DEF 14A 1 d355534ddef14a.htm DEF 14A DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

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WebMD Health Corp.
 
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WEBMD HEALTH CORP.

111 Eighth Avenue

New York, New York 10011

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD JULY 24, 2012

 

 

To the Stockholders of WebMD Health Corp.:

NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of WebMD Health Corp. will be held at 9:30 a.m., Eastern time, on July 24, 2012, at the W NEW YORK – Union Square, 201 Park Avenue South, New York, New York 10003, for the following purposes:

1. To elect four Class I directors, each to serve a three-year term expiring at our Annual Meeting of Stockholders in 2015 or until his successor is elected and has qualified or his earlier resignation or removal;

2. To conduct an advisory vote on WebMD’s executive compensation;

3. To consider and vote on a proposal to ratify and approve an amendment to WebMD’s Amended and Restated 2005 Long-Term Incentive Plan to increase the number of shares of WebMD Common Stock issuable under that Plan by 1,875,000 shares; and

4. To vote on a proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as WebMD’s independent auditor for the fiscal year ending December 31, 2012; and

5. 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 June 14, 2012 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 WebMD Health Corp.

DOUGLAS W. WAMSLEY

Executive Vice President,

Co-General Counsel and Secretary

New York, New York

June 18, 2012

 

YOUR VOTE IS IMPORTANT.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,

PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.


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 involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. Information about important risks and uncertainties that could affect future results, causing those results to differ materially from those expressed in our forward-looking statements, can be found in Annex F to this Proxy Statement and in our other Securities and Exchange Commission filings. Other unknown or unpredictable factors also could have material adverse effects on our future results.

The forward-looking statements included in this Proxy Statement are made only as of the date of this Proxy Statement. Except as required by law or regulation, we do not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances.

 

WEBMD HEALTH CORP. 2011 ANNUAL REPORT

Annexes A through G of this Proxy Statement are the portions of WebMD’s Annual Report on Form 10-K for the year ended December 31, 2011 that would have been included in the 2011 Annual Report to Stockholders required to be distributed with this Proxy Statement. For 2011, WebMD will not be distributing a stand-alone Annual Report document. Annexes A through G, together with other information contained in this Proxy Statement, contain all of the information that WebMD would have included in a 2011 Annual Report to Stockholders.

 

 

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WEBMD HEALTH CORP.

111 Eighth Avenue

New York, New York 10011

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JULY 24, 2012

This Proxy Statement and the enclosed form of proxy (which we sometimes refer to as a Proxy Card) are furnished to stockholders of WebMD Health Corp., 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 $0.01 per share, for use at our Annual Meeting of Stockholders to be held on July 24, 2012, at 9:30 a.m., Eastern time, at the W NEW YORK – Union Square, 201 Park Avenue South, New York, New York, and at any adjournment or postponement thereof. The date of this Proxy Statement is June 18, 2012 and it and a form of proxy are first being mailed or otherwise delivered to stockholders on or about June 21, 2012.

SUMMARY OF PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING

The following proposals will be voted on at the Annual Meeting:

 

   

Proposal 1 — Election of four Class I directors, each to serve a three-year term expiring at the Annual Meeting of Stockholders in 2015 or until his successor is elected and has qualified or his earlier resignation or removal. The nominees are:

 

Mark J. Adler, M.D.

  

James V. Manning

Neil F. Dimick

  

Joseph E. Smith

Our Board of Directors recommends a voteFOR” the election of each of the nominees for director listed in Proposal 1.

 

   

Proposal 2 — We are providing stockholders of WebMD with the opportunity to make an advisory vote on WebMD’s executive compensation (which is commonly referred to as a “Say-on-Pay Vote” and we sometimes use that name in this Proxy Statement). As described more fully in Proposal 2, this Say-on-Pay Vote is not intended to address any specific element of compensation; instead, it is intended to provide stockholders with an opportunity to communicate their views on overall compensation practices relating to the Named Executive Officers whose compensation is described in this Proxy Statement. While the Say-on-Pay Vote is advisory and is not binding, the Compensation Committee of our Board intends to take into account the outcome of the vote when making future determinations relating to executive compensation. On behalf of our Board of Directors, the Compensation Committee recommends a vote “FOR” Proposal 2.

 

   

Proposal 3 — A proposal to ratify and approve an amendment to WebMD’s Amended and Restated 2005 Long-Term Incentive Plan to increase the number of shares of WebMD Common Stock issuable under that Plan by 1,875,000 shares. On behalf of our Board of Directors, the Compensation Committee recommends a vote “FOR” Proposal 3.

 

   

Proposal 4 — A proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as WebMD’s independent auditor for the fiscal year ending December 31, 2012. If shareholders do not ratify the appointment of Ernst & Young LLP, the Audit Committee of the Board will reconsider the appointment but is not obligated to appoint another independent registered public accounting firm. Our Board of Directors recommends a vote “FOR” Proposal 4.

VOTING RIGHTS AND RELATED MATTERS

Please complete, date and sign the accompanying proxy card and promptly return it in the enclosed envelope or otherwise mail it to us. All properly signed proxies that we receive prior to the vote at the Annual Meeting and

 

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that are not revoked will be voted (or withheld from voting, as the case may be) at the Annual Meeting according to the instructions indicated on the proxies or, if no direction is indicated, as follows:

 

   

“FOR” the election of each of the nominees for director listed in Proposal 1;

 

   

“FOR” the approval, on an advisory basis, of WebMD executive compensation as described in this Proxy Statement;

 

   

“FOR” the ratification and approval of the amendment to WebMD’s Amended and Restated 2005 Long-Term Incentive Plan (which we refer to, in this Proxy Statement, as the 2005 Plan or the WebMD 2005 Plan) described in Proposal 3; and

 

   

“FOR” the ratification of the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as WebMD’s independent auditor for the fiscal year ending December 31, 2012.

None of the proposals requires the approval of any other proposal to become effective.

There are no other matters that the Board intends to present, or has reason to believe others will present, for action at the Annual Meeting. If you have returned your signed and completed Proxy Card and other matters are properly presented for voting at the Annual Meeting, the persons named in the Proxy Card will have discretion to vote, on your behalf, on these matters in accordance with their judgment.

A stockholder may revoke a proxy at any time before it is exercised at the Annual Meeting by taking any of the following actions:

 

   

delivering to the Secretary of WebMD, at the address set forth above, prior to the vote at the 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 Annual Meeting; or

 

   

attending the Annual Meeting and voting in person, although attendance at the meeting will not, by itself, revoke a proxy.

Please note, however, that if a stockholder’s shares are held of record by a broker, bank or other nominee and that stockholder wishes to vote at the Annual Meeting, the stockholder must bring to the meeting a letter from the broker, bank or other nominee confirming the stockholder’s beneficial ownership of the shares.

Record Date and Outstanding Shares

Our Board of Directors has fixed the close of business on June 14, 2012 as the record date for the determination of our stockholders entitled to notice of and to vote at our Annual Meeting. Only holders of record of our Common Stock at the close of business on the record date are entitled to notice of and to vote at the meeting. No other voting securities of WebMD are outstanding. Votes may be cast either in person or by properly executed proxy.

As of the close of business on the record date, there were 50,212,465 shares of our Common Stock outstanding and entitled to vote held of record by approximately 1,640 stockholders, although we believe that there are more than 30,000 beneficial owners of our Common Stock. Unvested shares of restricted Common Stock granted under WebMD’s 2005 Plan (which we refer to as WebMD Restricted Stock) are entitled to vote at the Annual Meeting and are included in the above number of outstanding shares of Common Stock.

Vote and Quorum Required

The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of WebMD 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

 

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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 WebMD 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 four nominees receiving the greatest number of votes for their election will be elected. Abstentions, broker non-votes 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 election.

Proposal 2 (Advisory Vote on Executive Compensation), Proposal 3 (Amendment to 2005 Plan) and Proposal 4 (Ratification of Appointment of Independent Registered Public Accounting Firm).    The affirmative vote of the holders of a majority of the voting power of the outstanding shares present or represented at the meeting and entitled to vote on the matter is required to approve, on an advisory basis, WebMD’s executive compensation, to ratify and approve the amendment to the 2005 Plan and to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as WebMD’s independent auditor. Abstentions with respect to Proposal 2, Proposal 3 or Proposal 4 will be treated as shares that are present or represented at the meeting, but will not be counted in favor of the respective proposal. Accordingly, an abstention from voting on Proposal 2, Proposal 3 or Proposal 4 will have the same effect as a vote “AGAINST” the respective proposal. Broker non-votes will have no impact on these proposals since shares that have not been voted by brokers are not considered “shares present” for voting purposes.

Expenses of Proxy Solicitation

We will pay the expenses of soliciting proxies from our stockholders to be voted at the Annual Meeting and the cost of preparing and mailing this Proxy Statement to our stockholders. Following the original mailing of this Proxy Statement and other soliciting materials, we and our agents also may solicit proxies by mail, telephone, facsimile or in person. In addition, proxies may be solicited from our stockholders by our 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, we will request brokers, custodians, nominees and other record holders of our Common Stock to forward copies of this Proxy Statement and other soliciting materials to persons for whom they hold shares of our Common Stock and to request authority for the exercise of proxies. In these cases, we will, upon the request of the record holders, reimburse these holders for their reasonable expenses. We have retained Innisfree M&A Incorporated, a proxy solicitation firm, for assistance in connection with the solicitation of proxies for our Annual Meeting and will pay customary fees plus reimbursement of out-of-pocket expenses.

No Appraisal Rights

Holders of our Common Stock are not entitled to appraisal rights with respect to the proposals to be considered at the Annual Meeting.

 

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DIRECTORS AND EXECUTIVE OFFICERS

The charts below list our directors and executive officers and are followed by biographical information about them. The biographical information regarding each member of our Board of Directors ends with a statement regarding that member’s qualification for service on our Board, as considered by the Nominating & Governance Committee of our Board (regardless of whether the individual director is up for election this year).

Directors

 

Name

  Age     

Positions

Mark J. Adler, M.D.(3)

    55       Director; Chairman of the Compensation Committee

Kevin M. Cameron

    46       Director; Special Advisor to the Chairman of the Board

Neil F. Dimick(1)(2)(4)

    62       Director; Chairman of the Nominating & Governance Committee

Jerome C. Keller(4)

    69       Director

James V. Manning(1)(2)

    65       Director; Chairman of the Audit Committee

Abdool Rahim Moossa, M.D.(4)

    72       Director

Cavan M. Redmond(1)

    51       Director; Chief Executive Officer

Herman Sarkowsky(3)

    87       Director

Joseph E. Smith(3)

    73       Director

Stanley S. Trotman, Jr.(1)(2)

    68       Director

Martin J. Wygod(1)

    72       Chairman of the Board

 

 

(1) Member of the Executive Committee

 

(2) Member of the Audit Committee

 

(3) Member of the Compensation Committee

 

(4) Member of the Nominating & Governance Committee

For a description of each of the standing committees of the Board of Directors and other corporate governance matters, see “Corporate Governance” below.

Executive Officers

 

Name

  Age     

Positions

Cavan M. Redmond

    51       Chief Executive Officer

Anthony Vuolo

    54       Executive Vice President and Chief Financial Officer

Gregory A. Mason

    49       Executive Vice President — Consumer Services

Michael B. Glick

    55       Executive Vice President and Co-General Counsel

William Pence

    49       Executive Vice President, Chief Operating Officer and Chief Technology Officer

Douglas W. Wamsley

    53       Executive Vice President, Co-General Counsel and Secretary

Martin J. Wygod

    72       Chairman of the Board

Steven Zatz, M.D.

    55       Executive Vice President — Professional Services

Mark J. Adler, M.D., has been a member of WebMD’s Board of Directors since September 2005. From September 2000 until completion of WebMD’s merger with HLTH Corporation (which we refer to as HLTH), the former parent company of WebMD, in October 2009 (which we refer to as the Merger), Dr. Adler was a member of HLTH’s Board of Directors. Dr. Adler is an oncologist and served for over ten years as Chief Executive Officer of the San Diego Cancer Center until its acquisition in February 2011 by the University of California. He continues as a director of this cancer center and is a director of the San Diego Cancer Research Institute. Until April 2006, he had also served, for more than five years, as the Chief Executive Officer of the combined internal medicine and oncology group of Medical Group of North County in San Diego, California. Dr. Adler’s qualifications for membership on WebMD’s Board of Directors include: his many years of

 

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experience as a physician and an executive of a physician practice; and his prior service as a director of WebMD, HLTH and predecessor companies.

Kevin M. Cameron became a member of WebMD’s Board of Directors in October 2009, upon completion of the Merger. Mr. Cameron had been a member of HLTH’s Board of Directors from October 2004 until the Merger. He also served as Chief Executive Officer of HLTH from October 2004 until February 2008, when he went on medical leave. Since November 2009, Mr. Cameron has served as Special Advisor to the Chairman of WebMD. 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 of HLTH. 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. Mr. Cameron’s qualifications for membership on WebMD’s Board of Directors include: his prior service as an executive of WebMD and predecessor companies (including his service as Chief Executive Officer of HLTH) and on HLTH’s Board; and his experience as an investment banker specializing in healthcare, as described above.

Neil F. Dimick has been a member of WebMD’s Board of Directors since September 2005. From December 2002 until completion of the Merger in October 2009, Mr. Dimick was a member of HLTH’s Board of Directors. 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. Mr. Dimick’s qualifications for membership on WebMD’s Board of Directors include: his prior service as a director of WebMD and HLTH; his experience as a director of other public companies, as described above; his experience as a public company chief financial officer, as described above; and his experience, prior to that, as a CPA and partner of a major public accounting firm.

Michael B. Glick became Executive Vice President and Co-General Counsel of WebMD in May 2012. He served as Senior Vice President and Assistant General Counsel of WebMD from 2007 until May 2012 and, before that, had served as Senior Vice President and Assistant General Counsel of HLTH and its predecessors for more than five years.

Jerome C. Keller has been a member of WebMD’s Board of Directors since September 2005. From 1997 until he retired in October 2005, Mr. Keller served as Senior Vice President, Sales and Marketing at Martek Biosciences Corporation, a company that develops and sells microalgae products, and he served from October 2005 until its acquisition by Royal DSM N.V. in February 2011, as a member of its board of directors. He served as Vice President of Sales for Merck & Co. Inc., a pharmaceutical company, from 1986 to 1993. Mr. Keller’s qualifications for membership on WebMD’s Board of Directors include: his prior service as a member of the WebMD Board; his service on the Board of Directors of Martek; and his many years of experience as an executive of and consultant to pharmaceutical manufacturers and other healthcare companies.

James V. Manning has been a member of WebMD’s Board of Directors since September 2005. From September 2000 until completion of the Merger in October 2009, Mr. Manning was a member of HLTH’s Board of Directors. Prior to that, he was a member of a predecessor company’s board of directors for more than five years. Mr. Manning’s qualifications for membership on WebMD’s Board of Directors include: his prior service as a director of WebMD, HLTH and predecessor companies in the healthcare industry; his experience as a chief financial officer of several public companies (including of Medco Containment Services, Inc. for more than five years prior to 1994); and his experience, prior to that, as a CPA and partner of a major public accounting firm.

 

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Gregory A. Mason joined WebMD as Executive Vice President, Consumer Services in June 2011. From 2010 until joining WebMD, Mr. Mason served as Senior Vice President and General Manager of the Technology, Business & News Division of CBS Interactive, the online operations of CBS Corporation. For more than five years prior to that, he served in various management positions at CBS Interactive and, prior to its acquisition by CBS, at CNET, an online media company with a focus on technology.

Abdool Rahim Moossa, M.D. has been a member of WebMD’s Board of Directors since September 2005. Since 2003, he has served as the Distinguished Professor of Surgery and Emeritus Chairman of the Department of Surgery, at the School of Medicine, University of California, San Diego (UCSD). From 2003 to 2009, Dr. Moossa also served as Associate Dean and Special Counsel to the Vice Chancellor for Health Sciences and Director of Tertiary and Quaternary Referral Services for UCSD. Prior to that, he served as Professor and Chairman, Department of Surgery, UCSD from 1983 to 2003. He also serves as a member of the board of directors of the Foundation for Surgical Education. Dr. Moossa’s qualifications for membership on WebMD’s Board of Directors include: his prior service on the WebMD Board; and his many years of experience as a physician and as an educator of physicians.

William Pence has served as Executive Vice President and Chief Technology Officer of WebMD since November 2007 and has also served as Chief Operating Officer of WebMD since May 2012. Before joining WebMD, Mr. Pence had served as Chief Technology Officer and Senior Vice President at Napster since 2003. From 2000 to 2003, Mr. Pence was the Chief Technology Officer for Universal Music Group’s online initiatives and for the pressplay joint venture with Sony. That joint venture later served as the basis for the relaunched Napster service. Previously, Mr. Pence spent more than a decade at IBM, where he held various technology management positions in research as well as in the software division, focused on guiding research and development and commercializing technology for IBM product divisions. Mr. Pence received a Bachelor of Science in Physics from the University of Virginia, and a Ph.D. in Electrical Engineering from Cornell University.

Cavan M. Redmond became Chief Executive Officer of WebMD on May 31, 2012. From August 2011 until joining WebMD, Mr. Redmond served as Group President, Animal Health, Consumer Healthcare and Corporate Strategy of Pfizer Inc., a pharmaceutical company. He served as Pfizer’s Group President, Animal Health, Consumer Healthcare, Capsugel and Corporate Strategy from December 2010 until August 2011 and as its Senior Vice President and Group President, Pfizer Diversified Businesses from October 2009 until December 2010. Prior to Pfizer’s acquisition of Wyeth, a pharmaceutical company, Mr. Redmond served as President, Wyeth Consumer Healthcare and Animal Health Business from May 2009 until October 2009. Before that, he held the positions of President, Wyeth Consumer Healthcare from December 2007 until May 2009 and Executive Vice President and General Manager, BioPharma, Wyeth Pharmaceuticals from 2003 until December 2007. Mr. Redmond serves as a member of the WebMD Board based on his role as Chief Executive Officer of WebMD and the Board’s belief that it is appropriate for the Chief Executive Officer to be a member of the Board, and based on his experience as a senior executive of pharmaceutical companies described above.

Herman Sarkowsky became a member of WebMD’s Board of Directors in October 2009, upon completion of the Merger. Mr. Sarkowsky was a member of HLTH’s Board of Directors from November 2000 until the Merger. Prior to that, he 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. From July 2010 until December 2011, Mr. Sarkowsky was a member of the Board of Directors of Power Efficiency Corp., which develops and markets energy saving technologies for electric motors. Since 2009, Mr. Sarkowsky has been a member of The UW Medicine Board, which advises and assists the chief executive officer and the dean of the School of Medicine of the University of Washington in strategic planning and oversight of programs across UW Medicine. Prior to that, Mr. Sarkowsky served on the University of Washington Hospital Board for 12 years, during two of which he was chairman of that board. Mr. Sarkowsky’s qualifications for membership on WebMD’s Board of Directors include: his prior service as a director of WebMD, HLTH and predecessor companies; his service on the other boards described above; and his experience as an investor in public and private companies.

 

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Joseph E. Smith became a member of WebMD’s Board of Directors in October 2009, upon completion of the Merger. Mr. Smith was a member of HLTH’s Board of Directors from September 2000 until the Merger. 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 is a member of the Board of Directors of Par Pharmaceutical Companies, Inc., a manufacturer and distributor of generic and branded pharmaceuticals, and serves as Lead Director of that board. He is a member of the Board of Trustees of the International Longevity Center, a non-profit organization. Mr. Smith’s qualifications for membership on WebMD’s Board of Directors include: his prior service as a director of WebMD, HLTH and a predecessor company; his many years of experience as an executive of a pharmaceutical manufacturer; and his service on the boards of other public and private companies in the healthcare industry.

Stanley S. Trotman, Jr. has been a member of WebMD’s Board of Directors since September 2005. Mr. Trotman retired in 2001 from UBS Financial Services, Inc. after it acquired, in 2000, PaineWebber Incorporated, an investment banking firm where he had been a Managing Director with the Health Care Group since 1995. He serves as a member of the board of directors of American Shared Hospital Services, a public company that provides radio surgery services to medical centers for use in brain surgery. He also serves as a director of Ascend Health Care Corp., a privately-held company that provides services to acute psychiatric patients. Mr. Trotman’s qualifications for membership on WebMD’s Board of Directors include: his prior service as a director of WebMD; his experience as a director of other public and private companies in various aspects of the healthcare industry; and his experience as an investment banker specializing in healthcare companies.

Anthony Vuolo has served as Chief Financial Officer of WebMD since November 2009 and is an Executive Vice President. From January 2012 until May 2012, he served as Interim Chief Executive Officer of WebMD. Mr. Vuolo served as Chief Operating Officer of WebMD from July 2007 until January 2012. From May 2005 until August 2007, Mr. Vuolo served as Executive Vice President and Chief Financial Officer of WebMD. Prior to that, Mr. Vuolo served in senior financial, operational and business development positions at HLTH and its predecessors for more than ten years.

Douglas W. Wamsley served as Executive Vice President, General Counsel and Secretary of WebMD from July 2005 until May 2012, when he began to serve as Executive Vice President, Co-General Counsel and Secretary. From September 2001 until July 2005, Mr. Wamsley served as Senior Vice President — Legal of HLTH, focusing on its WebMD segment.

Martin J. Wygod has, since May 2005, served as Chairman of the Board of WebMD. From March 2001 until the Merger in October 2009, Mr. Wygod served as HLTH’s Chairman of the Board and served as a member of its Board of Directors from September 2000 until the Merger. Mr. Wygod also served as HLTH’s Acting Chief Executive Officer from February 2008 until the Merger and as its Chief Executive Officer from September 2000 until May 2003. He is also engaged in the business of racing, boarding and breeding thoroughbred horses, and is President of River Edge Farm, Inc. Mr. Wygod’s qualifications for membership on WebMD’s Board of Directors include: his prior service as an executive officer and director of WebMD, HLTH and predecessor companies and as an executive officer and director of other companies in the healthcare industry.

Steven Zatz, M.D. has, since July 2005, served as Executive Vice President, Professional Services of WebMD. From October 2000 to July 2005, Dr. Zatz had similar responsibilities at HLTH, where he focused on the physician portals. Dr. Zatz was Senior Vice President, Medical Director of CareInsite, Inc. from June 1999 until its acquisition by HLTH in September 2000. Prior to joining CareInsite, Dr. Zatz was a Senior Vice President of RR Donnelly Financial in charge of its healthcare business from October 1998 to May 1999. From August 1995 to May 1998, Dr. Zatz was President of Physicians’ Online, an online portal for physicians.

No family relationship exists among any of our directors or executive officers. No arrangement or understanding exists between any director or executive officer of WebMD and any other person pursuant to which any of them were selected as a director or executive officer, except that Messrs. Cameron, Sarkowsky and Smith were originally appointed as directors of WebMD in connection with the Merger in October 2009, pursuant to the merger agreement between HLTH and WebMD.

 

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On June 8, 2012, WebMD entered into a Director Appointment Agreement (the “Appointment Agreement”) with Barberry Corp., Beckton Corp., Icahn Capital LP, Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., Icahn Offshore LP, Icahn Onshore LP, Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP, Icahn Partners Master Fund III LP, IPH GP LLC, High River Limited Partnership, Hopper Investments LLC, Carl C. Icahn, Brett Icahn and David Schechter (together, the “Icahn Group”). The Appointment Agreement provides, among other things, that effective as of the date of our 2012 Annual Meeting:

 

   

the size of our Board of Directors will be increased from 11 to 12 directors; and

 

   

David Schechter (or his replacement) will be appointed to the Board of Directors as a Class II director, with a term expiring at our Annual Meeting of Stockholders in 2013.

For additional information regarding the Appointment Agreement and Mr. Schechter, see “Certain Relationships and Related Transactions — Director Appointment Agreement with the Icahn Group” below. For information regarding the Icahn Group’s holdings of WebMD Common Stock, see “Security Ownership by Principal Stockholders and Management” below.

 

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SECURITY OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of WebMD Common Stock, as of June 14, 2012 (except where otherwise indicated), by each person or entity known by us to beneficially own more than 5% of the outstanding shares of WebMD Common Stock, by each of our directors, by each of our Named Executive Officers and by all of our 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 our Common Stock shown as beneficially owned by them. Unless otherwise indicated, the address of each of the beneficial owners identified is c/o WebMD Health Corp., 111 Eighth Avenue, New York, NY 10011.

 

Name and Address
of Beneficial Owner

   Common
Stock(1)
    Other(2)     Total
Shares
     Percent of
Outstanding(2)
 

Icahn Group(3)

767 Fifth Avenue, 47th Floor

New York, NY 10153

     6,700,525               6,700,525         13.3

Kensico Capital Management Corporation,

Michael Lowenstein and Thomas J. Coleman(4)

55 Railroad Avenue, 2nd Floor

Greenwich, CT 06830

  

 

 

 

6,577,901

 

  

 

 

 

 

 

  

 

 

 

 

6,577,901

 

  

  

 

 

 

13.1

 

Soros Fund Management LLC

George Soros and Robert Soros(5)

888 Seventh Avenue, 33rd Floor

New York, NY 10106

  

 

 

 

 

  

 

 

 

 

3,724,989

 

(5) 

 

 

 

 

3,724,989

 

  

  

 

 

 

6.9

 

Mark J. Adler, M.D.

     10,624 (6)      54,080        64,704         *   

Kevin M. Cameron

     163,187 (7)      792,234        955,421         1.9

Neil F. Dimick

     18,739        121,973        140,712         *   

Jerome C. Keller

     11,226 (8)      59,400        70,626         *   

James V. Manning

     212,551 (9)      22,458        235,009         *   

Gregory Mason

     54,500 (10)      18,750        73,250         *   

Abdool Rahim Moossa

     5,498        39,600        45,098         *   

William Pence

     29,327 (11)      56,250        85,577         *   

Cavan M. Redmond

     45,000 (12)             45,000         *   

Herman Sarkowsky

     103,061 (13)      91,591        194,652         *   

Joseph E. Smith

     36,689        96,479        133,168         *   

Stanley S. Trotman, Jr.

     39,531 (14)      59,400        98,931         *   

Anthony Vuolo

     206,705 (15)      157,994        364,699         *   

Martin J. Wygod

     1,415,981 (16)      184,438        1,600,419         3.2

All executive officers and directors as a group (17 persons)

     2,469,301        1,912,979        4,382,280         8.4

 

 

 * Less than 1%.

 

 (1) The amounts set forth in this column include shares of WebMD Common Stock held in the accounts of Messrs. Cameron, Glick, Keller, Wamsley and Wygod and Dr. Zatz in the 401(k) Plan (which we refer to in this table as 401(k) Plan Shares) in the respective amounts stated in the footnotes below, all of which are vested in accordance with the terms of the Plan. The amount set forth in this column for “All executive officers and directors as a group” includes 835 401(k) Plan Shares, all of which are vested in accordance with the terms of the 401(k) Plan.

Certain of the individuals listed in this table are beneficial owners of shares of unvested WebMD Restricted Stock in the respective amounts stated in the footnotes below. Holders of shares of restricted WebMD Common Stock issued under the 2005 Plan (which we refer to as WebMD Restricted Stock) have voting power, but not dispositive power, with respect to unvested shares of WebMD Restricted Stock.

