<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1999
REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE TRIZETTO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7374 33-0761159
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
567 SAN NICOLAS DRIVE, SUITE 360, NEWPORT BEACH, CA 92660
(949) 719-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JEFFREY H. MARGOLIS, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
567 SAN NICOLAS DRIVE, SUITE 360, NEWPORT BEACH, CA 92660, (949) 719-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
K.C. SCHAAF, ESQ. KENNETH M. DORAN, ESQ.
CHRISTINE A. MILLER, ESQ. SCOTT J. CALFAS, ESQ.
TIMOTHY N. STICKLER, ESQ. JOSHUA A. KREINBERG, ESQ.
STRADLING YOCCA CARLSON & RAUTH, GIBSON, DUNN & CRUTCHER LLP
A PROFESSIONAL CORPORATION 333 SOUTH GRAND AVENUE
660 NEWPORT CENTER DRIVE, SUITE 1600 LOS ANGELES, CALIFORNIA 90071-3197
NEWPORT BEACH, CALIFORNIA 92660 (213) 229-7000
(949) 725-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH AGGREGATE OFFERING AMOUNT OF
CLASS OF SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.001 par value per share..................... $57,500,000 $15,985
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</TABLE>
(1) Includes shares of common stock which may be purchased by the Underwriters
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 5, 1999
PROSPECTUS
TRIZETTO LOGO SHARES
COMMON STOCK
-------------------------
This is an initial public offering of shares of common stock of
The TriZetto Group, Inc. The TriZetto Group is selling all of the shares
of common stock offered under this prospectus.
There is currently no public market for the shares. We anticipate that the
initial public offering price will be between $ and $ per share. We
have applied to list our common stock on the Nasdaq National Market under the
symbol "TZIX."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
------ ----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount and commissions....................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
-------------------------
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock from us at the initial public
offering price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York,
on , 1999.
-------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
ADAMS, HARKNESS & HILL
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors," before you decide to buy our common stock.
Except as otherwise noted, all information in this prospectus:
- reflects the automatic conversion of all outstanding shares of our
preferred stock into an aggregate of 6,276,224 shares of common stock
upon the closing of this offering;
- assumes outstanding options to purchase shares of common stock have not
been exercised; and
- assumes the underwriter's over-allotment option is not exercised.
THE TRIZETTO GROUP, INC.
OUR COMPANY
We are a leading healthcare application services provider and a healthcare
Internet portal. We deliver third party packaged and proprietary software
applications, Internet infrastructure and front-end portal access and
connectivity solutions to our customers in the healthcare industry. We
implement, host and manage applications and services on a broad range of
computing, networking and operating platforms. We provide access to our hosted
solutions either through Internet-based virtual private networks or through
conventional networks. In addition, we have acquired rights to deploy numerous
applications from leading healthcare software vendors, including Epic Systems,
Inc., Medic Computer Systems, Inc., Medical Manager Corporation and McKesson
HBOC, Inc. We are able to host the leading commercially available software
applications required by our customers. We have designed and implemented
proprietary connectivity and integration solutions and methods that allow us to
Internet-enable these same applications and we believe that this capability
differentiates us from our competitors. We support our application services and
healthcare Internet portal offerings with our professional consulting services.
Our customers primarily include provider groups, physician practice
management companies and managed care organizations such as health maintenance
organizations, preferred provider organizations and third party administrators.
By offering our solutions on a hosted basis, we are able to provide our
customers with comprehensive and cost predictable services with guaranteed
service quality, typically through multi-year contracts. By managing our
customers' information technology environments, we eliminate their need to
manage and support their own computer systems, networks and software, therefore
allowing them to concentrate on their core competencies.
HealthWeb(TM), our healthcare Internet portal, is designed to facilitate
the exchange of information and to enable e-commerce among all constituents of
the healthcare industry. HealthWeb is also designed to integrate and deliver the
applications that we host for our customers though an easy-to-use common browser
interface. HealthWeb is tailored to specifically address the requirements of
individual users which we expect will include most types of healthcare
professionals and administrative staff. Currently, providers use HealthWeb for
day-to-day office administration activities, connectivity to health plans and
communication with patients. Payers currently use HealthWeb for information
exchange with providers and members. We are working with our key users to
develop additional functions and we expect to deploy additional functionality as
developed.
1
<PAGE> 4
Our application services and healthcare Internet portal offer our customers
the following key benefits:
- rapid deployment and ease of connectivity of core applications;
- internet access, connectivity and functionality;
- reasonable, predictable costs;
- reliability and scalability;
- lower implementation risk;
- preservation of existing investment in legacy systems; and
- healthcare and managed care industry expertise.
Our objective is to enhance our position as a leading healthcare
application services provider and establish HealthWeb as a leading healthcare
portal. We expect to achieve this objective by offering our customers high
quality, reliable, flexible and cost-effective applications, Internet
functionality and professional consulting services. The key elements of our
strategy include:
- attracting new customers and increasing penetration of existing
customers;
- expanding our software application portfolio;
- developing and acquiring additional Internet connectivity and e-commerce
technologies;
- increasing penetration of HealthWeb;
- pursuing strategic alliances and acquisitions; and
- attracting additional information technology and industry professionals.
CORPORATE INFORMATION
TriZetto was incorporated in Delaware on May 27, 1997 as M C Health
Holdings, Inc. In October 1997, we exchanged 5,800,895 shares of our common
stock for all the equity interests in Croghan & Associates, Inc., a Colorado
corporation, and 3,716,667 shares of our common stock for all the equity
interests in Margolis Health Enterprises, Inc., a California corporation which
was an entity under our common control. Both Croghan & Associates and Margolis
Health Enterprises became our wholly-owned subsidiaries. On March 18, 1998, we
changed our name to The TriZetto Group, Inc. On February 5, 1999, in
simultaneous transactions, we acquired Creative Business Solutions, Inc., a
Texas corporation, and HealthWeb Systems, Ltd., a Texas limited partnership. All
the assets and liabilities of HealthWeb were later transferred to Creative
Business Solutions, Inc., and HealthWeb Systems, Ltd. dissolved in March 1999.
Any references to "we," "our" or "TriZetto" refer to The TriZetto Group,
Inc. and our subsidiaries. Our executive offices are located at 567 San Nicolas
Drive, Suite 360, Newport Beach, CA 92660. Our telephone number is (949)
719-2200. Our website address is www.trizetto.com. Information contained in our
website does not constitute part of this prospectus.
2
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................................. shares
Common stock to be outstanding after this offering... shares
Use of proceeds...................................... We intend to use the net proceeds from this
offering for working capital and other general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... TZIX
</TABLE>
- ---------------
The number of shares of common stock outstanding after this offering is
based on shares outstanding on June 30, 1999.
This calculation excludes:
- 2,802,628 shares of common stock issuable upon exercise of options
outstanding under our stock option plan with a weighted average exercise
price of $0.74 per share (141,532 of these options were exercisable as of
June 30, 1999 and the balance are subject to future vesting
requirements); and
- 162,595 shares of common stock issuable upon exercise of warrants
exercisable as of June 30, 1999, which warrants were exercised on August
2, 1999.
This calculation includes:
- 6,276,224 shares of common stock to be issued upon the conversion of all
outstanding shares of our preferred stock upon the closing of this
offering.
Please see "Management -- 1998 Stock Option Plan" and "Description of
Capital Stock."
RECENT DEVELOPMENTS
In May 1999, we entered into an agreement with MedPartners, Inc. to provide
hosted information technology services to MedPartners with respect to 67 groups
representing approximately 1,780 physicians while MedPartners disassociates
itself from these groups. The initial term of the agreement expires on December
31, 1999, but the agreement automatically renews for subsequent 30 day periods
unless MedPartners terminates it with 30 days written notice. MedPartners
expects to complete the disassociation process by December 31, 1999. As
MedPartners disassociates itself from each group, we have the opportunity to
enter into a new multi-year contract with the group, specifically tailored to
address its information technology needs.
As of July 31, 1999, we continue to provide services to MedPartners with
respect to 32 groups, representing approximately 1,370 physicians. Furthermore,
we have negotiated multi-year contracts with six disassociated groups,
representing 153 physicians. We are pursuing the opportunity to provide
customized application services to 38 groups on an ongoing basis, representing
1,517 physicians, or 85% of the total physicians available at the time the
MedPartners' agreement was signed. We cannot assure you that as the
disassociation process continues, we will succeed in achieving this goal.
------------------------
TriZetto(TM), HealthWeb(TM), HW(TM) and design, Directory Studio(R),
MCIS(R), Without Integration There is Chaos(R), Access Manager(TM), Exchange
Manager(TM), Enterprise Manager(TM), Plan Manager(TM), CIO Workbench(TM), Data
Manager(TM), VIO(TM), Virtual Information Officer(TM) and enabling health e
business(TM) are our logos and are our trademarks or service marks. This
prospectus also includes the tradenames and trademarks of other companies whose
mention in this prospectus is with due recognition of and without intent to
misappropriate such names or marks.
3
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business during
the periods indicated. The data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 27, 1997
(DATE OF
INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------------
1997 1998 1998 1999
------------ ------------ -------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Recurring revenue.......................... $1,191 $ 5,300 $ 2,590 $ 6,143
Consulting revenue......................... 1,328 6,131 2,463 6,508
------ ------- ------- -------
Total revenues............................... 2,519 11,431 5,053 12,651
------ ------- ------- -------
Cost of revenues:
Recurring revenue.......................... 1,250 3,967 1,662 5,059
Consulting revenue......................... 422 3,490 1,584 4,223
------ ------- ------- -------
Total cost of revenues....................... 1,672 7,457 3,246 9,282
------ ------- ------- -------
Gross profit................................. 847 3,974 1,807 3,369
------ ------- ------- -------
Operating expenses:
Research and development................... -- 1,083 592 440
Selling, general and administrative........ 672 2,885 1,173 3,005
Amortization of deferred stock
compensation(1)......................... -- 22 -- 220
Write-off of acquired in-process
technology(2)........................... -- -- -- 484
------ ------- ------- -------
Total operating expenses..................... 672 3,990 1,765 4,149
------ ------- ------- -------
Income (loss) from operations................ 175 (16) 42 (780)
Interest income.............................. 15 210 60 122
Interest expense............................. (13) (52) (25) (75)
------ ------- ------- -------
Income (loss) before provision for income
taxes...................................... 177 142 77 (733)
Provision for income taxes................... 74 82 45 274
------ ------- ------- -------
Net income (loss)............................ $ 103 $ 60 $ 32 $(1,007)
====== ======= ======= =======
Net income (loss) per share(3):
Basic...................................... $ 0.05 $ 0.01 $ 0.01 $ (0.17)
====== ======= ======= =======
Diluted.................................... $ 0.03 $ 0.00 $ 0.00 $ (0.17)
====== ======= ======= =======
Number of shares used in computing net income
(loss) per share(3):
Basic...................................... 2,065 4,937 5,066 6,070
====== ======= ======= =======
Diluted.................................... 4,074 12,783 11,380 6,070
====== ======= ======= =======
Pro forma net income (loss) per share(4)
Basic...................................... $ 0.01 $ (0.08)
======= =======
Diluted.................................... $ 0.00 $ (0.08)
======= =======
Number of shares used in computing pro forma
net income (loss) per share:
Basic...................................... 9,482 12,346
======= =======
Diluted.................................... 14,040 12,346
======= =======
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
AS OF DECEMBER 31, -------------------------------
--------------------------- PRO FORMA
1997 1998 ACTUAL AS ADJUSTED(5)
------------ ------------ -------------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 773 $ 3,681 $ 3,937
Total assets................................. 2,634 8,717 19,844
Total long-term debt and capital lease
obligations................................ 520 645 1,815
Mandatorily redeemable convertible preferred
stock...................................... -- 6,449 10,932
Total stockholder's equity (deficit)......... 563 (741) (189)
</TABLE>
- ---------------
(1) This expense relates to amortization of deferred stock compensation which
represents the difference between the deemed fair value of our common stock
and the exercise price of options at the date of grant. Deferred
compensation is amortized over the vesting period of the related options.
(2) In connection with the acquisition of Creative Business Solutions and
HealthWeb, we wrote-off $484,000 of the total purchase price to acquired
in-process technology as technological feasibility of the HealthWeb product
had not been established. See Note 10 of Notes to Consolidated Financial
Statements for an explanation of the valuation of acquired in-process
technology
(3) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing basic and
diluted net income (loss) per share.
(4) See Note 13 Notes to Consolidated Financial Statements for an explanation of
the determination of the number of shares used in computing pro forma net
income (loss) per share.
(5) Pro forma for the automatic conversion of all outstanding preferred stock
into 6,276,224 shares of common stock and adjusted to give effect to the
sale of shares of common stock offered by us at the initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."
5
<PAGE> 8
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our company. If any of the following risks actually occur, our
business, financial condition and operating results could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you could lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT IS DIFFICULT TO EVALUATE OUR
BUSINESS.
We were incorporated in May 1997 and until recently had not earned
significant revenue. Accordingly, we have a limited operating history. You must
consider the risks, uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in rapidly evolving markets. These risks and difficulties include our
ability to:
- respond effectively to the offerings of competitive providers of
healthcare information technology and services;
- increase awareness and market penetration of our brand;
- maintain our existing, and develop new, affiliate relationships;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
We depend on the continued demand for outsourcing of health information
technology services, on the growing use of the Internet for advertising,
commerce and communication and on favorable general economic conditions. We
cannot assure you that our business strategy will be successful or that we will
successfully address these risks or difficulties. If we should fail to
adequately address any of these risks or difficulties, our business would likely
suffer.
WE DEPEND ON OUR VENDOR RELATIONSHIPS.
We depend, and will continue to depend, on relationships with our third
party software application vendors. Our success depends significantly on our
ability to maintain our existing relationships with our vendors and to build new
relationships with other vendors in order to enhance our services and
application offerings and remain competitive. We cannot assure you that we will
be able to maintain relationships with our vendors or establish relationships
with new vendors. Our customer satisfaction is also dependent upon the
functionality and reliability of the software, products and services of our
application vendors. We cannot assure you that the software, products or
services of our third party vendors will achieve market acceptance or commercial
success. Accordingly, we cannot assure you that our existing relationships will
result in sustained business partnerships, successful product or service
offerings or the generation of significant revenues for us.
Our arrangements with third party vendors are not exclusive. We cannot
assure you that these third party vendors regard our relationships with them as
important to their own respective businesses and operations. They may reassess
their commitment to us at any time and may choose to develop or enhance their
own competing distribution channels and product support services. If we do not
maintain our existing relationships or if the economic terms of our business
relationships change, we may not be able to license and offer these services and
products on commercially reasonable terms or at all. Our inability to obtain any
of these licenses could delay service development or timely introduction of new
services and divert our
6
<PAGE> 9
resources. Any such delays could materially adversely affect our business,
financial condition and operating results.
There are a variety of additional reasons why our relationships with our
vendors or our ability to establish relationships with additional vendors may be
impaired. Vendors may experience business difficulties or enter into bankruptcy.
Additionally, they may discontinue service and support of products that we
currently offer to our customers. Our vendors may participate in industry
consolidation which may impact the products they offer, their support services
and their willingness to do business with us.
OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.
Our quarterly operating results have varied in the past, and we expect that
they will continue to vary in future periods depending on a number of factors,
not all of which are within our control. The variation in our quarterly
operating results could affect the market price of our common stock in a manner
which may be unrelated to our long-term operating performance.
Our services revenue in any quarter depends on our mix of consulting and
recurring revenue and our ability to meet project milestones and customer
expectations. To increase our revenue in any operating period, we must penetrate
new markets, expand within existing markets and develop new application and
service offerings required by our customers. Our operating results will be
harmed if we experience delays in developing new applications and services for
our customers or defects in our current applications.
We expect to increase activities and spending in substantially all of our
operational areas. We base our expense levels in part upon our expectations
concerning future revenues, and these expense levels are relatively fixed in the
short-term. If we have lower revenue, we may not be able to reduce our
short-term spending in response. Any shortfall in revenue would have a direct
impact on our results of operations. For these and other reasons, we may not
meet the earnings estimates of securities analysts or investors, and our stock
price could suffer.
Prospective changes in applicable accounting standards could change the way
we recognize revenue and could adversely affect our financial results.
WE HAVE A LIMITED NUMBER OF CUSTOMERS, AND IF THEY TERMINATE OR MODIFY EXISTING
CONTRACTS OR EXPERIENCE BUSINESS DIFFICULTIES, IT COULD ADVERSELY AFFECT OUR
EARNINGS.
As of June 30, 1999, we were providing services to approximately 72
customers. Based on our financial results for the month of June 1999, our
application services agreement with MedPartners represents approximately 44% of
our revenues on an annualized basis and our professional services agreement with
CCN Managed Care, Inc. represents approximately 17% of our revenues on an
annualized basis. We believe that our long-term success largely depends upon our
ability to retain our customers and generate recurring revenues from contracts.
Although we typically enter into multi-year customer agreements, a majority of
our customers are able to reduce or cancel their use of our services before the
end of the contract term, subject to monetary penalties. We also provide
services to some customers without long-term contracts. Many of our contracts
are structured so that we generate revenue based on units of volume, which
include the number of physicians, number of patients, number of members or
number of users. If our customers experience business difficulties and the units
of volume decline or if that customer ceases operations for any reason, we will
generate less revenue under these contracts and our operating results may be
materially and adversely impacted. Our operating expenses are relatively fixed
and cannot be reduced on short notice to compensate for unanticipated contract
cancellations or reductions. As a result, any termination, significant reduction
or modification of our business relationships with any of our significant
customers or with a number of smaller customers could have a material adverse
effect on our business, financial condition and operating results.
7
<PAGE> 10
WHEN OUR MEDPARTNERS AGREEMENT TERMINATES WE WILL LOSE REVENUE ASSOCIATED WITH
THAT AGREEMENT.
The initial term of the MedPartners Agreement expires on December 31, 1999,
but the agreement renews automatically for subsequent 30 day periods unless
MedPartners terminates it with 30 days prior written notice. As of July 31,
1999, we were providing application services to MedPartners with respect to 32
groups. As MedPartners disassociates itself from these groups, we will no longer
provide services to them on behalf of MedPartners. At the time we entered into
the MedPartners agreement, we were aware that a number of groups were actively
seeking alternative information technology services. If we are not successful in
entering into application services contracts directly with the groups prior to
disassociation we will lose revenue, which could have a material adverse effect
on our business, financial condition and operating results.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT, RETAIN AND MOTIVATE MANAGEMENT
AND OTHER SKILLED EMPLOYEES.
Our success will depend in large part on the continued services of key
management and skilled personnel. Competition for personnel in the healthcare
information technology market is intense, and there are a limited number of
persons with knowledge of, and experience in, this industry. We do not have
employment agreements with most of our executive officers, so any of these
individuals may terminate his or her employment with us at any time. We
currently maintain a $5,000,000 key man life insurance policy on Jeffrey H.
Margolis, our Chief Executive Officer. The loss of services of one or more of
our key management employees, or the inability to hire additional key management
personnel as needed, could have a material adverse effect on our business,
financial condition and operating results. Although we currently experience
relatively low rates of turnover for our skilled employees, the rate of turnover
may increase in the future. In addition, we expect to further grow our
operations, and our needs for additional skilled employees will increase. Our
continued ability to compete effectively in our business depends on our ability
to attract, retain and motivate these individuals.
WE ARE GROWING RAPIDLY, AND OUR INABILITY TO MANAGE THIS GROWTH COULD HARM OUR
BUSINESS.
We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and is expected to continue to place,
a significant strain on our managerial, operational, financial, information
systems and other resources. As of June 1999, we had grown to approximately 300
employees and independent contractors, from approximately 75 employees and
independent contractors in December 1997. We expect to hire a significant number
of new employees to support our business. If we are unable to manage our growth
effectively, it could have a material adverse effect on our business, financial
condition and operating results.
OUR ACQUISITION STRATEGY MAY DISRUPT OUR BUSINESS AND REQUIRE ADDITIONAL
FINANCING.
Since inception, we have made several acquisitions and expect to continue
to acquire companies as part of our growth strategy. We compete with other
companies to acquire businesses. We expect this competition to continue to
increase, making it more difficult in the future to acquire suitable companies
on favorable terms.
Although we may acquire additional companies, we may be unable to
successfully integrate them in a timely manner. If we are unable to successfully
integrate acquired businesses, we may incur substantial costs and delays or
other operational, technical or financial problems. In addition, the failure to
successfully integrate acquisitions may divert management's attention from our
existing business and may damage our relationships with our key customers and
employees.
To finance future acquisitions, we may issue equity securities that could
be dilutive to our stockholders. We may also incur debt and additional
amortization expenses related to goodwill and other intangible assets in future
acquisitions. The interest expense related to this debt and additional
amortization expense may significantly reduce our profitability and have a
material adverse effect on our business, financial condition and operating
results.
8
<PAGE> 11
WE EXPECT OUR LOSSES AND FLUCTUATIONS IN OPERATING RESULTS TO CONTINUE, WHICH
MAY ADVERSELY IMPACT OUR BUSINESS AND OUR STOCKHOLDERS.
We have lost money in three of our past nine fiscal quarters. Although our
revenue has grown in recent periods, we cannot assure you that our revenues will
continue at their current level or increase in the future. We cannot assure you
that we will be consistently profitable on either a quarterly or annual basis.
We currently derive our revenue primarily from providing application
services and consulting services. We plan to invest heavily in acquisitions,
infrastructure development, applications development and sales and marketing. As
a result, we expect that we will lose money through at least 1999, and we may
never achieve or sustain profitability.
IF OUR ABILITY TO EXPAND OUR NETWORK INFRASTRUCTURE IS CONSTRAINED IN ANY WAY,
WE COULD LOSE CUSTOMERS AND DAMAGE OUR OPERATING RESULTS.
We must continue to expand and adapt our network and technology
infrastructure to accommodate additional users, increase transaction volumes and
changing customer requirements. We may not be able to accurately project the
rate or timing of increases, if any, in the use of our application services or
our portal or be able to expand and upgrade our systems and infrastructure to
accommodate such increases. We may be unable to expand or adapt our network
infrastructure to meet additional demand or our customers' changing needs on a
timely basis, at a commercially reasonable cost or at all. Our current
information systems, procedures and controls may not continue to support our
operations while maintaining acceptable overall performance and may hinder our
ability to exploit the market for healthcare applications and services. Service
lapses could cause our users to switch to the services of our competitors.
Many of our service agreements, including our agreement with MedPartners,
contain performance standards. If we fail to meet these standards, our customers
could terminate their agreements with us or require that we refund part or all
of the fees charged under those agreements. The termination of any of our
material services agreements and/or associated revenue could have a material
adverse effect on our business, financial condition and operating results.
ANY FAILURE OR INABILITY TO PROTECT OUR TECHNOLOGY AND CONFIDENTIAL INFORMATION
COULD ADVERSELY AFFECT OUR BUSINESS.
Our success depends in part upon proprietary software and other
confidential information. The software and information technology industries
have experienced widespread unauthorized reproduction of software products and
other proprietary technology. We do not own any patents. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
However, these protections may not be sufficient, and they do not prevent
independent third party development of competitive products or services.
We believe that our proprietary rights do not infringe upon the proprietary
rights of third parties. However, third parties may assert infringement claims
against us in the future, and we could be required to enter into a license
agreement or royalty arrangement with the party asserting the claim. We may also
be required to indemnify customers for claims made against them.
PERFORMANCE OR SECURITY PROBLEMS WITH OUR SYSTEMS COULD DAMAGE OUR BUSINESS.
Our customers' satisfaction and our business could be harmed if our
customers or we experience any system delays, failures or loss of data. We
currently process substantially all our customers' transactions and data at our
facilities in Englewood, Colorado and Birmingham, Alabama. Although we have
safeguards for emergencies and we have contracted backup processing for a
portion of our customers' critical functions, we do not have sufficient backup
facilities to process information if either or both of these facilities are not
functioning. The occurrence of a major catastrophic event or other system
failure at any of our facilities could interrupt data processing or result in
the loss of stored data. In addition, we
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<PAGE> 12
depend on the efficient operation of Internet connections from customers to our
systems. These connections, in turn, depend on the efficient operation of web
browsers, Internet service providers and Internet backbone service providers,
all of which have had periodic operational problems or experienced outages.
A material security breach could damage our reputation or result in
liability to us. We retain confidential customer and patient information in our
Customer Connectivity Centers. Therefore, it is critical that our facilities and
infrastructure remain secure and that our facilities and infrastructure are
perceived by the marketplace to be secure. Despite the implementation of
security measures, our infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors, attacks by third parties or similar
disruptive problems.
DEFECTIVE PRODUCTS, ERRORS OR IMPROPER HANDLING OF CUSTOMER DATA MAY CAUSE US TO
LOSE CUSTOMERS OR SUBJECT US TO LIABILITY.
Our customers demand reliability in the delivery of application services
and quality when their transactions are processed. Although we devote
substantial resources to meeting these demands, errors may occur. Errors and
mistakes in the processing of customer data may result in loss of data,
inaccurate information and delays. Such errors could cause us to lose customers
and could result in liability and penalties. Our services agreements generally
contain limitations on liability, and we maintain insurance with coverage limits
of $24 million to protect against claims associated with the use of our products
and services. However, the contractual provisions and insurance coverage may not
provide adequate coverage against all possible claims that may be asserted. In
addition, appropriate insurance may be unavailable in the future at commercially
reasonable rates. A successful claim in excess of our insurance coverage could
have a material adverse effect on our business, financial condition and
operating results. Even unsuccessful claims could result in litigation or
arbitration costs and may divert management's attention from our existing
business.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 CONCERNS, WE MAY LOSE REVENUE OR INCUR
ADDITIONAL COSTS.
Many computer programs were designed and developed without considering the
upcoming change in the century, which could lead to failure of computer
applications or create erroneous results by or at the year 2000. This issue is
referred to as the "Year 2000" problem. It is possible that our computer
systems, software products or other business systems, or those of our vendors or
customers, could malfunction as a result of the Year 2000 problem. In addition,
telecommunications and utility services which are important to our operations
could malfunction due to the Year 2000 problem. We have conducted a review of
our business systems, including computer systems, in an attempt to identify ways
in which these systems could be affected by the Year 2000 problem. Based on this
review, we do not expect the Year 2000 problem will have a material adverse
effect on our systems. Despite our efforts, there is always a possibility that
we may not identify and correct all Year 2000 problems.
As a result of the Year 2000 problem, many of our customers may suffer
delays in reimbursement from Medicare and Medicaid programs, other federal and
state healthcare programs and other third party payers. Such delays may also
damage us. We may not be able to identify, successfully remedy or assess all
date handling problems in our business systems or operations or those of our
customers and vendors.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND IN OUR CONTRACTS
THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF SUCH AN
ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Certain provisions of our certificate of incorporation, our bylaws,
Delaware law and our contracts could delay or prevent a third party from
acquiring us, even if doing so might be beneficial to our stockholders. Some of
these provisions:
- authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock;
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<PAGE> 13
- prohibit stockholder action by written consent;
- establish a classified board of directors; and
- require advance notice for submitting nominations for election to the
board of directors and for proposing matters that can be acted upon by
stockholders at a meeting.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS WILL SUFFER IF COMMERCIAL USERS DO NOT ACCEPT INTERNET SOLUTIONS.
Our success depends in part on the adoption of Internet solutions by
commercial users. Our business could suffer dramatically if Internet solutions
are not accepted or not perceived to be effective. The Internet may not prove to
be a viable commercial marketplace for a number of reasons, including:
- inadequate development of the necessary infrastructure for communication
speed, access and server reliability;
- security and confidentiality concerns;
- lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
- implementation of competing technologies;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity; and
- governmental regulation.
We expect Internet use to grow in number of users and volume of traffic.
The Internet infrastructure may be unable to support the demands placed on it by
this continued growth.
Growth in the demand for our application and portal services depends on the
adoption of Internet solutions by healthcare participants, which requires the
acceptance of a new way of conducting business and exchanging information. To
maximize the benefits of our solutions, our customers must be willing to allow
their applications and data to be hosted in our Customer Connectivity Centers.
IN ORDER TO CONTINUE COMPETING SUCCESSFULLY WITH OTHER APPLICATION SERVICES
PROVIDERS AND HEALTHCARE PORTALS, WE MUST MEET THE CHANGING DEMANDS OF
TECHNOLOGY.
The market for our technology and services is highly competitive and
rapidly changing and requires potentially expensive technological advances. We
believe our ability to compete in this market will depend in part upon our
ability to:
- maintain and continue to develop partnerships with vendors;
- enhance our current technology and services;
- respond effectively to technological changes;
- sell additional services to our existing customer base;
- introduce new technologies; and
- meet the increasingly sophisticated needs of our customers.
Competitors may develop products or technologies that are better or more
attractive than those offered by us or that may render our technology and
services obsolete. Many of our current and potential competitors are larger and
offer broader services and have significantly greater financial, marketing and
other competitive resources than us.
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<PAGE> 14
THE INTENSIFYING COMPETITION WE FACE FROM BOTH ESTABLISHED ENTITIES AND NEW
ENTRIES IN THE MARKET MAY ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
We face intense competition. Many of our competitors and potential
competitors have significantly greater financial, technical, product
development, marketing and other resources and greater market recognition than
we have. Many of our competitors also have, or may develop or acquire,
substantial installed customer bases in the healthcare industry. As a result,
our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sale of their applications or services than we
can devote.
Our competitors can be categorized as follows:
- application service providers;
- healthcare e-commerce and portal companies;
- information technology outsourcing companies;
- information technology consulting firms; and
- healthcare information software vendors.
Each of these types of companies can be expected to compete with us within
certain segments of the healthcare information technology market. Furthermore,
major software information systems companies and other entities, including those
specializing in the healthcare industry that are not presently offering
applications that compete with our technology and services, may enter these
markets. In addition, some of our third party software vendors with whom we have
licensing agreements, may compete with us from time to time by selling software
on a stand alone basis.
We cannot assure you that we will be able to compete successfully against
current and future competitors or that competitive pressures faced by us will
not have a material adverse effect on our business, financial condition and
operating results.
CHANGES IN GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS.
The healthcare industry in the United States is in a period of rapid change
and uncertainty. Certain changes may cause healthcare organizations to change
the way they operate and pay for services. Our application services are designed
to function within the current healthcare financing and reimbursement system.
During the past several years, the healthcare industry has been subject to
increasing levels of government regulation of, among other things, reimbursement
rates and certain capital expenditures. In addition, proposals to reform the
healthcare system have been considered by Congress. These proposals, if enacted,
may further increase government involvement in healthcare, lower reimbursement
rates and otherwise change the operating environment for our customers. As in
the past, healthcare organizations may react to these proposals and the
uncertainty surrounding such proposals in ways that could result in a reduction
or deferral in the use of our technologies and services. We cannot predict with
any certainty what impact, if any, such proposals or healthcare reforms might
have on our business, financial condition and operating results.
The United States Department of Health and Human Services has proposed
regulations regarding electronic signatures and the maintenance and transmission
of computer medical records. These regulations establish certain standards for
electronic record-keeping. We do not know if these regulations will be adopted
in their present form or a different form or at all. However, if these
regulations are adopted, they may require modifications to our computer software
and record-keeping practices. These changes may require us to make substantial
capital investments.
We perform billing and claims services that are governed by numerous
federal and state civil and criminal laws. The federal government in recent
years has placed increased scrutiny on billing and collection practices of
healthcare providers and related entities and particularly on potential
fraudulent billing practices, such as submissions of inflated claims for payment
and upcoding. Violations of the laws
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<PAGE> 15
regarding billing and coding may lead to civil monetary penalties, criminal
fines, imprisonment or exclusion from participation in Medicare, Medicaid and
other federally funded healthcare programs for us and our customers. Any of
these results could have a material adverse effect on our business, financial
condition and operating results.
Federal and state consumer protection laws may apply to us when we bill
patients directly for the cost of physician services provided. Failure to comply
with any of these laws or regulations could result in a loss of licensure or
other fines and penalties. Any of these results could have a material adverse
effect on our business, financial condition and operating results.
The confidentiality of patient records is subject to substantial regulation
by state governments. These state laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the physician or other healthcare providers, regulations
governing patient confidentiality rights are evolving rapidly. Additional
legislation governing the dissemination of medical record information has been
proposed at both the state and federal level. This legislation may require
holders of medical information to implement security measures and impose
restrictions on the ability of third party processors, like us, to transmit
certain patient data without specific patient consent. Any change in legislation
could restrict healthcare providers from using our services.
SINCE WE OPERATE AN INTERNET-BASED NETWORK, OUR BUSINESS IS SUBJECT TO
GOVERNMENT REGULATION RELATING TO THE INTERNET THAT COULD IMPAIR OUR OPERATIONS.
Because of the increasing use of the Internet as a communication and
commercial medium, the government has adopted and may adopt additional laws and
regulations with respect to the Internet covering such areas as user privacy,
pricing, content, taxation, copyright protection, distribution and
characteristics and quality of production and services. Any of these regulations
could have a material adverse effect on our business, financial condition and
operating results.
RISKS RELATED TO THIS OFFERING
WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING.
We intend to use the net proceeds from this offering for the following:
- expansion of our sales and marketing activities;
- further development of application services, Internet and connectivity
technologies;
- acquisition of additional software licenses;
- possible acquisitions of businesses, products, services or technologies
complementary to our current business;
- expansion into additional geographical markets;
- enhancement of existing Customer Connectivity Centers; and
- working capital and other general corporate purposes.
Accordingly, our management will have significant flexibility in applying
the net proceeds of this offering. The failure of our management to use such
funds effectively could have a material adverse effect on our business,
financial condition and operating results.
THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN SINCE IT HAS NOT BEEN PUBLICLY
TRADED.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders
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<PAGE> 16
for investors. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN AS IS OUR ABILITY TO RAISE
FURTHER FINANCING, IF REQUIRED.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may need to raise additional funds,
however, to respond to business contingencies which may include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- enhance our operating infrastructure;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of opportunities, develop products or services or
otherwise respond to competitive pressures could be significantly limited.
MARKET PRICES OF EMERGING INTERNET COMPANIES HAVE BEEN HIGHLY VOLATILE, AND THE
MARKET FOR OUR STOCK MAY EXHIBIT VOLATILITY AS WELL.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet related companies, have been extremely volatile. Recent initial public
offerings by Internet companies have been accompanied by exceptional share price
and trading volume changes in the first days and weeks after the securities were
released for public trading. Investors may not be able to resell their shares at
or above the initial public offering price. In the past, following periods of
volatility in the market price of a public company's securities, securities
class action litigation has often been instituted against that company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
The market price for our common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering or the
perception that such sales could occur. These factors also could make it more
difficult for us to raise funds through future offerings of common stock.
There will be shares of common stock outstanding immediately
after the offering. The shares sold in this offering will be freely transferable
without restriction or further registration under the Securities Act, except for
any shares purchased by our "affiliates," as defined in Rule 144 under the
Securities Act. Persons who may be deemed to be our affiliates after the
offering generally include our directors, executive officers and principal
stockholders. Also, additional shares of common stock issued upon exercise of
options granted under our stock-based compensation plans will become available
for future sale in the public market. Future sales of our common stock could
cause our stock price to decline.
In connection with the offering, officers, directors and certain
stockholders, have agreed that, with certain exceptions, they will not sell any
shares of common stock or enter into similar transactions for 180 days after the
date of this prospectus without the consent of Bear, Stearns & Co. Inc.
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<PAGE> 17
OUR CURRENT STOCKHOLDERS WILL BENEFIT FROM THIS OFFERING.
Based on the number of shares of common stock and preferred stock
outstanding as of June 30, 1999, existing stockholders have paid an average of
$0.70 per share for their common stock, assuming conversion of the preferred
stock, which is considerably less than the amount to be paid by investors who
purchase in this offering. This offering will also create a public market for
the resale of shares held by existing investors and substantially increase the
market value of those shares.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. The net tangible book
value of a share of common stock purchased at an assumed initial public offering
price of $ per share will be only $ . You may incur additional dilution
if holders of stock options, whether currently outstanding or subsequently
granted, exercise their options to purchase common stock.
MANY CORPORATE ACTIONS WILL BE SUBSTANTIALLY CONTROLLED BY OFFICERS, DIRECTORS
AND AFFILIATED ENTITIES REGARDLESS OF THE OPPOSITION OF OTHER INVESTORS TO
PURSUE AN ALTERNATIVE COURSE OF ACTION.
Our directors and executive officers beneficially own approximately 46%
( % after completion of this offering) of our outstanding common stock.
These stockholders, if they acted together, could exert substantial control over
matters requiring approval by our stockholders. These matters would include the
election of directors and the approval of mergers or other business combination
transactions. This concentration of ownership may also discourage, delay or
prevent a change in control of our company, which could have a material adverse
effect on our stock price. These actions may be taken even if they are opposed
by the other investors, including those who purchase shares in this offering.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements generally can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"intends," "plans," "should," "seeks," "pro forma," "anticipates," "estimates,"
"continues," or other variations thereof (including their use in the negative),
or by discussions of strategies, opportunities, plans or intentions. Such
statements include but are not limited to statements under the captions "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business." A number of factors could
cause results to differ materially from those anticipated by such
forward-looking statements, including those discussed under "Risk Factors" and
"Business" and elsewhere in this prospectus.
In addition, such forward-looking statements are necessarily dependent upon
assumptions and estimates that may prove to be incorrect. Although we believe
that the assumptions and estimates reflected in such forward-looking statements
are reasonable, we cannot guarantee that our plans, intentions or expectations
will be achieved. The information contained in this prospectus, including the
section discussing risk factors, identifies important factors that could cause
such differences.
The cautionary statements made in this prospectus are intended to be
applicable to all related forward-looking statements wherever they appear in
this prospectus. We assume no obligation to update such forward-looking
statements or to update the reasons why actual results could differ materially
from those anticipated in such forward-looking statements.
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<PAGE> 18
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of
common stock offered by us are estimated to be approximately $ after
deducting the underwriting discounts and commissions and the estimated offering
expenses payable by us and at an assumed public offering price of $ per
share.
We have no current specific plans for the net proceeds from this offering.
We generally intend to use the proceeds of this offering for the following:
- expansion of our sales and marketing activities;
- further development of application services, Internet and connectivity
technologies;
- acquisition of additional software licenses;
- expansion into additional geographic markets;
- enhancement of existing Customer Connectivity Centers; and
- working capital and other general corporate purposes.
We have not yet determined the actual expected expenditures, and thus
cannot estimate the amounts to be used for each purpose discussed above. The
amounts and timing of these expenditures will vary significantly depending on a
number of factors, including, but not limited to, the amount of cash generated
by our operations and the market response to the introduction of any new service
offerings.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to these
transactions. Accordingly, our management will retain broad discretion as to the
allocation of the net proceeds of this offering.
We intend to invest the net proceeds of this offering in interest-bearing
investment grade securities pending the above uses.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently
anticipate that we will retain earnings, if any, to support operations and to
finance the growth and development of our business and do not anticipate paying
cash dividends in the foreseeable future. The payment of cash dividends by us is
restricted by our current bank credit facilities, which contain restrictions
prohibiting us from paying any cash dividends without the bank's prior approval.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999,
- on an actual basis;
- on a pro forma basis to reflect automatic conversion of all outstanding
preferred stock into 6,276,224 shares of common stock upon the closing
of this offering; and
- on a pro forma basis as adjusted to reflect the sale of
shares offered hereby at an assumed initial public offering price of
$ per share, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
This information should be read in conjunction with our financial
statements and the notes relating to those statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ---------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total long-term debt and capital lease obligations...... $ 1,815 $ 1,815 $
------- -------- --------
Mandatorily redeemable convertible preferred stock,
$.001 par value, 10,391,608 shares authorized;
4,545,454 shares of Series A preferred stock and
1,730,770 shares of Series B preferred stock issued
and outstanding, actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 10,932 -- --
------- -------- --------
Stockholders' equity (deficit):
Common Stock, $.001 par value, 30,000,000 shares
authorized, actual; 9,369,412 shares issued and
outstanding, actual; and 15,645,636 shares issued
and outstanding, pro forma; 40,000,000 shares
authorized pro forma as adjusted;
shares issued and outstanding pro forma as
adjusted........................................... 9 16
Additional paid-in capital............................ 8,900 19,825
Notes receivable from stockholders.................... (41) (41)
Deferred stock compensation........................... (6,865) (6,865)
Accumulated deficit................................... (2,192) (2,192) ()
------- -------- --------
Total stockholders' equity (deficit)............... (189) 10,743
------- -------- --------
Total capitalization............................... $12,558 $ 12,558 $
======= ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value as of June 30, 1999, was $5,838,000
or $0.37 per share of common stock. Pro forma net tangible book value per share
is equal to our total tangible assets less total liabilities, divided by the pro
forma number of shares of common stock outstanding on June 30, 1999. Assuming
the sale by us of shares of common stock at an initial public offering
price of $
per share and after deducting the underwriting discounts and the estimated
offering expenses payable, our pro forma net tangible book value at June 30,
1999 would have been $ , or $ per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors. That is, after this offering, the excess of our tangible
assets over our liabilities on a per share basis will be less than the purchase
price paid for those shares by investors in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.37
Pro forma increase in net tangible book value attributable
to new investors....................................... $
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Pro forma dilution per share to new investors...............
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 15,645,636 % $11,025,000 % $0.70
New investors......................
---------- --- ----------- ---- -----
Total.................... 100% $100% $
========== === =========== ==== =====
</TABLE>
The foregoing table and calculations are based on shares outstanding on
June 30, 1999 and exclude:
- 2,802,628 shares of common stock issuable upon exercise of options
outstanding under our 1998 Stock Option Plan with a weighted average
exercise price of $0.74 per share (141,532 of these options were
exercisable as of June 30, 1999 and the balance are subject to future
vesting requirements); and
- 162,595 shares of common stock issuable upon exercise of warrants which
were exercisable as of June 30, 1999.
Please see "Management -- 1998 Stock Option Plan" and "Description of
Capital Stock."
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes included elsewhere in this prospectus. The consolidated statements of
operations data for the period from May 27, 1997 (date of inception) to December
31, 1997 and the year ended December 31, 1998 and the consolidated balance sheet
data as of December 31, 1997 and 1998 are derived from our audited consolidated
financial statements included elsewhere in this prospectus. The consolidated
statements of operations data for the six months ended June 30, 1998 and 1999,
and the consolidated balance sheet data as of June 30, 1999 are derived from
unaudited consolidated financial statements included elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting principally of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for the periods. Historical results are not necessarily
indicative of the results of operations to be expected for future periods and
the results of interim periods are not necessarily indicative of the results for
a full year.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 27, 1997
(DATE OF INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------
1997 1998 1998 1999
------------------- ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Recurring revenue......................................... $1,191 $ 5,300 $ 2,590 $ 6,143
Consulting revenue........................................ 1,328 6,131 2,463 6,508
------ ------- ------- -------
Total Revenues.............................................. 2,519 11,431 5,053 12,651
------ ------- ------- -------
Costs of revenues:
Recurring revenue......................................... 1,250 3,967 1,662 5,059
Consulting revenue........................................ 422 3,490 1,584 4,223
------ ------- ------- -------
Total cost of revenues...................................... 1,672 7,457 3,246 9,282
------ ------- ------- -------
Gross profit................................................ 847 3,974 1,807 3,369
------ ------- ------- -------
Operating expenses:
Research and development.................................. -- 1,083 592 440
Selling, general and administrative....................... 672 2,885 1,173 3,005
Amortization of deferred stock compensation(1)............ -- 22 -- 220
Write-off of acquired in-process technology(2)............ -- -- -- 484
------ ------- ------- -------
Total operating expenses.................................... 672 3,990 1,765 4,149
------ ------- ------- -------
Income (loss) from operations............................... 175 (16) 42 (780)
Interest income............................................. 15 210 60 122
Interest expense............................................ (13) (52) (25) (75)
------ ------- ------- -------
Income (loss) before provision for income taxes............. 177 142 77 (733)
Provision for income taxes.................................. 74 82 45 274
------ ------- ------- -------
Net income (loss)........................................... $ 103 $ 60 $ 32 $(1,007)
====== ======= ======= =======
Net income (loss) per share(3):
Basic..................................................... $ 0.05 $ 0.01 $ 0.01 $ (0.17)
====== ======= ======= =======
Diluted................................................... $ 0.03 $ 0.00 $ 0.00 $ (0.17)
====== ======= ======= =======
Number of shares used in computing net income (loss) per
share(3):
Basic..................................................... 2,065 4,937 5,066 6,070
====== ======= ======= =======
Diluted................................................... 4,074 12,783 11,380 6,070
====== ======= ======= =======
Pro forma net income (loss) per share(4):
Basic..................................................... $ 0.01 $ (0.08)
======= =======
Diluted................................................... $ 0.00 $ (0.08)
======= =======
Number of shares used in computing pro forma net income
(loss) per share:
Basic..................................................... 9,482 12,346
======= =======
Diluted................................................... 14,040 12,346
======= =======
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998 AS OF JUNE 30, 1999
------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 773 $ 3,681 $ 3,937
Total assets............................................ 2,634 8,717 19,844
Total long-term debt and capital lease obligations...... 520 645 1,815
Mandatorily redeemable convertible preferred stock...... -- 6,449 10,932
Total stockholder's equity (deficit).................... 563 (741) (189)
</TABLE>
- ---------------
(1) This expense relates to amortization of deferred stock compensation which
represents the difference between the deemed fair value of our common stock
and the exercise price of options at the date of grant. Deferred
compensation is amortized over the vesting period of the related options.
(2) In connection with the acquisition of Creative Business Solutions and
HealthWeb Systems, we wrote-off $484,000 of the total purchase price to
acquired in-process technology as technological feasibility of the HealthWeb
product had not been established. See Note 10 of Notes to Consolidated
Financial Statements for an explanation on the valuation of acquired
in-process technology.
(3) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing basic and
diluted net income (loss) per share.
(4) See Note 13 Notes to Consolidated Financial Statements for an explanation of
the determination of the number of shares used in computing pro forma net
income (loss) per share.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our consolidated financial statements and notes included elsewhere in this
prospectus. This prospectus contains forward-looking consolidated statements
that involve risks and uncertainties. Our actual results could differ materially
from those discussed in such forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below and in
"Risk Factors" and "Business."
OVERVIEW
We provide application services, an Internet portal and consulting services
to the healthcare industry. Our customers consist of provider groups, physician
practice management companies, and managed care organizations such as health
maintenance organizations, preferred provider organizations and third party
administrators. HealthWeb, our branded healthcare portal, is designed to
facilitate the exchange of information and to enable e-commerce among all
constituents of the healthcare industry. Through our Customer Connectivity
Centers, we host leading commercially available software applications as
required by our customers. Through our Professional Services Group, we offer
business operations and applications integration consulting services, including
information technology assessment and software implementation design and
development.
We were incorporated in Delaware in May 1997. In October 1997, we acquired
all of the outstanding shares of common stock of Margolis Health Enterprises,
Inc., an entity under our common control, in exchange for 3,716,667 shares of
our common stock. In October 1997, we also acquired all of the outstanding
shares of common stock of Croghan & Associates, Inc., an application services
provider, in exchange for 5,800,895 shares of our common stock.
In April 1998, we raised $6.0 million in gross proceeds by issuing
4,195,804 shares of our mandatorily redeemable convertible preferred stock to
two venture capital firms. In October 1998, we raised an additional $500,000 in
gross proceeds by issuing another 349,650 shares of our mandatorily redeemable
convertible preferred stock.
In February 1999, we simultaneously acquired Creative Business Solutions,
Inc., a customized Internet solutions development company, and HealthWeb
Systems, Ltd., a healthcare Internet software and portal development company,
for a total consideration of approximately $2.9 million, consisting of
approximately $1.4 million of cash, 655,000 shares of our common stock, a two
year note of $270,000 bearing interest at 8% and acquisition costs of
approximately $100,000.
In April 1999, we acquired certain assets and liabilities of Management and
Technology Solutions, Inc., a physician services organization, in exchange for
60,000 shares of our common stock.
In April 1999, we raised $4.5 million in gross proceeds by issuing
1,730,770 shares of mandatorily redeemable convertible preferred stock to three
venture capital firms.
In May 1999, we entered into a seven month agreement with MedPartners, Inc.
to provide hosted information technology services to MedPartners' with respect
to 67 groups, representing approximately 1,780 physicians while MedPartners
disassociates itself from each of these groups. In addition, we purchased
certain assets from MedPartners for approximately $2.6 million in cash. The
MedPartners agreement automatically renews for consecutive 30 day periods unless
MedPartners gives us 30 days prior written notice. MedPartners expects to
complete this process by December 31, 1999. As MedPartners disassociates itself
from each group, we have the opportunity to enter into a new multi-year contract
with each group. At the time we entered into the MedPartners agreement, we were
aware that a number of groups were actively seeking alternative information
technology solutions.
As of July 31, 1999, we continue to provide information technology services
to MedPartners with respect to 32 groups, representing approximately 1,370
physicians. Furthermore, we have negotiated multi-year contracts with six
disassociated groups, representing 153 physicians. We are pursuing the
opportunity
21
<PAGE> 24
to provide customized application services to 38 groups on an ongoing basis,
representing 1,517 physicians, or 85% of the total physicians available at the
time the MedPartners' agreement was signed.
Our revenues are classified into two categories: recurring or multi-year
contractually based revenue, and revenue generated via consulting agreements.
Since inception, the relative percentages of consulting revenue and recurring
revenue have each approximated 50%. As we sign additional multi-year application
services contracts, we expect the relative percentage of recurring revenue to
increase.
Recurring revenue is subscription based and billed on a monthly basis over
a contract term of typically three to five years. The amount billed monthly is
based on units of volume, such as numbers of physicians, members or desktops
covered by each contract. Recurring revenue is recognized ratably over the term
of the contract, and cash received in excess of revenue recognized is recorded
as deferred revenue. Consulting revenue is billed on either a time and materials
or a fixed fee basis, and is recognized as the consulting services are
performed.
Cost of revenues are those costs related to the products and services we
provide to our customers, and costs associated with the operation and
maintenance of our Customer Connectivity Centers. These costs include salaries
and related expenses for consulting personnel, Customer Connectivity Centers
personnel, customer support personnel, application software license fees,
telecommunications and maintenance costs.
Research and development expenses are salaries and related expenses
associated with the development of technologies, applications and services and
include compensation paid to engineering personnel and fees to outside
contractors and consultants.
Selling, general and administrative expenses consist primarily of salaries
and related expenses for sales, account management, marketing, administrative,
finance, legal, human resources and executive personnel, commissions, expenses
for marketing programs and trade shows and fees for professional services. We
anticipate that sales, general and administrative costs will continue to
increase in absolute dollars as we add sales, marketing and administrative
personnel, increase our marketing and promotional activities and incur costs
related to being a public company, such as directors' and officers' insurance
premiums and professional fees.
As of June 30, 1999, we had recorded deferred compensation related to
options granted to employees in the total amount of $7.1 million, representing
the difference between the deemed fair value of our common stock, as determined
for accounting purposes, and the exercise price of the options at the date of
grant. Of this amount, $22,000 had been amortized in 1998, and approximately
$220,000 had been amortized in the first six months of 1999. Future amortization
of expenses arising out of options granted through June 30, 1999 is estimated to
be $888,000 for the remaining six months of 1999, $1.8 million for the year
ended December 31, 2000, $1.8 million for the year ended December 31, 2001, $1.8
million for the year ended December 31, 2002, and $570,000 for the year ended
2003. We amortize the deferred compensation charge over the vesting period of
the underlying option.
The acquisition of Creative Business Solutions and HealthWeb Systems was
accounted for using the purchase method of accounting. The excess of the
purchase price over the fair market value of the assets purchased and
liabilities assumed was $2.7 million, of which $484,000 was allocated to
acquired in-process technology, based upon an independent appraisal, and was
written-off in the six months ended June 30, 1999, and $2.2 million was
allocated to goodwill and other intangible assets. At the date of acquisition,
we determined the technological feasibility of HeathWeb's product was not
established. Approximately $650,000 in research and development had been spent
up to the date of acquisition in an effort to develop the technology to produce
a commercially viable product. The future research and development expense
associated with the in-process product was estimated to be approximately
$975,000 between 1999 and 2000. At the date of acquisition, the only
identifiable intangible assets acquired were the technology under development,
the acquired workforce and the customer lists.
The valuation methodology used included an analysis and estimation of the
fair market value and remaining economic life of both the core and in-process
technologies on a going concern basis. The valuation of the business enterprise
and the acquired in-process technology were developed by discounting
22
<PAGE> 25
future net cash flows at a rate that reflected both the return requirements of
the market and risks inherent in the investment.
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared to six months ended June 30, 1998
REVENUES. Total revenues in 1999 increased $7.6 million, or 150%, to $12.7
million from $5.1 million in 1998. The majority of this increase was due to the
overall growth in both recurring revenue and consulting revenue throughout the
six month period ended June 30, 1999. Additionally, the acquisition of Creative
Business Solutions and HealthWeb Systems in February 1999 generated
approximately $1.5 million in incremental revenue for the first six months of
1999.
Recurring revenue in 1999 increased $3.6 million, or 137%, to $6.1 million
from $2.6 million in 1998. Of this increase, $3.0 million represented the
incremental revenue generated as a result of our May 1999 agreement to provide
hosted information technology services to MedPartners with respect to 67 groups.
The remaining increase was primarily due to obtaining our first hosted managed
care application services customer in March 1999.
Consulting revenue in 1999 increased $4.0 million, or 164%, to $6.5 million
from $2.5 million in 1998. This increase reflected an overall increase in demand
for our consulting services throughout the first six months of 1999.
COST OF REVENUES. Cost of revenues in 1999 increased $6.1 million, or
186%, to $9.3 million from $3.2 million in 1998. This increase was due to the
costs incurred to support the overall expansion of our business, including our
acquisition of Creative Business Solutions and HealthWeb Systems in February
1999. As a percentage of total revenues, cost of revenues approximated 73% in
1999 and 64% in 1998.
Cost of recurring revenue in 1999 increased $3.4 million, or 204%, to $5.1
million from $1.7 million in 1998. This increase represented the incremental
expenses for personnel and facilities costs incurred to support the growing
application services provider business, including the incremental costs
associated with the MedPartners contract signed in May 1999. Additionally,
incremental infrastructure costs were required in 1999 to support our transition
from our former data center to our new Customer Connectivity Center in
Englewood, Colorado. As a percentage of recurring revenue, cost of recurring
revenue approximated 82% in 1999 and 64% in 1998.
Cost of consulting revenue in 1999 increased $2.6 million, or 167%, to $4.2
million from $1.6 million in 1998. This increase was due to incremental costs
required to support increasing demand for our consulting services in the first
six months of 1999. As a percentage of consulting revenue, cost of consulting
revenue approximated 65% in 1999 and 64% in 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses,
which excluded development expenses that were included in cost of revenues in
1999, decreased $152,000, or 26%, to $440,000 from $592,000 in 1998. The
decrease was due to Year 2000 remediation of our owned software in 1998 that is
used in the provision of application service to our customers; these Year 2000
research and development costs were not incurred in 1999. As a percentage of
total revenues, research and development expenses approximated 3% in 1999 and
12% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1999 increased $1.8 million, or 156%, to $3.0 million
from $1.2 million in 1998. This increase was due primarily to expansion of the
sales force, staff growth in management and administrative support areas, and
expansion of related office space. As a percentage of total revenues, selling,
general and administrative expenses approximated 24% in 1999 and 23% in 1998.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred
stock compensation increased $220,000 in 1999 from $0 in 1998. This amount
represents the allocated portion of the difference
23
<PAGE> 26
between the deemed fair value of our common stock and the exercise price of
stock options granted by us to employees.
WRITE OFF OF ACQUIRED IN-PROCESS TECHNOLOGY. Our acquisition of Creative
Business Solutions and HeathWeb Systems in February 1999 resulted in an excess
of purchase price over the fair market value of the assets purchased and
liabilities assumed of $2.7 million. Of this amount, $484,000 was allocated to
acquired in-process technology, based upon an independent appraisal, and was
written-off in the six months ended June 30, 1999.
INTEREST INCOME. Interest income in 1999 increased $62,000, or 103%, to
$122,000 from $60,000 in 1998. The increase was due to the incremental cash
invested in 1999 resulting from $4,500,000 in gross proceeds we raised in April
1999, and the full six month impact of our investing approximately $6,000,000 in
gross proceeds we raised in April 1998.
INTEREST EXPENSE. Interest expense in 1999 increased $50,000, or 200%, to
$75,000 from $25,000 in 1998. The increase is due to interest paid on notes
payable issued in February 1999 in connection with our purchase of HealthWeb and
Creative Business Solutions, and notes payable in connection with our purchase
of software applications licenses.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PERIOD FROM MARCH 27, 1997 (DATE OF
INCEPTION) THROUGH DECEMBER 31, 1997
The following information is based on the respective financial performance
of Margolis Health Enterprises from its inception date of May 27, 1997 until
December 31, 1997, and Croghan & Associates from its acquisition date of October
1, 1997 until December 31,1997.
REVENUES. Total revenues in 1998 increased $8.9 million, or 354%, to $11.4
million from $2.5 million in 1997. This increase was primarily due to a full
year of revenue recognition in 1998, with only a partial year of revenues
recognized for each in 1997.
Recurring revenue in 1998 increased $4.1 million, or 345%, to $5.3 million
from $1.2 million in 1997. This increase was primarily the result of a full year
of recurring revenue recognition in 1998, with only three months of recurring
revenue recognized in 1997. If we had owned Croghan & Associates for a full year
in 1997, recurring revenue would have approximated $5.2 million in 1997.
Consulting revenue in 1998 increased $4.8 million, or 362%, to $6.1 million
from $1.3 million in 1997. This increase was primarily the result of the
recognition of a full year of consulting revenue in 1998, with approximately
seven months of consulting revenue recognized in 1997. 1998 consulting revenues
also reflected the growth and demand for our consulting services from our
inception in May 1997 through the year ended December 31, 1998.
COST OF REVENUES. Cost of revenues in 1998 increased $5.8 million, or
346%, to $7.5 million from $1.7 million in 1997. This increase was primarily due
to the fact that we were operating for a full twelve month period in 1998
compared to approximately seven months of operation in 1997. If we had owned
Croghan & Associates for a full year in 1997, cost of revenues would have
approximated $3.5 million. As a percentage of total revenues, cost of revenues
approximated 65% in 1998 and 66% in 1997.
Cost of recurring revenue in 1998 increased $2.7 million, or 217%, to $4.0
million from $1.3 million in 1997. This increase was primarily the result of a
full year of application services provider operations occurring in 1998, with
only three months of application services provider operations occurring in 1997.
If we had owned Croghan & Associates for a full year of 1997, cost of recurring
revenue would have approximated $3.4 million. As a percentage of recurring
revenue, cost of recurring revenue approximated 75% in 1998 and 105% in 1997.
Cost of consulting revenue in 1998 increased $3.1 million, or 727%, to $3.5
million from $422,000 in 1997. This increase was primarily the result of a full
year of consulting operations occurring in 1998 with approximately seven months
of consulting operations occurring in 1997. The 1998 increase also reflected the
costs required to support the growing business demands for our consulting
services during that period.
24
<PAGE> 27
As a percentage of consulting revenue, cost of consulting revenue approximated
57% in 1998 and 32% in 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses,
which excluded development expenses that were included in cost of revenues, in
1998 increased to $1.1 million from $0 in 1997. The increase was primarily due
to Year 2000 remediation of our owned software that is used in the provision of
application services to our customers. As a percentage of total revenues,
research and development expense approximated 9% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1998 increased $2.2 million, or 329%, to $2.9 million
from $672,000 in 1997. This increase was due primarily to expansion of the sales
force, staff growth in management and administrative support areas, and
expansion of related office space for a full year of operations in 1998. As a
percentage of total revenues, sales, general and administrative expenses
approximated 25% in 1998 and 27% in 1997.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred
stock compensation increased $22,000 in 1998 from $0 in 1997. This amount
represents the allocated portion of the difference between the deemed fair value
of our common stock and the exercise price of stock options granted by us to
employees.
INTEREST INCOME. Interest income in 1998 increased $195,000, to $210,000
from $15,000 in 1997. The increase was due to incremental cash available for
investments resulting from approximately $6,000,000 in gross proceeds raised in
the April 1998 private financing.
INTEREST EXPENSE. Interest expense in 1998 increased $39,000, or 300%, to
$52,000 from $13,000 in 1997. The increase was due to the impact of a full year
of operation in 1998.
INCOME TAX EXPENSE. Provision for income tax in 1998 decreased $8,000, or
11%, to $82,000 from $74,000 in 1997. The decrease was primarily due to a
decrease in tax deductions for book purposes in 1998 not recognizable for tax
purposes.
25
<PAGE> 28
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements of
operations data for the six quarters ended June 30, 1999. This data has been
derived from unaudited financial statements that, in the opinion of our
management, include all adjustments consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of the
information when read in conjunction with our audited financial statement and
the attached notes. The operating results for any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Recurring revenue................ $1,239 $1,351 $1,447 $1,263 $ 1,386 $4,757
Consulting revenue............... 1,079 1,384 1,951 1,717 2,832 3,676
------ ------ ------ ------ ------- ------
Total revenues..................... 2,318 2,735 3,398 2,980 4,218 8,433
------ ------ ------ ------ ------- ------
Cost of revenues:
Recurring revenue................ 688 974 1,119 1,186 1,328 3,731
Consulting revenue............... 783 801 924 982 1,784 2,439
------ ------ ------ ------ ------- ------
Total cost of revenues............. 1,471 1,775 2,043 2,168 3,112 6,170
------ ------ ------ ------ ------- ------
Gross profit....................... 847 960 1,355 812 1,106 2,263
Operating expenses:
Research and development......... 319 273 257 234 206 234
Sales, general and
administrative................ 501 672 825 887 1,160 1,845
Amortization of deferred stock
compensation.................. -- -- 4 18 81 139
Write-off of in-process
technology.................... -- -- -- -- 484 --
------ ------ ------ ------ ------- ------
Total operating expenses........... 820 945 1,086 1,139 1,931 2,218
------ ------ ------ ------ ------- ------
Income (loss) from operations...... 27 15 269 (327) (825) 45
Interest income.................... 13 47 69 81 38 84
Interest expense................... 13 12 16 11 31 44
Income (loss) before provision for
income taxes..................... 27 50 322 (257) (818) 85
Provision for (benefit from) income
taxes............................ 16 29 186 (149) 306 (32)
------ ------ ------ ------ ------- ------
Net income (loss).................. $ 11 $ 21 $ 136 $ (108) $(1,124) $ 117
====== ====== ====== ====== ======= ======
Net income (loss) per share:
Basic............................ $ 0.00 $ 0.00 $ 0.03 $(0.02) $ (0.22) $ 0.02
====== ====== ====== ====== ======= ======
Diluted.......................... $ 0.00 $ 0.00 $ 0.01 $(0.02) $ (0.22) $ 0.01
====== ====== ====== ====== ======= ======
Shares used in computing net income
(loss) per share:
Basic............................ 5,102 5,030 4,811 4,811 5,204 6,926
====== ====== ====== ====== ======= ======
Diluted.......................... 10,073 12,674 13,852 4,811 5,204 18,014
====== ====== ====== ====== ======= ======
</TABLE>
26
<PAGE> 29
Our recurring revenue during these periods, with the exception of the
quarter ended December 31, 1998, increased commensurately with the general
growth in our application services provider business from quarter to quarter.
Recurring revenue for the quarter ended December 31, 1998 decreased relative to
the two preceding quarters because we performed several one-time system
enhancement projects during those quarters. The cost of recurring revenue during
these periods increased commensurately with the overall growth in the
application services provider business.
Our consulting revenue during these periods, with the exception of the
quarter ended December 31, 1998, increased commensurately with the general
growth in our professional consulting services business. Consulting revenue
decreased in the quarter ended December 31, 1998 due to a lower number of
billing days in the quarter, resulting from an increase in holiday and vacation
days during this period. Cost of consulting revenue during these periods
increased commensurately with the general growth in the consulting business.
Research and development expenses in the 1998 quarters reflect a decline in
the Year 2000 remediation costs. Research and development expenses in 1999
represent costs associated with the development of our HealthWeb technology and
other software products. Sales, general and administrative costs reflect the
costs required to support general business growth trends over these periods.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
PERIOD ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------- -----------------
1997 1998 1998 1999
---- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operations.............. $236 $(1,314) $ (423) $ 1,673
Net cash provided by (used in) investing activities.... 493 (750) (350) (5,275)
Net cash provided by (used in) financing activities.... 44 4,972 4,944 3,858
---- ------- ------ -------
Net increase in cash and cash equivalents.............. $773 $ 2,908 $4,171 $ 256
==== ======= ====== =======
</TABLE>
Since inception, we have financed our operations primarily through a
combination of cash from operations and private financings. The increase in
operating cash in the six months ended June 1999 was due primarily to growth in
our operations, specifically increases in net income after considering non-cash
expenses and normal fluctuations in working capital, increases in accounts
payable and accrued expenses, partially offset by an increase in accounts
receivable. The increase in cash used in operations for the year ended December
31, 1998 over the prior period was due to increases in accounts receivable and
other current assets due to general business growth, as well as an increase in
non-cash deferred revenue during the year.
The increase in cash used in investing activities in the six months ended
June 1999 was primarily the result of our acquisition of $3.7 million of
property, equipment and software related to the MedPartners agreement signed in
May 1999, as well as the $1.3 million cash portion (net of cash acquired) of our
acquisition of HealthWeb and Creative Business Solutions in February 1999. The
increase in cash used in investing activities for the year ended December 1998
over the prior period was primarily due to acquisitions of $750,000 of property
and equipment and software licenses in 1998, while in 1997, we acquired $614,000
in net cash as a result of our acquisition of Croghan & Associates.
The decrease in cash provided by financing activities in the six months
ended June 1999 compared to the six months ended June 1998 was primarily the
result of gross proceeds raised in our April 1998 private financing of
$6,000,000, compared to the gross proceeds raised in our April 1999 private
financing of $4,500,000. The April 1999 proceeds were reduced by payments we
made totaling $654,000 to eliminate the line of credit assumed with the Creative
Business Solutions acquisition, to pay down notes payable and capital lease
obligations. The April 1998 proceeds were reduced by payments we made totaling
$1,048,000 consisting of loans made to employees, to repurchase common stock
from a former employee and pay down notes payable. The increase in cash provided
by financing activities for the year ended
27
<PAGE> 30
December 1998 was primarily due to gross proceeds of $6,500,000 raised in our
private financings in April and October 1998, offset by payments we made
totaling $1,567,000 consisting of loans made to employees, to repurchase common
stock from a former employee and payments on notes payable and capital lease
obligations.
We believe existing cash balances, cash generated from operations, future
borrowings under our line of credit and the proceeds from this offering will be
sufficient to meet our working capital and capital requirements for at least the
next 12 months.
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are written
using two digits rather than four to define the applicable year. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer systems or software, including,
among other things, a temporary inability to process transactions, send invoices
or engage in normal business activities. As a result, many companies' computer
systems may need to be upgraded or replaced in order to avoid this "Year 2000"
issue.
STATE OF READINESS. We are a fairly new enterprise, and, accordingly, the
majority of the software and hardware we use to manage our business has been
purchased or developed by us since inception. Generally, hardware and software
design within the current decade and the past several years in particular has
considered the Year 2000 issue. All of the software codes we have internally
developed to manage our network traffic is written with four digits to define
the applicable year.
RISKS. Testing has been completed on our internal information technology
systems and non-information technology systems. All of the testing has either
been performed by our own personnel or by the original software vendors. We
believe that such software is Year 2000 compliant.
In addition to our internally developed software, we use and license
software and hardware developed by third parties. To date, we have not done any
testing of such third party software or hardware to determine Year 2000
compliance. We have, however, obtained certifications from our key suppliers of
hardware and networking equipment for our data centers that such hardware and
networking equipment is Year 2000 compliant. Additionally, we have received
assurances from the providers of key software applications that their software
is Year 2000 compliant. Based upon an initial evaluation of our broader list of
software and hardware providers, we are aware that all of these providers are in
the process of reviewing and implementing their own Year 2000 compliance
programs, and we will work with these providers to address the Year 2000 issue
and continue to seek assurances from them that their products are Year 2000
compliant.
We also rely on third party network infrastructure providers to gain access
to the Internet. If such providers experience business interruptions as a result
of their failure to achieve Year 2000 compliance, our ability to provide
Internet connectivity could be impaired, which could have a material adverse
effect on our business, results of operations and financial condition.
Many of our customers are not Year 2000 compliant, and the impact of
widespread customer failure on our systems is difficult to determine. Customer
difficulties due to Year 2000 issues could interfere with healthcare
transactions or information, which might expose us to significant potential
liability. If customer failures result in the failure of our systems, it could
have a material adverse effect on our business, financial condition and
operating results. Furthermore, the purchasing patterns of these customers or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to become Year 2000 compliant. The costs of becoming Year
2000 compliant for current or potential customers may result in reduced funds
being available to purchase and implement our applications and services.
COSTS. We have incurred approximately $650,000 to date, and we do not
anticipate that any future costs associated with our Year 2000 remediation
efforts will be material. However, if our customers, our
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<PAGE> 31
providers of hardware and software, our third party network providers or we fail
to remedy any Year 2000 issues, our services and certain transactions could be
interrupted and we could experience a material loss of revenues that could have
a material, adverse effect on our business, financial condition and operating
results. We would consider such an interruption to be the most reasonably likely
unfavorable result of any failure by us, or failure by the third parties upon
which we rely, to achieve Year 2000 compliance. Presently, we believe we are
unable to reasonably estimate the duration and extent of any such interruption
or quantify the effect it may have on our future revenues.
CONTINGENCY PLAN. We have yet to develop a comprehensive contingency plan
to address the issues that could result from such an event. We are prepared to
develop such a plan if our ongoing assessment leads us to conclude we have
significant exposure based upon the likelihood of such an event. See "Risk
Factors -- If we do not adequately address Year 2000 concerns, we may lose
revenue or incur additional costs."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. We do not expect
that the adoption of SOP No. 98-1 will have a material impact on our
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133 is
effective for fiscal years beginning after December 15, 2000. It requires that
an entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, we have not engaged in derivative and hedging activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
and commodity market prices and rates. We are exposed to market risk due to
changes in United States interest rates. This exposure is directly related to
our normal operating and funding activities. Historically and as of June 30,
1999, we have not used derivative instruments or engaged in hedging activities.
The interest payable on our $1.5 million credit facility is variable based
on the prime rate, and, therefore, affected by changes in market interest rates.
Although as of June 30, 1999, the amount outstanding on the note payable was
zero, letters of credit approximating $125,000 had been written against the
credit facility. The line of credit expires in March 2000. Changes in interest
rates have no impact on our other debt as all of our other notes are at fixed
interest rates between 8% and 9.75%. We manage interest rate risk by investing
excess funds in cash equivalents and short-term investments bearing variable
interest rates, which are tied to various market indices. As a result, we do not
believe that near-term changes in interest rates will result in a material
effect on our future earnings, fair values or cash flows.
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BUSINESS
THE COMPANY
We enable electronic business for the healthcare industry as an application
services provider and a healthcare Internet portal, supported by our
professional consulting services.
As a leading healthcare application services provider, we deliver third
party packaged and proprietary software applications, Internet infrastructure
and front-end portal access and connectivity solutions to our customers. We
implement, host and manage applications and services on a broad range of
computing, networking and operating platforms. We provide access to our hosted
solutions either through Internet-based virtual private networks or through
conventional networks. In addition, we have acquired rights to deploy numerous
applications from leading healthcare software vendors, including Epic Systems,
Inc., Medic Computer Systems, Inc., Medical Manager Corporation and McKesson
HBOC, Inc.
Through our Customer Connectivity Centers, we host leading commercially
available software applications as required by our customers. We have designed
and implemented proprietary connectivity and integration solutions and methods
that allow us to Internet-enable these same applications and we believe that
this capability differentiates us from our competitors.
Our customers primarily include provider groups, physician practice
management companies and managed care organizations such as health maintenance
organizations, preferred provider organizations and third party administrators.
By offering our solutions on a hosted, outsourced basis, we are able to provide
our customers with comprehensive and cost predictable services with guaranteed
service quality, typically through multi-year contracts. By managing our
customers' information technology environments, we eliminate their need to
manage and support their own computer systems, networks and software, therefore
allowing them to concentrate on their core competencies.
HealthWeb, our branded healthcare portal, is designed to facilitate the
exchange of information and to enable e-commerce among all constituents of the
healthcare industry. HealthWeb is also designed to integrate and deliver the
applications that we host for our customers though an easy-to-use common
Internet browser interface. We plan to promote our HealthWeb brand in order to
establish its reputation as a leading healthcare e-commerce portal.
HealthWeb is tailored to specifically address the requirements of
individual users which we expect will include most types of healthcare
professionals and administrative staff. Currently, providers use HealthWeb for
day to day office administration activities, connectivity to health plans and
communications with patients. Currently, payers use HealthWeb for information
exchange with providers and members. We are working with our key users to
develop additional functions and we expect to deploy additional functionality as
developed.
Our Professional Services Group guides our customers in establishing
effective business processes through efficient application and use of
information technology. We apply proprietary methodologies to identify
appropriate information technology solutions for our customers. In many cases,
these solutions include applications hosted in our Customer Connectivity Centers
as well as our HealthWeb technologies. Our Professional Services Group
implements selected solutions for which we may provide ongoing application
services and support.
Our senior management team averages approximately 14 years of healthcare
industry experience. In addition, many members of our board of directors and
management team have been responsible for comprehensive execution of information
technology functions at leading healthcare entities representing millions of
covered-lives and thousands of physicians. Our ability to deliver
mission-critical hosted services while maintaining customer satisfaction comes
from our comprehensive understanding of healthcare business processes, and
experience in the use and delivery of information technologies.
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As of July 30, 1999, we served approximately 72 customers in approximately
605 sites located throughout the United States. These customers represent over
238,000 healthcare providers and make their services available to over 40
million individuals.
INDUSTRY BACKGROUND
Information technology and the Internet are becoming increasingly important
and viable solutions in reducing the current cost burden in many industries. The
healthcare industry, because of its size, fragmentation, and dependence on
information exchange, is well suited to benefit from increased use of technology
solutions to manage complex data sets and control costs. We believe that the
tremendous functionality available in legacy and newer applications, combined
with the Internet's ease-of-use, universal accessibility and growing acceptance,
will create an opportunity for more efficient collection, management,
communication and storage of healthcare data.
Current State of the Healthcare Industry
According to industry sources, healthcare is the single largest sector of
the United States economy, consuming approximately $1.2 trillion annually. This
growth has been fueled by factors including technological advances in the
healthcare industry and an aging population utilizing more healthcare resources
on a per capita basis. To serve this demand better, the United States healthcare
industry has shifted away from traditional fee-for-service indemnity plans into
health maintenance organizations and other managed healthcare benefit plans.
Payers have attempted to control costs through a variety of methods including
lowering reimbursement rates, restricting coverage for services, limiting access
to a select group of providers, negotiating discounts with healthcare providers,
and shifting the economic risk for the delivery of care to providers through
alternative reimbursement models, such as capitation and risk pools. Despite
managed healthcare payer organizations' attempts to reduce costs, there is
general acknowledgement that the cost of healthcare has once again begun to rise
by annual double-digit percentage increases.
Industry sources estimate that at least $250 billion, or 21% of every
healthcare dollar, is wasted through the delivery of unnecessary care,
performance of redundant procedures and tests, or excessive administrative
costs. We believe that a portion of this wasteful spending is attributable to
the inefficient collection, management, sharing and storage of data. Currently,
data reside on a variety of incompatible computer systems. While these legacy
systems are useful in accomplishing site specific tasks, the inability of these
systems and applications to communicate with one another prevents the efficient,
integrated exchange of data. For example, providers often lack timely access to
relevant patient information resulting in unnecessary procedures and placing
inherent limitations on the physician's ability to diagnose and treat patients.
Providers and suppliers often exchange data manually, resulting in errors and
delays in determining eligibility, approving referrals, reporting test results
and paying claims.
These inefficiencies contribute to the rising cost of healthcare. As a
result, the government and other purchasers of healthcare increasingly have
placed pressure on the healthcare industry to improve the cost-effectiveness of
healthcare while maintaining the quality of care.
Demand for Application Services in Healthcare Information Technology
The healthcare information technology industry offers many of the solutions
necessary to improve the cost-effective delivery of healthcare services. Because
interactions between payers, providers, suppliers and consumers are very
complex, it is highly difficult to identify, implement and sustain an
appropriate combination of information technology solutions. We believe the
demand for outsourcing of healthcare information technology services is rising,
as providers and management teams struggle with the lack of strategy, personnel,
applications and technology infrastructure necessary to run their healthcare
entities. Even those healthcare entities with professional information
technology functions are challenged to create economies of scale in the
deployment and ongoing support of required solutions. A recent CIO survey
conducted by the Healthcare Information and Management Systems Society reported
that 80% of
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healthcare entities participating in the survey outsource at least one major
information technology function. The ongoing pressure to reduce healthcare costs
and improve quality results in healthcare management teams seeking a rational,
cost predictable information technology administrative solution. Therefore, we
expect that an increasing proportion of existing and new healthcare information
technology expenditures will be directed toward application services providers
on an outsourced basis.
Changing business models in healthcare are driving increasing demand for
application services. Healthcare provider organizations have agreed to perform
additional administrative business functions related to their assumption of risk
from payers. These functions include claims processing and referral processes
that require complex integrated managed care solutions not traditionally found
in provider enterprises, along with associated business processes (e.g., claims
payment) to support them. Application services providers experienced in managed
care offer a rational alternative to the in-house acquisition of seasoned
managed care knowledgeable business professionals, application software and
hardware platforms to conduct business services, and information technology
professionals with sufficient industry experience to implement and sustain these
functions. An application services provider can offer these services as an
integrated offering on a professionally managed, economical basis.
Another factor driving increased demand for application services is the
shortage of information technology professionals. On May 24, 1999, The Wall
Street Journal reported a current shortage of approximately 350,000 information
technology professionals in the United States alone. Because of extreme margin
pressures, high industry complexity and generally slow adoption of new
information technologies, healthcare entities will continue to experience
significant challenges attracting and retaining top information technology
professionals. Healthcare organizations can mitigate the risks and challenges
relating to identifying, hiring and retaining information technology
professionals through the utilization of an application services provider.
Increasing accountability to purchasers, along with direct consumerism in
healthcare is increasing the need for complete and accurate data by both
providers and payers. As organizations such as the National Committee on Quality
Assurance continue to develop standard methods for measuring and reporting
healthcare quality, service and financial results, paper-based systems no longer
suffice. Data from a variety of applications and business processes must be
gathered, stored, analyzed and reported in sophisticated data warehousing
environments. A series of hosted applications in an application services
environment, linked to a hosted data warehousing environment presents a rational
alternative to healthcare entities developing their own in-house data
warehousing and reporting environments.
Increasing Importance of the Internet in Healthcare
The Internet has rapidly become an important alternative to traditional
means of communication and commerce. The Internet's key attributes as an open,
accessible, low-cost and flexible technology make it particularly well suited
for the information technology and communication needs of the healthcare
industry. These attributes represent potential solutions to the limitations of
legacy systems, the fragmentation of data sources and the extreme dependence on
information in the healthcare industry. Specifically, the Internet's evolution
from a relatively simple platform for communicating and exchanging information
to a complex platform for the exchange of secure business to business
transactions allows it to provide a means of connecting the existing
transactional and information systems in place in the healthcare industry,
extending their utility and value. We believe that the Internet will ultimately
comprise the primary method of communication and commerce in the healthcare
industry.
Industry Challenges to Applying Information Technologies
Healthcare entities face shifting and uncertain operating models, frequent
governmental and regulatory changes, intense industry consolidation and
divestiture patterns, year 2000 challenges, and continuous margin pressures.
Even without these external forces, the size and complexity of the healthcare
industry causes the number of different software applications and technology
approaches to be extraordinary, as
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compared to other industries. The types of information technology solutions
required by any healthcare entity are dependent upon its range of operating
activities, and these requirements can shift quickly.
Whether a healthcare entity is a health plan, a provider or an
administrative fiscal intermediary, the fundamental information technology
competencies that each must possess may be classified into:
- connectivity infrastructure;
- core applications and services; and
- information access and reporting.
Connectivity infrastructure enables healthcare entities to communicate
internally, as well as externally to customers, suppliers, regulatory bodies and
other healthcare entities. Connectivity is established using electronic means
including telephone equipment, desktop devices, local area networks, wide-area
networks, the Internet and electronic data interchanges.
Core applications enable healthcare entities to conduct day-to-day business
and clinical activities. Any single healthcare entity may require multiple core
applications. The interaction of core software applications with the business
and clinical processes of the healthcare entity are primary determining factors
in the efficiency and effectiveness of whatever service is being delivered. Core
applications are generally hosted on computer platforms that must interact with
connectivity infrastructure.
Information access and reporting enables healthcare entities to first
gather, and then transform extensive data produced by internal core applications
and received from external parties, into useful information for decision-making.
Often referred to as data warehousing in the healthcare industry, gathered data
is generally organized and stored in a database management system and hosted on
a computer platform that must interact with connectivity infrastructure.
Information intensive businesses, including healthcare entities, must
possess competency in each of these three areas and also effectively integrate
them into a seamless information technology infrastructure. Moreover, all of
these three information technology competencies must be cost-predictable so that
rational information technology investment decisions can be made. Finally,
healthcare entities that achieve proficiency in their internal use of
information technology are now challenged to allow customers and other
businesses to directly interact with their information technology solutions
through person-to-business and business-to-business e-commerce. The promise and
challenge of the Internet is that a common set of access and communication
standards will enable substantially higher efficiency than current methods. We
believe this vision can be realized when entities implement and integrate all
three information competencies in a disciplined manner.
OUR SOLUTIONS
Our solutions are capable of providing our customers with a comprehensive,
professionally managed information technology capability that includes
end-to-end desktop and network connectivity infrastructure, core software
applications that help run their day-to-day business, and information access and
reporting capabilities to aid in data analysis and decision support. Our
solutions allow our customers to integrate different applications and
technologies, manage risk and control costs. Our solutions, further enable our
customers to use the rapid connectivity, universal access and ease of use of the
Internet. Our products and services provide our customers with the following
benefits:
- RAPID DEPLOYMENT AND FLEXIBILITY. By offering hosted applications which
are typically already installed in our Customer Connectivity Center, we
are able to rapidly deploy solutions for our customers. Most competing
solutions require customers to purchase and install complex and costly
desktop, application and networking systems, as well as load and test
application software. This conventional approach can be a highly
time-consuming process. Rapid deployment of our products and services is
intended to allow customers to realize very rapid returns on their
information technology expenditures. We offer our customers a large
variety of widely used proprietary and
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non-proprietary software applications without bias to any particular
vendor's products, allowing us to configure unique solutions tailored to
each customer's needs.
- REASONABLE, PREDICTABLE COSTS. Our hosted solutions and connectivity
services are subscription-based, and are billed monthly over the course
of contracts that are generally three to five years in length. The amount
paid is based on easily measurable and predictable units of volume such
as number of physicians or number of members. Most competitive software
and systems sales require customers to budget and incur significant
capital expenditures to acquire hardware, operating systems and
application software, integration consulting, communication services and
training. In addition, customers of in-house solutions are often required
to purchase separate ongoing maintenance contracts for all hardware and
software, while also incurring unpredictable costs for equipment repairs
and upgrades. In contrast, our solutions are typically allocated to
operating rather than capital budgets, allowing customers to receive a
specified suite of services at a predetermined monthly cost. Our
solutions thereby afford customers predictable costs which are consistent
with their recognition of revenue.
- RELIABILITY AND SCALABILITY. We operate our Customer Connectivity
Centers on behalf of our customers on a 24 hours a day, seven days a week
basis and we employ an information technology management team and staff
of over 300 people who are experienced in high-volume production
healthcare environments. For most of our customers, the creation and
maintenance of a comprehensive, professional information technology
capability is cost prohibitive. Our solutions and approach bring the
benefits enjoyed by the largest healthcare organizations to the remaining
majority of healthcare entities. Our centralized approach allows us to
rapidly expand our capacity as customer demands increase.
- LOWER IMPLEMENTATION RISK. In addition to employing a team experienced
in operating and supporting applications on a day-to-day basis, we employ
approximately 100 professionals who are skilled in implementing,
integrating and testing software applications using proven methodologies.
- EASE OF CONNECTIVITY. We engineer desktop, networking and communication
solutions that enable our customers to run modern and legacy applications
from a single desktop device, across a common networking system. Most of
our customers do not employ technology professionals experienced in the
setup and networking of modern end-user devices like personal computers,
network computers and personal digital assistants. We maintain a
laboratory to continuously engineer and test third party end-user
devices, network servers and application servers, along with desktop and
network software releases, to ensure reliable access to and connectivity
with required data and applications.
- INTERNET ACCESS. Our customers are continuously connected to our
Customer Connectivity Centers via high-speed, high-bandwidth
communications channels. This enables us to conveniently provide fast and
continuous Internet access to each connected desktop that utilizes our
Internet browser-based HealthWeb portal over that same communications
channel. Because our Customer Connectivity Centers maintain secure
high-speed connections to the Internet, we can offer our customers access
to informational and commercial transactions on a business-to-business
and business-to-person basis.
- PRESERVATION OF EXISTING INVESTMENT IN LEGACY SYSTEMS. Our solutions
allow for the integration of different legacy systems and make such
systems more accessible to more users through common browser-based user
interfaces. Our solutions therefore allow customers to continue, and in
many cases enhance, the use of installed systems rather than replacing
them with costly new systems. This benefit is particularly attractive to
healthcare entities with significant capital already committed to legacy
information technology systems that lack the resources to commit
incremental capital.
- HEALTHCARE AND MANAGED CARE INDUSTRY EXPERTISE. Healthcare applications
and their associated transactions and business processes tend to be
complex. Our operational management team is
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highly experienced in conducting the information technology and business
functions necessary to allow our customers to be competitive in todays
dynamic healthcare industry.
OUR STRATEGY
Our objective is to enhance our position as a leading healthcare
application services provider and establish HealthWeb as a leading healthcare
portal. We expect to achieve this objective by offering our customers high
quality, reliable, flexible and cost-effective applications, Internet
functionality and professional consulting services. The key elements of our
strategy include:
- ATTRACTING NEW CUSTOMERS AND INCREASING PENETRATION OF EXISTING
CUSTOMERS. We plan to extend our market leadership by allocating
increased resources to sales, marketing and business development
functions. We will continue to use our Professional Services Group in
conjunction with our sales force to identify and secure new accounts,
penetrate our existing accounts and heighten the overall visibility of
our company in our markets.
- EXPANDING OUR SOFTWARE APPLICATION PORTFOLIO. We plan to aggressively
pursue relationships with additional software vendors and extend our
existing relationships in order to increase the size and scope of our
software application portfolio.
- DEVELOPING AND ACQUIRING ADDITIONAL INTERNET CONNECTIVITY AND E-COMMERCE
TECHNOLOGIES. We will focus additional resources on the continued
development of HealthWeb. We plan to develop functionality that will
allow HealthWeb to support a wider variety of e-commerce applications
among a broader group of healthcare entities. We also plan to augment
HealthWeb's current functionality through the provision of additional
content, some of which may be acquired from third parties. In addition,
we intend to increase the linkages HealthWeb provides among local
providers, health plans, their members, ancillary service providers and
suppliers.
- INCREASING PENETRATION OF HEALTHWEB. We intend to market HealthWeb to
both existing customers that do not currently use HealthWeb and to new
customers in order to increase as rapidly as feasible the number of
users. We view the parallel growth of HealthWeb's offerings and
functionality with the growth in users as key to its ultimate success.
- PURSUING STRATEGIC ALLIANCES AND ACQUISITIONS. We plan to aggressively
expand our application services and HealthWeb offerings. We expect to do
so both through internal product development and marketing efforts, as
well as through strategic alliances and acquisitions. We will carefully
evaluate all strategic opportunities we encounter and pursue those which
are most compatible with our overall strategic objectives.
- ATTRACTING ADDITIONAL INFORMATION TECHNOLOGY AND INDUSTRY
PROFESSIONALS. We plan to hire and train additional information
technology and other multi-disciplinary professionals in order to meet
the increasing demands of our growing customer base.
OUR PRODUCTS AND SERVICES
Application Services Provider
Our application services represent a subscription-based method for
customers to access all or any of the three required information technology
competencies (connectivity infrastructure, core applications, information access
and reporting), along with supporting business services. Our customers choose a
combination of our product and service offerings that best meet their
functionality and pricing requirements, and pay for the delivery of those
services on a monthly basis. Our application services provide our customers with
a simpler alternative as compared to the creation of an in-house information
technology function. Customers may use our application services for all or a
portion of their information technology and related business service needs.
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We expect to expand our product and service offerings as we continue to
develop relationships with additional application vendors and service partners.
The following chart depicts our current application services, classified by the
primary information technology competency that is delivered.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CURRENT APPLICATION SERVICES PROVIDER OFFERINGS
- ------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY PRODUCT/VENDOR KEY
COMPETENCY NAME FUNCTIONS DELIVERED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONNECTIVITY Access Manager Pre-engineered desktop and network infrastructure
INFRASTRUCTURE (software and hardware devices)
Exchange Manager Electronic exchange switch for end-to-end transaction
completion
HealthWeb Enablement Internet enablement application layer
- ------------------------------------------------------------------------------------------------------------------
CORE APPLICATIONS PROVIDER APPLICATIONS
AND SERVICES
Enterprise Manager Physician office practice management and financial
control and electronic medical records
Epic (various) Physician office practice management, financial control
Medic + Physician office practice management and financial
control
Medical Manager Physician office practice management and financial
control
------------------------------------------------------------------------------------
PROVIDER BUSINESS SERVICES
Billing & Collections Outsourced function for fee-for-service providers
Claims Review Outsourced function for capitated providers
------------------------------------------------------------------------------------
PAYER APPLICATIONS
Epic -- Tapestry At-risk managed care and capitation processing
Plan Manager Fully-integrated managed care business processing and
financial control
HBOC Claimcheck Healthcare claim cost reduction
HBOC Code Review Healthcare claim accuracy checking and fraud detection
HBOC Amisys Fully-integrated managed care business processing and
financial control
------------------------------------------------------------------------------------
ADMINISTRATIVE APPLICATIONS
Enterprise Manager General accounting and financial control
Great Plains General accounting and financial control
CIO Workbench Project prioritization, control and resource management
- ------------------------------------------------------------------------------------------------------------------
INFORMATION ACCESS & Data Manager Data warehousing for Enterprise Manager and Plan
REPORTING Manager
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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HealthWeb Internet Portal
HealthWeb is designed to enhance single-point desktop access to a variety
of application and information resources required to run a healthcare entity.
HealthWeb is designed primarily for use by administrative support personnel who
conduct the day-to-day business and clinical operations of healthcare entities.
These personnel represent the vast majority of employees in healthcare entities.
HealthWeb is designed to overlay the significant existing installed base of
legacy healthcare applications. We provide our users "point and click"
connectivity to core applications, whether they operate on new or legacy
platforms, using any standard Internet browser. We believe that the abandonment
of legacy systems will generally not serve the best interests of our customers,
especially in light of significant capital outlays customers have recently made
in addressing the Year 2000 issues. HealthWeb's proprietary enabling technology
to access and connect to these legacy systems allows us to maximize value to our
customers while minimizing risks of business interruption.
HealthWeb also allows customers unlimited Internet access to other
healthcare trading partners such as pharmacy and supply companies, to other
healthcare entities, to online healthcare data and information content services,
to healthcare organizations and associations, to education and training
resources and to individuals.
For those customers who utilize our application services, HealthWeb is
designed to be the primary access method to receive those services. For
customers who do not utilize our application services, HealthWeb is designed to
co-exist with their existing application and technology environments.
We anticipate that the number of offerings available though our HealthWeb
portal will grow, as we continue to develop relationships with additional
Internet-capable service and content partners. The following chart depicts
categories of our current HealthWeb portal offerings, along with the key
functions allowed by each type of HealthWeb access.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
HEALTHWEB PORTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROVIDES SINGLE POINT OF ACCESS TO TO PERFORM
- -------------------------------------------------------------------------------------------------
Legacy applications Day-to-day business processes
Web-enabled applications Additional business and clinical processes
E-commerce partners Business-to-business transactions
Data repositories Information queries and reporting
Aggregated data Decision support
Content suppliers External knowledge-based inquiries
Education and training resources Continuing professional education
Localized healthcare community Business-to-business information linkages
Individuals Customer communication
- -------------------------------------------------------------------------------------------------
</TABLE>
Professional Consulting Services
Our Professional Services Group provides our customers with specialized
skills and experience to achieve success in the three information technology
competencies. Using a consultative approach, our professional services personnel
work to ensure that our customers' information technology activities correspond
with their strategic objectives to the maximum extent possible within their
budgetary constraints. We hire and develop professional services personnel to
provide geographical coverage across major population centers of the United
States as well as to ensure that expertise exists in the major healthcare
industry segments. We believe that our domain knowledge in the healthcare
industry, the depth of experience of our consulting professionals, and their
understanding of our customers' information technology and business issues,
result in high value for our customers.
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We anticipate that the number of professional services personnel that we
employ, and the number of geographic office locations that we maintain will
continue to grow as we expand our professional services business. The following
chart describes the types of professional services we provide.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PROFESSIONAL CONSULTING SERVICES
- -------------------------------------------------------------------------------------------------
TYPE DESCRIPTION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Information Technology Application of proprietary methodology to communicate
Assessment and Strategy information technology and strategic readiness and
desktop approach over all information technology
VIO(TM) -- Virtual Bundled consulting services where we perform ongoing
Information Officer information technology management on a retained basis
Contracted Services Hourly design, program and technician skills for short or
long-term staff augmentation
Integration Consulting Project-based implementation projects for software
applications connecting infrastructure, and information
management and reporting, including business process
design and implementation
E-Commerce Enablement Customized implementation of HealthWeb, Exchange Manager
and other e-commerce tools, development of electronic
trading partners and business process design of
electronically enabled workflow
- -------------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
We take a consultative approach to selling our services. Our Professional
Services Group, consisting of approximately 70 members, is trained in a
proprietary assessment methodology that allows them to quickly and
comprehensively analyze our customers' information technology capabilities and
requirements. In conjunction with their consulting responsibilities, our
Professional Services Group identifies opportunities to introduce our customers
to the broad range of applications and technology solutions available to them.
In many cases, these will include applications hosted in our Customer
Connectivity Centers as well as HealthWeb and Exchange Manager.
Our five person professional sales force, which is led by a veteran
healthcare sales executive, uses traditional marketing, lead generation and
customer qualification techniques to directly sell our hosted products and
services to prospective and existing customers. This sales force concentrates
specifically on solutions for provider and payer organizations. We plan to
continue to expand our sales force.
Our marketing and business development organization focuses on building our
corporate brands, including our application services and our HealthWeb
healthcare portal. This organization is also responsible for developing and
refining our business strategies. In addition, our marketing and business
development organization is responsible for the following programs:
- LEAD GENERATION PROGRAM. This program identifies and qualifies
prospective customers through seminars, telemarketing, audio and web
casting, direct mail and annual conferences.
- INDUSTRY MARKETING AND BRAND DEVELOPMENT PROGRAM. This program includes
participation in and sponsorship of industry tradeshows and trade media
advertising.
- STRATEGIC BUSINESS ALLIANCES PROGRAM. This program initiates and
develops strategic partnerships to implement co-branding, cooperative
marketing and distribution relationships.
CUSTOMER SERVICE
We believe that a high level of support is necessary to maintain long-term
relationships with our customers. We provide a wide range of customer support
functions through our service desk staff. Our
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customers may contact the service desk via a toll-free number 24 hours a day,
seven days a week. The account manager assigned to each of our customers is
responsible for proactively monitoring customer satisfaction, exposing customers
to additional training and process-improvement opportunities and coordinating
issue resolution. We employ functional and technical support personnel who work
directly with our account management team and customers to resolve technical,
operational and application problems or questions.
Because we support multiple applications and technology solutions, our
functional and technical support staff are grouped and trained by specific
application and by application type. These focused staff groups have
concentrated expertise which we can deploy as needed to address customer needs.
We cross-train employees to support multiple application solutions to create
economies-of-scale in our support staff. We further leverage the capabilities of
our support staff through the use of sophisticated, Internet-enabled
problem-resolution software. We are currently implementing Remedy, which allows
us to cost-effectively distribute our knowledge-base of application problem
resolutions to employees and customers. We centrally coordinate application
software version control, and our applications and technologies have regular
release schedules for updates and enhancements. As of June 30, 1999, we had 150
employees and independent contractors in customer support functions.
VENDOR PARTNER RELATIONSHIPS
We maintain relationships with a large and increasing number of software
vendors in the healthcare information technology market. These relationships
range from perpetual, reusable software licenses and contracts to preferred
installer agreements to informal co-marketing arrangements. We enter into
relationships with software vendors in order to be able to offer our customers
the widest possible variety of solutions tailored to their unique information
technology needs. Our relationships with our vendor partners are designed to
provide both parties with numerous mutual benefits.
The benefits for our vendor partners include:
- Web-enablement of their products;
- professional installation and operation of their products;
- ease of integration with third party products and services;
- easier software version control;
- easier add-on product capability;
- lower implementation risk;
- enhanced distribution channels;
- shorter sales cycle;
- lower maintenance and support costs; and
- potentially higher margins.
The benefits for us include:
- access to market leading products and technology solutions;
- ability to focus on service delivery rather than software development;
- co-marketing with industry leading brands;
- enhanced distribution channels; and
- competitive pricing.
We are committed to delivering cost-predictable proven solutions to our
customers. We evaluate and recommend applications or technologies that most
closely match the functionality and price requirements
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of our customers. We are capable of hosting the leading commercially available
healthcare applications on a broad range of operating platforms, and we are able
to deploy these applications as required by our customers. Some of our
healthcare vendor partners include:
- Epic Systems, Inc.;
- Medic Computer Systems, Inc.;
- Medical Manager Corporation; and
- McKesson HBOC, Inc.
COMPETITION
The market for healthcare information services is intensely competitive,
rapidly evolving, highly fragmented and subject to rapid technological change.
By using proprietary technologies and methodologies, we integrate and deliver
packaged software applications, Internet infrastructure, connectivity solutions
and information technology consulting services. Our competitors provide some or
all of the services that we provide. Our competitors can be categorized as
follows:
- application services providers, such as USinternetworking, Inc. and
Exodus Communications, Inc.;
- healthcare e-commerce and portal companies, such as Healtheon Corporation
and CareInsite, Inc.;
- information technology outsourcing companies, such as Perot Systems
Corporation, Computer Sciences Corporation and Electronic Data Systems
Corporation;
- information technology consulting firms, such as Superior Consultant
Holdings Corporation, First Consulting Group, Inc. and the consulting
divisions of the major accounting firms; and
- healthcare information software vendors selling products, such as IDX
Systems Corporation, McKesson HBOC, Inc., and Cerner Corporation.
Each of these types of companies can be expected to compete with us within
certain segments of the healthcare information technology market. Furthermore,
major software information systems companies and other entities, including those
specializing in the healthcare industry that are not presently offering
applications that compete with our products and services, may enter our markets.
In addition, some of our third party software vendors with whom we have
licensing agreements may compete with us from time to time by selling software
on a stand alone basis.
We believe companies in our industry primarily compete based on
performance, price, software functionality, customer awareness, ease of
implementation and level of service. Although our position in the market as
compared to our competitors is difficult to characterize due principally to the
variety of current and potential competitors and the evolving nature of our
market, we believe that we presently compete favorably with respect to all of
these factors. While our competition comes from many industry segments, we
believe no single segment offers the integrated, single-source solution that we
provide to our customers.
To be competitive, we must continue to enhance our products and services,
as well as our sales, marketing and distribution channels to respond promptly
and effectively to:
- changes in the healthcare industry;
- constantly evolving standards affecting healthcare transactions;
- the challenges of technological innovation and adoption;
- evolving business practices of our customers;
- our competitors' new products and services;
- new products and services developed by our vendor partners and suppliers;
and
- challenges in hiring and retaining information technology professionals.
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INTELLECTUAL PROPERTY
Our intellectual property is important to our business. We rely on certain
developed software assets and internal methodologies for performing customer
services. Developed software includes Enterprise Manager, MCIS, Directory
Studio, Exchange Manager, Access Manager, and the CIO Workbench. Our
Professional Services Group develops and utilizes information technology
life-cycle methodology and related paper-based and software-based toolsets to
perform customer assessments, planning, design, development, implementation and
support services. We rely on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and contractual provisions to protect
our intellectual property. We have no patented technology. We have registered
federal trademarks or service marks for TriZetto, Directory Studio, MCIS and
Without Integration There is Chaos.
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of some
foreign countries do not protect proprietary rights as well as the laws of the
United States. In the future, litigation may be necessary to enforce our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation could be time-consuming and
costly.
We could be subject to intellectual property infringement claims as we
expand our product and service offerings and the number of our competitors
increases. Defending against these claims, even if not meritorious, could be
expensive and divert our attention from operating our company. If we become
liable to third parties for infringing upon their intellectual property rights,
we could be required to pay a substantial damage award and be forced to develop
noninfringing technology, obtain a license or cease using the applications that
contain the infringing technology or content. We may be unable to develop
noninfringing technology or content or obtain a license on commercially
reasonable terms, or at all.
We also rely on a variety of technologies that are licensed from third
parties to perform key functions. These third party licenses are an essential
element of our business as an application services provider. These third party
licenses may not be available to us on commercially reasonable terms in the
future. The loss of or inability to maintain any of these licenses could delay
the introduction of software enhancements and other features until equivalent
technology can be licensed or developed. Any such delay could materially
adversely affect our ability to attract and retain customers.
TECHNOLOGY
Customer Connectivity Centers
We operate Customer Connectivity Centers in Englewood, Colorado and
Birmingham, Alabama. Each center operates with state-of-the-art environmental
protection systems to maintain high availability to host systems and wide area
network access. The computer rooms are protected by automated INERGEN fire
suppression systems. The computer rooms are equipped with redundant Leibert high
volume air conditioning systems with capacity for supporting future expansion.
The computer rooms and portions of the adjacent office areas are supplied with
continuous power from battery-based power systems and diesel generator backup
power is installed at both sites and tested weekly. The Customer Connectivity
Centers currently support 50 customers on six unique platforms across 73 CPU
systems using leading operating systems from IBM, Compaq Computer
Corporation/Digital and Microsoft Corporation. The host systems support an
aggregate total of three terabytes of disk storage capacity. Disk mirroring and
redundant components are used and system load balancing is employed to maintain
high service level performance.
Network Technology
Our Local Area Network environment uses Ethernet technologies from Cisco
Systems, Inc. and Nortel Networks Corporation. The backbone is comprised of
multiple 100Mb switches in a fail-over configuration. Each server has a minimum
of 100Mb of dedicated bandwidth, with a primary and secondary path.
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Our Wide Area Network environment uses technology from Cisco Systems. All
routers are implemented in a redundant configuration, allowing for nearly
immediate restoration of service in the event of a component failure. We use
Frame Relay, point-to-point T1 and Internet-based Virtual Private Network
connections to our customers. These circuits are tailored to meet the
application and response time needs of each customer.
All connectivity to our host application servers and services is provided
using the industry-standard TCP/IP protocol. We believe this provides the most
efficient and cost-effective transport for information systems services, as well
as simplified support and management. Our network connectivity eliminates our
customers' need to manage and support their own computer systems, network and
software.
We use multiple levels of security in order to provide high levels of
application and data integrity. All direct customer connections are filtered so
that they only have visibility to the host systems they use. Access to each
application is gated by the platform it runs on, as well as the application
itself. All Internet-based services use public-key certificates for
authentication and 128-bit encryption.
We have partnered with MCI Worldcom, Inc. to provide high-bandwidth network
connectivity to both of our Customer Connectivity Centers. Connectivity is
scalable in cost effective increments to provide guaranteed response times. In
addition, we have implemented dual access into both data centers, and in
conjunction with MCI Worldcom's self-healing Frame Relay infrastructure, can
provide high levels of network availability and scalability.
Connectivity Management
We provide active management for all infrastructure components and server
platforms from our Customer Connectivity Center in Englewood, Colorado. Using
state-of-the-art management platforms including Hewlett-Packard Openview, Cisco
CiscoWorks, Nortel Networks Optivity, and the intelligence built into all the
infrastructure components, we are able to provide fault isolation and
resolution, performance monitoring and tuning, trending analysis, realtime and
historical reporting on service level agreements objectives, and auditing of all
events. Monitoring 24 hours per day, seven days a week, is driven by automated
systems that track normal operations, and involve management staff only when an
event happens.
Internet Infrastructure
Each of our Customer Connectivity Centers is connected to the Internet
through T1 Frame Relay circuits provided by UUNET, the Internet services
division of MCI WorldCom, one of the largest Internet backbone providers
globally. These connections are scalable through multiple T3 circuits. We have
designed redundant Wide and Local Area Network equipment in order to optimize
Internet services availability even in the event of a component failure,
utilizing flagship products from Cisco Systems and Nortel Networks.
All access via the Internet into our Customer Connectivity Center network
is protected by a firewall and proxy server configuration. Access is controlled
on a per user basis, with full auditing and reporting. Security is further
enhanced through the use of up to 128-bit encryption across the network, access
control methods including multi-level passwords, implementation of HTTPS and
security policies governed by HIPAA compliance requirements and extensive
logging, monitoring and software alarms. We maintain another network, outside of
our firewalls, that utilizes private frame-relay links to connect our clients
that require a more secure, direct connection to their systems.
We have implemented Microsoft software technology for advanced messaging,
Internet systems development and infrastructure to support critical
collaborative technologies. This includes Microsoft Windows NT, Microsoft
Exchange, Internet Information Server and the Microsoft development suite
including Visual Interdev. We support the Internet standard access methods via
web browsers and POP3 and SMTP messaging protocols.
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Our messaging and web server platforms are geographically dispersed
providing high-availability and redundancy in support of mission-critical,
round-the-clock processing. Our platform architecture is designed to ensure high
availability through the use of replicated software services, fault-tolerant
hardware, redundant equipment and backup power systems in a tightly controlled
physical environment.
GOVERNMENT REGULATION
INTERNET REGULATION. There are increasing numbers of laws and regulations
pertaining to the Internet. In addition, a number of legislative and regulatory
proposals are under consideration by federal, state, local and foreign
governments and agencies. Laws or regulations may be adopted with respect to the
Internet relating to liability for information retrieved from or transmitted
over the Internet, on-line content regulation, user privacy, taxation and
quality of products and services. Moreover, it may take years to determine
whether and how existing laws such as those governing issues such as
intellectual property ownership and infringement, privacy, libel, copyright,
trademark, trade secret, obscenity, personal privacy, taxation, regulation of
professional services, regulation of medical devices and the regulation of the
sale of other specified goods and services apply to the Internet and Internet
advertising. The requirement that we comply with any new legislation or
regulation, or any unanticipated application or interpretation of existing laws,
may decrease the growth in the use of the Internet, which could in turn decrease
the demand for our service, increase our cost of doing business or otherwise
have a material adverse effect on our business, results of operations and
financial condition.
INTERNET TAXATION. A number of legislative proposals have been made at the
federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet and certain
states have taken measures to tax Internet-related activities. Although in
October 1998 Congress placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Once this
moratorium is lifted, some type of federal and/or state taxes may be imposed
upon Internet commerce. Such legislation or other attempts at regulating
commerce over the Internet may substantially impair the growth of commerce on
the Internet and, as a result, adversely affect our opportunity to derive
financial benefit from such activities.
PRIVACY CONCERNS. The confidentiality of patient records and the
circumstances under which records may be released for inclusion in the databases
we host are subject to substantial regulation by state governments. These state
laws and regulations govern both the disclosure and the use of confidential
patient medical record information. Although compliance with these laws and
regulations is at present principally the responsibility of the hospital,
physician or other healthcare provider, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the dissemination of medical record information has been proposed at both the
state and federal level. This legislation may require holders of this
information to implement security measures that may require substantial
expenditures by us. For example, the proposed Health Information Modernization
and Security Act would establish standards and requirements for the electronic
transmission of health information. There can be no assurance that changes to
state or federal laws will not materially restrict the ability of healthcare
providers to submit information from patient records using our applications.
FEDERAL AND STATE HEALTHCARE REGULATION. Our application services and
healthcare portal are designed to function within the current healthcare
financing and reimbursement system. During the past several years, the
healthcare industry has been subject to increasing levels of government
regulation of, among other things, reimbursement rates and certain capital
expenditures. In addition, proposals to reform the healthcare system have been
considered by Congress. These proposals, if enacted, may further increase
government involvement in healthcare, lower reimbursement rates and otherwise
change the operating environment for our customers. As in the past, healthcare
organizations may react to these proposals and the uncertainty surrounding such
proposals in ways that could result in a reduction or deferral in the use of our
technologies and services. We cannot predict with any certainty what impact, if
any, such proposals or healthcare reforms might have on our business, financial
condition or results of operations.
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We perform billing and claims services which are governed by numerous
federal and state civil and criminal laws. The federal government in recent
years has placed increased scrutiny on billing and collection practices of
healthcare providers and related entities and particularly on potential
fraudulent billing practices such as submissions of inflated claims for payment
and upcoding. Violations of the laws regarding billing and coding may lead to
civil monetary penalties, criminal fines, imprisonment or exclusion from
participation in Medicare, Medicaid and other federally funded healthcare
programs for us and our customers. Any of these results could have a material
adverse impact on our business, financial condition or results of operations.
Legislation currently being considered at the federal level could impact
the manner in which we conduct our business. The Health Insurance Portability
and Accountability Act of 1996 mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000. We are
revising our networks and applications to enable compliance with the proposed
regulations. However, until the proposed regulations become final, they could
change, which could require us to expend additional resources to comply with the
revised standards. In addition, the success of our compliance efforts may be
dependent on the success of healthcare participants in dealing with the
standards.
CONSUMER PROTECTION LAWS. In addition, federal and state consumer
protection laws may apply to us when we bill patients directly for the cost of
physician services provided. Failure to comply with any of these laws or
regulations could result in a loss of licensure, or other fines and penalties.
Any of these results could have a material adverse impact on our business,
financial condition or results of operations.
EMPLOYEES
As of June 1999, we had approximately 300 employees. Our employees are not
subject to any collective bargaining agreements, and we generally have good
relations with our employees.
FACILITIES
As of June 30, 1999, we leased ten facilities, all located within the
United States. Our principal executive and corporate offices are located in
Newport Beach, California. Our Customer Connectivity Centers are located in
Englewood, Colorado and Birmingham, Alabama, and our billing service centers are
located in Shelton, Nebraska and Louisville, Kentucky. We also have offices for
our support staff, development and network operations in Englewood, Colorado,
Provo, Utah, Moorestown, New Jersey, Glastonbury, Connecticut and Irving, Texas.
Our leases have expiration dates ranging from 1999 to 2004. We believe that our
facilities are adequate for our current operations and that additional leased
space can be obtained if needed.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which we are a party and our
management is unaware of any contemplated legal actions against us.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION CLASS
- ---- --- -------- --------
<S> <C> <C> <C>
Jeffrey H. Margolis.................. 36 Chief Executive Officer, President and Chairman III
of the Board
Michael J. Sunderland................ 44 Vice President of Finance, Chief Financial --
Officer and Secretary
D. Brian Karr........................ 33 Director of Finance and Treasurer --
Donald J. Lothrop.................... 40 Director III
Peter D. Mann........................ 32 Director II
William E. Fisher.................... 53 Director II
Paul F. LeFort....................... 58 Director I
</TABLE>
JEFFREY H. MARGOLIS co-founded TriZetto and has served as our Chief
Executive Officer, President and Director since inception. In August 1999, Mr.
Margolis was named Chairman of the Board. From July 1994 to February 1997, Mr.
Margolis served as Senior Vice President and Chief Information Officer of FHP
International Corporation, a managed care organization. From November 1992 to
June 1994, Mr. Margolis served as Vice President and Chief Information Officer
of TakeCare, Inc., a managed care organization. From September 1989 to October
1992, Mr. Margolis held various executive positions, including Vice President
and Chief Operating Officer of Comprecare, a managed care organization. From
June 1984 to September 1989, Mr. Margolis served in various positions with
Andersen Consulting, including his final position as Manager, Healthcare
Consulting. Mr. Margolis received his B.S. degree in Business
Administration -- Management Information Systems from the University of Illinois
at Urbana-Champaign in 1984. Mr. Margolis earned his State of Illinois Certified
Public Accountant certification in 1984 and his State of Colorado Certified
Public Accountant certification in 1988.
MICHAEL J. SUNDERLAND joined us as our Vice President of Finance, Chief
Financial Officer and Secretary in May 1999. From May 1998 to April 1999, Mr.
Sunderland was an independent healthcare consultant. From March 1996 to May
1998, Mr. Sunderland served as the Vice President and Chief Financial Officer of
Health Net, a California subsidiary of Foundation Health Systems, Inc., a
managed care organization. From April 1994 to March 1996, Mr. Sunderland was the
Chief Financial Officer of Diagnostic Imaging Systems, Inc., a publicly held
medical imaging company. Prior to 1994, Mr. Sunderland held various executive
and management positions in finance for Paragon Ambulatory Surgery, Inc., Care
Enterprises, Inc., Shamrock Investments, American Medical International, Inc.
and Coopers & Lybrand. Mr. Sunderland earned his B.S. degree in Accounting from
Loyola Marymount University in 1977. Mr. Sunderland earned his State of
California Certified Public Accountant certification in 1980.
D. BRIAN KARR joined us in August 1997 as Director of Finance and was our
Chief Financial Officer until May 1999. Mr. Karr has served as our Director of
Finance and Treasurer since May 1999. Mr. Karr served as Director of Finance for
Information Services for PacifiCare Health Systems, Inc., a managed care
organization, from February 1997 to July 1997. Mr. Karr served as Director of
Finance for Information Systems for FHP International Corporation, a managed
care organization from October 1994 to February 1997. Prior to October 1994, Mr.
Karr held various management positions in finance for TakeCare, Inc., a managed
care organization, and Ernst & Young, LLP. Mr. Karr received his B.S. degree in
accounting from Biola University in 1989. Mr. Karr received his State of
California Certified Public Accountant Certification in 1992.
DONALD J. LOTHROP has been a Director since April 1998. Mr. Lothrop has
been a General Partner of Delphi Management Partners II, L.P. since July 1994, a
General Partner of Delphi Management
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Partners III, L.L.C. since March 1995 and a General Partner of Delphi Management
Partners IV, L.L.C. since October 1997. From January 1991 to June 1994, Mr.
Lothrop was a Partner of Marquette Venture Partners, a venture capital firm,
where he focused on the healthcare area. From 1989 to 1990, he worked at Bain &
Company, Inc., a management consulting firm. Mr. Lothrop serves on the board of
directors of two public companies, BMJ Medical Management, Inc. and EXOGEN, Inc.
Mr. Lothrop received his B.S. degree from Pennsylvania State University in 1981
and his M.B.A. from Harvard Business School in 1989.
PETER D. MANN has been a Director since April 1998. Mr. Mann joined
Fidelity Ventures, the venture capital arm of Fidelity Investments in January
1994. Mr. Mann is currently a Vice President of Fidelity Ventures and he focuses
on investment opportunities in business services. Mr. Mann has been a Vice
President of Fidelity Capital Associates, Inc., the general partner of Fidelity
Venture Limited, since July 1998. Mr. Mann received his B.S. degree in Business
Administration from Bucknell University in 1989 and his M.B.A. degree from
Northeastern University in 1993.
WILLIAM E. FISHER has been a Director since March 1999. Mr. Fisher is
Chairman, President and Chief Executive Officer of Transaction Systems
Architects, Inc. and has served in these capacities since founding that company
in November 1993. Mr. Fisher was employed by Applied Communications, Inc., the
predecessor to Transaction Systems, from March 1987 to November 1993. Prior to
March 1987, Mr. Fisher was President of First Data Resources, Government
Services Division. Mr. Fisher is on the board of directors of two public
companies, Hypercom Corporation and West Teleservices, Inc. Mr. Fisher received
his B.S. degree from Indiana State University and his M.B.A. from the University
of Nebraska.
PAUL F. LEFORT has been a Director since June 1999. Since October 1995, Mr.
