<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1999
REGISTRATION NO. 333-84533
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
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. [ ]
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 OCTOBER 4, 1999
PROSPECTUS
4,200,000 SHARES
TRIZETTO LOGO
COMMON STOCK
-------------------------
This is an initial public offering of 4,200,000 shares of common stock of The
TriZetto Group, Inc. Of the 4,200,000 shares of common stock offered under this
prospectus, we are offering 3,850,000 shares and Raymond D. Croghan and his
charitable remainder trust are offering an additional 350,000 shares. We will
not receive any of the proceeds from the shares of common stock sold by Raymond
D. Croghan and his charitable remainder trust.
We anticipate that the initial public offering price will be between $11.00 and
$13.00 per share. Our common stock has been approved for listing on the Nasdaq
National Market under the symbol "TZIX."
At our request, the underwriters will reserve at the initial public offering
price up to $2 million of common stock for sale to Employers Health Insurance
Company (a wholly-owned subsidiary of Humana Inc.) which has expressed a
non-binding interest in acquiring these shares. This would represent an
aggregate of 166,667 shares of common stock at an assumed initial public
offering price of $12.00 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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 discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
Proceeds to selling stockholders............................ $ $
</TABLE>
-------------------------
We have granted the underwriters a 30-day option to purchase up to 630,000
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 in New York, New York, on October ,
1999.
-------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
ADAMS, HARKNESS & HILL, INC.
WIT CAPITAL CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
TRIZETTO LOGO
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information found in greater detail elsewhere in
this prospectus. In addition to this summary, we urge you to read the entire
prospectus carefully, including 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 underwriters' over-allotment option is not exercised.
THE TRIZETTO GROUP, INC.
OUR COMPANY
We provide complete information technology solutions to our healthcare
industry customers. These solutions include providing and managing remotely
operated software applications, establishing and maintaining Internet and other
network connections, and developing and hosting healthcare Internet portals that
are tailored to the needs of our customers. We also offer professional
information technology consulting services that improve our customers' use of a
variety of software applications, information technology or Internet service.
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 providing a comprehensive set of information technology solutions, we
eliminate our customers' needs to manage and support their own computer systems,
networks and software, allowing them to concentrate on their primary business.
The third party packaged and proprietary software applications we host may
be used for communications, physician office practice management, billings and
collections, claims processing, accounting and other business functions. We have
acquired rights to deploy numerous commercially available software applications
from a variety of healthcare software vendors, including Epic Systems, Inc.,
Medic Computer Systems, Inc., Medical Manager Corporation and McKesson HBOC,
Inc. We host these software applications from our facilities on most of the
widely used computing, networking and operating platforms. We provide access to
our hosted software applications either across the Internet or across
traditional networks. Our proprietary solutions and methods enable our customers
to access our hosted software applications using leading Internet browsers. We
believe that this method of access differentiates us from our competitors.
HealthWeb(TM), our healthcare Internet portal, provides access to software
applications, whether they operate on new or legacy platforms, from a single
screen on our HealthWeb users' computer desktops. From a variety of menu choices
on the same screen, our HealthWeb users can submit forms and claims, order
supplies, transmit patient data, gather information from other websites and
perform other tasks over the Internet. HealthWeb is tailored to specifically
address the requirements of individual users which we expect will include most
types of healthcare administrative staff. HealthWeb is currently being used by a
test group of providers and is in full use by a number of payers. Currently,
providers use HealthWeb for day-to-day office administration activities, access
to health plans and communication with patients. Payers currently use HealthWeb
to exchange information with their providers and members. We expect to widely
offer HealthWeb to other users by the end of 1999 after we develop additional
functions and features based upon the feedback we receive from our test group.
Our Professional Services Group takes a vendor-independent approach to
supporting our customers' use of any software application and healthcare
Internet solutions. Our qualified information technology professionals, who were
recruited from the healthcare industry, provide consulting services specifically
developed to address our customers' information technology needs. Our consulting
professionals analyze
1
<PAGE> 5
our customers' business strategies, technical competence, business management
processes and abilities to support their existing information technology. Based
upon this analysis, our professionals recommend and implement software and
technology best suited to our customers' business needs. In addition, we provide
executive-level information technology professionals and temporary technicians
and software programmers for our clients who do not have, choose not to have, or
cannot afford, their own information technology staff.
Our software applications, information technology services and HealthWeb
offer our customers the following key benefits:
- rapid deployment and ease of connection of a variety of software
applications;
- access to additional useful functions of the Internet;
- reasonable, predictable costs;
- reliability and scalability;
- lower implementation risk;
- preservation of existing investment in existing legacy systems; and
- access to healthcare and managed care industry expertise.
Our objective is to enhance our position as a leading provider of software
applications and related information technology services used in the healthcare
industry and establish HealthWeb as a leading healthcare Internet portal. We
expect to achieve this objective by offering our customers high quality,
reliable, flexible and cost-effective applications, additional methods to more
effectively use the Internet 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 and e-commerce technologies;
- increasing use of HealthWeb by both existing and new customers;
- 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> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us........................... 3,850,000 shares
Common stock offered by Raymond D. Croghan and his
charitable remainder trust......................... 350,000 shares
Common stock to be outstanding after this offering... 19,658,231 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."
Nasdaq National Market symbol........................ TZIX
</TABLE>
- ---------------
The number of shares of common stock outstanding after this offering is
based on shares outstanding on August 31, 1999.
This calculation excludes:
- 2,995,668 shares of common stock issuable upon exercise of options
outstanding under our stock option plan with a weighted average exercise
price of $1.30 per share (207,542 of these options were exercisable as of
August 31, 1999 and the balance are subject to future vesting
requirements).
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. (now known
as Caremark Rx, Inc.) to provide information technology services to MedPartners
with respect to 67 physician groups representing approximately 1,780 physicians
while MedPartners terminates its relationships with these groups. In addition,
we purchased hardware, furniture and fixtures and a software license for
$2,350,000 from MedPartners and paid a software license transfer fee of
$280,000. According to public filings, MedPartners was in the business of
providing integrated healthcare services, including physician practice
management and pharmaceutical distribution and claims processing. MedPartners'
management independently decided to divest its physician practice management
operations. As part of this disassociation process, MedPartners began
outsourcing the information technology services for physician groups to third
party contractors through a competitive bidding process. We are not
participating in MedPartner's disassociation process, other than to indirectly
provide these information technology services to existing clients of
MedPartners. 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
terminates its relationships with 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. We cannot assure you that as the
disassociation process continues, we will succeed in doing so.
We will lose revenue if we are not successful in entering into service
contracts directly with these disassociated groups to replace the information
technology services previously provided by MedPartners or if we are requested to
provide a reduced scope of services. As of August 31, 1999, groups representing
15% of the physicians we initially serviced under the MedPartners agreement had
chosen alternative providers of information technology services.
We are pursuing the opportunity to provide customized application services
to 39 groups on an ongoing basis, representing approximately 1,523 physicians,
or 85% of the total physicians available at the time the MedPartners' agreement
was signed. As of August 31, 1999, we continued to provide services to
MedPartners with respect to 28 groups, representing approximately 808
physicians. Furthermore, we have negotiated multi-year contracts with 11
disassociated groups, representing approximately 715 physicians.
------------------------
3
<PAGE> 7
TriZetto(SM), 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(SM) 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.
4
<PAGE> 8
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 and the
financial statements of our predecessor company, Croghan & Associates, Inc. and
related notes, included elsewhere in this prospectus.
Also, with respect to information relating to the number of shares used in
per share calculations and information relating to pro forma calculations,
please note the following:
- 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.
- See Note 13 of 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.
- The pro forma information for the consolidated balance sheet data at June
30, 1999 represents 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 3,850,000 shares of common stock offered by us at an
assumed initial public offering price of $12.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
THE TRIZETTO GROUP, INC.
----------------------------------------------------
CROGHAN & ASSOCIATES, INC. PERIOD FROM
---------------------------- MAY 27, 1997
NINE MONTHS (DATE OF SIX MONTHS ENDED
YEAR ENDED ENDED INCEPTION) TO YEAR ENDED JUNE 30,
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ---------------------
1996 1997 1997 1998 1998 1999
------------ ------------- ------------- ------------ ----------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues.................. $ 5,088 $ 3,881 $2,519 $11,431 $ 5,053 $12,709
Gross profit.................... 1,020 272 847 3,974 1,807 3,562
Income (loss) from operations... (1,122) (2,143) 175 (16) 42 (675)
Income (loss) before
extraordinary item............ (2,442) (2,212) 103 60 32 (727)
Net income (loss)............... $(2,442) $(1,212) $ 103 $ 60 $ 32 $ (727)
Net income (loss) per share:
Basic......................... $ 0.05 $ 0.01 $ 0.01 $ (0.12)
====== ======= ======= =======
Diluted....................... $ 0.03 $ 0.00 $ 0.00 $ (0.12)
====== ======= ======= =======
Number of shares used in
computing net income (loss)
per share:
Basic......................... 2,065 4,937 5,066 6,216
====== ======= ======= =======
Diluted....................... 4,074 12,783 11,380 6,216
====== ======= ======= =======
Pro forma net income (loss) per
share:
Basic......................... $ 0.01 $ (0.06)
======= =======
Diluted....................... $ 0.00 $ (0.06)
======= =======
Number of shares used in
computing pro forma net income
(loss) per share:
Basic......................... 11,213 12,492
======= =======
Diluted....................... 16,171 12,492
======= =======
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
THE TRIZETTO GROUP, INC.
CROGHAN & ------------------------------------------
ASSOCIATES, INC. AS OF JUNE 30, 1999
AS OF AS OF DECEMBER 31, ---------------------
DECEMBER 31, ------------------ PRO FORMA
1996 1997 1998 ACTUAL AS ADJUSTED
---------------- ------- -------- ------- -----------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 1,757 $ 773 $ 3,681 $ 4,033 $45,999
Total assets................................. 11,174 2,634 8,720 20,399 62,365
Total long-term debt and capital lease
obligations................................ 1,400 520 645 2,082 2,082
Mandatorily redeemable convertible preferred
stock...................................... -- -- 6,449 10,932 --
Total stockholders' equity (deficit)......... 7,819 563 (741) 86 52,984
</TABLE>
6
<PAGE> 10
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 had revenue of $2.5 million for the
period from May 27, 1997 (date of inception) to December 31, 1997, $11.4 million
for the year ended December 31, 1998 and $12.7 million for the six months ended
June 30, 1999. 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 SOFTWARE APPLICATION VENDOR RELATIONSHIPS, AND IF OUR SOFTWARE
APPLICATION VENDORS TERMINATE OR MODIFY EXISTING CONTRACTS OR EXPERIENCE
BUSINESS DIFFICULTIES, OR IF WE ARE UNABLE TO ESTABLISH NEW RELATIONSHIPS WITH
ADDITIONAL SOFTWARE APPLICATION VENDORS, IT COULD HARM OUR BUSINESS.
We depend, and will continue to depend, on our licensing and business
relationships with our third party software application vendors, including Epic
Systems, Inc., Medic Computer Systems, Inc., Medical Manager Corporation and
McKesson HBOC, Inc. 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. Although most of our licensing agreements are perpetual or
automatically renewable, they are subject to termination in the event that we
materially breach such agreements. 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 functional uses
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 software application 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
7
<PAGE> 11
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
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
software application 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 software application
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.
WE HAVE A LIMITED NUMBER OF CUSTOMERS AND RELATIVELY FIXED OPERATING COSTS, AND
IF OUR CUSTOMERS TERMINATE OR MODIFY EXISTING CONTRACTS OR EXPERIENCE BUSINESS
DIFFICULTIES, IT COULD ADVERSELY AFFECT OUR EARNINGS.
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.
As of August 31, 1999, we were providing services to approximately 80
customers. Based on our financial results for the month of August 1999, our
application services agreement with MedPartners represents approximately 39% of
our revenues and our professional services agreement with CCN Managed Care, Inc.
represents approximately 12% of our revenues. As of August 31, 1999, groups
representing 15% of the physicians we initially serviced under the MedPartners
agreement had chosen alternative providers of information technology services.
The initial term of the MedPartners agreement expires on December 31, 1999 and
our CCN agreement expires on May 4, 2002. Neither agreement ensures that we will
continue to receive significant revenues during the term of the agreement.
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.
8
<PAGE> 12
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.
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. Under the
MedPartners agreement, we agreed to provide information technology services to
MedPartners with respect to 67 groups representing approximately 1,780
physicians while MedPartners terminates its relationships with these groups. As
of August 31, 1999, we were providing application services to MedPartners with
respect to 28 groups and are pursuing the opportunity to provide customized
application services to 39 groups on an ongoing basis. At the time we entered
into the MedPartners agreement, we were aware that a number of groups were
actively seeking alternative information technology services. From May 1, 1999
to August 31, 1999, we have recognized revenues from MedPartners of $5.5 million
which constituted approximately 43% of our overall revenues during that period.
If we are not successful in entering into application services contracts
directly with the groups prior to disassociation we will lose this 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.
9
<PAGE> 13
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.
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 two 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.
WE COULD LOSE CUSTOMERS AND REVENUE IF WE FAIL TO MEET THE PERFORMANCE STANDARDS
IN OUR CONTRACTS.
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.
10
<PAGE> 14
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 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.
11
<PAGE> 15
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;
- 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 THIS OFFERING
SINCE WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING, WE
MAY USE THE PROCEEDS IN WAYS WITH WHICH YOU DISAGREE.
We have not allocated specific amounts of the net proceeds from this
offering for any specific purpose. 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 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.
12
<PAGE> 16
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.
FUTURE FINANCING COULD ADVERSELY AFFECT YOUR OWNERSHIP INTEREST AND RIGHTS IN
COMPARISON WITH THOSE OF OTHER STOCKHOLDERS.
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.
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 19,658,231 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. 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.
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 $12.00 per share will be only $2.47. 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 47%
(37% 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
13
<PAGE> 17
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.
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.
IF WE FAIL TO MEET THE CHANGING DEMANDS OF TECHNOLOGY, WE MAY NOT CONTINUE TO BE
ABLE TO COMPETE SUCCESSFULLY WITH OTHER PROVIDERS OF SOFTWARE APPLICATIONS AND
HEALTHCARE PORTALS.
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.
14
<PAGE> 18
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
the various 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 OF THE HEALTHCARE INDUSTRY COULD ADVERSELY
AFFECT OUR BUSINESS.
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 adversely affect the healthcare industry which could
adversely impact our business.
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 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
15
<PAGE> 19
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.
PROSPECTIVE CHANGES IN APPLICABLE ACCOUNTING STANDARDS COULD CHANGE THE WAYS WE
RECOGNIZE REVENUE AND COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Prospective changes in the generally accepted accounting standards that
apply to our business, including revenue recognition policies and amortization
of charges associated with goodwill in acquisitions, could alter the way we
recognize revenue and have an adverse effect on our financial results.
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.
16
<PAGE> 20
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 3,850,000 shares of
common stock offered by us are estimated to be approximately $41,966,000 after
deducting the underwriting discounts and commissions and the estimated offering
expenses payable by us, based on an assumed public offering price of $12.00 per
share. We will not receive any proceeds from the sale of the shares that Raymond
D. Croghan and his charitable remainder trust are selling. The primary purposes
of this offering are to take advantage of favorable market conditions to raise
additional equity capital, create a public market for our common stock and
facilitate future access to public markets.
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 and Internet 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 performed studies or determined the actual 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.
Pending the above uses, we intend to invest the net proceeds of this
offering in interest-bearing investment grade securities, including taxable
securities such as governmental securities, asset-backed securities, corporate
bonds and certificates of deposits and tax exempt securities such as municipal
bonds and notes.
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.
17
<PAGE> 21
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 3,850,000 shares
offered hereby at an assumed initial public offering price of $12.00 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...... $ 2,082 $ 2,082 $ 2,082
------- -------- --------
Mandatorily redeemable convertible preferred stock,
$0.001 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:
Common Stock, $0.001 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; 19,495,636 shares
issued and outstanding pro forma as adjusted....... 9 16 19
Additional paid-in capital............................ 8,092 19,017 60,980
Notes receivable from stockholders.................... (41) (41) (41)
Deferred stock compensation........................... (6,062) (6,062) (6,062)
Accumulated deficit................................... (1,912) (1,912) (1,912)
------- -------- --------
Total stockholders' equity......................... 86 11,018 52,984
------- -------- --------
Total capitalization............................... $13,100 $ 13,100 $ 55,066
======= ======== ========
</TABLE>
18
<PAGE> 22
DILUTION
Our pro forma net tangible book value as of June 30, 1999, was $6.2 million
or $0.40 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 3,850,000 shares of common stock at an initial public offering
price of $12.00 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 $48.2 million, or $2.47 per share of common stock.
This represents an immediate increase in pro forma net tangible book value of
$2.07 per share to existing stockholders and an immediate dilution of $9.53 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............. $12.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.40
Pro forma increase in net tangible book value attributable
to new investors....................................... 2.07
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.47
------
Pro forma dilution per share to new investors............... $ 9.53
======
</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 80% $11,025,000 19% $ 0.70
New investors...................... 3,850,000 20 46,200,000 81 12.00
---------- --- ----------- ----
Total.................... 19,495,636 100% $57,225,000 $100%
========== === =========== ====
</TABLE>
The foregoing table and calculations are based on shares outstanding on
June 30, 1999 and exclude:
- 2,801,128 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.
The foregoing table and calculations include 6,276,224 shares of common
stock issuable upon conversion of all outstanding shares of convertible
preferred stock.
Please see "Management -- 1998 Stock Option Plan" and "Description of
Capital Stock."
19
<PAGE> 23
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 statements of operations data
of Croghan & Associates, Inc., for the year ended December 31, 1996 and for the
nine months ended September 30, 1997 are derived from the audited financial
statements of Croghan & Associates, Inc. included elsewhere in this prospectus.
The consolidated statements of operations data of the Company for the period
from May 27, 1997 (date of inception) to December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30, 1999 and the
consolidated balance sheet data as of December 31, 1997 and 1998 and June 30,
1999 are derived from the Company's audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statement of operations
data of the Company for the six months ended June 30, 1998 is derived from
unaudited consolidated financial statements included elsewhere in this
prospectus. The balance sheet data of Croghan & Associates, Inc. as of December
31, 1996 is derived from unaudited financial statements not included 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 results of operations for
the period. 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>
THE TRIZETTO GROUP, INC.