 

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   (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”: (a) with respect to each director and executive officer for whom an amount in that column is listed, the number of shares of WebMD Common Stock that such person has the right to acquire pursuant to options that are currently exercisable or that will be exercisable within 60 days of June 14, 2012; and (b) with respect to the ownership described in Footnote 5 below, the shares of WebMD Common Stock that those persons currently have the right to acquire upon conversion of our Convertible Notes. We have calculated the percentages set forth in the column entitled “Percent of Outstanding” based on the number of shares outstanding as of June 14, 2012 (which was 50,212,465, including all outstanding unvested shares of WebMD Restricted Stock) plus, for each listed person or group, the number of additional shares deemed outstanding, as set forth in the column entitled “Other.”

 

   (3) This information shown is as of June 8, 2012 and is based upon information disclosed in a Schedule 13D filed with the SEC by the Icahn Group, as amended on June 11, 2012. They reported shared power to vote and shared power to dispose of or to direct the disposition of shares included in the amount shown. See “Certain Relationships and Related Transactions — Director Appointment Agreement with the Icahn Group” below for additional information.

 

   (4) The information shown is as of November 3, 2011 and is based upon information disclosed by Kensico Capital Management Corporation, Michael Lowenstein and Thomas J. Coleman in a Schedule 13G filed with the SEC, as amended on November 7, 2011. Such persons reported that they had shared power to vote and shared power to dispose of or to direct the disposition of shares included in the amount shown.

 

   (5) The information shown is as of December 31, 2011 and is based upon information disclosed by Soros Fund Management LLC, George Soros and Robert Soros in a Schedule 13G/A filed with the SEC on January 6, 2012. Such persons reported that they had shared power to vote and shared power to dispose of or to direct the disposition of shares included in the amount shown, all of which are issuable upon conversion of Convertible Notes.

 

   (6) Includes: 7,624 shares held by Dr. Adler; and 3,000 shares held by Dr. Adler through an IRA.

 

   (7) Includes: 59,784 shares held by Mr. Cameron; 69 401(k) Plan Shares; and 103,334 unvested shares of WebMD Restricted Stock.

 

   (8) Includes: 11,157 shares held by Mr. Keller; and 69 401(k) Plan Shares.

 

   (9) Includes: 205,663 shares held by Mr. Manning; 5,555 shares held by Mr. Manning through an IRA; and 1,333 shares held by Mr. Manning’s wife through an IRA.

 

  (10) Represents unvested shares of WebMD Restricted Stock.

 

  (11) Includes: 6,702 shares held by Mr. Pence; and 22,625 unvested shares of WebMD Restricted Stock.

 

  (12) Represents unvested shares of WebMD Restricted Stock.

 

  (13) Includes: 88,061 shares held by Mr. Sarkowsky; 2,000 shares held by Mr. Sarkowsky’s wife; 3,000 shares held by SPF Holdings (an entity controlled by Mr. Sarkowsky); and 10,000 shares held by The Sarkowsky Family LLP (entities controlled by Mr. Sarkowsky).

 

  (14) Includes: 28,596 shares held by Mr. Trotman; and 10,935 shares held by The Stanley S. Trotman, Jr. Trust, of which Mr. Trotman is a trustee.

 

  (15) Includes: 129,955 shares held by Mr. Vuolo; and 76,750 unvested shares of WebMD Restricted Stock.

 

  (16) Includes: 88,820 shares held by Mr. Wygod; 105 401(k) Plan Shares; 222,564 shares of unvested WebMD Restricted Stock; 1,070,575 shares held by The Wygod Family Revocable Living Trust, of which Mr. Wygod is a trustee and shares voting and dispositive power; 2,222 shares held by Mr. Wygod’s spouse; 31,695 shares held by SYNC, Inc., which is controlled by Mr. Wygod.

 

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than ten percent of a registered class of our 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 us with copies of all Section 16(a) forms they file. Based solely upon a review of the forms furnished to us during or with respect to our most recent fiscal year, all of our directors and officers subject to the reporting requirements and each beneficial owner of more than ten percent of our Common Stock satisfied all applicable filing requirements under Section 16(a).

 

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PROPOSAL 1: ELECTION OF DIRECTORS

Proposal 1 is the election of four Class I directors, each to serve a three-year term expiring at the Annual Meeting of Stockholders in 2015 or until his successor is elected and has qualified or his earlier resignation or removal.

WebMD’s Board of Directors has 11 members and, under its Restated Certificate of Incorporation, is divided into three classes. Under WebMD’s Restated Certificate of Incorporation, at each of its Annual Meetings, the term of one of the classes of directors expires and WebMD 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 four Class I directors, Mark J. Adler, M.D., Neil F. Dimick, James V. Manning and Joseph E. Smith, are scheduled to expire. The terms of Kevin M. Cameron, Stanley S. Trotman and Abdool Rahim Moossa, M.D. are scheduled to expire at the Annual Meeting in 2013. The terms of Jerome C. Keller, Cavan M. Redmond, Herman Sarkowsky and Martin J. Wygod are scheduled to expire at the Annual Meeting in 2014.

The Board of Directors, based on the recommendation of the Nominating & Governance Committee of the Board, has nominated Dr. Adler and Messrs. Dimick, Manning and Smith for re-election at the Annual Meeting, each to serve a three-year term expiring at the Annual Meeting in 2015 or until his successor is elected and has qualified or his earlier resignation or removal. The Board of Directors recommends a vote “FOR” the election of these nominees as directors.

The persons named in the enclosed proxy intend to vote for the election of Dr. Adler and Messrs. Dimick, Manning and Smith, unless you indicate on the Proxy Card that your vote should be withheld.

WebMD has inquired of each nominee and has determined that each will serve if elected. While WebMD’s 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 biographical information regarding the nominees and other directors and information regarding each nominee’s qualification for service on our Board, as considered by the Nominating & Governance Committee of our Board, see “Directors and Executive Officers” above. For information regarding corporate governance and related matters involving WebMD’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.

 

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CORPORATE GOVERNANCE

Board of Directors

Our Board of Directors has 11 members. Three of the members are employees of WebMD and the other eight are “Non-Employee Directors.” The three employee directors are: Mr. Wygod, Chairman of the Board; Mr. Redmond, Chief Executive Officer; and Mr. Cameron, Special Advisor to the Chairman. The Non-Employee Directors are: Drs. Adler and Moossa and Messrs. Dimick, Keller, Manning, Sarkowsky, Smith and Trotman. The Non-Employee Directors meet regularly in private sessions with the Chairman of the Board and also meet without any employee directors or other WebMD employees present. For information regarding the compensation of our Non-Employee Directors, see “Non-Employee Director Compensation” below.

Our Board of Directors met 15 times in 2011. During 2011, each of our directors attended 75% or more of the meetings held by our Board and the Board committees on which he served. In addition to meetings, our Board and its committees reviewed and acted upon matters by unanimous written consent. All but two of the members of our Board of Directors attended our 2011 Annual Meeting and all but one of the members of our Board attended our 2010 Annual Meeting.

See “Certain Relationships and Related Transactions — Director Appointment Agreement with the Icahn Group” below for information regarding an agreement we entered into on June 8, 2012 with the Icahn Group, pursuant to which, effective as of the date of our 2012 Annual Meeting: the size of our Board of Directors will be increased from 11 to 12 directors; and David Schechter (or his replacement) will be appointed to the Board of Directors as a Class II director, with a term expiring at our Annual Meeting of Stockholders in 2013.

Director Independence

Our Board of Directors has delegated to the Nominating & Governance Committee of the Board the authority to make determinations regarding the independence of members of the Board. The Nominating & Governance Committee has determined that Drs. Adler and Moossa, and Messrs. Dimick, Keller, Manning, Sarkowsky, Smith and Trotman (all eight of our Non-Employee Directors) are “independent” in accordance with the published listing requirements of the Nasdaq Global Select Market applicable generally to members of our Board and, with respect to the committees of our Board on which they serve, those applicable to the specific committees. Messrs. Cameron, Redmond and Wygod, as current employees of our 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 Nominating & Governance Committee of our Board has made a subjective determination as to each Non-Employee Director that no relationships exist that, in the opinion of the Nominating & Governance 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 Nominating & Governance Committee considered that (1) he had, more than ten years ago, served as an executive officer of a predecessor of HLTH, and (2) he and Mr. Wygod both serve as trustees of the WebMD Health Foundation, Inc., a charitable foundation. In considering whether Mr. Keller qualified as “independent,” the Nominating & Governance Committee considered the fact that he had previously served as a part-time employee of HLTH for a short period, more than six years ago. In considering whether Mr. Sarkowsky qualified as “independent,” the Nominating & Governance Committee considered the fact that he and Mr. Wygod have jointly owned race horses and been involved in related transactions. Each member of the Nominating & Governance Committee abstained from voting with respect to his own independence.

Corporate Leadership Structure

Since WebMD’s initial public offering in 2005, the positions of Chairman of the Board and Chief Executive Officer have not been held simultaneously by one person. The Board believes that this separation of the positions

 

12


of Chief Executive Officer and the Chairman of the Board is appropriate because it enables the Chief Executive Officer to focus on executing our business plan and the day-to-day operation of our business and allows the Chairman of the Board to focus on overall strategy, strategic relationships and transactions intended to create long-term value for stockholders and facilitating the flow of information between the Board and management. The Board has chosen not to have a non-executive Chairman of the Board or a lead outside director because it believes that its outside director members work well together as a group and in their assigned committees, without designating a single leader among them, and have various avenues of communication, both individually and as a group, to provide their views to management. One such avenue is the Strategic Planning Committee of the Board, which meets between Board meetings for informal discussions with the Chairman of the Board and, at some of its meetings, with the Chief Executive Officer regarding WebMD’s business strategies and their implementation and any other matters that the Non-Employee Directors wish to discuss with management. See “— Committees of the Board of Directors — Other Committees — Strategic Planning Committee” below.

Communications with Our Directors

Our Board of Directors encourages our security holders to communicate in writing to our directors. Security holders may send written communications to our Board of Directors or to specified individual directors by sending such communications care of the Corporate Secretary’s Office, WebMD Health Corp., 111 Eighth Avenue, New York, New York 10011. Such communications will be reviewed by our Legal Department and, depending on the content, will be:

 

   

forwarded to the addressees or distributed at the next scheduled Board meeting; or

 

   

if they relate to financial or accounting matters, forwarded to the Board’s 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 Board’s Nominating & Governance Committee or discussed at the next scheduled Nominating & Governance Committee meeting; or

 

   

if they relate to the operations of WebMD, forwarded to the appropriate officers of WebMD, 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 our Board in the corporate governance of our company. With respect to certain committees, including the Audit Committee, the Compensation Committee and the Nominating & Governance Committee, a portion of their responsibilities are specified by SEC rules and Nasdaq listing standards. The Compensation Committee, the Audit Committee and the Nominating & Governance Committee each has the authority to retain such outside advisors as it may determine to be appropriate.

Executive Committee.    The Executive Committee, which did not meet during 2011, is currently comprised of Messrs. Dimick, Manning, Redmond, Trotman and Wygod. 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 eight times during 2011, is currently comprised of Messrs. Dimick, Manning and Trotman; 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 Nominating & Governance Committee has determined that Messrs. Dimick and Manning qualify as “audit committee financial experts,” as that term is used in applicable SEC regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002. The determination with respect to Mr. Dimick was 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 a public company. The determination with respect to Mr. Manning was 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.

 

13


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 that Charter, as amended through October 28, 2011, is included as Annex H to this Proxy Statement. The Audit Committee’s responsibilities are summarized below in “Report of the Audit Committee” (following Proposal 4) and include oversight of the administration of WebMD’s Code of Business Conduct. A copy of the Code of Business Conduct, as amended in September 2010, was filed as Exhibit 14.1 to the Current Report on Form 8-K that WebMD filed on September 17, 2010. The Code of Business Conduct applies to all directors and employees of WebMD and its subsidiaries. Any waiver of applicable requirements in the Code of Business Conduct that is granted to any directors, the 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 WebMD requires the approval of the Audit Committee and waivers will be disclosed on WebMD’s corporate Web site, www.wbmd.com, in the “Investor Relations” section, or in a Current Report on Form 8-K.

Compensation Committee.    The Compensation Committee, which met eight times during 2011, 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 our executive compensation program and our incentive and equity compensation plans;

 

   

determination of compensation levels for and grants of incentive and equity-based awards to our 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 our compensation practices.

In addition, the Board has delegated to the Compensation Committee the authority to make recommendations to stockholders, on behalf of the Board, regarding voting on Proposal 2 in this Proxy Statement and the authority to make all determinations relating to Proposal 2, including the determinations regarding how to evaluate and respond to the vote on that Proposal.

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 that Charter, as amended through October 28, 2011, is included as Annex I to this Proxy Statement. For additional information regarding our Compensation Committee and its oversight of executive compensation, see “Executive Compensation — Compensation Discussion and Analysis” below.

Nominating & Governance Committee.    The Nominating & Governance Committee, which met four times during 2011, is currently comprised of Dr. Moossa and Messrs. Dimick and Keller; Mr. Dimick is its Chairman. Each of these directors is an independent director under applicable Nasdaq Global Select Market listing standards. The Nominating & Governance 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 & Governance Committee. A copy of that Charter, as amended through October 28, 2011, is included as Annex J to this Proxy Statement. The responsibilities delegated by the Board to the Nominating & Governance Committee include:

 

   

identifying individuals qualified to become Board members;

 

   

recommending to the Board the director nominees for each Annual Meeting of Stockholders;

 

   

recommending to the Board candidates for filling vacancies that may occur between Annual Meetings;

 

   

evaluating and making recommendations to the Board regarding matters relating to the governance of WebMD;

 

   

providing oversight of WebMD’s compliance programs and assisting the Board and the Board’s other standing committees with respect to their oversight of those compliance programs; and

 

14


   

providing oversight of senior executive recruitment and management development.

As part of its responsibilities relating to corporate governance, the Nominating & Governance Committee will evaluate and make 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 WebMD’s proxy statement.

The Nominating & Governance Committee has not adopted specific objective requirements for service on the WebMD Board. Instead, the Nominating & Governance 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 WebMD;

 

   

any specialized skills or experience that the potential nominee has and whether such skills or experience are particularly relevant to WebMD;

 

   

in the case of non-employee directors, whether the potential nominee has sufficient time to devote to service on the WebMD 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;

 

   

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.

For information regarding the qualifications for service on our Board of Directors of each of its current members, as considered by the Nominating & Governance Committee of our Board (regardless of whether the individual director is up for election this year), please see the biographical information for each Board member included in “Directors and Executive Officers” above. As noted there, the Nominating & Governance Committee considers prior service on our Board of Directors and on the boards of directors of our predecessor companies to be part of our Board members’ qualifications for continued service, particularly in light of the fact that WebMD’s public and private Internet portals have a relatively short operating history and the experience that our Board members have had in overseeing the evolution of those portals provides useful background for their current service on our Board. The Nominating & Governance Committee also believes that healthcare industry experience provides important background for service on our Board and that our Board should include individuals with diverse types of such experience, including experience as physicians, as industry executives, as board members of public or private healthcare industry companies, and as investment bankers or investors focused on those companies.

The Nominating & Governance 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 & Governance Committee, care of Secretary, WebMD Health Corp., 111 Eighth Avenue, New York, NY 10011. To facilitate consideration by the Nominating & Governance 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 WebMD if nominated and to be identified in WebMD’s proxy materials and the consent of the recommending stockholder to be named in WebMD’s proxy materials. The recommendation and related materials will be provided to the Nominating & Governance Committee for consideration at its next regular meeting.

 

15


Other Committees.    From time to time, our Board of Directors forms additional committees to make specific determinations or to provide oversight of specific matters or initiatives. For example:

 

   

Strategic Planning Committee.     Dr. Adler and Messrs. Dimick, Keller, Manning, Trotman and Wygod are members of a Strategic Planning Committee of the Board, which meets informally between regularly scheduled Board meetings regarding WebMD’s business strategies and their implementation and any other matters that the Non-Employee Directors wish to discuss with management.

 

   

Securities Repurchase Committee.    Messrs. Cameron, Smith and Trotman are members of a Securities Repurchase Committee of the Board, which is authorized to make determinations relating to repurchases of WebMD’s Common Stock and Convertible Notes.

 

   

CEO Search Committee.    Messrs. Dimick, Manning, Smith and Wygod were members of a CEO Search Committee of the Board, formed earlier this year to oversee the selection of a new Chief Executive Officer. This Committee was disbanded when Mr. Redmond joined WebMD as its new Chief Executive Officer.

 

   

Special Committee of the Non-Employee Directors.    In late 2011, the Non-Employee Directors commenced a process to explore strategic alternatives for the company. In connection with such process, the Board of Directors formed a Special Committee of the Non-Employee Directors. That Special Committee was disbanded in early January 2012.

 

   

Special Committee Regarding the DOJ Investigation.    Until May 2011, Messrs. Manning, Sarkowsky and Smith and Dr. Adler were members of a special committee of the Board of Directors to oversee matters relating to the investigations described in Note 3 (Discontinued Operations — EPS) to the Consolidated Financial Statements included in Annex A to this Proxy Statement.

The Board’s Role in Risk Oversight

WebMD’s management is responsible for the day-to-day management of the risks that WebMD faces, while the WebMD Board has responsibility for the oversight of risk management. The WebMD Board exercises oversight, as a whole and also at the committee level, of how WebMD management seeks to mitigate the risks that WebMD faces, including those described in Annex F (Risk Factors) to this Proxy Statement. A fundamental part of setting WebMD’s business strategy is the assessment of the risks the company faces and how to manage those risks. The Board regularly reviews information regarding strategic, financial, operational and reputational risks that WebMD faces and discusses with management the resources to be allocated to avoiding or mitigating specific risks, including through insurance, internal controls, compliance programs (and related policies and procedures) and similar means. In addition, in its own decision-making processes the Board considers both the benefits and the risks applicable to the alternatives it is considering and seeks to foster similar processes in management’s decision-making.

NON-EMPLOYEE DIRECTOR COMPENSATION

Introduction

This section of our Proxy Statement describes the compensation paid by WebMD during 2011 to the Non-Employee Directors. Employees of WebMD who serve on our Board of Directors do not receive additional compensation for Board service. The Compensation Committee of the WebMD Board is authorized to determine the compensation of the Non-Employee Directors paid by WebMD. As described below, WebMD paid three types of compensation to its Non-Employee Directors in 2011 for their Board and Board Committee service:

 

   

annual fees for service on the Board and its standing committees, paid by WebMD in October 2011 in the form of shares of WebMD Common Stock not subject to any vesting requirements;

 

   

grants of non-qualified options to purchase WebMD Common Stock; and

 

   

cash fees for service on certain other committees of the Board.

 

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WebMD does not offer any deferred compensation plans or retirement plans to its Non-Employee Directors. None of the Non-Employee Directors received any other compensation from WebMD during 2011 and none of them provided any services to WebMD during 2011 while a Board member, except their service as a director.

2011 Director Compensation Table

This table provides information regarding the value of the compensation paid by WebMD to the Non-Employee Directors in 2011, as calculated in accordance with applicable SEC regulations. This table should be read together with the additional information under the headings “— Annual Fees” and “— Option Grants” below.

 

(a)    (b)    (c)    (d)    (e)

Name

   Fees Earned or
Paid in Cash ($)(1)
   Stock  Awards
($)(2)
   Option Awards
($)(3)
   Total
($)

Mark J. Adler, M.D.

       11,000          40,000          209,219          260,219  

Neil F. Dimick

       6,000          55,000          209,219          270,219  

Jerome C. Keller

       6,000          37,500          209,219          252,719  

James V. Manning

       11,000          55,000          209,219          275,219  

Abdool Rahim Moossa, M.D.

                37,500          209,219          246,719  

Herman Sarkowsky

       5,000          37,500          209,219          251,719  

Joseph E. Smith

       5,000          37,500          209,219          251,719  

Stanley S. Trotman, Jr.

       6,000          45,000          209,219          260,219  

 

 

(1) The amounts in Column (b) reflect fees to members of the following committees for service on those committees: (1) the Strategic Planning Committee of the WebMD Board ($6,000 for each of Dr. Adler and Messrs. Dimick, Keller, Manning and Trotman); and (2) the Special Committee Regarding the DOJ Investigation ($5,000 for each of Dr. Adler and Messrs. Manning, Sarkowsky and Smith). See “Corporate Governance — Committees of the Board of Directors — Other Committees” above.

 

(2) The Non-Employee Directors received shares of WebMD Common Stock, not subject to any vesting requirements and valued at the respective amounts reported in Column (c) above, in payment of their annual retainers for service on the WebMD Board and its standing committees. See “— Annual Fees” below. For each Non-Employee Director, the number of shares to be issued was determined by dividing the aggregate dollar amount of the fees payable to such Non-Employee Director by $32.39 (the closing price of WebMD Common Stock on the Nasdaq Global Select Market on October 21, 2011, the date of payment), with cash paid in lieu of issuing fractional shares. Based on that, the individual Non-Employee Directors received the following numbers of shares:

 

Name

   Number of Shares

Mark J. Adler, M.D.

       1,234  

Neil F. Dimick

       1,698  

Jerome C. Keller

       1,157  

James V. Manning

       1,698  

Abdool Rahim Moossa, M.D.

       1,157  

Herman Sarkowsky

       1,157  

Joseph E. Smith

       1,157  

Stanley S. Trotman, Jr.

       1,389  

 

(3) The amounts reported in Columns (d) and (e) above reflect the grant date fair value for the stock options awarded to the Non-Employee Directors by WebMD on January 1, 2011, computed in accordance with FASB ASC Topic 718. See Note 8 (Stock-Based Compensation) to the Consolidated Financial Statements included in Annex A to this Proxy Statement for an explanation of the methodology and assumptions used in determining the fair value of stock option awards granted. As described below under “— Option Grants — Voluntary Surrender of January 2011 Grants,” the Non-Employee Directors voluntarily surrendered these grants in February 2012, prior to any exercise of options included in those grants. Accordingly, the Non-Employee Directors have not and will not realize any income from the surrendered options, even though the grant date fair value of those options is, in accordance with applicable rules, included as compensation in Columns (d) and (e) above.

Under the 2005 Plan, each Non-Employee Director of WebMD automatically receives non-qualified options to purchase 13,200 shares of WebMD Common Stock on each January 1, with an exercise price equal to the closing price on the last trading date of the prior year. See “— Option Grants” below for additional information. The following lists the total number of shares of WebMD Common Stock subject to outstanding unexercised

 

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option awards originally granted by WebMD that were held by our Non-Employee Directors as of December 31, 2011 (including the January 2011 grant that was voluntarily surrendered in February 2012) and the weighted average exercise price of those options:

 

Name

   Number of Shares Subject
to Outstanding Options
   Weighted Average
Exercise Price

Mark J. Adler, M.D.

       66,000        $ 38.85  

Neil F. Dimick

       105,600        $ 33.05  

Jerome C. Keller

       85,800        $ 35.75  

James V. Manning

       39,600        $ 37.93  

Abdool Rahim Moossa, M.D.

       66,000        $ 38.85  

Herman Sarkowsky

       26,400        $ 44.78  

Joseph E. Smith

       26,400        $ 44.78  

Stanley S. Trotman, Jr.

       85,800        $ 36.17  

Under HLTH’s 2000 Long-Term Incentive Plan (which we refer to as the HLTH 2000 Plan), each Non-Employee Director of HLTH automatically received, on each January 1 prior to the Merger, non-qualified options to purchase 20,000 shares of HLTH Common Stock with an exercise price equal to the closing price on the last trading date of the prior year. Substantially all such options have vested, with the remaining options scheduled to vest by January 1, 2013. The options to purchase HLTH Common Stock were automatically converted to options to purchase WebMD Common Stock in the Merger. The following lists the total number of shares of WebMD Common Stock subject to outstanding unexercised option awards originally granted by HLTH that were held by our Non-Employee Directors as of December 31, 2011 and the weighted average exercise price of those options:

 

Name

   Number of Shares Subject
to Outstanding Options
   Weighted Average
Exercise Price

Mark J. Adler, M.D.

       16,147        $ 48.52  

Neil F. Dimick

       44,440        $ 24.38  

James V. Manning

       10,925        $ 24.01  

Herman Sarkowsky

       86,658        $ 30.60  

Joseph E. Smith

       91,546        $ 26.78  

Annual Fees

Overview.    For each of the Non-Employee Directors, the amount set forth in Column (c) of the 2011 Director Compensation Table represents the sum of the value of shares issued to pay 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; and

 

   

annual fees, if any, for serving as Chairperson of standing 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 our Annual Meeting of Stockholders.

Board Service.    Each Non-Employee Director receives an annual retainer of $30,000 for service on the WebMD Board, payable in WebMD Common Stock.

Service on Standing Committees.    We pay annual fees for service on some of the standing committees of our Board, as well as an additional fee to the Chairperson of each of those committees, in the following amounts, payable in WebMD Common Stock:

 

Type of Service

   Annual Fee  

Membership on Audit Committee (Messrs. Dimick, Manning and Trotman)

   $ 15,000   

Chairperson of Audit Committee (Mr. Manning)

   $ 10,000   

Membership on Compensation Committee (Dr. Adler and Messrs. Sarkowsky and Smith) or Nominating & Governance Committee (Messrs. Dimick and Keller and Dr. Moossa)

   $ 7,500   

Chairperson of Compensation Committee (Dr. Adler) or Nominating & Governance Committee (Mr. Dimick)

   $ 2,500   

 

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The amounts of the fees payable to Non-Employee Directors for service on our 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 WebMD Common Stock or some other form of compensation.

Service on Other Committees.    Our Non-Employee Directors may also receive additional fees for service on committees established by the Board for specific purposes. Those fees will generally be paid in cash 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. The fees paid for service in 2011 on these other Committees were as follows:

 

Type of Service

   Fees Paid  

Membership on the Strategic Planning Committee (Dr. Adler and Messrs. Dimick, Keller, Manning and Trotman)

   $ 6,000   

Membership on the Special Committee regarding the DOJ Investigation (Dr. Adler and Messrs. Manning, Sarkowsky and Smith)

   $ 5,000   

The current quarterly payment for service on the Strategic Planning Committee is $1,500, which was set by the Compensation Committee of the Board. Service on the Special Committee regarding the DOJ Investigation ended in May 2011 and no additional fees will be paid for such service.

Option Grants

Annual Stock Option Grants.    On January 1 of each year, each Non-Employee Director receives a non-qualified option to purchase 13,200 shares of WebMD Common Stock pursuant to automatic annual grants of stock options under our 2005 Plan. The annual stock option awards are granted with a per-share exercise price equal to the fair market value of a share of WebMD Common Stock on the grant date. For these purposes, and in accordance with the terms of the 2005 Plan and WebMD’s equity award grant practices, the fair market value is equal to the closing price of a share of WebMD Common Stock on the Nasdaq Global Select Market on the last trading day of the prior year. The vesting schedule for each automatic annual grant is as follows: 25% of the underlying shares on each of the first through fourth anniversaries of the date of grant (full vesting on the fourth anniversary of the date of the grant). 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 (generally three years from the date such service ends).

Each of our Non-Employee Directors received an automatic annual grant of options to purchase 13,200 shares of WebMD Common Stock on January 1, 2011 (with an exercise price of $51.06 per share). As described below under, “— Voluntary Surrender of January 2011 Grants,” each of the Non-Employee Directors voluntarily surrendered this grant in February 2012.

Under the 2005 Plan, outstanding unvested options held by 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 of Control” of WebMD. 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 2005 Plan and the award agreement. For purposes of the 2005 Plan, a Change of Control generally 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, and (iv) consummation of a sale of all or substantially all of WebMD’s assets. The Merger did not constitute a Change of Control for purposes of the 2005 Plan.