LeFort has served as the Chief Information Officer for United HealthCare
Corporation, a health and well being company. From November 1994 to October
1995, Mr. LeFort was the Senior Vice President and Chief Information Officer for
The MetraHealth Companies, Inc., jointly owned by Travelers Insurance Company
and Metropolitan Life Insurance Company. From 1975 to 1994, Mr. LeFort served as
a senior partner at Deloitte & Touche Management Consulting for Health Care
Information Systems. Mr. LeFort received his B.S. degree in Physics/Economics
from Boston College in 1962.
OTHER KEY EMPLOYEES
Our key employees are as follows:
SHAWN P. BOWEN, 34, joined us in July 1997 as our Vice President, Desktop &
Network Services. Since June 1999, Mr. Bowen has served as Vice President,
Connectivity Services and Chief Technical Officer. Mr. Bowen served as Director
of Desktop Strategy for FHP Healthcare/PacifiCare, a managed care organization
from July 1994 to June 1997. Prior to July 1994, Mr. Bowen held various
information technology management positions at TakeCare, Inc., a managed care
organization, Comprecare, Inc., a managed care organization, and a consulting
position at Andersen Consulting. Mr. Bowen received his B.S. degree in Business
Administration and Management Information Systems from Colorado State University
in 1987.
DEBRA A. BRIGHTON, 45, joined us in January 1998 as our Vice President of
Applications Development. From May 1997 to December 1997, Ms. Brighton served as
a consultant at Andersen Consulting. From July 1994 to May 1997, Ms. Brighton
served as Associate Vice President, Information Services for PacifiCare, a
managed care organization. Prior to July 1994, Ms. Brighton held various
information technology management positions at TakeCare, Inc., a managed care
organization, United HealthCare Corporation, a health and well being company,
Lincoln National Employee Benefits, an insurance company, and CyCare Systems,
Inc., a practice management software vendor.
DAVID E. CRUTCHFIELD, 40, joined us in May 1999 as our Vice President,
Application Services. From March 1998 to April 1999, Mr. Crutchfield served as
Vice President, Information Systems, of MedPartners, Inc., a physician services
company. From September 1997 to March 1998, Mr. Crutchfield served as Executive
Director of Superior Consultants Co., Inc., a healthcare information technology
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consulting company. From 1994 to September 1997, Mr. Crutchfield was a Senior
Associate at APM, Inc., a business process reengineering healthcare company. Mr.
Crutchfield received his B.S. degree in Computer Information Science in 1981 and
his Masters in Computer Information Science in 1983, both from Troy State
University.
HARVEY GARTE, 49, joined us in June 1999 as Vice President of Corporate
Development. From July 1996 to the present, Mr. Garte has served as President of
Garte & Associates, Inc., an investment banking firm. From November 1994 to July
1996, Mr. Garte served as President of Garte Torre Global Capital Markets, an
investment banking firm. From 1983 to 1994, Mr. Garte served as President of The
Garte Company, Inc., an investment banking firm. Mr. Garte earned his B.A.
degree in Economics from Adelphi University in 1971, and his M.B.A. from Lehigh
University in 1973.
LU KABIR, 43, joined us in June 1999 as our Vice President, Marketing and
Business Development. From July 1997 to January 1999, Mr. Kabir served as Vice
President, Global Business Development for Crossworlds Software, Inc., an
enterprise applications integration software company. From November 1991 to July
1997, Mr. Kabir served in various executive positions in marketing and business
development for Oracle Corporation's New Media and Technologies, including Vice
President of Worldwide Sales, Services and Business Development for
Oracle-Network Computers, Inc. (now known as Liberate Technologies, Inc.), a
majority-owned subsidiary of Oracle Corporation. Mr. Kabir earned his Bachelor
of Commerce degree from the University of Dhaka, Bangladesh in 1975 and earned
his M.B.A. degree from Sam Houston State University, Texas in 1977.
KERRY M. KEARNS, 50, joined us in January 1999 as our Senior Vice
President, Core Solutions. From March 1996 to December 1998, Mr. Kearns served
as a Senior Manager at Andersen Consulting. From March 1991 to February 1996,
Mr. Kearns served as Vice President and General Manager of Medaphis Physician
Services Corporation, a physician practice management services company. Mr.
Kearns received his B.S. degree from University of California at Davis in
Biological Sciences and Chemistry in 1971 and earned his M.S. degree in Computer
Science from the University of Nevada at Reno in 1989.
GAIL H. KNOPF, 53, joined us in April 1999 and has served as our Vice
President of e-Commerce since June 1999. From April 1997 to March 1999, Ms.
Knopf served as Executive Vice President, Chief Information Officer and a
Director of Management and Technology Solutions, Inc., a physician services
provider. From 1993 to 1997, Ms. Knopf served as Vice President and Chief
Information Officer of Humana, Inc., a managed care organization. From 1969 to
1993, Ms. Knopf held various positions with Humana, both in the managed care and
the hospital divisions, including Vice President of Systems Development. Ms.
Knopf earned her B.A. degree in Mathematics from Vanderbilt University in 1968.
DANIEL J. SPIREK, 33, joined us in May 1997 as our Vice President,
Supplemental Management Services. Since June 1999, Mr. Spirek has served as our
Senior Vice President, Professional Services Group. From July 1994 to May 1997,
Mr. Spirek served as Vice President, Information Services for FHP/ PacifiCare, a
managed care organization. Prior to July 1994, Mr. Spirek held various
information technology management positions at TakeCare, Inc., a managed care
organization, Comprecare, Inc., a managed care organization, and a consulting
position at Andersen Consulting. Mr. Spirek received his B.S. degree in
Information Management Systems from the University of Colorado in 1988.
BOARD COMPOSITION
Our board of directors currently consists of five directors. Our bylaws
provide for a classified board of directors where one class of directors is
elected each year for a term extending to the third succeeding annual meeting of
stockholders after such election. Accordingly, Mr. LeFort shall serve until the
annual meeting of stockholders in 2000, Mr. Fisher and Mr. Mann shall serve
until the annual meeting of stockholders in 2001, and Mr. Margolis and Mr.
Lothrop shall serve until the annual meeting of stockholders in 2002. There are
no family relationships among any of our directors or executive officers.
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BOARD COMMITTEES
Our board of directors currently has two committees, a compensation
committee and an audit committee. The compensation committee is consists of
Donald J. Lothrop and Peter D. Mann. The compensation committee reviews and
recommends the salaries and bonuses of our officers and certain key employees,
establishes compensation and incentive plans, authorizes and approves the
granting of stock options and restricted stock in accordance with our stock
option and incentive plans and determines other fringe benefits.
The audit committee consists of Paul F. LeFort and William E. Fisher. The
audit committee recommends engagement of our independent public accountants and
is primarily responsible for approving the services performed by our independent
accountants and for reviewing and evaluating our accounting principles and our
system of internal controls.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their services on the board, but
they are reimbursed for certain expenses incurred in connection with attendance
at board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee consists of Donald J. Lothrop and Peter D. Mann.
No executive officer serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board of directors or compensation committee.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to our
Chief Executive Officer and the two other most highly compensated executive
officers whose total salary and bonus exceeded $100,000 for services rendered in
all capacities to us and our subsidiaries during 1998. We refer to these
officers as our named executive officers in other parts of this prospectus.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION(1) ---------------------
---------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION(2) SALARY BONUS(3) OPTIONS(#)
- ------------------------------ --------- --------- ---------------------
<S> <C> <C> <C>
Jeffrey H. Margolis
Chief Executive Officer,
President and Chairman of the Board.............. $179,324 $100,000 300,000
Raymond D. Croghan(4).............................. $155,999 -- --
D. Brian Karr
Director of Finance and Treasurer................ $ 88,446 $ 26,000 15,000
</TABLE>
- ---------------
(1) Other than salary and bonus described herein, we did not pay any executive
officer named in the summary compensation table any fringe benefits,
perquisites or other compensation in excess of 10% of such executive
officer's salary and bonus during 1998.
(2) Mr. Sunderland, our Vice President of Finance, Chief Financial Officer and
Secretary joined us in May 1999. His annual salary is $155,000, and he is
eligible for a bonus at the discretion of our board. Mr. Sunderland was
granted options to purchase 130,000 shares of common stock. Mr. Sunderland
is expected to be a named executive officer in 1999.
(3) These figures represent bonuses earned in 1998 that were paid in 1999.
(4) Mr. Croghan served as Executive Vice President until he resigned from that
position in February 1999.
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<PAGE> 51
OPTION GRANTS
The following table sets forth information concerning stock options granted
to our named executive officers during the fiscal year ended December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Margolis................. 200,000 17% $0.275 5/19/03
100,000 9% $0.275 11/20/03
Raymond D. Croghan.................. -- -- -- -- -- --
D. Brian Karr....................... 15,000 1% $ 0.25 5/19/08
</TABLE>
The figures above represent options granted pursuant to our 1998 Stock
Option Plan. We granted options to purchase 1,158,628 shares of our common stock
in 1998. All options were granted at an exercise price equal to the fair market
value of the common stock on the date of grant as determined by our board of
directors, except for options granted to Mr. Margolis which were granted at 110%
of the fair market value.
The options vest in 25% increments on each of the four annual anniversaries
of the date of grant.
Options granted to the persons listed above expire 10 years from the grant
date, with the exception of options granted to Mr. Margolis which expire 5 years
from the grant date.
The potential realizable value represents amounts, net of exercise price
before taxes, that may be realized upon exercise of the options immediately
prior to the expiration of their terms assuming appreciation of 5% and 10% over
the option term. The 5% and 10% are calculated based on rules promulgated by the
SEC based upon an assumed initial public offering price of $ per share and
do not reflect our estimate of future stock price growth. The actual value
realized may be greater or less than the potential realizable value set forth in
the table.
We have never granted stock appreciation rights.
OPTIONS EXERCISED AND FISCAL YEAR-END VALUES
Our named executive officers did not exercise any stock options during the
fiscal year ended December 31, 1998. The following table sets forth the number
and value of the named executive officers' unexercised options at December 31,
1998, based upon a fair market value of $0.25 per share. The value of
unexercised in-the-money options at December 31, 1998 represents an amount equal
to the difference between the assumed initial public offering price of $ per
share and the option exercise price, multiplied by the number of unexercised
in-the-money options.
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<PAGE> 52
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey H. Margolis..................... 0 300,000 $0 $
Raymond D. Croghan...................... -- -- -- --
D. Brian Karr........................... 0 15,000 0
</TABLE>
EMPLOYMENT AGREEMENT
We have an employment contract with Jeffrey H. Margolis. We do not have any
other employment contracts with our named executive officers.
Mr. Margolis' three year employment agreement dated April 30, 1998,
provides for an annual base salary of $192,000 per year, which is to be reviewed
annually by the board of directors. Currently, Mr. Margolis' annual salary is
$216,000. Mr. Margolis is entitled to participate in a bonus plan as recommended
by our compensation committee and approved by the board of directors. Mr.
Margolis may participate in all employee benefit plans or programs generally
available to our employees, and we will pay or reimburse Mr. Margolis for all
reasonable and necessary out-of-pocket expenses he incurs in the performance of
his duties. We loaned Mr. Margolis $100,000 and agreed to forgive $25,000 of the
principal amount, along with any accrued but unpaid interest on such forgiven
amount, on each anniversary of the employment agreement if Mr. Margolis remains
an employee. If Mr. Margolis is terminated without cause or he voluntarily
terminates for good reason, he is entitled to severance pay in the amount equal
to his then current annual base salary.
1998 STOCK OPTION PLAN
Our 1998 Stock Option Plan was adopted by our board of directors on May 19,
1998 and approved by a majority of our stockholders on May 19, 1998. Our 1998
Stock Option Plan was amended on January 22, 1999, May 21, 1999 and June 28,
1999. Our 1998 Stock Option Plan provides for awards or sales of shares,
incentive stock options and nonstatutory stock options. A total of 4,000,000
shares of common stock has been reserved for issuance under our 1998 Stock
Option Plan as of June 28, 1999.
Our 1998 Stock Option Plan is administered by our board of directors. Our
board of directors may amend our 1998 Stock Option Plan as desired without
further action by our stockholders except as required by applicable law and to
the extent not causing any material adverse effect on any rights or benefits of
the holders of outstanding options. Our 1998 Stock Option Plan will continue in
effect until terminated by the board or for a term of 10 years from its original
adoption date, whichever is earlier.
The consideration for each award under our 1998 Stock Option Plan will be
established by the board of directors, but in no event will the option price for
incentive stock options be less than the fair market value of a share of common
stock on the date of grant or 110% with respect to optionees who own at least
10% of the outstanding common stock. Nonqualified options will have an option
price of not less than 85% of the fair market value of a share of common stock
on the date of grant. The board of directors has the authority to determine the
time or times at which options granted under the 1998 Stock Option Plan become
exercisable, provided that options expire no later than ten years from the date
of grant or five years with respect to optionees who own at least 10% of the
outstanding common stock. Options are nontransferable, other than upon death or
disability. Our board of directors, however, may permit persons or entities
related to the option holder to exercise options according to such terms as our
board of directors may determine. Incentive stock options may be exercised only
by an employee while employed by us or within 30 days after termination of
employment or within one year for termination resulting from death or
disability.
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<PAGE> 53
Unless otherwise determined by our board of directors, the exercisability
of options outstanding under the 1998 Stock Option Plan will accelerate upon a
change in control of our company, which includes but is not limited to the
merger of our company, with or into another corporation where our stockholders
no longer own 50% or more of our stock or the company we merge into, or the sale
of substantially all of our assets, regardless of whether the options are
assumed or new options are issued by the successor corporation.
As of June 30, 1999, we had options outstanding for the purchase of
2,802,628 shares of common stock under our 1998 Stock Option Plan. These options
have exercise prices ranging from $0.25 to $2.60 per share and a weighted
average per share exercise price of $0.74, and were held by 290 persons. None of
the options to purchase shares have been exercised.
EMPLOYEE STOCK PURCHASE PLAN
In July 1999, our board of directors adopted our Employee Stock Purchase
Plan, to be effective upon completion of this offering. A total of 600,000
shares of common stock have been reserved for issuance under our Employee Stock
Purchase Plan. Our Employee Stock Purchase Plan, which is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended, will be
administered by the board of directors or by a committee appointed by the board.
Employees are eligible to participate if they are customarily employed for at
least 20 hours per week and for more than five months in any calendar year.
Employees who own more than 5% of our outstanding stock may not participate. Our
Employee Stock Purchase Plan permits eligible employees to purchase common stock
through payroll deductions which may not exceed the lesser of 15% of an
employee's compensation, or $25,000.
Our Employee Stock Purchase Plan will be implemented by 12 month offerings
with purchases occurring at six month intervals commencing on the date of this
prospectus.
The purchase price of the common stock under our Employee Stock Purchase
Plan will be equal to 85% of the fair market value per share of common stock on
either the start date of the offering period or on the purchase date, whichever
is less. Employees may end their participation in an offering period at any time
during that period, and participation ends automatically on termination of
employment with us. In the event of a proposed dissolution or liquidation of
TriZetto, the offering periods terminate immediately prior to the consummation
of the proposed action, unless otherwise provided by our board of directors. If
there is a proposed sale of all or substantially all of our assets or the merger
of TriZetto with or into another corporation, then the offering period in
progress will be shortened and a new exercise date will be set that is before
the sale or merger. The offering period in progress shall end on the new
exercise date. Each participant shall be notified at least ten business days
prior to the new exercise date, and unless such participant ends his or her
participation, the option will be exercised automatically on the new exercise
date. Our Employee Stock Purchase Plan will terminate in 2009, unless sooner
terminated by the board of directors.
SECTION 401(k) PLAN
We adopted a 401(k) Plan covering our full-time employees effective as of
January 1, 1998. Our 401(k) Plan is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended, so that contributions to the
401(k) Plan by employees or by us, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that we can
deduct any contributions that we make, at the time they are made. Pursuant to
the 401(k) Plan, employees may elect to reduce their current compensation by up
to the statutorily prescribed annual limit and to have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan permits us, but does
not require us to make, additional matching contributions to the 401(k) Plan on
behalf of all participants in the 401(k) Plan. We have not made any
contributions to the 401(k) Plan to date and we do not currently have any plans
to make contributions.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth specified information with respect to the
beneficial ownership of our common stock as of June 30, 1999:
- each person (or group of affiliated persons) who is known by us to
beneficially own 5% or more of the common stock;
- each of our directors;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. Unless otherwise indicated, the persons named in the table
have sole voting and sole investment control with respect to all shares
beneficially owned. The number and percentage of shares beneficially owned are
based on 15,645,636 shares of common stock outstanding as of June 30, 1999. The
number and percentage of shares beneficially owned also assumes that shares of
common stock subject to options and other rights that are currently exercisable
or exercisable within 60 days of June 30, 1999 are deemed to be outstanding and
beneficially owned. The address for those individuals for which an address is
not otherwise indicated is: c/o The TriZetto Group, Inc., 567 San Nicolas Drive,
Suite 360, Newport Beach, California 92660.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
NAME AND ADDRESS OF ----------------------- ---------------------
BENEFICIAL OWNERS NUMBER PERCENT NUMBER PERCENT
- ------------------- ----------- -------- ---------- -------
<S> <C> <C> <C> <C>
Raymond D. Croghan(1)............................ 3,507,681 22% 3,507,681
Delphi Ventures IV, L.P.......................... 2,680,746 17% 2,680,746
3000 Sand Hill Road Building One, Suite 135
Menlo Park, CA 94025
Fidelity Ventures Limited........................ 1,289,336 8% 1,289,336
82 Devonshire Street, R25C Boston, MA
02109-3614
Fidelity Investors Limited Partnership........... 1,289,336 8% 1,289,336
Fidelity Investors II Limited Partnership
82 Devonshire Street, R25C Boston, MA
02109-3614
HLM\UH Fund L.P.................................. 961,538 6% 961,538
222 Berkeley Street Boston, MA 02116
Jeffrey H. Margolis(2)........................... 2,660,000 17% 2,660,000
Michael J. Sunderland............................ 0 * 0 *
D. Brian Karr(3)................................. 228,750 1% 228,750
Donald J. Lothrop(4)............................. 2,680,746 17% 2,680,746
Peter D. Mann(5)................................. 1,289,336 8% 1,289,336
William E. Fisher(6)............................. 412,595 3% 412,595
Paul F. LeFort................................... 50,000 * 50,000 *
All executive officers and directors as a group
(7 persons).................................... 7,366,427 46% 7,366,427
</TABLE>
- ---------------
* Less than 1%
(1) 550,000 of such shares are subject to an option granted by Mr. Croghan to
Mr. Margolis, with a term of five years and an exercise price of $6.50 per
share.
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<PAGE> 55
(2) Mr. Margolis' shares are held by Jeffrey H. Margolis and his wife, in their
capacities as Trustees of the Margolis Family Trust Udt 12/23/98, over which
the Trustees have shared voting power. Includes options for 550,000 shares
of common stock granted by Mr. Croghan to Mr. Margolis which are exercisable
within 60 days of June 30, 1999. Also includes options for 50,000 shares of
common stock which are exercisable within 60 days of June 30, 1999.
(3) Includes options for 3,750 shares of common stock which are exercisable
within 60 days of June 30, 1999.
(4) Consists of 2,736,014 shares held by Delphi Ventures IV, L.P. and Delphi
BioInvestments IV, L.P. Mr. Lothrop is a General Partner of Delphi
Management Partners II, LP, Delphi Management Partners III, LLC and Delphi
Management Partners IV, LLC, and disclaims beneficial interest of the
2,736,014 shares except to the extent of his pecuniary interest. Mr.
Lothrop's business address is the same as that of Delphi.
(5) Consists of 1,289,336 shares held by Fidelity Ventures Limited. Mr. Mann is
a Vice President of the general partner of Fidelity Ventures and disclaims
beneficial ownership of the 1,289,336 shares. Mr. Mann's business address is
the same as that of Fidelity.
(6) Also includes warrants to purchase 162,595 shares of common stock which are
exercisable by KFS Management, Inc. within 60 days of June 30, 1999. Mr.
Fisher owns 50% of the issued and outstanding stock of KFS and is an officer
and director of KFS.
53
<PAGE> 56
CERTAIN TRANSACTIONS
KFS WARRANTS
On September 1, 1997, Croghan & Associates issued a promissory note in the
principal amount of $520,000 to KFS Management, Inc. In connection with this
promissory note, Croghan & Associates issued KFS Management, Inc. warrants to
purchase 243,893 shares of Croghan & Associates common stock at $0.53 per share.
When we acquired Croghan & Associates, we agreed to convert these warrants into
warrants to purchase 162,595 shares of our common stock at $0.80 per share. KFS
exercised its warrants on August 2, 1999. One of our directors, William Fisher,
owns 50% of the issued and outstanding stock of KFS and is an officer and
director of KFS. The value of the warrants, which was not deemed material, was
determined using the Black Scholes valuation model.
CROGHAN & ASSOCIATES AND MARGOLIS HEALTH ENTERPRISES TRANSACTIONS
On October 1, 1997, we entered into an Exchange Agreement with all of the
stockholders of Croghan & Associates and Margolis Health Enterprises. Pursuant
to the Exchange Agreement, we acquired all of the issued and outstanding stock
of Croghan & Associates in exchange for 5,800,895 shares of our common stock,
and we acquired all of the issued and outstanding stock of Margolis Health
Enterprises, Inc., an entity under our common control, in exchange for 3,716,667
shares of our common stock. Mr. Margolis received 2,500,000 shares and Mr.
Croghan received 4,050,000 shares pursuant to the Exchange Agreement.
SERIES A FINANCING
On April 30, 1998 and October 30, 1998, we issued an aggregate of 4,545,454
shares of Series A Preferred Stock for $1.43 per share. In connection with our
Series A offering, each employee stockholder, including those stockholders who
received shares of common stock pursuant to the Exchange Agreement, were
required to enter into a Restricted Stock Agreement. The Restricted Stock
Agreements provide for vesting of shares and transfer restrictions.
SERIES B FINANCING
On April 12, 1999, we issued an aggregate of 1,730,770 shares of Series B
Preferred Stock for $2.60 per share. Of the 1,730,770 shares of preferred stock
sold by us, 769,232 shares were sold to the following principal stockholders for
an aggregate purchase price of $2,000,003.
<TABLE>
<CAPTION>
NUMBER AGGREGATE
PURCHASER OF SHARES PURCHASE PRICE
- --------- --------- --------------
<S> <C> <C>
Delphi Ventures IV, L.P. ................................... 282,635 $734,851
Delphi BioInvestments IV, L.P. ............................. 5,827 $ 15,150
Fidelity Ventures Limited................................... 240,385 $625,001
Fidelity Investors II Limited Partnership................... 240,385 $625,001
</TABLE>
In connection with the sale of these shares, the Delphi entities agreed to
vote their shares to elect a designee of the Fidelity entities to our board of
directors and the Fidelity entities agreed to vote their shares to elect a
designee of the Delphi entities. Donald Lothrop currently serves as the Delphi
entities' designee and Peter Mann currently serves as the Fidelity entities'
designee.
MARGOLIS $100,000 NOTE
In connection with Mr. Margolis' employment agreement, dated April 30,
1998, we loaned Mr. Margolis $100,000 in exchange for a promissory note in the
principal sum of $100,000, bearing interest at 6.5% per year. We forgave $25,000
of the principal amount of this note and the related interest on April 30, 1999
and shall forgive an additional $25,000 and the related interest on each of the
next three anniversaries of Mr. Margolis' employment agreement, so long as Mr.
Margolis remains our employee. The
54
<PAGE> 57
entire sum of principal and interest of the note is due on April 30, 2002, and
is immediately due if Mr. Margolis commits any act of default as described in
the note.
MARGOLIS $200,000 NOTE
In June 1998, we loaned Mr. Margolis $200,000 in exchange for a promissory
note in the principal sum of $200,000, bearing an interest rate of 8% per year.
The entire sum of principal and interest of the note was due on June 15, 1999.
The note was secured by 200,000 shares of our common stock. On May 21, 1999, we
repurchased 200,000 shares of common stock owned by Mr. Margolis in exchange for
the note.
CROGHAN $500,000 NOTE
In October 1998, we loaned Mr. Croghan $500,000 in exchange for a
promissory note in the principal sum of $500,000, bearing an interest rate of 8%
per year. The entire sum of principal and interest of the note was due on
October 26, 1999. The note was secured by 362,319 shares of our common stock. On
June 30, 1999, we repurchased 362,319 shares of common stock by Mr. Croghan in
exchange for the note.
55
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock, after
giving effect to the conversion of all outstanding preferred stock into common
stock, will consist of 40,000,000 shares of common stock, $.001 par value, and
5,000,000 shares of preferred stock, $.001 par value.
The following is a summary of certain provisions of our common stock,
preferred stock, amended and restated certificate of incorporation and bylaws.
COMMON STOCK
As of June 30, 1999, there were 9,369,412 shares of common stock
outstanding, held by approximately 90 stockholders of record. An additional
6,276,224 shares of our common stock will be issued upon conversion of preferred
stock on the closing of this offering. All outstanding shares of common stock
are, and the common stock to be issued in this offering will be, fully paid and
nonassessable.
The following summarizes the rights of holders of our common stock:
- each holder of shares of common stock is entitled to one vote per share
on all matters to be voted on by stockholders generally, including the
election of directors;
- there are no cumulative voting rights;
- the holders of our common stock are entitled to dividends and other
distributions as may be declared from time to time by the board of
directors out of funds legally available for that purpose, if any;
- upon our liquidation, dissolution or winding up, the holders of shares
of common stock will be entitled to share ratably in the distribution of
all of our assets remaining available for distribution after
satisfaction of all our liabilities and the payment of the liquidation
preference of any outstanding preferred stock; and
- the holders of common stock have no preemptive or other subscription
rights to purchase shares of our stock, nor are they entitled to the
benefits of any redemption or sinking fund provisions.
PREFERRED STOCK
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Our certificate of incorporation authorizes our board of
directors to create and issue one or more series of preferred stock and
determine the rights and preferences of each series within the limits set forth
in our certificate of incorporation and applicable law. Among other rights, the
board of directors may determine, without further vote or action by our
stockholders:
- the number of shares constituting the series and the distinctive
designation of the series;
- the dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
- whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of the voting rights;
- whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
- whether or not the shares of the series will be redeemable or
exchangeable, and, if so, the dates, terms and conditions of redemption
or exchange, as the case may be;
- whether the series will have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
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<PAGE> 59
- the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
Unless otherwise provided by our board of directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of preferred stock, any future issuance of
shares of preferred stock, or the issuance of rights to purchase preferred
shares, may have the effect of delaying, deferring or preventing a change of
control in our company or an unsolicited acquisition proposal. The issuance of
preferred stock also could decrease the amount of earnings and assets available
for distribution to the holders of common stock or could adversely affect the
rights and powers, including voting rights, of the holders of the common stock.
REGISTRATION RIGHTS
The holders of the 6,276,224 outstanding shares of our common stock which
will be issued upon conversion of preferred stock on the closing of this
offering, which are referred to below as our "preferred investors," and the
holders of 5,567,681 shares of our common stock, which are referred to below as
the "founders," have the right to cause us to register their shares under the
Securities Act of 1933 as follows:
- DEMAND REGISTRATION RIGHTS: Our preferred investors may make a demand
for registration six months after this offering by providing a written
demand from the holders of at least 35% of the shares of common stock
issued upon conversion of the preferred stock. We will use our best
efforts to effect such registration as soon as possible after receipt of
notice.
- PIGGYBACK REGISTRATION RIGHTS: Our preferred investors and the founders
can request to have their shares registered anytime we file a
registration statement to register any of our securities for our own
account. Such registration opportunities are unlimited but the number of
shares that can be registered may be eliminated entirely or cut back in
certain situations by the underwriters. Our preferred investors have
waived their piggyback rights in this offering.
- REGISTRATION RIGHTS: After we have qualified for registration on Form
S-3, our preferred investors can request us to register their shares if
the aggregate price of the shares to the public is not less than
$500,000. We are not obligated to register their shares on Form S-3 more
than once during any six month period.
The registration rights will terminate five years following the closing of
this offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or the business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, fifteen percent
or more of a corporation's voting stock. This statute could prohibit or delay
the accomplishment of mergers or other takeover or change in control attempts
relating to our company and, accordingly, may discourage attempts to acquire us.
In addition, some provisions of our certificate of incorporation and bylaws
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder
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<PAGE> 60
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by our stockholders.
These provisions include:
- BOARD OF DIRECTORS. Our board of directors is divided into three classes
of directors serving staggered terms. Our certificate of incorporation
authorizes our board of directors to fill vacant directorships or
increase the size of the board of directors. Accordingly, even if a
stockholder succeeds in a proxy contest, he would likely only be able to
elect a minority of our board of directors at any one annual meeting.
- STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our certificate of
incorporation provides that stockholders may not take action by written
consent, but only at a duly called annual or special meeting of
stockholders. Our certificate of incorporation further provides that
special meetings of our stockholders may be called only by the chairman
of the board of directors, by a committee of the board of directors or a
majority of the board of directors, and in no event may the stockholders
call a special meeting. Thus, without approval by the board of directors
or chairman, stockholders may take no action between annual meetings.
- ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of
stockholders, must provide timely notice of this intention in writing. To
be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 120 days prior
to the first anniversary of the date of our notice of annual meeting
provided with respect to the previous year's annual meeting of
stockholders. However, if no annual meeting of stockholders was held in
the previous year or the date of the annual meeting of stockholders has
been changed to be more than 30 calendar days from the time contemplated
at the time of the previous year's proxy statement, then a proposal shall
be received no later than the close of business on the tenth day
following the date on which notice of the date of the meeting was mailed
or a public announcement was made, whichever first occurs. The bylaws
also include a similar requirement for making nominations at special
meetings and specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from
bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual or special meeting of
stockholders.
- AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance
without stockholder approval, subject to certain limitations imposed by
the Nasdaq National Market. These additional shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved common stock and
preferred stock could render more difficult or discourage an attempt to
obtain control of our company by means of a proxy contest, tender offer,
merger or otherwise.
Delaware law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. We
have provisions in our certificate of incorporation and bylaws which require a
vote of 50% of the holders of the outstanding common stock to amend, revise or
repeal anti-takeover provisions.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, except to the extent
permitted by Delaware law, our directors shall not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as a
director. Under Delaware law, the directors have a fiduciary duty to us that is
not eliminated by this provision of our certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us for
58
<PAGE> 61
acts or omissions which are found by a court of competent jurisdiction to be not
in good faith or that involve intentional misconduct, or knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by Delaware law. This provision also does not affect the director's
responsibilities under any other laws, such as the federal securities laws.
Section 145 of the Delaware corporate law empowers a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- arising under Section 174 of the Delaware corporate law; or
- for any transaction from which the director derived an improper personal
benefit.
Delaware law provides further that the indemnification permitted by that
law shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under a corporation's bylaws, any agreement, a vote of
stockholders or otherwise. Our certificate of incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware corporate law and provides that we may fully indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was our employee, director or officer or is or was serving at our
request as an employee, director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in the bylaws. We believe that
these provisions and agreements are necessary to attract and retain qualified
directors and officers. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions, regardless of whether Delaware law would permit
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be U.S. Stock
Transfer Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock. No predictions can be made regarding the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. As described below, only a limited number of
shares will be available for sale shortly after this offering due to certain
contractual and legal restrictions on resale. Nevertheless, sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price.
Upon completion of this offering, we will have shares of common
stock outstanding based on 15,645,636 shares outstanding at June 30, 1999. The
shares of common stock being sold hereby will be freely tradable,
other than by our "affiliates" as such term is defined in the Securities Act,
without restriction or registration under the Securities Act. The 15,645,636
remaining shares were issued and sold by us in private transactions are
restricted shares and are eligible for public sale if registered under the
Securities Act or sold in accordance with Rule 701 under the Securities Act.
59
<PAGE> 62
All restricted shares held by our executive officers, directors, affiliates
and employees are subject to lock-up agreements with the underwriters under
which the holders of the restricted shares have agreed they will not sell any
common stock owned by them without the prior written consent of the
representatives of the underwriters for a period of 180 days from the effective
date of the Registration Statement of which this prospectus is a part.
The following table indicates approximately when the shares of our common
stock that are not being sold in the offering, but which will be outstanding
after the offering is completed, will be eligible for sale into the public
market. The information in the table below gives effect to the exercise of
warrants to purchase 162,595 shares of common stock on August 2, 1999.
<TABLE>
<CAPTION>
TIME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Effective Date..................................... 0
90 days after Effective Date....................... 458,193
180 days after Effective Date...................... 12,561,673
</TABLE>
The remaining 2,788,365 shares of our common stock will be eligible for
sale into the public market at various times after the expiration of one-year
holding periods. Most of the restricted shares that will be available for public
resale after 180 days after the effective date will be subject to volume and
other resale restrictions pursuant to Rule 144 because the holders are
affiliates of TriZetto.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the closing of this offering, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to stock options granted by us
before this offering, along with the shares acquired upon exercise of these
options. Securities issued in reliance on Rule 701 are deemed to be restricted
shares and, beginning 90 days after the date of this prospectus, unless subject
to the contractual restrictions described above, may be sold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period requirements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person deemed to be our affiliate, or a person
holding restricted shares who beneficially owns shares that were not acquired
from us or our affiliate within the previous year, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the then outstanding shares of common stock, or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission.
Sales under Rule 144 are subject to certain requirements relating to manner
of sale, notice and availability of current public information about us.
However, if a person (or persons whose shares are aggregated) is not deemed to
have been our affiliate at any time during the 90 days immediately preceding the
sale, he or she may sell his or her restricted shares under Rule 144(k) without
regard to the limitations described above if at least two years have elapsed
since the later of the date the shares were acquired from us or from our
affiliate. The foregoing is a summary of Rule 144 and is not intended to be a
complete description of it.
We intend to file a registration statement under the Securities Act
covering approximately 4,000,000 shares of common stock reserved for issuance
under our 1998 Stock Option Plan and 600,000 shares of common stock reserved for
issuance under our 1999 Employee Stock Purchase Plan. This registration
statement is expected to be filed soon after the date of this prospectus and
will automatically become effective upon filing. Shares registered under this
registration statement will be available for sale in the open market, unless the
shares are subject to vesting restrictions with us or the contractual
restrictions described above.
60
<PAGE> 63
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and TriZetto, each of the underwriters named below,
through their representatives Bear, Stearns & Co. Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Adams, Harkness & Hill, has severally agreed
to purchase from TriZetto the aggregate number of shares of common stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Adams, Harkness & Hill......................................
--------
Total
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the underwriters' obligations is such
that they are committed to purchase and pay for all of the above shares of
common stock if any are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and at such price less a concession not in excess of $ per share
of common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and such dealers may
reallow, concessions not in excess of $ per share of common stock to certain
other dealers. After this offering, the offering price, concessions and other
selling terms may be changed by the underwriters. The common stock is offered
subject to receipt and acceptance by the underwriters and to certain other
conditions, including the right to reject orders in whole or in part.
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common stock
exercisable at the "public offering price" less the "underwriting discounts and
commissions," each as set forth on the cover page of this prospectus. If the
underwriters exercise such option in whole or in part, then each of the
underwriters will be severally committed, subject to certain conditions,
including the approval of certain matters by counsel, to purchase the additional
shares of common stock in proportion to their respective purchase commitments as
indicated in the preceding table.
The following table summarizes the compensation to be paid to the
underwriters by us in connection with this offering:
<TABLE>
<CAPTION>
TOTAL
-----------------------------------------
WITHOUT EXERCISE WITH EXERCISE OF
OF THE OVER- THE OVER-ALLOTMENT
PER SHARE ALLOTMENT OPTION OPTION
--------- ------------------- ------------------
<S> <C> <C> <C>
Underwriting discounts.................. $ $ $
</TABLE>
The underwriters, at the request of TriZetto, have reserved for sale at the
initial public offering price up to shares of common stock to be sold
in this offering for sale to our employees and other persons or entities with
whom we have a business relationship, and to their associates and related
persons. The number of shares available for sale to the general public will be
reduced to the extent that any reserved shares are purchased. Any reserved
shares not so purchased will be offered by the underwriters on the same basis as
the other shares offered hereby.
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
61
<PAGE> 64
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act of 1933, as amended, or will contribute to payments that the underwriters
may be required to make in respect thereof.
Our directors, officers, affiliates and employees who hold an aggregate of
15,260,038 shares of common stock have agreed that they will not offer, sell or
agree to sell, directly or indirectly, or otherwise dispose of any shares of
common stock in the public market without the prior written consent of Bear,
Stearns & Co. Inc. for a period of 180 days from the date of this prospectus.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not, without the prior written consent of Bear, Stearns
& Co. Inc., offer, sell or otherwise dispose of any shares of common stock
except for the shares of common stock offered hereby and the shares of common
stock issuable upon exercise of outstanding options and warrants.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the underwriters. Among the factors to
be considered in such negotiations will be our results of operations in recent
periods, estimates of our prospects and the industry in which we compete, an
assessment of our management, the general state of the securities markets at the
time of this offering and the prices of similar securities of generally
comparable companies. We have applied for quotation of our common stock on the
Nasdaq National Market, under the symbol "TZIX." There can be no assurance,
however, that an active or orderly trading market will develop for the common
stock or that the common stock will trade in the public markets subsequent to
this offering at or above the initial offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if shares of common
stock previously distributed in this offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the common stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for TriZetto by Stradling Yocca Carlson & Rauth, a
Professional Corporation, Newport Beach, California. Certain legal matters in
connection with this offering will be passed upon for the representatives of the
underwriters by Gibson, Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of The TriZetto Group, Inc. as of
December 31, 1997 and 1998 and the period from May 27, 1997 (date of inception)
to December 31, 1997 and for the year ended December 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
62
<PAGE> 65
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are part
of the registration statement. For further information with respect to TriZetto
and the common stock, reference is made to the registration statement and the
exhibits and schedules thereto. You may read and copy any document we file at
the SEC's public reference room in Washington, DC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's website at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms, our website and the website of the SEC referred to above.
Information on our website does not constitute a part of this prospectus.
63
<PAGE> 66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Consolidated
Statements of Operations.................................. F-22
Notes to Unaudited Pro Forma Combined Condensed Consolidated
Statements of Operations.................................. F-24
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The TriZetto Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related statements of operations, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of The
TriZetto Group, Inc. and its subsidiaries at December 31, 1997 and 1998 and the
results of their operations and their cash flows for the period from May 27,
1997 (date of inception) to December 31, 1997 and for the year ended December
31, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 3, 1999
F-2
<PAGE> 68
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- PRO FORMA
1997 1998 JUNE 30, 1999 JUNE 30, 1999
------ ------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 773 $ 3,681 $ 3,937
Accounts receivable, less allowance for doubtful accounts
of $154, $204 and $204 (unaudited)...................... 1,159 3,083 5,256
Note receivable from related party........................ -- 25 25
Prepaid expenses and other current assets................. 119 194 492
Income tax receivable..................................... -- 406 134
Deferred taxes............................................ 105 188 188
------ ------- -------
Total current assets.................................... 2,156 7,577 10,032
Property and equipment, net................................. 454 989 4,765
Other assets................................................ 24 40 92
Note receivable from related party.......................... -- 75 50
Goodwill and other intangible assets, net................... -- 36 4,905
------ ------- -------
Total assets............................................ $2,634 $ 8,717 $19,844
====== ======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term note payable................................... $ -- $ 52 $ 1,180
Note payable to related party............................. 28 -- --
Capital lease obligations, current........................ 28 339
Accounts payable.......................................... 63 95 1,481
Accrued liabilities....................................... 702 1,815 3,880
Income taxes payable...................................... 136 -- --
Deferred revenue.......................................... 248 -- 32
------ ------- -------
Total current liabilities............................... 1,177 1,990 6,912
Long-term notes payable..................................... -- -- 556
Note payable to related party............................... 520 520 520
Capital lease obligations................................... -- 125 739
Deferred taxes.............................................. 374 374 374
------ ------- -------
Total liabilities....................................... 2,071 3,009 9,101
------ ------- -------
Commitments (Note 6)
Mandatorily redeemable convertible preferred stock: $0.001
par value;
Shares authorized: 10,392
Series A: Shares issued and outstanding: none in 1997 and
4,545 in 1998 and 1999 (unaudited) and none proforma
(unaudited)............................................. -- 6,449 6,449 $ --
------ ------- ------- -------
(Liquidation value: $6,500)
Series B: Shares issued and outstanding: none in 1997 and
1998, 1,731 in 1999 (unaudited) and none proforma
(unaudited)............................................. -- -- 4,483 --
------ ------- ------- -------
(Liquidation value: $4,500)
Stockholders' equity (deficit):
Common stock: $0.001 par value;
Shares authorized: 30,000
Shares issued and outstanding: 9,693 in 1997,
9,217 in 1998 and 9,369 in 1999 (unaudited); and 15,646
pro forma (unaudited)................................... 10 9 9 16
Additional paid-in capital.................................. 463 940 8,900 19,825
Notes receivable from stockholders.......................... (13) (741) (41) (41)
Deferred stock compensation................................. -- (460) (6,865) (6,865)
Retained earnings (accumulated deficit)..................... 103 (489) (2,192) (2,192)
------ ------- ------- -------
Total stockholders' equity (deficit).................... 563 (741) (189) $10,743
------ ------- ------- =======
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders' equity
(deficit)........................................... $2,634 $ 8,717 $19,844
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 69
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 27, 1997 SIX MONTHS ENDED
(DATE OF INCEPTION) FOR THE YEAR ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, ------------------
1997 1998 1998 1999
------------------- ------------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Recurring revenue..................... $1,191 $ 5,300 $ 2,590 $ 6,143
Consulting revenue.................... 1,328 6,131 2,463 6,508
------ ------- ------- -------
Total revenues.......................... 2,519 11,431 5,053 12,651
------ ------- ------- -------
Cost of revenues:
Recurring revenue..................... 1,250 3,967 1,662 5,059
Consulting revenue.................... 422 3,490 1,584 4,223
------ ------- ------- -------
Total cost of revenues.................. 1,672 7,457 3,246 9,282
------ ------- ------- -------
Gross profit............................ 847 3,974 1,807 3,369
Operating expenses:
Research and development.............. -- 1,083 592 440
Selling, general and administrative... 672 2,885 1,173 3,005
Amortization of deferred stock
compensation....................... -- 22 -- 220
Write-off of acquired in-process
technology......................... -- -- -- 484
------ ------- ------- -------
Total operating expenses........... 672 3,990 1,765 4,149
------ ------- ------- -------
Income (loss) from operations........... 175 (16) 42 (780)
Interest income......................... 15 210 60 122
Interest expense........................ (13) (52) (25) (75)
------ ------- ------- -------
Income (loss) before provision for
income taxes....................... 177 142 77 (733)
Provision for income taxes.............. 74 82 45 274
------ ------- ------- -------
Net income (loss)..................... $ 103 $ 60 $ 32 $(1,007)
====== ======= ======= =======
Net income (loss) per share:
Basic................................. $ 0.05 $ 0.01 $ 0.01 $ (0.17)
====== ======= ======= =======
Diluted............................... $ 0.03 $ 0.00 $ 0.00 $ (0.17)
====== ======= ======= =======
Shares used in computing net income
(loss) per share:
Basic................................. 2,065 4,937 5,066 6,070
====== ======= ======= =======
Diluted............................... 4,074 12,783 11,380 6,070
====== ======= ======= =======
Pro forma net income (loss) per share:
Basic................................. $ 0.01 $ (0.08)
======= =======
Diluted............................... $ 0.00 $ (0.08)
======= =======
Shares used in computing pro forma net
income (loss) per share:
Basic................................. 11,213 12,346
======= =======
Diluted............................... 16,171 12,346
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 70
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MAY 27, 1997 (DATE OF INCEPTION) TO JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED EARNINGS STOCKHOLDERS'
--------------- PAID-IN FROM STOCK (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT) (DEFICIT)
------ ------ ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock ............. 2,500 $ 3 $ 13 $ -- $ -- $ -- $ 16
Issuance of common stock for services
rendered ........................... 1,217 1 7 -- -- -- 8
Issuance of common stock for purchase
of Croghan & Associates, Inc. ...... 5,801 6 430 -- -- -- 436
Issuance of common stock for note
receivable.......................... 175 -- 13 (13) -- -- --
Net income............................ -- -- -- -- -- 103 103
------ --- ------ ----- ------- ------- -------
Balance, December 31, 1997............ 9,693 10 463 (13) -- 103 563
Issuance of common stock.............. 75 -- 9 -- -- -- 9
Issuance of common stock for note
receivable.......................... 390 -- 53 (53) -- -- --
Repurchase of common stock............ (941) (1) (67) -- -- (652) (720)
Payments on notes receivable.......... -- -- -- 25 -- -- 25
Notes issued to stockholders.......... -- -- -- (700) -- -- (700)
Deferred stock compensation........... -- -- 482 -- (482) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 22 -- 22
Net income............................ -- -- -- -- -- 60 60
------ --- ------ ----- ------- ------- -------
Balance, December 31, 1998............ 9,217 9 940 (741) (460) (489) (741)
Issuance of common stock to purchase
Creative Business Solutions, Inc.
and HealthWeb Systems, Ltd. ........ 655 1 1,145 -- -- -- 1,146
Issuance of common stock to purchase
assets of Management & Technology
Solutions, Inc. .................... 60 -- 140 -- -- -- 140
Repurchase of common stock in exchange
of notes receivable from
stockholders........................ (563) (1) (3) 700 -- (696) --
Deferred stock compensation........... -- -- 6,625 -- (6,625) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 220 -- 220
Stock compensation.................... 53 53
Net loss.............................. -- -- -- -- -- (1,007) (1,007)
------ --- ------ ----- ------- ------- -------
Balance, June 30, 1999 (unaudited).... 9,369 $ 9 $8,900 $ (41) $(6,865) $(2,192) $ (189)
====== === ====== ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 71
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEAR SIX MONTHS ENDED
MAY 27, 1997 (DATE ENDED JUNE 30,
OF INCEPTION) TO DECEMBER 31, ------------------
DECEMBER 31, 1997 1998 1998 1999
------------------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 103 $ 60 $ 32 $(1,007)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Allowance for doubtful accounts................ 204 203 101 --
Common stock issued for services rendered...... 8 -- -- --
Amortization of deferred stock compensation.... -- 22 -- 220
Write-off of acquired in-process technology.... -- -- -- 484
Forgiveness of note receivable................. -- -- -- 32
Stock compensation............................. -- -- -- 53
Deferred taxes................................. (105) (83) -- --
Loss on disposal of property and equipment..... 130 187 -- --
Depreciation and amortization.................. 24 161 78 649
Changes in current assets and liabilities:
Accounts receivable.......................... (762) (2,127) (1,186) (1,631)
Prepaid expenses and other current assets.... (99) (75) (201) (305)
Income tax receivable........................ -- (406) (151) 272
Accounts payable............................. (128) 32 450 1,254
Accrued liabilities.......................... 614 976 765 1,664
Deferred revenue............................. 247 (248) (165) 32
Other long-term assets....................... -- (16) (146) (44)
----- ------- ------- -------
Net cash provided by (used in) operating
activities................................... 236 (1,314) (423) 1,673
----- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and software
licenses....................................... (121) (750) (350) (1,309)
Purchase of MedPartners' assets.................. (2,630)
Acquisitions, net of cash acquired............... 614 -- -- (1,336)
----- ------- ------- -------
Net cash provided by (used in) investing
activities................................... 493 (750) (350) (5,275)
----- ------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........... 16 9 9 --
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net............... -- 6,449 5,983 4,483
Repurchases of common stock...................... -- (720) (720) --
Proceeds from issuance of notes payable.......... 86 56 -- --
Payments of notes payable........................ (58) (32) (28) (276)
Payment on line of credit........................ -- -- -- (266)
Principal payments on capital leases............. -- (15) -- (113)
Issuance of notes receivable..................... -- (800) (300) --
Repayment of notes receivable.................... -- 25 -- 30
----- ------- ------- -------
Net cash provided by financing activities...... 44 4,972 4,944 3,858
----- ------- ------- -------
Net increase in cash and cash equivalents.......... 773 2,908 4,171 256
Cash and cash equivalents at beginning of period... -- 773 773 3,681
----- ------- ------- -------
Cash and cash equivalents at end of period......... $ 773 $ 3,681 $ 4,944 $ 3,937
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 72
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. FORMATION AND BUSINESS OF THE COMPANY
The TriZetto Group, Inc. (the "Company"), was incorporated in the state of
Delaware on May 27, 1997. The Company is a healthcare application services
provider and healthcare internet portal and provides professional consulting
services. The Company delivers third party packaged and proprietary software
applications, Internet infrastructure and front-end portal access, and
connectivity solutions to its customers in the healthcare industry. The Company
implements, hosts and manages applications and services on a broad range of
computing, networking and operating platforms. The Company provides access to
its hosted solutions either through Internet-based virtual private networks or
through conventional networks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions have been
eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited in demand and money market
accounts in two financial institutions. Deposits held with banks may exceed the
amount of insurance provided on such deposits. The Company has not experienced
any losses on its deposits of cash and cash equivalents. The Company's accounts
receivable are derived from revenue earned from customers located in the United
States. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company maintains an allowance for doubtful accounts receivable based upon
the expected collectibility of individual accounts.
The following table summarizes the revenues from customers in excess of 10%
of the total revenues:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 27, 1997 SIX MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, --------------
1997 1998 1998 1999
------------------- ------------ ---- ----
<S> <C> <C> <C> <C>
Company A.......................... 39% 42% 28% 26%
Company B.......................... 15% 11% 13% 25%
</TABLE>
At December 31, 1997, Company A and B accounted for 40% and 20% of total
accounts receivable, respectively. At December 31, 1998, Company A accounted for
56% of total accounts receivable.
F-7
<PAGE> 73
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its debt obligations approximates fair value.
Unaudited interim results
The accompanying interim consolidated financial statements as of June 30,
1999, and for the six months ended June 30, 1998 and 1999, together with the
related notes, are unaudited. The unaudited interim financial statements have
been prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position as of June 30, 1999, and the results of their operations and their cash
flows for the six month periods ended June 30, 1998 and 1999. The results for
the six months ended June 30, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents include money market funds and various deposit accounts.
Property and equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over their estimated useful lives, or the
lease term if shorter. Upon retirement or sale, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations. Maintenance and repairs are charged to operations as
incurred.
Goodwill and other intangible assets
Intangible assets arose from the Company's acquisitions of Creative
Business Solutions, Inc. and HealthWeb Solutions, Ltd. in February 1999 (Note
10). Goodwill is being amortized on a straight-line basis over seven years.
Other intangible assets consist of acquired work force and customer lists which
are being amortized on a straight-line basis over their estimated useful lives
of four and five years, respectively. Software technology rights are amortized
on a straight-line basis over the lesser of the contract term or five years.
Long-lived assets
Long-lived assets and certain intangible assets are reviewed for impairment
when events or changes in circumstances indicate the carrying amount of an asset
may not be recoverable. Recoverability is measured by comparison of the asset's
carrying amount to future net undiscounted cash flows the assets are expected to
generate. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the projected discounted future net cash flows arising from the asset.
Revenue recognition
Service revenue consists primarily of maintenance, training and consulting
services. Maintenance revenues are recognized ratably over the maintenance
period, which is generally one year. Revenues for training and consulting
services are recognized as the services are performed.
F-8
<PAGE> 74
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
Research and development
Research and development costs are charged to operations as incurred.
Income taxes
The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Computation of income (loss) per share
Basic earnings per share ("EPS") is computed by dividing net income (loss)
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities. The
following is a reconciliation of the numerator (net income (loss)) and the
denominator (number of shares) used in the basic and diluted EPS calculations
(in thousands, except per share data):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 27, 1997
(DATE OF SIX MONTHS ENDED
INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------
1997 1998 1998 1999
------------- ------------ ------- -------
<S> <C> <C> <C> <C>
BASIC:
Net income (loss)............................... $ 103 $ 60 $ 32 $(1,007)
------ ------- ------- -------
Weighted average common shares outstanding...... 2,065 4,937 5,066 6,070
------ ------- ------- -------
Net income (loss) per share..................... $ 0.05 $ 0.01 $ 0.01 $ (0.17)
------ ------- ------- -------
DILUTED:
Net income (loss)............................... $ 103 $ 60 $ 32 $(1,007)
------ ------- ------- -------
Weighted average common shares outstanding...... 2,065 4,937 5,066 6,070
Preferred stock................................. -- 2,888 1,437 --
Options to purchase common stock................ -- 305 -- --
Common stock subject to repurchase.............. 2,009 4,640 4,877 --
Warrants........................................ -- 13 -- --
------ ------- ------- -------
Total weighted common stock and common stock
equivalents.................................. 4,074 12,783 11,380 6,070
====== ======= ======= =======
Net income (loss) per share..................... $ 0.03 $ 0.00 $ 0.00 $ (0.17)
------ ------- ------- -------
ANTIDILUTIVE SECURITIES:
Preferred stock................................. -- -- -- 6,276
Options to purchase common stock................ -- -- 571 2,803
Common stock subject to repurchase.............. -- -- -- 2,203
Warrants........................................ 163 -- 163 163
------ ------- ------- -------
163 -- 734 11,445
====== ======= ======= =======
</TABLE>
F-9
<PAGE> 75
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
Comprehensive income
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
for general-purpose financial statements. Comprehensive income is defined as net
income plus all revenues, expenses, gains and losses from non-owner sources that
are excluded from net income in accordance with generally accepted accounting
principles. For all periods presented, there were no material differences
between comprehensive and net income.
Recent accounting announcements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133 is
effective for fiscal years beginning after December 15, 2000. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, the Company has not engaged in derivative and hedging activities.
3. BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1997 1998 1999
---- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT
Computer equipment........................................ $218 $ 633 $3,010
Furniture and fixtures.................................... 100 138 537
Equipment................................................. 48 191 489
Software.................................................. 83 142 1,165
Leasehold improvements.................................... 24 24 88
---- ------ ------
473 1,128 5,289
Less: Accumulated depreciation and amortization............. (19) (139) (524)
---- ------ ------
$454 $ 989 $4,765
==== ====== ======
</TABLE>
Included in computer equipment at December 31, 1998 and June 30, 1999 is
equipment acquired under capital leases totalling approximately $167,000 and
$1,206,000, respectively, and related accumulated amortization of $17,000 and
$127,000, respectively.
F-10
<PAGE> 76
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1997 1998 1999
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INTANGIBLE ASSETS
Software licenses......................................... $ -- $ 54 $2,686
Goodwill.................................................. -- -- 1,496
Acquired workforce........................................ -- -- 609
Customer lists............................................ -- -- 398
---- ---- ------
-- 54 5,189
Less: Accumulated amortization.............................. -- (18) (284)
---- ---- ------
$ -- $ 36 $4,905
==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1997 1998 1999
---- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
ACCRUED LIABILITIES
Accrued payroll and benefits............................ $451 $1,285 $2,297
Accrued professional fees............................... 81 234 375
Other................................................... 170 296 1,208
---- ------ ------
$702 $1,815 $3,880
==== ====== ======
</TABLE>
4. NOTES PAYABLE AND LINE OF CREDIT
In December 1998, the Company entered into a financing agreement for
approximately $56,000. The amount is due in nine monthly installments and bears
interest at 9.75% per annum. Borrowings under the financing agreement are
collateralized by unearned insurance provisions, loss payments that reduce the
unearned premiums and any related interests arising from a state guarantee fund.
At December 31, 1998, $52,000 was outstanding under this credit facility.
In January 1999, the Company entered into a financing agreement for
$675,000 in order to acquire a software license. The non-interest bearing note
(imputed interest rate of 7.80%) is due in sixty equal monthly installments.
Borrowings under the financing agreement are collateralized by the software that
the Company purchased with the note proceeds.
In connection with the acquisition of Creative Business Solutions, Inc. and
HealthWeb Systems, Ltd. in February 1999 (Note 10), the Company issued notes of
$270,000. The notes bear interest at 8.00% per annum and the interest is payable
annually in arrears. Fifty percent of the principal balance is payable on the
first anniversary and fifty percent is payable on the second anniversary of the
issue date.
In May 1999, the Company entered into a financing agreement for
approximately $1,184,000. The amount is due in twelve equal monthly installments
and bears interest at 10% per annum. Borrowings under the financing agreement
are collateralized by the license that the Company purchased from the lender.
In March 1999, the Company entered into a revolving line of credit
agreement with a financial institution. The line of credit has a total capacity
of $1,500,000 and expires in March 2000. Borrowings under the line of credit
bear interest at prime plus 0.50% (8.25% at June 30, 1999). Interest is payable
monthly as it accrues. The line of credit agreement contains certain covenants
that the Company must
F-11
<PAGE> 77
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
adhere to during the term of the agreement including restrictions on the payment
of dividends. As of June 30, 1999, there were no outstanding borrowings on the
line of credit.
5. RELATED PARTY TRANSACTIONS
In August 1997, the Company issued a note payable to an officer of the
Company for $85,940. The note is due in four equal payments and a final lump-sum
payment and bears interest at 8% per annum. At December 31, 1997, there was
approximately $28,000 outstanding under the note payable to related party. The
note was paid during 1998.
In September 1997, the Company entered into a $520,000 financing agreement,
bearing interest at 9% and payable quarterly beginning January 1, 1998. The
principal amount is due October 1, 2002. In connection with the financing
agreement, the Company issued to the financing company warrants to purchase
162,595 shares of common stock with an exercise price of $0.80 per share (Note
7). A member of the Company's Board of Directors owns 50% of the financing
company.
The Company has a note receivable for $100,000 from an officer of the
Company. The note accrues interest at 6.5% per annum. The principal and accrued
interest will be forgiven annually over a four year period beginning April 30,
1999 provided the officer is an employee of the Company. In the event of
termination of the officer's employment with the Company the note and accrued
interest become due and payable immediately. At December 31, 1998 and June 30,
1999, the note receivable from related party was $100,000 and $75,000,
respectively.
In June 1998 and October 1998, the Company issued full recourse promissory
notes to certain officers for $200,000 and $500,000, respectively. The
promissory notes are collateralized by 200,000 and 362,319 shares of common
stock, bear annual interest at 8% and are payable in 1999, or earlier upon
employee termination. In May and June 1999, the Company repurchased the common
stock in exchange for the notes.
6. COMMITMENTS
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2003. Capital lease
obligations are collateralized by the equipment subject to the leases. The
Company is responsible for maintenance costs and property taxes on certain of
the operating leases. Rent expense for the period from May 27, 1997 (date of
inception) to December 31, 1997 and the year ended December 31, 1998 was $71,000
and $192,000, respectively. These amounts are net of sublease income of $36,000
and $48,000, respectively.
F-12
<PAGE> 78
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
Further minimum lease payments under noncancelable operating and capital
leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1999............................................ $ 42 $235
2000............................................ 42 89
2001............................................ 42 5
2002............................................ 42 --
2003............................................ 23 --
---- ----
Total minimum lease payments.................... 191 $329
====
Less: Amount representing interest.............. 38
----
Present value of capital lease obligations...... 153
Less: Current portion........................... 28
----
$125
====
</TABLE>
7. STOCKHOLDERS' EQUITY
Common stock
At December 31, 1998, the Company had reserved sufficient shares of common
stock for issuance upon conversion of preferred stock and exercise of stock
options. Common stockholders are entitled to dividends as and when declared by
the Board of Directors subject to the prior rights of the preferred
stockholders. The holders of each share of common stock are entitled to one
vote. The Company issued shares of its common stock to certain employees under
restricted stock agreements. At December 31, 1998, 4,405,602 shares of common
stock are subject to repurchase by the Company.
Mandatorily redeemable convertible preferred stock
In April and October 1998, the Company issued an aggregate of 4,545,454
shares of Series A mandatorily redeemable convertible preferred stock
("convertible preferred stock") at $1.43 per share for gross proceeds of $6.5
million. In April 1999, the Company issued 1,730,770 shares of Series B
convertible preferred stock at $2.60 per share for gross proceeds of $4.5
million. The rights, preferences, and terms of each series of convertible
preferred stock follow:
REDEMPTION. The holders of Series A and Series B convertible preferred
stock are entitled on or at any time after March 31, 2004 with the approval of
at least 75% of the Series A and Series B convertible preferred stockholders,
voting together as a single class, to require the Company to redeem all or a
portion of their shares in three installments by paying in cash a sum equal to
the original purchase price per share plus all accrued but unpaid dividends.
Upon receipt of request for redemption of shares, the Company shall redeem such
shares either in full within 15 days or according to the following schedule: (i)
one-third of the requesting holders' shares within 15 days; (ii) one-third of
the requesting holders' shares on the first anniversary of the request; and
(iii) one-third of the requesting holders' shares on the second anniversary of
the request.
DIVIDENDS. The holders of shares of Series A and Series B convertible
preferred stock are entitled to receive dividends, out of any assets legally
available, prior and in preference to any declaration or payment
F-13
<PAGE> 79
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
of any dividend on the common stock of the Company, at the rate of $0.1144 and
$0.208 per share, respectively, when, as and if declared by the Board of
Directors. Dividends on the Series A and Series B convertible preferred stock
shall accrue if not paid, whether or not the earnings of the Company in that
previous fiscal year were sufficient to pay such dividends in whole or in part.
LIQUIDATION. In the event of any liquidation, dissolution or winding up
for the Company, either voluntary or involuntary, the holders of Series A and
Series B convertible preferred stock are entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of common stock by reason of their ownership, an amount per share equal
to $1.43 and $2.60, respectively, for each outstanding share of convertible
preferred stock, as adjusted for stock splits, stock dividends or similar
events, plus any accrued but unpaid dividends on such shares. If the assets and
funds distributed among the holders of the Series A and Series B convertible
preferred stock are insufficient to permit the payment in the full preferential
amounts, then the entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of Series A and
Series B convertible preferred stock with each holder to receive an amount equal
to the aggregate assets to be distributed multiplied by the ratio of the
aggregate liquidation preference of all shares held by such holder over the
aggregate liquidation preference of all of the shares of convertible preferred
stock outstanding.
After payment has been made to the holders of Series A and Series B
convertible preferred stock, any remaining assets and funds are to be
distributed among the holders of common stock ratably based on the number of
shares of common stock held by each stockholder.
MERGERS. A merger, reorganization or sale of all or substantially all of
the assets of the Company in which the stockholders of the Company immediately
prior to the transaction possess less than 50% of the voting power of the
surviving entity (or its parent) immediately after the transaction shall be
deemed to be a liquidation, dissolution or winding up.
VOTING. The holder of each share of Series A and Series B convertible
preferred stock is entitled to the number of votes equal to the number of shares
of common stock into which each share of Series A and Series B convertible
preferred stock could be converted, except as otherwise required by law, and has
voting rights and powers equal to the voting rights and powers of common stock.
The holder of Series A and Series B convertible preferred stock shall have the
right, voting together as a single class, to elect two members of the Board of
Directors. In addition, the holders of Series A and Series B convertible
preferred stock, voting together with members of common stock as one class,
shall be entitled to elect two additional directors.
CONVERSION. Each share of Series A and Series B convertible preferred
stock, at the option of the holder, is convertible into the number of fully paid
and nonassessable shares of common stock which results from dividing the
conversion price per share in effect for the preferred stock at the time of
conversion by the per share conversion value of such shares. The initial per
share conversion price of Series A and Series B convertible preferred stock is
$1.43 and $2.60, respectively. Conversion is automatic at its then effective
conversion price (i) immediately upon the closing of a sale of common stock by
the Company in an underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended, in which (a) the
aggregate gross proceeds exceed $15,000,000 and (b) the public offering price
equals or exceeds $6.50 per share, or (ii) at the election of the holders of
three-fourths of the then outstanding Series A and Series B convertible
preferred stock, voting together as a single class on an as-converted basis.
F-14
<PAGE> 80
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
STOCK OPTION PLAN
In May 1998, the Company adopted the 1998 Stock Option Plan (the "Plan")
under which the Board of Directors may issue incentive and non-qualified stock
options to employees, directors and consultants. The Board of Directors has the
authority to determine to whom options will be granted, the number of shares,
the term and exercise price. Options are to be granted at an exercise price not
less than fair market value for incentive stock options or 85% of fair market
value for non-qualified stock options. For individuals holding more than 10% of
the voting rights of all classes of stock, the exercise price of incentive stock
options will not be less than 110% of fair market value. The options generally
vest and become exercisable annually at a rate of 25% of the option grant over a
four year period. The term of the options is no longer than five years for
incentive stock options for which the grantee owns greater than 10% of the
voting power of all classes of stock and no longer than ten years for all other
options.
Activity under the Plan is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES -------------------------- WEIGHTED
AVAILABLE FOR NUMBER OF AGGREGATE AVERAGE
GRANT SHARES EXERCISE PRICE PRICE EXERCISE PRICE
------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Options reserved at Plan
inception....................... 1,600 -- -- -- --
Granted........................... (1,159) 1,159 $0.25 - $0.28 $ 297 $0.26
Cancelled......................... 10 (10) $0.25 (2) 0.25
------ ----- ------------- ------ -----
Balances, December 31, 1998....... 451 1,149 $0.25 - $0.28 295 0.26
Additional options reserved....... 2,400
Granted........................... (1,695) 1,695 $0.25 - $2.60 1,793 1.06
Cancelled......................... 41 (41) $0.25 - $1.00 (13) 0.32
------ ----- ------------- ------ -----
Balances, June 30, 1999........... 1,197 2,803 $0.25 -$2.60 $2,075 $0.74
====== ===== ============= ====== =====
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 DECEMBER 31, 1998
- --------------------------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER REMAINING AVERAGE EXERCISE NUMBER AVERAGE EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE OUTSTANDING PRICE
- ----------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.25 849,000 9.59 $0.25 -- $ --
$0.28 300,000 9.55 $0.28 -- $ --
</TABLE>
F-15
<PAGE> 81
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." Had compensation cost for the Incentive Stock Plan
been determined based on the fair value at the grant date for awards in 1998,
consistent with the provisions of SFAS No. 123, the Company's net income would
have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998
-----
<S> <C>
Net income (loss), as reported.............................. $ 60
Net income (loss), pro forma................................ $ 54
Net income (loss) per share, as reported:
Basic..................................................... $0.01
Diluted................................................... $0.00
Net income (loss) per share, pro forma:
Basic..................................................... $0.01
Diluted................................................... $0.00
</TABLE>
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are
anticipated to be made each year.
At December 31, 1998 and June 30, 1999, options exercisable under the Plan
were none and 142,000, respectively. The weighted average fair values of options
granted during 1998 and the six-months ended June 30, 1999 were $0.04 and $0.20,
respectively.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.18%
Expected life............................................... 4 years
Expected dividends.......................................... --
</TABLE>
Deferred stock compensation
As of June 30, 1999, the Company recorded deferred compensation related to
options granted to employees in the total amount of $7.1 million, representing
the difference between the deemed fair value of the common stock, as determined
for accounting purposes, and the exercise price of the options at the date of
grant. Of this amount, $22,000 had been amortized in 1998, and approximately
$220,000 had been amortized in the first six months of 1999. The Company
amortizes deferred compensation over the vesting period of the underlying
option.
WARRANTS
In connection with the acquisition of Croghan & Associates (Note 10), the
Company issued a warrant to purchase 162,595 shares of the Company's common
stock an exercise price of $0.80 per share to replace an existing warrant to
purchase Croghan & Associates stock. The warrant expires on the earlier of (i)
the effective of an initial public offering of the Company's common stock, or
(ii) the effective date of a merger, sale of assets or other sale of the
Company. The value of the warrant determined using the Black-Scholes model was
not material.
F-16
<PAGE> 82
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 27, 1997
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
------------------- ------------
<S> <C> <C>
Current
Federal.............................................. $156 $143
State................................................ 23 22
---- ----
179 165
---- ----
Deferred
Federal.............................................. (91) (71)
State................................................ (14) (12)
---- ----
(105) (83)
---- ----
Total income tax provision............................. $ 74 $ 82
==== ====
</TABLE>
The Company's effective tax rate differs from the statutory rate as shown
in the following schedule (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 27, 1997
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1997 1998
------------------- ------------
<S> <C> <C>
Tax provision at federal statutory rate................ $ 60 $ 48
State income taxes, net of federal benefit............. 10 7
Nondeductible expenses................................. 3 23
Other.................................................. 1 4
---- ----
Tax provision.......................................... $ 74 $ 82
==== ====
</TABLE>
Temporary differences which gave rise to significant portions of deferred
tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- -----
<S> <C> <C>
Deferred tax assets and liabilities:
Reserves and accruals..................................... $ 96 $ 191
Fixed assets.............................................. 9 (3)
----- -----
Gross deferred assets $ 105 $ 188
===== =====
Deferred tax liabilities:
Deferred revenue.......................................... (374) (374)
----- -----
Gross long-term deferred tax liabilities.................... $(374) $(374)
===== =====
</TABLE>
F-17
<PAGE> 83
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
9. EMPLOYEE BENEFIT PLAN
In January 1998, the Company adopted a plan (the "Plan") which qualifies
under Section 401(k) of the Internal Revenue Code of 1986. Eligible employees
may make voluntary contributions to the Plan of up to 20% of their annual
compensation, not to exceed the statutory amount, and the Company may make
matching contributions. The Company has made no contributions since the Plan's
inception.
10. ACQUISITIONS
On October 1, 1997, the Company acquired all of the outstanding common
stock of Croghan & Associates, Inc. The total purchase price was approximately
$436,000, which consisted of 5,800,895 shares of the Company's common stock. The
acquisition has been accounted for as a purchase and results of its operations
have been included in the consolidated financial statements from the date of
acquisition.
In February 1999, the Company acquired all of the outstanding shares of
Creative Business Solutions and its majority owned subsidiary, HealthWeb. The
Company also acquired the remaining minority interest in HealthWeb. The
acquisitions were accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their fair market values
on the acquisition date.
The purchase price of approximately $2.9 million consisted of approximately
$1.4 million in cash, 655,000 shares of common stock, notes payable of $270,000
and acquisition costs of approximately $100,000. Based upon an appraisal by an
independent valuation firm, the value of the 655,000 shares of common stock
issued in the acquisition was determined to be $1,146,000. The excess of the
purchase price over the fair market value of the net tangible assets acquired
aggregated approximately $2,650,000, of which $484,000 was allocated to acquired
in-process technology and $2,166,000 was allocated to goodwill and other
intangible assets. An independent appraisal was performed to determine the fair
value of the identifiable assets, including the portion of the purchase price
attributed to the acquired in-process technology. The income approach was used
to value acquired in-process technology, which includes an analysis of the
completion costs, cash flows, other required assets and risks associated with
achieving such cash flows. At the time of acquisition, the Company determined
that technological feasibility of the HealthWeb product was not established, and
accordingly, wrote-off the corresponding amount to acquired in-process
technology. Approximately $650,000 in research and development had been spent up
to the date of the acquisition in an effort to develop the technology to produce
a commercially viable product. The future research and development expense
associated with the acquired in-process product was estimated to be
approximately $975,000.
The purchase price allocations were based on the estimated fair value of
the assets, less liabilities, on the date of purchases as follows (in
thousands):
<TABLE>
<CAPTION>
CREATIVE
CROGHAN & BUSINESS
ASSOCIATES SOLUTIONS
---------- ---------
<S> <C> <C>
Total current assets........................................ $1,236 $ 637
Property, plant, equipment and other noncurrent assets...... 511 131
Goodwill.................................................... -- 1,440
Other intangible assets..................................... -- 726
Acquired in-process technology.............................. -- 484
Total liabilities........................................... (1,311) (502)
------ ------
Total purchase price.............................. $ 436 $2,916
====== ======
</TABLE>
F-18
<PAGE> 84
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of Croghan had occurred on
May 27, 1997, the date of inception for the Company (in thousands):
<TABLE>
<S> <C>
Net revenue................................................. $4,242
Net loss before extraordinary item.......................... $ (83)
Net income.................................................. $ 917
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of Creative Business
Solutions occurred on January 1, 1998, giving effect to an acquisition
adjustment for amortization of goodwill and other intangibles and the write-off
of acquired in-process technology (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Net revenue...................................... $ 15,319 $12,993
Net income (loss)................................ $ (360) $ (425)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results.
11. SUPPLEMENTAL CASHFLOW DISCLOSURES
<TABLE>
<CAPTION>
FOR THE PERIOD SIX MONTHS
FROM MAY 27, 1997 FOR THE YEAR ENDED
(DATE OF INCEPTION) ENDED JUNE 30,
TO DECEMBER 31, -------------
DECEMBER 31, 1997 1998 1998 1999
------------------- ------------ ---- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW
INFORMATION
Cash paid for interest......................... 2 59 37 71
Cash paid for income taxes..................... 43 705 -- 33
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for notes receivable..... 13 -- -- --
Common stock issued for Croghan &
Associates................................ 436 -- -- --
Assets acquired through capital lease........ -- 167 -- 791
Deferred stock compensation.................. -- 482 15 6,625
Exchange shares of common stock for note
receivable................................ -- 53 53 --
Issuance of notes payable to acquire software
license................................... -- -- -- 1,690
Repurchase of shares in exchange for
stockholder notes receivable.............. -- -- -- --
Common stock issued to purchase assets of
Management and Technology Solutions,
Inc....................................... -- -- -- 140
</TABLE>
12. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires enterprises to report
information about operating segments in annual financial statements and selected
information about reportable segments in
F-19
<PAGE> 85
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers.
The Company operates in two business segments: recurring or multi-year
contractually based revenue, and revenue generated via consulting agreements.
The recurring business is subscription based and provides customers with a
portion, or all, of their information technology and related business service
needs. The consulting business provides customers with solutions to their
connectivity and integration needs as well as technical support on an as needed
basis.
The Company evaluates performance and allocates resources based on gross
margin. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
The Company's reportable segments are business units that are organized
primarily by the nature of services provided. The reportable segments are
managed separately because of the difference in marketing strategies, customer
base, and client approach. Financial information about segments is reported in
the consolidated statements of operations.
The Company's assets are all located in the United States, and all sales
were to customers located in the United States.
13. UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT) AND PRO FORMA NET INCOME
(LOSS) PER SHARE
If the offering contemplated by this prospectus is consummated, all of the
mandatorily redeemable convertible preferred stock outstanding as of the closing
date will automatically be converted into 6,276,224 shares of common stock based
on the shares of mandatorily redeemable convertible preferred stock outstanding
at June 30, 1999. Unaudited pro forma stockholders' equity (deficit) at June 30,
1999, as adjusted for the conversion of mandatorily redeemable convertible
preferred stock, is disclosed on the balance sheet.
Pro forma basic net income (loss) per share has been computed as described
in Note 2 and also gives affect to common equivalent shares from preferred stock
that will automatically convert upon the closing of the Company's initial public
offering (using the as-if-converted method) for 1998 and the six months ended
June 30, 1999.
F-20
<PAGE> 86
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED)
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and diluted net income (loss) per share follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Pro Forma Net Income (Loss) per share:
Basic:
Net income (loss)......................................... $ 60 $(1,007)
Shares used in computing net income (loss) per share...... 4,937 6,070
Adjustment to reflect the assumed conversion of the
preferred stock........................................ 6,276 6,276
------- -------
Shares used in computing pro forma net income (loss) per
share.................................................. 11,213 12,346
------- -------
Pro forma net income (loss) per share..................... $ 0.01 $ (0.08)
======= =======
Diluted:
Net income (loss)......................................... $ 60 $(1,007)
Shares used in computing net income (loss) per share...... 12,783 6,070
Adjustment to reflect the assumed conversion of the
preferred stock........................................ 3,388 6,276
------- -------
Shares used in computing pro forma net income (loss) per
share.................................................. 16,171 12,346
------- -------
Pro forma net income (loss) per share..................... $ 0.00 $ (0.08)
======= =======
</TABLE>
14. SUBSEQUENT EVENTS
Employee Stock Purchase Plan
In July 1999, the board of directors adopted the Employee Stock Purchase
Plan ("Stock Purchase Plan") to be effective upon completion of this offering. A
total of 600,000 shares of common stock have been reserved for issuance under
the Stock Purchase Plan. Employees are eligible to participate if they are
employed for at least 20 hours per week and for more than five months in any
calendar year. Employees who own more than 5% of the Company's outstanding stock
may not participate. The Stock Purchase Plan permits eligible employees to
purchase common stock through payroll deductions, which may not exceed the
lesser of 15% of an employee's compensation or $25,000.
The Stock Purchase Plan will be implemented by 12 month offerings with
purchases occurring at six month intervals commencing on the date of the
Company's initial public offering. The purchase price of the common stock under
the Stock Purchase Plan will be equal to 85% of the fair market value per share
of common stock on either the start date of the offering period or on the
purchase date, whichever is less. In the event of a proposed dissolution or
liquidation of TriZetto, the offering periods terminate immediately prior to the
consummation of the proposed action, unless otherwise provided by the Company's
board of directors. The Employee Stock Purchase Plan will terminate in 2009,
unless sooner terminated by the board of directors.
In August 1999, the warrant to purchase 162,595 shares of common stock
(Note 7) was exercised raising proceeds of approximately $130,000.
F-21
<PAGE> 87
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Effective February 5, 1999, the Company acquired all of the outstanding
shares of Creative Business Solutions and HealthWeb Systems. The acquisition was
accounted for using the purchase method of accounting and accordingly, the
purchase price was allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their fair market values on the acquisition
date.
The purchase price of approximately $2.9 million consisted of cash in the
amount of approximately $1.4 million, 655,000 shares of common stock with a
value of $1.75 per share, notes payable of $270,000, and acquisition costs of
approximately $100,000. Of the total purchase price, $484,000 has been allocated
to in-process technology and the remainder of the purchase price was allocated
to assets acquired and liabilities assumed.
The following unaudited pro forma combined condensed consolidated
statements of operations are derived from the historical consolidated financial
statements of the Company and Creative Business Solutions. The unaudited pro
forma combined condensed statements of operations for the year ended December
31, 1998 and for the six-months ended June 30, 1999, give effect to the
acquisition of Creative Business Solutions as if it occurred on January 1, 1998.
For purposes of the unaudited pro forma combined condensed consolidated
statements of operations for the year ended December 31, 1998 and June 30, 1999.
The Company's results of operations have been combined with Creative Business
Solutions results of operations for such respective periods.
The unaudited pro forma combined condensed consolidated statements of
operations do not purport to represent what the Company's results of operations
would have been or what operations would be if the transactions that give rise
to the pro forma adjustments had occurred on the dates assumed and are not
necessarily indicative of future results. The unaudited pro forma combined
condensed consolidated statements of operations should be read in conjunction
with the historical consolidated financial statements and related notes of
TriZetto and Creative Business Solutions included elsewhere herein.
F-22
<PAGE> 88
THE TRIZETTO GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
CREATIVE
BUSINESS PRO FORMA PRO FORMA
TRIZETTO SOLUTIONS ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Recurring revenue.............................. $ 5,300 $ -- $ -- $ 5,300
Consulting revenue............................. 6,131 3,888 -- 10,019
------- ------ ----- -------
Total revenues.............................. 11,431 3,888 -- 15,319
COST OF REVENUES:
Recurring revenue.............................. 3,967 -- -- 3,967
Consulting revenue............................. 3,490 2,658 -- 6,148
------- ------ ----- -------
Total cost of revenues...................... 7,457 2,658 -- 10,115
------- ------ ----- -------
GROSS PROFIT..................................... 3,974 1,230 5,204
OPERATING EXPENSES:
Research and development....................... 1,083 376 -- 1,459
Selling, general and administrative............ 2,885 870 381(1) 4,136
Amortization of deferred stock compensation.... 22 -- -- 22
------- ------ ----- -------
Total operating expenses.................... 3,990 1,246 381 5,617
------- ------ ----- -------
Income (loss) from operations.................... (16) (16) (381) (413)
Interest income.................................. 210 -- -- 210
Interest expense................................. (52) (23) -- (75)
Equity in loss of minority interest.............. 6 (6)(2) 0
------- ------ ----- -------
Income before provision for taxes................ 142 (33) (387) (278)
Provision for income taxes....................... 82 -- -- 82
------- ------ ----- -------
Net income (loss).............................. $ 60 $ (33) $(387) $ (360)
------- ------ ----- -------
Net income (loss) per share:
Basic.......................................... $ 0.01 $ (0.07)
Diluted........................................ $ 0.00 $ (0.03)
Number of shares used in computing net income
(loss) per share:
Basic.......................................... 4,937 4,937
Diluted........................................ 12,783 12,783
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements.
F-23
<PAGE> 89
THE TRIZETTO GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
CREATIVE
BUSINESS PRO FORMA PRO FORMA
TRIZETTO SOLUTIONS ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Recurring revenue.............................. $ 6,143 $ -- $ -- $ 6,143
Consulting revenue............................. 4,971 1,879 -- 6,850
------- ------ ------ -------
Total revenues.............................. 11,114 1,879 -- 12,993
COST OF REVENUES:
Recurring revenue.............................. 5,059 -- -- 5,059
Consulting revenue............................. 3,137 1,388 -- 4,525
------- ------ ------ -------
Total cost of revenues...................... 8,196 1,388 -- 9,584
------- ------ ------ -------
GROSS PROFIT..................................... 2,918 491 3,409
OPERATING EXPENSES:
Research and development....................... 194 299 -- 493
Selling, general and administrative............ 2,882 120 32(1) 3,034
Amortization of deferred compensation.......... 220 220
Write-off of acquired in-process technology.... 484 (484)(4) --
------- ------ ------ -------
Total operating expenses.................... 3,296 903 (452) 3,747
------- ------ ------ -------
Income (loss) from operations.................... (378) (412) 452 (338)
Interest income.................................. 122 4 -- 126
Interest expense................................. (75) (7) (9)(3) (91)
------- ------ ------ -------
Income before provision for taxes................ (331) (415) 443 (303)
Provision for income taxes....................... 122 -- -- 122
------- ------ ------ -------
Net loss....................................... $ (453) $ (415) $ 443 $ (425)
------- ------ ------ -------
Net Income (loss) per share
Basic.......................................... $ (0.07) $ (0.07)
Diluted........................................ $ (0.07) $ (0.07)
Number of shares used in computing income (loss)
per share:
Basic.......................................... $ 6,070 6,070
Diluted........................................ $ 6,070 6,070
======= =======
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements.
F-24
<PAGE> 90
THE TRIZETTO GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
SUMMARY OF TRANSACTION
In connection with TriZetto's acquisition of Creative Business Solutions
and HealthWeb, TriZetto exchanged approximately $1.4 million of cash, 655,000
shares of common stock, and notes payable of $270,000 for all of the outstanding
shares of Creative Business Solutions and HealthWeb and incurred acquisition
related expense of approximately $100,000.
The allocation of the purchase price was as follows (in thousands):
<TABLE>
<S> <C>
Allocation of purchase price:
Total current assets...................................... $ 637
Property, plant, equipment and other noncurrent asset..... 131
Goodwill(a)............................................... 1,440
Acquired workforce(b)..................................... 609
Other intangible assets................................... 117
Acquired in-process technology............................ 484
Total liabilities......................................... (502)
------
Total purchase price...................................... $2,916
======
</TABLE>
- ---------------
(a) Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired and will be amortized over 7 years.
(b) Acquired workforce, consisting principally of Creative Business
Solution's and HealthWeb's software technicians, and was valued on a
replacement cost basis and will be amortized over a four year period,
the period of time TriZetto estimates would be required to hire, train,
and achieve full productivity for a replacement workforce.
PRO FORMA ADJUSTMENTS
(1) To record the amortization of intangible assets resulting from the
allocation of the purchase price as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1998 1999
------------ --------------
<S> <C> <C>
Acquired workforce................................ $152 $ 76
Customer Lists.................................... 23 12
Goodwill.......................................... 206 103
---- ----
Total pro forma combined................ 381 191
Less amount recorded in post-acquisition
period....................................... -- 159
---- ----
Pro Forma adjustment............................ $381 $ 32
==== ====
</TABLE>
(2) To record the elimination of the loss from minority interest as if
HealthWeb was a wholly owned subsidiary as of January 1, 1998.
(3) To record the elimination of interest expense incurred on the $270,000
note payable issued at the acquisition. This amount has been computed
using an interest rate of 8%, the stated interest rate on the note.
F-25
<PAGE> 91
(4) To eliminate value assigned to the acquired in-process technology. An
independent appraisal was performed to determine the fair value of the
identifiable assets, including the portion of the purchase price
attributed to the in-process technology. The income approach was used
to value acquired in-process technology, which includes an analysis of
the completion costs, cash flows, other required assets and risks
associated with achieving such cash flows. At the time of acquisition,
the Company determined the technological feasibility of the HealthWeb
product had not been established, and accordingly, wrote-off the amount
to acquired in-process technology.
F-26
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER TRIZETTO
NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------------------
TABLE OF CONTENTS
---------------------------------
<TABLE>
<S> <C>
Page
---
Prospectus Summary..................... 1
Risk Factors........................... 6
Forward-Looking Statements............. 15
Use of Proceeds........................ 16
Dividend Policy........................ 16
Capitalization......................... 17
Dilution............................... 18
Selected Consolidated Financial Data... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 30
Management............................. 45
Principal Stockholders................. 52
Certain Transactions................... 54
Description of Capital Stock........... 56
Shares Eligible for Future Sale........ 59
Underwriting........................... 61
Legal Matters.......................... 62
Experts................................ 62
Where You Can Find Additional
Information.......................... 63
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
TriZetto Group LOGO
SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
ADAMS, HARKNESS & HILL
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered hereunder. All of the amounts shown
are estimates except for the SEC registration fee, the Nasdaq National Market
application fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,985
--------
NASD filing fee............................................. 6,250
--------
Nasdaq National Market application fee...................... *
Printing expenses........................................... *
Legal fees and expenses (other than Blue Sky)............... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Miscellaneous............................................... *
--------
Total.................................................. $ *
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by Delaware law, our certificate of incorporation
eliminates the liability of directors to us or our stockholders for monetary
damages for breach of fiduciary duty as directors, except to the extent
otherwise required by Delaware law.
(b) Our certificate of incorporation provides that we will indemnify each
person who was or is made a party to any proceeding by reason of the fact that
such person is or was a director or officer of the company against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by Delaware law. Our bylaws provide
for a similar indemnity to our directors and officers to the fullest extent
authorized by Delaware law.
(c) Our certificate of incorporation also gives us the ability to enter
into indemnification agreements with each of our directors and officers. We have
entered into indemnification agreements with certain of our directors and
officers, which provide for the indemnification of our directors or officers
against any and all expenses, judgments, fines, penalties and amounts paid in
settlement, to the fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by us from our inception in May
1997 through the date hereof involving sales of our securities that were not
registered under the Securities Act:
- On September 1, 1997, Croghan & Associates issued a promissory note in
principal amount of $520,000 to KFS Management, Inc. In connection with
this promissory note, Croghan & Associates issued KFS Management, Inc.
warrants to purchase 243,893 shares of Croghan & Associates' common stock
at $.53 per share. When we acquired Croghan & Associates, we converted
these warrants into warrants to purchase 162,595 shares of our common
stock at $.80 per share.
- On October 1, 1997, we issued 5,800,895 shares of our common stock in
exchange for all of the equity interests in Croghan & Associates and
3,716,667 shares of common stock in exchange for all the equity interests
in Margolis Health Enterprises.
II-1
<PAGE> 94
- On April 15, 1998, we sold 465,000 shares of our common stock to five
employees for an aggregate offering price of $60,000.
- On April 30, 1998, we sold 4,195,804 shares of our Series A preferred
stock to four accredited investors for an aggregate offering price of
$6,000,000.
- On October 30, 1998, we sold 349,650 shares of our Series A preferred
stock to two accredited investors for an aggregate offering price of
$500,000.
- On February 15, 1999, we issued 572,000 shares of our common stock to
former shareholders of Creative Business Solutions in exchange for all of
the issued and outstanding shares of capital stock of Creative Business
Solutions.
- On February 15, 1999, we issued 83,000 shares of our common stock to
former partners of HealthWeb in exchange for the entire partnership
interest of HealthWeb.
- On April 12, 1999, we sold 1,730,770 shares of our Series B preferred
stock to five accredited investors for an aggregate offering price of
$4,500,000.
- On April 19, 1999, we issued 60,000 shares of our common stock to the
former majority shareholder of Management and Technology Solutions in
exchange for certain assets and liabilities of Management and Technology
Solutions.
- On August 2, 1999, we issued 162,595 shares of our common stock pursuant
to the exercise of warrants held by KFS Management, Inc.
- Since May 15, 1998, we have granted options to purchase an aggregate of
2,841,878 shares of common stock to employees pursuant to our 1998 Stock
Option Plan.
We used the proceeds of the stock sales for working capital and other
general corporate purposes.
We did not employ any underwriters, brokers or finders in connection with
any of the transactions set forth above.
The sales of the securities listed above were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
issuances to employees, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Exchange Agreement, dated October 1, 1997, by and among M C
Health Holdings, Inc. and the stockholders of Croghan &
Associates, Inc. and stockholders of Margolis Health
Enterprises, Inc.
2.2+ Stock Purchase Agreement, dated February 5, 1999, by and
between Creative Business Solutions, Inc. and the
stockholders of Creative Business Solutions, Inc.
2.3+ Partnership Interest Purchase Agreement, dated February 5,
1999, by and between the Registrant, TriZetto Acquisition
Group, LLC, HealthWeb Systems, Ltd., HealthWeb General
Partner, Inc., and the holders of partnership interests.
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
2.4 Asset Purchase Agreement, dated April 1, 1999, between the
Registrant and Management and Technology Solutions, Inc.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as in effect.
3.2* Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be adopted prior to the closing of the
offering made under this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant, as in effect.
3.4* Amended and Restated Bylaws of the Registrant, to be adopted
prior to the closing of the offering made under this
Registration Statement.
4.1 Specimen common stock certificate.
5.1* Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
10.1 1998 Stock Option Plan.
10.2 Form of 1998 Incentive Stock Option Agreement.
10.3 Form of 1998 Non-Qualified Stock Option Agreement.
10.4* 1999 Employee Stock Purchase Plan.
10.5 Employment Agreement, dated April 30, 1998, between the
Registrant and Jeffrey H. Margolis.
10.6 Promissory Note, dated April 30, 1998, between the
Registrant and Jeffrey H. Margolis.
10.7 Form of Indemnification Agreement.
10.8* Information Technology Services Agreement, dated May 1,
1999, between the Registrant and MedPartners, Inc.
10.9* Professional Services Agreement, dated January 1, 1999,
between the Registrant and CCN Managed Care, Inc.
10.10 Office Lease Agreement, dated April 26, 1999, between St.
Paul Properties, Inc. and the Registrant (including
addendum).
10.11 Sublease Agreement, dated December 18, 1998, between TPI
Petroleum, Inc. and the Registrant (including underlying
Office Lease Agreement by and between St. Paul Properties,
Inc. and Total, Inc.).
10.12 Sublease Agreement, dated May 1, 1999, between MedPartners,
Inc. and the Registrant (including underlying Lease by and
between Riverchase Tower, Ltd. and MedPartners, Inc.).
10.13* Technical Support Agreement, dated May 15, 1995, between DHI
Computing Services, Inc. and Croghan & Associates, Inc.
10.14* Standard Multi-Directory and Support Agreement, dated May
25, 1999, between the Registrant and Epic Systems
Corporation.
10.15* Master Software License Agreement, dated May 1, 1999,
between Medic Computer Systems, Inc. and the Registrant.
10.16* Addendum to the Master License Agreement, dated April 15,
1999, between Medical Manager Midwest, Inc. and Management
and Technology Solutions, Inc. (including underlying Medical
Manager License Agreement between Medical Manager Midwest,
Inc. and Management and Technology Solutions, Inc.).
10.17* Technical Infrastructure Maintenance Agreement, dated March
1, 1998, between Medical Manager Midwest, Inc. and
Management and Technology Solutions, Inc.
10.18 North American Partner Agreement, dated May 26, 1999,
between Great Plains Software and the Registrant.
10.19 Form of Restricted Stock Purchase Agreement between the
Registrant and certain employees.
10.20* Bank One Credit Facility, dated March 4, 1999.
21.1 Subsidiaries of the Registrant.
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
23.1* Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on the signature page to this
Registration Statement -- see page II-10.).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Portions of this exhibit are omitted and were filed separately with the SEC
pursuant to the Company's application requesting confidential treatment under
Rule 406 of the Securities Act of 1933.
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Other schedules are omitted because they are not applicable or because the
information is included in the financial statements or the related notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on the 4th day of August 1999.
THE TRIZETTO GROUP, INC.
By: /s/ JEFFREY H. MARGOLIS
------------------------------------
Jeffrey H. Margolis
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
We, the undersigned directors and officers of The TriZetto Group, Inc., do
hereby constitute and appoint Jeffrey H. Margolis and Michael J. Sunderland or
either of them, our true and lawful attorneys-in-fact and agents, each with full
power to sign for us or any of us in our names and in any and all capacities,
any and all amendments (including post-effective amendments) to this
registration statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
required in connection therewith, and each of them with full power to do any and
all acts and things in our names and in any and all capacities, which such
attorneys-in-fact and agents, or either of them, may deem necessary or advisable
to enable The TriZetto Group, Inc. to comply with the Securities Act of 1933, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement; and we
hereby do ratify and confirm all that the such attorneys-in-fact and agents, or
either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY H. MARGOLIS President, Chief Executive August 4, 1999
- --------------------------------------------------- Officer and Chairman of the
Jeffrey H. Margolis Board (principal executive
officer)
/s/ MICHAEL J. SUNDERLAND Vice President of Finance, Chief August 4, 1999
- --------------------------------------------------- Financial Officer and Secretary
Michael J. Sunderland (principal financial and
accounting officer)
/s/ DONALD J. LOTHROP Director August 4, 1999
- ---------------------------------------------------
Donald J. Lothrop
/s/ PETER D. MANN Director August 4, 1999
- ---------------------------------------------------
Peter D. Mann
/s/ WILLIAM E. FISHER Director August 4, 1999
- ---------------------------------------------------
William E. Fisher
/s/ PAUL F. LEFORT Director August 4, 1999
- ---------------------------------------------------
Paul F. Fort
</TABLE>
II-5
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of The TriZetto Group, Inc.
Our audits of the consolidated financial statements referred to in our
report dated August 3, 1999 appearing on page F-2 of this Form S-1 also included
an audit of the financial statement schedule listed under item 16(b) of this
Form S-1. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
San Jose, California
August 3, 1999
S-1
<PAGE> 99
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS BALANCE AT
PERIOD AND EXPENSES DEDUCTIONS ENDING PERIOD
------------ ---------------- ---------- -------------
<S> <C> <C> <C> <C>
Period Ended December 31, 1997
Allowance for doubtful accounts...... $ -- $204 $ 50 $154
Year Ended December 31, 1998
Allowance for doubtful accounts...... $154 $203 $153 $204
Six Months Ended June 30, 1999
(unaudited)
Allowance for doubtful accounts...... $204 $ -- $ -- $204
</TABLE>
S-2
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Exchange Agreement, dated October 1, 1997, by and among M C
Health Holdings, Inc. and the stockholders of Croghan &
Associates, Inc. and stockholders of Margolis Health
Enterprises, Inc.
2.2+ Stock Purchase Agreement, dated February 5, 1999, by and
between Creative Business Solutions, Inc. and the
stockholders of Creative Business Solutions, Inc.
2.3+ Partnership Interest Purchase Agreement, dated February 5,
1999, by and between the Registrant, TriZetto Acquisition
Group, LLC, HealthWeb Systems, Ltd., HealthWeb General
Partner, Inc., and the holders of partnership interests.
2.4 Asset Purchase Agreement, dated April 1, 1999, between the
Registrant and Management and Technology Solutions, Inc.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as in effect.
3.2* Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be adopted prior to the closing of the
offering made under this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant, as in effect.
3.4* Amended and Restated Bylaws of the Registrant, to be adopted
prior to the closing of the offering made under this
Registration Statement.
4.1 Specimen common stock certificate.
5.1* Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
10.1 1998 Stock Option Plan.
10.2 Form of 1998 Incentive Stock Option Agreement.
10.3 Form of 1998 Non-Qualified Stock Option Agreement.
10.4* 1999 Employee Stock Purchase Plan.
10.5 Employment Agreement, dated April 30, 1998, between the
Registrant and Jeffrey H. Margolis.
10.6 Promissory Note, dated April 30, 1998, between the
Registrant and Jeffrey H. Margolis.
10.7 Form of Indemnification Agreement.
10.8* Information Technology Services Agreement, dated May 1,
1999, between the Registrant and MedPartners, Inc.
10.9* Professional Services Agreement, dated January 1, 1999,
between the Registrant and CCN Managed Care, Inc.
10.10 Office Lease Agreement, dated April 26, 1999, between St.
Paul Properties, Inc. and the Registrant (including
addendum).
10.11 Sublease Agreement, dated December 18, 1998, between TPI
Petroleum, Inc. and the Registrant (including underlying
Office Lease Agreement by and between St. Paul Properties,
Inc. and Total, Inc.).
10.12 Sublease Agreement, dated May 1, 1999, between MedPartners,
Inc. and the Registrant (including underlying Lease by and
between Riverchase Tower, Ltd. and MedPartners, Inc.).
10.13* Technical Support Agreement, dated May 15, 1995, between DHI
Computing Services, Inc. and Croghan & Associates, Inc.
10.14* Standard Multi-Directory and Support Agreement, dated May
25, 1999, between the Registrant and Epic Systems
Corporation.
10.15* Master Software License Agreement, dated May 1, 1999,
between Medic Computer Systems, Inc. and the Registrant.
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.16* Addendum to the Master License Agreement, dated April 15,
1999, between Medical Manager Midwest, Inc. and Management
and Technology Solutions, Inc. (including underlying Medical
Manager License Agreement between Medical Manager Midwest,
Inc. and Management and Technology Solutions, Inc.).
10.17* Technical Infrastructure Maintenance Agreement, dated March
1, 1998, between Medical Manager Midwest, Inc. and
Management and Technology Solutions, Inc.
10.18 North American Partner Agreement, dated May 26, 1999,
between Great Plains Software and the Registrant.
10.19 Form of Restricted Stock Purchase Agreement between the
Registrant and certain employees.
10.20* Bank One Credit Facility, dated March 4, 1999.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on the signature page to this
Registration Statement -- see page II-10.).
27.1 Financial Data Schedule.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Other schedules are omitted because they are not applicable or because the
information is included in the financial statements or the related notes.
- ---------------
* To be filed by amendment.
+ Portions of this exhibit are omitted and were filed separately with the SEC
pursuant to the Company's application requesting confidential treatment under
Rule 406 of the Securities Act of 1933.
<PAGE> 1
EXHIBIT 2.1
MC HEALTH HOLDINGS, INC.
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (the "Agreement") entered into as of
October 1, 1997 by and among MC Health Holdings, Inc., a Delaware corporation
("Holdings"), each of those persons and entities, severally and not jointly,
whose names are set forth on the Schedule of Croghan Investors attached hereto
as Schedule A (which persons and entities are hereinafter collectively referred
to as "Croghan Investors" and each individually as a "Croghan Investor"), each
of those persons and entities, severally and not jointly, whose names are set
forth on the Schedule of Investors in Margolis Health Enterprises, Inc., a
California corporation ("Margolis") attached hereto as Schedule B (which persons
and entities are hereinafter collectively referred to as "Margolis Investors"
and each individually as a "Margolis Investor"), and solely for the purposes of
Sections 5 and 6 hereof, Croghan & Associates, Inc., a Colorado Corporation
("Croghan"). Collectively, the Croghan Investors and the Margolis Investors are
herein referred to as the "Security Holders."
WHEREAS, Holdings has authorized the issuance of an aggregate
of 6,286,729 shares, par value $.001 per share, of its Common Stock in exchange
for all the equity interests in Croghan, held by the Croghan Investors (as more
fully set forth on Schedule A hereto), as a transfer pursuant to Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Holdings has authorized the issuance of an aggregate
of 3,891,666 shares of its Common Stock in exchange for the equity interests in
Margolis, all held by the Margolis Investors (as more fully set forth on
Schedule B hereto), as a transfer pursuant to Section 351 of the Code, such
Shares together with the Shares issued to Croghan Investors being sometimes
referred to herein as the "Securities,"; and
WHEREAS, Security Holders desire to acquire the Securities on
the terms and conditions set forth herein; and
WHEREAS, Holdings desires to issue the Securities to the
Security Holders on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual promises contained herein, Holdings and the Security Holders agree as
follows:
<PAGE> 2
1. AGREEMENT TO ISSUE AND ACQUIRE.
1.1 Authorization of Shares and Options. On or prior to the
Closings (as defined in Section 2 below), Holdings will have authorized the
issuance to the Croghan Investors and Margolis Investors of the Securities.
1.2 Sale and Purchase of Shares to Croghan Investors. On the
terms and subject to the conditions hereof, at the Closing, Holdings will issue
to each Croghan Investor, severally and not jointly, and each Croghan Investor
will acquire from Holdings, severally and not jointly, the number of Shares set
forth opposite such Croghan Investor's name on Schedule A under the heading
"Shares Acquired" for the consideration (which shall constitute shares of
Croghan) set forth opposite such Croghan Investor's name on Schedule A under the
heading "Consideration."
1.3 Sale and Purchase of Shares to Margolis Investors. On the
terms and subject to the conditions hereof, Holdings will issue to each Margolis
Investor, severally and not jointly, and each Margolis Investor will acquire
from Holdings, severally and not jointly, the number of Shares set forth
opposite such Margolis Investor's name on Schedule B under the heading "Shares
Acquired" for the consideration (which shall constitute shares of Margolis) set
forth opposite such Margolis Investor's name on Schedule B under the heading
"Consideration."
2. CLOSING, DELIVERY AND PAYMENT.
2.1 Closings. The closing of the issuance of the Shares to be
issued to the Croghan Investors under this Agreement (the "Croghan Closing")
will take place effective as of October 1, 1997, at the offices of Ireland,
Stapleton, Pryor & Pascoe, P.C., 1675 Broadway, 26th Floor, Denver, Colorado
80202, or effective such other time or place as Holdings and a majority in
interest of the Croghan Investors may mutually agree (such date is hereinafter
referred to as the "Croghan Closing Date"). Simultaneous with the Croghan
Closing, Raymond D. Croghan will sell to Holdings 483,333 shares of Holdings
Common Stock received by him in exchange for $1.00. The closing of the issuance
of the Shares to be issued to the Margolis Investors under this Agreement (the
"Margolis Closing") will take place effective as of October 1, 1997, at one
minute after the Croghan Closing, at the offices of Ireland, Stapleton, Pryor &
Pascoe, P.C., 1675 Broadway, 26th Floor, Denver, Colorado 80202, or effective
such other time or place immediately after the Croghan Closing as Holdings and a
majority in interest of the Margolis Investors may mutually agree (such date is
hereinafter referred to as the "Margolis Closing Date").
2.2 Delivery. At the Croghan Closing, on the terms and subject
to the conditions hereof, Holdings will deliver to the Croghan Investors
certificates representing the
-2-
<PAGE> 3
number of Shares to be acquired at the Closing by each Croghan Investor, against
valid and effective transfer of the consideration therefor as set forth on
Schedule A hereto. At the Margolis Closing, on the terms and subject to the
conditions hereof, Holdings will deliver to the Margolis Investors certificates
representing the number of Shares to be acquired at the Closing by each Margolis
Investor, against valid and effective transfer of the consideration therefor as
set forth on Schedule B hereto. The Croghan Closing and the Margolis Closing and
the Croghan Closing Date and the Margolis Closing Date are hereinafter referred
to collectively as the Closings and the Closing Dates, respectively.
3. REPRESENTATIONS AND WARRANTIES OF HOLDINGS.
Holdings hereby represents and warrants to each Security
Holder as follows:
3.1 Organization and Good Standing. Holdings is a corporation
duty organized, validly existing and in good standing under the laws of the
State of Delaware. Holdings has all requisite corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, to issue the Securities and to carry out the provisions of this
Agreement, and to carry on its business as presently proposed to be conducted.
3.2 Capitalization. The authorized capital stock of Holdings
immediately prior to the Closings will consist of (a) Ten Million (10,000,000)
shares of Common Stock, none of which are issued and outstanding.
When issued in compliance with the provisions of this
Agreement the Securities will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed and shall be subject to the rights and restrictions
of the Employee Stock Agreements as set forth in Section 5 hereof.
3.3 Authorization: Binding Obligation. All corporate action on
the part of Holdings necessary for the authorization of this Agreement, the
performance of all obligations of Holdings hereunder at the Closings and the
authorization, issuance and delivery of the Securities pursuant to this
Agreement has been taken or will be taken prior to the Closings. The Agreement
when executed and delivered will be the valid and binding obligation of Holdings
enforceable in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.
-3-
<PAGE> 4
4. REPRESENTATIONS AND WARRANTIES OF THE SECURITY HOLDERS
Each Security Holder hereby represents and warrants to
Holdings as follows:
4.1 Requisite Power and Authority. Security Holder has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All action on
Security Holder's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closings. Upon its
execution and delivery, this Agreement will be the valid and binding obligation
of such Security Holder, enforceable in accordance with its terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
(b) as limited by general principles of equity that restrict the availability of
equitable remedies.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or other authority on the part of Security Holder required in
connection with the consummation of the transactions contemplated in this
Agreement have been or will have been obtained prior to and be effective as of
the Closings.
4.3 Investment Representations. Security Holder understands
that none of the Securities have been registered under the Securities Act of
1933, as amended (the "Securities Act"). Security Holder hereby represents and
warrants as follows:
(a) Security Holder Bears Economic Risk. Security
Holder is capable of evaluating the merits and risks of its investment in
Holdings. Security Holder acknowledges that he or it may be required to bear the
economic risk of this investment indefinitely.
(b) Acquisition for Own Account. Security Holder is
acquiring the Securities for Security Holder's own account for investment only,
and not with a view towards their distribution.
(c) Security Holder Can Protect Its Interest.
Security Holder, by reason of its, or of its management's, business or financial
experience, has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Further, Security Holder is aware
of no publication of any advertisement in connection with the transactions
contemplated in the Agreement.
(d) Access to Information. Security Holder has had an
opportunity to
-4-
<PAGE> 5
discuss Holdings's business, management and financial affairs with directors,
officers and management of Holdings and has had the opportunity to review
Holdings's operations and facilities. Security Holder has also had the
opportunity to ask questions of and receive answers from, Holdings and its
management regarding the terms and conditions of this investment.
(e) Residence. If the Investor is an individual, then
the Investor resides in the state identified in the address of the Investor set
forth on Investor's signature page hereto; if the Investor is a partnership,
corporation, limited liability company or other entity, then the office of the
Investor in which its investment decision was made is located at the address of
the Investor set forth on Investor's signature page hereto.
4.4 Title to Equity Interest. Security Holder has good and
marketable title to the equity interest identified opposite such Security
Holder's name on Schedule A or B under the heading "Consideration" (the
"Consideration"), subject to no mortgage, pledge, lien, lease, encumbrance or
charge.
4.5 Compliance With Other Instruments. The execution, delivery
and performance of and compliance with this Agreement, and the acquisition of
the Securities pursuant hereto, will not, with or without the passage of time or
giving of notice, result in (a) any material violation of, conflict with, or
default under any charger document, mortgage, indenture, contract, agreement or
instrument to which it is a party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to it; or (b) the creation of any mortgage, pledge, lien, lease,
encumbrance or charge upon such Investor's Consideration.
4.6 Legends. Investor understands that each certificate
representing Securities will be stamped or imprinted with appropriate legends
required under the Securities Act and applicable state securities laws.
5. AMENDMENT TO EMPLOYEE STOCK AGREEMENTS
The parties hereto recognize that it is necessary to amend the
Employee Stock Agreements (the "Stock Agreements") by and among Croghan and
certain of the Croghan Investors in order to replace Croghan with Holdings,
since all stockholders of Croghan will now be stockholders of Holdings.
Therefore, the above parties hereby agree that the Stock Agreements are amended
to provide that Holdings shall become a party to the Stock Agreements for the
purpose of replacing Croghan, and all rights, responsibilities, obligations and
liabilities of Croghan, to the other parties thereto and of such other parties
to Croghan under the Stock Agreements, shall instead become the rights,
responsibilities, obligations and liabilities of Holdings. The shares of common
stock of Croghan which are the subject of the
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<PAGE> 6
Stock Agreements shall be replaced in the Stock Agreements by the various
Croghan Investors shares of Holdings.
6. WAIVER OF STOCK AGREEMENT PROVISIONS
The various Croghan Investors and Croghan hereby agree that
the provisions of Section 2(b) and Section 4 of the Stock Agreements are hereby
waived in their entirety to the extent that the transactions contemplated by
this Agreement would be considered a merger or a transfer (as that term is used
in such Sections of the Stock Agreements).
7. MISCELLANEOUS
7.1 Governing Law. This Agreement will be governed by and
construed and enforced in accordance with, the laws of the State of Delaware.
7.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof will inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and will inure to the benefit of and be enforceable by each
person who will be a holder of the Shares from time to time.
7.3 Entire Agreement. This Agreement and the Schedules hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party will be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
7.4 Severability. In case any provision of the Agreement will
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions will not in any way be affected or impaired thereby.
7.5 Amendment and Waiver.
(a) This Agreement may be amended or modified only
upon the written consent of Holdings and persons who hold (or will hold, after
the transactions contemplated by this Agreement are consummated) at least a
majority of the Securities.
(b) The obligations of Holdings and the rights of the
holders of the Securities under this Agreement may be waived only with the
written consent of persons who hold (or will hold, after the transactions
contemplated by this Agreement are consummated) at least a majority of the
Securities.
7.6 Notices. All notices required or permitted hereunder will
be in writing
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<PAGE> 7
and will be deemed effectively given: (a) upon personal delivery to the party to
be notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications will be sent to Holdings at 2900
Center Green Court South, Boulder, Colorado 80301 and to each Investor at the
address set forth on Schedules A and B hereto or at such other address as
Holdings or Investor may designate by written notice to the other parties
hereto.
7.7 Expenses. Each party will pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement.
7.8 Dispute Resolution. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
binding arbitration administered by the American Arbitration Association in
accordance with its commercial rules, and judgement on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The place of
arbitration shall be Denver, Colorado.
7.9 Attorneys' Fees. In the event that any dispute among the
parties to this Agreement should result in arbitration or litigation, the
prevailing party in such dispute will be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which will
include, without limitation, all fees, costs and expenses of appeals.
7. 10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be an original, but all of which
together will constitute one instrument.
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Exchange Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement as of the date set forth in the first paragraph hereof.
MC HEALTH HOLDINGS, INC.
By: /s/ Raymond D. Croghan
-------------------------------
Its: Chairman
------------------------------
CROGHAN & ASSOCIATES, INC.
By: /s/ Raymond D. Croghan
-------------------------------
Its: CEO
------------------------------
MARGOLIS HEALTH ENTERPRISES, INC.
By: /s/ Jeffrey H. Margolis
-------------------------------
Its: President & CEO
------------------------------
<PAGE> 1
EXHIBIT 2.2
----------------------------------------------
STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 5, 1999
BY AND AMONG
THE TRIZETTO GROUP, INC.,
CREATIVE BUSINESS SOLUTIONS, INC.
AND
THE STOCKHOLDERS OF CREATIVE BUSINESS SOLUTIONS, INC.
----------------------------------------------
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made and entered
into as of February 5, 1999, by and among Creative Business Solutions, Inc., a
Texas corporation ("CBS"), The TriZetto Group, Inc., a Delaware corporation
("TriZetto"), and [*] collectively, the "CBS Stockholders" and individually, a
"CBS Stockholder").
RECITALS
WHEREAS, the Board of Directors of CBS (i) has approved this Agreement
and the transactions contemplated hereby, and has determined that this Agreement
and the transactions contemplated hereby are in the best interests of the CBS
Stockholders, and (ii) has resolved to recommend approval and adoption of this
Agreement and the other transactions contemplated hereby by the CBS
Stockholders;
WHEREAS, the respective Boards of Directors of TriZetto and CBS have
approved the transaction as set forth below, upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, $1.00 par value per share, of CBS (the "CBS Stock" or the
"Shares"), shall be entitled to receive the Purchase Price (as defined herein)
less expenses payable by the CBS Stockholders pursuant to Section 8.3 below,
unless otherwise paid by the CBS Stockholders on or prior to the Closing Date;
and
WHEREAS, TriZetto, CBS and the CBS Stockholders desire to make certain
representations, warranties, covenants and agreements in connection with the
transaction and also to prescribe various conditions to the consummation
thereof.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1. THE PURCHASE AND SALE OF SHARES.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, TriZetto agrees to purchase from the CBS Stockholders, and
the CBS Stockholders agree to sell, assign, transfer, convey and deliver to
TriZetto at the Closing (as defined in Section 1.2), all of the issued and
outstanding shares of CBS Stock as are set forth on Schedule I attached hereto.
(b) In consideration for the sale of the Shares, TriZetto
shall cumulatively pay to the CBS Stockholders on the Closing Date the following
consideration (the "Purchase Price"): (i) $[*] without interest, (ii) [*] (the
"TriZetto Common Stock"), and (iii) [*] in substantially the form attached
hereto as Exhibit A, less the expenses payable by the CBS Stockholders pursuant
to Section 7.3 below, unless otherwise paid by the CBS Stockholders on or prior
to the Closing Date. Notwithstanding the
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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foregoing, fractional shares of TriZetto Common Stock that would be issuable to
any holder of CBS Stock shall be treated in accordance with Section 1.3.
1.2. CLOSING. The delivery of the Shares and payment of the Purchase
Price (the "Closing") shall take place at the offices of Stradling Yocca Carlson
& Rauth at 660 Newport Center Drive, Suite 1600, Newport Beach, California
92660, on February 5, 1999, or such other date and time as shall be mutually
agreed upon by TriZetto and CBS, but in no event later than February 28, 1999
(the "Closing Date").
1.3. EXCHANGE OF CBS STOCK FOR PURCHASE PRICE. At the Closing, (a)
the CBS Stockholders shall deliver the Shares, duly endorsed and in form for
transfer to TriZetto; (b) CBS shall deliver the stock books, stock ledgers,
minute books and corporate seals of CBS and its Subsidiary; and (c) TriZetto
shall deliver to the CBS Stockholders payment of the Purchase Price subject to
the deposit of Escrow Shares (defined below in Section 1.4) in accordance with
Section 1.4. No fractional shares of TriZetto Common Stock shall be issued, and
each holder of CBS Stock who would otherwise be entitled to receive a fraction
of a share of TriZetto Common Stock (after aggregating all fractional shares of
TriZetto Common Stock to be received by such holder), shall receive from
TriZetto a whole number of shares rounded up or down to the nearest whole share,
with .5 being rounded up.
1.4. ESCROW SHARES AND ESCROW AGREEMENT. Pursuant to an Escrow
Agreement to be entered into on or before the Closing in substantially the form
of Exhibit B (the "Escrow Agreement"), among TriZetto, the Escrow Agent and the
CBS Stockholders (as those terms are defined herein or in the Escrow Agreement),
TriZetto will withhold, pro rata, from the Purchase Price that would otherwise
be delivered to holders of CBS Stock, [*] (the "Escrow Shares") (the withholding
of the Escrow Shares pursuant to this Section 1.4 will be allocated among the
holders of the shares of CBS Stock that are outstanding immediately prior to the
Closing, pro rata according to the number of outstanding shares of CBS Stock
held by each such holder immediately prior to the Closing). TriZetto will
deposit in an escrow pursuant to the Escrow Agreement stock certificates
representing the Escrow Shares and related stock powers (the "Escrow"). The
Escrow Shares and such stock powers, any other property with respect thereto
delivered to the Escrow Agent as provided in the Escrow Agreement, and the
Promissory Notes which shall have a right of offset will be held as collateral
to secure the indemnification obligations of the CBS Stockholders under Article
V hereof in accordance with the Escrow Agreement and the Promissory Notes.
1.5 EXCHANGE OF CERTIFICATES AND PAYMENT OF CONSIDERATION.
(a) TRIZETTO STOCK EXCHANGE PROCEDURES. At the Closing, upon
surrender of a CBS stock certificate for transfer to TriZetto, each CBS
Stockholder shall receive in exchange therefor the consideration set forth on
Schedule II. Upon delivery of the above mentioned consideration, the CBS stock
certificates so surrendered shall be canceled and reissued to TriZetto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CBS
CBS and the CBS Stockholders, jointly and severally, represent and
warrant to TriZetto that, except as set forth in the CBS Disclosure Schedule:
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<PAGE> 4
2.1. CORPORATE EXISTENCE AND POWER. CBS is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas, and has all corporate powers and authority and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. CBS is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on CBS. CBS has heretofore delivered to TriZetto true
and complete copies of CBS's Certificate of Incorporation and Bylaws as
currently in effect.
