CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.46
January 20, 1999
Xxxxxxx X. Xxxxxx
Chairman and Chief Executive Officer
WebMD, Inc.
400 The Lenox Building
0000 Xxxxxxxxx Xxxx XX
Xxxxxxx, Xxxxxxx 00000
RE: DISTRIBUTION AGREEMENT
Dear Xx. Xxxxxx:
Reference is made to that certain Investment Agreement (the "Investment
Agreement") of even date herewith between WebMD, Inc. ("WEBMD") and HBO &
Company of Georgia ("HBOCG"). Pursuant to the Investment Agreement, HBOCG has
agreed to purchase and WebMD has agreed to issue and sell to HBOCG 650,000
shares of WebMD's Series B Preferred Stock (the "SHARES") for an aggregate
purchase price of $13 million. HBOCG is a wholly owned subsidiary of McKesson
HBOC, Inc. (MCK/HBOC"). As a material inducement to McK/HBOC to cause HBOCG to
enter into the Investment Agreement and to purchase the Shares thereunder, WebMD
hereby agrees with XxX/HBOC as follows:
1. WebMD hereby appoints McK/HBOC as distributor of its WebMD service and
related products (including WebRN and other similar products now existing or
proposed to be developed by WebMD) the "WEBMD PRODUCTS") to integrated delivery
networks, acute care hospitals, long-term and alternate site care facilities,
physician offices, retail and institutional pharmacies, pharmaceutical and
biotechnology companies, and manufacturers of medical/surgical supplies (the
"MCK/HBOC MARKET"). McK/HBOC agrees to market the WebMD Products within the
McK/HBOC Market. McK/HBOC shall be the co-exclusive (with WebMD) distributor of
WebMD Products to integrated delivery networks. WebMD agrees to pay XxX/HBOC,
as a distribution service fee, $*** per month per subscription to the WebMD
service placed by McK/HBOC, but will not apply to subscriptions purchased by
McK/HBOC until such subscriptions are resold to and activated by end-user
subscribers. Such distribution fee shall be payable for every month during which
the subscriber remains a subscriber to the WebMD service, including any
extensions or renewals, whether or not McK/HBOC was involved in soliciting such
extension or renewal. In the event WebMD offers additional WebMD Products during
the term of this agreement, or raises the subscription rate for its WebMD
service, WebMD will pay McK/HBOC a monthly distribution service fee on the same
terms described above, at a rate calculated as ***% of the monthly subscription
fee payable by the subscriber. In the event WebMD pays any distributor a service
fee for
_____________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
distribution services at a higher rate than that determined in accordance with
the preceding paragraph, the fee payable to McK/HBOC shall automatically be
adjusted to such higher rate.
2. McK/HBOC agrees to place or purchase, at WebMD's current pricing as to the
date hereof, a minimum of *** three-year Basic Subscriptions to WebMD, within
twelve (12) months following the Live Date (as hereinafter defined), of which a
minimum of *** shall be placed or purchased within the first three (3) months
following the Live Date, an aggregate minimum of *** shall be placed or
purchased within the first six (6) months, and an aggregate minimum of *** shall
be placed or purchased within the first nine (9) months. Such three-year Basic
Subscriptions shall include a termination provision allowing the subscriber (or,
with respect to subscriptions purchased by McK/HBOC, McK/HBOC), to terminate the
subscription, without cost to the subscriber or McK/HBOC, after the initial
twelve months of the subscription, provided that such termination right must be
exercised no later than 30 days following the end of such initial twelve months.
(For purposes of certainty, McK/HBOC's obligation with respect to Basic
Subscriptions it purchases (i.e., rather than places) shall be to pay the
equivalent of one-year's subscription fees per subscription purchased, plus
accrued usage fees, if any, for Virtual Receptionist or other special features.)
In connection with the first *** such subscriptions placed during such twelve-
month period, McK/HBOC shall be entitled to offer to subscribers a credit of
$*** towards purchases of medical/surgical supplies made through WebMD from
McKesson General Medical, Inc. WebMD will rebate to McK/HBOC $*** for each
subscription placed by XxX/HBOC in achieving McK/HBOC's minimum obligations, as
well as any subscriptions purchased by McK/HBOC in achieving such obligations.
