation expense related to Web site development costs was $4,501 and $446 during the years ended December 31, 2007 and 2006, respectively. There was no depreciation expense related to Web site development costs during the year ended December 31, 2005.
 
Restricted Cash
 
The Company’s restricted cash primarily relates to collateral for letters of credit obtained to support the Company’s operations. As of December 31, 2007 and 2006, the total restricted cash was $15,093 and $16,260, respectively, and is included in other assets in the accompanying consolidated balance sheets.
 
Deferred Charges
 
Other assets includes costs associated with the issuance of the convertible notes that are amortized to interest expense in the accompanying consolidated statements of operations, using the effective interest method over the period from issuance through the earliest date on which holders can demand redemption. The Company capitalized $10,731 of issuance costs in connection with the issuance of the $300,00031/8% Convertible Notes due 2025 and $10,354 of issuance costs in connection with the issuance of the $350,000 1.75% Convertible Subordinated Notes due 2023. As of December 31, 2007 and 2006, the total unamortized issuance costs for all outstanding convertible notes were $11,192 and $14,108, respectively.
 
Leases
 
The Company recognizes rent expense on a straight-line basis, including predetermined fixed escalations, over the initial lease term including reasonably assured renewal periods, net of lease incentives, from the time that the Company controls the leased property. Leasehold improvements made at the inception of the lease are amortized over the shorter of the useful life of the asset or the lease term. Lease incentives are recorded as a
 
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ANNEX A-1 – PAGE 16


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
deferred credit and recognized as a reduction to rent expense on a straight-line basis over the lease term as described above.
 
Revenue
 
Recognition
 
Revenue is derived from the Company’s WebMD Segments and was derived from the Company’s EBS segment until the date of its sale on November 16, 2006.
 
  •  WebMD Online Services.  The Company generates revenue from its public portals through the sale of advertising and sponsorship products. The Company generates revenue from private portals through the licensing of its content and technology to employers, payers and others. The Company also distributes its online content and services to other entities and generates revenue from these arrangements from the sale of advertising and sponsorship products and from content syndication fees.
 
  •  WebMD Publishing and Other Services.  The Company generates revenue from sales of The Little Blue Book physician directory and from sales of advertisements in those directories and WebMD the Magazine. As a result of the acquisition of the assets of Conceptis Technologies, Inc. in December 2005, the Company also generated revenue from in-person CME programs in 2006. As of December 31, 2006, these services were no longer offered by the Company.
 
Through the WebMD Segments, the Company generates revenue from advertising which is recognized as advertisements are delivered or as publications are distributed. Revenue from sponsorship arrangements, content syndication and distribution arrangements and licenses of healthcare management tools and private portals as well as related health coaching services are recognized ratably over the term of the applicable agreement. Revenue from the sponsorship of CME is recognized over the period the Company substantially completes its contractual deliverables as determined by the applicable agreements. When contractual arrangements contain multiple elements, revenue is allocated to each element based on its relative fair value determined using prices charged when elements are sold separately. In certain instances where fair value does not exist for all the elements, the amount of revenue allocated to the delivered elements equals the total consideration less the fair value of the undelivered elements. In instances where fair value does not exist for the undelivered elements, revenue is recognized when the last element is delivered.
 
Through the date of the 2006 EBS Sale on November 16, 2006, the Company generated revenue by selling transaction services to healthcare payers and providers, generally on either a per transaction basis or, in the case of some providers, on a monthly fixed fee basis. The Company also generated revenue through EBS by selling its document conversion, patient statement and paid-claims communication services, typically on a per document, per statement or per communication basis. Revenue for transaction services, patient statement and paid-claims communication services was recognized as the services were provided. EBS generally charged a one-time implementation fee to healthcare payers and providers at the inception of a contract, in connection with their related setup to submit and receive medical claims and other related transactions through EBS’s clearinghouse network. The implementation fees were deferred and amortized to revenue on a straight-line basis over the contract period of the related transaction processing services, which generally vary from one to three years.
 
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ANNEX A-1 – PAGE 17


Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Cash receipts or billings in advance of revenue recognition are recorded as deferred revenue in the accompanying consolidated balance sheets. The deferred revenue is reversed at the time revenue is recognized.
 
Sales, Use and Value Added Tax
 
The Company excludes sales, use and value added tax from revenue in the accompanying consolidated statements of operations.
 
Advertising Costs
 
Advertising costs are generally expensed as incurred and included in sales, marketing, general and administrative expense in the accompanying consolidated statements of operations. Advertising expense totaled $15,714, $18,825 and $18,862 in 2007, 2006 and 2005, respectively. Included in advertising expense were non-cash advertising costs of $5,264, $7,414 and $10,534 in 2007, 2006 and 2005, respectively. These non-cash advertising costs resulted from the issuance of the Company’s equity securities in connection with past advertising agreements with certain service providers. The values of the equity securities issued were capitalized and are being amortized as the advertisements are broadcast or over the term of the underlying agreement. As of December 31, 2007 and 2006, the current portion of unamortized prepaid advertising costs was $2,329 and $2,656, respectively, and is included in prepaid expenses and other current assets. As of December 31, 2007 and 2006, the long-term portion of unamortized prepaid advertising costs was $4,521 and $9,459, respectively, and is included in other assets.
 
