Employment Agreement - Healtheon/WebMD Corp. and K. Robert Draughon
HEALTHEON/WEBMD CORPORATION
3399 PEACHTREE STREET NE
400 THE LENOX BUILDING
ATLANTA, GEORGIA 30326
September 12, 2000
Mr. K. Robert Draughon
Healtheon/WebMD Corporation
3399 Peachtree Street NE
400 The Lenox Building
Atlanta, Georgia 30326
Dear Rob:
The purpose of this letter is to evidence the agreement between you and
Healtheon/WebMD Corporation (the "Company") concerning changes to your
employment arrangements with the Company.
This letter is intended as an amendment to your existing employment
arrangement, whether or not in writing, with the Company or its subsidiaries. To
the extent this letter is inconsistent with those arrangements, this letter will
govern.
1. DUTIES AND RESPONSIBILITIES.
(a) IN GENERAL. You shall have all of the responsibilities,
duties, powers and authorities which are consistent with your position as
Executive Vice President, Business Development of the Company, and in this
regard shall be responsible for all business development affairs of the Company
and its subsidiaries, and shall have such other reasonable and lawful
responsibilities commensurate with your position as shall be assigned to you by
the Chief Executive Officer of the Company (or Co-Chief Executive Officers, if
there are more than one), all of which shall be consistent with the
responsibilities of similarly situated executives of comparable companies in
similar lines of business.
(b) REPORTING RELATIONSHIPS. You will report directly and solely
to the Chief Executive Officer of the Company or Co-Chief Executive Officers if
there shall be more than one. All other employees of the Company and its
subsidiaries whose principal function is the performance of business development
will report directly to you.
(c) BASE OF OPERATIONS; RESIDENCE. Your base of operations shall
be in Atlanta, Georgia.
2. BASE SALARY; BONUS. Effective on the date hereof your annual
base salary is increased to $450,000, which amount shall be subject to increase
upon periodic review by the
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Company. You shall also be entitled to participate in any bonus program
established for the benefit of senior executive officers of the Company.
3. ADDITIONAL OPTION GRANTS. On September 12, 2000, the
Compensation Committee of the Board of Directors of the Company granted to you
additional stock options to acquire 250,000 shares of the common stock of the
Company at an exercise price of $16.125 per share (the "New Options"). The New
Options were granted under the Company's 2000 Long-Term Incentive Plan (the
"Plan"), which together with the terms contained in this letter, sets forth the
terms and conditions of the New Options and is incorporated herein by reference.
The New Options are non-qualified stock options and have a term of ten years
from the date of grant. The New Options will vest and become exercisable as to
1/48th of the shares covered thereby on the 12th day each month from October
2000 to and including September 2004, subject to Section 4 below.
4. ACCELERATED VESTING AND SEVERANCE COMPENSATION FOLLOWING
TERMINATION. Upon the termination of your employment as a result of the event
described in the first column below, your Equity Compensation (defined below)
shall vest as set forth in the corresponding second column (vesting to include
the waiver of repurchase rights with respect to any restricted stock) and you
shall become entitled to severance compensation and benefits as set forth in the
corresponding third column, except that to the extent that the provisions of the
plans or written agreements under which Equity Compensation has previously been
awarded to you currently provide for vesting, post-termination exercisability,
or severance compensation and benefits more favorable to you than those
described in this Section 4, those provisions shall apply.
<TABLE>
<CAPTION>
------------------------------ --------------------------------- ---------------------------------
EVENT VESTING OF EQUITY COMPENSATION SEVERANCE COMPENSATION
------------------------------ --------------------------------- ---------------------------------
<S> <C> <C>
Termination by the Company for Any Equity Compensation that has No further compensation or
Cause (defined below) not already vested shall be benefits except as currently
forfeited; any vested Equity provided in your existing written
Compensation shall continue to be employment arrangement, if any.
exercisable until the 10th
anniversary of the date of grant.