Discretionary Grants.    Our Non-Employee Directors may receive grants of stock options or WebMD Restricted Stock under the 2005 Plan at the discretion of the Compensation Committee of the Board. The last such discretionary grant was made on December 10, 2008, when each person who was a Non-Employee Director of WebMD at that time received a non-qualified option to purchase 13,200 shares of WebMD Common Stock.

 

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The grants had an exercise price of $23.61 per share and the same vesting schedule and other terms as described above with respect to the annual grants to Non-Employee Directors. There had been no prior discretionary grants since WebMD’s initial public offering in September 2005.

Voluntary Surrender of January 2011 Grants.    On February 23, 2012, each of the Non-Employee Directors voluntarily surrendered a grant of 13,200 non-qualified options to purchase WebMD Common Stock made on January 1, 2011, 3,300 of which were vested and 9,900 of which were unvested. These options had an exercise price of $51.06 per share. None of the directors received any consideration or promise of consideration in exchange for that surrender of stock options. Upon the surrender of those stock options, the shares underlying those options became available for grants under the 2005 Plan. For a description of the options voluntarily surrendered by our executive officers, see “Voluntary Surrender of Certain Option Grants” following the Summary Compensation Table in the “Executive Compensation” section below. The surrenders by the directors and executive officers of stock options were intended to allow WebMD to use the shares that became available under the 2005 Plan to attract new employees and to motivate and retain current key employees.

Options Granted by HLTH

Certain of the Non-Employee Directors also served as non-employee directors of HLTH. For information regarding the options granted to them by HLTH, see Footnote 3 to the 2011 Director Compensation Table, above. Under the HLTH 2000 Plan, outstanding unvested options held by 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 of Control” of WebMD. 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 of Control” generally 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 25% or more of the voting shares of WebMD and the Compensation Committee determining that such transaction constitutes a change of control, taking into consideration all relevant facts, (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, and (iv) consummation of a sale of all or substantially all of WebMD’s assets. The Merger did not constitute a Change of Control for purposes of the HLTH 2000 Plan.

 

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EXECUTIVE COMPENSATION

Overview

This section of our Proxy Statement contains information regarding our compensation programs and policies and, in particular, their application to a specific group of individuals that we refer to as our Named Executive Officers. For an explanation regarding the composition of this group, see “Compensation Discussion and Analysis — Introduction” below. This section is organized as follows:

 

   

2011 Report of the Compensation Committee.    This section contains a report of the Compensation Committee of our Board of Directors regarding the “Compensation Discussion and Analysis” section described below. The material in the 2011 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 WebMD specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

   

Compensation Committee Interlocks and Insider Participation.    This section contains information regarding certain types of relationships involving our Compensation Committee members.

 

   

Compensation Discussion and Analysis.    This section contains a description of the specific types of compensation we pay, a discussion of our compensation policies, information regarding how those policies were applied to the compensation of our Named Executive Officers for 2011 and other information that we believe may be useful to investors regarding compensation of our 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 our Named Executive Officers and related information.

 

   

Potential Payments and Other Benefits Upon Termination of Employment or Change of Control.    This section provides information regarding amounts that could become payable to our Named Executive Officers following specified events.

 

   

Employment Agreements with Named Executive Officers.    This section contains summaries of the employment agreements between our Named Executive Officers and WebMD. 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 our Board of Directors and its responsibilities, please see “Corporate Governance — Committees of the Board of Directors — Compensation Committee” above.

2011 Report of the Compensation Committee

The Compensation Committee of our Board of Directors provides oversight of WebMD’s compensation programs and makes specific decisions regarding compensation of the Named Executive Officers and WebMD’s other executive officers. Set out below is the Compensation Discussion and Analysis section of this Proxy Statement. That section contains a discussion of WebMD’s executive compensation programs and policies and their application by the Compensation Committee in 2011 to the Named Executive Officers. The members of the Compensation Committee have reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis. Based upon this review and our discussions, these Compensation Committee members have recommended to our 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

Dr. Adler and Messrs. Sarkowsky and Smith were the members of the Compensation Committee for all of 2011. None of these individuals is a current or former executive officer or employee of WebMD or had any relationships in 2011 requiring disclosure by WebMD under the SEC’s rules requiring disclosure of certain relationships and related-party transactions.

None of WebMD’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 WebMD Compensation Committee during 2011.

Compensation Discussion and Analysis

Introduction.    The Compensation Discussion and Analysis contains a description of the specific types of compensation we pay, a discussion of our compensation policies, information regarding how the compensation of our Named Executive Officers for 2011 was determined under those policies and other information that we believe may be useful to investors regarding compensation of our Named Executive Officers and other employees. Under applicable SEC rules, our Named Executive Officers for this Proxy Statement consist of our Chief Executive Officer, our Chief Financial Officer and the three other executive officers of WebMD who received the most compensation for 2011. Accordingly, our Named Executive Officers for 2011 are: Wayne Gattinella (who served as our Chief Executive Officer for all of 2011), Anthony Vuolo (who served as our Chief Operating Officer and our Chief Financial Officer for all of 2011), Gregory Mason, William Pence and Martin J. Wygod.

Mr. Gattinella resigned on January 9, 2012 as Chief Executive Officer of WebMD and as a member of WebMD’s Board of Directors. Mr. Vuolo served as Interim Chief Executive Officer from January 9, 2012 to May 31, 2012. Mr. Vuolo continued to serve as Chief Financial Officer, but was no longer Chief Operating Officer. This Compensation Discussion and Analysis section includes a discussion of Mr. Gattinella’s compensation, as Chief Executive Officer during 2011 since he held that position for the full year. For a description of the terms of the agreement entered into between WebMD and Mr. Gattinella following his resignation, see “Employment Agreements with Named Executive Officers — Letter Agreement with Wayne T. Gattinella” below. On May 31, 2012, our Board appointed Cavan M. Redmond as WebMD’s new Chief Executive Officer. See “Employment Agreement with Cavan M. Redmond” below for a description of the employment agreement we entered into with him in connection with his joining WebMD. On May 16, 2012, Mr. Pence was appointed Chief Operating Officer of WebMD, while also continuing to serve as our Chief Technology Officer, and we entered into an amended and restated employment with him at that time, which is described under “Employment Agreements with Named Executive Officers — William Pence” below.

The persons who constitute our Named Executive Officers may change from year to year based on changes in position and changes in compensation. In particular, the grants of WebMD Restricted Stock and options to purchase WebMD Common Stock made to individual executive officers in a particular year may result in changes to who is a Named Executive Officer because, under the SEC rules for determining Named Executive Officers for a specific year, we include the full grant date fair value of option grants and restricted stock grants as compensation in the year in which the grant is made and no compensation for such grants in any other year, regardless of the vesting schedule of the grant or the time of exercise in the case of options. WebMD has not, in the past, made equity grants to our executive officers on an annual or other pre-determined basis, which may result in compensation that varies greatly from year to year for purposes of determining who is a Named Executive Officer. In addition, grants made to newly hired executive officers at the time they join WebMD, which are typically larger than grants made to existing executive officers with comparable responsibilities in that year, may make it appear that they are more highly compensated than those other executive officers and may not be indicative of the compensation that would be reported for such individual in future years if he or she continues to be a Named Executive Officer. The Compensation Committee considers the vesting schedule of grants made under equity compensation plans to be an important term of such grants and believes that it is appropriate, in its consideration of the timing and amount of specific grants it approves, to view the value of such grants to be deemed distributed over the period of vesting, rather than assigned solely to the year of grant.

 

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Overview of Types of Compensation Used by WebMD.    The compensation of our Named Executive Officers and our other executive officers consists primarily of the following:

 

   

cash salary;

 

   

an annual cash bonus, the amount of which was determined by the Compensation Committee in its discretion;

 

   

Supplemental Bonus Plan (SBP) contributions (which are cash amounts contributed to a trust, which distributes such amounts, with interest earned, the following year if the executive officer remains employed through a specified date), the amount of which was determined 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 options to purchase shares of WebMD Common Stock, subject to vesting based on continued employment, with an exercise price that is equal to the fair market value of WebMD Common Stock on the grant date; and

 

   

grants of shares of WebMD Restricted Stock, subject to vesting based on continued employment.

A discussion of each of the above types of compensation used in 2011 follows under the heading “— Use of Specific Types of Compensation.” Each of the above types of compensation was used for 2011 for our executive officers, except that there were no special bonuses and no SBP contributions for 2011 for any of our executive officers. The compensation of our other employees generally consists of the same types of compensation, with the specific types and amounts determined by our Chief Executive Officer and other members of our senior management, in light of the policies described under “— Discussion of Compensation Policies” below. In addition, some employees are compensated partially based on commissions or similar arrangements not used at the senior management level.

In determining the forms of compensation to be used by WebMD, 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 our employees and our investors. In addition, the Compensation Committee believes that it is important that compensation be understood by the employees who receive it and by our company’s investors. The Compensation Committee believes that our compensation programs, including the types of stock options and restricted stock that we use, are effective forms of compensation and well understood. Taken as a whole, our compensation programs are intended to provide incentives to employees, at various levels of seniority and responsibility, to work to achieve revenue and earnings growth for WebMD in both the short-term and the long-term. See “— Discussion of Compensation Policies” below for additional discussion of the goals of our compensation programs. The Compensation Committee believes that, in light of the specific forms of compensation that WebMD uses and the specific businesses in which WebMD is engaged, our compensation programs and practices are unlikely to cause our employees to take unnecessary or excessive risks to achieve that growth and that WebMD’s internal controls and compliance programs provide reasonable mitigation for the risks inherent in providing incentives for such growth. In addition, as described more fully below, the Compensation Committee has not tied the bonuses of executive officers to specific financial targets or other quantitative goals set in advance and, instead, awards executive officer bonuses based on its subjective assessment of the performance of WebMD and of individual executive officers. The Compensation Committee believes this is an appropriate way to mitigate the inherent risk that, in providing incentives for growth, efforts to achieve short-term growth will inappropriately take precedence over the efforts and investments required to achieve long-term growth.

We have not offered any deferred compensation plans to our executive officers or to our other employees. We have also not offered any retirement plans to our executive officers other than 401(k) plans that are generally available to our employees. We refer to the WebMD 401(k) Savings Plan, the current 401(k) Plan of WebMD, as the “401(k) Plan.” Subject to the terms of the 401(k) Plan, WebMD matches, in cash, 25% of amounts contributed to that Plan by each Plan participant, up to 6% of eligible pay. The matching contribution made by

 

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WebMD 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). For 2011, WebMD made an additional discretionary matching contribution in March 2012 of 25 cents for every dollar contributed by participants (up to 6% of eligible pay). Messrs. Gattinella, Mason and Pence are the Named Executive Officers who elected to participate in the 401(k) Plan in 2011.

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 employees and executives.    We seek 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. We have, in the past, granted and may continue to grant equity-based awards to a large portion of our employees, not just our executives. Those awards have been primarily in the form of non-qualified options to purchase WebMD 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 WebMD’s practice to provide compensation opportunities in addition to base salary that are linked to our company’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 WebMD’s executive officers (and other members of senior management) is placed at risk in order to motivate them to improve the performance of our businesses and to increase the value of our company. In addition, WebMD has made equity-based grants to virtually all of its full-time employees for at least a portion of their compensation. The equity compensation is offered in lieu of higher cash compensation in order to align the interests of our employees with the long-term interests of our stockholders.

 

   

Designed to foster a long-term commitment by management.    The Compensation Committee believes that there is great value to our company in having a team of long-tenured, seasoned executives and managers. Our compensation practices are designed to foster a long-term commitment to WebMD by our management team. The vesting schedules attributable to equity grants are typically three to four years.

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 WebMD for the services of our 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 WebMD. 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 WebMD 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 WebMD of specific individuals. With respect to 2011 compensation, the Compensation Committee took into account recommendations made by the Chairman of the Board and the Chief Executive Officer (until his resignation, Mr. Gattinella, and after that Mr. Vuolo, as Interim Chief Executive Officer) with respect to determinations of the types and amounts of compensation to be paid to the other executive officers and also discussed with them the types and amounts such individuals believed would be appropriate to pay each of them in light of the amounts being recommended for, and paid to, the other WebMD executive officers. The key compensation decisions for 2011 for which the Chairman of the Board and the Chief Executive Officer provided input to the Compensation Committee relating to WebMD’s executive officers were:

 

   

the amounts of the annual bonuses for 2011, as more fully described under “— Use of Specific Types of Compensation — Annual Bonuses” below;

 

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the terms of the employment agreement entered into with Mr. Mason in connection with his hiring by WebMD, as more fully described under “Employment Agreements with Named Executive Officers — Gregory A. Mason” below; and

 

   

the size and terms of the equity grants that were approved by the Compensation Committee during 2011, as more fully described below under “— Use of Specific Types of Compensation — Equity Compensation” below.

In addition, the Chairman of the Board and the Chief Executive Officer have discussions, from time to time, with the Compensation Committee and the full Board of Directors regarding compensation policies generally, compensation planning and other compensation matters unrelated to specific compensation decisions and give their views on these matters to the members of the Compensation Committee and the full Board. The Compensation Committee seeks the input from the Chairman of the Board and the Chief Executive Officer because they believe that understanding management’s views regarding its own performance helps the Compensation Committee apply the compensation policies discussed earlier in this section to specific compensation decisions. However, all the decisions regarding the compensation paid to executive officers of WebMD for 2011 were made by the Compensation Committee in its discretion.

WebMD’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

Base Salary.    The Compensation Committee reviews the base salaries of our executive officers from time to time, but expects to make few changes in those salaries except upon a change in position. In 2011, the only change made to the salary of a Named Executive Officer was an increase, in September 2011, in the annual salary of Mr. Wygod from $120,000 to $490,000. The Compensation Committee approved the increase in light of Mr. Wygod’s increased involvement in operational management and related activities. In general, it is the Compensation Committee’s view that increases in the cash compensation of our executive officers should primarily 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. WebMD’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 Bonuses.    WebMD’s executive officers have the opportunity to earn annual cash bonuses. However, WebMD’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 2011. After the end of 2011, the Compensation Committee determined annual cash bonus amounts to be paid by WebMD to its executive officers based on its subjective assessment of the performance of WebMD in 2011, taking into consideration its views regarding the extent to which financial and operational goals discussed by management and the Board at various times during 2011 were achieved and its views regarding the challenges faced by WebMD during the year. The Compensation Committee believes that, for WebMD at this time, a flexible annual bonus process is a more appropriate one for motivating WebMD’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;

 

   

effects of acquisitions and dispositions of businesses made during the year;

 

   

challenges faced by WebMD during the year and the handling of those challenges; and

 

   

effects of unexpected events during the year and the handling of those events.

 

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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.

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 Named Executive Officers. 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 not guaranteed) increases with the level and scope of responsibility of the executive, as does salary. The target annual bonus opportunities, for 2011, for the Named Executive Officers (other than Mr. Wygod, for whom no such target was set) are set forth in the following table:

 

Named Executive Officer

  

Title (during 2011)

   2011
Annual
Salary
     2011
Target  Annual
Bonus
Opportunity
     2011
Target  Annual
Bonus Amount as
a Percent of Salary
 

Wayne T. Gattinella

   Chief Executive Officer and President    $ 560,000       $ 560,000         100

Anthony Vuolo

   Chief Operating Officer and Chief
Financial Officer
   $ 450,000       $ 450,000         100

Gregory A. Mason

   Executive Vice President —Consumer
Services
   $ 400,000       $ 260,000         65

William Pence

   Executive Vice President and Chief
Technology Officer
   $ 375,000       $ 131,250         35

Notwithstanding these targets, the Compensation Committee retains discretion regarding the actual annual bonus amounts to be paid to these Named Executive Officers, which could be less than, equal to or more than the target bonus opportunity.

The following table lists, for each of the Named Executive Officers with bonus targets for 2011: (a) the amounts of the 2011 annual cash bonuses and the percentage this represented of the target annual bonus opportunity; and (b) for 2010, the sum of the annual cash bonuses plus awards (which we refer to as SBP Awards) under our Supplemental Bonus Plan (which we refer to as the SBP and which is described more fully below), and the percentage that sum represented of the target annual bonus opportunity:

 

Named Executive Officer

        2011 Annual Bonus     Sum of 2010 Annual
Bonus and SBP Award(1)
 
  

Title (during 2011)

   Amount      % of Target     Amount      % of Target  

Wayne T. Gattinella

   Chief Executive Officer and President      n/a         n/a      $ 400,000         71

Anthony Vuolo

   Chief Operating Officer and Chief
Financial Officer
   $ 475,000         106   $ 375,000         83

Gregory A. Mason

   Executive Vice President —Consumer
Services
   $ 100,000         38     n/a         n/a   

William Pence

   Executive Vice President and Chief
Technology Officer
   $ 150,000         114   $ 150,000         114

 

 

(1) For 2010, there were two separate bonus amounts for each of the above Named Executive Officers (other than Mr. Mason, who joined WebMD in 2011), a cash bonus and an SBP Award, in the following amounts:

 

Named Executive Officer

   2010
Cash  Bonus
     2010
SBP  Award
     Total  for
2010
 

Wayne T. Gattinella

   $ 268,000       $ 132,000       $ 400,000   

Anthony Vuolo

   $ 251,250       $ 123,750       $ 375,000   

William Pence

   $ 100,500       $ 49,500       $ 150,000   

Mr. Mason’s bonus target was subject, in 2011, to pro-ration since he joined WebMD during 2011. As discussed under “Compensation Discussion and Analysis — Introduction” above, Mr. Gattinella resigned in January 2012, which was prior to the determination of 2011 bonuses by the Compensation Committee in March 2012 and,

 

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accordingly, did not receive any bonus for 2011. For a description of the terms of the agreement entered into between WebMD and Mr. Gattinella following his resignation, see “Employment Agreements with Named Executive Officers — Letter Agreement with Wayne T. Gattinella” below.

In determining the amounts of the Annual Bonuses for 2011, the Compensation Committee considered WebMD’s financial and operational performance. However, as in prior years, the Compensation Committee did not attempt to tie the amounts of the 2011 annual bonuses for these executive officers to any specific measures and, instead, based its bonus determinations on its subjective view of our company’s results and management’s accomplishments in light of the challenges faced by WebMD during 2011. The Compensation Committee viewed the financial performance of WebMD in 2011 to have been unsatisfactory. However, the Committee recognized that the operational performance of the company’s public portal Web sites, as demonstrated by usage metrics, user satisfaction and awards and recognition achieved, continued to be strong. The Committee also recognized that some of the challenges faced by WebMD during 2011 were outside the control of WebMD management, particularly the unexpectedly large reduction in promotional spending commitments by large pharmaceutical companies late in the year. The Compensation Committee also recognized that WebMD’s executives and employees are in demand by direct competitors to WebMD and by Internet companies generally. The Committee noted that, in light of the sharp drop in the market price of WebMD Common Stock during the year, the value of the equity compensation of executives and employees, which had served as a key retention incentive, was significantly reduced and that employees would be at even greater risk of leaving WebMD if bonuses were also significantly reduced.

Based on those views, the Compensation Committee authorized maintaining 2011 bonus levels for employees who are not executive officers at approximately the same overall levels as in 2010 and set executive officer bonuses individually, based on the Committee’s evaluation of their individual contributions. For Mr. Vuolo, the Compensation Committee believed that he had performed well in the demanding dual roles of Chief Operating Officer and Chief Financial Officer of WebMD and approved a bonus slightly above his target bonus in recognition of his efforts. The Committee believed that Mr. Pence continued to provide excellent leadership to WebMD’s technology initiatives and reflected this in a bonus that was approximately 15% above his target bonus. The Committee authorized a bonus for Mr. Mason, who joined WebMD in the middle of the year, in line with his target bonus, but pro-rated for when he took over leadership of Consumer Services.

Mr. Wygod’s total cash compensation for 2011 was $700,308, and consisted of $225,308 in salary and an annual bonus of $475,000. For 2010, Mr.Wygod’s total cash compensation was $1,870,000, and consisted of $120,000 in salary, an annual bonus of $1,172,500 and an SBP Award of $577,500. In determining Mr. Wygod’s bonus for 2011, the Compensation Committee considered his increasing involvement with management of the company, his individual contributions to corporate strategy and his leadership role in significant transactions, but also believed it was appropriate to consider the financial performance of the company in 2011.

Supplemental Bonus Plan (SBP) Awards.    SBP Awards are cash amounts contributed for certain years by WebMD for the Named Executive Officers (and other WebMD employees) to a trust (the Supplemental Bonus Trust), which distributed such amounts, with actual interest earned, the following year if the employee remains employed through a specified date. 2011 annual bonuses were paid in full in March 2012 and the SBP was not used for that year. The Compensation Committee will determine whether to use the SBP in future years. The following describes the SBP Awards for each of 2008, 2009 and 2010 and the related releases the next year:

 

   

2010 SBP Awards.    In February 2011, the Compensation Committee approved the contribution, made in March 2011, to the Supplemental Bonus Trust of SBP Awards for 2010 (which we refer to as the 2010 SBP Awards), including: a $132,000 contribution for Mr. Gattinella; a $123,750 contribution for Mr. Vuolo; a $49,500 contribution for Mr. Pence; and a $577,500 contribution for Mr. Wygod. In order to receive the applicable payment from the Supplemental Bonus Trust for the 2010 SBP Awards, each SBP participant was required to be employed by WebMD on March 1, 2012 (subject to limited exceptions for death, disability, or certain terminations of employment in connection with a sale of a subsidiary or division or, in the discretion of the governing committee, certain other reductions in force or position eliminations). The Supplemental Bonus Trust distributed the 2010 SBP Awards, together with actual net interest earned on the respective amounts, to SBP participants in March 2012. Since Mr. Gattinella resigned in January 2012, he did not receive any distribution of his 2010 SBP Award.

 

27


   

2009 SBP Awards.    In March 2010, the Compensation Committee of the WebMD Board approved the contribution, made in March 2010, to the Supplemental Bonus Trust of SBP Awards for 2009 (which we refer to as the 2009 SBP Awards), including: a $132,000 contribution for Mr. Gattinella; a $103,950 contribution for Mr. Vuolo; a $41,250 contribution for Mr. Pence; and a $165,000 contribution for Mr. Wygod. In order to receive the applicable payment from the Supplemental Bonus Trust for the 2009 SBP Awards, each SBP participant was required to be employed by WebMD on March 1, 2011 (subject to the limited exceptions described above). In March 2011, the Supplemental Bonus Trust distributed the 2009 SBP Awards, together with actual net interest earned on the respective amounts, to SBP participants and, at that time: Mr. Gattinella received $132,013; Mr. Vuolo received $103,960; Mr. Pence received $41,254; and Mr. Wygod received $165,016.

 

   

2008 SBP Awards.    In February 2009, the Compensation Committee of the WebMD Board approved the contribution, made in March 2009, to the Supplemental Bonus Trust of SBP Awards for certain WebMD officers and employees for 2008 (which we refer to as the 2008 SBP Awards), including: a $135,000 contribution for Mr. Gattinella; a $125,000 contribution for Mr. Vuolo; and a $55,000 contribution for Mr. Pence. Mr. Wygod did not receive a 2008 SBP Award. In order to receive the applicable payment from the Supplemental Bonus Trust for the 2008 SBP Awards, each SBP participant was required to be employed by WebMD on March 1, 2010 (subject to the limited exceptions described above). In March 2010, the Supplemental Bonus Trust distributed the 2008 SBP Awards, together with actual net interest earned on the respective amounts, to SBP participants and, at that time: Mr. Gattinella received $135,099; Mr. Vuolo received $125,091; and Mr. Pence received $55,040.

Any contributions to the Supplemental Bonus Trust that are forfeited for failure to meet the employment condition by an SBP participant are shared by the remaining SBP participants for that year, except that SBP participants who are executive officers of WebMD are not eligible to receive any portion of such forfeitures. The SBP was intended to provide additional retention incentives for executive officers and other employees of WebMD who receive a significant portion of their compensation as an annual cash bonus.

Equity Compensation.    We use 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 WebMD Common Stock on the grant date. Thus, participants in our equity plans (including the Named Executive Officers) will only realize value on their stock options if the price of WebMD Common Stock increases after the grant date. The Compensation Committee believes that equity compensation, subject to vesting periods of three to four years (and, in the case of options, having a ten-year term), encourages employees to focus on the long-term performance of our company. The amount that employees receive from equity awards increases when the price of WebMD Common Stock increases, which rewards employees for increasing shareholder value. The vesting schedules applicable to these equity awards are intended to further promote retention of employees during the vesting period.

The Compensation Committee does not make equity grants to our executive officers on an annual or other pre-determined basis. In determining whether and when to make equity grants, the Compensation Committee considers the history of prior grants made to individual 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 considers 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 typically makes larger grants to the executive officers it believes have the greatest potential to affect the value of our company and improve results for stockholders. Similar considerations apply to grants made to other officers and employees.

During 2011, the grants of WebMD Restricted Stock and options to purchase WebMD Common Stock set forth in “Executive Compensation Tables — Grants of Plan-Based Awards in 2011” were made to the Named Executive Officers. In making grants in July 2011 (to Messrs. Mason and Pence) and in September 2011 (to Messrs. Gattinella, Vuolo and Wygod), the Compensation Committee took into consideration the fact that the option grants made in 2010 to the Named Executive Officers other than Mr. Mason (who joined WebMD in 2011) were out-of-the-money by then, with an exercise price of $46.81 per share. The stock options granted in July 2011 had an exercise price of $36.62 (the current market price at the time of grant); the stock options

 

28


granted in September 2011 had an exercise price of $29.44 per share (the current market price at the time of grant). In making the grants of WebMD Restricted Stock and options to purchase WebMD Common Stock to Mr. Mason in July 2011, the Compensation Committee took into consideration the fact that the options granted to Mr. Mason when he joined WebMD in May 2011 were out-of-the-money, with an exercise price of $45.82. Also in September 2011, grants were made to a total of approximately 120 employees, other than the Named Executive Officers. The grants made during 2011 all had a four year vesting schedule and were intended, by the Compensation Committee, to provide additional retention incentive to employees believed to be important to WebMD at a time when the risk of their recruitment by other companies was believed to be increasing.

Application of Compensation Policies to Individual Named Executive Officers.    Differences in compensation among our Named Executive Officers result from a number of factors and may vary from year to year. The key factors that may create differences in compensation are differences in: (a) the level of responsibility of the individual Named Executive Officers and (b) our need to motivate and retain specific individuals at specific points in time. In general, larger equity grants are made to our most senior executive officers because they have the greatest potential to affect the value of our company and to improve results for stockholders. Similarly, a greater portion of their total cash compensation is likely to come from their annual bonus since they generally have a higher target annual bonus as a percentage of annual salary. Determinations relating to whether the annual bonuses for our Named Executive Officers will be at, above or below such targets are based in part on the Compensation Committee’s subjective evaluation of the performance of our company as a whole, and in part on its subjective evaluation of the performance of individual Named Executive Officers.

Differences in the application of compensation policies to individual Named Executive Officers for 2011 related primarily to: (a) their bonuses, for which the considerations relating to the differences in those amounts were described under “— Annual Bonuses” above; and (b) grants of WebMD Restricted Stock and options to purchase WebMD Common Stock made in July and September 2011 described under “— Equity Compensation” above, the differences in which primarily related to the overall scope of the responsibilities of the individual Named Executive Officers. In addition, Mr. Wygod received a grant of 92,867 shares of WebMD Restricted Stock in February 2011 (scheduled to vest over a four year period) at a time when no grants were made to other executive officers in recognition of his continued role in significant corporate transactions, while his involvement in operational management of WebMD was also increasing.