WebMD agrees that it will provide a promotional incentive reasonably acceptable
to XxX/HBOC, to be offered by XxX/HBOC in conjunction with subscriptions placed
in excess of the subscriptions placed or purchased to satisfy McK/HBOC's minimum
obligations. WebMD agrees to meet with XxX/HBOC in timely fashion in order to
negotiate in good faith the terms of such promotional incentive.
Notwithstanding the foregoing to the contrary,
(a) The number of subscriptions required to be placed or purchased by
XxX/HBOC hereunder or under the Prior Agreement shall in no event be
greater than (i) the number of paid subscriptions to WebMD (excluding
subscribers through McK/HBOC) or (ii) the number of additional subscribers
capable of being reasonably supported by WebMD's hardware, software and
technical support services; and
(b) McK/HBOC shall be relieved of any further obligation to place or
purchase subscriptions under this agreement and the Prior Agreement (as
hereinafter defined) if WebMD enters into "take or pay" arrangements with
distributors bringing the total number of subscriptions subject to such
arrangements above *** (including the *** subscriptions subject to such
arrangements under this agreement and the Prior Agreement).
_____________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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3. (a) In consideration of McK/HBOC's services as a distributor within the
McK/HBOC Market, WebMD agrees to feature direct and seamless Web-enabled access
to McK/HBOC Products and Services, and to constitute McK/HBOC as the exclusive
gateway for electronic commerce transactions with respect to products and
services within the Exclusive Categories (as defined in Section (f), below).
(b) WebMD will provide McK/HBOC with a minimum of $*** in WebMD's research and
development services, research and development funding, or third-party
contractor development services to develop web-enabled McK/HBOC sites in
mutually agreed and prioritized product and service areas representing the full
spectrum of the McK/HBOC Exclusive Categories (including without limitation
developing order entry functionality). Such commitment shall be allocated among
funding, WebMD development and third-party development by WebMD in its
reasonable discretion, after consultation with XxX/HBOC. To the extent the
foregoing commitment is fulfilled in the form of WebMD or third party services,
the value of such services shall be determined by agreement of the parties based
on a comparison to comparable commercially available services. The parties will
use their diligent efforts to achieve such seamless Web-enabled access so as to
allow, at a minimum, *** from McK/HBOC no later than July 1, 1999. The initial
focus of such effort shall be on developing ***; thereafter, the development
effort shall be directed toward web-enabling those other McK/HBOC Products and
Services determined by mutual prioritization. The date upon which the parties
agree that *** is industry competitive and reasonably available for use by
McK/HBOC customers is referred to herein as the "LIVE DATE." The parties agree
to meet within thirty (30) days following the execution of this letter and
negotiate in good faith functional standards and tests to be used to determine
the Live Date.
(c) During the term of this agreement, for so long as McK/HBOC is satisfying
the Performance Criteria (as defined in Section 4(c), below), the access
described in this Section 3 shall be exclusive to McK/HBOC within the Exclusive
Categories; that is, no WebMD Product shall provide access (including access
through any search engine accessible through the WebMD website, except as
provided in Section 3(e)(ii)), to any product or service to customers in the
McK/HBOC Market within the Exclusive Categories other than McK/HBOC Products and
Services.
(d) WebMD represents and warrants to McK/HBOC that it has terminated, or has
given notice of termination of (effective within no more than ninety (90) days
of the date hereof), any contractual obligation with any third party that is
inconsistent with the terms of this letter, including without limitation the
exclusivity described in this Section 3, it being understood that the agreements
identified in Section 3(h), below, shall not be deemed inconsistent with the
terms of this letter.
(e) Notwithstanding anything in this Section 3 to the contrary, (i) unframed
links to websites of companies providing such products or services may be
included as part of a comprehensive
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*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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alphabetical listing of healthcare companies in the VPM Industry Directory in
substantially the form of such directory as of the date of this letter and (ii)
WebMD shall not be obligated to restrict the listing of such companies in search
results obtained through use of any general purpose, third-party search engine
accessible on WebMD's website.