------------------------------ --------------------------------- ---------------------------------
</TABLE>
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<TABLE>
<CAPTION>
---------------------- -------------------------------- --------------------------------------------
EVENT VESTING OF EQUITY COMPENSATION SEVERANCE COMPENSATION
---------------------- -------------------------------- --------------------------------------------
<S> <C> <C>
Termination by the All Equity Compensation shall (1) Base salary (less applicable
Company without Cause become immediately vested and withholding) shall continue to be paid for
exercisable and shall continue 12 months following termination; and
to paid for 12 months following
be exercisable until the 10th (2) The Company shall continue benefits to
termination; and anniversary of you and/or your family for 12 months
the date of grant. following termination at least equal to the
benefits that would have been provided under
the health and welfare benefit plans and
programs of the Company in effect on the
date of your termination.
---------------------- -------------------------------- --------------------------------------------
Resignation by you for Same as termination by the Same as termination by the
Good Reason (defined Company without Cause. Company without Cause.
below)
---------------------- -------------------------------- --------------------------------------------
Resignation by you Same as termination by the Same as termination by the
without Good Reason Company with Cause. Company with Cause.
(defined below)
---------------------- -------------------------------- --------------------------------------------
Your death or Same as termination by the Same as termination by the
Disability (defined Company without Cause. Company without Cause.
below)
---------------------- -------------------------------- --------------------------------------------
</TABLE>
For purposes of this Section 4, the following definitions shall apply:
(a) "Cause" shall mean (i) your willful and continued failure to
perform substantially your duties with the Company (other than
any such failure resulting from incapacity due to physical or
mental illness, and specifically excluding any failure, after
reasonable efforts, to meet performance expectations), after a
written demand for substantial performance is delivered to you
by the Chief Executive Officer or the Board of Directors of
the Company which specifically identifies the manner in which
the Chief Executive Officer or the Board believes that you
have not substantially performed your duties, or (ii) your
willful engaging in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company. For
purposes of this provision, no act or failure to act, shall be
considered "willful" unless
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it is done, or omitted to be done, by you in bad faith or
without reasonable belief that your action or omission was in
the best interests of the Company.
(b) "Good Reason" shall mean any of the following, without your
written consent, (i) a diminution in your position, authority,
duties or responsibilities, (ii) a requirement that you report
to any person other than the Chief Executive Officer, or
Co-Chief Executive Officers if there are more than one, of the
Company, (iii) a reduction in your compensation or fringe
benefits, (iv) a breach by the Company of this letter or any
other material agreement between you and the Company, or (v) a
change in the location from which you are required to perform
your services to the Company. If you believe any of the above
events or circumstances has occurred, you shall give the
Company notice of such event or circumstance. The Company
shall have 30 days after such notice to cure any claimed event
or circumstance of Good Reason. The Company shall notify you
of the timely cure of any claimed event or circumstance of
Good Reason and the manner in which such cure was effected,
and upon receipt of such written notice of cure from the
Company and implementation of an effective cure by the Company
within such 30 day period, any notice by you of termination
based on such claimed Good Reason shall be deemed withdrawn.
(c) "Equity Compensation" shall mean all of your outstanding
options to acquire common and other stock of the Company
(including without limitation the New Options), all of your
restricted stock of the Company, and all of your other
contingent compensation subject to vesting, in each case
whether currently owned or hereafter acquired by you.