2.2. CORPORATE AUTHORIZATION. CBS has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by CBS and the
CBS Stockholders and is a legal, valid and binding obligation of CBS and the CBS
Stockholders, enforceable against CBS and the CBS Stockholders, as applicable,
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
2.3. NON-CONTRAVENTION. The execution, delivery and performance by
CBS and the CBS Stockholders of this Agreement and the consummation by CBS and
the CBS Stockholders of the transactions contemplated hereby do not and will not
(i) contravene or conflict with the Certificate of Incorporation or Bylaws of
CBS or the charter documents of its Subsidiary, (ii) contravene or conflict with
or constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to CBS or its Subsidiary
or any of the CBS Stockholders, (iii) constitute a default under or give rise to
a right of termination, cancellation or acceleration of any right or obligation
of CBS or its Subsidiary or to a loss of any benefit to which CBS or its
Subsidiary is entitled under any provision of any agreement, contract or other
instrument binding upon CBS or its Subsidiary or any license, franchise, permit
or other similar authorization held by CBS or its Subsidiary, or (iv) result in
the creation or imposition of any Lien on any asset of CBS or its Subsidiary,
except, in the case of clauses (ii) through (iv) above, as would not,
individually or in the aggregate, have a Material Adverse Effect on CBS.
2.4. COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. CBS and its
Subsidiary hold all material licenses, permits and authorizations necessary for
the lawful conduct of its business as now being conducted pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its respective operations, and there are no material violations or, to the
knowledge of the CBS Stockholders, claimed violations by CBS or its Subsidiary
of any such license, permit or authorization or any such statute, law,
ordinance, rule or regulation.
2.5. CAPITALIZATION.
(a) The authorized capital stock of CBS consists of 100,000
shares of common stock, $1.00 par value per share (the "CBS Stock") and zero
shares of preferred stock. As of the date hereof, there are outstanding: (i)
9,824 shares of CBS Stock, including all shares restricted under a compensation
plan or arrangement of CBS, (ii) no shares of CBS preferred stock, and (iii) no
warrants to purchase shares of CBS Stock. There are no outstanding options to
purchase shares of CBS Stock.
(b) All outstanding shares of capital stock of CBS have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section 2.5, there are outstanding (i) no shares of capital
stock or other voting securities of CBS, (ii) no securities of CBS
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<PAGE> 5
convertible into or exchangeable for shares of capital stock or voting
securities of CBS, and (iii) no options or other rights to acquire from CBS, and
no obligation of CBS to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of CBS (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "CBS Securities"). There are no outstanding obligations of
CBS or its Subsidiary to repurchase, redeem or otherwise acquire any CBS
Securities.
(c) As of the date hereof, there are no outstanding bonds,
debentures, notes or other indebtedness of CBS having the right to vote (or
convertible into or exercisable for CBS Securities having the right to vote) on
any matters on which stockholders of CBS may vote.
2.6. SUBSIDIARY.
(a) CBS has no subsidiaries other than HealthWeb Systems,
Ltd., a Texas limited partnership (the "CBS Subsidiary" or the "Subsidiary") as
of the date of this Agreement. The CBS Subsidiary is a Texas limited partnership
duly formed, validly existing and in good standing under the laws of its
jurisdiction of formation, has all partnership powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign limited partnership and is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect on CBS.
(b) All of the outstanding capital stock of, or other
ownership interests in, the CBS Subsidiary, is owned by CBS and the persons or
entities listed in Section 2.6(b) of the CBS Disclosure Schedule, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding (i) securities of CBS or its Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or ownership
interests in its Subsidiary or (ii) options or other rights to acquire from CBS
or its Subsidiary, and no other obligation of CBS or its Subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, its Subsidiary (the items in clauses (i)
and (ii) being referred to collectively as the "CBS Subsidiary Securities").
There are no outstanding obligations of CBS or its Subsidiary to repurchase,
redeem or otherwise acquire any outstanding capital stock of its Subsidiary.
2.7. CBS FINANCIAL STATEMENTS. CBS has delivered to TriZetto its
unaudited balance sheet as of December 31, 1997 and December 31, 1998 (the "CBS
Balance Sheet") and its unaudited income statement for the twelve months ended
December 31, 1997 and for the twelve months ended December 31, 1998
(collectively, the "CBS Financial Statements"). The CBS Financial Statements
present fairly, in all material respects, the financial condition and results of
operations of CBS as of the dates and for the periods indicated therein, in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis, subject to normal year-end audit adjustments (other than
reserves for contingent liabilities, all of which are reflected in the CBS
Financial Statements), none of which are material.
2.8. ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or otherwise disclosed on Section 2.8 of the CBS Disclosure Schedule,
since the date of CBS Balance Sheet, CBS and its
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<PAGE> 6
Subsidiary have conducted their businesses in all material respects in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect on CBS (other
than effects arising from or relating to conditions, including, without
limitation, economic or political developments, applicable generally to the
industry); or
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
CBS, or any repurchase, redemption or other acquisition by CBS or any such
Subsidiary, except for any acquisition pursuant to employee compensation or
other such plans of CBS;
(c) any amendment of any term of any outstanding security of
CBS or its Subsidiary;
(d) any incurrence, assumption or guarantee by CBS or its
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practice;
(e) any creation or assumption by CBS or its Subsidiary of
any Lien on any material asset other than in the ordinary course of business
consistent with past practice;
(f) any making of any loan, advance or capital contribution
to or investment in any person other than loans, advances or capital
contributions to or investments in the Subsidiary of CBS made in the ordinary
course of business consistent with past practice;
(g) any change in any method of accounting or accounting
practice by CBS or its Subsidiary, except for any such change required by reason
of a concurrent change in GAAP; or
(h) any (i) grant of any severance or termination pay to any
director, officer or employee of CBS or its Subsidiary, (ii) entering into of
any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of CBS or its Subsidiary, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in compensation, bonus or other benefits payable to directors, officers or
employees of CBS or its Subsidiary, in each case other than in the ordinary
course of business consistent with past practice.
2.9. LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of the CBS Stockholders,
threatened against or affecting, CBS, its officers or directors, its Subsidiary,
any Affiliate of CBS, or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which, would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on CBS. Neither CBS, its officers or directors, its Subsidiary,
any Affiliate of CBS, or any of their respective properties is subject to any
order, writ, judgment, decree or injunction of any court or arbitrator or any
governmental body, agency or official. Section 2.9 of the CBS Disclosure
Schedule contains a complete list of all claims filed against CBS, or pending
since January 1, 1996, together with a brief statement of the nature and amount
of the claim, the court and jurisdiction in which the claim was brought, the
resolution (if resolved), and the availability of insurance to cover the claim.
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2.10. TAXES. Except as set forth on Section 2.10 of the CBS Disclosure
Schedule, CBS and its Subsidiary have filed all material Tax returns required to
have been filed on or before the date hereof, and all Taxes shown to be due on
such Tax returns have been timely paid. Neither CBS nor its Subsidiary has
agreed in writing to waive any statute of limitations in respect of Taxes of CBS
or its Subsidiary. No issues that have been raised in writing by the relevant
Taxing Authority in connection with the examination of such Tax returns are
currently pending, except for any written notice of such issues the subject
matter of which has either been substantially resolved or would otherwise not
have a Material Adverse Effect on CBS. The amounts provided for taxes on the CBS
Financial Statements are sufficient for the payment of all accrued and unpaid
U.S. federal, state, provincial, or local taxes, interest, penalties,
assessments and deficiencies for all periods prior to the dates of such balance
sheets to the extent such taxes are obligations of CBS. Section 2.9 of the CBS
Disclosure Schedule lists all unresolved audits, examinations, contests and
proceedings (including written notices of intent to audit or examine) with
respect to United States federal and state income Tax returns of CBS and its
Subsidiary for periods beginning on or after January 1, 1994.
2.11. CBS EMPLOYEE BENEFIT PLANS.
(a) CBS has made available to TriZetto correct and complete
copies of all CBS Employee Plans and CBS Benefit Arrangements.
(b) Neither CBS nor its Subsidiary maintains, or is required
to contribute to, any "employee pension benefit plan" (as such term is defined
in Section 3(2) of ERISA), on behalf of any employee of CBS or its Subsidiary
other than a plan provided to TriZetto as described in Section 2.11(a). CBS has
made available to TriZetto, with respect to each of such plans correct and
complete copies of (i) all plan documents, amendments and trust agreements, (ii)
the most recent Annual Report (Form 5500 Series) and accompanying schedules, as
filed and (iii) the current summary plan description.
(c) CBS does not contribute, and is not obligated to
contribute, to any Multiemployer Plan with respect to employees of CBS or its
Subsidiary.
2.12. BANKING AND FINDERS' FEES. There is and will be no investment
banker, broker, finder or other intermediary retained by or authorized to act on
behalf of, CBS or its Subsidiary who might be entitled to any fee or commission
from TriZetto or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
2.13. ENVIRONMENTAL COMPLIANCE
(a) CBS, its Subsidiary and its Affiliates are in compliance
with Environmental Laws, except for such noncompliance as would not reasonably
be expected to have a Material Adverse Effect on CBS.
(b) Since January 1, 1996, neither CBS, its Subsidiary, nor
any Affiliate has received any written notice regarding any violation of any
Environmental Laws, or any CBS Environmental Liabilities, including any
investigatory, remedial or corrective obligations, relating to CBS, its
Subsidiary or Affiliate or their respective facilities arising under
Environmental Laws, except for any such written notice the subject matter of
which has either been substantially resolved or would otherwise not reasonably
be expected to have a Material Adverse Effect on CBS.
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(c) Except as set forth in Section 2.13 of the CBS
Disclosure Schedule:
(i) CBS, its Subsidiary or its Affiliates have not
caused, and is not causing or threatening to cause, any disposals or releases of
any Hazardous Material on or under any properties which it (A) leases, occupies
or operates or (B) previously owned, leased, occupied or operated and, to the
knowledge of the CBS Stockholders, no such disposals or releases occurred prior
to CBS, its Subsidiary or its Affiliates having taken title to, or possession or
operation of, any of such properties; and, to the knowledge of the CBS
Stockholders, no such disposals or releases are migrating or have migrated off
of such properties in subsurface soils, groundwater or surface waters after CBS,
its Subsidiary or its Affiliates has taken title to, or possession or operation
of any such properties and, to the knowledge of CBS, its Subsidiary, its
Affiliates or the CBS Stockholders, no such disposals or releases are migrating
or have migrated off of such properties in subsurface soils, groundwater or
surface water prior to such time;
(ii) CBS or its Subsidiary have neither (A) arranged
for the disposal or treatment of Hazardous Material at any facility owned or
operated by another person, or (B) accepted any Hazardous Material for transport
to disposal or treatment facilities or other sites selected by CBS, its
Subsidiary or its Affiliates from which facilities or sites there has been a
release or there is a release or threatened release of a Hazardous Material; any
facility identified in Section 2.13(c)(ii)(A) was duly licensed in accordance
with law and has not been listed in connection with the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) by the United
States Environmental Protection Agency's Comprehensive Environmental Response,
Compensation, and Liability Information System (CERCLIS) or National Priorities
List (NPL) or any equivalent or like listing of sites under state or local law
(whether for potential releases of substances listed in CERCLA or other
substances);
(iii) CBS, its Subsidiary, its Affiliates or the CBS
Stockholders have no actual knowledge of, or any reason to believe or suspect
that, any release or threatened release of any Hazardous Material originating
from a property other than those leased or operated by CBS, its Subsidiary or
its Affiliates has come to be (or may come to be) located on or under properties
leased, occupied or operated by CBS, its Subsidiary or its Affiliates;
(iv) CBS, its Subsidiary or its Affiliates have never
installed, used, buried or removed any surface impoundment or underground tank
or vessel on properties owned, leased, occupied or operated by CBS, its
Subsidiary or its Affiliates;
(v) CBS and its Subsidiary are and have been in
compliance in all material respects with all federal, state, local or foreign
laws, ordinances, regulations, permits, approvals and authorizations relating to
air, water, industrial hygiene and worker health and safety, anti-pollution,
hazardous or toxic wastes, materials or substances, pollutants or contaminants,
and no condition exists on any of the real property owned by or used in the
business of CBS or its Subsidiary that would constitute a material violation of
any such law or that constitutes or threatens to constitute a public or private
nuisance; and
(vi) There has been no litigation, administrative
proceedings or investigations or any other actions, claims, demands notices of
potential responsibility or requests for information brought or, to the
knowledge of CBS, its Subsidiary, its Affiliates or the CBS Stockholders,
threatened against CBS, its Subsidiary or its Affiliates or any settlement
reached by any of them, with, any person or persons alleging the presence,
disposal, release or threatened release of any Hazardous Material on, from or
under any of such properties or as otherwise relating to potential environmental
liabilities.
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(d) This Section 2.13 contains the sole and
exclusive representations and warranties of CBS and the CBS Stockholders with
respect to any Environmental, Health and Safety Matters, including, without
limitation, any arising under any Environmental Laws.
2.14. COLLECTIVE BARGAINING ARRANGEMENTS. CBS and its Subsidiary are
not a party to or bound by any employee collective bargaining agreement; CBS and
its Subsidiary are not a party to or affected by or, to the knowledge of CBS or
the CBS Stockholders, threatened with, any dispute or controversy with a union
or with respect to unionization or collective bargaining involving the employees
of CBS or its Subsidiary.
2.15. ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
CBS Balance Sheet are owned free and clear by CBS and are based on CBS's
reasonable judgment and its normal credit review procedures, business practices
and GAAP, collectible in accordance with their terms in an amount not less than
their aggregate book value. "Aggregate book value", for this purpose, shall mean
the recorded amounts of such accounts receivable less any recorded allowance for
doubtful accounts, trade allowances and return allowances, all as established in
accordance with GAAP consistently applied.
2.16. INVENTORIES. The consolidated inventories reflected on the CBS
Balance Sheet have been valued in accordance with GAAP consistently applied.
2.17. INTERESTS IN REAL PROPERTY. Section 2.17 of the CBS Disclosure
Schedule is the complete and correct list and brief description of all real
property leased by CBS or its Subsidiary on the Closing Date. CBS and its
Subsidiary do not own any real property. All real property leases to which CBS
or its Subsidiary is a party are valid and in full force and effect and are
valid and binding on the parties thereto, assuming enforceability as to the
parties other than CBS and its Subsidiary and neither CBS nor its Subsidiary is
in default of any material provision thereof. All improvements and fixtures made
by or at the direction of CBS or its Subsidiary on real properties leased by CBS
or its Subsidiary conform in all material respects to all applicable health,
fire, safety, environmental, zoning and building laws and ordinances; and all
materials, buildings, structures (or the space used by CBS or its Subsidiary in
such buildings or structures) and fixtures used by CBS or its Subsidiary in the
conduct of their businesses are in good operating condition and repair, ordinary
wear and tear excepted, and are sufficient for the type and magnitude of their
respective operations.
2.18. PERSONAL PROPERTY. Except as set forth in Section 2.18 of the
CBS Disclosure Schedule, CBS and its Subsidiary have good and marketable title,
free and clear of all title defects, security interests, pledges, options,
claims, liens, encumbrances and restrictions of any nature whatsoever to all
inventory and receivables and to any item of machinery, equipment, or tangible
personal property reflected on the CBS Balance Sheet or used in the business by
CBS or its Subsidiary (regardless of whether reflected on the CBS Balance
Sheet). All the machinery, equipment and other tangible personal property used
in the business by CBS or its Subsidiary is in good operating condition and
repair, normal wear and tear excepted. At the Closing Date, CBS and its
Subsidiary will possess all of the personal property wherever located used to
conduct its business as conducted prior to the Closing.
2.19. DIRECTORS AND OFFICERS. Section 2.19 of the CBS Disclosure
Schedule comprises a complete and correct list of all present officers and
directors of CBS and its Subsidiary.
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2.20. CERTAIN TRANSACTIONS. Except as set forth on Schedule 2.20 of
the CBS Disclosure Schedule, neither CBS nor its Subsidiary nor any of their
respective Affiliates, is presently a party to any agreement or arrangement with
CBS: (i) providing for the furnishing of raw materials, products or services to
or by, or (ii) providing for the sale or rental of real or personal property to
or from, any such entity.
2.21. INTELLECTUAL PROPERTY; SOFTWARE; AND YEAR 2000 COMPLIANCE.
2.21.1 INTELLECTUAL PROPERTY, SOFTWARE AND PRODUCTS.
(a) Section 2.21.1(a) of the CBS Disclosure Schedule
contains (a) a complete and correct list of all Intellectual Property, Software
and Products relating to or used in the business or operations of the business
of CBS or its Subsidiary, and (b) a complete and correct list of all persons who
have contributed to the creation or development of the Intellectual Property,
Software and Products. Except as set forth in Section 2.21.1(a) of the CBS
Disclosure Schedule, no CBS Stockholder, employee or contractor, nor any of
their respective Affiliates, has any right, title or interest in or to any
Intellectual Property, Software or Products.
(b) Except as set forth in Section 2.21.1(b) of the
CBS Disclosure Schedule, CBS and its Subsidiary own all right, title and
interest in and to all Intellectual Property and Software used in or necessary
for the conduct of CBS' and its Subsidiary's businesses as presently conducted,
including, without limitation, all Intellectual Property and Software developed
or discovered in connection with or contained in or related to CBS' or its
Subsidiary's Products, free and clear of all liens, mortgages, charges, pledges,
claims and encumbrances (including without limitation any distribution rights
and royalty rights). Except as disclosed in Section 2.21.1(b) of the CBS
Disclosure Schedules, all persons who have contributed to the creation or
development of the Intellectual Property, Software and Products have executed an
Assignment of Rights Agreement transferring any and all ownership rights to CBS.
None of the Products contain any codes or modules which have been created or
developed by third parties. Such Intellectual Property and Software constitutes
all Intellectual Property and Software necessary for the conduct of its business
in the manner conducted immediately prior to the Closing. To the knowledge of
CBS or the CBS Stockholders, neither CBS nor its Subsidiary has infringed nor is
infringing upon any Intellectual Property or Software rights of others. Except
as set forth in Section 2.21.1(b) of the CBS Disclosure Schedules, CBS and its
Subsidiary have the exclusive right to use, sell, license and dispose of, and
has the right to bring actions for infringement of all Intellectual Property,
Software and Products used in connection with their businesses. To the best
knowledge of the CBS Stockholders, the Products do not include any Intellectual
Property or Software that is in the public domain.
(c) Except as set forth in Section 2.21.1(c) of the
CBS Disclosure Schedule, no claims have been asserted against CBS or its
Subsidiary by any person challenging CBS' or its Subsidiary's use or
distribution (including manufacture, marketing license, or sale) of any Product
or products utilized by CBS or its Subsidiary (including, without limitation,
Third Party Technology), or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto (including, without
limitation, the Third Party Licenses). To the best knowledge of CBS, there is no
valid basis for any claim of the type specified in this Section 2.21.1(c).
(d) Except as set forth in Section 2.21.1(d) of the
CBS Disclosure Schedule, CBS or its Subsidiary has valid copyrights in all
material copyrightable material whether or not registered with the U.S.
copyright office, including all copyrights in the Products containing
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material copyrightable material. Consummation of the transactions contemplated
hereby will not alter or impair the validity of any copyrights or copyright
registrations.
(e) Except as set forth in Section 2.21.1(e) of the
CBS Disclosure Schedule: (i) no third party (including any OEM or site license
customer) has any right to manufacture, reproduce, distribute, sell, sublicense,
market or exploit any of the Products or any adaptations, translations, or
derivative works based on the Products, or any portion thereof; (ii) CBS or its
Subsidiary has not granted to any third party any exclusive rights of any kind
with respect to any of the Products, including territorial exclusivity or
exclusivity with respect to particular versions, implementations or translations
of any of the Products; and (iii) CBS or its Subsidiary has not granted any
third party any right to market any product utilizing any Product under any
"private label" arrangements pursuant to which CBS or its Subsidiary is not
identified as the source of such goods. Each document or instrument identified
pursuant to this Section is listed in Section 2.21.1(e) of the CBS Disclosure
Schedule and true and correct copies of such documents or instruments have been
furnished to TriZetto. Except as set forth in Section 2.21.1(e) of the CBS
Disclosure Schedule, no third party has any right to manufacture, reproduce,
distribute, sublicense, market or exploit any works or materials of which any of
the Products are a derivative work.
(f) Except as set forth in Section 2.21.1(f) of the
CBS Disclosure Schedule, each of the Products: (i) substantially complies with
all specifications set forth therefor in any contract, agreement, advertisement
or other promotional material for such products and with all other warranty
requirements, other than bugs or fixes required or expected in the ordinary
course of business and not otherwise material to CBS's business; and (ii) can be
recreated from its associated source code and related documentation by
reasonably experienced technical personnel without undue burden.
(g) CBS has furnished TriZetto with all end user
documentation relating to the use, maintenance or operation of each of the
Products, all of which is true and accurate in all material respects.
(h) Except as set forth in Section 2.21.1(h) of the
CBS Disclosure Schedule, to the best knowledge of CBS, no employee of CBS is in
violation of any term of any employment contract, patent disclosure agreement or
any other contract or agreement relating to the relationship of any such
employee with CBS or any other party because of the nature of the business
conducted by CBS or proposed to be conducted by CBS.
(i) Except as set forth in Section 2.21.1(i) of the
CBS Disclosure Schedule, no Third Party Technology is included in the Products.
2.21.2 YEAR 2000 COMPLIANCE.
(a) Products and Services.
(i) Except as set forth in Section 2.21.2(a)
of the CBS Disclosure Schedule, to the CBS Stockholders knowledge, all of CBS'
products and services and its Subsidiary's products and services are Year 2000
Compliant in all material respects.
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(ii) Except as set forth in Section 2.21.2(a)
of the CBS Disclosure Schedule, if CBS is obligated to repair or replace
products or services previously provided by CBS that are not Year 2000 Compliant
in order to meet CBS's contractual obligations, to avoid personal injury or
other liability, to avoid misrepresentation claims, or to satisfy any other
obligations or requirements, to the CBS Stockholders knowledge CBS has repaired
or replaced those products and services to make them Year 2000 Compliant in all
material respects.
(iii) Except as set forth in Section 2.21.2(a)
of the CBS Disclosure Schedule, CBS has furnished TriZetto with true, correct
and complete copies of any customer agreements and other materials and
correspondence in which CBS has furnished (or could be deemed to have furnished)
assurances as to the performance and/or functionality of CBS' products or
services and its Subsidiary's on or after January 1, 2000.
(b) Computer Software and Systems. Except as set
forth in Section 2.21.2(b) of the CBS Disclosure Schedule, to the CBS
Stockholders knowledge, all of CBS software and systems and its Subsidiary's
computer are Year 2000 Compliant in all material respects.
(c) Suppliers. Except as set forth in Section
2.21.2(c) of the CBS Disclosure Schedule, to the CBS Stockholders knowledge, all
vendors of products or services to CBS and its Subsidiary, and their respective
products, services and operations, are Year 2000 Complaint in all material
respects. Except as set forth in Section 2.21.2(c) of the CBS Disclosure
Schedule, to the knowledge of the CBS Stockholders after a reasonably diligent
investigation, each such vendor will continue to furnish its products or
services to CBS and its Subsidiary, without interruption or material delay, on
and after January 1, 2000.
2.22. CONTRACTS. Section 2.22 of the CBS Disclosure Schedule
describes, and CBS has caused to be delivered to TriZetto complete and correct
copies of, all currently effective contracts to which CBS or its Subsidiary is a
party or by which CBS or its Subsidiary or any of its respective properties or
assets are bound which (i) involve the payment or receipt by CBS or its
Subsidiary of more than $25,000 over the remaining term of the contract; (ii)
are financing documents, loan agreements or promissory notes; (iii) are
otherwise material to the business of CBS or its Subsidiary and are not for the
purchase or sale of goods or services in the ordinary course of business; (iv)
have a remaining term of more than one year from the date of this Agreement; or
(v) are distributorship or other agreements relating to the marketing of
products. CBS and, to the knowledge of the CBS Stockholders, all of the other
parties to such agreements, are in compliance with all material provisions of
all such agreements and, to the knowledge of the CBS Stockholders, no fact
exists which is, or with the passage of time could become, a default under any
of the aforementioned agreements.
2.23. INSURANCE AND BANKING FACILITIES. Section 2.23 of the CBS
Disclosure Schedule comprises a complete and correct list of (i) all contracts
of insurance and indemnity of or relating to CBS or its Subsidiary (except
insurance related to employee benefits) in force at the date of this Agreement
(including name of insurer or indemnitor, agent, annual charge, coverage and
expiration date); (ii) the names and locations of all banks in which CBS or its
Subsidiary has accounts; and (iii) the names of all persons authorized to draw
on such accounts. All premiums and other payments due with respect to all
contracts of insurance or indemnity in force at the date hereof have been or
will be paid, and CBS and its Subsidiary knows of no circumstance (including
without limitation the consummation of the transaction contemplated by this
Agreement) which has or might cause any such contract to be canceled or
terminated.
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2.24. PERSONNEL. Section 2.24 of the CBS Disclosure Schedule comprises
a complete and correct list of, and CBS has caused TriZetto to be furnished with
complete and correct copies of (or, if not in writing, a description of the
terms of), (i) all employment contracts, collective bargaining agreements, and
all compensation plans, agreements, programs, practices, commitments or other
arrangements of any type, including stock, bonus, profit sharing, incentive
compensation, pension and retirement agreements respecting or affecting any
employees of CBS or its Subsidiary; and (ii) all insurance, health, medical,
hospitalization, dependent care, severance, fringe or other employee benefit
plans, agreements, programs, practices, commitments or other arrangements of any
type in effect for employees of CBS or its Subsidiary. Section 2.24 of the CBS
Disclosure Schedule includes a list of all employees of CBS or its Subsidiary.
CBS and its Subsidiary have been and are in compliance with the terms of, and
any laws or regulations applicable to, all such plans, agreements, practices,
commitments or programs, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on CBS.
2.25. POWERS OF ATTORNEY AND SURETYSHIPS. CBS does not have any powers
of attorney outstanding (other than a power of attorney issued in the ordinary
course of business with respect to tax matters or to customs agents and customs
brokers), and, except for obligations as an endorser of negotiable instruments
incurred in the ordinary course of business, CBS and its Subsidiary do not have
any obligations or liabilities (absolute or contingent) as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise respecting the obligation
of any other person.
2.26. MINUTES AND STOCK RECORDS. CBS has caused TriZetto to be given
access to complete and correct copies of the minute books and stock records of
CBS and its Subsidiary. Such items contain a complete and correct record in all
material respects of all proceedings and actions taken at all meetings of, and
all actions taken by written consent by, the holders of capital stock of CBS and
its Subsidiary and its Board of Directors, and all original issuances and
subsequent transfers and the partnership interests of repurchases of its capital
stock.
2.27. INVESTMENT REPRESENTATIONS BY EACH CBS STOCKHOLDER. Each CBS
Stockholder represents and warrants that:
(a) He is acquiring the TriZetto Common Stock for his own
account, not as nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act.
(b) He understands that (i) the shares of TriZetto Common
Stock have not been registered under the Securities Act by reason of a specific
exemption therefrom, that they must be held indefinitely, and that he must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; (ii) the Shares and each certificate representing
Shares will be endorsed with the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC
RULE 144 OR RULE 144A OR THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE
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COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
1933 ACT."
and (iii) TriZetto will instruct any transfer agent not to register the transfer
of any of the Shares unless the conditions specified in the foregoing legend are
satisfied; provided, however, that no such opinion of counsel shall be necessary
if the sale, transfer or assignment is made pursuant to SEC Rule 144 or Rule
144A and the transferor provides TriZetto with evidence reasonably satisfactory
to TriZetto and its counsel that the proposed transaction satisfies the
requirements of Rule 144 or Rule 144A.
(c) He acknowledges that he is able to fend for itself, can
bear the economic risk of the investment and has such knowledge and experience
in financial or business matters that he is capable of evaluating the merits and
risks of the investment in the Shares.
(d) He understands that the TriZetto Stock he is acquiring
is characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the CBS in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act, only in
certain limited circumstances, and he represents that he is familiar with SEC
Rule 144 and Rule 144A, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
2.28. FULL DISCLOSURE. All of the representations and warranties made
by CBS and the CBS Stockholders in this Agreement, and all statements set forth
in the certificates delivered by CBS and the CBS Stockholders at the Closing
pursuant to this Agreement, are true, correct and complete in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make such representations,
warranties or statements, in light of the circumstances under which they were
made, misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRIZETTO
TriZetto represents and warrants to CBS and the CBS Stockholders that,
except as set forth in TriZetto Disclosure Schedule:
3.1. CORPORATE EXISTENCE AND POWER. TriZetto is duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all corporate powers and authority and all material governmental
licenses, authorizations, consents and approvals required to carry on business
as now conducted. TriZetto is duly qualified to do business as a foreign
corporation and in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on TriZetto taken as a whole. TriZetto has delivered to CBS true
and complete copies of the Certificate of Incorporation and Bylaws of TriZetto
as currently in effect.
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3.2. CORPORATE AUTHORIZATION. TriZetto has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by TriZetto and
is a legal, valid and binding obligation of TriZetto, enforceable against
TriZetto, in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
3.3. NON-CONTRAVENTION. The execution, delivery and performance by
TriZetto of this Agreement and the consummation by TriZetto of the transactions
contemplated hereby do not and will not (i) contravene or conflict with the
Certificate of Incorporation or Bylaws of TriZetto, (ii) contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to TriZetto or
any Subsidiary of TriZetto, (iii) constitute a default under or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
TriZetto or any Subsidiary of TriZetto or to a loss of any benefit to which
TriZetto or any Subsidiary of TriZetto is entitled under any provision of any
agreement, contract or other instrument binding upon TriZetto or any Subsidiary
of TriZetto or any license, franchise, permit or other similar authorization
held by TriZetto or any Subsidiary of TriZetto, or (iv) result in the creation
or imposition of any Lien on any asset of TriZetto or any Subsidiary of
TriZetto, except, in the case of clauses (ii) through (iv) above, as would not,
individually or in the aggregate, have a Material Adverse Effect on TriZetto.
3.4. CAPITALIZATION.
(a) The authorized capital stock of TriZetto consists of (a)
30,000,000 shares of common stock, $.001 par value (the "TriZetto Common Stock")
and (b) 10,391,608 shares of preferred stock. As of January 31, 1999 there were
outstanding: (i) 9,216,730 shares of TriZetto Common Stock $.001 par value,
including all shares restricted under a compensation plan or arrangement of
TriZetto, (ii) 4,545,454 shares of TriZetto Series A Preferred Stock, (iii)
warrants to purchase an aggregate of 162,595 shares of TriZetto Stock, and (iv)
1,329,128 outstanding options to purchase shares of TriZetto Common Stock.
(b) All outstanding shares of capital stock of TriZetto have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in this Section 3.4 and except for changes since January 31,
1999 resulting from the exercise of employee stock options or warrants
outstanding on such date, there are outstanding (i) no shares of capital stock
or other voting securities of TriZetto, (ii) no securities of TriZetto
convertible into or exchangeable for shares of capital stock or voting
securities of TriZetto, and (iii) no options or other rights to acquire from
TriZetto, and no obligation of TriZetto to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of TriZetto (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "TriZetto Securities"). There are no outstanding
obligations of TriZetto to repurchase, redeem or otherwise acquire any TriZetto
Securities.
(c) As of the date hereof, there are no outstanding bonds,
debentures, notes or other indebtedness of TriZetto having the right to vote (or
convertible into or exercisable for TriZetto Securities having the right to
vote) on any matters on which stockholders of TriZetto may vote.
3.5. TRIZETTO FINANCIAL STATEMENTS. TriZetto has delivered to CBS its
unaudited balance sheet as of December 31, 1997 (the "TriZetto Balance Sheet")
and an unaudited Balance Sheet, Statement of Cash
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Flows and Statement of Operations for the twelve months ended December 31, 1998
(collectively, the "TriZetto Financial Statements"). The TriZetto Financial
Statements present fairly, in all material respects, the financial condition and
results of operations of TriZetto as of the dates and for the periods indicated
therein, in conformity with GAAP applied on a consistent basis, subject to
normal year-end audit adjustments (other than reserves for contingent
liabilities, all of which are reflected in TriZetto Financial Statements), none
of which are material.
3.6. ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or disclosed in Section 3.6 of TriZetto Disclosure Schedule since the
date of TriZetto Balance Sheet TriZetto, has conducted its business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect on TriZetto
(other than effects arising from or relating to conditions, including, without
limitation, economic or political developments, applicable generally to the
industry); or
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
TriZetto, or any repurchase, redemption or other acquisition by TriZetto or any
such Subsidiary of TriZetto, except for any acquisition pursuant to employee
compensation or other such plans of TriZetto;
(c) any amendment of any term of any outstanding security of
TriZetto or any Subsidiary of TriZetto;
(d) any incurrence, assumption or guarantee by TriZetto or
any Subsidiary of TriZetto of any indebtedness for borrowed money other than in
the ordinary course of business and in amounts and on terms consistent with past
practice;
(e) any creation or assumption by TriZetto or any Subsidiary
of TriZetto of any Lien on any material asset other than in the ordinary course
of business consistent with past practice;
(f) any making of any loan, advance or capital contribution
to or investment in any person other than loans, advances or capital
contributions to or investments in wholly owned Subsidiaries of TriZetto made in
the ordinary course of business consistent with past practice;
(g) any change in any method of accounting or accounting
practice by TriZetto or any Subsidiary of TriZetto, except for any such change
required by reason of a concurrent change in generally accepted accounting
principles; or
(h) any (i) grant of any severance or termination pay to any
director, officer or employee of TriZetto or any Subsidiary of TriZetto, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of TriZetto or any Subsidiary of TriZetto, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements of TriZetto or (iv) increase in compensation, bonus or
other benefits payable to directors, officers or employees of TriZetto or any
Subsidiary of TriZetto, in each case other than in the ordinary course of
business consistent with past practice.
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3.7. LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of TriZetto threatened against
or affecting TriZetto or any Subsidiaries of TriZetto or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which, would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on TriZetto. Neither TriZetto, its officers
and directors nor its Subsidiaries or any Affiliate of TriZetto, or any of their
respective properties is subject to any order, writ, judgment, decree or
injunction. Section 3.7 of the TriZetto Disclosure Schedule contains a complete
list of all claims filed against TriZetto, or pending since January 1, 1996,
together with a brief statement of the nature and amount of the claim, the court
and jurisdiction in which the claim was brought, the resolution (if resolved),
and the availability of insurance to cover the claim.
3.8. TAXES. TriZetto and its Subsidiaries have filed all material Tax
returns required to have been filed on or before the date hereof, and all Taxes
shown to be due on such Tax returns have been timely paid. Neither TriZetto nor
its Subsidiaries have agreed in writing to waive any statute of limitations in
respect of Taxes of TriZetto or such Subsidiaries. No issues that have been
raised in writing by the relevant taxing authority in connection with the
examination of such Tax returns are currently pending, except for any written
notice of such issues the subject matter of which has either been substantially
resolved or would otherwise not have a Material Adverse Effect on TriZetto. The
amounts provided for taxes on the TriZetto Financial Statements are sufficient
for the payment of all accrued and unpaid U.S. federal, state, provincial, or
local taxes, interest, penalties, assessments and deficiencies for all periods
prior to the dates of such balance sheets to the extent such taxes are
obligations of TriZetto and its Subsidiaries. Section 3.9 of the Disclosure
Schedule lists all unresolved audits, examinations, contests and proceedings
(including written notices of intent to audit or examine) with respect to United
States federal, foreign and state income tax Returns of TriZetto for periods
beginning on or after January 1, 1994.
3.9. TRIZETTO EMPLOYEE BENEFIT PLANS.
(a) TriZetto has made available to CBS correct and complete
copies of all TriZetto Employee Benefit Plans and TriZetto Benefit Arrangements.
(b) Neither TriZetto nor its Subsidiaries maintains, or is
required to contribute to, any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA, or any similar foreign law, on behalf of any
employee of TriZetto or its Subsidiaries other than a plan provided to CBS as
described in Section 3.9(a). TriZetto has made available to CBS, with respect to
each of such plans correct and complete copies of (i) all plan documents,
amendments and trust agreements, (ii) the most recent Annual Report (Form 5500
Series) and accompanying schedules, as filed (or similar documents with respect
to any foreign plans) and (iii) the current summary plan description.
(c) TriZetto does not contribute, and is not obligated to
contribute, to any Multiemployer Plan with respect to employees of TriZetto or
its Subsidiaries.
(d) TriZetto's 1998 Stock Option Plan is a "qualified plan"
as defined by the Internal Revenue Code of 1986, as amended from time to time.
3.10. BANKING AND FINDERS' FEES. There is and will be no investment
banker, broker, finder or other intermediary retained by or authorized to act on
behalf of TriZetto or any of its Subsidiaries who might
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be entitled to any fee or commission from TriZetto or any of its Subsidiaries
upon consummation of the transactions contemplated by this Agreement.
3.11. ENVIRONMENTAL COMPLIANCE.
(a) TriZetto and its Subsidiaries are in compliance with
Environmental Laws, except for such noncompliance as would not reasonably be
expected to have a Material Adverse Effect on TriZetto.
(b) Since January 1, 1996, neither TriZetto nor any of its
Subsidiaries has received any written notice regarding any violation of any
Environmental Laws, or any TriZetto Environmental Liabilities, including any
investigatory, remedial or corrective obligations, relating to TriZetto or its
Subsidiaries or their respective facilities arising under Environmental Laws,
except for any such written notice the subject matter of which has either been
substantially resolved or would otherwise not reasonably be expected to have a
Material Adverse Effect on TriZetto.
(c) Except as set forth in Section 3.11 of the TriZetto
Disclosure Schedule:
(i) TriZetto, its Subsidiaries or its Affiliates
have not caused, and is not causing or threatening to cause, any disposals or
releases of any Hazardous Material on or under any properties which it (A)
leases, occupies or operates or (B) previously owned, leased, occupied or
operated and to the knowledge of TriZetto no such disposals or releases occurred
prior to TriZetto, its Subsidiaries or its Affiliates having taken title to, or
possession or operation of, any of such properties; and, to the knowledge of
TriZetto, such disposals or releases are migrating or have migrated off of such
properties in subsurface soils, groundwater or surface waters after TriZetto,
its Subsidiaries or its Affiliates has taken title to, or possession or
operation of any such properties and, to the knowledge of TriZetto, its
Subsidiaries or its Affiliates, no such disposals or releases are migrating or
have migrated off of such properties in subsurface soils, groundwater or surface
water prior to such time;
(ii) TriZetto, its Subsidiaries or its Affiliates
have neither (A) arranged for the disposal or treatment of Hazardous Material at
any facility owned or operated by another person, or (B) accepted any Hazardous
Material for transport to disposal or treatment facilities or other sites
selected by TriZetto, its Subsidiaries or its Affiliates from which facilities
or sites there has been a release or there is a release or threatened release of
a Hazardous Material; any facility identified in Section 3.11(c)(ii)(A) was duly
licensed in accordance with law and has not been listed in connection with the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
by the United States Environmental Protection Agency's Comprehensive
Environmental Response, Compensation, and Liability Information System (CERCLIS)
or National Priorities List (NPL) or any equivalent or like listing of sites
under state or local law (whether for potential releases of substances listed in
CERCLA or other substances).
(iii) TriZetto, its Subsidiaries or its Affiliates
have no actual knowledge of, or any reason to believe or suspect that, any
release or threatened release of any Hazardous Material originating from a
property other than those leased or operated by TriZetto, its Subsidiaries or
its Affiliates has come to be (or may come to be) located on or under properties
leased, occupied or operated by TriZetto, its Subsidiaries or its Affiliates;
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(iv) TriZetto, its Subsidiaries or its Affiliates
have never installed, used, buried or removed any surface impoundment or
underground tank or vessel on properties owned, leased, occupied or operated by
TriZetto, its Subsidiaries or its Affiliates;
(v) TriZetto and its Subsidiary are and have been in
compliance in all material respects for the last three years with all federal,
state, local or foreign laws, ordinances, regulations, permits, approvals and
authorizations relating to air, water, industrial hygiene and worker health and
safety, anti-pollution, hazardous or toxic wastes, materials or substances,
pollutants or contaminants, and no condition exists on any of the real property
owned by or used in the business of TriZetto or its Subsidiaries that would
constitute a material violation of any such law or that constitutes or threatens
to constitute a public or private nuisance; and
(vi) There has been no litigation, administrative
proceedings or investigations or any other actions, claims, demands notices of
potential responsibility or requests for information brought or, to the
knowledge of TriZetto, its Subsidiaries or its Affiliates, threatened against
TriZetto, its Subsidiaries or its Affiliates or any settlement reached by any of
them, with, any person or persons alleging the presence, disposal, release or
threatened release of any Hazardous Material on, from or under any of such
properties or as otherwise relating to potential environmental liabilities.
(d) This Section 3.11 contains the sole and exclusive
representations and warranties of TriZetto and its Subsidiaries with respect to
any Environmental, Health and Safety Matters, including, without limitation, any
arising under any Environmental Laws.
3.12. INVESTMENT INTENT. The CBS Stock to be acquired by TriZetto is
being and will be acquired by TriZetto for its own account for investment and
not with any present intention to distribute.
3.13. INTELLECTUAL PROPERTY; SOFTWARE; AND YEAR 2000 COMPLIANCE.
3.13.1 INTELLECTUAL PROPERTY, SOFTWARE AND PRODUCTS.
(a) Section 3.13.1(a) of the TriZetto Disclosure
Schedule contains (a) a complete and correct list of all Intellectual Property,
Software and products relating to or used in the business or operations of the
business of TriZetto and its Subsidiaries, and (b) a complete and correct list
of all persons who have contributed to the creation or development of the
Intellectual Property, Software and products. Except as set forth in Section
3.13.1(a) of the TriZetto Disclosure Schedule, no TriZetto stockholder, employee
or contractor, nor any of their respective Affiliates, has any right, title or
interest in or to any Intellectual Property, Software or products.
(b) Except as set forth in Section 3.13.1(b) of the
TriZetto Disclosure Schedule, TriZetto and its Subsidiaries own all right, title
and interest in and to all Intellectual Property and Software used in or
necessary for the conduct of TriZetto's and its Subsidiaries' businesses as
presently conducted, including, without limitation, all Intellectual Property
and Software developed or discovered in connection with or contained in or
related to TriZetto's or its Subsidiaries' products, free and clear of all
liens, mortgages, charges, pledges, claims and encumbrances (including without
limitation any distribution rights and royalty rights). Except as disclosed in
Section 3.13.1(b) of the TriZetto Disclosure Schedules, all persons who have
contributed to the creation or development of the Intellectual Property,
Software and products have executed an Assignment of Rights Agreement or similar
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document transferring any and all ownership rights to TriZetto. None of the
products contain any codes or modules which have been created or developed by
third parties. Such Intellectual Property and Software constitutes all
Intellectual Property and Software necessary for the conduct of its business in
the manner conducted immediately prior to the Closing. To the knowledge of
TriZetto neither TriZetto nor its Subsidiaries have infringed nor are infringing
upon any Intellectual Property or Software rights of others. Except as set forth
in Section 3.13.1(b) of the TriZetto Disclosure Schedules, TriZetto and its
Subsidiaries have the exclusive right to use, sell, license and dispose of, and
has the right to bring actions for infringement of all Intellectual Property,
Software and products used in connection with their businesses. To the best
knowledge of TriZetto, the products do not include any Intellectual Property or
Software that is in the public domain.
(c) Except as set forth in Section 3.13.1(c) of the
TriZetto Disclosure Schedule, no claims have been asserted against TriZetto or
its Subsidiaries by any person challenging TriZetto's or its Subsidiaries' use
or distribution (including manufacture, marketing license, or sale) of any
product or products utilized by TriZetto or its Subsidiaries (including, without
limitation, Third Party Technology), or challenging or questioning the validity
or effectiveness of any license or agreement relating thereto (including,
without limitation, the Third Party Licenses). To the best knowledge of
TriZetto, there is no valid basis for any claim of the type specified in this
Section 3.13.1(c).
(d) Except as set forth in Section 3.13.1(d) of the
TriZetto Disclosure Schedule, TriZetto or its Subsidiaries have valid copyrights
in all material copyrightable material whether or not registered with the U.S.
copyright office, including all copyrights in the products containing material
copyrightable material. Consummation of the transactions contemplated hereby
will not alter or impair the validity of any copyrights or copyright
registrations.
(e) Except as set forth in Section 3.13.1(e) of the
TriZetto Disclosure Schedule: (i) no third party (including any OEM or site
license customer) has any right to manufacture, reproduce, distribute, sell,
sublicense, market or exploit any of the products or any adaptations,
translations, or derivative works based on the products, or any portion thereof;
(ii) TriZetto or its Subsidiaries have not granted to any third party any
exclusive rights of any kind with respect to any of the products, including
territorial exclusivity or exclusivity with respect to particular versions,
implementations or translations of any of the products; and (iii) TriZetto or
its Subsidiaries have not granted any third party any right to market any
product utilizing any product under any "private label" arrangements pursuant to
which TriZetto or its Subsidiaries have not identified as the source of such
goods. Each document or instrument identified pursuant to this Section is listed
in Section 3.13.1(e) of the TriZetto Disclosure Schedule and true and correct
copies of such documents or instruments have been furnished to CBS. Except as
set forth in Section 3.13.1(e) of the TriZetto Disclosure Schedule, no third
party has any right to manufacture, reproduce, distribute, sublicense, market or
exploit any works or materials of which any of the products are a derivative
work.
(f) Except as set forth in Section 3.13.1(f) of the
TriZetto Disclosure Schedule, each of the products: (i) substantially complies
with all specifications set forth therefor in any contract, agreement,
advertisement or other promotional material for such products and with all other
warranty requirements, other than bugs or fixes required or expected in the
ordinary course of business and not otherwise material to TriZetto's business;
and (ii) can be recreated from its associated source code and related
documentation by reasonably experienced technical personnel without undue
burden.
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(g) TriZetto has furnished CBS with all end user
documentation relating to the use, maintenance or operation of each of the
products, all of which is true and accurate in all material respects.
(h) Except as set forth in Section 3.13.1(h) of the
TriZetto Disclosure Schedule, to the best knowledge of TriZetto, no employee of
TriZetto is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with TriZetto or any other party because of
the nature of the business conducted by TriZetto or proposed to be conducted by
TriZetto.
(i) Except as set forth in Section 3.13.1(i) of the
TriZetto Disclosure Schedule, no Third Party Technology is included in the
products.
3.13.2 YEAR 2000 COMPLIANCE.
(a) Products and Services.
(i) Except as set forth in Section 3.13.2(a)
of the TriZetto Disclosure Schedule, to the TriZetto Stockholders knowledge, all
of TriZetto's products and services and its Subsidiaries' products and services
are Year 2000 Compliant in all material respects.
(ii) Except as set forth in Section 3.13.2(a)
of the TriZetto Disclosure Schedule, if TriZetto is obligated to repair or
replace products or services previously provided by TriZetto that are not Year
2000 Compliant in order to meet TriZetto's contractual obligations, to avoid
personal injury or other liability, to avoid misrepresentation claims, or to
satisfy any other obligations or requirements, to the TriZetto Stockholders
knowledge TriZetto has repaired or replaced those products and services to make
them Year 2000 Compliant in all material respects.
(iii) Except as set forth in Section 3.13.2(a)
of the TriZetto Disclosure Schedule, TriZetto has furnished CBS with true,
correct and complete copies of any customer agreements and other materials and
correspondence in which TriZetto has furnished (or could be deemed to have
furnished) assurances as to the performance and/or functionality of TriZetto's
products or services and its Subsidiaries' on or after January 1, 2000.
(b) Computer Software and Systems. Except as set
forth in Section 3.13.2(b) of the TriZetto Disclosure Schedule, to the TriZetto
knowledge, all of TriZetto's software and systems and its Subsidiaries'
computers are Year 2000 Compliant in all material respects.
(c) Suppliers. Except as set forth in Section
3.13.2(c) of the TriZetto Disclosure Schedule, to TriZetto's knowledge, all
vendors of products or services to TriZetto and its Subsidiaries, and their
respective products, services and operations, are Year 2000 Complaint in all
material respects. Except as set forth in Section 3.13.2(c) of the TriZetto
Disclosure Schedule, to the knowledge of TriZetto after a reasonably diligent
investigation, each such vendor will continue to furnish its products or
services to TriZetto and its Subsidiaries, without interruption or material
delay, on and after January 1, 2000.
3.14. COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. TriZetto holds all
material licenses, permits and authorizations necessary for the lawful conduct
of its business as now being conducted pursuant
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to all applicable statutes, laws, ordinances, rules and regulations of all
governmental bodies, agencies and other authorities having jurisdiction over it
or any part of its respect operations, and there are no material violations or,
to the knowledge of TriZetto, claimed violations by TriZetto of any such
license, permit or authorization or any such statute, law, ordinance, rule or
regulation, except where such violations would not have a Material Adverse
Effect on TriZetto.
3.15. FULL DISCLOSURE. All of the representations and warranties made
by TriZetto in this Agreement, and all statements set forth in the certificates
delivered by TriZetto at the Closing pursuant to this Agreement, are true,
correct and complete in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make such representations, warranties or statements, in light of the
circumstances under which they were made, misleading.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 FURTHER ACTION. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
4.2. PUBLIC ANNOUNCEMENTS. TriZetto and CBS shall consult with each
other before issuing any press release with respect to this Agreement, and shall
not issue any such press release or make any such public statement without the
prior consent of the other party, which shall not be unreasonably withheld.
4.3. TRANSFER TAXES. TriZetto and CBS shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Closing. TriZetto and CBS agree that CBS
will pay any real property transfer or gains tax, stamp tax, stock transfer tax,
or other similar tax imposed on the transfer of the Shares pursuant to this
Agreement (collectively, "Transfer Taxes"), excluding any Transfer Taxes as may
result from the transfer of beneficial interests in the Shares other than as a
result of this Agreement, and any penalties or interest with respect to the
Transfer Taxes. CBS agrees to cooperate with TriZetto in the filing of any
returns with respect to the Transfer Taxes.
4.4 REMOVAL OF GUARANTEES. In connection with TriZetto's assumption
of CBS' obligations, TriZetto shall use its best efforts to have the CBS
Stockholders released from their personal guarantees of CBS' obligations under
the credit facility with Bank of Texas, N.A. In the event that TriZetto is
unable to remove such guarantees prior to April 10, 1999, TriZetto covenants and
agrees that it will not renew such credit facility without the prior written
consent of the CBS Stockholders.
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ARTICLE V
INDEMNIFICATION
5.1. INDEMNIFICATION OF TRIZETTO.
(a) Subject to the limitations contained in this Article V,
the CBS Stockholders shall, jointly and severally, on a pro rata basis, defend,
indemnify and hold harmless TriZetto, its officers, directors, stockholders,
employees, attorneys, accountants and agents from and against any and all
losses, claims, judgments, liabilities, demands, charges, suits, penalties,
costs or expenses, including court costs and attorneys' fees ("Claims and
Liabilities") with respect to or arising from (i) the breach of any warranty or
any inaccuracy of any representation made by CBS or a CBS Stockholder in this
Agreement; (ii) the breach of any covenant or agreement made by CBS or a CBS
Stockholder in this Agreement; or (iii) relating to the Separation Agreement
entered into on December 14, 1998 by and between CBS and Milan E. Chovan, Jr.
(b) With respect to Subsection 5.1(a), the CBS Stockholders
shall be liable to TriZetto for any Claims and Liabilities only if the aggregate
amount of all Claims and Liabilities, when combined with the Claims and
Liabilities pursuant to Article V of that certain Partnership Interest Purchase
Agreement dated concurrently herewith, exceeds $[*] (the "Basket Amount"), in
which case the CBS Stockholders shall be obligated to indemnify TriZetto for all
such Claims and Liabilities without regard to the Basket Amount. Further, the
CBS Stockholders' aggregate liability under Subsection 5.1(a) (other than with
respect to any intentional or willful breach or failure to perform) shall in no
event exceed the aggregate amount of consideration placed in the Escrow Account
plus the Promissory Notes and cash issued or paid hereunder.
(c) The indemnification obligations of the CBS Stockholders
under this Section 5.1 shall first be satisfied by an offset to the Promissory
Note and second, out of the Escrow Account. Thereafter, TriZetto shall have
recourse against the CBS Stockholders under this Section 5.1 subject to the
limitations set forth in Section 5.1(b).
5.2 LIMITATIONS. Anything to the contrary notwithstanding, TriZetto
shall not be indemnified and held harmless in respect of any Claims and
Liabilities which are (a) covered by insurance owned by CBS or its Subsidiary,
to the extent that any net loss is reduced by such insurance, or (b) satisfied
out of the proceeds of the Escrow Account to the extent that any net loss is
reduced by such proceeds.
5.3 INDEMNIFICATION OF CBS. TriZetto shall defend, indemnify and
hold harmless the CBS Stockholders against and in respect to all Claims and
Liabilities with respect to or arising from (i) breach of any warranty or any
inaccuracy of any representation made by TriZetto, or (ii) breach of any
covenant or agreement made by TriZetto in this Agreement.
5.4 CLAIMS PROCEDURE. Promptly after the receipt by any indemnified
party (the "Indemnitee") of notice of the commencement of any action or
proceeding against such Indemnitee, such Indemnitee shall, if a claim with
respect thereto is or may be made against any indemnifying party (the
"Indemnifying Party") pursuant to this Article V, give such Indemnifying Party
written notice of the commencement of such action or proceeding and give such
Indemnifying Party a copy of such claim and/or process and all legal pleadings
in connection therewith. The failure to give such notice shall not relieve any
Indemnifying Party of any of his or its indemnification obligations contained in
this Article V, except where, and solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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shall have, upon request within thirty (30) days after receipt of such notice,
but not in any event after the settlement or compromise of such claim, the right
to defend, at his or its own expense and by his or its own counsel, any such
matter involving the asserted liability of the Indemnitee; provided, however,
that if the Indemnitee determines that, as a result of an existing or
prospective business relationship between TriZetto or any of its Subsidiaries on
the one hand and any other party or parties to such claim on the other hand, or
as a result of other reasonable circumstances, there is a reasonable probability
that a claim may materially and adversely affect him or it, other than solely as
a result of money payments required to be reimbursed in full by such
Indemnifying Party under this Article V, the Indemnitee shall have the right to
defend, compromise or settle such claim or suit; and, provided, further, that
such settlement or compromise shall not, unless consented to in writing by such
Indemnifying Party, which should not be unreasonably withheld, be conclusive as
to the liability of such Indemnifying Party to the Indemnitee. In any event, the
Indemnitee, such Indemnifying Party and his or its counsel shall cooperate in
the defense against, or compromise of, any such asserted liability, and in cases
where the Indemnifying Party shall have assumed the defense, the Indemnitee
shall have the right to participate in the defense of such asserted liability at
the Indemnitee's own expense. In the event that such Indemnifying Party shall
decline to participate in or assume the defense of such action, prior to paying
or settling any claim against which such Indemnifying Party is, or may be,
obligated under this Article V to indemnify an Indemnitee, the Indemnitee shall
first supply such Indemnifying Party with a copy of a final court judgment or
decree holding the Indemnitee liable on such claim or, failing such judgment or
decree, the terms and conditions of the settlement or compromise of such claim.
An Indemnitee's failure to supply such final court judgment or decree or the
terms and conditions of a settlement or compromise to such Indemnifying Party
shall not relieve such Indemnifying Party of any of his or its indemnification
obligations contained in this Article V, except where, and solely to the extent
that, such failure actually and materially prejudices the rights of such
Indemnifying Party. If the Indemnifying Party is defending the claim as set
forth above, the Indemnifying Party shall have the right to settle the claim
only with the consent of the Indemnitee; provided, however, that if the
Indemnitee shall fail to consent to the settlement of such a claim by the
Indemnifying Party, which settlement (i) the claimant has indicated it will
accept, and (ii) includes an unconditional release of the Indemnitee and its
affiliates by the claimant and imposes no material restrictions on the future
activities of the Indemnitee and its affiliates, the Indemnifying Party shall
have no liability with respect to any payment required to be made to such
claimant in respect of such claim in excess of the proposed amount of
settlement. If the Indemnitee is defending the claim as set forth above, the
Indemnitee shall have the right to settle or compromise any claim against it
after consultation with, but without the prior approval of, any Indemnifying
Party, which should not be unreasonably withheld, provided, however, that such
settlement or compromise shall not, unless consented to in writing by such
Indemnifying Party, which shall not be unreasonably withheld, be conclusive as
to the liability of such Indemnifying Party to the Indemnitee.
5.5 TREATMENT OF INDEMNITY PAYMENTS. Any payment made to TriZetto
pursuant to this Article V or the Escrow Agreement shall be treated as a
reduction in the consideration paid by TriZetto in connection with this
Agreement.
5.6 SOLE REMEDY. After the Closing, the rights set forth in this
Article V shall be each party's sole and exclusive remedies against the other
party thereto for misrepresentations or breaches of covenants contained in this
Agreement. Notwithstanding the foregoing, nothing herein shall prevent any of
the Indemnified Parties from bringing an action based upon allegations of fraud
or other intentional breach of an obligation of or with respect to either party
in connection with this Agreement. In the event such action is brought, the
prevailing party's attorneys' fees and costs shall be paid by the nonprevailing
party.
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ARTICLE VI
CONDITIONS TO CLOSING
6.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO CLOSE THE TRANSACTION.
The respective obligations of each party to close the transaction shall be
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) NO INJUNCTIONS. No temporary restraining order,
preliminary or permanent injunction issued by any court of competent
jurisdiction preventing the consummation of the transaction shall be in effect.
(b) ESCROW AGREEMENT. The Escrow Agreement in the form of
Exhibit B shall have been entered into by TriZetto, Banker's Trust, and each of
the CBS Stockholders.
(c) RESTRICTED STOCK AGREEMENT. The Restricted Stock
Agreement in the form of Exhibit G shall have been entered into by TriZetto and
each of the CBS Stockholders. The Company represents that each of the Company's
employee shareholders have executed a form of Restricted Stock Agreement which
contains identical provisions relating to the right of first refusal and
termination.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF TRIZETTO. The
obligations of TriZetto to close the transaction are also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of CBS and the CBS Stockholders contained in this Agreement shall be
true and correct in all material respects on and as of the Closing, with the
same force and effect as if made on and as of the Closing and TriZetto shall
have received a certificate to such effect signed by the President and the Chief
Financial Officer of CBS and the CBS Stockholders;
(b) AGREEMENTS AND COVENANTS. CBS and the CBS Stockholders
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing and TriZetto shall have received a certificate to
such effect signed by the President and Chief Financial Officer of CBS and the
CBS Stockholders; and
(c) CONSENTS OBTAINED. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by CBS for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by CBS.
(d) OPINION OF COUNSEL. TriZetto shall have received the
opinion of McGuire, Woods, Battle & Boothe LLP, and Locke Liddell & Sapp LLP
counsel to CBS, dated as of the Closing, in the form attached hereto as Exhibit
E.
(e) COMPLETION OF ACQUISITION OF HEALTHWEB SYSTEMS, LTD.
TriZetto shall concurrently complete the acquisition of all of the partnership
interests of HealthWeb Systems, Ltd.
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(f) EMPLOYMENT AGREEMENTS. At the Closing, TriZetto shall
have entered into an employment agreement with [*] on the terms of the form of
employment agreement as set forth as Exhibit C substantially hereto (the
"Employment Agreement").
(g) NON-COMPETITION AGREEMENT. At the Closing, TriZetto
shall have entered into a non-competition agreement with each of [*] on
substantially the terms of the form of non-competition agreement as set forth as
Exhibit D hereto (the "Non-Competition Agreement").
(h) CBS shall deliver to TriZetto evidence that CBS
possesses all intellectual property rights and software rights, including but
not limited to copies of all software licenses and executed assignments of
rights as executed by each consultant or employee who assisted in its
development.
(i) CBS shall have paid off the Promissory Note issued to
[*] on October 15, 1997 and cancelled the 1,000 shares of CBS Common Stock which
are held by [*] as collateral thereunder. TriZetto shall be entitled to deduct
the payoff amount from the cash consideration paid hereunder.
(j) Each CBS Stockholder shall have paid off his
indebtedness to CBS, including accrued interest, and CBS shall have delivered
evidence thereto to TriZetto.
(k) The Shareholder's Agreement dated June 1, 1998 by and
among CBS and the CBS Stockholders shall be terminated and evidence shall be
delivered to TriZetto.
(l) [*] shall have executed an Assignment of Rights
Agreement in the form of Exhibit H.
6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF CBS. The obligation of
CBS and the CBS Stockholders to close the transaction is also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TriZetto contained in this Agreement shall be true and correct in
all respects on and as of the Closing, with the same force and effect as if made
on and as of the Closing and CBS shall have received a certificate to such
effect signed by the President and the Chief Financial Officer of TriZetto;
(b) AGREEMENTS AND COVENANTS. TriZetto shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Closing and CBS shall have received a certificate to such effect signed by the
President and the Chief Financial Officer of TriZetto;
(c) CONSENTS OBTAINED. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by TriZetto for the authorization, execution and delivery
of this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by TriZetto, except where the failure
to receive such consents, etc. would not reasonably be expected to have a
Material Adverse Effect on TriZetto.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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(d) OPINION OF COUNSEL. CBS shall have received the opinion
of Stradling Yocca Carlson & Rauth, counsel to TriZetto, dated as of the
Closing, in the form attached hereto as Exhibit F.
(e) ISSUANCE OF OPTIONS. Each of the CBS Stockholders shall
have received options to purchase shares of TriZetto in accordance with his
respective employment agreement.
ARTICLE VII
TERMINATION
7.1. TERMINATION. This Agreement may be terminated at any time prior
to the Closing, notwithstanding approval thereof by the stockholders of CBS:
(a) by mutual written consent duly authorized by the Board
of Directors of TriZetto and CBS; or
(b) by the Board of Directors of TriZetto if any condition
to the obligation of TriZetto under this Agreement to be complied with or
performed by CBS at or before the Closing shall not have been complied with or
performed at the time required for such compliance or performance and such
noncompliance or nonperformance shall not have been waived by TriZetto;
(c) by the Board of Directors of CBS if any condition to the
obligation of CBS under this Agreement to be complied with or performed by
TriZetto at or before the Closing shall not have been complied with or performed
at the time required for such compliance or performance and such noncompliance
or nonperformance shall not have been waived by CBS; or
(d) by either TriZetto or CBS if the Closing shall not have
been consummated by February 28, 1999; provided, however, that the right to
terminate this Agreement under this Section 7.1(d) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Closing to occur on or before such
date).
7.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Article VII, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
directors, officers, stockholders or Affiliates except (i) as set forth in
Article VII and Section 7.1 hereof, and (ii) that, except as otherwise provided
in Article VII, nothing herein shall relieve any party from liability for any
breach by such party except as set forth in Section 7.3 hereof.
7.3. FEES AND EXPENSES.
(a) Except as set forth in this Article VII, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Closing is consummated. Without limiting the generality of the
foregoing, the CBS Stockholders will pay, on a pro rata basis according to their
ownership of Shares, all of the fees and expenses incurred in connection with
the transactions contemplated by this Agreement for CBS and the CBS
Stockholders' legal, financial and accounting advisors, including, without
limitation, Stanford Keene, and Fennebresque, Clark, Swindell & Hay, and
McGuire, Woods, Battle & Boothe, LLP, and Locke Liddell & Sapp LLP.
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ARTICLE VIII
GENERAL PROVISIONS
8.1. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS;
DISCLOSURES.
(a) The representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the Closing
and shall continue in full force and effect for a period of two (2) years
following the Closing except for Section 2.5, Section 2.13, Section 3.4 and
Section 3.11 which shall survive until the expiration of the applicable statute
of limitations (as the same may be extended from time to time). The covenants
and agreements of the parties contained in this Agreement shall survive the
Closing unless and until they are otherwise terminated pursuant to their terms
as a matter of applicable laws.
(b) Notwithstanding any other provision in this Agreement to
the contrary, any disclosure made with reference to one or more sections of the
CBS Disclosure Schedule or the TriZetto Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant.
8.2. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to TriZetto
The TriZetto Group, Inc.
567 San Nicolas Drive, Suite 360
Newport Beach, California 92660
Attn: Brian Karr
Ph: (949) 718-4940
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attn: K.C. Schaaf, Esq.
Ph: (949) 725-4155
(b) If to CBS
Creative Business Solutions, Inc.
8402 Sterling, # 202
Irving, TX 76053
Ph: (828) 531-3230
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<PAGE> 29
with a copy to:
McGuire, Woods, Battle & Boothe, LLP
Bank of America Corporate Center Suite 2900
100 North Tryon Street
Charlotte, North Carolina 28202-4011
Attn: Stephen J. Manzano
Ph: (704) 338-4725
8.3. CERTAIN DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Affiliate" shall mean any individual, corporation, partnership,
firm, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization or Governmental Entity, or
person directly or indirectly controlling, controlled by or under common
control with CBS, including all officers and directors of CBS.
"Agreement" shall have the meaning as set forth in the Preamble.
"CBS" shall have the meaning as set forth in the Preamble.
"CBS Balance Sheet" shall have the meaning as set forth in
Section 2.7 of the Agreement.
"CBS Benefit Arrangement" means any employment, severance or
similar contract or arrangement whether or not written or any plan,
policy, fund, program or contract or arrangement (whether or not
written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including
any self-insured arrangements), health or medical benefits, disability
benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other
benefits) that (i) is not a CBS Employee Plan, (ii) is entered into,
maintained, administered or contributed to, as the case may be, by CBS
or its Subsidiary and (iii) covers any employee or former employee of
CBS or its Subsidiary.
"CBS Disclosure Schedule" shall mean the written disclosure
schedule delivered on or prior to the date hereof by CBS to TriZetto.
"CBS Employee Plan" means any "employee benefit plan", as
defined in Section 3(3) of ERISA, that (i) is subject to any provision
of ERISA, (ii) is maintained, administered or contributed to by CBS or
its Subsidiary and (iii) covers any employee or former employee of CBS
or its Subsidiary.
"CBS Environmental Liabilities" mean any and all liabilities of
or relating to CBS and its Subsidiary, whether contingent or fixed,
actual or potential, known or unknown, which (i) arise under or relate
to matters covered by Environmental Laws and (ii) relate to actions
occurring or conditions existing on or prior to the Closing Time.
"CBS Option" means any option granted, whether exercisable or
not exercisable and not exercised or expired, to a current or former
employee, director, consultant, advisor or independent
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<PAGE> 30
contractor of CBS or its Subsidiary or any predecessor thereof to
purchase Shares pursuant to CBS's Option Plan (as defined below).
"CBS Securities" shall have the meaning as set forth in Section
2.5 of the Agreement.
"CBS Stockholder" shall have the meaning as set forth in the
Preamble.
"CBS Stock" shall have the meaning as set forth in the Preamble.
"CBS Subsidiary" shall mean HealthWeb Systems, Ltd., a Texas
limited partnership.
"Claims and Liabilities" shall have the meaning as set forth in
Section 5.1 of the Agreement.
"Closing" shall have the meaning as set forth in Section 1.2 of
the Agreement.
"Environmental Laws" mean any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances,
rules, judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions, relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants or other Hazardous
Materials or wastes into the environment, including without limitation
ambient air, surface water, ground water or land, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or other
Hazardous Materials or wastes or the clean-up or other remediation
thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"Escrow" shall have the meaning as set forth in Section 1.4 of
the Agreement.
"Escrow Agreement" shall have the meaning set forth in Section
1.4 of the Agreement.
"Escrow Shares" shall have the meaning set forth in Section 1.4
of the Agreement.
"GAAP" shall have the meaning as set forth in Section 2.7 of the
Agreement.
"Hazardous Material" means any toxic, radioactive, corrosive or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any
constituent elements displaying any of the foregoing characteristics,
which in any event is regulated under any Environmental Law.
"Intellectual Property" means patents, patent applications,
patent licenses, copyrights, copyright licenses, trademarks, trademark
applications and trademark licenses, trade names, service marks, service
names, licenses, trade secrets and any other know-how or intellectual
property rights, and rights in any thereof (insofar as it is practical
to list or describe such rights).
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<PAGE> 31
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
to such asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise),
business, assets or liabilities of such Person and its Subsidiaries
taken as a whole.
"Multiemployer Plan" means each CBS Employee Arrangement or each
TriZetto Employee Arrangement, as the case may be, that is a
multiemployer plan, as defined in Section 3(37) or Section 4001(a)(3) of
ERISA, or any similar foreign law or regulation.
"Person" means an individual, a corporation, a partnership, an
association, a trust, a limited liability company or any other entity or
organization, including a government or political subdivision or any
agency or instrumentality thereof.
"Products" means the Remedy Software, Respond Software, Live-Doc
Software, Care Line Software, Directory Studio, Managed Care Information
System and all related products, including any Intellectual Property
related thereto.
"Shares" shall have the meaning as set forth in the Preamble.
"Software" means software programs and rights in any thereof
(insofar as it is practical to list or describe such rights).
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50%
of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); or (ii)
any partnership (a) the sole general partner or managing general partner
of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or of one or more Subsidiaries
of such Person (or any combination thereof); and (c) HealthWeb Systems,
Ltd., a Texas limited partnership.
"Taxes" shall mean all income, gross receipts, sales, transfer,
use, employment, franchise, profits, property and other taxes, fees,
stamp taxes and duties, assessments, and charges of any kind whatsoever
(whether payable directly or by withholding), together with any interest
thereof and any penalties, additions to tax or additional amounts
imposed by any Taxing Authority.
"Taxing Authority" shall mean any governmental authority
responsible for the imposition of Taxes.
"Third Party Licenses" means all licenses and other agreements
with third parties relating to any Intellectual Property or products
that CBS or its Subsidiary is licensed or otherwise authorized by such
third parties to use, market, distribute or incorporate into products
marketed and distributed by CBS or its Subsidiary.
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<PAGE> 32
"Third Party Technology" means all Intellectual Property and
products owned by third parties and licensed pursuant to Third Party
Licenses.
"Transfer Taxes" shall have the meaning as set forth in Section
4.3 of this Agreement.
"TriZetto" shall have the meaning as set forth in the Preamble.
"TriZetto Balance Sheet" shall have the meaning as set forth in
Section 3.5 of the Agreement.
"TriZetto Benefit Arrangement" means any employment, severance
or similar contract or arrangement whether or not written or any plan,
policy, fund, program or contract or arrangement (whether or not
written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including
any self-insured arrangements), health or medical benefits, disability
benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other
benefits) that (i) is not a TriZetto Employee Plan, (ii) is entered
into, maintained, administered or contributed to, as the case may be, by
TriZetto or any of its Subsidiaries and (iii) covers any employee or
former employee employed in the United States.
"TriZetto Common Stock" shall have the meaning set forth in
Section 1.1(b) of the Agreement.
"TriZetto Disclosure Schedule" shall mean the written disclosure
schedule delivered on or prior to the date hereof by TriZetto to CBS
that is arranged in paragraphs corresponding to the numbered and
lettered paragraphs corresponding to the numbered and lettered
paragraphs contained in the Agreement.
"TriZetto Employee Plan" means any "employee benefit plan", as
defined in Section 3(3) of ERISA, that (i) is subject to any provision
of ERISA, (ii) is maintained, administered or contributed to by TriZetto
or any of its Subsidiaries and (iii) covers any employee or former
employee of TriZetto.
"TriZetto Environmental Liabilities" means any and all
liabilities of or relating to TriZetto or any of its Subsidiaries,
whether contingent or fixed, actual or potential, known or unknown,
which (i) arise under or relate to matters covered by Environmental Laws
and (ii) relate to actions occurring or conditions existing on or prior
to the Closing.
"TriZetto Financial Statements" shall have the meaning as set
forth in Section 3.6 of the Agreement.
"Year 2000 Compliant" means that (1) the products, services, or
other item(s) at issue accurately process, provide and/or receive all
date/time data (including calculating, comparing, sequencing, processing
and outputting) within, from, into, and between centuries (including the
twentieth and twenty-first centuries and the years 1999 and 2000),
including leap year calculations, and (2) neither the performance nor
the functionality of the company's or its
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<PAGE> 33
subsidiary's provision of the products, services, and other item(s) at
issue will be affected by any dates/times prior to, on, after, or
spanning January 1, 2000. The design of the products, services, and
other item(s) at issue to ensure compliance with the foregoing
warranties and representations includes proper date/time data century
recognition and recognition of 1999 and 2000, calculations that
accommodate single century and multi-century formulae and date/time
values before, on, after, and spanning January 1, 2000, and date/time
data interface values that reflect the century, 1999, and 2000. In
particular, but without limitation, (i) no value for current date/time
will cause any error, interruption, or decreased performance in or for
such product(s), service(s), and other item(s), (ii) all manipulations
of date and time related data (including calculating, comparing,
sequencing, processing, and outputting) will produce correct results for
all valid dates and times when used independently or in combination with
other products, services, and/or items, (iii) date/time elements in
interfaces and data storage will specify the century to eliminate date
ambiguity without human intervention, including leap year calculations,
(iv) where any date/time element is represented without a century, the
correct century will be unambiguous for all manipulations involving that
element, (v) authorization codes, passwords, and zaps (purge functions)
will function normally and in the same manner during, prior to, on and
after January 1, 2000, including the manner in which they function with
respect to expiration dates and CPU serial numbers, and (vi) the
company's or its subsidiary's supply of the product(s), service(s), and
other item(s) will not be interrupted, delayed, decreased, or otherwise
affected by the advent of the year 2000.
8.4. AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
8.5. WAIVER. At any time prior to the Closing, any party hereto may
with respect to any other party hereto (a) extend the time for performance of
any of the obligations or other acts, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
8.6. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible, in an acceptable manner, to the end that
transactions contemplated hereby are fulfilled to the extent possible.
8.8. ENTIRE AGREEMENT. This Agreement (inclusive of CBS Disclosure
Schedule and TriZetto Disclosure Schedule) constitutes the entire agreement and
supersedes all prior agreements and undertakings
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<PAGE> 34
both oral and written, among the parties, or any of them, with respect to the
subject matter hereof and, except as otherwise expressly provided herein.
8.9. ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise.
8.10. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.6 (which is intended to be for the benefit of the Indemnified Parties
and the others specifically referenced therein as beneficiaries of the
agreements contained in Section 5.6, and may be enforced by such Indemnified
Parties and other persons).
8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
8.12. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California
applicable to contracts executed and fully performed within the State of
California.
8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE> 35
IN WITNESS WHEREOF, the parties have caused this Stock Purchase
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THE TRIZETTO GROUP, INC.,
a Delaware corporation
By: [Signature Illegible}
---------------------------------------------
Name: [Illegible]
-------------------------------------------
Title: [Illegible]
------------------------------------------
CREATIVE BUSINESS SOLUTIONS, INC.,
a Texas corporation
By: [*]
---------------------------------------------
Name: [*]
-------------------------------------------
Title: [*]
------------------------------------------
"CBS STOCKHOLDERS"
/s/ [*]
------------------------------------------------
[*]
/s/ [*]
------------------------------------------------
[*]
/s/ [*]
------------------------------------------------
[*]
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 2.3
----------------------------------------------
PARTNERSHIP INTEREST PURCHASE AGREEMENT
DATED AS OF FEBRUARY 5, 1999
BY AND AMONG
THE TRIZETTO GROUP, INC.,
THE TRIZETTO ACQUISITION GROUP, LLC,
HEALTHWEB SYSTEMS, LTD.,
HEALTHWEB GENERAL PARTNER, INC.,
[*]
AND
[*]
----------------------------------------------
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 2
PARTNERSHIP INTEREST PURCHASE AGREEMENT
THIS PARTNERSHIP PURCHASE AGREEMENT (the "Agreement"), is made and
entered into as of February 5, 1999, by and among The TriZetto Group, Inc., a
Delaware corporation ("TriZetto"), TriZetto Acquisition Group, LLC, a Delaware
limited liability company and wholly-owned subsidiary of TriZetto ("TAG"),
HealthWeb Systems, Ltd., a Texas limited partnership ("HealthWeb"), HealthWeb
General Partner, Inc., a Texas corporation ("HWGP"), [*] and [*] (collectively,
HWGP, [*] and [*] shall be referred to as the "HealthWeb Partners").
RECITALS
WHEREAS, HWGP owns a one percent (1%) general partnership interest in
HealthWeb and Cohen and Smith own an thirteen and one-half percent (13.5%) and
three percent (3%) limited partnership interest in HealthWeb, respectively;
WHEREAS, Creative Business Solutions, Inc., a Texas corporation ("CBS")
owns a eighty-seven and one-half percent (87.5%) limited partnership interest in
HealthWeb;
WHEREAS, all of the issued and outstanding stock of CBS is being
acquired concurrently herewith by TriZetto pursuant to a Stock Purchase
Agreement entered into by and among CBS, TriZetto, [*] (the "Stock Purchase
Agreement");
WHEREAS, as a condition to the Stock Purchase Agreement, TriZetto and
its affiliates are to acquire all of the issued and outstanding partnership
interests of HealthWeb; and
WHEREAS, TriZetto and TAG desire to acquire, and the HealthWeb Partners
desire to sell, all of their respective partnership interests in HealthWeb.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF INTERESTS
1.1. THE PURCHASE AND SALE OF INTERESTS.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, TriZetto and TAG agree to purchase from the HealthWeb
Partners, and the HealthWeb Partners agree to sell, assign, transfer, convey and
deliver to TriZetto and TAG at the Closing (as defined in Section 1.2), their
partnership interests in HealthWeb (the "Interests").
(b) In consideration for the sale of the Interests, TriZetto
and TAG shall cumulatively pay to the HealthWeb Partners on the Closing Date the
following consideration (the "Purchase Price"): (i) [*], (ii) [*] (the "TriZetto
Common Stock"), and (iii) [*] in substantially the form attached hereto as
Exhibit A, less the expenses payable by the HealthWeb Partners pursuant to
Section 7.3 below, unless
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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<PAGE> 3
otherwise paid by the HealthWeb Partners on or prior to the Closing Date.
Notwithstanding the foregoing, fractional shares of TriZetto Common Stock that
would be issuable to any holder of HealthWeb Interests shall be treated in
accordance with Section 1.3.
1.2. CLOSING. The delivery of the Interests and payment of the
Purchase Price (the "Closing") shall take place at the offices of Stradling
Yocca Carlson & Rauth at 660 Newport Center Drive, Suite 1600, Newport Beach,
California 92660, on February 5, 1999, or such other date and time as shall be
mutually agreed upon by TriZetto and HealthWeb, but in no event later than
February 28, 1999 (the "Closing Date").
1.3. EXCHANGE OF INTERESTS FOR PURCHASE PRICE. At the Closing, (a)
the HealthWeb Partners shall deliver the Interests in form for transfer to
TriZetto and TAG; (b) HealthWeb shall deliver the minute book, partnership
records and any other records relating to the Interests of HealthWeb; and (c)
TriZetto shall deliver to the HealthWeb Partners payment of the Purchase Price
subject to the deposit of Escrow Shares (defined below in Section 1.4) in
accordance with Section 1.4. No fractional shares of TriZetto Common Stock shall
be issued, and each holder of HealthWeb Interests who would otherwise be
entitled to receive a fraction of a share of TriZetto Common Stock (after
aggregating all fractional shares of TriZetto Common Stock to be received by
such holder), shall receive from TriZetto a whole number of shares rounded up or
down to the nearest whole share, with .5 being rounded up.
1.4. ESCROW SHARES AND ESCROW AGREEMENT. Pursuant to an Escrow
Agreement to be entered into on or before the Closing in substantially the form
of Exhibit B (the "Escrow Agreement"), among TriZetto, the Escrow Agent and the
HealthWeb Partners (as those terms are defined herein or in the Escrow
Agreement), TriZetto will withhold, pro rata, from the Purchase Price that would
otherwise be delivered to holders of HealthWeb Interests, twenty percent (20%)
of the shares of TriZetto Common Stock issued in the transaction (the "Escrow
Shares"). TriZetto will deposit in an escrow pursuant to the Escrow Agreement
stock certificates representing the Escrow Shares and related stock powers (the
"Escrow"). The Escrow Shares and such stock powers, any other property with
respect thereto delivered to the Escrow Agent as provided in the Escrow
Agreement, and the Promissory Notes which shall have a right of offset will be
held as collateral to secure the indemnification obligations of the HealthWeb
Partners under Article V hereof in accordance with the Escrow Agreement and the
Promissory Notes.
1.5 EXCHANGE OF INTERESTS AND PAYMENT OF CONSIDERATION.
(a) TRIZETTO EXCHANGE PROCEDURES. At the Closing, upon
surrender of the Interests for transfer to TriZetto and TAG, each HealthWeb
Partner shall receive in exchange therefor the consideration set forth on
Schedule II. Upon delivery of the above mentioned consideration, the HealthWeb
Interests shall be transferred to TriZetto and TAG.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HEALTHWEB
AND THE HEALTHWEB PARTNERS
HealthWeb and the HealthWeb Partners, jointly and severally, represent
and warrant to TriZetto and TAG that, except as set forth in the HealthWeb
Disclosure Schedule:
2.1. LIMITED PARTNERSHIP EXISTENCE AND POWER. HealthWeb is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Texas, and has all limited partnership powers and authority and
all material governmental licenses, authorizations, consents and
2
<PAGE> 4
approvals required to carry on its business as now conducted. HealthWeb is duly
qualified to do business and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on HealthWeb. HealthWeb has heretofore delivered to
TriZetto and TAG true and complete copies of HealthWeb's Agreement of Limited
Partnership of HealthWeb, dated as of August 1, 1997, as amended by First
Amendment to Agreement of Limited Partnership of HealthWeb, dated as of
September 7, 1998, and all of the exhibits thereto (as so amended, the
"Partnership Agreement"). The Partnership Agreement has not been further amended
or modified except as contemplated by this Agreement.
2.2. CORPORATE POWER AND AUTHORITY. HWGP is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas, and has all corporate powers and authority and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. HWGP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on HWGP. HWGP has heretofore delivered to TriZetto and
TAG true and complete copies of HWGP's Certificate of Incorporation and Bylaws
as currently in effect.
2.3. AUTHORIZATION OF HWGP, HEALTHWEB AND HEALTHWEB PARTNERS.
(a) HWGP has taken all corporate action necessary in order
to execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly executed and delivered by HWGP, and is a legal, valid
and binding obligation of HWGP enforceable against HWGP in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(b) This Agreement and the transactions contemplated hereby
have been approved by the HWGP shareholders pursuant to the General Corporation
Law of the State of Texas.
(c) This Agreement has been duly executed and delivered by
each of Cohen and Smith and is a legal, valid and binding obligation of each of
them, enforceable against them in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(d) HealthWeb has taken all action necessary in order to
execute, deliver and perform its obligations under this Agreement. This
Agreement is a legal, valid and binding obligation of each of it, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
2.3. NON-CONTRAVENTION. The execution, delivery and performance by
HealthWeb, HWGP and the HealthWeb Partners of this Agreement and the
consummation by HealthWeb, HWGP and the HealthWeb Partners of the transactions
contemplated hereby do not and will not (i) contravene or conflict with
HealthWeb's Certificate of Limited Partnership or the Partnership Agreement,
(ii) contravene or conflict with the Certificate of Incorporation or Bylaws of
HWGP, (iii) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to HealthWeb, HWGP or any of the HealthWeb Partners, (iv)
constitute a default under or give rise to a right of
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<PAGE> 5
termination, cancellation or acceleration of any right or obligation of
HealthWeb or HWGP or to a loss of any benefit to which HealthWeb or HWGP is
entitled under any provision of any agreement, contract or other instrument
binding upon HealthWeb or HWGP or any license, franchise, permit or other
similar authorization held by HealthWeb or HWGP, or (v) result in the creation
or imposition of any Lien on any asset of HealthWeb or HWGP, except, in the case
of clauses (iii) through (v) above, as would not, individually or in the
aggregate, have a Material Adverse Effect on HealthWeb or HWGP.
2.4. COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. HealthWeb holds all
material licenses, permits and authorizations necessary for the lawful conduct
of its business as now being conducted pursuant to all applicable statutes,
laws, ordinances, rules and regulations of all governmental bodies, agencies and
other authorities having jurisdiction over it or any part of its respective
operations, and there are no violations or, to the knowledge of the HealthWeb
Partners, claimed violations by HealthWeb of any such license, permit or
authorization or any such statute, law, ordinance, rule or regulation.
2.5. LIMITED PARTNERSHIP STRUCTURE. Section 2.5 of the HealthWeb
Disclosure Schedule contains a true and complete description of the ownership of
HealthWeb. Other than as contemplated in this Agreement, there are no
outstanding options or other arrangements to purchase Interests in HealthWeb.
There are no outstanding obligations of HealthWeb or HWGP to repurchase, redeem
or otherwise acquire any Interests. There are no outstanding bonds, debentures,
notes or other indebtedness of HealthWeb or HWGP having the right to vote (or
convertible into or exercisable for Interests) on any matters on which Interests
may vote.
2.6 SUBSIDIARY. HealthWeb has no subsidiaries as of the date of this
Agreement.
2.7. HEALTHWEB FINANCIAL STATEMENTS. HealthWeb has delivered to
TriZetto and TAG its unaudited balance sheet as of December 31, 1997 and
December 31, 1998 (the "HealthWeb Balance Sheet") and its unaudited income
statement for the twelve months ended December 31, 1997 and for the twelve
months ended December 31, 1998 (collectively, the "HealthWeb Financial
Statements"). The HealthWeb Financial Statements present fairly, in all material
respects, the financial condition and results of operations of HealthWeb as of
the dates and for the periods indicated therein, in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis, subject
to normal year-end audit adjustments (other than reserves for contingent
liabilities, all of which are reflected in the HealthWeb Financial Statements),
none of which are material.
2.8. ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or otherwise disclosed on Section 2.8 of the HealthWeb Disclosure
Schedule, since the date of HealthWeb Balance Sheet, HealthWeb has conducted its
business in all material respects in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect on HealthWeb
(other than effects arising from or relating to conditions, including, without
limitation, economic or political developments, applicable generally to the
industry); or
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
HealthWeb, or any repurchase, redemption or other acquisition by HealthWeb or
any such Subsidiary, except for any acquisition pursuant to employee
compensation or other such plans of HealthWeb;
(c) any amendment of any term of any outstanding security of
HealthWeb;
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(d) any incurrence, assumption or guarantee by HealthWeb of
any indebtedness for borrowed money other than in the ordinary course of
business and in amounts and on terms consistent with past practice;
(e) any creation or assumption by HealthWeb of any Lien on
any material asset other than in the ordinary course of business consistent with
past practice;
(f) any making of any loan, advance or capital contribution
to or investment in any person other than loans, advances or capital
contributions to or investments in the Subsidiary of HealthWeb made in the
ordinary course of business consistent with past practice;
(g) any change in any method of accounting or accounting
practice by HealthWeb, except for any such change required by reason of a
concurrent change in GAAP; or
(h) any (i) grant of any severance or termination pay to any
director, officer or employee of HealthWeb, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any director, officer or employee of
HealthWeb, (iii) increase in benefits payable under any existing severance or
termination pay policies or employment agreements or (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of HealthWeb, in each case other than in the ordinary course of
business consistent with past practice.
2.9. LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of the HealthWeb Partners,
threatened against or affecting, HealthWeb, its officers or directors, any
Affiliate of HealthWeb, or any of their respective properties before any court
or arbitrator or any governmental body, agency or official which, would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on HealthWeb. Neither HealthWeb, its officers or directors, any
Affiliate of HealthWeb, or any of their respective properties is subject to any
order, writ, judgment, decree or injunction of any court or arbitrator or any
governmental body, agency or official. Section 2.9 of the HealthWeb Disclosure
Schedule contains a complete list of all claims filed against HealthWeb, or
pending since January 1, 1996, together with a brief statement of the nature and
amount of the claim, the court and jurisdiction in which the claim was brought,
the resolution (if resolved), and the availability of insurance to cover the
claim.
2.10. TAXES. Except as set forth on Section 2.10 of the HealthWeb
Disclosure Schedule, HealthWeb has filed all material Tax returns required to
have been filed on or before the date hereof, and all Taxes shown to be due on
such Tax returns have been timely paid. HealthWeb has not agreed in writing to
waive any statute of limitations in respect of Taxes of HealthWeb. No issues
that have been raised in writing by the relevant Taxing Authority in connection
with the examination of such Tax returns are currently pending, except for any
written notice of such issues the subject matter of which has either been
substantially resolved or would otherwise not have a Material Adverse Effect on
HealthWeb. The amounts provided for taxes on the HealthWeb Financial Statements
are sufficient for the payment of all accrued and unpaid U.S. federal, state,
provincial, or local taxes, interest, penalties, assessments and deficiencies
for all periods prior to the dates of such balance sheets to the extent such
taxes are obligations of HealthWeb. Section 2.10 of the HealthWeb Disclosure
Schedule lists all unresolved audits, examinations, contests and proceedings
(including written notices of intent to audit or examine) with respect to United
States federal and state income Tax returns of HealthWeb for periods beginning
on or after January 1, 1994.
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2.11. HEALTHWEB EMPLOYEE BENEFIT PLANS.
(a) HealthWeb has made available to TriZetto and TAG correct
and complete copies of all HealthWeb Employee Plans and HealthWeb Benefit
Arrangements.
(b) HealthWeb does not maintain and is not required to
contribute to, any "employee pension benefit plan" (as such term is defined in
Section 3(2) of ERISA), on behalf of any employee of HealthWeb other than a plan
provided to TriZetto and TAG as described in Section 2.11(a). HealthWeb has made
available to TriZetto and TAG, with respect to each of such plans correct and
complete copies of (i) all plan documents, amendments and trust agreements, (ii)
the most recent Annual Report (Form 5500 Series) and accompanying schedules, as
filed and (iii) the current summary plan description.
(c) HealthWeb does not contribute, and is not obligated to
contribute, to any Multiemployer Plan with respect to employees of HealthWeb.
2.12. BANKING AND FINDERS' FEES. There is and will be no investment
banker, broker, finder or other intermediary retained by or authorized to act on
behalf of, HealthWeb who might be entitled to any fee or commission from
HealthWeb, TriZetto, TAG or any of their Affiliates upon consummation of the
transactions contemplated by this Agreement.
2.13. ENVIRONMENTAL COMPLIANCE
(a) HealthWeb and its Affiliates are in compliance with
Environmental Laws, except for such noncompliance as would not reasonably be
expected to have a Material Adverse Effect on HealthWeb.
(b) Since January 1, 1996, neither HealthWeb nor any
Affiliate has received any written notice regarding any violation of any
Environmental Laws, or any HealthWeb Environmental Liabilities, including any
investigatory, remedial or corrective obligations, relating to HealthWeb, its
Affiliates or their respective facilities arising under Environmental Laws,
except for any such written notice the subject matter of which has either been
substantially resolved or would otherwise not reasonably be expected to have a
Material Adverse Effect on HealthWeb.
(c) Except as set forth in Section 2.13 of the HealthWeb
Disclosure Schedule:
(i) HealthWeb or its Affiliates have not caused, and
are not causing or threatening to cause, any disposals or releases of any
Hazardous Material on or under any properties which it (A) leases, occupies or
operates or (B) previously owned, leased, occupied or operated and, to the
knowledge of the HealthWeb Partners, no such disposals or releases occurred
prior to HealthWeb or its Affiliates having taken title to, or possession or
operation of, any of such properties; and, to the knowledge of the HealthWeb
Partners, no such disposals or releases are migrating or have migrated off of
such properties in subsurface soils, groundwater or surface waters after
HealthWeb or its Affiliates have taken title to, or possession or operation of
any such properties and, to the knowledge of HealthWeb, its Affiliates or the
HealthWeb Partners, no such disposals or releases are migrating or have migrated
off of such properties in subsurface soils, groundwater or surface water prior
to such time;
(ii) HealthWeb has neither (A) arranged for the
disposal or treatment of Hazardous Material at any facility owned or operated by
another person, or (B) accepted any Hazardous Material for transport to disposal
or treatment facilities or other sites selected by HealthWeb or its Affiliates
from which facilities or sites there has been a release or there is a release or
threatened release of a Hazardous
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Material; any facility identified in Section 2.13(c)(ii)(A) was duly licensed in
accordance with law and has not been listed in connection with the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) by the United
States Environmental Protection Agency's Comprehensive Environmental Response,
Compensation, and Liability Information System (CERCLIS) or National Priorities
List (NPL) or any equivalent or like listing of sites under state or local law
(whether for potential releases of substances listed in CERCLA or other
substances);
(iii) HealthWeb, its Affiliates or the HealthWeb
Partners have no actual knowledge of, or any reason to believe or suspect that,
any release or threatened release of any Hazardous Material originating from a
property other than those leased or operated by HealthWeb or its Affiliates have
come to be (or may come to be) located on or under properties leased, occupied
or operated by HealthWeb or its Affiliates;
(iv) HealthWeb or its Affiliates have never
installed, used, buried or removed any surface impoundment or underground tank
or vessel on properties owned, leased, occupied or operated by HealthWeb or its
Affiliates;
(v) HealthWeb is and has been in compliance in all
material respects with all federal, state, local or foreign laws, ordinances,
regulations, permits, approvals and authorizations relating to air, water,
industrial hygiene and worker health and safety, anti-pollution, hazardous or
toxic wastes, materials or substances, pollutants or contaminants, and no
condition exists on any of the real property owned by or used in the business of
HealthWeb that would constitute a material violation of any such law or that
constitutes or threatens to constitute a public or private nuisance; and
(vi) There has been no litigation, administrative
proceedings or investigations or any other actions, claims, demands notices of
potential responsibility or requests for information brought or, to the
knowledge of HealthWeb, its Affiliates or the HealthWeb Partners, threatened
against HealthWeb or its Affiliates or any settlement reached by any of them,
with, any person or persons alleging the presence, disposal, release or
threatened release of any Hazardous Material on, from or under any of such
properties or as otherwise relating to potential environmental liabilities.
(d) This Section 2.13 contains the sole and exclusive
representations and warranties of HealthWeb and the HealthWeb Partners with
respect to any Environmental, Health and Safety Matters, including, without
limitation, any arising under any Environmental Laws.
2.14. COLLECTIVE BARGAINING ARRANGEMENTS. HealthWeb is not a party to
or bound by any employee collective bargaining agreement; HealthWeb is not a
party to or affected by or, to the knowledge of HealthWeb or the HealthWeb
Partners, threatened with, any dispute or controversy with a union or with
respect to unionization or collective bargaining involving the employees of
HealthWeb.
2.15. ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
HealthWeb Balance Sheet are owned free and clear by HealthWeb and are based on
HealthWeb's reasonable judgment and its normal credit review procedures,
business practices and GAAP, collectible in accordance with their terms in an
amount not less than their aggregate book value. "Aggregate book value", for
this purpose, shall mean the recorded amounts of such accounts receivable less
any recorded allowance for doubtful accounts, trade allowances and return
allowances, all as established in accordance with GAAP consistently applied.
2.16. INVENTORIES. The consolidated inventories reflected on the
HealthWeb Balance Sheet have been valued in accordance with GAAP consistently
applied.
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2.17. INTERESTS IN REAL PROPERTY. Section 2.17 of the HealthWeb
Disclosure Schedule is the complete and correct list and brief description of
all real property leased by HealthWeb on the Closing Date. HealthWeb does not
own any real property. All real property leases to which HealthWeb is a party
are valid and in full force and effect and are valid and binding on the parties
thereto, assuming enforceability as to the parties other than HealthWeb, and
HealthWeb is not in default of any material provision thereof. All improvements
and fixtures made by or at the direction of HealthWeb on real properties leased
by HealthWeb conform in all material respects to all applicable health, fire,
safety, environmental, zoning and building laws and ordinances; and all
materials, buildings, structures (or the space used by HealthWeb in such
buildings or structures) and fixtures used by HealthWeb in the conduct of their
businesses are in good operating condition and repair, ordinary wear and tear
excepted, and are sufficient for the type and magnitude of their respective
operations.
2.18. PERSONAL PROPERTY. Except as set forth in Section 2.18 of the
HealthWeb Disclosure Schedule, HealthWeb has good and marketable title, free and
clear of all title defects, security interests, pledges, options, claims, liens,
encumbrances and restrictions of any nature whatsoever to all inventory and
receivables and to any item of machinery, equipment, or tangible personal
property reflected on the HealthWeb Balance Sheet or used in the business by
HealthWeb (regardless of whether reflected on the HealthWeb Balance Sheet). All
the machinery, equipment and other tangible personal property used in the
business by HealthWeb is in good operating condition and repair, normal wear and
tear excepted. At the Closing Date, HealthWeb will possess all of the personal
property wherever located used to conduct its business as conducted prior to the
Closing.
2.19. DIRECTORS AND OFFICERS. Section 2.19 of the HealthWeb Disclosure
Schedule comprises a complete and correct list of all present officers, managers
and members of HealthWeb.
2.20. CERTAIN TRANSACTIONS. Except as set forth on Schedule 2.20 of
the HealthWeb Disclosure Schedule, neither HealthWeb nor any of its respective
Affiliates are presently a party to any agreement or arrangement with HealthWeb:
(i) providing for the furnishing of raw materials, products or services to or
by, or (ii) providing for the sale or rental of real or personal property to or
from, any such entity.
2.21. INTELLECTUAL PROPERTY; SOFTWARE; AND YEAR 2000 COMPLIANCE.
2.21.1 INTELLECTUAL PROPERTY, SOFTWARE AND PRODUCTS.
(a) Section 2.21.1(a) of the HealthWeb Disclosure
Schedule contains (a) a complete and correct list of all Intellectual Property,
Software and Products relating to or used in the business or operations of the
business of HealthWeb, and (b) a complete and correct list of all persons who
have contributed to the creation or development of the Intellectual Property,
Software and Products. Except as set forth in Section 2.21.1(a) of the HealthWeb
Disclosure Schedule, no HealthWeb Partner, employee or contractor, nor any of
their respective Affiliates, has any right, title or interest in or to any
Intellectual Property, Software or Products.
(b) Except as set forth in Section 2.21.1(b) of the
HealthWeb Disclosure Schedule, HealthWeb own all right, title and interest in
and to all Intellectual Property and Software used in or necessary for the
conduct of HealthWeb's business as presently conducted, including, without
limitation, all Intellectual Property and Software developed or discovered in
connection with or contained in or related to HealthWeb's Products, free and
clear of all liens, mortgages, charges, pledges, claims and encumbrances
(including without limitation any distribution rights and royalty rights).
Except as disclosed in Section 2.21.1(b) of the HealthWeb Disclosure Schedules,
all persons who have contributed to the creation or development of the
Intellectual Property, Software and Products have executed an Assignment of
Rights Agreement transferring any and all ownership rights to HealthWeb. None of
the Products contain any codes or
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modules which have been created or developed by third parties. Such Intellectual
Property and Software constitutes all Intellectual Property and Software
necessary for the conduct of its business in the manner conducted immediately
prior to the Closing. To the knowledge of HealthWeb or the HealthWeb Partners,
HealthWeb has not infringed nor is infringing upon any Intellectual Property or
Software rights of others. Except as set forth in Section 2.21.1(b) of the
HealthWeb Disclosure Schedules, HealthWeb has the exclusive right to use, sell,
license and dispose of, and has the right to bring actions for infringement of
all Intellectual Property, Software and Products used in connection with their
business. To the best knowledge of the HealthWeb Partners, the Products do not
include any Intellectual Property or Software that is in the public domain.
(c) Except as set forth in Section 2.21.1(c) of the
HealthWeb Disclosure Schedule, no claims have been asserted against HealthWeb by
any person challenging HealthWeb's use or distribution (including manufacture,
marketing license, or sale) of any Product or products utilized by HealthWeb
(including, without limitation, Third Party Technology), or challenging or
questioning the validity or effectiveness of any license or agreement relating
thereto (including, without limitation, the Third Party Licenses). To the best
knowledge of HealthWeb, there is no valid basis for any claim of the type
specified in this Section 2.21.1(c).
(d) Except as set forth in Section 2.21.1(d) of the
HealthWeb Disclosure Schedule, HealthWeb has valid copyrights in all material
copyrightable material whether or not registered with the U.S. copyright office,
including all copyrights in the Products containing material copyrightable
material. Consummation of the transactions contemplated hereby will not alter or
impair the validity of any copyrights or copyright registrations.
(e) Except as set forth in Section 2.21.1(e) of the
HealthWeb Disclosure Schedule: (i) no third party (including any OEM or site
license customer) has any right to manufacture, reproduce, distribute, sell,
sublicense, market or exploit any of the Products or any adaptations,
translations, or derivative works based on the Products, or any portion thereof;
(ii) HealthWeb has not granted to any third party any exclusive rights of any
kind with respect to any of the Products, including territorial exclusivity or
exclusivity with respect to particular versions, implementations or translations
of any of the Products; and (iii) HealthWeb has not granted any third party any
right to market any product utilizing any Product under any "private label"
arrangements pursuant to which HealthWeb is not identified as the source of such
goods. Each document or instrument identified pursuant to this Section is listed
in Section 2.21.1(e) of the HealthWeb Disclosure Schedule and true and correct
copies of such documents or instruments have been furnished to TriZetto. Except
as set forth in Section 2.21.l(e) of the HealthWeb Disclosure Schedule, no third
party has any right to manufacture, reproduce, distribute, sublicense, market or
exploit any works or materials of which any of the Products are a derivative
work.
(f) Except as set forth in Section 2.21.l(f) of the
HealthWeb Disclosure Schedule, each of the Products: (i) substantially complies
with all specifications set forth therefor in any contract, agreement,
advertisement or other promotional material for such products and with all other
warranty requirements, other than bugs or fixes required or expected in the
ordinary course of business and not otherwise material to HealthWeb's business;
and (ii) can be recreated from its associated source code and related
documentation by reasonably experienced technical personnel without undue
burden.
(g) HealthWeb has furnished TriZetto with all end
user documentation relating to the use, maintenance or operation of each of the
Products, all of which is true and accurate in all material respects.
(h) Except as set forth in Section 2.21.l(h) of the
HealthWeb Disclosure Schedule, to the best knowledge of HealthWeb, no employee
of HealthWeb is in violation of any term of
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any employment contract, patent disclosure agreement or any other contract or
agreement relating to the relationship of any such employee with HealthWeb or
any other party because of the nature of the business conducted by HealthWeb or
proposed to be conducted by HealthWeb.
(i) Except as set forth in Section 2.21.1(i) of the
HealthWeb Disclosure Schedule, no Third Party Technology is included in the
Products.
2.21.2 YEAR 2000 COMPLIANCE
(a) Products and Services.
(i) Except as set forth in Section 2.21.2(a)
of the HealthWeb Disclosure Schedule, to the HealthWeb Partners' knowledge, all
of HealthWeb's products and services are Year 2000 Compliant in all material
respects.
(ii) Except as set forth in Section 2.21.2(a)
of the HealthWeb Disclosure Schedule, if HealthWeb is obligated to repair or
replace products or services previously provided by HealthWeb that are not Year
2000 Compliant in order to meet HealthWeb's contractual obligations, to avoid
personal injury or other liability, to avoid misrepresentation claims, or to
satisfy any other obligations or requirements, to the HealthWeb Partners'
knowledge HealthWeb has repaired or replaced those products and services to make
them Year 2000 Compliant in all material respects.
(iii) Except as set forth in Section 2.21.2(a)
of the HealthWeb Disclosure Schedule, HealthWeb has furnished TriZetto with
true, correct and complete copies of any customer agreements and other materials
and correspondence in which HealthWeb has furnished (or could be deemed to have
furnished) assurances as to the performance and/or functionality of HealthWeb's
products or services on or after January 1, 2000.
(b) Computer Software and Systems. Except as set
forth in Section 2.21.2(b) of the HealthWeb Disclosure Schedule, to the
HealthWeb Partners' knowledge, all of HealthWeb's software, systems and computer
are Year 2000 Compliant in all material respects.
(c) Suppliers. Except as set forth in Section
2.21.2(c) of the HealthWeb Disclosure Schedule, to the HealthWeb Partners'
knowledge, all vendors of products or services to HealthWeb, and their
respective products, services and operations, are Year 2000 Complaint in all
material respects. Except as set forth in Section 2.21.2(c) of the HealthWeb
Disclosure Schedule, to the knowledge of the HealthWeb Partners after a
reasonably diligent investigation, each such vendor will continue to furnish its
products or services to HealthWeb, without interruption or material delay, on
and after January 1, 2000.
2.22. CONTRACTS. Section 2.22 of the HealthWeb Disclosure Schedule
describes, and HealthWeb has caused to be delivered to TriZetto and TAG complete
and correct copies of, all currently effective contracts to which HealthWeb is a
party or by which HealthWeb or any of its respective properties or assets are
bound which (i) involve the payment or receipt by HealthWeb of more than $25,000
over the remaining term of the contract; (ii) are financing documents, loan
agreements or promissory notes; (iii) are otherwise material to the business of
HealthWeb and are not for the purchase or sale of goods or services in the
ordinary course of business; (iv) have a remaining term of more than one year
from the date of this Agreement; or (v) are distributorship or other agreements
relating to the marketing of products. HealthWeb and, to the knowledge of the
HealthWeb Partners, all of the other parties to such agreements, are in
compliance with all material provisions of all such agreements
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and, to the knowledge of the HealthWeb Partners, no fact exists which is, or
with the passage of time could become, a default under any of the aforementioned
agreements.
2.23. INSURANCE AND BANKING FACILITIES. Section 2.23 of the HealthWeb
Disclosure Schedule comprises a complete and correct list of (i) all contracts
of insurance and indemnity of or relating to HealthWeb (except insurance related
to employee benefits) in force at the date of this Agreement (including name of
insurer or indemnitor, agent, annual charge, coverage and expiration date); (ii)
the names and locations of all banks in which HealthWeb has accounts; and (iii)
the names of all persons authorized to draw on such accounts. All premiums and
other payments due with respect to all contracts of insurance or indemnity in
force at the date hereof have been or will be paid, and HealthWeb knows of no
circumstance (including without limitation the consummation of the transaction
contemplated by this Agreement) which has or might cause any such contract to be
canceled or terminated.
2.24. PERSONNEL. Section 2.24 of the HealthWeb Disclosure Schedule
comprises a complete and correct list of, and HealthWeb has caused TriZetto to
be furnished with complete and correct copies of (or, if not in writing, a
description of the terms of), (i) all employment contracts, collective
bargaining agreements, and all compensation plans, agreements, programs,
practices, commitments or other arrangements of any type, including stock,
bonus, profit sharing, incentive compensation, pension and retirement agreements
respecting or affecting any employees of HealthWeb; and (ii) all insurance,
health, medical, hospitalization, dependent care, severance, fringe or other
employee benefit plans, agreements, programs, practices, commitments or other
arrangements of any type in effect for employees of HealthWeb. Section 2.24 of
the HealthWeb Disclosure Schedule includes a list of all employees of HealthWeb.
HealthWeb has been and is in compliance with the terms of, and any laws or
regulations applicable to, all such plans, agreements, practices, commitments or
programs, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect on HealthWeb.
2.25. POWERS OF ATTORNEY AND SURETYSHIPS. HealthWeb does not have any
powers of attorney outstanding (other than a power of attorney issued in the
ordinary course of business with respect to tax matters or to customs agents and
customs brokers), and, except for obligations as an endorser of negotiable
instruments incurred in the ordinary course of business, HealthWeb does not have
any obligations or liabilities (absolute or contingent) as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise respecting the obligation
of any other person.
2.26. MINUTES AND PARTNERSHIP RECORDS. HealthWeb has caused TriZetto
to be given access to complete and correct copies of the minute books and
partnership records of HealthWeb. Such items contain a complete and correct
record in all material respects of all proceedings and actions taken at all
meetings of, and all actions taken by written consent by, the partnership of
HealthWeb, and all original issuances and subsequent transfers and repurchases
of the Interests of HealthWeb.
2.27. INVESTMENT REPRESENTATIONS BY EACH HEALTHWEB PARTNER. Each
HealthWeb Partner represents and warrants that:
(a) He is acquiring the TriZetto Common Stock for his own
account, not as nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act.
(b) He understands that (i) the shares of TriZetto Common
Stock have not been registered under the Securities Act by reason of a specific
exemption therefrom, that they must be held indefinitely, and that he must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof
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is registered under the Securities Act or is exempt from such registration; (ii)
the Shares and each certificate representing Shares will be endorsed with the
following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC
RULE 144 OR RULE 144A OR THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
1933 ACT."
and (iii) TriZetto will instruct any transfer agent not to register the transfer
of any of the Shares unless the conditions specified in the foregoing legend are
satisfied; provided, however, that no such opinion of counsel shall be necessary
if the sale, transfer or assignment is made pursuant to SEC Rule 144 or Rule
144A and the transferor provides TriZetto with evidence reasonably satisfactory
to TriZetto and TAG and its counsel that the proposed transaction satisfies the
requirements of Rule 144 or Rule 144A.
(c) He acknowledges that he is able to fend for himself, can
bear the economic risk of the investment and has such knowledge and experience
in financial or business matters that he is capable of evaluating the merits and
risks of the investment in the Shares.
(d) He understands that the TriZetto Stock he is acquiring
is characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the HealthWeb in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain limited circumstances, and he represents that he is familiar
with SEC Rule 144 and Rule 144A, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
2.28. FULL DISCLOSURE. All of the representations and warranties made
by HealthWeb and the HealthWeb Partners in this Agreement, and all statements
set forth in the certificates delivered by HealthWeb and the HealthWeb Partners
at the Closing pursuant to this Agreement, are true, correct and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make such representations,
warranties or statements, in light of the circumstances under which they were
made, misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRIZETTO AND TAG
TriZetto, and TAG where applicable, represent and warrant to HealthWeb
and the HealthWeb Partners that, except as set forth in TriZetto Disclosure
Schedule:
3.1. EXISTENCE AND POWER.
(a) TriZetto is duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all corporate
powers and authority and all material governmental licenses,
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authorizations, consents and approvals required to carry on business as now
conducted. TriZetto is duly qualified to do business as a foreign corporation
and in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
TriZetto taken as a whole. TriZetto has delivered to HealthWeb true and complete
copies of the Certificate of Incorporation and Bylaws of TriZetto as currently
in effect.
(b) TAG, a wholly-owned subsidiary of TriZetto, is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all limited liability company powers
and authority and all material governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted. TAG is duly
qualified to do business and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on TAG.
3.2. AUTHORIZATION.
(a) TriZetto has taken all corporate action necessary in
order to execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly executed and delivered by TriZetto and is a legal, valid
and binding obligation of TriZetto, enforceable against TriZetto, in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(b) TAG has taken all action necessary in order to execute,
deliver and perform its obligations under this Agreement. This Agreement has
been duly executed and delivered by TAG, and is a legal, valid and binding
obligation of TAG enforceable against TAG in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
3.3. NON-CONTRAVENTION. The execution, delivery and performance by
TriZetto and TAG of this Agreement and the consummation by TriZetto and TAG of
the transactions contemplated hereby do not and will not (i) contravene or
conflict with the Certificate of Incorporation or Bylaws of TriZetto, (ii)
contravene or conflict with TAG's Certificate of Formation or Operating
Agreement, (iii) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to TriZetto or any Subsidiary of TriZetto, (iv) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of TriZetto or any Subsidiary of
TriZetto or to a loss of any benefit to which TriZetto or any Subsidiary of
TriZetto is entitled under any provision of any agreement, contract or other
instrument binding upon TriZetto or any Subsidiary of TriZetto or any license,
franchise, permit or other similar authorization held by TriZetto or any
Subsidiary of TriZetto, or (v) result in the creation or imposition of any Lien
on any asset of TriZetto or any Subsidiary of TriZetto, except, in the case of
clauses (iii) through (v) above, as would not, individually or in the aggregate,
have a Material Adverse Effect on TriZetto.
3.4. CAPITALIZATION.
(a) The authorized capital stock of TriZetto consists of (a)
30,000,000 shares of common stock, $.001 par value (the "TriZetto Common Stock")
and (b) 10,391,608 shares of preferred stock. As of January 31, 1999 there were
outstanding: (i) 9,216,730 shares of TriZetto Common Stock $.001 par value,
including all shares restricted under a compensation plan or arrangement of
TriZetto, (ii) 4,545,454 shares of
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TriZetto Series A Preferred Stock, (iii) warrants to purchase an aggregate of
162,595 shares of TriZetto Stock, and (iv) 1,329,128 outstanding options to
purchase shares of TriZetto Common Stock.
(b) All outstanding shares of capital stock of TriZetto have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in this Section 3.4 and except for changes since January 31,
1999 resulting from the exercise of employee stock options or warrants
outstanding on such date, there are outstanding (i) no shares of capital stock
or other voting securities of TriZetto, (ii) no securities of TriZetto
convertible into or exchangeable for shares of capital stock or voting
securities of TriZetto, and (iii) no options or other rights to acquire from
TriZetto, and no obligation of TriZetto to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of TriZetto (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "TriZetto Securities"). There are no outstanding
obligations of TriZetto to repurchase, redeem or otherwise acquire any TriZetto
Securities.
(c) As of the date hereof, there are no outstanding bonds,
debentures, notes or other indebtedness of TriZetto having the right to vote (or
convertible into or exercisable for TriZetto Securities having the right to
vote) on any matters on which stockholders of TriZetto may vote.
3.5. TRIZETTO FINANCIAL STATEMENTS. TriZetto has delivered to
HealthWeb its unaudited balance sheet as of December 31, 1997 (the "TriZetto
Balance Sheet") and an unaudited Balance Sheet, Statement of Cash Flows and
Statement of Operations for the twelve months ended December 31, 1998
(collectively, the "TriZetto Financial Statements"). The TriZetto Financial
Statements present fairly, in all material respects, the financial condition and
results of operations of TriZetto as of the dates and for the periods indicated
therein, in conformity with GAAP applied on a consistent basis, subject to
normal year-end audit adjustments (other than reserves for contingent
liabilities, all of which are reflected in TriZetto Financial Statements), none
of which are material.
3.6. ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or disclosed in Section 3.6 of TriZetto Disclosure Schedule since the
date of TriZetto Balance Sheet TriZetto, has conducted its business in the
ordinary course consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect on TriZetto
(other than effects arising from or relating to conditions, including, without
limitation, economic or political developments, applicable generally to the
industry); or
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
TriZetto, or any repurchase, redemption or other acquisition by TriZetto or any
such Subsidiary of TriZetto, except for any acquisition pursuant to employee
compensation or other such plans of TriZetto;
(c) any amendment of any term of any outstanding security of
TriZetto or any Subsidiary of TriZetto;
(d) any incurrence, assumption or guarantee by TriZetto or
any Subsidiary of TriZetto of any indebtedness for borrowed money other than in
the ordinary course of business and in amounts and on terms consistent with past
practice;
(e) any creation or assumption by TriZetto or any Subsidiary
of TriZetto of any Lien on any material asset other than in the ordinary course
of business consistent with past practice;
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(f) any making of any loan, advance or capital contribution
to or investment in any person other than loans, advances or capital
contributions to or investments in wholly owned Subsidiaries of TriZetto made in
the ordinary course of business consistent with past practice;
(g) any change in any method of accounting or accounting
practice by TriZetto or any Subsidiary of TriZetto, except for any such change
required by reason of a concurrent change in generally accepted accounting
principles; or
(h) any (i) grant of any severance or termination pay to any
director, officer or employee of TriZetto or any Subsidiary of TriZetto, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of TriZetto or any Subsidiary of TriZetto, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements of TriZetto or (iv) increase in compensation, bonus or
other benefits payable to directors, officers or employees of TriZetto or any
Subsidiary of TriZetto, in each case other than in the ordinary course of
business consistent with past practice.
