DEF 14A 1 d743542ddef14a.htm DEF 14A DEF 14A
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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

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240.14a-12
WEBMD HEALTH CORP.
 
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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WEBMD HEALTH CORP.

111 Eighth Avenue

New York, New York 10011

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 1, 2014

 

 

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 October 1, 2014, at The Ritz-Carlton New York, Battery Park, Two West Street, New York, New York 10004, for the following purposes:

1. To elect four Class III directors, each to serve a three-year term expiring at our Annual Meeting of Stockholders in 2017 or until his or her successor is elected and has qualified or his or her 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 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 1,700,000 shares and to provide the stockholder approval needed for WebMD to take deductions under Section 162(m) of the Internal Revenue Code of 1986, as amended, for certain performance-based grants that may be made in the future;

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, 2014; 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 August 6, 2014 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

August 18, 2014

 

 

YOUR VOTE IS IMPORTANT.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,

PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.

 


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FORWARD-LOOKING STATEMENTS

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. 2013 ANNUAL REPORT

Annexes A through G of this Proxy Statement are taken from WebMD’s Annual Report on Form 10-K for the year ended December 31, 2013 and are being provided to WebMD stockholders with this Proxy Statement, instead of a stand-alone Annual Report. These Annexes, together with other information contained in this Proxy Statement, contain all of the information that WebMD would have included in a stand-alone 2013 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 OCTOBER 1, 2014

This Proxy Statement and the enclosed form of proxy (which we sometime 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 October 1, 2014, at 9:30 a.m., Eastern time, at The Ritz-Carlton New York, Battery Park, Two West Street, New York, New York 10004, and at any adjournment or postponement thereof. The date of this Proxy Statement is August 18, 2014 and it and a form of proxy are first being mailed or otherwise delivered to stockholders on or about August 22, 2014.

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 III directors, each to serve a three-year term expiring at the Annual Meeting of Stockholders in 2017 or until his or her successor is elected and has qualified or his or her earlier resignation or removal. The nominees are:

William J. Marino

Herman Sarkowsky

Kristiina Vuori, M.D.

Martin J. Wygod

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

 

   

Proposal 2 — We are providing stockholders of WebMD with the opportunity to cast 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 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 1,700,000 shares and to provide the stockholder approval needed for WebMD to take deductions under Section 162(m) of the Internal Revenue Code of 1986, as amended, for certain performance-based grants that may be made in the future. 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, 2014. 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.

 

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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 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 WebMD’s Amended and Restated 2005 Long-Term Incentive Plan (which we refer to, in this Proxy Statement, as the 2005 Plan), as 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, 2014.

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 August 6, 2014 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 39,129,823 shares of our Common Stock outstanding and entitled to vote held of record by approximately 1,500 stockholders. However, we believe that there are approximately 20,000 beneficial owners of our Common Stock. Unvested shares of restricted Common Stock granted under the 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. Under Delaware law, any shares of WebMD Common Stock repurchased by WebMD between the record date of the 2014 Annual Meeting and the meeting date (which we refer to collectively as Repurchased Shares below), including any shares purchased in the tender offer that WebMD commenced on August 11, 2014, would not be considered outstanding for purposes of voting at the 2014 Annual Meeting. Holders of Repurchased Shares will, however, already have received proxy cards soliciting their votes on the proposals to be presented at the 2014 Annual Meeting and may return completed proxy cards, even though those Repurchased Shares are no longer considered

 

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outstanding for voting purposes. Generally, it will not be practicable for WebMD to trace the voting instructions that apply to specific Repurchased Shares. Accordingly, WebMD intends to instruct the Inspector of Election for the 2014 Annual Meeting to assume that all such Repurchased Shares had voted “FOR” each of the directors listed in Proposal 1 and “FOR” each of Proposals 2 through 4, and to reduce the total amount of “FOR” votes cast by an amount equal to the number of Repurchased Shares.

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 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 (Approval of 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 each of Proposals 2, 3 and 4. Abstentions with respect to Proposal 2, 3 or 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, 3 or 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)

    57       Director; Chairman of the Compensation Committee

Kevin M. Cameron

    48       Director; Special Advisor to the Chairman of the Board

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

    65       Director; Chairman of the Nominating & Governance Committee

Jerome C. Keller(4)

    72       Director

James V. Manning(1)(2)

    67       Director; Chairman of the Audit Committee

William J. Marino

    70       Director

Herman Sarkowsky(3)

    89       Director

Joseph E. Smith(3)

    75       Director

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

    71       Director

Kristiina Vuori, M.D.

    46       Director

Martin J. Wygod(1)

    74       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

David J. Schlanger

     54       Chief Executive Officer

Steven Zatz, M.D.

     57       President

Peter Anevski

     47       Executive Vice President and Chief Financial Officer

Michael B. Glick

     57       Executive Vice President and Co-General Counsel

Douglas W. Wamsley

     55       Executive Vice President, Co-General Counsel and Secretary

Martin J. Wygod

     74       Chairman of the Board

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 10 years as Chief Executive Officer of the San Diego Cancer Center until its acquisition in February 2011 by the University of California. He continued as a director of this cancer center until February 2014. He is currently 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 experience as a physician and an executive of a physician practice; and his prior service as a director of WebMD, HLTH and predecessor companies.

 

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Peter Anevski has served as Executive Vice President and Chief Financial Officer of WebMD since May 2013. Prior to that, Mr. Anevski served in senior finance and operations roles at WebMD and predecessor companies for 14 years, most recently as Senior Vice President, Finance of WebMD for more than five years.

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 Chief Executive Officer 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

 

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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.

William J. Marino has been a member of WebMD’s Board of Directors since April 2014. Mr. Marino served as Chairman, President and Chief Executive Officer of Horizon Blue Cross Blue Shield of New Jersey (BCBSNJ), the state’s largest health insurer, until he retired in 2011. During that time, he also served as Co-Chairman of America’s Health Insurance Plans (AHIP), Chairman of the National Institute for Health Care Management (NIHCM) and on the Board of Directors of the Blue Cross Blue Shield Association (BCBSA). Before joining Horizon BCBSNJ, Mr. Marino was Vice President of Regional Group Operations for New York and Connecticut for the Prudential, capping a 23-year career with them. Mr. Marino is also a member of the Board of Directors of two other publicly-traded corporations: Sealed Air Corporation (since 2002) and Sun Bancorp, Inc. (since 2010). He also serves as the Co-Chairman of the Board of Directors of the New Jersey Performing Arts Center (NJPAC) and a member of the Board of the New Jersey Symphony Orchestra. He is a member of the Campaign Committee of Saint Vincent Academy and a member of the Board of Trustees of Delbarton School in Morristown. Mr. Marino’s qualifications for membership on WebMD’s Board of Directors include: his experience as a business leader in the health insurance industry; his knowledge of the healthcare industry; and his service on the other boards 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.

David J. Schlanger became Chief Executive Officer of WebMD in August 2013, after serving as Interim Chief Executive Officer starting in May 2013. Mr. Schlanger had served in senior executive positions with WebMD and predecessor companies for more than 15 years, most recently as Senior Vice President, Strategic and Corporate Development from January 2012 to May 2013. Prior to that, he was Senior Vice President, Corporate Development of WebMD for more than five years.

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 was a member of the Board of Directors of Par Pharmaceutical Companies, Inc., a manufacturer and distributor of generic and branded pharmaceuticals, for more than five years prior to its acquisition by affiliates of TPG in September 2012. Mr. Smith is a member of the Board of Directors of NovaMedica, a privately held pharmaceutical company. 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. Mr. Trotman’s

 

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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.

Kristiina Vuori, M.D., Ph.D. has been a member of WebMD’s Board of Directors since July 2014. Dr. Vuori has been President of Sanford-Burnham Medical Research Institute since 2010 and its Interim CEO since 2013, leading the Institute’s academic, scientific and general operations. The Institute is a non-profit research organization dedicated to discovering the fundamental molecular causes of disease and devising the innovative therapies of tomorrow, with major research programs in cancer, neurodegeneration, diabetes, and infectious, inflammatory, and childhood diseases. Dr. Vuori also holds the Pauline and Stanley Foster Presidential Chair at the Institute and serves as Professor at the Institute’s National Cancer Institute (NCI)-designated Cancer Center, an interdisciplinary basic and translational research effort mobilizing over 400 scientists. From 2005 until 2013, Dr. Vuori also led the Cancer Center. Dr. Vuori earned her M.D. and Ph.D. degrees at University of Oulu, Finland. After completing her internship and residency, she received postdoctoral training at Sanford-Burnham from 1992 to 1995 and was appointed to the faculty in 1996. Dr. Vuori has received numerous research grants and awards from NIH, NCI, Department of Defense (DoD), Stand Up To Cancer Dream Team, and the California Cancer Research Programs. She also serves in a wide variety of advisory capacities to NCI and other cancer organizations, including advisory roles for the NCI’s Developmental Therapeutics Program, Center for Strategic Scientific Initiatives, and the National Cancer Advisory Board. Additionally, Dr. Vuori serves on the Boards of Directors for the American Association for Cancer Research (AACR), the California Institute for Regenerative Medicine (CIRM), and the California Breast Cancer Research Council. She has also served on numerous editorial boards for scientific journals and institutional scientific advisory boards. Dr. Vuori’s qualifications for membership on WebMD’s Board of Directors include: her experience in biomedical research and as an educator of research scientists; and her experience managing a large non-profit research organization, including as its current leader, and prior to that, managing its Cancer Center, as described above.

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 and breeding thoroughbred horses. 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 August 2013, served as President of WebMD, overseeing WebMD’s consumer and professional websites and services. Prior to that, Dr. Zatz had served as Executive Vice President, Professional Services of WebMD from July 2005 to August 2013, providing leadership for WebMD’s professional websites and services including its flagship site for healthcare professionals, Medscape.com. 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.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of WebMD Common Stock, as of August 6, 2014 (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 executive officers who is a Named Executive Officer, 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.

 

Name and Address of Beneficial Owner(1)

   Common
Stock(2)
    Other(3)     Total
Shares
     Percent of
Outstanding(3)
 

Kensico Capital Management Corporation,

Michael Lowenstein and Thomas J. Coleman(4)

55 Railroad Avenue, 2nd Floor

Greenwich, CT 06830

     5,117,187               5,117,187         13.1

Soros Fund Management LLC,

George Soros and Robert Soros(5)

888 Seventh Avenue, 33rd Floor

New York, NY 10106

            2,772,766 (5)      2,772,766         6.6

Blackrock, Inc.(6)

40 East 52nd Street

New York, NY 10022

     2,308,916               2,308,916         5.9

Waddell & Reed Financial, Inc. and related entities(7)

6300 Lamar Avenue

Overland Park, KS 66202

     2,023,760               2,023,760         5.2

The Vanguard Group, Inc.(8)

100 Vanguard Blvd.

Malvern, PA 19355

     2,009,719               2,009,719         5.1

Mark J. Adler, M.D.

     2,535        57,314        59,849         *   

Peter Anevski

     69,748 (9)      144,500        214,248         *   

Kevin M. Cameron

     228,113 (10)      483,236        711,349         1.8

Neil F. Dimick

     13,006        102,564        115,570         *   

Jerome C. Keller

     14,939 (11)      82,500        97,439         *   

James V. Manning

     184,850        47,225        232,075         *   

William J. Marino

                           *   

Herman Sarkowsky

     79,035 (12)      54,208        133,243         *   

David J. Schlanger

     89,518 (13)      202,500        292,018         *   

Joseph E. Smith

     40,402        64,429        104,831         *   

Stanley S. Trotman, Jr.

     33,988 (14)      62,700        96,688         *   

Kristiina Vuori, M.D.

                           *   

Martin J. Wygod

     1,037,821 (15)      549,156        1,586,977         4.0

Steven Zatz, M.D.

     112,160 (16)      221,250        333,410         *   

All executive officers and directors as a group (16 persons)

     1,975,493        2,260,332        4,235,825         10.2

 

 

* Less than 1%.

 

(1) 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.

 

(2)

The amounts set forth in this column for “All executive officers and directors as a group” includes a total of 1,037 shares of WebMD common stock held for the accounts of Messrs. Anevski, Cameron, Glick, Keller, Wamsley and Wygod and Dr. Zatz in the 401(k) Plan

 

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  (which we refer to in this table as 401(k) Plan Shares), all of which are vested in accordance with terms of the 401(k) Plan. Those individuals have the right to direct the voting and disposition of their respective 401(k) Plan Shares. Amounts for 401(k) Plan Share holdings are provided in the footnotes applicable to individual beneficial ownership below.

 

     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.

 

(3) 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 August 6, 2014; 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 August 6, 2014 (which was 39,129,823, 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.”

 

(4) The information shown is as of January 15, 2014 and is based upon disclosures by Kensico Capital Management Corporation, Michael Lowenstein and Thomas J. Coleman in a Schedule 13G filed with the SEC on that date, which indicated that they have 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, 2013 and is based upon disclosures by Soros Fund Management LLC, George Soros and Robert Soros in a Schedule 13G amendment filed with the SEC on February 13, 2014. 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) The information shown is as of December 31, 2013 and is based upon disclosures by Blackrock, Inc. in a Schedule 13G filed with the SEC on February 6, 2014 reporting that it had sole power to vote and sole power to dispose of or to direct the disposition of the shares.

 

(7) The information shown is as of December 31, 2013 and is based upon disclosures by Waddell & Reed Financial, Inc. and related entities in a Schedule 13G filed with the SEC on February 7, 2014 reporting that they had sole power to vote and sole power to dispose of or direct the disposition of the shares.

 

(8) The information shown is as of December 31, 2013 and is based upon disclosures by The Vanguard Group, Inc. in a Schedule 13G filed with the SEC on February 6, 2014, in which it reported: sole power to vote or direct to vote of 47,752 shares; sole power to dispose of or to direct the disposition of 1,964,619 shares; and shared power to dispose or to direct the disposition of: 45,100 shares.

 

(9) Includes: 20,546 shares held by Mr. Anevski: 202 401(k) Plan Shares; and 49,000 unvested shares of WebMD Restricted Stock.

 

(10) Includes: 216,794 shares held by Mr. Cameron; 69 401(k) Plan Shares; and 11,250 unvested shares of WebMD Restricted Stock.

 

(11) Includes: 14,870 shares held by Mr. Keller; and 69 401(k) Plan Shares.

 

(12) Includes: 76,123 shares held by Mr. Sarkowsky; and 2,912 shares held by SPF Holdings (an entity controlled by Mr. Sarkowsky).

 

(13) Includes: 14,018 shares held by Mr. Schlanger; and 75,500 unvested shares of WebMD Restricted Stock.

 

(14) Includes: 33,053 shares held by Mr. Trotman; and 935 shares held by The Stanley S. Trotman, Jr. Trust, of which Mr. Trotman is a trustee.

 

(15) Includes: 48,374 shares held by Mr. Wygod; 105 401(k) Plan Shares; 123,216 shares of unvested WebMD Restricted Stock; 837,758 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; and 26,146 shares held by SYNC, Inc., which is controlled by Mr. Wygod.

 

(16) Includes: 49,056 shares held by Dr. Zatz; 104 401(k) Plan Shares; and 63,000 unvested shares of WebMD Restricted Stock.

 

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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 10 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 10 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 10 percent of our Common Stock satisfied all applicable filing requirements under Section 16(a), except that: (a) due to an administrative error, a Form 4 reporting the sale on September 10, 2013 of 6,888 shares of WebMD Common Stock indirectly beneficially owned by Mr. Manning was filed one day after it was due; and (b) 275 shares of WebMD Common Stock owned by Mr. Anevski at the time he became subject to the reporting requirements were inadvertently omitted from the Form 3 that he filed on May 10, 2013, as subsequently reported in May 2014.

 

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PROPOSAL 1:     ELECTION OF DIRECTORS

Proposal 1 is the election of four Class III directors, each to serve a three-year term expiring at the Annual Meeting of Stockholders in 2017 or until his or her successor is elected and has qualified or his or her earlier resignation or removal.

WebMD’s Board of Directors has 11 members and, under WebMD’s Restated Certificate of Incorporation, is divided into three classes. At each Annual Meeting, 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 III directors, William J. Marino, Herman Sarkowsky, Kristiina Vuori, M.D. and Martin J. Wygod, will expire. The terms of Mark J. Adler, M.D., Neil F. Dimick, James V. Manning and Joseph E. Smith are scheduled to expire at the Annual Meeting in 2015; and the terms of Kevin M. Cameron, Jerome C. Keller and Stanley S. Trotman are scheduled to expire at the Annual Meeting in 2016.

