AMERICAN HEALTHWAYS INC
EMPLOYMENT AND NON-COMPETE AGREEMENT
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>g70476ex10-2.txt
<DESCRIPTION>EMPLOYMENT AND NON-COMPETE AGREEMENT
<TEXT>

<PAGE>   1
                                                                    Exhibit 10.2

                      EMPLOYMENT AND NON-COMPETE AGREEMENT

         This Employment and Non-Compete Agreement entered into this 5th day of
June, 2001, by and between American Healthways, Inc., a Delaware corporation
with its principal place of business at 3841 Green Hills Village Drive,
Nashville, Tennessee 37215 ("Company") and Richard R. Rakowski ("Officer").

                               W I T N E S S E T H

         I. Employment. In consideration of the mutual promises and agreements
contained herein, the Company employs Officer and Officer hereby accepts
employment under the terms and conditions hereinafter set forth.


         II. Duties. Officer is engaged as President of the Company. During the
term of this Agreement, Officer shall also serve without additional compensation
in such other offices of the Company or its subsidiaries or affiliates to which
he may be elected or appointed by the Board of Directors or by the Chief
Executive Officer of the Company. No such election or appointment shall increase
or diminish his responsibilities, authority or workload or be inconsistent with
his position as President of the Company.

         III. Term. Subject to the terms and conditions set forth herein,
Officer shall be employed hereunder for a term of two (2) years beginning on
June 5, 2001 and terminating on June 4, 2003 (the "Expiration Date") unless
sooner terminated or further extended as hereinafter set forth. The Expiration
Date shall be automatically extended for one additional year at the end of the
second year of this Agreement and at the end of each year thereafter (so that
the term of this Agreement shall be extended automatically for one year and no
more), unless the Company notifies Officer in writing (the "Termination Notice")
on or before sixty (60) days prior to the end of the contract year that this
automatic extension provision is canceled and is of no further force and effect.
Notwithstanding the automatic extension of the Expiration Date or any other
provisions herein, this Agreement shall expire on the date that Officer becomes
65 years of age.

         Notwithstanding any other provision hereof to the contrary, if there
occurs an Acquisition of the Company as defined in Section XX hereof, this
Agreement shall be renewable for one (1) additional two-year term, at Officer's
option, exercisable by him by written notice to the Company within sixty (60)
days of the Acquisition. The renewal term shall commence on the date of the
Acquisition and the Expiration Date shall be extended automatically for a period
two years from the date of the Acquisition. In the event of such an extension of
the term, all other provisions of this Agreement shall remain in full force and
effect, including the provision in this Section III for automatic extensions for
successive one (1) year period after expiration of the two year term.

         Notwithstanding any other provision herein to the contrary, upon such
Acquisition and exercise by the Officer of the option to extend the term for two
(2) years, Officer may elect to resign by written notice to the Company during
the period commencing on the date of the Acquisition and ending 180 days after
the date of the Acquisition. Upon the resignation of Officer within this time
period, Company shall



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pay to Officer within sixty (60) days of the date of his resignation a lump-sum
payment equal to seventy-five percent (75%) of the Minimum Salary provided for
in Section IV hereof which Officer is entitled to receive over the remaining
term of this Agreement (as extended in the preceding paragraph to a date two (2)
years after the date of the Acquisition). Upon payment of this lump sum and upon
acceptance by Officer of this payment in full satisfaction of Company's
obligations hereunder, this Agreement shall become null and void; provided,
however, that the restrictive covenants contained in Section XI hereof,
including the enforcement provisions, shall continue to apply to Officer for the
periods specified in Section XI after his termination of employment. Except as
set forth in this Section III, and except in the case of termination for Good
Reason, Officer shall not be entitled to any severance benefits under this
Agreement after a voluntary termination of employment.