Benefits and Perquisites.    Our executive officers are generally eligible to participate in our benefit plans on the same basis as our other employees (including matching contributions to the 401(k) Plan and company-paid group term life insurance). For the past several years, we have maintained a sliding scale for the cost of employee premiums for our health plan, under which employees with higher salaries pay a higher amount. The limited perquisites (or “perks”) received by our Named Executive Officers in 2011 are described in the footnotes to the Summary Compensation Table. In addition, our executive officers (as part of a larger group of employees generally having a title of “Vice President” or higher or 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 of Control

Overview.    WebMD does not offer any deferred compensation plans to our executive officers or other employees and does not offer any retirement plans to our executive officers, other than a 401(k) plan generally available to our other employees. Accordingly, the payment and benefit levels for WebMD’s Named Executive Officers applicable upon a termination or a change of control result primarily from provisions in the employment agreements between WebMD 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 WebMD and those individuals, which generally occur at the time the individual joins WebMD or in connection with a promotion to a more senior position with WebMD (subject to the approval of the Compensation Committee in the case of executive officer employment agreements). The Compensation Committees of WebMD and HLTH have, 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

 

29


that executive officer. The employment agreements with our 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 contained in those agreements are included in this section under the headings “— Employment Agreement Provisions Regarding Termination Benefits” and “— Employment Agreement Provisions Regarding Change of Control Benefits” below.

In determining whether to approve executive officer employment agreements (or amendments of or extensions to those agreements), the Compensation Committee considers our need for the services of the specific individual and the alternatives available to us, 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 of control, the Compensation Committee considers both the costs that could potentially be incurred by our company, as well as the potential benefits to our company, including benefits to our company from post-termination confidentiality, non-solicit and non-compete obligations imposed on the executive and provisions relating to post-termination services that may be required of certain Named Executive Officers. In the case of potential payments and other benefits that could potentially become payable following a change of 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 our company during the period an acquisition is pending. HLTH had similar policies and practices prior to the Merger.

Employment Agreement Provisions Regarding Termination Benefits.    Certain of the employment agreements with our Named Executive Officers provide, or have provided, 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 or acceleration of vesting and/or exercisability of some or all options or restricted stock; and

 

   

continued participation in certain of our 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 specific Named Executive Officers and “Potential Payments and Other Benefits Upon Termination of Employment or a Change of 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, 2011. No such post-termination benefits apply if a Named Executive Officer is terminated for cause. 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 of Control Benefits.    The Compensation Committee believes that executives should generally not be entitled to severance benefits solely as a result of the occurrence of a change of control, but that it is appropriate to provide for such benefits if a change of control is followed by a termination of employment or other appropriate triggering event. See “— Employment Agreement Provisions Regarding Termination Benefits” above. However, the Compensation Committee has approved the following exceptions for the Named Executive Officers:

 

   

With respect to Mr. Vuolo, he may resign from his employment after six months following a Change of Control of WebMD and receive the same benefits, under his employment agreement, as if he was terminated without Cause or for Good Reason following a Change of Control (other than with respect to outstanding equity awards). Continuation of vesting and exercisability of options and acceleration of vesting of restricted stock following a Change of Control are also subject to requirements that Mr. Vuolo

 

30


 

remain employed for specified periods following the Change of Control, unless he is terminated without Cause or resigns for Good Reason, as described under “Employment Agreements with Named Executive Officers — Anthony Vuolo” below (which also provides background regarding the defined terms used in Mr. Vuolo’s Employment Agreement).

 

   

With respect to Mr. Wygod, the vesting of all WebMD Restricted Stock and all options to purchase WebMD Common Stock outstanding at the time of a Change of Control will accelerate on the date of the Change of Control. If Mr. Wygod’s employment terminates for any reason (other than Cause) thereafter, the options will remain outstanding through the remainder of their term. For additional information, see “Employment Agreements with Named Executive Officers — Martin J. Wygod” (which also provides background regarding the defined terms used in Mr. Wygod’s Employment Agreement).

In the negotiations with those Named Executive Officers regarding their employment agreements, the WebMD Compensation Committee or the HLTH Compensation Committee (which was authorized to make compensation determinations with respect to WebMD executive officers prior to WebMD’s initial public offering and was authorized to make compensation determinations with respect to compensation granted by HLTH to executive officers of HLTH and WebMD) recognized that, for those individuals, a change of control is likely to result in a fundamental change in the nature of their responsibilities. Accordingly, under their employment agreements, the applicable Compensation Committee approved the specific Named Executive Officers having, following a change of control, the rights described above. The Compensation Committees believed that the rights provided were likely to be viewed as appropriate by a potential acquiror in the case of those specific individuals. In addition, the Compensation Committees sought to balance the rights given to the Named Executive Officers with certain requirements to provide transitional services in types and amounts likely to be viewed as reasonable by a potential acquiror.

If the benefits payable to either Mr. Wygod or Mr. Vuolo in connection with a change of control would be subject to the excise tax imposed under Section 280G of the Internal Revenue Code of 1986 (“Section 280G”), WebMD has agreed to make an additional payment to him so that the net amount of such payment (after taxes) that he receives is sufficient to pay the excise tax due.

Application in 2011.    In connection with the grants of WebMD Restricted Stock and options to purchase WebMD Common Stock made to Messrs. Gattinella, Vuolo and Wygod in September 2011, the Compensation Committee exercised discretion relating to change of control benefits and post-termination compensation in the following manner:

 

   

In making the grants to Mr. Vuolo, the Compensation Committee determined that it was appropriate to provide for continuation of vesting and exercisability of options and acceleration of vesting of restricted stock following a Change of Control in the circumstances described under “Employment Agreements with Named Executive Officers — Anthony Vuolo” below, including if Mr. Vuolo resigns for any reason after the first anniversary of the date of the Change of Control. Mr. Gattinella’s grants in September 2011 had the same provisions as applied to Mr. Vuolo, but are no longer outstanding as a result of Mr. Gattinella’s resignation from WebMD in January 2012. See “Employment Agreements with Named Executive Officers — Letter Agreement with Wayne T. Gattinella” below.

 

   

In making the grants to Mr. Wygod, the Compensation Committee determined that it was appropriate for the existing provisions of Mr. Wygod’s employment agreement regarding equity compensation (as described above) to apply to those grants.

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, compensation paid to its executive officers so that it will be deductible under Section 162(m) of the Code. Accordingly, WebMD’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 WebMD. However, cash bonuses for WebMD’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

 

31


WebMD’s executive officers for 2011 was appropriate under the circumstances and in the best interests of WebMD and its stockholders, the Compensation Committee considered the amount of net operating loss carryforwards available to WebMD to offset income for Federal income tax purposes. See Note 11 to the Consolidated Financial Statements included in Annex A to this Proxy Statement.

Consideration of the Advisory Vote on Executive Compensation at the 2011 Annual Meeting of Stockholders.    At our 2011 Annual Meeting of Stockholders, the ballot included our first advisory vote on executive compensation, commonly known as “Say-on-Pay.” The vote was not binding upon our company, our Board of Directors or the Compensation Committee. Of the votes cast, including abstentions, approximately 90.3% were “FOR” the compensation of the executive officers as disclosed in the “Executive Compensation” section of the proxy statement for the 2011 Annual Meeting. The Compensation Committee took this result into consideration in determining to continue the overall design and key components of our executive compensation program and in connection with its implementation by the Committee since the 2011 Annual Meeting. The Compensation Committee intends to continue to consider the outcome of annual advisory votes when making future executive compensation decisions.

Executive Compensation Tables

This section provides information, in tabular formats specified in applicable SEC rules, regarding the amounts of compensation paid to our Named Executive Officers and related information. The tables included are:

 

   

the Summary Compensation Table, which presents information regarding the total compensation of each of our Named Executive Officers and the types and values of the components; and

 

   

three tables providing additional information regarding our equity compensation, entitled: Grants of Plan-Based Awards in 2011; Outstanding Equity Awards at End of 2011; and Option Exercises and Stock Vested in 2011.

As permitted by the SEC rules relating to the executive compensation tables, the following tables reflect only the types of compensation paid to our Named Executive Officers. For example, since our only retirement plan is a 401(k) plan, we do not include tables applicable to other types of retirement plans. For a general description of the types of compensation paid by WebMD, see “Compensation Discussion and Analysis — Overview of Types of Compensation Used by WebMD” above.

 

32


Summary Compensation Table

Table.    The following table presents information regarding the amount of the total compensation of our Named Executive Officers for services rendered during the years covered, 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 from our company and any of our subsidiaries, as well as from HLTH and any of its other subsidiaries prior to the Merger.

 

(a)    (b)      (c)     (d)     (e)     (f)     (g)     (h)  

Name and Principal Position(1)

   Year      Salary
($)(2)
    Bonus
($)(3)
    Stock
Awards

($)(4)
    Option
Awards
($)(4)
    All Other
Compensation

($)
    Total
($)
 

Wayne T. Gattinella

Chief Executive Officer and

President

     2011         560,000        132,013 (5)      1,030,400        806,895        13,658 (6)      2,542,966   
     2010         560,000        403,099 (5)      1,404,300        1,845,660        13,658 (6)      4,226,717   
     2009         581,538        404,869 (5)                    13,658 (6)      1,000,065   

Anthony Vuolo

Chief Operating Officer &

Chief Financial Officer

     2011         450,000        578,960 (8)      809,600        753,102        17,704 (9)      2,609,366   
     2010         450,000        376,341 (8)      936,200        1,538,050        17,704 (9)      3,318,295   
     2009         467,308        437,780 (8)      1,507,440 (7)             18,l65 (9)      2,430,693   

Gregory A. Mason

Executive Vice President,

Consumer Services

     2011         213,846        150,000 (10)      2,386,790        3,359,493        66,712 (11)      6,176,841   

William Pence

Executive Vice President &

Chief Technology Officer

     2011         375,000        191,254 (12)      439,440        855,278        11,581 (13)      1,872,553   
     2010         375,000        155,540 (12)      468,100        1,153,538        11,581 (13)      2,163,759   
     2009         389,423        83,750                      13,292 (13)      486,465   

Martin J. Wygod

Chairman of the Board

     2011         225,308        640,016 (14)      4,999,959        3,765,510        11,618 (15)      9,642,411   
     2010         120,000        1,172,500        3,510,750        1,153,538        17,208 (15)      5,973,996   
     2009         848,077        1,235,000 (14)      3,768,600               10,847 (15)      5,862,524   

 

 

(1) Positions listed are as of December 31, 2011. Mr. Gattinella resigned from WebMD in January 2012 and, at that time, Mr. Vuolo became Interim Chief Executive Officer, a position he held until May 31, 2012, Mr. Vuolo continues to serve as Chief Financial Officer, but no longer serves as Chief Operating Officer. Mr. Pence became Chief Operating Officer in May 2012 and also continues to serve as Chief Technology Officer.

 

(2) We pay salary to our employees on a bi-weekly basis and, in calendar year 2009, we made 27 such bi-weekly payments, so certain of the Named Executive Officers received aggregate salary payments in calendar year 2009 that exceeded their annual salary rate and that higher amount is reported in Column (c) for 2009. The amounts for 2011 in Column (c) are equal to the annual salary rate for 2011 for each of the Named Executive Officers, except for (1) Mr. Mason, who joined WebMD during 2011 and did not receive a full year of salary and whose current annual salary rate is $400,000 and (2) Mr. Wygod, whose annual salary rate increased from $120,000 to $490,000 on September 20, 2011. For additional information regarding the annual salary rate of the Named Executive Officers, see “Employment Agreements with Named Executive Officers” below.

 

(3) The amounts reported in Column (d) include, to the extent applicable to the individual Named Executive Officers, with respect to the years listed: annual cash bonuses for that year (which were paid in February or March of the following year); special bonuses paid in cash during that year; and amounts released from the Supplemental Bonus Trust during that year. For additional information, see “— Background Information Regarding the Summary Compensation Table — Bonuses” below and “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Supplemental Bonus Plan (SBP) Awards” above. In addition, a sign-on bonus paid to Mr. Mason in 2011 is reflected in the amount in Column (d) for him. Where amounts listed for an individual in a specific year include anything other than just the annual cash bonus for that year, we have included the breakdown in a footnote to this table below.

 

(4) The amounts reported in Columns (e) and (f) above reflect the grant date fair value, in the year of grant, for the WebMD Restricted Stock and options to purchase WebMD Common Stock awarded, if any, to the respective Named Executive Officers, computed in accordance with FASB ASC Topic 718. See Note 8 (Stock-Based Compensation) to the Consolidated Financial Statements included in Annex A to this Proxy Statement for an explanation of the methodology and assumptions used in determining the fair value of these awards. The actual amounts, if any, ultimately realized by our Named Executive Officers from these grants depend on the price of WebMD Common Stock at the time of vesting of restricted stock or at the time of exercise of vested stock options, as the case may be. In addition, as described below under “— Background Information Regarding the Summary Compensation Table — Voluntary Surrender of Certain Option Grants,” each of the Named Executive Officers (other than Mr. Gattinella, who was no longer employed by WebMD) voluntarily surrendered certain outstanding option grants in February 2012. Accordingly, those Named Executive Officers have not and will not realize any income from the surrendered options, even though the grant date fair value of those options is, in accordance with applicable SEC rules, included as compensation in the Summary Compensation Table. The fair value of the surrendered option grants represented all of the compensation reported in Column (f) for 2010 for Messrs. Vuolo, Pence and Wygod and $2,504,215 of the compensation reported in Column (f) for 2011 for Mr. Mason. In addition, even though the grant date fair value of the options and restricted stock granted to Mr. Gattinella in 2011 are included as compensation in Columns (e), (f) and (h), they were unvested at the time Mr. Gattinella resigned and, along with certain other unvested options and restricted stock granted to him, were surrendered as a result of his resignation.

 

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(5) For 2011, consists of: $132,013 released in March 2011 from the Supplemental Bonus Trust with respect to contributions made on Mr. Gattinella’s behalf for 2009. For 2010, consists of: (a) an annual bonus for 2010 of $268,000 and (b) $135,099 released in March 2010 from the Supplemental Bonus Trust with respect to contributions made on Mr. Gattinella’s behalf for 2008. For 2009, consists of: (a) an annual bonus for 2009 of $268,000 and (b) $136,869 released in March 2009 from the Supplemental Bonus Trust with respect to contributions made on Mr. Gattinella’s behalf for 2007.

 

(6) For each of the years presented, consists of: (a) $7,350 in company matching contributions under the 401(k) Plan; (b) $3,986 for company-paid supplemental disability insurance; and (c) $2,322 for company-paid group term life insurance.

 

(7) Mr. Vuolo served as our Chief Operating Officer for all of 2009 and began serving in the additional position of Chief Financial Officer in October 2009. In connection with Mr. Vuolo becoming Chief Financial Officer of WebMD, he was granted 44,000 shares of WebMD Restricted Stock on November 3, 2009, 25% of which vested on the first and second anniversaries of the date of grant and 25% of which is scheduled to vest on each of the next two anniversaries of the date of grant. That grant is reflected in Column (e) for 2009.

 

(8) For 2011, consists of: (a) an annual bonus for 2011 of $475,000 and (b) $103,960 released in March 2011 from the Supplemental Bonus Trust with respect to contributions made on Mr. Vuolo’s behalf for 2009. For 2010, consists of: (a) an annual bonus for 2010 of $251,250 and (b) $125,091 released in March 2010 from the Supplemental Bonus Trust with respect to contributions made on Mr. Vuolo’s behalf for 2008. For 2009, consists of: (a) an annual bonus for 2009 of $211,050; (b) a special bonus of $100,000 paid in November 2009 in recognition of his contributions to the completion of HLTH’s divestiture of Porex; and (c) $126,730 released in March 2009 from the Supplemental Bonus Trust with respect to contributions made on Mr. Vuolo’s behalf for 2007.

 

(9) For each of 2011 and 2010, consists of: (a) $4,462 for company-paid supplemental disability insurance; (b) $1,242 for company-paid group term life insurance; and (c) an automobile allowance of $12,000. For 2009, consists of: (a) $4,462 for company-paid supplemental disability insurance; (b) $1,242 for company-paid group term life insurance; and (c) an automobile allowance of $12,461.

 

(10) Consists of: (a) an annual bonus for 2011 of $100,000 and (b) a $50,000 sign-on bonus paid in August 2011, which was contingent upon Mr. Mason’s relocation to the New York City area.

 

(11) Consists of: (a) $436 for company-paid group term life insurance; (b) $3,289 in company matching contributions under the 401(k) Plan; and (c) $62,987 for reimbursement of certain relocation expenses, including moving costs and temporary housing. The reimbursement of relocation expenses was subject to a requirement to repay the amounts reimbursed if Mr. Mason resigns from WebMD prior to the first anniversary of his joining WebMD.

 

(12) For 2011, consists of: (a) an annual bonus for 2011 of $150,000 and (b) $41,254 released in March 2011 from the Supplemental Bonus Trust with respect to contributions made on Mr. Pence’s behalf for 2009. For 2010, consists of: (a) an annual bonus for 2010 of $100,500 and (b) $55,040 released in March 2010 from the Supplemental Bonus Trust with respect to contributions made on Mr. Pence’s behalf for 2008.

 

(13) For each of 2011 and 2010, consists of: (a) $810 for company-paid group term life insurance, (b) $3,421 for company-paid supplemental disability insurance; and (c) $7,350 in company matching contributions under the 401(k) Plan. For 2009, consists of: (a) $810 for company-paid group term life insurance, (b) $5,132 for company-paid supplemental disability insurance; and (c) $7,350 in company matching contributions under the 401(k) Plan.

 

(14) For 2011, consists of: (a) an annual bonus for 2011 of $475,000 and (b) $165,016 released in March 2011 from the Supplemental Bonus Trust with respect to contributions made on Mr. Wygod’s behalf for 2009. For 2009, consists of: (a) an annual bonus for 2009 of $335,000; and (b) a special bonus of $900,000 paid in November 2009 in recognition of his contributions to the completion of HLTH’s divestiture of Porex.

 

(15) For 2011, consists of: (a) $6,921 for company-paid supplemental disability insurance; and (b) $4,697 for company-paid group term life insurance. For 2010, consists of: (a) $6,083 for company-paid supplemental disability insurance; and (b) $11,125 for company-paid group term life insurance. For 2009, consists of: (a) $3,989 for company-paid supplemental disability insurance; and (b) $6,858 for company-paid group term life insurance.

Background Information Regarding the Summary Compensation Table

General.    The Summary Compensation Table above quantifies the amount or value of the different forms of compensation earned by or awarded to our Named Executive Officers by WebMD (and, with respect to 2009 prior to the Merger, by HLTH) and provides a dollar amount for total compensation for each year covered. 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. With respect to Mr. Gattinella, that section provides a description of the letter agreement entered into in January 2012 following his resignation.

Approval of the Compensation Committee is required prior to WebMD entering into 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 are implemented without changes to the general terms of employment set forth in those agreements. For a discussion of the salary, bonus

 

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and equity compensation of our Named Executive Officers for 2011 and the decisions made by the Compensation Committee relating to 2011 compensation, see “Compensation Discussion and Analysis” above.

Bonuses.    As described in “Compensation Discussion and Analysis — Annual Bonuses” above, WebMD has paid annual cash bonuses to its executive officers, the amount of which was determined by the Compensation Committee in its discretion. From time to time, WebMD pays 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. The footnotes to the Summary Compensation Table identify the amounts of any special bonuses for individual Named Executive Officers with respect to 2009. No special bonuses were made to the Named Executive Officers with respect to 2011 or 2010.

Supplemental Bonus Plan (SBP) contributions are cash amounts contributed by WebMD for specified Named Executive Officers (and other WebMD employees) to a trust (the Supplemental Bonus Trust), which distributes such amounts, with actual interest earned, the following year if the employee remains employed through a specified date. For example, amounts contributed in March 2011 (for 2010 bonuses) were distributed in March 2012, except with respect to Mr. Gattinella, who was no longer employed by WebMD. Because those amounts were forfeitable until March 1, 2012, they will be reflected in future Summary Compensation Tables as compensation in 2012 if the recipient is a Named Executive Officer for that year. In the Summary Compensation Table above, we include: (1) distributions from March 2010 contributions (for 2009 bonuses) in amounts for 2011 since they ceased to be forfeitable on March 1, 2011; (2) distributions from March 2009 contributions (for 2008 bonuses) in amounts for 2010 since they ceased to be forfeitable on March 1, 2010; and (3) distributions from March 2008 contributions (for 2007 bonuses) in amounts for 2009 since they ceased to be forfeitable on March 1, 2009. The footnotes to the Summary Compensation Table identify the amounts of the distributions for individual Named Executive Officers. No SBP contribution was made in 2012 (for 2011 bonuses). For additional information, see “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Supplemental Bonus Plan (SBP) Awards” above.

In considering the annual decisions made by the Compensation Committee regarding bonuses, the amount authorized for a particular year includes the bonus payable for that year plus the amount, if any, contributed at the same time to the Supplemental Bonus Trust (but not the amount released as a result of decisions made in prior years). Accordingly, amounts reported in the Summary Compensation Table for a particular year do not correspond to the amounts authorized by the Compensation Committee for that same year. For example, Mr. Gattinella received no bonus for 2011. The $132,013 reported with respect to Mr. Gattinella for 2011 in Column (d) is the amount released to him in March 2011 based on an SBP contribution approved by the Compensation Committee in early 2010 in connection with his bonus for 2009. For a discussion comparing bonus decisions by the Compensation Committee from year to year, see “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Annual Bonuses” above.

Stock Options and Restricted Stock.    Under applicable SEC rules, the Summary Compensation Table reflects the full grant date fair value of option grants and restricted stock grants in the year in which the grant is made and no compensation in any other year, regardless of the vesting schedule of the grant or the time of exercise in the case of options. As a result, the compensation of our executive officers reported in the Summary Compensation Table may vary greatly from year to year, depending on which years grants were made to specific WebMD executive officers and the size of the grants made. WebMD has not, in the past, made equity grants to our executive officers or our other employees on an annual or other pre-determined basis. In addition, grants made to a newly hired executive officer at the time he or she joins WebMD, which are typically larger than grants made to existing executive officers with comparable responsibilities in that year, may make it appear that he or she is more highly compensated than those other executive officers and may not be indicative of the compensation that would be reported for such individual in future years if he or she continues to be a Named Executive Officer. The Compensation Committee considers the vesting schedule of grants made under equity compensation plans to be an important term of such grants and believes that it is appropriate, in its consideration of the timing and amount of specific grants it approves, to view the value of such grants to be deemed distributed over the period of vesting, rather than assigned solely to the year of grant.

 

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The amounts reported in the Summary Compensation Table for stock awards and option awards reflect a specific method of valuation of those awards, as more fully described in Note 8 (Stock-Based Compensation) to the Consolidated Financial Statements included in Annex A to this Proxy Statement, and do not reflect income or cash received by our Named Executive Officers. The actual amounts, if any, ultimately realized by our Named Executive Officers from equity grants will depend on the price of our Common Stock at the time of vesting of restricted stock or at the time of exercise of vested stock options, as the case may be. In addition, as described below under “— Voluntary Surrender of Certain Option Grants,” each of the Named Executive Officers (other than Mr. Gattinella, who was no longer employed by WebMD) voluntarily surrendered certain outstanding option grants in February 2012. Accordingly, those Named Executive Officers have not and will not realize any income from the surrendered options, even though the grant date fair value of those options is, in accordance with applicable rules, included as compensation in Columns (f) and (h) of the Summary Compensation Table. In addition, even though the grant date fair value of the options and restricted stock granted to Mr. Gattinella in 2011 are included as compensation in Columns (e), (f) and (h), they were unvested at the time Mr. Gattinella resigned and, along with certain other unvested options and restricted stock granted to him, were surrendered as a result of his resignation.

Voluntary Surrender of Certain Option Grants.    On February 23, 2012, each of the Named Executive Officers (other than Mr. Gattinella, who was no longer employed by WebMD) voluntarily surrendered certain grants of non-qualified options to purchase WebMD Common Stock previously made to them. In the table “Outstanding Equity Awards at End of 2011” below, we have indicated by footnote which grants were voluntarily surrendered by the Named Executive Officers. None of the Named Executive Officers received any consideration or promise of consideration in exchange for that surrender of stock options. Upon the surrender of those stock options, the shares underlying those options became available for grants under the 2005 Plan. For a description of the options voluntarily surrendered by our Non-Employee Directors, see “Non-Employee Director Compensation — Option Grants — Voluntary Surrender of Certain Option Grants” above. The surrenders by the Non-Employee Directors and Named Executive Officers of stock options were intended to allow WebMD to use the shares that became available under the 2005 Plan to attract new employees and to motivate and retain current key employees.

Grants of Plan-Based Awards in 2011

Table.    The following table presents information regarding the equity incentive awards granted by WebMD to our Named Executive Officers during 2011. The material terms of each grant are described under “— Additional Information Regarding Awards” below.

 

(a)    (b)      (c)      (d)      (e)      (f)      (g)  

Name

   Approval
Date
     Grant
Date
     All Stock
Awards:
Number of
Shares of Stock

(#)
     All Option Awards:
Number of Securities
Underlying Options

(#)
     Exercise or
Base Price of
Option
Awards

($/Sh)
     Grant Date Fair Value
of Stock and Option Awards

($)(1)
 

Wayne T. Gattinella

     9/25/11         9/25/11         35,000         75,000         29.44         1,837,295   

Anthony Vuolo

     9/25/11         9/25/11         27,500         70,000         29.44         1,562,702   

Gregory A. Mason

     5/23/11         6/21/11         42,500         175,000         45.82         4,451,565   
     7/23/11         7/23/11         12,000         75,000         36.62         1,294,718   

William Pence

     7/23/11         7/23/11         12,000         75,000         36.62         1,294,718   

Martin J. Wygod

     2/11/11         2/11/11         92,867                         4,999,959   
     9/25/11         9/25/11                 350,000         29.44         3,765,510   

 

 

(1) The amounts reported in this column have been calculated in accordance with FASB ASC Topic 718 and reflect the fair value of each equity award based on the grant date fair market value of WebMD Common Stock. See Note 8 (Stock-Based Compensation) to the Consolidated Financial Statements included in Annex A to this Proxy Statement for an explanation of the methodology and assumptions used in determining the fair value of these awards. The actual amounts, if any, ultimately realized by our Named Executive Officers from these grants depend on the price of our Common Stock at the time of vesting of restricted stock or at the time of exercise of vested stock options, as the case may be.

 

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Additional Information Regarding Awards.    Each option to purchase WebMD Common Stock granted to our Named Executive Officers in 2011 was granted pursuant to the 2005 Plan. All such grants were made with a per-share exercise price equal to the fair market value of a share of WebMD Common Stock on the grant date. For these purposes, and in accordance with the terms of the 2005 Plan and WebMD’s option grant practices, the fair market value is equal to the closing price of a share of WebMD Common Stock on the Nasdaq Global Select Market on the grant date or, if the grant date is not a trading day, the most recent prior trading day. The vesting schedule for each such stock option granted to our Named Executive Officers in 2011 is 25% on each of the first four anniversaries of the date of grant. Once vested, each such stock option will generally remain exercisable until its normal expiration date. Each such stock option granted to our Named Executive Officers in 2011 has a term of 10 years. For information regarding the effect on the vesting and exercisability of these stock options of the death, disability or termination of employment of a Named Executive Officer or a change of control of WebMD, see “Potential Payments and Other Benefits Upon Termination of Employment or a Change of Control” and “Employment Agreements with Named Executive Officers” below. If a Named Executive Officer’s employment is terminated for cause, outstanding stock options (whether vested or unvested) would immediately terminate.