The Board of Directors, based on the recommendation of the Nominating & Governance Committee of the Board, has nominated Messrs. Marino, Sarkowsky and Wygod and Dr. Vuori for election at the 2014 Annual Meeting, each to serve a three-year term expiring at the Annual Meeting in 2017 or until his or her successor is elected and has qualified or his or her 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 Messrs. Marino, Sarkowsky and Wygod and Dr. Vuori, 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. Two of the members are employees of WebMD and the other nine are “Non-Employee Directors.” The two employee directors are: Mr. Wygod, Chairman of the Board; and Mr. Cameron, Special Advisor to the Chairman. The Non-Employee Directors are: Drs. Adler and Vuori and Messrs. Dimick, Keller, Manning, Marino, Sarkowsky, Smith and Trotman. The Nominating & Governance Committee of our Board of Directors has determined that each of those Non-Employee Directors is also an independent director under applicable SEC rules and Nasdaq Global Select Market listing standards. In addition, in 2013, the Nominating & Governance Committee determined that each of Thomas Coleman, Abdool Rahim Moossa, M.D. and David Schechter, the other individuals who were non-employee members of our Board of Directors during 2013 was an independent director under applicable SEC rules and Nasdaq Global Select Market listing standards. For additional information, see “Director Independence” below. When we refer to “Non-Employee Directors” below with respect to periods in which Dr. Moossa, Mr. Coleman and Mr. Schechter served on our Board, we are including them where appropriate. At certain meetings, the Non-Employee Directors meet in private sessions with the Chairman of the Board without any other employee directors or other WebMD employees present or meet with only Non-Employee Directors 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 2013. During 2013, each of our directors attended 75% or more of the meetings held by our Board and the Board committees on which he served during the period of his service on the Board, except Dr. Moossa. In addition to meetings, our Board and its committees may act upon matters by unanimous written consent. All but one of the members of our Board of Directors attended our 2013 Annual Meeting of Stockholders and all but two members of our Board attended our 2012 Annual Meeting.

Our Board of Directors currently has four standing committees: an Executive Committee, a Compensation Committee, an Audit Committee, and a Nominating & Governance Committee. Each of these Committees has the authority to retain such outside advisors as it may determine to be appropriate.

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 Vuori, and Messrs. Dimick, Keller, Manning, Sarkowsky, Smith and Trotman (all nine 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 and Wygod, as current employees of our company, are not independent. Abdool Rahim Moossa, M.D. (who served as a non-employee member of the WebMD Board from 2005 until his death on July 17, 2013), Thomas J. Coleman (who served as a non-employee member of the WebMD Board from October 2012 until his resignation in January 2014) and David Schechter (who served as a non-employee member of the WebMD Board from July 2012 until his resignation in August 2013), were also previously determined to be “independent” under the applicable standards.

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 Dr. Adler qualified as “independent,” the Nominating & Governance Committee considered that he has provided services, and may in the future provide services, without compensation, to WebMD’s public portals for physicians, such as writing reviews of important topics in oncology and providing perspectives on results presented at meetings of oncologists. In considering whether Mr. Manning qualified as “independent,” the

 

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Nominating & Governance Committee considered that (1) he had, more than 12 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 eight 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. In considering whether Dr. Vuori qualified as “independent,” the Nominating & Governance Committee considered that the Rose Foundation, a charitable foundation for which Mr. Wygod and members of his family serve as Trustees, has provided funding to support research at Sanford-Burnham Medical Research Institute in the past two years and expects to do so in the future. 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 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 frequent opportunities, through various avenues of communication, to provide their views to management, both individually and as a group.

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 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 met once during 2013, is currently comprised of Messrs. Dimick, Manning, Trotman and Wygod. The Executive Committee has the power to exercise, to the fullest extent permitted by law, the powers of the entire Board.

 

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Audit Committee.    The Audit Committee, which met eight times during 2013, 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.

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 30, 2012, is included as Annex H to this Proxy Statement. No changes were made to that Charter when it was reviewed by the Audit Committee in 2013. The Audit Committee’s responsibilities are summarized below in “Report of the Audit Committee” and include oversight of the administration of WebMD’s Code of Business Conduct. A copy of WebMD’s Code of Business Conduct, as amended, was filed as Exhibit 14.1 to a Current Report on Form 8-K filed on February 25, 2014. 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 of our directors, to our principal executive officer, to any of our senior financial officers (including our principal financial officer, principal accounting officer or controller) or to any other person who is an executive officer of WebMD requires the approval of the Audit Committee and waivers will be disclosed on our 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 11 times during 2013, 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 WebMD’s executive compensation program and WebMD’s incentive and equity compensation plans;

 

   

determination of compensation levels for and grants of incentive and equity-based awards to WebMD’s 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 WebMD’s compensation practices.

The Compensation Committee operates under a written charter adopted by the Board of Directors, which sets forth the responsibilities and powers delegated by the Board to the Compensation Committee. A copy of that Charter, as amended through October 30, 2013, 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.

The Compensation Committee did not retain any advisors in 2013 and has not, as of the date of this Proxy Statement, retained any advisors in 2014. The Compensation Committee may, in its discretion, decide to do so in the future.

Nominating & Governance Committee.    The Nominating & Governance Committee, which met four times during 2013, is currently comprised of 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.

 

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Dr. Moossa, who was a member of the Nominating & Governance Committee for part of 2013, was also an independent director under the applicable standards. 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

 

   

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 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 as of October 30, 2013, is included as Annex J to this 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 our Board members have had in overseeing the evolution of those portals provides useful background for their current

 

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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 Corporate 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.

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 were members of a Strategic Planning Committee of the Board, which met informally regarding WebMD’s business strategies and their implementation. That committee was disbanded in October 2013.

 

   

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.

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 2013 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 2013 for their Board and Board committee service:

 

   

annual fees for service on the Board and its standing committees, paid by WebMD in October 2013 in the form of shares of WebMD Common Stock not subject to any vesting requirements (with one Non-Employee Director receiving cash, as described in footnote 1 to the 2013 Director Compensation Table, below);

 

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

 

   

cash fees for service on the Strategic Planning Committee of the Board.

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 2013 and none of them provided any services to WebMD during 2013 while a Board member, except their service as a director.

2013 Director Compensation Table

This table provides information regarding the value of the compensation paid by WebMD to the Non-Employee Directors in 2013, as calculated in accordance with applicable SEC regulations. It includes information for Non-Employee Directors who were members of our Board for all or part of 2013, regardless of whether they are currently a member. 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.

     6,000         40,000         77,495         123,495   

Thomas J. Coleman

     30,000                 77,495         107,495   

Neil F. Dimick

     6,000         55,000         77,495         138,495   

Jerome C. Keller

     6,000         37,500         77,495         120,995   

James V. Manning

     6,000         55,000         77,495         138,495   

Abdool Rahim Moossa, M.D.

                     77,495         77,495   

Herman Sarkowsky

             37,500         77,495         114,995   

David Schechter

                     77,495         77,495   

Joseph E. Smith

             37,500         77,495         114,995   

Stanley S. Trotman, Jr.

     6,000         45,000         77,495         128,495   

 

 

(1) Except with respect to Mr. Coleman, the amounts in Column (b) reflect fees to members of the Strategic Planning Committee of the WebMD Board. See “Corporate Governance — Committees of the Board of Directors — Other Committees” above. With respect to Mr. Coleman, the amount in Column (b) reflects a cash payment of his annual retainer for services on the WebMD Board. Mr. Coleman served on the WebMD Board pursuant to a Director Appointment Agreement between WebMD and Kensico Capital Management Corp. and the investment funds it advises, as described under “Certain Relationships and Related Transactions – Kensico Capital Management” below. Mr. Coleman’s fees were paid in cash to facilitate crediting of his net fees to Kensico affiliates.

 

(2) Except for Mr. Coleman (as described in Note 1 above), 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 additional information. For each such 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 $34.92 (the closing price of WebMD Common Stock on the Nasdaq Global Select Market on October 23, 2013, the date of payment), with cash paid in lieu of issuing fractional shares. Based on that, the individual Non-Employee Directors who were members of the Board on that date received the following numbers of shares:

 

Name

   Number of
Shares
 

Mark J. Adler, M.D.

     1,145   

Neil F. Dimick

     1,575   

Jerome C. Keller

     1,073   

James V. Manning

     1,575   

Herman Sarkowsky

     1,073   

Joseph E. Smith

     1,073   

Stanley S. Trotman, Jr.

     1,288   

For each of Dr. Moossa (who passed away in July 2013) and Mr. Schechter (who resigned from the Board in August 2013), the only compensation during 2013 was the automatic annual grant of options on January 1, 2013 described in footnote (3) below.

 

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(3) Each Non-Employee Director of WebMD is automatically granted, under the terms of the 2005 Plan, non-qualified options to purchase 13,200 shares of WebMD Common Stock on each January 1 until 2015, 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 amounts in Columns (d) and (e) above reflect the grant date fair value for the stock options awarded to Non-Employee Directors by WebMD on January 1, 2013, 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. The actual amounts, if any, ultimately realized by Non-Employee Directors from these stock options will depend on the price of our Common Stock at the time they exercise vested stock options.

The following lists the total number of shares of WebMD Common Stock subject to outstanding unexercised option awards granted by WebMD that were held by Non-Employee Directors who were members of the Board as of December 31, 2013 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       $ 34.29   

Thomas J. Coleman

     13,200       $ 14.34   

Neil F. Dimick

     92,400       $ 32.02   

Jerome C. Keller

     99,000       $ 31.09   

James V. Manning

     52,800       $ 28.66   

Herman Sarkowsky

     39,600       $ 30.13   

Joseph E. Smith

     39,600       $ 30.13   

Stanley S. Trotman, Jr.

     79,200       $ 33.42   

Under HLTH’s Amended and Restated 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 of HLTH Common Stock on the last trading date of the prior year. All such options that are outstanding have vested. 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, 2013 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.

     7,814       $ 76.33   

Neil F. Dimick

     26,664       $ 27.20   

James V. Manning

     10,925       $ 24.01   

Herman Sarkowsky

     31,108       $ 35.38   

Joseph E. Smith

     47,106       $ 34.56   

Annual Fees

Overview.    The amount set forth in Column (c) of the 2013 Director Compensation Table represents the sum of the value of shares issued to pay the following amounts to Non-Employee Directors:

 

   

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 (except for Mr. Coleman, who received his retainer in cash to facilitate crediting of his net fees to Kensico affiliates). The retainer, together with the annual fees for Committee service described below, are paid in late October each year to the Non-Employee Directors then in office.

 

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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)

   $ 7,500   

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

   $ 2,500   

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 have generally been 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 only such fees paid for service in 2013 were to Dr. Adler and Messrs. Dimick, Keller, Manning and Trotman for service on the Strategic Planning Committee of the Board. That committee was disbanded in October 2013.

Option Grants

Annual Stock Option Grants.    On January 1 of each year until 2015, 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. Each of the Non-Employee Directors serving on January 1, 2013 received an automatic annual grant of options to purchase 13,200 shares of WebMD Common Stock on that date (with an exercise price of $14.34 per share, the closing price of a share of WebMD Common Stock on the last trading day of 2012).

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, 10 years after the date of grant or earlier if their service as a director ends (generally three years from the date such service ends).

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 unless (A) WebMD’s stockholders immediately prior to such consummation continue to represent more than 50% of the voting power immediately following such consummation, (B) the incumbent directors of WebMD continue to constitute a majority of the Board and (C) no person (subject to certain exceptions) owns 25% or more of the voting power following such consummation; and (iv) consummation of a sale of all or substantially all of WebMD’s assets.

 

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Discretionary Grants.    Our Non-Employee Directors may receive grants of options to purchase WebMD Common Stock or shares of restricted WebMD Common Stock (which we refer to as WebMD Restricted Stock) under the 2005 Plan at the discretion of the Compensation Committee of the Board. Upon Mr. Marino’s appointment to the Board on April 29, 2014, the Compensation Committee made a discretionary grant to him of non-qualified options to purchase 13,200 shares of WebMD Common Stock under the 2005 Plan, with an exercise price of $44.06 per share (the closing market price of WebMD Common Stock on the date of grant) and with 25% of the shares underlying the option scheduled to vest on each of the first through fourth anniversaries of the date of grant. Similarly, upon Dr. Vuori’s appointment to the Board on July 7, 2014, the Compensation Committee made a discretionary grant of options to purchase 13,200 shares of WebMD Common Stock to her with the same terms, except that the exercise price was $50.89 per share (the closing market price of WebMD Common Stock on the date of grant). The only other such discretionary grant was made on December 10, 2008, when each person who was a Non-Employee Director of WebMD at that time received non-qualified options to purchase 13,200 shares of WebMD Common Stock under the 2005 Plan. The Compensation Committee plans to consider, after the annual automatic grants cease to occur under the terms of the 2005 Plan, making discretionary annual grants beginning on January 1, 2016 with similar timing and terms as the automatic annual grants described above.

 

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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 who 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:

 

   

2013 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 2013 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 2013 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 a 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.

2013 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 2013 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. (Chairman)

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 2013. None of these individuals is a current or former executive officer or employee of WebMD or had any relationships in 2013 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 2013.

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 2013 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 include each person who served as our Chief Executive Officer during 2013, each person who served as our Chief Financial Officer during 2013 and the next three most highly compensated executive officers for 2013, and consist of the following persons:

 

   

David J. Schlanger, who served as Interim Chief Executive Officer of WebMD from May 2013 to August 2013 and has served as our Chief Executive Officer since August 2013;

 

   

Peter Anevski, who has served as our Chief Financial Officer since May 2013;

 

   

Steven Zatz, M.D., who served as Executive Vice President, Professional Services until August 2013 and has served as WebMD’s President since then;

 

   

William Pence, who served as Executive Vice President, Chief Technology Officer and Chief Operating Officer for all of 2013 and until April 18, 2014;

 

   

Martin J. Wygod, who serves as Chairman of the Board of WebMD and did so for all of 2013;

 

   

Anthony Vuolo, who served as our Chief Financial Officer until May 2013 and has served as a Senior Vice President, focusing on strategic projects, since then; and

 

   

Cavan M. Redmond, who served as our Chief Executive Officer until May 2013.

The persons who constitute our Named Executive Officers may change from year to year based on changes in position and changes in individual compensation. In particular, the number of shares of WebMD Restricted Stock and of options to purchase WebMD Common Stock granted to individual executive officers varies from year to year and, accordingly, 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. In addition, grants made to a newly-hired executive officer at the time he or she joins WebMD, which may be 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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Overview of Types of Compensation Used by WebMD.    The compensation of our Named Executive Officers and our other executive officers consists primarily of some or all of the following, as determined by the Compensation Committee:

 

   

cash salary;

 

   

an annual cash bonus;

 

   

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;

 

   

additional or special bonuses to provide recognition for specific accomplishments or at the time of a promotion, if determined by the Compensation Committee to be appropriate;

 

   

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 and, with respect to a limited number of grants to senior executives, acceleration of vesting based on the attainment of performance goals.

A discussion of how each of the above types of compensation was used for 2013 follows under the heading “—Use of Specific Types of Compensation for 2013.” 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.

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 a 401(k) plan that is 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 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 2013, WebMD made an additional discretionary matching contribution in March 2014 of 25 cents for every dollar contributed by participants (up to 6% of eligible pay). Named Executive Officers who have elected to contribute to the 401(k) Plan received matching contributions on the same basis as other participants.

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.

 

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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 significant 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 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 two 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. 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. 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.

Our employees and executives are highly sought after by other companies because of WebMD’s leadership position in providing health and wellness content and tools through the Internet and mobile applications. In New York City, where our headquarters is located, competition is especially intense. Our writers and editors, our software developers and other technical personnel, our sales and marketing personnel, and our executives are recruited for positions at numerous other Internet and information technology companies, particularly those focused on health, wellness and related areas, with offers coming to them from our existing competitors and from other established companies as well as from venture capital backed companies and other start-ups. The Compensation Committee believes that the compensation practices of WebMD in the past two years, including the grants of stock options and WebMD Restricted Stock made to WebMD employees, have allowed WebMD to retain key employees during a time when it faced significant challenges and was at an especially high risk of losing employees to these other companies. In addition, the compensation that WebMD provided during that period allowed WebMD to continue to attract additional talented employees when needed. The efforts of our employees was an important factor in the improved performance of WebMD in 2013.

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 Compensation 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 2013 compensation, the Compensation Committee took into account recommendations made by the Chairman of the Board and the Chief Executive Officer with respect to determinations of the types and amounts of compensation to be paid to the other executive officers and also

 

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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 2013 for which the Chairman of the Board and the Chief Executive Officer provided input to the Compensation Committee relating to WebMD’s executive officers included the following:

 

   

both provided input regarding the amounts of the annual bonuses for 2013, the 2013 Supplemental Bonus Trust contributions, and regarding the size and terms of the equity grants to certain executive officers that were approved by the Compensation Committee during 2013, as more fully described under “— Use of Specific Types of Compensation for 2013” below; and

 

   

the Chairman of the Board provided input regarding: (a) the terms of the employment agreement entered into with Mr. Schlanger when he became Interim Chief Executive Officer of WebMD in May 2013 and the amendment to that agreement entered into in August 2013 when he became Chief Executive Officer and the related equity grants; (b) the terms of the employment agreement entered into with Mr. Anevski when he became Chief Financial Officer of WebMD in May 2013 and the related equity grants; and (c) the terms of the employment agreement amendment entered into with Mr. Vuolo in May 2013 and the related equity grants.