         IV. Compensation. For all duties rendered by Officer, the Company shall
pay Officer a minimum salary of $325,000 per year ("Minimum Salary"), payable in
equal monthly installments at the end of each month. In addition thereto,
commencing one year from the start of this Agreement and annually thereafter
should this Agreement be extended, the Minimum Salary shall be increased and
adjusted upward, based upon any increase in the Consumer Price Index for Urban
Wage Earners and Clerical Workers, U.S. All City Average Report, of the U.S.
Bureau of Labor Statistics (the "Consumer Price Index") or such index fulfilling
the same or similar purpose in the event the Consumer Price Index is no longer
maintained, in an amount not to exceed 6%. For purposes of determining the
increase in the Minimum Salary, the base month used in the Consumer Price Index
shall be the first full month preceding the commencement of this Agreement. Such
increase shall not be made retroactive for the first year and such increase
shall be made, no more frequently than annually, based upon any such increase in
the Consumer Price Index. In determining the amount of the annual increase based
on any increase in the Consumer Price Index, the percentage of increase in the
Consumer Price Index shall be multiplied times the Minimum Salary plus all other
salary increases previously granted by the Board of Directors to Officer and
plus all previous adjustments based upon increases in the Consumer Price Index
("Base Salary"). In addition thereto, each year beginning June 5, 2002,
Officer's compensation will be reviewed by the Chief Executive Officer of the
Company and, after taking into consideration performance, the Chief Executive
Officer of the Company may increase Officer's Base Salary. Should such increase
be equal to or greater than the cost of living increase, or 6%, no cost of
living increase will be granted for that year. Officer shall participate in the
Company's performance bonus plan and any bonuses paid under such plan shall be
in addition to the Base Salary provided for in this Agreement but shall not be
included as part of Base Salary for the purpose of determining the increase or
adjustment based upon the Consumer Price Index. All compensation payable
hereunder shall be subject to withholding for federal income taxes, FICA and all
other applicable federal, state and local withholding requirements.

         In addition, the Company hereby grants Officer options to purchase
200,000 shares of the Company's common stock pursuant to a stock option
agreement in the form of Exhibit A attached hereto and 62,625 shares of the
Company's common stock pursuant to a stock option agreement in the form of
Exhibit B attached hereto.

         As additional compensation to the Officer for entering into the
non-competition provisions of Section XI(b) of this Agreement, simultaneously
with execution of this Agreement, the Company hereby pays Officer $350,000.

         V. Extent of Service. Officer shall devote substantially all of his
working time, attention and energies to the business of the Company and shall
not during the term of this Agreement take directly or indirectly an active role
in any other business activity without the prior written consent of the Chief
Executive Officer of the Company; but this Section shall not prevent Officer
from making real estate or




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other investments of a passive nature or from participating without compensation
in the activities of a nonprofit charitable organization where such
participation does not require a substantial amount of time and does not
adversely affect his ability to perform his duties under this Agreement. Officer
shall not serve on the board of directors of an entity outside of the Company
and its affiliates without the prior approval of the Chief Executive Officer of
the Company.

         VI. Disability. During any period in which Officer fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness,
Officer shall continue to receive his Base Salary until his employment is
terminated hereunder. In the case of incapacity due to physical or mental
illness resulting in Officer being absent from his duties hereunder on a full
time basis for more than ninety (90) consecutive days or for more than one
hundred and twenty (120) days in any consecutive six (6) month period or in the
case of a determination by the Board of Directors that Officer is permanently
and totally disabled from performing his duties hereunder, the Company may
terminate Officer's employment hereunder by the delivery of written notice of
termination. In the event the Company so terminates Officer under this Section,
such termination shall be considered termination without just cause and the
Company shall pay Officer such amounts and provide such benefits as are required
by Section VIII hereof, reduced by the benefits payable to Officer under the
Company's disability insurance policies.

         For purposes of this Section, the determination of whether Officer is
incapacitated due to physical or mental illness and therefore disabled shall be
made by the Chief Executive Officer of the Company upon advice of a licensed
physician.

         In the event of Officer's incapacity due to physical or mental illness,
Officer shall be entitled to participate in the Company's health insurance and
life insurance programs so long as is permitted under the provisions of these
coverages. If Officer is no longer eligible for coverage in the Company's health
insurance plan, the Company shall pay the difference between the cost of COBRA
medical insurance coverage (available after active eligibility has ended) and
Officer's contribution to the plan immediately preceding the disability but in
no event shall the Company pay this difference for any period beyond the
unexpired term of this Agreement or beyond the period of Officer's eligibility
to participate in COBRA health insurance benefits. Following Officer's
termination for disability, Officer's benefits for past participation in the
Company's bonus, capital accumulation and stock option plans shall be determined
in accordance with the provisions of those plans and Officer shall not be
eligible for further participation in these plans beyond the date of
termination.

         VII. Termination for Just Cause. For purposes of this Agreement, the
Company shall have the right to terminate Officer for "just cause" if, in the
good faith opinion of the Chief Executive Officer of the Company, Officer is
guilty of (i) intoxication while on duty, (ii) theft or dishonesty in the
conduct of the Company's business, (iii) conviction of a crime involving moral
turpitude, (iv) willful and continued neglect or gross negligence by Officer in
the performance of his duties as an Officer after a written demand for
substantial performance improvement is delivered to Officer by the Chief
Executive Officer, which demand specifies and identifies the manner in which
Officer was willfully neglectful or grossly negligent, and Officer fails to
comply with such demand within a reasonable period of time as determined by the
Chief Executive Officer or (v) a material violation of a material Company Policy
or a material Code of Conduct. For purposes of this Section VII, determination
of a violation shall be made by the Chief Executive Officer of the Company. In
making such determination, the Chief Executive Officer of the Company shall not
act unreasonably or arbitrarily.