3.7. LITIGATION. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of TriZetto threatened against
or affecting TriZetto or any Subsidiaries of TriZetto or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which, would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on TriZetto. Neither TriZetto, its officers
and directors nor its Subsidiaries or any Affiliate of TriZetto, or any of their
respective properties is subject to any order, writ, judgment, decree or
injunction. Section 3.7 of the TriZetto Disclosure Schedule contains a complete
list of all claims filed against TriZetto, or pending since January 1, 1996,
together with a brief statement of the nature and amount of the claim, the court
and jurisdiction in which the claim was brought, the resolution (if resolved),
and the availability of insurance to cover the claim.
3.8. TAXES. TriZetto and its Subsidiaries have filed all material Tax
returns required to have been filed on or before the date hereof, and all Taxes
shown to be due on such Tax returns have been timely paid. Neither TriZetto nor
its Subsidiaries have agreed in writing to waive any statute of limitations in
respect of Taxes of TriZetto or such Subsidiaries. No issues that have been
raised in writing by the relevant taxing authority in connection with the
examination of such Tax returns are currently pending, except for any written
notice of such issues the subject matter of which has either been substantially
resolved or would otherwise not have a Material Adverse Effect on TriZetto. The
amounts provided for taxes on the TriZetto Financial Statements are sufficient
for the payment of all accrued and unpaid U.S. federal, state, provincial, or
local taxes, interest, penalties, assessments and deficiencies for all periods
prior to the dates of such balance sheets to the extent such taxes are
obligations of TriZetto and its Subsidiaries. Section 3.9 of the Disclosure
Schedule lists all unresolved audits, examinations, contests and proceedings
(including written notices of intent to audit or examine) with respect to United
States federal, foreign and state income tax Returns of TriZetto for periods
beginning on or after January 1, 1994.
3.9. TRIZETTO EMPLOYEE BENEFIT PLANS.
(a) TriZetto has made available to HealthWeb correct and
complete copies of all TriZetto Employee Benefit Plans and TriZetto Benefit
Arrangements.
(b) Neither TriZetto nor its Subsidiaries maintains, or is
required to contribute to, any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA, or any similar foreign law, on behalf of any
employee of TriZetto or its Subsidiaries other than a plan provided to HealthWeb
as described in Section 3.9(a). TriZetto has made available to HealthWeb, with
respect to each of such plans correct and
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complete copies of (i) all plan documents, amendments and trust agreements, (ii)
the most recent Annual Report (Form 5500 Series) and accompanying schedules, as
filed (or similar documents with respect to any foreign plans) and (iii) the
current summary plan description.
(c) TriZetto does not contribute, and is not obligated to
contribute, to any Multiemployer Plan with respect to employees of TriZetto or
its Subsidiaries.
(d) TriZetto's 1998 Stock Option Plan is a "qualified plan"
as defined by the Internal Revenue Code of 1986, as amended from time to time.
3.10. BANKING AND FINDERS' FEES. There is and will be no investment
banker, broker, finder or other intermediary retained by or authorized to act on
behalf of TriZetto or any of its Subsidiaries who might be entitled to any fee
or commission from TriZetto or any of its Subsidiaries upon consummation of the
transactions contemplated by this Agreement.
3.11. ENVIRONMENTAL COMPLIANCE.
(a) TriZetto and its Subsidiaries are in compliance with
Environmental Laws, except for such noncompliance as would not reasonably be
expected to have a Material Adverse Effect on TriZetto.
(b) Since January 1, 1996, neither TriZetto nor any of its
Subsidiaries has received any written notice regarding any violation of any
Environmental Laws, or any TriZetto Environmental Liabilities, including any
investigatory, remedial or corrective obligations, relating to TriZetto and TAG
or its Subsidiaries or their respective facilities arising under Environmental
Laws, except for any such written notice the subject matter of which has either
been substantially resolved or would otherwise not reasonably be expected to
have a Material Adverse Effect on TriZetto.
(c) Except as set forth in Section 3.11 of the TriZetto
Disclosure Schedule:
(i) TriZetto, its Subsidiaries or its Affiliates
have not caused, and is not causing or threatening to cause, any disposals or
releases of any Hazardous Material on or under any properties which it (A)
leases, occupies or operates or (B) previously owned, leased, occupied or
operated and to the knowledge of TriZetto no such disposals or releases occurred
prior to TriZetto and TAG, its Subsidiaries or its Affiliates having taken title
to, or possession or operation of, any of such properties; and, to the knowledge
of TriZetto, such disposals or releases are migrating or have migrated off of
such properties in subsurface soils, groundwater or surface waters after
TriZetto, its Subsidiaries or its Affiliates has taken title to, or possession
or operation of any such properties and, to the knowledge of TriZetto, its
Subsidiaries or its Affiliates, no such disposals or releases are migrating or
have migrated off of such properties in subsurface soils, groundwater or surface
water prior to such time;
(ii) TriZetto, its Subsidiaries or its Affiliates
have neither (A) arranged for the disposal or treatment of Hazardous Material at
any facility owned or operated by another person, or (B) accepted any Hazardous
Material for transport to disposal or treatment facilities or other sites
selected by TriZetto, its Subsidiaries or its Affiliates from which facilities
or sites there has been a release or there is a release or threatened release of
a Hazardous Material; any facility identified in Section 3.11(c)(ii)(A) was duly
licensed in accordance with law and has not been listed in connection with the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
by the United States Environmental Protection Agency's Comprehensive
Environmental Response, Compensation, and Liability Information System (CERCLIS)
or
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National Priorities List (NPL) or any equivalent or like listing of sites under
state or local law (whether for potential releases of substances listed in
CERCLA or other substances).
(iii) TriZetto, its Subsidiaries or its Affiliates
have no actual knowledge of, or any reason to believe or suspect that, any
release or threatened release of any Hazardous Material originating from a
property other than those leased or operated by TriZetto, its Subsidiaries or
its Affiliates has come to be (or may come to be) located on or under properties
leased, occupied or operated by TriZetto, its Subsidiaries or its Affiliates;
(iv) TriZetto, its Subsidiaries or its Affiliates
have never installed, used, buried or removed any surface impoundment or
underground tank or vessel on properties owned, leased, occupied or operated by
TriZetto, its Subsidiaries or its Affiliates;
(v) TriZetto and its Subsidiary are and have been in
compliance in all material respects for the last three years with all federal,
state, local or foreign laws, ordinances, regulations, permits, approvals and
authorizations relating to air, water, industrial hygiene and worker health and
safety, anti-pollution, hazardous or toxic wastes, materials or substances,
pollutants or contaminants, and no condition exists on any of the real property
owned by or used in the business of TriZetto or its Subsidiaries that would
constitute a material violation of any such law or that constitutes or threatens
to constitute a public or private nuisance; and
(vi) There has been no litigation, administrative
proceedings or investigations or any other actions, claims, demands notices of
potential responsibility or requests for information brought or, to the
knowledge of TriZetto, its Subsidiaries or its Affiliates, threatened against
TriZetto, its Subsidiaries or its Affiliates or any settlement reached by any of
them, with, any person or persons alleging the presence, disposal, release or
threatened release of any Hazardous Material on, from or under any of such
properties or as otherwise relating to potential environmental liabilities.
(d) This Section 3.11 contains the sole and exclusive
representations and warranties of TriZetto and its Subsidiaries with respect to
any Environmental, Health and Safety Matters, including, without limitation, any
arising under any Environmental Laws.
3.12. INVESTMENT INTENT. The HealthWeb Interests to be acquired by
TriZetto and TAG are being and will be acquired by TriZetto and TAG for their
own accounts for investment and not with any present intention to distribute.
3.13. INTELLECTUAL PROPERTY; SOFTWARE; YEAR 2000 COMPLIANCE.
3.13.1 INTELLECTUAL PROPERTY, SOFTWARE AND PRODUCTS.
(a) Section 3.13.1(a) of the TriZetto Disclosure
Schedule contains (a) a complete and correct list of all Intellectual Property,
Software and products relating to or used in the business or operations of the
business of TriZetto and its Subsidiaries, and (b) a complete and correct list
of all persons who have contributed to the creation or development of the
Intellectual Property, Software and products. Except as set forth in Section
3.13.1(a) of the TriZetto Disclosure Schedule, no TriZetto stockholder, employee
or contractor, nor any of their respective Affiliates, has any right, title or
interest in or to any Intellectual Property, Software or products.
(b) Except as set forth in Section 3.13.1(b) of the
TriZetto Disclosure Schedule, TriZetto and its Subsidiaries own all right, title
and interest in and to all Intellectual Property and Software
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used in or necessary for the conduct of TriZetto's and its Subsidiaries'
businesses as presently conducted, including, without limitation, all
Intellectual Property and Software developed or discovered in connection with or
contained in or related to TriZetto's or its Subsidiaries' products, free and
clear of all liens, mortgages, charges, pledges, claims and encumbrances
(including without limitation any distribution rights and royalty rights).
Except as disclosed in Section 3.13.1(b) of the TriZetto Disclosure Schedules,
all persons who have contributed to the creation or development of the
Intellectual Property, Software and products have executed an Assignment of
Rights Agreement or similar document transferring any and all ownership rights
to TriZetto. None of the products contain any codes or modules which have been
created or developed by third parties. Such Intellectual Property and Software
constitutes all Intellectual Property and Software necessary for the conduct of
its business in the manner conducted immediately prior to the Closing. To the
knowledge of TriZetto neither TriZetto nor its Subsidiaries have infringed nor
are infringing upon any Intellectual Property or Software rights of others.
Except as set forth in Section 3.13.1(b) of the TriZetto Disclosure Schedules,
TriZetto and its Subsidiaries have the exclusive right to use, sell, license and
dispose of, and has the right to bring actions for infringement of all
Intellectual Property, Software and products used in the connection with their
businesses. To the best knowledge of TriZetto, the products do not include any
Intellectual Property or Software that is in the public domain.
(c) Except as set forth in Section 3.13.1(c) of the
TriZetto Disclosure Schedule, no claims have been asserted against TriZetto or
its Subsidiaries by any person challenging TriZetto's or its Subsidiaries' use
or distribution (including manufacture, marketing license, or sale) of any
product or products utilized by TriZetto or its Subsidiaries (including, without
limitation, Third Party Technology), or challenging or questioning the validity
or effectiveness of any license or agreement relating thereto (including,
without limitation, the Third Party Licenses). To the best knowledge of
TriZetto, there is no valid basis for any claim of the type specified in this
Section 3.13.1(c).
(d) Except as set forth in Section 3.13.1(d) of the
TriZetto Disclosure Schedule, TriZetto or its Subsidiaries have valid copyrights
in all material copyrightable material whether or not registered with the U.S.
copyright office, including all copyrights in the products containing material
copyrightable material. Consummation of the transactions contemplated hereby
will not alter or impair the validity of any copyrights or copyright
registrations.
(e) Except as set forth in Section 3.13.1(e) of the
TriZetto Disclosure Schedule: (i) no third party (including any OEM or site
license customer) has any right to manufacture, reproduce, distribute, sell,
sublicense, market or exploit any of the products or any adaptations,
translations, or derivative works based on the products, or any portion thereof;
(ii) TriZetto or its Subsidiaries have not granted to any third party any
exclusive rights of any kind with respect to any of the products, including
territorial exclusivity or exclusivity with respect to particular versions,
implementations or translations of any of the products; and (iii) TriZetto or
its Subsidiaries have not granted any third party any right to market any
product utilizing any product under any "private label" arrangements pursuant to
which TriZetto or its Subsidiaries have not identified as the source of such
goods. Each document or instrument identified pursuant to this Section is listed
in Section 3.13.1(e) of the TriZetto Disclosure Schedule and true and correct
copies of such documents or instruments have been furnished to HealthWeb. Except
as set forth in Section 3.13.1(e) of the TriZetto Disclosure Schedule, no third
party has any right to manufacture, reproduce, distribute, sublicense, market or
exploit any works or materials of which any of the products are a derivative
work.
(f) Except as set forth in Section 3.13.1(f) of the
TriZetto Disclosure Schedule, each of the products: (i) substantially complies
with all specifications set forth therefor in any contract, agreement,
advertisement or other promotional material for such products and with all other
warranty
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requirements, other than bugs or fixes required or expected in the ordinary
course of business and not otherwise material to TriZetto's business; and (ii)
can be recreated from its associated source code and related documentation by
reasonably experienced technical personnel without undue burden.
(g) TriZetto has furnished CBS with all end user
documentation relating to the use, maintenance or operation of each of the
products, all of which is true and accurate in all material respects.
(h) Except as set forth in Section 3.13.1(h) of the
TriZetto Disclosure Schedule, to the best knowledge of TriZetto, no employee of
TriZetto is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with TriZetto or any other party because of
the nature of the business conducted by TriZetto or proposed to be conducted by
TriZetto.
(i) Except as set forth in Section 3.13.1(i) of the
TriZetto Disclosure Schedule, no Third Party Technology is included in the
products.
3.13.2 YEAR 2000 COMPLIANCE.
(a) Products and Services.
(i) Except as set forth in Section 3.13.2(a)
of the TriZetto Disclosure Schedule, to the TriZetto Stockholders knowledge, all
of TriZetto's products and services and its Subsidiaries' products and services
are Year 2000 Compliant in all material respects.
(ii) Except as set forth in Section 3.13.2(a)
of the TriZetto Disclosure Schedule, if TriZetto is obligated to repair or
replace products or services previously provided by TriZetto that are not Year
2000 Compliant in order to meet TriZetto's contractual obligations, to avoid
personal injury or other liability, to avoid misrepresentation claims, or to
satisfy any other obligations or requirements, to the TriZetto Stockholders
knowledge TriZetto has repaired or replaced those products and services to make
them Year 2000 Compliant in all material respects.
(iii) Except as set forth in Section 3.13.2(a)
of the TriZetto Disclosure Schedule, TriZetto has furnished CBS with true,
correct and complete copies of any customer agreements and other materials and
correspondence in which TriZetto has furnished (or could be deemed to have
furnished) assurances as to the performance and/or functionality of TriZetto's
products or services and its Subsidiaries' on or after January 1, 2000.
(b) Computer Software and Systems. Except as set
forth in Section 3.13.2(b) of the TriZetto Disclosure Schedule, to the TriZetto
knowledge, all of TriZetto's software and systems and its Subsidiaries'
computers are Year 2000 Compliant in all material respects.
(c) Suppliers. Except as set forth in Section
3.13.2(c) of the TriZetto Disclosure Schedule, to TriZetto's knowledge, all
vendors of products or services to TriZetto and its Subsidiaries, and their
respective products, services and operations, are Year 2000 Complaint in all
material respects. Except as set forth in Section 3.13.2(c) of the TriZetto
Disclosure Schedule, to the knowledge of TriZetto after a reasonably diligent
investigation, each such vendor will continue to furnish its products or
services to TriZetto and its Subsidiaries, without interruption or material
delay, on and after January 1, 2000.
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3.14. COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. TriZetto holds all
material licenses, permits and authorizations necessary for the lawful conduct
of its business as now being conducted pursuant to all applicable statutes,
laws, ordinances, rules and regulations of all governmental bodies, agencies and
other authorities having jurisdiction over it or any part of its respect
operations, and there are no material violations or, to the knowledge of
TriZetto, claimed violations by TriZetto of any such license, permit or
authorization or any such statute, law, ordinance, rule or regulation, except
where such violations would not have a Material Adverse Effect on TriZetto.
3.15. FULL DISCLOSURE. All of the representations and warranties made
by TriZetto in this Agreement, and all statements set forth in the certificates
delivered by TriZetto at the Closing pursuant to this Agreement, are true,
correct and complete in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make such representations, warranties or statements, in light of the
circumstances under which they were made, misleading.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 FURTHER ACTION. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
4.2. PUBLIC ANNOUNCEMENTS. TriZetto, TAG and HealthWeb shall consult
with each other before issuing any press release with respect to this Agreement,
and shall not issue any such press release or make any such public statement
without the prior consent of the other party, which shall not be unreasonably
withheld.
4.3. TRANSFER TAXES. TriZetto and HealthWeb shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Closing. TriZetto and HealthWeb agree
that HealthWeb will pay any real property transfer or gains tax, stamp tax,
stock transfer tax, or other similar tax imposed on the transfer of the
Interests pursuant to this Agreement (collectively, "Transfer Taxes"), excluding
any Transfer Taxes as may result from the transfer of beneficial interests in
the Interests other than as a result of this Agreement, and any penalties or
interest with respect to the Transfer Taxes. HealthWeb agrees to cooperate with
TriZetto in the filing of any returns with respect to the Transfer Taxes.
ARTICLE V
INDEMNIFICATION
5.1. INDEMNIFICATION OF TRIZETTO.
(a) Subject to the limitations contained in this Article V,
the HealthWeb Partners shall, jointly and severally, on a pro rata basis,
defend, indemnify and hold harmless TriZetto, TAG, its officers, directors,
stockholders, employees, attorneys, accountants and agents from and against any
and all losses, claims,
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judgments, liabilities, demands, charges, suits, penalties, costs or expenses,
including court costs and attorneys' fees ("Claims and Liabilities") with
respect to or arising from (i) the breach of any warranty or any inaccuracy of
any representation made by HealthWeb or a HealthWeb Partner in this Agreement;
(ii) the breach of any covenant or agreement made by HealthWeb or a HealthWeb
Partner in this Agreement; or (iii) relating to the Separation Agreement entered
into on December 14, 1998 by and between HealthWeb and Milan E. Chovan, Jr.
(b) With respect to Subsection 5.1(a), the HealthWeb
Partners shall be liable to TriZetto and TAG for any Claims and Liabilities only
if the aggregate amount of all Claims and Liabilities, when combined with the
Claims and Liabilities pursuant to Article V of that certain Stock Purchase
Agreement dated concurrently herewith, exceeds $[*] (the "Basket Amount"), in
which case the HealthWeb Partners shall be obligated to indemnify TriZetto for
all such Claims and Liabilities without regard to the Basket Amount. Further,
the HealthWeb Partners' aggregate liability under Subsection 5.1(a) (other than
with respect to any intentional or willful breach or failure to perform) shall
in no event exceed the aggregate amount of consideration placed in the Escrow
Account plus the Promissory Notes and cash issued or paid hereunder.
(c) The indemnification obligations of the HealthWeb
Partners under this Section 5.1 shall first be satisfied by an offset to the
Promissory Note and second, out of the Escrow Account. Thereafter, TriZetto and
TAG shall have recourse against the HealthWeb Partners under this Section 5.1
subject to the limitations set forth in Section 5.1(b).
5.2 LIMITATIONS. Anything to the contrary notwithstanding, TriZetto
and TAG shall not be indemnified and held harmless in respect of any Claims and
Liabilities which are (a) covered by insurance owned by HealthWeb, to the extent
that any net loss is reduced by such insurance, or (b) satisfied out of the
proceeds of the Escrow Account to the extent that any net loss is reduced by
such proceeds.
5.3 INDEMNIFICATION OF HEALTHWEB. TriZetto and TAG shall defend,
indemnify and hold harmless the HealthWeb Partners against and in respect to all
Claims and Liabilities with respect to or arising from (i) breach of any
warranty or any inaccuracy of any representation made by TriZetto and TAG, or
(ii) breach of any covenant or agreement made by TriZetto and TAG in this
Agreement.
5.4 CLAIMS PROCEDURE. Promptly after the receipt by any indemnified
party (the "Indemnitee") of notice of the commencement of any action or
proceeding against such Indemnitee, such Indemnitee shall, if a claim with
respect thereto is or may be made against any indemnifying party (the
"Indemnifying Party") pursuant to this Article V, give such Indemnifying Party
written notice of the commencement of such action or proceeding and give such
Indemnifying Party a copy of such claim and/or process and all legal pleadings
in connection therewith. The failure to give such notice shall not relieve any
Indemnifying Party of any of his or its indemnification obligations contained in
this Article V, except where, and solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party shall have, upon request within thirty (30) days after
receipt of such notice, but not in any event after the settlement or compromise
of such claim, the right to defend, at his or its own expense and by his or its
own counsel, any such matter involving the asserted liability of the Indemnitee;
provided, however, that if the Indemnitee determines that, as a result of an
existing or prospective business relationship between TriZetto or any of its
Subsidiaries on the one hand and any other party or parties to such claim on the
other hand, or as a result of other reasonable circumstances, there is a
reasonable probability that a claim may materially and adversely affect him or
it, other than solely as a result of money payments required to be reimbursed in
full by such Indemnifying Party under this Article V, the Indemnitee shall have
the right to defend, compromise or settle such claim or suit; and, provided,
further, that such settlement or compromise shall not, unless consented to in
writing by such Indemnifying Party, which should not be unreasonably withheld,
be conclusive as to the liability of such Indemnifying Party to the
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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Indemnitee. In any event, the Indemnitee, such Indemnifying Party and his or its
counsel shall cooperate in the defense against, or compromise of, any such
asserted liability, and in cases where the Indemnifying Party shall have assumed
the defense, the Indemnitee shall have the right to participate in the defense
of such asserted liability at the Indemnitee's own expense. In the event that
such Indemnifying Party shall decline to participate in or assume the defense of
such action, prior to paying or settling any claim against which such
Indemnifying Party is, or may be, obligated under this Article V to indemnify an
Indemnitee, the Indemnitee shall first supply such Indemnifying Party with a
copy of a final court judgment or decree holding the Indemnitee liable on such
claim or, failing such judgment or decree, the terms and conditions of the
settlement or compromise of such claim. An Indemnitee's failure to supply such
final court judgment or decree or the terms and conditions of a settlement or
compromise to such Indemnifying Party shall not relieve such Indemnifying Party
of any of his or its indemnification obligations contained in this Article V,
except where, and solely to the extent that, such failure actually and
materially prejudices the rights of such Indemnifying Party. If the Indemnifying
Party is defending the claim as set forth above, the Indemnifying Party shall
have the right to settle the claim only with the consent of the Indemnitee;
provided, however, that if the Indemnitee shall fail to consent to the
settlement of such a claim by the Indemnifying Party, which settlement (i) the
claimant has indicated it will accept, and (ii) includes an unconditional
release of the Indemnitee and its affiliates by the claimant and imposes no
material restrictions on the future activities of the Indemnitee and its
affiliates, the Indemnifying Party shall have no liability with respect to any
payment required to be made to such claimant in respect of such claim in excess
of the proposed amount of settlement. If the Indemnitee is defending the claim
as set forth above, the Indemnitee shall have the right to settle or compromise
any claim against it after consultation with, but without the prior approval of,
any Indemnifying Party, which should not be unreasonably withheld, provided,
however, that such settlement or compromise shall not, unless consented to in
writing by such Indemnifying Party, which shall not be unreasonably withheld, be
conclusive as to the liability of such Indemnifying Party to the Indemnitee.
5.5 TREATMENT OF INDEMNITY PAYMENTS. Any payment made to TriZetto
and TAG pursuant to this Article V or the Escrow Agreement shall be treated as a
reduction in the consideration paid by TriZetto in connection with this
Agreement.
5.6 SOLE REMEDY. After the Closing, the rights set forth in this
Article V shall be each party's sole and exclusive remedies against the other
party thereto for misrepresentations or breaches of covenants contained in this
Agreement. Notwithstanding the foregoing, nothing herein shall prevent any of
the Indemnified Parties from bringing an action based upon allegations of fraud
or other intentional breach of an obligation of or with respect to either party
in connection with this Agreement. In the event such action is brought, the
prevailing party's attorneys' fees and costs shall be paid by the nonprevailing
party.
ARTICLE VI
CONDITIONS TO CLOSING
6.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO CLOSE THE TRANSACTION.
The respective obligations of each party to close the transaction shall be
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) NO INJUNCTIONS. No temporary restraining order,
preliminary or permanent injunction issued by any court of competent
jurisdiction preventing the consummation of the transaction shall be in effect.
(b) ESCROW AGREEMENT. The Escrow Agreement in the form of
Exhibit B shall have been entered into by TriZetto, Banker's Trust, and each of
the HealthWeb Partners.
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(c) RESTRICTED STOCK AGREEMENT. The Restricted Stock
Agreement in the form of Exhibit G shall have been entered into by TriZetto and
each of [*] and [*]. The Company represents that each of the Company's
employee shareholders have executed a form of Restricted Stock Agreement which
contains identical provisions relating to the right of first refusal and
termination.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF TRIZETTO AND TAG. The
obligations of TriZetto and TAG to close the transaction are also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of HealthWeb and the HealthWeb Partners contained in this Agreement
shall be true and correct in all material respects on and as of the Closing,
with the same force and effect as if made on and as of the Closing and TriZetto
shall have received a certificate to such effect signed by the President and the
Chief Financial Officer of HealthWeb and the HealthWeb Partners;
(b) AGREEMENTS AND COVENANTS. HealthWeb and the HealthWeb
Partners shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing and TriZetto shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of HealthWeb and the HealthWeb Partners; and
(c) CONSENTS OBTAINED. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by HealthWeb for the authorization, execution and delivery
of this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by HealthWeb.
(d) OPINION OF COUNSEL. TriZetto shall have received the
opinion of McGuire, Woods, Battle & Boothe LLP, and Locke Liddell & Sapp LLP
counsel to HealthWeb, dated as of the Closing, in the form attached hereto as
Exhibit E.
(e) EMPLOYMENT AGREEMENT. At the Closing, TriZetto shall
have entered into an employment agreement with [*] on the terms of the form of
employment agreement as set forth as Exhibit C substantially hereto (the
"Employment Agreement").
(f) NON-COMPETITION AGREEMENT. At the Closing, TriZetto
shall have entered into a non-competition agreement with each of [*] and [*] on
substantially the terms of the form of non-competition agreement as set forth as
Exhibit D hereto (the "Non-Competition Agreement").
(g) INTELLECTUAL PROPERTY RIGHTS. HealthWeb shall deliver to
TriZetto and TAG evidence that HealthWeb possesses all intellectual property
rights and software rights, including but not limited to copies of all software
licenses and executed assignments of rights as executed by each consultant or
employee who assisted in its development.
(h) PAYMENT ON INDEBTEDNESS. Each HealthWeb Partner shall
have paid off his indebtedness to HealthWeb, including accrued interest, and
HealthWeb shall have delivered evidence thereto to TriZetto and TAG.
(i) CBS shall have paid off the Promissory Note issued to
[*] on October 15, 1997 and cancelled the HealthWeb Interests which are held by
[*] as collateral thereunder. TriZetto shall be entitled to deduct the payoff
amount from the cash consideration paid hereunder.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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(j) [*] and [*] shall have executed an Assignment of Rights
Agreement in the form of Exhibit H.
6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF HEALTHWEB. The
obligation of HealthWeb and the HealthWeb Partners to close the transaction is
also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TriZetto and TAG contained in this Agreement shall be true and
correct in all respects on and as of the Closing, with the same force and effect
as if made on and as of the Closing and HealthWeb shall have received a
certificate to such effect signed by the President and the Chief Financial
Officer of TriZetto;
(b) AGREEMENTS AND COVENANTS. TriZetto and TAG shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Closing and HealthWeb shall have received a certificate to such effect
signed by the President and the Chief Financial Officer of TriZetto;
(c) CONSENTS OBTAINED. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by TriZetto and TAG for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by TriZetto and TAG,
except where the failure to receive such consents, etc. would not reasonably be
expected to have a Material Adverse Effect on TriZetto and TAG.
(d) OPINION OF COUNSEL. HealthWeb shall have received the
opinion of Stradling Yocca Carlson & Rauth, counsel to TriZetto and TAG, dated
as of the Closing, in the form attached hereto as Exhibit F.
(e) ISSUANCE OF OPTIONS. Each of [*] and [*] shall have
received options to purchase shares of TriZetto in accordance with his
respective employment agreement.
ARTICLE VII
TERMINATION
7.1. TERMINATION. This Agreement may be terminated at any time prior
to the Closing, notwithstanding the approval thereof by HealthWeb Partners:
(a) by mutual written consent duly authorized by the Board
of Directors of TriZetto or by the HealthWeb Partners; or
(b) by the Board of Directors of TriZetto if any condition
to the obligation of TriZetto under this Agreement to be complied with or
performed by HealthWeb at or before the Closing shall not have been complied
with or performed at the time required for such compliance or performance and
such noncompliance or nonperformance shall not have been waived by TriZetto;
(c) by the HealthWeb Partners if any condition to the
obligation of HealthWeb under this Agreement to be complied with or performed by
TriZetto at or before the Closing shall not have been complied with or performed
at the time required for such compliance or performance and such noncompliance
or nonperformance shall not have been waived by HealthWeb; or
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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(d) by either TriZetto or HealthWeb if the Closing shall not have
been consummated by February 28, 1999; provided, however, that the right to
terminate this Agreement under this Section 7.1(d) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Closing to occur on or before such
date).
7.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Article VII, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
directors, officers, stockholders or Affiliates except (i) as set forth in
Article VII and Section 7.1 hereof, and (ii) that, except as otherwise provided
in Article VII, nothing herein shall relieve any party from liability for any
breach by such party except as set forth in Section 7.3 hereof.
7.3. FEES AND EXPENSES.
(a) Except as set forth in this Article VII, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Closing is consummated. Without limiting the generality of the
foregoing, the HealthWeb Partners will pay, on a pro rata basis according to
their ownership of Interests, all of the fees and expenses incurred in
connection with the transactions contemplated by this Agreement for HealthWeb
and the HealthWeb Partners' legal, financial and accounting advisors, including,
without limitation, Stanford Keene, and Fennebresque, Clark, Swindell & Hay, and
McGuire, Woods, Battle & Boothe, LLP and Locke Liddell & Sapp LLP.
ARTICLE VIII
GENERAL PROVISIONS
8.1. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS;
DISCLOSURES.
(a) The representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the Closing
and shall continue in full force and effect for a period of two (2) years
following the Closing except for Section 2.5, Section 2.13, Section 3.4 and
Section 3.11 which shall survive until the expiration of the applicable statute
of limitations (as the same may be extended from time to time). The covenants
and agreements of the parties contained in this Agreement shall survive the
Closing unless and until they are otherwise terminated pursuant to their terms
as a matter of applicable laws.
(b) Notwithstanding any other provision in this Agreement to
the contrary, any disclosure made with reference to one or more sections of the
HealthWeb Disclosure Schedule or the TriZetto Disclosure Schedule shall be
deemed disclosed with respect to each other section therein as to which such
disclosure is relevant.
8.2. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
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(a) If to TriZetto or TAG
The TriZetto Group, Inc.
567 San Nicolas Drive, Suite 360
Newport Beach, California 92660
Attn: Brian Karr
Ph: (949) 718-4940
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attn: K.C. Schaaf, Esq.
Ph: (949) 725-4155
(b) If to HealthWeb or the HealthWeb Partners
HealthWeb Systems, Ltd.
8402 Sterling, Suite 202
Irving, TX 76053
Ph: (888) 229-4567
with a copy to:
McGuire, Woods, Battle & Boothe, LLP
Bank of America Corporate Center Suite 2900
100 North Tryon Street
Charlotte, North Carolina 28202-4011
Attn: Stephen J. Manzano
Ph: (704) 338-4725
8.3. CERTAIN DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Affiliate" shall mean any individual, corporation, partnership,
firm, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization or Governmental Entity, or
person directly or indirectly controlling, controlled by or under common
control with HealthWeb, including all officers and directors of
HealthWeb.
"Agreement" shall have the meaning as set forth in the Preamble.
"Claims and Liabilities" shall have the meaning as set forth in
Section 5.1 of the Agreement.
"Closing" shall have the meaning as set forth in Section 1.2 of
the Agreement.
"Environmental Laws" mean any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances,
rules, judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions, relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants or other Hazardous
Materials or wastes into the environment, including without limitation
ambient air, surface
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water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants or other Hazardous Materials or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"Escrow" shall have the meaning as set forth in Section 1.4 of
the Agreement.
"Escrow Agreement" shall have the meaning set forth in Section
1.4 of the Agreement.
"Escrow Shares" shall have the meaning set forth in Section 1.4
of the Agreement.
"GAAP" shall have the meaning as set forth in Section 2.7 of the
Agreement.
"Hazardous Material" means any toxic, radioactive, corrosive or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any
constituent elements displaying any of the foregoing characteristics,
which in any event is regulated under any Environmental Law.
"HealthWeb" shall have the meaning as set forth in the Preamble.
"HealthWeb Balance Sheet" shall have the meaning as set forth in
Section 2.7 of the Agreement.
"HealthWeb Benefit Arrangement" means any employment, severance
or similar contract or arrangement whether or not written or any plan,
policy, fund, program or contract or arrangement (whether or not
written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including
any self-insured arrangements), health or medical benefits, disability
benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other
benefits) that (i) is not a HealthWeb Employee Plan, (ii) is entered
into, maintained, administered or contributed to, as the case may be, by
HealthWeb and (iii) covers any employee or former employee of HealthWeb.
"HealthWeb Disclosure Schedule" shall mean the written
disclosure schedule delivered on or prior to the date hereof by
HealthWeb to TriZetto and TAG.
"HealthWeb Employee Plan" means any "employee benefit plan", as
defined in Section 3(3) of ERISA, that (i) is subject to any provision
of ERISA, (ii) is maintained, administered or contributed to by
HealthWeb and (iii) covers any employee or former employee of HealthWeb.
"HealthWeb Environmental Liabilities" mean any and all
liabilities of or relating to HealthWeb, whether contingent or fixed,
actual or potential, known or unknown, which (i) arise under or relate
to matters covered by Environmental Laws and (ii) relate to actions
occurring or conditions existing on or prior to the Closing Time.
"HealthWeb Option" means any option granted, whether exercisable
or not exercisable and not exercised or expired, to a current or former
employee, director, consultant, advisor or independent
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contractor of HealthWeb or any predecessor thereof to purchase Shares
pursuant to HealthWeb's Option Plan (as defined below).
"HealthWeb Partner" shall have the meaning as set forth in the
Preamble.
"Intellectual Property" means patents, patent applications,
patent licenses, copyrights, copyright licenses, trademarks, trademark
applications and trademark licenses, trade names, service marks, service
names, licenses, trade secrets and any other know-how or intellectual
property rights, and rights in any thereof (insofar as it is practical
to list or describe such rights).
"Interests" shall have the meaning as set forth in Section 1.1.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect
to such asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the condition (financial or otherwise),
business, assets or liabilities of such Person and its Subsidiaries
taken as a whole.
"Multiemployer Plan" means each HealthWeb Employee Arrangement
or each TriZetto Employee Arrangement, as the case may be, that is a
multiemployer plan, as defined in Section 3(37) or Section 4001(a)(3) of
ERISA, or any similar foreign law or regulation.
"Person" means an individual, a corporation, a partnership, an
association, a trust, a limited liability company or any other entity or
organization, including a government or political subdivision or any
agency or instrumentality thereof.
"Products" means the Remedy Software, Respond Software, Live-Doc
Software, Care Line Software, Directory Studio, Managed Care Information
System and all related products, including any Intellectual Property
related thereto.
"Software" means software programs and rights in any thereof
(insofar as it is practical to list or describe such rights).
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50%
of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); or (ii)
any partnership (a) the sole general partner or managing general partner
of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or of one or more Subsidiaries
of such Person (or any combination thereof).
"TAG" shall have the meaning as set forth in the Preamble.
"Taxes" shall mean all income, gross receipts, sales, transfer,
use, employment, franchise, profits, property and other taxes, fees,
stamp taxes and duties, assessments, and charges of any kind whatsoever
(whether payable directly or by withholding), together with any interest
thereof and any penalties, additions to tax or additional amounts
imposed by any Taxing Authority.
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"Taxing Authority" shall mean any governmental authority
responsible for the imposition of Taxes.
"Third Party Licenses" means all licenses and other agreements
with third parties relating to any Intellectual Property or products
that HealthWeb is licensed or otherwise authorized by such third parties
to use, market, distribute or incorporate into products marketed and
distributed by HealthWeb.
"Third Party Technology" means all Intellectual Property and
products owned by third parties and licensed pursuant to Third Party
Licenses.
"Transfer Taxes" shall have the meaning as set forth in Section
4.3 of this Agreement.
"TriZetto" shall have the meaning as set forth in the Preamble.
"TriZetto Balance Sheet" shall have the meaning as set forth in
Section 3.5 of the Agreement.
"TriZetto Benefit Arrangement" means any employment, severance
or similar contract or arrangement whether or not written or any plan,
policy, fund, program or contract or arrangement (whether or not
written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including
any self-insured arrangements), health or medical benefits, disability
benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other
benefits) that (i) is not a TriZetto Employee Plan, (ii) is entered
into, maintained, administered or contributed to, as the case may be, by
TriZetto or any of its Subsidiaries and (iii) covers any employee or
former employee employed in the United States.
"TriZetto Common Stock" shall have the meaning set forth in
Section 1.1(b) of the Agreement.
"TriZetto Disclosure Schedule" shall mean the written disclosure
schedule delivered on or prior to the date hereof by TriZetto to
HealthWeb that is arranged in paragraphs corresponding to the numbered
and lettered paragraphs corresponding to the numbered and lettered
paragraphs contained in the Agreement.
"TriZetto Employee Plan" means any "employee benefit plan", as
defined in Section 3(3) of ERISA, that (i) is subject to any provision
of ERISA, (ii) is maintained, administered or contributed to by TriZetto
or any of its Subsidiaries and (iii) covers any employee or former
employee of TriZetto.
"TriZetto Environmental Liabilities" means any and all
liabilities of or relating to TriZetto and TAG or any of its
Subsidiaries, whether contingent or fixed, actual or potential, known or
unknown, which (i) arise under or relate to matters covered by
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Closing.
"TriZetto Financial Statements" shall have the meaning as set
forth in Section 3.5 of the Agreement.
"Year 2000 Compliant" means that (1) the products, services, or
other item(s) at issue accurately process, provide and/or receive all
date/time data (including calculating, comparing,
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sequencing, processing and outputting) within, from, into, and between
centuries (including the twentieth and twenty-first centuries and the
years 1999 and 2000), including leap year calculations, and (2) neither
the performance nor the functionality of the company's provision of the
products, services, and other item(s) at issue will be affected by any
dates/times prior to, on, after, or spanning January 1, 2000. The design
of the products, services, and other item(s) at issue to ensure
compliance with the foregoing warranties and representations includes
proper date/time data century recognition and recognition of 1999 and
2000, calculations that accommodate single century and multi-century
formulae and date/time values before, on, after, and spanning January 1,
2000, and date/time data interface values that reflect the century,
1999, and 2000. In particular, but without limitation, (i) no value for
current date/time will cause any error, interruption, or decreased
performance in or for such product(s), service(s), and other item(s),
(ii) all manipulations of date and time related data (including
calculating, comparing, sequencing, processing, and outputting) will
produce correct results for all valid dates and times when used
independently or in combination with other products, services, and/or
items, (iii) date/time elements in interfaces and data storage will
specify the century to eliminate date ambiguity without human
intervention, including leap year calculations, (iv) where any date/time
element is represented without a century, the correct century will be
unambiguous for all manipulations involving that element, (v)
authorization codes, passwords, and zaps (purge functions) will function
normally and in the same manner during, prior to, on and after January
1, 2000, including the manner in which they function with respect to
expiration dates and CPU serial numbers, and (vi) the company's supply
of the product(s), service(s), and other item(s) will not be
interrupted, delayed, decreased, or otherwise affected by the advent of
the year 2000.
8.4. AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
8.5. WAIVER. At any time prior to the Closing, any party hereto may
with respect to any other party hereto (a) extend the time for performance of
any of the obligations or other acts, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
8.6. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible, in an acceptable manner, to the end that
transactions contemplated hereby are fulfilled to the extent possible.
8.8. ENTIRE AGREEMENT. This Agreement (inclusive of HealthWeb
Disclosure Schedule and TriZetto Disclosure Schedule) constitutes the entire
agreement and supersedes all prior agreements and undertakings both oral and
written, among the parties, or any of them, with respect to the subject matter
hereof and, except as otherwise expressly provided herein.
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8.9. ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise.
8.10. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.6 (which is intended to be for the benefit of the Indemnified Parties
and the others specifically referenced therein as beneficiaries of the
agreements contained in Section 5.6, and may be enforced by such Indemnified
Parties and other persons).
8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
8.12. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California
applicable to contracts executed and fully performed within the State of
California.
8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have caused this Partnership Interests
Purchase Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
THE TRIZETTO GROUP, INC.,
a Delaware corporation
By: [Signature Illegible]
-------------------------------------
Name: [Illegible]
-------------------------------------
Title:
-------------------------------------
TRIZETTO ACQUISITION GROUP, LLC,
a Delaware limited liability company
By: [Signature Illegible]
-------------------------------------
Name: [Illegible]
-------------------------------------
Title: President & CFO & Treasurer
-------------------------------------
HEALTHWEB PARTNERS
HEALTHWEB GENERAL PARTNER, INC.,
a Texas corporation
By: /s/ [*]
-------------------------------------
Name: [*]
-------------------------------------
Title: [*]
-------------------------------------
/s/ [*]
----------------------------------------
[*]
/s/ [*]
----------------------------------------
[*]
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
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EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is entered into this 1st
day of April 1999 by and between THE TRIZETTO GROUP, INC., a Delaware
corporation (the "Buyer"), and MANAGEMENT AND TECHNOLOGY SOLUTIONS, INC., a
Delaware corporation (the "Seller").
RECITALS
WHEREAS, Seller is engaged in the business of providing (i) strategic
and analytical support services, including information systems and information
management support, and billing and collection services (the "Business"), and
(ii) comprehensive management and administrative services, and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller certain of Seller's assets used primarily in or relating to the
Business under the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the promises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions set forth herein, Seller shall sell, transfer, assign and deliver to
Buyer and Buyer shall purchase, accept and acquire from Seller, all assets,
tangible or intangible, relating to the Business as set forth in Schedule 1.1
attached hereto (collectively, the "Assets").
1.2 INSTRUMENTS OF CONVEYANCE AND TRANSFER. At the Closing,
Seller shall deliver to Buyer such bills of sale, endorsements, assignments,
consents to assignments and other good and sufficient instruments of conveyance
and assignment, in such form as shall be reasonably satisfactory to Buyer and
its counsel, as shall be effective to vest in Buyer all right, title and
interest of Seller in and to the Assets. At and following the Closing, Seller
will take all additional steps as may be reasonably necessary to put Buyer in
possession and operating control of the Assets.
2. CONSIDERATION
2.1 THE PURCHASE PRICE. The total purchase price to be paid
to Seller for the Assets at Closing shall consist of Sixty Thousand (60,000)
shares of Common Stock (the "Shares") of the Buyer and assumption of specified
liabilities set forth in Section 2.2 below (the "Purchase Price"). The Purchase
Price shall be allocated among the Assets as determined by Buyer in its sole
discretion. The Parties acknowledge and agree that the Purchase Price
constitutes fair and adequate consideration for the Assets. The parties hereto
shall report consistent with Buyer's allocation on all income tax returns, and
will comply with, and furnish the information required by Section 1060 of
<PAGE> 2
the Internal Revenue Code of 1986, as amended (the "Code"), and any regulations
thereunder. At the Closing the Buyer shall deliver to Seller a stock certificate
registered in Seller's name evidencing the shares.
2.2 ASSUMED LIABILITIES. As additional consideration for the
conveyance, transfers and assignments made to Buyer pursuant to Section 1.1,
Buyer, effective with such transfer, shall assume and become responsible for the
Assumed Liabilities. "Assumed Liabilities" means solely (i) those liabilities
set forth, and in the amounts specified, in Schedule 2.2 (the "Assumed
Liabilities Statement") and (ii) the obligations of the Business arising
subsequent to the Closing Date under the agreements, contracts, leases,
licenses, and other arrangements set forth in Schedule l.l. Anything herein to
the contrary notwithstanding, in no event shall Assumed Liabilities include any
liabilities or obligations arising out of any breach or default by Seller or
facts that, with notice or lapse of time or both, would constitute a default on
the part of Seller of the performance of any such agreements, contracts, leases,
licenses or arrangements which occurred prior to the Closing Date. Other than
the Assumed Liabilities, Buyer shall not assume or in any way be liable or
responsible for (and Seller shall retain and remain fully liable and responsible
for) any other liabilities and obligations of Seller of any nature whatsoever,
known or unknown, whether absolute, contingent or otherwise, including without
limitation any sales, use or other term payable in connection with the sale and
transfer of the Assets hereunder. In no event shall Assumed Liabilities include
any contract agreement, the assumption and transfer of which to Buyer would
constitute material breach.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller
represents and warrants to Buyer as follows:
3.1 ORGANIZATION; AUTHORIZATION. Seller operates the
Business as a Delaware corporation and has full power and authority to carry on
the Business as it is now being conducted. Seller is duly qualified to do
business and is in good standing in every jurisdiction in which the nature of
the Business conducted or property owned by it makes such qualification
necessary. The execution and delivery and performance of this Agreement by
Seller and the performance by Seller of the transactions contemplated hereby
have been duly approved by the Board of Directors of Seller and the stockholders
of Seller in accordance with the Delaware General Corporation Law. This
Agreement has been duly executed and delivered by Seller and constitutes a valid
and binding agreement of Seller enforceable against Seller in accordance with
its terms.
3.2 NO CONSENT. Except as set forth on Schedule 3.2, no
consent, order, license, approval or authorization of, or exemption by, or
registration or filing with, any governmental authority, bureau or agency, and
no consent or approval of any other third person, corporation, partnership,
trust, incorporated or unincorporated association, government (or any agency or
political subdivision thereof) or other entity of any kind (each a "Person"), is
required to be obtained or made by Seller in connection with the execution,
delivery, or performance by Seller of this Agreement or the consummation of the
transactions contemplated by this Agreement.
3.3 NO BREACH. Except as set forth on Schedule 3.3, neither
the authorization, execution, delivery or performance of this Agreement by
Seller nor the consummation of any transactions contemplated by this Agreement
will (i) violate, conflict with or result in the material breach or termination
of, or otherwise give any Person the right to terminate, or constitute (or with
notice or lapse of time or both would constitute) a default (by way of
substitution, novation or
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otherwise) under the terms of, any contract, lease, bond, agreement, franchise
or other instrument to which Seller is a party relating to the Business or any
of the Assets, including without limitation any contract or agreement which is
included in the Assumed Liabilities, or (ii) result in the creation of any
Encumbrance (as defined below) upon the Business or any of the Assets.
3.4 COMPLIANCE WITH LAWS. Except as disclosed on Schedule
3.4, the operation of the Business and the ownership and use of the Assets are
in compliance in all material respects with all applicable judgments, orders,
injunctions, awards or decrees and all federal, state or local laws, rules or
regulations, codes or ordinances. Seller has duly obtained and holds all
consents, authorizations, permits, licenses, orders or approvals of all Federal,
state or local governmental or regulatory bodies that are material to the
conduct of the Business or the ownership or use of the Assets (collectively, the
"Permits"); no violations are or have been recorded in respect of any such
Permit and no proceeding is pending or threatened to revoke, deny or limit any
such Permit; and the Permits will be transferred to Buyer without the consent of
any governmental agency or authority.
3.5 FINANCIAL STATEMENTS. Attached hereto as Schedule 3.5
are (i) the balance sheets dated December 31, 1997 and December 31, 1998 and the
income statements for the twelve months ended December 31, 1998 and (ii) a
balance sheet and income statement as of the two month period ended February 28,
1999 (hereinafter collectively referred to as the "Financial Statements").
Except as disclosed therein, the Financial Statements (i) have been prepared on
an accrual basis, (ii) are consistent with the books and records of Seller,
(iii) have been prepared on a consistent basis for all periods covered thereby
except as disclosed therein, and (iv) present fairly the assets and liabilities
and financial condition and results of operations of the Business as at the
dates thereof, and for the periods stated therein.
The Business has no liabilities or obligations (absolute, accrued,
contingent, direct or indirect, matured or unmatured or otherwise) except (i)
liabilities that are disclosed on any schedule to this Agreement, (ii)
liabilities which are reflected or reserved against or are disclosed on the
Balance Sheet as of February 28, 1998, attached as part of Schedule 3.5 hereto
(the "1999 Balance Sheet"), and (iii) liabilities incurred in the ordinary
course of business and consistent with past practice since February 28, 1999
which do not exceed One Thousand Dollars ($1000) in the aggregate.
All accounts receivable reflected in the 1999 Balance Sheet arose from
bona fide transactions in the ordinary course of business and represent bona
fide claims against debtors for services rendered by Seller and the accounts
receivable do not include any amounts reflecting discounts, allowances, trade or
barter.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.6, from February 28, 1999 to the Closing Date, there has not been:
(a) any material change in the business, operations,
assets or liabilities of the Business except for such changes in the ordinary
course of business;
(b) any material change in the manner of conducting
the Business or using the Assets, which has had a material adverse effect on the
business, assets, operations or condition (financial or otherwise) of the
Business;
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<PAGE> 4
(c) any damage, destruction or other casualty loss
(whether or not covered by insurance) which has had or would reasonably be
expected to have a material adverse effect on the business, assets, operations
or condition (financial or otherwise) of the Business;
(d) except in the ordinary course of business, any
amendment, modification or termination of any existing, or entering into any
new, contract, agreement, plan, license or permit which is material to the
Business;
(e) any sale, transfer, assignment or disposition of
any asset which is material to the Business;
(f) the incurrence of any material liability except
for liabilities incurred in the ordinary course of business;
(g) any failure to pay when due any material
obligations or amounts relating to the Business, except where Seller is in good
faith disputing such obligations or amounts; or
(h) any change in sales policies regarding credit
terms, approval of credit or the acceptability of advertising categories.
3.7 TITLE TO ASSETS. Seller has good and marketable title
to, or valid leasehold interests in, the Assets free and clear of all liens,
pledges, claims, charges, easements, security interests, encumbrances or other
rights of any third party ("Encumbrances"). No other Person has any right, title
or interest in the Assets or Business. Seller has performed all material
obligations required to be performed by it with respect to all Assets leased by
it. Seller enjoys peaceful and undisturbed possession of all premises it
presently occupies in connection with the Business and the Assets, and Seller's
leasehold interests in such premises are not subject to any Encumbrances,
encroachments, building or use restrictions or limitation which in any material
respect interfere with or impair Seller's present and continued use for the
stated term thereof in the usual and normal conduct of its business.
3.8 INTELLECTUAL PROPERTY; SOFTWARE; AND YEAR 2000
COMPLIANCE.
3.8.1 INTELLECTUAL PROPERTY, SOFTWARE AND PRODUCTS
(a) Schedule 3.8.1(a) contains a complete and
correct list of all patents, patent applications, patent licenses, copyrights,
copyright licenses, trademarks, trademark applications and trademark licenses,
trade names, service marks, service names, licenses, trade secrets, and any
other know-how or intellectual property rights, and rights in any thereof
("Intellectual Property") and software programs and rights in any thereof
("Software") relating to or used in the business or operations of the Business
("Intellectual Property" and "Software shall collectively be referred to as the
"Technology"). Except as disclosed in Schedule 3.8.1(a), no employee of Seller
has any right, title or interest or to any Technology used in the Business.
(b) Except as disclosed in Schedule 3.8.1(b), Seller
owns all right, title and interest in and to all the Technology used in or
necessary for the conduct of the Business, free and clear of all liens,
mortgages, charges, pledges, claims and encumbrances (including without
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limitation any distribution rights and royalty rights). Such Technology
constitutes all the Technology necessary for the conduct of the Business in the
manner conducted immediately prior to the Closing. Seller has not infringed nor
is infringing upon any intellectual property rights of others.
(c) Except as disclosed in Schedule 3.8.1(c), no
claims have been asserted against Seller by any person challenging Seller's use
or distribution (including manufacture, marketing license, or sale) of any
products utilized by Seller, or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto. To the best
knowledge of Seller, there is no valid basis for any claim of the type specified
in this Section 3.8.1(c).
(d) Except as disclosed in Schedule 3.8.1(d), the
Technology complies in all material respects with all specifications set forth
therefor in any contract, agreement, advertisement or other promotional material
for such products and with all other warranty requirements, other than bugs or
fixes required or expected in the ordinary course of business and not otherwise
material to the Business.
(e) Seller has furnished Buyer with all end user
documentation relating to the use, maintenance or operation of the Technology,
all of which is true and accurate in all material respects.
(f) Except as disclosed in Schedule 3.8.1(f), to the
best of Seller's knowledge, no employee of the Seller is in violation of any
term of any employment contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of any such employee with the
Seller or any other party because of the nature of the business conducted by the
Seller or proposed to be conducted by the Seller.
3.8.2 YEAR 2000 COMPLIANCE. Except as disclosed in
Schedule 3.8.2, all of Seller's products and services are Year 2000 Compliant in
all material respects. Except as disclosed in Schedule 3.8.2, if Seller is
obligated to repair or replace products or services previously provided by the
Seller that are not Year 2000 Compliant in order to meet Seller's contractual
obligations, to avoid personal injury or other liability, to avoid
misrepresentation claims, or to satisfy any other obligations or requirements,
Seller has repaired or replaced those products and services to make them Year
2000 Compliant in all material respects. Except as disclosed in Schedule 3.8.2,
Seller has furnished the Buyer with true, correct and complete copies of any
customer agreements and other materials and correspondence in which Seller has
furnished (or could be deemed to have furnished) assurances as to the
performance and/or functionality of Seller's products or services on or after
January 1, 2000.
3.9 LITIGATION. There are no actions, suits, or any
administrative inquiries, arbitration, proceedings or investigations by any
person, entity or agency, pending or threatened against the Business or the
Assets (or against Seller or any of its affiliates pertaining to the Business or
the Assets). To the best of Seller's knowledge, there are no claims by any
person, entity or agency, pending or threatened against the Business or the
Assets (or against Seller or any of its affiliates pertaining to the Business or
the Assets).
3.10 TAX MATTERS. Seller has duly filed, or has obtained a
filing extension from the appropriate governmental agencies with respect to, all
federal, state and local tax returns required
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<PAGE> 6
to be filed by Seller on or prior to the Closing Date and has paid or provided
for any Taxes shown as due on such returns relating to the Business or the
Assets. Seller is not a party to any proceeding or inquiry by any governmental
agency for the assessment or the proposed assessment or for the collection of
Taxes which if unpaid might result in an Encumbrance upon the Assets as of the
Closing Date, nor to Seller's knowledge has any claim for such assessment been
asserted against Seller.
As used in this agreement, "Taxes" shall mean all income, gross
receipts, sales, transfer, use, employment, franchise, profits, property and
other taxes, fees, stamp taxes and duties, assessments, and charges of any kind
whatsoever (whether payable directly or by withholding), together with any
interest hereof and any penalties, additions to tax or additional amounts
imposed by any governmental authority responsible for the imposition of Taxes.
3.11 ERISA. Seller does not maintain or have any liability
with respect to any employee benefit, bonus, fringe benefit or other
compensatory plan, policy or arrangement (whether or not an employee benefit
plan, (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) with respect to employees, consultants,
contractors or subcontractors of the Business. Seller does not have any
obligation to contribute to, or other liability with respect to, any
multiemployer plan, as defined in Section 3(37) of ERISA in connection with the
Business or any defined benefit plan. The Seller's 401(k), if any, has received
a determination letter from the Internal Revenue Service that the plan meets, in
form, the requirements of Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code") and Seller has not materially amended such
plan in any manner since the date of such letter. The Seller agrees to terminate
the 401(k) simultaneously with the Closing.
3.12 NO DEFAULT. Seller is not in, and has not received or
given notice of, any material default or claimed, purported or alleged material
default of any material contract or agreement with respect to the Business or
the Assets, including without limitation, any contract or agreement which is
included in the Assumed Liabilities. Seller has not given or received notice of
any facts that, with notice or lapse of time, or both, would constitute a
material default on the part of any party in the performance of any material
contract or agreement with respect to the Business or the Assets, including
without limitation, any contract or agreement which is included in the Assumed
Liabilities.
3.13 COMPLIANCE WITH ENVIRONMENTAL LAWS. The Business and the
Assets (i) are and have been in compliance in all material respects with all
applicable Environmental Laws (as hereafter defined). There is no civil,
criminal or administrative judgment, action, suit, demand, claim, hearing,
notice of violation, investigation, proceeding, notice or demand letter pending
or threatened against Seller or concerning the Business or the Assets pursuant
to Environmental Laws or principles of common law relating to pollution,
protection of the environment or health and safety which would reasonably be
expected to result in a fine, penalty or other obligation, cost or expense.
There are and have been no past or present conditions, acts or omissions by
Seller or events occurring in connection with the Business or the Assets which
would reasonably be expected to prevent compliance in any material respect with
Environmental Laws, or which have given rise to or will give rise to material
liability under Environmental Laws or principles of common law relating to
pollution, protection of the environment or health and safety. As used in this
Agreement the term "Environmental Laws" shall mean federal, state, local and
foreign laws, regulations and codes now
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or hereafter in effect, as well as orders, decrees, judgments or injunctions
issued, promulgated, approved or entered thereunder relating to pollution,
protection of the environment or health and safety.
3.14 SOLVENCY. Except as set forth on Schedule 3.14, the
Seller and its subsidiaries taken as whole, are and will continue to be Solvent
after giving effect to the transactions contemplated hereby. As used herein,
"Solvent" means that on a particular day, the Seller and its subsidiaries, taken
as a whole, (a) have a fair value and present fair saleable value of their
assets that exceeds their stated liabilities and identified contingent
liabilities, (b) are able to pay their debts as such debts become absolute and
mature, and (c) have, and expect to continue to have, access to capital that
would not be unreasonably small for the conduct of their business as now
conducted and as proposed to be conducted.
3.15 INVESTMENT REPRESENTATION.
(a) Seller is acquiring the Shares for its own
account, not as nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the 1933 Act.
(b) Seller understands that (i) the Shares have not
been registered under the 1933 Act by reason of a specific exemption therefrom,
that they must be held by it indefinitely, and that it must, therefore, bear the
economic risk of such investment indefinitely, unless a subsequent disposition
thereof is registered under the 1933 Act or is exempt from such registration;
(ii) each certificate representing the Series E Preferred Stock will be endorsed
with the legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE
"1933 ACT") AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR IF THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE
1933 ACT."
and (iii) the Buyer will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the foregoing
legend are satisfied; provided, however, that no such opinion of counsel shall
be necessary if the sale, transfer or assignment is made pursuant to Securities
and Exchange Commission ("SEC") Rule 144 and the Seller provides the Buyer with
evidence reasonably satisfactory to the Buyer and its counsel that the proposed
transaction satisfies the requirements of Rule 144. The Buyer agrees to remove
the foregoing legend from any securities if the requirements of SEC Rule 144(k)
(or any successor rule or regulation) apply with respect to
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such securities and the Company and its counsel are provided with reasonably
satisfactory evidence that the requirements of Rule 144(k) apply.
(c) Seller can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares.
(d) Seller has not been offered the Shares by any
form of advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by such media.
(e) Seller is an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect.
(f) The Seller was not formed for the specific
purpose of acquiring the Shares offered hereunder. Seller shall not liquidate
and dissolve whereby the Shares will be distributed to the stockholders of
Seller except in compliance with the terms of this Section 3.15.
3.16 FULL DISCLOSURE. Except as otherwise disclosed in the
Schedules or Exhibits hereto or the other representations and warranties made by
Seller in this Section 3, neither Seller or any of the employees of Seller has
actual knowledge of any fact as of the date hereof that materially adversely
affects or will materially adversely affect, the operations or condition of the
Business or the ability of Seller to perform its obligations under this
Agreement or the agreements referred to herein and the transactions contemplated
hereby or thereby.
3.17 BROKERS AND FINDERS. Neither Seller nor any of its
affiliates, employees or agents has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
4.1 ORGANIZATION; AUTHORIZATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power and authority to carry on its business as it is now
being conducted. The execution, delivery and performance of this Agreement by
Buyer and the performance by Buyer of the transactions contemplated hereby have
been duly authorized and approved by all necessary corporate proceedings of
Buyer. This Agreement has been duly executed and delivered by Buyer and
constitutes a valid and binding agreement of Buyer enforceable against Buyer in
accordance with its terms.
4.2 NO CONSENT. No consent, order, license, approval or
authorization of, or exemption by, or registration or filing with, any
governmental authority, bureau or agency, and no consent or approval of any
Person is required to be obtained or made by Buyer in connection with the
execution, delivery, or performance by Buyer of this Agreement or the
consummation of the transactions contemplated by this Agreement.
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4.3 NO BREACH. Neither the authorization, execution,
delivery or performance of this Agreement by Buyer nor the consummation of any
transactions contemplated by this Agreement will (i) violate any provision of
the Certificate of Incorporation or Bylaws of Buyer, (ii) violate, conflict with
or result in the material breach or termination of, or otherwise give any Person
the right to terminate, or constitute (or with notice or lapse of time or both
would constitute) a default (by way of substitution, novation or otherwise)
under the terms of, any material contract, lease, bond, agreement, franchise or
other instrument to which Buyer is a party.
4.4 CAPITALIZATION; VALIDITY OF SHARES. As of the Closing,
the authorized capital stock of the Company will consist of 30,000,000 shares of
Common Stock, $.001 par value, and 10,391,608 shares of Preferred Stock, $.001
par value, of which 4,545,454 shares are designated Series A Preferred Stock and
1,730,770 shares are designated Series B Preferred Stock. Immediately prior to
the Closing, there will be issued and outstanding 9,871,731 shares of Common
Stock, 4,545,454 shares of Series A Preferred Stock, and 1,730,770 shares of
Series B Preferred Stock. As of the Closing, all issued and outstanding shares
of the Company's capital stock, including the Shares, will be duly authorized
and validly issued, and will be fully paid and nonassessable.
4.5 BROKERS AND FINDERS. Neither Buyer nor any of its
affiliates, associates, officers, directors, employees or agents has employed
any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
hereby.
5. OTHER OBLIGATIONS AND COVENANTS OF SELLER.
5.1 RESTRICTIVE COVENANTS. As a covenant ancillary to the
purchase of the Assets, as provided herein and to ensure Buyer receives the full
benefit of the transfer and assignment of such Assets as contemplated by this
Agreement:
(a) Seller agrees that for a period of three (3)
years from the Closing Date, Seller will not, without the prior express written
consent of Buyer enter into or engage in any business or perform any service, or
have any interest whether as a partner, stockholder, principal, agent,
consultant, or in any other capacity or manner whatsoever, in any enterprise,
which directly or indirectly, is involved in providing strategic and analytical
support services, including information systems and information management
support, and billing and collection services to physicians, clinics, and other
medical practitioners in any geographic area of the United States; provided,
however, that Seller shall not be prohibited from owning capital stock of the
Buyer. Seller agrees that, if any portion of this provision is found to be
invalid, illegal, or unenforceable for any reason, such invalidity, illegality
or unenforceability shall not affect the validity, legality, and enforceability
of any other portion of this provision. It is the desire of each Seller and the
Buyer that this entire provision be valid, binding and enforceable to the
maximum extent permitted by law. In the event any term or provision of the
foregoing provision is found to be invalid, illegal or unenforceable for any
reason, then each Seller and the Buyer agree that they will seek to have the
court or arbitrator limit the scope of that subsection to the minimum extent
necessary to make the subsection valid and enforceable.
(b) The Seller recognizes that the provisions
contained in Section 5.1(a) are reasonably necessary for Buyer's protection and
realization of the benefit to Buyer of its bargains
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under this Agreement and that a violation of Section 5.1(a) will cause damage
which will be irreparable or impossible to ascertain, and, accordingly, that
Buyer shall be entitled to an injunction or other similar relief in equity from
a court of competent jurisdiction to enforce these restrictions or restrain a
violation of Section 5.l(a). The right of Buyer to such relief shall be in
addition to any other rights it may have, whether at law or in equity.
(c) If Seller violates the terms of Section 5.1(a)
and Buyer brings legal action for injunctive or other relief, Buyer shall not,
as a result of the time involved in obtaining the relief, be deprived of the
benefit of the full term of the covenants provided herein. In the event a court
of competent jurisdiction would decide that an action of the Seller is
considered to be a violation of Section 5.1(a), the covenants shall be deemed to
have a duration specified in Section 5.1(a), to be increased with the time such
violation lasted.
(d) If Section 5.1(a) is more restrictive than
permitted by the laws of the jurisdiction in which Buyer seeks enforcement
hereof, Section 5.1(a) shall be limited only to the extent required to permit
enforcement under such laws. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms. If, in any proceedings, a court or
arbitrator shall refuse to enforce any of the separate covenants, then such
unenforceable covenant shall be deemed eliminated from this Section 5.1 for the
purpose of those proceedings only to the extent necessary to permit the
remaining separate covenants to be enforced. If the provisions of this Section
5.1 shall ever be deemed to exceed the duration or geographic limitations or
scope permitted by applicable law, then such provisions shall be reformed to the
maximum time or geographic limitations in scope, as the case may be, permitted
by applicable law.
5.2 EMPLOYEES.
(a) NON-SOLICITATION OF EMPLOYEES. For a period of
three (3) years from the Closing Date, neither Seller nor Phillip B. Douglas
("Douglas"), or their agents or representatives shall, without Buyer's prior
written consent, solicit to employ (or enter into or solicit to enter into any
consulting, contractor or subcontractor arrangement or any work relationship of
any kind with) any employee employed by Buyer or by any of Buyer's affiliates.
In addition, for a period of three (3) years from the Closing Date, neither
Seller nor Douglas, or their agents or representatives shall, without Buyer's
prior written consent, employ (or enter into or solicit to enter into any
consulting, contractor, or subcontractor arrangement or any work relationship of
any kind with) any employee employed by Buyer or by any of Buyer's affiliates
whose employment with Buyer or any affiliate of Buyer has terminated, unless
such employee's termination of employment was initiated by Buyer, or by Buyer's
affiliate, as applicable, or whose employment has not voluntarily terminated at
least one hundred eighty (180) days prior to the approach by Seller or Douglas
to such employee.
(b) NO OBLIGATION TO EMPLOY. Buyer may offer
employment to any employee of Seller on such terms as Buyer in its discretion
may deem advisable but shall have no obligation to employ or offer employment to
any such Seller employee. In no event shall Seller have any liability or
obligation relating to the employment of any employee of Seller, including in
that limitation, any severance, accrued vacation, sick pay, or any other
liabilities or obligations whatsoever.
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5.3 MAINTENANCE OF BUSINESS PRIOR TO CLOSING. From February
28, 1999 until the Closing Date, Seller shall have carried on the Business in
the ordinary course consistent with past practice. Without limiting the
generality of the foregoing, during such time period Seller shall operate the
Business in accordance with the following provisions:
(a) Seller shall use its commercially reasonable
best efforts to: (i) make timely payments or accounts payable and other
obligations and liabilities of the Business in accordance with past practice;
(ii) use reasonable efforts to keep available the services of its key employees;
(iii) maintain satisfactory relationships with customers and others having a
relationship with the Business; (iv) maintain the Assets and the properties of
the Business in their current state of repair excepting normal wear and tear;
(v) maintain all policies of insurance in effect on the date hereof (or
comparable replacements thereof); (vi) comply with all laws, ordinances, orders,
injunctions and decrees applicable to it and to the conduct of the Business and
the use of the Assets; (vii) make no changes in policies including credit
approval or credit terms.
(b) Seller shall not, without the prior written
consent of Buyer: (i) mortgage, pledge or otherwise encumber any of the Assets
or sell, transfer, assign or otherwise dispose of any material Asset; (ii) waive
any rights related to the Business; (iii) except in accordance with agreements
entered into prior to the date of this Agreement, grant or agree to grant any
bonuses to any employee which are inconsistent with past practices, any increase
in the rate of salaries or compensation of its employees or any specific
increase to any employee or provide for any new pension, severance, retirement
or other employment benefits to any of its employees or any increase in any
existing benefits other than in the ordinary course of business consistent with
past practice; (iv) collect accounts receivable in a manner inconsistent with
past practice; or (v) do any other act which would cause any representation or
warranty of Seller in this Agreement to be or become untrue.
6. CONDITIONS TO BUYER'S OBLIGATION. The obligation of Buyer to
consummate the transactions provided for hereby are subject to the satisfaction
of the following conditions on or before the Closing Date unless waived in
writing by Buyer:
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Seller contained in this Agreement shall be
true and correct at and as of the Closing Date (and such representations and
warranties shall be deemed to be repeated by Seller at and as of the Closing
Date), and Seller shall have performed all agreements and covenants required
hereby to be performed by it prior to or at the Closing.
6.2 NO PROCEEDINGS OR LITIGATION. No action by any
governmental entity or any third party shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated hereby
or which could have a material adverse effect on the business, operating
prospects or financial condition of Seller.
6.3 OPINION OF COUNSEL. Buyer shall have received an opinion
from Seller's outside counsel, dated the Closing Date, addressed to Buyer,
covering such matters as are set forth in Exhibit A.
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6.4 NO MATERIAL ADVERSE CHANGE. There shall not have
occurred after the date of this Agreement any event, circumstance or
development, or any change in or effect on the Company that has or could be
expected to have a material adverse effect on the Business.
6.5 FILINGS; CONSENTS; WAITING PERIODS. All registrations,
filings, applications, notices, transfers, consents, approvals, orders,
qualifications, waivers and other actions of any kind listed on Schedule 3.2
(including, without limitation, the receipt by Seller of consents, if any,
required under the contracts listed in Schedule 3.3) or otherwise required of
any persons or governmental authorities or private agencies in connection with
the consummation of the transactions contemplated by, and the performance by
Seller of its obligations under, this Agreement shall have been made or obtained
and all applicable waiting periods shall have expired or been terminated, in
each case upon terms and conditions reasonably satisfactory to Buyer.
6.6 CERTIFICATES. In the event that the Closing does not
occur simultaneously with the execution of this Agreement, Seller shall have
furnished Buyer with such certificates of Seller to evidence compliance with the
conditions set forth in this Section 6 as may be reasonably requested by Buyer.
7. CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of Seller to
consummate the transactions provided for hereby are subject to the satisfaction
of the following conditions on or before the Closing Date unless waived in
writing by Seller.
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date (and
such representations and warranties shall be deemed to be repeated by Buyer at
and as of the Closing Date), and Buyer shall have performed in all material
respects all agreements and covenants required hereby to be performed by it
prior to or at the Closing.
7.2 NO PROCEEDINGS OR LITIGATION. No action by any
governmental entity or any third party shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated
hereby.
7.3 CERTIFICATES. In the event the Closing does not occur
simultaneously with the execution of this Agreement, Buyer shall have furnished
Seller with such certificates of Buyer to evidence compliance with the
conditions set forth in this Section 7 as may be reasonably requested by Seller.
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8. CLOSING. The Closing of the sale of the Assets pursuant to this
Agreement (the "Closing") shall take place on April 19, 1999 (the "Closing
Date") at 10:00 a.m. at the offices of Stradling Yocca Carlson & Rauth, Newport
Beach, California, or at such other time and place as the parties mutually agree
in writing. At the Closing, (i) Buyer shall issue to Seller Sixty Thousand
(60,000) shares of Common Stock of the Buyer and shall execute and deliver to
Seller an instrument of assumption of the Assumed Liabilities, dated as of the
Closing Date and in a form reasonably acceptable to Seller, and (ii) Seller will
deliver to Buyer such bills of sale and other documents and instruments dated as
of the Closing Date as Buyer reasonably deems necessary or appropriate to
transfer the Assets to Buyer and to consummate the transactions contemplated
hereby.
9. CONFIDENTIALITY. Neither Seller nor any of its affiliates,
agents or representatives shall, directly or indirectly, use or disclose to any
Person any confidential or proprietary information of or relating to Buyer, the
Business or the Assets except with Buyer's prior written consent, except as
shall be disclosed to Seller's attorneys and accountants who shall be bound by a
similar obligation of confidentiality, or as may be necessary to assign
contracts of Seller. Neither Buyer nor any or its affiliates, agents or
representatives shall, directly or indirectly, use or disclose to any Person any
confidential or proprietary information of or relating to Seller without
Seller's prior written consent, except as shall be disclosed to Buyer's
attorneys and accountants, or as may be necessary to assign contracts of Seller.
For purposes of this Section, the term "confidential or proprietary information"
shall mean all information that is known to a party or its respective affiliates
or to their employees, consultants or others in a confidential relationship with
such party and relates to such matters as marketing plans, strategies, customer
lists, forecasts, prices of any other party hereto and shall further include all
terms and conditions under this Agreement, provided that any information
relating to the Business or the Assets shall in no event be deemed to be
confidential or proprietary information of Seller; and provided further that the
term "confidential or proprietary information" shall not include information (i)
rightfully received by Seller or Buyer, as the case may be, from parties other
than the parties to this Agreement; (ii) generally available to the public; or
(iii) required to be disclosed by applicable law. If disclosure is required by
law, the party required to make such disclosure shall give notice to the other
party hereto so that such other party may seek a protective order.
10. TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date: (a) by mutual consent of Seller and Buyer; (b) by Buyer or
Seller, if the Closing shall not have occurred on or before April 30, 1999; (c)
by Buyer, if there has been a material violation or breach by Seller of any
covenant, agreement, representation or warranty contained in this Agreement that
has rendered the satisfaction of any condition to the obligation of Buyer
impossible and such violation or breach has not been waived by Buyer; or (d) by
Seller, if there has been a material violation or breach by Buyer of any
covenant, agreement, representation or warranty contained in this Agreement that
has rendered the satisfaction of any condition to the obligation of Seller
impossible and such violation or breach has not been waived by Seller. In the
event of such termination, this Agreement shall become null and void and shall
have no force or effect, with no liability on the part of any party other than
for its breach hereof.
11. MISCELLANEOUS PROVISIONS.
11.1 FURTHER ASSURANCES. From time to time after the Closing
Date, upon Buyer's reasonable request, Seller will (at Seller's cost) execute,
deliver and acknowledge all such
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further instruments of transfer and conveyance and do and perform all such other
acts and things as Buyer may reasonably require to more effectively transfer the
Assets to Buyer and to put Buyer in possession of the Assets.
11.2 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by written
agreement of Buyer and Seller.
11.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Seller,
on the one hand, or Buyer, on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived in writing by the party
entitled to the performance of such obligation, covenant or agreement or who has
the benefit of such condition, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or conditions shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consents by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth above.
11.4 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or three (3) days after
being mailed by certified or registered mail, return receipt requested, with
postage prepaid:
(a) IF TO SELLER TO:
Phillip B. Douglas
Management and Technology Solutions, Inc.
9931 Corporate Campus Drive
Suite 3500
Louisville, Kentucky 40223
With a copy to:
Lawrence K. Banks, Esq.
Greenbaum, Doll & McDonald
3300 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202-3197
or to such other person or address as Seller shall furnish to Buyer in writing
pursuant to the above.
(b) IF TO BUYER TO:
The TriZetto Group, Inc.
567 San Nicholas Drive, Suite 360
Newport Beach, CA 92660
Attn: Brian Karr
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With a copy to:
K.C. Schaaf, Esq.
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660-6441
or to such other person or address as Buyer shall furnish to Seller in writing
pursuant to the above.
11.5 TERMINOLOGY. For purposes of this Agreement, the phrase
"in the ordinary course of business" and the phrase "in accordance with past
practice" shall refer to the customary operations and practices of Seller in the
conduct of the Business, but shall in no event include any acts or failures to
act which would cause Seller to violate or breach any covenant, agreement,
representation or warranty made by Seller under this Agreement. As used herein,
the term "affiliate" shall mean with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person.
11.6 ASSIGNMENT. This Agreement shall not be assigned by
either party hereto without the prior written consent of the other party hereto.
No permitted assignment shall release the assignor from its obligations
hereunder. Subject to the foregoing, this Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respect successors, assigns, heirs, executors and personal representative.
11.7 GOVERNING LAW. ALL MATTERS WITH RESPECT TO THIS
AGREEMENT, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION,
EFFECT AND PERFORMANCE, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN BETWEEN RESIDENTS
THEREOF (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER PRINCIPLES OF
CONFLICTS OF LAW). ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA.
11.8 COUNTERPARTS. This Agreement may be executed in two or
more fully or partially executed counterparts, each of which shall be deemed an
original, but all counterparts together shall constitute one and the same
instrument.
11.9 HEADINGS. The Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.10 JOINT EFFORT. The provisions of this Agreement have been
examined, negotiated and revised by counsel for each party, and no implication
shall be drawn against any party hereto by virtue of the drafting of this
Agreement.
11.11 ENTIRE AGREEMENT. This Agreement, and the Exhibits and
Schedules hereto and any other document to be furnished pursuant to the
provisions hereof embody the entire Agreement and understanding of the parties
hereto in respect of the subject matter contained herein.
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There are no restrictions, promises, representations, warranties, covenants, or
undertakings, other than those expressly set forth or referred to in such
documents. This Agreement and such documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
11.12 BULK SALES LAW. Buyer and Seller hereby agree to waive
compliance by the other with the provisions of any applicable Bulk Sales Law of
any jurisdiction. Seller agrees to defend, indemnify and hold Buyer and the
Assets harmless from and against any claim, liability, obligation, cost and
expense, including reasonable attorneys' fees, which arises from or as a result
of such non-compliance by the parties.
11.13 CONFIDENTIALITY. Seller and Buyer agree to keep the
terms of this Agreement confidential unless disclosure is required by law or
authorized in writing by both Buyer and Seller.
11.14 PUBLICITY. Prior to the Closing Date, all press releases
and other publicity and communications relating to the sale of the business will
require the approval of both Seller and Buyer.
11.15 NO THIRD PARTY BENEFICIARIES. The provisions of this
Agreement are intended solely for the benefit of the parties hereto, and no
other party is entitled to any rights, benefits or privileges created hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be duly executed, all as of the day and year first above written.
THE TRIZETTO GROUP, INC., MANAGEMENT AND TECHNOLOGY
a Delaware corporation SOLUTIONS, INC., a Delaware corporation
By: By: /s/ PHILLIP B. DOUGLAS
-------------------------------- -------------------------------------
Its: Its: President
------------------------------- ------------------------------------
Name: Name: Phillip B. Douglas
------------------------------ -----------------------------------
The undersigned is individually executing this Asset Purchase Agreement as an
individual stockholder and executive of the Seller and is subject only to the
specific provisions of Section 5.2(a).
/s/ PHILLIP B. DOUGLAS
----------------------------------------
Phillip B. Douglas
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IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be duly executed, all as of the day and year first above written.
THE TRIZETTO GROUP, INC., MANAGEMENT AND TECHNOLOGY
a Delaware corporation SOLUTIONS, INC., a Delaware corporation
By: /s/ JEFFREY H. MARGOLIS By:
-------------------------------- -------------------------------------
Its: President Its:
------------------------------- ------------------------------------
Name: Jeffrey H. Margolis Name:
------------------------------ -----------------------------------
The undersigned is individually executing this Asset Purchase Agreement as an
individual stockholder and executive of the Seller and is subject only to the
specific provisions of Section 5.2(a).
----------------------------------------
Phillip B. Douglas
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EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF THE TRIZETTO GROUP, INC.,
A DELAWARE CORPORATION
(Pursuant to Section 242 and 245)
The undersigned, Jeffrey H. Margolis, hereby certifies that:
ONE: He is the President of said corporation.
TWO: The corporation was originally incorporated under the name MC Health
Holdings, Inc.; the original Certificate of Incorporation of said corporation
was originally filed with the Secretary of State of Delaware on May 27, 1997.
THREE: The Amended and Restated Certificate of Incorporation was filed with
the Secretary of State of Delaware on April 29, 1998.
FOUR: A Certificate of Amendment to the Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on October 28,
1998.
FIVE: The Certificate of Incorporation of said corporation shall be amended
and restated to read in full as follows:
ARTICLE 1
The name of this Corporation is The TriZetto Group, Inc. (the
"Corporation").
ARTICLE 2
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801. The name of the Corporation's registered agent at that address is The
Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware, as amended from time to time.
ARTICLE 4
4.1 CLASSES OF STOCK. The aggregate number of shares of all classes of
stock which the Corporation shall have authority to issue is 40,391,608 shares,
consisting of (a) 30,000,000 shares of Common Stock, $.001 par value (the
"Common Stock"), and (b) 10,391,608 shares of Preferred Stock, $.001 par value
(the "Preferred Stock"), of which 4,545,454 shares have been designated as
Series A Preferred Stock and 1,730,770 shares have been designated as Series B
Preferred Stock, with the rights and preferences set forth below.
<PAGE> 2
4.2 RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The Board of
Directors is authorized, subject to limitations prescribed by law, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
c. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
d. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
f. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund; and
g. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series.
4.3 RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES A PREFERRED STOCK AND
SERIES B PREFERRED STOCK.
a. Dividend Rights. Subject to the rights of any series of Preferred
Stock which may from time to time come into existence, the holders of the Series
A Preferred Stock and the Series B Preferred Stock shall be entitled to receive,
out of funds legally available therefor, dividends at the annual rate of $.1144
and $.208 per share, payable on a pari passu basis, when, as and if declared by
the Board of Directors. Dividends on the Series A Preferred Stock and the Series
B Preferred Stock shall cumulate and shall accrue if not paid, but only for
purposes of Sections 4.3b and 4.3c and not for payment, whether or not the
earnings of the Corporation in that previous fiscal year were sufficient to pay
such dividends in whole or in part. No dividends or other distributions shall be
made with respect to the Common Stock during any fiscal year of the
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Corporation until the holders of the Series A Preferred Stock and the Series B
Preferred Stock have received an aggregate amount equal to the liquidation
preferences set forth in Section 4.3b below with respect to the Series A
Preferred Stock and the Series B Preferred Stock and unless dividends in the
total amount payable per share of Common Stock shall have also been paid on each
share of Series A Preferred Stock and Series B Preferred Stock (based on the
number of shares of Common Stock each such share of Series A Preferred Stock and
Series B Preferred Stock is then convertible) during that fiscal year.
b. Liquidation Rights.
(1) Preference. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of any series of Preferred Stock which may from time to time come into
existence, the holders of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, an amount per share equal to the sum of (i) $1.43 for
each outstanding share of Series A Preferred Stock (the "Series A Original Issue
Price"), as adjusted for stock splits, stock dividends or similar events
described in Section 4.3e(4), (ii) $2.60 for each outstanding share of Series B
Preferred Stock (the "Series B Original Issue Price"), as adjusted for stock
splits, stock dividends or similar events described in Section 4.3e(4), and
(iii) an amount equal to accrued but unpaid dividends on such shares (such
amount of accrued but unpaid dividends being referred to herein as the
"Premium"). If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock and the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of any
series of Preferred Stock which may from time to time come into existence, the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
and the Series B Preferred Stock with each such holder to receive an amount
equal to the aggregate assets and funds to be distributed multiplied by a
fraction, the numerator of which is the aggregate liquidation preferences of all
the shares of Series A Preferred Stock and Series B Preferred Stock held by such
holder and the denominator of which is the aggregate liquidation preferences of
all of the shares of Series A Preferred Stock and Series B Preferred Stock then
outstanding.
(2) Further Distribution. After the distribution described in
Section 4.3b(1) have been paid, subject to the rights of any series of Preferred
Stock which may from time to time come into existence, the remaining assets of
the Corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock pro rata.
(3) Mergers, Consolidations, etc. Any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) which will result in the Corporation's stockholders
immediately prior to such transaction not holding (by virtue of such shares or
securities issued solely with respect thereto) at least 50% of the voting power
of the surviving or continuing entity, or a sale of all or substantially all of
the assets of the Corporation, unless the Corporation's stockholders immediately
prior to such sale will, as a result of such sale, hold (by virtue of securities
issued as consideration for the Corporation's sale) at least 50% of the voting
power of the purchasing entity, will be deemed to be a liquidation and such
stockholders shall be entitled to distributions as described in Sections 4.3b(1)
and 4.3b(2) above. In any such events, if
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the consideration received by the Corporation is other than cash or securities,
its value will be deemed its fair market value, as mutually determined by the
Corporation's Board of Directors and the holders of seventy-five percent (75%)
of the Series A Preferred Stock and the Series B Preferred Stock, voting
together as a single class. Any securities to be delivered to the holders of the
Series A Preferred Stock and the Series B Preferred Stock shall be valued as
follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or reported on
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty (30) day
period ending three (3) days prior to the closing:
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
are applicable) over the 30-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation's Board of Directors and the holders of seventy-five percent (75%)
of the Series A Preferred Stock and the Series B Preferred Stock, voting
together as a single class.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of seventy-five percent (75%) of the Series A Preferred Stock and the Series B
Preferred Stock, voting together as a single class.
(iii) The Corporation shall give each holder of record of
Series A Preferred Stock and Series B Preferred Stock written notice of such
impending transaction not later than twenty (20) days prior to the stockholders'
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 4.3, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of seventy-five percent (75%) of the Series A
Preferred Stock and the Series B Preferred Stock, voting together as a single
class.
(iv) In the event the requirements of this Section 4.3 are
not complied with, the Corporation shall forthwith either:
(A) cause such transaction to be postponed until such
time as the requirements of this Section 4.3 have been complied with; or
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(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock and
the Series B Preferred Stock shall revert to and be the same as such rights,
preferences and privilege existing immediately prior to the date of the first
notice referred to in Section 4.3b(4)(iii) hereof.
(v) The provisions of this section are in addition to the
protective provisions of Section 6 hereof.
c. Redemption.
(1) Series A Preferred Stock and Series B Preferred Stock.
From and after March 31, 2004, each holder of the Series A Preferred Stock and
the Series B Preferred Stock, upon the written approval of the holders of at
least seventy-five percent (75%) of the Series A Preferred Stock and the Series
B Preferred Stock then outstanding (voting together as a single class), may, at
its option, at any time (and from time to time), require the Corporation to
redeem all or a part of the Series A Preferred Stock and the Series B Preferred
Stock held by such holders by delivery of a written notice requesting such
redemption and the number of shares to be redeemed (the "Redemption Notice").
Within five (5) days after the receipt of a Redemption Notice (the "Date of
Receipt"), the Corporation shall deliver written notice to all other holders of
Series A Preferred Stock and Series B Preferred Stock informing each such holder
of (1) the receipt of such Redemption Notice, (2) the Date of Receipt, (3) the
number of shares of Series A Preferred Stock and Series B Preferred Stock
requested to be redeemed in the Redemption Notice, and (4) the total number of
shares of Series A Preferred Stock and Series B Preferred Stock outstanding as
of the Date of Receipt. Any such holder desiring to have any of its Series A
Preferred Stock and Series B Preferred Stock redeemed by the Corporation in
accordance with the below schedule shall have until thirty (30) days after the
Date of Receipt (the "Exercise Period") in which to notify the Corporation of
the number of shares of Series A Preferred Stock and Series B Preferred Stock
which such holder desires the Corporation to redeem. The total number of shares
of Series A Preferred Stock and Series B Preferred Stock which are so requested
to be redeemed by all holders of Series A Preferred Stock and Series B Preferred
Stock are referred to herein as the "Redemption Shares". The Company shall
redeem such shares either in full fifteen (15) days after the end of the
Exercise Period or in three equal redemptions according to the following
schedule: (i) one-third of the Redemption Shares fifteen (15) days after the end
of the Exercise Period; (ii) one-half of the remaining amount of Redemption
Shares which have not previously been redeemed on the first anniversary of the
Redemption Notice; and (iii) all of the remaining amount of Redemption Shares
which have not previously been redeemed on the second anniversary of the
Redemption Notice (the "Redemption Dates"). The Corporation shall redeem the
Redemption Shares at a price equal to the Series A Original Issue Price or the
Series B Original Issue Price (as applicable), as adjusted for stock splits,
stock dividends or similar events described in Section 4.3e(4), plus the
Premium, if any, for each such share as of the applicable Redemption Date (the
"Redemption Price"). The Corporation shall pay for shares redeemed hereunder by
delivery of cash in the amount of the Redemption Price for the shares to be so
redeemed on the respective Redemption Dates.
(2) Surrender of Stock. On or before each Redemption Date,
each holder of shares of Series A Preferred Stock and Series B Preferred Stock
to be redeemed, unless the holder has exercised its right to convert the shares
as provided in Section 4.3e hereof, shall surrender the certificate or
certificates representing such shares to the Corporation, and thereupon the
Redemption
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Price for such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be cancelled and retired. In the event less than
all of the shares represented by such certificate are redeemed, a new
certificate representing the unredeemed shares shall be issued to the holder of
such shares.
(3) Partial Redemption. From and after each Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders as to the shares of Series A Preferred Stock and Series B
Preferred Stock to be redeemed (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. Subject to the rights of any series of Preferred Stock
that may from time to time come into existence, if the funds of the Corporation
legally available for redemption of shares of Series A Preferred Stock and
Series B Preferred Stock on any Redemption Date are insufficient to redeem the
total number of such shares to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares proportionately among the holders of such shares to be redeemed based
upon the aggregate Redemption Price of their holdings of Series A Preferred
Stock and Series B Preferred Stock as of the Redemption Date. The shares of
Series A Preferred Stock and Series B Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
Subject to the rights of any series of Preferred Stock that may from time to
time come into existence, at any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series A
Preferred Stock and Series B Preferred Stock such funds will immediately be used
to redeem the balance of the shares which the Corporation has become obliged to
redeem on any Redemption Date but which it has not redeemed in accordance with
the foregoing provisions.
(4) Deposit of Redemption Price. On or prior to each
Redemption Date, the Corporation shall deposit the Redemption Price of all
shares designated for redemption and not yet redeemed with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000 as a
trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed, with irrevocable instructions and authority
to the bank or trust company to pay the Redemption Price for such shares to
their respective holders on or after the Redemption Date upon receipt of
notification from the Corporation that such holder has surrendered its share
certificate to the Corporation pursuant to Section 4.3c(2) above. Such
instructions shall also provide that any moneys deposited by the Corporation
pursuant to this Section 4.3c(4) for the redemption of shares thereafter
converted into shares of the Corporation's Common Stock pursuant to Section 4.3e
hereof prior to the Redemption Date shall be returned to the Corporation
forthwith upon such conversion. The balance of any moneys deposited by the
Corporation pursuant to this Section 4.3c remaining unclaimed at the expiration
of two (2) years following the applicable Redemption Date shall thereafter be
returned to the Corporation upon its request expressed in a resolution of its
Board of Directors.
d. Voting Rights.
(1) Generally. Except as otherwise required by law or this
provision, each share of Series A Preferred Stock and Series B Preferred Stock
shall entitle the holder thereof to such number of votes per share as shall
equal the number of shares of Common Stock into which
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each share of Series A Preferred Stock and Series B Preferred Stock is then
convertible, and each such holder of Series A Preferred Stock and Series B
Preferred Stock shall be entitled to vote on all matters as to which holders of
Common Stock shall be entitled to vote, in the same manner and with the same
effect as such holders of Common Stock, voting together with the holders of
Common Stock as one class.
(2) Election of Directors. The holders of the Series A
Preferred Stock and the Series B Preferred Stock shall have the right, voting
together as a single class, to elect two (2) directors. In addition, the holders
of Series A Preferred Stock and the Series B Preferred Stock, voting together
with the holders of Common Stock as one class, shall be entitled to elect two
additional directors.
e. Conversion Rights.
(1) Right to Convert. Each share of Series A Preferred Stock
and Series B Preferred Stock shall be convertible into Common Stock at any time
at the option of the respective holders of Series A Preferred Stock and Series B
Preferred Stock. The number of shares of Common Stock issuable with respect to
any share of Series A Preferred Stock and Series B Preferred Stock upon
conversion shall be determined by dividing $1.43 and $2.60, respectively, by the
applicable Conversion Price (as defined below) in effect at the date of
conversion. The initial conversion price per share of Series A Preferred Stock
and Series B Preferred Stock shall be $1.43 and $2.60, respectively (the "Series
A Conversion Price" and the "Series B Conversion Price," respectively), which
shall be subject to adjustment from time to time as provided in Section 4.3e(4)
below. In effecting the conversion, accrued unpaid dividends on the Series A
Preferred Stock and the Series B Preferred Stock, if any, shall be disregarded
and cancelled. The Corporation shall reserve and keep reserved out of its
authorized but unissued shares of Common Stock sufficient shares to effect the
conversion of all shares of Series A Preferred Stock and Series B Preferred
Stock outstanding from time to time.
(2) Mechanics of Conversion. A holder of Preferred Stock
desiring to convert shall deliver the share certificate to the Corporation's
transfer agent if it has one, or otherwise to the Corporation at its principal
executive office, accompanied by written request to convert, specifying the
number of shares to be converted, and the name or names in which certificates
for shares of Common Stock are to be issued. The endorsement of the share
certificate and the request to convert shall be in form satisfactory to the
transfer agent or the Corporation, as the case may be. Upon the date of such
delivery the conversion is deemed to have occurred and the person entitled to
receive share certificates for Common Stock shall be regarded for all corporate
purposes from and after such date as the holder of the number of shares of
Common Stock to which such holder is entitled upon the conversion. This
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended, the
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<PAGE> 8
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(3) Automatic Conversion.
(i) Each share of Series A Preferred Stock and Series B
Preferred Stock shall automatically be converted into shares of Common Stock at
the then effective applicable Conversion Price upon the closing of a sale of
Common Stock by the Corporation in an underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended, (x) from
which the aggregate gross proceeds (prior to underwriters' commissions and
expenses) exceed $15,000,000 and (y) at a public offering price equal to or
exceeding $6.50 per share. On and after this conversion date, notwithstanding
that any certificates for shares of the Preferred Stock shall not have been
surrendered for conversion, the shares of Preferred Stock evidenced thereby
shall be deemed to be no longer outstanding, and all rights with respect thereto
shall forthwith cease and terminate, except only the rights of the holder to
receive the shares of Common Stock to which such holder shall be entitled upon
conversion thereof.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
applicable Conversion Price upon the election of holders of seventy-five percent
(75%) of the then outstanding Series A Preferred Stock voting together as a
separate class.
(iii) Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
applicable Conversion Price upon the election of holder of fifty percent (50%)
of the then outstanding Series B Preferred Stock, voting together as a separate
class.
(4) Conversion Price Adjustments of Preferred Stock. In the
event of a stock split, reverse stock split, stock dividend, reorganization or
recapitalization affecting the number of shares of Common Stock outstanding, the
Series A Conversion Price and Series B Conversion Price shall be proportionately
revised so as to fairly and equitably preserve the conversion rights of the
Series A Preferred Stock and the Series B Preferred Stock. The Conversion Price
for Series A Preferred Stock and Series B Preferred Stock shall be subject to
adjustment as set forth in Sections 4.3e(4)(i) through 4.3e(4)(iv) below as
follows:
(i) (A) If the Corporation shall issue any Additional
Stock (as defined below) without consideration or for a consideration per share
less than the applicable Conversion Price for the Series A Preferred Stock or
Series B Preferred Stock in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for such series of Preferred Stock in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price equal to the
quotient obtained by dividing the total computed under clause (x) below by the
total computed under clause (y) below as follows:
(x) an amount equal to the sum of:
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1. the aggregate purchase price of the shares
of the series of Preferred Stock; plus
2. the aggregate consideration, if any,
received by the Corporation for all Additional Stock issued on or after the date
of the first purchase from the Corporation of the series of Preferred Stock (the
"Purchase Date" for such series of Preferred Stock);
(y) an amount equal to the sum of:
1. the aggregate purchase price of the shares
of the series of Preferred Stock divided by the applicable Conversion Price for
the series of Preferred Stock in effect on the Purchase Date (or such higher or
lower Conversion Price for such series as results from the application of
Sections 4.3e(4)(iii) and (iv)),
2. the number of shares of Additional Stock
issued since the Purchase Date (increased or decreased to the extent that the
number of such shares of Additional Stock shall have been increased or decreased
as the result of the application of Sections 4.3e(4)(iii) and (iv));
provided, however, that the foregoing calculation shall not take into account
shares deemed issued pursuant to Section 4.3e(4)(i)(E) on account of options,
rights or convertible or exchangeable securities (or the actual or deemed
consideration therefor), except to the extent (i) such options, rights or
convertible securities have been exercised or converted, or (ii) the
consideration to be paid upon such exercise, conversion or exchange per share of
underlying Common Stock is less than or equal to the per share consideration for
the Additional Stock which has given rise to the applicable Conversion Price
adjustment being calculated.
(B) No adjustment of the Conversion Price for any
series of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
Sections 4.3e(4)(i)(E)(3) and 4.3e(4)(i)(E)(4), no adjustment of such Conversion
Price pursuant to this Section 4.3e(4)(i) shall have the effect of increasing
the Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as reasonably determined
by the Board of Directors in good faith irrespective of any accounting
treatment.
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(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection e(4)(i) and subsection e(4)(ii):
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 5(d)(i)(C) and (d)(i)(D)), if any, received by the Corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Sections
4.3e(4)(i)(C) and 4.3e(4)(i)(D)).
3. In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A Preferred Stock and the Series B Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
4. Upon the expiration of any such option or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock and the Series
B Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options
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<PAGE> 11
or rights, upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
5. The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4.3e(4)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section
4.3e(4)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to Section 4.3e(4)(i)(E))
by the Corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in Section 4.3e(4)(iii) hereof,
(B) up to 2,925,000 shares of Common Stock, issuable or
issued to officers, directors, employees, consultants, vendors, or other persons
with important business relationships with, the Corporation directly or pursuant
to a stock option plan, or restricted stock plan, a stock purchase agreement or
similar plan or arrangement approved by the Board of Directors of this
Corporation, including any such shares subject to options existing on the
applicable Purchase Date for the Series A Preferred Stock and the Series B
Preferred Stock,
(C) the Series A Preferred Stock, the Series B
Preferred Stock or the Common Stock issuable upon conversion of the Series A
Preferred Stock and the Series B Preferred Stock,
(D) shares of Common Stock issued as a dividend or
distribution on Series A Preferred Stock and Series B Preferred Stock,
(E) Common Stock issued in a public offering in which
the Series A Preferred Stock and the Series B Preferred Stock is converted into
Common Stock.
(iii) In the event the Corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock and the Series B Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate number of shares of Common Stock outstanding and those
issuable with respect to Common Stock Equivalents, with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4.3e(4)(i)(E).
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(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock and the
Series B Preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in outstanding shares.
(5) Special Mandatory Conversion.
(i) If any holder of shares of Series A Stock Preferred
Stock and Series B Preferred Stock is entitled to exercise the right of first
refusal as set forth in Section 2.1 of First Amended and Restated Investor
Rights Agreement (the "Investor Rights Agreement") dated as of April __, 1999,
as may be amended from time to time, between the Corporation and the other
parties named therein (the "Right of First Refusal") with respect to any
offering of securities ("Offering") by the Corporation for a purchase price
which is less than the then effective Conversion Price for such series of
Preferred Stock, and (i) the Corporation has fully complied in all respects with
its obligations pursuant to Section 2.1 of the Investor Rights Agreement in
respect thereof, and (ii) the provisions of the Right of First Refusal have not
been waived at the request of the Corporation by such holder, and if such holder
(a "Non-Participating Holder"), by exercise or failure to exercise of such
holder's Right of First Refusal, acquires less than his Special Proportionate
Percentage (as hereinafter defined) of the Allocated Offered Securities (as
hereinafter defined) offered to the holders of Series A Preferred Stock and
Series B Preferred Stock in such Offering (a "Mandatory Offering"), then each of
such holder's shares of Series A Preferred Stock and Series B Preferred Stock
shall automatically and without further action of the part of such holder be
converted (the "Special Mandatory Conversion") effective subject to and
concurrently with consummation of the Mandatory Offering (the "Mandatory
Offering Date") into one share (appropriately adjusted to reflect the occurrence
of any event described in Section 4.3e) of newly created series of Preferred
Stock (having such number of shares as the Board of Directors may by resolution
fix) which series shall be identical in respects to the Series A Preferred Stock
and Series B Preferred Stock, as the case may be (and shall vote with and be
entitled to consent with, the Series A Preferred Stock and Series B Preferred
Stock as the case may be), except that the Conversion Price of each such series
shall be fixed immediately prior to the Mandatory Offering Date and shall be
subject to no adjustments in connection with such Offering or any subsequent
Offering. The Board of Directors and the holders of Series A Preferred Stock and
Series B Preferred Stock shall take all necessary actions to designate such new
series and holders of Series A Preferred Stock and Series B Preferred Stock
shall be deemed to have consented to the designation of such new series. Upon
such conversion, the shares of Series A Preferred Stock and Series B Preferred
Stock so converted shall be canceled and not subject to reissuance and shall
revert back to authorized but undesignated shares of Preferred Stock. As used in
this Section 4.3e(5), the following terms shall have the following respective
meanings:
(A) "Allocated Offered Securities" shall mean, as to
any holder of Series A Preferred Stock and Series B Preferred Stock, that
portion of the gross amount of offered securities which has expressly been
allocated by the Board of Directors for purchase by the holders of the Series A
Preferred Stock and Series B Preferred Stock as a group, it being understood
that for purposes of this Section 4.3e(5) that Allocated Offered Securities may
represent an amount of offered securities that is less (but in no event greater)
than the amount of offered securities which
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the Corporation is otherwise required to offer to the holders of Series A
Preferred Stock and Series B Preferred Stock pursuant to Section 2.1 of the
Investor Rights Agreement; and
(B) "Special Proportionate Percentage" shall mean as to
any holder of Series A Preferred Stock and Series B Preferred Stock, that
percentage figure which expresses the ratio which (1) the number of shares of
outstanding Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock and Series B Preferred Stock then owned by such holder
bears to (2) the aggregate number of shares of outstanding Common Stock issued
or issuable upon the conversion of any shares of Series A Preferred Stock and
Series B Preferred Stock then owned by all holders of shares of Series A
Preferred Stock and Series B Preferred Stock. For purposes solely of the
computation required for determination of the Special Proportionate Percentage,
each holder of outstanding Series A Preferred Stock and Series B Preferred Stock
shall be treated as the holder of the number of shares of Common Stock which
would be issuable to such holder upon conversion, exercise or exchange of all
securities held by such holder at the time of such Offering, that are
convertible, exercisable or exchangeable into or for (whether directly or
indirectly) shares of Common Stock.
(ii) The holder of any shares of Series A Preferred Stock
and Series B Preferred Stock converted pursuant to the Section 4.3e(5) shall
deliver to the Corporation during regular business hours at the office of any
transfer agent of the Corporation for the Series A Preferred Stock and Series B
Preferred Stock, or at such other place as may be designated by the Corporation,
the certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to the Corporation. As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of shares of the
new series of preferred stock, to which such holder is entitled. The person in
whose name the certificate for such new series of preferred stock is to be
issued shall be deemed to have become a stockholder of record on the Mandatory
Offering Date unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open.
(iii) In the event that at any time the Special Mandatory
Conversion shall not be effective as to all shares of the Series A Preferred
Stock and Series B Preferred Stock then outstanding, the Board of Directors,
holders of Series A Preferred Stock and Series B Preferred Stock (and any shares
of any other new series of Preferred Stock created pursuant to the previous
Section 4.3e(5)(i)), shall take all necessary actions to designate new series of
Preferred Stock (having such distinctive designations and number of shares as
the Board of Directors may by resolution fix) on each such subsequent occasion
that (i) any Offering occurs, and (ii) any holder of Series A Preferred Stock
and Series B Preferred Stock does not by exercise of such holder's Right of
First Refusal acquire its Special Proportionate Percentage of the Allocated
Offered Securities then so offered to the holders of Series A Preferred Stock
and Series B Preferred Stock. Each share of such Non-Participating Holder's
shares of Series A Preferred Stock and Series B Preferred Stock shall be
converted into one share of such newly-created series of preferred stock
(appropriately adjusted to reflect the occurrence of any event described in
Section 4.3e), concurrently with the consummation of the subject Mandatory
Offering. Such new series of preferred stock shall be identical in all respects
(and shall vote with and be entitled to consent with, the Series A Preferred
Stock and Series B Preferred Stock, as the case may be), except with respect to
the Conversion Price then in effect, to the new series of Preferred Stock
created pursuant to the
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provisions of Section 4.3e(5)(i). The holders of Series A Preferred Stock and
Series B Preferred Stock (and any shares of such new series of Preferred Stock
designated pursuant to this Section 4.3e(5)) shall be deemed to have consented
to the designation of such new series.
(6) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4.3e(4)(iii), then,
in each such case for the purpose of this Section 4.3e(5), the holders of the
outstanding shares of Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the number of shares
of Common Stock of the Corporation into which their shares of Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock of the Corporation entitled to receive such distribution.
(7) Recapitalizations. If, at any time or from time to time,
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4.3e or Section 4.3b provision shall be made so that the holders of
the outstanding shares of Preferred Stock shall thereafter be entitled to
receive upon conversion of such Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4.3e with respect to the rights of
the holders of the outstanding shares of Preferred Stock after the
recapitalization to the end that the provisions of this Section 4.3e (including
adjustment of the respective Conversion Price then in effect and the number of
shares purchasable upon conversion of such Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(8) No Impairment. The Corporation will not, by amendment or
supplement of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section e and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(9) No Fractional Shares and Certificates as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
any share of Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share with .5 and above being
rounded up. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of any shares of Preferred Stock pursuant to this
Section 4.3e, the Corporation,
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at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Preferred Stock of the series held by
such holder.
(10) Notice of Record Date. In the event of any taking by
this Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right and the amount and character of such dividend, distribution or right.
(11) Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this certificate.
(12) Notices. Any notice required by the provisions of this
Section 4.3e to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of this
Corporation.
f. Protective Provisions.
(1) The Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least seventy-five percent (75%) of the then outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, voting together as a single class.
(i) amend or waive any provision of the Corporation's
Certificate of Incorporation or Bylaws;
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(ii) change the authorized number of directors from
six;
(iii) sell, convey, lease, license or otherwise dispose
of (in one transaction or a series of related transactions) all or substantially
all of its assets, property or business; liquidate, dissolve or wind up the
Corporation's business; or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation); or effect any transaction or
series of related transactions in which more than 50% of the voting power of the
Corporation is disposed of; or
(iv) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock or
Series B Preferred Stock or any other class of capital stock; or
(v) do any act or thing which would result in taxation
of the holders of shares of the Series A Preferred Stock or the Series B
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended); or
(vi) acquire, or permit any of its subsidiaries to
acquire, any interest in any company or business (whether by a purchase of
assets, purchase of stock, merger or otherwise), or enter into any joint
venture, involving an aggregate consideration (including, without limitation,
the assumption of liabilities whether direct or indirect exceeding $1,000,000);
or
(vii) create, incur, assume or suffer to exist, or
permit any subsidiary to create, incur, assume of suffer to exist, Indebtedness
exceeding an aggregate principal amount of $1,000,000 outstanding at any time on
a consolidated basis. (For purposes hereof, "Indebtedness" shall mean
indebtedness for borrowed money and any guarantees of debts or obligations of
another person or entity); or
(viii) make or permit any of its subsidiaries to make,
any capital expenditures (including, without limitation, payments with respect
to capitalized leases, as determined in accordance with GAAP) exceeding
$1,000,000 in the aggregate on a consolidated basis for the Company and its
subsidiaries in any twelve (12) month period following the date hereof; or
(ix) enter or permit any of its subsidiaries to enter
into any leases or other rental agreements (excluding capitalized leases, as
determined in accordance with GAAP) under which the amount of the aggregate
lease payments for all such agreements exceeds $1,000,000 on a consolidated
basis for the Company and its subsidiaries in any twelve (12) month period
following the date hereof; or
(x) create or commit the Company to enter into a joint
venture, license agreement, or exclusive marketing or other distribution
agreement or arrangement with respect to the Company's products or services,
other than in the ordinary course of business.
(2) The Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least seventy-five percent (75%) of the then outstanding shares of Series A
Preferred Stock:
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(i) amend or waive any provision of the Corporation's
Certificate of Incorporation, if the amendment would increase or decrease the
aggregate number of authorized shares of Series A Preferred Stock, or alter or
change the powers, preferences, or special rights of the shares of Series A
Preferred Stock so as to affect them adversely; or
(ii) pay or declare any dividend on shares of Common
Stock, or purchase, redeem or otherwise acquire any of the Common Stock of the
Corporation; provided, however, that this restriction shall not apply to, and
the Corporation may, repurchase of shares of Common Stock from directors,
officers, consultants, vendors or employees of, or others with important
business relationships with, the Corporation or any subsidiary pursuant to
agreements approved by the Corporation's Board of Directors under which the
Corporation has a right of first refusal with respect to such shares or the
option or obligation to repurchase such shares upon the occurrence of certain
events, including the termination of employment or services; or
(iii) enter into, or permit any of its subsidiaries to
enter into, the ownership, active management or operation of any business other
than the provision of consultative and outsourced information technology
services and solutions as conducted by the Company and its subsidiaries as of
the date of first issuance of Series A Preferred Stock hereof and as presently
proposed to be conducted pursuant to the Company's business plan and business
activities ancillary thereto.
(3) The Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least fifty percent (50%) of the then outstanding shares of Series B Preferred
Stock:
(i) amend or waive any provision of the Corporation's
Certificate of Incorporation, if the amendment would increase or decrease the
aggregate number of authorized shares of Series B Preferred Stock, or alter or
change the powers, preferences, or special rights of the shares of Series B
Preferred Stock so as to affect them adversely; or
(ii) pay or declare any dividend on shares of Common
Stock, or purchase, redeem or otherwise acquire any of the Common Stock of the
Corporation; provided, however, that this restriction shall not apply to, and
the Corporation may, repurchase of shares of Common Stock from directors,
officers, consultants, vendors or employees of, or others with important
business relationships with, the Corporation or any subsidiary pursuant to
agreements approved by the Corporation's Board of Directors under which the
Corporation has a right of first refusal with respect to such shares or the
option or obligation to repurchase such shares upon the occurrence of certain
events, including the termination of employment or services; or
(iii) enter into, or permit any of its subsidiaries to
enter into, the ownership, active management or operation of any business other
than the provision of consultative and outsourced information technology
services and solutions as conducted by the Company and its subsidiaries as of
the date of first issuance of Series A Preferred Stock hereof and as presently
proposed to be conducted pursuant to the Company's business plan and business
activities ancillary thereto.
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4.4 RIGHTS OF THE COMMON STOCK.
a. Election of Directors. The holders of the Corporation's Common
Stock shall have the right, voting as a separate class, to elect two (2)
directors. In addition, the holders of Common Stock, voting together with the
holders of Series A Preferred Stock and Series B Preferred Stock as one class,
shall be entitled to elect two additional directors.
b. Liquidation Rights. The holders of Common Stock shall have the
rights listed in Section 4.3b(2) of this Article 4 in the event of an
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary.
c. Change in Number of Authorized Shares of Common Stock. The number
of authorized shares of Common Stock may be increased or decreased (but not
below the number of shares of Common Stock then outstanding) by the affirmative
vote of the holders of a majority of the stock of the Corporation entitled to
vote, irrespective of the provisions of Section 242(b)(2) of the General
Corporation law of Delaware.
ARTICLE 5
5.1 The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors and elections of directors need
not be by written ballot unless otherwise provided in the Bylaws. The number of
directors of the Corporation shall be fixed from time to time by the Board of
Directors either by a resolution or Bylaw adopted by the affirmative vote of a
majority of the entire Board of Directors.
5.2 Meetings of the stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware Statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or by the Bylaws of the Corporation.
ARTICLE 6
6.1 A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derives an improper personal
benefit. If the General Corporation Law of the State of Delaware is hereafter
amended to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of the directors of the
Corporation shall be limited or eliminated to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article 6 by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
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ARTICLE 7
7.1 The Board of Directors of the Corporation shall have the power to make,
alter, amend, change, add to or repeal the Bylaws of the Corporation.
SIX: The foregoing Amended and Restated Certificate of Incorporation has
been approved by the Board of Directors in accordance with Section 141(i) of the
General Corporation Law of the State of Delaware.
SEVEN: The foregoing Amended and Restated Certificate of Incorporation has
been approved by the stockholders of the Corporation by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
EIGHT: The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the applicable provisions of Section 242
and 245 of the General Corporation Law of the State of Delaware.
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IN WITNESS WHEREOF, THE TRIZETTO GROUP, INC. has caused this
certificate to be signed by the undersigned, and the undersigned has executed
this certificate and affirms the foregoing as true and under penalty of perjury
this ___ day of April 1999.
----------------------------------------
Jeffrey H. Margolis, President
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<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED BYLAWS
OF
THE TRIZETTO GROUP, INC.
(FNA M C HEALTH HOLDINGS, INC.)
A DELAWARE CORPORATION
APRIL 29, 1998
ARTICLE I
Offices
SECTION A. Registered Office. The registered office of the Corporation in
the State of Delaware shall be at Corporation Trust Center, 1209 Orange Street,
in the City of Wilmington, County of New Castle, Delaware. The name of the
Corporation's registered agent at such address shall be The Corporation Trust
Company.
SECTION B. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
Stockholders
SECTION A. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held for the purpose of electing Directors and for the
transaction of such other business as may properly be brought before the
meeting on such date and at such time as may be designated by the Board of
Directors.
SECTION B. Special Meetings. Unless otherwise prescribed by statute,
special meetings of the stockholders for any purpose or purposes may be called
by the Board of Directors, by the Chairman of the Board, by the President, or
by any other person designated herein as having authority to call such a
meeting. Any special meeting shall be held on such date (subject to the
provisions on notice) and at such time as shall be designated by the Board of
Directors, by the officer calling the meeting, or by said holders. At a special
meeting of the stockholders, no business shall be transacted and no corporate
action shall be taken other than that stated in the notice of the meeting
unless all of the stockholders of the Corporation are present in person or by
proxy, in which case any and all business may
<PAGE> 2
be transacted at the meeting even though not included in the notice of meeting
and even though the meeting itself was held without notice.
SECTION C. Place of Meeting. Every annual meeting of the stockholders of
the Corporation shall be held at such place within or without the State of
Delaware as may be designated by the Board of Directors. Every special meeting
of the stockholders of the Corporation shall be held at such place within or
without the State of Delaware as may be designated by the Board of Directors or
the officer calling the meeting.
SECTION D. Notice of Meetings. It shall be the duty of the Secretary to
cause notice of each meeting of the stockholders to be mailed to each
stockholder of the Corporation entitled to vote at such meeting at his address
as it appears upon the records of the Corporation not less than ten nor more
than sixty days before the day of the meeting. The notice of the meeting shall
state the place, date, and hour of the meeting and, in case of a special
meeting, also shall state the purpose or purposes for which the meeting is
called.
SECTION E. Quorum.
1. At any meeting of the stockholders, the holders of the
Corporation's outstanding capital stock representing a majority in number of
the votes that are entitled to be cast at such meeting, present in person or
otherwise represented by proxy, shall constitute a quorum of the stockholders
for all purposes, unless the presence or representation of a larger number of
shares shall be required by law, by the Certificate of Incorporation, or by
these Bylaws, and, in that case, the presence or representation of the number
of shares so required shall constitute a quorum.
2. Any meeting may be adjourned (even though a quorum is not
present) by the holders of the Corporation's outstanding capital stock
representing a majority in number of the votes entitled to be cast at such
meeting, present in person and represented by proxy, to another time or place,
and notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken and the
adjournment is for less than thirty days and a new record date is not set for
the adjourned meeting.
SECTION F. Organization.
1. The Chairman, if the President is not present, shall call the
meeting of the stockholders to order, and shall act as chairman of the meeting.
In the absence of the Chairman and the President, the holders of the
Corporation's outstanding capital stock representing a majority in number of
the votes entitled to be cast at such meeting, present in person and
represented by proxy, shall elect a chairman.
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<PAGE> 3
2. The Secretary of the Corporation shall act as secretary of all
meetings of the stockholders; but, in the absence of the Secretary, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
3. At least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting shall be prepared and
maintained in accordance with the Delaware General Corporation Law.
SECTION G. Voting.
1. Except as otherwise provided for in the Certificate of
Incorporation, in these Bylaws, in resolutions of the Board of Directors, or by
law, each stockholder shall be entitled to one vote in person or by proxy for
each share of Common Stock of the Corporation registered in his name upon the
books of the Corporation. No proxy shall be voted after three years from the
date of its being granted unless the proxy provides for a longer period.
2. Upon the demand of any stockholder, the vote upon any matter
before the meeting shall be by ballot.
3. Shares of the Common Stock of the Corporation owned directly or
indirectly by the Corporation shall not be voted directly or indirectly or
counted in determining whether a quorum is present at any meeting.
4. Each proxy shall submit his power of attorney to the Secretary or
to the Treasurer for examination before the commencement of the meeting at
which the proxy intends to represent a stockholder who has given him a proxy.
The certificate of the Secretary or the Treasurer as to the regularity of any
powers of attorney so submitted, and as to the number of shares held by the
persons who severally and respectively executed the powers of attorney so
submitted, shall be received as prima facie evidence of the number of shares
represented by the holders of the powers of attorney for the purposes of
establishing the presence of a quorum at such meeting, for organizing the same,
for voting, and for all other purposes.