CROGHAN & ASSOCIATES, INC. --------------------------------------------------------
---------------------------- PERIOD FROM
NINE MONTHS MAY 27, 1997 SIX MONTHS ENDED
YEAR ENDED ENDED (DATE OF INCEPTION) YEAR ENDED JUNE 30,
DECEMBER 31, SEPTEMBER 30, TO DECEMBER 31, DECEMBER 31, ------------------
1996 1997 1997 1998 1998 1999
------------ ------------- ------------------- ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Recurring revenue..................... $ 5,088 $ 3,881 $1,191 $ 5,300 $ 2,590 $ 6,201
Consulting revenue.................... -- -- 1,328 6,131 2,463 6,508
------- ------- ------ ------- ------- -------
Total revenues.......................... 5,088 3,881 2,519 11,431 5,053 12,709
------- ------- ------ ------- ------- -------
Costs of revenues:
Recurring revenue..................... 4,068 3,609 1,250 3,967 1,662 5,038
Consulting revenue.................... -- -- 422 3,490 1,584 4,109
------- ------- ------ ------- ------- -------
Total cost of revenues.................. 4,068 3,609 1,672 7,457 3,246 9,147
------- ------- ------ ------- ------- -------
Gross profit............................ 1,020 272 847 3,974 1,807 3,562
------- ------- ------ ------- ------- -------
Operating expenses:
Research and development.............. -- -- -- 1,083 592 440
Selling, general and administrative... 2,142 2,415 672 2,885 1,173 3,098
Amortization of deferred stock
compensation(1)..................... -- -- -- 22 -- 215
Write-off of acquired in-process
technology(2)....................... -- -- -- -- -- 484
------- ------- ------ ------- ------- -------
Total operating expenses................ 2,142 2,415 672 3,990 1,765 4,237
------- ------- ------ ------- ------- -------
Income (loss) from operations........... (1,122) (2,143) 175 (16) 42 (675)
Interest income......................... 21 15 15 210 60 76
Interest expense........................ (1,341) (84) (13) (52) (25) (100)
------- ------- ------ ------- ------- -------
Income (loss) before provision for
income taxes and extraordinary item... (2,442) (2,212) 177 142 77 (699)
Provision for income taxes.............. -- -- 74 82 45 28
------- ------- ------ ------- ------- -------
Income (loss) before extraordinary
item.................................. (2,442) (2,212) 103 60 32 (727)
Extraordinary item:
Gain on forgiveness of debt........... -- 1,000 -- -- -- --
------- ------- ------ ------- ------- -------
Net income (loss)....................... $(2,442) $(1,212) $ 103 $ 60 $ 32 $ (727)
======= ======= ====== ======= ======= =======
Net income (loss) per share(3):
Basic................................. $ 0.05 $ 0.01 $ 0.01 $ (0.12)
====== ======= ======= =======
Diluted............................... $ 0.03 $ 0.00 $ 0.00 $ (0.12)
====== ======= ======= =======
Number of shares used in computing net
income (loss) per share(3):
Basic................................. 2,065 4,937 5,066 6,216
====== ======= ======= =======
Diluted............................... 4,074 12,783 11,380 6,216
====== ======= ======= =======
Pro forma net income (loss) per
share(4):
Basic................................. $ 0.01 $ (0.06)
======= =======
Diluted............................... $ 0.00 $ (0.06)
======= =======
Number of shares used in computing pro
forma net income (loss) per share:
Basic................................. 11,213 12,492
======= =======
Diluted............................... 16,171 12,492
======= =======
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
CROGHAN & THE TRIZETTO GROUP, INC.
ASSOCIATES -----------------------------------
AS OF AS OF DECEMBER 31,
DECEMBER 31, ------------------ AS OF
1996 1997 1998 JUNE 30, 1999
------------ ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 1,757 $ 773 $3,681 $ 4,033
Total assets.................................... 11,174 2,634 8,720 20,399
Total long-term debt and capital lease
obligations................................... 1,400 520 645 2,082
Mandatorily redeemable convertible preferred
stock......................................... -- -- 6,449 10,932
Total stockholder's equity (deficit)............ $ 7,819 $ 563 $ (741) $ 86
</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.
See Note 7 of Notes to Consolidated Financial Statements.
(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.
21
<PAGE> 25
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 are a leading provider of remotely hosted third party and proprietary
software applications and related services for use in the healthcare industry.
We host software applications from leading software vendors, including Epic
Systems, Inc., Medic Computer Systems, Inc., Medical Manager Corporation and
McKesson HBOC, Inc., by operating and maintaining such applications at our
Customer Connectivity Centers. We also offer HealthWeb, an Internet-browser
based application that serves as a portal for the exchange of information and
services over the Internet. HealthWeb is designed to facilitate the exchange of
information and to enable e-commerce among all constituents of the healthcare
industry. Through our Professional Services Group, we offer business operations
and applications integration consulting services, including information
technology assessment and software implementation design and development. Our
customers primarily consist of provider groups, physician practice management
companies, and managed care organizations such as health maintenance
organizations, preferred provider organizations and third party administrators.
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., an Internet solutions development company, specializing in the integration
of healthcare information technology and contract programming solutions and
HealthWeb Systems, Ltd., an Internet software and portal development company,
specializing in customized healthcare applications, 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. The assets acquired from Management and
Technology Solutions included property and equipment, intellectual property,
consisting of patents, trademarks and licenses, computer software and software
licenses. The liabilities assumed included lease obligations, a note payable for
a software license and other accrued liabilities.
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 an agreement with MedPartners, Inc. (now known
as Caremark Rx, Inc.) to provide hosted information technology services to
MedPartners with respect to 67 groups, representing approximately 1,780
physicians while MedPartners terminates its relationships with these groups. In
addition, we purchased hardware, furniture and fixtures and a software license
for $2,350,000 from MedPartners and paid a software license transfer fee of
$280,000. The initial term of the agreement
22
<PAGE> 26
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 terminates its relationships with 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. We cannot
assure you that, as the disassociation process continues, we will succeed in
doing so.
We will lose revenue if we are not successful in entering into service
contracts directly with these disassociated groups replacing the information
technology services previously provided by MedPartners or if we are requested to
provide a reduced scope of services. As of August 31, 1999, groups representing
15% of the physicians we initially serviced under the MedPartners agreement have
chosen alternative providers of information technology services.
As of August 31, 1999, we continued to provide information technology
services to MedPartners with respect to 28 groups, representing approximately
808 physicians. Furthermore, we have negotiated multi-year contracts with 11
disassociated groups, representing approximately 715 physicians. We are pursuing
the opportunity to provide customized application services to 39 groups on an
ongoing basis, representing approximately 1,523 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 the date hereof, we had recorded deferred compensation related to
options granted to employees in the total amount of $8.2 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
$679,000 had been amortized in the first nine months of 1999. Future
amortization of expenses arising out of options granted through the date hereof
is estimated to be $515,000 for the remaining three months of 1999, $2.1 million
for the year ended December 31, 2000, $2.1 million for the year ended December
31, 2001, $2.0 million
23
<PAGE> 27
for the year ended December 31, 2002, and $868,000 for the year ended December
31, 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 $2.5 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 $2.1 million was
allocated to goodwill and intangible assets consisting of assembled workforce
and Creative Business Solutions customer lists. The HealthWeb product is
designed to solve problems for hospitals, health plan administrators and
insurance providers, such as office administration activities, connectivity to
health plans and communications with patients. Payers will use HealthWeb for
information exchange with providers and members, such as eligibility,
authorizations, referrals, benefit verification, claims status and patient
record information. At the date of acquisition, we determined the technological
feasibility of HeathWeb's product was not established. We expect to introduce
the final product by year end 1999. 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 July 1999 and the first quarter of 2000.
Currently, we know of no developments which would lead us to change our original
assessment of the expected completion and commercial viability of this project.
Risks in completing this project on a timely basis include employee retention
and hiring practices or diverting resources to other projects. Risks which may
affect the commercialization of this product include new technologies or new
products which may make our product obsolete. 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 projected
future net cash flows at a 35% discount rate; this reflects both the return
requirements of the market and risks inherent in the investment.
These cash flow projections of the acquired entities assume that revenue
will peak in 2002, before declining in 2003. Specifically, the revenue growth
rate assumed from 1999 to 2000 is 125%, from 2000 to 2001 is 100%, and from 2001
to 2002 is 70%. From 2002 to 2003, we anticipated that revenues will decline by
40% due to product obsolescence as future, unidentified products replace our
in-process products. There can be no assurances that these projections will be
met.
24
<PAGE> 28
OPERATING DATA
The following table combines the operating data of Croghan & Associates for
the nine months ended September 30, 1997 and TriZetto for the period from May
27, 1997 (date of inception) to December 31, 1997 in order to facilitate
management's discussion of financial results. Certain costs and expenses
presented in the statement of operations data of Croghan & Associates represent
allocations and management estimates. As a result, the statement of operations
data presented for Croghan & Associates is not strictly comparable to those of
subsequent periods and may not be indicative of the results of operations that
would have been achieved had the Croghan & Associates business operated as a
non-affiliated entity during such period.
OPERATING DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
TRIZETTO
CROGHAN & ASSOCIATES MAY 27, 1997
NINE MONTHS ENDED (DATE OF INCEPTION)
SEPTEMBER 30, 1997 TO DECEMBER 31, 1997 COMBINED
-------------------- --------------------- --------
<S> <C> <C> <C>
Revenue
Recurring revenue.......................... $ 3,881 $1,191 $ 5,072
Consulting revenue......................... 0 1,328 1,328
------- ------ -------
Total revenues............................... 3,881 2,519 6,400
Cost of revenue
Recurring revenue.......................... 3,609 1,250 4,859
Consulting revenue......................... 0 422 422
------- ------ -------
Total cost of revenue........................ 3,609 1,672 5,281
Cost of revenues............................. 3,609 1,672 5,281
------- ------ -------
Gross profit................................. 272 847 1,119
Operating expenses:
Selling, general and administrative........ 2,415 672 3,087
------- ------ -------
Income (loss) from operations................ (2,143) 175 (1,968)
Interest income.............................. 15 15 30
Interest expense............................. (84) (13) 97
------- ------ -------
Income (loss) before provisions for income
taxes and extraordinary item............... (2,212) 177 (2,035)
Provisions for income taxes.................. -- 74 74
------- ------ -------
Income (loss) before extraordinary item...... (2,212) 103 (2,109)
Extraordinary item:
Gain on forgiveness of debt................ 1,000 -- (1,000)
------- ------ -------
Net income (loss)............................ $(1,212) $ 103 $(1,109)
======= ====== =======
</TABLE>
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 152%, 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.
25
<PAGE> 29
Recurring revenue in 1999 increased $3.6 million, or 139%, to $6.2 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 $5.9 million, or
182%, to $9.1 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 72% in
1999 and 64% in 1998.
Cost of recurring revenue in 1999 increased $3.3 million, or 203%, to $5.0
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 81% in 1999 and 64% in 1998.
Cost of consulting revenue in 1999 increased $2.5 million, or 159%, to $4.1
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 63% in 1999 and 64% in 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
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. Expenses relating to system
enhancements from which we derive revenue are not classified as research and
development and are included in cost of revenues. 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 $1.9 million, or 164%, to $3.1 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 $215,000 in 1999 from $0 in 1998. 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.
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 $2.5 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 $16,000, or 27%, to
$76,000 from $60,000 in 1998. The increase was due to the incremental cash
invested in 1999 resulting from $4,500,000 in gross
26
<PAGE> 30
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 $75,000, or 300%, to
$100,000 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.
PROVISION FOR INCOME TAXES. Provision for income tax in 1999 decreased
$17,000, or 38%, to $28,000 from $45,000 in 1998. The decrease was primarily due
to a decrease in tax deductions for book purposes in 1999 which were not
recognizable for tax purposes.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE COMBINED YEAR ENDED DECEMBER 31,
1997
REVENUES. Total revenues in 1998 increased $5.0 million, or 79%, to $11.4
million from $6.4 million in 1997. This increase was primarily due to a full
year of consulting service revenue in 1998 as compared to seven months of
consulting service revenue in 1997.
Recurring revenue in 1998 increased $200,000, or 4%, to $5.3 million from
$5.1 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 $2.2 million, or 41%,
to $7.5 million from $5.3 million in 1997. As a percentage of total revenues,
cost of revenues approximated 65% in 1998 and 83% in 1997.
Cost of recurring revenue in 1998 decreased $900,000, or 18%, to $4.0
million from $4.9 million in 1997. This decrease was primarily the result of the
elimination of amortization of internally developed software as of the date of
the acquisition of Croghan & Associates on October 1, 1997. As a percentage of
recurring revenue, cost of recurring revenue approximated 75% in 1998 and 96% 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. 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 decreased $202,000, or 7%, to $2.9 million from
$3.1 million in 1997. During 1997, Croghan & Associates had recognized
approximately $350,000 of amortization expense related to goodwill. This expense
was eliminated as of the acquisition of Croghan & Associates on October 1, 1997.
As a percentage of total revenues, selling, general and administrative expenses
approximated 25% in 1998 and 48% 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.
27
<PAGE> 31
INTEREST INCOME. Interest income in 1998 increased $180,000, to $210,000
from $30,000 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 decreased $45,000, or 46%, to
$52,000 from $97,000 in 1997. The decrease was due to the forgiveness of $1.0
million of debt in 1997.
PROVISION FOR INCOME TAXES. Provision for income tax in 1998 increased
$8,000, or 11%, to $82,000 from $74,000 in 1997. The increase was primarily due
to an increase in tax deductions for book purposes in 1998 not recognizable for
tax purposes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO CROGHAN & ASSOCIATES FOR THE YEAR ENDED
DECEMBER 31, 1996
REVENUES. Total revenues in 1997 increased $1.3 million, or 26%, to $6.4
million from $5.1 million in 1996. This increase was primarily due to an
increase in consulting revenue recognized in 1997.
COST OF REVENUES. Cost of revenues in 1997 increased $1.2 million, or 30%,
to $5.3 million from $4.0 million in 1996. This increase was primarily due to
the increase in cost of revenue associated with the addition of consulting
resources.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1997 increased $1.0 million, or 44%, to $3.1 million
from $2.1 million in 1996. This increase was primarily due to an increase in
expenses as a result of staff growth in management and administrative support
areas and the expansion of office space.
INTEREST INCOME. Interest income in 1997 increased $9,000, or 43%, to
$30,000 from $21,000 in 1996. The increase was due to incremental cash available
for investments primarily resulting from increased revenue associated with the
consulting practice.
INTEREST EXPENSE. Interest expense in 1997 decreased $1,244,000, or 93% to
$97,000 from $1,341,000 in 1996. The decrease was primarily due to the decrease
in financing required to operate the combined businesses in 1997.
PROVISION FOR INCOME TAXES. Provision for income tax in 1997 increased
$74,000 from zero in 1996. The increase was primarily due to an increase in
taxable income in 1997 as compared to a loss in 1996.
EXTRAORDINARY ITEM. In 1997, an extraordinary item was recorded for $1.0
million as compared to none for the same period in 1996. The extraordinary item
was related to the forgiveness of debt in the amount of $1.0 million by a
financing institution.
28
<PAGE> 32
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 $ 1,421 $4,780
Consulting revenue............... 1,079 1,384 1,951 1,717 2,832 3,676
------ ------ ------ ------ ------- ------
Total revenues..................... 2,318 2,735 3,398 2,980 4,253 8,456
------ ------ ------ ------ ------- ------
Cost of revenues:
Recurring revenue................ 688 974 1,119 1,186 1,318 3,720
Consulting revenue............... 783 801 924 982 1,700 2,409
------ ------ ------ ------ ------- ------
Total cost of revenues............. 1,471 1,775 2,043 2,168 3,018 6,129
------ ------ ------ ------ ------- ------
Gross profit....................... 847 960 1,355 812 1,235 2,327
------ ------ ------ ------ ------- ------
Operating expenses:
Research and development......... 319 273 257 234 206 234
Selling, general and
administrative................ 501 672 825 887 1,229 1,869
Amortization of deferred stock
compensation.................. -- -- 4 18 81 134
Write-off of in-process
technology.................... -- -- -- -- 484 --
------ ------ ------ ------ ------- ------
Total operating expenses........... 820 945 1,086 1,139 2,000 2,237
------ ------ ------ ------ ------- ------
Income (loss) from operations...... 27 15 269 (327) (765) 90
Interest income.................... 13 47 69 81 38 38
Interest expense................... 13 12 16 11 32 68
Income (loss) before provision for
income taxes..................... 27 50 322 (257) (759) 60
Provision for (benefit from) income
taxes............................ 16 29 186 (149) 30 (2)
------ ------ ------ ------ ------- ------
Net income (loss).................. $ 11 $ 21 $ 136 $ (108) $ (789) $ 62
====== ====== ====== ====== ======= ======
Net income (loss) per share:
Basic............................ $ 0.00 $ 0.00 $ 0.03 $(0.02) $ (0.15) $ 0.01
====== ====== ====== ====== ======= ======
Diluted.......................... $ 0.00 $ 0.00 $ 0.01 $(0.02) $ (0.15) $ 0.00
====== ====== ====== ====== ======= ======
Shares used in computing net income
(loss) per share:
Basic............................ 5,102 5,030 4,811 4,811 5,204 7,217
====== ====== ====== ====== ======= ======
Diluted.......................... 10,073 12,674 13,852 4,811 5,204 18,014
====== ====== ====== ====== ======= ======
</TABLE>
29
<PAGE> 33
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 FROM SIX MONTHS
MAY 27, 1997 ENDED JUNE 30,
(DATE OF INCEPTION) TO YEAR ENDED -----------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
---------------------- ----------------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operations.............................. $236 $(1,314) $ (423) $ 1,739
Net cash provided by (used in) investing
activities.............................. 493 (750) (350) (5,202)
Net cash provided by financing
activities.............................. 44 4,972 4,944 3,815
---- ------- ------ -------
Net increase in cash and cash
equivalents............................. $773 $ 2,908 $4,171 $ 352
==== ======= ====== =======
</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 $2.6 million of
hardware, furniture and fixtures and software licenses from MedPartners in May
1999, our acquisition of $1.1 million of software licenses related to the
MedPartners agreement signed in May 1999, and 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 $698,000 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
30
<PAGE> 34
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 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.
In March 1999, we entered into a revolving line of credit agreement with a
financial institution. The total amount available for borrowings under the line
of credit is $1,500,000 and expires in March 2000. Borrowings under the line of
credit bear interest at the bank's prime rate plus 0.5% (8.75% as of August 31,
1999). Interest is payable monthly as it accrues. The credit agreement contains
certain covenants that we must adhere to during the term of the agreement,
including restrictions on the payment of dividends. As of June 30, 1999 and
August 31, 1999, there were no outstanding borrowings on the line of credit.
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. These certifications provide
assurance that our hardware and networking equipment are Year 2000 compliant,
but may not provide grounds for legal recourse should the certifications prove
to be incorrect. 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 connections could be impaired, which could have a material adverse
effect on our business, results of operations and financial condition. According
to a June 1999 article in Health Data
31
<PAGE> 35
Management, the healthcare industry is one of the least prepared industries in
the United States. Industry sources cited in this article claim that healthcare
software application vendors will discontinue distribution of as many as 1,000
software applications that are not Year 2000 compliant. In addition, many
healthcare providers and payors have encountered difficulties when trying to get
vendors to respond to Year 2000 compliance inquiries. Many of our customers in
the healthcare industry 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 providers of hardware
and software, our third party network providers or we fail to remedy any Year
2000 issues, our services and various 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 June 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 our credit facility was
zero, letters of credit approximating $125,000 had been written
32
<PAGE> 36
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 10%. 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.
33
<PAGE> 37
BUSINESS
THE COMPANY
We enable electronic business for the healthcare industry as a software
application services provider and a healthcare Internet portal, supported by our
professional consulting services. By combining hosted software applications with
the various uses of the Internet, we provide a complete technology solution for
our customers in the healthcare industry. Our customers primarily include
healthcare 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 software and
services 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 primary business.
We are a leading provider of remotely hosted third party packaged and
proprietary software applications and related services for use in the healthcare
industry. Through our Customer Connectivity Centers, we remotely operate and
maintain applications for our customers on most of the widely used computing,
networking and operating platforms. We provide access to our hosted applications
either across the Internet or across traditional networks. Our proprietary
solutions and methods enable our customers to access our hosted applications
using leading internet browsers. We have acquired rights to deploy numerous
commercially available software applications from a variety of healthcare
software vendors, including Epic Systems, Inc., Medic Computer Systems, Inc.,
Medical Manager Corporation and McKesson HBOC, Inc.
HealthWeb, our branded healthcare Internet portal which is currently being
used by a test group of providers and is in full use by a number of payers, 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 software 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, access 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 functional uses
as developed.
Our Professional Services Group helps our customers become more efficient
in applying and using their information technology. We use our proprietary
methodologies to identify information technology solutions which are suitable
for our customers. In many cases, these solutions include software 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 comprehensive understanding of
healthcare business processes, and our experience in the use and delivery of
information technologies, enables us to reliably deliver complex hosted software
applications and information technology services while maintaining customer
satisfaction.
34
<PAGE> 38
As of August 31, 1999, we served approximately 80 customers in
approximately 505 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 functional uses 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 a Raymond James Healthcare Information Technology Report dated
May 26, 1999, 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 which requires and uses 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.
The Healthcare Industry Report by Adams, Harkness & Hill, Inc. dated July
2, 1999 estimates that at least $250 billion, or 21% of every healthcare dollar,
is wasted through the delivery of unnecessary care, performance of unnecessary
or duplicate 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.