The grants of shares of WebMD Restricted Stock to the Named Executive Officers in 2011 are subject to certain restrictions, including restrictions on transferability, and were made under, and are subject to the terms of, the 2005 Plan. The restrictions lapse in accordance with the terms of the respective award agreements. The holders of these shares of WebMD Restricted Stock have voting power with respect to those shares, but do not have the right to receive dividends, if any, that are declared on those shares. The vesting schedule for these grants of WebMD Restricted Stock is 25% on each of the first four anniversaries of the date of grant. For information regarding the effect on vesting of WebMD Restricted Stock of the death, disability or termination of employment of a Named Executive Officer or a change of control of WebMD, see “Potential Payments and Other Benefits Upon Termination of Employment or a Change of Control” below. If a Named Executive Officer’s employment is terminated for cause, unvested shares of WebMD Restricted Stock are forfeited.

The 2005 Plan is administered by the Compensation Committee of the WebMD Board. The WebMD Compensation Committee has authority to interpret the plan provisions and make all required determinations under the 2005 Plan. This authority includes making required proportionate adjustments to outstanding awards upon the occurrence of certain corporate events such as reorganizations, mergers and stock splits, and making provision to ensure that any tax withholding obligations incurred in respect of awards are satisfied. Awards granted under the 2005 Plan are generally transferable only to a beneficiary of a Plan participant upon his or her death or to certain family members or family trusts. However, the WebMD Compensation Committee may establish procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable laws.

Outstanding Equity Awards at End of 2011

The following table presents information regarding the outstanding equity awards held by each Named Executive Officer as of December 31, 2011, including the vesting dates for the portions of these awards that had not vested as of that date. Awards of WebMD equity are indicated with “(W)” at the beginning of Column (b) in the table and awards that were originally of HLTH equity are indicated with “(H)” at the beginning of that column. The awards of HLTH equity were assumed by WebMD in the Merger. Accordingly, for grants by

 

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HLTH, this table reflects the number of shares of WebMD Common Stock subject to the grant (and, in the case of options, the exercise price) after conversion in the Merger and assumption by WebMD.

 

(a)          (b)      (c)     (d)      (e)      (f)     (g)     (h)      (i)  
     Option Awards(1)     Stock Awards(2)  

Name

   Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable
    Option
Exercise
Price

($)
     Option
Grant
Date
     Option
Expiration
Date
    Number of
Shares of
Stock That
Have Not
Vested

(#)
    Stock
Award
Grant
Date
     Market
Value of
Shares of
Stock That
Have Not
Vested

($)(3)
 

Wayne T. Gattinella

     (W             75,000 (4)      29.44         9/25/11         9/25/21        35,000 (4)      9/25/11         1,314,250   
     (W     30,000         90,000 (4)      46.81         6/28/10         6/28/20        22,500 (4)      6/28/10         844,875   
     (W     120,000         120,000 (5)      23.61         12/10/08         12/10/18        30,000 (5)      12/10/08         1,126,500   
     (H     41,100                19.33         3/17/04         3/17/14                         

Anthony Vuolo

     (W             70,000 (4)      29.44         9/25/11         9/25/21        27,500 (4)      9/25/11         1,032,625   
     (W     25,000         75,000 (4)      46.81         6/28/10         6/28/20     15,000 (4)      6/28/10         563,250   
     (W                                           22,000 (4)      11/03/09         826,100   
     (W     49,000         98,000 (5)      23.61         12/10/08         12/10/18        24,500 (5)      12/10/08         919,975   
     (H     59,994         19,998 (4)      21.29         12/10/08         12/10/18                         

Gregory A. Mason

     (W             75,000 (4)      36.62         7/23/11         7/23/21        12,000 (4)      7/23/11         450,600   
     (W             175,000 (4)      45.82         6/21/11         6/21/21     42,500 (4)      6/21/11         1,595,875   

William Pence

     (W             75,000 (4)      36.62         7/23/11         7/23/21        12,000 (4)      7/23/11         450,600   
     (W     18,750         56,250 (4)      46.81         6/28/10         6/28/20     7,500 (4)      6/28/10         281,625   
     (W             75,000 (5)      23.61         12/10/08         12/10/18        6,250 (5)      12/10/08         234,688   
     (W     150,000                45.23         11/01/07         11/01/17                      

Martin J. Wygod

     (W             350,000 (4)      29.44         9/25/11         9/25/21                         
     (W                                           92,867 (4)      2/11/11         3,487,156   
     (W     18,750         56,250 (4)      46.81         6/28/10         6/28/20     56,250 (4)      6/28/10         2,112,188   
     (W                                           55,000 (4)      11/03/09         2,065,250   
     (W     60,000         120,000 (5)      23.61         12/10/08         12/10/18        30,000 (5)      12/10/08         1,126,500   
     (H     53,328         53,328 (4)      19.11         12/01/08         12/01/18        26,664 (4)      12/01/08         1,001,233   
     (H     11,110                51.54         7/01/98         7/01/13                         

 

 

  * Since information in this table is presented as of December 31, 2011, it does not reflect the voluntary surrender of options by Named Executive Officers in February 2012 described under “Voluntary Surrender of Certain Option Grants” following the Summary Compensation Table above. An asterisk in the “Option Expiration Date” column indicates which grants were voluntarily surrendered by the Named Executive Officers on February 23, 2012.

 

(1) Each grant reported in the table above was granted under, and is subject to, the WebMD 2005 Plan, HLTH’s Amended and Restated 2000 Long-Term Incentive Plan, or another plan or agreement that contains substantially the similar 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 options 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 of the death, disability or termination of employment of a Named Executive Officer or a change of control of WebMD, see “Potential Payments and Other Benefits Upon Termination of Employment or a Change of Control” below. The exercisable options shown in Column (b) above, and any unexercisable options shown in Column (c) above 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) Unvested shares of restricted stock are generally forfeited if the Named Executive Officer’s employment terminates, except to the extent otherwise provided in an employment agreement or award agreement. The stock awards held by our Named Executive Officers are subject to accelerated or continued vesting in connection with a change of control of WebMD 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 of Control.” Except as otherwise indicated in those sections, unvested stock awards will generally be forfeited if a Named Executive Officer’s employment terminates.

 

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(3) The market or payout value of stock awards reported in Column (i) is computed by multiplying the number of shares of WebMD Restricted Stock reported in Column (g) by $37.55, the closing market price of WebMD Common Stock on December 30, 2011 (the last trading day in 2011).

 

(4) Vesting schedule: 25% of the original amount granted on each of first, second, third and fourth anniversaries of the date of the grant.

 

(5) Vesting schedule: 25% of the original amount granted on March 31 of each of 2010, 2011, 2012 and 2013.

Option Exercises and Stock Vested in 2011

The following table presents information regarding the exercise of options to purchase WebMD Common Stock (including options originally issued by HLTH) by our Named Executive Officers during 2011, and regarding the vesting during 2011 of WebMD Restricted Stock (including shares originally granted by HLTH) previously granted to our Named Executive Officers. Amounts with respect to equity granted by WebMD are noted with a “W” and amounts with respect to equity granted by HLTH are noted with an “H.” However, for exercises of options and vestings of restricted stock originally granted by HLTH, the share amounts in this table give effect to the conversion of such shares into shares of WebMD Common Stock in the Merger. Please note that the amounts reported for “Value Realized” in Columns (c) and (e) represent gain over a period of years; we do not consider such gain to all be 2011 compensation and, under applicable SEC rules, none of such gain is included in 2011 compensation in the Summary Compensation Table.

 

(a)    (b)      (c)      (d)      (e)  
     Option Awards      Stock Awards  

Name

   Number of Shares
Acquired on Exercise

(#)
     Value Realized
on  Exercise

($)(1)
     Number of Shares
Acquired on Vesting

(#)
     Value Realized  on
Vesting

($)(2)
 

Wayne T. Gattinella

                     22,500W         1,139,625W   

Anthony Vuolo

                     28,250W         1,222,595W   

Gregory A. Mason

                               

William Pence

     37,500W         966,723W         11,875W         491,963W   

Martin J. Wygod

     22,220H         426,957H         26,664H         960,971H   
           61,250W         2,503,738W   
           

 

 

 
              3,464,709       

 

 

(1) The dollar amounts shown in Column (c) above for option awards are determined by multiplying (i) the number of shares for which the option was exercised by (ii) the difference between (1) the per-share closing price of WebMD 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 WebMD Common Stock on the vesting date.

Potential Payments and Other Benefits Upon Termination of Employment or a Change of Control

Background and Assumptions.    In this section, we provide tables containing estimates of (a) amounts that may become payable to our Named Executive Officers as a result of a termination of employment under specific circumstances and (b) the value of other benefits they may become entitled to receive as a result of such termination under:

 

   

employment agreements;

 

   

equity grant agreements; and

 

   

the Supplemental Bonus Plan.

For a general discussion of matters relating to compensation that may become payable by WebMD after termination of employment or a change of control, see “— Compensation Discussion and Analysis — Compensation Following Termination of Employment or a Change of Control” above, and for a detailed description of the applicable provisions of the employment agreements of our Named Executive Officers, see “— Employment Agreements with Named Executive Officers” below. Under those agreements, the amount and

 

39


types of payment and other benefits vary depending on whether the termination is as a result of death or disability, is with or without cause, is a resignation for good reason and/or is in connection with a change of control. In preparing the tables below, we have assumed that, in the case of the Named Executive Officers, amounts contributed on their behalf to the Supplemental Bonus Trust in 2011 would be paid prior to the scheduled release in March 2012 only in the event of a termination of employment as a result of death or disability. As prescribed by applicable SEC rules, in estimating the amount of any potential payments to Named Executive Officers under their employment agreements or the SBP, as applicable, 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 of control) occurred on December 31, 2011, and that the price per share of WebMD Common Stock is $37.55 (the closing price per share on December 30, 2011, the last trading day in 2011). We have also treated the right to continue to vest in options as being accelerated to December 31, 2011 for purposes of this disclosure only. We have also assumed that the Named Executive Officers have no accrued and unused vacation on December 31, 2011.

If the benefits payable to Mr. Wygod or to Mr. Vuolo in connection with a change of control would be subject to the excise tax imposed under Section 280G of the Internal Revenue Code of 1986 (“Section 280G”), WebMD has agreed to make an additional payment to the individual so that the net amount of such payment (after taxes) that he receives is sufficient to pay the excise tax due. We note that the determination of whether a payment is a “parachute payment” is a facts and circumstances test. In the tables below, we have calculated the Section 280G excise tax on the basis of IRS regulations and Rev. Proc. 2003-68 and have assumed that the Named Executive Officer’s outstanding equity awards (or portion thereof in the case of Mr. Vuolo) would be accelerated and terminated in exchange for a cash payment upon the change of 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 of control to be the amount the holder can realize from such award as of December 31, 2011: 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.

For a discussion of the agreement that WebMD entered into with Wayne T. Gattinella following his resignation in January 2012, see “Employment Agreements with Named Executive Officers — Letter Agreement with Wayne T. Gattinella” below.

Tables.    The tables below set forth estimates (rounded to the nearest $1,000), based on the 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 of 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 contained in certain employment agreements and the fact that WebMD’s equity plans (including HLTH equity plans assumed by WebMD in the Merger) 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. Vuolo and Wygod are eligible to continue to participate in our health and welfare plans (or comparable plans) for a specified period. In the row entitled “Health and Welfare Benefits Continuation,” the amounts are based upon the current average cost to our company of these benefits per employee (with an estimate for individual coverage after expiration of the applicable COBRA period) 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.

 

40


Anthony Vuolo, Executive Vice President and Chief Financial Officer

 

Executive Benefits and

Payments

  Voluntary
Termination
for “Good
Reason”
    Voluntary
Termination
in connection
with a
“Change of
Control”(1)
    Other
Voluntary
Termination
    Permanent
Disability
or  Death(2)
    Involuntary
Termination
for “Cause”
    Involuntary
Termination
without
“Cause”
    Termination of
Employment
without “Cause” or
for “Good Reason”
Following a

“Change of
Control”
 

Cash Severance(3)

    1,613,000        1,613,000        -0-        1,737,000        -0-        1,613,000        1,613,000   

Stock Options(4)

    -0-        1,975,000        -0-        2,259,000        -0-        -0-        2,117,000   

Restricted Stock(4)

    -0-        2,638,000        -0-        3,342,000        -0-        -0-        2,896,000   

Health and Welfare Benefits Continuation

    123,000        123,000        -0-        123,000        -0-        123,000        123,000   

280G Tax Gross-Up

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

Other

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

TOTAL

    1,736,000        6,349,000        -0-        7,461,000        -0-        1,736,000        6,749,000   

 

 

(1) Mr. Vuolo may resign from his employment after six months following a Change of Control of WebMD and receive the same benefits, under his employment agreement, as if he was terminated without Cause or for Good Reason following a Change of Control (other than with respect to outstanding equity awards). He may not unilaterally resign without Good Reason prior to such date and receive these benefits. Continuation of vesting and exercisability of options and acceleration of vesting of restricted stock following a Change of Control are also subject to requirements that Mr. Vuolo remain employed for specified periods following the Change of Control, unless he is terminated without Cause or resigns for Good Reason. See “Employment Agreements with Named Executive Officers — Anthony Vuolo” for the terms applicable to specific grants. However, for purposes of calculating the amounts included in the column entitled “Voluntary Termination in Connection with a Change of Control,” we have treated such resignation as occurring on December 31, 2011 and have assumed that the requirement for the applicable transition period has been met.

 

(2) Includes the amount contributed in March 2011 (for 2010) on Mr. Vuolo’s behalf to the Supplemental Bonus Trust ($123,750), which would be paid to him in the event of a termination of his employment, as of December 31, 2011, as a result of death or disability.

 

(3) The amounts in this row, other than the columns that are zero, include 18 months of salary and annual bonuses, plus an assumed annual bonus for 2011, which is calculated based on annual bonus amounts for 2010 (the year prior to the year of the assumed termination). Accordingly, we have assumed that the 2011 annual bonus is equal to the sum of the actual amount of Mr. Vuolo’s annual bonus for 2010 ($251,250) plus the actual amount contributed to the Supplemental Bonus Trust for Mr. Vuolo for 2010 ($123,750).

 

(4) Calculated using $37.55 per share, the closing price of WebMD Common Stock on December 30, 2011 (the last trading day of 2011).

Gregory Mason, Executive Vice President — Consumer Services

 

Executive Benefits and

Payments

  Voluntary
Termination
for “Good
Reason”
    Voluntary
Termination
in Connection
with a
“Change of
Control”
    Other
Voluntary
Termination
    Permanent
Disability
or Death
    Involuntary
Termination
for “Cause”
    Involuntary
Termination
without
“Cause”
    Termination of
Employment
without “Cause” or
for “Good  Reason”
Following a

“Change of
Control”
 

Cash Severance

    500,000 (1)      -0-        -0-        -0-        -0-        500,000 (1)      500,000 (1) 

Stock Options(3)

    -0-        -0-        -0-        70,000        -0-        -0-        35,000 (2) 

Restricted Stock(3)

    -0-        -0-        -0-        2,046,000        -0-        -0-        -0-   

Health and Welfare Benefits Continuation

    19,000        -0-        -0-        -0-        -0-        19,000        19,000   

280G Tax Gross-Up

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

Other

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

TOTAL

    519,000        -0-        -0-        2,116,000        -0-        519,000        554,000   

 

 

(1) Includes one year of base salary ($400,000) and a bonus amount for 2011 of $100,000 (which was the actual amount of Mr. Mason’s bonus for 2011).

 

(2) If Mr. Mason’s employment is terminated by WebMD without Cause or by him for Good Reason within 24 months following a Change of Control, the options granted to him in July 2011 will remaining outstanding and continue to vest through the second vesting date following the date of such termination.

 

(3) Calculated using $37.55 per share, the closing price of WebMD Common Stock on December 30, 2011 (the last trading day of 2011).

 

41


William Pence, Executive Vice President, Chief Operating Officer and Chief Technology Officer

 

Executive Benefits and

Payments

  Voluntary
Termination
for “Good
Reason”
    Voluntary
Termination
in Connection
with a
“Change of
Control”
    Other
Voluntary
Termination
    Permanent
Disability
or Death
    Involuntary
Termination
for “Cause”
    Involuntary
Termination
without
“Cause”
    Termination of
Employment
without “Cause” or
for “Good Reason”
Following a

“Change of
Control”
 

Cash Severance

    525,000 (1)      -0-        -0-        50,000 (2)      -0-        525,000 (1)      525,000 (1) 

Stock Options(4)

    523,000 (3)      -0-        -0-        1,115,000        -0-        523,000 (3)      1,063,000 (3)(5) 

Restricted Stock(4)

    -0-        -0-        -0-        967,000        -0-        -0-        -0-   

Health and Welfare Benefits Continuation

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

280G Tax Gross-Up

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

Other

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

TOTAL

    1,048,000        -0-        -0-        2,132,000        -0-        1,048,000        1,588,000   

 

 

(1) Includes one year of base salary ($375,000) and an assumed annual bonus for 2011 of $150,000, which was calculated based on annual bonus amounts for 2010 (the year prior to the year of the assumed termination) and is equal to the sum of the actual amount of Mr. Pence’s annual bonus for 2010 ($100,500) plus the actual amount contributed to the Supplemental Bonus Trust for Mr. Pence for 2010 ($49,500).

 

(2) Represents the amount contributed in March 2011 on Mr. Pence’s behalf to the Supplemental Bonus Trust, which would be paid to him in the event of a termination of his employment, as of December 31, 2011, as a result of death or disability.

 

(3) If Mr. Pence’s employment is terminated by WebMD without Cause or by him for Good Reason, the options granted to him in December 2008 will continue to vest until the next scheduled vesting date following such termination. If such a termination occurs within twelve months following a Change of Control, those options will continue to vest until the second scheduled vesting date following such termination.

 

(4) Calculated using $37.55 per share, the closing price of WebMD Common Stock on December 30, 2011 (the last trading day of 2011).

 

(5) If Mr. Pence’s employment is terminated by WebMD without Cause or by him for Good Reason within 12 months following a Change of Control, the options granted to him in July 2011 will continue to vest and remain outstanding for one year following such termination.

Martin J. Wygod, Chairman of the Board

 

Executive Benefits and

Payments(1)

  Voluntary
Termination
for “Good
Reason”
    Voluntary
Termination
in Connection
with a
“Change of
Control”
    Other
Voluntary
Termination
    Permanent
Disability
or Death
    Involuntary
Termination
for “Cause”
    Involuntary
Termination
without
“Cause”
    Termination of
Employment
without “Cause” or
for “Good Reason”
Following a

“Change of
Control”
 

Cash Severance(2)

    5,725,000        5,725,000        5,725,000        6,303,000 (3)      -0-        5,725,000        5,725,000   

Stock Options(4)

    5,495,000        5,495,000        -0-        5,495,000        -0-        5,495,000        5,495,000   

Restricted Stock(4)

    9,792,000        9,792,000        -0-        9,792,000        -0-        9,792,000        9,792,000   

Health and Welfare Benefits Continuation

    95,000        95,000        95,000        95,000        -0-        95,000        95,000   

280G Tax Gross-Up

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

Other

    -0-        -0-        -0-        -0-        -0-        -0-        -0-   

TOTAL

    21,107,000        21,107,000        5,820,000        21,685,000        -0-        21,107,000        21,107,000   

 

 

(1) As more fully described under “Employment Agreements with Named Executive Officers — Martin J. Wygod” below, in connection with the Merger, Mr. Wygod agreed to remain Executive Chairman notwithstanding the terms of his employment agreement. Accordingly, his agreement was amended to provide that he may resign with or without Good Reason at any time and receive his cash severance.

 

(2) Such cash severance represents salary and bonus for three years, with (a) the annual salary amount being $975,000, the salary in effect immediately prior to the Merger and (b) the annual bonus amount determined by averaging the bonus amounts received by Mr. Wygod for the three years prior to the Merger.

 

(3) Includes the amount contributed in March 2011 on Mr. Wygod’s behalf to the Supplemental Bonus Trust, which would be paid to him in the event of a termination of his employment, as of December 31, 2011, as a result of death or disability.

 

(4) Calculated using $37.55 per share, the closing price of WebMD Common Stock on December 30, 2011 (the last trading day of 2011).

 

42


Employment Agreements with Named Executive Officers

The following are summaries of the employment agreements with our 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 WebMD entering into employment agreements with its executive officers or any amendments to those agreements. However, many of the decisions relating to the compensation of our Named Executive Officers for a specific year made by the Compensation Committee are implemented without changes to the general terms of employment set forth in those agreements. With respect to 2011, those decisions and their implementation are discussed earlier in this “Executive Compensation” section. For a summary of our employment agreement with Cavan M. Redmond, who became WebMD’s Chief Executive Officer on May 31, 2012, see “Employment Agreement with Cavan M. Redmond” below.

Anthony Vuolo

Anthony Vuolo, who serves as WebMD’s Chief Financial Officer (and who served as WebMD’s Chief Operating Officer and Chief Financial Officer during all of 2011), was a party to an employment agreement with HLTH. Mr. Vuolo’s employment agreement was amended and restated, effective as of the date of WebMD’s initial public offering, and assumed by WebMD. The agreement was further amended as of December 10, 2008, February 19, 2009, June 28, 2010 and September 25, 2011. The following is a description of the agreement, as amended:

 

   

Under his employment agreement, Mr. Vuolo’s annual base salary is $450,000 and he is eligible for an annual bonus, the target of which is 100% of his base salary, with the actual amount to be determined by the Compensation Committee of our Board in its discretion. For 2011, Mr. Vuolo received an annual bonus of $475,000, determined by the WebMD Compensation Committee in its discretion. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Annual Bonuses” above.

 

   

In the event of the termination of Mr. Vuolo’s employment due to his death or disability, by WebMD without Cause (as described below), by Mr. Vuolo for Good Reason (as described below), or as a result of WebMD’s failure to renew his employment agreement, he would be entitled to the following (subject, if necessary, to a six month delay to comply with Section 409A of the Internal Revenue Code):

 

   

continuation of his base salary for a period of 18 months following the date of termination;

 

   

any unpaid bonus for the year preceding the year in which the termination of employment occurs, as well as payment for bonuses for the 18-month period following the date of termination calculated using the bonus paid for the year prior to the year of termination (and, for this purpose only, the amount of his SBP Award for such year, if any); and

 

   

continued participation in certain of WebMD’s welfare benefit plans for 36 months (or, if earlier, until he is eligible for comparable benefits); provided that, pursuant to the December 2008 amendment, he will no longer be entitled to participate in WebMD’s disability plans and will instead be entitled to a payment equal to the greater of $10,000 and 200% of the cost of his coverage for up to three years.

Mr. Vuolo’s receipt of these severance benefits is subject to his continued compliance with the applicable restrictive covenants described below.

 

   

For information regarding Mr. Vuolo’s equity compensation, see “— Executive Compensation Tables” above. The following additional terms apply to the specified grants of options to purchase WebMD Common Stock and WebMD Restricted Stock:

 

   

The December 2008 amendment described the material terms of the December 2008 WebMD equity awards made to Mr. Vuolo. Specifically, Mr. Vuolo may resign one year after the occurrence of a Change in Control (as described below) and (i) he would continue to vest in the option granted on December 10, 2008 through the second anniversary of the Change in Control and (ii) that portion of the restricted stock award made on the same date that would have vested over the two year period following the Change in Control will become vested on the date of resignation. The February 2009 amendment provided that the option granted to Mr. Vuolo by HLTH on December 10, 2008 will be treated in the same manner as the WebMD grants made on such date and described above.

 

43


   

Under the Restricted Stock Agreement entered into in connection with the grant of WebMD Restricted Stock made to Mr. Vuolo in November 2009, if a Change of Control (as defined in the 2005 Plan) occurs, he may resign beginning one year after the Change in Control and any remaining unvested shares would vest on the date of resignation.

 

   

Under the June 28, 2010 amendment to Mr. Vuolo’s employment agreement, the following terms apply to the grant of WebMD Restricted Stock that he received on that date: (a) at any time after the first anniversary of the occurrence of a Change in Control (as described below) of WebMD, he may resign, in which case the two vestings of the WebMD Restricted Stock that would have occurred after the Change in Control will, if not already vested, accelerate to the date of termination; and (b) if his employment is terminated by WebMD without Cause (as described below) or by him for Good Reason (as described below) following a Change in Control, the WebMD Restricted Stock granted to him will be treated in the same manner.

 

   

Under the September 25, 2011 amendment to Mr. Vuolo’s employment agreement, the following terms apply to the grants made on that date:

 

  ¡    

if, after the first anniversary of the occurrence of a Change of Control (as described below), he resigns for any reason or is terminated without Cause (as described below), (a) the options granted to him will continue to vest and remain outstanding, as if he remained in the employ of WebMD, for a period of two years from the date of termination (but in no event longer than the expiration of the original term of such options) and (b) vesting of the restricted stock that would have occurred within two years from the date of termination will accelerate to the date of termination; and

 

  ¡    

if his employment is terminated by WebMD without Cause or by him for Good Reason (as described below, except that following a Change of Control, “Good Reason” shall not include changes in his duties, titles or responsibilities that are solely attributable to the Change in Control) before the first anniversary following a Change of Control, (a) the options granted to him will continue to vest and remain outstanding, as if he remained in the employ of WebMD, for a period of three years from the date of the Change of Control (but in no event longer than the expiration of the original term of such options) and (b) vesting of the restricted stock that would have occurred within three years from the date of the Change of Control will accelerate to the date of termination.

 

   

For purposes of the employment agreement: (a) “Cause” includes (i) a material breach of his 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 his title or responsibilities, (ii) the requirement to report to anyone other than WebMD’s CEO, (iii) a reduction in his base salary or material fringe benefits, (iv) a material breach by WebMD of his employment agreement, (v) relocation of his place of work outside Manhattan, New York, unless it is within 25 miles of his current residence, or (vi) the date that is six months following a Change in Control (as described below) of WebMD (so long as Mr. Vuolo remains employed by WebMD’s successor, or is terminated without Cause or resigns for Good Reason, during such six-month period).

 

   

For purposes of the employment agreement, a “Change in Control” would occur when: (i) any person, entity, or group acquires at least 50% of the voting power of WebMD, (ii) there is a sale of all or substantially all of WebMD’s assets in a transaction where then-current stockholders do not receive a majority of the voting power or equity interest in the acquiring entity or its controlling affiliates or (iii) a complete liquidation or dissolution of WebMD occurs.

 

   

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.

 

   

The December 2008 amendment also made changes to the agreement that were intended to bring its terms into compliance with, or exempt it from, Section 409A of the Internal Revenue Code by, among other things, clarifying the timing of certain payments.

 

   

The employment agreement is governed by the laws of the State of New York.

 

44


   

The employment agreement contains a tax gross-up provision relating to any excise tax that Mr. Vuolo incurs by reason of his receipt of any payment that constitutes an excess parachute payment as defined in Section 280G. Any excess parachute and related gross-up payments made to Mr. Vuolo will not be deductible for federal income tax purposes.

Gregory A. Mason

We are party to an employment agreement with Gregory A. Mason, who serves as our Executive Vice President — Consumer Services, which was entered into in May 2011 at the time of his hire and amended in July 2011. The following is a description of Mr. Mason’s employment agreement with us:

 

   

Under his employment agreement, Mr. Mason’s annual base salary is $400,000 and he is eligible for an annual bonus, the target of which is 65% of his base salary, with the actual amount to be determined by the Compensation Committee of our Board in its discretion. For 2011, Mr. Mason received an annual bonus of $100,000. In determining the amount of the bonus, the Committee took into consideration that Mr. Mason joined WebMD in the middle of the year. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Annual Bonuses” above. Mr. Mason also received a sign-on bonus of $50,000, paid in August 2011. The sign-on bonus was contingent upon Mr. Mason’s relocation to the New York City area. Mr. Mason was also eligible for reimbursement of certain relocation expenses, including temporary housing, subject to a requirement to repay amounts so reimbursed if he resigns from WebMD prior to the first anniversary of his joining WebMD.