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 2013 were made by the Compensation Committee.

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.

Specific Policies and Practices to Protect Stockholder Interests in Connection with Our Equity Compensation Plans.    The Compensation Committee has implemented, in the 2005 Plan and in WebMD’s agreements relating to equity 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 exercise or purchase price is payable (often referred to as “full value awards”) so that only 20% of the shares available for grant could be used for full value awards. The same 20% sublimit applies to the shares added to the 2005 Plan since then.

 

   

Minimum Vesting Period for Full Value Awards.    The 2005 Plan provides that, for full value awards, the vesting period shall occur 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 of grant.

 

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

 

   

“Change of Control” Definition.    Under the 2005 Plan, vesting of equity awards on a “Change of Control” applies only to grants to our Non-Employee Directors, which our Board believes is consistent with good corporate governance. Under the provisions of the 2005 Plan, there is no effect on grants made to WebMD officers and other employees as a result of a “Change in Control.” Certain of our executive officers and other senior officers are parties to employment agreements that contain provisions relating to a potential change in control. For additional information, see “— Compensation Following Termination of Employment or a Change of Control” and “Employment Agreements with Named Executive Officers” below.

 

   

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.

In addition, in connection with the increase of 1,500,000 shares available for grant under the 2005 Plan approved by stockholders at WebMD’s 2013 Annual Meeting of Stockholders, the Compensation Committee determined that any grant to existing employees from the additional shares shall have the first scheduled vesting no sooner than the second anniversary of the date of grant. The longer period before the first vesting was intended to enhance the employee retention incentive provided by the grants.

Use of Specific Types of Compensation for 2013

Base Salary.    The Compensation Committee reviews the base salaries of our executive officers from time to time and in connection with changes in position. In 2013, no changes were made to the salary of any Named Executive Officer, except in connection with position changes (including individuals becoming executive officers). The changes were as follows:

 

   

when Mr. Schlanger was appointed Interim Chief Executive Officer in May 2013, his annual salary rate was increased from $320,000 to $425,000; in addition, when he was appointed Chief Executive Officer in August 2013, it was increased further to $525,000;

 

   

when Mr. Anevski was appointed Chief Financial Officer in May 2013, his annual salary rate was increased from $310,000 to $425,000;

 

   

when Dr. Zatz was appointed President in August 2013, his annual salary rate was increased from $425,000 to $500,000; and

 

   

when Mr. Vuolo ceased to be Chief Financial Officer in May 2013, his annual salary rate was reduced from $450,000 to $400,000.

The Compensation Committee considers various factors when it contemplates an adjustment to base salary, including: 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.

2013 Bonuses and Supplemental Bonus Plan Contributions.    For 2013, the Compensation Committee decided to tie enhanced bonus potential for certain Named Executive Officers to achievement of specific quantitative goals for company financial results and specific goals for individual performance, determined in advance. Certain other key employees who are not Named Executive Officers also had the opportunity to earn enhanced bonuses for 2013 tied to achievement of company financial results and/or individual performance goals. With respect to Messrs. Schlanger, Anevski, Vuolo and Pence and Dr. Zatz, the amounts in the table below were determined in accordance with agreements entered into with each of them in 2013 (and described in “Employment Agreements with Named Executive Officers” below) that provided a 2013 bonus for each executive consisting of the following:

 

   

up to $300,000 for achievement of certain corporate financial targets for 2013 (the “Financial Performance Targets”); plus

 

   

up to $300,000 based on achievement of a variety of individual goals in 2013 by the respective executives, as assessed by the Compensation Committee (the “Individual Performance Goals”).

 

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Based on WebMD’s results for the fiscal year ended December 31, 2013 and in accordance with the applicable agreements that the Compensation Committee had previously approved, the Compensation Committee set the following annual bonuses and Supplemental Bonus Plan contributions for 2013 (which we refer to as “2013 SBP Contributions”) for the Named Executive Officers listed below:

 

        Named

Executive Officer

  

Title (at end of 2013)

   Annual
Salary
Rate
     2013
Bonus
Opportunity
     2013 Cash
Bonus
     2013 SBP
Contribution
     Bonus Total
for 2013
 

David Schlanger

   Chief Executive Officer    $ 525,000       $ 600,000       $ 419,700       $ 165,300       $ 585,000   

Steven Zatz, M.D.

   President    $ 500,000       $ 600,000       $ 413,400       $ 156,600       $ 570,000   

Peter Anevski

   Executive Vice President and CFO    $ 425,000       $ 600,000       $ 407,100       $ 147,900       $ 555,000   

William Pence

   Executive Vice President, COO and CTO    $ 425,000       $ 600,000       $ 400,800       $ 139,200       $ 540,000   

Anthony Vuolo

   Senior Vice President    $ 400,000       $ 600,000       $ 400,800       $ 139,200       $ 540,000   

Martin J. Wygod

   Chairman of the Board    $ 490,000         n/a       $ 430,000       $ 170,000       $ 600,000   

The amounts in the column labeled “2013 Cash Bonus” were paid to the listed executives in cash in March 2014. The amounts in the column labeled “2013 SBP Contribution” were contributed to a trust in March 2014. In March 2015, the trust will distribute to the respective executives the contributions made to it by WebMD on their behalf, together with actual net interest earned on the contributed amounts; provided, however, that in order to receive such payment, the individual must continue to be employed by WebMD on March 1, 2015, unless their separation from employment occurs as a result of death or disability or, in certain cases, if they are terminated without cause or resign for good reason following a change in control of WebMD. Accordingly, as a result of Mr. Pence’s resignation from WebMD in April 2014, he will not receive any distribution of the 2013 SBP Contribution listed in the above chart. For background information regarding the Supplemental Bonus Plan and its implementation in recent years, see “Background Information Regarding the Supplemental Bonus Plan (SBP)” below.

The Financial Performance Targets set by the Compensation Committee provided for full payment of the $300,000 if WebMD’s 2013 revenue was $470 million or more and WebMD’s earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”) was $90 million or more. At the time the Financial Performance Targets were finalized by the Compensation Committee in early May 2013, WebMD publicly announced guidance that 2013 revenue was expected to be approximately $450 million to $470 million and that Adjusted EBITDA for 2013 was expected to be approximately $75 million to $88 million. The May 2013 guidance represented increases over guidance provided earlier in 2013, when revenue was expected to be approximately $430 million to $455 million and Adjusted EBITDA was expected to be approximately $60 million to $80 million. The Compensation Committee set the amounts at which full bonus payout for the Financial Performance Targets would be made at or slightly above the top of the May 2013 guidance ranges and provided for partial payout at lower levels. No payment would have been required if revenue was less than $440 million and Adjusted EBITDA was less than $72.5 million.

For Dr. Zatz and Mr. Pence, the Individual Performance Goals were set in advance and included goals relating to specified items of revenue or expense, specified operational matters and metrics and completion of specified projects or project milestones, as well as goals relating to general improvements in WebMD’s internal policies and processes. These Individual Performance Goals provided a framework for consideration of individual performance of these Named Executive Officers, but the Compensation Committee retained discretion regarding both how to evaluate the level of achievement of the goals and regarding what portion of the $300,000 that would be payable, if any, based on the level of achievement. For Messrs. Schlanger, Anevski and Vuolo, Individual Performance Goals were not set in advance for purposes of determining the portion of the $300,000 that would be payable (if any), and the Compensation Committee retained full discretion regarding how to evaluate the individual performance of those Named Executive Officers in light of goals set at various points during the year. The Compensation Committee believed that, as reflected in the improved financial and operational performance of WebMD for 2013, the Named Executive Officers performed well during 2013 and

 

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that each of the individuals had made important contributions to that performance. With respect to Mr. Schlanger (who became Chief Executive Officer in 2013), Dr. Zatz (who became President in 2013) and Mr. Anevski (who became Chief Financial Officer in 2013), the Compensation Committee took into consideration that each had taken on a new position and significant new responsibilities during 2013, and the Compensation Committee’s determinations reflected the Committee’s belief that they had performed well in new positions. The Compensation Committee determined that the individual Named Executive Officers had substantially, but not fully, achieved their respective Individual Performance Goals and determined the portion of the $300,000 earned by each individual based upon its subjective assessment of the executive’s overall performance in 2013, rather than weighing the level of achievement with respect to particular goals. In addition, the Compensation Committee determined that a portion of the amount based on individual performance would be paid in March 2014 and a portion would be in the form of a 2013 SBP Contribution payable in March 2015, as shown in the table above.

In determining the amounts of the 2013 annual cash bonus and 2013 SBP Contribution for Mr. Wygod, the Compensation Committee considered WebMD’s financial and operational performance and his individual performance on a similar basis as applicable to the other Named Executive Officers, even though targets and goals had not been set in advance for Mr. Wygod.

Background Regarding 2012 Bonuses and 2012 SBP Contributions.    Prior to 2013, the Compensation Committee did not set performance targets, in advance, for use in determining bonus amounts for executive officers. After the end of each year, 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 and of the respective executive officers in that year, taking into consideration its views regarding the extent to which financial and operational goals discussed by management and the Board at various times during the year were achieved and its views regarding the challenges faced by WebMD during the year. The Compensation Committee also had discretion to grant bonuses above or below the target bonus opportunity for each executive officers.

The cash bonuses and SBP Contributions for 2012 for the Named Executive Officers for that year (the “2012 Named Executive Officers”) are set forth in the following table:

 

2012 Named

Executive Officer

  

Title (at end of 2012)

   Annual
Salary
Rate
     2012 Bonus
Opportunity
     2012 Cash
Bonus
     2012 SBP
Contribution
     Bonus Total
for  2012
 

Cavan M. Redmond

   Chief Executive Officer    $ 650,000       $ 650,000       $ 76,200       $ 304,800       $ 381,000   

Anthony Vuolo

   Executive Vice President and CFO    $ 450,000       $ 360,000       $ 90,000       $ 360,000       $ 450,000   

William Pence

   Executive Vice President, COO and CTO    $ 425,000       $ 360,000       $ 55,250       $ 221,000       $ 276,250   

Martin J. Wygod

   Chairman of the Board    $ 490,000         n/a       $ 98,000       $ 392,000       $ 490,000   

Steven Zatz, M.D.

   Executive Vice President, Professional Services    $ 425,000       $ 360,000       $ 55,250       $ 221,000       $ 276,250   

In determining the above amounts of the annual cash bonuses and SBP Contributions for 2012, 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 2012 annual bonuses and SBP Contributions for the 2012 Named 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 2012. The Compensation Committee viewed the financial performance of WebMD in 2012 to have been well below expectations. However, the Compensation 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 Compensation Committee

 

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also recognized that some of the challenges faced by WebMD during 2012 were outside the control of WebMD management, particularly the continuing cautious business outlook at that time by many of our pharmaceutical company customers. The Compensation Committee also recognized that WebMD’s executives and employees are in demand by competitors to WebMD and by Internet companies generally and that the reduction in force announced in December 2012 had the potential to cause employees that WebMD wished to retain to consider other options. The Committee also noted that, in light of the drop in the market price of WebMD Common Stock during 2012, the value of the equity compensation of executives and employees, which had served as a key retention incentive, was down 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 set annual bonuses and SBP Contributions for the 2012 Named Executive Officers at amounts so that the total of the 2012 annual cash bonus amount plus the amount of the SBP Contribution for each Named Executive Officer would be equal to their respective bonus potentials (subject to pro-ration, in the case of Mr. Redmond, based on his joining WebMD on May 31, 2012). For Mr. Wygod, the sum of his 2012 annual cash bonus amount ($98,000) and SBP Contribution for 2012 ($392,000) was $490,000, which is equal to his annual salary rate. For each of the Named Executive Officers, the cash bonus represented 20% of the total amount awarded for 2012 and the SBP Contribution represented 80% of the total amount awarded. In prior years where an SBP Contribution had been made, the cash amount had generally been a much greater portion of the total amount, with an SBP Contribution of one-third to one-half of the total amount. A similar approach was taken, for 2012, with respect to other executive officers and certain other members of senior management. The Supplemental Bonus Trust distributed the 2012 SBP Contributions, together with actual net interest earned on the respective amounts, to these individuals (other than Mr. Redmond) in March 2014. Since Mr. Redmond was no longer an employee of WebMD on March 1, 2014, he did not receive any distribution of the 2012 SBP Contribution made on his behalf.

For 2012, Mr. Vuolo received an additional bonus of $250,000 paid in cash in March 2013 in recognition of his service as Interim Chief Executive Officer of WebMD during the first half of 2012, while he also continued to serve as Chief Financial Officer.

Grants of Restricted Stock with Potential for Accelerated Vesting.    As described in “Employment Agreements with Named Executive Officers” below, each of Messrs. Anevski and Pence and Dr. Zatz received grants of 20,000 shares of WebMD Restricted Stock in 2013 that were scheduled to vest in full on the third anniversary of the date of grant; provided, however, that (a) vesting of half of the granted shares could occur on the first anniversary of the date of grant for Mr. Anevski and on the later of the first anniversary of the date of grant and March 15, 2014 for Mr. Pence and Dr. Zatz (the “Accelerated Vesting Date”) if the Financial Performance Targets (discussed in connection with 2013 bonuses above) were achieved, and (b) vesting of the other half could occur on the applicable Accelerated Vesting Date based on the Compensation Committee’s assessment whether the Individual Performance Goals had been fully achieved. Since the Financial Performance Targets were exceeded, 10,000 shares of WebMD Restricted Stock vested or will vest on the applicable Accelerated Vesting Date for each of these executives. As discussed above, the Compensation Committee determined that these executives had not fully achieved their respective Individual Performance Goals and, accordingly, the other 10,000 shares of WebMD Restricted Stock will remain scheduled to vest on the third anniversary of the date of grant. For additional discussion of the Financial Performance Targets and the Individual Performance Goals, see “2013 Bonuses and Supplemental Bonus Plan Contributions” above.

Other Grants of Equity Compensation.    We generally 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 realize value on their stock options only if the price of WebMD Common Stock increases after the grant date. The Compensation Committee believes that equity compensation, subject to vesting periods of two 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 value 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.

 

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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. The terms of grants made to the Named Executive Officers in 2013 are described under “Employment Agreements with Named Executive Officers” below and information regarding those grants is also provided in the “Summary Compensation Table” and the table titled “Grants of Plan-Based Awards in 2013” below, and the related notes and commentary that accompany those tables. As discussed in “Application of Compensation Policies to Individual Named Executive Officers” below, Mr. Schlanger, Dr. Zatz and Mr. Anevski received grants in 2013 in connection with their promotions to more senior positions and the resulting increases in their respective responsibilities. The Compensation Committee also made grants of options and WebMD Restricted Stock under the 2005 Plan to the Named Executive Officers, other than Mr. Schlanger and Dr. Zatz, in December 2013, as set forth in “Executive Compensation Tables — Grants of Plan-Based Awards in 2013” below. In addition, two other executive officers, as well as other members of senior management and other key employees, received grants in December 2013, with a total of approximately 1.2 million options granted and approximately 300,000 shares of WebMD Restricted Stock granted. The vesting schedule for these grants was 1/3 on each of the second, third and fourth anniversaries of the date of grant, reflecting the Compensation Committee’s commitment to our stockholders with respect to the vesting schedules for grants made from the additional shares approved by stockholders for the 2005 Plan at WebMD’s 2013 Annual Meeting of Stockholders. See “Specific Policies and Practices to Protect Stockholder Interests in Connection with our Equity Compensation Plans” above. The December 2013 grants were intended to motivate and retain executive officers and other employees believed to be important to the future growth of WebMD and the placing of the first vesting on the second anniversary was intended to increase the retention effect of the grants beyond what would come from grants that have their first vesting on the first anniversary of the date of grant, as had been WebMD’s general practice in the past.