         VIII. Termination Without Just Cause. Officer's employment under this
Agreement may be




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terminated (i) by the Company at any time "without just cause" by providing
Officer with written notice and (ii) by Officer at any time within 90 days
following an event which constitutes Good Reason (as defined in Section XVIII).
Officer's termination date shall be deemed the date Officer receives his written
notice of termination from the Company or the date the Company receives notice
from the Officer of his termination in accordance with Section VIII(ii) herein.
In the event of such termination:

               a.   Subject to compliance by Officer with the provisions of
                    Section XI herein, the Company shall pay Officer from the
                    termination date for a total of eighteen (18) months or the
                    remaining term of this Agreement, whichever is greater,
                    monthly during his lifetime, an amount equal to his monthly
                    Base Salary on the termination date.

               b.   Officer shall cease as of the termination date his further
                    participation in the Company's stock option plans, capital
                    accumulation plans, bonus plans, monthly automobile
                    allowance and any other benefit or compensation plan in
                    which Officer participated or was eligible to participate
                    except as set forth in Section VIII(c) below. The Officer's
                    termination date shall be utilized for any vesting
                    provisions of the plans listed above in this subparagraph
                    (b).

               c.   Following termination by the Company without just cause,
                    Officer shall be eligible to obtain COBRA health insurance
                    coverage under the Company's health insurance plan for a
                    period of time generally available to other participants
                    eligible for such coverage. If the Officer elects this COBRA
                    health insurance coverage, Officer's contribution to such
                    coverage will continue at rates contributed by the Company's
                    other officers as may be in effect from time to time while
                    the Officer's COBRA health insurance coverage is in place.
                    While life and disability insurance coverage cannot be
                    provided following the Officer's termination under the terms
                    of these group insurance plans, the Company will pay to
                    Officer the equivalent amount of the Company's contribution
                    to the premiums for these coverages for the remaining
                    payment term of this contract in an amount equal to the
                    amount contributed by the Company for these coverages for
                    other officers of the Company in effect while Officer's
                    coverage following termination is in place. If Officer
                    maintains COBRA health coverage with the Company upon new
                    employment following termination from the Company, the full
                    cost of the COBRA health insurance coverage shall be the
                    responsibility of the Officer. In addition, upon new
                    employment following termination from the Company, the
                    Company's reimbursement of life and disability insurance
                    premium contributions will also terminate.

               d.   No payments of Base Salary or of any other type or character
                    shall be made to Officer after Officer becomes sixty five
                    (65) years of age.

               e.   The Company shall be entitled to offset and reduce any
                    payments due to Officer hereunder by the amount earned by
                    Officer in any active employment that he may receive during
                    the remaining unexpired payment term of this Agreement from
                    any other source whatsoever, except said funds shall not
                    include income



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                    from dividends, investments or passive income. As a
                    condition for Officer receiving payments from the Company,
                    he agrees to furnish Company annually with full information
                    regarding such other employment, to permit inspection of his
                    records regarding any such employment and to provide a copy
                    of his federal income tax returns for such periods on a
                    timely basis.

               f.   The Company shall be entitled to offset and reduce any
                    payments due to Officer hereunder by the amounts of
                    unemployment insurance, social security insurance or like
                    benefits received by Officer.

               g.   All payments hereunder will cease upon the death of Officer.


         IX. Termination by Officer. Officer may terminate his employment
hereunder at any time upon sixty (60) days written notice. Upon such termination
by Officer, other than termination in accordance with Section VIII (ii) or
Section III herein, the Company shall pay the Officer his Base Salary due
through the date on which his employment is terminated at the rate in effect at
the time of notice of termination and all monies and benefits accrued for him to
such date. The Company shall then have no further obligation to Officer under
this Agreement.

         X. Termination Upon Death. If Officer dies during the term of this
Agreement, the Company shall pay his Base Salary due through the date of his
death at the rate in effect at the time of his death. The Company shall then
have no further obligations to Officer or any representative of his estate or
his heirs except that Officer's estate or beneficiaries as the case may be shall
be paid such amounts as may be payable under the Company's life insurance
policies and other plans as they relate to benefits following death then in
effect for the benefit of Officer.