SECTION H. Informal Action. Any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing. Any
action taken pursuant to
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such written consent of the stockholders shall have the same force and effect
as if taken by the stockholders at a meeting thereof.
SECTION 1. Inspectors of Election. When required by law or upon the demand
of any stockholder or proxy entitled to vote, but not otherwise, the polls
shall be opened and closed, the proxies and ballots shall be received and taken
in charge, and all questions touching the qualification of voters, the validity
of proxies, and the acceptance or rejection of votes shall be decided at any
meeting of the stockholders by two or more Inspectors or Judges of Elections,
who may be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the chairman of the meeting. If any person so
appointed fails to appear or act, the vacancy may be filled by appointment by
the chairman of the meeting.
ARTICLE III
Board of Directors
SECTION A. Number and Term of Office. The business and property of the
Corporation shall be managed and controlled by a Board of Directors. The number
of directors on the Board shall be not less than one nor more than nine, such
number of directors to be established from time to time by resolution of the
Board. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section B of this Article III, and each
director elected shall hold office until the next annual meeting of
stockholders and until a successor is duly elected and qualified or until his
or her earlier death, resignation or removal as hereinafter provided.
SECTION B. Resignation, Removal, and Vacancies.
1. Any Director may resign at any time by giving written notice of
his resignation to the Chairman, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified in
the notice of resignation, or, if the time when it shall become effective shall
not be specified therein, it shall take effect when accepted by action of the
Board. The acceptance of a resignation shall not be necessary to make it
effective.
2. Any Director or the entire Board of Directors may be removed at
any time, with or without cause, by the holders of the Corporation's
outstanding capital stock representing a majority of the votes entitled to be
cast at an election of Directors, except as otherwise provided by law.
SECTION C. Place of Meeting. The Board of Directors may hold its meetings
at such place or places within or without the State of Delaware as the Board
from
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time to time shall determine or as shall be designated in the notice or waiver
of notice of the meeting.
SECTION D. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing
the time or place of regular meetings shall be (i) mailed to each Director at
least three days before the first meeting held in pursuance thereof or (ii)
delivered personally or by prepaid commercial delivery or courier service, or
sent by telegram, cable, or wireless, to every Director at least one day before
the first meeting held in pursuance thereof.
SECTION E. Special Meetings.
1. Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman, the President, or any one
Director then in office.
2. The Secretary or an Assistant Secretary shall give notice of the
day, hour, and place of each special meeting (i) by mailing the same to each
Director at least three days before the meeting or (ii) by causing the same to
be delivered personally or by prepaid commercial delivery or courier service,
or to be sent by telegraph, cable or wireless, to each Director at least one
day before the meeting.
3. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at any special meeting; and an amendment of these
Bylaws may be acted upon if the notice of the meeting shall have stated an
amendment of the Bylaws to be one of its purposes. At any meeting at which
every Director shall be present and no Director shall object, any business may
be transacted, even though no notice is given.
SECTION F. Quorum. Except as otherwise provided for herein, a majority of
the members of the Board of Directors in office (but in no case less than
one-third of the total number of Directors) shall constitute a quorum for the
transaction of business and the action of the Board of Directors at which a
quorum is present shall be the action of the Board of Directors. If less than a
quorum is present at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time.
SECTION G. Chairman and Secretary of the Meeting. The President shall
preside at all meetings of the Board of Directors. Otherwise, the Chairman, if
present, or, if not, any other Director chosen by the Board, shall preside. The
Chairman of the Board, the President, or other presiding Director, as the case
may be, may appoint any person to act as secretary of the meeting.
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SECTION H. Committees. The Board of Directors, by resolution passed
by all members of the Board, may designate one or more committees, each
committee to consist of two or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any
committee, to replace any absent or disqualified member at any meeting of the
committee. Each committee, to the extent provided for in the resolution of the
Board, shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it. In the
absence or disqualification of any member of any committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
SECTION I. Action by Consent in Lieu of Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing. All
consents in lieu of meetings shall be filed with the minutes of proceedings of
the Board or committee.
SECTION J. Telephone Meetings. Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board or committee
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear, and speak to, each
other. Participation in a telephone meeting pursuant to this Section J shall
constitute presence in person at such meeting. The person designated to be
secretary of the meeting by the Director initiating the telephone meeting shall
take minutes of the meeting, and such minutes shall be filed with the other
minutes of proceedings of the Board or committee.
SECTION K. Compensation. Each Director, in consideration of his
serving as a Director, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at meetings of the Board or of any
committee, or both, as the Board from time to time shall determine. The Board
likewise may provide that the Corporation shall reimburse each Director or
member of a committee for any expenses incurred by him on account of his
attendance at any such meeting. Nothing contained in this Section shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
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ARTICLE IV
Officers
SECTION A. Officers.
1. The officers of the Corporation shall be a Chairman of the
Board, a President, an Executive Vice President, one or more Vice Presidents, a
Secretary, and a Treasurer. All such officers shall be elected by the Board of
Directors at its first meeting after each annual meeting of the stockholders
and shall hold office until the earlier of their removal or their respective
successors shall have been elected and shall qualify.
2. In addition to the powers and duties of the officers of the
Corporation as set forth in these Bylaws, each shall have such authority and
shall perform such duties as from time to time may be determined by the Board
of Directors or the President.
SECTION B. Resignation, Removal, and Vacancies.
1. Any officer may resign at any time by giving written notice of
his resignation to the Board of Directors. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein, the resignation shall take effect
when accepted by action of the Board. Except as aforesaid, the acceptance of
such resignation shall not be necessary to make it effective.
2. All officers and agents elected or appointed by the Board shall
be subject to removal with or without cause at any time by the Board.
3. A vacancy in any office may be filled at any time by the Board
of Directors.
SECTION C. Powers and Duties of the Chairman and the President. The
President shall be the Chief Executive Officer of the Company. Subject to the
control and general supervision of the Board of Directors, the Chief Executive
Officer shall have general charge and control of all its business and affairs
and shall perform all duties incident to the office of Chief Executive Officer.
The Chairman, if different from the President, shall have such authority and
perform such duties in the absence of the President, and shall report to the
Board of Directors.
SECTION D. Powers and Duties of the Executive Vice President and Vice
President. The Executive Vice President, if any, shall report to the President
and shall have such powers and shall perform such duties as the Board of
Directors or the President shall assign to him. The Board of Directors may
appoint one or more Vice Presidents. Each Vice
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President shall have such powers and shall perform such duties as the Board of
Directors or the President shall assign to him.
SECTION E. Powers and Duties of the Secretary. Except as otherwise
provided for in these Bylaws, the Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
stockholders in books provided for that purpose; he shall attend to the giving
or serving of all notices of the Corporation; he shall have custody of the
corporate seal of the Corporation and shall affix the same to such documents
and other papers as the Board of Directors shall authorize and direct; he shall
have charge of the stock certificate books, transfer books, stock ledgers, and
such other books and papers as the Board of Directors or the President shall
direct, all of which shall at all reasonable times be open to the examination
of any Director or officer of the Corporation upon application at the office of
the Corporation during business hours; and he shall perform all duties incident
to the office of Secretary. The Secretary shall also have such other powers and
shall perform such other duties as may be assigned to him by these Bylaws, the
Board of Directors, or the President.
SECTION F. Powers and Duties of the Treasurer. Unless otherwise determined
by the Board of Directors, the Treasurer shall have custody of, and, when
proper, may pay out, disburse or otherwise dispose of, all funds and securities
of the Corporation that may have come into his hands; he may endorse on behalf
of the Corporation for collection checks, notes, and other obligations and
deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; he shall
enter or cause to be entered regularly in the books of the Corporation kept for
the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of by him and, whenever required by the Board of Directors,
shall render statements of such accounts; he shall exhibit his books and
accounts to any Director or officer of the Corporation upon application at the
Office of the Corporation during business hours; and he shall perform all acts
incident to the position of Treasurer and shall also have such powers and shall
perform such other or different duties as may be assigned to him from time to
time by these Bylaws or the Board of Directors or the President.
SECTION G. Additional Officers. The Board of Directors may from time to
time appoint such other officers, including Chairman of the Board, Assistant
Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board
may deem advisable. Such officers shall have such powers and duties as
usually pertain to their offices, except as modified by the Board of Directors,
and shall also have such other powers and duties as may from time to time be
conferred upon them by the Board of Directors or the President.
SECTION H. Giving of Bond by Officers. If required to do so by the Board
of Directors, each officer designated by the Board shall furnish a bond to the
Corporation for the faithful performance of his duties with such penalties,
conditions, and security as the Board may require.
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<PAGE> 9
SECTION I. Voting of Stock. Unless otherwise ordered by the Board of
Directors, each officer of the Corporation shall have full power and authority
on behalf of the Corporation to attend and to act and to vote, or in the name
of the Corporation to execute proxies to vote, at any meetings of stockholders
of any corporation in which the Corporation may hold stock, and at any such
meetings, shall possess and may exercise, in person or by proxy, any and all
rights, powers, and privileges incident to the ownership of such stock. The
Board of Directors, by resolution, from time to time, may confer like powers
upon any other person or persons.
SECTION J. Compensation of Officers. The officers of the Corporation shall
be entitled to receive such compensation for their services as officers as the
Board of Directors from time to time may determine.
ARTICLE V
Indemnification
Any person who is or was a director, officer, employee, or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise and who was or is a party or
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
by reason of the fact that he is or was serving in such capacity, may be
indemnified by the Corporation to the extent and in the manner described
herein. The indemnification provided for in or authorized by this Article shall
continue as to any person who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person. More specifically and in elaboration of the
foregoing:
a. The Corporation shall indemnify such person who has been successful
on the merits or otherwise in defense of any such proceeding against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection therewith.
b. The Corporation shall indemnify such person against expenses,
judgments, fines, and amounts paid in settlement and attorney's fees actually
and reasonably incurred by him in such proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interest
of the Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
c. In any action brought by or in the right of the Corporation to
procure a judgment against such person, the Corporation shall indemnify such
person against expenses,
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<PAGE> 10
including attorney's fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the Corporation. The Corporation shall not indemnify such
person if he shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the Corporation unless and only to the extent
that the Court of Chancery or other court of competent jurisdiction shall
determine upon application that such person is fairly and reasonably entitled
to such indemnity for such expenses as the Court shall deem proper.
d. Any indemnification authorized under subsections b and c (unless
otherwise ordered by a court) shall be made only upon a determination that the
director, officer, employee, or agent has met the standard of conduct set forth
in such subsections. Such determination shall be made by a majority of a quorum
of disinterested directors, or if a disinterested quorum is not available, or
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel chosen by the Board of Directors or by vote of the
stockholders.
e. Expenses incurred in defending a civil or criminal action, suit, or
proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit, or proceeding as authorized by the Board of Directors
upon receipt of an undertaking by or on behalf of such person to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation.
f. The Corporation shall also have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation or is serving at the request of the Corporation in
said capacity of another Corporation against any liability asserted against him
and incurred by him in any such capacity, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions of
this Section.
g. The rights of indemnification under this Article V shall be in addition
to rights that such person may otherwise be entitled to under the law of the
State of Delaware.
ARTICLE VI
The Corporation's Stock
SECTION A. Stock Certificates. Stock certificates representing all shares
to which stockholders are entitled shall be in the form determined by the Board
of Directors. Certificates shall be numbered consecutively and shall be entered
in the books of the Corporation as they are issued. They shall be signed by the
Chairman of the Board, the
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<PAGE> 11
President, or a Vice President and by the Treasurer, an Assistant Treasurer,
the Secretary, or an Assistant Secretary. If the Board of Directors has
designated a transfer agent or registrar and if any certificate is
countersigned by a transfer agent, or an assistant transfer agent or registered
by a registrar (either of which is other than the Corporation or an employee of
the Corporation), the signature of any officer of the Corporation may be a
facsimile.
SECTION B. Lost, Stolen, or Destroyed Certificates. The Corporation or its
transfer agent may issue a new certificate of stock of the Corporation in place
of any certificate theretofore issued by it, alleged by its owner, or his legal
representative, to have been lost, stolen, or destroyed, and the Board of
Directors or its transfer agent may require the owner, or his legal
representative, to give the Corporation and its transfer agent a bond
sufficient to indemnify the Corporation and its transfer agent against any
claim that may be made against them on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate.
SECTION C. Transfer of Shares. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, and
applicable statutory requirements, registration of transfers of shares of stock
of the Corporation shall be made on the books of the Corporation.
SECTION D. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION E. Closing of Transfer Books; Fixing of Record Dates. For the
purpose of determining the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express consent to or
dissent from any corporate action in writing without a meeting, or for the
purpose of determining stockholders entitled to receive payment of any dividend
or other distribution or the allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the directors may fix, in advance, a
date as the record date for any such determination of stockholders. Such date
shall not be more than sixty days nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. If no record
date is fixed, the record date for the determination of stockholders shall be at
the close of business on the next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day
on which the first written consent is expressed; the record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. When a determination of stockholders of record entitled to
notice of or to vote at any meeting of stockholders has been made as provided
for in this Section, such
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<PAGE> 12
determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
SECTION F. Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof; accordingly, the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it has express or other notice thereof, except
as otherwise provided for by law.
SECTION G. Dividends.
1. Subject to the provisions of the Certificate of Incorporation,
the Board of Directors shall have power to declare and pay dividends upon
shares of stock of the Corporation but only out of funds available for the
payment of dividends as provided for by law.
2. Subject to the provisions of the Certificate of Incorporation,
any dividends declared upon the stock of the Corporation shall be payable on
such date or dates as the Board of Directors shall determine. If the date fixed
for the payment of any dividend shall in any year fall upon a Saturday, Sunday,
or legal holiday, the dividend payable on such date shall be paid on the next
day that is not a Saturday, Sunday, or legal holiday.
ARTICLE VII
Corporate Seal; Fiscal Year; Miscellaneous Provisions
SECTION A. Corporate Seal. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which, unless otherwise
determined by the Board of Directors, shall be in the custody of the Secretary.
If and when so directed by the Board of Directors or the Chief Executive
Officer, a duplicate of the seal may be kept and be used by any officer of the
Corporation designated by the Board.
SECTION B. Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION C. Checks, Notes, etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money
shall be signed and, if so required by the Board of Directors, shall be
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
SECTION D. Waivers of Notice. Whenever any notice whatever is required to
be given under the provisions of these Bylaws or the Certificate of
Incorporation to any
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<PAGE> 13
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION E. Offices Outside of Delaware. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents, and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors.
ARTICLE VIII
Amendment of the Bylaws
Subject to the provisions of the Certificate of Incorporation and the
power of the stockholders to alter or repeal any Bylaw made by the Board, these
Bylaws may be altered or repealed by the vote of a majority of the members of
the Board.
CERTIFICATE
I hereby certify that the foregoing Bylaws, consisting of thirteen (13) pages,
including this page, constitute the Bylaws of The TriZetto Group, Inc. (FNA M C
Health Holdings, Inc.), adopted by the Board of Directors as of April 29, 1998.
/s/ [Signature Illegible]
----------------------------------
Secretary
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<PAGE> 1
EXHIBIT 4.1
THE TRANSFER OF THE SHARES REPRESENTED HEREBY
ARE RESTRICTED AS SET FORTH ON THE REVERSE SIDE HEREOF
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
THE TRIZETTO GROUP, INC.
COMMON STOCK
AUTHORIZED CAPITAL STOCK: 45,000,000 SHARES
Common Stock: 40,000,000 Shares, par value $.001 per share
Preferred Stock: 5,000,000 Shares, par value $.001 per share
This Certifies that *****SPECIMEN***** is the
registered holder of ******************************* (**************) Shares
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
this **** day of ***** A.D. ****
- ------------------------------------ ---------------------------------------
MICHAEL J. SUNDERLAND, SECRETARY JEFFREY H. MARGOLIS, PRESIDENT
<PAGE> 2
For Value Received, ___________ hereby sell, assign and
transfer unto
____________________________________________________________
_______________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
____________________________________________________________ Attorney
to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated: ________________________
In presence of _____________________________________________
<PAGE> 1
EXHIBIT 10.1
THE TRIZETTO GROUP, INC.
1998 STOCK OPTION PLAN,
AS AMENDED JUNE 28, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE PLAN ..............................................................1
1.1 PURPOSE .......................................................1
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE .........1
1.3 PARTICIPATION .................................................2
1.4 SHARES AVAILABLE FOR OPTIONS; SHARE LIMITS ....................2
1.5 TRANSFER AND OTHER LIMITATIONS ON OPTIONS .....................3
2. OPTIONS ...............................................................4
2.1 GRANTS ........................................................4
2.2 OPTION PRICE ..................................................4
2.3 VESTING; LIMITS ON AND PROVISIONS FOR EXERCISE; OTHER
LIMITATIONS ...................................................6
2.4 OPTION PERIOD. ................................................7
2.5 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS. ....7
2.6 LIMITS ON 10% HOLDERS .........................................7
2.7 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER
OF RESTRICTIONS ...........................................7
2.8 OPTIONS FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS .......8
3. OTHER PROVISIONS ......................................................8
3.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES ....8
3.2 EFFECTS OF TERMINATION OF EMPLOYMENT;
DISCRETIONARY PROVISIONS ..................................9
3.3 ADJUSTMENTS; ACCELERATION .....................................9
3.4 COMPLIANCE WITH LAWS .........................................11
3.5 TAX WITHHOLDING ..............................................12
3.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION ...................13
3.7 PRIVILEGES OF STOCK OWNERSHIP ................................14
3.8 EFFECTIVE DATE OF THE PLAN ...................................14
3.9 TERM OF THE PLAN .............................................14
3.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY ......................14
3.11 CAPTIONS .....................................................14
3.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS ........................15
3.13 NON-EXCLUSIVITY OF PLAN ......................................15
4. DEFINITIONS ..........................................................15
APPENDIX A ...................................................................19
APPENDIX B ...................................................................26
</TABLE>
<PAGE> 3
THE TRIZETTO GROUP, INC.
1998 STOCK OPTION PLAN,
AS AMENDED JUNE 28, 1999
1. THE PLAN.
1.1 PURPOSE. The purpose of this Plan is to promote the success of
the Company and the interests of its stockholders by attracting, motivating,
retaining and rewarding directors, officers, employees and other eligible
persons through the grant of equity incentives. Capitalized terms used herein
are defined in Section 4.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
1.2.1 COMMITTEE. This Plan will be administered by and all
Options will be authorized by the Committee. Action of the Committee with
respect to the administration of this Plan will be taken pursuant to a majority
vote or by written consent of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE.
Subject to the express provisions of this Plan and any express limitations on
the delegated authority of a Committee, the Committee will have the authority
to:
(a) determine eligibility and the particular
Eligible Persons who will receive Options;
(b) grant Options to Eligible Persons, determine the
price at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and determine the
other specific terms and conditions of such Options consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Options will become exercisable or will vest, or determine that no delayed
exercisability or vesting is required, and establish the events of termination
or reversion of such Options;
(c) approve the forms of Option Agreements (which
need not be identical either as to type of Option or among Participants);
(d) construe and interpret this Plan and any
agreements defining the rights and obligations of the Company and Participants
under this Plan, further define the terms used in this Plan, and prescribe,
amend and rescind rules and regulations relating to the administration of this
Plan;
(e) cancel, modify, or waive the Corporation's
rights with respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Options held by Eligible Persons, subject to any required consent
under Section 3.6;
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<PAGE> 4
(f) accelerate or extend the exercisability or
extend the term of any or all such outstanding Options within the maximum
ten-year term of Options under Section 2.4; and
(g) make all other determinations and take such
other action as contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of its purposes.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction
of, the Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan will be within the absolute discretion of that entity or
body and will be conclusive and binding upon all persons. No member of the Board
or Committee, or officer of the Corporation or any Subsidiary, will be liable
for any such action or inaction of the entity or body, of another person or,
except in circumstances involving bad faith, of himself or herself. Subject only
to compliance with the express provisions hereof, the Board and Committee may
act in their absolute discretion in matters within their authority related to
this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in
taking or not taking any action under this Plan, the Committee or the Board, as
the case may be, may obtain and may rely upon the advice of experts, including
employees of and professional advisors to the Corporation. No director, officer
or agent of the Company will be liable for any such action or determination
taken or made or omitted in good faith.
1.2.5 BIFURCATION OF PLAN ADMINISTRATION; DELEGATION. Subject
to the limits set forth in the definition of "Committee" in Section 4, the Board
may delegate different levels of authority to different Committees with
administration and grant authority under this Plan, provided that each
designated Committee granting any Options hereunder shall consist exclusively of
a member or members of the Board. A majority of the members of the acting
Committee shall constitute a quorum. The vote of a majority of a quorum or the
unanimous written consent of the Committee shall constitute action by the
Committee. A Committee may delegate ministerial, non-discretionary functions to
individuals who are officers or employees of the Company.
1.3 PARTICIPATION. Options may be granted by the Committee only to
those persons that the Committee determines to be Eligible Persons. An Eligible
Person who has been granted an Option may, if otherwise eligible, be granted
additional Options if the Committee so determines.
1.4 SHARES AVAILABLE FOR OPTIONS; SHARE LIMITS.
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section
3.3, the capital stock that may be delivered under this Plan will be shares of
the Corporation's Common Stock. The Shares may be delivered for any lawful
consideration.
1.4.2 SHARE LIMITS. The maximum number of shares of Common
Stock that may be delivered pursuant to Options granted to Eligible Persons
under this Plan will not exceed
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<PAGE> 5
4,000,000 (the "SHARE LIMIT"). The maximum number of Shares subject to those
Options that are granted during any calendar year to any one individual will be
limited to 400,000. Each of the foregoing numerical limits will be subject to
adjustment as contemplated by this Section 1.4 and Section 3.3.
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED
OPTIONS. No Option may be granted under this Plan unless, on the date of grant,
the sum of (i) the maximum number of Shares issuable at any time pursuant to
such Option, plus (ii) the number of Shares that have previously been issued
pursuant to Options granted under this Plan, other than reacquired Shares
available for reissue consistent with any applicable legal limitations, plus
(iii) the maximum number of Shares that may be issued at any time after such
date of grant pursuant to Options that are outstanding on such date, does not
exceed the Share Limit. Shares that are subject to or underlie Options that
expire or for any reason are canceled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under this Plan, as well
as reacquired Shares, will again, except to the extent prohibited by law, be
available for subsequent Options under this Plan.
1.5 TRANSFER AND OTHER LIMITATIONS ON OPTIONS.
1.5.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise
expressly provided in (or pursuant to) this Section 1.5, by applicable law and
by the Option Agreement, as the same may be amended, (i) all Options are
non-transferable and will not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; (ii)
Options will be exercised only by the Participant; and (iii) amounts payable or
shares issuable pursuant to an Option will be delivered only to (or for the
account of) the Participant.
1.5.2 EXCEPTIONS. The Committee may permit Options to be
exercised by and paid only to certain persons or entities related to the
Participant pursuant to such conditions and procedures as the Committee may
establish. Any permitted transfer will be subject to the condition that the
Committee receive evidence satisfactory to it that the transfer is being made
for estate and/or tax planning purposes and without consideration (other than
nominal consideration), and, to the extent required and applicable to
Participants in this Plan, any transfers will be subject to compliance with
Section 25102(o). Incentive Stock Options, however, will be subject to any and
all additional transfer restrictions under the Code.
1.5.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise
and transfer restrictions in Section 1.5.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive
benefits if the Participant dies or, if the
Participant has died, transfers to or exercises
by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary,
transfers by will or the laws of descent and
distribution,
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<PAGE> 6
(c) transfers pursuant to a QDRO if approved or
ratified by the Committee,
(d) if the Participant has suffered a disability,
permitted transfers or exercises on behalf of
the Participant by the Participant's legal
representative, or
(e) the authorization by the Committee of "cashless
exercise" procedures with third parties who
provide financing for the purpose of (or who
otherwise facilitate) the exercise of Options
consistent with applicable laws and the express
authorization of the Committee.
The exceptions to Section 1.5.1 set forth above
in this Section 1.5.3 are, to the extent
required and applicable to Participants in this
Plan, subject to compliance with Section
25102(o).
1.5.4 ADDITIONAL TRANSFER AND OTHER RESTRICTIONS ON OPTIONS.
All Options shall be subject to the transfer and other limitations of Appendix A
of this Plan, incorporated herein by this reference. The transfer of Shares
acquired pursuant to the exercise or vesting of an Option or any interest
therein shall be subject to such additional restrictions pursuant to Section
3.1.4, or as the Committee may from time to time specify with respect to such
Option in the related Option Agreement.
Notwithstanding the foregoing, the Committee may, by express provision in the
related Option Agreement, provide that the provisions of Sections 1.1 and 2 of
Appendix A of this Plan shall not apply to an Option.
2. OPTIONS.
2.1 GRANTS. One or more Options may be granted under this Section 2
to any Eligible Person. Subject to the express provisions of this Plan, the
Committee will determine the number of shares of Common Stock subject to each
Option, and the exercise price or purchase price to be paid for the Shares. Each
Option will be evidenced by an Option Agreement signed by the Corporation and,
if required by the Committee, by the Participant. Each Option granted will be
designated in the applicable Option Agreement, by the Committee, as either an
Incentive Stock Option, subject to Section 2.5, or a Nonqualified Stock Option.
2.2 OPTION PRICE.
2.2.1 PRICING LIMITS. The purchase price per Share covered by
each Option will be determined by the Committee at the time of the award of the
Option, but will not be less than the greater of (i) the par value thereof, or
(ii) 85% of the Fair Market Value of the Common Stock on the date of grant. In
the case of Incentive Stock Options, the purchase price per Share will not be
less than 100% (110% in the case of a Participant described in Section 2.6) of
the Fair Market Value of the Common Stock on the date of grant. To the extent
required and applicable to Participants in this Plan, no Option shall be granted
to a Participant described in Section 2.6 unless the purchase price per Share
covered by the
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<PAGE> 7
Option is at least 110% of the Fair Market Value of the Common Stock on the
date of grant so that such grant satisfies the applicable provisions of Section
25102(o).
2.2.2 PAYMENT PROVISIONS. The purchase price of any Shares
purchased on exercise of an Option granted under this Section 2 will be paid in
full at the time of each purchase in one or a combination of the following
methods: (i) in cash or by electronic funds transfer; (ii) by certified or
cashier's check payable to the order of the Corporation; (iii) if authorized by
the Committee or specified in the applicable Option Agreement, by a promissory
note of the Participant consistent with the requirements of Section 2.2.3; (iv)
by notice and third party payment in such manner as may be authorized by the
Committee; (v) if authorized by the Committee, cancellation of indebtedness or
conversion of other securities; or (vi) by the delivery of Shares already owned
by the Participant, but the Committee may in its absolute discretion limit the
Participant's ability to exercise an Option by delivering such Shares, and any
Shares delivered that were initially acquired upon exercise of a stock option
must have been owned by the Participant at least six months as of the date of
delivery. Shares of Common Stock used to satisfy the exercise price of an Option
will be valued at their Fair Market Value on the date of exercise. Without
limiting the generality of the foregoing, the Committee may provide that the
Option can be exercised and payment made by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Corporation the amount of sale proceeds necessary to pay the
exercise price and, unless otherwise prohibited by the Committee or applicable
law, any applicable tax withholding under Section 3.5. The Corporation will not
be obligated to deliver certificates for the Shares unless and until it receives
full payment of the exercise price therefor and any related withholding
obligations have been satisfied.
2.2.3 ACCEPTANCE OF NOTES TO FINANCE EXERCISE. The Corporation
may, with the Committee's express approval, accept one or more notes from any
Eligible Person in connection with the exercise of any outstanding Option; but
any such note will be subject to the following terms and conditions:
(a) Principal. The Principal of the note will not
exceed the amount required to be paid to the
Corporation upon the exercise of one or more
Options under this Plan and the note will be
delivered directly to the Corporation in
consideration of such exercise or receipt.
(b) Term. The initial term of the note will be
determined by the Committee; but the term of the
note, including extensions, will not exceed a
period of five years.
(c) Recourse; Security. The note will provide for
full recourse to the Participant and will bear
interest at a rate determined by the Committee
but not less than the interest rate necessary to
avoid the imputation of interest under the Code.
If required by the Committee or by applicable
law, the note will be secured by a pledge of any
shares or rights financed thereby in compliance
with applicable
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<PAGE> 8
law. The terms, repayment provisions, and
collateral release provisions of the note and
the pledge securing the note will conform with
applicable rules and regulations of the Federal
Reserve Board as then in effect:
(d) Termination of Employment. If the employment of
the Participant terminates, the unpaid principal
balance of the note will become due and payable
on the 10th business day after such termination;
but if a sale of such shares would cause such
Participant to incur liability under Section
16(b) of the Securities Exchange Act of 1934, as
amended, the unpaid balance will become due and
payable on the 10th business day after the first
day on which a sale of such shares could have
been made without incurring such liability
assuming for these purposes that there are no
other transactions (or deemed transactions in
securities of this Corporation) by the
Participant after such termination, subject to
the maximum term of the note under Section
2.2.3(b).
2.3 VESTING; LIMITS ON AND PROVISIONS FOR EXERCISE; OTHER
LIMITATIONS.
2.3.1 VESTING. Unless the Committee otherwise expressly
provides in the applicable Option Agreement, each Option shall vest and become
exercisable as to 25% of the aggregate number of Shares subject to the Option on
each of the first through fourth anniversaries of the applicable Award Date.
Unless the Committee otherwise expressly provides in the
applicable Option Agreement, if a Participant's
employment by (or other service specified in the Option
Agreement to) the Company terminates due to the
Participant's death or Total Disability, the
Participant's Option shall vest and become exercisable
on his or her Severance Date (as such term is defined in
Section 3.2) to the extent such Option would have vested
and become exercisable in the 90-day period following
his or her Severance Date had he or she remained in the
employ of (or providing services to) the Company.
Vesting and exercise provisions of an Option shall, to
the extent required and applicable to Participants in
this Plan, be subject to compliance with Section
25102(o).
2.3.2 EXERCISE PROCEDURE. Any exercisable Option will be
deemed to be exercised when the Corporation receives written notice of such
exercise from the Participant in a form approved by the Committee specifying the
number of Shares with respect to which the Option is being exercised, together
with any required payment made in accordance with Section 2.2.2. In addition,
the Participant must provide any written statements required pursuant to Section
3.4 of the Plan.
2.3.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share
interests will be disregarded, but may be accumulated. The Committee, however,
may determine in the case of Eligible Persons that cash, other securities, or
other property will be paid or transferred in lieu of any fractional share
interests. No fewer than 100 Shares may be purchased on exercise of
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any Option at one time unless the number purchased is the total number at the
time available for purchase under the Option.
2.4 OPTION PERIOD. Any Option and all rights thereunder shall expire
not more than 10 years after the date of grant; provided, however, that any
payment of cash or delivery of stock pursuant to an Option may be delayed until
a future date if specifically authorized by the Committee in writing.
2.5 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
2.5.1 $100,000 LIMIT. To the extent that the aggregate "FAIR
MARKET VALUE" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to Incentive Stock Options under
this Plan and stock subject to incentive stock options under all other plans of
the Company or any parent corporation, such options will be treated as
Nonqualified Stock Options. For this purpose, the "FAIR MARKET VALUE" of the
stock subject to options will be determined as of the date the options were
awarded. In reducing the number of options treated as incentive stock options to
meet the $100,000 limit, the most recently granted options will be reduced
first. To the extent a reduction of simultaneously granted options is necessary
to meet the $100,000 limit, the Committee may, in the manner and to the extent
permitted by law, designate which Shares are to be treated as shares acquired
pursuant to the exercise of an Incentive Stock Option.
2.5.2 OTHER CODE LIMITS. Incentive Stock Options may only be
granted to Eligible Employees of the Corporation or a Subsidiary that satisfies
the other eligibility requirements of the Code. There will be imposed in any
Option Agreement relating to Incentive Stock Options such other terms and
conditions as from time to time are required in order that the Option be an
"incentive stock option" as that term is defined in Section 422 of the Code.
2.5.3 ISO NOTICE OF SALE REQUIREMENT. Any employee who
exercises an Incentive Stock Option shall give prompt written notice to the
Corporation of any sale or other transfer of the Shares acquired within one year
after the exercise date or two years after the Award Date.
2.6 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted
to any person who, at the time the Option is granted, owns (or is deemed to own
under Section 424(d) of the Code) shares of outstanding Common Stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Corporation, unless the exercise price of such Option is at least 110% of the
Fair Market Value of the stock subject to the Option and such Option by its
terms is not exercisable after the expiration of five years from the date such
Option is granted.
2.7 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF
RESTRICTIONS. Subject to Section 1.4 and Section 3.6 and the specific
limitations on Options contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for
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the benefit of any Eligible Person any adjustment in the exercise or purchase
price, the vesting schedule, the number of shares subject to, or the
restrictions upon or the term of, an Option granted under this Section 2 by
cancellation of an outstanding Option and a subsequent regranting of an Option
by amendment, by substitution of an outstanding Option, by waiver or by other
legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price that is higher or lower than the
exercise or purchase price of the original or prior Option, provide for a
greater or lesser number of Shares subject to the Option, or provide for a
longer or shorter vesting or exercise period.
2.8 OPTIONS FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS. Options
may be granted to Eligible Persons under this Plan in substitution for employee
stock options granted by other entities to persons who are or who will become
Eligible Persons in respect of the Company, in connection with a distribution,
merger or reorganization by or with the granting entity or an affiliated entity,
or the acquisition by the Company, directly or indirectly, of all or a
substantial part of the stock or assets of the employing entity.
3. OTHER PROVISIONS.
3.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
3.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not
be construed as a commitment that any Option will be granted under this Plan to
an Eligible Person or to Eligible Persons generally.
3.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan
(or in any other documents related to this Plan or to any Option) will confer
upon any Eligible Person or other Participant any right to continue in the
employ or other service of the Company or constitute any contract or agreement
of employment or other service, nor will interfere in any way with the right of
the Company to otherwise change such person's compensation or other benefits or
to terminate the employment or service of such person, with or without cause,
but nothing contained in this Plan or any related document will adversely affect
any independent contractual right of such person without the person's consent.
3.1.3 PLAN NOT FUNDED. Options payable under this Plan will be
payable in Shares or from the general assets of the Corporation, and (except as
provided in Section 1.4.3) no special or separate reserve, fund or deposit will
be made to assure payment of such Options. No Participant, Beneficiary or other
person will have any right, title or interest in any fund or in any specific
asset (including Shares, except as expressly otherwise provided) of the Company
by reason of any Option hereunder. Neither the provisions of this Plan (or of
any related documents), nor the creation or adoption of this Plan, nor any
action taken pursuant to the provisions of this Plan will create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Option hereunder, such right will be no greater than the right
of any unsecured general creditor of the Company.
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3.1.4 CHARTER DOCUMENTS. The Articles of Incorporation and
By-Laws of the Corporation, as either of them may be amended from time to time,
may provide for additional restrictions and limitations with respect to the
Common Stock (including additional restrictions and limitations on the transfer
of Shares). To the extent that these restrictions and limitations are greater
than those set forth in this Plan, Appendix A or any Option Agreement, such
restrictions and limitations shall apply to any Shares acquired pursuant to the
exercise of Options and are incorporated herein by this reference.
3.2 EFFECTS OF TERMINATION OF EMPLOYMENT; DISCRETIONARY PROVISIONS.
3.2.1 RESIGNATION OR DISMISSAL. Unless otherwise provided in
the Option Agreement and subject to earlier termination pursuant to or as
contemplated by Section 2.4 or 3.3, if the Participant's employment by (or other
service specified in the Option Agreement to) the Company terminates for any
reason (including termination by the Company for cause) (the date of such
termination being referred to as the "SEVERANCE DATE") other than due to Total
Disability, Retirement or death, the Participant will have until the date which
is 30 days after his or her Severance Date to exercise any Option (or portion
thereof) to the extent that it is exercisable on the Severance Date. In such
cases, the Option, to the extent not exercisable on the Severance Date, will
terminate.
3.2.2 DEATH, RETIREMENT OR DISABILITY. Unless otherwise
provided in the Option Agreement and subject to earlier termination pursuant to
or as contemplated by Section 2.4 or 3.3, if the Participant's employment by (or
specified service to) the Company terminates as a result of Total Disability,
Retirement or death, the Participant, the Participant's Personal Representative
or the Participant's Beneficiary, as the case may be, will have until the date
which is one year after the Participant's Severance Date to exercise any Option
(or portion thereof) to the extent that it is exercisable on the Severance Date
(or becomes exercisable in connection with the Participant's death or Total
Disability pursuant to Section 2.3.1). The Option, to the extent not exercisable
as of the Severance Date, will terminate.
3.2.3 COMMITTEE DISCRETION. Notwithstanding the foregoing
provisions of this Section 3.2, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than discharge
for cause, the Committee may increase the portion of the Participant's Option
available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, or, subject to the provisions of Section
2.4, extend the exercisability period upon such terms as the Committee
determines and expressly sets forth in or by amendment to the Option Agreement.
3.3 ADJUSTMENTS; ACCELERATION.
3.3.1 ADJUSTMENTS. The following provisions will apply if any
extraordinary dividend or other extraordinary distribution occurs in respect of
the Common Stock (whether in the form of cash, Common Stock, other securities,
or other property), or any reclassification, recapitalization, stock split
(including a stock split in the form of a stock dividend), reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
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<PAGE> 12
combination, repurchase, or exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate transaction (or
event in respect of the Common Stock) or a sale of substantially all the assets
of the Corporation as an entirety occurs. The Committee will, in such manner and
to such extent (if any) as it deems appropriate and equitable
(a) proportionately adjust any or all of (i) the number and
type of Shares (or other securities) that thereafter may
be made the subject of Options (including the specific
maxima and numbers of Shares set forth elsewhere in this
Plan), (ii) the number, amount and type of Shares (or
other securities or property) subject to any or all
outstanding Options, (iii) the purchase or exercise
price of any or all outstanding Options, or (iv) the
securities, cash or other property deliverable upon
exercise of any outstanding Options, or
(b) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification,
merger, reorganization, consolidation, combination, sale
of assets, split up, exchange, or spin off, make
provision for a cash payment or for the substitution or
exchange of any or all outstanding Options or the cash,
securities or property deliverable to the holder of any
or all outstanding Options based upon the distribution
or consideration payable to holders of the Common Stock
upon or in respect of such event. In each case, with
respect to Incentive Stock Options, no such adjustment
will be made that would cause this Plan to violate
Section 422 or 424(a) of the Code or any successor
provisions without the written consent of the holders
materially adversely affected thereby. In any of such
events, the Committee may take such action sufficiently
prior to such event if necessary to permit the
Participant to realize the benefits intended to be
conveyed with respect to the underlying shares in the
same manner as is available to stockholders generally.
3.3.2 ACCELERATION OF OPTIONS UPON CHANGE IN CONTROL. Unless
prior to a Change in Control Event the Committee determines that, upon its
occurrence, benefits under any or all Options will not accelerate or determines
that only certain or limited benefits under any or all Options will be
accelerated and the extent to which they will be accelerated, and/or establishes
a different time in respect of such Change in Control Event for such
acceleration, then upon the occurrence of a Change in Control Event, each Option
will become immediately vested and exercisable. However, in the case of a
transaction intended to be accounted for as a pooling of interests transaction,
the Committee shall have no discretion with respect to the foregoing
acceleration of Options. The Committee may override the limitations on
acceleration in this Section 3.3.2 by express provision in the Option Agreement
and may accord any Eligible Person a right to refuse any acceleration, whether
pursuant to the Option Agreement or otherwise, in such circumstances as the
Committee may approve. Any acceleration of Options will comply with applicable
legal requirements.
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3.3.3 POSSIBLE EARLY TERMINATION OF ACCELERATED OPTIONS. If
any Option to acquire Common Stock under this Plan has been fully accelerated as
required or permitted by Section 3.3.2 but is not exercised prior to (i) a
dissolution of the Corporation, or (ii) an event described in Section 3.3.1 that
the Corporation does not survive, or (iii) the consummation of an event
described in Section 3.3.1 involving a Change in Control Event approved by the
Board, such Option will terminate, subject to any provision that has been
expressly made by the Committee through a plan of reorganization approved by the
Board or otherwise for the survival, substitution, assumption, exchange or other
settlement of such Option.
3.3.4 GOLDEN PARACHUTE LIMITATIONS. Unless otherwise specified
in an Award Agreement, no Award will be accelerated under this Plan to an extent
or in a manner that would not be fully deductible by the Company for federal
income tax purposes because of Section 280G of the Code, nor will any payment
hereunder be accelerated if any portion of such accelerated payment would not be
deductible by the Company because of Section 280G of the Code. If a holder would
be entitled to benefits or payments hereunder and under any other plan or
program that would constitute "parachute payments" as defined in Section 280G of
the Code, then the holder may by written notice to the Company designate the
order in which such parachute payments will be reduced or modified so that the
Company is not defined federal income tax deductions for any "parachute
payments" because of Section 280G of the Code.
3.4 COMPLIANCE WITH LAWS.
3.4.1 GENERAL. This Plan, the granting and vesting of Options
under this Plan and the offer, issuance and delivery of Shares for other
securities and/or the payment of money under this Plan or under Options granted
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
laws and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. Any securities
delivered under this Plan will be subject to such restrictions, and to any
restrictions the Committee may require to preserve a pooling of interests under
generally accepted accounting principles, and the person acquiring such
securities will, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
3.4.2 COMPLIANCE WITH SECURITIES LAWS. No Participant shall
sell, pledge or otherwise transfer Shares acquired pursuant to an Option or any
interest in such Shares except in accordance with the express terms of this
Plan, Appendix A of the Plan, and the applicable Option Agreement. Any attempted
transfer in violation of this Section 3.4 shall be void and of no effect.
Without in any way limiting the provisions set forth above, no Participant shall
make any disposition of all or any portion of Shares acquired pursuant to an
Option, except in compliance with all applicable federal and state securities
laws and unless and until:
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(a) there is then in effect a registration statement under
the Securities Act covering such proposed disposition
and such disposition is made in accordance with such
registration statement; or
(b) such disposition is made in accordance with Rule 144
under the Securities Act; or
(c) such Participant notifies the Corporation of the
proposed disposition and furnishes the Corporation with
a statement of the circumstances surrounding the
proposed disposition, and, if requested by the
Corporation, such Participant furnishes the Corporation
with an opinion of counsel acceptable to the
Corporation's counsel, that such disposition will not
require registration under the Securities Act and will
be in compliance with all applicable state securities
laws.
Notwithstanding anything else herein to the contrary,
the Company has no obligation to register the Common
Stock or file any registration statement under either
federal or state securities laws, nor does the Company
make any representation concerning the likelihood of a
public offering of the Common Stock.
3.4.3 FINANCIAL STATEMENT DELIVERY. The Corporation shall
deliver annually to Participants, financial statements of the Corporation
sufficient to satisfy the requirements of Section 260.140.46 of the Regulations
adopted under the California Corporation Securities Law, to the extent required
and applicable to the Participants in this Plan.
3.4.4 INVESTMENT REPRESENTATIONS. By acceptance and execution
of his or her Option Agreement and again upon exercise of his or her Option
(unless the Corporation is then a registered company in respect of the Common
Stock under Section 12 of the Exchange Act or unless the Corporation waives this
requirement), each Participant makes and agrees to reaffirm the representations
contained in Appendix B hereto to the Corporation and acknowledges that the
Corporation's reliance on federal and state securities law exemptions from
registration and qualification is predicated, in part, on such representations.
3.5 TAX WITHHOLDING.
3.5.1 TAX WITHHOLDING. Upon any exercise, vesting, or payment
of any Option or upon the disposition of Shares acquired pursuant to the
exercise of an Incentive Stock Option prior to satisfaction of the holding
period requirements of Section 422 of the Code, the Company shall have the right
at its option to (i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the amount of
any taxes which the Company may be required to withhold with respect to such
Option event or payment, or (ii) deduct from any amount payable in cash the
amount of any taxes which the Company may be required to withhold with respect
to such cash payment. In any case where a tax is required to be withheld in
connection with the delivery of Shares under this Plan, the Committee may in its
sole discretion (subject to
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Section 3.4) grant (either at the time of the Option or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of Shares to be delivered by (or otherwise reacquire) the appropriate
number of Shares valued at their then Fair Market Value, to satisfy such
withholding obligation.
3.5.2 TAX LOANS. If so provided in the Option Agreement or
otherwise authorized by the Committee, the Corporation may, to the extent
permitted by law, authorize a loan to an Eligible Person in the amount of any
taxes that the Company may be required to withhold with respect to Shares
received (or disposed of, as the case may be) pursuant to a transaction
described in Section 3.5.1. Such a loan will be for a term, at a rate of
interest and pursuant to such other terms and conditions as the Corporation,
under applicable law, may establish and such loan need not comply with the
provisions of Section 2.2.3.
3.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
3.6.1 BOARD AUTHORIZATION. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this Plan, in whole or
in part. No Options may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee will retain jurisdiction as to
Options then outstanding in accordance with the terms of this Plan.
3.6.2 STOCKHOLDER APPROVAL. To the extent then required under
Sections 422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan shall be subject
to stockholder approval.
3.6.3 AMENDMENTS TO OPTIONS. Without limiting any other
express authority of the Committee under but subject to the express limits of
this Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Options to Eligible Persons that the Committee in the prior
exercise of its discretion has imposed, without the consent of a Participant,
and may make other changes to the terms and conditions of Options that do not
affect in any manner materially adverse to the Participant, the Participant's
rights and benefits under an Option.
Notwithstanding the foregoing provisions of this Section 3.6.3 or
Section 3.6.4, if the accounting treatment under generally accepted
accounting principles of any Options granted hereunder would be
materially more adverse to the Company with respect to its ability to
raise additional capital than anticipated at the time of approval of
this Plan or the Options because of a change in those principles or the
interpretation or application thereof, the Committee may, in the
exercise of its discretion and without the consent of the Participant,
amend the terms of such Options to the extent the Committee deems
necessary to eliminate such effect.
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3.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND OPTIONS. No
amendment, suspension or termination of this Plan or change of or affecting any
outstanding Option will, without written consent of the Participant, affect in
any manner materially adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any Option granted under
this Plan prior to the effective date of such change. Changes contemplated by
Section 3.3 will not be deemed to constitute changes or amendments for purposes
of this Section 3.6.
3.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly
authorized by the Committee or this Plan, a Participant will not be entitled to
any privilege of stock ownership as to any Shares not actually delivered to and
held of record by the Participant. No adjustment will be made for dividends or
other rights as a stockholder for which a record date is prior to such date of
delivery.
3.8 EFFECTIVE DATE OF THE PLAN. This Plan is effective upon its
approval by the Board (the "Effective Date"), subject to approval by the
stockholders of the Corporation within twelve months after the date of such
Board approval.
3.9 TERM OF THE PLAN. Unless earlier terminated by the Board, this
Plan will terminate at the close of business on the day before the tenth
anniversary of the Effective Date (the "TERMINATION DATE") and no Options may be
granted under this Plan after that date. Unless otherwise expressly provided in
this Plan or in an applicable Option Agreement, any Option granted prior to the
termination date may extend beyond such date, and all authority of the Committee
with respect to Options hereunder, including the authority to amend an Option,
will continue during any suspension of this Plan and in respect of Options
outstanding on the termination date.
3.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
3.10.1 CHOICE OF LAW. This Plan, the Options all documents
evidencing Options and all other related documents will be governed by, and
construed in accordance with, the laws of the state of Delaware.
3.10.2 CONSTRUCTION. This Plan and the grant of Options shall
be construed in accordance with Section 25102(o) to the extent required and
applicable to Participants in this Plan.
3.10.3 SEVERABILITY. If a court of competent jurisdiction holds
any provision invalid and unenforceable, the remaining provisions of this Plan
will continue in effect.
3.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings will not be deemed in any way material or relevant to the construction
or interpretation of this Plan or any provision thereof.
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3.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan
and any Option hereunder, if an entity ceases to be a Subsidiary, a termination
of employment and service will be deemed to have occurred with respect to each
Eligible Person in respect of such Subsidiary who does not continue as an
Eligible Person in respect of another entity within the Company.
3.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be
deemed to limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common Stock,
under any other plan or authority.
4. DEFINITIONS.
"AWARD DATE" means the date upon which the Committee took the action granting an
Option or such later date as the Committee designates as the Award Date at the
time of the Option.
"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant, or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Option
Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation;
(b) Approval by the stockholders of the Corporation of an agreement
to merge or consolidate, or otherwise reorganize, with or into
one or more entities that are not Subsidiaries or other
affiliates, as a result of which less than 50% of the
outstanding voting securities of the surviving or resulting
entity immediately after the reorganization are, or will be,
owned, directly or indirectly, by stockholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the
record ownership of the Corporation's securities from the record
date for such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization), but including in such determination any
securities of the other parties to such reorganization held by
affiliates of the Corporation);
(c) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to
a person or entity that is not a Subsidiary or other affiliate;
or;
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(d) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act but excluding any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder), other
than a person that is a stockholder of the Corporation on the
Effective Date, becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50% of the
combined voting power of the Corporation's then outstanding
securities entitled to then vote generally in the election of
directors of the Corporation; or
(e) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the
Board cease to constitute at least a majority thereof, unless
the election, or the nomination for election by the
Corporation's stockholders, of each new Board member was
approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the
beginning of such period (including for these purposes, new
members whose election or nomination was so approved).
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Board or any one or more committees of director(s)
appointed by the Board to administer this Plan with respect to the Options
within the scope of authority delegated by the Board.
"COMMON STOCK" means the Common Stock, par value $.001 per share, of the
Corporation and such other securities or property as may become the subject of
Options, or become subject to Options, pursuant to an adjustment made under
Section 3.3 of this Plan.
"COMPANY" means, The Trizetto Group, Inc., a Delaware Corporation and its
Subsidiaries.
"CORPORATION" means The Trizetto Group, Inc., a Delaware corporation, and its
successors.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or employee of
the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person, as
determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time
to time.
"FAIR MARKET VALUE" on any date means (a) if the stock is listed or admitted to
trade on a national securities exchange, the closing price of the stock on the
Composite Tape, as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock is so listed or
admitted to trade, on such date, or, if there is no trading of the stock on such
date, then the closing price of the stock as quoted on such Composite Tape on
the
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next preceding date on which there was trading in such shares; (b) if the stock
is not listed or admitted to trade on a national securities exchange, the
last/closing price for the stock on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National
Market Reporting System or a similar organization if the NASD is no longer
reporting such information; (c) if the stock is not listed or admitted to trade
on a national securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the stock on such
date, as furnished by the NASD or a similar organization; or (d) if the stock is
not listed or admitted to trade on a national securities exchange, is not
reported on the National Market Reporting System and if bid and asked prices for
the stock are not furnished by the NASD or a similar organization, the value as
established by the Committee at such time for purposes of this Plan. Any
determination as to fair market value made pursuant to this Plan shall be
determined without regard to any restriction other than a restriction which, by
its terms, will never lapse, and shall be conclusive and binding on all persons.
"INCENTIVE STOCK OPTION" means an Option that is designated and intended as an
incentive stock option within the meaning of Section 422 of the Code, the award
of which contains such provisions (including but not limited to the receipt of
stockholder approval of this Plan, if the award is made prior to such approval)
and is made under such circumstances and to such persons as may be necessary to
comply with that section.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an officer or
employee of the Company.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a Nonqualified
Stock Option and will include any Option intended as an Incentive Stock Option
that fails to meet the applicable legal requirements thereof. Any Option granted
hereunder that is not designated as an incentive stock option will be deemed to
be designated a nonqualified stock option under this Plan and not an incentive
stock option under the Code.
"OPTION" means an option to purchase Common Stock granted under this Plan. The
Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"OPTION AGREEMENT" means any writing setting forth the terms of an Option that
has been authorized by the Committee.
"OTHER ELIGIBLE PERSON" means (a) any individual consultant or advisor or agent
who renders or has rendered bona fide services (other than services in
connection with the offering or sale of securities of the Company in a capital
raising transaction) to the Company, and who (to the extent provided in the next
sentence) is selected to participate in this Plan by the Committee; or
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(b) any director of the Corporation. A person who is neither an employee,
officer nor director who provides bona fide services to the Company may be
selected as an Other Eligible Person only if such person's participation in this
Plan would not adversely affect (c) the Corporation's eligibility to use Form
S-8 to register under the Securities Act of 1933, as amended, the offering of
shares issuable under this Plan by the Company or (d) the Corporation's
compliance with any other applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted an Option under this
Plan.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the disability
or incompetence of a Participant, has acquired on behalf of the Participant, by
legal proceeding or otherwise, the power to exercise the rights or receive
benefits under this Plan by virtue of having become the legal representative of
the Participant.
"PLAN" means this The Trizetto Group, Inc. 1998 Stock Option Plan, as it may
hereafter be amended from time to time.
"PUBLIC OFFERING" means the closing of a bona fide underwritten public offering
and sale of at least 20% of the Common Stock, or a reorganization or other event
affecting the Corporation whereby it becomes a registered company in respect of
the Common Stock under Section 12 of the Exchange Act.
"QDRO" means a qualified domestic relations order as defined in Section 414(p)
of the Code or Title I, Section 206(d)(3) of ERISA (to the same extent as if
this Plan were subject thereto), or the applicable rules thereunder.
"RETIREMENT" means retirement with the consent of the Company, or from active
service as an employee or officer of the Company on or after attaining (a) age
55 with ten or more years of service, or (b) age 65.
"SECTION 25102(o)" means Section 25102(o) of the California Corporations Code.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time.
"SHARE" shall mean a share of Common Stock.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a "total and permanent disability" within the meaning
of Section 22(e)(3) of the Code and, with respect to Options other than
Incentive Stock Options, such other disabilities, infirmities, afflictions, or
conditions as the Committee may include.
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APPENDIX A
RESTRICTIONS ON SALE AND
TRANSFER OF SHARES BY PARTICIPANTS
CORPORATION'S CALL RIGHTS
TO REPURCHASE SHARES OF PARTICIPANTS
THE PROVISIONS OF THIS APPENDIX A (EXCEPT FOR SECTION 1.3.1) SHALL TERMINATE
UPON A PUBLIC OFFERING.
1. RESTRICTIONS ON SALE AND TRANSFER OF SHARES.
No Participant shall sell, pledge or otherwise transfer Shares
acquired pursuant to an Option or any interest in such Shares or in the Options
except in accordance with the express terms of the Plan and this Appendix A or
to the Corporation. Any sale or transfer, or purported sale or transfer, of any
Shares acquired pursuant to an Option or any interest therein other than to the
Corporation shall be null and void unless the terms, conditions and provisions
of this Appendix A are strictly observed and followed. The restrictions and
duties under this Section 1 shall not apply to any merger of the Company or to
any tender offer to all stockholders that is approved by the Board.
1.1 RIGHT OF FIRST REFUSAL.
Subject to Section 3.4 of the Plan, the Corporation and its
stockholders shall have certain rights of first refusal, as set forth below, to
purchase Shares acquired pursuant to an Option before such Shares can be validly
transferred.
1.1.1 NOTICE OF INTENT TO SELL. Before there can be a valid
sale or transfer of any Shares acquired pursuant to an Option by any holder
thereof, the holder of such Shares to be sold or transferred shall first give
notice in writing to the Corporation via postage pre-paid registered or
certified U.S. Mail of his or her intention to sell
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or transfer such Shares (the "OPTION NOTICE") addressed as follows (or to such
other representatives of the Corporation or such other address as the
Corporation shall have duly noticed in writing to such stockholder):
President
The Trizetto Group, Inc.
567 San Nicolas Drive, Suite 360
Newport Beach, California 92660
The Option Notice shall specify the number of Shares to be sold
or transferred, the price per Share and the terms upon which such holder intends
to make such sale or transfer. If the payment terms set forth in the Option
Notice differ from payment by check at closing, the Corporation shall have the
option, as set forth herein, of providing for payment at closing in a fair value
equivalent. The determination of a fair value equivalent shall be made in the
Corporation's best judgment and such determination shall be mailed or delivered
to the selling or transferring stockholder (the "CORPORATION'S NOTICE") within
five (5) days of its receipt of the Option Notice. Should the selling or
transferring stockholder disagree with the Corporation's determination of a fair
value equivalent, he or she shall have the right to retract such sale or
transfer and the offer of Shares pursuant to the Option Notice (such retraction
to be made in writing and sent via postage pre-paid registered or certified U.S.
Mail to the Corporation as above provided within five (5) days after the date of
the Corporation's Notice).
The Corporation shall within five (5) days after receipt of the
Option Notice, mail or deliver a copy of said Option Notice and a copy of the
Corporation's Notice, if applicable, to each of the other stockholders of record
of the Corporation. Such notice(s) may be delivered to such stockholders
personally or may be mailed to the last known address of such stockholders, as
the same may appear on the books of the Corporation.
1.1.2 OPTION TO PURCHASE. Should the selling stockholder not
retract his or her proposed sale or transfer of Shares as provided above, for
the 30-day period commencing upon receipt of the Option Notice by the
Corporation (the "OPTION PERIOD"), the Corporation and the stockholders of
record of the Corporation shall have an option to purchase any or all of the
Shares specified in the Option Notice at the price offered therein.
1.1.3 OFFER NOTICES. Any stockholder or stockholders desiring
to acquire any part or all of the Shares referred to in the Option Notice shall
deliver by mail or otherwise the Corporation as specified above a written offer
or offers (each an "OFFER NOTICE") to purchase a specified number or numbers of
such Shares at the price and upon the terms stated in the Option Notice. Offer
Notices must be received by the Corporation, addressed as specified above,
before the 25th day of the Option Period.
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If the total number of Shares specified in the Offer Notices
received by the Corporation before the 25th day of the Option Period combined
with any Shares to be acquired by the Corporation pursuant to the terms of this
Section 1.1 exceed the number of Shares referred to in the Option Notice: (i)
the number of Shares to be acquired by the Corporation pursuant to the terms of
this Section 1.1 shall be allocated first to the Corporation; and (ii) any
Shares not so allocated to the Corporation shall be available for purchase by
the other stockholders of record of the Corporation.
If the total number of Shares specified in the Offer Notices of
the stockholders of record of the Corporation exceed the number of Shares
available for them to purchase, each such offering stockholder shall be entitled
to purchase such proportion of the Shares available to be so purchased as the
number of Shares which he or she holds bears to the total number of Shares held
by all of the stockholders desiring to purchase the Shares referred to in the
Option Notice.
If all of the Shares referred to in the Option Notice are not
disposed of under such apportionment, each stockholder desiring to purchase
Shares in a number in excess of his or her proportionate share, as provided
above, shall be entitled to purchase such proportion of those Shares which
remain thus undisposed of, as the total number of Shares which he or she holds
bears to the total number of Shares held by all of the stockholders desiring to
purchase Shares in excess of those to which they are entitled under such
apportionment. This process shall be repeated until all available Shares are
purchased or until no stockholder desires to make a purchase of such Shares.
1.1.4 PURCHASE OF SHARES. Prior to the expiration of the
Option Period, the Corporation shall give written notice to the stockholder
desiring to sell or transfer Shares of the number of such Shares which will be
purchased (or, if no Shares are to be purchased, stating such fact) by the
Corporation and/or its stockholders pursuant to the terms of this Section 1.1
(the "PURCHASE NOTICE"). Unless the parties agree otherwise, purchases pursuant
to this Section 1.1 shall be consummated no later than the expiration of the
Option Period. The purchase price shall be paid at the closing (i) by check; or
(ii), if the payment terms set forth in the Option Notice differ from payment by
check at closing, in accordance with the payment terms as set forth in the
Option Notice or fair value equivalent as set forth in the Corporation's Notice;
against surrender by the selling stockholder of a stock certificate evidencing
the number of Shares specified in the Option Notice with duly endorsed stock
powers.
1.1.5 ABILITY TO SELL UNPURCHASED SHARES. Unless all of the
Shares referred to in the Option Notice are to be purchased as indicated in the
Purchase Notice, the stockholder desiring to sell or transfer may dispose of any
Shares referred to in the Option Notice that are not to be purchased by the
Corporation or its stockholders, to the person or persons specified in the
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Option Notice during a period of sixty (60) days commencing upon his or her
receipt of the Purchase Notice; provided, however, that he or she shall not sell
or transfer such Shares at a lower price or on terms more favorable to the
purchaser or transferee than those specified in the Option Notice, and provided
that such transfer is consistent with the other provisions and limitations of
the Plan and this Appendix A. If the transfer is not consummated within such
sixty (60) day period, such stockholder shall again offer such Shares to the
Corporation and its stockholders of record pursuant to the terms of this Section
1.1 prior to any sale or transfer to any other person.
1.2 LIMITATIONS ON TRANSFEREES.
In addition to the limitations under Section 1.1, no Shares
acquired pursuant to an Option may be transferred unless the proposed transferee
(i) is not directly or indirectly in competition with the Corporation, (ii)
agrees with the Corporation in writing to be bound by each of the subsections of
this Appendix A and Section 3.4 of the Plan, and (iii) is the same person or
persons specified in the Option Notice.
1.3 ADDITIONAL LIMITS ON TIME OF TRANSFER.
1.3.1 LOCK-UP AGREEMENTS. No Participant or transferee of a
Participant shall, directly or indirectly, offer, sell, offer to sell, contract
to sell, grant any option to purchase or otherwise sell, transfer, pledge, or
dispose (or announce any offer, sale, offer of sale, contract of sale, grant of
any option to purchase or other sale, transfer, pledge or disposition)
(collectively, a "TRANSFER") of any of the Shares acquired on exercise,
conversion or settlement of an Option for a period commencing as of 14 days
prior to and ending one year, or such lesser period of time as the relevant
underwriters may permit, after the effective date of a registration statement
covering any public offering of the Corporation's securities of which a
Participant has notice. A Participant shall agree and consent to the entry of
stop transfer instructions with the Corporation's transfer agent against the
Transfer of the Corporation's securities beneficially owned by such Participant.
If at any time the Corporation proposes to register its Common Stock under the
Securities Act in connection with an underwritten public offering of the
Corporation's Common Stock, a Participant shall agree to enter into a one year,
or such lesser period of time as the relevant underwriters may permit, lock-up
agreement with the underwriter or underwriters selected for such underwriting by
the Corporation restricting any Transfers of shares of the Corporation's Common
Stock owned by or acquirable by such Participant, such lock-up agreement to be
in customary form. Notwithstanding anything else herein to the contrary, this
Section 1.3.1 shall not be construed so as to prohibit a Participant from
participating in a registration or a public offering of the Common Stock with
respect to any Shares which he or she may hold at that time, provided, however,
that such participation shall be at the sole discretion of the Board.
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1.3.2 NO TRANSFER FOLLOWING A CALL. Notwithstanding anything
else contained herein to the contrary, no Shares acquired pursuant to an Option
may be transferred other than to the Corporation after the Corporation has given
notice that it will exercise its call rights under Section 2 for so long as the
Corporation is not in default of its obligation to pay for the Shares subject to
the call.
2. CORPORATION REPURCHASE/CALL RIGHTS.
Options and Shares acquired pursuant to an Option are subject to
certain repurchase and call rights in favor of the Corporation as set forth in
this Section 2. However, nothing in this Appendix A shall be construed so as to
create an obligation on the part of the Corporation to repurchase any Shares or
Options from any Participant.
2.1 SHARE REPURCHASE RIGHT.
Upon a Participant's termination of employment with or services
to the Company (by reason of death, disability, resignation, dismissal,
retirement or otherwise, whether or not for cause, a "TERMINATION OF SERVICES"),
the Corporation shall have the right during a 90-day period (the "CALL PERIOD")
after such termination to repurchase, and such Participant shall be obligated to
sell any Shares acquired pursuant to an Option at a price equal to their Fair
Market Value (as defined in the Plan) as of the date of such termination;
provided, however, that if such Participant purchases the Shares after such
termination pursuant to an Option, then the Call Period shall begin on the date
of such exercise (and not on the date of such termination) and the Participant
shall be obligated to sell the Shares at a price equal to their Fair Market
Value as of the date of exercise. The right of the Corporation to repurchase and
the obligation of a Participant to sell the Shares to the Corporation under this
Section 2.1 shall terminate after the expiration of the Call Period. The
purchase price shall be paid at the closing (which shall occur not later than
the 10th day after the Corporation exercises its call right and in any event not
later than the expiration of the Call Period) by check against surrender by the
Participant of a stock certificate evidencing the Shares with duly endorsed
stock powers. No adjustments shall be made to the purchase price for
fluctuations in the Fair Market Value of the Shares during the Call Period.
2.2 RIGHTS TO PURCHASE OPTIONS.
If all or any portion of an Option remains vested or exercisable
after a Participant's Termination of Services, the Corporation shall have the
right, at all times after such Termination of Services and before the Option is
exercised, to purchase the Option, in whole or in part, at a price equal to the
value of the then vested portion of the Option as to which the Corporation's
right is exercised. For this purpose, the per share value of the Option is equal
to the excess (if any) of the Fair Market Value of a Share over the purchase
price per share of the Option, as of the end of the quarter preceding the date
the Corporation delivers notice that it is exercising its rights under this
Section 2.2 to the Participant. (If such calculation results in a per share
value of zero or less than zero, the Option shall automatically terminate to the
extent of the shares covered by the Option upon delivery of the Corporation's
notice to that effect and notice that it is exercising its purchase rights under
this Section 2.2.) Upon payment (or tender of payment) of the applicable amount
to the Participant (or delivery of the notice as aforesaid if no
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<PAGE> 26
payment is due), the Option and all rights thereunder shall terminate to the
extent the Corporation's right is exercised. (If payment has been tendered, the
Option shall represent only the right to receive such payment (if any) without
interest.) A notice of purchase given pursuant to this Section 2.2 shall specify
the price and a date of the closing of the purchase no later than 30 days after
the date of notice. The purchase price shall be paid at the closing by check. No
adjustments shall be made to the purchase price for fluctuations in the Fair
Market Value of the Shares subsequent to the valuation date specified above. If
any such purchase right is exercised in accordance with this Section 2.2, the
Participant shall be obligated to surrender the Option upon the exercise of such
rights and payment of any amount due hereunder. No Option may be exercised after
the Corporation has delivered notice that it is exercising its purchase rights
to purchase such Option under this Section 2.2, provided that the Corporation
tenders any payment due within 30 days of such notice.
3. MISCELLANEOUS.
3.1 ASSIGNMENT.
Notwithstanding anything to the contrary, the Corporation may
assign any or all of its repurchase and call rights under this Appendix A to one
or more stockholders or successors of the Corporation.
3.2 LEGENDS.
All certificates evidencing Shares issued or delivered under the
Plan shall bear the following legends and/or any other appropriate or required
legends under applicable laws:
"OWNERSHIP OF THIS CERTIFICATE AND THE SHARES EVIDENCED BY THIS
CERTIFICATE AND ANY INTEREST THEREIN ARE SUBJECT TO SUBSTANTIAL
RESTRICTIONS ON TRANSFER UNDER APPLICABLE LAW AND UNDER
AGREEMENTS WITH THE COMPANY, INCLUDING RESTRICTIONS ON SALE,
ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION, AND RIGHTS OF
REPURCHASE AND FIRST REFUSAL, UNDER SECTION 3.4 OF THE COMPANY'S
1998 STOCK OPTION PLAN AND APPENDIX A THERETO, COPIES OF WHICH
ARE AVAILABLE FOR REVIEW AT THE OFFICE OF THE SECRETARY OF THE
COMPANY."
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
NOR HAVE THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
LAWS OF ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE
PERMITTED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE
WITH RULE 144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL TO THE
CORPORATION, REGISTRATION UNDER THE ACT IS UNNECESSARY IN ORDER
FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH APPLICABLE
STATE SECURITIES LAWS."
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APPENDIX B
SECURITIES LAW INVESTMENT REPRESENTATIONS
1. NO INTENT TO SELL.
The Participant represents that he/she is acquiring the Option
and if and when he/she exercises the Option will acquire any Shares solely for
his/her own account, for investment purposes only, and not with a view to or an
intent to sell, or to offer for resale in connection with any unregistered
distribution of all or any portion of the Shares within the meaning of the
Securities Act, the California Corporate Securities Law, or other applicable
state securities laws.
2. NO RELIANCE ON CORPORATION.
In evaluating the merits and risks of an investment in the
Shares, the Participant represents that he/she has and will rely upon the advice
of his/her own legal counsel, tax advisors, and/or investment advisors.
3. RELATIONSHIP TO AND KNOWLEDGE ABOUT CORPORATION.
The Participant represents that he/she is knowledgeable about
the Corporation and has a preexisting personal or business relationship with the
Corporation. As a result of such relationship, he/she is familiar with, among
other characteristics, its business and financial circumstances and has access
on a regular basis to or may request the Corporation's condensed consolidated
balance sheet and condensed consolidated income statement setting forth
information material to the Corporation's financial condition, operations and
prospects.
4. RISK OF LOSS.
The Participant represents that he/she is aware that the Option
may be of no practical value, that any value it may have depends on its vesting
and exercisability as well as an increase in the Fair Market Value of the
underlying Shares from the Award Date to the date of exercise, and that any
investment in shares of a closely held corporation such as the Corporation is
non-marketable, non-transferable and could require his/her capital to be
invested for an indefinite period of time, possibly without return and at risk
of loss.
5. RESTRICTIONS ON SHARES.
The Participant represents that he/she understands that any
Shares acquired on exercise of the Option will be characterized as "restricted
securities" under the federal securities laws since the Shares are being
acquired from the Corporation in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. The Participant acknowledges receiving a copy of Rule 144
promulgated under the Securities Act, as presently in effect, and represents
that he/she is familiar with such rule, and understands the
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resale limitations imposed thereby and by the Securities Act and the California
Corporate Securities Law.
6. ADDITIONAL RESTRICTIONS.
The Participant represents that he/she has read and understands
the restrictions and limitations imposed on the Option and any Shares which may
be acquired thereunder, including, but not limited to, the following: (i) the
termination provisions of Sections 3.2 and 3.3.3 of the Plan; (ii) the
non-transferability provisions of Section 1.5 of the Plan; and (iii) the
limitations on the transfer of Shares contained in Section 3.4 of the Plan and
Appendix A of the Plan.
7. NO CORPORATION REPRESENTATIONS.
The Participant represents that at no time was an oral
representation made to him/her relating to the Option or the purchase of Shares
and that he/she was not presented with or solicited by any promotional meeting
or material relating to the Option or the Shares.
8. SHARE CERTIFICATE LEGEND.
The Participant represents that he/she understands and
acknowledges that any certificate evidencing the Shares (or evidencing any other
securities issued with respect thereto pursuant to any stock split, stock
dividend, merger or other form of reorganization or recapitalization) if and
when issued shall bear, in addition to any other legends which may be required
by applicable state securities laws, the legend set forth in Section 3.2 of
Appendix A of the Plan.
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EXHIBIT 10.2
THE TRIZETTO GROUP, INC.
1998 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "OPTION
AGREEMENT") dated as of the ___ day of ________, _____, by and between THE
TRIZETTO GROUP, INC. a Delaware corporation (the "CORPORATION"), and
________________________________ (the "PARTICIPANT").
R E C I T A L S
WHEREAS, the Corporation has adopted The Trizetto Group, Inc.
1998 Stock Option Plan (the "PLAN"); and
WHEREAS, pursuant to Section 2 of the Plan, the Corporation
has granted to the Participant effective as of the ___ day of __________, _____
(the "AWARD DATE") a stock option to purchase all or any part of ______ shares
of the Corporation's Common Stock, par value $.001 per share (the "COMMON
STOCK"), subject to and upon the terms and conditions set forth in this Option
Agreement and in the Plan; and
WHEREAS, such option has been granted by the Corporation to
the Participant in addition to, and not in lieu of, any other form of
compensation otherwise payable or to be paid to the Participant;
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
SECTION 1. DEFINED TERMS.
Capitalized terms used herein and not otherwise defined herein
shall have the meaning assigned to such terms in the Plan.
SECTION 2. GRANT OF OPTION.
This Option Agreement evidences the Corporation's grant to the
Participant of the right and option to purchase, subject to and on the terms and
conditions set forth in this Option Agreement and in the Plan, all or any part
of ______ shares of the Common Stock (the "SHARES") at the price of $____ per
Share (the "OPTION"), exercisable from time to time, subject to the provisions
of this Option Agreement and the Plan, prior to the close of business on the day
before the tenth anniversary of the Award Date (the "EXPIRATION DATE"). Such
price equals not less than the Fair Market Value of the Shares on the Award
Date. It is the intent of the Corporation that the Option constitute an
incentive stock option within the meaning of Section 422 of the Code.
<PAGE> 2
SECTION 3. EXERCISABILITY OF OPTION.
Except as otherwise provided in the Plan or in any resolution
of the Committee adopted after the date hereof, the Option shall become vested
and exercisable [at the time or times set forth in Section 2.3.1 of the Plan.]
To the extent that the Option is vested and exercisable, if
the Participant does not in any year purchase all or any part of the Shares to
which the Participant is entitled, the Participant has the right cumulatively
thereafter to purchase any Shares not so purchased and such right shall continue
until the Option terminates or expires. The Option shall only be exercisable in
respect of whole shares, and fractional share interests shall be disregarded.
The Option may only be exercised as to at least 100 shares unless the number
purchased is the total number at the time available for purchase under the
Option. The Option is subject to Section 2.5.1 of the Plan.
SECTION 4. METHOD OF EXERCISE OF OPTION.
The Option shall be exercisable by the delivery to the
Secretary of the Corporation of a written notice stating the number of Shares to
be purchased pursuant to the Option and accompanied by (i) delivery of an
executed EXERCISE AGREEMENT in the form attached hereto as EXHIBIT I and (ii)
payment made in accordance with and in a form permitted by Section 2.2 of the
Plan for the full purchase price of the Shares to be purchased, subject to such
further limitations and rules or procedures as the Committee may from time to
time establish as to any non-cash payment and as to the tax withholding
requirements of Section 3.5 of the Plan. Subject to the consent of the Committee
at the time of exercise, the purchase price may be paid in full or in part by a
note meeting the requirements of Section 2.2.3 of the Plan or by shares of
Common Stock already owned by the Participant; provided, however, that any
shares delivered which were initially acquired upon exercise of a stock option
must have been owned by the Participant for at least six months before the date
of exercise. Shares used to satisfy the exercise price of the Option shall be
valued at their Fair Market Value on the exercise date. In addition, the
Participant (or the Participant's Beneficiary or Personal Representative) must
furnish any written statements required pursuant to Section 3.4 of the Plan.
SECTION 5. EARLY TERMINATION OF OPTION.
If the Participant terminates employment or services with the
Company, the Option, to the extent not previously exercised, and all other
rights hereunder, whether vested and exercisable or not, shall terminate and
become null and void as provided and at the times specified in Section 3.2 of
the Plan. The Option, to the extent not previously exercised, whether vested and
exercisable or not, shall terminate upon the occurrence of certain events, as
described in Section 3.3 of the Plan.
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SECTION 6. NON-TRANSFERABILITY OF AND OTHER RESTRICTIONS.
Subject to limited exceptions set forth in Section 1.5 of the
Plan, the Option and any other rights of the Participant under this Option
Agreement or the Plan are nontransferable and subject to repurchase and call
rights in favor of the Corporation. Any Shares issued on exercise of the Option
are also subject to substantial restrictions on transfer and are subject to
repurchase and call rights in favor of the Corporation. The Option is subject to
and Participant agrees to be bound by the terms and provisions of Sections 1.5
and 3.5 of the Plan and Appendix A of the Plan, incorporated herein by this
reference.
SECTION 7. SECURITIES LAW COMPLIANCE.
The Participant acknowledges that the Option and Shares are
not being registered under the Securities Act, based, in part, on reliance that
the issuance of the Shares is exempt from registration under Rule 701
promulgated under the Securities Act and exempt from qualification under
California Corporate Securities Law Section 25102(o). The Participant
acknowledges that by executing this Option Agreement he or she makes the
representations contained in Appendix B of the Plan, incorporated herein by this
reference.
SECTION 8. SHARES TO BE RESERVED.
The Corporation shall at all times during the term of the
Option reserve and keep available such number of Shares as will be sufficient to
satisfy the requirements of this Option Agreement.
SECTION 9. NOTICES.
Any notice to be given under the terms of this Option
Agreement shall be in writing and addressed to the Corporation at its principal
office to the attention of the Secretary, and to the Participant at the address
given beneath the Participant's signature hereto, or at such other address as
either party may hereafter designate in writing to the other. Any such notice
shall be deemed to have been duly given when enclosed in a properly sealed
envelope addressed as aforesaid, registered or certified, and deposited (postage
and registry or certification fee prepaid) in a post office or branch post
office regularly maintained by the United States Government.
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<PAGE> 4
SECTION 10. PLAN.
The Option and all rights of the Participant under this Option
Agreement are subject to, and the Participant agrees to be bound by, all of the
terms and conditions of the provisions of the Plan, incorporated herein by this
reference. In the event of a conflict or inconsistency between the terms and
conditions of this Option Agreement and of the Plan, the terms and conditions of
the Plan shall govern. The Participant acknowledges receipt of a copy of the
Plan, including all appendices thereto, and agrees to be bound by the terms
thereof. The Participant acknowledges reading and understanding the plan and all
appendices thereto. Unless otherwise expressly provided in other sections of
this Option Agreement, provisions of the Plan that confer discretionary
authority on the Board (or the Committee) do not (and shall not be deemed to)
create any rights in the Participant unless such rights are expressly set forth
herein or are otherwise in the sole discretion of the Board (or the Committee)
so conferred by appropriate action of the Board (or the Committee) under the
Plan after the date hereof.
SECTION 11. ENTIRE AGREEMENT.
This Option Agreement and the Plan together constitute the
entire agreement and supersede all prior understandings and agreements, written
or oral, of the parties hereto with respect to the subject matter hereof. The
Plan and this Option Agreement may be amended pursuant to Section 3.6 of the
Plan. Such amendment must be in writing and signed by the Corporation. The
Corporation may, however, unilaterally waive any provision hereof in writing to
the extent such waiver does not adversely affect the interests of the
Participant hereunder, but no such waiver shall operate as or be construed to be
a subsequent waiver of the same provision or a waiver of any other provision
hereof.
SECTION 12. GOVERNING LAW.
12.1. CALIFORNIA LAW. This Option Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware without regard to conflict of law principles thereunder.
12.2. ARBITRATION. Any controversy or claim arising out of or
relating to this Option Agreement or the Plan, their enforcement or
interpretation, or because of an alleged breach, default, or misrepresentation
in connection with any of their provisions, shall be submitted to arbitration,
to be held in Orange County, California in accordance with California Civil
Procedure Code Sections 1282-1284.2. In the event either party institutes
arbitration under this Section 12.2, the party prevailing in any such litigation
shall be entitled, in addition to all other relief, to reasonable attorney's
fees relating to such arbitration. The non-prevailing party shall be responsible
for all costs of the arbitration, including but not limited to, the arbitration
fees, court reporter fees, etc.
4
<PAGE> 5
IN WITNESS WHEREOF, the Corporation has caused this Option
Agreement to be executed on its behalf by its duly authorized officer and the
Participant has hereunto set his or her hand.
"THE CORPORATION"
THE TRIZETTO GROUP, INC.
a Delaware corporation
By: __________________________________
Title: _______________________________
"THE PARTICIPANT"
____________________________________________
Signature
____________________________________________
Print Name
____________________________________________
Address
____________________________________________
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Incentive
Stock Option Agreement by The Trizetto Group, Inc. I,
___________________________, the spouse of the Participant therein named, do
hereby agree to be bound by all of the terms and provisions thereof and of the
Plan.
DATED: _________________, _____. ___________________________________
Signature of Spouse
5
<PAGE> 6
EXHIBIT I
THE TRIZETTO GROUP, INC.
EXERCISE AGREEMENT
THIS EXERCISE AGREEMENT (this "EXERCISE AGREEMENT") dated as
of the ____ day of ________, _____, by and between THE TRIZETTO GROUP, INC., a
Delaware corporation (the "CORPORATION"), and ____________________________ (the
"PURCHASER").
R E C I T A L S
WHEREAS, pursuant to The Trizetto Group, Inc. 1998 Stock
Option Plan (the "PLAN"), the Corporation granted to the Purchaser an option
intended to be an incentive stock option (the "OPTION") to purchase all or any
part of a designated number of authorized but unissued or treasury shares of
Common Stock of the Corporation and in connection therewith, the Corporation and
Purchaser entered into that certain Incentive Stock Option Agreement dated as of
____________, _____ (the "OPTION AGREEMENT"); and
WHEREAS, the Purchaser desires to exercise the Option and
purchase from the Corporation and the Corporation wishes to deliver and sell to
Purchaser _______ shares of its Common Stock, par value $.001 per share (the
"SHARES"), to be sold at a price of $___________ per share, in accordance with
and subject to the terms and conditions set forth in this Exercise Agreement;
NOW, THEREFORE, in consideration of the above premises and the
representations, warranties, covenants and agreements contained in this Exercise
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF COMMON STOCK.
The Corporation shall deliver to Purchaser a stock certificate
representing the Shares against delivery to the Corporation by Purchaser of the
purchase price in the sum of $__________ (which represents the product of the
$___________ price per share and the number of Shares, the "PURCHASE PRICE").
i
<PAGE> 7
SECTION 2. INVESTMENT REPRESENTATIONS.
Purchaser acknowledges that the Shares are not being
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT").
Purchaser hereby affirms as made as of the date hereof the representations made
in Section 7 of the Option Agreement and such representations are incorporated
herein by this reference. Purchaser has no need for liquidity in this
investment, has the ability to bear the economic risk of this investment, and
can afford a complete loss of the Purchase Price. Purchaser has received the
Corporation's consolidated financial information which includes information
material to the Corporation's financial condition, operations and prospects.
Purchaser also understands and acknowledges the restrictive legend provision
contained in Section 3.2 of Appendix A of the Plan.
SECTION 3. LIMITATIONS ON DISPOSITION, REPURCHASE RIGHTS.
The Shares are subject to and Purchaser hereby agrees to be
bound by the provisions of Sections 1.5 and 3.4 of the Plan and Appendix A of
the Plan, incorporated herein by this reference, which shall continue in effect
as to the Shares.
SECTION 4. MISCELLANEOUS.
4.1 PLAN AND OPTION AGREEMENT. All rights of the Purchaser
under this Exercise Agreement are subject to, and the Purchaser agrees to be
bound by, all of the terms and conditions of the provisions of the Plan and the
Option Agreement, both of which are incorporated herein by this reference. In
the event of a conflict or inconsistency between the terms and conditions of
this Exercise Agreement and of the Plan or the Option Agreement, the terms and
conditions of the Plan or the Option Agreement shall govern. The Purchaser
acknowledges receipt of a copy of the Plan, including all appendices thereto,
and agrees to be bound by the terms thereof. The Purchaser acknowledges reading
and understanding the Plan and all appendices thereto. Unless otherwise
expressly provided in other sections of this Exercise Agreement, provisions of
the Plan that confer discretionary authority on the Board (or the Committee) do
not (and shall not be deemed to) create any rights in the Purchaser unless such
rights are expressly set forth herein or are otherwise in the sole discretion of
the Board (or the Committee) so conferred by appropriate action of the Board (or
the Committee) under the Plan after the date hereof.
4.2 ENTIRE AGREEMENT. This Exercise Agreement, the Option
Agreement and the Plan, together constitute the entire agreement and supersede
all prior understandings and agreements, written or oral, of the parties hereto
with respect to the subject matter hereof. This Exercise Agreement may be
amended pursuant to Section 3.6 of the Plan. Such amendment must be in writing
and signed by the Corporation. The Corporation may, however, unilaterally waive
any provision hereof in writing to the extent such waiver does not adversely
affect the interests of the Purchaser hereunder, but no such waiver shall
operate as or be construed to be a subsequent waiver of the same provision or a
waiver of any other provision hereof.
ii
<PAGE> 8
4.3 NOTICE OF DISPOSITION. In accordance with Section 2.5.3 of
the Plan, the Purchaser agrees to notify the Corporation of any sale or other
disposition (such sale or other disposition subject to the limitations of the
Plan and its appendices, the Option Agreement, and this Agreement) of any Shares
which occurs within two years after the date the Option was granted or within
one year after the date hereof.
iii
<PAGE> 9
IN WITNESS WHEREOF, the parties have duly executed this
Exercise Agreement as of the date first written above.
"THE CORPORATION"
THE TRIZETTO GROUP, INC.
a Delaware corporation
By: _______________________________
Title: ____________________________
"THE PURCHASER"
___________________________________
Signature
___________________________________
Print Name
___________________________________
Address
___________________________________
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Exercise
Agreement by The Trizetto Group, Inc. I, _______________________, the spouse of
the Purchaser therein named, do hereby agree to be bound by all of the terms and
provisions thereof and of the Plan.
DATED: _________________, _____. ________________________________
Signature of Spouse
iv
<PAGE> 1
EXHIBIT 10.3
THE TRIZETTO GROUP, INC.
1998 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "OPTION Agreement")
dated as of the ___ day of ________, _____, by and between THE TRIZETTO GROUP,
INC., a Delaware corporation (the "CORPORATION"), and ________________________
(the "PARTICIPANT").
R E C I T A L S
WHEREAS, the Corporation has adopted The Trizetto Group, Inc.
1998 Stock Option Plan (the "PLAN"); and
WHEREAS, pursuant to Section 2 of the Plan, the Corporation has
granted to the Participant effective as of the ___ day of __________, _____ (the
"AWARD DATE") a stock option to purchase all or any part of ______ shares of the
Corporation's Common Stock, par value $.001 per share (the "COMMON STOCK"),
subject to and upon the terms and conditions set forth in this Option Agreement
and in the Plan; and
WHEREAS, such option has been granted by the Corporation to the
Participant in addition to, and not in lieu of, any other form of compensation
otherwise payable or to be paid to the Participant;
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties agree as follows:
SECTION 1. DEFINED TERMS.
Capitalized terms used herein and not otherwise defined herein shall
have the meaning assigned to such terms in the Plan.
SECTION 2. GRANT OF OPTION.
This Option Agreement evidences the Corporation's grant to the
Participant of the right and option to purchase, subject to and on the terms and
conditions set forth in this Option Agreement and in the Plan, all or any part
of ______ shares of the Common Stock (the "SHARES") at the price of $____ per
Share (the "OPTION"), exercisable from time to time, subject to the provisions
of this Option Agreement and the Plan, prior to the close of business on the day
before the tenth anniversary of the Award Date (the "EXPIRATION DATE"). Such
price equals not less than the Fair Market Value of the Shares on the Award
Date. It is the intent of the Corporation that the Option constitute a
nonqualified stock option and not be deemed to be an incentive stock option
within the meaning of Section 422 of the Code.
<PAGE> 2
SECTION 3. EXERCISABILITY OF OPTION.
Except as otherwise provided in the Plan or in any resolution of the
Committee adopted after the date hereof, the Option shall become vested and
exercisable [at the time or times set forth in Section 2.3.1 of the Plan.]
To the extent that the Option is vested and exercisable, if the
Participant does not in any year purchase all or any part of the Shares to which
the Participant is entitled, the Participant has the right cumulatively
thereafter to purchase any Shares not so purchased and such right shall continue
until the Option terminates or expires. The Option shall only be exercisable in
respect of whole shares, and fractional share interests shall be disregarded.
The Option may only be exercised as to at least 100 shares unless the number
purchased is the total number at the time available for purchase under the
Option.
SECTION 4. METHOD OF EXERCISE OF OPTION.
The Option shall be exercisable by the delivery to the Secretary of
the Corporation of a written notice stating the number of Shares to be purchased
pursuant to the Option and accompanied by (i) delivery of an executed EXERCISE
AGREEMENT in the form attached hereto as EXHIBIT I and (ii) payment made in
accordance with and in a form permitted by Section 2.2 of the Plan for the full
purchase price of the Shares to be purchased, subject to such further
limitations and rules or procedures as the Committee may from time to time
establish as to any non-cash payment and as to the tax withholding requirements
of Section 3.5 of the Plan. Subject to the consent of the Committee at the time
of exercise, the purchase price may be paid in full or in part by a note meeting
the requirements of Section 2.2.3 of the Plan or by shares of Common Stock
already owned by the Participant; provided, however, that any shares delivered
which were initially acquired upon exercise of a stock option must have been
owned by the Participant for at least six months before the date of exercise.
Shares used to satisfy the exercise price of the Option shall be valued at their
Fair Market Value on the exercise date. In addition, the Participant (or the
Participant's Beneficiary or Personal Representative) must furnish any written
statements required pursuant to Section 3.4 of the Plan.
SECTION 5. EARLY TERMINATION OF OPTION.
If the Participant terminates employment or services with the
Company, the Option, to the extent not previously exercised, and all other
rights hereunder, whether vested and exercisable or not, shall terminate and
become null and void as provided and at the times specified in Section 3.2 of
the Plan. The Option, to the extent not previously exercised, whether vested and
exercisable or not, shall terminate upon the occurrence of certain events, as
described in Section 3.3 of the Plan.
2
<PAGE> 3
SECTION 6. NON-TRANSFERABILITY OF AND OTHER RESTRICTIONS.
Subject to limited exceptions set forth in Section 1.5 of the Plan,
the Option and any other rights of the Participant under this Option Agreement
or the Plan are nontransferable and subject to repurchase and call rights in
favor of the Corporation. Any Shares issued on exercise of the Option are also
subject to substantial restrictions on transfer and are subject to repurchase
and call rights in favor of the Corporation. The Option is subject to and
Participant agrees to be bound by the terms and provisions of Sections 1.5 and
3.5 of the Plan and Appendix A of the Plan, incorporated herein by this
reference.
SECTION 7. SECURITIES LAW COMPLIANCE.
The Participant acknowledges that the Option and Shares are not
being registered under the Securities Act, based, in part, on reliance that the
issuance of the Shares is exempt from registration under Rule 701 promulgated
under the Securities Act and exempt from qualification under California
Corporate Securities Law Section 25102(o). The Participant acknowledges that by
executing this Option Agreement he or she makes the representations contained in
Appendix B of the Plan, incorporated herein by this reference.
SECTION 8. SHARES TO BE RESERVED.
The Corporation shall at all times during the term of the Option
reserve and keep available such number of Shares as will be sufficient to
satisfy the requirements of this Option Agreement.
SECTION 9. NOTICES.
Any notice to be given under the terms of this Option Agreement
shall be in writing and addressed to the Corporation at its principal office to
the attention of the Secretary, and to the Participant at the address given
beneath the Participant's signature hereto, or at such other address as either
party may hereafter designate in writing to the other. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as aforesaid, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government.
3
<PAGE> 4
SECTION 10. PLAN.
The Option and all rights of the Participant under this Option
Agreement are subject to, and the Participant agrees to be bound by, all of the
terms and conditions of the provisions of the Plan, incorporated herein by this
reference. In the event of a conflict or inconsistency between the terms and
conditions of this Option Agreement and of the Plan, the terms and conditions of
the Plan shall govern. The Participant acknowledges receipt of a copy of the
Plan, including all appendices thereto, and agrees to be bound by the terms
thereof. The Participant acknowledges reading and understanding the plan and all
appendices thereto. Unless otherwise expressly provided in other sections of
this Option Agreement, provisions of the Plan that confer discretionary
authority on the Board (or the Committee) do not (and shall not be deemed to)
create any rights in the Participant unless such rights are expressly set forth
herein or are otherwise in the sole discretion of the Board (or the Committee)
so conferred by appropriate action of the Board (or the Committee) under the
Plan after the date hereof.
SECTION 11. ENTIRE AGREEMENT.
This Option Agreement and the Plan together constitute the entire
agreement and supersede all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. The Plan
and this Option Agreement may be amended pursuant to Section 3.6 of the Plan.
Such amendment must be in writing and signed by the Corporation. The Corporation
may, however, unilaterally waive any provision hereof in writing to the extent
such waiver does not adversely affect the interests of the Participant
hereunder, but no such waiver shall operate as or be construed to be a
subsequent waiver of the same provision or a waiver of any other provision
hereof.
SECTION 12. GOVERNING LAW.
12.1. CALIFORNIA LAW. This Option Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
without regard to conflict of law principles thereunder.
12.2. ARBITRATION. Any controversy or claim arising out of or
relating to this Option Agreement or the Plan, their enforcement or
interpretation, or because of an alleged breach, default, or misrepresentation
in connection with any of their provisions, shall be submitted to arbitration,
to be held in Orange County, California in accordance with California Civil
Procedure Code Sections 1282-1284.2. In the event either party institutes
arbitration under this Section 12.2, the party prevailing in any such litigation
shall be entitled, in addition to all other relief, to reasonable attorney's
fees relating to such arbitration. The non-prevailing party shall be responsible
for all costs of the arbitration, including but not limited to, the arbitration
fees, court reporter fees, etc.
4
<PAGE> 5
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement
to be executed on its behalf by its duly authorized officer and the Participant
has hereunto set his or her hand.
"THE CORPORATION"
THE TRIZETTO GROUP, INC.
a Delaware corporation
By: __________________________________________
Title: _______________________________________
"THE PARTICIPANT"
________________________________________________
Signature
________________________________________________
Print Name
________________________________________________
Address
________________________________________________
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the
foregoing Nonqualified Stock Option Agreement by The Trizetto Group, Inc. I,
___________________________, the spouse of the Participant therein named, do
hereby agree to be bound by all of the terms and provisions thereof and of the
Plan.
DATED: _________________, _____. __________________________
Signature of Spouse
5
<PAGE> 6
EXHIBIT I
THE TRIZETTO GROUP, INC.
EXERCISE AGREEMENT
THIS EXERCISE AGREEMENT (this "EXERCISE AGREEMENT") dated as of the
____ day of ________, _____, by and between THE TRIZETTO GROUP, INC., a Delaware
corporation (the "CORPORATION"), and ____________________________ (the
"PURCHASER").
R E C I T A L S
WHEREAS, pursuant to The Trizetto Group, Inc. 1998 Stock Option Plan
(the "PLAN"), the Corporation granted to the Purchaser a nonqualified stock
option (the "OPTION") to purchase all or any part of a designated number of
authorized but unissued or treasury shares of Common Stock of the Corporation
and in connection therewith, the Corporation and Purchaser entered into that
certain Nonqualified Stock Option Agreement dated as of ____________, _____ (the
"OPTION AGREEMENT"); and
WHEREAS, the Purchaser desires to exercise the Option and purchase
from the Corporation and the Corporation wishes to deliver and sell to Purchaser
_______ shares of its Common Stock, par value $.001 per share (the "SHARES"), to
be sold at a price of $___________ per share, in accordance with and subject to
the terms and conditions set forth in this Exercise Agreement;
NOW, THEREFORE, in consideration of the above premises and the
representations, warranties, covenants and agreements contained in this Exercise
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF COMMON STOCK.
The Corporation shall deliver to Purchaser a stock certificate
representing the Shares against delivery to the Corporation by Purchaser of the
purchase price in the sum of $__________ (which represents the product of the
$___________ price per share and the number of Shares, the "PURCHASE PRICE").
i
<PAGE> 7
SECTION 2. INVESTMENT REPRESENTATIONS.
Purchaser acknowledges that the Shares are not being registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"). Purchaser
hereby affirms as made as of the date hereof the representations made in Section
7 of the Option Agreement and such representations are incorporated herein by
this reference. Purchaser has no need for liquidity in this investment, has the
ability to bear the economic risk of this investment, and can afford a complete
loss of the Purchase Price. Purchaser has received the Corporation's
consolidated financial information which includes information material to the
Corporation's financial condition, operations and prospects. Purchaser also
understands and acknowledges the restrictive legend provision contained in
Section 3.2 of Appendix A of the Plan.
SECTION 3. LIMITATIONS ON DISPOSITION, REPURCHASE RIGHTS.
The Shares are subject to and Purchaser hereby agrees to be bound by
the provisions of Sections 1.5 and 3.4 of the Plan and Appendix A of the Plan,
incorporated herein by this reference, which shall continue in effect as to the
Shares.
SECTION 4. MISCELLANEOUS.
4.1 PLAN AND OPTION AGREEMENT. All rights of the Purchaser under
this Exercise Agreement are subject to, and the Purchaser agrees to be bound by,
all of the terms and conditions of the provisions of the Plan and the Option
Agreement, both of which are incorporated herein by this reference. In the event
of a conflict or inconsistency between the terms and conditions of this Exercise
Agreement and of the Plan or the Option Agreement, the terms and conditions of
the Plan or the Option Agreement shall govern. The Purchaser acknowledges
receipt of a copy of the Plan, including all appendices thereto, and agrees to
be bound by the terms thereof. The Purchaser acknowledges reading and
understanding the Plan and all appendices thereto. Unless otherwise expressly
provided in other sections of this Exercise Agreement, provisions of the Plan
that confer discretionary authority on the Board (or the Committee) do not (and
shall not be deemed to) create any rights in the Purchaser unless such rights
are expressly set forth herein or are otherwise in the sole discretion of the
Board (or the Committee) so conferred by appropriate action of the Board (or the
Committee) under the Plan after the date hereof.
4.2 ENTIRE AGREEMENT. This Exercise Agreement, the Option Agreement
and the Plan, together constitute the entire agreement and supersede all prior
understandings and agreements, written or oral, of the parties hereto with
respect to the subject matter hereof. This Exercise Agreement may be amended
pursuant to Section 3.6 of the Plan. Such amendment must be in writing and
signed by the Corporation. The Corporation may, however, unilaterally waive any
provision hereof in writing to the extent such waiver does not adversely affect
the interests of the Purchaser hereunder, but no such waiver shall operate as or
be construed to be a subsequent waiver of the same provision or a waiver of any
other provision hereof.
ii
<PAGE> 8
IN WITNESS WHEREOF, the parties have duly executed this Exercise
Agreement as of the date first written above.
"THE CORPORATION"
THE TRIZETTO GROUP, INC.
a Delaware corporation
By: ____________________________________________
Title: _________________________________________
"THE PURCHASER"
________________________________________________
Signature
________________________________________________
Print Name
________________________________________________
Address
________________________________________________
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Exercise
Agreement by The Trizetto Group, Inc. I, _______________________, the spouse of
the Purchaser therein named, do hereby agree to be bound by all of the terms and
provisions thereof and of the Plan.
DATED: _________________, _____. __________________________________
Signature of Spouse
iii
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
this 30th day of April 1998, by and between THE TRIZETTO GROUP, INC., a Delaware
corporation (the "Company"), and Jeffrey H. Margolis, an individual (the
"Executive").
R E C I T A L
The Company desires to employ Executive, and Executive desires to enter
into the employ of the Company for the period and pursuant to the terms and
conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Company and Executive, intending
to be legally bound, hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive as the
President and Chief Executive Officer of the Company, reporting directly to the
Board of Directors, and Executive accepts such employment and agrees to devote
substantially all his business time and efforts and skills diligently and on
such basis as shall be assigned to him by the Company as provided herein in
performing his duties hereunder for the benefit of the Company.
2. TERM. The initial term of Executive's employment hereunder shall
be for a period of three (3) years, commencing on the date of this Agreement.
Executive's employment is subject to earlier termination as hereafter specified.
3. POSITION AND DUTIES.
3.1. SERVICE WITH THE COMPANY. During the term of this
Agreement, Executive agrees to perform such duties and on such basis as shall be
assigned to him from time to time by the Board of Directors; such duties,
however, to be commensurate with Executive's position as President and Chief
Executive Officer of the Company.
3.2. NO CONFLICTING DUTIES. During the term hereof, Executive
shall not serve as an officer, director, employee, consultant or advisor to any
other business, unless such other service is approved by the Board of Directors
of the Company. Executive hereby confirms that he is under no contractual
commitments inconsistent with his obligations set forth in this Agreement, and
agrees that during the term of this Agreement he will not render or perform
services, or enter into any contract to do so, for any other corporation, firm,
entity or person which are inconsistent with the provisions of this Agreement.
4. COMPENSATION.
4.1. BASE SALARY. As compensation for all services to be
rendered by Executive under this Agreement, the Company shall pay to Executive a
base annual salary of One Hundred Ninety-Two Thousand Dollars ($192,000) ("Base
Salary"), which shall be paid on a regular basis in accordance with the
Company's normal payroll procedures and policies. The amount of the Base Salary
shall be reviewed annually by the Board of Directors on each anniversary of this
Agreement.
1
<PAGE> 2
Executive's performance, the performance of the Company and such other factors
as the Board of Directors deem appropriate shall be considered in such review.
Executive shall also participate in a bonus plan as recommended by the
Compensation Committee and approved by the Board of Directors.
4.2. PARTICIPATION IN BENEFIT PLANS. Executive shall be
entitled to participate in all employee benefit plans or programs generally
available to employees of the Company, to the extent that his position, title,
tenure, salary, age, health and other qualifications make him eligible to
participate therein. The Executive's participation in any such plan or program
shall be subject to the provisions, rules and regulations thereof that are
generally applicable to all participants therein.
4.3. EXPENSES. In accordance with the Company's policies
established from time to time, the Company will pay or reimburse the Executive
for all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement.
4.4. LOAN. The Company has loaned to Executive One Hundred
Thousand Dollars ($100,000) pursuant to a Promissory Note, a copy of which is
attached as Exhibit A. Twenty-Five Thousand Dollars ($25,000) of the principal
amount of such Note shall be forgiven by the Company (along with any accrued but
unpaid interest on such forgiven amount) on each anniversary of the date of this
Agreement, so long as Executive is, on such anniversary date, an employee of the
Company. Executive acknowledges that any such forgiveness of the loan may result
in taxable income to Executive.
5. TERMINATION.
5.1. TERMINATION BY COMPANY WITHOUT CAUSE. The Company may
terminate Executive's employment pursuant to this Agreement without cause (as
defined below) by thirty (30) days written notice to Executive.
5.2. TERMINATION BY THE COMPANY FOR CAUSE. Any of the
following acts or omissions shall constitute grounds for the Company to
terminate Executive's employment pursuant to this Agreement for "cause":
(a) The continued, unreasonable refusal or omission
by Executive to perform any material duties required of him by this Agreement or
as reasonably requested by the Board of Directors of the Company if consistent
with the terms of this Agreement;
(b) Any material act or omission by Executive
involving malfeasance or gross negligence in the performance of Executive's
duties to, or material deviation from any of the material policies or directives
of, the Company, in a manner that materially damages the Company;
(c) Conduct on the part of Executive which
constitutes the breach of any statutory or common law duty of loyalty to the
Company, in a manner that materially damages the Company; or
(d) Any illegal act by Executive which materially
and adversely affects the business of the Company or any felony (other than
traffic violations) committed by Executive, as evidenced by conviction thereof,
provided that the Company may suspend the Executive with pay while any
allegation of such illegal or felonious act is investigated; or
2
<PAGE> 3
Termination by the Company for cause shall be accomplished by written
notice to Executive and shall be preceded by a written notice providing a
reasonable opportunity for Executive to correct his conduct. Any such
termination shall be without prejudice to any other remedy to which the Company
may be entitled either at law, in equity, or under this Agreement.
5.3. TERMINATION FOR DEATH OR DISABILITY. Executive's
employment pursuant to this Agreement shall be immediately terminated without
notice by the Company (i) upon the death of the Executive or (ii) upon the
Executive becoming totally disabled. For purposes of this Agreement, the term
"totally disabled" means an inability of Executive, due to a physical or mental
illness, injury or impairment, to perform a substantial portion of his duties
for a period of one hundred eighty (180) or more consecutive days, as determined
by the Company's Board of Directors.
5.4. TERMINATION FOR GOOD REASON. Executive's employment
pursuant to this Agreement may be terminated by Executive for "good reason" if
Executive voluntarily terminates his employment as a result of any of the
following:
(a) Without Executive's prior written consent, a
reduction in his then current Base Salary;
(b) The taking of any action by the Company that
would substantially diminish the aggregate value of the benefits provided the
Executive under the Executive's medical, health, accident, disability insurance,
life insurance, thrift and retirement plans in which he was participating on the
date of this Agreement, other than any such reduction which is (i) required by
law, (ii) implemented in connection with a general concessionary arrangement
affecting all employees or affecting the group of employees (senior management)
of which the Executive is a member or (iii) generally applicable to all
beneficiaries of such plans;
(c) Without Executive's prior written consent, a
relocation of the Executive's place of employment outside of Orange County,
California;
(d) Resignation as a result of unlawful
discrimination, as evidenced by a final court order;
(e) A reduction in duties and responsibilities which
results in Executive no longer having duties customary for a President and Chief
Executive Officer; or
(f) The Company materially breaches any provision of
this Agreement.
5.5. PAYMENTS UPON TERMINATION. If during the term of this
Agreement, the Company terminates Executive's employment, except as provided in
Sections 5.2 or 5.3 hereof, or the Executive resigns for one of the reasons
stated in Section 5.4, Executive shall be entitled to the following
compensation: (i) the portion of his then current Base Salary which has accrued
through his date of termination, (ii) any vested incentive to which Executive is
entitled as of the date of termination pursuant to any bonus or incentive
compensation plan in which he is then participating, provided the payment
thereof is not contingent or conditional on Executive's continued employment
with the Company or the satisfaction of any other condition which has not been
satisfied, (iii) any payments for unused vacation and reimbursement expenses,
which are due, accrued or payable at the date of Executive's termination, and
(iv) a severance payment in an amount (the "Severance Amount") equal to his then
current Annual Base Salary. All payments required to be made by the Company to
the Executive pursuant to this Section 5.5 shall be paid on a regular basis in
accordance with the Company's normal
3
<PAGE> 4
payroll procedures and policies, including, without limitation, the Severance
Amount which shall be paid at such times and in such amounts consistent with the
Company's normal payroll procedures and policies over one year immediately
succeeding the date of termination. If the Company terminates the Executive's
employment pursuant to Sections 5.2 or 5.3, or if Executive voluntarily resigns
(except as provided in Section 5.4), then Executive shall be entitled to the
compensation set forth in items (i), (ii) and (iii) above. Amounts due under the
Promissory Note referenced in Section 4.4 may be set off against any payments
due under this Section 5.5.
6. CONFIDENTIAL INFORMATION, PROPRIETARY RIGHTS. Executive
acknowledges that in the course of employment at the Company, Executive will
have access to a variety of confidential information that the Company considers
its legally protected trade secrets. This includes files, records, lists and
other documents identifying current and potential customers of the Company and
their needs and preferences, as well as information about the Company's business
plans, sales and marketing strategies, costs, prices, finances, methods of
operation, and other know-how ("Trade Secrets"). Executive agrees to keep the
Trade Secrets absolutely confidential, and not to use or disclose them except in
the proper performance of his duties while employed by the Company. Executive
shall execute any other employee confidentiality and/or proprietary rights or
invention assignment agreements reasonably requested by the Company.
Executive also acknowledges that it would be virtually
impossible to avoid exploiting the Trade Secrets if he were to accept employment
with a competitor of the Company. In order to protect the Trade Secrets, as well
as the investment that the Company has made and will continue to make in its
Trade Secrets, and as consideration for the benefits of this Agreement, during
the term of this Agreement, and (i) for one (1) year after termination in the
event of a termination pursuant to Section 5.1 or Section 5.4, or (ii) for two
(2) years after termination in the event of a resignation by Executive (other
than pursuant to Section 5.4) or a termination pursuant to Section 5.2 or
Section 5.3(ii), Executive will not compete with the business of the Company in
the United States, either directly or indirectly, as an employee, consultant,
shareholder, owner, or otherwise, for himself or on behalf of any other entity.
Executive shall not, during the term of his employment for two
(2) years thereafter, solicit (i) any employee or consultant of the Company to
leave the Company for any reason, or (ii) any customer of, or vender to, the
company to cease or reduce its business with the Company, or (iii) any customer
of the Company not to utilize the services or products of the Company.
7. ASSIGNMENT. This Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to an affiliate or to any corporation, firm or
other business entity (i) with or into which the Company may merge or
consolidate, or (ii) to which the Company may sell or transfer all or
substantially all of its assets. After any such assignment by the Company, the
Company shall be discharged from all further liability hereunder and such
assignee shall thereafter be deemed to be the Company for the purposes of all
provisions of this Agreement including this Section 7.
8. SUCCESSORS. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
9. INJUNCTIVE RELIEF. Executive agrees that it would be difficult
to compensate the Company fully for damages for any violation of the provisions
of this Agreement. Accordingly, Executive specifically agrees that the Company
shall be entitled to temporary and permanent injunctive
4
<PAGE> 5
relief to enforce the provisions of this Agreement, to the extent that such
relief is provided by law for such violation. This provision with respect to
injunctive relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
10. MISCELLANEOUS.
10.1. GOVERNING LAW. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of
California.
10.2. ARBITRATION/GOVERNING LAW. To the fullest extent
permitted by law, any dispute, claim or controversy of any kind (including but
not limited to tort, contract and statute) arising under, in connection with, or
relating to this Agreement or Employee's employment, shall be resolved
exclusively by binding arbitration in Orange County, California in accordance
with the commercial rules of the American Arbitration Association then in
effect. The Company and Executive agree to waive any objection to personal
jurisdiction or venue in any forum located in Orange County, California. No
claim, lawsuit or action of any kind may be filed by either party to this
Agreement; arbitration is the exclusive dispute resolution mechanism between the
parties hereto. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. The validity, interpretation, effect and enforcement of
this Agreement shall be governed by the laws of the State of California.
10.3. PRIOR AGREEMENTS. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understanding with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
10.4. WITHHOLDING TAXES. The Company may withhold from any
salary and benefits payable under this Agreement all federal, state, city or
other taxes or amounts as shall be required to be withheld pursuant to any law
or governmental regulation or ruling.
10.5. AMENDMENTS. No amendment or modification of this
Agreement shall be deemed effective unless made in writing signed by the parties
hereto.
10.6. NO WAIVER. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
10.7. SEVERABILITY. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect.
10.8. COUNTERPART EXECUTION. This Agreement may be executed by
facsimile and in counterparts, each of which shall be deemed an original and all
of which when taken together shall constitute but one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
"Company"
THE TRIZETTO GROUP, INC.,
a Delaware corporation
By: /s/ [Signature Illegible]
-------------------------------------
Secretary/Treasurer/CFO
"Executive"
/s/ JEFFREY H. MARGOLIS
----------------------------------------
Jeffrey H. Margolis
6
<PAGE> 1
EXHIBIT 10.6
EXHIBIT A
PROMISSORY NOTE
$100,000 Newport Beach, California
April 30, 1998
FOR VALUE RECEIVED, Jeffrey H. Margolis, as Maker, promises to pay to
THE TRIZETTO GROUP, INC. ("Company"), or order, 567 San Nicholas Drive, Newport
Beach, California 92660, or such other place as the holder of this Note may from
time to time in writing direct, the principal sum of One Hundred Thousand
Dollars ($100,000).
This Note shall bear interest at the rate of six and one-half percent
(6.5%) per annum, based on a 365-day year. However, after any default in payment
the Note shall bear interest until paid in full, at the rate of ten percent
(10%) per annum, based on a 365 day year.
This Note is issued pursuant to the Employment Agreement between Maker
and the Company dated April 30, 1998 (the "Employment Agreement"). Twenty-Five
Thousand Dollars ($25,000) of principal amount of this Note (and accrued but
unpaid interest thereon) shall be forgiven by the Company on each anniversary of
the date of the Employment Agreement, provided that Maker is an employee of the
Company on such anniversary.
The privilege is granted to prepay at any time, without premium, all or
any part of the unpaid balance of principal and interest hereof.
The whole sum of unpaid principal and interest hereunder shall be due
and payable on April 30, 2002 and shall also become immediately due at the
option of the holder of this Note if Maker shall:
(1) admit in writing his inability to pay his debts
generally as they become due;
(2) file a petition in bankruptcy or to take advantage of
any insolvency act;
(3) make an assignment for the benefit of his creditors;
(4) consent to the appointment of a receiver of the whole or
any substantial part of his property;
(5) on a petition in bankruptcy filed against him, be
adjudicated a bankrupt;
(6) cease employment with the Company; or
(7) breach any provision of the Employment Agreement.
The undersigned hereby waives presentment, protest, notice of protest,
demand for payment, notice of dishonor and any and all other notices and demands
in connection with the delivery, acceptance, performance, default or enforcement
of this Note. No delay by the holder in exercising any power or right hereunder
shall operate as a waiver of any power or right.
<PAGE> 2
The undersigned agrees to pay the actual expenditures in any attempt to
collect the amount due herein, including reasonable attorneys' fees.
/s/ JEFFREY H. MARGOLIS
----------------------------------------
Jeffrey H. Margolis
"Maker"
2
<PAGE> 1
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT ("Agreement") is made on _________ ___,
199__, between ______________________, a Delaware corporation (the "Company"),
and ___________________________ ("Indemnitee"), an officer and/or member of the
Board of Directors of the Company.
WHEREAS, the Company desires the benefits of having Indemnitee serve as
an officer and/or director secure in the knowledge that expenses, liabilities
and losses incurred by him in his good faith service to the Company will be
borne by the Company or its successors and assigns in accordance with applicable
law; and
WHEREAS, the Company desires that Indemnitee resist and defend against
what Indemnitee may consider to be unjustified investigations, claims, actions,
suits and proceedings which have arisen or may arise in the future as a result
of Indemnitee's service to the Company notwithstanding that conditions in the
insurance markets may make directors' and officers' liability insurance coverage
unavailable or available only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to memorialize and reaffirm
the Company's indemnification obligations to Indemnitee and, in addition, set
forth the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties agree as follows:
1. INDEMNIFICATION. Indemnitee shall be indemnified and held
harmless by the Company to the fullest extent permitted by its Certificate of
Incorporation, Bylaws and applicable law, as the same exists or may hereafter be
amended, against all expenses, liabilities and loss (including attorneys' fees,
judgments, fines, and amounts paid or to be paid in any settlement approved in
advance by the Company, such approval not to be unreasonably withheld)
(collectively, "Indemnifiable Expenses") actually reasonably incurred or
suffered by Indemnitee in connection with any present or future threatened,
pending or contemplated investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (collectively,
"Indemnifiable Litigation"), (i) to which Indemnitee is or was a party or is
threatened to be made a party by reason of any action or inaction in
Indemnitee's capacity as a director or officer of the Company, or (ii) with
respect to which Indemnitee is otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer, employee or agent of the
Company, or of any subsidiary or division, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Notwithstanding the
foregoing, Indemnitee shall have no right to indemnification for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended.
2. INTERIM EXPENSES. The Company agrees to pay Indemnifiable
Expenses incurred by Indemnitee in connection with any Indemnifiable Litigation
in advance of the final disposition thereof, provided that the Company has
received an undertaking by or on behalf of Indemnitee, substantially in the form
attached hereto as Exhibit A, to repay the amount so advanced to the extent that
it is ultimately determined that Indemnitee is not entitled to be indemnified by
the Company under this Agreement or otherwise. The advances to be made hereunder
shall be paid by
<PAGE> 2
the Company to Indemnitee within twenty (20) days following delivery of a
written request therefor by Indemnitee to the Company.
3. PROCEDURE FOR MAKING DEMAND. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the Chief Executive Officer of the Company
at the address set forth in Section 11 hereof (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three business days after the date postmarked and sent by certified or
registered mail, properly addressed; otherwise notice shall be deemed received
when such notice shall actually be received by the Company. In addition,
Indemnitee shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power. Any
indemnification provided for in Section 1 shall be made no later than forty-five
(45) days after receipt of the written request of Indemnitee.
4. FAILURE TO INDEMNIFY.
(a) If a claim under this Agreement, or any statute, or
under any provision of the Company's Amended and Restated Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company, within forty-five (45) days after a written request for payment
thereof has been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 12 of this Agreement, if successful in
whole or in part, Indemnitee shall also be entitled to be paid for the expense
(including attorneys' fees) of bringing such action.
(b) It shall be a defense to such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
action, suit or proceeding in advance of its final disposition) that Indemnitee
has not met the standard of conduct which make it permissible under applicable
law for the Company to indemnify Indemnitee for the amount claimed, but the
burden of proving such defense shall be on the Company and Indemnitee shall be
entitled to receive interim payments of interim expenses pursuant to Section 2
hereof unless and until such defense may be finally adjudicated by court order
or judgment from which no further right of appeal exists. It is the parties'
intention that if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the Company (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its board
of directors, any committee or subgroup of the board of directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
5. NOTICE TO INSURERS. If, at the time of the receipt of a notice
of a claim pursuant to Section 3 thereof, the Company has director and/or
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
6. RETENTION OF COUNSEL. In the event that the Company shall be
obligated to pay Indemnifiable Expenses as a result of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by
2
<PAGE> 3
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by that Indemnitee with
respect to that same proceeding, provided that (i) Indemnitee shall have the
right to employ his or her counsel in any such proceeding at Indemnitee's
expense, and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume defense of such proceeding, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
7. SUCCESSORS. This Agreement establishes contract rights which
shall be binding upon, and shall inure to the benefit of, the successors,
assigns, heirs and legal representatives of the parties hereto.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
may be required in the future to undertake to the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee, and, in that event, the Indemnitee's rights and the
Company's obligations hereunder shall be subject to that determination.
