SEC Probe Could Affect Pending Purchase of OnHealth Network

OnHealth Network Co., which operates a Web site offering health information, said the Securities and Exchange Commission is investigating the firm’s granting of stock options and the probe could affect its pending acquisition by Healtheon/WebMD Corp.

“If it is determined by the board of directors of Healtheon/WebMD that, as a result of developments in the SEC investigation of [OnHealth’s] stock option grants, there will be a material delay in the effectiveness of the registration statement, then Healtheon/WebMD may terminate this merger agreement,” the company said in an SEC filing.

Simultaneously, OnHealth said it has finished its own investigation into stock options issued to employees at below fair-market value. As a result, OnHealth said, it revised its 1999 annual report and its first quarterly report this year to reflect changes to its 1998, 1999 and 2000 financial results.

The firm said it restated its 1998 loss to $12.2 million, or $1.14 a share, from $12 million, or $1.12. The 1999 loss widened to $49.8 million, or $2.84 a share, from $47.3 million, or $2.70. The first-quarter loss this year was restated to $21.85 million, or 93 cents a share, from $21.89 million, or 94 cents.

The existence of the SEC probe, which began in October, was disclosed in the amended reports, which were filed Wednesday. The news release didn’t mention the SEC investigation. The company could not be reached for comment.

The filings said the Seattle-based firm hasn’t been notified of an intent to terminate the merger agreement by Healtheon/WebMD, the biggest Internet company that links physicians, patients and health-care institutions. OnHealth agreed to be purchased by Atlanta-based Healtheon/WebMD in February. The transaction was to be completed in the third quarter of this year.

A Healtheon spokeswoman declined to comment.

OnHealth Chief Executive Robert Goodman resigned this month and Chief Financial Officer Ron Stevens was named president. Stevens has said Goodman’s resignation wasn’t related to the restatement.

In Nasdaq trading, OnHealth shares rose 6 cents to close at $2.94, while Healtheon/WebMD rose $1.25 to close at $15.50.