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 position and level of responsibility of the individual Named Executive Officers and changes in position or level of responsibility; (b) our need to induce specific individuals to join WebMD at the time of their initial hiring; and (c) our need to motivate and retain specific individuals at other 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. The bonus determination process for 2013, which represented a different approach than in prior years, is described in “2013 Bonuses and Supplemental Bonus Plan Contributions” above. Other than that bonus process, the most significant applications of our compensation policies to individuals in 2013 related to the entry into new or amended employment agreements, in connection with promotions to new positions, of the following executives: Mr. Schlanger, who became Interim Chief Executive Officer in May 2013 and Chief Executive Officer in August 2013; Dr. Zatz, who became President in August 2013; and Mr. Anevski, who became Chief Financial Officer in May 2013. A description of their respective terms of employment is included under “Employment Agreements with Named Executive Officers” below. Each of the individuals was an existing employee of WebMD at the time of his promotion and the Compensation Committee approved increases in compensation and new grants of equity compensation that it believed were appropriate in light of those promotions, their respective compensation histories at WebMD and WebMD’s compensation of individuals in similar positions in the past. In addition, the Compensation Committee believed that, if it had recruited a candidate for Chief Executive Officer from outside our company, the terms of employment required to induce such a candidate to leave his or her existing position to join WebMD (particularly if the candidate would have forfeited equity compensation or other long-term compensation from an existing employer) would have had to

 

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include a higher annual salary rate and larger grants of options and restricted stock than those offered to Mr. Schlanger.

Benefits and Perquisites.    The limited perquisites (or “perks”) received by our Named Executive Officers in 2013 are described in the footnotes to the Summary Compensation Table. 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, the cost of which is listed in those footnotes to the Summary Compensation Table. 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 premium amount. 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 the footnotes to the Summary Compensation Table.

Background Information Regarding the Supplemental Bonus Plan (SBP).    As described above, SBP Contributions are cash amounts contributed by WebMD for the Named Executive Officers (and certain 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. The purpose of the Supplemental Bonus Plan is to create additional retention incentives for our executive officers and other key employees in connection with our annual bonus process. Contributions were made by WebMD to the Supplemental Bonus Trust in connection with the annual bonus process for three out of the past four years, as follows:

 

   

2013 SBP Contributions.    In February 2014, the Compensation Committee approved the contribution, made in March 2014, to the Supplemental Bonus Trust of SBP Contributions for 2013 (which we refer to as the 2013 SBP Contributions), including: a $165,300 contribution for Mr. Schlanger; a $156,600 contribution for Dr. Zatz; a $147,900 contribution for Mr. Anevski; a $139,200 contribution for Mr. Pence; a $170,000 contribution for Mr. Wygod; and a $139,200 contribution for Mr. Vuolo. In order to receive the applicable payment from the Supplemental Bonus Trust for the 2013 SBP Awards, each SBP participant is required to be employed by WebMD on March 1, 2015, subject to limited exceptions for death, disability, or certain terminations of employment in connection with a Change of Control of WebMD (as defined in the 2005 Plan), a sale of a subsidiary or division or, in the discretion of the governing committee, certain other reductions in force or position eliminations or as specifically provided in their employment agreement. The Supplemental Bonus Trust will distribute the 2013 SBP Contributions, together with actual net interest earned on the respective amounts, to SBP participants as promptly as practicable following March 1, 2015. Since Mr. Pence is no longer an employee of WebMD, he will not receive any distribution of the 2013 SBP Contribution made on his behalf.

 

   

2012 SBP Contributions and Related Distributions in March 2014.    In February 2013, the Compensation Committee approved the contribution, made in March 2013, to the Supplemental Bonus Trust of SBP Contributions for 2012 (which we refer to as the 2012 SBP Contributions), including: a $304,800 contribution for Mr. Redmond; a $360,000 contribution for Mr. Vuolo; a $221,000 contribution for Mr. Pence; a $392,000 contribution for Mr. Wygod; and a $221,000 contribution for Dr. Zatz. In order to receive the applicable payment from the Supplemental Bonus Trust for the 2012 SBP Contributions, each SBP participant is required to be employed by WebMD on March 1, 2014, subject to limited exceptions for death, disability, or certain terminations of employment in connection with a Change of Control of WebMD (as defined in the 2005 Plan), a sale of a subsidiary or division or, in the discretion of the governing committee, certain other reductions in force or position eliminations or as specifically provided in their employment agreement. The Supplemental Bonus Trust distributed the 2012 SBP Contributions, together with actual net interest earned on the respective amounts, to SBP participants in March 2014. Since Mr. Redmond was no longer an employee of WebMD on March 1, 2014, he did not receive any distribution of the 2012 SBP Contribution made on his behalf.

 

   

2011.    For the 2011 annual bonus process, the only bonus amounts were those paid in cash in March 2012. No contribution with respect to 2011 bonuses was made to the Supplemental Bonus Trust. Accordingly, there were no amounts to release from the Supplemental Bonus Trust in March 2013.

 

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2010 SBP Contributions and Related Distributions in March 2012.    In February 2011, the Compensation Committee approved the contribution, made in March 2011, to the Supplemental Bonus Trust of SBP contributions for 2010 (which we refer to as the 2010 SBP Contributions), including: a $123,750 contribution for Mr. Vuolo; a $49,500 contribution for Mr. Pence; a $577,500 contribution for Mr. Wygod; and a $41,250 contribution for Dr. Zatz. In order to receive the applicable payment from the Supplemental Bonus Trust for the 2010 SBP Contributions, each SBP participant was required to be employed by WebMD on March 1, 2012. The Supplemental Bonus Trust distributed the 2010 SBP Contributions, together with actual net interest earned on the respective amounts, to SBP participants in March 2012.

Any SBP Contributions 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 is 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. The Compensation Committee will determine, in its discretion, whether to use the SBP in future years.

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. 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. The Compensation Committee has generally been willing to include provisions relating to potential terminations and changes of control in connection with the renewal of or extensions to an employment agreement with an existing executive officer that are similar to those in the existing employment agreement with that executive officer.

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 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 be incurred by our company, as well as the 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 the executive. In the case of potential payments and other benefits that could become payable following a change of control, the Compensation Committee considers whether those provisions would provide appropriate benefit to an acquirer and to WebMD, in light of the potential cost to be incurred, given that such provisions encourage our executives to remain employed while a change of control transaction is pending and provide for a transition period following consummation of a change of control.

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 or provided to the Named Executive Officer 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 and, if the termination follows a Change of Control, payment of amounts previously contributed by WebMD on his or her behalf to WebMD’s Supplemental Bonus Plan;

 

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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 payments in respect 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 and whether the termination follows a Change of Control (as more fully described under “– Employment Agreement Provisions Regarding Change of Control Benefits” below). 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 on December 31, 2013. 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 certain of the Named Executive Officers:

 

   

With respect to Mr. Schlanger and Dr. Zatz, under agreements entered into when they became Chief Executive Officer and President, respectively, of WebMD in August 2013, each may resign from employment after the first anniversary of a Change of Control of WebMD and receive the same benefits, under their respective employment agreements, as if they resigned for Good Reason following a Change of Control. Such benefits include the components described above: rights to cash severance, rights to company paid COBRA premiums and rights to specified continued vesting and exercisability of options and specified acceleration in the case of WebMD Restricted Stock, as described more fully below under “Employment Agreements with Named Executive Officers — David J. Schlanger” and “— Steven Zatz, M.D.” (which also provides descriptions of the defined terms used in their respective employment agreements). Mr. Redmond had similar rights in his employment agreement.

 

   

With respect to Mr. Wygod, the vesting of all WebMD Restricted Stock and options to purchase WebMD Common Stock outstanding at the time of a Change of Control (as defined in the HLTH 2000 Plan held by Mr. Wygod, which definition is substantially the same as the definition in the 2005 Plan) will accelerate on the date of the Change of Control. If Mr. Wygod’s employment terminates for any reason (other than for Cause) thereafter, such options will remain outstanding through the remainder of their terms. For additional information, including regarding his rights to cash severance and benefits on termination, see “Employment Agreements with Named Executive Officers — Martin J. Wygod” below (which also provides descriptions of the defined terms used in the employment agreement).

In the negotiations with those Named Executive Officers regarding their employment agreements, the Compensation Committee 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 Compensation Committee approved the specific Named Executive Officers having, following a change of control, the rights described above. The Compensation Committee 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 Committee sought to balance the rights given to the Named Executive Officers with certain requirements to remain employed for a transition period or to provide transitional services in types and amounts likely to be viewed as reasonable by a potential acquiror.

 

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With respect to Mr. Vuolo, whose employment agreement was amended in May 2013 in connection with his role with WebMD changing from Executive Vice President and Chief Financial Officer to a Senior Vice President of WebMD focusing on strategic projects, the Compensation Committee approved Mr. Vuolo having the right to resign at any time after six months had elapsed from the effective date of that amendment and, following such resignation, to have the right to receive certain post-employment compensation as if he had been terminated without Cause following a Change of Control, as described below under “Employment Agreements with Named Executive Officers — Anthony Vuolo” (which also provides a description of the defined terms used in the employment agreement). The Compensation Committee approved the May 2013 amendment, including the post-employment compensation provisions contained in that amendment, in order to encourage Mr. Vuolo to continue to remain employed by WebMD in his new role.

If the benefits payable to either Mr. Wygod or Mr. Vuolo in connection with a change of control would be considered an excess parachute payment under Section 280G of the Internal Revenue Code of 1986 (“Section 280G”) and subject to the excise tax imposed under Section 4999 of the Code, 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.

Our employment agreement with Mr. Anevski does not provide rights to receive any compensation as a result of a change of control, unless the change of control is followed by a termination of employment (including a termination by the executive for “Good Reason” under the terms of his employment agreement). However, as more fully described under “Employment Agreements with Named Executive Officers – Peter Anevski” below, a change of control followed by such a termination would generally result in enhanced compensation for Mr. Anevski beyond what would apply in the case of a similar termination that was not preceded by a change of control. Such enhancements include continuation (or acceleration in the case of WebMD Restricted Stock) of vesting and exercisability of options for one year following the date of such executive’s termination of employment. The employment agreement with Mr. Pence contained similar provisions. For additional information, see “Employment Agreements with Named Executive Officers – Peter Anevski” and “–William Pence” below. Similar provisions are contained in employment agreements with our executive officers who are not Named Executive Officers and for certain other key employees.

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 with the intent 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 WebMD’s executive officers for 2013 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 2013 Annual Meeting of Stockholders.    At our 2013 Annual Meeting of Stockholders, the ballot included an advisory vote on executive compensation, commonly known as “Say-on-Pay.” Approximately 60% of the votes cast were “FOR” the compensation of the executive officers as disclosed in the “Executive Compensation” section of the proxy statement for the 2013 Annual Meeting. Although “Say-on-Pay” votes are not binding on our company, our Board of Directors or the Compensation Committee, the Compensation Committee took this result into consideration in connection with its implementation of our executive compensation program since the 2013 Annual Meeting and intends to continue to consider the outcome of annual advisory votes when making future executive compensation decisions. However, as discussed earlier in this CD&A, the Compensation Committee believes that the compensation practices of WebMD in the past two years have allowed WebMD to attract, retain and motivate key employees during a time when our company faced significant challenges and that the efforts of our executives and other employees was an important factor in the improved performance of WebMD in 2013.

 

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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 2013; Outstanding Equity Awards at End of 2013; and Option Exercises and Stock Vested in 2013.

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.

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.

 

(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

($)
    Total
($)
 

David J. Schlanger

Chief Executive Officer

     2013         438,635        419,700        2,508,200         4,594,600         23,078 (5)      7,984,213   

Peter Anevski

Executive Vice President and

Chief Financial Officer

     2013         382,538        407,100        1,718,300         2,640,098         19,881 (6)      5,167,917   

William Pence

     2013         425,000        400,800        1,222,200         1,649,640         24,313 (8)      3,721,953   

Executive Vice President,

     2012         415,385        105,160 (7)              429,221         19,548 (8)      969,314   

Chief Operating Officer and

Chief Technology Officer

     2011         375,000        191,254 (7)      439,440         855,278         11,581 (8)      1,872,553   

Martin J. Wygod

Chairman of the Board

     2013         490,000        430,000        4,028,000         824,820         18,241 (10)      5,791,061   
     2012         490,000        680,277 (9)                      18,046 (10)      1,188,323   
     2011         225,308        640,016 (9)      4,999,959         3,765,510         11,618 (10)      9,642,411   

Steven Zatz, M.D.

President

     2013         453,846        413,400        2,119,200         4,152,900         24,695 (12)      7,164,041   
     2012         415,385        96,841 (11)              429,221         19,930 (12)      961,377   
     2011         375,000        191,254 (11)      439,440         855,278         10,837 (12)      1,871,809   

Anthony Vuolo

     2013         418,462        400,800        386,500         1,376,945         18,784 (14)      2,601,491   

Senior Vice President

     2012         450,000        464,774 (13)                      18,784 (14)      933,558   
     2011         450,000        578,960 (13)      809,600         753,102         17,704 (14)      2,609,366   

Cavan M. Redmond

Former Chief Executive Officer

     2013         242,500 (15)                             430,909 (17)      673,409   
     2012         380,000        1,006,200 (16)      945,000         8,767,094         33,615 (17)      11,131,909   

 

 

  (1) Positions listed are as of December 31, 2013. See “Compensation Discussion and Analysis – Introduction” above for an explanation regarding the determination, under applicable SEC rules, of who is a “Named Executive Officer” of WebMD for 2013 and regarding changes in the positions held by the Named Executive Officers during 2013. The only change since the end of 2013 is Mr. Pence’s departure from WebMD in April 2014.

 

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  (2) Because of changes in salary during 2013, the amounts for 2013 in Column (c) are not equal to the annual salary rate for certain of the Named Executive Officers. The annual salary rates, as of December 31, 2013, for the Named Executive Officers who were employees of WebMD at that time were as follows: Mr. Schlanger, $525,000; Mr. Anevski, $425,000; Mr. Pence, $425,000; Mr. Wygod, $490,000; Dr. Zatz, $500,000; and Mr. Vuolo, $400,000.

 

  (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); any additional or special bonuses paid in cash for that year; and amounts released from the Supplemental Bonus Trust during that year based on contributions made in March of the prior year, with respect to the bonus process for the fiscal year prior to that. For additional information, see “—Background Information Regarding the Summary Compensation Table — Bonuses” below and “Compensation Discussion and Analysis — Background Information Regarding the Supplemental Bonus Plan (SBP)” above. 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 the applicable 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.

 

  (5) Consists of: (a) $1,242 for company-paid group term life insurance; (b) $3,461 for company-paid supplemental disability insurance; (c) an automobile allowance of $12,000; and (d) $6,375 in company matching contributions under the 401(k) Plan.

 

  (6) Consists of: (a) $810 for company-paid group term life insurance; (b) $1,021 for company-paid supplemental disability insurance; (c) an automobile allowance of $10,400; and (d) $7,650 in company matching contributions under the 401(k) Plan.

 

  (7) For 2012, consists of: (a) an annual bonus for 2012 of $55,250; and (b) a Supplemental Bonus Plan distribution of $49,910, released in March 2012 based on a contribution to the Plan made in connection with his 2010 bonus. For 2011, consists of: (a) an annual bonus for 2011 of $150,000; and (b) a Supplemental Bonus Plan distribution of $41,254, released in March 2011 based on a contribution to the Plan made in connection with his 2009 bonus.

 

  (8) For 2013, consists of: (a) $1,242 for company-paid group term life insurance; (b) $3,421 for company-paid supplemental disability insurance; (c) $7,650 in company matching contributions under the 401(k) Plan; and (d) an automobile allowance of $12,000. For 2012, consists of: (a) $1,242 for company-paid group term life insurance; (b) $3,421 for company-paid supplemental disability insurance; (c) $7,500 in company matching contributions under the 401(k) Plan; and (d) an automobile allowance of $7,385. For 2011, 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.

 

  (9) For 2012, consists of: (a) an annual bonus for 2012 of $98,000; and (b) a Supplemental Bonus Plan distribution of $582,277, released in March 2012 based on a contribution to the Plan made in connection with his 2010 bonus. For 2011, consists of: (a) an annual bonus for 2011 of $475,000; and (b) a Supplemental Bonus Plan distribution of $165,016, released in March 2011 based on a contribution to the Plan made in connection with his 2009 bonus.

 

(10) For 2013, consists of: (a) $7,116 for company-paid supplemental disability insurance; and (b) $11,125 for company-paid group term life insurance. For 2012, consists of: (a) $6,921 for company-paid supplemental disability insurance; and (b) $11,125 for company-paid group term life insurance. For 2011, consists of: (a) $6,921 for company-paid supplemental disability insurance; and (b) $4,697 for company-paid group term life insurance.

 

(11) For 2012, consists of: (a) an annual bonus for 2012 of $55,250; and (b) a Supplemental Bonus Plan distribution of $41,591, released in March 2012 based on a contribution to the Plan made in connection with his 2010 bonus. For 2011, consists of: (a) an annual bonus for 2011 of $150,000; and (b) a Supplemental Bonus Plan distribution of $41,254, released in March 2011 based on a contribution to the Plan made in connection with his 2009 bonus.