         XI. Restrictive Covenants.


               a.   Confidential Information. Officer agrees not to disclose,
                    either during the time he is employed by the Company or
                    following termination of his employment hereunder, to any
                    person other than a person to whom disclosure is necessary
                    in connection with the performance of his duties or to any
                    person specifically authorized by the Chief Executive
                    Officer of the Company any material confidential information
                    concerning the Company, including, but not limited to
                    identities of customers and prospective customers,
                    identities of individual contacts at customers, information
                    about Company colleagues, models and strategies, contract
                    formats, business plans and related operation methodologies,
                    financial information or measures, data bases, computer
                    programs, treatment protocols, operating procedures and
                    organization structures.

               b.   Non-Competition. During the term of employment provided
                    hereunder and continuing until the later of (i) three (3)
                    years from the date of this Agreement and (ii) during the
                    period while any payments are being paid to Officer pursuant
                    to the terms of Section VIII(a) of this Agreement and for a
                    period of one (1) year



<PAGE>   6

                    thereafter, Officer will not (a) directly or indirectly own,
                    manage, operate, control or participate in the ownership,
                    management, operation or control of, or be connected as an
                    Officer, employee, partner, director or otherwise with, or
                    have any financial interest in, or aid or assist anyone else
                    in the conduct of, any business which is in competition with
                    any business conducted by the Company or which Officer knew
                    or had reason to know the Company was actively evaluating
                    for possible entry, provided that ownership of five (5)
                    percent or less of the voting stock of any public
                    corporation shall not constitute a violation hereof.

               c.   Non-Solicitation. During the term of employment provided for
                    hereunder and continuing until the later of (i) three (3)
                    years from the date of this Agreement and (ii) during the
                    period while any payments are being paid to Officer pursuant
                    to the terms of Section VIII(a) of this Agreement and for a
                    period of one (1) year thereafter, Officer will not (a)
                    directly or indirectly solicit business which could
                    reasonably be expected to conflict with the Company's
                    interest (including Empower Health, Inc. as predecessor)
                    from any entity, organization or person which has contracted
                    with the Company, which has been doing business with the
                    Company, from which the Company was soliciting business at
                    the time of the termination of employment or from which
                    Officer knew or had reason to know that Company was going to
                    solicit business at the time of termination of employment,
                    or (b) employ, solicit for employment, or advise or
                    recommend to any other persons that they employ or solicit
                    for employment, any employee of the Company unless such
                    employee had not been employed by the Company at any time
                    within the prior six (6) months.

               d.   Consultation. Officer shall, at the Company's written
                    request, during the period he is receiving any payments from
                    the Company under Section VIII(a) of this Agreement,
                    cooperate with the Company in concluding any matters in
                    which Officer was involved during the term of his employment
                    and will make himself available for consultation with the
                    Company on other matters otherwise of interest to the
                    Company. The Company agrees that such requests shall be
                    reasonable in all respects and will consider Officer's time
                    required for other employment and/or employment search.

               e.   Enforcement. Officer and the Company acknowledge and agree
                    that any of the covenants contained in this Section XI may
                    be specifically enforced through injunctive relief but such
                    right to injunctive relief shall not preclude the Company
                    from other remedies which may be available to it.

               f.   Continuing Obligation. Notwithstanding any provision to the
                    contrary or otherwise contained in this Agreement, the
                    Agreement and covenants contained in this Section XI shall
                    not terminate upon Officer's termination of his employment
                    with the Company or upon the termination of this Agreement
                    under any other provision of this Agreement.

               g.   Additional Consideration. Officer acknowledges and agrees
                    that he is entering




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                    into the covenants contained in this Section XI as an
                    inducement to the Company to acquire, by way of merger,
                    Empower Health, Inc., of which officer is a stockholder,
                    pursuant to the terms of that certain Stock Purchase
                    Agreement, dated as of the date hereof, and in consideration
                    of the mutual promises and agreements otherwise contained in
                    this Agreement.

         XII. Vacation. During each year of this Agreement, Officer shall be
entitled to four (4) weeks vacation.

         XIII. Benefits. In addition to the benefits specifically provided for
herein, Officer shall be entitled to participate while employed by the Company
in all benefit plans maintained by the Company for officers generally according
to the terms of such plans, including life insurance coverage and an automobile
allowance.

         XIV. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to his residence in the case of Officer, or to its principal office in the
case of the Company and the date of mailing shall be deemed the date which such
notice has been provided.