9. CONTRACT RIGHTS NOT EXCLUSIVE. The contract rights conferred by
this Agreement shall be in addition to, but not exclusive of, any other right
which Indemnitee may have or may hereafter acquire under any statute, provision
of the Company's Certificate of Incorporation or Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.
10. ASSUMPTION OF INDEMNIFICATION OBLIGATION. The Company hereby
assumes the obligation to indemnify Indemnitee of the Company's corporate
parent, _____________________, a _______________ corporation ("__________
California"), provided however, that at all times prior to the effective time of
the merger between the Company and _________ California, _________ California
shall continue to indemnify Indemnitee to the fullest extent permitted under its
Articles of Incorporation, its Bylaws and the General Corporation Law of the
State of California.
11. INDEMNITEE'S OBLIGATIONS. The Indemnitee shall promptly advise
the Company in writing of the institution of any investigation, claim, action,
suit or proceeding which is or may be subject to this Agreement and keep the
Company generally informed of, and consult with the Company with respect to, the
status of any such investigation, claim, action, suit or proceeding. Notices to
the Company shall be directed to ___________________, ____________________,
___________, ___________________, Attn: _______________ (or other such address
as the Company shall designate in writing to Indemnitee). Notice shall be deemed
received three days after the date postmarked if sent by certified or registered
mail, properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
3
<PAGE> 4
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement, or to enforce
or interpret any other terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
13. SEVERABILITY. Should any provision of this Agreement, or any
clause hereof, be held to be invalid, illegal or unenforceable, in whole or in
part, the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
14. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether of not similar) nor shall such waiver constitute a continuing waiver.
15. CHOICE OF LAW. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
:
---------------------------------------
By:
-------------------------------------
Its:
------------------------------------
INDEMNITEE:
----------------------------------------
Name:
-----------------------------------
5
<PAGE> 6
EXHIBIT A
UNDERTAKING AGREEMENT
This UNDERTAKING AGREEMENT is made on _______________, 19__, between
___________________, a Delaware corporation (the "Company") and
__________________________, an officer and/or member of the board of directors
of the Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims,
actions, suits or proceedings which have arisen or may arise in the future as a
result of Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance
with Section 145 of the General Corporation Law of the State of Delaware, the
Company may make such payments only if it receives an undertaking to repay from
Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee
pursuant to the terms of the Indemnification Agreement dated _____________ ____,
199__, between the Company and Indemnitee, Indemnitee hereby undertakes and
agrees to repay to the Company any and all amounts so paid promptly and in any
event within thirty (30) days after the disposition, including any appeals, of
any litigation or threatened litigation on account of which payments were made,
but only to the extent that Indemnitee is ultimately found not entitled to be
indemnified by the Company under the Bylaws of the Company and Section 145 of
the General Corporation Law of the State of Delaware, or other applicable law.
2. This Agreement shall not affect in any manner rights which
Indemnitee may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
A-1
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
:
---------------------------------------
By:
-------------------------------------
Its:
------------------------------------
INDEMNITEE:
----------------------------------------
Name:
-----------------------------------
A-2
<PAGE> 1
EXHIBIT 10.10
OFFICE LEASE BETWEEN
ST. PAUL PROPERTIES, INC.
AND
THE TRIZETTO GROUP
ATRIUM I
6061 S. WILLOW DRIVE
ENGLEWOOD, COLORADO
JULY 26, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1.00 BASIC LEASE TERMS...................................................................................1
1.01 Parties.............................................................................................1
1.02 Lease Premises......................................................................................1
1.03 Definition of Terms.................................................................................1
A. Building.....................................................................................1
B. Premises.....................................................................................1
C. Building Manager.............................................................................1
D. Commencement Date............................................................................1
E. Completion Date..............................................................................1
F. Termination Date.............................................................................1
G. Term.........................................................................................1
H. Base Rent....................................................................................1
I. Monthly Installments of Base Rent............................................................1
J. Tenant's Proportionate Share.................................................................1
K. Security Deposit.............................................................................1
L. Landlord's Mailing Address...................................................................1
Tenant's Mailing Address.....................................................................2
M. Normal Business Hours........................................................................2
N. State........................................................................................2
O. Parking Spaces...............................................................................2
P. Broker.......................................................................................2
Q. Permitted Use................................................................................2
R. Tenant's Representatives.....................................................................2
ARTICLE 2.00 RENT................................................................................................2
2.01 Base Rent...........................................................................................2
2.02 Operating Expenses..................................................................................2
2.03 Definition of Operating Expenses....................................................................3
2.04 Late Payment Charge.................................................................................3
2.05 Increase in Insurance Premiums......................................................................3
2.06 Security Deposit....................................................................................3
2.07 Holding Over........................................................................................4
ARTICLE 3.00 OCCUPANCY AND USE...................................................................................4
3.01 Use.................................................................................................4
3.02 Signs...............................................................................................4
3.03 Compliance with Laws, Rules and Regulations.........................................................4
3.04 Warranty of Possession..............................................................................4
3.05 Inspection..........................................................................................4
ARTICLE 4.00 UTILITIES AND SERVICE...............................................................................4
4.01 Building Services...................................................................................4
4.02 Theft or Burglary...................................................................................5
4.03 Janitorial Service..................................................................................5
4.04 Excessive Utility Consumption.......................................................................5
4.05 Window Coverage.....................................................................................5
4.06 Charge for Service..................................................................................5
ARTICLE 5.00 REPAIRS AND MAINTENANCE.............................................................................5
5.01 Landlord Repairs....................................................................................5
5.02 Tenant Repairs......................................................................................5
5.03 Request for Repairs.................................................................................5
5.04 Tenant Damages......................................................................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS........................................................................5
6.01 Landlord Improvements...............................................................................5
6.02 Tenant Improvements.................................................................................6
ARTICLE 7.00 CASUALTY AND INSURANCE..............................................................................6
7.01 Substantial Destruction.............................................................................6
7.02 Partial Destruction.................................................................................6
7.03 Property Insurance..................................................................................6
7.04 Tenant's Insurance..................................................................................6
7.05 Waiver of Subrogation...............................................................................7
7.06 Hold Harmless.......................................................................................7
ARTICLE 8.00 CONDEMNATION........................................................................................7
8.01 Substantial Taking..................................................................................7
8.02 Partial Taking......................................................................................7
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE..............................................................................7
9.01 Landlord Assignment.................................................................................7
9.02 Tenant Assignment...................................................................................7
9.03 Conditions of Assignment............................................................................9
9.04 Rights of Mortgagee.................................................................................9
9.05 Estoppel Certificates...............................................................................9
ARTICLE 10.00 LIENS..............................................................................................9
10.01 Landlord's Lien....................................................................................9
10.02 Uniform Commercial Code...........................................................................10
ARTICLE 11.00 DEFAULT AND REMEDIES..............................................................................10
11.01 Default by Tenant.................................................................................10
11.02 Remedies for Tenant's Default.....................................................................10
ARTICLE 12.00 RELOCATION........................................................................................11
12.01 Relocation Option.................................................................................11
12.02 Expenses..........................................................................................11
ARTICLE 13.00 DEFINITIONS.......................................................................................11
13.01 Abandon...........................................................................................11
13.02 Force Majeure.....................................................................................11
13.03 Building..........................................................................................11
13.04 Commencement Date.................................................................................11
13.05 Completion Date...................................................................................11
13.06 Square Feet.......................................................................................11
ARTICLE 14.00 MISCELLANEOUS.....................................................................................11
14.01 Waiver............................................................................................11
14.02 Force Majeure.....................................................................................12
14.03 Attorneys' Fees...................................................................................12
14.04 Successors........................................................................................12
14.05 Rent Tax..........................................................................................12
14.06 Captions..........................................................................................12
14.07 Notice............................................................................................12
14.08 Submission of Lease...............................................................................12
</TABLE>
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<TABLE>
<S> <C>
14.09 Corporate Authority...............................................................................12
14.10 Severability......................................................................................12
14.11 Lessor's Liability................................................................................12
14.12 Indemnity.........................................................................................12
14.13 Recording.........................................................................................12
14.14 Waiver of Trial by Jury...........................................................................13
ARTICLE 15.00 AMENDMENT AND LIMITATION OF WARRANTIES............................................................13
15.01 Entire Agreement..................................................................................13
15.02 Amendment.........................................................................................13
15.03 Limitation of Warranties..........................................................................13
ARTICLE 16.00 OTHER PROVISIONS..................................................................................13
16.01 Documents Incorporated by Reference...............................................................13
ARTICLE 17.00 SIGNATURES........................................................................................13
</TABLE>
<TABLE>
<S> <C>
Addendum
Exhibit A - Description of Building and Premises
Exhibit B - Provisions Relating to Construction of Tenant's Space (Finish Allowance only)
Exhibit C - Rules and Regulations
</TABLE>
iii
<PAGE> 5
OFFICE LEASE
ARTICLE 1.00 BASIC LEASE TERMS
1.01 PARTIES. This Lease Agreement ("Lease") dated as of April 26,
1999, is entered into by and between St. Paul Properties, Inc., a Delaware
Corporation, ("Landlord"), and The Trizetto Group, a Delaware corporation
("Tenant").
1.02 LEASE PREMISES. In consideration of the Rent, terms,
provisions and covenants of this Lease, Landlord leases to Tenant and Tenant
accepts from Landlord the Premises (as outlined on the plan attached hereto as
Exhibit A) located in the Building, together with the non-exclusive right to
use, in common with Landlord and others, the following portions of the Building:
the entrance foyer and lobby; the corridors and lavatories on the floor on which
the Premises are situated; and the stairways, and elevators (sometimes referred
to as the "Common Areas").
1.03 DEFINITION OF TERMS. As used in this Lease, the following
terms shall have the following meanings:
A. Building: The Building on the real property situated at 6061
South Willow Drive, Englewood, Colorado, and commonly known as
Atrium I - Denver Technological Center, containing
approximately 131,445 rentable square feet.
B. Premises: That part of the Building outlined on Exhibit A,
called Suite 310 on the third floor(s) of the Building,
containing approximately 23,610 rentable square feet,
including tenant improvements made by Landlord as part of the
Tenant Finish Buildout.
C. Building Manager: JCA Property Management, 6061 S. Willow
Drive, Suite 210, Englewood, Colorado 80111, Attention: Mr.
Jim Aamot, or such other person as Landlord may designate from
time to time.
D. Commencement Date: October 1, 1999, unless delayed by Force
Majeure, or as otherwise delayed as provided in Exhibit "B -
Provisions Relating to Construction of Tenant's Space."
E. Completion Date: October 1, 1999, unless delayed by Force
Majeure, or as otherwise delayed as provided in Exhibit "B -
Provisions Relating to Construction of Tenant's Space."
F. Termination Date: October 31, 2004, unless sooner terminated
as provided in this Lease, or as otherwise provided in Exhibit
"B.
G. Term: A period commencing on the Commencement Date and
expiring at 11:59 p.m. local time on the Date which is the
last day of the month that is sixty-one (61) months following
the Commencement Date, unless extended or earlier terminated
as provided in this lease.
H. Base Rent: Tenant shall pay total aggregate Base Rent during
the term of the lease of Two Million Three Hundred Seventy
Thousand Three Hundred Forty-five and 63/100 Dollars
($2,370,345.63) ($19.75/rentable square foot/year).
I. Monthly Installments of Base Rent: Base Rent shall be payable
monthly, in advance, without demand, deduction or set-off at
the rate of Thirty-eight Thousand Eight Hundred Fifty-eight
and 13/100 Dollars ($38,858.13) per month ($19.75/rentable
square foot/year).
Rent Abatement. The foregoing notwithstanding, and provided
that no default (or no event which, with the passage of time
or the giving of notice or both, would constitute an event of
default under the Lease) shall have occurred under this Lease,
Base Rent for the Premises, net of operating expenses, shall
be abated for a period of one (1) month following the
Commencement Date. In the event of any default by Tenant, the
entire amount of Base Rent which was otherwise abated, as set
forth above, shall be immediately due and payable.
J. Tenant's Proportionate Share: 17.962%
K. Security Deposit: Seventy-seven Thousand Seven Hundred Sixteen
and 25/100 Dollars ($77,716.25).
L. Landlord's Mailing Address: 385 Washington Street, St. Paul,
Minnesota, 55102, Attention: Vice President-Asset Management.
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<PAGE> 6
Tenant's Mailing Address: 6061 South Willow Drive, Suite 310,
Englewood, Colorado 80111.
M. Normal Business Hours: The hours from 6:00 a.m. to 6:00 p.m.
Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday,
except recognized holidays.
N. State: The State of Colorado.
O. Parking Spaces: Tenant shall be entitled to the non-exclusive
use in common with Landlord and others of a maximum of
seventy-seven (77) parking spaces in the building parking
areas at no charge during the primary term of the Lease. In
addition, through June 30, 2002, Tenant may be entitled to use
additional parking spaces, in an amount to be determined by
Landlord, on a non-reserved, non-exclusive basis, in that
certain parking lot adjacent to the Building parking lot and
currently leased by Landlord and known as the "Sheplers"
parking lot, at no additional cost to Tenant. Landlord
reserves the right to strictly enforce the number of parking
spaces utilized by Tenant during the term of this Lease based
upon a parking ratio of 3.3 parking spaces per 1,000 rentable
square feet. Landlord further reserves the right to assign and
reassign, from time to time, particular parking spaces for use
by persons selected by Landlord, and to issue and implement
other rules and regulations with respect to parking spaces for
the Building, provided that Tenant's rights to the number of
parking spaces designated herein are preserved.
P. Brokers: The Venture Group, 3300 S. Parker Road, Suite 208,
Aurora, CO 80014, Attention: David J. Banzhaf (representing
Landlord); Liberty-Greenfield, 730 17th Street, Suite 635,
Denver, Colorado 80202, in cooperation with Julien J. Studley,
Inc., 10960 Wilshire Boulevard, Suite 1500, Los Angeles, CA
90024, Attention: Christopher J. Harrer (representing Tenant).
Q. Permitted Use: General administrative offices purposes.
R. Tenant's Representatives: Tenant's employees, agents,
contractors, licensees and invitees.
ARTICLE 2.00 RENT
2.01 BASE RENT. Tenant shall pay Monthly Installments of Base Rent
in advance on the first day of each month of the Term, which amount shall be
payable to Landlord by submitting it to the Building Manager at the address
shown above. If the Commencement Date should be a date other than the first day
of a calendar month, the Monthly Installment of Base Rent shall be prorated to
the end of that calendar month. Tenant shall pay, as additional rent, all other
sums due under this Lease.
2.02 OPERATING EXPENSES. In the event Landlord's operating expenses
for the Building shall, in any calendar year during the Term, exceed the sum of
those expenses accrued during the 1999 base year ("Excess Expenses") Tenant
shall pay as additional rent Tenant's Proportionate Share of Excess Expenses. In
order to provide current payments on account of Excess Expenses Tenant shall, at
Landlord's request, pay as additional rent, an amount equal to Tenant's
Proportionate share of the Excess Expenses due for the ensuing twelve (12)
months, as estimated by Landlord from time to time, in twelve (12) equal monthly
installments, commencing on the first day of the month following the month in
which Landlord notifies Tenant of the amount. Following the close of each
calendar year, Landlord shall provide Tenant with a statement showing in
reasonable detail all computations of additional rent under this section. If
Tenant's Proportionate Share of the actual Excess Expenses for the preceding
calendar year exceeds the aggregate of the estimated monthly payments made by
Tenant for such year, Tenant shall within ten (10) days of the receipt of the
statement, pay to Landlord as additional rent an amount equal to such excess. If
such aggregate of the estimated monthly payments exceeds Tenant's Proportionate
share of the actual Excess Expenses for such calendar year, Landlord shall
credit against Tenant's next ensuing monthly installment or installments of the
rent an amount equal to such difference until the credit is exhausted. No
interest or penalties shall accrue on any amounts which Landlord is obligated to
credit to Tenant by reason of this provision. The obligations of Tenant and
Landlord to make payments or credits required by this provision shall survive
the Termination Date. Notwithstanding any other provisions in this Lease, during
the year in which the Lease terminates, Landlord, prior to the Termination Date,
shall have the option to invoice Tenant for Tenant's Proportionate share of the
Excess Expenses based upon the previous year's operating expenses. If the Lease
shall terminate on a day other than the last day of the calendar year, the
amount of any additional rent payable by Tenant applicable to the year in which
such termination shall occur shall be pro rated on the ratio that the number of
days from the commencement of the calendar year to and including the Termination
Date bears to 365.
Each annual statement given by Landlord or the Building Manager pursuant to this
section shall be conclusive and binding upon Tenant unless within ninety (90)
days after receipt of such statement Tenant shall notify Landlord that it
disputes the correctness of the statement, specifying the particular respects in
which it is claimed to be incorrect. If such dispute shall not have been settled
by agreement, then, pending the legal determination of such dispute by a later
agreement or litigation, Tenant shall pay additional rent in accordance with
such statement and such payment shall be without prejudice to Tenant's
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<PAGE> 7
position. If the dispute shall be determined in Tenant's favor, Landlord shall
forthwith credit to Tenant the amount of Tenant's overpayment of additional rent
resulting from compliance with Landlord's statement. Landlord shall grant
Tenant, at Tenant's expense, reasonable access to Landlord's books and records
for the purpose of verifying the Excess Expenses.
If during any calendar year of this Lease, the occupancy of the Building
averages less than one hundred percent (100%), it is agreed that the Operating
Expenses that vary depending upon occupancy shall be computed as though the
Building had been 95% occupied for such calendar year. If Landlord recovers in
excess of 100% of its Operating Expenses that vary depending upon occupancy
during any calendar year of this Lease, Landlord shall credit against Tenant's
next ensuing monthly installment or installments of the rent an amount equal to
Tenant's Proportionate Share of such excess until the credit is exhausted, or if
the term of the Lease has expired refund to the Tenant the Tenant's
Proportionate Share of such excess.
2.03 DEFINITION OF OPERATING EXPENSES. The term "Operating
Expenses" includes all expenses paid or incurred by Landlord or on Landlord's
behalf with respect to the management, repair, operation and maintenance of the
Building of which the Premises are a part including, but not limited to, the
following: (1) salaries, wages and benefits of employees of Landlord engaged in
the management, repair, operation and maintenance of the Building; (2) payroll
taxes, workmen's compensation, uniforms and related expenses for such employees;
(3) the cost of all charges for oil, gas, steam, electricity, any alternate
source of energy, heat, ventilation, air-conditioning, water, sewers and other
utilities furnished to the Building (including the parking areas, Common Areas
and leased areas thereof), together with any taxes on such utilities; (4) the
cost of painting non-tenant space; (5) the cost of all charges for insurance
Landlord is required to pay or deems necessary to pay, including public
liability insurance, with regard to the Building and the maintenance or
operation thereof; (6) the cost of all supplies (including cleaning supplies),
tools, materials and equipment, the rental thereof and sales and other taxes
thereon; (7) depreciation of hand tools and other movable equipment used in the
repair, operation and maintenance of the Building; (8) the cost of all charges
for window and other cleaning and janitorial, snow and ice removal, and security
services; (9) charges of independent contractors; (10) repairs and replacements
made by Landlord at its expense; (11) exterior and interior landscaping and pest
control; (12) alterations and improvements to the Building made by reason of the
laws and requirements of any public authorities or the requirements of insurance
bodies; (13) management fees or, if no managing agent is employed by Landlord, a
sum in lieu thereof which is not in excess of the then prevailing rates for
management fees of other first class office buildings in the area in which the
Building is located; (14) the cost of any capital improvements or additions to
the Building and of any machinery or equipment installed in the Building which
are made or become operational, as the case may be, after the Commencement Date
and which the effect of reducing the expenses which otherwise would be included
in Operating Expenses to the extent of the lesser of (A) such cost, as
reasonably amortized by Landlord with interest on the unamortized amount at the
prime rate then generally available in the state, or (B) the amount of such
reduction in Operating Expenses; (15) reasonable legal, accounting and other
professional fees incurred in connection with the operation, maintenance and
management of the Building; (16) all other expenses or charges which would
generally be regarded as operating and maintenance expenses which would
reasonably be amortized over a period not to exceed five (5) years; (17) all
real property taxes and installments of special assessments, including dues and
assessments by means of deed restrictions and/or owners' associations which
accrue against the Building during the term of this Lease; and (18) all other
charges properly allocable to the repair, operation and maintenance of the
Building in accordance with generally accepted accounting principles. The term
operating Expenses does not include the following: casualty; income and
franchise taxes of Landlord, expenses incurred in leasing to or procuring of
leases, leasing commissions, advertising expenses and expenses for renovating
space for all tenants other than Tenant; interest or principal payments on any
mortgage or other indebtedness of Landlord; compensation paid to any employee of
Landlord above the grade of property manager; any depreciation allowance or
expense (except as provided above); or those operating expenses which are the
responsibility of Tenant.
2.04 LATE PAYMENT CHARGE. Other remedies for nonpayment of rent
notwithstanding, if any part of the rent is not paid within ten (10) days after
it is due, Tenant shall pay Landlord a late payment charge of five percent (5%)
on the amount due from its due date until paid and shall become immediately due
and payable in addition to any other amounts owed under this Lease.
2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any
insurance premiums paid by Landlord for the Building is caused by Tenant's use
of the Premises in a manner other than as set forth in section 1.03, or if
Tenant vacates the Premises and causes an increase in such premiums, then Tenant
shall pay as additional rent the amount of such increase to Landlord.
2.06 SECURITY DEPOSIT. The security deposit set forth in section
1.03 shall be held by Landlord for the performance of Tenant's covenants and
obligations under this Lease, it being expressly understood that the security
deposit shall not be considered an advance payment of rental or a measure of
Tenant's damage in case of default by Tenant. Upon the occurrence of any event
of default by Tenant or breach by Tenant of Tenant's covenants under this Lease,
Landlord may, from time to time, without prejudice to any other remedy, use the
security deposit to the extent necessary to make good any arrears of rent, or to
repair any damage or injury, or pay any expense or liability incurred by
Landlord as a result of the event of default or breach of covenant, and any
remaining balance of the security deposit shall be returned by Landlord to
Tenant upon termination of this Lease. If any portion of the security deposit is
so used or applied, Tenant shall
Page 3 of 13
<PAGE> 8
upon ten (10) days written notice from Landlord, deposit with Landlord by cash
or cashier's check an amount sufficient to restore the security deposit to its
original amount.
2.07 HOLDING OVER. In the event that Tenant does not vacate the
Premises upon the expiration or termination of this Lease, Tenant shall be a
tenant at will for the hold over period and all of the terms and provisions of
this Lease shall be applicable during that period, except that Tenant shall pay
Landlord as base rental for the period of such hold over an amount equal to two
(2) times the Base Rent which would have been payable by Tenant had the hold
over period been a part of the original term of this Lease. If Tenant remains in
possession of the Premises after the termination of the Lease, Tenant agrees to
vacate and deliver the Premises to Landlord upon Tenant's receipt of notice from
Landlord to vacate. The rent payable during the hold over period shall be
payable to Landlord upon demand. No holding over by Tenant, with or without the
consent of Landlord, shall operate to extend the Term.
ARTICLE 3.00 OCCUPANCY AND USE
3.01 USE. Tenant warrants and represents to Landlord that the
Premises shall be used and occupied only for the purpose as set forth in section
1.03. Tenant shall occupy the Premises, conduct its business and control the
Tenant's Representatives in such a manner as is lawful, reputable and will not
create a nuisance. Tenant shall not permit any operation which emits any odor or
matter which intrudes into other portions of the Building, use any apparatus or
machine which makes undue noise or causes vibration in any portion of the
Building or otherwise interfere with, annoy or disturb any other tenant in its
normal business operations or Landlord in its management of the Building. Tenant
shall neither permit any waste on the Premises nor allow the Premises to be used
in any way which would, in the opinion of Landlord be extra-hazardous on account
of fire or which would in any way increase or render void the fire insurance on
the Building.
3.02 SIGNS. No sign of any type or description shall be erected,
placed or painted in or about the Premises or Building except those signs
submitted to Landlord in writing and approved by Landlord in writing, and which
signs are in conformance with Landlord's sign criteria established for the
Building.
3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at
Tenant's sole cost and expense, shall comply with all laws, ordinances, orders,
rules and regulations of state, federal, municipal or other agencies or bodies
having jurisdiction over the use, condition or occupancy of the Premises,
provided, however, that Tenant shall not be obligated to modify (or pay the cost
of modifying) any structural component of the Building outside of the Premises,
unless such change is required by Tenant's use of the Premises. Tenant will
comply with the rules and regulations of the Building adopted by Landlord which
are set forth on a schedule attached to this Lease. Landlord shall have the
right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care, cleanliness,
preservation of good order and operational use of the Building or the Premises.
All changes and amendments to the rules and regulations of the Building will be
sent by Landlord to Tenant in writing and shall thereafter be carried out and
observed by Tenant. Landlord represents and warrants to Tenant that Landlord has
no actual knowledge, without inquiry or investigation, that Landlord has
received written notification from any governmental or regulatory agency of any
alleged violation of any laws, ordinances, orders, rules or regulations
pertaining to the Building.
3.04 WARRANTY OF POSSESSION. Landlord warrants that it has the
right and authority to execute this Lease, and Tenant, upon payment of the
required rents and subject to the terms, conditions, covenants and agreements
contained in this Lease, shall have possession of the Premises during the full
term of this Lease as well as any extension or renewal thereof. Landlord shall
not be responsible for the acts or omissions of any other tenant or third party
that may interfere with Tenant's use and enjoyment of the Premises.
3.05 INSPECTION. Landlord or its authorized agent shall at any and
all reasonable times have the right to enter the Premises to inspect the same,
to supply janitorial service or any other service to be provided by Landlord, to
show the Premises to prospective purchasers or tenants, and to alter, improve or
repair the Premises or any other portion of the Building. Tenant hereby waives
any claim for damages for injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or use of the Premises, and any other
loss occasioned thereby. Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon and about the Premises. Tenant shall
not change Landlord's lock system or in any other manner prohibit Landlord from
entering the Premises. Landlord shall have the right to use any and all means
which Landlord may deem proper to open any door in an emergency without
liability therefor.
ARTICLE 4.00 UTILITIES AND SERVICE
4.01 BUILDING SERVICES. Landlord shall provide water and
electricity to Tenant during the term of this Lease. Tenant shall pay all
telephone charges. Landlord shall furnish Tenant hot and cold water at those
points of supply provided for general use of other tenants in the Building,
central heating and air conditioning in season (at times Landlord normally
provides these services to other tenants in the Building, and at temperatures
and in amounts as are considered by Landlord to be standard or in compliance
with any governmental regulations, such service on Saturday afternoons, Sundays,
evenings and holidays to be furnished only upon the request of Tenant, who shall
bear the entire cost). Landlord shall also provide
Page 4 of 13
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routine maintenance, painting and electric lighting service for all public areas
and special service areas of the Building in the manner and to the extent deemed
by Landlord to be standard. Landlord may, in its sole discretion, provide
additional services not enumerated herein. Failure by Landlord to any extent to
provide these defined services or any other services not enumerated, or any
cessation thereof, shall not render Landlord liable in any respect for damages
to either person or property, be construed as an eviction of Tenant, work an
abatement of rent or relieve Tenant from fulfillment of any covenant of this
Lease. Should any of the equipment or machinery break down, or for any cause
cease to function properly, Landlord shall use reasonable diligence to repair
the same promptly, but Tenant shall have no claim for rebate of rent on account
of any interruption in service occasioned from the repairs. Landlord reserves
the right from time to time to make changes in the utilities and services
provided by Landlord to the Building.
4.02 THEFT OR BURGLARY. Landlord shall not be liable to Tenant for
losses to Tenant's property or personal injury caused by criminal acts or entry
by unauthorized persons into the Premises or the Building.
4.03 JANITORIAL SERVICE. Landlord shall furnish janitorial services
to the Premises and public areas of the Building five times per week during the
term of this Lease, excluding holidays. Landlord shall not provide janitorial
service to kitchens or storage areas included in the Premises.
4.04 EXCESSIVE UTILITY CONSUMPTION. Tenant shall pay all utility
costs occasioned by electrodata processing machines, telephone equipment,
computers and other equipment of high electrical consumption, including without
limitation, the cost of installing, servicing and maintaining any special or
additional inside or outside wiring or lines, meters or submeters, transformers,
poles, air conditioning costs, or the cost of any other equipment necessary to
increase the amount or type of electricity or power available to the Premises.
4.05 WINDOW COVERAGE. Landlord shall furnish and install window
covering on all exterior windows to maintain a uniform exterior appearance.
Tenant shall not remove or replace these window coverings or install any other
window covering which would affect the exterior appearance of the Building.
Tenant may install lined or unlined over-draperies on the interior sides of the
Landlord furnished window coverings for interior appearance or to reduce light
transmission, provided such draperies do not affect the exterior appearance of
the Building or affect the operation of the Building's heating, ventilating and
air conditioning system.
4.06 CHARGE FOR SERVICE. All costs of Landlord for providing the
services set forth in Article 4.00 (except those charges paid by Tenant pursuant
to section 4.04) shall be subject to the additional rent provisions in section
2.02.
ARTICLE 5.00 REPAIRS AND MAINTENANCE
5.01 LANDLORD REPAIRS. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Premises
or the Building during the term of this Lease except as are set forth in this
section. Landlord shall maintain only the roof, foundation, parking and Common
Areas, the structural soundness of the exterior walls, doors, corridors, windows
and other structures or equipment serving the Premises. Landlord's cost of
maintaining and repairing the items set forth in this section are subject to the
additional rent provisions in section 2.02. Landlord shall not be liable to
Tenant, except as expressly provided in this Lease, for any damage or
inconvenience, and Tenant shall not be entitled to any abatement or reduction of
rent by reasons of any repairs, alterations or additions made by Landlord under
this Lease.
5.02 TENANT REPAIRS. Tenant shall, at its own cost and expense,
repair or replace any damage or injury to all or any part of the Premises caused
by any act or omission of Tenant or Tenant's Representatives; provided, however,
if Tenant fails to make the repairs or replacements promptly, Landlord may, at
its option, make the repairs or replacements, and the costs of such repairs or
replacements (including a 10% supervision fee) shall be charged to Tenant as
additional rent and shall become payable by Tenant with the payment of the rent
next due hereunder.
5.03 REQUEST FOR REPAIRS. All requests for repairs or maintenance
that are the responsibility of Landlord pursuant to any provision of this Lease
must be made in writing to the Building Manager at the address in section 1.03.
5.04 TENANT DAMAGES. Tenant shall not allow any damage to be
committed on any portion of the Premises or Building, and at the termination of
this Lease, by lapse of time or otherwise, Tenant shall deliver the Premises to
Landlord in as good condition as existed at the Commencement Date of this Lease,
ordinary wear and tear excepted. The cost and expense of any repairs necessary
to restore the condition of the Premises shall be borne by Tenant.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 LANDLORD IMPROVEMENTS. If construction to the Premises is to
be performed by Landlord prior to or during Tenant's occupancy, Landlord will
complete the construction of the improvements to the Premises in accordance with
plans and specifications agreed to by Landlord and Tenant, which plans and
specifications are made a part of this Lease by
Page 5 of 13
<PAGE> 10
reference. Within seven (7) days of receipt of plans and specifications, Tenant
shall execute a copy of the plans and specifications and, if applicable, change
orders setting forth the amount of any costs to be borne by Tenant. In the event
Tenant fails to execute the plans and specifications and change order within the
seven (7) day period, Landlord may, at its sole option, declare this Lease
canceled or notify Tenant that the Base Rent shall commence on the completion
date even though the improvements to be constructed by Landlord may not be
complete. Any changes or modifications to the approved plans and specifications
shall be made and accepted by written change order or agreement signed by
Landlord or Building Manager and Tenant and shall constitute an amendment to
this Lease.
6.02 TENANT IMPROVEMENTS. Tenant shall not make or allow to be made
any alterations or physical additions in or to the Premises without first
obtaining the written consent of Landlord, which consent may in the sole and
absolute discretion of Landlord be denied. Any alterations, physical additions
or improvements to the Premises made by Tenant shall at once become the property
of Landlord and shall be surrendered to Landlord upon the termination of this
Lease; provided, however, Landlord, at its option, may require Tenant to remove
any physical additions and/or repair any alterations in order to restore the
Premises to the condition existing at the time Tenant took possession, all costs
of removal and/or alterations to be borne by Tenant. This clause shall not apply
to moveable equipment or furniture owned by Tenant, which may be removed by
Tenant at the end of the term of this Lease if Tenant is not then in default and
if such equipment and furniture are not then subject to any other rights, liens
and interests of Landlord.
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 SUBSTANTIAL DESTRUCTION. If the Premises should be totally
destroyed by fire or other casualty, or the Premises should be damaged so that
rebuilding cannot reasonably be completed within one hundred and twenty (120)
working days after the date of written notification by Tenant to Landlord of the
destruction, this Lease may, at Landlord's option, terminate and the rent shall
be abated for the unexpired portion of the Lease, effective as of the date of
the written notification.
7.02 PARTIAL DESTRUCTION. If the Premises should be partially
damaged by fire or other casualty, and rebuilding or repairs can reasonably be
completed within one hundred and twenty (120) working days from the date of
written notification by Tenant to Landlord of the destruction, this Lease shall
not terminate, and Landlord shall at its sole risk and expense proceed with
reasonable diligence to rebuild or repair the Building or other improvements to
substantially the same condition in which they existed prior to the damage. If
the Premises are to be rebuilt or repaired and are untenantable in whole or in
part following the damage, and the damage or destruction was not caused or
contributed to by act or negligence of Tenant, Tenant's Representatives or those
for whom Tenant is responsible, the rent payable under this Lease during the
period for which the Premises are untenantable shall be adjusted to such an
extent as may be fair and reasonable under the circumstances. In the event that
Landlord fails to complete the necessary repairs or rebuilding within one
hundred and twenty (120) working days from the date of written notification by
Tenant to Landlord of the destruction, Landlord may, at its option, terminate
this Lease by delivering written notice of termination to Tenant, whereupon all
rights and obligations under this Lease shall cease to exist.
7.03 PROPERTY INSURANCE. Landlord shall at all times during the
term of this Lease maintain a policy or policies of insurance with the premiums
paid in advance, issued by and binding upon some solvent insurance company,
insuring the Building against all risk of direct physical loss in an amount
equal to at least ninety percent (90%) of the full replacement cost of the
Building structure and its improvements as of the date of the loss; provided
Landlord shall not be obligated in any way or manner to insure any personal
property (including but not limited to, any furniture, machinery, goods or
supplies) of Tenant upon or within the Premises, any fixtures installed or paid
for by Tenant upon or within the Premises, or any improvements which Tenant may
construct on the Premises. Tenant shall have no right in or claim to the
proceeds of any policy of insurance maintained by Landlord even if the cost of
such insurance is borne by Tenant as set forth in Article 2.00.
7.04 TENANT'S INSURANCE. At all times during the term of this
lease, Tenant shall carry and maintain, at Tenant's expense, the following
insurance in the amounts specified below or such other amounts as Landlord shall
from time to time reasonably request, with insurance companies and on forms
satisfactory to Landlord:
A. Public liability and property damage liability insurance, with
a combined single occurrence limit of not less than $1,000,000.00. All such
insurance shall specifically include without limitation contractual liability
coverage for the performance by Tenant of the indemnity agreements set forth in
this lease.
B. Workmen's compensation insurance satisfying Tenant's
obligations and liabilities under the workmen's compensation laws of the State.
All policies of public liability and property damage liability
insurance which Tenant is obligated to maintain according to this lease shall
name Landlord as an additional insured. Tenant shall deliver to Landlord a copy
of all such policies or certificates of insurance (including in any case
documentation naming Landlord as an additional insured) and evidence of payment
of all premiums for any such policies prior to Tenant's occupancy of the demised
premises and from
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time to time during the lease term, at least 30 days prior to the expiration of
the term of each such policy. All policies of public liability and property
damage liability insurance maintained by Tenant shall also contain a provision
that Landlord, although named as an additional insured, shall nevertheless be
entitled to recover under such policies for any loss sustained by Landlord, its
agents and employees as a result of the acts or omissions of Tenant. Such public
liability and property damage liability policies shall also be written as
primary policies, not contributing with and not in excess of coverage that
Landlord may carry. All policies required to be maintained by Tenant shall
provide that they may not be terminated or amended except after 30 days' prior
notice to Landlord.
7.05 WAIVER OF SUBROGATION. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the Premises, improvements to the Building of which the Premises
are a part, or personal property within the Building, by reason of fire or the
elements, regardless of cause or origin, including negligence of Landlord or
Tenant and their agents, officers and employees. Landlord and Tenant agree
immediately to give their respective insurance companies which have issued
policies of insurance covering all risk of direct physical loss, written notice
of the terms of the mutual waivers contained in this section, and to have the
insurance policies properly endorsed, if necessary to prevent the invalidation
of the insurance coverages by reason of the mutual waivers.
7.06 HOLD HARMLESS. Landlord shall not be liable to Tenant,
Tenant's Representatives, or to any other person, for an injury to person or
damage to property on or about the Premises caused by any act or omission of
Tenant, Tenant's Representatives, or of any other person entering upon the
Premises under express or implied invitation by Tenant or Tenant's
Representatives, or caused by the improvements located on the Premises becoming
out of repair, the failure or cessation of any service provided by Landlord
(including security service and devices), or caused by leakage of gas, oil,
water or steam or by electricity emanating from the Premises. Tenant agrees to
indemnify and hold harmless Landlord of and from any loss, attorneys' fees,
expenses or claims arising out of any such damage or injury. Nothing in the
foregoing shall relieve Landlord of its liability or cause Tenant to indemnify
Landlord for Landlord's gross negligence or willful misconduct.
ARTICLE 8.00 CONDEMNATION
8.01 SUBSTANTIAL TAKING. If all or a substantial part of the
Premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and the taking would prevent or materially interfere with the use
of the Premises for the purpose for which it is then being used, this Lease
shall terminate and the rent shall be abated during the unexpired portion of
this Lease effective on the date physical possession is taken by the condemning
authority. Tenant shall have no claim to the condemnation award or proceeds in
lieu thereof.
8.02 PARTIAL TAKING. If a portion of the Premises shall be taken
for any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in section 8.01 above, Landlord shall
at Landlord's sole risk and expense, restore and reconstruct the Building and
other improvements on the Premises to the extent necessary to make it reasonably
tenantable. The rent payable under this Lease during the unexpired portion of
the term shall be adjusted to such an extent as may be fair and reasonable under
the circumstances. Tenant shall have no claim to the condemnation award or
proceeds in lieu thereof.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 LANDLORD ASSIGNMENT. Landlord shall have the right to sell,
transfer or assign, in whole or in part, its rights and obligations under this
Lease and in the Building. Any such sale, transfer or assignment shall operate
to release Landlord from any and all liabilities under this Lease arising after
the date of such sale, assignment or transfer.
9.02 TENANT ASSIGNMENT. Tenant shall not assign, in whole or in
part, this Lease, or allow it to be assigned, in whole or in part, by operation
of law or otherwise (including without limitation by transfer of a majority
interest of stock, merger, or dissolution, which transfer of majority interest
of stock, merger or dissolution shall be deemed an assignment) or mortgage or
pledge the same, or sublet the Premises, in whole or in part, without the prior
written consent of Landlord, as more fully described below, and in no event
shall any such assignment or sublease ever release Tenant or any guarantor from
any obligation or liability hereunder. No assignee or sublessee of the Premises
or any portion thereof may assign or sublet the Premises or any portion hereof.
Notwithstanding the above, Tenant may assign this Lease or sublease the Premises
upon fulfillment of all of the following express conditions, but not otherwise:
(A) Tenant has notified Landlord in writing of any
interest in this Lease which Tenant wishes to assign
or any portion of the Premises which Tenant wishes to
sublet or permit others to occupy; such notice shall
specify the terms and conditions of such transaction
and shall be
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accompanied by any information Landlord may
reasonably require with respect to the proposed
assignee, sublessee or occupant;
(B) Tenant is not then in default under any of the terms,
covenants, conditions, provisions, or agreements of
this Lease;
(C) The proposed assignee or subtenant shall be subject
to the prior written consent of Landlord, which
consent will not be unreasonably withheld, but,
without limiting the generality of the foregoing, it
shall be reasonable for Landlord to deny such consent
if:
(a) the use to be made of the Premises by the
proposed assignee or subtenant is [i] not
generally consistent with the character and
nature of all other tenancies in the
Building, or [ii] a use which conflicts with
any so-called "exclusive" then in favor of,
or any use which is the same as that stated
in any percentage Lease to, another tenant
of the Building, or [iii] a use which would
be prohibited by any other portion of this
Lease (including, but not limited to, any
Rules and Regulations then in effect); or
(b) the character, moral stability, reputation
and financial responsibility of the proposed
assignee or subtenant are not reasonably
satisfactory to Landlord or in any event not
at least equal to those which were possessed
by Tenant as of the date of execution of
this Lease;
(D) Neither such assignment or sublease, nor Landlord's
consent thereto, shall release or discharge Tenant of
or from any liability, whether past, present or
future, under this Lease;
(E) The consent by Landlord to any such assignment or
sublease shall not in any way be construed to relieve
Tenant or any assignee or subtenant from obtaining
the express consent in writing of Landlord to any
further assignment or sublease;
(F) Tenant shall not be released from any liability under
this Lease because of Landlord's failure to give
Tenant notice of default under any of the terms,
covenants, conditions, provisions or agreements of
this Lease;
(G) Tenant does not sublease the Premises to more than
one subtenant;
(G) The term of each sublease is not less than one year,
unless the unexpired term of this Lease is less than
one year, in which event the term of such sublease
shall be for the unexpired term of this Lease, less
one day; and, in no event shall the term of the
sublease be for a longer period than the unexpired
term of this Lease, less one day;
(H) Each sublease shall expressly provide that it is
subject and subordinate to this Lease;
(I) Tenant shall pay to Landlord Landlord's then standard
reasonable processing fee and the reasonable
attorneys' fees incurred in connection with each such
request;
(J) The proposed assignee or subtenant shall execute an
agreement pursuant to which it shall agree to perform
faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of
this Lease; and
(K) An executed duplicate original of an assignment and
assumption agreement or sublease, on Landlord's then
standard form, shall be delivered to Landlord within
five ten (10) days after the execution of the
agreement, and such assignment or sublease shall not
be binding upon Landlord until the delivery of the
agreement to Landlord and the execution and delivery
of Landlord's consent to the agreement.
Landlord shall receive one-half (1/2) of any net
profits which Tenant may receive by assigning this
Lease or subleasing the Premises, including increased
Base Rent collected by Tenant. As used in this Lease,
the term "profits" shall mean the consideration
payable by the assignee or subtenant to Tenant fairly
attributable to this Lease and the Premises (which,
if payable on other than a monthly schedule, will be
prorated on a monthly basis), including the gross
monthly rent
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received by Tenant under such assignment or sublease,
less (i) the pro rata base monthly rent and
escalation additional rent payable by Tenant to
Landlord with respect to the Premises covered by the
assignment or sublease, and (ii) an amortized portion
of the aggregate of the broker's commissions payable
to an outside broker with respect to the assignment
or sublease, and (iii) a pro rata portion of the
unamortized portion of costs of any work performed at
Tenant's expense in the demised Premises at the
beginning of the term of the assignment or sublease.
Landlord shall have the option to terminate this
Lease, rather than approve the assignment or
subleasing of it.
9.03 CONDITIONS OF ASSIGNMENT. If Tenant desires to assign or
sublet all or any part of the Premises, it shall so notify Landlord at least
thirty (30) days in advance of the date on which Tenant desires to make such
assignment or sublease. Tenant shall provide Landlord with a copy of the
proposed assignment or sublease and such information as Landlord might request
concerning the proposed sublessee or assignee to allow Landlord to make informed
judgments as to the financial condition, reputation, operations and general
desirability of the proposed sublessee or assignee. Within fifteen (15) days
after Landlord's receipt of Tenant's proposed assignment or sublease and all
required information concerning the proposed sublessee or assignee, Landlord
shall have the following options: (1) cancel this Lease as to the Premises or
portion thereof proposed to be assigned or sublet; (2) consent to the proposed
assignment or sublease; or (3) refuse, in its reasonable discretion and
judgment, as provided above, to consent to the proposed assignment or sublease,
which refusal shall be deemed to have been exercised unless Landlord gives
Tenant written notice providing otherwise. Upon the occurrence of an event of
default, if all or any part of the Premises are then assigned or sublet,
Landlord, in addition to any other remedies provided by this Lease or provided
by law, may, at its option collect directly from the assignee or sublessee all
rents becoming due to Tenant by reason of the assignment or sublease, and
Landlord shall have a security interest in all properties on the Premises to
secure payment of such sums. Any collection directly by Landlord from the
assignee or sublessee shall not be construed to constitute a novation or a
release of Tenant or any guarantor from the further performance of its
obligations under this Lease.
9.04 RIGHTS OF MORTGAGEE. Tenant accepts this Lease subject and
subordinate to any recorded mortgage or deed of trust lien presently existing or
hereafter created upon the Building and to all existing recorded restrictions,
covenants, easements and agreements with respect to the Building. Landlord is
hereby irrevocably vested with full power and authority to subordinate Tenant's
interest under this Lease to any first mortgage or deed of trust lien hereafter
placed on the Premises, and Tenant agrees upon demand to execute additional
instruments subordinating this lease as Landlord may require. If the interests
of Landlord under this Lease shall be transferred by reason of foreclosure or
other proceedings for enforcement of any first mortgage or deed of trust on the
Premises, Tenant shall be bound to the transferee (sometimes called the
"Purchaser") at the option of the Purchaser, under the terms, covenants and
conditions of this Lease for the balance of the term remaining, including any
extensions or renewals, with the same force and effect as if the Purchaser were
Landlord under this Lease, and, if requested by the Purchaser, Tenant agrees to
attorn to the Purchaser, including the first mortgagee under any such mortgage
if it be the Purchaser, as its Landlord.
9.05 ESTOPPEL CERTIFICATES. Tenant agrees to furnish, from time to
time, within ten (10) days after receipt of a request from Landlord or
Landlord's mortgagee, a statement certifying, if applicable, the following:
Tenant is in possession of the Premises; the Premises are acceptable; the Lease
is in full force and effect; the Lease is unmodified; Tenant claims no present
charge, lien, or claim of offset against rent; the rent is paid for the current
month, but is not prepaid for more than one month and will not be prepaid for
more than one month in advance; there is no existing default by reason of some
act or omission by Landlord; and such other matters as may be reasonably
required by Landlord or Landlord's mortgagee. Tenant's failure to deliver such
statement, in addition to being a default under this Lease, shall be deemed to
establish conclusively that this Lease is in full force and effect except as
declared by Landlord, that Landlord is not in default of any of its obligations
under this Lease, and that Landlord has not received more than one month's rent
in advance.
ARTICLE 10.00 LIENS
10.01 LANDLORD'S LIEN. As security for payment of rent, including
any additional rent, damages and all other payments required to be made by this
Lease, Tenant hereby grants to Landlord a lien upon all property of Tenant now
or subsequently located upon the Premises. If Tenant abandons or vacates any
substantial portion of the Premises or is in default in the payment of any
rentals, damages or other payments required to be made by this Lease or is in
default of any other provision of this Lease, Landlord may enter upon the
Premises, by picking or changing locks, if necessary, and if permitted by law,
take possession of all or any part of the personal property, and may sell all or
any part of the personal property at a public or private sale, in one of
successive sales, with or without notice, to the highest bidder for cash, and,
on behalf of Tenant, sell and convey all or part of the personal property to the
highest bidder, delivering to the highest bidder all of Tenant's title and
interest in the personal property sold. The proceeds of this sale of the
personal property shall be applied by Landlord toward the reasonable costs and
expenses of the sale, including attorneys' fees, and then toward the
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payment of all sums then due by Tenant to Landlord under the terms of this
Lease. Any excess remaining shall be paid to Tenant or any other person entitled
thereto by law.
10.02 UNIFORM COMMERCIAL CODE. This Lease is intended as and
constitutes a security agreement within the meaning of the Uniform Commercial
Code of the State. Landlord, in addition to the rights prescribed in this Lease,
shall have all of the rights, title, liens and interests in and to Tenant's
property, now or hereafter located upon the Premises, which may be granted a
secured party, as that term is defined, under the Uniform Commercial Code to
secure to Landlord payment of all sums due and the full performance of all
Tenant's covenants under this Lease. Tenant will on request execute and deliver
to Landlord a financing statement for the purpose of perfecting Landlord's
security interest under this Lease or Landlord may file this Lease or a copy
thereof as a financing statement. Unless otherwise provided by law and for the
purpose of exercising any right pursuant to this section, Landlord and Tenant
agree that reasonable notice shall be met if such notice is given by ten (10)
days written notice, certified mail, return receipt requested, to Landlord or
Tenant at the addresses specified herein.
ARTICLE 11.00 DEFAULT AND REMEDIES
11.01 DEFAULT BY TENANT. The following shall be deemed to be events
of default by Tenant under this Lease: (1) Tenant shall fail to pay within ten
(10) days of when due any Monthly Installment of Base Rent, additional rent, or
any other payment required pursuant to this Lease; (2) Lessee shall abandon any
substantial portion of the Premises; (3) Tenant shall fail to comply with any
term, provision or covenant of this Lease, other than the payment of rent, and
the failure is not cured within thirty (30) days after written notice to Tenant;
(4) Tenant shall file a petition or be adjudged bankrupt or insolvent under any
applicable federal or state bankruptcy or insolvency law or admit that it cannot
meet its financial obligations as they become due; or a receiver or trustee
shall be appointed for all or substantially all of the assets of Tenant; or
Tenant shall make a transfer in fraud or creditors or shall make an assignment
for the benefit of creditors; or (5) Tenant shall do or permit to be done any
act which results in a lien being filed against the Premises or the Building of
which Premises are a part.
11.02 REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of any
event of default set forth in this lease, Landlord shall have the option to
pursue any one or more of the remedies set forth herein without any notice or
demand; (1) Landlord may enter upon and take possession of the Premises without
terminating this Lease, by picking or changing locks, if necessary, and if
permitted by law, lock out, expel or remove Tenant or any other person who may
be occupying all or any part of the Premises without being liable for any claim
for damages, and relet Premises on behalf of Tenant and receive the rent
directly by reasons of the reletting. Tenant agrees to pay Landlord on demand
any deficiency that may arise by reason of any reletting of the Premises;
further, Tenant agrees to reimburse Landlord for any expenditures made by it in
order to relet the Premises, including, but not limited to, remodeling and
repair costs; (2) Landlord may enter upon the Premises, by picking or changing
locks if necessary, without being liable for any claim for damages, and do
whatever Tenant is obligated to do under the terms of this Lease. Tenant agrees
to reimburse Landlord on demand for any expenses which Landlord may incur in
effecting compliance with Tenant's obligations under this Lease. Further, Tenant
agrees that Landlord shall not be liable for any damages resulting to Tenant
from effecting compliance with Tenant's obligations under this Lease unless
caused by the gross negligence or willful misconduct of Landlord or otherwise;
(3) Landlord may terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to surrender the
Premises, Landlord may, without prejudice to any other remedy which it may have
for possession or arrearages in rent, enter upon and take possession of the
Premises, by picking or changing locks if necessary, and lock out, expel or
remove Tenant and any other person who may be occupying all or any part of the
Premises without being liable for any claim for damages. Tenant agrees to pay on
demand the amount of all loss and damage which Landlord may suffer by reason of
the termination of this Lease under this section, whether through inability to
relet the Premises on satisfactory terms or otherwise. Notwithstanding any other
remedy set forth in this Lease, in the event Landlord has made rent concessions
of any type or character, or waived any Base Rent, and Tenant fails to take
possession of the Premises on the Commencement or Completion Date or otherwise
defaults at any time during the term of this Lease, the rent concessions,
including any waived Base Rent, shall be canceled and the amount of the Base
Rent or other rent concessions shall be due and payable immediately as if no
rent concessions or waiver of any Base Rent had ever been granted. A rent
concession or waiver of the Base Rent shall not relieve Tenant of any obligation
to pay any other charge due and payable under this Lease including without
limitation any sum due under section 2.02. Notwithstanding anything contained in
this Lease to the contrary, this Lease may be terminated by Landlord only by
mailing or delivering written notice of such termination to Tenant, and no other
act or omission of Landlord shall be construed as a termination of this Lease.
Any property left on the demised premises at the expiration or other termination
of this lease, may, at the option of Landlord, either be deemed abandoned or be
placed in storage at a public warehouse in the name of and for the account of
and at the expense and risk of Tenant. If such property is not claimed by Tenant
within ten days after such expiration, termination, it may be sold or otherwise
disposed of by Landlord. Tenant expressly releases Landlord of and from any and
all claims and liability for damage to or loss of property left by Tenant upon
the demised premises at the expiration or other termination of this lease, and
Tenant hereby indemnifies Landlord against any and all claims and liability with
respect thereto.
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ARTICLE 12.00 RELOCATION
12.01 RELOCATION OPTION. Landlord reserves the right, at its option,
to transfer and remove Tenant from the Premises to any other available space in
the Building of substantially equal size and area.
12.02 EXPENSES. Landlord shall pay all out-of-pocket expenses of any
such relocation, including the expenses of moving and reconstruction of all
Tenant furnished and Landlord furnished improvements. Any such reconstruction
shall be substantially completed, subject to Landlord's architect's reasonable
approval, prior to relocation. In the event of such relocation, this Lease shall
continue in full force and effect without any change in the terms or conditions
of this Lease, but with the new location substituted for the old location set
forth in sections 1.02 and 1.03 of this Lease.
ARTICLE 13.00 DEFINITIONS
13.01 ABANDON. "Abandon" means the vacating of all or a substantial
portion of the Premises by Tenant, whether or not Tenant is in default of the
rental payments due under this Lease.
13.02 FORCE MAJEURE. "Force Majeure" is defined for purposes of this
Lease as strikes, lockouts, sitdowns, material or labor restrictions by any
governmental authority, unusual transportation delays, riots, floods, walkouts,
explosions, earthquakes, fire, storms, weather (including wet grounds or
inclement weather) which prevents commencement on the Commencement Date.
13.03 BUILDING. "Building" as used in this Lease means the Building
described in section 1.03, including the Premises and the land upon which the
Building is situated.
13.04 COMMENCEMENT DATE. "Commencement Date" shall be the date set
forth in section 1.03. The Commencement Date shall constitute the commencement
of the term of this Lease for all purposes, whether or not Tenant has actually
taken possession.
13.05 COMPLETION DATE. "Completion Date" shall be the date on which
the improvements erected and to be erected upon the Premises shall have been
completed in accordance with the plans and specifications described in Article
6.00 and Exhibit B to this Lease. Landlord shall use its best efforts to
establish the Completion Date as the date set forth in section 1.03. In the
event that the improvements have not in fact been completed as of that date,
Tenant shall notify Landlord in writing of its objections. Landlord shall have a
reasonable time after delivery of the notice in which to take such corrective
action as may be necessary and shall notify Tenant in writing as soon as it
deems such corrective action has been completed and the improvements are ready
for occupancy. Upon substantial completion of construction, Tenant shall deliver
to Landlord a letter accepting the Premises as suitable for the purposes for
which they are let and the date of such letter shall constitute the commencement
of the term of this Lease. Whether or not Tenant has executed such letter of
acceptance, taking possession of the Premises by Tenant shall be deemed to
establish conclusively that the improvements have been completed in accordance
with the plans and specifications, are suitable for the purposes for which the
Premises are let, and that the Premises are in good and satisfactory condition
as of the date possession was so taken by Tenant except for latent defects, if
any.
13.06 SQUARE FEET. "Square feet" or "square foot" as used in this
Lease includes the area contained within the Premises together with a common
area percentage factor of the Premises proportionate to the total Building area.
It is agreed and understood by the parties that in the event more than two (2)
tenants (including Tenant, but exclusive of any sub-tenants) occupy the floor on
which the Premises are located, the common area percentage factor of the
Premises shall change and will be recalculated by Landlord's architect in
accordance with the measurement standards then in effect and established by the
Building Owners and Managers Association ("BOMA"), and the size of the Premises
(Section 1.03(B)), Base Rent (Section 1.03(H)), Monthly Installments of Base
Rent (Section 1.03(I)) and Tenant's Proportionate Share (Section 1.03(J)) shall
all be recalculated according to said BOMA measurement standards. In the event
of any such re-measurement, Landlord and Tenant agree to enter into an amendment
to the Lease verifying the change in the common area percentage factor, and the
revised size of the Premises, Base Rent, Monthly Installments of Base Rent and
Tenant's Proportionate Share.
ARTICLE 14.00 MISCELLANEOUS
14.01 WAIVER. Failure of Landlord to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a waiver of the default, but
Landlord shall have the right to declare the default at any time and take such
action as is lawful or authorized under this Lease. Pursuit of any one or more
of the remedies set forth in Article 11.00 above shall not preclude pursuit of
any one or more of the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy constitute forfeiture or waiver
of any rent or damages accruing to Landlord by reason of the violation of any of
the terms provisions or covenants of this Lease. Failure by Landlord to enforce
one or more of the remedies provided upon an event of default shall not be
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deemed or construed to constitute a waiver of the default or of any other
violation or breach of any of the terms, provisions or covenants contained in
this Lease.
14.02 FORCE MAJEURE. Landlord shall not be required to perform any
covenant or obligation in this Lease, or be liable in damages to Tenant, so long
as the performance or non-performance of the covenant or obligation is delayed,
caused or prevented by force majeure, by Tenant or Tenant's Representatives.
14.03 ATTORNEYS' FEES. In the event either party to this Lease
defaults in any of the terms, covenants, agreements or conditions contained
herein, the prevailing party shall be entitled to recover from the losing party
reasonable attorneys' fees and costs of suit.
14.04 SUCCESSORS. This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed that
should Landlord's interest in the Premises cease to exist for any reason during
the term of this Lease, then notwithstanding the happening of such event this
Lease nevertheless shall remain unimpaired and in full force and effect, and
Tenant hereunder agrees to attorn to the then owner of the Premises.
14.05 RENT TAX. If applicable in the jurisdiction where the Premises
are situated, Tenant shall pay and be liable for all rental, sales and use taxes
or other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Landlord by Tenant under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent,
additional rent, operating expenses or other charge upon which the tax is based
as set forth above.
14.06 CAPTIONS. The captions appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope of intent of any section.
14.07 NOTICE. All rent and other payments required to be made by
Tenant shall be payable to Landlord in care of Building Manager at the Building
Manager's address set forth in section 1.03. All payments required to be made by
Landlord to Tenant shall be payable to Tenant at the address set forth in
section 1.03, or at any other address within the United States as Tenant may
specify from time to time by written notice. Any notice or document required or
permitted to be delivered by the terms of this Lease shall be deemed to be
delivered (whether or not actually received) five (5) days after deposit in the
United States Mail, postage prepaid, certified mail, return receipt requested,
addressed to the parties at the respective addresses set forth in section 1.03.
14.08 SUBMISSION OF LEASE. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or an option to lease. This
Lease is not effective until execution by and delivery to both Landlord and
Tenant.
14.09 CORPORATE AUTHORITY. If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby personally represent and warrant that Tenant is a duly authorized and
existing corporation, that Tenant is qualified to do business in the State that
the corporation has full right and authority to enter into this Lease, and that
each person signing on behalf of the corporation has authority to do so. In the
event any representation or warranty is false, all persons who execute this
Lease shall be liable, individually, as Tenant.
14.10 SEVERABILITY. If any provision of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Lease and the application of
such provisions to other persons or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by law.
14.11 LESSOR'S LIABILITY. If Landlord shall be in default under this
Lease and, if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out of the
right, title and interest of Landlord in the Building as the same may then be
encumbered and neither Landlord nor any person or entity comprising Landlord
shall be liable for any deficiency. In no event shall Tenant have the right to
levy execution against any property of Landlord nor any person or entity
comprising Landlord other than its interest in the Building as herein expressly
provided.
14.12 INDEMNITY. Landlord agrees to indemnify and hold harmless
Tenant from and against any liability or claim, whether meritorious or not,
arising with respect to any broker whose claim arises by, through or on behalf
of Landlord. Tenant agrees to indemnify and hold harmless Landlord from and
against any liability or claim, whether meritorious or not, arising with respect
to any broker whose claim arises by, through or on behalf of Tenant.
14.13 RECORDING. Neither this Lease, nor any notice nor memorandum
regarding the terms hereof shall be recorded by Tenant. Any such unauthorized
recording shall give Landlord the right to declare a breach of this Lease and
pursue the remedies provided herein.
Page 12 of 13
<PAGE> 17
14.14 WAIVER OF TRIAL BY JURY. Landlord and Tenant hereby waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties against the other on any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the premises.
ARTICLE 15.00 AMENDMENT AND LIMITATION OF WARRANTIES
15.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY LANDLORD AND
TENANT, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS
LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE
ENTIRE AGREEMENT OF THE PARTIES. THAT THERE ARE, AND WERE, NO VERBAL
REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR
PROMISES PERTAINING TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN
EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE.
15.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LANDLORD AND TENANT.
15.03 LIMITATION OF WARRANTIES. LANDLORD AND TENANT EXPRESSLY AGREE
THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT
OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY
SET FORTH IN THIS LEASE.
ARTICLE 16.00 OTHER PROVISIONS
16.01 DOCUMENTS INCORPORATED BY REFERENCE. Attached hereto are the
following Exhibits which are incorporated by reference as if set forth herein:
<TABLE>
<S> <C>
Exhibit A - Description of Building and Premises
Exhibit B - Provisions Relating to Construction of Tenant's Space (Finish Allowance only)
Exhibit C - Rules and Regulations
</TABLE>
ARTICLE 17.00 SIGNATURES
Signed at ___________________ this ___ day of ___________, 19__.
LANDLORD:
ST. PAUL PROPERTIES, INC.
a Delaware corporation
By: /s/ R. William Inserra
---------------------------------------
R. William Inserra
Vice president-Asset Management
TENANT:
THE TRIZETTO GROUP,
a Delaware corporation
By: /s/ Jeffrey H. Margolis
---------------------------------------
Name: Jeffrey H. Margolis
Title: CEO
Page 13 of 13
<PAGE> 18
ADDENDUM
THIS ADDENDUM (the "Addendum") is attached to and made a part of that
certain Lease Agreement (the "Lease") dated as of April 26, 1999, by and between
St. Paul Properties, Inc., a Delaware corporation ("Landlord"), and The Trizetto
Group, a Delaware corporation ("Tenant"). In the event of a conflict between the
terms and provisions of the Lease to which this Addendum is attached and this
Addendum, the terms and provisions of this Addendum shall control. Unless
otherwise defined herein, or unless the context otherwise requires, terms
initially capitalized in this Addendum shall have the same meaning as such
initially capitalized terms do in the Lease.
1. Extension Option. Provided no Event of Default has occurred and is
continuing, and provided that Tenant has not assigned the Lease or sublet more
than 8,000 rentable square feet of the Premises, Tenant shall have the option to
extend the term of this Lease for one (1) additional period of five (5) years by
giving the Landlord written notice of Tenant's election to extend the term of
the Lease no more than nine (9) months but at least six (6) months prior to the
expiration of the Term of this Lease. Upon the giving of such notice, and upon
mutual execution within thirty (30) days of such notice a written amendment to
this Lease specifying the terms of such extension, this Lease shall be
considered as extended for such option term upon the same terms, conditions and
covenants as are contained in this Lease except that there shall be no
additional extension options; and except that the parties shall renegotiate the
cost for and the number of parking spaces under Section 1.03(O), and except that
Tenant shall not have the Right of Offer to Lease provided in Paragraph 2 of
this Addendum and except that the Base Rent shall be calculated by multiplying
the number of rentable square feet of the Premises by the then fair market base
rental value of the Premises then being asked by Landlord for other office space
within the Building, and except that the base year for the calculation of Excess
Expenses during the extended term shall be the year in which the primary term of
the Lease expires. The "then-fair market base rental value of the Premises"
means what a landlord under no compulsion to Lease the Premises and a tenant
under no compulsion to lease the Premises would determine as rents (including
initial monthly rent and rental increases) for the option period, as of the
commencement of the option period, taking into consideration the uses permitted
under this Lease, the quality, size, design and location of the Premises, the
credit-worthiness of the Tenant and the rent for comparable buildings located in
the areas of the Premises, any concessions given by Landlord, and any other
factor reasonably related to the determination of rental values
2. Right Of Offer To Lease. During the initial term of the Lease,
Tenant shall have a right of first offer, subject to existing rights granted to
other tenants as of the date of this Lease, to lease the vacant space adjacent
to the Premises and currently known as Suite 300 and which is on the third floor
of the Building as more particularly shown on Exhibit A-1 attached hereto (the
"First Offer Space"), if and when the First Offer Space becomes "available for
lease." For purposes of this right of first offer, the First Offer Space will be
considered to be "available for lease" if (i) no bona fide written lease
agreement is currently in force or effect with respect to such space, (ii) the
space becomes vacant, or will become vacant, because an existing tenant's lease
has or will expire or be terminated with no renewal or extension options subject
to being exercised with respect to such space, and (iii) Landlord makes the
First Offer Space available for leasing to others. Tenant's right of first offer
with respect to such First Offer Space shall be upon the following terms and
conditions:
a. In the event that (i) the First Offer Space, or any part thereof,
becomes or is about to become available for lease as provided above,
Landlord will notify Tenant of the rental terms on which it would be
willing to lease the First Offer Space to Tenant, and Tenant shall have
the right of first offer to lease that portion of the First Offer Space
identified in Landlord's notice, subject to existing rights granted to
other tenants as of the date of this Lease, at the rent and on the
terms and conditions contained in Landlord's notice.
b. The right of first offer will be exercised by Tenant signing a lease
amendment with respect to the subject portion of the First Offer Space
at the rent and on the terms set forth in Landlord's notice. Tenant
shall accept or reject the offer contained in Landlord's notice within
five business (5) days after the receipt by Tenant of Landlord's
notice. If an amendment incorporating the terms contained in Landlord's
notice is not signed within five business (5) days following receipt of
Landlord's notice, time being strictly of the essence, Landlord will
have the right to lease the First Offer Space free of the rights of
Tenant under this Paragraph 2, and Tenant's right of first offer
granted herein shall be null and void. Any space leased by Tenant will
be added to the Leased Premises as of the date provided in the proposed
amendment.
Page 1 of 2
<PAGE> 19
c. Notwithstanding any other provision set forth above, it is agreed
that Tenant shall not be permitted to exercise any of its rights
contained in this Paragraph 1 (i) at any time when the Lease is not in
effect or at any time when an Event of Default exists, (ii) in the
event that Tenant assigns the Lease or sublets more than 8,000 rentable
square feet of the leased Premises at any time, and (iii) Tenant may
not exercise the right contained in this Paragraph 2 if the effective
date of the addition of the First Offer Space to the Premises
previously leased would be at any time during the last year of the then
existing term of the Lease.
d. In the event that Tenant fails to exercise the foregoing right of
first offer as provided in this Paragraph 1, time being strictly of the
essence, Tenant's right of first offer shall be null and void.
e. Tenant acknowledges that it is only being granted a right of offer
that is subject and subordinate to the rights of any existing tenant
with pre-existing rights of refusal, rights of offer, or options to
lease, as of the date of this Lease.
f. In no event shall Landlord be responsible for any brokerage
commission for any real estate broker retained by Tenant with respect
to this right of first offer.
3. Termination Option. Provided no Event of Default has occurred and is
continuing, and provided that Tenant has not assigned the Lease, and in the
event Landlord is unable to accommodate within the Building the growth
requirements of Tenant, Tenant shall have the option, in its sole discretion, to
terminate the Lease with respect to the Premises on September 30, 2002, by
providing Landlord with one-hundred eighty (180) days' prior written notice of
Tenant's intent to terminate the Lease with respect to the Premises, and
provided that by September 30, 2002, Tenant shall pay Landlord a termination fee
equal to the sum of all of Landlord's unamortized costs of leasing the Premises
to Tenant, including but not limited to leasing commissions, tenant improvements
and rental abatement, plus an amount equal to four (4) months of Base Rent for
the Premises.
LANDLORD:
ST. PAUL PROPERTIES, INC.
By: /s/ Illegible signature
------------------------------
Name:
Title:
TENANT:
THE TRIZETTO GROUP
a Delaware corporation
By: /s/ Jeffrey H. Margolis
------------------------------
Name: Jeffrey H. Margolis
Title: CEO
Page 2 of 2
<PAGE> 20
EXHIBIT A
[Building Floorplan]
23,610 RSF
<PAGE> 21
EXHIBIT "B"
PROVISIONS RELATING TO CONSTRUCTION OF TENANT'S SPACE
(FINISH ALLOWANCE ONLY)
1. Landlord will provide Tenant with a construction credit in the sum
of up to Twelve and No/100 Dollars ($12.00) per rentable square foot of the
Premises, which equals Two Hundred Eighty-three Thousand Three Hundred Twenty
and No/100 Dollars ($283,320.00) (the "Construction Credit"), which may be used
only against the cost of design and construction by Landlord of Improvements or
alterations permanently installed and incorporated in the realty of the
Premises, including space plans and working drawings of the Premises (excluding
specifically fixtures, furniture and equipment), as contemplated under the plans
and specifications and working drawings to be prepared by an architect selected
by Landlord and initialed by Tenant and by Landlord for identification and
approval (the "Plans"); provided, however, that Landlord shall provide Tenant
with one space plan for the Premises at no charge (the cost of any additional
space plans and all working drawings shall be paid for out of the Construction
Credit). Landlord will cause such work (the "Work") to be performed in a good
and workmanlike manner and in accordance with the Plans, using Landlord's
standard building materials (unless otherwise specified by Tenant), and using
one of Landlord's approved contractors for the Building. All Work performed
shall be subject to Landlord's review and approval, including but not limited to
administration of the Work, which administration shall be subject to a
construction management fee payable to Landlord equal to one percent (1%) of the
total cost of such Work, and which shall be paid out of the Construction Credit.
All Work shall also be subject to the reasonable approval of the architect. If
the Construction Credit is not used within six months of the Commencement Date,
the unused portion shall revert back to Landlord. In the event the cost of the
Work exceeds the Construction Credit, Landlord agrees to provide an additional
Construction Credit (the "Additional Construction Credit") of up to One Hundred
Eighteen Thousand Fifty and No/100 Dollars ($118,050.00) provided the cost of
any such Additional Construction Credit shall increase the Base Rent under the
Lease for the Premises by amortizing such Additional Construction Credit over
the Term at the rate of eleven percent (11%) per annum, compounded monthly, and
further provided, that Landlord and Tenant shall enter into an amendment to this
Lease memorializing the amount of the Additional Construction Credit used, and
the new Base Rent for the Premises.
2. All material and labor selected by Tenant must be readily available
in Denver, Colorado. Tenant agrees that promptly after the execution of the
Lease, Tenant will advise Landlord of all selections or designations as to
paint, color and materials, if other than Landlord's standard materials.
3. Any additional work which Landlord may agree to perform, or cost of
changes or any materials or installations other than Landlord standard materials
or installations which Landlord may agree to obtain over and above the
Construction Credit, or the Additional Construction Credit if utilized by
Tenant, (to be known as "Tenant's Overstandard Work"), shall be procured at a
cost, plus 10% thereof as an administration payment. Costs include but are not
limited to so-called "general conditions" (e.g., trash, clean-up and hauling,
job lighting and power, insurance, safety protection, security and hoists) in
whole or in part apportionable to Tenant's Overstandard Work. If the aggregate
of all Tenant's Overstandard Work to which Landlord agrees is less than
$2,000.00, the whole amount shall be payable promptly after completion of such
work and after Landlord's billing Tenant for the work. If the aggregate of all
Tenant's Overstandard Work exceeds $2,000.00, such aggregate shall be payable
50% upon Tenant's signing with Landlord the agreement under which Landlord
agrees to perform such Tenant's Overstandard Work, and the balance shall be
payable in substantially equal progress payments promptly after Landlord's
billing Tenant for that work. Such payments in either event shall be collectible
as additional obligations which Tenant shall bear pursuant to the Lease, and, if
Tenant defaults in the payment of that work, Landlord shall have (in addition to
all other remedies) the same rights as provided in the Lease in the event of
Tenants' default in the payment of rent. Any Tenant's Overstandard Work shall
also be subject to the terms of the Lease and shall also be subject to
Landlord's approval of plans and specifications as set forth in Paragraph 1
above.
4. If the Premises are not ready for occupancy because of delays
attributable to Tenant (such as changes by Tenant to its finish requirements
after approval of the initial design, delays in providing information or
approving space plans and drawings, and like delays, but not including the
architect's reasonable rejection of the Work under Paragraph 1 above) the
Commencement Date shall be the date the Premises would have been substantially
completed and ready for occupancy in the absence of such delays, which date is
agreed to be the Completion Date, as that term is defined in paragraph 13.05 and
is shown in paragraph 1.03 of the Lease. Failure by Landlord to complete the
tenant finish improvements shall not relieve Tenant of its duty to pay rent and
perform its obligations under the Lease if such failure is attributable to
Tenant's failure to determine its requirements, approve plans and specifications
or otherwise facilitate completion of the tenant finish improvements. However,
if the Premises are not ready for occupancy because of delays not attributable
to Tenant, including but not limited to the failure of the condition precedent
requiring Pulte Mortgage Corporation to vacate the Premises on or before August
9, 1999, Force Majeure, or architect's reasonable rejection of the Work pursuant
to Paragraph 1 above, the Commencement Date shall be the date the Work is
substantially complete and the Premises are substantially ready for occupancy.
In the event the Commencement Date is delayed beyond October 1, 1999, the
Termination Date of the Lease shall be extended to the date which is the last
day of the month that is sixty-one (61)
Page 1 of 2
<PAGE> 22
months after the Commencement Date, and the parties shall enter into an
amendment to the Lease verifying the Commencement Date and the Termination Date
of the Lease. The foregoing notwithstanding, in the event that the Work is not
substantially completed by February 1, 2000, because of delays not attributable
to Tenant, then Tenant may terminate the Lease upon prior written notice to
Landlord, to be delivered no later than February 4, 2000.
5. The term "substantially complete" is defined as the date when
construction is sufficiently completed in accordance with the contract
documents, as modified by any change orders agreed to by the parties, and
subject to completion of Tenant's reasonable list of punch-list items, so that
Tenant can occupy the Premises for the use for which it was intended.
Page 2 of 2
<PAGE> 23
EXHIBIT "C"
RULES AND REGULATIONS
1. Landlord agrees to furnish Tenant two (2) keys without charge. Additional
keys will be furnished at a nominal charge. Tenant shall not change locks or
install additional locks on doors without prior consent of Landlord. Tenant
shall not make or cause to be made duplicates of keys procured from Landlord
without prior approval of Landlord. All keys to Premises shall be surrendered to
Landlord upon termination of this Lease.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the Premises for Tenant
to Building Manager for its approval before performance of any contractual
service. Tenant's contractors and installation technicians shall comply with
Landlord's rules and regulations pertaining to construction and installation.
This provision shall apply to all work performed on or about the Premises,
including installation of telephones, telegraph equipment, electrical devices
and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings and equipment or any other physical portion of
the Premises.
3. Tenant shall not at any time occupy any part of the Premises as sleeping or
lodging quarters.
4. Tenant shall not place, install or operate on the Premises or in any part of
the Building any engine, stove or machinery, or conduct mechanical operations or
cook thereon or therein, (except for stove, microwave oven and other similar
kitchen appliances in the employee lounge) or place or use in or about the
Premises any explosives, gasoline, kerosene, oil, acids, caustics, or any
flammable, explosive or hazardous material without written consent of Landlord.
5. Landlord will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the Premises regardless of whether such loss
occurs when the area is locked against entry or not, unless due to Landlord's or
its agents' or employees' gross negligence or willful misconduct.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the Premises, with the exception of seeing eye dogs.
7. Employees of Landlord shall not receive or carry messages for or to any
Tenant or other person or contract with or render free or paid services to any
Tenant or to any of Tenant's Representatives.
8. None of the parking, plaza, recreation or lawn areas, entries, passages,
doors, elevators, hallways or stairways shall be blocked or obstructed or any
rubbish, litter, trash, or material of any nature placed, emptied or thrown into
these areas or such area used by Tenant or Tenant's Representatives at any time
for purpose inconsistent with their designation by Landlord.
9. The water closets and other water fixtures shall not be used for any purpose
other than those for which they were constructed, and any damage resulting to
them from misuse or by the defacing or injury of any part of the Building shall
be borne by the person who shall occasion it. No person shall waste water by
interfering with the faucets or otherwise.
10. No person shall disturb occupants of the Building by the use of any radios,
record players, tape recorders, musical instruments, the making of unseemly
noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down the
stairways or other passages.
12. Tenant and Tenant's Representatives shall park their vehicles only in those
parking areas designated by Landlord. Tenant shall furnish Landlord with state
automobile license numbers of Tenant's vehicles and its employees' vehicles
within five (5) days after taking possession of the Premises and shall notify
Landlord of any changes within five (5) days after such change occurs. Tenant
shall not leave any vehicle in a state of disrepair (including without
limitation, flat tires, out of date inspection stickers or license plates) on
the Premises. If Tenant or Tenant's Representatives park their vehicles in areas
other than the designated parking areas or leave any vehicle in a state of
disrepair, Landlord, after giving written notice to Tenant of such violation,
shall have the right to remove such vehicles at Tenant's expense.
13. Parking in a parking garage or area shall be in compliance with all parking
rules and regulations including any sticker or other identification system
established by Landlord. Failure to observe the rules and regulations shall
terminate Tenant's right to use the parking garage or area and subject the
vehicle in violation of the parking rules and regulations to removal and
impoundment. No termination of parking privileges or removal or impoundment of a
vehicle shall create any liability on Landlord or be deemed to interfere with
Tenant's right to possession of its Premises. Vehicles must be parked entirely
within the stall lines and all directional signs, arrows and posted speed limits
must be observed. Parking is prohibited in areas not striped for parking, in
aisles, where "No Parking" signs are posted, on ramps, in cross-hatched areas,
and in other areas as may be designated by Landlord. Parking stickers or other
forms of identification supplied by Landlord shall remain the property of
Landlord and not the property of Tenant and are not transferable. Every person
is required to
Page 1 of 2
<PAGE> 24
park and lock his vehicle. All responsibility for damage to vehicles or persons
is assumed by the owner of the vehicle or its driver, unless due to Landlord's
or its agents' or employees' gross negligence or willful misconduct.
14. Movement in or out of the Building of furniture or office supplies and
equipment, or dispatch or receipt by Tenant of any merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby, shall be restricted to hours designated by Landlord. All
such movement shall be under supervision of Building Manager and carried out in
the manner agreed between Tenant and Building Manager by prearrangement before
performance. Such prearrangement will include determination by Building Manager
of time, method, and routing of movement and limitations imposed by safety or
other concerns which may prohibit any article, equipment or any other item from
being brought into the Building. Tenant assumes, and shall indemnify Landlord
against, all risks and claims of damage to persons and properties arising in
connection with any said movement.
15. Landlord shall not be liable for any damages from the stoppage of elevators
for necessary or desirable repairs or improvements or delays of any sort of
duration in connection with the elevator service.
16. Tenant shall not lay floor covering within the Premises without written
approval of the Landlord. The use of cement or other similar adhesive materials
not easily removed with water is expressly prohibited.
17. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting and peddling within the Building.
18. Landlord reserves the right to exclude from the Building, between the hours
of 6:00 p.m. and 7:00 a.m. on weekdays and at all hours on Saturday, Sunday and
legal holidays, all persons who are not known to the Building security personnel
and who do not present a pass to the Building signed by the Tenant. Each Tenant
shall be responsible for all persons for whom it supplies a pass.
19. It is Landlord's desire to maintain in the Building the highest standard of
dignity and good taste consistent with comfort and convenience for Tenant and
Tenant's Representatives. Any actions or condition not meeting this high
standard should be reported directly to Landlord. Your cooperation will be
mutually beneficial and sincerely appreciated. Landlord reserves the right to
make such other and further reasonable rules and regulations as in its judgment
may from time to time be necessary, for the safety, care and cleanliness of the
Premises and for the preservation of good order therein.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.11
SUBLEASE AGREEMENT
This Sublease made this 18th day of December, 1998 by and between TPI
PETROLEUM, INC., a Michigan corporation, formerly known as TOTAL PETROLEUM,
INC., whose mailing address is P. 0. Box 696000, San Antonio, Texas 78269-6000
("Sublandlord") and THE TRIZETTO GROUP, INC., a Delaware corporation, whose
address is 567 San Nicolas Dr., Suite 360, Newport Beach, CA 92660
("Subtenant").
WITNESSETH:
WHEREAS, Sublandlord has entered into that certain Office Building
Lease ("Prime Lease") dated October 25, 1996 between ST. PAUL PROPERTIES, INC.
("Prime Landlord"), as Landlord, and Sublandlord, as Tenant, covering Suites
233A and 233B, in the building known as Atrium I - Denver Tech Center
("Building") located at 6061 S. Willow Dr., Englewood, Colorado (such lease is
hereinafter referred to as the "Prime Lease" attached hereto as Exhibit "A", and
such premises are hereinafter referred to as the "Premises"); and
WHEREAS, Sublandlord wishes to sublet the Premises to Subtenant and
Subtenant wishes to sublease the same from Sublandlord upon all of the terms and
provisions herein set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Sublandlord hereby subleases to Subtenant and Subtenant hereby
subleases from Sublandlord the Premises, together with the appurtenances
situated in the County of Arapahoe, State of Colorado, more particularly
described as follows:
Suites 233A and 233B, in the Atrium I Building located at 6061 S.
Willow Dr., Englewood, Colorado, containing approximately 4,774
rentable square feet,
for a term ("Term") to commence on January 1, 1999 (the "Commencement Date") and
to expire on October 30, 2002, subject to this Sublease and upon the rentals,
terms, covenants, conditions, and provisions hereafter set forth.
<PAGE> 2
2. Subtenant covenants and agrees to pay to Sublandlord without offset
or deduction the monthly base rental on the first day of each month during the
Term, commencing on January 1, 1999, in the amount of $6,763.17 per month. All
rents and other monies due to Sublessor hereunder shall be payable to Sublessor
at P. 0. Box 971351, Dallas, Texas 75297-1351 or at such other place as
Sublessor may, from time to time, designate in writing.
3. The parties agree that this Sublease shall be subject and
subordinate to all of the terms, covenants, conditions, and provisions of the
Prime Lease and to all the title and other matters to which the Prime Lease is
subject or subordinate. A copy of the Prime Lease has been delivered to and
examined, reviewed and approved by Subtenant.
4. (a) The terms, covenants, conditions and provisions in the Prime
Lease (including, but not limited to, the remedies provided thereunder) are
incorporated herein by reference, and shall, as between Sublandlord and
Subtenant, constitute the terms, covenants, conditions and provisions of this
Sublease, except to the extent that they are inapplicable to, inconsistent with
or modified by the provisions of this Sublease. The parties agree to observe and
perform the terms, covenants, conditions and provisions on their respective
parts to be observed and performed hereunder, including, but not limited to,
those terms, covenants, conditions, and provisions of the Prime Lease which are
incorporated herein.
(b) Subtenant shall, in no case, have any rights in respect of
the Premises greater than Sublandlord's rights under the Prime Lease and
Sublandlord shall have no liability to Subtenant for any matter whatsoever for
which Sublandlord does not have at least co-extensive rights, as tenant, against
the Prime Landlord under the Prime Lease.
(c) The performance by Sublandlord of any of the terms and
conditions of this Sublease upon the Sublandlord's part to be performed shall be
subject and dependent upon the performance by the Prime Landlord under the Prime
Lease of the terms, covenants, conditions and provisions, expressed or implied,
of the Prime Lease on the part of the Prime Landlord under the Prime Lease to be
performed, and Sublandlord shall be under no obligation or liability whatsoever
to the Subtenant in the event that the Prime Landlord shall fail to perform any
of the terms or conditions contained therein on the part of the Prime Landlord
to be performed. In the event Prime Landlord fails to perform under the Prime
Lease, Sublandlord shall enforce its remedies against the Prime Landlord, and if
the Sublandlord fails to do so within a reasonable period of time, the Subtenant
shall have the
2
<PAGE> 3
right to enforce, on behalf of the Sublandlord and at the expense of the
Sublandlord, the Sublandlord's remedies against the Prime Landlord.
(d) Sublandlord and Subtenant agree to be bound by, comply
with, and perform all of the terms and conditions of the Prime Landlord consent
to this Sublease and the additional terms agreed to by Prime Landlord,
Sublandlord, and Subtenant, all of which are contained in that certain letter
agreement dated December 17, 1998 and executed by all three (3) parties.
5. Nothing contained in this Sublease shall be construed to create
privity of estate or of contract between Subtenant and the Prime Landlord.
Subtenant shall not do or permit to be done any act or thing which will
constitute a breach or violation of any of the terms, covenants, conditions or
provisions of the Prime Lease.
6. Subtenant will indemnify and hold Sublandlord harmless, except to
the extent caused by Sublandlord from and against all losses, costs, damages,
expenses, and liability, including, but not limited to, reasonable attorney's
fees which Sublandlord may incur or pay out by reason of any injury to persons
or property occurring in, on or about the Premises, or by reasons of any breach
or default hereunder on Subtenant's part or by reason of any work done in or to
the Premises or any act or negligence on the part of Subtenant. Subtenant shall
cause Sublandlord and Prime Landlord to be listed as an additional insured on
all public liability, property damage and fire and extended coverage insurance
procured by Subtenant relating to the Premises in accordance with the terms of
the Prime Lease.
7. Subtenant acknowledges that it is accepting the Premises in its
present "as is" condition, and that neither the Prime Landlord nor Sublandlord
shall have any obligations to make any renovations or improvements to the
Premises. Except as provided in Paragraph 11, below, Subtenant shall perform all
necessary work at its sole cost and expense in accordance with the terms of the
Prime Lease in order to ready the Premises for the operation of Subtenant's
business therein.
8. Sublandlord's refusal to consent to or approve any matter or thing,
whenever Sublandlord's consent or approval is required under the terms of this
Sublease, shall be deemed reasonable if, inter alia, the Prime Landlord has
refused to give such consent or approval.
9. Subtenant and Sublandlord shall each promptly deliver to the other
copies of all notices received from the Prime Landlord or served upon the Prime
Landlord.
3
<PAGE> 4
(a) Notices and other communications hereunder shall be in
writing and given pursuant to the notice provisions in Section 14.07 of the
Master Lease.
(b) Subtenant and Sublandlord shall each promptly deliver to
the other copies of all notices received from the Prime Landlord or served upon
the Prime Landlord.
10. Subtenant shall be responsible for its proportionate share of
increases in operating expenses above a 1999 Base Year. Subtenant shall pay no
operating expense pass-throughs during the initial 12 months of the term. All
operating expense, additional rent and property tax issues shall be followed
pursuant to the Prime Lease.
11. The Sublandlord will provide Subtenant with a $2.00 per rentable
square foot allowance for the sublease space in Suites 233A and 233B. This
allowance will include all schematic and working drawings to be produced by an
architect approved by the Landlord and Sublandlord. Eighty percent (80%) of the
aforementioned allowance must be used for building tenant improvements to the
space. The remainder may be allocated to Subtenant's Sublease payments, if
elected by Subtenant. Subtenant shall not be charged for the use of elevators,
hoists, access to loading docks or use of utilities during construction of
Subtenant improvements or Subtenant's move into the building. Part of the
sublease space has an existing computer room that is approximately 1,600
rentable square feet, with the following: state-of-the-art computer room with
raised floor Inergen system, power conditioner, UPS system, and existing
furniture, all of which are owned by Sublandlord. The suite also includes a
security system, a ten (10) ton unit and a five (5) ton Liebert unit, both owned
by Prime Landlord.
12. Sublandlord shall use its best efforts to cause the Landlord at
Atrium I to work with Subtenant in order to make a reasonable effort to find an
area exterior to the building to locate a diesel generator for Subtenant's
installation that is not intrusive to the other tenants or Landlord at Atrium I.
The Denver Technological Center Architectural Control Committee must give their
approval before said generator is installed at Atrium I. Subtenant shall obtain
all required governmental approvals and permits for installation of said
generator, Failure to obtain consent to install the diesel generator shall not
be grounds for terminating this Sublease.
13. Sublandlord will provide Subtenant with a cancellation option at
the end of the third lease year with six (6) months prior
4
<PAGE> 5
written notice. If Subtenant exercises its option, then, upon termination,
Subtenant shall pay a cancellation premium of all of Sublandlord's unamortized
costs arising out of this Sublease transaction, as well as a cancellation fee
equivalent to three (3) months of rent.
14. The parties acknowledge that the Landlord will determine the hours
of operation as it has in the past. The hours of operation are from 6:00 a.m. to
6:00 p.m., Monday through Friday, and from 8:00 a.m. to 12:00 p.m., Saturdays,
holidays excluded. Current after hours HVAC charges are $35.00 per hour, which
are subject to change with 30 days written notice from the building property
manager. Subtenant's electrical usage will be separately metered due to its
proposed 24/7 operation. Any electrical consumption over building standard usage
will be billed to Subtenant on a monthly basis. If Subtenant desires additional
HVAC capacity in the premises, Subtenant may add such capacity, solely at
Subtenant's cost, after obtaining written approval of both the Sublandlord and
the Landlord. Subtenant shall have access to the building and parking lot 24
hours per day, seven (7) days per week, 52 weeks per year.
15. Upon executing this Sublease, Subtenant shall deliver to
Sublandlord a sum equal to the first month's base rent and a security deposit
equal to two (2) months base rental. Such amount will be retained by Sublandlord
as security for performance of all terms and conditions of this Sublease
Agreement, including payment of all rent due under the terms hereof. Deductions
may be made by Sublandlord from the amount so retained for the reasonable cost
of repairs to the subleased Premises (ordinary wear and tear excepted), for any
rent delinquent under the terms hereof and/or for any sum used in any manner to
cure any default of Subtenant under the terms hereof. Sublandlord shall return
the unused portion of such deposit to Subtenant within 30 days of the
termination of this Sublease Agreement along with Sublandlord's accounting for
any deductions from the deposit.
16. If for any reason, the term of the Prime Lease is terminated prior
to the expiration date of this Sublease, this Sublease shall thereupon be
terminated, and Sublandlord shall not be liable to Subtenant by reason thereof
except for any prepaid rent which shall be prorated to the time of actual
eviction following termination, unless said termination shall have been effected
because of the breach or default of the Sublandlord under the Prime Lease.
17. Subtenant agrees to vacate the Premises on or before October 30,
2002 and to leave the Premises in a broom-clean state
5
<PAGE> 6
unless Subtenant has entered into a separate lease with Prime Landlord.
Subtenant shall have no option to renew or options for additional space under
this Agreement.
18. Subtenant warrants and agrees to save and hold Sublandlord and
Prime Landlord harmless from any and all leasing commissions (including
renewals, extensions or options), costs and liability with respect to Subleased
Premises regarding any broker or real estate broker, except for Venture Group
Real Estate, L.L.C. (Sublandlord's broker) and Julien J. Studley, Inc. and
Liberty Partners, Inc. (Subtenant's broker).
19. This Sublease is subject to and conditioned upon Prime Landlord's
consent in writing, which consent shall approve Subtenant's use of the Premises
as general offices. If such consent is not obtained on or before the
Commencement Date, then this Sublease shall be void and terminated and the base
rent prorated. In the event Subtenant obtains possession of the Premises prior
to the Prime Landlord's approval, Subtenant agrees to immediately vacate the
Premises in the event this Sublease is terminated and to indemnify and hold
Sublandlord and Prime Landlord harmless from and against any losses, costs,
damages, expenses and liability arising from its holding over, including
attorney's fees.
20. Notwithstanding anything contained in the Prime Lease to the
contrary, Subtenant shall not, by operation of law or otherwise, assign, sublet,
mortgage, pledge or otherwise encumber this Sublease without the prior written
consent of the Sublandlord in each instance. Any assignment or subletting or
purported assignment or subletting without such consent shall be void and of no
effect.
21. This Sublease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, successors in interest and
assigns.
22. Sublandlord and Subtenant acknowledge that a sublease commission in
the amount of six percent (6%) of the gross lease will be paid to outside
brokers. Sublandlord recognizes that Liberty Partners, Inc. represents The
Trizetto Group, Inc. and is entitled to three and one-half percent (3.5%) of the
commission. Venture Group represents Sublandlord and is to receive two and
one-half percent (2.5%) of the commission. A broker registration letter will be
entered into between the parties to explicitly detail the brokerage
compensation.
6
<PAGE> 7
23. If Sublandlord defaults under any of the monetary terms, covenants,
or agreements of the Prime Lease relatinq to the subleased Premises, Sublandlord
shall, within three (3) days of the monetary default, give notice to Subtenant,
and Subtenant may communicate directly with Prime Landlord concerning the
monetary default of Sublandlord. Any payment made to Prime Landlord by Subtenant
shall be credited on the amount due from Subtenant to Sublandlord under this
Sublease.
If Sublandlord defaults under any of the non-monetary terms, covenants
or agreements of the Prime Lease relating to the subleased Premises and fails to
cure such non-monetary default within five (5) business days before the end of
the applicable period set forth in the Prime Lease, then provided Subtenant has
given written notice to Sublandlord of its intention to do so, Subtenant shall
have the right to cure Sublandlord's default under the Prime Lease with respect
to the Subleased Premises.
Subtenant shall have all rights granted to it by law and not
inconsistent with this Sublease if Sublandlord defaults in its obligations under
this Sublease.
24. Except as otherwise provided in the Prime Lease and herein,
Sublandlord warrants and defends that, so long as Subtenant is not in default
hereunder, Subtenant will have the enjoyment and peaceful possession of the
premises during the term of this Sublease without any interruption by Landlord
or Sublandlord or either of them or any person rightfully claiming under either
of them.
25. Subtenant shall have the right to have access to and to use the
Premises beginning on December 20, 1998 for the purpose of storing and
installing equipment to be used on the Premises after the Commencement Date,
provided that all of the terms of this Sublease shall apply to any such
occupancy prior to the Commencement Date, except that the Subtenant shall not
pay any rent or other expenses for any period prior to the Commencement Date.
26. This document may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement. Such counterparts may be transmitted by telecopy, the telecopy to
have full force and effect as if it were an original.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
7
<PAGE> 8
SUBLANDLORD: SUBTENANT:
TPI PETROLEUM, INC. THE TRIZETTO GROUP, INC.
BY: /s/ Mike Russell BY: /s/ Raymond D. Croghan
-------------------------------- --------------------------------
Title: Vice President Title: EVP
----------------------------- -----------------------------
8
<PAGE> 9
St. Paul Properties, Inc.
385 Washington Street, 15th Floor
St. Paul, Minnesota 55102
December 17, 1998
TPI Petroleum, Inc.
6000 N. Loop 1604 W.
San Antonio, Texas 78249-1112
Re: Atrium 1 Building - Denver Tech Center, 6061 S. Willow Dr.,
Englewood, Colorado
SUBLET PREMISES: Approximately 4774 rentable square feet on
the floor of the building as shown hatched in black on the
plan annexed as Exhibit B to the Sublease and made a part
hereof known as Suites 233A and 233B.
DATE OF MASTER LEASE: Lease dated as of October 25, 1996,
between St. Paul Properties, Inc. as "Landlord", and Total
Petroleum, Inc.
DATE OF SUBLEASE: Sublease Agreement dated as of January 1,
1999, between Tenant and Subtenant.
SUBTENANT: The Trizetto Group, Inc.
Dear Ladies and Gentlemen:
Pursuant to the terms of your Lease ("Master Lease") covering the
above-captioned premises, as said Lease may have been amended to the date
hereof, you, as prime tenant ("Prime Tenant") have requested our consent to a
sublease (dated and described above) to the above-captioned Subtenant, a copy of
which sublease is annexed hereto and made a part hereof and is hereinafter
referred to as the "Sublease."
We hereby grant our consent to the Sublease upon the following express
terms and conditions:
1. The Sublease is subject and subordinate to the Master Lease, a copy
of which is attached to the Sublease as Exhibit A, and to all of its terms,
covenants, conditions, provisions and agreements.
<PAGE> 10
TPI Petroleum, Inc.
Page 2
December 18, 1998
2. The Subtenant shall perform faithfully and be bound by all of the
terms, covenants, conditions, provisions and agreements of the Master Lease, for
the period covered by the Sublease and to the extent of the Sublease.
3. Neither the Sublease nor this Consent thereto shall:
a. release or discharge you from any liability, whether
past, present or future under the Master Lease;
b. operate as a consent or approval by us to or of any
of the terms, covenants, conditions, provisions, or
agreements of the Sublease and we shall not be bound
thereby;
C. be construed to modify, waive or effect any of the
terms, covenants, conditions, provisions or
agreements of the Master Lease, or to waive any
breach thereof, or any of our rights as landlord
thereunder, or to enlarge or increase our obligations
as landlord thereunder; or
d. be construed as consent by us to any further
subletting either by you or by the Subtenant or to
any assignment by you of the Master Lease or
assignment by the Subtenant of the Sublease, whether
or not the Sublease purports to permit the same and,
without limiting the generality of the foregoing,
both you and the Subtenant agree that the Subtenant
has no right whatsoever to assign, mortgage or
encumber the Sublease nor to sublet any portion of
the Sublet Premises, or permit any portion of the
Sublet Premises to be used or occupied by any other
party; in connection herewith, both you and the
Subtenant agree that any assignment by operation of
law or transfer of control of Subtenant (including
but not limited to transfer of the controlling
interest of the stock of Subtenant, if Subtenant is a
corporation) shall be deemed to be a prohibited
assignment hereunder and, any such further subletting
or further assignment, if any, shall be subject to
the terms of the Master Lease.
4. You shall not be released from any liability under the Master Lease
because of our failure to give notice of default under or in
<PAGE> 11
TPI Petroleum, Inc.
Page 3
December 18, 1998
respect to any of the terms, covenants, conditions, provisions or agreements of
the Master Lease.
5. You shall not be released from any liability under the Master Lease
in the event of a voluntary, administrative or judicial dissolution, which will
not in any case be construed as a default under the Lease.
6. In the event you default under the provisions of the Master Lease
(after applicable periods of notice and/or grace, if any), the rent due from the
Subtenant under the Sublease shall be deemed assigned to us and we shall have
the right, under such default, at any time at our option to give notice of such
assignment to you and the Subtenant and any such rent shall be paid directly to
us. We shall credit you with any rent received by us under such assignment but
the acceptance of any payment on account of rent from Subtenant as a result of
any such default shall in no manner whatsoever be deemed an attornment by the
Subtenant to us or serve to release you from any liability under the terms,
covenants, conditions, provisions or agreements under the Master Lease.
7. Notwithstanding the foregoing, any other payment of rent from the
Subtenant directly to us, regardless of the circumstances or reasons therefor,
shall in no manner whatsoever be deemed an attornment by the Subtenant to us in
the absence of a specific written agreement signed by us to such an effect.
8. Both you and the Subtenant shall be and continue to be liable for
the payment of all bills rendered by us for charges incurred by the Subtenant
for services and materials supplied to the Sublet Premises.
9. The term of the Sublease shall expire and come to an end on its
natural expiration date or any premature termination date thereof or
concurrently with any premature termination of the Master Lease (whether by
consent or other right, now or hereafter agreed to by landlord or Prime Tenant,
or by operation of law at landlord's option in the event of default by Prime
Tenant).
10. This Consent is not assignable, nor shall this consent be a consent
to any amendment, modification, extension or renewal of the Sublease, without
landlord's prior written consent.
11. You and the Subtenant covenant and agree that, under no
circumstances shall we be liable for any brokerage commission or other
<PAGE> 12
TPI Petroleum, Inc.
Page 4
December 18, 1998
charge or expense in connection with the Sublease, and you both agree to
indemnify us against the same and against any cost or expense (including but not
limited to attorneys' fees) incurred by us in resisting any claim for any such
brokerage commission.
12. You and Subtenant understand and acknowledge that landlord's
consent hereto is not a consent to any improvement or alteration work being
performed in the Sublet Premises, that landlord's consent must be separately
sought and will not necessarily be given, and that if such consent is given, the
same will be subject to mutual agreement upon all plans or alterations. Any
improvements or alterations work will be specifically subject to the terms of
the Master Lease.
13. You and Subtenant each covenant and agree to continue to maintain
and keep in place all insurance required to be obtained, maintained and kept in
full force and effect as set forth in the Master Lease.
14. The Sublease constitutes the entire agreement between you and
Subtenant, and there are no other written or oral agreements of the Sublease
between them. No modification or amendment of the Sublease will be made without
prior written consent of landlord.
15. If any conflict between the Master Lease and the Sublease occurs,
the Master Lease will control except as provided herein.
16. Any rights and remedies of Subtenant under the Sublease, if any,
will be solely against Prime Tenant. Neither this Consent nor the Sublease will
give the Subtenant any rights under the Master Lease except those expressly
granted by the Sublease.
17. The execution of a copy of this Consent by you (as Prime Tenant)
and by the Subtenant shall indicate your joint and several confirmation of the
foregoing conditions and of your agreement to be bound thereby and shall
constitute Subtenant's acknowledgment that it has received a copy of the Master
Lease from you.
18. In addition, Landlord, Prime Tenant, and Subtenant agree as
follows:
A. The Landlord and the Prime Tenant represent and warrant that the
Master Lease, as attached to the Sublease as Exhibit "A", constitutes the entire
agreement between you, and there are no other
<PAGE> 13
TPI Petroleum, Inc.
Page 5
December 18, 1998
written or oral agreements between you modifying the term of the Master Lease.
B. The Landlord represents and warrants that, as of the date hereof,
(i) there are no uncured defaults on the part of the Prime Tenant under the
Master Lease, and (ii) there are no events that have occurred that, with the
passage of time, would result in a default by the Prime Tenant.
C. The Prime Tenant represents and warrants that, as of the date
hereof, (i) there are no uncured defaults on the part of the Landlord under the
Master Lease, and (ii) there are no events that have occurred that, with the
passage of time, would result in a default by the Landlord.
D. All notices under both the Master Lease and the Sublease shall be
given to each of Landlord, Prime Tenant, and Subtenant at the addresses in the
Master Lease and the Sublease and following the notice provisions in the Master
Lease.
E. If Prime Tenant is in default under the Master Lease, Landlord shall
give Subtenant notice of such default and opportunity to cure (for the periods
set forth in the Master Lease) the default.
F. If Subtenant makes payments to Landlord to cure any monetary default
of Prime Tenant, such payments shall be accepted by Landlord as it would a
payment from Prime Tenant.
19. This document may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement. Such counterparts may be transmitted by telecopy, the telecopy to
have full force and effect as if it were an original.
Very truly yours,
ST. PAUL PROPERTIES, INC.
Date: 1-5-99 By: /s/ R. William Inserra
------------------------- -------------------------------------
Name: R. WILLIAM INSERRA
-----------------------------------
Title: V.P. ASSET MANAGEMENT
----------------------------------
<PAGE> 14
TPI Petroleum, Inc.
Page 6
December 18, 1998
CONFIRMED AND AGREED:
PRIME TENANT:
TPI PETROLEUM, INC.
Date: 12-18-98 By: /s/ Mike Russell
------------------------- -------------------------------------
Name: Mike Russell
-----------------------------------
Title: Vice President
----------------------------------
SUBTENANT:
THE TRIZETTO GROUP, INC.
Date: 12-23-98 By: /s/ Raymond D. Croghan
------------------------- -------------------------------------
Name: RAYMOND D. CROGHAN
-----------------------------------
Title: EVP
----------------------------------
<PAGE> 15
OFFICE LEASE AGREEMENT
BETWEEN
ST. PAUL PROPERTIES, INC.
AS LANDLORD
AND
TOTAL PETROLEUM, INC.
AS TENANT
ATRIUM 1
6061 SOUTH WILLOW DRIVE
ENGLEWOOD, COLORADO
OCTOBER 25, 1996
<PAGE> 16
OFFICE LEASE
Article 1.00 BASIC LEASE TERMS
1.01 PARTIES. This Lease Agreement ("Lease") dated as of October 25,
1996, is entered into by and between St. Paul Properties, Inc., a Delaware
Corporation, ("Landlord"), and Total Petroleum, Inc., a Michigan corporation
("Tenant").
1.02 LEASE PREMISES. In consideration of the Rent, terms, provisions
and covenants of this Lease, Landlord leases to Tenant and Tenant accepts from
Landlord the Premises (as outlined on the plan attached hereto as Exhibit A)
located in the Building, together with the non-exclusive right to use, in
common with Landlord and others, the following portions of the Building: the
entrance foyer and lobby; the corridors and lavatories on the floor on which
the Premises are situated; and the stairways, and elevators (sometimes referred
to as the "Common Areas").
1.03 DEFINITION OF TERMS. As used in this Lease, the following terms
shall have the following meanings:
A. Building: The Building on the real property situated at 6061 South
Willow Drive, Englewood, Colorado, and commonly known as Atrium I -
Denver Technological Center.
B. Premises: That part of the Building outlined on Exhibit A, called
Suites 233A and 233B on the second floor(s) of the Building,
containing approximately 4,774 rentable square feet, including
tenant improvements made by Landlord as part of the Tenant Finish
Buildout.
C. Building Manager: JCA Property Management, 6061 S. Willow Drive,
Suite 210, Englewood, Colorado 80111, Attention: Mr. Jim Aamot, or
such other person as Landlord may designate from time to time.
D. Commencement Date: November 1, 1996.
E. Completion Date: November 1, 1996.
F. Termination Date: October 31, 2002, unless sooner terminated as
provided in this Lease.
G. Term: A period commencing at 12:01 a.m. local time, on the
Commencement Date and expiring at 11:59 p.m. local time on the
Termination Date, unless extended as provided in this Lease.
H. Base Rent: As set forth in the Addendum attached to this Lease.
I. Monthly Installments of Base Rent: As set forth in the Addendum
attached to this Lease.
J. Tenant's Proportionate Share: 3.689%.
K. Security Deposit: None.
L. Landlord's Mailing Address: 385 Washington Street, St. Paul,
Minnesota, 55102, Attention: Vice President-Asset Management.
Tenant's Mailing Address: 999 Eighteenth Street, Suite 2201, P.O.
Box 500, Denver, Colorado 80201-0500, Attention: Chief Information
Officer
Page 1 of 16
<PAGE> 17
M. Normal Business Hours: The hours from 7:00 a.m. to 6:00 p.m. Monday
through Friday and 8:00 a.m. to 1:00 p.m. on Saturday, except
recognized holidays. Tenant shall be entitled to have access to the
Premises seven (7) days per week, twenty-four (24) hours per day.
N. State: The State of Colorado.
O. Parking Spaces: Tenant shall be entitled to the non-exclusive use in
common with Landlord and others except as provided below, of sixteen
(16) spaces, at no charge during the initial term of this Lease.
During the initial term and first renewal term of this Lease,
Landlord shall designate one parking space as reserved for Tenant
near the west entrance of the Building. Landlord reserves the right
to assign and reassign, from time to time, particular parking spaces
for use by persons selected by Landlord, and to issue and implement
other rules and regulations with respect to parking spaces for the
Building, provided that Tenant's rights to the number of parking
spaces designated herein are preserved.
P. Broker: Eagle Brokerage Company, 6061 South Willow Drive, Suite 210,
Englewood, Colorado 80111, Attention: David J. Banzhaf; and Liberty
Partners, 730 17th Street, Suite 635, Denver, Colorado 80202.
Q. Permitted Use: General office use and computer center operation.
R. Tenant's Representatives: Tenant's employees, agents, contractors,
licensees and invitees.
ARTICLE 2.00 RENT
2.01 BASE RENT. Tenant shall pay Monthly Installments of Base Rent in
advance on the first day of each month of the Term, which amount shall be
payable to Landlord by submitting it to the Building Manager at the address
shown above. If the Commencement Date should be a date other than the first day
of a calendar month, the Monthly Installment of Base Rent shall be prorated to
the end of that calendar month. Tenant shall pay, as additional rent, all other
sums due under this Lease.
2.02 OPERATING EXPENSES. In the event Landlord's operating expenses for
the Building shall, in any calendar year during the Term, exceed the sum of
those expenses accrued during the 1997 base year ("Excess Expenses") Tenant
shall pay as additional rent Tenant's Proportionate Share of Excess Expenses. In
order to provide current payments on account of Excess Expenses Tenant shall, at
Landlord's request, pay as additional rent, an amount equal to Tenant's
Proportionate Share of the Excess Expenses due for the ensuing twelve (12)
months, as estimated by Landlord from time to time, in twelve (12) equal monthly
installments, commencing on the first day of the month following the month in
which Landlord notifies Tenant of the amount. Following the close of each
calendar year, Landlord shall provide Tenant with a statement showing in
reasonable detail all computations of additional rent under this section. If
Tenant's Proportionate Share of the actual Excess Expenses for the preceding
calendar year exceeds the aggregate of the estimated monthly payments made by
Tenant for such year, Tenant shall within thirty (30) days of the receipt of the
statement, pay to Landlord as additional rent an amount equal to such excess. If
such aggregate of the estimated monthly payments exceeds Tenant's Proportionate
Share of the actual Excess Expenses for such calendar year, Landlord shall
credit against Tenant's next ensuing monthly installment or installments of the
rent an amount equal to such difference until the credit is exhausted. No
interest or penalties shall accrue on any amounts which Landlord is obligated to
credit to Tenant by reason of this provision. The obligations of Tenant and
Landlord to make payments or credits required by this provision shall survive
the Termination Date. Notwithstanding any other provisions in this Lease, during
the year in which the Lease terminates, Landlord, prior to the Termination Date,
shall have the option to invoice Tenant for Tenant's Proportionate Share of the
Excess Expenses based upon the previous year's operating expenses; provided,
that such invoicing shall not eliminate the need for reconciliation and
adjustment based on actual expenses for such year, when such expenses are known.
If the Lease shall terminate on a day other than the last day of the calendar
year, the amount of any additional rent payable by Tenant applicable to the year
in which such termination
Page 2 of 16
<PAGE> 18
shall occur shall be pro rated on the ratio that the number of days from the
commencement of the calendar year to and including the Termination Date bears
to 365.
Each statement given by Landlord or the Building Manager pursuant to this
section shall be conclusive and binding upon Tenant unless within ninety (90)
days after receipt of such statement Tenant shall notify Landlord that it
disputes the correctness of the statement, specifying the particular respects
in which it is claimed to be incorrect. If such dispute shall not have been
settled by agreement, then, pending the legal determination of such dispute,
Tenant shall pay additional rent in accordance with such statement and such
payment shall be without prejudice to Tenant's position. If the dispute shall
be determined in Tenant's favor, Landlord shall forthwith credit to Tenant the
amount of Tenant's overpayment of additional rent resulting from compliance
with Landlord's statement.
Landlord shall keep complete and accurate books and records relating to
"Operating Expenses", as defined below, for at least three (3) years after the
end of the calendar year in which such Operating Expenses were incurred. Tenant
may, at Tenant's initial expense, cause such books and records to be audited by
an independent auditor satisfactory to Tenant for the purpose of determining
the validity of any claim by Landlord for Excess Expenses, provided that Tenant
shall notify Landlord of Tenant's election to conduct such an audit not later
than ninety (90) days after the end of the calendar year to be examined. If any
such audit determines that Landlord's claim for Excess Expenses for any
calendar year exceeds the amount to which Landlord was properly entitled, then
Landlord shall forthwith refund the excess, and if the excess is more than
three percent (3%) of the amount properly due, then Landlord shall also pay the
cost of the audit upon receipt of appropriate evidence of such cost.
If during any calendar year of this Lease, the occupancy of the Building
averages less than one hundred percent (100%), it is agreed that the Operating
Expenses shall be recomputed as though the Building had been 100% occupied for
such calendar year. In making such recomputation, no adjustment shall be made
in Operating Expenses that typically do not vary based on occupancy, such as
but not limited to real property taxes, insurance premiums and costs associated
with landscaping and other exterior maintenance.
Any dispute between Landlord and Tenant regarding Operating Expenses or Excess
Expenses shall be resolved by binding arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association, and
judgment on any arbitration award may be entered and enforced by any court of
competent jurisdiction.
2.03 DEFINITION OF OPERATING EXPENSES. Subject to the exclusions listed
below, the term "Operating Expenses" includes all expenses paid or incurred by
Landlord or on Landlord's behalf with respect to the management, repair,
operation and maintenance of the Building of which the Premises are a part
including, but not limited to, the following: (1) salaries, wages and benefits
of employees of Landlord engaged in the management, repair, operation and
maintenance of the Building; (2) payroll taxes, workmen's compensation,
uniforms and related expenses for such employees; (3) the cost of all charges
for oil, gas, steam, electricity, any alternate source of energy, heat,
ventilation, air-conditioning, water, sewers and other utilities furnished to
the Building (including the parking areas, Common Areas and leased areas
thereof), together with any taxes on such utilities; (4) the cost of painting
non-tenant space; (5) the cost of all charges for insurance Landlord is
required to pay or deems necessary to pay, including public liability
insurance, with regard to the Building and the maintenance or operation
thereof; (6) the cost of all supplies (including cleaning supplies), tools,
materials and equipment, the rental thereof and sales and other taxes thereon;
(7) depreciation of hand tools and other movable equipment used in the repair,
operation and maintenance of the Building; (8) the cost of all charges for
window and other cleaning and janitorial, snow and ice removal, and security
services; (9) charges of independent contractors; (10) repairs and replacements
made by Landlord at its expense; (11) exterior and interior landscaping and
pest control; (12) alterations and improvements to the Building made by reason
of the laws and requirements of any public authorities or the requirements of
insurance bodies; (13) management fees; (14) the cost of any capital
improvements or additions to the Building and of any machinery or equipment
installed in the Building which are made or become operational, as the case may
be, after the Commencement Date and which the effect of reducing the expenses
which otherwise would be included in Operating Expenses to the extent of the
lesser of (A) such cost, as reasonably amortized by Landlord with interest on
the unamortized amount at the prime rate then generally available in the state,
or (b) the amount of such reduction in Operating Expenses; (15) reasonable
legal, accounting and other professional fees incurred in connection with the
operation, maintenance and management of the Building; (16) all real property
taxes and installments of special assessments, including dues and assessments
by means of deed restrictions
Page 3 of 16
<PAGE> 19
and/or owners' associations which accrue against the Building during the term
of this Lease, other than such taxes and assessments allocable to tenant
improvements for any tenant of the Building in excess of Landlord's building
standard improvements; and (17) all other charges properly allocable to the
repair, operation and maintenance of the Building in accordance with generally
accepted accounting principles. The term operating Expenses does not include
the following: (a) costs of repairs or renovations necessitated by fire, flood
or other casualty, whether or not insured; (b) costs associated with the
operation of Landlord or Landlord's business, including but not limited to
income and franchise taxes, as opposed to costs of operating the Building; (c)
expenses incurred in leasing to or procuring of leases, leasing commissions,
advertising expenses, "takeover" rent or other tenant inducements and expenses
for renovating or redecorating space for new or existing tenants (except for
renovations or redecorating of Building common areas); (d) costs associated
with any dispute between Landlord and (i) Landlord's employees, (ii) any
mortgagee of the Building, (iii) any manager of the Building, or (iv) any
tenant of the Building; (e) interest or principal payments on any mortgage or
other indebtedness of Landlord, or ground rents or other payments under any
ground lease (except for Landlord's ground lease for any parking areas adjacent
to the Building); (f) compensation paid to any employee of Landlord above the
grade of property manager for the Building; (g) any depreciation or
amortization allowance or expense (except as provided above); (h) operating
expenses which are the responsibility of Tenant; (i) costs incurred by Landlord
in connection with construction of the Building and related facilities,
correcting defects in construction, obtaining or renewing any certificate of
occupancy for the Building or any space in the Building, or discharging
Landlord's obligations under the work letter attached to any lease; (j)
reserves for capital costs or replacements; (k) costs of any services sold or
provided to or for the benefit of tenants or other occupants for which Landlord
is entitled to be reimbursed by such tenants or other occupants as an
additional charge or rental over and above basic rent or escalations thereof;
(l) costs of goods or services supplied by any affiliate of Landlord, to the
extent such costs exceed the costs of similar goods or services supplied on a
competitive basis by parties not affiliated with Landlord; (m) expenses related
to removal, cleaning, abatement or remediation of "hazardous materials" in or
about the Building or in the surrounding ground water or soil (except that
Tenant shall, in any event, remain liable and shall pay for all costs and
expenses related to the removal, cleaning, abatement or remediation of any of
Tenant's "hazardous materials" in or about the Building, or related to any
storage treatment or release of "hazardous materials" by Tenant); (n)
compensation paid to clerks, attendants, concierges or other persons working in
or managing commercial concessions operated by Landlord; or (o) advertising and
promotional costs. To the extent any expenditure that is required to be
capitalized for federal income tax purposes is not otherwise excluded from the
definition of "Operating Expense", the amount included with respect to such
expenditure in any given year shall not exceed the amount that would be
necessary to amortize such expenditure, together with interest at the "prime",
"base" or "reference" rate announced as such by Colorado National Bank, or its
successors, as of the date of the expenditure, in equal annual installments
over the projected useful life of the equipment or improvement acquired by
means of such expenditure.