5. GROSS-UP PAYMENT.
(i) Anything in this letter to the contrary or any
termination of the Equity Compensation notwithstanding, in the event it shall be
determined that any payment or distribution or benefit received or to be
received by you pursuant to the terms of this letter or any other payment or
distribution or benefit made or provided by the Company, or any of its
subsidiaries and affiliates, to or for your benefit (whether pursuant to this
letter or otherwise and determined without regard to any additional payments
required under this Paragraph 5) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") or any interest or penalties are incurred by you with respect to
such excise tax (such excise tax, together with any such interest and penalties,
is hereinafter collectively referred to as the "Excise Tax"), then you shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by you of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
and employment taxes (and any interest and penalties imposed with respect
thereto) and the Excise Tax imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed
upon the Payments and (y) the product of any deductions actually disallowed
under Section 68 of the Code solely as a direct result of the inclusion of the
Gross-Up Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-Up Payment is to be made. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to (i) pay federal income taxes at the
highest marginal rates of
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federal income taxation for the calendar year in which the Gross-Up Payment is
to be made and (ii) pay applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the Gross-Up Payment is
to be made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.
(ii) Subject to the provisions of Paragraphs 5(i) and
5(iii), all determinations required to be made under this Paragraph 5, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the Company's certified public accounting firm (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and you within 15 business days of the receipt of notice from you or the Company
that there has been a Payment, or such earlier time as is requested by the
Company. All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to this Paragraph 5,
shall be paid by the Company to you within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and you. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Paragraph 5(iii) and you
thereafter are required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for your benefit.
(iii) You shall notify the Company in writing of any claim
by the U.S. Internal Revenue Service (the "IRS") that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
you are informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
You shall not pay such claim prior to the expiration of the 30-day period
following the date on which you gave such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies you in writing prior to the expiration of such
period that it desires to contest such claim, you shall:
(a) give the Company any information reasonably requested
by the Company relating to such claim;
(b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company; and
(c) cooperate with the Company in good faith in order
effectively to contest such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall
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indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or
income and employment tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Paragraph
5(iii), the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct you to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and you shall agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs you to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to you, on an interest-free basis and shall
indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or
income and employment tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided further, that any extension of the statute
of limitations relating to payment of taxes for your taxable year with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and you shall be entitled to settle or contest, as the case may be,
any other issue (an "Other Issue") raised by the IRS or any other taxing
authority; provided, however, that if, solely as a result of any contest by the
Company pursuant to this Paragraph 5(iii), your ability to settle or otherwise
resolve any such Other Issue is delayed, then the Company will reimburse you, on
an after-tax basis, for any additional interest incurred by you as a result of
such delay.
(iv) If, after the receipt by you of an amount advanced by
the Company pursuant to Paragraph 5(iii), you becomes entitled to receive any
refund with respect to such claim, you shall (subject to the Company's complying
with the requirements of Paragraph 5(iii) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by you of an amount advanced by the
Company pursuant to Paragraph 5(iii), a determination is made that you shall not
be entitled to any refund with respect to such claim and the Company does not
notify you in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6. RESTRICTIONS ON YOUR CONDUCT.
(a) GENERAL. You understand and agree that the purpose of
the provisions of this Paragraph 6 is to protect legitimate business interests
of the Company, as more fully described below, and is not intended to eliminate
your post-employment competition with the Company per se, nor is it intended to
impair or infringe upon your right to work, earn a living, or acquire and
possess property from the fruits of your labor. You hereby acknowledge that the
post-employment restrictions set forth in this Paragraph 6 are reasonable and
that they do not, and will not, unduly impair your ability to earn a living
after the termination of this Agreement. Therefore, subject to the limitations
of reasonableness imposed by law, you shall be subject to the restrictions set
forth in this Paragraph 6.
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(b) DEFINITIONS. The following capitalized terms used in
this Paragraph 6 shall have the meanings assigned to them below, which
definitions shall apply to both the singular and the plural forms of such terms:
"COMPETITIVE SERVICES" means the delivery of information and
communications services to the healthcare industry.
"DETERMINATION DATE" means the date of termination of your
employment with the Company for any reason whatsoever or any earlier date
(during your employment) of an alleged breach of the Restrictive Covenants by
you.
"PERSON" means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or
enterprise.
"PRINCIPAL OR REPRESENTATIVE" means a principal, owner,
partner, shareholder, joint venturer, investor, member, trustee, director,
officer, manager, employee, agent, representative or consultant.