We believe that these information technology issues 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 personnel are challenged to create economies of scale in the
deployment and ongoing support of required solutions. A recent CIO survey
35
<PAGE> 39
conducted by the Healthcare Information and Management Systems Society reported
that 80% of 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 the integration of managed care software applications and
communication technologies 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. 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.
We believe that 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. Accordingly, we believe that 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
36
<PAGE> 40
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.
We believe that all healthcare entities must be competent in the following
three information technology areas:
- primary software applications and services;
- information access and reporting; and
- electronic communication infrastructure.
Primary software applications and services are required in order for
healthcare entities to conduct their day-to-day business. Most healthcare
entities require multiple software applications. The proper combination of
software applications can enable healthcare entities to operate more effectively
and efficiently. We host software applications which can be used for
communications, physician office practice management, billings and collections,
claims processing, accounting and other business functions. Some of the software
applications we host are Epic, Medic, Medical Manager, HBOC Amisys and Great
Plains.
Information access and reporting is required in order for healthcare
entities to gather and transform extensive data into useful information for
decision-making. The combination of appropriate software applications and
database technologies enable our customers to combine data from separate
programs and translate it into useful formats and reports. These tools enable
customers to ask questions of the data such as how many of their male patients
over the age of 40 have had a prostate screening test in the last year. We
facilitate our customers' information access and reporting by assisting them in
organizing their data into reporting databases which we host for them. The
combination of hosted reporting databases combined with software applications to
access and report on the data is referred to as our Data Manager offering.
An electronic communication infrastructure is required for healthcare
entities to communicate internally and externally over telephones, computer
networks and the Internet with their customers and suppliers, regulatory bodies
and other healthcare entities. Electronic communication is established via
telephone equipment, desktop devices, local area networks, wide-area networks,
the Internet and electronic data interchanges. We can provide the necessary
software and hardware which make up the necessary infrastructure. Our
proprietary tools, Access Manager, Exchange Manager, and HealthWeb establish
communications by transmitting instructions to computers that direct the
computers to make connections, transfer files and carry out other procedures.
Information intensive businesses, including healthcare entities, must be
competent in each of these three areas and also effectively integrate them into
a seamless information technology infrastructure. Moreover, the implementation
of these three information technology components 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 technology components in a disciplined manner.
OUR SOLUTIONS
Our solutions are capable of providing our customers with a complete,
professionally managed information technology system that includes end-to-end
desktop and network connections, primary 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
37
<PAGE> 41
to take advantage of the high speed, 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 software
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 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 software applications and
electronic communication infrastructure 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
using 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 complete, professionally managed information technology
system 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 our proven methods
which we have learned from our experience in systems integration.
- EASE OF COMMUNICATION. 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 connection
with required data and applications.
- INTERNET ACCESS. Our customers are continuously connected to our
Customer Connectivity Centers via high-speed, high-bandwidth electronic
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.
38
<PAGE> 42
- 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 software
applications and their associated transactions and business processes
tend to be complex. Our operational management team is 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
Internet portal. We expect to achieve this objective by offering our customers
high quality, reliable, flexible and cost-effective software applications,
additional methods to more effectively use the Internet 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 TECHNOLOGIES. We will focus
additional resources on the continued development of HealthWeb. We plan
to develop additional features and functions 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
features and functions 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, features and
functions 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.
39
<PAGE> 43
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
components (primary software applications, information access and reporting and
electronic communications infrastructure), along with supporting business
services. Our customers choose a combination of our product and service
offerings that best meet their business requirements, technical needs and
pricing requirements, and pay for the delivery of those services on a monthly
basis. Our software applications and information technology services provide our
customers with a simpler alternative as compared to the creation of an in-house
information technology function. Customers may use our applications and services
for all or a portion of their information technology and related business
service needs.
40
<PAGE> 44
We expect to expand our product and service offerings as we continue to
develop relationships with additional software application vendors and
information technology service partners. The following chart depicts our current
software applications and services, classified by the primary information
technology component that is delivered.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CURRENT APPLICATION SERVICES PROVIDER OFFERINGS
- -----------------------------------------------------------------------------------------------------------------
PRODUCT/VENDOR KEY FUNCTIONS DELIVERED
- -----------------------------------------------------------------------------------------------------------------
ELECTRONIC COMMUNICATIONS INFRASTRUCTURE
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Access Manager A combination of hardware and software that allows the customer to access
and use numerous software applications
Exchange Manager Provides an interface that effectively translates data from different
software applications and enables them to communicate electronically
HealthWeb Enablement Provides the customer with an Internet browser-based overlay on software
applications which gives the customer ease of use through point and click
capabilities
- -----------------------------------------------------------------------------------------------------------------
PRIMARY APPLICATIONS AND SERVICES
- -----------------------------------------------------------------------------------------------------------------
PROVIDER APPLICATIONS
Enterprise Manager Software application that facilitates appointment scheduling, patient
registration, visitation tracking, insurance processing, patient bill
processing and includes a financial accounting module
Epic (various) Multiple software applications related to physician practice management
and financial control, including scheduling, collection of co-payments,
tracking of referrals and eligibility, billing and collections, medical
records, claims adjudication, accounting and others
+ Medic A practice management system that provides a solution for physicians and
group practices. It includes software applications that automate and
integrate financial, administrative, claims processing and electronic
medical records functions
Medical Manager Fully integrated physician practice management solution which offers
support for financial, administrative and clinical needs of physician
groups and other providers
- -----------------------------------------------------------------------------------------------------------------
PROVIDER BUSINESS SERVICES
Billing & Collections Through personnel located in our facilities, we perform billing and
collection functions on an outsourced basis
Claims Review Through personnel located in our facilities, we reconcile capitation
payments from insurance companies to medical groups and review claims paid
for appropriateness and contract terms on an outsourced basis
- -----------------------------------------------------------------------------------------------------------------
PAYER APPLICATIONS
Epic Tapestry Software application that automates the fundamental operations of managed
care by providing the following capabilities: enrollment, eligibility,
membership management, benefits tracking and inquiry, customer service,
referral authorization, provider credentialing, case management and others
Plan Manager Software application that includes benefit plan administration, enrollment
and eligibility, provider contracting, utilization/case management, claims
processing, billing and accounts receivable, customer service, accounting
and finance functions
HBOC Claimcheck A comprehensive auditing software system that automatically edits and
corrects billing errors to ensure claims are paid appropriately
HBOC Code Review An auditing tool which detects, corrects and documents improper coding of
claims by applying the American Medical Association's code criteria to all
physician services
HBOC Amisys A solution that addresses the information management needs of payor- and
provider-based organizations that have assumed the financial risk for
delivery of healthcare services. This application automates the critical
business functions necessary to operate or administer a variety of managed
care products
- -----------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE APPLICATIONS
Great Plains General accounting and financial package designed for small to medium size
businesses
SAP General accounting and financial package designed for medium to large size
businesses
CIO Workbench A software program that helps manage and prioritize information services
projects
- -----------------------------------------------------------------------------------------------------------------
INFORMATION ACCESS & REPORTING
- -----------------------------------------------------------------------------------------------------------------
DATA MANAGER A data warehousing program that collects and manages data from different
sources
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 45
Our licenses for the use of the third party software applications that are
included in the above chart are essential to the technology solutions we provide
for our customers. The material licenses we currently rely upon vary in
duration. Our Medic license is perpetual, subject to prospective termination in
the event of a material breach. Our Medical Manager and Great Plains licenses
are perpetual unless and until terminated by either party with proper notice.
Although the initial three year term of our Epic license expires on April 30,
2002, the license then becomes automatically renewable for one-year terms. The
Epic license may be prospectively terminated during any renewal term with 150
days notice prior to the end of the renewable term. We believe that the
durational terms of our software licenses are adequate for our current users of
these software applications and that additional licenses can be obtained if
needed.
HealthWeb Internet Portal
HealthWeb, our healthcare Internet portal, is currently being used by a
test group of providers and is in full use by a number of payors. We expect to
widely offer HealthWeb to other users by the end of 1999 after we develop
additional functions and features based on the feedback we receive from our
existing users. HealthWeb serves as a gateway for the exchange of healthcare
information and services across the Internet. 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.
After contracting with a new user, members of our Professional Services
Group install HealthWeb on the user's computer desktop and customize it per the
user's specific requests. For instance, the user can choose to have HealthWeb as
its default screen which appears when the computer is turned on. If the user
continues using its own default screen, HealthWeb appears as an icon which will
activate upon "pointing and clicking" on the icon. Once activated, HealthWeb
provides the user with a single screen view of the software applications and
information needed to perform daily tasks.
When using HealthWeb, the user sees various "point and click" choices on
the screen grouped under specific categories. For example, providers see
categories such as "Services," "Resources," "Facilities" and "Payers." Under
"Services," the provider can click a button labeled "Practice Management System"
which opens software applications such as Epic, Medic, or Medical Manager, and
allows the user to make appointments, process claims or review other
administrative data. Under "Resources," the provider can click a button labeled
"Medical Journals" which would take the user to an Internet site containing
medical information. Under "Facilities," the provider can click a button labeled
"Hospitals" which would produce a list of the hospitals, including phone numbers
or directions, which can be distributed to a patient. Under "Payers," the user
can click a button which contains the names of insurance carriers. This would
link the provider to the insurance carrier's systems over the Internet, which
would allow the provider to verify eligibility, benefits, referrals, claim
status and other information, as well as messaging with the health plan.
HealthWeb is designed to with work legacy healthcare applications which do
not have "point and click" view screens. We provide our users "point and click"
connection to software 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 software applications and information
technology services, HealthWeb is designed to be the primary access method to
receive those services. For customers who do
42
<PAGE> 46
not utilize our applications and services, HealthWeb is designed to co-exist
with their existing software applications and technology environments.
We anticipate that the number of offerings available through our HealthWeb
healthcare Internet portal will grow, as we continue to develop relationships
with additional Internet-capable service and content partners.
Professional Consulting Services
Our Professional Services Group consists of approximately 70 individuals
who are available to communicate with our customers on a daily basis to ensure
that our customers' information technology systems correspond with their
strategic business objectives. Our professional services personnel consult with
our customers from our office or travel and work at our customers' facilities.
Our consulting engagements may range from several days to many months. Our
services are either billed on a time and materials basis or upon a fixed rate
negotiated for a specific project.
We hire and develop professional services personnel from across the nation
to provide consulting services to our customers in the major population centers
of the United States, as well as to ensure that we have expertise in each of the
major segments of the healthcare industry. 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 Group.
43
<PAGE> 47
Since we actively recruit qualified information technology professionals
from the healthcare industry, our professional services personnel provide a
depth of knowledge and experience specifically focussed to address our
customers' business and technology needs. The following chart describes the
types of professional services we provide.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PROFESSIONAL CONSULTING SERVICES
- -------------------------------------------------------------------------------------------------
TYPE DESCRIPTION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Information Technology We help our customers effectively use information
Assessment and Strategy technology by analyzing their business strategies,
Services technical competence, business management processes and
abilities to support existing information technology.
Based upon the results of our analysis, we help our
clients understand their existing level of information
technology capability and provide direction to help them
achieve competitive advantage by managing their
information and data electronically.
- -------------------------------------------------------------------------------------------------
VIO(TM) -- Virtual We provide executive-level information technology
Information Office Services professionals for our customers who either do not employ
their own information technology management or wish to
supplement it. Drawing upon our consultants' considerable
experience and depth of knowledge, we provide information
technology management services with a greater breadth of
expertise than our customers can achieve using their own
management resources. These services include the use of
our CIO Workbench(SM) products, a collection of our
proven information technology management tools and
techniques.
- -------------------------------------------------------------------------------------------------
Integration Consulting We help our customers install and implement software
Services applications and technology products. Based upon years of
project experience, we provide integration consulting
services that include systems planning, analysis,
selection, design, construction, implementation, data
conversion, testing, business process development,
training development and delivery and systems support.
This helps our customers succeed in implementing
difficult systems projects.
- -------------------------------------------------------------------------------------------------
Staffing Services We provide temporary staffing for customers who lack
qualified information technology personnel. By utilizing
both our own professional services personnel and a
national network of contracted, technical specialists, we
provide access to specialized technical personnel on both
short-term and long-term basis. Personnel placement
services are also available through a variety of fee
arrangements.
- -------------------------------------------------------------------------------------------------
E-Commerce Solutions Services We assist our customers in developing, deploying and
maintaining customized e-commerce applications. Services
include systems planning, analysis, design, construction,
implementation, data conversion, testing, business
process development, training development and delivery
and systems support.
- -------------------------------------------------------------------------------------------------
</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
44
<PAGE> 48
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 software applications and information technology
services and our healthcare Internet 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. Our service desk staff provide a wide range of
customer support functions. Our 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 computer software that keeps
track of solutions to common computer and software related problems. This allows
our support staff to learn from the experience of other people within the
organization and it reduces the time it takes to solve problems. We are
currently implementing Remedy, a third party software application for tracking
the status, and subsequent resolution, of problems that have been reported to
our help desk. This allows us to cost-effectively distribute our knowledge-base
of application problem resolutions to employees and customers. All changes to
computer software are coordinated centrally and new versions of software,
containing updates and enhancements are released on a regular basis with strict
testing and controls. This ensures that the new software functions correctly in
the customer's environment. As of August 31, 1999, we had approximately 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.
45
<PAGE> 49
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 business requirements, technical needs and price requirements
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 connections, electronic communication
infrastructure 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
46
<PAGE> 50
- 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
various 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.
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
47
<PAGE> 51
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.
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.
Connection 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 infrastructure
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
connection to both of our Customer Connectivity Centers. This connectivity
infrastructure 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.
48
<PAGE> 52
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.
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.
49
<PAGE> 53
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 software applications,
information technology services and healthcare Internet 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.
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 software 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
50
<PAGE> 54
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 August 31, 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 August 31, 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.
51
<PAGE> 55
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 Senior Vice President of Finance, Chief Financial --
Officer and Secretary
D. Brian Karr........................ 33 Vice President 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. In August 1999, Mr. Sunderland was
named as our Senior Vice President of Finance. 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 was named as our Vice President
of Finance in August 1999. Mr. Karr served as our Director of Finance from May
1999 to August 1999. Mr. Karr has served as our 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.
52
<PAGE> 56
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 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 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 April 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
53
<PAGE> 57
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. In August 1999, Mr. Kabir was named as our Senior 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.
54
<PAGE> 58
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 various 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
Vice President 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 Senior Vice President of Finance, Chief Financial
Officer and Secretary, joined us in May 1999. His annual salary is $155,000,
and he is eligible for a bonus at the discretion of our board. Mr.
Sunderland was granted options to purchase 130,000 shares of common stock.
Mr. Sunderland is expected to be a named executive officer in 1999.
(3) These figures represent bonuses earned in 1998 that were paid in 1999.
(4) Mr. Croghan served as Executive Vice President until he resigned from that
position in February 1999.
55
<PAGE> 59
OPTION GRANTS
The following table sets forth information concerning stock options granted
to our named executive officers during the fiscal year ended December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Margolis........... 200,000 17% $0.275 5/19/03 $3,008,076 $3,810,243
100,000 9% $0.275 11/20/03 $1,504,038 $1,905,112
Raymond D. Croghan............ -- -- -- -- -- --
D. Brian Karr................. 15,000 1% $ 0.25 5/19/08 $ 289,451 $ 463,124
</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 $12 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 $12 per
share and the option exercise price, multiplied by the number of unexercised
in-the-money options.
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 $3,517,500
Raymond D. Croghan...................... -- -- -- --
D. Brian Karr........................... 0 15,000 0 $ 176,250
</TABLE>
56
<PAGE> 60
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. We granted this loan as a means of providing additional
compensation to Mr. Margolis, while also providing incentive for his continued
employment. 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.
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 August 31, 1999, we had options outstanding for the purchase of
2,995,668 shares of common stock under our 1998 Stock Option Plan. These options
have exercise prices ranging from $0.25 to $6.50
57
<PAGE> 61
per share and a weighted average per share exercise price of $1.30, and were
held by approximately 300 persons. As of August 31, 1999, 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.
58
<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth specified information with respect to the
beneficial ownership of our common stock as of August 31, 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 15,808,231 shares of common stock outstanding as of August 31, 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 August 31, 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 ----------------------- NUMBER OF SHARES ---------------------
BENEFICIAL OWNERS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ------------------- ----------- -------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Raymond D. Croghan(1)............ 3,507,681 22% 350,000 3,157,681 16%
370 Interlocken Blvd.
4th Floor
Broomfield, CO 80021
Delphi Ventures IV, L.P.......... 2,736,014 17% 0 2,736,014 14%
Delphi Bio Investments IV, L.P.
3000 Sand Hill Road Building
One, Suite 135 Menlo Park, CA
94025
Fidelity Ventures Limited........ 1,289,336 8% 0 1,289,336 7%
82 Devonshire Street, R25C
Boston, MA 02109-3614
Fidelity Investors Limited
Partnership.................... 1,289,336 8% 0 1,289,336 7%
Fidelity Investors II Limited
Partnership
82 Devonshire Street, R25C
Boston, MA 02109-3614
HLM\UH Fund L.P.................. 961,538 6% 0 961,538 5%
222 Berkeley Street Boston, MA
02116
Jeffrey H. Margolis(2)........... 2,660,000 17% 0 2,660,000 14%
Michael J. Sunderland............ 0 * 0 0 *
D. Brian Karr(3)................. 228,750 1% 0 228,750 1%
Donald J. Lothrop(4)............. 2,736,014 17% 0 2,736,014 14%
Peter D. Mann(5)................. 1,289,336 8% 0 1,289,336 7%
William E. Fisher(6)............. 422,595 3% 0 422,595 2%
Paul F. LeFort................... 60,000 * 0 60,000 *
All executive officers and
directors as a group (7
persons)....................... 7,396,695 47% 0 7,396,695 37%
</TABLE>
- ---------------
* Less than 1%
59
<PAGE> 63
(1) Includes 250,000 shares held by the Raymond D. Croghan Charitable Remainder
Trust, Raymond D. Croghan, Trustee, all of which are intended to be sold in
this offering. 550,000 of these 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.
(2) 1,760,000 shares are held by Jeffrey H. Margolis and his wife, in their
capacities as trustees of the Margolis Family Trust, over which the trustees
have shared voting power. 300,000 shares are held in two additional trusts
over which Mr. Margolis has sole 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 August 31, 1999. Also includes Mr. Margolis'
options for 50,000 shares of common stock which are exercisable within 60
days of August 31, 1999.
(3) Includes options for 3,750 shares of common stock which are exercisable
within 60 days of August 31, 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 Managing Member of Delphi
Management Partners IV, LLC, the general partner of Delphi Ventures IV, L.P.
and Delphi BioInvestments IV, L.P., 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) Includes options for 10,000 shares of common stock which are exercisable
within 60 days of August 31, 1999. Also includes 162,595 shares of common
stock held by KFS Management, Inc. Mr. Fisher owns 50% of the issued and
outstanding stock of KFS and is an officer and director of KFS.
(7) Includes options for 10,000 shares of common stock which are exercisable
within 60 days of August 31, 1999.
60
<PAGE> 64
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, a fair value option-pricing
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
61
<PAGE> 65
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.
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, $0.001 par value, and
5,000,000 shares of preferred stock, $0.001 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 August 31, 1999, there were 9,532,007 shares of common stock
outstanding, held by approximately 91 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
62
<PAGE> 66
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
- 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.
63
<PAGE> 67
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 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
64
<PAGE> 68
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 66 2/3% of the holders of the outstanding voting stock, voting together
as a single class 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 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.
65
<PAGE> 69
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 19,658,231 shares of common
stock outstanding based on 15,808,231 shares outstanding at August 31, 1999. The
4,200,000 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 15,458,231
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.
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, other than the shares sold by Raymond D. Croghan and
his charitable remainder trust identified in this prospectus, 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.