2.04 LATE PAYMENT CHARGE. Other remedies for nonpayment of rent
notwithstanding, if any part of the rent is not paid within ten (10) days after
it is due, Tenant shall pay Landlord a late payment charge of five percent (5%)
on the amount due from its due date until paid and shall become immediately due
and payable in addition to any other amounts owed under this Lease.
2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance
premiums paid by Landlord for the Building is caused by Tenant's use of the
Premises in a manner other than as set forth in section 1.03, or if Tenant
vacates the Premises and causes an increase in such premiums, then Tenant shall
pay as additional rent the amount of such increase to Landlord.
2.06 SECURITY DEPOSIT. [Intentionally Deleted]
2.07 HOLDING OVER. In the event that Tenant does not vacate the
Premises upon the expiration or termination of this Lease, Tenant shall be a
tenant at will for the hold over period and all of the terms and provisions of
this Lease shall be applicable during that period, except that Tenant shall pay
Landlord as base rental for the period of such hold over an amount equal to one
and one-half (1 1/2) times the Base Rent which would have been payable by
Tenant had the hold over period been a part of the original term of this Lease.
Tenant agrees to vacate and deliver the Premises to Landlord upon Tenant's
receipt of notice from Landlord to vacate. The rent payable during the hold
over period shall be payable to Landlord upon demand. No holding over by
Tenant, with or without the consent of Landlord, shall operate to extend the
Term.
Page 4 of 16
<PAGE> 20
2.08 SECURITY SERVICE. [Intentionally Deleted]
ARTICLE 3.00 OCCUPANCY AND USE
3.01 USE. Tenant warrants and represents to Landlord that the Premises
shall be used and occupied only for the purpose as set forth in section 1.03.
Tenant shall occupy the Premises, conduct its business and control the Tenant's
Representatives in such a manner as is lawful, reputable and will not create a
nuisance. Tenant shall not permit any operation which emits any odor or matter
which intrudes into other portions of the Building, use any apparatus or
machine which makes undue noise or causes vibration in any portion of the
Building or otherwise interfere with, annoy or disturb any other tenant in its
normal business operations or Landlord in its management of the Building. Tenant
shall neither permit any waste on the Premises nor allow the Premises to be
used in any way which would, in the opinion of Landlord be extra-hazardous on
account of fire or which would in any way increase or render void the fire
insurance on the Building.
3.02 SIGNS. No sign of any type or description shall be erected, placed
or painted in or about the Premises or Building except those signs submitted to
Landlord in writing and approved by Landlord in writing, and which signs are in
conformance with Landlord's sign criteria established for the Building.
3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at Tenant's
sole cost and expense, shall comply with all laws, ordinances, orders, rules
and regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over the use, condition or occupancy of the Premises. Tenant
will comply with the rules and regulations of the Building adopted by Landlord
which are set forth on Exhibit "C" attached to this Lease. Landlord shall have
the right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care, cleanliness,
preservation of good order and operational use of the Building or the Premises.
All changes and amendments to the rules and regulations of the Building will be
sent by Landlord to Tenant in writing and shall thereafter be carried out and
observed by Tenant. Notwithstanding any other provisions of this Lease,
however, Tenant shall not be obligated to modify (or to pay the cost of
modifying) (i) any structural, mechanical or electrical component of the
Building outside of the Premises, nor (ii) any structural component of the
Building within the Premises unless required by Tenant's use of the Premises.
3.04 WARRANTY OF POSSESSION. Landlord warrants that it has the right
and authority to execute this Lease, and Tenant, upon payment of the required
rents and subject to the terms, conditions, covenants and agreements contained
in this Lease, shall have possession of the Premises during the full term of
this Lease as well as any extension or renewal thereof. Landlord shall not be
responsible for the acts or omissions of any other tenant, or third-party not
claiming under rights derived from Landlord, that may interfere with Tenant's
use and enjoyment of the Premises.
3.05 INSPECTION. Landlord or its authorized agent shall at any and all
reasonable times have the right after reasonable advance notice to enter the
Premises to inspect the same, to supply janitorial service or any other service
to be provided by Landlord, to show the Premises to prospective purchasers or
tenants, and to repair the Premises or any other portion of the Building that is
accessible only through the Premises, provided that Landlord shall in any case
use reasonable efforts to minimize any interference with or disruption of
Tenant's business. Landlord shall at all times have and retain a key with which
to unlock the corridor door into the Premises. Tenant shall not change
Landlord's lock system or in any other manner prohibit Landlord from entering
the Premises. Tenant may, however, install its own locks on the doors into
Tenant's computer room and into other rooms used to store equipment that is
readily portable or otherwise vulnerable to theft or damage, or may exclude
Landlord and Landlord's employees, agents, contractors and licensees from such
areas. Landlord shall have the right to use any and all means which Landlord may
deem proper to open any door in an emergency situation without liability
therefor provided that Landlord shall attempt to give Tenant as much notice as
is practical of any emergency entry and shall use reasonable efforts to maintain
the security of Tenant's computer systems and equipment.
Page 5 of 16
<PAGE> 21
ARTICLE 4.00 UTILITIES AND SERVICE
4.01 BUILDING SERVICES. Landlord acknowledges that Tenant intends to
use the Premises to provide space for a computer center that is vitally
important to Tenant's multistate business operations. Accordingly, in addition
to providing those services and meeting those obligations set forth elsewhere
in this Lease, Landlord shall provide such services as may be necessary to
enable Tenant to have access to, use and occupy the Premises on a 24 hour per
day, seven day per week basis, including but not limited to the following:
A. Electricity meeting the electrical requirements set forth on
Exhibit "D" attached to this Lease.
B. Hot and cold potable water at those points of supply provided for
the general use of other tenants on the second floor of the
Building.
C. Central heating and air conditioning services for Tenant's office
space (specifically excluding Tenant's computer room facilities)
meeting the HVAC standards set forth on Exhibit "E" attached to
this Lease during normal business hours.
D. Elevator access to the Premises 24 hours per day, seven days per
week, including legal holidays.
E. Replacement during normal business hours of fluorescent tubes and
ballasts and incandescent lamps in Building fixtures in the
Premises on an as-needed basis.
F. Routine maintenance, painting and electric lighting service for all
public areas and special service areas in the Building, in a manner
consistent with the standards of first class office buildings in the
Denver metropolitan area.
G. Exterior lighting, landscaping, sweeping, snow removal and similar
services around the Building and adjacent parking areas, in a
manner consistent with the standards of first class office
buildings in the Denver metropolitan area.
H. Failure by Landlord to any extent to provide these defined services
or any other services not enumerated, or any cessation thereof,
shall not render Landlord liable in any respect for damages to
either person or property, be construed as an eviction of Tenant,
work an abatement of rent or relieve Tenant from fulfillment of any
covenant of this Lease except as provided in Section 4.02 below.
Should any of the equipment or machinery break down, or for any
cause cease to function properly, Landlord shall use reasonable
diligence to repair the same promptly, but Tenant shall have no
claim for rebate of rent on account of any interruption in service
occasioned from the repairs except as provided in Section 4.02
below.
Landlord may, in Landlord's discretion, provide other services not enumerated
above, including security services, and may also make changes from time to time
in the utilities and services provided by Landlord to the Building, provided no
such changes shall reduce the practical utility of the Premises for Tenant's
purposes or increase their effective cost to Tenant.
4.02 INTERRUPTION OF SERVICES. Tenant agrees that Landlord will not be
liable for failure to supply any of the services enumerated in section 4.01
during any period in which Landlord is using all reasonable diligence to supply
such services or is prevented from providing the enumerated services by reason
of any fire or other casualty as set forth in Article 7.0, by force majeure or
by the acts or omissions of Tenant, Tenant's agents or employees, nor will
Landlord be liable for reducing or curtailing any such services to the extent
required by applicable, valid and binding laws, rules or regulations during any
period in which Landlord is required by such laws, rules, or regulations to do
so. Notwithstanding the foregoing provisions of this section, however, and
except for any interruption in services caused by the acts, omissions or
negligence of Tenant, Tenant's agents or employees, and subject to the
provisions of Article 7.0 in the event of a fire or other casualty, Base Rent
and payments on account of Excess Expenses will be abated in the event of a
disruption of services, in accordance with the following provisions:
Page 6 of 16
<PAGE> 22
A. In the case of a continuous interruption of electrical power to the
Premises resulting in a shutdown of Tenant's computers or other
office equipment or complete unavailability of passenger elevator
service to the Premises, if such interruption continues for five
(5) consecutive business days after Tenant's written notification
to Landlord of such interruption, then Base Rent and payments on
account of Excess Expenses for the Premises (or, if only a portion
of the Premises is affected, Base Rent and payments on account of
Excess Expenses for such portion) shall be abated from the
beginning of such disruption until the service in question has been
restored.
B. In the case of substantial failure of the water supply to the
restrooms or substantial failure of the Building HVAC system, or
failure of any portion of the life safety system that is a
governmental requirement, if such interruption continues for five
(5) consecutive business days after Tenant's written notification
to Landlord of such interruption, then Base Rent and payments on
account of Excess Expenses for the Premises (or, if only a portion
of the Premises is affected, for such portion) shall be abated
from the beginning of such disruption until the service in
question has been restored.
4.03 THEFT OR BURGLARY. Landlord shall not be liable to Tenant for
losses to Tenant's property or personal injury caused by criminal acts or entry
by unauthorized persons into the Premises or the Building.
4.04 JANITORIAL SERVICE. Landlord shall furnish janitorial services to
the Premises and public areas of the Building five times per week during the
term of this Lease, excluding holidays, for standard offices uses. Landlord
shall not provide janitorial service to kitchens or to the computer room or
other locked areas in the Premises. Janitorial service shall conform to the
Janitorial Requirements set forth in Exhibit "G" attached to this Lease. Tenant
shall pay for all janitorial services in excess of the Janitorial Requirements
set forth in Exhibit "G" and for any excess janitorial service caused by
Tenant's use in excess of standard office uses.
4.05 ELECTRIC ENERGY COSTS. Electric power for Tenant's computer
equipment (other than personal computers) and computer-room HVAC equipment
shall be separately metered and Tenant shall pay the cost of all such electric
power. Landlord shall provide and pay for electricity to be used for general
office purposes, including personal computers, up to four (4) watts per
rentable square foot. Tenant shall pay for electricity to be used for general
office purposes, including personal computers, in excess of four (4) watts per
rentable square foot.
4.06 WINDOW COVERAGE. Landlord shall furnish and install window
coverings on all exterior windows to maintain a uniform exterior appearance.
Tenant shall not remove or replace these window coverings or install any other
window covering which would affect the exterior appearance of the Building.
Tenant may install lined or unlined over-draperies on the interior sides of the
Landlord furnished window coverings for interior appearance or to reduce light
transmission, provided such draperies do not affect the exterior appearance of
the Building or affect the operation of the Building's heating, ventilating and
air conditioning system.
4.07 CHARGE FOR SERVICE. All costs of Landlord for providing the
services set forth in Article 4.00 (except those charges paid by Tenant
pursuant to section 4.04) shall be subject to the additional rent provisions in
section 2.02.
4.08 COMPUTER ROOM SERVICES. Tenant shall be responsible for
supplying all heating and air conditioning services to its computer room
facility.
ARTICLE 5.00 REPAIRS AND MAINTENANCE
5.01 LANDLORD REPAIRS. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Premises
or the Building during the term of this Lease except as are set forth in this
section. Landlord shall maintain only the roof, foundation, parking and Common
Areas, the structural soundness of the exterior walls, doors, corridors, windows
and other structures or equipment serving the Premises including but not limited
to the equipment needed to provide the services specified in article 4 (with the
express exception of Tenant's computer room HVAC, electrical and related
equipment). Landlord's cost of maintaining and repairing the items set forth in
this section are subject to the additional rent provisions in section 2.02.
Landlord shall not be liable to Tenant,
Page 7 of 16
<PAGE> 23
except as expressly provided in this Lease, for any damage or inconvenience, and
except as specified in section 4.02, Tenant shall not be entitled to any
abatement or reduction of rent by reasons of any repairs, alterations or
additions made by Landlord under this Lease; provided, that Landlord shall use
its best efforts to minimize any interference with or disruption of Tenant's
business.
5.02 TENANT REPAIRS. Tenant shall, at its own cost expense, repair or
replace any damage or injury to all or any part of the Premises caused by any
act or omission of Tenant or Tenant's Representatives; provided, however, if
Tenant fails to make the repairs or replacements promptly, Landlord may, at its
option, make the repairs or replacements, and the costs of such repairs or
replacements (including a 10% supervision fee) shall be charged to Tenant as
additional rent and shall become payable by Tenant with the payment of the rent
next due hereunder.
5.03 REQUEST FOR REPAIRS. All requests for repairs or maintenance that
are the responsibility of Landlord pursuant to any provision of this Lease must
be made in writing to the Building Manager at the address in section 1.03.
5.04 TENANT DAMAGES. Tenant shall not allow any damage to be committed on
any portion of the Premises or Building, and at the termination of this Lease,
by lapse of time or otherwise, Tenant shall deliver the Premises to Landlord in
as good condition as existed at the Commencement Date of this Lease, ordinary
wear and tear excepted and damage by fire or other casualty set forth in Article
7.0 excepted. The cost and expense of any repairs necessary to restore the
condition of the Premises shall be borne by Tenant.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 LANDLORD IMPROVEMENTS. Construction work in the Premises is to be
performed by Tenant prior to Tenant's occupancy, in accordance with plans and
specifications to be agreed to by Landlord and Tenant, which plans and
specifications will, upon approval in writing by each party, become a part of
this Lease by reference. Tenant will cause Tenant's architect to prepare
proposed plans and specifications and deliver them to Landlord. Within five (5)
business days after receiving the proposed plans and specifications, Landlord
shall either approve them in writing or notify Tenant in writing of Landlord's
reasons for disapproving them. If Landlord fails either to approve or to
disapprove the proposed plans and specifications within such five (5) day
period, Landlord shall be deemed to have approved them. If Landlord disapproves
the proposed plans and specifications, Tenant shall either cause Landlord's
architect to modify the plans and specifications to make them acceptable to
Landlord, or notify Landlord in writing of the reason for any refusal by Tenant
to accept changes requested by Tenant. If the parties fail to reach agreement on
the plans and specifications within three (3) business days after notice of any
such refusal has been given by Tenant, then either party may terminate this
Lease by notice to the other party at any time before plans and specifications
are approved in writing by both parties. Once the plans and specifications have
been approved in writing by both parties, any subsequent changes or
modifications to the approved plans and specifications shall be made and
accepted by written change order or agreement signed by Landlord or Building
Manager and Tenant and shall constitute an amendment to this Lease.
6.02 TENANT IMPROVEMENTS. Tenant shall not make or allow to be made any
alterations or physical additions in or to the Premises in excess of $10,000.00,
or that affect the structure of the Building, without first obtaining the
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Any alterations, physical additions or improvements to the Premises
made by Tenant shall be made in compliance with all applicable laws and
regulations and shall at once become the property of Landlord and shall be
surrendered to Landlord upon the termination of this Lease; provided, however,
with respect to any changes or alterations to the Premises made by Tenant in
addition to those agreed to by Landlord in the plans and specifications,
Landlord, at its option, may require Tenant to remove any physical additions
and/or repair any alterations in order to restore the Premises to the condition
existing at the time Tenant took possession, all costs of removal and/or
alterations to be borne by Tenant. This clause shall not apply to moveable
equipment or furniture owned by Tenant, which may be removed by Tenant at the
end of the term of this Lease.
Page 8 of 16
<PAGE> 24
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 SUBSTANTIAL DESTRUCTION. If the Premises should be totally destroyed
by fire or other casualty, or the Premises should be damaged so that rebuilding
cannot reasonably be completed within one hundred twenty (120) working days
after the date Landlord learns of the destruction, by notice from Tenant or
otherwise, this Lease may, at the option of either party, terminate and the rent
shall be abated for the unexpired portion of the Lease, effective as of the date
of the written notification by one party to the other of the exercise of such
option.
7.02 PARTIAL DESTRUCTION. If the Premises should be partially damaged by
fire or other casualty, and rebuilding or repairs can reasonably be completed
within one hundred twenty (120) working days after the date Landlord learns of
the destruction, by notice from Tenant or otherwise, this Lease shall not
terminate, and Landlord shall at its sole risk and expense proceed with
reasonable diligence to rebuild or repair the Building or other improvements to
substantially the same condition in which they existed prior to the damage. If
the Premises are to be rebuilt or repaired and are untenantable in whole or in
part following the damage, the rent payable under this Lease during the period
for which the Premises are untenantable shall be adjusted to such an extent as
may be fair and reasonable under the circumstances. In the event that Landlord
fails to complete the necessary repairs or rebuilding within one hundred twenty
(120) working days from the date Landlord learns of the destruction, by notice
from Tenant or otherwise, then Tenant may, at its option, terminate this Lease
by delivering written notice of termination to Landlord, whereupon all rights
and obligations under this Lease shall cease to exist.
7.03 PROCEDURE IN CASE OF CASUALTY. If the Premises or other portion of
the Building is damaged by fire or other casualty, Landlord shall notify Tenant
promptly, and in any event within seven (7) business days after Landlord learns
of such casualty, of Landlord's best estimate of the time that will be required
to repair the damage, of Landlord's present plans with respect to such repairs,
and of any conditions or uncertainties that must be satisfied or resolved
before the repairs can be completed. Landlord shall keep Tenant informed of all
changes in the estimates or other information to be given by Landlord to Tenant
in accordance with the preceding sentence. Any disagreement between the parties
as to the time reasonably required for repair, or the proper extent of any rent
abatement following a casualty, shall be determined by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association, and judgment on any arbitration award may be entered and enforced
by any court of competent jurisdiction.
7.04 PROPERTY INSURANCE. Landlord shall at all times during the term of
this Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring the
Building against all risk of direct physical loss in an amount equal to at least
ninety percent (90%) of the full replacement cost of the Building structure and
its improvements as of the date of the loss; provided Landlord shall not be
obligated in any way or manner to insure any personal property (including but
not limited to, any furniture, machinery, goods or supplies) of Tenant upon or
within the Premises, any fixtures installed or paid for by Tenant upon or within
the Premises, or any improvements which Tenant may construct on the Premises
except that Landlord shall insure any such property if and to the extent that
the title passed to Landlord upon installation thereof. Tenant shall have no
right in or claim to the proceeds of any policy of insurance maintained by
Landlord even if the cost of such insurance is borne by Tenant as set forth in
Article 2.00. Landlord shall also maintain public and property damage liability
insurance in such amounts as are customarily carried from time to time by
prudent owners and operators of facilities like the Building.
7.05 TENANT'S INSURANCE. At all times during the term of this Lease,
Tenant shall carry and maintain, at Tenant's expense, the following insurance
in the amounts specified below or such other amounts as Landlord shall from
time to time reasonably request, with insurance companies and on forms
satisfactory to Landlord:
A. Public liability and property damage liability insurance, with a
combined single occurrence limit of not less than $1,000,000.00. All
such insurance shall specifically include without limitation
contractual liability coverage for the performance by Tenant of the
indemnity agreements set forth in this Lease.
B. Workmen's compensation insurance satisfying Tenant's obligations and
liabilities under the workmen's compensation laws of the State.
Page 9 of 16
<PAGE> 25
Notwithstanding the foregoing, Tenant may, at its option, self insure with
respect to the risks referred to in Section 7.05A, and may, at its option, self
insure with respect to the risks referred to in Section 7.05B provided it
complies with the provisions set forth in Section 8-44-2D1, et seq., Colorado
Revised Statutes. Whether or not Tenant elects to self insure, the obligation of
Tenant or Tenant's insurer shall be primary with respect to claims arising out
of the negligence or intentional acts of Tenant or Tenant's Representatives, and
the obligation of Landlord's insurer shall be primary with respect to all other
claims. Tenant shall provide Landlord with evidence of Tenant's insurance or
self insurance arrangements and of any changes therein thirty (30) days before
the effective date of any such change. This provision permitting Tenant to self
insure shall not be applicable to any assignee or sublessee of Tenant. Policies
of public liability and property damage liability insurance which Tenant elects
to maintain according to this Lease shall name Landlord as an additional
insured.
7.06 WAIVER OF SUBROGATION. [Intentionally Deleted]
7.07 HOLD HARMLESS. Landlord shall not be liable to Tenant, Tenant's
Representatives, or to any other person, for an injury to person or damage to
property on or about the Premises caused by any act or omission of Tenant,
Tenant's Representatives, or of any other person entering upon the Premises
under express or implied invitation by Tenant or Tenant's Representatives, or
caused by the improvements located on the Premises becoming out of repair, the
failure or cessation of any service provided by Landlord (including security
service and devices), or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Premises. Tenant agrees to indemnify and hold
harmless Landlord of and from any loss, attorneys' fees, expenses or claims
arising out of any such damage or injury, unless such loss, attorneys' fees,
expenses or claims arise from the intentional misconduct or gross negligence of
Landlord.
ARTICLE 8.00 CONDEMNATION
8.01 SUBSTANTIAL TAKING. If all or a substantial part of the Premises
are taken for any public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain or by purchase in lieu
thereof, and the taking would prevent or materially interfere with the use of
the Premises for the purpose for which it is then being used, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease effective on the date physical possession is taken by the condemning
authority. Tenant shall have no claim to the condemnation award or proceeds in
lieu thereof.
8.02 PARTIAL TAKING. If a portion of the Premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in section 8.01 above, Landlord shall
at Landlord's sole risk and expense, restore and reconstruct the Building and
other improvements on the Premises to the extent necessary to make it
reasonably tenantable. The rent payable under this Lease during the unexpired
portion of the term shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. Tenant shall have no claim to the
condemnation award or proceeds in lieu thereof.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 LANDLORD ASSIGNMENT. Landlord shall have the right to sell,
transfer or assign, in whole or in part, its rights and obligations under this
Lease and in the Building. Any such sale, transfer or assignment of all of
Landlord's rights under this Lease and in the Building shall operate to release
Landlord from any and all liabilities under this Lease arising after the date
of such sale, assignment or transfer.
9.02 TENANT ASSIGNMENT. Tenant shall not assign, in whole or in part,
this Lease, or allow it to be assigned, in whole or in part, by operation of law
or otherwise or mortgage or pledge the same, or sublet the Premises, in whole or
in part, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed, and in no event shall any such assignment
or sublease ever release Tenant or any guarantor from any obligation or
liability hereunder. No consent by Landlord to any assignment or subletting
shall be construed as a consent to any further assignment or subletting by the
assignee or sublessee, as the case may be.
Page 10 of 16
<PAGE> 26
9.03 CONDITIONS OF ASSIGNMENT. If Tenant desires to assign or sublet
all or any part of the Premises, it shall so notify Landlord at least thirty
(30) days in advance of the date on which Tenant desires to make such
assignment or sublease. Tenant shall provide Landlord with a copy of the
proposed assignment or sublease and such information as Landlord might request
concerning the proposed sublessee or assignee to allow Landlord to make
informed judgments as to the financial condition, reputation, operations and
general desirability of the proposed sublessee or assignee. Within fifteen (15)
days after Landlord's receipt of Tenant's proposed assignment or sublease and
all required information concerning the proposed sublessee or assignee,
Landlord shall have the following options: (1) cancel this Lease as to the
Premises or portion thereof proposed to be assigned or sublet; or (2) consent
to the proposed assignment or sublease, and, if the rent due and payable by any
assignee or sublessee under any such permitted assignment or sublease (or a
combination of the rent payable under such assignment or sublease plus any
bonus or any other consideration or any payment incident thereto), net of
commissions, attorneys' fees, expenses of alteration and other transaction
expenses, exceeds the rent payable under this Lease for such space, Tenant
shall pay to Landlord one-half of all such excess rent and other excess
consideration within ten (10) days following receipt thereof by Tenant. Upon
the occurrence of an event of default, if all or any part of the Premises are
then assigned or sublet, Landlord, in addition to any other remedies provided
by this Lease or provided by law, may, at its option collect directly from the
assignee or sublessee all rents becoming due to Tenant by reason of the
assignment or sublease, and Landlord shall have a security interest in all
properties on the Premises to secure payment of such sums. Any collection
directly by Landlord from the assignee or sublessee shall not be construed to
constitute a novation or a release of Tenant or any guarantor from the further
performance of its obligations under this Lease.
9.04 RIGHTS OF MORTGAGEE. Tenant accepts this Lease subject and
subordinate to any recorded mortgage or deed of trust lien presently existing
or hereafter created upon the Building and to all existing recorded
restrictions, covenants, easements and agreements with respect to the Building.
Landlord is hereby irrevocably vested with full power and authority to
subordinate Tenant's interest under this Lease to any first mortgage or deed of
trust lien hereafter placed on the Premises, and Tenant agrees upon demand to
execute additional instruments subordinating this lease as Landlord may
require. If the interests of Landlord under this Lease shall be transferred by
reason of foreclosure or other proceedings for enforcement of any first
mortgage or deed of trust on the Premises, Tenant shall be bound to the
transferee (sometimes called the "Purchaser") at the option of the Purchaser,
under the terms, covenants and conditions of this Lease for the balance of the
term remaining, including any extensions or renewals, with the same force and
effect as if the Purchaser were Landlord under this Lease, and, if requested by
the Purchaser, Tenant agrees to attorn to the Purchaser, including the first
mortgagee under any such mortgage if it be the Purchaser, as its Landlord.
Notwithstanding the foregoing, Landlord shall, within thirty (30) days after
Tenant's execution of this Lease, provide Tenant with evidence reasonably
satisfactory to Tenant that each mortgagee whose lien is superior to the
leasehold estate created by this Lease has entered into a written agreement,
reasonably satisfactory in form and substance to Tenant, by which such
mortgagee has agreed that so long as no default by Tenant under this Lease has
occurred or has continued beyond any applicable grace period. Tenant will not
be disturbed in Tenant's possession and enjoyment of the Premises by any
foreclosure or other action to enforce such mortgagee's lien. If Landlord fails
to provide such evidence within such 30-day period, Tenant may, at Tenant's
option, terminate this Lease by notice to Landlord. In addition, the
subordination of this Lease to any future mortgage or deed of trust is
conditioned upon the execution by the mortgagee or beneficiary of a similar
written agreement, also reasonably satisfactory in form and substance to Tenant.
9.05 ESTOPPEL CERTIFICATES. Tenant agrees to furnish, from time to
time, within ten (10) days after receipt of a request from Landlord or
Landlord's mortgagee, a statement certifying, if applicable, the following:
Tenant is in possession of the Premises; the Premises are acceptable; the Lease
is in full force and effect; the Lease is unmodified; Tenant claims no present
charge, lien, or claim of offset against rent; the rent is paid for the current
month, but is not prepaid for more than one month and will not be prepaid for
more than one month in advance; there is no existing default by reason of some
act or omission by Landlord; and such other matters as may be reasonably
required by Landlord or Landlord's mortgagee. Tenant's failure to deliver such
statement, in addition to being a default under this Lease, shall be deemed to
establish conclusively that this Lease is in full force and effect except as
declared by Landlord, that Landlord is not in default of any of its obligations
under this Lease, and that Landlord has not received more than one month's rent
in advance.
Page 11 of 16
<PAGE> 27
ARTICLE 10.00 LIENS
10.01 LANDLORD'S LIEN. [Intentionally Deleted]
10.02 UNIFORM COMMERCIAL CODE. [Intentionally Deleted]
ARTICLE 11.00 DEFAULT AND REMEDIES
11.01 DEFAULT BY TENANT. The following shall be deemed to be events
of default by Tenant under this Lease; (1) Tenant shall fail to pay when due or
within five (5) days thereafter any Monthly Installment of Base Rent,
additional rent, or any other payments required pursuant to this Lease; (2)
Lessee shall abandon any substantial portion of the Premises and fail to
maintain the Premises as required by the Lease; (3) Tenant shall fail to comply
with any term, provision or covenant of this Lease, other than the payment of
rent, and the failure is not cured within thirty (30) days after written notice
to Tenant unless and for so long as Tenant is prevented from curing such
failure because of any natural disaster or act of God; (4) Tenant shall file a
petition or be adjudged bankrupt or insolvent under any applicable federal or
state bankruptcy or insolvency law or admit that it cannot meet its financial
obligations as they become due; or a receiver or trustee shall be appointed for
all or substantially all of the assets of Tenant; or Tenant shall make a
transfer in fraud or creditors or shall make an assignment for the benefit of
creditors; or (5) Tenant shall do or permit to be done any act which results in
a lien being filed against the Premises or the Building of which Premises are a
part, and shall fail to cause such lien to be released or bonded off within
thirty (30) days after being notified of the filing of such lien.
11.02 REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of any event
of default set forth in this lease, Landlord shall have the option to pursue any
one or more of the remedies set forth herein without any notice or demand except
as required by law; (1) Landlord may enter upon and take possession of the
Premises by any lawful means without terminating this Lease, remove Tenant or
any other person who may be occupying all or any part of the Premises without
being liable for any claim for damages, and relet Premises on behalf of Tenant
and receive the rent directly by reasons of the reletting. Tenant agrees to pay
Landlord on demand any deficiency that may arise by reason of any reletting of
the Premises; further, Tenant agrees to reimburse Landlord for any expenditures
made by it in order to relet the Premises, including, but not limited to,
remodeling and repair costs; (2) Landlord may enter upon the Premises, by any
lawful means, and do whatever Tenant is obligated to do under the terms of this
Lease. Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations under this
Lease. Further, Tenant agrees that Landlord shall not be liable for any damages
resulting to Tenant from effecting compliance with Tenant's obligations under
this Lease not caused by the negligence of Landlord; (3) Landlord may terminate
this Lease, in which event Tenant shall immediately surrender the Premises to
Landlord, and if Tenant fails to surrender the Premises, Landlord may, without
prejudice to any other remedy which it may have for possession or arrearages in
rent, enter upon and take possession of the Premises, by any lawful means, and
remove Tenant and any other person who may be occupying all or any part of the
Premises without being liable for any claim for damages. Tenant agrees to pay on
demand the amount of all loss and damage which Landlord may suffer by reason of
the termination of this Lease under this section, whether through liability to
refer the Premises on satisfactory terms or otherwise. Notwithstanding any other
remedy set forth in this Lease, in the event Landlord has made rent concessions
of any type or character, or waived any Base Rent, and Tenant fails to take
possession of the Premises on the Commencement or Completion Date or otherwise
defaults at any time during the term of this Lease, the rent concessions,
including any waived Base Rent, shall be canceled and the amount of the Base
Rent or other rent concessions shall be due and payable immediately as if no
rent concessions or waiver of any Base Rent had ever been granted. A rent
concession or waiver of the Base Rent shall not relieve Tenant of any obligation
to pay any other charge due and payable under this Lease including without
limitation any sum due under section 2.02. Notwithstanding anything contained in
this Lease to the contrary, this Lease may be terminated by Landlord only by
mailing or delivering written notice of such termination to Tenant, and no other
act or omission of Landlord shall be construed as a termination of this Lease.
Any property left on the demised premises at the expiration or other termination
of this Lease, or after the happening of any of the events of default set forth
in section 11.01 above, may, at the option of Landlord, either be deemed
abandoned or be placed in storage at a public warehouse in the name of and for
the account of and at the expense and risk of Tenant. If such property is not
claimed by Tenant within ten days after such expiration, termination, or the
happening of an event of default, it may be sold or otherwise disposed of by
Landlord.
Page 12 of 16
<PAGE> 28
Tenant expressly releases Landlord of and from any and all claims and liability
for damage to or loss of property left by Tenant upon the demised premises at
the expiration or other termination of this Lease, and Tenant hereby
indemnifies Landlord against any and all claims and liability with respect
thereto.
ARTICLE 12.00 RELOCATION
12.01 RELOCATION OPTION. Landlord reserves the right, at its option,
to be exercised in a reasonable manner, during any extended or renewal term of
this Lease and upon ninety (90) days prior written notice to transfer and
remove Tenant from the Premises to any other available space in the building of
substantially equal size and efficiency of useable area. In the event that the
relocation space is located on the first floor of the Building, Landlord shall
drywall over window areas and shall provide other security measures that are
reasonably necessary to maintain the security of Tenant's relocation premises.
12.02 EXPENSES. Landlord shall pay all reasonable out-of-pocket
expenses of any such relocation, including the expenses of moving and
reconstruction of all Tenant furnished and Landlord furnished improvements the
cost of Tenant's computer consultants incurred in relation to any such
relocation, reinstallation and reconnection of electrical and HVAC systems and
any temporary space arrangements required by Tenant to replace its uses for the
Premises during any such relocation period. Landlord shall complete all
improvements to the relocation premises prior to any relocation contemplated
herein. In the event of such relocation, this Lease shall continue in full force
and effect without any change in the terms or conditions of this Lease, but with
the new location substituted for the old location set forth in sections 1.02 and
1.03 of this Lease.
ARTICLE 13.00 DEFINITIONS
13.01 ABANDON. "Abandon" means the vacating of all or a substantial
portion of the Premises by Tenant, accompanied by a default in payment of rent
due under this Lease.
13.02 FORCE MAJEURE. "Force Majeure" is defined for purposes of this
Lease as strikes, lockouts, sit-downs, material or labor restrictions by any
governmental authority, unusual transportation delays, riots, floods, walkouts,
explosions, earthquakes, fire, storms, weather (including wet grounds or
inclement weather) or other events beyond the reasonable control of a party
which prevent timely performance by such party of an act required or
contemplated by this Lease.
13.03 BUILDING. "Building" as used in this Lease means the Building
described in section 1.03, including the Premises and the land upon which the
Building is situated.
13.04 COMMENCEMENT DATE. "Commencement Date" shall be the date set
forth in section 1.03. The Commencement Date shall constitute the commencement
of the term of this Lease for all purposes, whether or not Tenant has actually
taken possession.
13.05 COMPLETION DATE. "Completion Date" shall be the date on which
the improvements erected and to be erected upon the Premises shall have been
completed in accordance with the plans and specifications described in Article
6.00. The Completion Date shall constitute the commencement of the Term of this
Lease for all purposes, whether or not Tenant has actually taken possession.
Landlord shall use its best efforts to establish the Completion Date as the date
set forth in section 1.03. In the event that the improvements have not in fact
been completed as of that date, Tenant shall notify Landlord in writing of its
objections. Landlord shall have a reasonable time after delivery of the notice
in which to take such corrective action as may be necessary and shall notify
Tenant in writing as soon as it deems such corrective action has been completed
and the improvements are ready for occupancy. Upon completion of construction,
Tenant shall deliver to Landlord a letter accepting the Premises as suitable for
the purposes for which they are let and the date of such letter shall constitute
the commencement of the term of this Lease. Whether or not Tenant has executed
such letter of acceptance, taking possession of the Premises by Tenant shall be
deemed to establish conclusively that the improvements have been completed in
accordance with the plans and specifications, are suitable for the purposes for
Page 13 of 16
<PAGE> 29
which the Premises are let, and that the Premises are in good and satisfactory
condition as of the date possession was so taken by Tenant except for latent
defects, if any.
13.06 SQUARE FEET. "Square feet" or "square foot" as used in this
Lease includes the area contained within the Premises together with a common
area percentage factor of the Premises proportionate to the total Building area.
ARTICLE 14.00 MISCELLANEOUS
14.01 WAIVER. Failure of Landlord to declare an event of default
immediately upon its occurrence, or delay in taking any action in connection
with an event of default, shall not constitute a waiver of the default, but
Landlord shall have the right to declare the default at any time and take such
action as is lawful or authorized under this Lease. Pursuit of any one or more
of the remedies set forth in Article 11.00 above shall not preclude pursuit of
any one or more of the other remedies provided elsewhere in this Lease or
provided by law, nor shall pursuit of any remedy constitute forfeiture or
waiver of any rent or damages accruing to Landlord by reason of the violation
of any of the terms, provisions or covenants of this Lease. Failure by Landlord
to enforce one or more of the remedies provided upon an event of default shall
not be deemed or construed to constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions or covenants
contained in this Lease.
14.02 FORCE MAJEURE. Landlord shall not be required to perform any
covenant or obligation in this Lease, or be liable in damages to Tenant, so
long as the performance or non-performance of the covenant or obligation is
delayed, caused or prevented by force majeure, by Tenant or Tenant's
Representatives.
14.03 ATTORNEYS' FEES. In the event either party to this Lease
defaults in any of the terms, covenants, agreements or conditions contained
herein, the prevailing party shall be entitled to recover from the losing party
reasonable attorneys' fees and costs of suit.
14.04 SUCCESSORS. This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed
that should Landlord's interest in the Premises cease to exist for any reason
during the term of this Lease, then notwithstanding the happening of such event
this Lease nevertheless shall remain unimpaired and in full force and effect,
and Tenant hereunder agrees to attorn to the then owner of the Premises,
provided such owner assumes and agrees in writing to perform all of the
unperformed obligations of Landlord under this Lease.
14.05 RENT TAX. [Intentionally Deleted]
14.06 CAPTIONS. The captions appearing in this Lease are inserted only
as a matter of convenience and in no way define, limit, construe or describe
the scope of intent of any section.
14.07 NOTICE. All rent and other payments required to be made by
Tenant shall be payable to Landlord in care of Building Manager at the Building
Manager's address set forth in section 1.03. All payments required to be made
by Landlord to Tenant shall be payable to Tenant at the address set forth in
section 1.03, or at any other address within the United States as Tenant may
specify from time to time by written notice. Any notice or document required or
permitted to be delivered by the terms of this Lease shall be deemed to be
delivered (whether or not actually received) on the third business days after
being deposited in the United States Mail, postage prepaid, certified mail,
return receipt requested, addressed to the parties at the respective addresses
set forth in section 1.03, or at such other address as the addressee may have
specified by notice given in accordance with this section.
14.08 SUBMISSION OF LEASE. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both Landlord
and Tenant.
Page 14 of 16
<PAGE> 30
14.09 CORPORATE AUTHORITY. Within five (5) business days after
Landlord's execution and delivery of this Lease, Tenant will provide Landlord
with a certificate of Tenant's secretary or assistant secretary, attesting to
the authorization of this Lease and the authority of the individual signing it
on behalf of Tenant.
14.10 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14.11 LESSOR'S LIABILITY. If Landlord shall be in default under
this Lease and, if as a consequence of such default, Tenant shall recover a
money judgment against Landlord, such judgment shall be satisfied only out of
the right, title and interest of Landlord in the Building as the same may then
be encumbered and neither Landlord nor any person or entity comprising Landlord
shall be liable for any deficiency. In no event shall Tenant have the right to
levy execution against any property of Landlord nor any person or entity
comprising Landlord other than its interest in the Building as herein expressly
provided.
14.12 INDEMNITY. Landlord agrees to indemnify and hold harmless
Tenant from and against any liability or claim, whether meritorious or not,
arising with respect to any broker whose claim arises by, through or on behalf
of Landlord. Tenant agrees to indemnify and hold harmless Landlord from and
against any liability or claim, whether meritorious or not, arising with
respect to any broker whose claim arises by, through or on behalf of Tenant,
other than those brokers identified in Section 1.03.
14.13 RECORDING. Neither this Lease, nor any notice nor memorandum
regarding the terms hereof shall be recorded by Tenant. Any such unauthorized
recording shall give Landlord the right to declare a breach of this Lease and
pursue the remedies provided herein.
14.14 WAIVER OF TRIAL BY JURY. Landlord and Tenant hereby waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties against the other on any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the premises.
ARTICLE 15.00 AMENDMENT AND LIMITATION OF WARRANTIES
15.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY TENANT, AS A
MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH
THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT
OF THE PARTIES, THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS,
WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO
THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT
INCORPORATED IN WRITING IN THIS LEASE.
15.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LANDLORD AND TENANT.
15.03 LIMITATION OF WARRANTIES. LANDLORD AND TENANT EXPRESSLY
AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT
OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY
SET FORTH IN THIS LEASE.
Page 15 of 16
<PAGE> 31
ARTICLE 16.00 OTHER PROVISIONS
16.01 DOCUMENTS INCORPORATED BY REFERENCE. Attached hereto are the
following Exhibits which are incorporated by reference as if set forth herein:
Addendum to Lease
Exhibit A - Description of Building and Premises
Exhibit A-2 - Description of Right of Refusal Premises
Exhibit B - Provisions Relating to Construction of Tenant's Space
(Finish Allowance only)
Exhibit C - Rules and Regulations
Exhibit D - Electrical Specifications
Exhibit E - HVAC Standards
Exhibit F - [Intentionally Deleted]
Exhibit G - Landlord's Cleaning Specifications
ARTICLE 17.00 SIGNATURES
Signed at this 5th day of Nov., 1996.
-------------
LANDLORD:
ST. PAUL PROPERTIES, INC.
a Delaware corporation
By: /s/ R. William Inserra
---------------------------------
R. William Inserra
Vice president-Asset Management
TENANT:
TOTAL PETROLEUM, INC.
a Michigan corporation
By: /s/ Richard E. Dana
---------------------------------
By: Richard E. Dana, Sen. V.P.
---------------------------------
(Type Name and Title)
Page 16 of 16
<PAGE> 32
ADDENDUM
THIS ADDENDUM (the "Addendum") is attached to and made a part of that
certain Lease Agreement (the "Lease") dated as of the 25th day of October, 1996
by and between St. Paul Properties, Inc., a Delaware corporation ("Landlord"),
and Total Petroleum, Inc., a Michigan corporation ("Tenant"). In the event of a
conflict between the terms and provisions of the Lease to which this Addendum is
attached and this Addendum, the terms and provisions of this Addendum shall
control. Unless otherwise defined herein, or unless the context otherwise
requires, terms initially capitalized in this Addendum shall have the same
meaning as such initially capitalized terms do in the Lease.
1. Rent. The base rent and Tenant's proportionate share of excess
expenses shall be payable as follows:
a. Base Rent. The base rent (as that term is defined in Section
1.03H of the Lease) shall be payable as follows:
<TABLE>
<CAPTION>
Lease Rentable Lease Annual Monthly
Year Square Feet Rate Payment* Payment
---- ----------- ---- -------- -------
<S> <C> <C> <C> <C>
1-5 4,774 $15.75/rsf $75,190.50 $6,265.88
6 4,774 $16.50/rsf $78,771.00 $6,564.25
</TABLE>
The term ("Lease Year") shall refer to a twelve month period
commencing with the first day of the first calendar month following the
commencement date unless the commencement date is the first day of a
calendar month, in which case the twelve month period will commence with
the commencement date.
2. Renewal Option. Provided no event of default (or no event which,
with the passage of time or the giving of notice or both, would constitute an
event of default under the Lease) has occurred and is continuing, Tenant shall
have one option to extend the base term of this Lease for a period of five (5)
years by giving the Landlord written notice at least one hundred eighty (180)
days prior to the expiration of the then current term of this Lease. Upon the
giving of such notice, this Lease shall be considered as extended for such
option term upon the same terms, conditions and covenants as are contained in
this Lease except that the base rent (as that term is hereinabove defined)
shall be calculated by multiplying the number of rentable square feet of the
Premises by the then existing market rate agreed upon by Landlord and Tenant
which Landlord or other Landlords are asking of Tenants or prospective Tenants
for comparable space in other comparable developments in the area. If Landlord
and Tenant cannot agree on the market rate for the purposes of determining base
rent within forty-five (45) days after the date of Tenant's notice, then this
renewal option shall be of no further force or effect.
3. Right of Refusal. During the initial term of the Lease Tenant shall
have a right of refusal, subject to existing rights granted to other tenants,
to lease Suite 100 located on the first floor of the Building as identified in
Exhibit "A-2" to the Lease (and which shall be referred to as the "Expansion
Space"), if and when Landlord makes the Expansion Space, or any part thereof,
available for leasing to others, upon the following terms and conditions:
A. In the event that (i) the Expansion Space, or any part thereof,
becomes or is about to become available for leasing, and (ii) if
Landlord receives a bona fide offer for the lease of all or any
portion of the Expansion Space, then Landlord shall notify Tenant
of such fact, and Tenant shall have the right of refusal to lease
that portion of the Expansion Space at the rent and on the terms
and conditions contained in Landlord's offer.
B. The right of refusal will be extended by Landlord giving Tenant
written notice of the particular offer received by Landlord,
together with a summary of the offer, requiring Tenant to accept
the offer and to sign an appropriate lease agreement with respect
to the subject portion of the Expansion Space at the rent and on
the terms set forth in the offer. Tenant shall accept or reject
the offer contained in Landlord's notice within three (3)
business days after the receipt of such notice. If the lease with
Tenant for the Expansion
<PAGE> 33
Space is not signed within the 3-business day period following
receipt of Landlord's notice. Landlord will have the right to
accept the offer free of the rights of Tenant under this
Paragraph 3. Any space leased by Tenant will be added to the
Leased Premises as of the date provided in the offer, and the
rent will be adjusted to reflect the rent provided to be paid in
accordance with the offer. Tenant agrees to execute amendments
to the Lease to reflect additions to the Leased Premises
resulting from the exercise of the right of refusal to lease.
Tenant's lease of any space pursuant to this right of refusal
will be on all the terms and conditions set forth in this Lease
except as to any terms in the offer that differ from the terms
of the Lease, which will be set forth in Landlord's notice.
Landlord is under no obligation to offer for lease all or any
portion of the Third Expansion Space to Tenant or any other
person.
C. Notwithstanding any other provision set forth above, it is
agreed that (i) Tenant shall not be permitted to exercise any of
its rights contained in this Paragraph 3 at any time when the
Lease is not in effect or at any time when Tenant is in default
under any of the terms, covenants, conditions, provisions or
agreements of the Lease, (ii) in the event that Tenant assigns
the Lease or sublets any portion of the Leased Premises at any
time this Paragraph 3 shall be of no further force or effect,
and (iii) Tenant may not exercise the right contained in this
Paragraph 3 if the effective date of the addition of the
Expansion Space to the premises previously leased would be at
any time during the last six months of the term of the Lease.
Tenant acknowledges that it is only being granted a right of
refusal, that is subject and subordinate to the rights of ICM
Mortgage Company.
D. In the event that Tenant fails to exercise the foregoing right
of refusal and Landlord leases all or a portion of the Expansion
Space pursuant to Landlord's offer as provided in this Paragraph
3, time being strictly of the essence, Tenant's right of refusal
shall be null and void.
4. Signage. Landlord agrees to provide Tenant with one standard suite
sign, floor directory strip identification and main lobby directory strip
identification to be installed prior to Tenant's occupancy.
LANDLORD:
ST. PAUL PROPERTIES, INC.
By: /s/ R. William Inserra
--------------------------------
R. William Inserra
Vice President-Asset
Management
TENANT:
TOTAL PETROLEUM, INC., a Michigan
corporation.
By: /s/ Richard Z. Dana
--------------------------------
Name: Richard Z. Dana
------------------------------
Title: Sen. V.P.
-----------------------------
2
<PAGE> 34
EXHIBIT A
[MAP]
ATRIUM I
6061 WILLOW DRIVE
ENGLEWOOD, COLORADO
<PAGE> 35
EXHIBIT A-2
[FLOORPLAN]
<PAGE> 36
EXHIBIT "B"
PROVISIONS RELATING TO CONSTRUCTION OF TENANT'S SPACE
(FINISH ALLOWANCE ONLY)
1. Landlord will provide Tenant with a construction credit in the sum of
up to sixteen dollars ($16.00) per rentable square foot, which equals
Seventy-Six Thousand Three Hundred Eighty-Four and No/100 Dollars ($76,384.00)
(the "Construction Credit"), which may be used only against the cost of design
and construction by Tenant of Improvements or alterations permanently installed
and incorporated in the realty of the Premises, including space plans, working
drawings and initial relamping of the Premises (excluding specifically fixture,
furniture and equipment), as contemplated under the plans and specifications and
working drawings to be prepared by an architect selected by Tenant and initialed
by Tenant and by Landlord for identification and approval (the "Plans").
Notwithstanding the foregoing, Landlord shall pay costs associated with the
preparation of a preliminary schematic plan up to the amount of ten cents ($.10)
per rentable square foot. In addition, Landlord will provide for Tenant's use
during the term of the Lease certain raised floor computer flooring, a fifteen
(15) ton and a five (5) ton Liebert cooling units and a 75 kva power
conditioner, currently located in the Building's first floor computer room, all
in their current "as-is" condition and repair, to be maintained and repaired by
Tenant during the term of the Lease. Tenant will cause such work (the "Work") to
be performed in a good and workmanlike manner and in accordance with the Plans.
If the Construction Credit is not used within one year of the Commencement Date,
the unused portion shall revert back to Landlord.
2. Landlord agrees to deliver to Tenant, and Tenant agrees to accept
from Landlord, possession of the Premises not later than November 1, 1996.
3. Landlord shall make reasonable efforts to pay the Construction Credit
to Tenant, or any applicable portion thereof, within fifteen (15) business days
of Tenant's presentation to Landlord of Tenant's contractor's invoice for work
performed, together with appropriate lien waivers and certification of
completion of such work (or portion of work) from Tenant's architect.
<PAGE> 37
EXHIBIT "C"
RULES AND REGULATIONS
1. Landlord agrees to furnish Tenant two (2) keys without charge.
Additional keys will be furnished at a nominal charge. Except as otherwise
permitted by the terms of this Lease, Tenant shall not change locks or install
additional locks on doors without prior consent of Landlord. Tenant shall not
make or cause to be made duplicates of keys procured from Landlord without
prior approval of Landlord. All keys to Premises shall be surrendered to
Landlord upon termination of this Lease.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the Premises for Tenant
to Building Manager for its approval before performance of any contractual
service. Tenant's contractors and installation technicians shall comply with
Landlord's rules and regulations pertaining to construction and installation.
This provision shall apply to all work performed on or about the Premises,
including installation of telephones, telegraph equipment, electrical devices
and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings and equipment or any other physical portion
of the Premises.
3. Tenant shall not at any time occupy any part of the Premises as
sleeping or lodging quarters.
4. Tenant shall not place, install or operate on the Premises or in any
part of the Building any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, (except for stove, microwave oven and
other similar kitchen appliances in the employee lounge) or place or use in or
about the Premises any explosives, gasoline, kerosene, oil, acids, caustics, or
any flammable, explosive or hazardous material without written consent of
Landlord.
5. Landlord will not be responsible for lost or stolen personal
property, equipment, money or jewelry from the Premises regardless of whether
such loss occurs when the area is locked against entry or not, unless due to
Landlord's or its agents' or employees' gross negligence or willful misconduct.
6. No dogs, cats, fowl, or other animals shall be brought into or kept
in or about the Premises, with the exception of seeing eye dogs.
7. Employees of Landlord shall not receive or carry messages for or to
any Tenant or other person or contract with or render free or paid services to
any Tenant or to any of Tenant's Representatives.
8. None of the parking, plaza, recreation or lawn areas, entries,
passages, doors, elevators, hallways or stairways shall be blocked or
obstructed or any rubbish, litter, trash, or material of any nature placed,
emptied or thrown into these areas or such area used by Tenant or Tenant's
Representatives at any time for purpose inconsistent with their designation by
Landlord.
9. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or by the defacing or injury of any part of the
Building shall be borne by the person who shall occasion it. No person shall
waste water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the Building by the use of any
radios, record players, tape recorders, musical instruments, the making of
unseemly noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the Building or down
the stairways or other passages.
12. Tenant and Tenant's Representatives shall park their vehicles only in
those parking areas designated by Landlord. Tenant shall furnish Landlord with
state automobile license numbers of Tenant's vehicles and its employees'
vehicles within five (5) days after taking possession of the Premises and shall
notify Landlord of any changes within five (5) days after such change occurs.
Tenant shall not leave any vehicle in a state of disrepair (including without
<PAGE> 38
limitation, flat tires, out of date inspection stickers or license plates) on
the Premises. If Tenant or Tenant's Representatives park their vehicles in areas
other than the designated parking areas or leave any vehicle in a state of
disrepair, Landlord, after giving written notice to Tenant of such violation,
shall have the right to remove such vehicles at Tenant's expense.
13. Parking in a parking garage or area shall be in compliance with all
parking rules and regulations including any sticker or other identification
system established by Landlord. Failure to observe the rules and regulations
shall terminate Tenant's right to use the parking garage or area and subject the
vehicle in violation of the parking rules and regulations to removal and
impoundment. No termination of parking privileges or removal or impoundment of a
vehicle shall create any liability on Landlord or be deemed to interfere with
Tenant's right to possession of its Premises. Vehicles must be parked entirely
within the stall lines and all directional signs, arrows and posted speed limits
must be observed. Parking is prohibited in areas not striped for parking, in
aisles, where "No Parking" signs are posted, on ramps, in cross-hatched areas,
and in other areas as may be designated by Landlord. Parking stickers or other
forms of identification supplied by Landlord shall remain the property of
Landlord and not the property of Tenant and are not transferable. Every person
is required to park and lock his vehicle. All responsibility for damage to
vehicles or persons is assumed by the owner of the vehicle or its driver, unless
due to Landlord's or its agents' or employees' gross negligence or willful
misconduct.
14. Movement in or out of the Building of furniture or office supplies and
equipment, or dispatch or receipt by Tenant of any merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby, shall be restricted to hours designated by Landlord. All
such movement shall be under supervision of Building Manager and carried out in
the manner agreed between Tenant and Building Manager by prearrangement before
performance. Such prearrangement will include determination by Building Manager
of time, method, and routing of movement and limitations imposed by safety or
other concerns which may prohibit any article, equipment or any other item from
being brought into the Building. Tenant assumes, and shall indemnify Landlord
against, all risks and claims of damage to persons and properties arising in
connection with any said movement.
15. Tenant shall not lay floor covering within the Premises without
written approval of the Landlord. The use of cement or other similar adhesive
materials not easily removed with water is expressly prohibited.
16. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting and peddling within the Building.
17. Landlord reserves the right to exclude from the Building, between the
hours of 6:00 p.m. and 7:00 a.m. on weekdays and at all hours on Saturday,
Sunday and legal holidays, all persons who are not known to the Building
security personnel and who do not present a pass to the Building signed by the
Tenant. Each Tenant shall be responsible for all persons for whom it supplies a
pass.
18. It is Landlord's desire to maintain in the Building the highest
standard of dignity and good taste consistent with comfort and convenience for
Tenant and Tenant's Representatives. Any actions or condition not meeting this
high standard should be reported directly to Landlord. Your cooperation will be
mutually beneficial and sincerely appreciated. Landlord reserves the right to
make such other and further reasonable rules and regulations as in its judgment
may from time to time be necessary, for the safety, care and cleanliness of the
Premises and for the preservation of good order therein.
2
<PAGE> 39
EXHIBIT "D"
ELECTRICAL SPECIFICATIONS
480V electric power will be provided to the floor on which the Premises are
located. Such power shall be subject to interruptions and voltage fluctuations
caused by Public Service Company of Colorado or other supplier of electric power
and energy for the Building; provided, that Landlord shall not purchase electric
power on any basis that permits the supplier to interrupt service to the
Building or to prefer other power customers during periods of partial
curtailment or shortfall.
<PAGE> 40
EXHIBIT "E"
HVAC STANDARDS
Assuming an occupancy load of one person per 250 rentable square feet or
assuming a temporary occupancy load in the event of an emergency or other
unusual circumstance, lasting no longer than a one week period, of one person
per 200 rentable square feet and an energy load of 5 watts per rentable square
foot of space (in each case excluding square footage inside Tenant's computer
room), the HVAC system shall be consistently capable of maintaining interior
space (outside Tenant's computer room) temperatures of (1) 75 degrees F dry bulb
plus or minus 2 degrees F under exterior summer conditions of 91 degrees F dry
bulb and 63 degrees F wet bulb, and (2) 72 degrees F dry bulb plus or minus 2
degrees F under exterior winter conditions of 1 degree F dry bulb. The Premises
shall include at least one functional thermostatic control, located outside
Tenant's computer room.
<PAGE> 41
EXHIBIT G
JANITORIAL SERVICES
<TABLE>
<S> <C>
WASTE CONTAINERS
1. Empty office waste containers Daily
2. Empty washroom waste containers Daily
ASH TRAYS
1. Empty and damp wipe ash trays Daily
2. Wash ash trays As necessary
FLOORS -- Tile and Concrete
1. Dust tiled office floors with chemically treated dust mops Daily
2. Wax (spray type) progressively As necessary
3. Damp mop floors for spillage As necessary
4. Buff tiled floors As necessary
5. Strip and refinish As necessary
FLOORS -- Carpet
1. Vacuum traffic area carpeting Daily
2. Detail vacuum all carpeting Weekly
3. Move chair floor pads when vacuuming Monthly
4. Spot clean carpeting As necessary
GLASS PARTITIONS
1. Wash entire glass Monthly
2. Remove spots from glass As necessary
DOORS
1. Remove spots and fingerprints Daily
2. Wash entrance glass Weekly
DUSTING
1. Dust furniture, file cabinets, phones and all other
horizontal surfaces Daily
2. Dust coat racks Daily
3. Dust window sills Daily
4. Dust baseboards and other dust gathering surfaces Weekly
WASHROOMS
1. Wash and sanitize fixtures Daily
2. Clean mirrors, shelves, etc. Daily
3. Replenish supplies Daily
4. Wash and disinfect floors Daily
5. Spot clean windows Weekly
6. Spot clean walls Weekly
7. Machine scrub floors Monthly
WINDOW COVERINGS
1. Close and fully extend blinds Daily
2. Wash and clean window sills Weekly
3. Wash and clean blinds Twice Monthly
PUBLIC AREAS
1. Polish elevator rails Daily-Nightly
2. Stairwells swept clean Daily
3. Glass doors, corridors and lobby areas to be cleaned Daily
4. Spot clean carpets Weekly
5. Brick pavers stripped and cleaned As necessary
</TABLE>
"In this Exhibit, "Daily" means Monday through Friday except nationally
recognized holidays."
<PAGE> 1
EXHIBIT 10.12
SUBLEASE AGREEMENT
This Sublease Agreement is made and entered into on this the 1st day of
May 1999, between MedPartners, Inc. (hereinafter called "Sublandlord") whose
address for purposes hereof is 3000 Galleria Tower, Suite 1000, Birmingham,
Alabama 35244, Attention: Real Estate Department, and The TriZetto Group
(hereinafter called "Subtenant"). Subtenant's address for notice purposes shall
be 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660, Attention:
Jeffrey Margolis.
WITNESSETH:
1. SUBLEASED PREMISES.
1.1 DESCRIPTION OF SUBLEASED PREMISES. Subject to and upon the terms,
provisions and conditions hereinafter set forth, and each in
consideration of the duties, covenants and obligations of the other
hereunder, Sublandlord does hereby lease, demise and let to Subtenant
and Subtenant does hereby lease from Sublandlord approximately 10,492
rentable square feet of those certain premises located on the 11th
Floor of the Galleria Tower (the "Subleased Premises").
1.2. SUBLEASE. This Sublease is a sublease of, and subject to the terms of,
a Lease Agreement between Riverchase Tower, Ltd. (the "Owner"), as
Landlord, and the Sublandlord, as Tenant, dated June 23, 1997, as
amended by Lease Amendment No. 1 dated October 1, 1997 and by Lease
Amendment Agreement No. 2 dated March 27, 1998 (the "Primary Lease"),
a true and correct copy of which is attached hereto as Exhibit A and
incorporated by this reference. All capitalized terms not otherwise
herein defined shall have the meanings given them in the Primary
Lease.
2. LEASE TERM.
2.1 TERM. Subject to and upon the terms and conditions set forth herein,
this Sublease Agreement shall have an initial term of twelve (12)
months commencing on May 1, 1999 (the "Commencement Date") and
expiring on April 30, 2000 (the "Initial Sublease Term"), which term
shall be automatically renewed thereafter for successive periods of
one (1) month each (the "Sublease Renewal Term") until Sublandlord or
Subtenant provide 90 days prior written notice of non-renewal to the
other party prior to the expiration of the Initial Sublease Term or
any Sublease Renewal Term. In the event the Information Technology
Services Agreement dated May 1, 1999 between the parties (the
"Services Agreement") is terminated by Sublandlord, Subtenant shall
have the right to terminate the Sublease Agreement by providing 10
days prior written notice to Sublandlord of its intent. Likewise, in
the event the Services Agreement is terminated by Subtenant,
Sublandlord shall have the right to terminate the Sublease Agreement
by providing 10 days prior written notice to Subtenant of its intent.
The Initial Sublease Term and the Sublease Renewal Term are
hereinafter together referred to as the "Sublease Term". In no event
shall the Sublease Term extend beyond the expiration or sooner
termination of the Primary Lease.
3. USE.
3.1 PERMITTED USE. The Subleased Premises are to be used and occupied by
Subtenant as general office use only in accordance with Section 3 of
the Primary
1
<PAGE> 2
Lease and for no other purpose.
3.2 LEGAL USE AND VIOLATION OF INSURANCE COVERAGE. Subtenant agrees not to
occupy or use, or permit any portion of the Subleased Premises to be
occupied or used for any business or purpose that is unlawful,
disreputable or deemed to be extra-hazardous, or permit anything to be
done that would in any way increase the rate of fire insurance
coverage on the Subleased Premises and/or its contents.
3.3 NUISANCE. Subtenant agrees to conduct its business and to exercise
reasonable efforts to control its agents, employees, invitees and
visitors in such manner as not to create any nuisance, or interfere
with, annoy or disturb any other tenant or the Owner in the operation
of the Building.
4. RENTAL.
4.1 BASE RENTAL. During and for the term hereof, commencing on the
Commencement Date, Subtenant hereby agrees to pay to Sublandlord for
the Subleased Premises, without previous notice or demand therefore,
an Annual Base Rental as follows:
<TABLE>
<CAPTION>
MONTHS BASE RENTAL/RENTABLE SQUARE FOOT/YEAR
------ -------------------------------------
<S> <C>
5/1/99 through 4/30/00 $16.50
Sublease Renewal Terms (if applicable)
5/1/00 through 12/31/00 $16.50
1/1/01 through 12/31/02 $17.00
1/1/03 through 12/31/04 $17.50
1/1/05 through 12/31/05 $18.00
l/l/06 through 12/31/07 $19.00
</TABLE>
Base Rental shall be payable in equal monthly installments, in
advance, and Subtenant's pro-rata share of Additional Rental as
determined as provided in Section 5 of the Primary Lease plus
applicable sales/use taxes as may be levied from time to time by
competent authority. In addition, Subtenant shall pay any utility
expenses associated with the generator, UPS system, supplemental air
conditioning units, computer equipment, etc. located in or supporting
the Subleased Premises which are separately metered under the terms of
the Primary Lease. All rents shall be due and payable in advance on
the first day of each calendar month during the term hereof, and
Subtenant hereby agrees to pay such rent to Sublandlord without demand
and without any reduction, abatement, or setoff, at such address as
may be designated by Sublandlord. There will be a 5% late charge for
rent received after the 10th day of the month.
5. CARE OF THE SUBLEASED PREMISES BY SUBTENANT.
5.1 CONDITION OF SUBLEASED PREMISES AT COMMENCEMENT; NOTICE TO
SUBLANDLORD. The Subtenant shall take possession of the Subleased
Premises in AS IS condition. No promises of the Sublandlord to alter,
remodel, repair or improve the Subleased Premises and no
representations respecting the condition of the Subleased Premises
have been made by Sublandlord to Subtenant. At all times during the
Lease Term, including any extensions thereof, Subtenant agrees to give
Sublandlord prompt notice of any apparent defective condition in or
about the
2
<PAGE> 3
Subleased Premises. Subtenant shall make no alterations, additions,
installations, substitutions, improvements or decorations in or to the
Subleased Premises without the express prior written consent of
Sublandlord, which consent shall not be unreasonably withheld, and the
express prior written consent of Landlord in accordance with Section 9
of the Primary Lease.
5.2 NO WASTE. Subtenant shall not commit or allow any waste to be
committed on any portion of the Subleased Premises, and at the
termination of this Sublease Agreement, Subtenant shall deliver the
Subleased Premises to Sublandlord in as good condition as at the date
of the commencement of the term of this Sublease Agreement, ordinary
wear and use excepted.
6. LAWS, REGULATIONS AND RULES.
6.1 APPLICABLE ORDINANCES. Subtenant shall comply with all applicable
laws, ordinances, rules and regulations of any governmental entity,
agency or authority having jurisdiction over the Subleased Premises or
Subtenant's use of the Subleased Premises.
6.2 BUILDING RULES. Subtenant shall comply with the Building Rules as may
be established from time to time by Owner, and will use its best
efforts to cause all of its agents, employees, invitees and visitors
to do so.
7. ASSIGNMENT AND SUBLETTING.
7.1 NO ASSIGNMENT WITHOUT CONSENT. Subtenant shall not assign, sublease,
transfer, pledge, or encumber this Sublease Agreement or any interest
therein without Landlord's and Sublandlord's prior written consent,
which consent shall not be unreasonably withheld. Any attempted
assignment, sublease or other transfer or encumbrance by Subtenant in
violation of the terms and covenants of this paragraph shall be void.
8. INSURANCE.
8.1 CASUALTY AND LIABILITY INSURANCE. Subtenant shall provide all
insurance required of the Sublandlord as Tenant under the Primary
Lease and shall provide Sublandlord with written evidence of such
coverage. Landlord and Sublandlord shall be shown as an additional
insured under Subtenant's policies. Each insurance policy to be
obtained by Subtenant shall contain waiver of subrogation provisions,
provided however, that this waiver shall not apply if the policy of
such insurance would be invalidated by the operation of such waiver.
3
<PAGE> 4
9. INDEMNITY.
9.1 INDEMNIFICATION BY SUBTENANT. Subtenant agrees to indemnify, defend
and hold Sublandlord harmless from all claims (including reasonable
costs and expenses of defending against such claims) resulting from
(a) any breach of the Primary Lease caused by Subtenant's actions
under this Sublease Agreement and (b) damages to property, or from
injury to or death of persons (i) occurring in the Subleased Premises
during the term of this Sublease Agreement; or (ii) occurring in or
about any other portion of the Building during the term of this
Sublease Agreement and any renewal terms, to the extent resulting
wholly or in part from the negligent or willful act or omission of
Subtenant or its officers, agents, employees, contractors,
subcontractors, customers or invitees.
9.2 INDEMNIFICATION BY SUBLANDLORD. Sublandlord agrees to indemnify,
defend and hold Subtenant harmless from all claims (including
reasonable costs and expenses of defending against such claims)
resulting from (a) any breach of the Primary Lease caused by
Sublandlord's actions under this Sublease Agreement and (b) damages to
property, or from injury to or death of persons (i) occurring in the
Subleased Premises prior to or during the term of this Sublease
Agreement; or (ii) occurring in or about any other portion of the
Building during the term of this Sublease Agreement and any renewal
terms, to the extent resulting wholly or in part from the negligent or
willful act or omission of Sublandlord or its officers, agents,
employees, contractors, subcontractors, customers or invitees.
10. EVENTS OF DEFAULT/REMEDIES.
10.1 EVENTS OF DEFAULT BY SUBTENANT. The happening of any one or more of
the following listed events (Events of Default) shall constitute a
breach of this Sublease Agreement by Subtenant:
(a) The failure of Subtenant to pay any rent within a period of ten
(10) days following the due date thereof or any other sums of
money when due hereunder; or
(b) Except for the payment of rent and other sums of money hereunder,
the failure of Subtenant, within thirty (30) days after receipt
of written notice from Sublandlord, to comply with any provision
of this Sublease Agreement or any other agreement between
Sublandlord and Subtenant, including the Building Rules, all of
which terms, provisions and covenants shall be deemed material;
or
(c) The taking of the leasehold interest of Subtenant on execution or
other process of the law in any action against Subtenant; or
(d) The failure of Subtenant to accept the Subleased Premises, to
promptly move into, to take possession of and to operate
continuously its business on the Subleased Premises, or the law
in any action against Subtenant; or
(e) If the Subtenant shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of the Subtenant
or of all or a substantial part of its assets, (ii) admit in
writing its inability to
4
<PAGE> 5
pay its debts as they come due, (iii) make a general assignment
for the benefit of creditors, (iv) file a petition or an answer
seeking reorganization or arrangement with creditors or to take
advantage of any insolvency law other than the Federal Bankruptcy
Code, (v) file an answer admitting the material allegations of a
petition filed against the Subtenant in any reorganization or
insolvency proceeding, other than a proceeding commenced pursuant
to the Federal Bankruptcy Code, or if any order, judgment or
decree shall be entered by any court of competent jurisdiction,
except for a bankruptcy court or a federal court sitting as a
bankruptcy court, adjudicating the Subtenant insolvent, or
approving a petition seeking reorganization of the Subtenant, or
appointing a receiver, trustee or liquidator of the Subtenant or
of all or a substantial part of its assets.
10.2 SUBLANDLORD'S REMEDIES FOR SUBTENANT DEFAULT. Upon the occurrence of
any Event or Events of Default by Subtenant, enumerated herein or in
the Prime Lease, if Subtenant fails to cure any such Event of Default
other than a monetary Event of Default within thirty (30) days of
written notice from Sublandlord, or if such default (other than a
default in the payment of the rent or any other sum due to
Sublandlord) is of such a nature that it could not reasonably be cured
within such thirty (30) day period and proceed with reasonable
diligence and in good faith to cure such default providing reasonable
evidence of its efforts to Sublandlord as and when requested,
Sublandlord shall have the option, at Sublandlord's election, to
pursue any one or more of the following remedies.
(a) Sublandlord may cancel and terminate this Sublease Agreement and
terminate Subtenant's right to possession;
(b) Maintain Subtenant's right to possession in which case this
Sublease Agreement shall continue in effect whether or not
Subtenant shall have abandoned the Subleased Premises. In such
event, Sublandlord shall be entitled to enforce all of
Sublandlord's right and remedies under this Sublease Agreement,
including the right to recover the rent as it becomes due
hereunder.
(c) Sublandlord may elect to enter and repossess the Subleased
Premises and relet the Subleased Premises for Subtenant's
account, holding Subtenant liable in damages for all expenses
incurred in any such reletting and for any difference between the
amount of rent received from such reletting and the amount due
and payable under the terms of this Sublease Agreement;
(d) Sublandlord may enter upon the Subleased Premises and do whatever
Subtenant is obligated to do under the terms of this Sublease
Agreement (and Subtenant shall reimburse Sublandlord on demand
for any expenses which Sublandlord may incur in effecting
compliance with Subtenant's obligations under this Sublease
Agreement, and Sublandlord shall not be liable for any damages
resulting to the Subtenant from such action).
5
<PAGE> 6
10.3 SUBLANDLORD'S REMEDIES ARE CUMULATIVE. All the remedies of Sublandlord
in the event of Subtenant default shall be cumulative and, in
addition, Sublandlord may pursue any other remedies permitted by law
or in equity. Forbearance by Sublandlord to enforce one or more of the
remedies upon an event of default shall not constitute a waiver of
such default.
11. PEACEFUL ENJOYMENT.
Subtenant shall, and may peacefully enjoy the Subleased Premises against
all persons claiming by, through or under Sublandlord, subject to the other
terms hereof, provided that Subtenant pays the rent and other sums herein
recited to be paid by Subtenant and performs all of Subtenant's covenants
and agreements in this Sublease Agreement.
12. HOLDING OVER.
12.1 RENTAL AMOUNT. If Subtenant holds over without Sublandlord's or
Owner's written consent after expiration or other termination of this
Sublease Agreement, or if Subtenant continues to occupy the Subleased
Premises after termination of Subtenant's right of possession,
Subtenant shall throughout the entire holdover period pay rent at a
rate equal to the greater of (a) one and one-half (1.5) times the
Basic Rent paid by Subtenant during the last preceding Lease Year; or
(b) rent, damages and expenses owed to the Owner by the Sublandlord
arising as a result of Subtenant's holding over.
12.2 NO EXTENSION OF TERM. No possession by Subtenant after the expiration
of the term of this Sublease Agreement shall be construed to extend
the term of this Sublease Agreement unless Sublandlord has consented
to such possession in writing.
13. ATTORNEY'S FEES.
Subtenant will pay, in addition to the rents and other sums agreed to be
paid hereunder, all collection and court costs incurred by Sublandlord, and
Sublandlord's reasonable attorney's fees incurred for the collection of
unpaid rents or the enforcement, defense or interpretation of Sublandlord's
rights under this Sublease Agreement, whether such fees and costs be
incurred out of court, at trial, on appeal or in bankruptcy proceedings.
14. PERSONAL LIABILITY.
The liability of Sublandlord to Subtenant for any default by Sublandlord
under this Sublease Agreement shall be limited to the interest of
Sublandlord in the Subleased Premises, and Subtenant agrees to look solely
to Sublandlord's interest in the Subleased Premises for the recovery of any
judgment from the Sublandlord, it being intended that Sublandlord shall not
be personally liable for any judgement or deficiency.
15. RELATIONSHIP OF PARTIES.
Nothing contained in this Sublease Agreement shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship
of principal and agent or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither the method of
computation of rent, nor any other provisions contained herein, nor any
acts of the parties herein, shall be deemed to create any relationship
between the parties hereto other than the relationship of Sublandlord and
Subtenant.
6
<PAGE> 7
16. MISCELLANEOUS.
16.1 SEVERABILITY. If any term or provision of this Sublease Agreement, or
the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Sublease
Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and.
provision of this Sublease Agreement shall be valid and enforced to
the fullest extent permitted by law.
16.2 RECORDATION. Subtenant agrees not to record this Sublease Agreement or
any amendment, exhibit or schedule hereto, without the prior written
consent of Landlord and Sublandlord.
16.3 GOVERNING LAW. This Sublease Agreement and the rights and obligations
of the parties hereto are governed by the laws of the State of
Alabama.
16.4 TIME OF PERFORMANCE. Except as may be otherwise expressly provided
herein, time is of the essence of this Sublease Agreement with respect
to all required acts of Subtenant.
16.5 TRANSFERS OF SUBLANDLORD. Sublandlord shall have the right to transfer
and assign, in whole or in part, all its rights and obligations
hereunder and in the Subleased Premises referred to herein, and in
such event and upon such transfer, Sublandlord shall be released from
any further obligations hereunder, and Subtenant agrees to look solely
to such successor in interest of Sublandlord for the performance of
such obligations.
16.6 EFFECT OF DELIVERY OF THIS SUBLEASE AGREEMENT. Sublandlord has
delivered a copy of this Sublease Agreement to Subtenant for
Subtenant's review only, and the delivery hereof does not constitute
an offer to Subtenant or an option to lease. This Sublease Agreement
shall not be effective until a copy executed by both Sublandlord and
Subtenant is delivered to and accepted by Owner.
16.7 SECTION HEADINGS. The section or subsection headings are used for
convenience of reference only and do not define, limit or extend the
scope or intent of the sections of this Sublease Agreement.
16.8 NO OTHER REPRESENTATIONS. Neither party has made any representations
or promises, except as contained herein, or in some further writings,
signed by the party making such representation or promise. This
Sublease contains the entire agreement of the parties and no prior
written or oral agreements, promises or inducements not embodied
herein shall be of any force or effect.
16.9 SUCCESSORS AND ASSIGNS. Each provision hereof shall extend to and
shall, as the case may require, bind and inure to the benefit of the
Sublandlord and its successors and assigns, and of the Subtenant, and
its successors and assigns in the event this Sublease Agreement has
been assigned or sublet with the express, written consent of the
Landlord and Sublandlord.
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<PAGE> 8
IN WITNESS WHEREOF, Sublandlord and Subtenant have caused this Sublease
Agreement to be executed in their names and on their behalf in multiple original
counterparts effective as of the day and year first above written.
Sublandlord:
MEDPARTNERS, INC.
BY /s/ illegible
-------------------------------
Its EVP & CO
-------------------------------
Subtenant:
THE TRIZETTO GROUP., INC
By /s/ Jeffrey H. Margolis
-------------------------------
Its President
-------------------------------
CONSENT OF LANDLORD
The undersigned Owner, as Landlord under the Primary Lease, hereby consents to
the terms and conditions of the Sublease Agreement and accepts the Subtenant as
a subtenant on this 19th day of May , 1999.
RIVERCHASE TOWER, LTD.
BY: JIM WILSON & ASSOCIATES, INC.
ITS: PROPERTY MANAGER
BY /s/ James W. Wilson Jr.
-------------------------------
Its President
--------------------------
8
<PAGE> 9
LEASE
MEDPARTNERS, INC.
TENANT
RIVERCHASE TOWER, LTD.
LANDLORD
MALL: RIVERCHASE OFFICE TOWER
LOCATION: HOOVER, ALABAMA
<PAGE> 10
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
<S> <C>
1. Demised Premises 1
2. Term 2
3. Use 3
4. Rent 3
5. Additional Rental 4
6. Basic Operating Costs Defined 5
7. Security Deposit 6
8. Possession 6
9. Alterations 6
10. Repairs 8
11. Regulations and Laws 9
12. Tenant's Property 9
13. Insurance 9
14. Destruction 10
15. Condemnation 11
16. Events of Default 11
17. Remedies 13
18. Services 13
19. Landlord's Lien 14
20. Exemptions and Attorney's Fees 14
21. Curing Tenant's Default 14
22. Subordination 14
23. Name of Building 15
24. Rules and Regulations 15
25. Quiet Enjoyment 15
26. No Representations by Landlord 16
27. Entire Agreement 16
28. No Partnership 16
29. Cancellation 16
30. Notices 16
31. Estoppel Certificates 17
32. Binding Effect of Lease 17
33. Holding Over 17
34. Signs and Advertising 17
35. Parking Areas 18
36. Unavoidable Delays 18
37. Assignment and Subletting 18
38. Miscellaneous 19
39. Substitution of Premises 19
40. Changes to Building 19
41. Sale by Landlord 20
42. Entry by Landlord 20
43. Landlord Controlled Areas and Operating Agreements 20
44. Limitation of Liability 21
45. Renewal Option 21
46. Right of First Refusal 22
47. Approval of Mortgagee 23
48. Notice to Mortgagee 23
49. Building Sign 23
50. Check In Station 23
51. Documents 24
Exhibit A: Demised Premises
Exhibit B: Tenant Work Letter
Exhibit C: Rules and Regulations
Exhibit D: Additional Hours Charge
Exhibit E: Sign Specifications
</TABLE>
<PAGE> 11
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into this 23rd day of June,
1997, by and between Riverchase Tower, Ltd. hereinafter referred to as
"Landlord" and MedPartners, Inc., hereinafter referred to as "Tenant."
WITNESSETH:
WHEREAS, Landlord is the owner and operator of the Galleria Tower, a
Class A Office Building located at Riverchase Galleria, Hoover, Alabama; and
WHEREAS, Tenant is presently occupying approximately 79,807 square feet
of Rentable Area (as hereinafter defined) in the Galleria Tower pursuant to
various leases and/or subleases which Rentable Area is more particularly
described on Exhibit "A" attached hereto and made a part hereof; and
WHEREAS, Tenant has experienced a rapid expansion of its business which
expansion is anticipated to continue thereby resulting in a projected need of
150,000 square feet of total Rentable Area; and
WHEREAS, Tenant desires to lease additional Rentable Area on Floors 11,
12, 14, 15, 16, 17 and 18 (if constructed by Tenant as hereinafter provided) and
to incorporate all of its leasehold interest into one lease, and to surrender
the Rentable Area on the 7th and 9th floors of the Galleria Tower; and
WHEREAS, all the Rentable Area on Floors 9, 11, 12, 14, 16, 17 and part
of 15 is presently leased to other tenants; and
WHEREAS, Landlord desires to accommodate Tenant's expansion and need
for additional Rentable Area; and
NOW THEREFORE, for and in consideration of the premises the parties do
hereby agree as follows:
DEMISED PREMISES
1. Effective upon delivery of Rentable Area to Tenant, Landlord, for and
in consideration of the covenants and agreements herein set forth, and the rent
hereafter specifically reserved, has leased and does hereby lease unto said
Tenant, and Tenant does hereby lease from Landlord, those certain premises
(hereinafter referred to as the "Demised Premises") on floors 7, 9, 10, 11, 12,
14, 15, 16, 17 and 18 (if constructed) of the building, commonly known as the
Galleria Office Tower (hereinafter referred to as the "Building"). The Demised
Premises are hereby specified to contain up to approximately 150,000 square feet
of Rentable Area (hereinafter defined), some of which may be common areas or
areas to be used in common with others. The Demised Premises are cross-hatched
on the floor plan attached hereto as Exhibit "A" and made a part of this Lease.
Upon request of Tenant, Landlord agrees to accept the surrender of any
Rentable Area on floors presently leased by Tenant (other than Floors 10 through
18) and agrees to cancel any lease with respect to such space; provided that
Tenant shall return the same to Landlord in good condition and repair, ordinary
wear and tear excepted. Furthermore, Tenant shall repair any damage to the
Premises caused by the removal of any fixtures, furniture and/or equipment.
The term "Rentable Area" as used in this Lease shall mean: (a) As to
each floor of the Building on which the entire space rentable to tenants is or
will be leased to one tenant (hereinafter referred to as "Single Tenant Floor")
the entire floor area computed by measuring to the inside finished surface of
the Dominant Portion (as hereinafter defined) of the permanent
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<PAGE> 12
outer building walls on such floor, including all areas, hereinafter referred
electrical rooms and telephone closets without deductions for columns or other
structural portions of the Building or vertical penetrations that are included
for the special use of Tenant but excluding the area contained within the
exterior walls of the Building such as stairways, fire stair towers, vertical
ducts, elevator shafts, flues, vents, stacks and pipe shafts; and (b) as to each
floor of the Building on which space is or will be leased to more than one
tenant (hereinafter referred to as "Multi-Tenant Floor") Rentable Area shall be
the total of (i) the entire floor area included within the Demised Premises,
being the floor area bounded by the inside surface of the Dominant Portion (as
hereinafter defined) of the permanent outer building walls or such floor of the
Building bounding such Demised Premises, the finished surface of the exterior of
all interior walls separating such Demised Premises from any public corridors,
other public or common areas, or building core on such floor, and the
center-line of all walls separating such Demised Premises from other areas
leased, or to be leased, to other tenants on such floor; and (ii) a prorata
portion of the Common Area situated on such floor. (For purposes of this Lease,
the "Dominant Portion" shall mean that portion of the inside finished surface of
the permanent outer wall of the Building which is fifty percent or more of the
vertical floor to ceiling dimension.) The floor area computation described
herein complies with A.N.S.I. Z65.1 - 1980 (revision of A.N.S.I. Z65.2 - 1972)
approved July 31, 1980 by the American National Standards Institute, Inc.
The parties acknowledge that Tenant is presently leasing or subleasing
the following Rentable Area, herein referred to as "Occupied Floor Areas":
Floor Square Feet
----- -----------
15th 20,195
14th 20,195
11th 7,110
11th 3,382
10th 20,195
9th 5,137
9th 1,160
7th 2,433
------
Total 79,807
Prior to the termination of any such existing agreement. Tenant shall
continue to pay all rents and charges due under such agreements. Upon the
termination of the agreements for each of the above Occupied Floor Areas, such
shall be added to this Lease and shall be subject to the terms, conditions and
rents set forth herein. The parties agree to execute such amendment or
amendments to this Agreement necessary to add the existing Rentable Area to this
Agreement.
The parties anticipate Tenant needing and obtaining additional Rentable
Area, as the same becomes available, on the 11, 12, 16, 17 and 18 (provided the
same is constructed by Tenant as hereinafter provided) floors. If and when such
Rentable Area is released from any present obligation or is otherwise made
available for occupancy by Tenant, the parties agree to execute such amendment
or amendments to this Agreement necessary to add such new Rentable Area to this
Agreement under the same terms, conditions and rents set forth herein.
Landlord shall use its good faith efforts to deliver to Tenant all the
Rentable Area on Floors 10 through 17 and 18 (provided the same is constructed
by Tenant as hereinafter provided) on or before January 1, 1998. The parties
acknowledge that Landlord presently leases Rentable Area on the 11th Floor to
Sprint and to Universal Underwriters which provide those tenants with renewal
options that may take the terms of such leases beyond 1997. Tenant agrees that
the failure of Landlord to deliver such Rentable Area to Tenant shall not affect
this Lease.
2
<PAGE> 13
TERM
2. All Rentable Area hereinafter leased pursuant to this Agreement shall
be for a term commencing on the earlier of (a) the date Tenant actually occupies
such Rentable Area for business, (b) ninety (90) days after such Rentable Area
is made available to Tenant or (c) the date all tenant improvements required by
Tenant have been completed, and Tenant has received a certificate of occupancy
for such Rentable Area and continuing through December 31, 2007 (the "Term")
unless sooner terminated as provided herein.
USE
3. The Demised Premises are leased only for general office use and
occupancy by Tenant. Notwithstanding anything to the contrary stated herein,
Tenant acknowledges that the Galleria Tower is, at the time of the execution of
this Lease, a Class A office building and Tenant agrees that Tenant's use of the
Demised Premises shall be consistent with that of Class A office space.
The Tenant shall not use or permit the Demised Premises or any part
thereof to be used for any disorderly, unlawful or hazardous purpose, nor for
any purpose other than hereinbefore specified, and will not manufacture any
commodity therein.
Tenant agrees to maintain an employee density level throughout all
Rentable Area occupied by Tenant at no greater than 8.5 persons per 1000 square
feet of Rentable Area; provided further that to the extent that there are more
than 7.5 persons per 1000 square feet of Rentable Area on any floors occupied by
Tenant, Tenant shall pay to Landlord, as additional monthly rent, a sum equal to
$12.50 per person per month in excess of 7.5 per 1000 square feet of Rentable
Area. Notwithstanding anything herein stated to the contrary, this provision
shall not apply until such time as Tenant is occupying at least 70,000 square
feet of Rentable Area.
Within twenty (20) days of receipt of written request from Landlord,
Tenant shall certify to Landlord in writing the number of persons working on
each floor occupied by Tenant during each month of the previous year and shall
supply Landlord such verification thereof as Landlord may reasonably request,
including but not limited to copies of Tenant's payroll records, which records
may be redacted to excluded salary and other similar data.
RENT
4. Base Rental and Tenant Allowance.
(a) During and for the term hereof, commencing on the Commencement
Date, Tenant covenants and agrees to pay to Landlord for the Demised Premises,
(subject to subparagraph (b) below), without previous notice or demand
therefore, and without deduction, set off or abatement, an Annual Base Rental as
follows:
<TABLE>
<CAPTION>
Year Base Rental/Sq.Foot/Annum
---- -------------------------
<S> <C>
Years Prior to 2001 $ 16.50
Years 2001-2002 17.00
Years 2003-2004 17.50
Years 2005 18.00
Years 2006-2007 19.00
First Option Period See Section 45
Second Option Period See Section 45
Third Option Period See Section 45
</TABLE>
Base Rental shall be payable in equal monthly installments, in advance, and
Additional Rental determined as hereinafter provided in Section 5, all such
rentals being sometimes herein called "Rent." Rent shall be payable on the first
day of each and every calendar month during the Term hereof with the first such
monthly installment to be paid at the time of execution of this Lease.
3
<PAGE> 14
Rent for any partial month shall be prorated at the rate of one-thirtieth
(1/30th) of the monthly rent per day. Tenant shall be required to pay Landlord
interest on any rent due that has not been received by Landlord within ten (10)
days after its due date. Said interest shall be computed at a rate equal to the
Prime Rate of AmSouth Bank of Alabama, N.A., as announced as such on the date
interest is to commence, plus two percent (2%) (herein referred to as the
"Default Rate"). All Rent shall be paid to Landlord in lawful money of the
United States of America, at the office of the Landlord, or Landlord's Agent, or
to such other person or at such other place as Landlord may from time-to-time
designate in writing. In addition to the Base Rental and Additional Rental,
Tenant shall and hereby agrees to pay to Landlord each month a sum equal to any
sales tax, tax on rentals, and any other charges, taxes and/or impositions now
in existence or hereafter imposed based upon the privilege or renting the
Demised Premises or upon the amount of rentals collected therefor. Nothing
herein shall, however, be taken to require Tenant to pay any part of any Federal
and State taxes on income imposed upon Landlord.
(b) Notwithstanding anything herein stated to the contrary, as to any
Rental Area presently occupied by BellSouth subsidiaries, or affiliates (herein
BellSouth) on any floor designated herein for occupancy by Tenant, Tenant shall
work directly with BellSouth to obtain a sub-lease on such terms as are
acceptable to Tenant. The term of such sub-lease will be coterminus with
Landlord's lease with BellSouth for such space. At the termination of such
sub-lease, such space shall be governed completely by the terms of this
Agreement at the rents set forth in sub-paragraph (a) above for the
corresponding year.
(c) Landlord agrees to pay to Tenant, as a contribution toward the
costs of improvements to be made to the Demised Premises by Tenant, an allowance
of $720,000.00. Such Tenant Allowance shall be due and payable on January 5,
1998. Notwithstanding the above, Landlord acknowledges that there is an existing
agreement between Landlord and Tenant for an allowance for the refurbishment of
the 10th Floor to be funded in 2001. The existing agreement shall continue in
force and shall not be superseded by this Paragraph 4(c).
ADDITIONAL RENTAL
5. Tenant shall also pay to the Landlord, as Additional Rental for each
month of each Adjustment Year, ("Adjustment Year" shall mean January 1 through
December 31 of each calendar year commencing with January 1 of the calendar year
following that in which the Lease Term hereof commences) in addition to Base
Rental and all other amounts herein required to be paid by Tenant, an amount
equal to one-twelfth of the percentage (Tenant's Proportionate Share) derived
from a fraction using as the numerator the actual Rentable Area of the Demised
Premises, as adjusted from time to time, and as the denominator, the Rentable
Area of the Building (274,165 square feet) times the amount, if any, by which
the Landlord estimates Basic Operating Costs (as defined in Section 6) for the
forthcoming calendar year exceed the Building's Basic Operating Costs for 1997
(the "Initial Year") in accordance with the following procedure:
(a) (1) Prior to January of each Adjustment Year during the Tenant's
occupancy, Landlord shall provide an estimate of the Basic Operating Costs for
the forthcoming calendar year. Tenant shall pay, as Additional Rental, for such
forthcoming calendar year, Tenant's Proportionate Share of the amount of the
difference between the Basic Operating Costs for the Initial Year, as adjusted
as provided herein, and the estimated Basic Operating Costs for the forthcoming
calendar year, and the same shall be due and payable on the first day of each
calendar month in the manner set forth above.
(2) The monthly Additional Rental Payment shall commence on the first day
of the first month following notice to Tenant of the amount of such monthly
Additional Rental; and, in addition, on that day a lump sum payment shall be
made by Tenant to Landlord for any lapsed period from January 1 of the current
Adjustment Year to the first day of the month for which said monthly Additional
Rental is to be paid.
(3) Within ninety (90) days after the end of each Adjustment Year during
Tenant's occupancy, Landlord shall deliver to Tenant a statement of the
Landlord's actual Basic
4
<PAGE> 15
Operating Costs for such preceding Adjustment Year and the monthly installments
paid or payable shall be adjusted between the Landlord and Tenant; and each
party agrees to pay to the other within thirty (30) days of receipt of such
statement such amount as may be necessary to effect adjustment of the agreed
Tenant's Proportionate Share for the preceding Adjustment Year. The effect of
this reconciliation payment is that Tenant will pay during the term of this
Lease Tenant's Proportionate Share of the actual Basic Operating Costs increases
each year over the Basic Operating Costs for the Initial Year, as same may be
adjusted.
(b) Notwithstanding anything to the contrary contained herein in the
event Landlord's actual Basic Operating Costs for any Lease Year after 1997,
adjusted as herein provided, exceed the Basic Operating Expense for 1997, Tenant
agrees to pay, within thirty (30) days after receipt from Landlord of a revised
billing, a lump sum in an amount equal to Tenant's Proportionate Share
(appropriately adjusted for the number of days from the Commencement Date to
December 31 of that same year) of the difference between Landlord's actual Basic
Operating Costs for such year (as set forth and adjusted above) and the Basic
Operating Expense for 1997.
(c) In the event part of the Building is unoccupied during any calendar
year, the Basic Operating Costs shall be adjusted so as to reflect the Basic
Operating Costs of the Building as though it was ninety-five percent (95%)
occupied and the increase in Additional Rental shall be based upon such adjusted
costs. For purposes of this paragraph and all calculations provided for by it,
the occupancy rate shall be the average calendar year occupancy.
Operating Expenses for the Galleria Tower are based upon a normal work day of
7:00 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on
Saturdays. In the event Tenant desires for building services (including but not
limited to lighting, HVAC, janitorial and/or security) to be available for any
period other than such hours, Tenant should so advise Landlord in advance in
order that Landlord may be able to accommodate Tenant's needs. If Tenant
requires any building services beyond the above hours, Tenant agrees to pay to
Landlord an Additional Rental as follows:
1) For additional hours used on a non-scheduled, non-routine
basis, Tenant shall pay to Landlord a sum equal to the number
of additional hours of use multiplied by $35.00 per floor (or
$17.50 per half floor) with a minimum of one (1) hour use; or
2) In the event Tenant adds scheduled, routine hours in the way
of additional shifts over and above normal work day hours,
Tenant shall pay to Landlord a sum determined in accordance
with exhibit "D" attached hereto and made a part hereof.
BASIC OPERATING COSTS DEFINED
6. For purposes of this Lease, "Basic Operating Costs" shall be composed
of "Operating Expenses" and "Taxes."
(a) As used herein, the term "Operating Expenses" shall mean all
expenses, costs and disbursements, of every kind and nature which Landlord shall
pay or become obligated to pay because of or in connection with the ownership,
maintenance and/or operation of the Building, computed on the accrual basis, but
shall not include the cost of individual tenant improvements, management costs
associated with leasing activities, or the replacement of capital investment
items and new capital improvements unless such items and/or improvements result
in the operating efficiency of the Building being increased, in which latter
event the cost shall be spread over the period necessary to recover the cost of
such improvements from the increased efficiency. By way of explanation and
clarification, but not by way of limitation, these Operating Expenses will
include the following:
(1) Wages and salaries of all employees engaged in the operation
and
5
<PAGE> 16
maintenance of the Building, employer's social security taxes.
unemployment taxes or insurance, and any other taxes which may
be levied on such wages and salaries, the cost of disability
and hospitalization insurance, pension or retirement benefits,
and any other fringe benefits for such employees;
(2) All supplies and materials used in the operation and
maintenance of the Building;
(3) Cost of all utilities, including water, sewer, electricity,
gas and fuel oil used by the Building and not charged directly
to another tenant;
(4) Cost of customary Building management, janitorial services,
clerical, accounting and legal services, trash and garbage
removal, servicing and maintenance of all systems and
equipment including, but not limited to, elevators, plumbing,
heating, air conditioning, ventilating, lighting, electrical,
security and fire alarms, fire pumps, fire extinguishers and
hose cabinets, depreciation, mail chutes, guard service,
painting, window cleaning, landscaping and gardening;
(5) Cost of casualty and liability insurance applicable to the
Building and Landlord's personal property used in connection
therewith. Landlord agrees to maintain accounting books and
records reflecting Operating Expenses of the Building in
accordance with generally accepted accounting principles.
(b) As used herein, the term "Taxes" shall mean all impositions, taxes,
assessments (special or otherwise), water and sewer charges and rents, and other
governmental liens or charges of any and every kind, nature and sort whatsoever,
ordinary and extraordinary, foreseen and unforeseen, and substitutes therefore,
including all taxes whatsoever (except only those taxes of the following
categories: any inheritance, estate, succession, transfer or gift taxes imposed
upon Landlord or any income taxes specifically payable by Landlord as a separate
tax paying entity without regard to Landlord's income source as arising out of
or from the Building and/or the land on which it is located) attributable in any
manner to the Building, the land on which the Building is located or the rents
(however the term may be defined) receivable therefrom or any part thereof, or
any use thereof, or any facility located therein or thereon or used in
conjunction therewith or any charge or other payment required to be paid to any
governmental authority, whether or not any of the foregoing shall be designated
"real estate tax", "sales tax", "rental tax", "excise tax", "business tax" or
designated in any other manner.
SECURITY DEPOSIT
7. INTENTIONALLY OMITTED
POSSESSION
8. (a) Landlord shall use reasonable diligence to deliver possession of
additional Rentable Area as the same becomes available.
ALTERATIONS
9. (a) Tenant shall make no alterations, additions, installations,
substitutions, improvements or decorations in or to the Demised Premises without
the express prior written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed. All fixtures, equipment, improvements and
appurtenances attached to or built into the Demised Premises at the commencement
of or during the term of this Lease, whether or not in whole or
6
<PAGE> 17
in part, by or at the expense of Tenant, shall be and remain a part of the
Demised Premises, shall be deemed the property of Landlord and shall not be
removed by Tenant, except as may be expressly otherwise provided in this Lease.
(b) Tenant shall also be permitted to add, at its expense, additional
cooling units (which units shall be separately metered) in the Demised Premises
provided that Tenant shall pay to Landlord the additional operating expenses for
the same.
(c) In the event that the 17th Floor is added to the Demised Premises,
Tenant shall be permitted to build Rentable Area in that space designated for
construction of an 18th Floor. In the event Tenant builds the 18th Floor, Tenant
shall be permitted to occupy the same pursuant to the terms and conditions of
this Agreement and such 18th Floor will be considered part of the Demised
Premises except (i) Tenant shall not be required to pay any Base Rental for the
18th Floor and (ii) the Rentable Area on the 18th Floor shall not be considered
when computing Tenant's Additional Rent pursuant to Paragraph 5; provided
however, Tenant shall reimburse Landlord, on a monthly basis, for the operating
expenses incurred with respect to the 18th floor.
(d) Landlord shall have complete approval of (i) the plans and
specifications for all construction, (ii) the schedule for construction and
(iii) the staging for and manner of construction. In addition, Tenant agrees (i)
to obtain such insurance as may be reasonably required by Landlord (ii) to
perform any construction using a reputable contractor approved by Landlord so
that the same shall not unreasonably interfere with the operation of any tenants
of the Galleria Tower or the Riverchase Galleria and the conduct of business in
the Galleria Tower and the Riverchase Galleria, (iii) that all such construction
work shall be carried on as expeditiously as is consistent with good
construction practices; (iv) to cause all contractors engaged in such
construction work to take such steps as may be reasonably required to prevent
injury to any of the tenants or occupants of the Galleria Tower and the
Riverchase Galleria or their licensees or invitees; (v) to take any and all
safety measures reasonably required to protect the other parties hereto and all
tenants and occupants of the Galleria Tower and the Riverchase Galleria, their
licensees and invitees, from injury or damage caused by, or resulting from, the
performance of any construction by Tenant; (vi) to erect or cause to be erected
adequate and proper barricades, substantially enclosing the area of construction
so as to protect the other parties hereto, and their respective customers,
employees, licensees and invitees from injury or damage caused by such
construction, and maintain such barricades until such construction is completed
to such extent that such protection is no longer needed; (vii) remove from the
Demised Premises and dispose of, on at least a weekly basis or more frequently
as needed, all debris and rubbish caused by or resulting from any such work; and
(viii) repair any and all damage caused to the Riverchase Galleria and/or the
Galleria Tower.
(e) Tenant hereby agrees to indemnify Landlord for any and all
liability including any arising out of statutory or common law for any and all
injuries to or death of any and all persons including Tenant's contractors and
subcontractors and their employees and any liability for any and all damage to
the property caused by, or resulting from, or arising out of any act or omission
on the part of Tenant, its contractors, and its or their subcontractors or
employees in the performance of any work; and Tenant agrees to defend, indemnify
and save harmless Landlord from and against all damages, cost, liabilities,
losses and/or expenses (including legal fees and expenses) which Landlord may
incur, suffer, or pay as a result of claims or lawsuit(s) due to, because of, or
rising out of any and all such injuries, death and/or damage.
(f) If because of any act or omission of Tenant, any mechanics or other
lien, charge or order for the payment of money or other encumbrance shall be
filed against Landlord and/or any portion of the Galleria Tower (whether or not
such lien, charge, order or encumbrance is valid or enforceable as such), Tenant
shall, at its sole cost and expense, cause same to be discharged of record or
bonded within ten (10) days after notice to Tenant; and Tenant shall indemnify
and save harmless Landlord against and from all costs, liabilities, suits,
penalties, claims and demands, including reasonable attorney's fees resulting
therefrom. If Tenant fails to comply with the foregoing provisions, Landlord
shall have the option of discharging or bonding
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any such lien, charge, or order or encumbrance and Tenant agrees to reimburse
Landlord for all cost, expenses (including all legal fees and expenses) and
other sums of money in connection therewith plus interest at the rate of two
percent (2%) over the prime rate as established by AmSouth Bank of Alabama, N.A.
or its successors or assigns. Tenant does hereby agree to give its contractors,
both general and subcontractors, written notice that said contractors must look
solely to Tenant for payment of any and all work performed by said contractors
on behalf of Tenant.
(g) Each of the contractors and/or subcontractors participating in such
construction shall guarantee in writing that the work done by it will be free
from any defects in workmanship and materials for a period of not less than one
year from the date of completion and acceptance thereof. All warranties or
guarantees as to materials and workmanship with respect to such construction
shall be contained in the contract or sub-contract which shall provide that said
guarantees or warranties shall inure to the benefit of both Landlord and Tenant
and may be directly enforced by either of them.
(h) Any approval or consent by Landlord or its agent, shall in no way
obligate Landlord or its agent, in any manner whatsoever in respect to the
finished product design and/or construction by Tenant. Furthermore, the consent
or approval by Landlord or its agent shall mean only that such plans,
specifications or items meets the subjective standards of Landlord and such
consent or approval by Landlord or its agent shall not be deemed to mean that
such plans, specifications or construction is structurally or constructionally
sound and appropriate or that such plans, specifications or construction meet
the applicable building or safety codes and/or standards. Any deficiency in
design or construction, although same had the prior approval of Landlord, shall
be solely the responsibility of Tenant. All materials and equipment furnished by
Tenant shall be new and all work shall be done in a first class workmanlike
manner.
REPAIRS
10. (a) Tenant shall take good care of the Demised Premises and, at
Tenant's expense, shall properly make all repairs, ordinary or extra ordinary,
in or about the Demised Premises required by reason of (i) the performance or
existence of Tenant's Work or other work by Tenant, (ii) the installation, use
or operation of Tenant's property in the Demised Premises, (iii) the moving of
Tenant's property in or out of the Building, (iv) the misuse or neglect or other
act of or sufferance by Tenant or any of its employees, agents, or contractors,
and (v) Tenant's occupancy of the Demised Premises. In the event of any repairs
or alterations by Tenant within the Demised Premises, Tenant agrees to obtain
Landlord's written consent prior to making any such repairs and alterations and
to keep the Demised Premises, the Building and the property upon which the
Building is situated, free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. In the event that Tenant
shall not, within ten (10) days following the imposition of any such lien, cause
the same to be released of record, Landlord shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem proper, including payment
of the claim giving rise to such lien. All sums paid by Landlord for such
purpose, and all expenses incurred by it in connection therewith, shall be
payable to Landlord by Tenant on demand with interest at the Default Rate.
(b) Landlord, shall have full and complete control to make changes
and/or repairs to the roof, structural components, outside walls, elevators,
heating, air conditioning, electrical, plumbing and other utility systems of the
Building. Landlord shall not be required to make such repairs as Tenant may be
required to make under the provisions of Section 10(a) above or any other
repairs, changes or improvements to the Demised Premises, except as may be
otherwise provided in Exhibit "B", attached hereto.
(c) There shall be no allowance to Tenant for a diminution of rental
value and Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption or injury to the business of Tenant
arising from Landlord's making any repairs or changes which Landlord is required
or permitted by this Lease or required by law to make in or
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to any portion of the building or the Demised Premises, or in or to the
fixtures, equipment or appurtenances to the Building or the Demised Premises.
REGULATIONS AND LAWS
11. Tenant shall properly execute and comply with all statutes, ordinances,
rules, orders, regulations and requirements of the federal, state, county and
city governments, and of any and all of the departments and bureaus thereof,
applicable to said Demised Premises and shall also promptly comply with and
execute all rules, orders and regulations of the Fire Underwriters Association
for the Prevention of Fires at Tenant's own cost and expense. Tenant agrees to
pay any increase in the amount of insurance premiums over and above the rate now
in force that may be caused by Tenant's use or occupancy of the Demised
Premises, said payment shall be in addition to any amounts due Landlord pursuant
to other provisions contained herein and shall be deemed Additional Rent.
TENANT'S PROPERTY
12. (a) All business and trade fixtures, machinery and equipment, communications
equipment and office equipment installed in the Demised Premises by Tenant
without expense to Landlord, and all furniture, furnishings and other articles
of movable personal property owned by the Tenant and located in the Demised
Premises, shall be and shall remain the property of Tenant and may be removed by
Tenant at any time during the term of this Lease; provided (i) that Tenant shall
repair or pay the cost or repairing any damage to the Demised Premises or to the
Building resulting from such removal and (ii) that Tenant is not in default of
the terms of this Lease.
(b) Any items of Tenant's property (except money, securities and other like
valuables) which shall remain in the Demised Premises after the date fixed for
termination of this Lease or after a period of ten (10) days following an
earlier termination date, may, at the option of Landlord, be deemed to have been
abandoned, and in such case either may be retained by Landlord as its property
or may, at Tenant's expense, be disposed of, without accountability, and in such
manner as Landlord may see fit.
INSURANCE
13. Landlord shall insure the Building against damage by fire, including
extended coverage, in any amount Landlord, in its reasonable discretion, shall
deem adequate, and shall maintain such insurance throughout the term hereby
demised. During the term, Tenant shall insure all of its property, owned or
leased, in the Demised Premises against damage by fire, extended coverage,
vandalism, water damage and sprinkler leakage in an amount selected by Tenant
which shall, in any event, be adequate to satisfy any co-insurance requirements
of the policies providing such insurance. In addition, Tenant shall also
maintain with respect to the Demised Premises, comprehensive general liability
insurance, with minimum limits of One Million Dollars/Three Million Dollars
($1,000,000.00 / $3,000,000.00) for personal injury, and Two Million Dollars
($2,000,000.00) for property damage.
Tenant shall maintain the insurance coverage required herein with a company
or companies with an insurance rating acceptable to Landlord and authorized and
licensed to do business in the State of Alabama. The comprehensive general
liability insurance shall include the Landlord as well as Tenant, against bodily
injury to, or death of, persons and against property damage, as herein provided.
Tenant shall deliver certificates of insurance indicating the above specified
coverage to the Landlord upon the commencement of the term of this Lease, and,
when requested by Landlord, continuing evidence of such coverage annually. If
such insurance is carried under a blanket policy, Tenant agrees to deliver to
Landlord a proper certificate of such insurance, signed by the insurer. Such
insurance policy or policies shall provide that it (they) cannot be canceled
without at least ten (10) days prior written notice to the Landlord.
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Neither Landlord nor Tenant shall be liable (by way of subrogation or
otherwise) to the other party (or to any insurance company insuring the other
party) for any loss or damage to any property of the Landlord or Tenant, as the
case may be, covered by insurance to the extent of such insurance, even though
such loss or damage might have been occasioned by the negligence of the Landlord
or Tenant, or their respective agents, employees, invitees, etc. This release
shall be in effect only so long as the applicable insurance policies shall
contain a clause or endorsement to the effect that the aforementioned waiver
shall not affect the right of the insured to recover under such policies; each
party shall use its best efforts (including payment of additional premiums) to
have its insurance policies contain the standard waiver of subrogation clause.
In the event Landlord's or Tenant's insurance carrier declines to include in
such carrier's policies a standard waiver of subrogation clause, Landlord or
Tenant, as the case may be, shall promptly notify the other party, in which
event, the other party shall not be required to have its insurance policies
contain such waiver of subrogation clause and this section shall be of no force
and effect.
Notwithstanding the foregoing, Tenant shall indemnify and hold Landlord
harmless from and against all claims, actions and demands of any nature
whatsoever arising from personal injury or death to any person or from losses of
or damages to any property which claims, actions and demands allegedly result
from the separate or concurrent negligence of any and all persons, and/or from
separate or concurrent conditions or uses of the Demised Premises, equipment,
materials, supplies or other things of any nature whatsoever related to or in
connection with the use and operation of the Demised Premises, and/or the
performance of this Lease; and Tenant shall reimburse to Landlord all expenses
or costs incurred by it in connection with any investigation, handling,
settlement, defense and/or enforcement of any rights concerning the Demised
Premises and/or the performance of this Lease and/or any and all such claims,
actions and demands, and shall pay any and all judgements, awards and/or
settlements resulting therefrom except only any such claim, action or demand
which was caused solely by the negligence of the Landlord.
Notwithstanding the foregoing, Landlord shall indemnify and hold Tenant
harmless from and against all claims, actions and demands of any nature
whatsoever arising from personal injury or death to any person or from losses of
or damages to any property which claims, actions and demands allegedly result
from the separate or concurrent negligence of any and all persons, and/or from
separate or concurrent conditions or uses of the Landlord Controlled Areas,
related to or in connection with the use and operation of the Landlord
Controlled Areas, and/or the performance of this Lease by Landlord; and Landlord
shall reimburse to Tenant all expenses or costs incurred by it in connection
with any investigation, handling, settlement, defense and/or enforcement of any
rights concerning the Landlord Controlled Areas and/or the performance of this
Lease by Landlord and/or any and all such claims, actions and demands, and shall
pay any and all judgements, awards and/or settlements resulting therefrom except
only any such claim, action or demand which was caused solely by the negligence
of the Tenant.
DESTRUCTION
14. In case of damage by fire or other casualty to the Demised Premises or any
part thereof, Landlord shall have one hundred eighty (180) days within which to
repair and restore the same without terminating this Lease except that if the
fire or other casualty shall damage the entire Demised Premises or a
substantial portion of the Demised Premises, Landlord may elect not to repair
and restore the Demised Premises in which event Landlord shall notify Tenant of
that election within sixty (60) days after the date of the casualty. Should the
Landlord elect to repair and restore the damaged portion of said Demised
Premises, then during the period that Tenant is deprived of the use of the
damaged portion of the Demised Premises, Tenant shall be required to pay rental
covering only that part of the Demised Premises that it is able to occupy; the
rent for said remaining space shall be that portion of the total rent which the
amount of floor area remaining that can be occupied bears to the total floor
area of all of the Demised Premises covered by this Lease. If during the term of
this Lease the entire Demised Premises or any part thereof, including for this
purpose the means of access thereto, shall be so damaged by fire or
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other casualty as to be untenantable, then unless said damage is repaired within
one hundred eighty (180) days thereafter as herein specified, either party
hereto, upon written notice to the other party given at any time following the
expiration of one hundred eighty (180) days after said fire or other casualty,
may terminate this Lease in which case the Rent and Additional Rental shall be
apportioned and paid to the date of said fire or other casualty. The period of
one hundred eighty (180) days hereinbefore referred to shall be extended by such
additional period, not in excess of sixty (60) days, that Landlord is delayed in
substantially completing such repair or restoration by causes such as strikes,
unavailability of materials or any other cause which is beyond the reasonable
control of the Landlord. In case the Building generally is so severely damaged
by fire or other casualty (although the Demised Premises may not be affected)
that the Landlord shall decide within a reasonable time not to rebuild or
reconstruct said Building, then this Lease, and the tenancy hereunder, shall
terminate on the date specified by the Landlord in a notice which shall be given
no later than sixty (60) days after the casualty. No compensation or claim of
diminution of rent will be allowed or paid, by Landlord, by reason of
inconvenience, annoyance, or injury to business, arising from the necessity of
repairing the Demised Premises, or any portion of the Building however, the
necessity may occur, as determined in the sole discretion of the Landlord. For
purposes of this section, a substantial portion shall mean twenty-five percent
(25%) or more of the Demised Premises.
CONDEMNATION
15. If any portion of the Demised Premises less than a substantial part thereof
shall be taken or condemned or sold for public or quasi public use or purpose by
or to any competent authority, then this Lease shall not terminate except as to
the part taken and shall terminate as to the part taken effective as of the date
when title vests in any such authority. Tenant agrees if the Demised Premises,
or a substantial part thereof, shall be taken or condemned or sold for public or
quasi public use or purpose by or to any competent authority, this Lease shall
fully terminate as of the date when title vests in such authority. Tenant shall
have no claim against the Landlord, and shall not have any claim or right to any
portion of the amount that may be awarded as damages or paid as a result of any
such condemnation; and all rights of Tenant to damages therefore, if any, are
hereby assigned by Tenant to Landlord. Upon any such condemnation or taking, the
term of this Lease shall cease and terminate as to the entire Demised Premises
or the applicable portion thereof from the date when title vests in such
governmental authority, and Tenant shall not claim against the Landlord for the
value of any unexpired term of this Lease, leasehold improvements or goodwill.
For purposes of this section, a substantial part shall mean twenty-five percent
(25%) or more of the Demised Premises.
Notwithstanding anything herein stated to the contrary, Tenant shall be
entitled to the amount which may be awarded, if any, for the undepreciated book
value of Tenant's equipment actually taken and any unamortized book value of
leasehold expenses made to the Demised Premises at Tenant's expense, but not the
value of the estate vested in Tenant by this Lease.
EVENTS OF DEFAULT
16. The following events shall be deemed to be events of default by Tenant under
this Lease:
(a) Tenant shall fail to pay when due any sum of money becoming due to be
paid to Landlord hereunder or under any other lease or sublease within the
Galleria Tower, whether such sum be any installment of the Rent herein reserved,
any other amount treated as Additional Rental hereunder, or any other payment or
reimbursement to Landlord required herein whether or not treated as Additional
Rental hereunder, and such failure shall continue for a period of ten (10) days
from the date such payment was due; or
(b) Tenant shall fail to comply with any term, provision or covenant of
this Lease or any other lease or sub-lease in the Galleria Tower other than by
failing to pay when or before due any sum of money becoming due to be paid to
Landlord hereunder, and shall not cure
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such failure within thirty (30) days (forthwith, if the default involves a
hazardous condition) after written notice thereof to Tenant; or
(c) Tenant shall fail to vacate the Demised Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination of
Tenant's right to possession only; or
(d) The leasehold interest of Tenant shall be levied upon under execution
or be attached by process of law or Tenant shall fail to contest diligently the
validity of any lien or claimed lien and give sufficient security to Landlord to
insure payment thereof or shall fail to satisfy any judgment rendered thereon
and have the same released, if such default shall continue for ten (10) days
after written notice thereof to Tenant; or
(e) Tenant shall become insolvent, admit in writing its inability to pay
its debts generally as they become due, file a petition in bankruptcy or a
petition to take advantage of any insolvency statute, make an assignment for the
benefit of the creditors, make a transfer in fraud of creditors, apply for or
consent to the appointment of a receiver for itself or for the whole or for any
substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws as now in effect
or hereafter amended, or any other applicable law or statute of the United
States or any State thereof; or
(f) A court of competent jurisdiction shall enter an order, judgment or
decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or
for the whole or any substantial part of its property, without the consent of
Tenant, or approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the bankruptcy laws of the United States, as now in
effect or hereafter amended, or any state thereof, and such order, judgment or
decree shall not be vacated or set aside or stayed within thirty (30) days from
the date of entry thereof; or
(g) In any event whereby this Lease or the estate hereby granted or the
unexpired balance of the term hereof would by operation of law or otherwise,
devolve upon or pass to any person, firm or corporation other than Tenant,
except as permitted in this Lease; or
(h) In the event Tenant defaults under any lease or sublease agreement for
Rentable Area in the Galleria Tower.