 

(12) For 2013, consists of: (a) $2,322 for company-paid group term life insurance; (b) $2,723 for company-paid supplemental disability insurance; (c) $7,650 in company matching contributions under the 401(k) Plan; and (d) an automobile allowance of $12,000. For 2012, consists of: (a) $2,322 for company-paid group term life insurance; (b) $2,723 for company-paid supplemental disability insurance; (c) $7,500 in company matching contributions under the 401(k) Plan; and (d) an automobile allowance of $7,385. For 2011, consists of: (a) $2,322 in company-paid group term life insurance; (b) $2,723 for company-paid supplemental disability insurance; and (c) $5,792 in company matching contributions under the 401(k) Plan.

 

(13) For 2012, consists of: (a) an annual bonus for 2012 of $90,000; (b) an additional bonus of $250,000 in recognition of his service as Interim Chief Executive Officer during a portion of 2012; and (c) a Supplemental Bonus Plan distribution of $124,774, released in March 2012 based on a contribution to the Plan made in connection with his 2010 bonus. For 2011, consists of: (a) an annual bonus for 2011 of $475,000; and (b) a Supplemental Bonus Plan distribution of $103,960, released in March 2011 based on a contribution to the Plan made in connection with his 2009 bonus.

 

(14) For each of 2013 and 2012, consists of: (a) $4,462 for company-paid supplemental disability insurance; (b) $2,322 for company-paid group term life insurance; and (c) an automobile allowance of $12,000. For 2011, 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.

 

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(15) Consists of: (a) $227,500 in salary (for the period from January 1, 2013 through May 7, 2013); and (b) a $15,000 payment for accrued vacation days as of May 7, 2013.

 

(16) Consists of: (a) a sign-on bonus of $930,000 paid in June 2012; and (b) an annual bonus for 2012 of $76,200. In determining that amount of Mr. Redmond’s annual bonus for 2012, the Compensation Committee took into consideration that he joined WebMD in the middle of that year.

 

(17) For 2013, consists of: (a) $430 for company-paid group term life insurance; (b) an automobile allowance of $4,154; (c) $3,825 in company matching contributions under the 401(k) Plan; and (d) $422,500 in severance payments. For 2012, consists of: (a) $717 for company-paid group term life insurance; (b) an automobile allowance of $6,923; and (c) $12,904 reimbursement for moving expenses and $13,071 reimbursement for taxes on the moving expenses.

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 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. Redmond, that section provides a description of the letter agreement entered into in May 2013 at the time he left WebMD.

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 and equity compensation of our Named Executive Officers for 2013 and the decisions made by the Compensation Committee relating to 2013 compensation, see “Compensation Discussion and Analysis” above.

Bonuses.    As described in “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – 2013 Bonuses and Supplemental Bonus Plan Contributions” above, WebMD has paid annual cash bonuses to its executive officers, the amounts of which were determined by the Compensation Committee in its discretion. From time to time, WebMD pays additional or 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.

Supplemental Bonus Plan (SBP) contributions are cash amounts contributed by WebMD for specified Named Executive Officers (and certain 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 2014 (in connection with 2013 bonuses) will be distributed in March 2015 in accordance with the terms of the SBP. Because those amounts will be forfeitable until March 1, 2015, they would be reflected in future Summary Compensation Tables as compensation in 2015 if the recipient is a Named Executive Officer for that year. In Column (d) of the Summary Compensation Table above:

 

   

SBP distributions based on March 2011 SBP contributions (approved in connection with 2010 bonuses) are included in amounts for 2012 since they ceased to be forfeitable on March 1, 2012; and

 

   

SBP distributions based on March 2010 SBP contributions (approved in connection with 2009 bonuses) are included in amounts for 2011 since they ceased to be forfeitable on March 1, 2011.

The footnotes to the Summary Compensation Table identify the amounts of those SBP distributions in March 2011 and March 2012 for individual Named Executive Officers included in Column (d). No SBP contributions were made in 2012, so the annual bonuses for 2011 represented all amounts approved with respect to that year and, accordingly, no SBP distributions were made in March 2013. The SBP contributions made in March 2013 (in connection with 2012 bonuses) were distributed in March 2014 and would be reflected in future Summary Compensation Tables as compensation in 2014 if the recipient is a Named Executive Officer for that year. For additional information, see “Compensation Discussion and Analysis – Background Information Regarding the Supplemental Bonus Plan (SBP)” above.

 

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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, of the SBP contribution made 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 will not correspond to the amounts authorized by the Compensation Committee for that same year because, under applicable SEC rules, we include SBP distributions but not SBP contributions in Column (d) for that year.

Stock Options and Restricted Stock.    Under applicable SEC rules, the Summary Compensation Table reflects the full amount of the grant date fair value of option grants and restricted stock grants in the year in which the grant is made and no amount of compensation in any other year, regardless of the vesting schedule of the grant. 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. In addition, grants made to a newly hired executive officer at the time he or she joins WebMD, which may be 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.

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, even though the full grant date fair value of the options and restricted stock granted to Mr. Redmond in 2012 are included as compensation in Columns (e), (f) and (h) in that year, one half of the grants were forfeited when he left WebMD in 2013.

 

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Grants of Plan-Based Awards in 2013

Table.    The following table presents information regarding the equity incentive awards granted by WebMD to our Named Executive Officers during 2013. 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)
 

David J. Schlanger

    

 

5/06/13

8/11/13

  

  

    

 

5/08/13

8/11/13

  

  

    

 

30,000

50,000

  

  

    

 

40,000

300,000

  

  

    

 

27.94

33.40

  

  

    

 

1,279,900

5,822,900

  

  

Peter Anevski

    

 

5/06/13

12/18/13

  

  

    

 

5/08/13

12/18/13

  

  

    

 

20,000

30,000

  

  

    

 

15,000

150,000

  

  

    

 

27.94

38.65

  

  

    

 

724,438

3,633,960

  

  

William Pence

    

 

2/28/13

12/18/13

  

  

    

 

3/01/13

12/18/13

  

  

    

 

20,000

20,000

  

  

    

 


100,000

  

  

    

 


38.65

  

  

    

 

449,200

2,422,640

  

  

Martin J. Wygod

    

 

5/06/13

12/18/13

  

  

    

 

5/08/13

12/18/13

  

  

    

 

75,000

50,000

  

  

    

 


50,000

  

  

    

 


38.65

  

  

    

 

2,095,500

2,757,320

  

  

Steven Zatz, M.D.

    

 

2/28/13

8/11/13

  

  

    

 

3/01/13

8/11/13

  

  

    

 

20,000

50,000

  

  

    

 


300,000

  

  

    

 


33.40

  

  

    

 

449,200

5,822,900

  

  

Anthony Vuolo

    

 

5/06/13

12/18/13

  

  

    

 

5/08/13

12/18/13

  

  

    

 


10,000

  

  

    

 

50,000

50,000

  

  

    

 

27.94

38.65

  

  

    

 

552,125

1,211,320

  

  

Cavan M. Redmond

                                               

 

 

(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.

Additional Information Regarding Awards.    Each option to purchase WebMD Common Stock granted to a Named Executive Officer in 2013 was granted under the 2005 Plan. All option grants to Named Executive Officers 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. See “Outstanding Equity Awards at End of 2013” below for information regarding the vesting schedule for the grants. 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 2013 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 were terminated for cause, outstanding stock options (whether vested or unvested) would immediately terminate.

Each share of WebMD Restricted Stock granted to a Named Executive Officer in 2013 was granted under the 2005 Plan. Grants of shares of WebMD Restricted Stock are subject to certain restrictions, including restrictions on transferability, until they vest. See “Outstanding Equity Awards at End of 2013” below for information regarding the vesting schedule for the grants. For information regarding the effect on the vesting of these shares of WebMD Restricted Stock of the death, disability or termination of employment of a Named

 

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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 were terminated for cause, unvested shares of WebMD Restricted Stock would be forfeited. Prior to vesting, holders of 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 2005 Plan is administered by the Compensation Committee of the WebMD Board. The 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 Compensation Committee may establish procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable laws. For additional information regarding the 2005 Plan, see Proposal 3 below, under the caption “Summary of the 2005 Plan.”

 

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Outstanding Equity Awards at End of 2013

The following table presents information regarding the outstanding equity awards held by each Named Executive Officer as of December 31, 2013, including the vesting dates for the portions of these awards that had not vested as of that date.

 

(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)
 

David J. Schlanger

             300,000 (4)      33.40         8/11/13         8/11/23        50,000 (4)      8/11/13         1,975,000   
             40,000 (5)      27.94         5/08/13         5/08/23        30,000 (6)      5/08/13         1,185,000   
     20,000         20,000 (5)      13.15         11/14/12         11/14/22                         
     6,250         18,750 (4)      22.40         5/21/12         5/21/22        3,750 (4)      5/21/12         148,125   
     15,000         15,000 (4)      30.26         10/11/11         10/11/21        3,000 (4)      10/11/11         118,500   
     60,000                23.61         12/10/08         12/10/18                         

Peter Anevski

             150,000 (7)      38.65         12/18/13         12/18/23        30,000 (7)      12/18/13         1,185,000   
             15,000 (5)      27.94         5/08/13         5/08/23        20,000 (8)      5/08/13         790,000   
     32,500         32,500 (5)      13.15         11/14/12         11/14/22                         
     11,250         33,750 (4)      22.40         5/21/12         5/21/22        7,500 (4)      5/21/12         296,250   
     16,000         16,000 (4)      30.00         9/21/11         9/21/21        3,000 (4)      9/21/11         118,500   
                                           2,000 (4)      3/24/11         79,000   
     18,750         6,250 (4)      46.81         6/28/10         6/28/20        1,250 (4)      6/28/10         49,375   
     33,000                23.61         12/10/08         12/10/18                         

William Pence

             100,000 (7)      38.65         12/18/13         12/18/23        20,000 (7)      12/18/13         790,000   
                                           20,000 (9)      3/01/13         790,000   
     40,000         40,000 (5)      13.15         11/14/12         11/14/22                         
     37,500         37,500 (4)      36.62         7/23/11         7/23/21        6,000 (4)      7/23/11         237,000   
                                           2,500 (4)      6/28/10         98,750   
     50,000                23.61         12/10/08         12/10/18                         

Martin J. Wygod

             50,000 (7)      38.65         12/18/13         12/18/23        50,000 (7)      12/18/13         1,975,000   
                                           75,000 (6)      5/08/13         2,962,500   
     175,000         175,000 (4)      29.44         9/25/11         9/25/21                         
                                           46,433 (4)      2/11/11         1,834,104   
                                           18,750 (4)      6/28/10         740,625   
     180,000                23.61         12/10/08         12/10/18                         
     106,656                19.11         12/01/08         12/01/18                         

Steven Zatz, M.D.

             300,000 (4)      33.40         8/11/13         8/11/23        50,000 (4)      8/11/13         1,975,000   
                                           20,000 (9)      3/01/13         790,000   
     40,000         40,000 (5)      13.15         11/14/12         11/14/22                         
     37,500         37,500 (4)      36.62         7/23/11         7/23/21        6,000 (4)      7/23/11         237,000   
                                           2,500 (4)      6/28/10         98,750   
     50,000                23.61         12/10/08         12/10/18                         

Anthony Vuolo

             50,000 (7)      38.65         12/18/13         12/18/23        10,000 (7)      12/18/13         395,000   
             50,000 (5)      27.94         5/08/13         5/08/23                         
     35,000         35,000 (4)      29.44         9/25/11         9/25/21        13,750 (4)      9/25/11         543,125   
                                           5,000 (4)      6/28/10         197,500   
     147,000                23.61         12/10/08         12/10/18                         
     79,992                21.29         12/10/08         12/10/18                         

Cavan M. Redmond

             250,000 (10)      23.03         5/31/12         5/31/22 (11)                       

 

 

  (1)

Each grant reported in the table above was granted under, and is subject to, the 2005 Plan, HLTH’s Amended and Restated 2000 Long-Term Incentive Plan, or another plan or agreement that contains substantially 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

 

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  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.

 

  (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 $39.50, the closing market price of WebMD Common Stock on December 31, 2013.

 

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

 

  (5) Vesting schedule: 50% of the original amount granted on each of the first and second anniversaries of the date of the grant.

 

  (6) Vesting schedule: 1/3 of the original amount granted on each of the first, second and third anniversaries of the date of the grant.

 

  (7) Vesting schedule: 1/3 of the original amount granted on each of the second, third and fourth anniversaries of the date of grant.

 

  (8) Scheduled to vest on the third anniversary of the date of grant; provided, however, that vesting was subject to acceleration to the date of the first anniversary of the date of grant based on company and individual performance in 2013. In February 2014, it was determined that vesting of 50% of these shares will occur on the first anniversary of the date of grant and vesting of the remaining 50% will remain on the third anniversary. See “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – Grants of Restricted Stock with Potential for Accelerated Vesting” above for more information.

 

  (9) Scheduled to vest on March 1, 2016; provided, however, that vesting was subject to acceleration to March 15, 2014 based on company and individual performance in 2013. In February 2014, it was determined that vesting of 50% of these shares will occur on March 15, 2014 and vesting of the remaining 50% will remain on March 1, 2016. See “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – Grants of Restricted Stock with Potential for Accelerated Vesting” above for more information.

 

(10) Scheduled to vest on May 31, 2014.

 

(11) The original term of the option was ten years. However, as described under “Employment Agreements with Named Executive Officers – Separation Agreement with Cavan M. Redmond” below, this option will cease to be exercisable on August 29, 2014 (90 days after vesting) and any unexercised portion will no longer be outstanding after that date.

Option Exercises and Stock Vested in 2013

The following table presents information regarding the exercise of options to purchase WebMD Common Stock by our Named Executive Officers during 2013, and regarding the vesting during 2013 of WebMD Restricted Stock. 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 all such gain to be 2013 compensation and, under applicable SEC rules, none of such gain is included in 2013 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)
 

David J. Schlanger

                    6,250        167,660   

Peter Anevski

                    9,750        266,028   

William Pence

     25,000        211,545         8,625        243,355   

Martin J. Wygod

                    84,467        2,239,000   

Steven Zatz, M.D.

                    11,500        313,275   

Anthony Vuolo

                    35,125        1,014,969   

Cavan M. Redmond

     250,000 (3)      2,460,000         22,500 (4)      658,125   

 

(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.

 

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(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.

 

(3) Exercised during the post-employment exercise period provided under the terms of the option grant.

 

(4) Vesting of these shares was accelerated to Mr. Redmond’s last day of employment, as described under “Employment Agreements with Named Executive Officers – Separation Agreement with Cavan M. Redmond” below.

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 (rounded to the nearest $1,000) of (a) amounts that may become payable to our Named Executive Officers as a result of a termination of employment under specific circumstances or as a result of a change of control and (b) the value of other benefits they may become entitled to receive as a result of such termination or change of control under employment agreements and equity grant agreements. 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 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 with or without good reason and/or is in connection with a change of control. The terms used in the tables have the meanings given to them in each Named Executive Officer’s employment agreement, as described below under “Employment Agreements with Named Executive Officers”. In estimating, solely for purposes of the tables below, the amount of any potential payments to Named Executive Officers and the value of other benefits they may become entitled to receive:

 

   

We have assumed, as prescribed by applicable SEC rules, that the applicable triggering event (i.e., termination of employment or change of control) occurred on December 31, 2013 and, accordingly, we have used

 

   

a price per share of WebMD Common Stock of $39.50 (the closing price per share on that date), including in calculating the value of Restricted Stock and the amount realizable from exercise of options to purchase WebMD Common Stock,

 

   

the Executive Officer’s annual salary rate as in effect on that date, and

 

   

the employment agreement terms in effect, for the respective Named Executive Officers, on December 31, 2013.

 

   

We have treated the right to continue to vest in options after termination as if the vesting had accelerated to December 31, 2013.

 

   

We have assumed that, as of December 31, 2013, any required transition periods, following a Change of Control, before a Named Executive Officer can resign for Good Reason (or otherwise unilaterally resign) have been met and that the Named Executive Officer is entitled, as of December 31, 2013, to any cash payments, any continuation of vesting and exercisability of options, any acceleration of vesting of restricted stock and any other benefits as if the transition period had already been completed.

 

   

In determining the amount of the bonus for 2013 to be included in or otherwise used to determine “Cash Severance” for purposes of these tables, we use the larger of (a) the actual amount for 2013 (including both the cash bonus and the SBP Contribution), even though it was not determined until February 2014; and (b) the bonus amount that would have been payable for 2013 under the applicable employment agreement upon a termination as of December 31, 2013.

 

   

In the column entitled “Permanent Disability or Death,” the amounts reflect provisions contained in certain employment agreements and the fact that WebMD’s equity plans generally provide for acceleration of vesting of awards in the event of a termination of employment as a result of death or disability. In addition, the Supplemental Bonus Plan provides that any award thereunder will be paid in the event of a termination as a result of death or disability.