<TABLE>
<CAPTION>
TIME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Effective Date..................................... 413,836
90 days after Effective Date....................... 0
180 days after Effective Date...................... 12,256,030
</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.
66
<PAGE> 70
Sales under Rule 144 are subject to 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.
67
<PAGE> 71
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, Adams, Harkness & Hill, Inc. and Wit Capital
Corporation, has severally agreed to purchase from us and the selling
stockholder 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, Inc. ...............................
Wit Capital Corporation.....................................
---------
Total.................................................. 4,200,000
=========
</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 630,000 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 and Raymond D. Croghan and his charitable remainder trust 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>
At the request of TriZetto, the underwriters will reserve up to $2 million
of common stock at the initial public offering price for sale to Employers
Health Insurance Company (a wholly-owned subsidiary of Humana Inc.) and up to $3
million for other potential strategic partners. The aggregate amount would
represent 416,667 shares of common stock at an assumed initial public offering
price of $12.00 per share. We cannot assure you that any of these reserved
shares will be purchased. Employers Health Insurance Company will agree that, if
it purchases any shares of common stock or other securities of TriZetto, it will
not sell or otherwise dispose of such shares or securities until six months
after this offering. Any other strategic partners will also be required to agree
to a similar lock-up.
The price of shares reserved for Employers Health Insurance Company and any
other strategic partners will be the initial public offering price on the cover
page of this prospectus. The number of shares available to the general public
will be reduced to the extent these entities purchase the reserved shares.
68
<PAGE> 72
Any reserved shares not purchased by them at the closing of the public offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
The underwriters, at the request of TriZetto, have also reserved for sale
at the initial public offering price up to 200,000 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.
The underwriting agreement provides that we and Raymond D. Croghan and his
charitable remainder trust 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, other than the shares being sold by Raymond
D. Croghan and his charitable remainder trust, 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.
A prospectus in electronic format is being made available on an Internet
website maintained by Wit Capital. In addition, all dealers purchasing shares
from Wit Capital in the offering have agreed to make a prospectus in electronic
format available on websites maintained by each of these dealers. We have
agreed, upon request by a person who received our prospectus in electronic
format, to deliver a prospectus in paper form to such person. Purchases of
shares from Wit Capital are to be made through an account at Wit Capital in
accordance with Wit Capital's procedures for opening an account and transacting
in securities.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the managing underwriters. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as an
underwriter, e-manager or selected dealer in over 125 public offerings. Except
for its participation as a manager in the offering, Wit Capital has no
relationship with us or any of our affiliates.
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 and
Raymond D. Croghan and his charitable remainder trust 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
69
<PAGE> 73
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 June 30, 1999 and for the period from May 27,
1997 (date of inception) to December 31, 1997, for the year ended December 31,
1998 and for the six months ended June 30, 1999 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.
The financial statements of Croghan & Associates, Inc. for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 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.
The consolidated financial statements of Creative Business Solutions, Inc.
as of December 31, 1997 and 1998 and for each of the two years in the period
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.
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.
70
<PAGE> 74
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
CROGHAN & ASSOCIATES, INC.
Report of Independent Accountants........................... F-24
Statement of Operations..................................... F-25
Statements of Stockholders' Equity.......................... F-26
Statements of Cash Flows.................................... F-27
Notes to Financial Statements............................... F-28
CREATIVE BUSINESS SOLUTIONS, INC. AND SUBSIDIARY
Report of Independent Accountants........................... F-31
Consolidated Balance Sheets................................. F-32
Consolidated Statements of Operations....................... F-33
Consolidated Statements of Stockholders' Equity............. F-34
Consolidated Statements of Cash Flows....................... F-35
Notes to Consolidated Financial Statements.................. F-36
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Consolidated
Statements of Operations.................................. F-41
Notes to Unaudited Pro Forma Combined Condensed Consolidated
Statements of Operations.................................. F-44
</TABLE>
F-1
<PAGE> 75
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 June
30, 1999 and the results of their operations and their cash flows for the period
from May 27, 1997 (date of inception) to December 31, 1997, for the year ended
December 31, 1998 and for the six months ended June 30, 1999 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
September 7, 1999
F-2
<PAGE> 76
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)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 773 $ 3,681 $ 4,033
Accounts receivable, less allowance for doubtful accounts
of $154, $204 and $339.................................. 1,159 3,083 5,103
Note receivable from related party........................ -- 25 25
Prepaid expenses and other current assets................. 119 194 115
Income tax receivable..................................... -- 406 --
Deferred taxes............................................ 105 191 885
------ ------- -------
Total current assets.................................... 2,156 7,580 10,161
Property and equipment, net................................. 454 989 5,254
Other assets................................................ 24 40 103
Note receivable from related party.......................... -- 75 50
Goodwill and other intangible assets, net................... -- 36 4,831
------ ------- -------
Total assets............................................ $2,634 $ 8,720 $20,399
====== ======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term note payable................................... $ -- $ 52 $ 1,189
Note payable to related party............................. 28 -- --
Capital lease obligations, current........................ 28 465
Accounts payable.......................................... 63 95 1,194
Accrued liabilities....................................... 702 1,815 3,793
Income taxes payable...................................... 136 -- 296
Deferred revenue.......................................... 248 -- --
------ ------- -------
Total current liabilities............................... 1,177 1,990 6,937
Long-term notes payable..................................... -- -- 556
Note payable to related party............................... 520 520 520
Capital lease obligations................................... -- 125 1,006
Deferred taxes.............................................. 374 377 362
------ ------- -------
Total liabilities....................................... 2,071 3,012 9,381
------ ------- -------
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 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 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; and 15,646 pro forma
(unaudited)............................................. 10 9 9 16
Additional paid-in capital.................................. 463 940 8,092 19,017
Notes receivable from stockholders.......................... (13) (741) (41) (41)
Deferred stock compensation................................. -- (460) (6,062) (6,062)
Retained earnings (accumulated deficit)..................... 103 (489) (1,912) (1,912)
------ ------- ------- -------
Total stockholders' equity (deficit).................... 563 (741) 86 $11,018
------ ------- ------- =======
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders' equity
(deficit)........................................... $2,634 $ 8,720 $20,399
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 77
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 $ 6,201
Consulting revenue................... 1,328 6,131 2,463 6,508
------ ------- ------- -------
Total revenues......................... 2,519 11,431 5,053 12,709
------ ------- ------- -------
Cost of revenues:
Recurring revenue.................... 1,250 3,967 1,662 5,038
Consulting revenue................... 422 3,490 1,584 4,109
------ ------- ------- -------
Total cost of revenues................. 1,672 7,457 3,246 9,147
------ ------- ------- -------
Gross profit........................... 847 3,974 1,807 3,562
------ ------- ------- -------
Operating expenses:
Research and development............. -- 1,083 592 440
Selling, general and
administrative.................... 672 2,885 1,173 3,098
Amortization of deferred stock
compensation...................... -- 22 -- 215
Write-off of acquired in-process
technology........................ -- -- -- 484
------ ------- ------- -------
Total operating expenses.......... 672 3,990 1,765 4,237
------ ------- ------- -------
Income (loss) from operations.......... 175 (16) 42 (675)
Interest income........................ 15 210 60 76
Interest expense....................... (13) (52) (25) (100)
------ ------- ------- -------
Income (loss) before provision for
income taxes...................... 177 142 77 (699)
Provision for income taxes............. 74 82 45 28
------ ------- ------- -------
Net income (loss).................... $ 103 $ 60 $ 32 $ (727)
====== ======= ======= =======
Net income (loss) per share:
Basic................................ $ 0.05 $ 0.01 $ 0.01 $ (0.12)
====== ======= ======= =======
Diluted.............................. $ 0.03 $ 0.00 $ 0.00 $ (0.12)
====== ======= ======= =======
Shares used in computing net income
(loss) per share:
Basic................................ 2,065 4,937 5,066 6,216
====== ======= ======= =======
Diluted.............................. 4,074 12,783 11,380 6,216
====== ======= ======= =======
Pro forma net income (loss) per share:
Basic................................ $ 0.01 $ (0.06)
======= =======
Diluted.............................. $ 0.00 $ (0.06)
======= =======
Shares used in computing pro forma net
income (loss) per share:
Basic................................ 11,213 12,492
======= =======
Diluted.............................. 16,171 12,492
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 78
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........... -- -- 5,817 -- (5,817) -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 215 -- 215
Stock compensation.................... 53 53
Net loss.............................. -- -- -- -- -- (727) (727)
------ --- ------ ----- ------- ------- -------
Balance, June 30, 1999................ 9,369 $ 9 $8,092 $ (41) $(6,062) $(1,912) $ 86
====== === ====== ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 79
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 $ (727)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Provision for doubtful accounts............. 204 203 101 135
Common stock issued for services rendered... 8 -- -- --
Amortization of deferred stock
compensation.............................. -- 22 -- 215
Write-off of acquired in-process
technology................................ -- -- -- 484
Forgiveness of note receivable.............. -- -- -- 32
Stock compensation.......................... -- -- -- 53
Deferred taxes.............................. (105) (83) -- (709)
Loss on disposal of property and
equipment................................. 130 187 -- --
Depreciation and amortization............... 24 161 78 648
Changes in assets and liabilities:
Accounts receivable....................... (762) (2,127) (1,186) (1,654)
Prepaid expenses and other current
assets................................. (99) (75) (201) 72
Income tax receivable..................... -- (406) (151) 406
Accounts payable.......................... (128) 32 450 967
Accrued liabilities....................... 614 976 765 1,870
Deferred revenue.......................... 247 (248) (165) --
Other long-term assets.................... -- (16) (146) (53)
----- ------- ------- -------
Net cash provided by (used in) operating
activities................................ 236 (1,314) (423) 1,739
----- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and
software licenses........................... (121) (750) (350) (1,334)
Purchase of MedPartners' assets............... (2,630)
Acquisitions, net of cash acquired............ 614 -- -- (1,238)
----- ------- ------- -------
Net cash provided by (used in) investing
activities................................ 493 (750) (350) (5,202)
----- ------- ------- -------
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) (267)
Payment on line of credit..................... -- -- -- (265)
Principal payments on capital leases.......... -- (15) -- (166)
Issuance of notes receivable.................. -- (800) (300) --
Repayment of notes receivable................. -- 25 -- 30
----- ------- ------- -------
Net cash provided by financing activities... 44 4,972 4,944 3,815
----- ------- ------- -------
Net increase in cash and cash equivalents....... 773 2,908 4,171 352
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 $ 4,033
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 80
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 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 provider of remotely hosted software
applications, both third party packaged and proprietary software, and related
services used in the healthcare industry. The Company also offers an Internet
browser application that serves as a portal for the exchange of healthcare
information and services over the Internet. The Company provides access to its
hosted applications either through the Internet or through traditional 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 three 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.
F-7
<PAGE> 81
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
The following tables summarize the revenues and accounts receivable
balances from customers in excess of 10% of total revenues and total accounts
receivable balances, respectively:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 27, 1997 SIX MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, ------------------
1997 1998 1998 1999
------------------- ------------ -------- ----
<S> <C> <C> <C> <C>
Revenues:
Company A..................... 40% 42% 28% 25%
Company B..................... 16% 11% 13% 24%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------ ------------ --------
<S> <C> <C> <C> <C>
Accounts receivable:
Company A..................... 40% 56% 32%
Company B..................... 20% -- 11%
Company C..................... 13% -- --
Company D..................... -- -- 18%
</TABLE>
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 for the six
months ended June 30, 1998, 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 results of their operations and their cash flows
for the six months ended June 30, 1998.
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. Goodwill is being
amortized on a straight-line basis over seven years. Other intangible assets
consist of acquired work force and customer lists which
F-8
<PAGE> 82
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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
Recurring revenue, or multi-year contractually based revenue, is recognized
monthly based upon volume of service transactions. Consulting revenue is
generally billed on a time and materials basis, and is recognized as the
consulting services are performed. Provisions for estimated losses on fixed fee
contracts are recorded when identified.
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.
F-9
<PAGE> 83
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 $ (727)
------ ------- ------- -------
Weighted average common shares outstanding...... 2,065 4,937 5,066 6,216
------ ------- ------- -------
Net income (loss) per share..................... $ 0.05 $ 0.01 $ 0.01 $ (0.12)
====== ======= ======= =======
DILUTED:
Net income (loss)............................... $ 103 $ 60 $ 32 $ (727)
------ ------- ------- -------
Weighted average common shares outstanding...... 2,065 4,937 5,066 6,216
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 6,216
------ ------- ------- -------
Net income (loss) per share..................... $ 0.03 $ 0.00 $ 0.00 $ (0.12)
====== ======= ======= =======
ANTIDILUTIVE SECURITIES:
Preferred stock................................. -- -- -- 6,276
Options to purchase common stock................ -- -- 571 2,801
Common stock subject to repurchase.............. -- -- -- 1,705
Warrants........................................ 163 -- 163 163
------ ------- ------- -------
163 -- 734 10,945
====== ======= ======= =======
</TABLE>
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 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
F-10
<PAGE> 84
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 June 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 $3,283
Furniture and fixtures.................................... 100 138 519
Equipment................................................. 48 191 617
Software.................................................. 83 142 1,276
Leasehold improvements.................................... 24 24 82
---- ------ ------
473 1,128 5,777
Less: Accumulated depreciation and amortization............. (19) (139) (523)
---- ------ ------
$454 $ 989 $5,254
==== ====== ======
</TABLE>
Included in computer equipment at December 31, 1998 and June 30, 1999 is
equipment acquired under capital leases totaling approximately $167,000 and
$1,652,000, respectively, and related accumulated amortization of $17,000 and
$190,000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1997 1998 1999
---- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
INTANGIBLE ASSETS
Software licenses......................................... $ -- $ 54 $2,685
Goodwill.................................................. -- -- 1,424
Acquired workforce........................................ -- -- 609
Customer lists............................................ -- -- 398
---- ------ ------
-- 54 5,116
Less: Accumulated amortization.............................. -- (18) (285)
---- ------ ------
$ -- $ 36 $4,831
==== ====== ======
</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 $2,148
Accrued professional fees................................. 81 234 423
Other..................................................... 170 296 1,222
---- ------ ------
$702 $1,815 $3,793
==== ====== ======
</TABLE>
F-11
<PAGE> 85
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
4. NOTES PAYABLE AND LINE OF CREDIT
In December 1998, the Company entered into a financing agreement for
approximately $56,000 relating to premiums for business insurance. The amount is
due in nine monthly installments and bears interest at 9.75% per annum. The
financing company collateralized the loan by potential proceeds obtained from a
claim on the insurance (unearned insurance provisions, loss payments that reduce
the unearned premiums and any related interests arising from a state guarantee
fund). At December 31, 1998 and June 30, 1999, $52,000 and $13,000 were
outstanding under this credit facility, respectively.
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 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) and are
collateralized by substantially all of the assets of the Company. Interest is
payable monthly as it accrues. The line of credit agreement contains certain
covenants that the Company must 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. The Company has
outstanding two standby letters of credit in the amounts of $85,000 and $38,000
which serve as security deposits for two of the Company's capital leases.
In May 1999, the Company entered into a financing agreement for
approximately $1,131,000. 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.
Future principal payments of notes payable at June 30, 1999 are as follows:
<TABLE>
<S> <C>
For the periods ending December 31,
1999................................................... $ 617
2000................................................... 623
2001................................................... 245
2002................................................... 119
2003................................................... 129
Thereafter............................................. 12
------
1,745
Less: Current portion....................................... 1,189
------
$ 556
======
</TABLE>
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
F-12
<PAGE> 86
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 2004. 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, for the year ended December 31, 1998 and for
the six months ended June 30, 1999 was $71,000, $192,000 and $329,000,
respectively. These amounts are net of sublease income of $36,000, $48,000 and
$12,000, respectively.
Future minimum lease payments under noncancelable operating and capital
leases at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
For the periods ending December 31,
1999....................................... $ 292 $ 690
2000....................................... 577 1,483
2001....................................... 577 1,417
2002....................................... 176 1,333
2003....................................... 53 835
Thereafter................................. 3 534
------ ------
Total minimum lease payments.................... 1,678 $6,292
======
Less: Amount representing interest.............. 207
------
Present value of capital lease obligations...... 1,471
Less: Current portion........................... 465
------
$1,006
======
</TABLE>
F-13
<PAGE> 87
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY
Common stock
At June 30, 1999, 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. These restricted stock agreements grant the Company
repurchase rights which lapse upon attainment of full vesting by all
stockholders. Full vesting is scheduled to occur on or before April 20, 2000.
Additionally, the Company has a right of first refusal to purchase the common
stock which shall lapse upon the closing of an underwritten public offering of
the Company's common stock. At December 31, 1998 and June 30, 1999, 4,405,602
and 1,705,301 shares of common stock are subject to repurchase by the Company,
respectively.
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 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
F-14
<PAGE> 88
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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.
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.
F-15
<PAGE> 89
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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........................... (1,694) 1,694 $0.25 - $2.60 1,792 1.06
Cancelled......................... 42 (42) $0.25 - $1.00 (13) 0.30
------ ----- ------------- ------ -----
Balances, June 30, 1999........... 1,199 2,801 $0.25 -$2.60 $2,074 $0.74
====== ===== ============= ====== =====
</TABLE>
The options outstanding and currently exercisable by exercise price at June
30, 1999 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT JUNE 30, 1999 JUNE 30, 1999
- ----------------------------------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER REMAINING AVERAGE EXERCISE NUMBER AVERAGE EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE (YEARS) PRICE OUTSTANDING PRICE
- ----------------- ----------- ------------------------ ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.25 1,577 9.32 $0.25 142 $0.25
$0.28 300 4.05 $0.28 -- $ --
$0.50 217 9.83 $0.50 -- $ --
$1.00 218 9.89 $1.00 -- $ --
$2.60 489 9.99 $2.60 -- $ --
----- ---
2,801 8.96 $0.74 142 $0.25
===== ===
</TABLE>
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 during 1998
and the six months ended June 30, 1999, 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>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Net income (loss), as reported...................... $ 60 $ (727)
Net income (loss), pro forma........................ $ 54 $ (739)
Net income (loss) per share, as reported:
Basic............................................. $0.01 $(0.12)
Diluted........................................... $0.00 $(0.12)
Net income (loss) per share, pro forma:
Basic............................................. $0.01 $(0.12)
Diluted........................................... $0.00 $(0.12)
</TABLE>
F-16
<PAGE> 90
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 $0.05 and $0.21,
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>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Risk-free interest rate............................. 5.18% 5.28%
Expected life....................................... 4 years 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 $6.3 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
$215,000 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-17
<PAGE> 91
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 27, 1997 SIX MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------------- ------------ ----------
<S> <C> <C> <C>
Current
Federal.................................... $156 $143 $ 677
State...................................... 23 22 114
---- ---- -----
179 165 791
---- ---- -----
Deferred
Federal.................................... (91) (71) (658)
State...................................... (14) (12) (105)
---- ---- -----
(105) (83) (763)
---- ---- -----
Total income tax provision................... $ 74 $ 82 $ 28
==== ==== =====
</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 SIX MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1998 1999
------------------- ------------ ----------
<S> <C> <C> <C>
Tax provision at federal statutory rate.... $ 60 $ 48 $.(238)
State income taxes, net of federal
benefit.................................. 10 7 6
Nondeductible expenses..................... 3 23 280
Other...................................... 1 4 (20)
---- ---- -----
Tax provision.............................. $ 74 $ 82 $ 28
==== ==== =====
</TABLE>
Temporary differences which gave rise to significant portions of deferred
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1997 1998 1999
----- ----- --------
<S> <C> <C> <C>
Deferred tax assets:
Reserves and accruals................................... $ 96 $ 191 $ 864
Fixed assets............................................ 9 -- --
Other................................................... -- -- 21
----- ----- -----
Deferred tax assets....................................... $ 105 $ 191 $ 885
===== ===== =====
Deferred tax liabilities:
Deferred revenue........................................ (374) (374) (339)
Fixed assets............................................ -- (3) (23)
----- ----- -----
Deferred tax liabilities.................................. $(374) $(377) $(362)
===== ===== =====
</TABLE>
F-18
<PAGE> 92
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 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. ("Croghan & Associates"). 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, Inc. ("Creative Business Solutions"), an Internet
solutions development company specializing in the integration of healthcare
information technology and contract programming solutions, and its majority
owned subsidiary, HealthWeb Systems, Ltd. ("HealthWeb"), an Internet software
and portal development company specializing in customized healthcare
applications. 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 $2,548,000, of which $484,000 was allocated to acquired
in-process technology and $2,064,000 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 date of acquisition, the Company determined
the technological feasibility of HealthWeb's product was not established, and
accordingly, wrote-off the corresponding amount to acquired in-process
technology. HealthWeb is expected to introduce the final product by the end of
1999. 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 between July 1999 and the first quarter of 2000.