"PROTECTED CUSTOMERS" means any Person to whom the Company has
sold its products or services or solicited to sell its products or services
during the twelve (12) months prior to the Determination Date; provided,
however, that Protected Customer shall not include any Person with which you can
reasonably demonstrate that you had a pre-existing professional relationship
prior to the commencement of your employment with the Company.
"PROTECTED EMPLOYEES" means employees of the Company who were
employed by the Company at any time within six months prior to the Determination
Date and with whom you had direct, personal and continuing dealings on behalf of
the Company or whom you directly supervised.
"RESTRICTED PERIOD" means the Employment Period and a period
extending two years from the termination of your employment with the Company.
"RESTRICTIVE COVENANTS" means the restrictive covenants
contained in Paragraph 6(c) hereof.
(c) RESTRICTIVE COVENANTS.
(i) Nonsolicitation of Protected Employees. You
understand and agree that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may not be
converted to your own use. Accordingly, you hereby agree that during the
Restricted Period you shall not directly or indirectly on your own behalf or as
a Principal or Representative of any Person or otherwise solicit or induce any
Protected Employee to terminate his or her employment relationship with the
Company or to enter into employment with any other Person.
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(ii) Restriction on Relationships with Protected
Customers. You understand and agree that the relationship between the Company
and each of its Protected Customers constitutes a valuable asset of the Company
and may not be converted to your own use. Accordingly, you hereby agrees that,
during the Restricted Period, you shall not, without the prior written consent
of the Company, directly or indirectly, on your own behalf or as a Principal or
Representative of any Person, solicit, divert, take away or attempt to solicit,
divert or take away a Protected Customer for the purpose of providing or selling
Competitive Services; provided, however, that the prohibition of this covenant
shall apply only to Protected Customers with whom you had Material Contact on
the Company's behalf during the twelve (12) months immediately preceding the
termination of your employment. For purposes of this Agreement, you had
"MATERIAL CONTACT" with a Protected Customer if (a) you had direct business
dealings with the Protected Customer on the Company's behalf or (b) you were
responsible for supervising or coordinating the dealings between the Company and
the Protected Customer.
(d) ENFORCEMENT OF RESTRICTIVE COVENANTS.
(i) Rights and Remedies Upon Breach. In the
event you breach, or threaten to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the right and remedy to
enjoin, preliminarily and permanently, you from violating or threatening to
violate the Restrictive Covenants and to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company. Such right and remedy shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company at
law or in equity. In addition, the Restricted Period shall be extended for the
period of any such breach or threatened breach.
(ii) Severability of Covenants. You acknowledge
and agree that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as separate and independent covenants. Should any
part or provision of any covenant be held invalid, void or unenforceable in any
court of competent jurisdiction, such invalidity, voidness or unenforceability
shall not render invalid, void or unenforceable any other part or provision of
this Agreement. If any portion of the foregoing provisions is found to be
invalid or unenforceable by a court of competent jurisdiction because its
duration, the territory, the definition of activities or the definition of
information covered is considered to be invalid or unreasonable in scope, the
invalid or unreasonable term shall be redefined, or a new enforceable term
provided, such that the intent of the Company and you in agreeing to the
provisions of this Agreement will not be impaired and the provision in question
shall be enforceable to the fullest extent of the applicable laws.
7. MISCELLANEOUS. This letter constitutes the entire agreement
of the parties and shall supercede any and all previous contracts, arrangements
or understandings between the parties relating to the subject matter hereof, and
shall not be amended except in writing signed by each of the parties. This
Agreement shall be governed and construed in accordance with the laws of the
State of Delaware.
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Sincerely,
Healtheon/WebMD Corporation
By: /s/ W. Michael Long
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Authorized Representative
Accepted and agreed:
/s/ K. Robert Draughon
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K. Robert Draughon
September 12, 2000
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