 

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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 cost to our company of these benefits per employee (with an estimate for individual coverage after expiration of the applicable COBRA period for Messrs. Wygod and Vuolo) and are net of amounts that the executives would continue to be responsible for. Although Mr. Pence would have been eligible for COBRA payments upon certain terminations, given that he did not participate in our health plans on December 31, 2013 (nor at the time of his leaving WebMD in April 2014), the table reflects no cost to our company for such benefits. For Messrs. Schlanger and Anevski and Dr. Zatz, we use the COBRA premium that would have applied upon a termination on December 31, 2013. In addition, we have not made any reduction in the applicable amounts included in the tables below to reflect the fact that the obligation to continue benefits or reimbursement ceases in the event the executive becomes eligible for comparable coverage with a subsequent employer.

 

   

For purposes of calculating amounts payable upon termination without cause following a change of control of WebMD, we have treated Supplemental Bonus Plan awards held in the Supplemental Bonus Trust as of December 31, 2013 as payable to participants in accordance with the terms of their respective employment agreements and the Supplemental Bonus Plan.

 

   

We have assumed that the Named Executive Officers have no accrued and unused vacation on December 31, 2013.

If the benefits payable to Mr. Wygod or to Mr. Vuolo in connection with a change of control would be considered an excess parachute payment under Section 280G and subject to the excise tax imposed under Section 4999 of the Code (which we refer to as the Section 280G Excise Tax), 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 Section 280G Excise Tax due. We note that the determination of whether a payment is a “parachute payment” is a facts and circumstances test. For purposes of the tables below, we have calculated the Section 280G Excise Tax (and related gross-up payment, if any) 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, 2013: 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.

 

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Tables. Assuming employment was terminated on December 31, 2013 for the respective Named Executive Officers (other than Mr. Redmond, who left WebMD prior to that date), the following tables provide information regarding the estimated value, using the methodologies and assumptions described above, of the payments and benefits they would be entitled to receive. For a discussion of the post-employment compensation payable to Mr. Redmond, see “Employment Agreements with Named Executive Officers — Separation Agreement with Cavan M. Redmond” below.

David J. Schlanger

 

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        1,290,000        -0-        180,000        -0-        525,000        1,290,000   

Stock Options

    -0-        3,279,000        -0-        3,279,000        -0-        -0-        3,279,000   

Restricted Stock

    -0-        3,160,000        -0-        3,427,000        -0-        -0-        3,160,000   

Health and Welfare Benefits Continuation

    15,000        15,000        -0-        -0-        -0-        15,000        15,000   

280G Tax Gross-Up

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

Other

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

TOTAL

    540,000        7,744,000        -0-        6,886,000        -0-        540,000        7,744,000   

Peter Anevski

 

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

    425,000        -0-        -0-        160,000        -0-        425,000        1,140,000   

Stock Options

    -0-        -0-        -0-        1,886,000        -0-        -0-        1,254,000   

Restricted Stock

    -0-        -0-        -0-        2,518,000        -0-        -0-        1,185,000   

Health and Welfare Benefits Continuation

    16,000        -0-        -0-        -0-        -0-        16,000        16,000   

280G Tax Gross-Up

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

Other

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

TOTAL

    441,000        -0-        -0-        4,564,000        -0-        441,000        3,595,000   

 

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William Pence(1)

 

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

    425,000        -0-        -0-        221,000        -0-        425,000        1,186,000   

Stock Options

    -0-        -0-        -0-        1,247,000        -0-        -0-        1,136,000   

Restricted Stock

    -0-        -0-        -0-        1,916,000        -0-        -0-        1,053,000   

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

    425,000        -0-        -0-        3,384,000        -0-        425,000        3,375,000   

 

 

(1) Mr. Pence served as Executive Vice President, Chief Operating Officer and Chief Technology Officer of WebMD for all of 2013 and until the effective date of his resignation on April 18, 2014. To calculate the information in this table, we applied the terms of the employment arrangements with Mr. Pence as in effect on December 31, 2013 and certain background information and assumptions, as described under “—Background and Assumptions” above. Mr. Pence did not have any rights to post-employment compensation following his resignation in April 2014. See “Employment Agreements with Named Executive Officers – William Pence” below.

Martin J. Wygod

 

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        6,117,000        5,725,000        6,117,000        -0-        5,725,000        6,117,000   

Stock Options

    1,803,000        1,803,000        -0-        1,803,000        -0-        1,803,000        1,803,000   

Restricted Stock

    7,512,000        7,512,000        -0-        7,512,000        -0-        7,512,000        7,512,000   

Health and Welfare Benefits Continuation

    100,000        100,000        100,000        100,000        -0-        100,000        100,000   

280G Tax Gross-Up(3)

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

Other

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

TOTAL

    15,140,000        15,532,000        5,825,000        15,532,000        -0-        15,140,000        15,532,000   

 

 

(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 and receive his cash severance.

 

(2) Such cash severance consists of 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 being $933,333, determined by averaging the bonus amounts received by Mr. Wygod for the three years prior to the Merger.

 

(3) We have assumed, solely for purposes of preparing this table, that the salary continuation portion of the severance is the only portion of the benefits that constitutes “reasonable compensation” for the restrictive covenants to which the executive is bound following the termination of employment. Accordingly, we have not treated the salary continuation portion as a parachute payment for purposes of Section 280G. Such assumption may change at the time of an actual change of control.

 

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Steven Zatz, M.D.

 

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        1,291,000        -0-        221,000        -0-        500,000        1,291,000   

Stock Options

    -0-        2,992,000        -0-        2,992,000        -0-        -0-        2.992,000   

Restricted Stock

    -0-        2,765,000        -0-        3,101,000        -0-        -0-        2,765,000   

Health and Welfare Benefits Continuation

    15,000        15,000        -0-        -0-        -0-        15,000        15,000   

280G Tax Gross-Up

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

Other

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

TOTAL

    515,000        7,063,000        -0-        6,314,000        -0-        515,000        7,063,000   

Anthony Vuolo

 

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

    2,385,000        2,385,000        2,385,000        2,385,000        -0-        2,385,000        2,385,000   

Stock Options

    352,000        944,000        352,000        973,000        -0-        352,000        944,000   

Restricted Stock

    741,000        872,000        741,000        1,136,000        -0-        741,000        872,000   

Health and Welfare Benefits Continuation

    130,000        130,000        -0-        130,000        -0-        130,000        130,000   

280G Tax Gross-Up

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

Other

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

TOTAL

    3,608,000        4,331,000        3,478,000        4,624,000        -0-        3,608,000        4,331,000   

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 2013, those decisions and their implementation are discussed earlier in this “Executive Compensation” section.

Some of the employment agreement summaries below refer to the definition of “Change of Control” used in the 2005 Plan. That definition is described above under the heading “Non-Employee Director Compensation – Option Grants.” In addition, see Proposal 3 below, under the caption “Summary of the 2005 Plan,” for additional information regarding the 2005 Plan relevant to the descriptions included in this section.

 

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David J. Schlanger

WebMD entered into an employment agreement with Mr. Schlanger, effective in May 2013 when Mr. Schlanger became Interim Chief Executive Officer of WebMD, and it was amended on August 11, 2013 when he became Chief Executive Officer. The following is a description of Mr. Schlanger’s employment agreement with WebMD, as amended:

 

   

Mr. Schlanger’s base salary rate is $525,000 per year.

 

   

For a discussion of Mr. Schlanger’s bonus for 2013, see “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – 2013 Bonuses and Supplemental Bonus Plan Contributions” above. For fiscal year 2014 and thereafter, Mr. Schlanger’s target bonus is 150% of his base salary, with actual amount of any such bonus to be determined by the Compensation Committee in its discretion.

 

   

In connection with Mr. Schlanger’s appointment as Chief Executive Officer, he received the following grants under the 2005 Plan on August 11, 2013, each of which is scheduled to vest in equal annual installments of 25% commencing on the first anniversary of the date of grant:

 

   

a grant of 50,000 shares of WebMD Restricted Stock; and

 

   

a non-qualified option to purchase 300,000 shares of WebMD Common Stock at a per share exercise price of $33.40 (the closing price of WebMD Common Stock on August 9, 2013, the last trading day before the date of grant).

In connection with Mr. Schlanger’s appointment as Interim Chief Executive Officer in May 2013, he received the following grants under the 2005 Plan:

 

   

a grant, made on May 8, 2013, of 30,000 shares of WebMD Restricted Stock, with such grant being scheduled to vest in three equal annual installments, commencing on the first anniversary of the date of grant; and

 

   

a grant, made on May 8, 2013, of non-qualified options to purchase 40,000 shares of WebMD Common Stock at an exercise price of $27.94 per share (the closing market price on that date), with such grant being scheduled to vest in two equal installments on the first and second anniversaries of the date of grant.

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

 

   

Under the employment agreement, in the event of a termination of Mr. Schlanger’s employment by WebMD without Cause or by him for Good Reason, he would be entitled to:

 

   

continue to receive his base salary for one year from the date of termination;

 

   

receive certain amounts in respect of COBRA premiums until the earlier of one year following his termination and the date upon which he receives comparable coverage under another plan; and

 

   

for 2014 and later years, if the date of termination is on or after July 1 of that year and before bonuses for that year are paid, to receive the bonus he would have received for that year, payable at the time bonuses for that year are paid to other executives.

If the termination by WebMD without Cause or the resignation by him for Good Reason occurs following a Change of Control of WebMD or if Mr. Schlanger resigns after one year following a Change of Control, WebMD Restricted Stock granted to him in 2013 and all options to purchase WebMD Common Stock granted to him that were outstanding as of August 11, 2013 (including the grant made to him on that date, as described above) would be deemed fully vested and the options would remain outstanding for one year from the date of termination. If such a termination were to occur following a Change of Control but prior to full payment of bonuses for 2013, he would be entitled: to receive the unpaid portion of the greater of $300,000 or the amount of the 2013 bonus achieved through the date of termination (including, to the extent applicable, any part of such bonus that was contributed to the Supplemental Bonus Plan on his

 

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behalf and not previously distributed to him); and to receive the $180,000 contributed by WebMD on his behalf to WebMD’s Supplemental Bonus Plan for 2012, if not previously distributed to him.

 

   

For purposes of the employment agreement:

 

   

“Change of Control” has the same definition used in the 2005 Plan;

 

   

“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; and

 

   

“Good Reason” means 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) WebMD removing Mr. Schlanger from the position of Chief Executive Officer (except on or following a Change of Control, so long as he is working on the transition or in a senior capacity), or (iii) any material breach of the employment agreement by WebMD; provided that Mr. Schlanger 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.

Mr. Schlanger 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 that may be due would be subject to Mr. Schlanger’s compliance with the restrictive covenants applicable to him under the employment agreement and the Trade Secret and Proprietary Information Agreement.

Peter Anevski

In connection with Mr. Anevski becoming Chief Financial Officer of WebMD in May 2013, the Compensation Committee approved the terms of a new employment agreement between WebMD and Mr. Anevski. The following is a description of Mr. Anevski’s employment agreement with WebMD:

 

   

Mr. Anevski’s base salary rate is $425,000 per year.

 

   

For a discussion of Mr. Anevski’s bonus for 2013, see “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – 2013 Bonuses and Supplemental Bonus Plan Contributions” above. For fiscal year 2014 and thereafter, Mr. Anevski’s target bonus is 100% of his base salary, with actual amount of any such bonus to be determined by the Compensation Committee in its discretion.

 

   

In connection with Mr. Anevski’s appointment as Chief Financial Officer, he received the following grants, made on May 8, 2013: (a) a non-qualified option to purchase 15,000 shares of WebMD Common Stock at a per share exercise price of $27.94 per share (the closing price on that date), vesting in two equal installments on the first and second anniversaries of the date of grant; and (b) a grant of 20,000 shares of WebMD Restricted Stock under the 2005 Plan. The shares of WebMD Restricted Stock were scheduled to vest on the third anniversary of the date of grant; provided, however, that vesting was subject to acceleration to the date of the first anniversary of the date of grant based on company and individual performance in 2013. In February 2014, it was determined that vesting of 50% of these shares will occur on the first anniversary of the date of grant and vesting of the remaining 50% will remain on the third anniversary. For additional information, see “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – Grants of Restricted Stock with Potential for Accelerated Vesting”

 

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above for more information. On December 18, 2013, Mr. Anevski received the following grants under the 2005 Plan, one-third of which are scheduled to vest on each of the second, third and fourth anniversaries of the date of grant:

 

   

a grant of 30,000 shares of WebMD Restricted Stock; and

 

   

a non-qualified option to purchase 150,000 shares of WebMD Common Stock at a per share exercise price of $38.65 (the closing price of WebMD Common Stock on the date of grant).

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

 

   

Under the employment agreement, in the event of a termination without cause or resignation for good reason, Mr. Anevski would be entitled to payment of base salary for 12 months, any earned but unpaid bonus if termination occurs after December 31 but prior to bonuses being paid for the completed year and COBRA premiums for up to 12 months. If such termination occurs following a Change of Control (as defined in the 2005 Plan) of WebMD, he would also be entitled to the following:

 

   

the WebMD Restricted Stock granted to him on May 8, 2013 would vest in full upon such termination;

 

   

the option grant made to him on May 8, 2013 and any other options held at the date of termination would continue to vest as scheduled through the next vesting date of such grant following the termination of his employment so long as such termination occurred within 12 months following the Change of Control; and

 

   

the next scheduled vesting of the WebMD Restricted Stock granted to him on December 18, 2013 would be accelerated to the date of termination and the options subject to the next scheduled vesting of the grant made to him on that date would remain outstanding and continue to vest until the scheduled vesting date.

If such a termination were to occur following a Change of Control but prior to full payment of bonuses for 2013, he would be entitled: to receive the unpaid portion of the greater of $300,000 or the amount of the 2013 bonus achieved through the date of termination (including, to the extent applicable, any part of such bonus that was contributed to the Supplemental Bonus Plan on his behalf and not previously distributed to him); and to receive the $160,000 contributed by WebMD on his behalf to WebMD’s Supplemental Bonus Plan for 2012, if not previously distributed to him.

 

   

For purposes of the employment agreement:

 

   

a “Change of Control” has the same definition used in the 2005 Plan.

 

   

“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 his 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.

Mr. Anevski 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-

 

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employment payments and benefits that may be due would be subject to Mr. Anevski’s compliance with the restrictive covenants applicable to him under the employment agreement and the Trade Secret and Proprietary Information Agreement.

Martin J. Wygod

Mr. Wygod entered into an employment agreement with HLTH dated as of August 3, 2005, which was 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 in October 2009 and it has been further amended, since then, on September 21, 2011 and September 25, 2011. The following is a description of the employment agreement, as amended:

 

   

Mr. Wygod’s base salary rate is $490,000 per year.

 

   

The amount of any bonus payable to Mr. Wygod is in the discretion of the WebMD Compensation Committee. In February 2014, the Compensation Committee approved a 2013 annual bonus of $430,000 for Mr. Wygod, which was paid to him in March 2014. In addition, the Compensation Committee approved a 2013 SBP Contribution of $170,000 for Mr. Wygod. See “Compensation Discussion and Analysis — Use of Specific Types of Compensation for 2013 — 2013 Bonuses and Supplemental Bonus Plan Contributions” above.

 

   

In May 2013, the Compensation Committee approved: (a) an amendment to the employment agreement with Mr. Wygod pursuant to which he would have been entitled to receive the $392,000 contributed by WebMD on his behalf to WebMD’s Supplemental Bonus Plan for 2012 in the event that, following a Change in Control (as defined in the 2005 Plan) of WebMD, his employment terminates for any reason other than for cause (and he will have similar rights with respect to the 2013 SBP Contribution of $170,000 made on his behalf in March 2014 and, if applicable, for any such future contributions on his behalf to the Supplemental Bonus Plan); and (b) a grant, made to Mr. Wygod on May 8, 2013 under the 2005 Plan, of 75,000 shares of WebMD Restricted Stock, scheduled to vest in three equal annual installments, commencing on the first anniversary of the date of grant. On December 18, 2013, Mr. Wygod received the following grants under the 2005 Plan, one-third of which are scheduled to vest on each of the second, third and fourth anniversaries of the date of grant:

 

   

a grant of 50,000 shares of WebMD Restricted Stock; and

 

   

a non-qualified option to purchase 50,000 shares of WebMD Common Stock at a per share exercise price of $38.65 (the closing price of WebMD Common Stock the date of grant).