Currently, the Company knows of no developments which would lead it to change
its original assessment of the expected completion and commercial viability of
this project. At the date of acquisition, the only identifiable intangible
assets acquired were the technology under development, the acquired workforce
and customer list.
In April 1999, the Company acquired certain assets and liabilities from
Management and Technology Solutions, Inc. ("MTS") in exchange for 60,000 shares
of common stock. The assets included property and equipment, intellectual
property, trademarks and licenses, and computer software and software licenses.
As part of this transaction, the Company assumed liabilities consisting of lease
obligations, a note payable and certain other accrued liabilities.
F-19
<PAGE> 93
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 $ 596
Property, plant, equipment and other noncurrent assets...... 511 175
Goodwill.................................................... -- 1,338
Other intangible assets..................................... -- 726
Acquired in-process technology.............................. -- 484
Total liabilities........................................... (1,311) (403)
------ ------
Total purchase price.............................. $ 436 $2,916
====== ======
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of Croghan & Associates had
occurred on May 27, 1997, the date of inception for the Company (in thousands):
<TABLE>
<S> <C>
Net revenue................................................. $4,244
Net loss before extraordinary item.......................... $ (880)
Net income.................................................. $ 120
</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 $13,050
Net loss......................................... $ (439) $ (287)
</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.
F-20
<PAGE> 94
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 99
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 -- 1,484
Deferred stock compensation.................. -- 482 15 5,817
Common stock issued for notes receivable..... -- 53 53 --
Issuance of notes payable to acquire software
and software license...................... -- -- -- 1,690
Common stock issued for Creative Business
Solutions................................. -- -- -- 1,146
Notes payable issued for Creative Business
Solutions................................. -- -- -- 270
Repurchase of shares in exchange for
stockholder notes receivable.............. -- -- -- 700
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 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.
F-21
<PAGE> 95
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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.
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 $ (727)
Shares used in computing net income (loss) per share...... 4,937 6,216
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 12,492
------- -------
Pro forma net income (loss) per share..................... $ 0.01 $ (0.06)
======= =======
Diluted:
Net income (loss)......................................... $ 60 $ (727)
Shares used in computing net income (loss) per share...... 12,783 6,216
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 12,492
------- -------
Pro forma net income (loss) per share..................... $ 0.00 $ (0.06)
======= =======
</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 an initial
public 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
F-22
<PAGE> 96
THE TRIZETTO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
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 the Company, 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-23
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Croghan & Associates, Inc.
In our opinion, the accompanying statements of operations, of stockholders'
equity and of cash flows present fairly, in all material respects, the results
of operations and cash flows of Croghan & Associates, Inc. for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 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.
Certain costs and expenses presented in the financial statements represent
allocations and management's estimates of the cost of services provided to
Croghan & Associates, Inc. As a result, the financial statements presented may
not be indicative of the results of operations that would have been achieved had
Croghan & Associates, Inc. operated as a non-affiliated entity.
PricewaterhouseCoopers LLP
San Jose, California
September 7, 1999
F-24
<PAGE> 98
CROGHAN & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------------- -------------
<S> <C> <C>
Revenue..................................................... $ 5,088,288 $ 3,880,699
Cost of revenue............................................. 4,068,148 3,608,783
----------- -----------
Gross profit................................................ 1,020,140 271,916
Operating expenses:
Selling general and administrative........................ 2,142,219 2,414,944
----------- -----------
Loss from operations........................................ (1,122,079) (2,143,028)
Other income (expense):
Interest income............................................. 20,778 14,892
Interest expense............................................ (1,340,660) (84,063)
----------- -----------
Loss before extraordinary item.............................. (2,441,961) (2,212,199)
Extraordinary item:
Gain on forgiveness of debt................................. -- 1,000,000
----------- -----------
Net loss.................................................... $(2,441,961) $(1,212,199)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 99
CROGHAN & ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK RETAINED DISTRIBUTION
(PAR VALUE - $0.001) ADDITIONAL EARNINGS IN EXCESS TOTAL
--------------------- PAID-IN (ACCUMULATED PARENT OF SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) EQUITY NET VALUE EQUITY
----------- -------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996... -- $ -- $ -- $ -- $ 10,261,446 $ -- $ 10,261,446
Net loss prior to
reorganization............. -- -- -- -- (2,201,569) -- (2,201,569)
Reorganization............... 3,200,000 3,200 -- -- (8,059,877) 8,056,677 --
Net loss subsequent to
reorganization............. -- -- -- (240,392) -- -- (240,392)
--------- ------ ------ ----------- ------------ ---------- ------------
Balance at December 31,
1996....................... 3,200,000 3,200 -- (240,392) -- 8,056,677 7,819,485
Issuance of common stock..... 6,273,844 6,274 3,570 -- -- -- 9,844
Net loss..................... -- -- -- (1,212,199) -- -- (1,212,199)
--------- ------ ------ ----------- ------------ ---------- ------------
Balance at September 30,
1997....................... 9,473,844 $9,474 $3,570 $(1,452,591) $ -- $8,056,677 $ 6,617,130
========= ====== ====== =========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 100
CROGHAN & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,441,961) $(1,212,199)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for doubtful accounts........................ 662,721 88,000
Gain on debt forgiveness............................... -- (1,000,000)
Depreciation and amortization.......................... 1,854,668 1,210,164
Changes in current assets and liabilities:
Accounts receivable.................................. (321,691) (140,654)
Prepaid expenses and other current assets............ (271,251) 285,088
Accounts payable..................................... (147,171) 105,000
Accrued liabilities.................................. 371,704 (178,112)
Deferred revenue..................................... 899,984 (83,116)
Other long-term assets............................... 375 (4,500)
----------- -----------
Net cash provided by (used in) operating
activities..................................... 607,378 (930,329)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (440,627) (46,829)
----------- -----------
Net cash used in investing activities............. (440,627) (46,829)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... -- 9,844
Payments on notes payable................................. -- (70,000)
Proceeds from borrowings.................................. 1,590,000
----------- -----------
Net cash provided by (used in) financing
activities..................................... 1,590,000 (60,156)
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 1,756,751 (1,037,314)
Cash and cash equivalents at beginning of period............ -- 1,756,751
----------- -----------
Cash and cash equivalents at end of period.................. $ 1,756,751 $ 719,437
=========== ===========
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 1,314,770 $ 109,953
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 101
CROGHAN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. FORMATION AND BUSINESS OF THE COMPANY
Croghan & Associates, Inc. (the "Company" or "Croghan & Associates") is a
healthcare application services provider delivering proprietary software
applications. The Company implements, hosts and manages applications and
services on computing, networking and operating platforms.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of Croghan & Associates include all the necessary
personnel costs and pro rata allocations of overhead from Banc One Corporation,
on a basis which management believes represents a reasonable allocation of such
costs. These charges comprise the parent company's net investment in Croghan &
Associates. Effective December 1, 1996, an officer of the Company assumed the
assets and liabilities of Croghan & Associates for no additional consideration.
Use of estimates
The preparation of 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
The following table summarizes the revenues from customers in excess of 10%
of the total revenues:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Company A.................................... 51% 33%
Company B.................................... 25% 13%
</TABLE>
Revenue recognition
Multi-year contractually based revenue is recognized monthly based on
volume of service transactions. Provisions for estimated losses on contracts are
recorded when identified.
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.
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
F-28
<PAGE> 102
CROGHAN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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. 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 June 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.
NOTE 3. COMMITMENTS AND CONTINGENCIES
In December 1996, the Company began a self-insurance program to provide
medical benefits to its employees. Reserves for incurred but not reported claims
total $60,000 and $65,000 at December 31, 1996 and September 30, 1997,
respectively.
NOTE 4. STOCKHOLDERS' EQUITY
Warrants
The Company issued a warrant to purchase 243,893 shares of the Company's
common stock at an exercise price of $0.53 per share in connection with a
financing agreement. 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.
Stock split
In January 1997, the Company's Board of Directors authorized a 16 to 1
stock split. Share information has been restated in the accompanying financial
statements to reflect the stock split for all periods presented.
NOTE 5. INCOME TAXES
There was no provision for income taxes for the year ended December 31,
1996 and the nine months ended September 30, 1997.
The Company's effective tax rate differs from the statutory rate as shown
in the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Tax provision at federal statutory rate............ 34% 34%
Change in valuation allowance...................... (34) (34)
---- ----
Tax provision...................................... --% --%
==== ====
</TABLE>
F-29
<PAGE> 103
CROGHAN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SEGMENT INFORMATION
The Company, which operates in a single industry segment, provides
healthcare application services. All of the Company's revenues are recorded for
services performed in the United States. Additionally, all of the Company's
assets are located in the United States.
F-30
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Creative Business Solutions, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Creative
Business Solutions, Inc. and its subsidiary at December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the two years
in the period 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
July 30, 1999
F-31
<PAGE> 105
CREATIVE BUSINESS SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 35,139 $ 71,990
Accounts receivable, less allowance for doubtful accounts
of $41,000 and $80,337................................. 461,906 419,084
Other current assets...................................... 17,107 4,180
-------- --------
Total current assets.............................. 514,152 495,254
Property and equipment, net................................. 188,301 175,267
Intangible assets, net...................................... -- 10,384
-------- --------
Total assets...................................... $702,453 $680,905
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 77,391 $ 95,595
Deferred revenue.......................................... -- 41,610
Line of credit............................................ 220,000 240,000
Notes payable............................................. 43,541 29,027
Deferred taxes............................................ 82,467 49,597
-------- --------
Total current liabilities......................... 423,399 455,829
-------- --------
Commitments (Note 7)
Minority interest........................................... 3,665 --
Stockholders' equity:
Common stock, $1.00 par value; 100,000 shares authorized;
Shares issued and outstanding: 9,824 in 1997 and
1998................................................... 9,824 9,824
Notes receivable from stockholders........................ (38,331) (30,000)
Retained earnings......................................... 303,896 245,252
-------- --------
Total stockholders' equity........................ 275,389 225,076
-------- --------
Total liabilities and stockholders' equity........ $702,453 $680,905
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 106
CREATIVE BUSINESS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenue..................................................... $3,598,201 $3,887,746
Cost of revenue............................................. 2,688,477 2,658,044
---------- ----------
Gross profit................................................ 909,724 1,229,702
---------- ----------
Operating expenses:
Research and development.................................. 185,629 376,076
Selling, general and administrative....................... 851,204 926,693
---------- ----------
Total operating expenses.......................... 1,036,833 1,302,769
Loss from operations........................................ (127,109) (73,067)
Minority interest........................................... 3,335 3,665
Interest income............................................. 2,939 64
Interest expense............................................ (10,553) (22,806)
---------- ----------
Loss before benefit from income taxes..................... (131,388) (92,144)
Benefit from income taxes................................... (43,302) (33,500)
---------- ----------
Net loss.................................................. $ (88,086) $ (58,644)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 107
CREATIVE BUSINESS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN FROM RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS EQUITY
------ ------ ---------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997......... 9,574 $9,574 $ -- $ -- $ 430,774 $ 440,348
Issuance of common stock........... 1,000 1,000 4,000 -- -- 5,000
Issuance of common stock for cash
and note receivable.............. 250 250 14,262 (8,331) -- 6,181
Repurchase of common stock......... (1,000) (1,000) (18,262) -- (38,792) (58,054)
Notes issued to stockholders....... -- -- -- (30,000) -- (30,000)
Net loss........................... -- -- -- -- (88,086) (88,086)
------ ------ -------- -------- --------- ---------
Balance at December 31, 1997....... 9,824 9,824 -- (38,331) 303,896 275,389
Payment on note receivable......... -- -- -- 8,331 -- 8,331
Net loss........................... -- -- -- -- (58,644) (58,644)
------ ------ -------- -------- --------- ---------
Balance at December 31, 1998....... 9,824 $9,824 $ -- $(30,000) $ 245,252 $ 225,076
====== ====== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 108
CREATIVE BUSINESS SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (88,086) $ (58,644)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 42,965 71,291
Provision for doubtful accounts........................ 41,000 39,337
Minority interest in net losses of consolidated
subsidiary............................................ (3,335) (3,665)
Deferred taxes......................................... (48,101) (32,870)
Changes in current assets and liabilities:
Accounts receivable.................................. (58,382) 3,485
Other current assets................................. 5,013 12,927
Accounts payable and accrued liabilities............. (12,384) 18,204
Deferred revenue..................................... -- 41,610
--------- ---------
Net cash provided by (used in) operating
activities...................................... (121,310) 91,675
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (98,625) (57,360)
Acquisition of intangible assets.......................... -- (11,281)
--------- ---------
Net cash used in investing activities............. (98,625) (68,641)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 11,181 --
Repurchase of common stock................................ (14,513) --
Contribution from minority interest....................... 7,000 --
Proceeds from line of credit.............................. 220,000 20,000
Payments on notes payable................................. -- (14,514)
Issuance of note receivable............................... (30,000) --
Proceeds from payment on notes receivable................. -- 8,331
--------- ---------
Net cash provided by financing activities......... 193,668 13,817
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (26,267) 36,851
Cash and cash equivalents at beginning of year.............. 61,406 35,139
--------- ---------
Cash and cash equivalents at end of year.................... $ 35,139 $ 71,990
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 10,553 $ 22,806
========= =========
NONCASH FINANCING ACTIVITIES:
Notes payable issued for repurchase of common stock....... $ 43,541 $ --
Common stock issued for note receivable................... 8,331 --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 109
CREATIVE BUSINESS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY
Creative Business Solutions, Inc. (the "Company" or "Creative Business
Solutions"), was incorporated in Texas on May 6, 1991. The Company is engaged in
providing information technology consulting services and implementing automated
information technology solutions for clients with mission critical business
problems.
Creative Business Solutions formed a subsidiary, HealthWeb Systems, Ltd.,
("HealthWeb") on August 1, 1997 to develop web integrated software for the
healthcare industry. The Company owns 82.5% of HealthWeb.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiary, HealthWeb. Minority interest represents
minority stockholders' proportionate share of the equity in HealthWeb. All
intercompany balances and 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 reported
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 or insurance provided an such deposits. The Company has not experienced
any losses on its deposits of cash and cash equivalents. 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.
Fair value of financial instruments
Carrying amount 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.
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 method over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over their estimated
F-36
<PAGE> 110
CREATIVE BUSINESS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Long-lived and intangible 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
Consulting revenue is billed generally on a time and materials basis and is
recognized as the consulting services are performed.
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.
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 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. 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 June 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.
F-37
<PAGE> 111
CREATIVE BUSINESS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Furniture and fixtures............................. $ 39,011 $ 45,670
Machinery and equipment............................ 248,592 288,103
Software........................................... 33,315 33,315
Leasehold improvements............................. -- 11,190
--------- ---------
320,918 378,278
Less: Accumulated depreciation and amortization...... (132,617) (203,011)
--------- ---------
$ 188,301 $ 175,267
========= =========
INTANGIBLE ASSETS
Software licenses.................................. $ -- $ 11,281
Less: Accumulated amortization....................... -- (897)
--------- ---------
$ -- $ 10,384
========= =========
</TABLE>
4. NOTES PAYABLE AND LINE OF CREDIT
In October 1996, the Company entered into a revolving line of credit with a
financial institution. The line of credit has a total capacity of $325,000 and
expires in April 1999. Borrowings under the line of credit bear interest at the
bank's base rate plus 1.0% (9.75% at December 31, 1998) and are collateralized
by the Company's accounts receivable. Interest is payable monthly as it accrues.
The line of credit contains certain covenants that the Company must adhere to
during the term of the agreement. At December 31, 1997 and 1998, the Company had
outstanding borrowings of $220,000 and $240,000, respectively. The outstanding
balance was paid in full in April 1999.
In October 1997, the Company issued a promissory note to a shareholder for
$43,541 in exchange for 1,000 shares of common stock. The note accrues interest
monthly at 8.5% and the principal and related interest are payable quarterly
through October 2000. At December 31, 1997 and 1998, $43,541 and $29,027,
respectively, were outstanding under the promissory note. In connection with the
acquisition of the Company by the Trizetto Group, Inc. (Note 10) in February
1999, the remaining balance was paid in full.
5. COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 100,000 shares of $1.00 par value common stock. The Company has a right
of first refusal to purchase any common stock from a selling stockholder. If the
Company declines the right to repurchase shares, the continuing stockholders
have a right of first refusal to purchase such shares. This right lapses after
15 days from notification.
F-38
<PAGE> 112
CREATIVE BUSINESS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
The benefit from income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Current
Federal.................................................. $ -- $ --
State.................................................... -- --
-------- --------
-- --
-------- --------
Deferred
Federal.................................................. (40,272) (28,924)
State.................................................... (3,030) (4,576)
-------- --------
(43,302) (33,500)
-------- --------
Total income tax provision................................. $(43,302) $(33,500)
======== ========
</TABLE>
The Company's effective tax rate differs from the statutory rate as shown
in the following schedule:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Tax benefit at federal statutory rate...................... $(44,676) $(31,348)
State income taxes, net of federal benefit................. (1,980) (3,300)
Nondeductible expenses..................................... 8,653 11,189
Tax credit carryforwards................................... (4,250) (8,134)
Other...................................................... (1,049) (1,907)
-------- --------
Tax benefit................................................ $(43,302) $(33,500)
======== ========
</TABLE>
Temporary differences which gave rise to significant portions of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets and liabilities:
Net operating loss carryforwards.......................... $ 42,320 $ 24,319
Tax credit carryforwards.................................. 4,250 12,384
Fixed assets.............................................. 13,099 17,320
Accrual to cash adjustment................................ (142,136) (103,620)
--------- ---------
Deferred tax liabilities.................................... $ (82,467) $ (49,597)
========= =========
</TABLE>
7. LEASE COMMITMENTS
The Company leases its office space and certain equipment under
noncancelable operating leases with various expiration dates through 2001. The
Company is responsible for maintenance costs and property taxes on certain of
the operating leases. Rent expense for the year ended December 31, 1997 and 1998
was $55,689 and $87,476, respectively.
F-39
<PAGE> 113
CREATIVE BUSINESS SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................................ $70,151
2000........................................................ 10,912
2001........................................................ 1,860
-------
Total minimum lease payments...................... $82,923
=======
</TABLE>
8. EMPLOYEE BENEFITS PLAN
The Company sponsors a defined contribution 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 15% of their annual compensation,
not to exceed the statutory limit, and the Company may make matching
contributions. There have been no Company contributions to the plan since its
inception.
9. NOTES RECEIVABLE FROM STOCKHOLDERS
In May, 1997 the Company loaned $30,000 to two officers under promissory
notes. The notes accrue interest annually at a rate of 6.5%. The principal
amount of $30,000 was forgiven by the Company as part of the purchase by The
TriZetto Group, Inc. (Note 10).
10. ACQUISITION
On February 5, 1999, all of the outstanding shares of the Company and
HealthWeb were purchased by The TriZetto Group, Inc. ("TriZetto"). The purchase
price of approximately $2.8 million consisted of approximately $1.4 million in
cash, 655,000 shares of TriZetto common stock and notes payable of $270,000.