 

   

When Mr. Mason joined WebMD on June 21, 2011, he received the following grants pursuant to his employment agreement: non-qualified options to purchase 175,000 shares of WebMD Common Stock at an exercise price of $45.82 (the closing price of WebMD Common Stock on the date of grant) and 42,500 shares of WebMD Restricted Stock. On February 23, 2012, Mr. Mason voluntarily surrendered the options grant to him on June 21, 2011. See “Voluntary Surrender of Certain Option Grants” following the Summary Compensation Table above. On July 23, 2011, the Compensation Committee granted to Mr. Mason non-qualified options to purchase 75,000 shares of WebMD Common Stock at an exercise price of $36.62 (the closing price of WebMD Common Stock on July 22, 2011) and 12,000 shares of WebMD Restricted Stock. The grants to Mr. Mason are scheduled to vest over a four year period, with 25% scheduled to vest on each of the first, second, third and fourth anniversaries of the date of grant. For additional information regarding Mr. Mason’s equity compensation, see the “Executive Compensation Tables” above.

 

   

In the event of the termination of Mr. Mason’s employment, by WebMD without “Cause” or by him for “Non-Change of Control 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 payment of his COBRA premiums until the earlier of one year following his termination and the date upon which he receives comparable coverage under another plan.

 

   

In the event of a “Change of Control” of WebMD (as such term is defined in the 2005 Plan) and his subsequent termination by WebMD without Cause or by him for Change of Control Good Reason (as such term is described below) within 24 months following such Change of Control, Mr. Mason would receive the severance benefits described above, and the options granted to him on July 23, 2011, to the extent unvested, would remain outstanding and continue to vest through the second vesting date following such termination.

 

   

For purposes of the employment agreement with Mr. Mason:

 

   

a “Change of Control” (as such term is defined in the 2005 Plan) 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.

 

   

“Cause” includes (i) 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 breach of

 

45


 

a material WebMD policy, the employment agreement or the Trade Secret and Proprietary Information Agreement (as described below) that remains unremedied after 30 days written notice, (iv) continued failure to follow WebMD’s lawful instruction after 30 days written notice, or (v) conviction of a felony in respect of a dishonest or fraudulent act or other crime of moral turpitude.

 

   

“Non-Change of Control Good Reason” means Mr. Mason’s resignation of employment within six months following the occurrence of any of the following conditions or events prior to a Change of Control: (i) any material breach of the employment agreement by WebMD, (ii) a material reduction in base salary, or (iii) a material reduction in responsibilities; provided that he has provided written notice to WebMD within 30 days after the occurrence of such condition or event claimed to be Good Reason and WebMD has failed to remedy such condition or event within 90 days of receipt of such written notice.

 

   

“Change of Control Good Reason” means Mr. Mason’s resignation of employment within six months following the occurrence of any of the following conditions or events that occurs on or after a Change of Control: (i) any material breach of the employment agreement by WebMD, (ii) a material reduction in base salary, or (iii) a material reduction in responsibilities, not including a change in title or reporting responsibilities or a material reduction in responsibilities in connection with a transition of his responsibilities to others at WebMD, so long as such transition period is not greater than 12 months and at the end of such transition period, a Change of Control is deemed to occur; provided that he has provided written notice to WebMD within 30 days after the occurrence of such condition or event claimed to be Change of Control Good Reason and WebMD has failed to remedy such condition or event within 90 days of receipt of such written notice.

 

   

The employment agreement and the Trade Secret and Proprietary Information Agreement described below are each governed by the laws of the State of New York.

Mr. Mason 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 him from hiring WebMD’s employees or soliciting any of WebMD’s clients or customers with whom he had a relationship during the time he was employed by WebMD, and non-competition provisions that prohibit him 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 ceases. Post-employment payments and benefits that may be due to Mr. Mason are subject to his continued compliance with these covenants.

William Pence

William Pence, who currently serves as Executive Vice President, Chief Operating Officer and Chief Technology Officer, is party to an amended and restated employment agreement with us that became effective on May 16, 2012, when he became our Chief Operating Officer. The following is a description of Mr. Pence’s amended and restated employment agreement:

 

   

Under his employment agreement, Mr. Pence’s annual base salary is $425,000 (effective as of March 12, 2012) and he is eligible for an annual bonus, the target of which is 60% of his base salary, with the actual amount to be determined by the Compensation Committee of our Board in its discretion. For 2011, Mr. Pence received an annual bonus of $150,000, determined by the Compensation Committee of our Board in its discretion. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Annual Bonuses” above.

 

   

For information regarding Mr. Pence’s equity compensation, see the “Executive Compensation Tables” above.

 

   

In the event of the termination of Mr. Pence’s employment, by WebMD without “Cause” or by him 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

 

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year in which the termination occurs, and to receive the employer portion of COBRA premiums until the earlier of one year following his termination and the date upon which he receives comparable coverage under another plan. In addition, in the event that a termination of Mr. Pence’s employment by WebMD without Cause or by him for Good Reason occurs before the fourth anniversary of the date of grant, 25% of the options to purchase WebMD Common Stock granted to him on December 10, 2008 would continue to vest through the next vesting date following the date of termination.

 

   

In the event of a “Change of Control” of WebMD (as such term is defined in the 2005 Plan) and his subsequent termination by WebMD without Cause or by him for Good Reason within 12 months following such Change of Control, the unvested portion of any options to purchase WebMD Common Stock granted to Mr. Pence that are outstanding on the date of such termination (whether granted on or prior to May 16, 2012 or in the future) would remain outstanding and continue to vest during the one year period following such termination.

 

   

For purposes of the employment agreement:

 

   

a “Change of Control” (as such term is defined in the 2005 Plan) 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.

 

   

“Cause” includes (i) 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 breach of a material WebMD policy, 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.

 

   

“Good Reason” means Mr. Pence’s resignation of employment within one year of the occurrence of any of the following conditions or events: (i) a material reduction in base salary, (ii) a material reduction in authority, or (iii) any material breach of the employment agreement by WebMD; provided that he has provided written notice to WebMD within 90 days after the occurrence of such condition or event claimed to be Good Reason and WebMD has failed to remedy such condition or event within 30 days of receipt of such written notice.

 

   

The employment agreement and the Trade Secret and Proprietary Information Agreement described below are governed by the laws of the State of New York.

Mr. Pence 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 him from hiring WebMD’s employees or soliciting any of WebMD’s clients or customers with whom he had a relationship during the time he was employed by WebMD, and non-competition provisions that prohibit him 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 ceases. The post-employment payments and benefits due to Mr. Pence are subject to his continued compliance with these covenants.

Martin J. Wygod

Mr. Wygod was party to an employment agreement with HLTH dated as of August 3, 2005, as amended on each of February 1, 2006, December 1, 2008 (the “2008 Amendment”), December 29, 2008 and July 9, 2009 (the “2009 Amendment”). WebMD assumed the employment agreement upon the closing of the Merger. The following is a description of the employment agreement:

 

   

The 2008 Amendment extended the employment period, under the employment agreement, through December 31, 2012, provided that a non-renewal by WebMD will be treated as a termination without “Cause” (as that term is described below) and have the consequences described below. Pursuant to the 2008 Amendment, upon the closing of the Merger, (i) Mr. Wygod’s employment would have terminated,

 

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(ii) Mr. Wygod would have become a non-executive Chairman of the Board of WebMD and (iii) Mr. Wygod would have been entitled to receive the cash severance and benefits provided in the employment agreement (described below). However, HLTH, WebMD and Mr. Wygod agreed, in the 2009 Amendment, that Mr. Wygod would continue to serve as executive Chairman of the Board of WebMD following the Merger and that, upon the consummation of the Merger, Mr. Wygod’s salary would be reduced from $975,000 to $120,000. The 2009 Amendment also provided that Mr. Wygod would continue to have the right, if his employment were to terminate for any reason, to receive the severance he would have received under the 2008 Amendment had he become a non-employee Chairman of the Board of WebMD upon the closing of the Merger, as had originally been contemplated. Accordingly, upon any such termination, Mr. Wygod would be entitled to the following severance benefits:

 

   

a severance payment of $975,000 (Mr. Wygod’s base salary prior to the Merger), per year payable for three years following the date of termination in equal installments at the same time as WebMD’s payroll practices (for an aggregate of $2,925,000); provided that the first six months of severance shall be delayed for six months and will be paid in a lump sum after such six month period in accordance with Section 409A of the Internal Revenue Code;

 

   

a bonus payment in the amount of $933,333.34 (the average of the three annual bonuses prior to the closing date of the Merger) for each of the three calendar years following the date of termination (for an aggregate of $2.8 million), with the payments to be made at such time as bonuses are paid to executive officers generally for each such year but not later than December 31 of the year following the year to which the bonus relates; and

 

   

continued participation in WebMD’s health, dental, vision and life insurance plans in which he participates on the date of termination (or reasonably equivalent plans) for three years from the date of termination (or, if earlier, until eligible for comparable coverage with a subsequent employer).

 

   

In addition, if his employment is terminated by WebMD without Cause, by Mr. Wygod for Good Reason or as a result of death or disability, the vesting of all of his options and restricted stock would accelerate and his options would remain outstanding for three years (but in no event longer than the expiration of the original term) or, if on or following a Change in Control, through the expiration of the original term. In the event of a Change in Control, all cash amounts payable to Mr. Wygod in connection with his termination are required to be placed in a rabbi trust. For information regarding Mr. Wygod’s equity compensation, see “Executive Compensation Tables” and “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Equity Compensation” above.

 

   

On September 20, 2011, the Compensation Committee approved an increase in the annual salary of Martin J. Wygod, Chairman of the Board of WebMD, from $120,000 to $490,000. The Compensation Committee approved the increase in light of Mr. Wygod’s increased involvement in operational management and related activities. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Base Salary” above.

 

   

The amount of any bonus payable to Mr. Wygod is in the discretion of the WebMD Compensation Committee. For 2011, Mr. Wygod received an annual bonus of $475,000, determined by the WebMD Compensation Committee in its discretion. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation — Annual Bonuses” above.

 

   

For purposes of the employment agreement: (a) “Cause” includes a final court adjudication that Mr. Wygod (i) committed fraud or a felony directed against WebMD 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 WebMD materially breached any material provisions of the employment agreement, (iii) failure to serve on WebMD’s Board or Executive Committee of WebMD’s Board, or (iv) the occurrence of a Change in Control of WebMD.

 

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The employment agreement contains confidentiality obligations that survive indefinitely and non-solicitation and non-competition obligations that continue until the third anniversary of the date his employment has ceased. Post-employment payments and benefits that may be due to Mr. Wygod under the employment agreement are subject to his 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. Any excess parachute payments and related tax gross-up payments made to Mr. Wygod will not be deductible by WebMD for federal income tax purposes.

Letter Agreement with Wayne T. Gattinella

Wayne T. Gattinella resigned on January 9, 2012 as Chief Executive Officer and President of WebMD and as a member of WebMD’s Board of Directors. On January 19, 2012, WebMD and Mr. Gattinella entered into a letter agreement, pursuant to which:

 

   

subject to his continued compliance with applicable restrictive covenants, including the non-competition covenants described below and covenants relating to confidentiality, intellectual property, trade secrets, non-solicitation of customers and employees and other matters, Mr. Gattinella is entitled to receive:

 

   

his base salary of $560,000 for one year, payable in accordance with WebMD’s normal payroll practices during that period;

 

   

two payments of $126,500 (on February 1, 2012 and March 1, 2012) for transition services to be provided to WebMD by Mr. Gattinella;

 

   

the vesting of options to purchase 60,000 shares of WebMD Common Stock, with an exercise price of $23.61 per share, that would have vested if he had remained employed by WebMD on March 31, 2012, with the post-termination exercise period of 90 days to begin on the date of vesting;

 

   

accelerated vesting of 15,000 shares of restricted WebMD Common Stock that were scheduled to vest on March 31, 2012; and

 

   

certain outplacement services for up to one year.

 

   

Mr. Gattinella agreed to extend to two years (from one year) his agreement not to compete with WebMD and his agreements relating to non-solicitation of customers and employees. In addition, Mr. Gattinella agreed to limitations on his providing any services to certain specified companies for one year.

The total value of the consideration paid or payable by WebMD to Mr. Gattinella under the letter agreement is approximately $1,403,400, which consists of: (a) the $813,000 in cash consideration described above; (b) $401,400 in WebMD Restricted Stock vesting as a result of the agreement (valued based on the closing price per share of $26.76 of WebMD Common Stock on January 19, 2012); and (c) $189,000 in value of options vesting as a resulting of the agreement, valued based on the difference between (1) $26.76 (the per-share closing price of WebMD Common Stock on January 19, 2012) and (2) the exercise price of the options.

Employment Agreement with Cavan M. Redmond

On May 31, 2012, Cavan M. Redmond became Chief Executive Officer of WebMD and joined our Board of Directors. Mr. Redmond has entered into an Employment Agreement with WebMD, dated May 29, 2012. The following is a description of the Employment Agreement:

 

   

Mr. Redmond’s annual base salary is $650,000. The target annual bonus that he will be eligible to receive shall be 100% of his base salary, with the actual amount to be determined by the Compensation Committee of our Board in its discretion. Mr. Redmond will be eligible to participate in the benefit programs generally available to senior executives of WebMD, including health insurance, life and disability insurance and the 401(k) plan. Mr. Redmond will receive a car allowance of $1,000 per month. WebMD has agreed to reimburse Mr. Redmond for certain expenses relating to his relocation to New York City.

 

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Mr. Redmond is receiving a sign-on bonus of $930,000. The sign-on bonus is subject to repayment in full if, during the first year of his employment with WebMD, Mr. Redmond terminates his employment without Good Reason (as described below) or if there is a termination for Cause (as described below), unless a Change of Control (as described below) has occurred prior to such termination. During the second year of employment, 50% of the sign-on bonus would be subject to repayment in such events.

 

   

Mr. Redmond: (a) received, on May 31, 2012 (the “Commencement Date”), a grant (the “Redmond Option Grant”) of non-qualified options to purchase 1,000,000 shares of WebMD Common Stock at an exercise price of $23.03 per share, the closing price of WebMD Common Stock on the date of grant; and (b) received, on June 15, 2012 (at the time of the filing of a Registration Statement on Form S-8 relating thereto), a grant (the “Redmond Restricted Stock Grant”) of 45,000 shares of restricted WebMD Common Stock. The vesting schedule for these grants is 25% per year, on the first four anniversaries of the Commencement Date. These grants were made outside of WebMD’s existing equity compensation plans in reliance upon Nasdaq Rule 5635(c)(4).

 

   

In the event of the termination of Mr. Redmond’s employment by WebMD without Cause, by Mr. Redmond for Good Reason or as a result of his death or disability, he (or his estate) would be entitled to:

 

   

a continuation of his base salary in effect at the time of termination for two years;

 

   

if the termination date is on or after December 31 of any year but prior to payment of bonuses for such prior year, any annual bonus for such prior year (at such time and in such manner as WebMD pays other senior executive officers’ bonuses for such year); and

 

   

reimbursement of COBRA premiums until the earlier of 18 months following his termination and the date upon which he receives comparable coverage under another plan.

 

   

Following a termination of Mr. Redmond’s employment by WebMD without Cause or by Mr. Redmond for Good Reason:

 

   

the Redmond Option Grant, to the extent unvested, would remain outstanding and continue to vest through the second vesting date following such termination and the post-termination exercise period shall be 90 days after such second vesting date; and

 

   

the portion of the Redmond Restricted Stock Grant that would have vested on the next two vesting dates shall vest on the date of termination;

provided, however, that if such termination by WebMD without Cause or by Mr. Redmond for Good Reason occurs after a Change of Control, then the Redmond Option Grant and the Redmond Restricted Stock Grant shall become fully vested on the date of termination and the 90-day post-termination exercise period for the Redmond Option Grant shall commence on such date. If Mr. Redmond resigns for any reason after the first anniversary of the occurrence of a Change of Control, he will receive the same severance and other benefits to which he would be entitled upon termination for Good Reason following a Change of Control.

 

   

Following a termination of Mr. Redmond’s employment as a result of disability or death:

 

   

the Redmond Option Grant, to the extent unvested, shall become fully vested as of the date of termination and Mr. Redmond or his estate will have a period of one year from the date of termination to exercise the vested options; and

 

   

the Redmond Restricted Stock Grant shall become fully vested as of the date of termination.

 

   

If Mr. Redmond’s employment is terminated (a) by WebMD for Cause or (b) by him without Good Reason prior to the first anniversary of a Change of Control: he is not entitled to any further compensation or benefits; and he would not be entitled to any additional vesting with respect to the Redmond Option Grant or the Redmond Restricted Stock Grant following the date of termination.

 

   

Mr. Redmond’s employment agreement does not provide for any gross-up for excise taxes that Mr. Redmond may incur by reason of any excess parachute payment under Section 280G.

 

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For purposes of the Employment Agreement:

 

   

a “Change of 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;

 

   

“Cause” includes (i) willful failure, after 30 days written notice, to perform duties, (ii) material failure, after 30 days written notice, to follow lawful instructions of WebMD’s Board, (iii) willful misconduct or violence or threat of violence that would harm WebMD or willful misconduct relating to Mr. Redmond’s business affairs, which reflects negatively on WebMD or impairs or impedes its operations or reputation, (iv) a breach of a material WebMD policy, the Employment Agreement or the Trade Secret and Proprietary Information Agreement (as described below) that remains unremedied after 30 days written notice, or (v) conviction of a felony or other crime in respect of a dishonest or fraudulent act or of moral turpitude; and

 

   

“Good Reason” means Mr. Redmond’s resignation of employment within 180 days after he learns of the occurrence of any of the following: (i) a substantial diminution in responsibilities or authority; (ii) any reduction in the rate of base salary or bonus opportunity, other than in connection with an across the board reduction of the base salaries and bonus opportunities of the senior executives of WebMD of not more than 10 percent; (iii) any requirement that he report to any person or entity other than WebMD’s Board of Directors; or (iv) any material breach by WebMD of any material written agreement with WebMD relating to his employment (including without limitation any equity award agreements); provided, however, that he has provided written notice to WebMD that such event has occurred and (A) it is not cured within 30 days of such notice and (B) he terminates his employment within 90 days after the failure of WebMD to cure. Notwithstanding the foregoing, if a Change of Control has occurred, a diminution in Mr. Redmond’s responsibilities from those prior to the Change of Control so as to facilitate a transition or integration with the successor company shall not be an event that constitutes Good Reason during the one-year period following the closing of the Change of Control so long as such responsibilities are no less than those commensurate with a senior executive role at WebMD.

Mr. Redmond entered into a related Trade Secret and Proprietary Information Agreement that contains confidentiality obligations that survive indefinitely. The agreement also includes non-solicitation provisions that prohibit him from soliciting or hiring, or interfering with, WebMD’s employees or independent contractors, and from soliciting any of WebMD’s clients or customers, and non-competition provisions that prohibit him from being involved in a business that competes with any business that WebMD or any of its subsidiaries are engaged in or have taken affirmative steps to engage in. The non-solicitation and non-competition obligations end on the second anniversary of the date his employment ceases. Post-employment payments and benefits that may become due to Mr. Redmond would be subject to his continued compliance with these covenants.

Compensation of Kevin Cameron

Kevin M. Cameron, who formerly served as Chief Executive Officer of HLTH and as a member of its Board of Directors, became a member of the Board of Directors of WebMD upon completion of the Merger. In November 2009, Mr. Cameron returned from medical leave to active employment with WebMD on a part-time basis as a Special Advisor to the Chairman, at a salary rate of $100,000 per year. For 2011, Mr. Cameron received an annual bonus of $100,000, determined by the Compensation Committee of our Board in its discretion. At the time that he returned from medical leave, he received a grant of 110,000 shares of WebMD Restricted Stock, 36,666 of which vested on the second anniversary of the date of grant and 36,667 of which are scheduled to vest on each of the next two anniversaries of the date of grant. The amount of shares granted, and the terms of the grant, were determined by the Compensation Committee in its discretion. Pursuant to the terms of the 2005 Plan, the vesting of the WebMD Restricted Stock will be accelerated, in the event of termination of Mr. Cameron’s employment as a result of death or permanent disability, to the date of such termination. Vesting of the WebMD Restricted Stock will also be accelerated, in the event of a Change of Control (as defined in the

 

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2005 Plan) of WebMD, to the date of such Change of Control. In addition, if Mr. Cameron’s employment is terminated by WebMD without cause, the next vesting will be accelerated to the date of termination.

Upon the completion of the Merger, Mr. Cameron was entitled to resign for good reason under his employment agreement and receive certain severance benefits. WebMD and Mr. Cameron have entered into an agreement, in connection with Mr. Cameron’s resuming active employment, that would allow Mr. Cameron to receive the same benefits if he resigns at a later date as he would have been entitled to if he had resigned immediately following the Merger, which include:

 

   

As a result of his serving as HLTH’s Chief Executive Officer for over three years, he would be entitled to continuation of his base salary for three years from his termination date at the rate in effect when he served as CEO of HLTH, which was $660,000 per year (an aggregate of $1.98 million); provided that the first six months of severance shall be delayed for six months and will be paid in a lump sum after such six month period in accordance with Section 409A of the Internal Revenue Code.

 

   

He would generally be entitled to continue to participate for three years, on the same terms and conditions that would have applied had he remained employed by WebMD during such period, in all health, medical, dental, life and disability plans provided to him at the time of such termination and which are provided to employees generally following the date of termination (or comparable plans).

As of June 14, 2012, Mr. Cameron held: (a) non-qualified options (originally granted by HLTH prior to the Merger) to purchase 773,216 shares of WebMD Common Stock with a weighted average exercise price of $21.94 per share (of which, 770,994 are vested options); and (b) the following, which were granted under the 2005 Plan (i) non-qualified options to purchase 20,500 shares of WebMD Common Stock at an exercise price of $17.50, which are fully vested, (ii) 73,334 shares of WebMD Restricted Stock granted by WebMD on November 3, 2009, one-half of which is scheduled to vest on November 3 of each of 2012 and 2013, (iii) 7,500 shares of WebMD Restricted Stock granted on June 28, 2010, one third of which will vest on June 28 of each of 2012, 2013 and 2014, and (iv) non-qualified options to purchase 60,000 shares of WebMD Common Stock with an exercise price of $29.44 and 22,500 shares of WebMD Restricted Stock, both granted on September 25, 2011 with a vesting schedule of 25% on each of the first four anniversaries of the date of grant. On February 23, 2012, Mr. Cameron voluntarily surrendered non-qualified options to purchase 65,000 shares of WebMD Common Stock with an exercise price of $46.81 that had been granted to him on June 28, 2010. For additional information, see “Voluntary Surrender of Certain Option Grants” following the Summary Compensation Table above.

The following terms apply to the grant of WebMD Restricted Stock made to Mr. Cameron on June 28, 2010:

 

   

if his employment is terminated by WebMD without Cause (defined as described below), by Mr. Cameron for Good Reason (defined as described below) or as a result of death or disability, the next vesting of the WebMD Restricted Stock would accelerate to the date of termination; and

 

   

if, following a Change of Control (defined as described below), his employment is terminated by WebMD without Cause or by Mr. Cameron for Good Reason, the WebMD Restricted Stock would become fully vested on the date of termination.

The following terms apply to the grants made to Mr. Cameron on September 25, 2011:

 

   

if, after the first anniversary of the occurrence of a Change of Control (as described below), he resigns for any reason or is terminated without Cause (as described below) (a) the options granted to him will continue to vest and remain outstanding, as if he remained in the employ of WebMD, for a period of two years from the date of termination (but in no event longer than the expiration of the original term of such options) and (b) vesting of the restricted stock that would have occurred within two years from the date of termination will accelerate to the date of termination; and

 

   

if his employment is terminated by WebMD without Cause or by him for Good Reason (as described below, except that following a Change of Control, “Good Reason” shall not include changes in his duties, titles or responsibilities that are solely attributable to the Change in Control) before the first anniversary following a Change of Control, (a) the options granted to him will continue to vest and remain outstanding, as if he remained in the employ of WebMD, for a period of three years from the date of the

 

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Change of Control (but in no event longer than the expiration of the original term of such options) and (b) vesting of the restricted stock that would have occurred within three years from the date of the Change of Control will accelerate to the date of termination.

For the purposes of the grants on June 28, 2010 and September 25, 2011:

 

   

a “Change of Control” would occur when (a) any person, entity or group acquires at least 50% of the voting power of WebMD, (b) there is a reorganization, merger or consolidation or sale involving all or substantially all of WebMD’s assets, or (c) there is a complete liquidation or dissolution of WebMD.

 

   

“Cause” includes (a) any willful misconduct relating, directly or indirectly, to WebMD, which if it can be cured, is not cured within 30 days following written notice from WebMD, (b) any breach of any material provision contained in Mr. Cameron’s employment agreement or any material policy which, if it can be cured, is not cured within 30 days following written notice from WebMD, or (c) conviction of a felony or crime involving moral turpitude.

 

   

“Good Reason” includes (a) a material breach by WebMD of its obligations under the employment agreement, which, if able to be cured, remains uncured, (b) a material demotion of Mr. Cameron’s position with WebMD, and (c) if Mr. Cameron is required to relocate from his present residence or is required to commute, on a regular basis, to WebMD’s headquarters and WebMD’s headquarters is outside of the New York City metropolitan area; provided that Mr. Cameron has provided 30 days written notice and WebMD has failed to remedy such condition within 30 days of receipt of such written notice.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Director Appointment Agreement with the Icahn Group

On June 8, 2012, WebMD entered into the Appointment Agreement with the Icahn Group. The Appointment Agreement provides, among other things, that effective as of the date of our 2012 Annual Meeting:

 

   

the size of our Board of Directors will be increased from 11 to 12 directors, and

 

   

David Schechter (or his replacement, the “Icahn Suggested Nominee”) will be appointed to the Board of Directors as a Class II director (with a term expiring at our Annual Meeting of Stockholders in 2013).

Mr. Schechter currently serves as a Portfolio Manager of the Sargon Portfolio for Icahn Capital, and has held various positions with entities affiliated with Carl C. Icahn since 2004. Prior to 2004, he served as Vice President of Global Special Situations at Citigroup. Mr. Schechter is currently on the board of directors of The Hain Celestial Group, Inc., a natural and organic food and personal care products company, Mentor Graphics Corp., a leader in electronic design automation software, and Federal-Mogul Corporation, an automotive and industrial equipment supplier. Previously, Mr. Schechter served as a director of WCI Communities, Inc., a homebuilding company, XO Communications, a telecommunications company, and BKF Capital Group, Inc., an investment advisory business. Mr. Schechter is 36 years old.