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

 

   

The 2008 Amendment extended the employment period, under the employment agreement, through December 31, 2012 and thereafter on a month-to-month basis. A non-renewal by WebMD would 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, (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

 

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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; 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). In the event of a Change in Control, Mr. Wygod’s equity would fully vest and, if his employment terminates after that, his options would remain outstanding through the expiration of the original term. In addition, all cash amounts payable to Mr. Wygod in connection with his termination on or following a Change in Control are required to be placed in a rabbi trust.

 

   

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 (as defined in the HLTH 2000 Plan, which definition is substantially the same as the definition in the 2005 Plan) of WebMD.

 

   

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.

Steven Zatz, M.D.

We are party to an employment agreement with Steven Zatz, M.D., who serves as our President, which was entered into on July 14, 2005 and amended on December 14, 2008, July 23, 2011, November 14, 2012, March 5, 2013 (as used in the summary below, the “March 2013 Amendment”) and in August 2013 in connection with Dr. Zatz’s appointment as WebMD’s President below (as used in the summary below, the “August 2013 Amendment” and, together with the March 2013 Amendment, the “2013 Amendments”). The following is a description of Dr. Zatz’s employment agreement with us, as amended:

 

   

Dr. Zatz’s base salary rate is $500,000 per year.

 

   

For a discussion of Dr. Zatz’s bonus for 2013, see “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 — 2013 Bonuses and Supplemental Bonus Plan Contributions” above. For fiscal year 2014 and thereafter, Dr. Zatz’s target bonus is 150% of his base salary, with actual amount of any such bonus to be determined by the Compensation Committee in its discretion.

 

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In connection with the March 2013 Amendment, Dr. Zatz received a grant of 20,000 shares of WebMD Restricted Stock under the 2005 Plan, made on March 1, 2013. The shares were scheduled to vest on the third anniversary of the date of grant; provided, however, that vesting was subject to acceleration to March 15, 2014 based on company and individual performance in 2013. In February 2014, it was determined that vesting of 50% of these shares would occur on March 15, 2014 and vesting of the remaining 50% would remain on the third anniversary. For additional information, see “Compensation Discussion and Analysis — Use of Specific Types of Compensation for 2013 — Grants of Restricted Stock with Potential for Accelerated Vesting” above for more information. In connection with Dr. Zatz’s appointment as President, he received the following grants under the 2005 Plan on August 11, 2013, each of which is scheduled to vest in equal annual installments of 25% commencing on the first anniversary of the date of grant:

 

   

a grant of 50,000 shares of WebMD Restricted Stock; and

 

   

a non-qualified option to purchase 300,000 shares of WebMD Common Stock at a per share exercise price of $33.40 (the closing price of WebMD Common Stock on August 9, 2013, the last trading day before the date of grant).

For additional information regarding Dr. Zatz’s equity compensation, see “Executive Compensation Tables” above.

 

   

In the event of the termination of Dr. Zatz’s employment by WebMD without Cause or by him for Good Reason, he would be entitled to the following under the 2013 Amendments:

 

   

to continue to receive his base salary for one year from the date of termination;

 

   

to receive certain amounts in respect of COBRA premiums until the earlier of one year following his termination and the date upon which he receives comparable coverage under another plan; and

 

   

for fiscal year 2014 and later years, if the date of termination is on or after July 1 and before bonuses for that year are paid, to receive the bonus he would have received for that year, payable at the time bonuses for that year are paid to other executives.

If the termination by WebMD without Cause or the resignation by him for Good Reason occurs following a Change of Control of WebMD or if Dr. Zatz resigns after one year following a Change of Control, WebMD Restricted Stock granted to him in 2013 and all options to purchase WebMD Common Stock granted to him that were outstanding as of August 11, 2013 (including the grant made to him on that date, as described above) would be deemed fully vested and the options would remain outstanding for one year from the date of termination. If such a termination were to occur following a Change of Control but prior to full payment of bonuses for 2013, he would be entitled: to receive the unpaid portion of the greater of $300,000 or the amount of the 2013 bonus achieved through the date of termination (including, to the extent applicable, any part of such bonus that was contributed to the Supplemental Bonus Plan on his behalf and not previously distributed to him); and to receive the $221,000 contributed by WebMD on his behalf to WebMD’s Supplemental Bonus Plan for 2012, if not previously distributed to him.

 

   

The definitions of “Change of Control,” “Cause” and “Good Reason” are identical to those contained in Mr. Schlanger’s agreement described above, except that they reference Dr. Zatz’s position and responsibilities where applicable.

Dr. Zatz 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 and non-competition provisions that end on the first anniversary of the date his employment ceases. The post-employment payments and benefits due to Dr. Zatz are subject to his continued compliance with these covenants.

Anthony Vuolo

In connection with Mr. Vuolo’s role with WebMD changing from Executive Vice President and Chief Financial Officer to Senior Vice President focusing on strategic projects, his employment agreement was

 

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amended in May 2013 (the “May 2013 Amendment”). The following is a description of Mr. Vuolo’s employment agreement, as amended:

 

   

Mr. Vuolo’s base salary rate is $400,000 per year.

 

   

For a discussion of Mr. Vuolo’s bonus for 2013, see “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 – 2013 Bonuses and Supplemental Bonus Plan Contributions” above. For fiscal year 2014 and thereafter, Mr. Vuolo’s target bonus is 112.5% of his base salary, with actual amount of any such bonus to be determined by the Compensation Committee in its discretion.

 

   

In connection with May 2013 Amendment, Mr. Vuolo received a grant on May 8, 2013 of non-qualified options to purchase 50,000 shares of WebMD Common Stock under the 2005 Plan at an exercise price of $27.94 per share (the closing market price on that date), with such grant being scheduled to vest in two equal installments on the first and second anniversaries of the date of grant. On December 18, 2013, Mr. Vuolo received the following grants under the 2005 Plan, one-third of which are scheduled to vest on each of the second, third and fourth anniversaries of the date of grant:

 

   

a grant of 10,000 shares of WebMD Restricted Stock; and

 

   

a non-qualified option to purchase 50,000 shares of WebMD Common Stock at a per share exercise price of $38.65 (the closing price of WebMD Common Stock the date of grant).

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

 

   

Under the amended agreement, if (a) Mr. Vuolo resigns or (b) WebMD terminates his employment without cause, he would be entitled to receive:

 

   

base salary continuation for 18 months;

 

   

the bonus for the year prior to the year of termination (including any amounts in the Supplemental Bonus Trust), if unpaid;

 

   

payment of bonuses for the 18 month period following the date of termination calculated using the Prior Bonus Amount;

 

   

three years of benefit continuation (with $10,000 per year payable to him in lieu of disability insurance continuation); and

 

   

accelerated vesting of outstanding restricted stock grants and continuation of vesting and exercisability of his outstanding option grants (other than the grants made in 2013);

with (i) his base salary for purposes of severance being deemed to be $450,000 and (ii) his prior bonus payment for purposes of the bonus component of severance being deemed to be the greater of the bonus (including his award under the Supplemental Bonus Plan but excluding the bonus for service as Interim CEO) for the last full year in which he served as Chief Financial Officer and the bonus for the year prior to termination. In addition, if Mr. Vuolo’s employment is terminated by WebMD without Cause or by him for Good Reason following a Change of Control

 

   

the option grant made on May 8, 2013 would continue to vest and remain outstanding through the second vesting date; and

 

   

the next scheduled vesting of the WebMD Restricted Stock granted to him on December 18, 2013 would be accelerated to the date of termination and the options subject to the next scheduled vesting of the grant made to him on that date would remain outstanding and continue to vest until the scheduled vesting date.

The post-employment payments and benefits that may be due would be subject to Mr. Vuolo’s compliance with the restrictive covenants applicable to him under the agreement.

 

   

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

 

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(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 of 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 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.

William Pence

William Pence served as Executive Vice President, Chief Operating Officer and Chief Technology Officer of WebMD during all of 2013 and until the effective date of his resignation on April 18, 2014. In connection with Mr. Pence’s resignation in April 2014, he did not receive any compensation for periods following his departure and he forfeited all of his unvested grants of WebMD Restricted Stock and of options to purchase shares of WebMD Common Stock. In accordance with the provisions of the 2005 Plan applicable to all grants to employees, he will have 90 days from his last day of employment (April 18, 2014) to exercise any options that were vested on that date. As a result of Mr. Pence’s resignation, he will not receive any distribution of his 2013 SBP Contribution.

Mr. Pence had entered into an amended and restated employment agreement with WebMD effective May 16, 2012, when he became Chief Operating Officer, which agreement was further amended effective November 14, 2012 and March 5, 2013 (as used in the summary below, the “March 2013 Amendment”). The following is a description of Mr. Pence’s amended and restated employment agreement, as in effect as of December 31, 2013:

 

   

Mr. Pence’s base salary rate was $425,000 per year.

 

   

For a discussion of Mr. Pence’s bonus for 2013, see “Compensation Discussion and Analysis — Use of Specific Types of Compensation for 2013 — 2013 Bonuses and Supplemental Bonus Plan Contributions” above. For fiscal year 2014 and thereafter, Mr. Pence’s target bonus was 65% of his base salary, with actual amount of any such bonus to have been determined by the Compensation Committee in its discretion.

 

   

In connection with the March 2013 Amendment, Mr. Pence received a grant of 20,000 shares of WebMD Restricted Stock under the 2005 Plan, made on March 1, 2013. The shares were scheduled to vest on the third anniversary of the date of grant; provided, however, that vesting was subject to acceleration to March 15, 2014 based on company and individual performance in 2013. In February 2014, it was determined that vesting of 50% of these shares would occur on March 15, 2014 and vesting of the remaining 50% would remain on the third anniversary. For additional information, see “Compensation Discussion and Analysis – Use of Specific Types of Compensation for 2013 — Grants of Restricted Stock with Potential for Accelerated Vesting” above. The unvested portion of this grant was forfeited by Mr. Pence when he left WebMD in April 2014. On December 18, 2013, Mr. Pence received the following

 

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grants under the 2005 Plan, one-third of which were scheduled to vest on each of the second, third and fourth anniversaries of the date of grant:

 

   

a grant of 20,000 shares of WebMD Restricted Stock; and

 

   

a non-qualified option to purchase 100,000 shares of WebMD Common Stock at a per share exercise price of $38.65 (the closing price of WebMD Common Stock the date of grant).

The December 18, 2013 grants were forfeited by Mr. Pence when he left WebMD in April 2014. For additional information regarding Mr. Pence’s equity compensation, see “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, he would have been entitled to:

 

   

continue to receive his base salary for one year from the date of termination;

 

   

to receive certain amounts in respect of COBRA premiums until the earlier of one year following his termination and the date upon which he receives comparable coverage under another plan; and

 

   

for fiscal year 2014 and later years, if the date of termination were on or after July 1 and before bonuses for that year are paid, to receive the bonus he would have received for that year, payable at the time bonuses for that year are paid to other executives.

If the termination by WebMD without Cause or by him for Good Reason would have followed a Change of Control of WebMD, he would also have been entitled to the following:

 

   

the unvested portion, if any, of the restricted stock granted to him on March 1, 2013 would have vested on the termination date;

 

   

if the termination of employment had occurred within 12 months following the Change of Control, any unvested options to purchase shares of WebMD Common Stock (including those that may be granted in the future) would have remained outstanding and continue to vest through the first anniversary of the termination date; and

 

   

the next scheduled vesting of the WebMD Restricted Stock granted to him on December 18, 2013 would have been accelerated to the date of termination and the options subject to the next scheduled vesting of the grant made to him on that date would have remained outstanding and continue to vest until the scheduled vesting date.

If such a termination had occurred following a Change of Control while Mr. Pence was an employee but prior to full payment of bonuses for 2013, he would have been entitled to receive the unpaid portion of the greater of $300,000 or the amount of the 2013 bonus achieved through the date of termination (including, to the extent applicable, any part of such bonus that was contributed to the Supplemental Bonus Plan on his behalf and not previously distributed to him); and to receive the $221,000 contributed by WebMD on his behalf to WebMD’s Supplemental Bonus Plan for 2012, if not previously distributed to him.

 

   

For purposes of the employment agreement, the definitions of “Change of Control,” “Cause” and “Good Reason” were identical to those contained in Mr. Anevski’s employment agreement described above.

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 and non-competition provisions that end on the first anniversary of the date his employment ceases. Any post-employment payments and benefits due to Mr. Pence are subject to his continued compliance with these covenants.

 

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Separation Agreement with Cavan M. Redmond

Cavan M. Redmond served as Chief Executive Officer of WebMD from May 2012 to May 2013. Mr. Redmond entered into an employment agreement with WebMD, dated May 29, 2012. In addition, effective on May 7, 2013, WebMD and Mr. Redmond entered into a separation agreement setting forth the terms of his departure from WebMD, including its treatment as a “termination without cause” for purposes of the severance and other post-employment compensation provisions of the employment agreement. Subject to continued compliance with the restrictive covenants provided for in the employment agreement and a related agreement, Mr. Redmond is entitled to receive the following post-termination compensation under the employment agreement (as confirmed in the separation agreement):

 

   

salary continuation for two years from his departure date, at his annual salary rate of $650,000 per year;

 

   

reimbursement of his COBRA premiums for continuation of his health coverage from his prior employer (or, if less, the COBRA premium he would have paid if he were covered under WebMD’s health plan) for up to 18 months from his departure date or, if earlier, until he is no longer eligible for COBRA;

 

   

continued vesting and exercisability, as if he remained employed by WebMD through May 31, 2014, of the options to purchase WebMD Common Stock with an exercise price of $23.03 per share granted to him when he joined WebMD, pursuant to which options to purchase 250,000 shares of WebMD Common Stock vested on May 31, 2013 (and have been exercised, as described below) and options to purchase 250,000 such shares are scheduled to vest on May 31, 2014 (and will remain exercisable for 90 days after that date); and

 

   

acceleration of 22,500 shares of Restricted Stock from the grant made to him when he joined WebMD (representing the shares that would have vested during the two years following his departure date).

On September 5, 2013, Mr. Redmond received 33,237 shares of WebMD Common Stock upon net settlement of his exercise of options to purchase 250,000 shares of WebMD Common Stock that vested on May 31, 2013, with the remaining 216,763 shares from that exercise being retained by WebMD to pay the exercise price and to satisfy the minimum tax withholding requirements arising from the exercise.

Compensation of Kevin M. 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. His annual salary rate is $100,000 per year. The amount of any bonus payable to Mr. Cameron is in the discretion of the WebMD Compensation Committee. In February 2014, the Compensation Committee approved a 2013 annual bonus of $100,000 for Mr. Cameron, which was paid to him in March 2014. During 2013, a total of 44,792 shares of WebMD Restricted Stock held by Mr. Cameron vested, resulting in a realized value of $1,484,226 (determined by multiplying the number of shares that vested by the per-share closing price of WebMD Common Stock on the applicable vesting date). During 2013, Mr. Cameron exercised a total of 355,480 options to purchase WebMD Common Stock, resulting in a realized value of $5,697,419 (determined by multiplying (i) the number of shares for which each option was exercised by (ii) the difference between (1) the per-share closing price of WebMD Common Stock on the date of exercise and (2) the exercise price of the options). During 2013, Mr. Cameron did not receive any grants of WebMD Restricted Stock or options to purchase WebMD Common Stock.

As of April 16, 2014, Mr. Cameron held: (a) non-qualified options (originally granted by HLTH prior to the Merger) to purchase 417,736 shares of WebMD Common Stock with a weighted average exercise price of $26.46 per share (all of which are vested); 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) 2,500 shares of WebMD Restricted Stock granted on June 28, 2010, which are scheduled to vest on June 28, 2014, (iii) non-qualified options to purchase 60,000 shares of WebMD Common Stock granted on September 25, 2011 with an exercise price of $29.44, 25% of which vested on each of the first

 

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and second anniversaries of the date of grant and 25% of which are scheduled to vest on each of the next two anniversaries of the date of grant; and 11,250 shares of WebMD Restricted Stock granted on September 25, 2011, with remaining vestings of 5,625 on each of the next two anniversaries of the date of grant. 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), Mr. Cameron 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 of 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 the purposes of the grants on September 25, 2011:

 

   

a “Change of Control” has the definition used in the 2005 Plan.

 

   

“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.

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 entered into an agreement, in connection with Mr. Cameron’s resuming active employment, that allows 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.

 

   

Continued participation 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).

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Icahn Group

On June 8, 2012, WebMD entered into an agreement with the Icahn Group pursuant to which David Schechter was appointed to our Board of Directors, effective July 24, 2012, as a Class II director (with a term scheduled to expire at our Annual Meeting of Stockholders in 2013). The agreement was amended on May 7, 2013. Pursuant to the amendment, WebMD agreed that the WebMD Board would, prior to the 2013 Annual Meeting, appoint Mr. Schechter as a Class III director effective as of the 2013 Annual Meeting, with a term scheduled to expire at WebMD’s 2014 Annual Meeting of Stockholders.