Failure of Landlord to declare any default immediately upon occurrence
thereof, or delay in taking any action in connection therewith, shall not waive
such default, but Landlord shall have the right to declare any such default at
any time and take such action as might be lawful or authorized hereunder, in law
and/or in equity. No waiver by Landlord of a default by Tenant shall be implied
and no express waiver by Landlord shall affect any default other than the
default specified in such waiver and that only for the time and extension
therein stated.
REMEDIES
17. Upon the occurrence of any of such events of default described in Section 16
hereof or elsewhere in this Lease, Landlord shall have the option to pursue any
one or more of the following remedies, in addition to all remedies, both legal
and equitable under the laws of the State of Alabama, without any notice or
demand whatsoever.
Landlord may, at its election, terminate this Lease or terminate Tenant's
right to possession only, without terminating this Lease. Upon any termination
of this Lease, whether by lapse of time or otherwise, or upon any termination of
Tenant's right to possession without termination of this Lease, Tenant shall
surrender possession and vacate the Demised Premises immediately, and deliver
possession thereof to Landlord, and Tenant hereby grants to Landlord full and
free license to enter into and upon the Demised Premises in such event with or
without process of law and to repossess Landlord of the Demised Premises as of
Landlord's former estate
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and to expel or remove Tenant and any others who may be occupying or within the
Demised Premises and to remove any and all property therefrom, without being
deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom, Tenant
hereby waiving any right to claim damage for such reentry and expulsion, and
without relinquishing Landlord's right to rent or any other right given to
Landlord hereunder or by operation of law. Upon any termination of this Lease,
whether by lapse of time or otherwise, Landlord shall be entitled to recover as
damages, all rent, including any amounts treated as Additional Rental hereunder,
and other sums due and payable by Tenant on the date of termination, plus the
sum of (i) an amount equal to the then present value of the rent, including any
amounts treated as Additional Rental hereunder and other sums provided herein to
be paid by Tenant for the residue of the stated term hereof, less the fair
rental value of the Demised Premises for such residue (taking into account the
time and expense necessary to obtain a replacement tenant or tenants, including
expenses hereinafter described relating to the recovery of the Demised
Premises, and preparation for reletting) and (ii) the cost of performing any
other covenants which would have otherwise been performed by Tenant.
Any and all property which may be removed from the Demised Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is or
may be entitled, may be handled, removed and stored as the case may be, by or at
the direction of Landlord at the risk, cost and expense of Tenant, and Landlord
shall in no event be responsible for value, preservation or safe keeping
thereof. Tenant shall pay Landlord, on demand, any and all expenses incurred in
such removal and all storage charges against such property so long as the same
shall be in Landlord's possession or under Landlord's control. Any such property
of Tenant not retaken by Tenant from storage within thirty (30) days after
removal from the Demised Premises shall, at Landlord's option, be deemed
conveyed by Tenant to Landlord under this Lease as by a bill of sale without
further payment or credit by Landlord to Tenant.
All remedies set forth in this Section 17 shall be deemed cumulative and
Landlord may pursue any and all remedies, both at law and at equity under the
laws of the state of Alabama.
SERVICES
18. Landlord shall furnish reasonably adequate electricity, water, lavatory
supplies, and automatically operated elevator service, during normal Building
hours as specified below, and normal and customary cleaning service after
business hours daily, Monday through Friday. Landlord shall furnish hot and cold
water at those points of supply provided for the general use of all tenants in
the Building, as well as heat and air conditioning in season, during such time
as Landlord normally furnishes these services to other tenants in the Building,
and at such temperatures and in such amounts as are considered by Landlord to be
standard, Monday through Friday, from 7:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m., and such other hours as Landlord may in its
discretion deem appropriate, exclusive of Sundays and holidays, during such
seasons of the year when such services are normally and usually furnished in
modern office buildings in the Birmingham, Alabama area. Proper electrical
facilities will be furnished by Landlord and will supply sufficient power for
standard office machines of low electrical consumption; provided, however, that
Tenant shall bear the utility cost occasioned by special equipment including but
not limited to electro-data processing machines, commercial copying machines,
computers and similar machines of high electrical consumption including air
conditioning cost associated therewith. Landlord reserves the right to specify
those items that are to be considered special equipment. Landlord further
reserves the right to adjust the monthly rent to reflect the additional cost of
any extraordinary, excessive or wasteful consumption of electricity. Special
equipment shall not include desk top computers, copy machines and other
equipment of electrical consumption normally used by Tenant in the conduct of
its business, except to the extent the employee density ratio exceeds 8.5 per
1000 sq. ft. of Rentable Area, whereupon Tenant shall pay for such extra costs.
Landlord also reserves the right to separately meter, at Tenant's expense, any
such special equipment and to require Tenant to pay for same directly. Landlord
shall provide routine maintenance, painting, and electrical lighting service for
all public areas and special service areas of the Building, in the manner and to
the extent deemed
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by the Landlord to be standard. The electrical wiring, risers and other
equipment in the Building are not represented by Landlord to be adequate for any
purpose other than general office use including standard office machines of low
electrical consumption. Tenant agrees that it will not make any use of the
electrical equipment of the Building which exceeds the capacity of such
equipment. Failure by Landlord to any extent to furnish these defined services,
or any cessation thereof, shall not render Landlord liable in any respect for
damages to either person or property, nor shall such events be construed an
eviction of Tenant nor work an abatement of rent, nor relieve Tenant from
fulfillment of any term, condition, covenant or agreement hereof. Should any of
the Building equipment or machinery break down, or for any cause or reason cease
to function properly, Landlord shall use reasonable diligence to repair the same
promptly, but Tenant shall have no claim for rebate of rent or for any damages
on account of any interruption in service occasioned thereby or resulting
therefrom. Any services furnished for the use thereof by Tenant other than
during the normal business hours shall be billed to and paid by Tenant.
LANDLORD'S LIEN
19. INTENTIONALLY OMITTED
EXEMPTIONS AND ATTORNEY'S FEE
20. As to and against the payment of rent and any other monies which shall
accrue to Landlord under the terms of this Lease, Tenant hereby expressly waives
all exemptions as to personal property allowed Tenant under the constitution and
laws of the State of Alabama, or any other state, and agrees to pay all costs of
collecting the same, including a reasonable attorney's fee. In the event of the
breach by either party of one or more of the terms and conditions of this Lease,
the other party shall be and is hereby authorized to do any and all things
deemed by non-defaulting party or such attorneys necessary to protect, conserve
or promote the interest of the non-defaulting party under this Lease, including
the institution of legal proceedings, against the defaulting party, of any
nature, and including suit for damages for any such breach, and the defaulting
party agrees in that event to pay a reasonable attorney's fee to said attorneys
for such services. Notwithstanding anything to the contrary stated in the Lease,
in the event either party resorts to legal action in order to enforce any rights
under this Lease, then the non-prevailing party shall be required to pay all
legal costs and expenses (including court costs and reasonable attorney's fees)
incurred by the prevailing party.
CURING TENANT'S DEFAULT
21. If Tenant shall default in the performance of any of Tenant's obligations
under this Lease, Landlord, without thereby waiving such default, may (but shall
not be obligated to) perform the same for the account and at the expense of
Tenant, without notice in a case of emergency, and in any other case if such
default continues after the expiration of ten (10) days from the date Landlord
gives Tenant notice of intention so to perform. All costs, expenses and
disbursements of every kind and nature, whatsoever, incurred by Landlord in
connection with any such performance by it for the account of Tenant, including
any expenses incurred for any property, material, labor or services provided,
furnished or rendered, by Landlord or at its instance to Tenant, together with
interest thereon at the Default Rate, shall be paid by Tenant to Landlord within
ten (10) days after Landlord's rendition of each bill therefor to Tenant.
SUBORDINATION
22. Notwithstanding anything to the contrary contained in this Lease, Landlord
and Tenant understand and agree that the Building is part of an integrated
mixed-use real estate development which, in addition to the Building, includes a
retail shopping center, hotel and other related uses. Tenant acknowledges that
Landlord is only one of several property owners (herein "adjacent land owners"),
all of which comprise the Riverchase Galleria Development, herein
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referred to as the "Complex". Landlord and the adjacent land owners have entered
into, or will enter into, reciprocal agreements, herein referred to as
"Reciprocal Agreements" for the coordinated use and operation of the Complex,
including agreements concerning access, parking, utility easements and
maintenance and operation of the common areas. This Lease shall be subject and
subordinate to the terms and conditions contained in said Reciprocal Agreements,
as same may, from time to time, be amended. The Tenant agrees that this Lease is
and shall remain subject to and subordinate to all present and future first
mortgages affecting the Building, and/or the Complex and likewise subordinate to
any other mortgage affecting the Building and/or the Complex as to which
Landlord may elect and the Tenant shall promptly execute and deliver to the
Landlord such certificate or certificates in writing as the Landlord may
reasonably request, showing the subordination of this Lease to such mortgage or
mortgages and in default of the Tenant's so doing, Landlord shall be and is
hereby authorized and empowered to execute such certificate in the name of and
as the act and deed of the Tenant, this authority being hereby declared to be
coupled with an interest and to be irrevocable; provided as a condition of
Tenant's execution of a subordination document, so long as Tenant shall
faithfully discharge the obligations on its part to be kept and performed
hereunder, and under all its other leases and subleases in the Galleria Tower,
its tenancy shall not be disturbed and such subordination document shall contain
a non-disturbance agreement to such effect.
NAME OF BUILDING
23. The Building shall be known as Galleria Tower. Landlord, however, reserves
the right, to be exercised at Landlord's sole discretion, to change said name
from time to time; provided, however, so long as Tenant is bound by this Lease,
Landlord shall not name the Building after a competitor of Tenant. Tenant agrees
not to refer to the Building by any other name other than as the aforesaid or as
the same may be changed by Landlord or by its street address, which shall be:
3000 Galleria Tower, Riverchase Galleria, Birmingham, Alabama 35244.
RULES AND REGULATIONS
24. Tenant, its agents, employees, invitees, licensees, customers, clients,
family members and guests shall at all times abide by and observe the rules and
regulations attached hereto as Exhibit "C". Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce
such rules and regulations, or the terms, conditions, or covenants contained in
any other lease, as against any other tenant, and Landlord shall not be liable
to Tenant for violation of the same by any other Tenant, its employees, agents,
business invitees, licensees, customers, clients, family members or guests.
Landlord reserves the right to change, adopt and promulgate, from time-to-time
on five (5) days prior notice, other reasonable rules and regulations and to
amend and supplement the same, all of which shall be complied with by Tenant. If
there is an inconsistency between this Lease and the rules and regulations as
set forth in Exhibit "C", this Lease shall govern.
QUIET ENJOYMENT
25. Upon payment by Tenant of all items of rent, Additional Rent, and any and
all other sums to be paid by Tenant to Landlord hereunder and the observance and
performance of all the covenants, terms and conditions to be observed and
performed by Tenant, Tenant shall have the peaceful and quiet use of the Demised
Premises, and all rights, servitudes, and privileges belonging, or in any wise
appertaining thereto or granted hereby, for the term of this Lease, without
hindrance or interruption by Landlord, or any other person or persons lawfully
claiming by, through or under Landlord, subject nevertheless to the terms and
conditions of this Lease, and to any mortgage, deed of trust, ground lease or
agreement to which this Lease, and/or Landlord's interest in the Demised
Premises and the Building of which they are a part, is subordinate. Landlord
warrants that it has full right and authority to enter into this Lease for the
full term hereof.
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NO REPRESENTATIONS BY LANDLORD
26. Neither Landlord nor any agent or employee of Landlord has made any
representations or promises, with respect to the Demised Premises or the
Building except as herein expressly set forth, and no rights, privileges,
easements or licenses are acquired by Tenant except as herein set forth. The
Tenant, by taking possession of the Demised Premises, shall accept the same "as
is", and such taking of possession shall be conclusive evidence that the
Demised Premises and the Building are in good and satisfactory condition at the
time of such taking of possession.
ENTIRE AGREEMENT
27. This Lease, together with the Exhibit(s) attached hereto, contains the
entire and only agreement between the parties and no oral statements or
representations or prior written matter not contained or referred to in this
instrument shall have any force or effect. This Lease shall not be modified in
any way except by a writing subscribed by both parties. The failure of the
Landlord or Tenant to insist upon strict performance by the other of any of the
covenants or conditions of this Lease in any one or more instances shall not be
construed as a waiver or relinquishment for the future of any such covenants or
conditions, but the same shall be and remain in full force and effect. No waiver
of any provision of this Lease shall be deemed to have been made, unless it be
in writing and signed by the party to be charged therewith.
NO PARTNERSHIP
28. Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Landlord and Tenant, or create any
other relationship between the parties hereto other than that of Landlord and
Tenant.
CANCELLATION
29. INTENTIONALLY OMITTED
NOTICES
30. All notices required or desired to be given hereunder by either party to the
other shall be given by hand delivery, overnight courier or certified or
registered mail, first class, postage prepaid, return receipt requested. Notice
to the respective parties shall be addressed as follows:
If to Landlord: Riverchase Tower, Ltd.
c/o Jim Wilson & Associates, Inc.
P.O. Box 4480
Montgomery, Alabama 36103-4480
Attention: Contract and Lease Administration
If to Tenant: MEDPARTNERS, INC.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Attention: Real Estate Department
Either party may, by like written notice, designate a new address to which
such notices shall be directed. Notice shall be deemed given five (5) days after
it is mailed.
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ESTOPPEL CERTIFICATES
31. Tenant agrees, at any time and from time to time, upon not less than fifteen
(15) days prior written notice by Landlord, to execute, acknowledge and deliver
to Landlord a statement in writing stating (i) that this Lease is unmodified and
in full force and effect, or if there have been modifications, that this Lease
is in full force and effect as modified, and stating any such modifications;
(ii) that Tenant has accepted possession of the Demised Premises, and that any
improvements required by the terms of this Lease to be made by the Landlord have
been completed to the satisfaction of the Tenant; (iii) that no rent under this
Lease has been paid more than thirty (30) days in advance of its due date; (iv)
the address to which notices to Tenant should be sent; (v) that Tenant, as of
the date of any such certification, has no charge, lien or claim of set off
under this Lease, or otherwise, against rents or other charges due or to become
due hereunder; and (vi) whether or not, to the best of Tenant's knowledge,
Landlord is, or is not, in default of the performance of any covenant, agreement
or condition contained in this Lease, and, if so, specifying each such default
of which Tenant may have knowledge. Any such statement delivered pursuant hereto
may be relied upon by any owner of the Building, any prospective purchaser of
the Building, any mortgagee or prospective mortgagee of the Building or of
Landlord's interest, or any prospective assignee of any such mortgagee.
BINDING EFFECT OF LEASE
32. It is agreed that all rights, remedies and liabilities herein given to or
imposed upon either of the parties hereto, shall extend to their respective
heirs, executors, administrators, and, except as otherwise expressly provided in
this Lease, their successors and assigns. Landlord may freely and fully assign
its interest hereunder. The term "Landlord" shall mean only the owner at the
time in question of the Building or of a lease of the Building, so that in the
event of any transfer or transfers of title to the Building or of Landlord's
interest in a lease of the Building, the transferor shall be and hereby is
relieved of all obligations of Landlord under this Lease accruing after such
transfer, and it shall be deemed, without further agreement, that such
transferee has assumed and agreed to perform and observe all obligations of
Landlord herein during the period it is the holder of Landlord's interest under
this Lease.
HOLDING OVER
33. If the Tenant withholds from the Landlord possession of the Demised
Premises at the termination of this Lease, whether by lapse of time or by
election of the Landlord, the damages for which the Tenant shall be liable for
such detention shall be and are hereby equal to one and one-half times the rate
of rent stipulated herein, the same to be due for the entire period of such
holding over or detention, plus any and all other consequential and actual
damages.
SIGNS AND ADVERTISING
34. No sign, advertising or notice shall be inscribed, fixed or displayed on any
part of the outside or the inside of the Building, except as approved in writing
in advance by Landlord, and then only in such place, number, size, color and
style as approved by Landlord, and if any such sign, advertisement or notice is
improperly exhibited, Landlord shall have the right to remove the same, and
Tenant shall be liable for any and all expenses incurred by Landlord by said
removal and shall pay for same on demand. Any such permitted use, including
directories and nameplates, shall be at the sole cost and expense of the Tenant,
except as otherwise provided. Landlord shall have the right to prohibit any
advertisement of Tenant which in its opinion tends to impair the reputation of
the Building or its desirability as a high-quality office building and, upon
written notice from Landlord, Tenant shall immediately refrain from and
discontinue any such advertisement. Landlord shall have the right to install
signs on the exterior or interior of the Building. Notwithstanding anything
herein to the contrary, during the term of this Lease and any renewal terms,
Landlord shall provide Tenant signage located in the Building lobby on the
tenant directory and Tenant shall be permitted to install door plaques
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located at the entrances to Tenant's office areas on each floor provided that
such plaques, and the manner of affixing the same to the door or wall, shall be
subject to Landlord's reasonable approval.
PARKING AREAS
35. Landlord agrees to provide parking areas for the use of Tenant in common
with others using the Building. Landlord reserves the right to promulgate rules
and regulations relating to the use of such parking area, including such
limitations as may, in the opinion and at the discretion of Landlord, be
necessary and desirable. Tenant and its employees are expressly prohibited from
parking in any portion of the parking area designated or marked for visitor
parking only, if any, or other specially designated parking spaces. In the event
that the Tenant, or any of its employees, shall park their cars in any such
specially designated portion of the parking area, then Landlord shall have the
right, at Landlord's option, to charge Tenant a fee for such improperly parked
car, and/or to have any such improperly parked car towed at Tenant's expense.
Tenant recognizes that Landlord has available 4.0 parking spaces for each 1000
square feet of Rentable Area in the Building. Notwithstanding anything herein
stated to the contrary, Landlord agrees to designate a total of 22 reserved car
spaces (including 7 presently designated car spaces) for use by Tenant; provided
however, nothing herein shall require Landlord to monitor such spaces or enforce
the unauthorized use of such spaces. The 15 additional car spaces shall be
located consecutive to the existing spaces to the west.
UNAVOIDABLE DELAYS
36. The provisions of this section shall be applicable if there shall occur,
during the Lease Term, or prior to the commencement thereof, any strikes,
lockouts or labor disputes, inability to obtain labor or materials or reasonable
substitutes therefor, or acts of God, governmental restrictions, regulations or
controls, enemy or hostile governmental action, civil commotion, fire or other
casualty or other conditions similar or dissimilar to those enumerated in this
section beyond the reasonable control of the party (but not including an
inability to obtain financing) obligated to perform and not due to the fault or
negligence of the party obligated to perform (herein called "Unavoidable
Delays"). If Landlord or Tenant shall, as a result of any Unavoidable Delays,
fail punctually to perform any obligation on its part to be performed under this
Lease, then such failure shall be excused and not be a breach of this Lease, but
only to the extent occasioned by such event and provided this section shall not
apply to Tenant's obligation to pay rent and other charges hereunder.
ASSIGNMENT AND SUBLETTING
37. (a) Tenant shall not have the right to assign or pledge this Lease or to
sublet the whole or any part of the Demised Premises, whether voluntarily or by
operation of law, or permit the use or occupancy of the Demised Premises by
anyone other than Tenant, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, and such restriction shall be
binding upon any assignee or subtenant to which Landlord has consented. In the
event Tenant desires to sublet the Demised Premises, or any portion thereof, or
assign this Lease, Tenant shall give written notice thereof to Landlord within a
reasonable time prior to the proposed commencement date of such subletting or
assignment, which notice shall set forth the name of the proposed subtenant or
assignee, the relevant terms of any sublease and copies of financial reports and
other relevant financial information of the proposed subtenant or assignee. In
the event of a subletting, Landlord's consent may be predicated, among other
things, upon Landlord becoming entitled to collect and retain all rentals
payable under the sublease; provided however, if the Base Rental and Additional
Rental received by Landlord from such assignee or subtenant is greater than that
due from Tenant for such Rentable Area, Landlord shall reimburse Tenant out of
such excess as received such costs and expenses incurred by Tenant in subletting
or assigning, including but not limited to marketing expenses, brokerage
commissions, tenant improvements, moving expenses and reasonable attorney's
fees. Notwithstanding any permitted
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assignment or subletting, Tenant shall at all times remain directly, primarily
and fully responsible and liable for the payment of the rent herein specified
and for the compliance with all of its obligations under the terms, provisions
and covenants of this Lease.
(b) Notwithstanding anything herein stated to the contrary, Tenant may
assign or sublet the whole or any part of the Demised Premises, without
Landlord's consent, to a parent, subsidiary or other affiliate of Tenant or any
successor by merger or to any entity purchasing substantially all of the assets
of Tenant on condition that: (i) Tenant is not in default hereunder; (ii) Tenant
shall give Landlord prior written notice and a true and correct copy of such
assignment; (iii) the assignee shall expressly assume in writing the obligations
of Tenant; and (iv) Tenant shall not be released from its obligations and
liabilities provided for hereunder by virtue of such assignment.
(c) In lieu of consenting or not consenting, Landlord may (except in those
situations addressed in sub-paragraph (b) above), at its option, (i) in the case
of the proposed assignment or subletting of Tenant's entire Demised Premises,
terminate this Lease, or (ii) in the case of the proposed assignment or
subletting of a portion of the Demised Premises, terminate this Lease as to that
portion of the Demised Premises which Tenant has proposed to assign or sublet.
In the event Landlord elects to terminate this Lease pursuant to clause (ii) of
this Section, Tenant's obligations as to Base Rental and Additional Rental shall
be reduced in the same proportion that the Area of the portion of the Demised
Premises taken by the proposed assignee or subtenant bears to the total Rentable
Area of the Demised Premises; provided however, if the Base Rental and
Additional Rental received by Landlord from such assignee or subtenant is
greater than that due from Tenant for such Rentable Area, Landlord shall
reimburse Tenant out of such excess as received such costs and expenses incurred
by Tenant in subletting or assigning, including but not limited to marketing
expenses, brokerage commissions, tenant improvements, moving expenses and
reasonable attorney's fees.
MISCELLANEOUS
38. (a) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(b) The captions inserted in this Lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this Lease or any
provision hereof.
(c) If any clause, phrase, provision or portion of this Lease or the
application thereof to any person or circumstance shall be invalid or
enforceable under applicable law, such event shall not affect, impair or render
invalid or unenforceable the remainder of this Lease nor any other clause,
phrase, provision or portion thereof.
(d) Each of the parties (i) represents and warrants to the other that it
has not dealt with any broker or finder in connection with this Lease, except as
may be otherwise described herein; and (ii) indemnifies and holds the other
harmless from any and all losses, liability, cost or expenses (including
attorney's fees) incurred as a result of a breach of the foregoing warranty.
SUBSTITUTION OF PREMISES
39. INTENTIONALLY OMITTED
CHANGES TO BUILDING
40. The Landlord reserves the right at any time to make changes or additions
to, and to erect additional stories on, the Building, to erect temporary
scaffolds and other aids to
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construction on the roof and exterior walls of the Building, to install,
maintain, use, repair and replace pipes, ducts, conduits and wires leading
through the Demised Premises, provided, however, any such action shall be done
in such a manner as not to unreasonably interrupt the conduct of Tenant's
business and the Landlord shall at all times provide reasonable customer and
client access to the Demised Premises. This Lease does not grant any right to
light or air over or about the Demised Premises or Building. In this regard,
Landlord shall have the right, in its sole discretion to build such additional
buildings and to change the common areas (as same may be defined from time to
time) and parking facilities, including the right to alter and/or expand
existing structures and buildings.
SALE BY LANDLORD
41. In the event of a sale or conveyance by Landlord of the Building, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the responsibility of
the assignee and/or successor in interest of Landlord in and to this Lease.
Tenant agrees to attorn to purchaser or assignee, or to any successor or
assignee of Landlord.
ENTRY BY LANDLORD
42. Landlord reserves and shall at reasonable times have the right to enter
the Demised Premises to inspect the same, to supply janitor service and any
other services to be provided by Landlord to Tenant hereunder, and to submit
said Demised Premises to prospective purchasers or tenants, to post notices of
nonresponsibility, to alter, improve or repair the Demised Premises or any other
portion of the Building, all without abatement of rent, and may for that purpose
erect scaffolding and other necessary structures where reasonably required by
the character of the work to be performed, providing that the business of Tenant
shall be interfered with as little as is reasonably practicable. Tenant agrees
to cooperate with Landlord in providing reasonable access to the Demised
Premises. Tenant hereby waives any claim for damages for injury or inconvenience
to or interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Demised Premises, and any other loss occasioned thereby. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Demised
Premises except Tenant's vaults and safes, and Landlord shall have to use any
and all means which Landlord may deem proper to open said doors in an emergency
in order to obtain entry to the Demised Premises, and any entry to the Demised
Premises obtained by Landlord by any of said means, or otherwise, shall not,
under any circumstances, be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Demised Premises, or an eviction of Tenant
from the Demised Premises or any portion thereof.
LANDLORD CONTROLLED AREAS AND OPERATING AGREEMENTS
43. (a) All automobile parking areas, driveways, entrances and exits thereto,
Common Areas, and other facilities furnished by Landlord, including all truck
ways, loading areas, pedestrian walkways and ramps, landscaped areas, stairways,
corridors, and other areas and improvements provided by Landlord for the general
use, in common with others using the Building, of tenants, their officers,
agents, employees, servants, invitees, licensees, visitors, patrons and
customers, shall be at all times subject to the exclusive control and management
of Landlord, and Landlord shall have the right from time-to-time to establish,
modify and enforce rules and regulations with respect to all such facilities and
areas and improvements; to police same; from time-to-time to change the area,
level and location and arrangement of parking areas and other facilities
hereinabove referred to; to restrict parking to tenants, their officers, agents,
invitees, employees, servants, licensees, visitors, patrons and customers; to
close all or any portion of said areas or facilities to such extent as may in
the opinion of Landlord's counsel be legally sufficient to prevent a dedication
thereof or the accrual of any rights to any person or the public
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therein; to close temporarily all or any portion of the public areas, Common
Areas or facilities, to discourage non-tenant parking; and to do and perform
such other acts in and to said areas and improvements as, in the sole judgement
of Landlord, the Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by others using the Building,
tenants, their officers, agents, employees, servants, invitees, visitors,
patrons, licensees and customers. Landlord will operate and maintain the Common
Areas and other such facilities referred to above in such reasonable manner as
Landlord shall determine from time-to-time. Without limiting the scope of such
discretion, Landlord shall have the full right and authority to designate a
manager of the parking facilities and/or Common Areas and other facilities who
shall have full authority to make and enforce rules and regulations regarding
the use of the same or to employ all personnel and to make and enforce all rules
and regulations regarding the use of the same or to employ all personnel and to
make and enforce all rules and regulations pertaining to and necessary for the
proper operation and maintenance of the parking areas and/or Common Areas and
other facilities. Reference in this paragraph to parking areas and/or facilities
shall in no way be construed as giving Tenant hereunder any rights and/or
privileges in connection with such parking areas and/or facilities.
(b) Landlord has entered into operating agreements, easement agreements,
reciprocal easement agreements, construction agreements and/or other similar
agreements, all of which are hereinafter referred to as Operating Agreements,
which set forth the respective rights, duties and obligations of Landlord and
the owners or occupants of adjacent premises, including, but not limited to
department stores and the Wynfrey Hotel, insofar as the overall operation of the
Riverchase Galleria is concerned, including but not limited to, access, parking,
utility easements and other easements, maintenance of the common areas, and
operation of the common areas. The Landlord shall not be liable for any failure
on the part of the owner or the occupant of any of the adjacent premises, its
successors, assigns or subtenants for their failure to abide by or to comply
with the terms and conditions contained in said Operating Agreements as the same
may be from time to time amended. This Lease shall be subject and subordinate to
the terms and conditions contained in said Operating Agreements as the same may
be from time to time amended. It is understood and agreed that the owner or
occupant of said department stores, the Wynfrey Hotel and the other tenants in
the Riverchase Galleria have reciprocal parking privileges for all parking in
the Riverchase Galleria.
LIMITATION OF LIABILITY
44. Tenant shall look only to Landlord's estate and property in the Building
and on the land on which it is located for satisfaction of Tenant's remedies for
the collection of a judgement (or other judicial process) requiring the payment
of money by Landlord or its successors or assigns, in the event of any default
by Landlord hereunder (subject to the prior rights of the holder of the mortgage
or deed to secure debt on any part of the Building) and no other property or
assets of Landlord or its partners or principals, disclosed or undisclosed,
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under and with respect to this Lease, the
relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of
the Demised Premises.
RENEWAL OPTION
45. (a) Renewals: Provided Tenant is not in default, Tenant shall have the
option to renew this Lease for three (3) additional sixty (60) month renewal
periods by giving Landlord prior written notice at least twenty-four (24) months
prior to the expiration of the Term of this Lease, or if applicable, twenty-four
(24) months prior to the expiration of the each respective Renewal Period. In
the event Tenant elects to exercise a renewal option of this Lease, all terms,
covenants and conditions of this Lease shall remain unchanged except that the
Annual Base Rental shall be adjusted to the respective amount as set forth in
Section 45(b) hereof. In the event Tenant is in default on the date the renewal
term is to commence, the applicable renewal term shall not commence and this
Lease shall be deemed to have expired at midnight on the last day of the Initial
Term or, if applicable, the First Renewal Term.
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(b) RENTAL FOR RENEWAL TERMS; DETERMINATION. The Basic Rental during the
First, Second and Third Renewal Terms shall be an amount equal to the prevailing
fair market rental value of the Demised Premises as determined by reference to
comparable space in the Building, and in comparable buildings, for comparable
tenants, in Hoover and the corridor between I-459, U.S. Highway 280 and the
Riverchase Galleria ("Market Area"), at the time of commencement of the
applicable renewal period, as determined by agreement between Landlord and
Tenant.
In the event Tenant exercises any option contained in Section 45 of this
Lease, Landlord shall, within thirty (30) days after receipt of Tenant's renewal
notice, send Tenant Landlord's written evaluation for the prevailing fair market
rental value of the Demised Premises for comparable space in the Building, and
in comparable buildings, for comparable tenants ("Landlord's Rent") for the five
(5) year period covered by the exercise of said option. Within ten (10) days
thereafter, Tenant shall send to Landlord a notice stating either (i:) Tenant's
agreement with Landlord's Rent, in which event said amount shall be the Basic
rental rate payable by Tenant for the renewal period in issue or (ii) Tenant's
evaluation of said prevailing market rental value ("Tenant's Rent"). If Landlord
and Tenant are unable to agree upon said prevailing fair market rental value
within twenty (20) days from the date of sending the notice described in (ii)
above, the matter shall be determined by arbitration pursuant to provision
below. Landlord and Tenant agree that the arbitrators' determination of the
prevailing fair market value of the Demised Premises for comparable space in the
Building, and in comparable buildings, for comparable tenants in the Market Area
for the renewal period in issue.
(c) ADJUSTMENTS TO RENTAL. If, for any reason, the First, Second or Third
Renewal Term shall commence prior to the determination of the Rental for such
term, Tenant, in the meantime, shall pay the monthly installments of Base Rental
(the "Prior Rent") in effect under this Lease on the last day of the term being
renewed. If the Base Rental for such renewal term thereafter shall be determined
to be greater than the Prior Rent, Tenant, immediately following such
determination, shall pay to Landlord the difference between the Prior Rent and
that which should have been paid on the basis of such determination.
(d) ARBITRATION. Disputes between Landlord and Tenant with respect to the
prevailing fair market rental value of the Demised Premises as set forth in the
Lease only shall be determined by arbitration as provided herein. No other
provision or issue in the Lease shall be subject to or determined by the
provisions of this Section 45. Landlord and Tenant shall each appoint a person
as arbitrator who is a recognized authority on commercial office leasing in the
Market Area. Such appointment shall be signified in writing by each party to the
other, and the arbitrators so appointed, in the event of their failure to agree
in thirty (30) days upon the matter so submitted, shall appoint a third
arbitrator, who shall be a person of recognized authority on commercial office
leasing in the Market Area. If Landlord and Tenant shall fail to so appoint an
arbitrator for a period of ten (10) days after written notice from the other
party to make such appointment, then the arbitrator appointed by the other party
shall appoint a second arbitrator and the two so appointed shall, in the event
of their failure to agree upon any decision within five (5) days thereafter,
appoint a third arbitrator. The arbitrators, after being duly sworn to perform
their duties with impartiality and fidelity, shall proceed to determine the
question submitted. The decision of the arbitrators shall be rendered within ten
(10) days after their appointment, and such decision shall be in writing and in
duplicate, one counterpart thereof to be delivered to each of the parties
hereto. The decision of the arbitrators shall be binding, final and conclusive
upon the parties. The fees of the arbitrators and the expenses incident to the
proceedings shall be born equally between Landlord and Tenant. The fees of
respective counsel engaged by the parties, and the fees of expert witnesses and
other witnesses called by the parties, shall be paid by the respective party
engaging such counsel or calling or engaging such witnesses.
RIGHT OF FIRST REFUSAL
46. Landlord and Tenant understand and agree that during the Term of the
Agreement, provided Tenant is not in default under this Agreement, Tenant shall
have the "Right of First Refusal" to lease additional premises of Rentable Area
in the Galleria Tower (herein referred to
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as the "ROFR Premises"). The terms of said Right of First Refusal are as
follows:
In the event Landlord decides to lease all or a portion of the ROFR
Premises to a third party, Landlord shall not enter into a lease with such third
party without first offering said ROFR Premises or the portion of the ROFR
Premises that Landlord wishes to lease to such third party to Tenant, on the
same terms and conditions as offered by such third party. Said notice shall be
sent by Certified Mail, Return Receipt Requested, hand delivered or national
overnight courier. Tenant shall have a period of three (3) business days from
the date of the receipt of the offer to lease to accept or reject such offer.
Failure to accept such offer with the said three (3) business day period shall
be deemed Tenant's rejection of such offer. If Tenant rejects said offer or does
not reply within the said three (3) business day period, Landlord may then lease
the ROFR Premises or portion thereof that is the subject of said offer to such
third party.
APPROVAL OF MORTGAGEE
47. This Agreement, and Landlord's obligations hereunder, shall be subject to
the prior approval of Landlord's mortgagee. This Agreement shall not be binding
until and unless so approved.
NOTICE TO MORTGAGEE
48. Except as otherwise provided herein, Tenant agrees that it will not
exercise any right herein arising out of Landlord's breach of any agreement
herein contained or institute any judicial or other proceeding as a consequence
thereof, except after giving notice to any Mortgagee or Trustee of the Demised
Premises the name and address of which has been furnished in writing to Tenant
and affording such Mortgagee or Trustee opportunity to cure such breach within
the same time period provided Landlord herein.
Tenant agrees that Tenant will not terminate the Lease, or make any
expenditures hereunder as a result of Landlord's failure to perform obligations
imposed upon it by the Lease Agreement until Tenant has given Landlord's
Mortgagee or Trustee or the assigns or successors in interest of such Mortgagee
or Trustee: (1) notice of Landlord's failure to perform; and (2) the same period
as Landlord, with allowance for events beyond Mortgagee's or Trustee's control,
to undertake performance of such obligations by Mortgagee or Trustee.
BUILDING SIGN
49. Tenant shall be permitted to install two exterior building signs in the
location and to the specifications shown of Exhibit "E" attached hereto. Tenant
shall be solely responsible for the installation and maintenance of such signs.
Such signs shall, at all times, be maintained in good working order, condition
and repair. Further, Tenant shall repair any damage (including discoloration)
caused to the Building and related in any way to such signs and the maintenance
thereof. At the end of the term of this Lease, Tenant shall remove such signs
and shall repair any damage as a result thereof. Tenant does hereby indemnify
and hold Landlord harmless from any and against all expenses (including
reasonable attorneys fees) claims, actions and demands of any nature whatsoever
arising from personal injury or death to any person or from losses of or damages
to any property which in any way relate to such signs, and/or the installation,
maintenance and/or removal of the same.
During the term of the Lease and any renewal terms, Tenant shall, at its
cost, have the right to install monument signage at the Building in a location
mutually acceptable to Landlord and Tenant. The monument signage shall be
subject to Landlord's reasonable sign criteria and in accordance with
requirements of the Architectural Review Committee of the Riverchase Business
Association and City codes.
CHECK IN STATION
23
<PAGE> 34
50. Landlord agrees that Tenant may construct a check-in station in the third
floor lobby of the building. The size, location, material and all other plans
and specifications for such station shall be subject to Landlord's approval. At
the end of the term of this Lease, Tenant shall, upon request of Landlord,
remove such station, repair any damage resulting from such removal and restore
the area to the same condition as existed immediately prior to the construction
of the station. Notwithstanding the above, such station shall not be used as a
waiting area for Tenant's invitees but shall be for the sole purpose of having
such invitees check in and obtain information and directions.
DOCUMENTS
51. This Lease consists of this Agreement, along with Exhibits "A" through E,
attached hereto and made a part hereof.
Exhibit A - Leasing/Floor Plans
Exhibit B - None
Exhibit C - Rules & Regulations
Exhibit D - Additional Hours Charge
Exhibit E - Sign Specifications
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the day
and year first above written.
LANDLORD: RIVERCHASE TOWER, LTD.
BY ITS GENERAL PARTNER
GALLERIA TOWER, INC.
By: /s/ Elizabeth W. Hunter
-----------------------
Its President
TENANT: MEDPARTNERS, INC.
By: /s/ [ILLEGIBLE]
-----------------------
Its: EVP and Corp. Sec.
24
<PAGE> 35
EXHIBIT "B"
TENANT WORK
ALL WORK TO BE PERFORMED BY TENANT ON THE DEMISED PREMISES MUST BE APPROVED IN
ADVANCE BY LANDLORD, WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR
DELAYED.
28
<PAGE> 36
EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by Tenant or used for any purpose other than for ingress to and
egress from the Demised Premises. The halls, passages, entrances,
elevators, stairways, and balconies are not for the use of the general
public, and Landlord shall in all cases retain the right to control and
prevent access thereto of all persons whose presence in the judgement of
Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided, that nothing herein
contained shall be construed to prevent such access to persons with whom
Tenant normally deals in the ordinary course of its business unless such
persons are engaged in illegal activities. Tenant and its employees shall
not go upon the roof of the Building without the written consent of the
Landlord.
2. The sashes, sash doors, windows, glass lights, and any lights or skylights
that reflect or admit light into the halls or other Common Areas of the
Buildings shall not be covered or obstructed. The toilet rooms, water and
wash closets and other water apparatus shall not be used for any purpose
other than that for which they are constructed, and no foreign substance
of any kind whatsoever shall be thrown therein, and the expenses of any
breakage, stoppage or damage, resulting from the violation of this rule
shall be borne by the Tenant who, or whose clerk, agents, employees,
servants, or visitors, shall have caused it.
3. Use of Building standard blinds shall be required on all windows in the
Demised Premises. Any curtains used by Tenant must be placed on the office
side of the blinds. If Landlord, by notice in writing to Tenant, shall
object to any curtain, blind, shade or screen attached to, or hung in, or
used in connection with, any window or door of the Demised Premises, such
use of such curtain, blind, shade or screen shall be discontinued
forthwith by Tenant. No awnings shall be permitted on any part of the
Demised Premises.
4. No safes or other objects heavier than the lift capacity of the freight
elevators of the Building shall be brought into or installed on the
Demised Premises. Tenant shall not place a load upon any floor of the
Demised Premises which exceeds the load per square foot which such floor
was designed to carry and which is allowed by law. The moving of safes
shall occur only between such hours as may be designated by, and only upon
previous notice to, the manager of the Building, and the persons employed
to move safes in or out of the Building must be acceptable to the
Landlord. No freight, furniture or bulky matter of any description shall
be received into the Building or carried into the elevators except during
hours and in a manner approved by Landlord.
5. Tenant shall not use, keep, or permit to be used or kept any foul or
noxious gas or substance in the Demised Premises, or permit or suffer the
Demised Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of
noise, odors, and/or vibrations, or interfere in any way with other
tenants or those having business therein, nor shall any animals or birds
(except Seeing Eye Dogs) be brought into or kept in or about the Building.
Tenant shall not place or install any antennae or aerials or similar
devices outside of the Demised Premises.
6. Tenant shall not use or keep in the Building any inflammable substances or
chemicals such as kerosene, gasoline, naphtha and benzine (except cleaning
fluids in small quantities and when in containers approved by the Board of
Fire Underwriters), or explosives or any other articles of intrinsically
dangerous nature, or use any method of heating other than that supplied by
Landlord.
25
<PAGE> 37
7. If Tenant desires telephone or telegraph connections or alarm systems,
Landlord will direct electricians as to where and how the wires are to be
introduced. No boring or cutting for wires or otherwise shall be made
without specific directions and approvals from Landlord.
8. Tenant, upon the termination of the tenancy, shall deliver to the Landlord
all the keys of offices, rooms and toilet rooms which shall have been
furnished Tenant or which Tenant shall have had made, and in the event of
loss of any keys so furnished shall pay the Landlord therefor.
9. Tenant shall not put down any floor covering in the Demised Premises
without the Landlord's prior approval of the manner and method of applying
such floor covering.
10. On Sundays and legal holidays, and on other days between the hours of 6
p.m. and 8 a.m., access to the Building, and/or to the halls, corridors,
elevators or stairways in the Building, and/or to the Demised Premises may
be refused unless the person seeking access is known to the watchmen of
the Building in charge and has a pass or is properly identified. Landlord
shall in no case be liable for damages for the admission to or exclusion
from the Building of any person whom the Landlord has the right to exclude
under Rule 1 above. In case of invasion, mob, riot, public excitement, or
other commotion, Landlord reserves the right to prevent access to the
Building during the continuance of the same by closing the doors or
otherwise, for the safety of the tenants or Landlord and protection of
property in the Building.
11. Tenant assumes full responsibility for protecting its Demised Premises
from theft, robbery and pilferage which includes keeping doors locked and
windows and other means of entry to the Demised Premises closed.
12. Tenant shall not alter any lock or install a new or additional lock or any
bolt on any door of the Demised Premises without prior written consent of
Landlord. If Landlord shall give its consent, Tenant shall in each case
furnish Landlord with a key for any such lock.
13. In advertising or other publicity, without Landlord's prior written
consent, Tenant shall not use the name of the Building except as the
address of its business and shall not use pictures of the Building.
14. Canvassing, soliciting and peddling in the Building or parking facilities
is prohibited.
15. Tenant shall not waste electricity, water or air conditioning and agrees
to cooperate fully with Landlord to assure the most effective operation of
the Building's heating and air conditioning, and shall not allow the
adjustment (except by Landlord's authorized building personnel) of any
controls other than room thermostats installed for Tenant's use. Tenant
shall keep corridor doors closed and shall not open any windows except
that if the air circulation shall not be in operation, windows which are
operable may be opened with Landlord's consent.
16. Tenant shall not do any cooking in the Demised Premises.
17. Any wallpaper or vinyl fabric materials which Tenant may install on
painted walls shall be applied with a strippable adhesive. The use of
non-strippable adhesives will cause damage to the walls when materials are
removed, and repairs made necessary thereby shall be made by Landlord at
Tenant's expense.
26
<PAGE> 38
18. Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service to Tenant, to Landlord for
Landlord's supervision, approval, and control before performance of any
contractual service. This provision shall apply to all work performed in
the Building including installations of telephones, telegraph equipment,
electrical devices and attachments and installations of any nature
affecting floors, walls, woodwork, trim, windows, ceilings, equipment or
any other physical portion of the Building.
19. Movement in or out of the Building of furniture, office equipment, or
other bulky materials, or movement through the Building entrances or lobby
shall be restricted to hours designated by Landlord. All such movements,
shall be under supervision of Landlord and in the manner agreed between
Tenant and Landlord by prearrangement before performance. Tenant shall
assume all risk as to damage to articles moved and injury to persons or
public engaged or not engaged in such movement, including equipment,
property, and personnel of Landlord if damaged or injured as a result of
acts in connection with carrying out this service for Tenant. Landlord
shall not be liable for acts of any person engaged in, or any damage or
loss to any of said property or persons resulting from any act in
connection with such service performed by Tenant and Tenant hereby agrees
to indemnify and hold harmless Landlord from and against any such damage,
injury, or loss, including attorney's fees.
20. No portion of the Demised Premises or any other part of the Building shall
at any time be used or occupied as sleeping or lodging quarters.
21. Landlord will not be responsible for lost or stolen personal property,
equipment, money, or jewelry from the Demised Premises or any public rooms
regardless of whether such loss when such area is locked against entry or
not.
22. Tenant and its employees, agents, and invitees shall observe and comply
with the driving and parking signs and markers on the property surrounding
the Building. Tenant and Tenant's employees shall comply with any and all
additional rules and regulations concerning the parking areas including
the right of Landlord to require Tenant and its employees to display
parking stickers on all cars.
23. The directories of the Building shall be used exclusively for the display
of the name and location of the tenants only and will be provided at the
expense of Landlord. Any additional names requested by Tenant to be
displayed in the directories must be approved by Landlord and, if
approved, will be provided at the sole expense of Tenant.
24. No vending machines of any description for use by anyone other than
Tenant's employees, agents and invitees shall be installed, maintained or
operated in any part of the Building without the written consent of
Landlord.
TENANT: /s/ [ILLEGIBLE] LANDLORD: /s/ Elizabeth W. Hunter
--------------------- -----------------------
27
<PAGE> 39
EXHIBIT D
(ATTACHED TO AND MADE A PART OF THE LEASE DATED , 19 )
BY AND BETWEEN
RIVERCHASE TOWER, LTD.
(LANDLORD)
AND
MEDPARTNERS, INC.
----------------------------
(TENANT)
UTILITY SERVICES
I. General
(1) Utility Services. Landlord shall cause the necessary mains, conduits
and other facilities to be provided and maintained to supply
conditioned water/air (where applicable), ----------------------------
------------------------, and electricity to the Demised Premises ----
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
b. Electricity
c. Heating and Cooling. Landlord shall, at its' own cost and expense,
construct, supply and maintain a Central Plant designed to furnish
a cooling medium to the Demised Premises. Tenant shall accept and
use the cooling medium furnished by the Landlord to the Demised
Premises.
(2) Utility and Service Charges. Tenant shall purchase and use such
utility and related services as are tendered by Landlord. The
"Utilities and Services Charge", as hereinafter defined, shall be
deemed additional rent under this Lease. Said Charge (including all
governmental sales taxes) as determined herein, and such adjustments
to said "Utilities and Service Charge" determined in accordance
herewith shall be due and payable without offset. Tenant shall pay
when due and without offset, the "Utilities and Services Charge", as
the same may be adjusted as provided for herein from time to time and
the same is hereby declared to be additional rent hereunder. The
failure, neglect or refusal to pay the same when due shall afford the
Landlord with all of the rights and privileges set forth in this Lease
for the nonpayment of rent and also those rights and privileges
afforded similarly situated entities which supply such services.
II. Method for Determining the "Utilities and Services Charge"
The term "Utility Cost", wherever used in this Section, shall mean the
cost to the Landlord of the utility, including all charges made to Landlord
by the public utility and/or all governmental authorities which furnish or
control said utility service to Landlord.
Tenant shall pay the Landlord in accordance with the provisions hereof,
computed as herein set forth, an amount determined in accordance with the
provisions hereof for such services supplied to the Demised Premises by
Landlord. Such charges to be designated as the "Utilities and Service
Charge." The Utilities and Service Charge shall be the sum of the following
charges:
A: Electricity Charge
B: Current Cooling Charge
1-D
<PAGE> 40
A. Electricity Charge. Tenant shall use electricity furnished by Landlord as
Tenant's sole source of electrical energy, and the Electricity Charge, as
hereinafter defined, shall be additional rent under this Lease. Landlord's
designated engineering consultant shall, from time to time, conduct a
survey of the Demised Premises in order to establish an estimate of the
electrical energy which will be used by the electrical installations in the
Demised Premises. This energy estimate shall be based upon data obtained
from Tenant's design plans and specifications and verified by an electrical
energy survey of the Demised Premises following completion of Tenant's
Work. The energy estimate shall consider Tenant's hours of operation and
the total electrical usage based on connected electrical loads consisting
of lighting, air conditioning equipment and other miscellaneous electric
equipment installed and controlled by Tenant. Landlord's engineer
consultant shall use the aforesaid survey estimate to establish Tenant's
Electricity Charge. In connection with each survey, Tenant shall furnish
Landlord, upon request, with the information required by Landlord to
estimate Tenant's electrical loads. Tenant shall pay Landlord, monthly in
advance, a sum equal to Tenant's Monthly Electricity Charge which shall be
based upon the aforesaid survey. The Electricity Charge may be revised by
Landlord from time to time to reflect an increase or decrease in the
following: taxes, rates charged to similar consumers by the electric
utility company, from which Landlord purchases its electricity, Tenant's
connected load, any adjustment required as a result of actual operating
experience, and seasonal requirements. In no event shall payment of the
Electricity Charge abate, nor shall Tenant have any right to offset in any
manner against the payment of such Electricity Charge.
B. Cooling Charges. Tenant shall pay Landlord, as additional rent, for chilled
water and use of same for air conditioning purposes, the Current Cooling
Charge which consists of the "Minimum Cooling Charge" of $1.85 per square
foot of Floor Area per annum, adjusted in the manner hereinafter provided.
The Current Cooling Charge shall be adjusted from time to time, but no less
often than (i) annually, (ii) each time the Landlord's utility costs are
adjusted, and/or (iii) each time an energy survey of the Demised Premises
by Landlord's consultant indicates that Tenant's use of chilled water has
changed in accordance with subsection B.1, as hereinafter set forth. The
annual Current Cooling Charge shall be calculated by multiplying the annual
"Minimum Cooling Charge" by a series of adjusting multipliers as follows:
"Current Cooling Charge" = Minimum Cooling Charge x M1 x M2 x M3 x M4
Tenant shall pay to Landlord monthly, in advance, a sum equal to one
twelfth (1/12) of the annual Current Cooling Charge. In no event shall
payment of the Current Cooling Charge abate, nor shall Tenant have any
right to offset or counterclaim against payment of such Current Cooling
Charge.
B.1 Capacity Multiplier: M1
The Capacity Multiplier, M1, is an adjusting multiplier to the Minimum
Cooling Charge to account for an installed cooling capacity greater than
the Design Criteria of 36 BTU/Hr-Sq Ft of Floor Area in accordance with
Exhibit C. M1 shall be the greater of 1 or the multiplier derived by
applying the following formula:
M1 = 1 + 0.69 x [(BTU/36) - 1]
The factor "BTU" shall mean BTU/Hr-Sq Ft of Floor Area and shall be the
greater of Tenant's actual installed cooling capacity or the design heat
gain (ASHRAE procedures) as estimated by Landlord's consultant based on one
or more of the following: (i) cooling loads obtained from Tenant's design
plans and specifications, and/or, (ii) cooling loads obtained from an
energy survey of the Demised Premises conducted by Landlord's Consultant.
B.2 Hours Multiplier: M2
The Hours Multiplier, M2, is an adjusting multiplier to the Current Cooling
charge to account for Tenant's use of chilled water during "Extra Hours"
as defined herein. M2 shall be the greater of 1 or the multiplier derived
by applying the following formula:
M2 = 1 + {Extra Hours/Regular Hours}
The term "Extra Hours" shall mean Tenant's hours of chilled water use
during times other than the originally established regular business hours
of the Shopping Center. The term "Regular Hours" shall mean originally
established business hours of the Shopping Center.
B.3 Utility Cost Multiplier: M3
The Utility Cost Multiplier, M3, is an adjusting multiplier to the Current
Cooling Charge to account for increases or decreases in the cost of
utilities which Landlord must pay for operation of the Central Plant. M3
shall be the greater of 1 or the multiplier derived by applying the
following formula:
M3 = 1 + 0.56 x [(Current Cost/Original Cost) - 1]
The term "Original Cost" shall mean "Utility Cost" based on utility rates
in effect on January 1, 1986. The term "Current Cost" shall mean "Utility
Cost" based on rates in effect on the date selected by Landlord.
2-D
<PAGE> 41
B.4 Maintenance Cost Multiplier: M4
The Maintenance Cost Multiplier, M4, is an adjusting multiplier to the Current
Cooling Charge to account for increases or decreases in the Central Plant
operating costs related to maintenance and management personnel. M4 shall be
the greater of 1 or the multiplier derived by applying the following formula:
M4 = 1 + 0.17 x [(Current CPI/Original CPI) - 1]
The term "Current CPI" shall mean the "Consumer Price Index" on the date
selected by Landlord. The term "Original CPI" shall mean the "Consumer Price
Index" on January 1, 1986. The term "Consumer Price Index" shall mean "United
States City Average All Items for All Urban Consumers (CPI-U, 1967=100)"
published by the Bureau of Labor Statistics of the U.S. Department of Labor. If
the publication of the Consumer Price Index of the U.S. Bureau of Labor
Statistics is discontinued, comparable statistics on the purchasing power of
the consumer dollar published by a responsible financial periodical selected by
Landlord shall be used for making such computations.
III. Example of Annual Utilities and Services Charge Calculations.
A. Assume the following hypothetical facts for a tenant in Riverchase
Galleria Shopping Center.
1. Store Size: 2,520 sq. ft. of Floor Area
2. Store Type: Dry goods, retail
3. Air Handling -- Cooling Coil Capacity: 102,000 BTU per hour*
*That is to say the rated capacity in BTU per hour of the installed
fan coil unit in the Demised Premises and as approved by Landlord.
4. Plumbing Fixtures as shown on Tenant's final approved plans:
<TABLE>
<CAPTION>
Item Water Supply Fixture Units**
<S> <C>
a. Flush Tank Water Closet... 1 ea. 5.0
b. Janitor's sink 3.0
c. Electric drinking fountain 0.25
-----------------------------
TOTAL SUPPLY FIXTURE UNITS 8.25
</TABLE>
**Per "American Standard National Plumbing Code", 1955 Edition,
Page 137, Table D.3.5 ("Demand Weight of Fixtures in Fixture
Units) and Chart Number 2, Page 138, of Paragraph D.3.6 ("Gallons
Per Minute Conversion to Fixture Units")
B. Example of Calculation:
(1) Cooling Charge: Minimum Cooling Charge = $1.85 per sq. ft. of Floor
Area per annum
3-D
<PAGE> 42
(2) Current Cooling Charge Calculation; and derivation of Multiplier M1:
<TABLE>
<S> <C>
a.
_ _
| _ _ |
1 + .69 x ||Tenant's Installed Air Handling-Cooling Coil Capacity in BTU/Hour | |
||----------------------------------------------------------------- | |
|| Square Feet of Demised Premises |-1| = Multiplier, M1
||_ _| |
|_----------------------------------------------------------------- _|
36 BTUs per Hour per Sq. Ft.
_ _
| _ _ |
|| 102,000 BTU/Hour | |
b. 1 + .69 x || ---------------- | -1 |
||_ 2,520 Sq. Ft. _| | = Multiplier, M1
| ---------------- |
| 36 BTUs/Hr/Sq. Ft. |
|_ _|
_ _
| 40.476 BTU/Hr/Sq.Ft. |
c. 1 + .69 x | ---------------- -1 | = Multiplier, M1
| 36 BTU/Hr/Sq. Ft. |
|_ _|
</TABLE>
d. 1 + .69 x (1.124 - 1) = Multiplier, M1
e. 1 + .69 x (0.124) = Multiplier, M1
f. 1 + 0.086 = Multiplier, M1
g. 1.086 = Multiplier, M1
h. Multipliers M2, M3, M4 = 1.0
i. Current Cooling Charge = Minimum Cooling Charge x M1 x M2 x M3 x M4
j. Current Cooling Charge = $1.85 x 1.086 x 1.0 x 1.0 x 1.0 = $2.01 per
square foot per year.
k. Annual Cooling Charge = $2.01 x 2,520 Sq. Ft. = $5,065.20 per year
(3) Current Water-Sewage Charge Calculation:
a. Minimum Water-Sewerage Charge = $229.80
b. Water Supply Fixture Units = 8.25 f.u.
c. Additional Fixture Unit Charge:
$6.00 x (8.25 f.u. installed - 7.00 f.u. allowed) =
$6.00 x 1.25 f.u. = $7.50
d. Minimum Water-Sewerage Charge = Minimum Water-Sewerage Charge +
Additional Fixture Unit Charge
e. Minimum Water-Sewerage Charge = $229.80 + $7.50 = $237.50 per year
f. Current Water-Sewerage Charge = Minimum Water-Sewerage Charge x
Multiplier
g. Current Water-Sewerage Charge = $237.30 x 1.0 = $237.30
C. Example Calculation: (Current Cooling Charge for Tenant's Increased Operating
Hours - refer to Exhibit D, Paragraph 11.B.2)
Assume the following hypothetical facts for the same Tenant in Riverchase
Galleria Shopping Center where the Shopping Center Annual Hours of Operations
are 4,056 and the Tenant's Annual Hours of Operation equals 4,368 hours.
(1) Sample Calculation; derivation of Multiplier M2
a. (Tenants annual operating hours) (Shopping Center regular annual
operating hours) = Tenant's annual additional operating hours in excess
of Shopping Center established operating hours.
4,368 hours Total Annual Hours
- 4,056 hours Regular Hours
---------------------------------
312 hours Extra Hours
4-D
<PAGE> 43
b. Refer to Exhibit D. Paragraph II.B.2. for following formula:
| Tenant's annual additional |
| operating hours in excess of |
| Shopping Center's originally |
| established regular operating hours |
| (annual basis) |
1 + | ----------------------------------- | = Multiplier, M2
| Originally established Shopping |
| Center regular operating hours |
| (annual basis) |
312 hours
c. 1 + ------------ = Multiplier, M2
4056 hours
d. 1 + 0.0769 = Multiplier, M2
e. 1.0769 = Multiplier, M2
f. Refer to Exhibit D. Paragraph II.A for the following formula:
Current Cooling Charge = Minimum Cooling Charge x M1 x M2 x
M3 x M4
g. Multiplier M1, 1.086 (from Example III, B)
h. Multipliers M3, M4 = 1.0
i. $1.85 x 1.086 x 1.077 x 1.0 x 1.0
j. Current Cooling Charge = $2.16 per square foot of Floor Area
per annum
D. Example Calculation: (Current Cooling charge for Increased Electrical Cost
-- refer to Exhibit D, Paragraph II.B.3.)
Assume the following hypothetical facts for the same tenant in Riverchase
Galleria Shopping Center where Alabama Power Company increased the cost of
electricity which it sells to the Landlord by five (5%) percent.
(1) Sample Calculation: derivation of Multiplier M3:
(Refer to Exhibit D, Paragraph II, B.3. for the following formula):
a. Multiplier, M3 = 1 + 0.56 x [(Current Cost/Original Cost) - 1]
b. Multiplier, M3 = 1 + 0.56 x [1.05 - 1]
c. Multiplier, M3 = 1.028
d. Multiplier, M1 = 1.086 (from example III.B.)
e. Multiplier, M2 = 1.077 (from example III.C.)
f. Multiplier, M4 = 1.0
g. Current Cooling Charge = Minimum Cooling Charge x M1 x M2 x M3
x M4
h. Current Cooling Charge = $1.85 x 1.086 x 1.077 x 1.028 x 1.0
i. $2.22 Per Square Foot of Floor Area Per Annum of the Demised
Premises = Current Cooling Charge
E. Example Calculation: Adjusted Cooling Charge for Increased Operating Costs
(other than electricity costs) refer to Exhibit D, Paragraph II.B.4;
derivation of Multiplier M4:
Assume the following hypothetical facts for the same tenant in Riverchase
Galleria Shopping Center where the Consumer Price Index increased by six
(6%) percent over the "Original CPI."
(1) Sample Calculation: derivation of Multiplier, M4:
a. Multiplier, M4 = 1 + 0.17 x [(Current CPI/Original CPI) - 1]
b. Multiplier, M4 = 1 + 0.17 x [1.06 - 1]
c. Multiplier, M4 = 1.0102
d. Multiplier, M1 = 1.086 (from Example III.B.)
e. Multiplier, M2 = 1.077 (from Example III.C.)
f. Multiplier, M3 = 1.028 (from Example III.D.)
5-D
<PAGE> 44
g. Current Cooling Charge = Minimum Cooling Charge x M1 x M2 x M3 x M4
h. Current Cooling Charge = $1.85 x 1.086 x 1.077 x 1.028 x 1.01
i. $1.88 per square foot of Floor Area per annum of the Demised
Premises = Current Cooling Charge
j. Annual Cooling Charge = $2.25 x 2.520 sq ft = $5,670.00
This Exhibit, consisting of number (6) pages, labeled 1-D through 6-D,
inclusive, is attached to and forms a part of the Lease dated
, 19 , and has been initialed by the parties hereto as
follows:
By: /s/ Elizabeth W. Hunter By: /s/ Illegible
------------------------------ ------------------------------
Landlord Tenant
Notwithstanding anything in this Exhibit "D" or in the Lease to the contrary,
the Utility and Service Charges as described in this Exhibit shall only apply in
the event Tenant adds scheduled, routine hours in the way of additional shifts
over and above normal work day hours, as described in Section 5 of the Lease.
6-D
<PAGE> 45
Intentionally Deleted
EXHIBIT A2
<PAGE> 46
[ILLUSTRATION OF FLOOR PLAN]
Suite 760
FLOOR PLAN 1"=30'
-----------------
MEDPARTNERS, INC.
7th Floor
2,433 Square Feet
EXHIBIT A3
<PAGE> 47
[ILLUSTRATION OF FLOOR PLAN]
Suite 980 & 990
FLOOR PLAN 1"=30'
----------------
MEDPARTNERS, INC.
9th Floor
6,297 Square Feet
EXHIBIT A4
<PAGE> 48
[ILLUSTRATION OF FLOOR PLAN]
FLOOR PLAN 1"=30'
-----------------
MEDPARTNERS, INC.
10th Floor
20,195 Square Feet
EXHIBIT A5
<PAGE> 49
[ILLUSTRATION OF FLOOR PLAN]
Suite 1110 Suite 1115
3,382 Sq. Ft. 7,110 Sq. Ft.
FLOOR PLAN 1"=30'
-----------------
MEDPARTNERS, INC.
11th Floor
10,492 Square Feet
EXHIBIT A6
<PAGE> 50
[ILLUSTRATION OF FLOOR PLAN]
MEDPARTNERS, INC.
12TH Floor
20,195 Square Feet
EXHIBIT A7
<PAGE> 51
[ILLUSTRATION OF FLOOR PLAN]
MEDPARTNERS, INC.
14th Floor
20,195 Square Feet
EXHIBIT A8
<PAGE> 52
[ILLUSTRATION OF FLOOR PLAN]
MEDPARTNERS, INC.
15th Floor
20,195 Square Feet
EXHIBIT A9
<PAGE> 53
[ILLUSTRATION OF FLOOR PLAN]
MEDPARTNERS, INC.
16TH Floor
20,195 Square Feet
EXHIBIT A10
<PAGE> 54
[ILLUSTRATION OF FLOOR PLAN]
MEDPARTNERS, INC.
17TH Floor
20,195 Square Feet
EXHIBIT A11
<PAGE> 55
MEDPARTNERS
MANUFACTURE AND INSTALL INTERNALLY ILLUMINATED LETTERS ON BUILDING
TWO (2) SETS REQUIRED (NORTH & SOUTH ELEVATIONS)
BLACK/WHITE ACRYLIC FACES
ALUMINUM RETAINERS AND RETURNS PAINTED DARK BRONZE
WHITE NEON ILLUMINATION
SCALE 1/4"=1'-0"
[ILLUSTRATION OF NEON LIGHT ATTACHMENT AND DESIGN OF TUBING]
[ILLUSTRATION OF NORTH ELEVATION AND SOUTH ELEVATION OF MEDPARTNERS BUILDING]
[ILLUSTRATION OF MEDPARTNERS NEON SIGN DIMENSIONS]
This is an original, unpublished drawing, submitted in connection with a
project we are planning for you. It is not to be copied, reproduced, exhibited
or shown to anyone outside of your organization without written permission of
Federal Sign.
[FEDERAL SIGN LOGO]
CLIENT MEDPARTNERS APPROVED_______________
ADDRESS 3000 GALLERIA TOWER CITY BIRMINGHAM, AL
REVISIONS________________________________________________
DESIGNER M.Malanowski/T.Z. DATE 5-21-97
ACCOUNT REP. L. CARACCIOLO
DISTRICT CHICAGO
DESIGN NO. 49920R
SCALE AS NOTED
JOB NO_____________
<PAGE> 56
LEASE AMENDMENT NO. 1
This Lease Amendment No. 1, herein referred to as the "Amendment", is made
and entered into this 1st day of October 1997, by and between MedPartners, Inc.,
herein referred to as "Tenant", and Riverchase Tower, Ltd., herein referred to
as "Landlord".
WITNESSETH:
WHEREAS, Landlord and Tenant, entered into that certain lease, herein
referred to as the "Lease", dated the 23rd day of June, 1997, for specific
office space, therein referred to as the Demised Premises, in the Galleria Tower
at Riverchase Galleria, Hoover, Alabama; and
WHEREAS, in Section 50 of that Lease, Landlord and Tenant agreed to
increase the size of the Demised Premises by adding additional floor space on
the third floor, herein referred to as "Third Floor Premises", for the
construction by Tenant of specific office space for use only as a "check-in"
station for Tenant's clients and visitors; and
WHEREAS, Landlord and Tenant have delineated the final location and size
for the Third Floor Premises.
NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant understand and agree as
follows:
1. Landlord does hereby Lease to Tenant and Tenant does hereby rent from
Landlord the Third Floor Premises, containing 90 square feet on the third
floor level (lobby floor) of the Galleria Tower, and more particularly
shown on Exhibit A, "Leasing Plan", attached hereto and made a part hereof,
and these "Third Floor Premises" shall be a part of the Demised Premises,
as defined in the Lease.
2. Tenant does hereby agree to renovate and construct any and all improvements
for the Third Floor Premises in strict accordance with plans and
specifications prepared by Tenant and approved in writing by Landlord.
Specifically, that portion of the Third Floor Premises fronting on the
lobby level shall be in accordance with the approved plans, attached hereto
and made a part hereof as Exhibit B, Plans and Specifications. The
construction and renovation of the Third Floor Premises shall be by Tenant
at Tenant's sole cost and expense. Tenant shall start construction within
thirty (30) days after receipt from Landlord of the approved plans and
specifications.
3. Tenant agrees to maintain and upkeep the Third Floor Premises in a manner
consistent with the overall lobby floor area of the Galleria Tower office
building. In the event Tenant fails to occupy the Third Floor Premises for
a period of time in excess of thirty (30) consecutive business days, then
Landlord shall have the option of cancelling Tenant's tenancy of the Third
Floor Premises by giving Tenant fifteen (15) days notice.
<PAGE> 57
4. Except as herein expressly modified, changed and amended the Lease shall
remain unchanged.
5. This Amendment shall be effective on the day and year first above written,
herein referred to as the "Effective Date".
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment on
the day and year first above written.
LANDLORD: RIVERCHASE TOWER, LTD.
BY: GALLERIA TOWER, INC.
ITS GENERAL PARTNER
By: /s/ Elizabeth W. Hunter
-------------------------------
Elizabeth W. Hunter
Its President
TENANT: MEDPARTNERS, INC.
By: /s/ illegible
-------------------------------
Its: EVP & Corp Sec
--------------------------
<PAGE> 58
EXHIBIT "A"
LOBBY LEVEL 90 SF
[LOBBY FLOOR PLAN]
<PAGE> 59
LOBBY LEVEL
Medpartners
[LOBBY FLOOR PLAN]
MEDPARTNERS Proposed Information Desk
Location: Lobby Level
Estimated Space: 10' x 10' 100 Square Feet
EXHIBIT A1
<PAGE> 60
STATE OF ALABAMA
COUNTY OF JEFFERSON
LEASE AMENDMENT AGREEMENT No. 2
This Lease Amendment Agreement No. 2, hereinafter sometimes referred to as
"Agreement", is made and entered into this 27 day of March 1998 by and between
MEDPARTNERS, INC., hereinafter referred to as "Tenant", and RIVERCHASE TOWER,
LTD., hereinafter referred to as "Landlord".
WITNESSETH THAT:
WHEREAS, Landlord and Tenant, did enter into a certain lease agreement
dated the 23rd day of June 1997, hereinafter referred to as "Lease", for those
certain premises, hereinafter referred to as the "Demised Premises", in the
Galleria Tower office building, Birmingham, Alabama, which Demised Premises, are
more particularly described and set forth in said Lease; and
WHEREAS, Tenant has made known to Landlord that Tenant no longer requires
all the office space on the 11th floor of the Galleria Tower secured by the
Lease, and
WHEREAS, the parties hereto now desire to delete specific floor area from
the Demised Premises in the manner hereinafter set forth.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant understand and agree as
follows:
1. DEMISED PREMISES. Section 1 of the Lease, Demised Premise, is hereby
amended by adding the following:
"Pursuant to the terms and conditions of this Agreement, Landlord and
Tenant agree that the Floor Area of the Demised Premises shall be
modified by the deletion of approximately 5,796 square feet ("Vacated
Area"), on the 11th floor as shown on Exhibit A, attached hereto and
made a part hereof said Vacated Area currently being occupied by the
Tenant known as Universal Underwriters Insurance Companies, Inc.
2. EFFECTIVE DATE. The effective date of this Agreement shall be April 1,
1998.
3. NO OTHER CHANGES. All of the other terms, provisions, stipulations and
conditions set forth in said Lease shall remain in full force and
effect except as herein expressly changed or amended.
1
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement on
the day and year first above written.
LANDLORD: RIVERCHASE TOWER, LTD.
WITNESS:
By: JIM WILSON & ASSOCIATES, INC,
as Manager
/s/ Barbara Hagan By: /s/ James W. Wilson Jr.
- ------------------------------- -------------------------------
James W. Wilson, Jr.
/s/ Barbara Stephens Its: President
- ------------------------------
WITNESS: TENANT: MedPartners, Inc.
By: /s/ illegible By: /s/ illegible
- ------------------------------- ----------------------------------
Its: Vice President - Real Estate Its: Executive Vice President and
- -------------------------------- ---------------------------------
Corporate Secretary
2
<PAGE> 62
Universal Underwriters
Suite 1100
[FLOOR PLAN]
EXHIBIT A
11TH FLOOR
<PAGE> 1
[GREAT PLAINS SOFTWARE LOGO]
EXHIBIT 10.18
North American Partner Agreement
This Agreement is made by and between THE TRIZETTO GROUP, INC. ("Partner") and
Great Plains Software, Inc. ("Great Plains") as of the date set forth below.
- --------------------------------------------------------------------------------
PARTNER BUSINESS ADDRESS
- --------------------------------------------------------------------------------
567 San Nicolas Dr., Suite 360
----------------------------------------------------------------------
Street
Newport Beach CA 92660
----------------------------------------------------------------------
City State/Province ZIP/Postal code
949-719-2200 949-718-4944
----------------------------------------------------------------------
Telephone Fax Employer ID/State Tax Number
Brian Karr Finance Director
----------------------------------------------------------------------
Contact Title/Position
Scott Monson
----------------------------------------------------------------------
Additional Title/Position
[email protected] TRIZETTO.COM
----------------------------------------------------------------------
Email Address Home Page Address
Partner billing address (if different from above):
Same
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State/Province ZIP/Postal code
----------------------------------------------------------------------
Telephone Fax
----------------------------------------------------------------------
Contact Title/Position
Whereas, Great Plains is the developer, owner and licensor of certain software
packages designated as the subject matter of this Agreement as marked in Section
1(A)("Software").
Whereas, Partner desires to become a business associate of Great Plains of the
type selected in Section 1(A) and under the terms and conditions hereof.
Now Therefore, the parties agree as follows.
- --------------------------------------------------------------------------------
1. GENERAL TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
A. Appointment. Great Plains hereby appoints Partner as (check and initial the
appropriate choice (one only)):
[X] Value Added Reseller [Illegible initials] (Section 12 not
--------------------
applicable)
[ ] Application Developer with selling option (Section 12 not
---
applicable)
[ ] Application Developer without selling option (Sections 11 and
---
12 not applicable)
[ ] Independent Consultant (Section 11 not applicable)
---
[ ] CPA Consultant (Section 11 not applicable)
---
for the following Software products and related services (check and initial
the appropriate choice(s)):
[ ] Profit
------------
[ ] Great Plains Accounting
--------------
[X] Dynamics
------------
[X] Dynamics C/S+
[X] Microsoft SQL Server [Illegible initials]
--------------------
[ ] FairCom NT/Btrieve NT
------------
[ ] Internet Product Line .
------------
Partner accepts such appointment in accordance with the provisions of this
Agreement and the corresponding Great Plains Partner Program.
B. Non-Exclusivity/Territory. Partner's appointment shall be nonexclusive and
only for the Software products and services marked in Section 1(A). Such
appointment does not constitute a grant of any specific territory or
<PAGE> 2
geographical area. Great Plains may increase or decrease the number of
Great Plains business associates in the vicinity of Partner's location at
any time without notice to Partner. PARTNER EXPRESSLY AGREES NOT TO
EXERCISE ANY OF THE RIGHTS GRANTED IN THIS AGREEMENT FOR ANY PARTY OUTSIDE
THE UNITED STATES AND CANADA ("TERRITORY"), INCLUDING PARTIES WHICH ARE
SUBSIDIARIES OR BRANCHES OF PARTIES LOCATED IN THE TERRITORY. ANY SALES
OUTSIDE THE TERRITORY MUST BE APPROVED BY GREAT PLAINS AND MUST BE
CONDUCTED BY PARTNER IN ACCORDANCE WITH GREAT PLAINS' MULTINATIONAL SALES
POLICY.
C. Partner Program. Partner agrees to comply with the current standard program
requirements in the applicable GREAT PLAINS PARTNER PROGRAM. These
requirements may be changed by Great Plains upon thirty (30) days written
notice. Partner may request a copy of the current requirements at any time.
D. Conduct. Partner shall undertake no acts injurious to the business or
goodwill of Great Plains.
E. Independent Entities. Notwithstanding the use of the designation "Partner",
Partner is an independent contractor and shall at no time have the power
[1] to bind Great Plains; [2] to vary any terms, conditions, warranties or
covenants made by Great Plains; or [3] to create in favor of any person any
rights which Great Plains has not previously authorized in writing. The
relationship under this Agreement shall not create any legal partnership,
franchise relationship or other form of legal association between the
parties which would impose a liability of one party upon the other.
F. Insurance. Partner shall maintain during the term of this Agreement: [1]
all required workers' compensation or similar insurance; and [2]
comprehensive general liability insurance with at least $500,000 combined
single limit for personal injury and property damage for each occurrence.
Partner shall promptly supply Great Plains with proof of such insurance
upon request.
G. Taxes and Fees. Partner warrants that it shall be solely responsible for
the payment of any taxes, excises, duties, or charges which may arise by
virtue of the transactions contemplated hereunder, or shall comply with
necessary procedures to claim exemption.
H. Communications. Partner must sign on to Great Plains' electronic
communication system and execute the ELECTRONIC DATABASE ACCESS AND LICENSE
AGREEMENT prior to using the system.
- --------------------------------------------------------------------------------
2. PARTNERS ENGAGING IN DEVELOPMENT
- --------------------------------------------------------------------------------
A. Development. Partner may be granted access to certain software tools (such
as Import Utility, Modifier and the Software Development Kit) composed of
software programs, files and documentation (collectively the
"DynamicTools(R)"). For purposes of this Agreement, the term
DynamicTools(R) does not include Dexterity(R) or DynamicSource(R).
B. Grant of License. Great Plains grants Partner the non-transferable and
non-exclusive right to [1] use the DynamicTools(R) to customize the
Software; to create or integrate products or add-on features; to provide
access to certain data; or to create applicable documentation; and [2]
manufacture, promote, market and distribute the resulting products in the
Territory. Partner may use the DynamicTools(R) only at its business
location above.
C. Integrity. Partner agrees not to alter any information within Great Plains
products that could damage the integrity of data files or audit trails or
modify the data in such a manner as to deviate from the established
guidelines set by GAAP and FASB.
D. Compatibility. Partner agrees to maintain compatibility between Partner's
product and Software within a reasonable time after the release of any new
version, update or upgrade. Partner acknowledges that any updates or
upgrade that Great Plains makes to its Software may result in
incompatibility.
E. Limitations. Partner or any employee, agent or other person acting on
Partner's behalf may not: [1] sublicense, disclose, publish or transfer the
DynamicTools(R) to a third party; or [2] translate the DynamicTools(R) into
another computer language or in any way reverse engineer, decompile, or
disassemble them.
F. Warranty/Limitation of Warranty. THE DYNAMICTOOLS(R) AND CODE AND LAYOUT
EXAMPLES GREAT PLAINS MAY PROVIDE ARE LICENSED `AS IS', AND GREAT PLAINS
DISCLAIMS ANY AND ALL OTHER WARRANTIES.
G. Other Tools. In the event Partner desires to develop with Great Plains'
Dexterity(R) and/or DynamicSource(R) software, Partner may apply for such
rights in accordance with Great Plains' corresponding programs and shall
execute the applicable license agreements.
H. Listings. To be listed in Great Plains publications or partake in other
marketing opportunities, Partner must own a current and complete set of the
Software and shall pay the applicable fees. Great Plains may, at any time
and for any reason in its sole discretion, decide to list, not to list or
to revoke a listing of Partner. Partner agrees to be listed in any Great
Plains publications.
I. Competing Products. Partner acknowledges that Great Plains may produce
products similar to Partner's and that Partner is given no guarantees or
exclusive rights to a market.
J. Quality. Partner shall ensure that all of its software programs are of a
quality equal to or better than the quality of Great Plains'. Partner shall
not release any software with any known Level 1 errors. A Level 1 error
<PAGE> 3
is an error that causes program execution to stop or corruption of data or
both. Partner warrants and covenants that it will follow the same software
and documentation quality standards and tests which Great Plains has
adopted or will in the future adopt. Upon request, Partner shall permit
Great Plains to review Partner's work during normal business hours.
K. Partner Warranty. Partner shall provide an adequate warranty to its
customers for any software developed with the DynamicTools(R). Partner
shall include a provision in its software license that Partner, and not
Great Plains, shall be solely responsible for remedying any problems in its
programs. Great Plains offers no warranty on these software programs. Great
Plains shall not be considered to be a party to any agreements between
Partner and a customer.
- --------------------------------------------------------------------------------
3. WARRANTY AND LIMITATIONS
- --------------------------------------------------------------------------------
A. General Warranties. Great Plains represents and warrants to Partner that
[1] it has sufficient right, title and interest in and to the Software to
enter into this Agreement; and [2] that all Software distributed to Partner
is free and clear of all liens.
B. Software Warranties. Partner's exclusive warranty regarding the Software is
set forth in the applicable Software License Agreements provided with the
Software.
C. Limitation of Warranties
THE ABOVE WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND,
EXPRESS OR IMPLIED, REGARDING THE SOFTWARE AND DOCUMENTATION AND ANY
SERVICES PROVIDED BY GREAT PLAINS INCLUDING WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL GREAT PLAINS BE LIABLE FOR INDIRECT, CONSEQUENTIAL, OR
INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE) ARISING
OUT OF THE RELATIONSHIP BETWEEN GREAT PLAINS AND PARTNER EVEN IF IT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
GREAT PLAINS' CUMULATIVE LIABILITY UNDER THIS AGREEMENT, INCLUDING ANY
CAUSE OF ACTION IN CONTRACT, TORT OR STRICT LIABILITY, SHALL BE LIMITED TO
THE PARTNER FEES PAID BY PARTNER DURING THE 12 MONTHS PRIOR TO SUCH EVENT.
GREAT PLAINS' LIMITATION OF LIABILITY IS CUMULATIVE WITH ALL GREAT PLAINS
EXPENDITURES TO ADDRESS LIABILITY BEING AGGREGATED TO DETERMINE
SATISFACTION OF THE LIMIT. PARTNER RELEASES GREAT PLAINS FROM ALL
OBLIGATIONS, LIABILITIES, CLAIMS OR DEMANDS IN EXCESS OF THE LIMITATION.
THE PARTIES ACKNOWLEDGE THAT OTHER PARTS OF THIS AGREEMENT RELY UPON THE
INCLUSION OF THIS SECTION AND THE RESULTING ALLOCATION OF RISKS.
D. Partner Actions. Great Plains shall have no obligation to any party under
any warranty given by partner, its agents or employees. Partner shall not
make any representation or warranty with respect to the Great Plains
products other than those stated by Great Plains in its written warranty,
documentation and literature.
E. Partner Indemnification. Partner agrees to indemnify Great Plains and to
hold it harmless from and against any loss, damage, claims or demands
whatsoever arising out of Partner's activities.
F. Complaints. Partner shall make all reasonable efforts to handle all
incidents of customer complaints or demands regarding the Software and
shall report promptly to Great Plains all such incidents. Partner shall
make no warranty repairs on the Software and shall instruct customers to
contact Great Plains.
- --------------------------------------------------------------------------------
4. CONFIDENTIALITY
- --------------------------------------------------------------------------------
Partner agrees not to disclose any confidential information received from
Great Plains in any form to any employees who do not have a specific need
to use such information or to any outside party (including contractors)
without Great Plains' prior written consent. All employees or contractors
who receive such Great Plains confidential information must be bound by
written agreement not to disclose such information to any other party.
Partner acknowledges that the unauthorized disclosure or use of Great
Plains confidential information would cause irreparable harm and
significant injury to Great Plains that may be difficult to compensate.
Accordingly, Partner agrees that Great Plains will have the right to seek
and obtain temporary and permanent injunctive relief in addition to any
other rights and remedies it may have. The obligations of confidentiality
shall not apply to information which [1] is in public domain at the time of
disclosure, [2] has been released by Great Plains without restrictions, [3]
has been lawfully obtained by Partner from a third party under no
obligation of confidentiality, or [4] is independently developed by
employees of Partner without access to the confidential information.
<PAGE> 4
- --------------------------------------------------------------------------------
5. TRADEMARKS
- --------------------------------------------------------------------------------
A. Definition. "GPS Trademarks" means any and all current or future company
names, product names, marks, logos, designs, trade dress and other
designations or brands used by Great Plains in connection with its products
and services and all marks similar thereto.
B. License. Great Plains grants Partner the right to use the GPS Trademarks
solely for the purpose of distributing and marking the Software, provided
that Partner: [1] uses the appropriate GPS Trademarks for the corresponding
Software; [2] identifies all GPS Trademarks are registered trademarks of
Great Plains Software, Inc.; [3] take reasonable steps to modify all
objectionable uses of the GPS Trademarks; and [4] complies with the then
current GPS Trademark and Logo Policies. Great Plains reserves the right to
revoke or limit the use of GPS Trademarks at any time upon reasonable
notice.
C. Ownership. Partner acknowledges that Great Plains is the sole owner of the
GPS Trademarks and nothing herein shall grant to Partner any right or
interest in the GPS Trademarks. Partner shall not register, or attempt to
register, any GPS Trademarks or any marks confusingly similar thereto in
any jurisdiction.
D. Limitations. Except as stated above, Partner is granted no right, title,
license or interest in the GPS Trademarks. Partner acknowledges Great
Plains' rights in the GPS Trademarks and agrees that any and all use of the
GPS Trademarks by Partner shall inure to the sole benefit of Great Plains.
Partner agrees that it shall take no action inconsistent with Great Plains'
ownership of the GPS Trademarks and agrees not to challenge Great Plains'
rights in or attempt to register any of the GPS Trademarks, or any other
name or mark owned or used by Great Plains or any mark confusingly similar
thereto. If at any time Partner acquires any rights in, or any registration
or application for, any of the GPS Trademarks by operation of law or
otherwise, it will immediately, upon request by Great Plains and at no
expense to Great Plains, assign such rights, registrations, or applications
to Great Plains, along with any and all associated goodwill.
E. Notification. Partner shall promptly notify Great Plains of any use by any
third party of GPS Trademarks or any use by such third parties of similar
marks which may constitute an infringement or passing off of GPS
Trademarks. Great Plains reserves the right, in its sole discretion, to
institute any proceedings against such third party infringers and Partner
shall refrain from doing so itself. Partner agrees to cooperate fully with
Great Plains in any action taken by Great Plains against such third
parties, provided that all expenses of such action shall be borne by Great
Plains and all damages which may be awarded or agreed upon in settlement of
such action shall accrue to Great Plains.
- --------------------------------------------------------------------------------
6. PROPRIETARY RIGHTS
- --------------------------------------------------------------------------------
A. Ownership. Partner understands and agrees that Partner takes title only to
the media on which the Software is provided. Title in and ownership of all
copies of Great Plains' products and documentation, GPS Trademarks and all
property rights therein, shall remain at all times vested in Great Plains.
Partner acknowledges that the Software is protected by domestic and
international copyright and other forms of proprietary rights and agrees
not to copy or otherwise reproduce, modify, adapt, translate, reverse
engineer, decompile, disassemble or create derivative works based on the
Software or the documentation.
B. No Rights Granted. No provision in this Agreement shall be interpreted as
an assignment or grant to Partner of any right, title or interest in the
Software, documentation or GPS Trademarks.
C. Protection. Partner agrees to take any reasonable step necessary to protect
the proprietary rights of Great Plains and its suppliers or licensors,
including, but not limited to, the proper display of copyright, trademark,
trade secret and other proprietary notices on any copies of the Tools.
Partner must reproduce and include any such notices, other legends and
logos on any backup copies.
D. Copyright Notice. Partner agrees not to remove and shall reproduce and
include all copyright notices or confidential or proprietary legends in and
on all copies of Great Plains products or documentation. Any printed
reference to Great Plains' products must include the following notice (or
such notice as required by Great Plains) with [YEAR] being the then current
year:
(Copyright) Great Plains Software, Inc. [YEAR]. All Rights Reserved.
E. Breach. Partner understands and agrees that the protection of Great Plains'
rights in and to the Software, documentation and GPS Trademarks and the
prevention of any unauthorized copying, reproduction, modification,
adaptation, translation, reverse engineering, decompilation, disassembly
and creation of derivative works, is of the essence of this Agreement and
that any failure on its part, however minor, to discharge its obligations
shall constitute a material breach of this Agreement.
- --------------------------------------------------------------------------------
7. TERM AND TERMINATION
- --------------------------------------------------------------------------------
A. Term. This Agreement shall enter into effect on the date it is signed by
both parties.
B. Termination. This Agreement shall terminate [1] automatically in the event
Partner breaches any provision of this Agreement or fails to comply with
the provisions of the Great Plains Partner Program; [2] automatically in
the event that Partner is the subject of a proceeding in bankruptcy, is
placed in receivership,
<PAGE> 5
or enters into an arrangement for the benefit of its creditors, or [3] for
any reason, upon thirty (30) days written notice by either party to the
other party.
C. Rights. Upon termination of this Agreement for any reason, all rights
granted to Partner shall immediately cease and Partner shall immediately
return to Great Plains all software and confidential information provided
by Great Plains.
D. No Compensation. Neither party shall be liable to the other for damages,
losses, or expenses of any kind or character on account of the termination
of this Agreement, whether such damage, loss, or expense may arise from the
loss of prospective customers of Partner, or expenses incurred or
investments made in connection with the establishment, development, or
maintenance of Partner's business. Termination or expiration shall not
affect any claim, demand, or liability of any party created or arising
hereunder prior to such time.
- --------------------------------------------------------------------------------
8. FORCE MAJEURE
- --------------------------------------------------------------------------------
A. Definition. "Force Majeure" shall mean any event or condition not
reasonably within the control of either party, which prevents in whole or
in material part the performance by one of the parties of its obligations
hereunder or which renders the performance of such obligations so difficult
or costly as to make such performance commercially unreasonable.
B. Notice. Upon giving notice to the other party, a party affected by an event
of Force Majeure shall be released without any liability on its part from
the performance of its obligations under this Agreement, except for the
obligation to pay any amounts due and owing hereunder, but only to the
extent and only for the period that its performance of such obligations is
prevented by the event of Force Majeure. The other party may likewise
suspend the performance of all or part of its obligations hereunder to the
extent that such suspension is commercially reasonable.
- --------------------------------------------------------------------------------
9. NOT FOR RESALE SOFTWARE
- --------------------------------------------------------------------------------
A. NFR Software. Partner may acquire Software to be used for internal
accounting and demonstration purposes in Partner's direct business as it
relates to software. Such "Not For Resale Software" shall be for Partner's
internal use only and shall not be relicensed or transferred or made
available to any other party by any means under any condition.
B. Limitation. Partner may not make any copies of the NFR Software or install
or transfer the NFR Software to any party.
C. No Credit. Partner agrees there are no return for credit privileges on Not
For Resale Software modules.
- --------------------------------------------------------------------------------
10. SOFTWARE EVALUATION LICENSE
- --------------------------------------------------------------------------------
Great Plains may provide Partner with certain software and documentation for
evaluation purposes ("Evaluation Software"). The following provisions apply to
such software.
A. Limited License. Great Plains grants Partner the non-exclusive and
non-transferable right, only for the purposes of evaluating the Evaluation
Software, to execute the Evaluation Software at Partner's business location
and use the documentation.
B. Evaluation Program. Partner shall comply with Great Plains' instructions
with regard to the evaluation.
C. DISCLAIMER OF WARRANTIES. THE EVALUATION SOFTWARE IS LICENSED `AS IS', AND
GREAT PLAINS DISCLAIMS ANY AND ALL WARRANTIES.
D. Errors/Bugs. Partner acknowledges Evaluation Software may be experimental,
may not have been fully tested or debugged or may be from the initial beta
release and thus may contain problems and require revisions. Great Plains
will not provide updates or upgrades to the Evaluation Software.
E. Rights. Partner acknowledges that the Evaluation Software is proprietary to
and a valuable trade secret of Great Plains and is entrusted to Partner
only for evaluation purposes. Partner shall treat the Evaluation Software
as confidential information in the strictest confidence. This Agreement
does not constitute a grant or an intention or commitment to grant any
right, title or interest in the Evaluation Software or Great Plains' trade
secrets.
- --------------------------------------------------------------------------------
11. PROVISIONS FOR VALUE ADDED RESELLER PARTNERS AND SELLING APPLICATION
DEVELOPERS
- --------------------------------------------------------------------------------
The following provisions apply to partners which have been appointed selling
partners under Section 1(A).
A. Rights. Great Plains grants to Partner the non-exclusive and
non-transferable license to license the use of the Software to commercial
end user customers in the Territory. All Software licensed by Partner shall
be transferred solely in Great Plains' standard packaging and through the
terms of the appropriate Software License Agreement between the customer
and Great Plains provided by Great Plains from time to time. Delivery of
copies of Software to Partner is made solely to enable Partner to exercise
this right. Partner shall not license or transfer any Great Plain products
for the purpose of retransfer by or to others.
B. Limitations. Partner shall distribute only object code copies of the
Software that Partner has purchased from Great Plains. Such distribution
may only take place at the business location(s) identified above and in
<PAGE> 6
Appendix A. Partner shall not distribute Software by Direct Response.
Direct Response shall be defined as an invitation, through advertising or
otherwise, for orders by mail, telephone, fax or other remote communication
rather than by a visit to a distribution location during which the Customer
can obtain personal customer service and demonstration from Partner.
C. Pricing. So long as Partner has paid to Great Plains the full fee for the
Software package licensed, Partner shall in its discretion establish a
reasonable license fee for each Software License Agreement.
D. Promotion. Partner shall use its best efforts to promote and license the
Software. Licensee shall promptly report and follow up all sales leads.
E. Pricing. For each Software package ordered by Partner from Great Plains,
Partner shall pay to Great Plains the amount set forth in the then current
"Partner Price List" as published by Great Plains as of the date of the
delivery of such Software package to Partner or carrier for shipment to
Partner, whichever occurs first. Great Plains reserves the right to revise
and republish such price list from time to time.
F. Payment. All deliveries by Great Plains to Partner shall be prepaid or
delivered C.O.D. as determined by Great Plains. Great Plains reserves the
right to suspend further shipment under any order or series of orders in
the event that payment of any amount due hereunder is not made, or if made
is not honored in the ordinary course of business.
G. Purchase Money Security Interest. In the event Great Plains, in its sole
discretion, allows Partner credit or accepts any payment by check, Great
Plains retains a purchase money security interest in each copy of the
Software and related documentation delivered to Partner and in the proceeds
therefrom. Partner grants Great Plains the power of attorney to execute any
and all financing statements on behalf of Partner with respect to such
security interest and expressly authorizes Great Plains to file the same.
H. Shipping. All shipments from Great Plains are made FOB the carrier selected
by Great Plains. All shipping dates specified by either party are
approximate. Neither party shall incur any liability for failure to ship on
such dates.
I. Records. Partner shall, during this Agreement, and for a period of one year
thereafter, maintain records relating to the contracts, invoices, accounts,
complaints, and other transactions relating to the Software. Great Plains
may directly, or through its agent, at any time during normal business
hours and for any reason inspect such records and other financial
information.
J. Updates. Great Plains may, but shall not be obligated to, make improvements
and updates in the Software. Such updates shall be offered to Partner as
part of the Software at the same time and on such terms as Great Plains
offers these to any other of its Partners.
K. Corrupt Practices. Partner represents that it will not make any payment or
transfer anything of value, directly or indirectly, to any government
official or employee; to any officer, director, employee, or
representative, or agent of any actual or potential customer; or to any
other person or entity if such payments would violate applicable laws.
- --------------------------------------------------------------------------------
12. PROVISIONS FOR CONSULTANT PARTNERS
- --------------------------------------------------------------------------------
The following provision applies to partners which have been appointed a
Consultant partner under Section 1(A). Consultant Partner agrees to act as
an advisor to customers and potential customers of Great Plains regarding
the Software. Partner shall perform these advisory services upon the
request of Great Plains or one of its customers or potential customers,
within a reasonable time after the request. Partner shall perform in
accordance with Great Plains' most current policies for partners as they
may be amended from time to time. Partner shall give information to
customers and potential customers consistent with the information supplied
to the public or to Partner by Great Plains, including information released
through its manuals and literature on the Software. Partner shall not be
obligated to perform services for any party requesting services, if it does
not desire to do so. Partner shall maintain a trained staff sufficient to
demonstrate, advise and implement the Software.
- --------------------------------------------------------------------------------
13. ASSIGNMENT
- --------------------------------------------------------------------------------
This Agreement is not assignable by Partner without prior written consent
by Great Plains, which shall not be unreasonably withheld. Great Plains may
assign this Agreement and its interest in the Software to any party without
the consent of Partner. This Agreement shall inure to the benefit of any
successor of Great Plains and shall not be affected by any change in the
ownership or control of Great Plains. Partner shall execute a new agreement
in the event Partner changes its legal structure or name.
- --------------------------------------------------------------------------------
14. MISCELLANEOUS
- --------------------------------------------------------------------------------
A. Complete Agreement. THIS AGREEMENT AND THE PROVISIONS OF THE CURRENT
PARTNER PROGRAM, AS AMENDED FROM TIME TO TIME, CONSTITUTE THE ENTIRE
AGREEMENT OF THE
<PAGE> 7
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL
PREVIOUS AGREEMENTS BY AND BETWEEN GREAT PLAINS AND PARTNER AS WELL AS ALL
PROPOSALS, ORAL OR WRITTEN AND ALL PRIOR NEGOTIATIONS, CONVERSATIONS OR
DISCUSSIONS BETWEEN THE PARTIES RELATED TO THIS AGREEMENT. PARTNER
ACKNOWLEDGES THAT IT HAS NOT BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY
ANY REPRESENTATIONS OR STATEMENTS, ORAL OR WRITTEN, NOT EXPRESSLY CONTAINED
HEREIN.
B. Amendment. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by
written amendment signed by the parties hereto.
C. Unenforceability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, such provision shall be considered severable from
this Agreement and the remaining provisions shall continue in full force
and effect. The parties will replace a severed provision by a provision
which is closest to the intent of the parties.
D. Notices. Notices permitted or required to be given hereunder shall be
deemed sufficient if given [1] by registered or certified mail, postage
prepaid, return receipt requested, addressed to the addresses above or such
other addresses as the respective parties may designate by like notice from
time to time, or [2] by international courier, telex or telegram, or
telefax to the telefax number above. Any notice shall be deemed effective
when received by the receiving party.
E. Governing Law and Jurisdiction. This Agreement is made and executed by
Partner and Great Plains in Cass County, North Dakota. Partner consents to
the jurisdiction by the Courts of Cass County, North Dakota, in connection
with any dispute arising between the parties. The Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota.
F. Counterparts. This Agreement shall be executed in two or more counterparts
in the English language and each such counterpart shall be deemed an
original hereof.
G. Waiver. No failure by either party to take any action or assert any right
hereunder shall be deemed to be a waiver of such right in the event of the
continuation or repetition of the circumstances giving rise to such right.
H. Government. If Partner is acting on behalf of any unit or agency of the
United States Government, the following provisions apply: [1] Any products
Partner acquires under this Agreement for or on behalf of the United States
Government are provided to the United States of America with RESTRICTED
RIGHTS. Use, duplication, or disclosure by the U.S. Government is subject
to restrictions as set forth in subparagraph (c)(1)(ii) of the Rights in
Technical Data and Computer Software clause at DFARS 252.277-7013 and
paragraph (d) of the Commercial Computer software-Restricted Rights clause
at FAR 52.227-19; [2] Great Plains grants Partner the right to transfer
Software to the United States government subject to the following
restrictions. With the exception of the Department of Defense, you will not
distribute Software to the United States of America except (i) on terms at
least as restrictive as those set forth in subparagraph (c)(1)(ii) of the
Rights in Technical Data and Computer Software clause at DFARS 252.227-7013
and paragraph (d) of the Commercial computer Software-Restricted Rights
clause at FAR 52.227-19, and (ii) in compliance with particular department
or agency acquisition regulations that provide Great Plains protection at
least equivalent to that provided by the above-referenced DFARS and FAR
provisions.
I. Export Restrictions. Partner expressly agrees to neither directly or
through third parties export or transmit any Software to any country to
which such export or transmission is restricted or prohibited by applicable
regulations or statutes.
In Witness Whereof, the Parties hereto have executed this Agreement as of the
date below.
Great Plains Software, Inc. Partner The Trizetto Group, Inc.
------------------------
/s/ Julie Joaasson /s/ D. Brian Karr
- ------------------------------ --------------------------------
Signature Signature
D. BRIAN KARR
- ------------------------------ --------------------------------
Print Name Print Name
Treasurer, Finance Director
- ------------------------------ --------------------------------
Title Title
5/26/99
--------------------------------
Date
<PAGE> 8
- --------------------------------------------------------------------------------
APPENDIX A: ADDITIONAL DISTRIBUTION LOCATION
- --------------------------------------------------------------------------------
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State/Province ZIP/Postal code
----------------------------------------------------------------------
Telephone Fax
----------------------------------------------------------------------
Contact Title/Position
Please send to:
Great Plains Software, Inc.
Sales Administration
PO Box 9739
Fargo, ND 58109.
If you have questions, please call 800-456-0025 or 701-281-0550
(FAX: 701-281-3100)
[GREAT PLAINS SOFTWARE LOGO]
MAOG-0000-0S00 10/96
<PAGE> 1
EXHIBIT 10.19
RESTRICTED STOCK AGREEMENT
(GENERAL FORM)
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is made this _____ day
of ___________, 1998, by and among The TriZetto Group, Inc., a Delaware
corporation (the "Company"), and (the "Holder").
R E C I T A L S :
A. Certain investors have agreed to acquire shares of Series A
Preferred Stock of the Company;
B. Pursuant to the Exchange Agreement dated October 1, 1997 between
the Company and the Holder, the Holder acquired _______ shares of Common Stock
of the Company (the "Shares"); and
C. As a condition to the sale of Series A Preferred Stock of the
Company pursuant to that certain Series A Convertible Preferred Stock Purchase
Agreement of even date herewith (the "Series A Purchase Agreement"), the Holder
and the Company desire to impose certain rights of repurchase for the benefit of
the Company, and rights of first refusal for the benefit of the Company and
certain shareholders, with respect to the Shares, upon the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. REPURCHASE RIGHTS AND RESTRICTION ON TRANSFER
1.1 VESTING OF SHARES. Certain of the Shares owned by the
Holder shall be subject to the right and option of the Company to purchase the
Shares as set forth in this Section 1. For purposes of this Section 1, the
Shares shall vest in accordance with the following:
(a) __________ (which number constitutes fifty
percent (50%) of the Shares owned by the Holder) Shares shall be vested
as of the date of this Agreement; and
(b) 1/2 of each of the Holder's remaining _________
Shares shall vest one year following the Closing (as defined in the
Series A Purchase Agreement) and the other 1/2 shall vest two years
following the Closing.
Except as otherwise specifically provided above, the Shares
shall cease to vest further in accordance with the above schedule on the date
("Termination Date") on which the Holder shall cease to be a "Service Provider"
(as hereinafter defined) (a "Termination"). Hereinafter, the Shares which are
vested as described in this Section 1.1 are sometimes referred to as the "Vested
Shares," and the Shares which are not so vested are sometimes referred to as the
"Nonvested Shares."
<PAGE> 2
Notwithstanding the foregoing, in the event of a Change in
Control (as defined herein) or a sale of substantially all of the Company's
assets, vesting shall be accelerated and all Nonvested Shares shall vest
immediately prior to such Change in Control or sale. A Change of Control is any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation) which will result in the Company's
stockholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving or continuing entity. In addition, in the
event of the death or total disability (as defined herein) of the Holder,
vesting shall be accelerated and all Nonvested Shares shall vest. Total
disability shall mean an inability of Executive, due to a physical or mental
illness, injury or impairment, to perform a substantial portion of his duties
for a period of one hundred eighty (180) or more consecutive days, as determined
by the Company's Board of Directors.
For the purpose of this Agreement, the Holder shall be deemed to
be a "Service Provider" to the Company for so long as the Holder is a an
employee, of the Company, or a parent or subsidiary of the Company. A leave of
absence (regardless of the reason therefor) shall be deemed to constitute the
cessation of Service Provider status as of the commencement date of the leave,
unless such leave is authorized by the Company in writing and the Holder
recommences providing services on or prior to the expiration date of such leave.
Accordingly, the Holder shall receive credit as a Service Provider to the
Company during a leave of absence only if the leave is authorized by the Company
and the Holder recommences providing services on or prior to the expiration date
of the leave.
1.2 OPTION TO REPURCHASE NONVESTED SHARES. In the event of a
Termination of a Holder, then the Company shall have an unconditional option to
purchase from the Holder, or his personal representative, as the case may be,
all or any part of the Nonvested Shares owned by the Holder on the Termination
Date, at Holder's cost for such Nonvested Shares which cost is $_______ per
share, as adjusted for any stock splits or combinations after the date hereof.
Such option shall be exercised in accordance with Section 1.3 of this Agreement.
1.3 PROCEDURES FOR EXERCISE OF PURCHASE OPTIONS. For ninety
(90) days after the Termination Date, the Company shall have the right to
repurchase all or any part of the Nonvested Shares pursuant to Section 1.2 by
giving the Holder and/or any other person obligated to sell written notice of
the number of Nonvested Shares which the Company desires to purchase. In the
event that the Company does not elect to exercise its repurchase rights as to
all or part of the Shares under the provisions of this Section 1.3 by written
notice to the Holder, the repurchase rights shall expire as to all Nonvested
Shares which the Company has not elected to acquire.
1.4 NOTIFICATION AND SETTLEMENT. In the event that the
Company has elected to exercise its repurchase rights as to part or all of the
Nonvested Shares, the Company shall notify the Holder and/or any other person
obligated to transfer the Nonvested Shares as set forth in Section 1.3 above
within the period described above and the Holder or such other person shall
deliver to the Company certificate(s) representing the Nonvested Shares to be
acquired by the Company within ten (10) days following the date of the notice
from the Company. The Company shall deliver to the Holder against delivery of
the Nonvested Shares, checks of the Company payable to the Holder and/or any
other person obligated to transfer the Nonvested Shares in the aggregate amount
of the purchase price to be paid as set forth in Section 1.3 above.
2
<PAGE> 3
1.5 RESTRICTION ON TRANSFER. The Nonvested Shares shall not
be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of,
shall not be assigned or transferred, directly or indirectly and shall not be
subject to execution, attachment or similar process, and any attempted sale or
other disposition shall be null and void.
1.6 TERMINATION OF PURCHASE OPTIONS. Purchase options of the
Company set forth in Section 1.2 shall terminate if such option becomes
exercisable and is not exercised within the period set forth in Section 1.3, or
if all of the Shares become Vested Shares.
2. RIGHTS OF FIRST REFUSAL
2.1 RIGHT OF FIRST REFUSAL OF COMPANY. In the event the
Holder desires, at any time, to sell, transfer, assign or otherwise dispose of
any Vested Shares (the "Offered Shares"), or receives a bona fide offer from a
third party to purchase such Offered Shares, the Holder shall deliver a notice
(the "Notice") to the Company stating (i) the Holder's bona fide intention to
sell or transfer the Offered Shares, (ii) the number of such Shares to be sold
or transferred, (iii) the price for which the Holder proposes to sell or
transfer such Offered Shares, (iv) the name of the proposed purchaser or
transferee, or class of purchaser or transferee, and (v) all other material
terms and provisions relating to the proposed sale or transfer. Within thirty
(30) days after receipt of the Notice, the Company or its assignee may elect to
purchase all or any part of the Offered Shares to which the Notice refers, at
the price per share and the other terms and provisions of sale specified in the
Notice. However, should the purchase price specified in the Notice be payable in
property other than cash or evidences of indebtedness, the Company (or its
assignees) shall have the right to pay the purchase price in the form of cash
equal in amount to the fair market value of such property. If the Holder and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Notice, the valuation shall be made by an
appraiser of recognized standing experienced in the valuation of businesses
selected by the Holder and the Company (or its assignees). The closing shall
then be held on the later of (i) thirty (30) days following the Company's (or
its assignees') exercise of its purchase rights hereunder, (ii) ten (10) days
after such cash valuation shall have been made, or (iii) ten (10) days after the
final allocation of Offered Shares to be purchased, if any, pursuant to the
provisions of Section 2.2 below.
2.2 RIGHT OF FIRST REFUSAL OF INVESTORS AND FOUNDERS. If all
of the Offered Shares to which the Notice refers are not elected to be purchased
by the Company as provided in Section 2.1, the Secretary of the Company shall
promptly give notice of the contemplated transfer to all of the holders of
Series A Preferred Stock and any other investor in the Company to which the
Company may give rights to hereunder ("Investors") and Jeffrey H. Margolis and
Raymond D. Croghan (collectively, "Founders") (the "Investors" and the
"Founders" being, for purposes of this Section 2, "Purchasers"). The Purchasers
shall have the right to purchase the remaining Offered Shares for the
consideration and according to the terms of payment upon which the Company was
entitled to purchase Offered Shares under the provisions of Section 2.1. Within
thirty (30) days after the receipt of such notice, any Purchaser desiring to
acquire any part or all of Offered Shares shall deliver to the Company a written
election to purchase said Offered Shares, or a specified number thereof. If the
notices from the Purchasers specify in the aggregate more Shares than are
subject to purchase by the Purchasers, the Offered Shares shall be allocated as
follows:
3
<PAGE> 4
(i) Each Purchaser electing to purchase Offered
Shares shall be allocated a number of Offered Shares equal to the lesser
of (a) the number of Offered Shares which that shareholder has offered
to purchase, or (b) the number of Offered Shares which bears the same
ratio to the number of Offered Shares which are not being purchased by
the Company as the number of shares owned by that Purchaser bears to the
number of shares owned by all Purchasers who have elected to purchase
Offered Shares.
(ii) If any Offered Shares remain to be allocated
after the application of subsection (i) above, they shall be allocated
to Purchasers who elected to purchase more Offered Shares than were
allocated to them. Each such Purchaser shall be allocated a number of
Offered Shares equal to the lesser of (a) the number of Offered Shares
which that Purchaser elected to purchase less the number of Offered
Shares already allocated to that Purchaser, or (b) the number of Offered
Shares which bears the same ratio to the number of Offered Shares which
have not yet been allocated as the number of shares owned by that
Purchaser bears to the total number of shares owned by all Purchasers
who have elected to purchase more Offered Shares than were allocated to
them. If, as a result of the foregoing provisions of this subsection
(ii), all of the Offered Shares subject to the Offer Notice not being
purchased by the Company have not been allocated, the balance shall be
allocated by successively applying this subsection (ii) as many times as
is necessary to allocate all of the Offered Shares.
(iii) For the purposes of subsection (i) and
subsection (ii), shares owned by any Purchaser shall include all shares
of Common Stock and all shares of any class or series which are
convertible or exchangeable for shares of Common Stock, determined as if
such convertible or exchangeable shares have been converted or exchanged
for shares of Common Stock.
2.3 EFFECT OF FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If
any Offered Shares to which the Notice refers are not elected to be purchased,
as provided in Sections 2.1 and 2.2 above, the Holder may sell such unpurchased
Vested Shares to any person or any member of the class of persons named in the
Notice at the price and on the terms specified in the Notice or at a higher
price, provided that such sale or transfer is consummated within ninety (90)
days after the expiration of the last option of the Company or the Purchasers to
acquire such shares pursuant to Sections 2.1 and 2.2, and, provided further,
that (i) any such sale is in accordance with all the terms and conditions
hereof, and (ii) such person or member of the class of persons specified in the
Notice executes and becomes a party to this Agreement and thereby agrees to
receive and hold all of the Offered Shares subject to all of the provisions and
restrictions contained herein (including the imposition of a restrictive legend
on the certificates representing such shares).
2.4 JUDICIAL TRANSFERS. All proposed judicial transfers and
sales of the Shares by order of any court or referee in bankruptcy ("Order")
shall be subject to the terms and provisions of Section 2 of this Agreement. In
the event a sale or transfer is proposed pursuant to an Order, all of the terms
of this Section 2 shall apply, with the following modification. Instead of a
notice of intent to transfer being delivered to the Company, a copy of the Order
shall be delivered to the Company by the proposed transferee, which shall state
the name and address of the proposed transferee and shall specify the number of
the Shares to be sold and the consideration per Share. For other purposes of
this Section 2, the receipt of the Order shall be treated as the receipt of the
notice of intended disposition as set forth in Section 2.1 above. All proposed
transfers pursuant to an Order which do not set forth the
4
<PAGE> 5
purchase price capable of valuation which would allow the Company to exercise
its rights of first refusal are expressly prohibited. Any purported transfer in
contravention of this Section 2.4 shall be null and void and shall pass no title
to the proposed transferee.
2.5 PERMITTED TRANSFERS. The rights of the Company and/or
the Purchasers under this Section 2 of this Agreement shall not pertain or apply
to any transfer of the Shares to the Holder's ancestors or descendants or spouse
or to a trustee for their benefit or the Holder's benefit; provided that (1) the
Holders shall inform the Company and the Purchasers of such transfer prior to
effecting it and (2) the transferee (the "Permitted Transferee") shall furnish
the Company and the Purchasers with a written agreement to be bound by and
comply with all provisions of this Agreement applicable to the Holders.
2.6 TERMINATION. The provisions of Article 2 shall terminate
upon the closing of an underwritten public offering of the Company's Common
Stock pursuant to an effective registration statement (other than a registration
on Form S-4 relating solely to a Rule 145 transaction or a registration relating
solely to any employee benefit plan) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, from which the
aggregate gross proceeds (before expenses, underwriting discounts and
commissions) exceeds $15,000,000 and in which the public offering price per
share is at least three hundred percent (300%) of the then current or most
recent Series A Preferred Stock Conversion Price.
3. LEGENDS
Each certificate representing shares of the Common Stock of the
Company now or hereafter owned by the Holder shall be endorsed with the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL AS SET
FORTH IN A RESTRICTED STOCK AGREEMENT DATED ____________, 1998
BY AND AMONG THE REGISTERED HOLDER, THE CORPORATION AND OTHERS.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY THOSE PERSONS OR
ENTITIES HAVING A LEGITIMATE INTEREST UPON WRITTEN REQUEST TO
THE SECRETARY OF THE CORPORATION."
4. RECAPITALIZATION
In the event that, as the result of a stock split or stock dividend or
combination of shares or any other change, or exchange for other securities, by
reclassification, or recapitalization of the Shares, the Holder shall be
entitled to new or additional or different shares of stock or securities, the
certificate or certificates for, or other evidences of, such new or additional
or different shares or securities shall be imprinted with the legend provided in
Section 3 above.
5. SHARES FREE AND CLEAR
All Shares purchased by the Company pursuant to this Agreement
shall be delivered by the Holder free and clear of all claims, liens and
encumbrances of every nature (except the provisions
5
<PAGE> 6
of this Agreement, the Company's Certificate of Incorporation and any conditions
concerning the Shares imposed pursuant to any applicable provisions of federal
or state securities laws), and the purchaser thereof shall acquire full and
complete title and right to all of the Shares, free and clear of all claims,
liens and encumbrances of every nature (again except for the provisions of this
Agreement, the Company's Certificate of Incorporation and such securities laws).
6. NO AGREEMENT TO RETAIN STATUS
Nothing in this Agreement shall be construed to constitute or be
evidence of any agreement or understanding, express or implied, on the part of
the Company to retain Holder in his or her status as an employee of the Company
for any specific period of time.
7. STOP-TRANSFER NOTICES
The Holder understands and agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop-transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
8. TAX ELECTIONS
The Holder acknowledges that he has considered the advisability
of all tax elections in connection with the purchase of the Shares and the
execution and delivery of this Agreement, including the making of an election
under Section 83(b) of the Internal Revenue Code of 1986, as amended, and any
similar elections under California or applicable state law, and that the Company
has no responsibility for the making of any such election.
9. MISCELLANEOUS
9.1 NOTICES. Any notice required or permitted to be given to
a party pursuant to the provisions of this Agreement shall be in writing and
shall be effective upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified as set forth
below such party's signature or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
9.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights
and obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective permitted successors, assigns and legal
representatives.
9.3 THIRD PARTY BENEFICIARIES. The Investors and the
Founders are third party beneficiaries of Article 2 of this Agreement and may
enforce their rights thereunder. The Investors may assign their rights
thereunder. The Company may grant rights under Section 2.2 to subsequent
investors in the Company.
9.4 SEVERABILITY. In the event one or more of the provisions
of this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this
6
<PAGE> 7
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
9.5 AMENDMENTS AND WAIVERS. Any amendment or modification of
this Agreement shall be effective only if evidenced by a written instrument
executed by duly authorized representatives of the parties hereto. Any such
amendment or modification shall not be effective unless approved by the written
consent of the Company and Holder, provided however, that Section 2 may only be
amended by the Company, the Holder and the Purchasers. Any party may waive its
individual rights hereunder, either prospectively or retroactively, which shall
be effective only if evidenced by a written instrument executed by a duly
authorized representative of such party. In no event shall such waiver of any
rights hereunder constitute the waiver of such rights in any future instance
unless the waiver so specifies in writing.
9.6 GOVERNING LAW. This Agreement is being executed and
delivered and is intended to be performed in, and shall be governed by and
construed in accordance with, the laws of the State of California.
9.7 ATTORNEYS' FEES. If any party shall bring an action in
law or equity against another to enforce or interpret any of the terms,
covenants and provisions of this Agreement, the prevailing party in such action
shall be entitled to reasonable attorneys' fees which the other party hereby
agrees to pay.
9.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to its subject matter and supersedes
all prior or contemporaneous written or oral agreements and understandings of
the parties, either express or implied.
9.9 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year indicated above.
COMPANY:
THE TRIZETTO GROUP INC.
By:
-------------------------------------
Its:
------------------------------------
Address: 567 San Nicholas Drive
Newport Beach, California 92660
HOLDER:
----------------------------------------
----------------------------------------
Address:
--------------------------------
--------------------------------
8
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
<S> <C>
Croghan & Associates, Inc. ................................. Colorado
Margolis Enterprises, Inc. ................................. California
Creative Business Solutions, Inc. .......................... Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated August 3, 1999 relating to the financial statements and
financial statement schedule of The Trizetto Group, Inc. and its subsidiaries,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
San Jose, CA
August 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001092458
<NAME> THE TRIZETTO GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,937
<SECURITIES> 0
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10,932
0
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</TABLE>