11. SEGMENT INFORMATION
The Company, which operates in a single industry segment, provides
information technology consulting services. All of the Company's revenues are
recorded for services performed in the United States. Additionally, all of the
Company's assets are located in the United States.
F-40
<PAGE> 114
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. 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 The
TriZetto Group, Inc. ("TriZetto") and Creative Business Solutions included
elsewhere herein.
F-41
<PAGE> 115
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............ 2,885 927 381(1) 4,193
Amortization of deferred stock compensation.... 22 -- -- 22
------- ------ ----- -------
Total operating expenses.................... 3,990 1,303 381 5,674
------- ------ ----- -------
Income (loss) from operations.................... (16) (73) (381) (470)
Interest income.................................. 210 -- -- 210
Interest expense................................. (52) (23) (22)(3) (97)
Equity in loss of minority interest.............. 4 (4)(2) --
------- ------ ----- -------
Income before provision for taxes................ 142 (92) (407) (357)
Provision for income taxes....................... 82 (33) -- 49
------- ------ ----- -------
Net income (loss).............................. $ 60 $ (59) $(407) $ (406)
======= ====== ===== =======
Net income (loss) per share:
Basic.......................................... $ 0.01 $ (0.08)
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-42
<PAGE> 116
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 ELIMINATION(5) ADJUSTMENTS COMBINED
-------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Recurring revenue................ $ 6,201 $ -- $ -- $ -- $ 6,201
Consulting revenue............... 6,508 1,879 (1,538) -- 6,849
------- ------ ------- ------ -------
Total revenues................ 12,709 1,879 (1,538) -- 13,050
------- ------ ------- ------
Cost of Revenues:
Recurring revenue................ 5,038 -- -- -- 5,038
Consulting revenue............... 4,109 1,360 (1,059) -- 4,410
------- ------ ------- ------ -------
Total cost of revenues........ 9,147 1,360 (1,059) -- 9,448
------- ------ ------- ------ -------
Gross profit....................... 3,562 519 (479) 3,602
------- ------ ------- -------
Operating expenses:
Research and development......... 440 345 (293) -- 492
Selling, general and
administrative................ 3,098 227 (229) 32(1) 3,128
Amortization of deferred
compensation.................. 215 -- 215
Write-off of acquired in-process
technology.................... 484 484 (484) (484)(4) --
------- ------ ------- ------ -------
Total operating expenses...... 4,237 1,056 (1,006) (452) 3,835
------- ------ ------- ------ -------
Income (loss) from operations...... (675) (537) 527 452 (233)
Interest income.................... 76 4 (4) -- 76
Interest expense................... (100) (5) 5 (2)(3) (102)
------- ------ ------- ------ -------
Income before provision for
taxes............................ (699) (538) 528 450 (259)
Provision for income taxes......... 28 -- -- 28
------- ------ ------- ------ -------
Net loss......................... $ (727) $ (538) $ 528 $ 450 $ (287)
======= ====== ======= ====== =======
Net Income (loss) per share
Basic............................ $ (0.12) $ (0.05)
======= =======
Diluted.......................... $ (0.12) $ (0.05)
======= =======
Number of shares used in computing
income (loss) per share:
Basic............................ 6,216 6,216
======= =======
Diluted.......................... 6,216 6,216
======= =======
</TABLE>
See accompanying notes to pro forma combined condensed consolidated financial
statements.
F-43
<PAGE> 117
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 it would benefit from the
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 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-44
<PAGE> 118
(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.
(5) To eliminate the results of operations of Creative Business Solutions
for the period from February 5, 1999 to June 30, 1999, which were
included in the historical consolidated results of the Company.
F-45
<PAGE> 119
- ------------------------------------------------------
- ------------------------------------------------------
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........................... 7
Forward-Looking Statements............. 16
Use of Proceeds........................ 17
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Consolidated Financial Data... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 22
Business............................... 34
Management............................. 52
Principal and Selling Stockholders..... 59
Certain Transactions................... 61
Description of Capital Stock........... 62
Shares Eligible for Future Sale........ 66
Underwriting........................... 68
Legal Matters.......................... 70
Experts................................ 70
Where You Can Find Additional
Information.......................... 70
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
TriZetto Group LOGO
4,200,000 SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
ADAMS, HARKNESS & HILL, INC.
WIT CAPITAL CORPORATION
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 120
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........................................ $ 17,456
NASD filing fee............................................. 6,779
Nasdaq National Market application fee...................... 95,000
Printing expenses........................................... 175,000
Legal fees and expenses (other than Blue Sky)............... 200,000
Accounting fees and expenses................................ 500,000
Blue sky fees and expenses.................................. 5,000
Miscellaneous............................................... 5,775
----------
Total.................................................. $1,000,000
==========
</TABLE>
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 bylaws 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.
- On April 15, 1998, we sold 465,000 shares of our common stock to five
employees for an aggregate offering price of $62,000.
II-1
<PAGE> 121
- 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
3,202,878 shares of common stock to employees and directors pursuant to
our 1998 Stock Option Plan.
- Since May 15, 1998, we have issued 25,500 shares of common stock upon the
exercise of options.
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> 122
<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.
2.5+ Information Technology Services Agreement, dated May 1,
1999, between the Registrant and MedPartners, Inc.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant, as in effect.
3.2** Revised 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** Revised 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** First Amended and Restated Investor Rights Agreement, dated
April 9, 1999 among Raymond Croghan, Jeffrey Margolis, the
Registrant and Series A and Series B Preferred Stockholders.
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.
</TABLE>
II-3
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.20** Bank One Credit Facility (including Promissory Note, Loan
Agreement and Commercial Security Agreement), 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.
27.1** Financial Data Schedule.
</TABLE>
- ---------------
** Previously filed.
+ 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> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the 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 2nd day of October 1999.
THE TRIZETTO GROUP, INC.
By: /s/ JEFFREY H. MARGOLIS
------------------------------------
Jeffrey H. Margolis
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the 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 October 2, 1999
- --------------------------------------------------- Officer and Chairman of the
Jeffrey H. Margolis Board (principal executive
officer)
/s/ MICHAEL J. SUNDERLAND Senior Vice President of Finance, October 2, 1999
- --------------------------------------------------- Chief Financial Officer and
Michael J. Sunderland Secretary (principal financial
and accounting officer)
/s/ DONALD J. LOTHROP* Director October 2, 1999
- ---------------------------------------------------
Donald J. Lothrop
/s/ PETER D. MANN* Director October 2, 1999
- ---------------------------------------------------
Peter D. Mann
/s/ WILLIAM E. FISHER* Director October 2, 1999
- ---------------------------------------------------
William E. Fisher
/s/ PAUL F. LEFORT* Director October 2, 1999
- ---------------------------------------------------
Paul F. LeFort
</TABLE>
*By: /s/ JEFFREY H. MARGOLIS
---------------------------------
Jeffrey H. Margolis
(Attorney-in-fact)
II-5
<PAGE> 125
REPORT OF INDEPENDENT ACCOUNTANTS 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 September 7, 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.
PricewaterhouseCoopers LLP
San Jose, California
September 7, 1999
S-1
<PAGE> 126
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
Allowance for doubtful accounts...... $204 $135 $ -- $339
</TABLE>
S-2
<PAGE> 127
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.
2.5+ Information Technology Services Agreement, dated May 1,
1999, between the Registrant and MedPartners, Inc.
3.1** Amended and Restated Certificate of Incorporation of the
Registrant, as in effect.
3.2** Revised 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** Revised 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** First Amended and Restated Investor Rights Agreement, dated
April 9, 1999 among Raymond Croghan, Jeffrey Margolis, The
Registrant and Series A and Series B Preferred Stockholders.
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.
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
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 (including Promissory Note, Loan
Agreement and Commercial Security Agreement), 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.
27.1** Financial Data Schedule.
</TABLE>
- ---------------
** Previously filed.
+ 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 2.2
----------------------------------------------
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.
----------------------------------------------
<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 Dennis Cannelis, Lawrence Holbrook and Kevin Clark,
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) $928,218.93 in cash without interest,
(ii) 572,000 shares of Common Stock of Trizetto (the "TriZetto Common Stock"),
and (iii) a Promissory Note for $260,076 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
1
<PAGE> 3
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, twenty percent (20%) of the shares of
TriZetto Common Stock issued in the transaction (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:
2
<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
3
<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
4
<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.
5
<PAGE> 7
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.
6
<PAGE> 8
(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.
7
<PAGE> 9
(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.
8
<PAGE> 10
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
9
<PAGE> 11
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.
10
<PAGE> 12
(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.
11
<PAGE> 13
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
12
<PAGE> 14
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.
13
<PAGE> 15
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
14
<PAGE> 16
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.
15
<PAGE> 17
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
16
<PAGE> 18
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;
17
<PAGE> 19
(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
18
<PAGE> 20
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.
19
<PAGE> 21
(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
20
<PAGE> 22
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.
21
<PAGE> 23
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 $50,000 (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
22
<PAGE> 24
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.
23
<PAGE> 25
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.
24
<PAGE> 26
(f) EMPLOYMENT AGREEMENTS. At the Closing, TriZetto shall
have entered into an employment agreement with Dennis Cannelis, Lawrence
Holbrook and Kevin Clark 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 Dennis
Cannelis, Lawrence Holbrook and Kevin Clark 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
Neal Rapoport on October 15, 1997 and cancelled the 1,000 shares of CBS Common
Stock which are held by Neal Rapoport 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) Dennis Cannelis, Lawrence Holbrook and John Boldt 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.
25
<PAGE> 27
(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.
26
<PAGE> 28
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
27
<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
28
<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).
29
<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.
30
<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
31
<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
32
<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.
33
<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: /s/ Dennis Cannelis
-------------------------------------------
Name: Dennis Cannelis
Title: CEO
"CBS STOCKHOLDERS"
/s/ Dennis Cannelis
------------------------------------------------
Dennis Cannelis
/s/ Lawrence Holbrook
------------------------------------------------
Lawrence Holbrook
/s/ Kevin Clark
------------------------------------------------
Kevin Clark
<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.,
JEFFREY COHEN
AND
DAVID SMITH
----------------------------------------------
<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"), Jeffrey Cohen ("Cohen") and
David S. Smith ("Smith") (collectively, HWGP, Cohen and Smith 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, Dennis Cannelis, Lawrence
Holbrook and Kevin Clark (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) $40,488.31 in cash without
interest, (ii) 83,000 shares of Common Stock of TriZetto (the "TriZetto Common
Stock"), and (iii) a Promissory Note for $9,924.00 in substantially the form
attached hereto as Exhibit A, less the expenses payable by the HealthWeb
Partners pursuant to Section 7.3 below, unless
1
<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
3
<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;
4
<PAGE> 6
(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.
5
<PAGE> 7
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
6
<PAGE> 8
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.
7
<PAGE> 9
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
8
<PAGE> 10
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
9
<PAGE> 11
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
10
<PAGE> 12
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
11
<PAGE> 13
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,
12
<PAGE> 14
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
13
<PAGE> 15
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;
14
<PAGE> 16
(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
15
<PAGE> 17
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
16
<PAGE> 18
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
17
<PAGE> 19
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
18
<PAGE> 20
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.
19
<PAGE> 21
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,
20
<PAGE> 22
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 $50,000 (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
21
<PAGE> 23
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.
22
<PAGE> 24
(c) RESTRICTED STOCK AGREEMENT. The Restricted Stock
Agreement in the form of Exhibit G shall have been entered into by TriZetto and
each of Cohen and Smith. 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 Jeffrey Cohen 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 Jeffrey Cohen
and David S. Smith 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
Neal Rapoport on October 15, 1997 and cancelled the HealthWeb Interests which
are held by Neal Rapoport as collateral thereunder. TriZetto shall be entitled
to deduct the payoff amount from the cash consideration paid hereunder.
23
<PAGE> 25
(j) Dennis Cannelis, Lawrence Holbrook and John Boldt 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 Cohen and Smith 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
24
<PAGE> 26
(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):
25
<PAGE> 27
(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
26
<PAGE> 28
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
27
<PAGE> 29
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.
28
<PAGE> 30
"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,
29
<PAGE> 31
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.
30
<PAGE> 32
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.
31
<PAGE> 33
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/ Dennis Cannelis
-------------------------------------
Name: Dennis Cannelis
-------------------------------------
Title: CEO
-------------------------------------
/s/ Jeffrey Cohen
----------------------------------------
Jeffrey Cohen
/s/ David S. Smith
----------------------------------------
David S. Smith
32
<PAGE> 1
EXHIBIT 2.5
INFORMATION TECHNOLOGY SERVICES AGREEMENT
BETWEEN
MEDPARTNERS, INC.
AND
THE TRIZETTO GROUP, INC.
DATED MAY 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Understanding and Services........................................ Section 1
Additional Services: Exclusivity.................................. Section 2
Term.............................................................. Section 3
Transition Plan................................................... Section 4
Affected Employees................................................ Section 5
Business Unit Asset Purchase...................................... Section 6
Project Management................................................ Section 7
Performance....................................................... Section 8
Payments.......................................................... Section 9
Clinic Agreements................................................. Section 10
Service Locations and Security.................................... Section 11
Management and Change Control Process............................. Section 12
Data and Reports.................................................. Section 13
Software Rights................................................... Section 14
Hardware Rights................................................... Section 15
Agency............................................................ Section 16
Disaster Recovery................................................. Section 17
Force Majeure..................................................... Section 18
Audits............................................................ Section 19
Confidential Information.......................................... Section 20
Representations and Warranties.................................... Section 21
Dispute Resolution................................................ Section 22
Termination....................................................... Section 23
Limited Right to Continuation of Services......................... Section 24
Exit Plan......................................................... Section 25
Indemnification................................................... Section 26
Remedies.......................................................... Section 27
Insurance......................................................... Section 28
Miscellaneous..................................................... Section 29
</TABLE>
-i-
<PAGE> 3
TABLE OF EXHIBITS
Exhibit A Glossary of Terms
Exhibit B Services
Exhibit C Service Matrix
Exhibit D Additional Services
Exhibit E Transition Plan
Exhibit F Bonuses
Exhibit G Key Employees
Exhibit H Service Level Agreements
Exhibit I Service Credits
Exhibit J Pricing Schedule for Services
Exhibit K Change Control Process
Exhibit L Software Rights
Exhibit M Hardware Rights
Exhibit N Services Transition Assistance
Exhibit O Reporting Template
Exhibit P Disaster Recovery Plan
Exhibit Q Insurance
Exhibit R Excluded Expenses
Exhibit S Service Resources
Exhibit T Affected Employees
Exhibit U Business Unit Asset Purchase Agreement
Exhibit V Epic License Transfer Agreement
-ii-
<PAGE> 4
INFORMATION TECHNOLOGY SERVICES AGREEMENT
This INFORMATION TECHNOLOGY SERVICES AGREEMENT ("Agreement"), is dated as of May
1, 1999 (the "Effective Date"), by and between MedPartners, Inc., a Delaware
corporation ("MDM") (MDM together with its subsidiaries and affiliates are
collectively referred to herein as the "Customer") and The TriZetto Group, Inc.,
a Delaware corporation (the "Vendor"). Vendor and Customer are sometimes
hereinafter referred to individually as a "Party" and collectively as the
"Parties." All capitalized terms used but not defined herein shall have the
meanings ascribed to them in EXHIBIT A "GLOSSARY OF TERMS" attached hereto.
RECITALS
WHEREAS, Customer has contracted with certain health care clinics to provide
those clinics with certain management support and information technology
services;
WHEREAS, Customer also provides information technology services to Customer's
own business operations and the business operations of its affiliate company,
Caremark, Inc. ("Caremark");
WHEREAS, Customer is ending its relationship with the Clinics, and wishes to
outsource the services it provides to the Clinics, for the period from the
Effective Date of this Agreement to the date when each Clinic is disassociated
from Customer and for the period after such disassociation until Customer's
obligations to provide services to the Clinic end;
WHEREAS, Customer also wishes to outsource the services it provides to its own
business operations and the business operations of Caremark;
WHEREAS, Vendor desires to provide such services to the Customer Group; and
WHEREAS, Vendor recognizes that the Customer Group expects to be treated as a
valued customer and expects Vendor to exhibit a customer service attitude in
delivering the services required under this Agreement;
NOW, THEREFORE, in consideration of the recitals and for mutual promises and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. UNDERSTANDINGS AND SERVICES.
(a) On and after the Effective Date and throughout the Term of this
Agreement, Vendor shall provide Customer Group the information
technology and other services described in EXHIBIT B--SERVICES
attached hereto and in this Agreement (the "Services"),
including, without
<PAGE> 5
limitation, those services described in the service matrix set
forth in EXHIBIT C--SERVICE MATRIX. The Services shall include,
without limitation, the General Services, Clinic Services, the
Corporate Services, and the Caremark Services. The Parties
intend that the Services shall include all of the functions,
responsibilities and tasks that are being performed and
delivered by the Affected Employees up to and including the
Effective Date, except as noted on EXHIBIT D.
(b) There may be functions, responsibilities, activities and tasks
not specifically described in this Agreement which are required
for the proper performance and delivery of the Services and are
a necessary, customary or inherent part of, or a necessary
sub-part included within, the Services. If such functions,
responsibilities, activities and tasks are determined to be
required for the proper performance and delivery of the Services
or are a necessary, customary or inherent part, or a necessary
sub-part included within, the Services, such functions,
responsibilities, activities and tasks shall be deemed to be
implied by and included within the scope of the Services to the
same extent and in the same manner as if specifically described
in this Agreement. Each such determination shall be made by
agreement of the Parties or resolved pursuant to the dispute
resolution provisions set forth in SECTION 22.
(c) Vendor shall not service or support additional customers or
clients from the Service Locations without Customer's prior
written approval (which shall not be unreasonably withheld),
where such service or support would place a significant demand
on Vendor's resources or would materially adversely impact
Vendor's ability to provide the Services and achieve the Service
Level Agreements. Prior to servicing or supporting additional
customers or clients from the Service Locations, Vendor shall
provide to Customer, for Customer's approval, a proposal for
providing such services to the third party, including the
material terms and anticipated scope of the obligations and
expenses, and the risks and/or expenses to Customer during the
Term and upon the termination of this Agreement.
(d) As part of the Services, Vendor shall be responsible for
obtaining at its expense any hardware, software, personnel or
other resources (whether new or replacement) required in order
to provide the Services.
(e) As part of the Services, Vendor shall be responsible for
obtaining all governmental licenses, authorizations, and permits
required by applicable laws and regulations, which Vendor is
required to have in order to perform the Services. Vendor shall
be financially responsible for all fees and taxes associated
with such licenses and permits.
(f) As part of the Services, Vendor shall identify the impact of
changes in applicable laws and regulations on its ability to
deliver the Services or on the
-2-
<PAGE> 6
Services required by Customer. Vendor shall notify Customer of
such changes and shall work with Customer to identify any
adjustment to the Services required by such changes. Vendor
shall promptly implement any such adjustment to the Services
through the Change Control Process. Where changes required under
this Section materially impact the scope of either Party's
duties and obligations under this Agreement, the Parties shall
cooperate in good faith to negotiate revisions to the terms and
conditions of this Agreement required by such changes. Proposed
revisions shall be made by agreement of the Parties, or in the
absence of agreement on such changes, pursuant to the dispute
resolution provisions set forth in SECTION 22. Vendor shall be
responsible for any fines and penalties imposed on Vendor and
Customer arising from any noncompliance with such laws and
regulations by Vendor, its agents, subcontractors, or third
party product or service providers; provided, however, that
Vendor shall not be responsible for any fines and penalties
resulting from compliance with instructions received from
Customer or from activities undertaken by Customer on its own
behalf.