On August 5, 2013, WebMD received a letter (the “Resignation Letter”) from Mr. Schechter indicating his decision to resign from the Board. Also on August 5, 2013, WebMD also received a notice (the “Replacement Notice”) from the Icahn Group indicating that the Icahn Group did not intend to submit the name of a replacement director for appointment to the Board. The Icahn appointment agreement terminated, pursuant to its terms, upon receipt by WebMD of the Resignation Letter and the Replacement Notice.

On October 18, 2013, WebMD entered into an agreement to repurchase 5,527,433 shares of its Common Stock from Carl C. Icahn and certain of his affiliates, at a purchase price of $32.08 per share (the NASDAQ Official Closing Price of the Company’s Common Stock on October 18, 2013) for an aggregate cost, including expenses, of $177,420,051. The repurchase was completed on October 21, 2013.

Kensico Capital Management

On October 17, 2012, WebMD entered into the an agreement with Kensico Capital Management Corp. and the investment funds it advises pursuant to which Thomas J. Coleman was appointed to our Board of Directors, effective October 17, 2012, as a Class II director (with a term scheduled to expire at our Annual Meeting of Stockholders in 2013). The agreement was amended on May 7, 2013. Pursuant to the amendment, the WebMD Board appointed Mr. Coleman as a Class III director effective as of the 2013 Annual Meeting, with a term scheduled to expire at WebMD’s 2014 Annual Meeting of Stockholders.

On January 15, 2014, WebMD received a letter from Mr. Coleman indicating his decision to resign from the Board. The Kensico appointment agreement terminated, pursuant to its terms, upon receipt by WebMD of the resignation letter from Mr. Coleman.

Other Related Party Transactions

WebMD was reimbursed approximately $311,500 and $325,100 for 2013 and 2012, respectively, by Martin J. Wygod, our 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.

Mr. Wygod’s son is employed by WebMD as Senior Manager, Business Strategy. His annual salary rate is $115,000, and he has a bonus target of 12.5% of annual salary. On May 27, 2014, he received a grant of options to purchase 5,000 shares under the 2005 Plan, with an exercise price of $43.05 per share, with 25% of the grant scheduled to vest on each of the first four anniversaries of the date of grant.

On September 30, 2013, WebMD repurchased $100,000,000 principal amount of its 2.25% Convertible Notes due 2016 for $101,750,000 in cash from Soros Fund Management LLC and related entities in a privately negotiated, arms’-length transaction. The sellers were considered related parties of WebMD solely because of their beneficial ownership of shares of WebMD Common Stock that would be issuable upon conversion of Convertible Notes issued by WebMD (including the repurchased Convertible Notes), but those entities had no other relationship with WebMD. For information regarding their beneficial ownership of WebMD Common Stock, see “Security Ownership of Certain Beneficial Owners and Management” above.

 

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Audit Committee Review of Related Party Transactions

Under our company’s Code of Business Conduct, directors and executive officers are required to disclose to either of our Co-General Counsel or to 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 arms’-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 cast 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 2014 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 2014 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 2014 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.

In determining how to vote on Proposal 2, we encourage you to review the Compensation Discussion and Analysis section of this Proxy Statement, which discusses in detail how our compensation policies and procedures implement our compensation philosophy and how our 2013 performance relates to our 2013 compensation decisions. The Compensation Committee believes that WebMD’s executive compensation program played a key role in driving our company’s improved financial and operating performance in 2013 and continues to do so in 2014. As discussed in the Compensation Discussion and Analysis section, 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. Generally, for our Named Executive Officers, the most significant portion of their compensation is the options to purchase WebMD Common Stock granted to them under the 2005 Plan. The compensation that our employees (including our Named Executive Officers) receive from stock options increases only when the price of WebMD Common Stock increases, which aligns their interests with the long-term interests of our stockholders. In addition, no compensation will be received by an optionholder from a grant unless the price of WebMD Common Stock increases above the price on the date of grant. The vesting schedules applicable to these option grants are intended to promote retention of employees during the vesting period. However, as required under applicable SEC rules, in the disclosures contained in this Proxy Statement, WebMD includes the full grant date fair value of option grants (estimated using the Black-Scholes Option Pricing Model) 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. In addition, grants made to a new executive officer at the time he or she joins WebMD or is first promoted to an executive officer position will generally be larger than grants made to existing executive officers with comparable responsibilities and may not be indicative of the compensation that would be reported for such individual in future years. The Compensation Committee considers the vesting schedule of option grants 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.

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:     APPROVAL OF THE AMENDED AND RESTATED 2005 LONG-TERM INCENTIVE PLAN

A proposal to ratify and approve an amendment and restatement of 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 1,700,000 shares and to provide the stockholder approval needed for WebMD to take deductions under Section 162(m) of the Internal Revenue Code of 1986, as amended, for certain performance-based grants that may be made in the future.

Background

Introduction.    As more fully discussed under “Executive Compensation — Compensation Discussion and Analysis — Use of Specific Types of Compensation for 2013” 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. Grants to WebMD employees under the 2005 Plan have generally been scheduled to vest over four years, with 25% of the grant vesting on each of the first through fourth anniversaries of the date of grant, although in certain cases (including most grants made to existing employees since our 2013 Annual Meeting of Stockholders), the initial vesting has been scheduled to occur more than one year after the date of grant.

The Compensation Committee believes that, in order to attract and retain qualified employees, WebMD must have the ability to 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 certain other employees first join us; (b) in connection with a significant change in responsibilities and, occasionally, to achieve uniformity within the employee’s peer group within WebMD; or (c) at other times when appropriate to retain and motivate our officers and employees.

Amount for Which Approval is Being Sought.    Under the 2005 Plan, a total of approximately 600,000 shares were available for future grant, as of August 13, 2014. This was calculated (as are other numbers in this Proposal 3) treating as outstanding certain grants to new hires that, as of August 13, 2014, had already been approved but were not yet effective because the grantee’s start date had not yet occurred, and calculations relating to those grants have been made as if their effective date was August 13, 2014. 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 1,700,000 shares, of which 20% (or 340,000 shares) would be available for grant as restricted stock and other “full value” awards (see “Summary of the 2005 Plan — Share Limits” below). If this increase is approved by stockholders, a total of approximately 2,300,000 shares would be available for grant under the 2005 Plan. The 1,700,000 share increase for which stockholder approval is being sought at the 2014 Annual Meeting is intended by the Compensation Committee to be sufficient, together with shares currently available and shares that may become available upon forfeiture of existing grants, to provide for equity awards in amounts appropriate to achieve the purposes of the 2005 Plan until at least WebMD’s 2015 Annual Meeting of Stockholders. The Compensation Committee has approved the increase, subject to the approval of our stockholders, which we are seeking at the 2014 Annual Meeting.

Reasons for the Proposed Increase

Our employees and executives are highly sought after by other companies because of WebMD’s leadership position in providing health and wellness content and tools through the Internet and mobile applications. In New York City, where our headquarters is located, competition is especially intense. Our writers and editors, our

 

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software developers and other technical personnel, our sales and marketing personnel, and our executives are recruited for positions at numerous other Internet and information technology companies, particularly those focused on health, wellness and related areas, with offers coming to them from our existing competitors and from other established companies as well as from venture capital backed companies and other start-ups. The Compensation Committee believes that the grants made to WebMD employees in 2012 and 2013 have allowed us to retain key employees during a time when we faced significant challenges and were at an especially high risk of losing employees to these other companies. In addition, the equity compensation that WebMD provided during that period allowed WebMD to continue to attract additional talented employees when needed. The efforts of our employees has been an important factor in the improved performance of WebMD in 2013 and 2014.

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

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 employers. 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.

For a description of the policies and practices our Compensation Committee has implemented to protect our stockholders’ interests in connection with our 2005 Plan, see “Executive Compensation — Compensation Discussion and Analysis — Specific Policies and Practices to Protect Stockholder Interests in Connection with Our Equity Compensation Plans” above. The Compensation Committee regularly evaluates our compensation policies and practices, including those relating to equity compensation, and makes changes in their design to reflect evolving best practices.

Considerations Relating to the Amount of Our Outstanding Equity Awards

Background Information.    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. Information regarding outstanding equity awards, as of August 13, 2014, is as follows:

 

   

Outstanding Options.    As of August 13, 2014, we had outstanding approximately 8.4 million unexercised options to purchase WebMD Common Stock. As of that date:

 

   

those options had a weighted average exercise price of approximately $31.45 per share and a weighted average remaining life of approximately 7.2 years;

 

   

approximately 3.4 million of these options were vested;

 

   

approximately 1.3 million are scheduled to vest during the remainder of 2014;

 

   

approximately 1.6 million are scheduled to vest in 2015; and

 

   

approximately 1.1 million, 0.9 million and 0.1 million are scheduled to vest in 2016, 2017 and 2018, respectively.

 

   

Outstanding Unvested Restricted Stock.    We also had outstanding, as of August 13, 2014, approximately 961,000 unvested shares of WebMD Restricted Stock. Approximately 64,000 of these shares are scheduled to vest during the remainder of 2014, and approximately 368,000, 305,000, 194,000 and 30,000 are scheduled to vest in 2015, 2016, 2017 and 2018, respectively.

 

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Equity Awards under the 2005 Plan Since 2010.    Since January 1, 2010, we have used shares for equity awards under the 2005 Plan in approximately the following amounts:

 

   

in 2010, we used a net amount of 1.9 million shares (after giving effect to 0.5 million Forfeited Shares returned to the 2005 Plan in 2010) to grant 2.1 million stock options and 305,000 shares of WebMD Restricted Stock;

 

   

in 2011, we used a net amount of 2.9 million shares (after giving effect to 1.0 million Forfeited Shares returned to the 2005 Plan in 2011) to grant 3.3 million stock options and 570,000 shares of WebMD Restricted Stock;

 

   

in 2012, we used a net amount of 1.6 million shares (after giving effect to 2.6 million Forfeited Shares returned to the Plan in 2012) to grant 3.9 million stock options and 295,000 shares of WebMD Restricted Stock;

 

   

in 2013, we used a net amount of 2.1 million shares (after giving effect to 1.6 million Forefeited Shares returned to the Plan in 2013) to grant 2.9 million stock options and 812,000 shares of WebMD Restricted Stock; and

 

   

in 2014 (through August 13, 2014), we have used a net amount of 5,000 shares under the 2005 Plan (after giving effect to 776,000 Forfeited Shares returned to the Plan in 2014) to grant 651,000 stock options and 130,000 shares of WebMD Restricted Stock.

“Forfeited Shares” eligible to be returned to the pool of shares available for grant under the 2005 Plan consist solely of unexercised stock options and unvested shares of WebMD Restricted Stock that are forfeited as a result of 2005 Plan participants leaving WebMD or that are voluntarily surrendered by participants. We are unable to estimate the number of Forfeited Shares that may be available in future periods since we cannot predict when employees will leave WebMD, the primary way that Forfeited Shares occur. Accordingly, in determining the size of the increase in shares available for grant for which to seek stockholder approval in this Proposal 3, the Compensation Committee could not assume any specific amount of Forfeited Shares that would become available after August 13, 2014. However, we believe that the amount of Forfeited Shares is likely to be significantly lower in the remainder of 2014 and in 2015 than it has been in corresponding periods in the recent past.

 

   

Other Grants.    The only grants made outside of the 2005 Plan since January 1, 2010 were the grants of 45,000 shares of WebMD Restricted Stock and options to purchase 1,000,000 shares of WebMD Common Stock made to Mr. Redmond in 2012, which were approved by the Compensation Committee, in reliance on NASDAQ Listing Rule 5635(c)(4), as an inducement to Mr. Redmond to enter into employment with WebMD. Options to purchase 500,000 shares of WebMD Common Stock and 22,500 shares of WebMD Restricted Stock were forfeited by Mr. Redmond when he left WebMD and are not available for reissuance. On September 5, 2013, Mr. Redmond received 33,237 shares of WebMD Common Stock upon net settlement of his exercise of options to purchase 250,000 shares of WebMD Common Stock, with the remaining 216,763 shares being retained by WebMD to pay the exercise price and to satisfy the minimum tax withholding requirements arising from the exercise. On June 13, 2014, Mr. Redmond received 57,841 shares of WebMD Common Stock upon net settlement of his exercise of options to purchase 250,000 shares of WebMD Common Stock, with the remaining 192,159 shares being retained by WebMD to pay the exercise price and to satisfy the minimum tax withholding requirements arising from the exercise.

Considerations Relating to Overhang.    We had outstanding, as of August 13, 2014, 39,448,095 shares of WebMD Common Stock, including unvested shares of WebMD Restricted Stock. Accordingly, our approximately 9.4 million outstanding options and unvested shares of WebMD Restricted Stock (commonly referred to as the “overhang”) represent approximately 23.7% 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

 

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Proposal 3. However, the 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 41.9 million shares of its Common Stock through issuer tender offers and other repurchases. The amount repurchased is equal to approximately 106.2% of our 39,448,095 outstanding shares of Common Stock (as of August 13, 2014) and is approximately four times than 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;

 

   

during 2012, 7,090,076 shares;

 

   

during 2013, 11,794,395 shares; and

 

   

during 2014 (through August 13, 2014), 2,484,087 shares.

The Compensation Committee believes that the reduction in the number of outstanding shares resulting from the large stock repurchases by WebMD in recent years is a key 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 9.4 million options and unvested shares of WebMD Restricted Stock would represent approximately 11.5% of the approximately 81.4 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 approximately 67% of its current 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. The Compensation Committee believes that this allows WebMD to pay less cash compensation to these senior employees and, accordingly, to increase the alignment of the interests of these senior employees with the interests of WebMD stockholders.

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, if Proposal 3 is approved by stockholders, the 2005 Plan would authorize performance-based stock awards that would give WebMD the flexibility to structure future stock-based bonus opportunities as performance-based within the meaning of Section 162(m).

If we do not obtain stockholder approval of Proposal 3, the 2005 Plan will remain in effect, but without an increase in the number of shares issuable under Plan and without WebMD being able to take certain deductions under Section 162(m) of the Internal Revenue Code of 1986, as amended, for certain future performance-based grants, as discussed under “Summary of the 2005 Plan – Performance Grants” below.

 

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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.

* * * *

As of August 15, 2014, the market price of our Common Stock, based upon the Nasdaq Official Closing Price, was $47.55 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 (reflecting the amendments contemplated by this Proposal 3 and all prior amendments), 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 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 21,575,000 shares of WebMD Common Stock is the maximum number of shares issuable under the 2005 Plan (which includes shares granted under the 2005 Plan since its inception in 2005) and, as of August 13, 2014, approximately 600,000 shares were available for future grant under the 2005 Plan. Approval of Proposal 3 would increase the maximum aggregate amount issuable under the 2005 Plan to 22,975,000 shares by adding 1,700,000 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 the exercise of a stock option or the vesting of 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.

 

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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.

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 (a) the shares that were available for grant on October 21, 2010 plus (b) all shares added to the 2005 Plan at or after the 2010 Annual Meeting of Stockholders. As of August 13, 2014, approximately 160,000 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 1,700,000 shares to be added to the shares available for grant under the 2005 Plan. Accordingly, approval of Proposal 3 would allow up to 340,000 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 August 13, 2014, approximately 1,650 officers and employees of WebMD and its subsidiaries (including all of its executive officers), as well as each of its nine Non-Employee Directors, are eligible to receive grants under the 2005 Plan.

As more fully described in “Non-Employee Director Compensation” above and in “—Annual Awards to Non-Employee Directors” below, WebMD’s non-employee directors receive automatic annual grants of options to purchase 13,200 shares on January 1 of each year until 2015, 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. In addition, the annual retainers for service by non-employee directors on the Board and its Committees have generally been paid in stock granted under the 2005 Plan. 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, except that the Compensation Committee plans to consider, after the annual automatic grants cease to occur under the terms of the 2005 Plan, making discretionary annual grants beginning on January 1, 2016 with similar timing and terms as the automatic annual grants described above.

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;

 

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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 (or, if the Chief Executive Officer is not a member of the Board of Directors, the Chairman of the Board), 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; provided, however, that (a) no option may be exercised more than ten years following the date of grant and (b) 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.

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, the methods of settlement, the 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; provided, however, that no stock appreciation right may be exercised more than ten years following the date 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

 

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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 until 2015 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.

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;

 

   

WebMD’s stock price;

 

   

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;

 

   

the achievement by WebMD or a business unit, or one of WebMD’s subsidiaries, of a specified target, or target growth in, net income, revenues, 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. If we do not obtain stockholder approval of Proposal 3, the 2005 Plan will remain in effect, but without WebMD being able to take certain deductions under Section 162(m) of the Internal Revenue Code, for certain grants that would otherwise meet the requirements described above.

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

 

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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