(f) For purposes of this agreement, "MCK/HBOC PRODUCTS OR SERVICES" shall mean
all products or services currently or hereafter offered by McK/HBOC, within the
following categories (the "EXCLUSIVE CATEGORIES"):
*** and
the following category, upon negotiation of an agreement between WebMD and *** a
subsidiary of McK/HBOC, that is mutually and reasonably satisfactory to the
parties,
*** and
those areas within the following categories as to which the parties shall agree
pursuant to paragraph (g), below:
***
g) Within 60 days following the date hereof, the parties shall meet and
negotiate in good faith the scope of XxX/HBOC's exclusivity with respect to
categories (v)-(vii), above and appropriate mechanisms for adjusting such scope
as McK/HBOC develops additional capabilities within those categories.
h) McK/HBOC acknowledges that WebMD has agreements with *** which may provide
access for products and services within the Exclusive Categories. To the extent
this agreement would otherwise require WebMD to provide exclusive access for
such products and services to McK/HBOC, WebMD shall provide access to McKesson
on a co-exclusive basis with such other entity for the remaining term (exclusive
of any renewal or extension term requiring WebMD's consent) of such other
entity's agreement, except in the
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*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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case of ***, to the extent such agreement provides for exclusivity to ***.
Thereafter, WebMD shall provide such access to McKesson alone on an exclusive
basis.
i) During the term of this agreement, for so long as WebMD continues to satisfy
the Performance Criteria, McK/HBOC will not enter an agreement with any Material
Competitor of WebMD to establish *** on a website operated by such Material
Competitor. For purposes of this provision, a "MATERIAL COMPETITOR" of WebMD
shall mean any national provider of web-based access to the McK/HBOC Market that
provides healthcare-related (i) content, community or services; (ii)
connectivity and communications, and (iii) e-commerce in competition with WebMD.
Nothing in this provision shall prevent McK/HBOC from ***.
4. a) The term of this agreement shall be for five (5) years beginning on the
Live Date. This agreement shall be automatically extended for an additional
five (5) year term, unless either party shall have failed to satisfy the
Performance Criteria, as hereinafter defined. Thereafter, this agreement shall
be automatically extended for an unlimited number of additional one-year
extension terms, unless either party gives written notice of termination at
least 180 days prior to the end of the then current term or extension term. If
either party shall fail to satisfy the applicable Performance Criteria, then the
other party, by written notice given no later than 90 days' prior to the
expiration of the initial five year term, may cause this agreement to terminate
without extension at the end of such initial term.
b) This agreement may only be terminated by a party upon a material breach of
any of the provisions hereof by the other party, if such breach has not been
cured within thirty (30) days following receipt of written notice thereof.
c) Within sixty (60) days following the date hereof, the parties shall agree
upon specific measurements to be applied to the parties' performance of their
respective obligations hereunder (the "PERFORMANCE CRITERIA"). The Performance
Criteria applicable to McK/HBOC shall be designed to evaluate McK/HBOC's
relative commercial competitiveness as a web-based distributor and provider of
products and services within the Exclusive Categories to the McK/HBOC Market;
the Performance Criteria applicable to WebMD shall be designed to evaluate
WebMD's relative commercial competitiveness among providers of web-based access
targeted at the McK/HBOC Market.
5. Notwithstanding any provision of this agreement to the contrary, the existing
distribution agreements between HBOCG and WebMD (collectively, the ""PRIOR
AGREEMENT") shall remain in full force and effect, provided that subscriptions
placed or purchased by McK/HBOC may be allocated, at McK/HBOC's option, to
satisfy the respective targets set forth in either agreement and to enjoy the
benefits of the respective incentives set forth in either agreement. The
parties agree to continue to negotiate in good faith to enter into a definitive
strategic
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*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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alliance agreement containing terms and conditions consistent with the foregoing
provisions and such other terms and conditions as the parties shall agree in
order to effect the intent of the foregoing provisions (the "Definitive
Agreement"). Notwithstanding the foregoing, the absence of a Definitive
Agreement shall not impair the effectiveness of the agreements set forth in this
letter. Prior to execution of a Definitive Agreement, this letter, the
Investment Agreement, and the Prior Agreement shall represent the complete
agreement of the parties regarding the subject matter hereof.
6. Neither party will issue any press release, or make any other public
statement with respect to the subject matter of this agreement without the
consent of the other party, which consent shall not be unreasonably withheld.
Please indicate your agreement to the foregoing by executing a copy of this
letter and returning it to me at the above address. This letter shall become
effective upon our receipt of your executed copy.
Sincerely,
McKesson HBOC, INC.
By: /s/
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Title: Vice President
AGREED:
WEBMD,INC.
By: /s/ X. Xxxxxxx Xxxxxx
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Title: Executive Vice President, Strategic Relations
Date: January 20, 1999
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