The Appointment Agreement also provides that, among other things, until the earliest of (i) the conclusion of our Annual Meeting of Stockholders in 2013, (ii) the date on which the Icahn Group delivers to the Secretary of WebMD, in accordance with the advance notice provision of WebMD’s Amended and Restated By-laws (which period will end no less than 60 days prior to the Annual Meeting of Stockholders in 2013), notice of any director nominations or any other proposal to be brought before the Annual Meeting of Stockholders in 2013, and (iii) the date of the resignation of the Icahn Suggested Nominee, the Icahn Group and its affiliates shall not:

 

   

solicit proxies or written consents of WebMD stockholders;

 

   

advise any other person with respect to the giving or withholding of any proxy;

 

   

join any group with respect to WebMD’s securities;

 

   

present any proposal (including director nominees) for consideration for action by stockholders or make a request for a list of WebMD’s stockholders;

 

   

grant any proxy or deposit WebMD’s securities in a voting trust or subject them to a voting agreement or similar agreement;

 

   

make any request under Section 220 of the Delaware General Corporation Law;

 

   

commence any litigation or similar proceeding against WebMD or its affiliates, directors, officer or employees;

 

   

make any public statement regarding WebMD or its affiliates, officers, directors, employees or businesses unless approved in writing in advance by WebMD; and

 

   

effect any tender offer, acquisition of material assets, merger or any other extraordinary transaction involving WebMD.

In addition, pursuant to the Appointment Agreement, the Icahn Group agreed to cause all WebMD securities owned by the Icahn Group or its affiliates as of the record date, to be present for quorum purposes and to be voted, at our 2012 Annual Meeting or at any adjournments or postponements thereof, in accordance with the recommendation of our Board with respect to the election of Class I directors and for the ratification of the appointment of Ernst & Young LLP as WebMD’s independent public accounting firm. For information regarding the Icahn Group’s holdings of WebMD Common Stock, see “Security Ownership by Principal Stockholders and Management” above.

 

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The Appointment Agreement also provides that in the event that, (i) at any time from the date of the Appointment Agreement until the date of the Annual Meeting of Stockholders in 2013, the Icahn Group beneficially owns less than 5% of the total number of shares of WebMD Common Stock then outstanding or (ii) the Icahn Group delivers to the Secretary of WebMD notice of any proposal (including director nominations) to be brought before the Annual Meeting of Stockholders in 2013, in either case, the Icahn Suggested Nominee shall immediately resign from our Board.

Pursuant to the Appointment Agreement, at the discretion of the Icahn Group, the parties may enter into a confidentiality agreement providing that the Icahn Suggested Nominee may share certain non-public information with the Icahn Group pursuant to certain terms and conditions.

Other Related Party Transactions

WebMD was reimbursed approximately $328,000 and $320,000 for 2011 and 2010, respectively, by Martin J. Wygod (WebMD’s Chairman of the Board) and a corporation that he controls, for personal use of certain company staff and office facilities and for the personal portion of certain travel expenses.

In December 2010, WebMD made a charitable donation to the Rose Foundation of $1,600,000 to be used to provide funding to a children’s health clinic in Oceanside, CA. The Rose Foundation is a private charitable foundation of which Mr. Wygod is a trustee.

FMR Corp. reported beneficial ownership, as of December 31, 2011, of 1,036,434 shares of WebMD Common Stock, which represented approximately 1.8% of WebMD’s outstanding Common Stock as of that date. However, previously during 2010 and 2011, FMR Corp. had reported beneficial ownership of more than 10% of WebMD’s outstanding Common Stock. Affiliates of FMR Corp. provide record-keeping and administrative services to WebMD in connection with the 401(k) Plan, health savings accounts for WebMD employees and WebMD’s stock-based compensation plans. The aggregate amount charged to WebMD for these services was approximately $146,000 for 2011 and $86,000 for 2010. Fidelity Employer Services Company LLC, or FESCO, an affiliate of FMR Corp. that provides human resources administration and benefit administration services to employers, serves as a distributor of WebMD’s private portal services, which are integrated into services that FESCO provides to its clients. WebMD recorded revenue of $5,237,000 in 2011 and $5,776,000 in 2010 related to the FESCO relationship, and $690,000 and $1,587,000, respectively, were included in accounts receivable, related to the FESCO relationship, as of December 31, 2011 and December 31, 2010.

Audit Committee Review of Related Party Transactions

Under our company’s Code of Business Conduct, directors and executive officers are required to disclose to our General Counsel or our Compliance Officer any transactions or relationships they are involved in that present or may present a conflict of interest with our company, including those that would be required to be disclosed as a related party transaction under applicable SEC rules. Under our 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 our company. The Audit 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 our company may violate our 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 WebMD. 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.

 

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PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and related SEC rules, we are providing WebMD stockholders with the opportunity to make an advisory vote regarding the compensation of WebMD’s Named Executive Officers, as described in this Proxy Statement. The Dodd-Frank Act requires public companies to hold advisory votes on executive compensation at least once every three years and the Compensation Committee of our Board has determined to hold such advisory votes annually. Accordingly, the following resolution will be submitted for a stockholder vote at the 2012 Annual Meeting:

“RESOLVED, that the stockholders of WebMD Health Corp. (“WebMD”) approve, on an advisory basis, the compensation of WebMD’s Named Executive Officers, as disclosed in the Proxy Statement for WebMD’s 2012 Annual Meeting, including in the Compensation Discussion and Analysis section, the compensation tables and the narrative disclosures.”

This proposal is commonly referred to as a “Say-on-Pay Vote” and we sometimes use that name in this Proxy Statement. The Say-on-Pay Vote at our 2012 Annual Meeting is not intended to address any specific element of compensation; instead, it is intended to provide stockholders with an opportunity to communicate to the Compensation Committee their views on overall compensation practices relating to WebMD’s Named Executive Officers, as described in this Proxy Statement.

We urge you to consider the disclosures regarding compensation matters contained under the caption “Executive Compensation” earlier in this Proxy Statement, including the subsection entitled “Compensation Discussion and Analysis.” As discussed in the Compensation Discussion and Analysis, the various elements of WebMD’s executive compensation program are intended to work together to provide total compensation that is reasonable, competitive and related to both our company’s performance and the individual performance of our executive officers.

The Say-on-Pay Vote is advisory in nature and is not binding. However, the Board and the Compensation Committee value the opinions of WebMD’s stockholders as expressed through their votes and other communications and the Compensation Committee intends to consider the results of the stockholder vote on this Proposal 2 when making future determinations relating to executive compensation.

On behalf of the Board of Directors, the Compensation Committee recommends a vote “FOR” Proposal 2.

 

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PROPOSAL 3: AMENDMENT TO THE AMENDED AND RESTATED 2005 LONG-TERM INCENTIVE PLAN

A proposal to ratify and approve an amendment to WebMD’s Amended and Restated 2005 Long-Term Incentive Plan to increase the number of shares of WebMD Common Stock issuable under that Plan by 1,875,000 shares, which, together with the approximately 960,000 shares available under that Plan as of June 14, 2012, would result in approximately 2,835,000 shares being available for grant.

Background

Introduction.    As more fully discussed under “Executive Compensation — Compensation Discussion and Analysis — Use of Specific Types of Compensation” and “— Discussion of Compensation Policies” earlier in this Proxy Statement, our Board and its Compensation Committee believe that achievement of long-term objectives and employee retention are fostered through stock option and restricted stock grants that vest over time. Equity compensation aligns the interests of our employees with stockholders and encourages employees to focus on the long-term performance of our company. The compensation that employees receive from equity awards increases when the price of WebMD 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, which has typically been four years for grants made by WebMD in recent years.

The Compensation Committee believes that it is in WebMD’s best interests to make grants of stock options broadly as a portion of the compensation of most employees, to align that portion of their compensation with stockholder returns and for purposes of employee incentive and retention. The Compensation Committee also believes that, in order to attract and retain qualified employees, WebMD must include equity-based compensation as a portion of total compensation in order to be competitive with other employers. As more fully discussed under “Executive Compensation — Compensation Discussion and Analysis” above, we have not made grants on an annual basis but rather typically grant stock options (and, in the case of certain other key employees, restricted stock): (a) when officers and other employees first join us; (b) in connection with a significant change in responsibilities and, occasionally, to achieve uniformity within a peer group; or (c) at other times where appropriate to retain and motivate our officers and employees.

Amount for Which Approval is Being Sought.    Under the 2005 Plan, a total of approximately 960,000 shares were available for future grant, as of June 14, 2012. The Compensation Committee has determined that it is in the best interests of WebMD and its stockholders to amend the 2005 Plan to increase the total number of shares of WebMD’s Common Stock issuable under the 2005 Plan by 1,875,000 shares, of which 20% (or 375,000 shares) would be available for grant as restricted stock and other “full value” awards (see “— Policies and Practices to Protect Stockholder Interests — 20% Sublimit for Full Value Awards” below). If this increase is approved by stockholders, a total of approximately 2,835,000 shares would be available for grant under the 2005 Plan. The Compensation Committee has approved such increase, subject to the approval of our stockholders, which we are seeking at the 2012 Annual Meeting.

Reasons for the Proposed Increase

The Compensation Committee believes that the proposed increase in the 2005 Plan is vital to our ability to continue to attract and retain employees in the extremely competitive labor markets in which we compete. Competition for qualified personnel in the Internet and healthcare information services industries can be intense. WebMD must be able to offer competitive compensation packages in order to hire and retain experienced executives, writers and editors, software developers and other technical personnel, and sales and marketing personnel, among others. WebMD’s headquarters and a majority of its employees are located in New York City, a market in which numerous employers in various industries compete for employees with the experience and skills we seek. The Compensation Committee believes that stock option and restricted stock grants have been, and will continue to be, an efficient and effective means of making WebMD’s compensation competitive with that of other companies in our own industry and companies in other industries that compete for the same employees, some of which are much larger than WebMD and have greater financial resources. If our

 

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stockholders approve this Proposal 3, the availability of additional shares for grant under the 2005 Plan will allow WebMD to offer compensation packages competitive with those provided by competing employers and will allow WebMD to continue to use equity as a significant component of compensation.

Except for grants made to certain key employees (but not to any of our executive officers) on May 21, 2012 (consisting of a total of approximately 845,000 stock options and 173,000 shares of restricted stock) and grants to new employees during 2012, stock options granted to our employees under the 2005 Plan in the past two years are largely at exercise prices well above current trading prices for WebMD Common Stock. Accordingly, many of our current employees (including certain of our executive officers) hold options that are significantly out-of-the-money, which reduces the incentive provided by those options to remain employed by WebMD. Given the current status of these equity awards, the Compensation Committee expects that a portion of the shares that would be available for grant if Proposal 3 is approved will be granted during 2012 to employees for retention purposes. However, as of the date of this Proxy Statement, the amounts to be granted to specific individuals have not been determined.

Failure to obtain stockholder approval for Proposal 3 would place our company at a significant disadvantage with respect to the retention and recruitment of executive, editorial, technical and other talent. We do not want to risk our employees resigning to accept positions with other companies where they would be eligible for equity awards from their new employer. In addition, limitations on our ability to use equity-based compensation would result in WebMD having to increase its use of cash compensation, which would have the effect of reducing the alignment of employee and shareholder interests.

Considerations Relating to the Amount of Our Outstanding Equity Awards

We use two types of equity compensation: non-qualified stock options and restricted stock. Stock options are granted with an exercise price that is equal to the fair market value of WebMD Common Stock on the grant date.

 

   

Outstanding Options.    As of June 14, 2012, we had outstanding approximately 11.7 million unexercised options to purchase WebMD Common Stock. As of that date:

 

   

those options had a weighted average exercise price of approximately $29.38 per share and a weighted average remaining life of approximately 7.4 years (the most recent closing price of WebMD Common Stock prior to the filing of this Proxy Statement was $21.00 per share, on June 15, 2012); and

 

   

approximately 4.8 million of these options were vested, approximately 1.1 million are scheduled to vest during the remainder of 2012, and approximately 2.5 million, 1.5 million, 1.2 million and 0.6 million are scheduled to vest in 2013, 2014, 2015 and 2016, respectively.

 

   

Outstanding Unvested Restricted Stock.    We also had outstanding, as of June 14, 2012, approximately 1.2 million unvested shares of WebMD Restricted Stock. Approximately 0.3 million of these shares are scheduled to vest during the remainder of 2012, and approximately 0.4 million, 0.2 million, 0.2 million and 0.1 million are scheduled to vest in 2013, 2014, 2015 and 2016, respectively.

The information above includes the 1,000,000 options granted outside the 2005 Plan on May 31, 2012 to Cavan M. Redmond, our Chief Executive Officer, pursuant to the employment agreement he entered into with WebMD in connection with his joining WebMD, but does not include the 45,000 shares of restricted stock issued to Mr. Redmond upon filing of a Registration Statement on Form S-8 relating to those shares after June 14, 2012. See “Executive Compensation — Employment Agreement with Cavan M. Redmond” above.

We had outstanding, as of June 14, 2012, 50,212,465 shares of WebMD Common Stock, including unvested shares of WebMD Restricted Stock. Accordingly, our approximately 12.9 million outstanding options and unvested shares of WebMD Restricted Stock (commonly referred to as the “overhang”) represent approximately 25.6% of our outstanding shares. The Compensation Committee recognizes that we have a relatively large overhang and that this can result in dilution to the ownership interest of our existing stockholders, which may be a concern to stockholders in connection with their decision whether to approve this Proposal 3. However, the

 

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Compensation Committee believes that there are special circumstances that our stockholders should consider, including the following:

 

   

Large Stock Repurchases.    Since the completion of the Merger with HLTH in October 2009, WebMD has repurchased a total of approximately 27.4 million shares of its Common Stock through issuer tender offers and other repurchases. The amount repurchased is equal to approximately 54.5% of our 50,212,465 outstanding shares of Common Stock and is more than twice the size of the overhang of outstanding options and unvested WebMD Restricted Stock. The following numbers of shares were repurchased in the years indicated:

 

   

October 23 through December 31, 2009, 6,339,227 shares;

 

   

during 2010, 8,524,776 shares;

 

   

during 2011, 5,672,795 shares; and

 

   

during 2012 (through June 14, 2012), 6,827,374 shares.

The Compensation Committee believes that the reduction in outstanding shares resulting from the large stock repurchases by WebMD in recent years is the main reason why the overhang of our outstanding options and shares of unvested WebMD Restricted Stock (measured as a percent of the reduced outstanding resulting from the repurchases), is larger than ordinarily found in companies comparable to WebMD. The Compensation Committee believes that our stockholders should take this into consideration in evaluating Proposal 3 because our stock repurchases have not only reduced the effect of the dilution from the exercise of stock options on our stockholders, they have also made our “overhang” percentage much larger than it would have been if the repurchased shares were still outstanding. Without the repurchases described above, our overhang of approximately 12.9 million options and unvested shares of WebMD Restricted Stock would represent approximately 16.6% of the approximately 77.6 million shares of Common Stock that would be outstanding. The Compensation Committee recognizes that future grants of equity awards by WebMD will need to reflect the reduced amount of shares outstanding resulting from our repurchases.

 

   

Broad-Based Granting.    WebMD has made equity grants to virtually all of its full-time employees for at least a portion of their compensation.

 

   

Significant Portion of Senior Employee Compensation.    For WebMD’s more senior employees, equity compensation represents a significant portion of their compensation.

 

   

Net Exercise Settlement of Stock Options.    In order to further minimize dilution to stockholders, we expect that future stock option exercises will be settled primarily by “net exercise,” in which WebMD retains shares in payment of the exercise price and to satisfy the required tax withholding arising from the exercises, with the same effect on dilution as if WebMD had repurchased the retained shares. The shares retained by WebMD in the net exercise process do not become available for future grant under the 2005 Plan (see “—Policies and Practices to Protect Stockholder Interests —No Liberal Share Counting” below). We estimate that the dilution from the net exercise of all in-the-money unexercised stock options outstanding as of June 14, 2012 would be approximately 400,000 issued shares, assuming a $25.00 per share market price at the time of exercise, and approximately 2.1 million issued shares, assuming a $40.00 per share market price at the time of exercise. The settlement of our 11.7 million outstanding stock options on a net exercise basis will significantly reduce the dilution to stockholders from those options and WebMD also intends to settle exercises from future option grants primarily using the net exercise process.

Policies and Practices to Protect Stockholder Interests

The Compensation Committee regularly evaluates our compensation policies and practices and, in particular, those relating to equity compensation, and makes changes in their design and implementation to reflect evolving best practices, including with respect to protection of stockholder interests. Accordingly, we have implemented, in the 2005 Plan and in WebMD’s agreements relating to compensation, the following policies and practices to protect our stockholders’ interests:

 

   

20% Sublimit for Full Value Awards.    In 2010, the Compensation Committee implemented a sublimit on the number of shares available for grants of restricted stock and similar types of awards for which no

 

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exercise or purchase price is payable (often referred to as “full value awards”) so that only 20% of the shares available for grant under the 2005 Plan on October 21, 2010 could be used for full value awards. The same 20% sublimit will apply to the shares to be added to the 2005 Plan if this Proposal 3 is approved. Accordingly, up to 375,000 shares of the 1,875,000 share increase would be available for grant as “full value” awards.

 

   

Minimum Vesting Period for Full Value Awards.    The 2005 Plan provides that, for full value awards, the vesting period shall be over at least a three year period for awards with time-based vesting conditions and shall be at least one year for awards with performance-based vesting conditions, with limited exceptions.

 

   

No Liberal Share Counting.    Shares tendered or held back upon exercise of a stock option to cover the exercise price or tax withholding or for tax withholding on vesting of restricted stock are not returned to the pool of shares available for issuance.

 

   

No Annual “Evergreen” Provision.    The 2005 Plan authorizes only a fixed number of shares, and stockholder approval is required for any increase in the number of shares.

 

   

No Discounted Stock Options.    All stock options must have an exercise price equal to or greater than the fair market value of our Common Stock on the date the stock option on the date of grant.

 

   

No Repricing.    The 2005 Plan prohibits the repricing of stock options without stockholder approval.

 

   

“Change of Control” Definition.    As used in the 2005 Plan, the definition of “Change of Control” applies only to grants to our Non-Employee Directors, which our Board believes is consistent with good corporate governance. See “— Summary of the 2005 Plan — Acceleration Upon Certain Events” below. Under the provisions of the 2005 Plan, there is no effect from a “Change in Control” on grants made to WebMD officers and other employees. Certain of our executives officers and other senior officers are parties to employment agreements that contain provisions relating to a potential change in control. For additional information, see “Executive Compensation — Compensation Discussion & Analysis — Compensation Following Termination of Employment or a Change of Control” and “Executive Compensation — Employment Agreements with Named Executive Officers” above.

 

   

No “Hedging” Policy.    Our existing policies relating to trading in WebMD securities by WebMD’s executive officers and other senior executives prohibit hedging transactions with respect to their holdings in WebMD securities.

The policies and practices relating to stock options, as described in this section, would also apply to stock appreciation rights if the Compensation Committee were to decide to use that form of award in the future.

Reasons for Seeking Stockholder Approval of Proposal 3

We are seeking stockholders’ approval for the increase in shares issuable under the 2005 Plan in order to comply with applicable requirements of the NASDAQ Global Select Market and, to the extent permitted by law, to preserve the tax deductible status for certain awards granted under the 2005 Plan. The stock options (and, if any, stock appreciation rights) that would be granted under the 2005 Plan are intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code. In addition, the 2005 Plan authorizes performance-based stock awards that would give WebMD the flexibility to structure stock-based bonus opportunities as performance-based within the meaning of Section 162(m).

Recommendation of the Compensation Committee

The Compensation Committee believes that approval of Proposal 3 is necessary in order to allow WebMD to continue to attract and retain qualified employees in an extremely competitive environment. For the reasons discussed above, the Compensation Committee believes that the size of the increase in shares available for grant under the 2005 Plan contemplated by this Proposal 3, together with the planned use of the additional shares described above, represents an appropriate equity compensation strategy for WebMD at this time. Accordingly, the Compensation Committee of WebMD’s Board of Directors recommends that stockholders vote “FOR” Proposal 3.

* * * *

 

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As of June 15, 2012, the market price of our Common Stock, based upon the Nasdaq Official Closing Price, was $21.00 per share.

* * * *

Summary of the 2005 Plan

Set forth below is a summary of the principal features of the 2005 Plan, as proposed to be amended in the manner contemplated by Proposal 3 (except where the existing terms are explicitly described). The following summary is qualified in its entirety by the full text of the 2005 Plan, which appears as Annex K to this Proxy Statement.

General

The purpose of the 2005 Plan is to promote WebMD’s success by linking the personal interests of WebMD’s or its parent’s employees, officers, directors and consultants to those of its stockholders, and to provide participants with an incentive for outstanding performance. The 2005 Plan authorizes the grant of awards in any of the following forms:

 

   

options to purchase shares of WebMD Common Stock, which may be incentive stock options or nonqualified stock options;

 

   

stock appreciation rights (settled in cash or WebMD Common Stock);

 

   

performance shares;

 

   

restricted stock;

 

   

dividend equivalents;

 

   

other stock-based awards;

 

   

any other right or interest relating to WebMD Common Stock; or

 

   

cash.

Share Limits

An aggregate of 18,200,000 shares of WebMD Common Stock is currently issuable under the 2005 Plan and, as of June 14, 2012, approximately 960,000 shares were available for future grant under the 2005 Plan. Approval of Proposal 3 would increase the aggregate amount issuable under the 2005 Plan to 20,075,000 shares by adding 1,875,000 to the number of shares available for future grant. If any outstanding stock option expires or is terminated before being fully exercised or any restricted stock or other share-based award is forfeited, then the shares allocable to the unexercised or forfeited portion would again become available for issuance under the 2005 Plan. However, shares that are not issued or delivered as a result of the net settlement of a stock option and shares used to pay the withholding taxes related to a stock award do not become available again for future grants under the 2005 Plan; instead, the full number of shares underlying options exercised by net settlement are deemed to have already been used for purposes of determining the number of shares remaining available for future grants.

The maximum number of shares of WebMD Common Stock with respect to one or more options, stock appreciation rights or combination of options and stock appreciation rights that may be granted during any one calendar year under the 2005 Plan to any one person is 412,500 (all of which, may be granted as incentive stock options), except that that limit may be increased by 412,500 for awards made in connection with a person’s initial hiring. The maximum fair market value of any awards (determined as of the date of the grant), other than options and stock appreciation rights, that may be received by a participant, less any consideration paid by the participant for such award, during any one calendar year under the 2005 Plan is $5,000,000. The maximum number of shares of WebMD Common Stock that may be subject to one or more performance shares (or used to provide a basis of measurement for one to determine the value of a performance share) granted in any one calendar year to any one person is 412,500.

 

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The 2005 Plan provides for a sublimit on the number of shares of “full value awards” that may be granted. “Full value awards” include restricted common stock and similar equity awards for which no purchase price or exercise price is paid by the recipient. The 2005 Plan currently limits the number of shares available for grant as full value awards to 20% of the sum of the shares that were available for grant on October 21, 2010 and 2,600,000 (the number of shares added to the 2005 Plan at that time). As of June 14, 2012, approximately 168,000 shares remained available for grant as full value awards under the 2005 Plan. If Proposal 3 is approved, the 20% sublimit would also apply to the 1,875,000 shares to be added to the shares available for grant under the 2005 Plan. Accordingly, approval of Proposal 3 would allow up to 375,000 additional shares to be available for grant as full value awards.

Eligibility

Persons eligible to receive awards under the 2005 Plan are employees or officers (including executive officers) of WebMD or its subsidiaries, directors of WebMD, and certain consultants to WebMD or any of its subsidiaries. As of June 14, 2012, approximately 1,700 officers and employees of WebMD and its subsidiaries (including all of its executive officers), as well as each of its eight Non-Employee Directors, are eligible to receive grants under the 2005 Plan.

As more fully described in “Non-Employee Director Compensation” above, WebMD’s non-employee directors receive automatic annual grants of options to purchase 13,200 shares on January 1 of each year, with an exercise price equal to the closing price of WebMD Common Stock on the last trading day of the prior year. WebMD’s Compensation Committee may make additional grants under the 2005 Plan to WebMD’s non-employee directors, including grants when non-employee directors first join WebMD’s Board. As of the date of this Proxy Statement, WebMD has no current plans or proposals to make any such additional grants of awards under the 2005 Plan to its non-employee directors.

Administration

The 2005 Plan is administered by WebMD’s Compensation Committee. The Compensation Committee has the authority:

 

   

to designate participants;

 

   

to determine the type or types of awards to be granted to each participant and the number, terms and conditions of awards or amend the terms of such award (subject to the terms of the 2005 Plan);

 

   

to accelerate the vesting or lapse of restrictions applicable to an award based in each case on such considerations as the Compensation Committee may determine in its discretion;

 

   

to establish, adopt or revise any rules and regulations as it may deem advisable to administer the 2005 Plan; and

 

   

to make all other decisions and determinations that may be required under the 2005 Plan.

Subject to certain limitations, the Compensation Committee is permitted to delegate to one or more directors or executive officers its authority under the 2005 Plan. The Compensation Committee has delegated certain of its authority to WebMD’s Chief Executive Officer, subject to concurrence by WebMD’s Chief Financial Officer, to grant awards to employees who are not executive officers up to the following limits: options to purchase up to 50,000 shares and restricted stock with an aggregate fair market value of up to $400,000.

Stock Options

The Compensation Committee is authorized under the 2005 Plan to grant options, which may be incentive stock options or nonqualified stock options. All options will be evidenced by a written award agreement between WebMD and the participant, which will include any provisions specified by the Compensation Committee. The exercise price of an option may not be less than the fair market value of WebMD Common Stock on the date of grant. The terms of an incentive stock option will be intended to meet the requirements of Section 422 of the Internal Revenue Code.

 

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Stock Appreciation Rights

The Compensation Committee may also grant stock appreciation rights. Upon the exercise of a stock appreciation right, the holder will have the right to receive the excess, if any, of the fair market value of one share of WebMD Common Stock on the date of exercise, over the grant price of the stock appreciation right as determined by the Compensation Committee, which will not be less than the fair market value of one share of WebMD Common Stock on the date of grant. All awards of stock appreciation rights will be evidenced by an award agreement reflecting the terms, methods of exercise, methods of settlement, form of consideration payable in settlement, and any other terms and conditions of the stock appreciation right, as determined by the Compensation Committee at the time of grant.

Restricted Stock Awards

The Compensation Committee may make awards of restricted Common Stock to participants, which will be subject to restrictions on transferability and other restrictions as the Compensation Committee may impose, including, without limitation, restrictions on the right to vote restricted stock or the right to receive dividends, if any, on the restricted stock. These awards may be subject to forfeiture upon termination of employment or upon a failure to satisfy performance goals during the applicable restriction period. The 2005 Plan provides that, for restricted stock and other “full value awards” (awards for which no purchase or exercise price is payable), the vesting period shall be over at least a three year period for awards with time-based vesting conditions and shall be at least one year for awards with performance-based vesting conditions, with limited exceptions.

Performance Shares

The Compensation Committee may grant performance shares to participants on terms and conditions as may be selected by the Compensation Committee. The Compensation Committee will have the discretion to determine the number of performance shares granted to each participant and to set performance goals and other terms or conditions to payment of the performance shares in its discretion which, depending on the extent to which they are met, will determine the number and value of performance shares that will be paid to the participant.

Dividend Equivalents

The Compensation Committee is authorized to grant dividend equivalents to participants subject to terms and conditions as may be selected by the Compensation Committee. Dividend equivalents will entitle the participant to receive payments equal to dividends (in cash, shares of WebMD Common Stock or other property) with respect to all or a portion of the number of shares of WebMD Common Stock subject to an award.

Other Stock-Based Awards

The Compensation Committee may, subject to limitations under applicable law, grant other awards that are payable in, or valued relative to, shares of Common Stock as will be deemed by the Compensation Committee to be consistent with the purposes of the 2005 Plan, including without limitation shares of Common Stock awarded purely as a bonus and not subject to any restrictions or conditions. The Compensation Committee will determine the terms and conditions of any other stock-based awards.