(g) Vendor will perform all of the Services strictly in accordance
with (i) the requirements of all Regulations, (ii) federal,
state and community standards and (iii) other applicable
policies related to the Regulations. Without limiting the
generality of the foregoing, Vendor shall (i) comply with all
policies, procedures and protocols of Customer applicable to
activities of Vendor subject to any Regulation; (ii) direct all
requests for claims processing inquiries, decisions and rulings
either to Customer or to another party designated by Customer;
and (iii) work in cooperation with Customer, health care plans
and other parties to payor agreements to ensure that the
processes followed by Customer and Vendor in connection with the
Services, either in combination or individually, do not violate
and are not inconsistent with the Regulations. Vendor will
perform no Services requiring that Vendor be a regulated entity
(such as a preferred provider organization or third party
administrator) without first ensuring that it has satisfied all
licensure, permitting, approval and other Regulations applicable
to such activities. At no time will Vendor engage in any
activity involving a decision to reject or otherwise not pay a
claim or requiring an adjudication of any claim relating to the
Customer Group.
2. ADDITIONAL SERVICES; EXCLUSIVITY
(a) The Parties have identified on EXHIBIT D--ADDITIONAL SERVICES,
certain services which are not within the scope of the Services
as described herein, but which the Parties anticipate that the
Customer may require during the Term of this Agreement. In the
event that Customer requires, during the Clinic Services Period
for any Clinic, any Services described on EXHIBIT D for such
Clinic or any other transitional or continued services required
by any Clinic prior to the end of the applicable Clinic Services
Period, Customer shall inform Vendor of its requirements and
Vendor shall have the right to submit a proposal for such
additional services. As
-3-
<PAGE> 7
soon as reasonably practicable, but in no event more than five
(5) business days, after receiving Customer's request for
proposal on such Services, Vendor shall either submit a written
proposal for such Services or shall advise Customer that it does
not wish to perform such Services. Fees for such Additional
Services described in EXHIBIT D shall be as set forth in EXHIBIT
D, and fees for other Additional Services shall be in accordance
with the rate schedule set forth on EXHIBIT D. Customer shall
have no obligation to accept any proposal made by Vendor under
this SECTION 2(a).
(b) In the event that Customer chooses to engage a third party to
provide any Additional Service, Vendor shall cooperate with
Customer and such third party to the extent reasonably required
by Customer, including by providing (i) written requirements,
standards, and policies for systems operations so that the
enhancements or developments of such third party may be operated
by Vendor, (ii) assistance and support services to such third
party at reasonable prices, and (iii) access to the systems and
service locations as may be reasonably required by such third
party in connection with such Additional Service.
(c) Customer shall not engage any other party to provide Clinic
Services to any Clinic during the applicable Clinic Services
Period; provided, however, that the Services delivered to such
Clinic conform to the applicable Service Levels and other
requirements of this Agreement. Customer shall use commercially
reasonable efforts to support Vendor's efforts to market its
services to Clinics during the applicable Clinic Services
Period.
3. TERM
This Agreement shall commence on the Effective Date and shall continue
until December 31, 1999 (the "Initial Term") unless earlier terminated in
accordance with the terms and conditions hereof. Following the Initial Term,
this Agreement shall automatically renew for subsequent periods of thirty (30)
days (each, a "Renewal Term") unless terminated by Customer on thirty (30) days
written notice to Vendor prior to the expiration of the then-current term.
Customer's termination of this Agreement under this SECTION 3 shall not be
deemed to constitute a termination for convenience pursuant to SECTION 23 of
this Agreement.
4. TRANSITION PLAN.
(a) As part of the Services, Vendor will implement the "Transition
Plan" set forth in EXHIBIT E--TRANSITION PLAN describing (i) the
transition from the Customer to Vendor of the Affected
Employees; (ii) the transition of the administration,
management, operation under and financial responsibility for the
Third Party Agreements from the Customer to Vendor; and (iii)
the transition to Vendor of the performance of and
responsibility for the other
-4-
<PAGE> 8
functions, responsibilities and tasks currently performed by the
Customer which comprise the Services.
(b) Vendor shall execute and complete the Transition Plan without
causing a material disruption of Customer's operations. The
Customer Account Manager and the Vendor Account Manager shall
meet as required (but in any case, no less than once per week)
to ensure the appropriate execution and completion of the
Transition Plan. Vendor shall bear the reasonable costs of any
adverse impact to Customer caused by a delay in the Transition
Plan; provided, however, that Vendor shall not be responsible
for such costs to the extent caused by Customer's failure to
cooperate in the Transition Plan as required by SECTION 4(c)
(including providing appropriate resources to support the
implementation phase of the Transition Plan).
(c) Customer will cooperate with Vendor in implementing the
Transition Plan by providing the personnel (or portions of the
time of the personnel) set forth in the Transition Plan and
performing the tasks assigned to Customer in the Transition
Plan.
5. AFFECTED EMPLOYEES
(a) With Customer's consent and cooperation, Vendor shall offer
employment to each Affected Employee at salary and benefits
comparable to those provided by Customer to such Affected
Employee as of the Effective Date. [*]
(b) All costs and expenses incurred by Vendor in connection with the
offer to employ and the employment of the Affected Employees
shall be the responsibility of Vendor; provided, however, that
Customer shall pay Vendor [*] dollars ($[*]) on the Effective
Date towards the costs of personnel replacement premiums (the
"Personnel Premium"), and shall pay Vendor [*] ($[*]) on the
Effective Date to be used by Vendor towards the costs of the
Retention Bonuses to be paid by Vendor under SECTION 5(c) (the
"Retention Bonus Payment").
(c) Vendor represents and warrants that it shall pay [*]% of the
target bonuses set forth in EXHIBIT F--BONUSES to all Affected
Employees who
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-5-
<PAGE> 9
are still in Vendor's employment as of [*], and that it shall
inform the Affected Employees of its obligation under this
Agreement to make such bonus payment no later than the Effective
Date. If Vendor terminates any Affected Employee without cause
prior to or on [*], Vendor shall pay the Affected Employee [*]%
of the Affected Employee's target bonus at the time of the
Affected Employee's termination. Vendor will not be obligated to
pay any bonus to any Affected Employee who (1) voluntarily
resigns from employment with Vendor prior to [*], (2) is
dismissed by Vendor for misconduct (e.g., fraud, drug abuse,
theft) or unsatisfactory performance in respect of his or her
duties and responsibilities to Customer or Vendor, or (3) is
unable to perform his or her duties due to his or her death or
disability. Vendor may elect to pay such bonuses in the form of
[*], if agreeable to the Affected Employee in his or her sole
discretion.
6. BUSINESS UNIT ASSET PURCHASE
On the Effective Date, Customer will sell to Vendor, and Vendor will buy
from Customer, all of Customer's right, title and interest in the Business Unit
Assets, pursuant to a Business Unit Asset Purchase Agreement entered into by the
Parties, a copy of which is attached hereto as EXHIBIT U. The purchase price of
the Business Unit Assets, which shall be payable by Vendor to Customer upon the
Effective Date, shall be equal to [*] ($[*]) (the "Business Unit Asset Purchase
Price") and shall be inclusive of all taxes.
7. PROJECT MANAGEMENT
(a) Prior to the execution of this Agreement, Customer and Vendor
shall each appoint a designated representative (each, an
"Account Manager") who shall be authorized to act as the primary
point of contact for each Party in dealing with the other Party
with respect to all aspects of this Agreement.
(b) Vendor's appointment of any Vendor Account Manager shall be
subject to Customer's consent, which shall not be unreasonably
withheld. Before the initial or subsequent assignment of an
individual to such position, Vendor shall notify Customer of the
proposed assignment, introduce the individual to appropriate
Customer representatives, and consistent with Vendor's personnel
practices, provide Customer with a resume and any other
information about the individual reasonably requested by
Customer. Vendor agrees to discuss with Customer any objections
Customer may have to such assignment and the Parties will in
good faith resolve such concerns on a mutually agreed basis.
(c) When possible, Vendor will give Customer at least thirty (30)
days advance notice of a change of the person appointed as the
Vendor Account
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-6-
<PAGE> 10
Manager. Vendor will discuss with Customer any objections
Customer may have to such change and the Parties will in good
faith resolve such concerns on a mutually agreed basis. Vendor
shall not reassign or replace any Vendor Account Manager during
this Agreement unless Customer consents to such reassignment or
replacement (which consent shall not be unreasonably withheld)
or the individual (1) voluntarily resigns from employment with
Vendor, (2) is dismissed by Vendor for misconduct (e.g., fraud,
drug abuse, theft) or unsatisfactory performance in respect of
his or her duties and responsibilities to Customer or Vendor,
(3) is unable to perform his or her duties due to his or her
death or disability. Vendor may, with Customer's prior consent
(which shall not be unreasonably withheld), reassign the Vendor
Account Manager if the Vendor Account Manager voluntarily
requests a change of assignment.
(d) Vendor shall cause the person assigned as its Account Manager to
devote all reasonably necessary working time and effort in the
employ of Vendor to his or her responsibilities for the delivery
of the Services under this Agreement, subject to Vendor's
reasonable holiday, vacation and medical leave policies;
provided, however, that the Vendor Account Manager shall be
available to Customer within one (1) hour upon request during
all ordinary working hours.
(e) Each Party's Account Manager shall issue all consents or
approvals and make all requests on behalf of the Party.
References in this Agreement or any other related document to
Customer or Vendor making commitments or agreements or giving
consents or approvals on behalf of the respective Party shall
mean each Party's designated Account Manager.
(f) Customer shall appoint three members of its management staff and
Vendor shall appoint three members of its management staff,
including the Vendor Account Manager and the Customer Account
Manager, to serve on a management committee (the "Management
Committee"). Customer shall designate one of its members on the
Management Committee to act as chairperson of the Management
Committee. The Management Committee shall meet on a weekly basis
to review Vendor's performance under this Agreement during the
prior week and resolve any new or outstanding relationship
issues.
(g) Customer and Vendor have designated on EXHIBIT G--KEY EMPLOYEES
certain Affected Employees as Key Employees for the performance
of Services under this Agreement. Customer and Vendor may
mutually agree during the Term of this Agreement to modify the
list of Key Employees. Vendor shall cause the Key Employees to
each devote all reasonably necessary working time and effort in
the employ of Vendor to his or her responsibilities for the
provision of the Services under this Agreement,
-7-
<PAGE> 11
subject to Vendor's reasonable holiday, vacation and medical
leave policies.
(h) Vendor shall not reassign or replace any Key Employee without
prior notice to Customer and without Customer's prior consent
(which shall not be unreasonably withheld), if such reassignment
or replacement would materially impact Vendor's ability to
provide the Services or achieve the Service Level Agreements.
(i) If Customer reasonably and in good faith determines that it is
not in Customer's best interests for any Vendor or subcontractor
employee to be appointed to perform or to continue performing
any of the Services, Customer shall give Vendor written notice
specifying the reasons for its position and requesting that such
employee not be appointed or be removed from the Vendor employee
group servicing Customer and be replaced with another Vendor
employee or subcontractor. Promptly after its receipt of such a
notice, Vendor shall investigate the matters set forth in the
notice, discuss with Customer the results of the investigation
and resolve the matter in a manner reasonably acceptable to
Customer and Vendor.
(j) Vendor shall take commercially reasonable actions to efficiently
administer, manage, operate and use the resources employed by
Vendor to provide and perform the Services under this Agreement.
Vendor shall at all times utilize sufficient staff of suitable
training and skills to provide the Services.
(k) Vendor shall not subcontract any of the Services without
Customer's prior written consent, which shall not be
unreasonably withheld; provided, however, that Vendor shall be
permitted to utilize temporary employees (either directly or
through a third party recruiting firm) as may be reasonably
necessary, but in no event for a total period in excess of
thirty (30) days.. The consent of Customer to any subcontracting
relationship shall not relieve Vendor of its obligations and
responsibilities under this Agreement.
(l) While at Customer's service locations, Vendor's personnel and
agents shall (i) comply with reasonable requests from Customer
and standard rules and regulations of Customer communicated to
Vendor regarding personal and professional conduct (including
the wearing of a particular uniform, identification badge, or
personal protective equipment and adhering to Customer
regulations and general safety practices or procedures)
generally applicable to such Service Locations and (ii)
otherwise conduct themselves in a businesslike manner.
8. PERFORMANCE
-8-
<PAGE> 12
(a) The performance benchmarks for the Services provided to the
Customer are described in EXHIBIT H--SERVICE LEVEL AGREEMENTS,
which sets forth certain Service Levels. Vendor agrees that its
performance of the Services will meet or exceed each of the
Service Levels from the Effective Date and thereafter during the
Term, subject to the limitations set forth in this Agreement.
Vendor shall not be responsible for any failure to meet the
Service Levels resulting from any Force Majeure Event as and to
the extent set forth in SECTION 18.
(b) Customer and Vendor shall review the Service Levels monthly
during the Term, and to the extent any Service Levels are no
longer appropriate because of an increase, decrease, or change in
the Services, the Parties shall in good faith agree to adjust the
Service Levels. Both Parties must agree upon the reported Service
Levels as well as any adjustment to the Service Levels.
(c) The Parties may, at any time upon mutual agreement, adjust the
Service Levels. In addition, either Customer or Vendor may, at
any time upon notice to the other party, initiate negotiations to
review and adjust any Service Level, which such Party in good
faith believes is inappropriate at the time.
(d) As part of the Services, Vendor shall provide monthly performance
reports to Customer in the form set forth in EXHIBIT O--REPORTING
TEMPLATE or such other form as may be agreed upon by Customer and
Vendor. Reports will be made available to Customer no later than
ten (10) working days after the close of a calendar month, and
Customer and Vendor shall meet within five (5) working days after
the delivery of the report to review the report.
(e) Vendor shall pay to Customer Service Credits for any failure to
achieve the Service Levels as and to the extent set forth in
Exhibit I-Service Credits. Billing adjustments will be made on a
monthly basis to reflect Service Credits to Customer.
(f) In the event of a Critical Disruption, Customer may elect to
declare a critical service disruption, and Vendor shall, upon
notice from Customer, initiate at Vendor's expense appropriate
disaster recovery procedures in accordance with the Disaster
Recovery Plan. Without limiting the Parties' rights and
obligations under SECTION 18 of this Agreement, in the event that
there are more than [*] Critical Disruption events during any [*]
month period, Customer shall be entitled to terminate this
Agreement upon notice to Vendor in accordance with SECTION 23(c)
of this Agreement.
(g) Within [*] days after receipt of a notice from Customer alleging
Vendor's material failure to provide the Services or Vendor's
repeated failure to provide the Services in accordance with
"Priority 1" Service Levels as
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-9-
<PAGE> 13
described in the Service Levels, Vendor shall (a) perform a
root-cause analysis to identify the cause of such failure, (b)
correct such failure, (c) provide Customer with a written report
detailing the cause of, and procedure for correcting, such
failure, and (d) provide Customer with reasonable assurance that
such failure will not reoccur. Vendor's obligations under this
SECTION 8(g) shall be in addition to its other obligations under
this SECTION 8 and under this Agreement.
(h) In the performance of its obligations under this Agreement,
Vendor shall at all times provide to Customer a quality of
service and terms for service that are at least as favorable as
those provided by Vendor to any other Vendor customer. As part
of this commitment, but without limitation, Vendor shall provide
to Customer Vendor's best pricing and priority of access to
Vendor's personnel. As part of the Services, Vendor shall, upon
Customer's request, provide to Customer equal access to Vendor's
specialized technical personnel and resources consistent with
Vendor's other commercial customers receiving substantially
similar goods and services. This SECTION 8(h) shall not require
Vendor to adjust pricing previously agreed upon with Customer,
should Vendor thereafter provide more favorable pricing to any
other Vendor customer.
(i) In the event that any Dispute concerning the Vendor's
performance of any particular Service is submitted to the Senior
Executives pursuant to SECTION 22(c), the Parties shall
establish and track a Service Level applicable to the Service
that is the subject of the Dispute. The Senior Executives shall
mutually agree upon the applicable Service Level. During the
period in which the Senior Executives are attempting to resolve
the Dispute, Vendor shall report its performance against the
Service Level to the Senior Executives as required by the Senior
Executives, but in no case less than once per week.
9. PAYMENTS
(a) Customer will pay a Monthly Services Charge for Services
rendered hereunder in accordance with the schedule of fees
attached as EXHIBIT J--PRICING SCHEDULE FOR SERVICES, as
invoiced in accordance with SECTION 9(b). Customer will pay the
applicable charges for all Additional Services as invoiced in
accordance with the associated schedule of fees set forth in
EXHIBIT J or as otherwise agreed to by the Parties for such
services; provided, however, that all fees for such Additional
Services must be supported by a written service request approved
by Customer for such Additional Services.
(b) For the first calendar month of this Agreement, the Monthly
Services Charge shall be equal to $[*], and Vendor may invoice
Customer for one hundred percent (100%) of the first Monthly
Services Charge upon
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-10-
<PAGE> 14
the execution of this Agreement. Thereafter during the term of
this Agreement, Vendor shall invoice Customer for subsequent
monthly charges in accordance with Exhibit J--Pricing Schedule
for Services, on or after the first (1st) business day of each
calendar month. Vendor shall produce a final, reconciled invoice
to Customer no later than thirty (30) days following the
termination of this Agreement.
(c) Each monthly invoice also shall include any Service Credits due
to Customer from Vendor in accordance with SECTION 8 of this
Agreement, any charges due under any approved ASR's and any
other items provided for in EXHIBIT J--PRICING SCHEDULE FOR
SERVICES.
(d) Except as may be set forth in EXHIBIT R--EXCLUDED EXPENSES or as
may be mutually agreed to in connection with any Additional
Services, Vendor shall be responsible for the payment of all of
its expenses in connection with this Agreement incurred both
prior to the Effective Date and during the Term of this
Agreement. Customer shall not be required to pay any additional
fee or expense unless agreed to in advance by the Parties.
(e) Customer will cause the full amounts of the invoice for the
first Monthly Services Charge to be paid upon receipt and will
cause all undisputed amounts on all other invoices to be paid
within thirty (30) days of receipt.
(f) Vendor shall at Customer's request provide any and all
information reasonably required by Customer to permit
reconciliation of invoices as compared to the applicable pricing
schedule.
(g) Customer shall at Vendor's request and subject to any
confidentiality obligations of Customer, provide any and all
information reasonably required by Vendor to allow Vendor to
determine which resources will be required to meet Vendor's
obligations under this Agreement.
(h) During a transition period which shall last no longer than sixty
(60) days from the Effective Date, Customer shall continue to
process and pay on behalf of Vendor and in the capacity of agent
for Vendor, invoices which are Vendor's responsibility to
process and pay in accordance with SECTIONS 14 and 15 of this
Agreement. Vendor shall reimburse Customer for such payments at
the end of each calendar month. The intent of this SECTION 9(h)
is to permit Vendor sufficient time to assume the invoice
payment process from Customer.
(i) Customer shall pay Vendor the [*] and [*] in accordance with
SECTION 5(c), and Vendor shall pay Customer the Business Unit
Asset Purchase Price in accordance with SECTION 6 and $[*]
([*]), ([*]) for the transfer of certain software licenses as
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-11-
<PAGE> 15
contemplated under the [*], on the Effective Date.
(j) Customer and Vendor shall cooperate to segregate the fees and
payments made under this Agreement into the following separate
line items: (1) those for taxable Services, (2) those for
nontaxable Services, (3) those for which a sales, use, or
similar tax has already been paid by Vendor, and (4) those for
which Vendor functions merely as a paying agent for Customer in
receiving goods, supplies, or services (including leasing and
licensing arrangements) that otherwise are nontaxable or have
previously been subject to tax.
(k) In the event either Customer or Vendor disputes the accuracy or
applicability of a charge or credit or other financial
arrangement described in this Agreement, the disputing party may
withhold payment of the disputed amount without interest,
penalty or breach of this Agreement, and shall notify the other
Party of such dispute as soon as practicable after the
discrepancy has been discovered. The Parties will investigate
and resolve the dispute using the dispute resolution processes
provided herein.