         XV. Waiver of Breach. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.

         XVI. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company and the heirs and legal representatives of the
Officer. The Officer acknowledges that the services to be rendered by him are
unique and personal, and Officer may not assign any of his rights or delegate
any of his duties or obligations under this Agreement.

         XVII. Entire Agreement. This instrument contains the entire agreement
of the parties and supersedes all other prior agreement, employment contracts
and understandings, both written and oral, express or implied with respect to
the subject matter of this Agreement and may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. The laws of the
State of Tennessee shall govern this Agreement.

         XVIII. Headings. The sections, subjects and headings of this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

         XIX. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all the parties hereto.

<PAGE>   8

         XX. Definitions. For purposes of this Agreement, the following
definitions shall apply:

               a.   "Good Reason" shall exist if:

                    (i)  there is a significant change in the nature or scope of
                         the Officer's authority and responsibilities;

                    (ii) there is a reduction in Officer's rate of Base Salary
                         or (for reasons other than Company performance) overall
                         compensation; or

                   (iii) the Company changes the principal location in which
                         Officer is required to perform services outside a
                         fifty-mile radius of Metropolitan Nashville without
                         Officer's consent.

               b.   An "Acquisition" shall be deemed to mean:

                    (i)  a transaction or series of transactions (occurring
                         within 24 months of each other) in which all or any
                         substantial (defined as more than fifty percent (50%))
                         part of the assets of the Company have been acquired
                         through a merger, business combination, purchase or
                         similar transaction by any entity or person, other than
                         an entity controlled by the Company.

                    (ii) A transfer or series of transfers (occurring within 24
                         months of each other) in which securities representing
                         control of the Company ("control" being defined as
                         greater than fifty percent (50%) of the outstanding
                         voting power of the outstanding securities of the
                         Company) are acquired by or otherwise are beneficially
                         owned, directly or indirectly, by any corporation,
                         person or "group" (as such term is used in Section
                         13(d)(3) of the Securities Exchange Act of 1934).

         XXI. Cost of Enforcement; Interest. In the event that Officer collects
any part or all of the payments or benefits due hereunder or otherwise enforces
the terms of this Agreement following a dispute with Company regarding the terms
of this Agreement by or through a lawyer or lawyers, Company will pay all costs
of such collection or enforcement, including reasonable attorneys' and
accountants' fees and other out-of-pocket expenses incurred by the Officer, up
to that point when Company offers to settle the dispute for an amount equal to
the amount which the Officer actually recovers. In addition, Company shall pay
to Officer interest on all or any part of the payments and benefits ultimately
determined to be due under this Agreement that are not paid or provided when due
at a rate equal to the prime rate as quoted in the Wall Street Journal.


<PAGE>   9

         XXII. Arbitration. In the event of a dispute regarding the terms of
this Agreement, Officer may elect, in lieu of litigation, to have the dispute
decided by arbitration. All arbitration pursuant to this Agreement shall be
determined in accordance with the rules of the American Arbitration Association
then in effect, by a single arbitrator if the parties shall agree upon one, or
otherwise by three arbitrators, one appointed by each party, and a third
arbitrator appointed by the two arbitrators selected by the parties, all
arbitrators from a panel proposed by the American Arbitration Association. If
any party shall fail to appoint an arbitrator within thirty (30) days after it
is notified to do so, then the arbitration shall be accomplished by a single
arbitrator. Unless otherwise agreed by the parties hereto, all arbitration
proceedings shall be held in Nashville, Tennessee. Each party agrees to comply
with any award made in any such proceedings, which shall be final, and to the
entry of judgment in accordance with applicable law in any jurisdiction upon any
such award. The decision of the arbitrators shall be tendered within sixty (60)
days of final submission of the parties in writing or any hearing before the
arbitrators and shall include their individual votes. If Officer is entitled to
any award pursuant to the determination reached in the arbitration proceedings
that is greater than that proposed by the Company prior to arbitration, Officer
shall be entitled to payment by Company of all attorneys' and accountants' fees,
costs (including expenses of arbitration) and other out-of-pocket expenses
incurred in connection with the arbitration.

         XXIII. Indemnification. The Company shall indemnify Officer against all
costs and expenses (including reasonable attorney's fees), judgments, fines,
losses, claims, damages and liabilities relating to actions or omissions arising
out of Officer's being a director, officer, employee or agent of the Company to
the fullest extent permitted under the Delaware General Corporation Law.


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         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written.

                                -----------------------------------------------
                                Richard R. Rakowski

                                AMERICAN HEALTHWAYS, INC.


                                By:
                                    -------------------------------------------
                                      Title: Chairman & Chief Executive Officer

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</DOCUMENT>