Foreign Currency
 
The financial statements and transactions of the Company’s foreign facilities are generally maintained in their local currency. In accordance with SFAS No. 52, “Foreign Currency Translation,” the translation of foreign currencies into United States dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using average exchange rates during the year. The gains or losses resulting from translation are included as a component of accumulated other comprehensive income within stockholders’ equity. Foreign currency transaction gains and losses are included in net income and were not material in any of the periods presented. The Company’s foreign operations, which are part of the Company’s Porex segment, are included in discontinued operations.
 
Concentration of Credit Risk
 
None of the Company’s customers individually accounted for more than 10% of the Company’s revenue in 2007, 2006 or 2005 or more than 10% of the Company’s accounts receivable as of December 31, 2007, 2006 or 2005, The Company’s revenue is principally generated in the United States. An adverse change in economic conditions in the United States could negatively affect the Company’s revenue and results of operations. Due to the acquisition of Conceptis Technologies, Inc., the Company recorded revenue from foreign customers of $3,660, $3,475 and $405 during the years ended December 31, 2007, 2006 and 2005, respectively.
 
Income Taxes
 
Income taxes are accounted for using the liability method in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under this method, deferred income taxes are recognized for
 
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ANNEX A-1 – PAGE 18


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HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the future tax consequence of differences between the tax and financial reporting basis of assets and liabilities at each reporting period. A valuation allowance is established to reduce deferred tax assets to the amount expected to be realized. Tax contingencies are recorded to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures result from applications of various statutes, rules, regulations and interpretations. The Company’s estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions.
 
On January 1, 2007, the Company adopted the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. Consistent with its historical financial reporting, the Company has elected to reflect interest and penalties related to uncertain tax positions as part of the income tax provision in the accompanying consolidated statements of operations. Upon adoption, the Company reduced its existing reserves for uncertain income tax positions by $1,475, primarily related to a reduction in state income tax matters. This reduction was recorded as a cumulative effect adjustment to accumulated deficit in the accompanying consolidated balance sheet. In addition, the Company reduced $5,213 of a deferred tax asset and its associated valuation allowance upon adoption of FIN 48.
 
Accounting for Stock-Based Compensation
 
On January 1, 2006, the Company adopted SFAS No. 123, “(Revised 2004): Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The Company elected to use the modified prospective transition method and as a result, prior period results were not restated. Under the modified prospective transition method, awards that were granted or modified on or after January 1, 2006 are measured and accounted for in accordance with SFAS 123R. Unvested stock options and restricted stock awards that were granted prior to January 1, 2006 will continue to be accounted for in accordance with SFAS 123, using the same grant date fair value and same expense attribution method used under SFAS 123, except that all awards are recognized in the results of operations over the remaining vesting periods. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized for all stock-based compensation beginning January 1, 2006.
 
Prior to January 1, 2006, the Company accounted for stock-based employee compensation using the intrinsic value method under the recognition and measurement principles of APB 25, and related interpretations. In accordance with APB 25, the Company did not recognize stock-based compensation cost with respect to stock options granted with an exercise price equal to the market value of the underlying common stock on the date of grant. As a result, the recognition of stock-based compensation expense was generally limited to the expense related to restricted stock awards and stock option modifications, as well as the amortization of deferred compensation related to certain acquisitions in 2000. Additionally, all restricted stock awards and stock options granted prior to January 1, 2006 had graded vesting, and the Company valued these awards and recognized actual and pro-forma expense, with respect to restricted stock awards and stock options, as if each vesting portion of the award was a separate award. This resulted in an accelerated attribution of compensation expense over the vesting period. As permitted under SFAS 123R, the Company
 
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Table of Contents

 
HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
began using a straight-line attribution method beginning January 1, 2006 for all stock options and restricted stock awards granted on or after January 1, 2006, but will continue to apply the accelerated attribution method for the remaining unvested portion of any awards granted prior to January 1, 2006.
 
Net Income Per Common Share
 
Basic income (loss) per common share and diluted income (loss) per common share are presented in conformity with SFAS No. 128, “Earnings Per Share” (“SFAS 128”). In accordance with SFAS 128, basic income (loss) per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, increased to give effect to the participating rights of the convertible redeemable exchangeable preferred stock. Diluted income per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, increased to give effect to potentially dilutive securities and assumes that any dilutive convertible notes were converted, only in the periods in which such effect is dilutive. Additionally, for purposes of calculating diluted income (loss) per common share of the Company, the numerator has been adjusted to consider the effect of potentially dilutive securities of WHC, which can dilute the portion of WHC’s net income otherwise retained by the Company. The following table presents the calculation of basic and diluted income (loss) per common share (shares in thousands):
 
                         
    Years Ended December 31,  
    2007     2006     2005  
 
Numerator:
                       
Income from continuing operations
  $ 42,077     $ 378,785     $ 36,223  
Convertible redeemable exchangeable preferred stock fee
    174       350       350  
                         
Income from continuing operations — Basic
    42,251       379,135       36,573  
Interest expense on convertible notes
          18,406        
Effect of WHC dilutive securities
    (2,053 )     (189 )     (125 )
                         
Income from continuing operations — Diluted
  $ 40,198     $ 397,352     $ 36,448  
                         
(Loss) income from discontinued operations, net of tax — Basic
  $ (22,198 )   $ 393,132     $ 32,588  
Effect of WHC dilutive securities
    (108 )     4       1  
                         
(Loss) income from discontinued operations, net of tax — Diluted
  $ (22,306 )   $ 393,136     $ 32,589  
                         
 
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HLTH CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)