Annual Awards to Non-Employee Directors

The 2005 Plan provides for an automatic grant on January 1 of each year of options to purchase 13,200 shares of Common Stock to each member of WebMD’s Board of Directors on that date who is not an employee of WebMD. These options will have an exercise price equal to the closing price of WebMD Common Stock on the last trading day of the prior year and will vest as to 25% of the underlying shares on each of the first through fourth anniversaries of the date of grant (full vesting on the fourth anniversary of the date of the grant). These options will expire ten years after the date of grant (unless previously exercised) or earlier in the event the optionee ceases to serve as a director. See “— Acceleration upon Certain Events” below for a description of certain events that will result in acceleration of vesting of these options.

 

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Performance Goals

In order to preserve full deductibility under Section 162(m) of the Internal Revenue Code, the Compensation Committee may determine that any award will be determined solely on the basis of:

 

   

the achievement by WebMD or one of its subsidiaries of a specified target return, or target growth in return, on equity or assets;

 

   

total stockholder return, described as WebMD’s stock price appreciation plus reinvested dividends, relative to a defined comparison group or target over a specific performance period;

 

   

WebMD’s stock price;

 

   

the achievement by WebMD or a business unit, or one of WebMD’s subsidiaries, of a specified target, or target growth in, revenues, net income, earnings per share, EBIT or EBITDA; or

 

   

any combination of the above.

If an award is made on this basis, the Compensation Committee must establish goals prior to the beginning of the period for which the performance goal relates, or by a later date as may be permitted under applicable tax regulations, and the Compensation Committee may for any reason reduce, but not increase, any award, notwithstanding the achievement of a specified goal. Any payment of an award granted with performance goals will be conditioned on the written certification of the Compensation Committee in each case that the performance goals and any other material conditions were satisfied.

Limitation on Transfer and Beneficiaries

No award under the 2005 Plan is assignable or transferable other than by will or the laws of descent and distribution or, except in the case of an incentive stock option, pursuant to a qualified domestic relations order. However, the Compensation Committee may permit other transfers if it deems appropriate and will generally permit transfers made without consideration to family trusts established for estate planning or similar purposes.

Acceleration upon Certain Events

Unless otherwise set forth in the applicable award agreement, upon the participant’s death or termination of employment as a result of disability, all outstanding options, stock appreciation rights, and other awards in the nature of rights that may be exercised will become fully exercisable and all restrictions on outstanding awards will lapse. Any options or stock appreciation rights will thereafter continue or lapse in accordance with the other provisions of the 2005 Plan and the applicable award agreement. In addition, the Compensation Committee may at any time in its discretion declare any or all awards to be fully or partially vested and exercisable, provided that the Compensation Committee will not have the authority to accelerate or postpone the timing of payment or settlement with respect to awards subject to Section 409A of the Internal Revenue Code in a manner that would cause the awards to be subject to certain related interest and penalty provisions. The Compensation Committee may discriminate among participants or among awards in exercising such discretion. Awards made to WebMD’s directors who are not employed by WebMD will automatically accelerate in the event of a Change of Control. For purposes of the Plan, a Change of Control generally 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 where WebMD’s stockholders no longer represent 50% of the voting power; and (iv) consummation of a sale of all or substantially all of WebMD’s assets.

No Repricing

No adjustment may be made to a stock option or stock appreciation right award under the 2005 Plan (by amendment, cancellation and regrant, exchange or other means) that would constitute a repricing of the per share exercise or base price of the award without prior approval of WebMD’s stockholders. The Compensation Committee is, however, required to make certain adjustments to the per share exercise price or base price, as well as certain other terms, in the case of a stock split and certain other events affecting the underlying Common Stock.

 

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Termination and Amendment

WebMD’s Board of Directors or Compensation Committee has the right at any time to amend or terminate the 2005 Plan, but it may condition any amendment on the approval of WebMD’s stockholders if such approval will be necessary or advisable under tax, securities, stock exchange or other applicable laws, policies or regulations. The Board of Directors or the Compensation Committee has the right to amend or terminate any outstanding award without approval of the participant, but an amendment or termination may not, without the participant’s consent, reduce or diminish the value of the award determined as if it had been exercised, vested, cashed in or otherwise settled on the date of the amendment or termination, and the original term of any option may not be extended. The Compensation Committee has broad authority to amend the 2005 Plan or any outstanding award without the approval of the participants to the extent necessary to comply with applicable tax laws, securities laws, accounting rules or other applicable laws, or to ensure that an award is not subject to interest and penalties under Section 409A of the Internal Revenue Code. If any provision of the 2005 Plan or any award agreement contravenes any regulation or U.S. Department of Treasury guidance promulgated under Section 409A of the Internal Revenue Code that could cause an award to be subject to interest and penalties, such provision will be modified to maintain the original intent of the provision without violating Section 409A. Furthermore, any discretionary authority that the Compensation Committee may have pursuant to the 2005 Plan will not be applicable to an award that is subject to Section 409A to the extent such discretionary authority will contravene Section 409A.

Federal Income Tax Information

The following discussion is a summary of the federal income tax consequences relating to the grant and exercise of awards under the 2005 Plan and the subsequent sale of WebMD Common Stock that will be acquired under this Plan. The tax effect of exercising awards may vary depending upon the particular circumstances, and the income tax laws and regulations change frequently.

Nonqualified Stock Options.  There will be no federal income tax consequences to a participant or to WebMD upon the grant of a nonqualified stock option. When the participant exercises a nonqualified option, however, he will realize ordinary income in an amount equal to the excess of the fair market value of the option shares that he receives upon exercise of the option at the time of exercise over the exercise price, and WebMD will be allowed a corresponding deduction. Any gain that a participant realizes when the participant later sells or disposes of the option shares will be short-term or long-term capital gain, depending on how long the participant held the shares.

Incentive Stock Options.  There typically will be no federal income tax consequences to a participant or to WebMD upon the grant or exercise of an incentive stock option. If the participant holds the option shares for the required holding period of at least two years after the date the option was granted or one year after exercise of the option, the difference between the exercise price and the amount realized upon sale or disposition of the option shares will be long-term capital gain or loss, and WebMD will not be entitled to a federal income tax deduction. If the participant disposes of the option shares in a sale, exchange, or other disqualifying disposition before the required holding period ends, he will realize taxable ordinary income in an amount equal to the excess of the fair market value of the option shares at the time of exercise over the exercise price, and WebMD will be allowed a federal income tax deduction equal to such amount. While the exercise of an incentive stock option does not result in current taxable income, the excess of the fair market value of the option shares at the time of exercise over the exercise price will be an item of adjustment for purposes of determining the participant’s alternative minimum tax.

Stock Appreciation Rights.  The participant will not recognize income, and WebMD will not be allowed a tax deduction, at the time a stock appreciation right is granted. When the participant exercises the stock appreciation right, the fair market value of any shares of WebMD Common Stock received will be taxable as ordinary income, and WebMD will be allowed a federal income tax deduction equal to such amount.

Restricted Stock.  Unless a participant makes an election to accelerate recognition of the income to the date of grant as described below, the participant will not recognize income, and WebMD will not be allowed a tax deduction, at the time a restricted stock award is granted. When the applicable restrictions lapse, the participant will recognize

 

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ordinary income equal to the fair market value of the WebMD Common Stock as of that date, less any amount the participant paid for the stock, and WebMD will be allowed a corresponding tax deduction at that time, subject to any applicable limitations under Section 162(m) of the Internal Revenue Code. If the participant files an election under Section 83(b) of the Internal Revenue Code within 30 days after the date of grant of the restricted stock, he will recognize ordinary income as of the date of grant equal to the fair market value of the stock as of that date, less any amount the participant paid for the stock, and WebMD will be allowed a corresponding tax deduction at that time, subject to any applicable limitations under Section 162(m) of the Internal Revenue Code. Any future appreciation in the stock will be taxable to the participant at capital gains rates. However, if the stock is later forfeited, such participant will not be able to recover the tax previously paid pursuant to his Section 83(b) election.

Performance Shares.  A participant will not recognize income, and WebMD will not be allowed a tax deduction, at the time performance shares are granted. When the participant receives payment under the performance shares, the amount of cash and the fair market value of any shares of stock received will be ordinary income to the participant, and WebMD will be allowed a corresponding tax deduction at that time.

New Plan Benefits Table

Awards to officers and other employees under the 2005 Plan are determined by the Compensation Committee in its discretion or, in the case of employees who are not executive officers, pursuant to authority delegated to the Chief Executive Officer with the concurrence of the Chief Financial Officer. Awards under this Plan to non-employee directors are determined by the Compensation Committee, in its discretion, except that non-employee directors receive automatic annual grants of options to purchase 13,200 shares on January 1 of each year, with an exercise price equal to the closing price of WebMD Common Stock on the last trading day of the prior year. As a result, it is not possible to determine the benefits and amounts that will be received by any individual participant or group of participants in the future. The grants shown on the table below were made from January 1, 2011 to the date of this Proxy Statement pursuant to the 2005 Plan (i) our Named Executive Officers (listed individually), (ii) to WebMD’s employees who are executive officers (in the aggregate), (iii) to WebMD’s non-employee directors (in the aggregate), and (iv) to WebMD’s employees who are not executive officers (in the aggregate).

 

Name and Position

   Number of Options     Number of Restricted Shares  

Anthony Vuolo, Chief Financial Officer

     70,000        27,500   

Gregory A. Mason, Executive Vice-President, Consumer Services

     250,000 (1)      54,500   

William Pence, Chief Operating Officer

     75,000        12,000   

Martin J. Wygod, Chairman of the Board

     350,000        92,867   

Executive Group

     925,000 (2)      226,867   

Non-Executive Director Group

     211,200 (3)        

Non-Executive Officer Employee Group

     3,493,950        527,500   

 

 

1

A portion of these options (175,000) were voluntarily surrendered by Mr. Mason in February 2012. For additional information, see “Executive Compensation—Background Information Regarding the Summary Compensation Table—Voluntary Surrender of Certain Option Grants” above.

 

2 

See footnote 1 above.

 

3 

A portion of these options (105,600) were voluntarily surrendered by the members of the Non-Executive Director Group in February 2012. For additional information, see “Non-Employee Director Compensation — Option Grants — Voluntary Surrender of Certain Option Grants” above.

The amounts in the above table for the Non-Executive Officer Employee Group include 60,000 options and 22,500 restricted shares granted under the 2005 Plan to Kevin M. Cameron, a member of our Board of Directors who is an employee of WebMD, but not a member of the Executive Group. The above table does not include grants of 1,000,000 options and 45,000 restricted shares granted to Cavan M. Redmond in connection with his joining WebMD as Chief Executive Officer on May 31, 2012. Those grants were made to Mr. Redmond outside the 2005 Plan in reliance on Nasdaq Rule 5635(c)(4). For additional information, see “Executive Compensation – Employment Agreement with Cavan M. Redmond” above.

 

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Equity Compensation Plan Information

The following table contains certain information, as of December 31, 2011, about our equity compensation plans.

 

     (a)      (b)      (c)  

Plan category(1)

   Number of securities to be
issued upon exercise of
outstanding options,
warrants and
rights
     Weighted-average
exercise price of

outstanding options,
warrants
and rights
     Number of securities
remaining available for

future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
 

Equity compensation plans approved by security holders

     9,116,540       $ 34.35         932,233 (2) 

Equity compensation plans not approved by security holders(3)

     2,775       $ 40.60           
  

 

 

    

 

 

    

 

 

 

Total

     9,119,315       $ 34,35         932,233 (4) 
  

 

 

    

 

 

    

 

 

 

 

 

(1) This table does not include outstanding options to acquire 1,935,066 shares of WebMD Common Stock at a weighted-average exercise price of $23.52 per share, as of December 31, 2011, that were assumed by WebMD in the Merger. We cannot grant additional awards under equity compensation plans assumed in the Merger. For additional information regarding the assumed options, see Note 8 to the Consolidated Financial Statements in this Annual Report. The 2005 Plan is the only equity compensation plan under which we could make grants as of December 31, 2011.

 

(2) Since information in this table is as of December 31, 2011, it does not reflect the voluntary surrender of options by Named Executive Officers, certain other executives and the Non-Employee Directors in February 2012. See “Non-Employee Director Compensation — Option Grants — Voluntary Surrender of Certain Option Grants” above and “Voluntary Surrender of Certain Option Grants” following the Summary Compensation Table above. None of the directors or executives received any consideration in exchange for that surrender of stock options. Upon the surrender of those stock options, the 960,600 shares underlying those options became available for grants under the 2005 Plan. The surrenders by the directors and executives of those stock options were intended to allow WebMD to use the shares that became available under the Plan to attract new employees and to motivate and retain current key employees. As of March 31, 2012, 2,134,471 remained available for future issuance under the 2005 Plan, the only equity compensation plan under which we could make grants at that time, of which 371,929 was available for grant as full value awards (see Footnote 4 below regarding the calculation of the amount available as full value awards).

 

(3) The plan included in this category is the WebMD Health Corp. Long-Term Incentive Plan for Employees of Subimo, LLC, which did not require approval of our stockholders under applicable law and Nasdaq rules. We refer to that Plan as the Subimo Plan. A description of the Subimo Plan follows this table.

 

(4) In 2010, the 2005 Plan was amended to place a limit on the number of shares available for grants of restricted stock and similar awards for which no exercise or purchase price is payable (often referred to as “full value awards”). The amendment provided that: (a) the number of shares available for full value awards under the 2005 Plan made after the amendment became effective would not exceed 20% of the aggregate number of shares available for grant under the 2005 Plan on October 21, 2010; and (b) if full value awards are forfeited prior to vesting, the limit on the number of shares available for grant as full value awards would be increased by the number of shares underlying the forfeited full value awards (but would not be increased as a result of forfeitures of options). As of December 31, 2011, 288,929 shares were available for grant as full value awards under the 2005 Plan.

Description of Subimo Plan

The Subimo Plan authorized the granting of awards of non-qualified stock options to purchase shares of WebMD Common Stock and shares of Restricted Common Stock to employees of Subimo LLC in connection with our acquisition of that company. No further grants may be made under the Subimo Plan. The options granted under the Subimo Plan have an exercise price equal to $40.60, the market value on the date of grant, which was the closing date of the acquisition. The options to purchase WebMD Common Stock granted under the Subimo Plan generally had the following vesting schedule: 25% on each of the first four anniversaries of the date of grant. However, a small number of members of Subimo’s senior management received grants, under the Subimo Plan, of options to purchase WebMD Common Stock and shares of WebMD Restricted Stock that have the following vesting schedule: 15% on the third anniversary of the date of grant; 25% on the fourth anniversary; and 60% on the fifth anniversary. The options issued under the Subimo Plan expire on the tenth anniversary of the date of grant. Upon termination of employment, unvested options generally are forfeited and vested options generally expire 90 days after termination (one year in the case of termination as a result of death or disability or

 

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immediately in the event of termination for “cause”). The Subimo Plan is administered by the Compensation Committee of our Board of Directors and all or a portion of such authority may be delegated to one or more officers of WebMD. The authority to make awards and to determine their terms and conditions in accordance with this Plan was delegated by the Compensation Committee to our Chief Executive Officer, subject to concurrence by our Chief Financial Officer.

 

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PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Proposal 4 is a proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm to serve as WebMD’s independent auditor for the fiscal year ending December 31, 2012.

The Audit Committee of our Board of Directors has appointed the firm of Ernst & Young LLP, an independent registered public accounting firm, to be WebMD’s independent auditor for the current fiscal year and, with the endorsement of the Board, recommends to stockholders that they ratify that appointment. Ernst & Young LLP has served as WebMD’s independent auditors since WebMD’s initial public offering in 2005 and served as HLTH’s independent auditors from 1995 until completion of the Merger in October 2009.

Although stockholder ratification of the Audit Committee’s appointment of Ernst & Young LLP is not required by law, the Board believes that it is advisable and a matter of good corporate practice to give stockholders an opportunity to ratify this appointment. If Proposal 4 is not approved at the Annual Meeting, the Audit Committee will reconsider its appointment of Ernst & Young LLP, but is not obligated to appoint another independent registered public accounting firm. If the selection of Ernst & Young LLP 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 WebMD’s best interest and in the best interest of the stockholders. Any such selection need not be submitted to a vote of stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF PROPOSAL 4.

A representative of Ernst & Young LLP 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.

Services and Fees of Ernst & Young

In addition to retaining Ernst & Young LLP to audit WebMD’s Consolidated Financial Statements for 2011 and 2010 and to review quarterly financial statements during those years, WebMD retained Ernst & Young LLP to provide certain related services. The fees for Ernst & Young LLP’s services were:

 

Type of Fees

   2011      2010  

Audit Fees

   $ 973,852       $ 978,284   

Audit-Related Fees

     253,500         85,460   

Tax Fees

     107,177         214,563   

All Other Fees

     2,597         2,569   
  

 

 

    

 

 

 

Total Fees

   $ 1,337,126       $ 1,280,876   
  

 

 

    

 

 

 

In the above table, in accordance with applicable SEC rules:

 

   

“audit fees” include: (a) fees for professional services (i) for the audit of Consolidated Financial Statements of WebMD for each year, (ii) for review of the Consolidated Financial Statements included in WebMD’s Quarterly Reports on Form 10-Q filed during each year, and (iii) for the audits of internal control over financial reporting with respect to WebMD for each year; and (b) fees for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements for each year;

 

   

“audit-related fees” are fees in each year for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, and included fees related to employee benefit plan and other audits during each year and, during 2011, also included fees for services related to the two issuances of convertible notes by WebMD in 2011 and for services related to the process conducted by our Board of Directors to explore strategic alternatives for the company;

 

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“tax fees” are fees in the year for professional services for tax compliance, tax advice, and tax planning and analysis; and

 

   

“all other fees” are fees 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 Committees of WebMD. The Audit Committee has determined that the provision by Ernst & Young of non-audit services to WebMD in 2011 is compatible with Ernst & Young maintaining its independence.

The Audit Committee considers whether to pre-approve audit and 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 audit and 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.

REPORT OF THE AUDIT COMMITTEE

The current members of the Audit Committee are Neil F. Dimick, James V. Manning and Stanley S. Trotman, Jr., 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 WebMD’s independent auditor and evaluating their performance and independence;

 

   

reviewing the annual audit plan with WebMD’s management and registered public accounting firm;

 

   

pre-approving any permitted services provided by WebMD’s registered public accounting firm;

 

   

approving the fees to be paid to WebMD’s registered public accounting firm;

 

   

reviewing the adequacy and effectiveness of WebMD’s internal controls with WebMD’s management, internal auditors and registered public accounting firm;

 

   

reviewing and discussing the annual audited financial statements and the interim unaudited financial statements with WebMD’s management and registered public accounting firm;

 

   

approving WebMD’s internal audit plan and reviewing reports of WebMD’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 WebMD’s Code of Business Conduct.

The Audit Committee operates under a written charter adopted by WebMD’s Board of Directors, a copy of which is included as Annex H to this Proxy Statement.

This report reviews the actions taken by the Audit Committee with regard to WebMD’s financial reporting process for 2011 and particularly with regard to WebMD’s audited consolidated financial statements and the related schedule included in Annex A to this Proxy Statement.

WebMD’s management has the primary responsibility for WebMD’s financial statements and reporting process, including the systems of internal controls. WebMD’s independent auditors are responsible for performing an independent audit of WebMD’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 WebMD’s financial statements or systems of internal controls or any professional certification as to the independent auditors’ work.

 

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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 Annex A to this Proxy Statement. In addition, the Audit Committee reviewed with WebMD’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 WebMD’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 LLP the “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” included in Annex A to this Proxy Statement. In addition, the Audit Committee discussed with Ernst & Young LLP their independence from management and WebMD, including the matters in the written disclosures required of Ernst & Young LLP 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 “— Ratification of Appointment of Independent Registered Public Accounting Firm — Services and Fees of Ernst & Young LLP” above) during 2011 by Ernst & Young LLP is compatible with maintaining Ernst & Young LLP’s independence.

Additionally, the Audit Committee discussed with WebMD’s independent auditors the overall scope and plan for their audit of WebMD’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 WebMD’s internal controls and the overall quality of WebMD’s financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to WebMD’s Board of Directors that the audited financial statements and related schedule and management’s assessment of the effectiveness of WebMD’s internal control over financial reporting be included in WebMD’s Annual Report on Form 10-K for the year ended December 31, 2011 for filing with the SEC. The Audit Committee has also approved the retention of Ernst & Young LLP as WebMD’s independent auditors for 2012.

Neil F. Dimick

James V. Manning

Stanley S. Trotman, Jr.

 

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STOCKHOLDER PROPOSALS FOR 2013 ANNUAL MEETING

WebMD expects to hold its 2013 Annual Meeting on July 11, 2013.

Submission of Proposals for Inclusion in WebMD’s Proxy Materials. Proposals that stockholders intend to present at the 2013 Annual Meeting must be received by WebMD’s Corporate Secretary (at the address provided below under “— Advance Notice Provisions under WebMD’s Bylaws”) not later than February 18, 2013 if they are to be eligible for consideration for possible inclusion in WebMD’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.

Advance Notice Provisions under WebMD’s Bylaws. WebMD’s Amended and Restated By-laws 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 WebMD’s proxy statement. For these nominations or other business to be properly brought before the 2013 Annual Meeting by a stockholder, the stockholder must provide written notice delivered to the Secretary of WebMD at least 90 days and not more than 120 days in advance of the anniversary of the 2012 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. Accordingly, if a stockholder intends to submit a director nomination or a proposal at the 2013 Annual Meeting that is not intended for inclusion in WebMD’s proxy statement relating to that meeting, notice from the stockholder in accordance with the requirements in the WebMD Amended and Restated By-laws must be received by WebMD no later than April 25, 2013, unless the date of the meeting is changed, in which case WebMD will announce any change in the date by which the notice must be received by WebMD when WebMD first announces the change in meeting date. All notices of proposals by stockholders, whether or not intended to be included in WebMD’s proxy materials, should be sent to: Corporate Secretary, WebMD Health Corp., 111 Eighth Avenue, New York, New York 10011.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special 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.

We make available free of charge at www.wbmd.com (in the “Investor Relations” section) copies of materials we file with, or furnish 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.

DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS

If you are the beneficial owner, but not the record holder, of shares of WebMD Common Stock, your broker, bank or other nominee may only deliver one copy of this Proxy Statement to multiple stockholders who share an address, unless that nominee has received contrary instructions from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of this Proxy Statement to a stockholder at a shared address to which a single copy of the Proxy Statement was delivered. A stockholder who wishes to receive a separate copy of this Proxy Statement, now or in the future, should submit this request by writing to Investor Relations, WebMD Health Corp., 111 Eighth Avenue, New York, NY 10011, or by calling (212) 624-3817. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and who wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address in the future.

MISCELLANEOUS

Where information contained in this Proxy Statement rests particularly within the knowledge of a person other than WebMD, we have relied upon information furnished by such person or contained in filings made by such person with the SEC.

 

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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 the “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 WebMD specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

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ANNEX A

WEBMD HEALTH CORP. 2011 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 as of December 31, 2011 and 2010

     5   

Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009

     6   

Consolidated Statements of Equity for the Years Ended December 31, 2011, 2010 and 2009

     7   

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009

     8   

Notes to Consolidated Financial Statements

     9   

Supplemental Financial Data:

  

The following supplemental financial data of the Registrant and its subsidiaries required to be included in Item 15(a)(2) on Form 10-K are listed below:

  

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.

 

WEBMD 2011 ANNUAL REPORT — FINANCIAL STATEMENTS ANNEX

 

ANNEX A – PAGE 1


REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of WebMD Health Corp. 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.

WebMD management assessed the effectiveness of WebMD’s internal control over financial reporting as of December 31, 2011. In making this assessment, WebMD 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, WebMD management concluded that WebMD maintained effective internal control over financial reporting as of December 31, 2011.

Ernst & Young LLP, the independent registered public accounting firm that audited and reported on the Company’s financial statements as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011, has audited the Company’s internal control over financial reporting as of December 31, 2011, as stated in their report which appears on page 3.

February 29, 2012

 

WEBMD 2011 ANNUAL REPORT — FINANCIAL STATEMENTS ANNEX

 

ANNEX A – PAGE 2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of WebMD Health Corp.

We have audited WebMD Health Corp.’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). WebMD Health Corp.’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, WebMD Health Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of WebMD Health Corp. as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity and cash flows for each of the three years in the period ended December 31, 2011 of WebMD Health Corp. and our report dated February 29, 2012 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

New York, New York

February 29, 2012

 

WEBMD 2011 ANNUAL REPORT — FINANCIAL STATEMENTS ANNEX

 

ANNEX A – PAGE 3


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of WebMD Health Corp.

We have audited the accompanying consolidated balance sheets of WebMD Health Corp. as of December 31, 2011 and 2010, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a). 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 WebMD Health Corp. at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, 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 2 to the consolidated financial statements, effective January 1, 2011, the Company adopted authoritative guidance which changed the accounting for multiple deliverable revenue arrangements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), WebMD Health Corp.’s internal control over financial reporting as of December 31, 2011, 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 29, 2012 expressed an unqualified opinion thereon.

/s/    Ernst & Young LLP

New York, New York

February 29, 2012

 

WEBMD 2011 ANNUAL REPORT — FINANCIAL STATEMENTS ANNEX

 

ANNEX A – PAGE 4


WEBMD HEALTH CORP.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

     December 31,  
     2011     2010  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,121,217      $ 400,501   

Accounts receivable, net of allowance for doubtful accounts of $1,129 at December 31, 2011 and $1,493 at December 31, 2010

     121,335        134,448   

Prepaid expenses and other current assets

     12,690        12,161   

Deferred tax assets

     20,482        23,467   
  

 

 

   

 

 

 

Total current assets

     1,275,724        570,577   

Property and equipment, net

     57,139        61,516   

Goodwill

     202,104        202,104   

Intangible assets, net

     19,999        22,626   

Deferred tax assets

     55,017        71,125   

Other assets

     31,042        14,254   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,641,025      $ 942,202   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accrued expenses

   $ 55,238      $ 53,181   

Deferred revenue

     88,055        97,043   

Liabilities of discontinued operations

     1,506        17,327   
  

 

 

   

 

 

 

Total current liabilities

     144,799        167,551   

2.25% convertible notes due 2016

     400,000          

2.50% convertible notes due 2018

     400,000          

Other long-term liabilities

     21,790        21,756   

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, 50,000,000 shares authorized; no shares issued and outstanding

              

Common stock, $0.01 par value per share, 650,000,000 shares authorized; 62,410,255 shares issued at December 31, 2011 and 62,401,272 shares issued at December 31, 2010

     624        624   

Additional paid-in capital

     9,473,811        9,462,373   

Treasury stock, at cost; 6,685,439 shares at December 31, 2011 and 2,485,391 shares at December 31, 2010

     (294,062     (129,589

Accumulated deficit

     (8,505,937     (8,580,513
  

 

 

   

 

 

 

Stockholders’ equity

     674,436        752,895   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 1,641,025      $ 942,202   
  

 

 

   

 

 

 

See accompanying notes.

 

WEBMD 2011 ANNUAL REPORT — FINANCIAL STATEMENTS ANNEX

 

ANNEX A – PAGE 5


WEBMD HEALTH CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     Years Ended December 31,  
     2011      2010     2009  

Revenue

   $ 558,775       $ 534,519      $ 438,536   

Cost of operations

     201,677         187,831        165,753   

Sales and marketing

     124,326         120,874        112,101   

General and administrative

     91,271         85,496        89,620   

Depreciation and amortization

     26,801         27,578        28,185   

Interest income

     112         3,949        9,149   

Interest expense

     20,645         11,453