10. CLINIC AGREEMENTS
(a) It is expressly understood that the Clinic Services which Vendor
shall provide under this Agreement are intended only to be
transitional services designed to provide support for each
Clinic from the Effective Date until the end of the Clinic
Services Period in which the Clinic moves from receiving such
services from Customer (under an existing contractual obligation
between Customer and the Clinic) to receiving such services from
another party (such as Vendor, under an separate, individual
agreement with the Clinic). Vendor shall be responsible for
obtaining agreements to provide the Clinics continued service
beyond the end of the Clinic Services Period. In response to
reasonable requests received from Vendor from time to time
during the Term, Customer shall provide such reasonable
cooperation to Vendor in Vendor's efforts to market services to
Clinics, as Customer may determine to be appropriate under the
circumstances. Vendor acknowledges and agrees, however, that
Customer has made no representation or commitment to Vendor
concerning the number of Clinics that may ultimately engage
Vendor to provide Services to Clinics on a long-term basis, and
that Customer shall have no responsibility or liability to
Vendor in the event that the number of Clinics which elect to
engage Vendor to provide Services is less than Vendor's
expectations or business projections.
(b) The contractual obligations between Customer and the individual
Clinics are expected to be individually terminated or to expire,
on a rolling basis, during the Term of this Agreement. As of the
end of the Clinic Services Period, Vendor shall no longer be
responsible under this Agreement to provide
-12-
<PAGE> 16
Clinic Services to the particular Clinic, and Customer shall not
be responsible for the payment of any fees associated with
services for that particular Clinic which are incurred after
such date of termination or expiration.
(c) Vendor shall be solely responsible for any licenses required to
provide services for which it directly contracts with a Clinic
to provide.
(d) Vendor and Customer shall meet as necessary during the Term of
this Agreement to discuss the projected roll-off of each
individual Clinic and to develop appropriate plans to support
and facilitate such roll-off.
(e) All disputes, controversies, or claims arising out of or
relating to the Clinic Services which are brought or raised by a
Clinic shall be referred directly to the Vendor Account Manager.
The Vendor Account Manager shall inform the Customer Account
Manager of the dispute and the Parties shall work together in
good faith to resolve the dispute brought by the Clinic. Such
claims shall be subject to the dispute resolution procedures
under SECTION 22 of this Agreement, with Customer acting on
behalf or in conjunction with the Clinic.
(f) Vendor and Customer acknowledge that Customer may not be
successful in terminating its obligation to each Clinic to
provide Clinic Services to that Clinic (in such case, each, a
"Management Company Clinic"), and that [*]. Vendor agrees, as
part of the Services, that it shall provide Clinic Services to
[*] on the terms and conditions (including, without limitation,
the pricing terms set forth in EXHIBITS D and J) provided for in
this Agreement, either pursuant to an amendment of this
Agreement or a separate agreement between Vendor, Customer, the
[*] or some other party, incorporating such terms and
conditions, at Customer's discretion.
11. SERVICE LOCATIONS AND SECURITY
(a) Vendor shall not [*], without Customer's prior written approval,
which shall not be unreasonably withheld.
(b) As part of the Services, Vendor shall maintain and enforce at
the Service Locations safety and security procedures that are at
least (i) equal to industry standards for such Service Locations
and (ii) as rigorous as those procedures in effect at the
Service Locations as of the effective date. Vendor shall
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-13-
<PAGE> 17
comply with and maintain the safety and security procedures
which are in effect at the Service Locations as of the Effective
Date.
(c) As part of the Services, Vendor shall implement and maintain
security processes, procedures and techniques in accordance with
industry standards designed to detect and prevent unauthorized
access to any and all networks and systems which process
Customer information, and shall implement and maintain virus
protection and similar software and procedures in accordance
with industry standards designed to detect and prevent software
viruses and any corruption of such networks and systems and the
data contained therein.
(d) As part of the Services, Vendor shall immediately inform
Customer of any breach in security or potential security issues,
that either (i) has a material impact on the delivery of the
Services, or (ii) may not be material in itself, but represents
a single instance in a pattern of breaches which collectively
are material. Vendor shall maintain tracking procedures
sufficient to allow it to evaluate security breaches and
determine whether they must be reported to Customer under the
preceding sentence.
(e) As part of the Services, Vendor shall provide access to and
cooperate with Customer's internal and external auditors in
respect to any audit or review of the Service Locations. Vendor
will, within a reasonable time, correct any issues raised in an
audit letter associated with items included in the scope of this
Agreement.
12. MANAGEMENT AND CHANGE CONTROL PROCESS
(a) Vendor shall, in the performance of the Services, follow any
procedures reasonably required by Customer in connection with
the following areas: (i) security; (ii) issue resolution; (iii)
change control; (iv) billing and invoicing; (v) additional
service requests; and (vi) performance tracking.
(b) Vendor shall inform Customer in advance of all proposed changes
to systems and networks used and controlled by Vendor in
performing its obligations under this Agreement, where such
change would materially alter the functionality, architecture or
technical environment of such systems or networks or would have
a material, adverse effect on the Services. Approval and
implementation of such changes shall be made pursuant to the
Change Control Process, as set forth in EXHIBIT K. No change may
be implemented without Customer's prior approval (which shall
not be unreasonably withheld) except as may be necessary on a
temporary basis to maintain the continuity of the Services.
Customer shall respond with reasonable promptness to requests
for approval from Vendor under this SECTION 12(b).
-14-
<PAGE> 18
(c) Vendor shall (i) schedule all projects and changes so as not to
unreasonably interrupt Customer's business operations, (ii)
monitor the status of changes, and (iii) document and provide to
Customer notification (which may be given orally provided that
such oral notice is confirmed in writing to Customer within five
business days) of all changes performed on a temporary basis to
maintain the continuity of the services, no later than the next
business day after the change is made.
13. DATA AND REPORTS
(a) All data and information submitted to Vendor by Customer or by
any Clinic in connection with the Services (the "Customer Data")
is and shall remain the property of Customer or the applicable
Clinic, [*]
(b) As part of the Services, Vendor shall promptly correct, with
Customer's reasonable cooperation, any errors or inaccuracies in
the Customer Data and the Reports that (1) are caused by Vendor,
its agents, subcontractors, or third party product or service
providers or (2) that were typically corrected by Customer in
normal course prior to the Effective Date. At Customer's
reasonable request, Vendor shall promptly correct any other
material errors or inaccuracies in the Customer Data or Reports.
(c) As part of the Services, Vendor shall promptly produce at
Customer's request a copy, in the format and on the media
available to the Vendor at the time of the request, all data
relating to a Clinic. All data relating to a Clinic which is
generated prior to this Agreement and through the end of the
Clinic Services Period, shall be maintained by Vendor throughout
the Term of this Agreement and made available to Customer at
Customer's request and in accordance with the procedures set
forth in this SECTION 13(c).
(d) As part of the Services, Vendor shall upon request by Customer
at any time and for any reason, at Customer's expense, promptly
return to Customer, in the format and on the media requested by
Customer, all Customer Data and all Clinic Data; [*]. Except as
provided herein, and unless necessary to provide the Services,
at Customer's request Vendor shall erase or destroy all Customer
-15-
<PAGE> 19
Data and Clinic Data in Vendor's possession. Any archival tapes
containing Customer Data or Clinic Data shall be used solely for
back-up purposes.
14. SOFTWARE RIGHTS
(a) The obligations and rights of the Parties with respect to
software required to provide the Services shall be as set forth
in this SECTION 14.
(B) EXHIBIT L--SOFTWARE RIGHTS provides a detailed schedule of all
software required to provide the Services, and categorizes such
software as follows: (i) proprietary Customer-owned software
("Customer Owned Software") which shall be licensed to Vendor in
accordance with SECTION 14(C); (ii) software which is licensed
by Customer from a third party and which Vendor shall operate
under the agency arrangement set forth in SECTION 14(D) and
SECTION 16 ("Retained Software"); (iii) third party software for
which Customer shall transfer the license to Vendor in
accordance with SECTION 14(E) ("Transferred Software"); (iv)
proprietary Vendor-owned software ("Vendor Owned Software")
which shall be used by Vendor in connection with this Agreement;
and (v) software which is licensed by Vendor from a third party
("Vendor Provided Software") which shall be used by Vendor in
connection with this Agreement. The Customer Owned Software,
Retained Software, Transferred Software, Vendor Owned Software
and Vendor Provided Software are collectively referred to herein
as the "Software".
(c) Customer hereby grants to Vendor the right and license to use,
operate, modify and copy the Customer Owned Software during the
term of this Agreement solely for the purposes of providing
Services under this Agreement; provided, however, that only for
Customer Owned Software which is identified on EXHIBIT L as
being subject to a perpetual license, Customer instead hereby
grants Vendor the right and license to use, operate, modify and
copy the such Customer Owned Software in perpetuity for all
purposes. Any enhancements or modifications to the Customer
Owned Software made during the Term of this Agreement, and any
related documentation, shall be and will remain the exclusive
property of Customer. Customer Owned Software is licensed "AS
IS" without warranty of any kind.
(d) Subject to Customer and Vendor obtaining any required
third-party consents, Customer will obtain appropriate
authorizations permitting Vendor to exercise all of Customer's
rights under the Retained Software, and Vendor will assume all
of Customer's obligations under the Retained Software. The
Parties will enter into appropriate agency agreements in
connection with the Retained Software. Unless otherwise noted on
EXHIBIT L, Vendor shall be responsible for the performance of
all obligations under the applicable licenses, including without
limitation
-16-
<PAGE> 20
payment of all maintenance fees, use charges and other related
fees and expenses, attributable to periods on or after the
Effective Date.
(e) Subject to Customer and Vendor obtaining any required
third-party consents, Customer shall transfer and assign to
Vendor all of Customer's rights under the licenses for the
Transferred Software. Vendor shall pay Customer the [*] in
consideration for transfer of the [*} as set forth in the [*].
The Parties will enter into appropriate assignment and
assumption agreements in connection with the Transferred
Software. Vendor shall be responsible for the performance of all
obligations under the applicable licenses, including without
limitation payment of all related maintenance fees, use charges
and other related fees and expenses, attributable to periods on
or after the Effective Date.
(f) Vendor shall be responsible for obtaining all licenses for
Vendor Provided Software and shall be responsible for the
performance of all obligations under the licenses therefor,
including without limitation payment of all maintenance fees,
use charges and other related fees and expenses, however
designated, for the Vendor Provided Software, and Customer shall
have no obligation to obtain such licenses or any required
third-party consents for such products.
(g) With the cooperation of the other Party, the Parties shall use
their best efforts to obtain all third party consents required
under this SECTION 14. Except as set forth in EXHIBIT L, Vendor
shall be responsible for obtaining and paying for any consents
necessary to allow Vendor to use any of the Software to perform
its obligations under this Agreement. In the event that any
required consent is not obtained, then, unless and until such
required consent is obtained, the Parties shall cooperate with
each other in achieving a reasonable alternative arrangement
under which Vendor may perform the Services without causing a
breach or violation of any agreement under which such required
consent is to be obtained.
(h) Except as may be previously approved by Customer in writing,
Vendor shall not make any changes or modifications to the
Software that would adversely alter the functionality of the
Software, degrade the performance of the Software, adversely
affect the day-to-day operations of Customer's business, or
violate the applicable license agreement for the Software.
(i) Vendor shall be responsible for managing, administering and
maintaining the agreements for the Software, including any
renewal, termination or cancellation notices or dates, the
processing of invoices and the payment of any fees in connection
therewith.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-17-
<PAGE> 21
(j) Vendor shall be responsible at no charge to Customer for any
modification or enhancement to, or substitution for, the
Software necessitated by unauthorized changes to the Software by
Vendor.
(k) Except to the extent caused by Customer, any modification,
termination, or cancellation fees imposed upon Customer in
connection with any modification, termination, or cancellation
of any agreement in connection with the Software which was (i)
caused by or resulted from an action or omission by Vendor,
including Vendor's failure to notify Customer of a renewal,
termination, or cancellation date in a timely manner, or (ii)
imposed by Vendor or its affiliates, shall be paid by Vendor.
(l) Each of Customer and Vendor shall promptly inform the other
party of any breach of, or misuse or fraud in connection with,
any agreement in respect of the Software and shall cooperate
with the other party to prevent or stay any such breach, misuse,
or fraud. Each Party shall pay all amounts due for any penalties
or charges (including amounts due to a third party as a result
of a Party's failure to promptly notify the Other pursuant to
the preceding sentence), associated taxes, legal expenses, and
other incidental expenses incurred by the other Party as a
result of action or inaction by the paying Party.
14A. SERVICE RESOURCES
The Service Resources described on EXHIBIT S--SERVICE RESOURCES shall be
transferred to Vendor. Vendor shall be responsible for and shall pay all costs,
fees and other expenses associated with such relationships from and after the
Effective Date.
15. HARDWARE RIGHTS
(a) The Parties obligations and rights with respect to hardware
required to provide the Services shall be as set forth in this
SECTION 15.
(B) EXHIBIT M--HARDWARE RIGHTS provides a detailed schedule of all
hardware required to provide the Services, and categorizes such
hardware as follows: (i) Customer-owned hardware which shall be
transferred to Vendor in accordance with SECTION 15(c) ("Owned
Hardware"); (ii) hardware which is leased by Customer from a
third party and which Vendor shall operate under the agency
arrangement set forth in SECTION 15(d) and SECTION 16 ("Retained
Hardware"); (iii) leased hardware for which Customer shall
transfer the lease to Vendor in accordance with SECTION 15(e)
("Leased Hardware"); and (iv) hardware which is owned or leased
by Vendor from a third party ("Vendor Provided Hardware") which
shall be used by Vendor in connection with this Agreement. The
Owned Hardware, Retained Hardware, Leased Hardware and Vendor
Provided Hardware are collectively referred to herein as the
"Hardware".
-18-
<PAGE> 22
(c) The Owned Hardware shall be conveyed to Vendor as part of the
Business Unit Assets in accordance with SECTION 6 of this
Agreement.
(d) Subject to Customer and Vendor obtaining any required
third-party consents, Customer will obtain appropriate
authorizations permitting Vendor to exercise all of Customer's
rights under leases for the Retained Hardware, and Vendor will
assume all of Customer's obligations under the leases for the
Retained Hardware which accrue on or after the Effective Date.
The Parties will enter into appropriate agency agreements in
connection with the Retained Hardware. Unless otherwise noted on
EXHIBIT M, Vendor shall be responsible for the performance of
all obligations under the applicable leases, including without
limitation payment of all maintenance fees, use charges and
related fees and expenses, attributable to periods on or after
the Effective Date.
(e) Subject to Customer obtaining any required third-party consents,
Customer shall transfer and assign to Vendor all of Customer's
rights under the leases for the Leased Hardware. The Parties
will enter into appropriate assignment and assumption agreements
in connection with the Leased Hardware. Unless otherwise noted
on EXHIBIT M, Vendor shall be responsible for the performance of
all obligations under the applicable leases, including without
limitation payment of all maintenance fees, use charges and
related fees and expenses, attributable to periods on or after
the Effective Date.
(f) Vendor shall be responsible for obtaining all rights to Vendor
Provided Hardware and shall be responsible for the performance
of all obligations under the leases and agreements therefor,
including without limitation payment of all lease charges,
maintenance fees, use charges and related fees and expenses,
however designated, for the Vendor Provided Hardware, and
Customer shall have no obligation to obtain such leases or
agreements or any required third-party consents for such
products.
(g) With the cooperation of the other Party, the Parties shall use
best efforts to obtain all third party consents required under
this SECTION 15; provided, however, that Vendor shall be
responsible for obtaining and paying for all consents necessary
to allow Vendor to use any of the Hardware (excluding the Owned
Hardware) to perform its obligations under this Agreement. In
the event that any required consent is not obtained, then,
unless and until such required consent is obtained, the Parties
shall cooperate with each other in achieving a reasonable
alternative arrangement under which Vendor may perform the
Services without causing a breach or violation of any agreement
under which such required consent is to be obtained.
-19-
<PAGE> 23
(h) Except as may be approved by Customer, Vendor shall not make any
changes or modifications to the Hardware that would adversely
alter the functionality of the Hardware, degrade the performance
of the Hardware, adversely affect the day-to-day operations of
Customer's business, or violate the applicable lease agreements
for the Hardware.
(i) Vendor shall be responsible for managing, administering and
maintaining the agreements for the Hardware, including any
renewal, termination or cancellation notices or dates, the
processing of invoices and the payment of any fees in connection
therewith.
(j) Vendor shall be responsible at no charge to Customer for any
modification or enhancement to, or substitution for, the
Hardware necessitated by unauthorized changes to the Hardware by
Vendor.
(m) Except to the extent caused by Customer, any modification,
termination, or cancellation fees imposed upon Customer in
connection with any modification, termination, or cancellation
of any agreement in connection with the Hardware which was (i)
caused by or resulted from an action or omission by Vendor,
including Vendor's failure to notify Customer of a renewal,
termination, or cancellation date in a timely manner, or (ii)
imposed by Vendor or its affiliates, shall be paid by Vendor.
(n) Each of Customer and Vendor shall promptly inform the other
party of any breach of, or misuse or fraud in connection with,
any agreement in respect of the Hardware and shall cooperate
with the other party to prevent or stay any such breach, misuse,
or fraud. Each Party shall pay all amounts due for any penalties
or charges (including amounts due to a third party as a result
of a Party's failure to promptly notify the other pursuant to
the preceding sentence), associated taxes, reasonable legal
expenses, and other incidental expenses incurred by the other
Party as a result of the first Party's nonperformance of its
obligations under this Agreement with respect to the Hardware.
(o) In the event that Vendor or Customer identifies any equipment or
hardware in a Service Location which is not listed on EXHIBIT M,
the Parties shall reasonably cooperate with each other to
determine whether such equipment or hardware shall be retained
by Customer or shall be subject to this Agreement as Owned
Hardware (in consideration of an appropriate purchase price to
be paid by Vendor to Customer), Retained Hardware or Leased
Hardware.
16. AGENCY
(a) Customer appoints Vendor as the agent of the Customer, and
Vendor accepts such appointment as a part of the Services, for
the limited
-20-
<PAGE> 24
purposes of administering, managing, supporting, operating under
and paying under such Third Party Agreements as to which
Customer has not obtained required consents in accordance with
this Agreement. Customer does not appoint Vendor as its agent
for the purposes of entering into oral or written agreements
with any individual or business entity for or in the name of the
Customer or its Affiliates, without the prior express written
approval of Customer.
(b) Vendor will perform its obligations and responsibilities as an
agent pursuant to SECTION 16(a) under all Third Party Agreements
subject to the provisions of this Agreement. Upon Customer's
request, Vendor will provide to Customer all information and
documentation Customer may reasonably request related to its
activities as the Customer's agent with regard to such Third
Party Agreements. Customer may terminate or provide additional
restrictions on Vendor's agency appointment with respect to any
Third Party Agreement at any time in Customer's discretion
provided that such action does not affect Vendor's provision of
the Services.
17. DISASTER RECOVERY
As part of the Designated Services, Vendor shall develop, implement and
maintain a disaster recovery plan (the "Disaster Recovery Plan") that is
reasonably acceptable to Customer. Vendor shall develop and present to Customer
an initial Disaster Recovery Plan within [*] from the Effective Date of this
Agreement, and shall implement the final, approved Disaster Recovery Plan no
later than [*] from the Effective Date. The Disaster Recovery Plan shall include
at least the elements set forth in EXHIBIT P--DISASTER RECOVERY PLAN. During the
Term of this Agreement, Vendor shall (a) periodically update and test the
operability of such plan, (b) certify to Customer that the plan is fully
operational at least once during every [*] period, and, (c) implement the plan
upon notice of a disaster from Customer. All Critical Functions shall be
restored within [*] of receipt of such notice by Customer.[*]
18. FORCE MAJEURE
(a) Each Party shall be excused from performance under this
Agreement and shall have no liability to the other for any
period it is prevented from performing any of its obligations,
in whole or in part, as and to the extent set forth in this
SECTION 18, as a result of an event or delay that could not have
been prevented by reasonable precautions, was not caused by
Vendor's (or its subcontractor's) negligence, and cannot
reasonably be circumvented by the non-performing Party through
the use of alternate sources, work-around plans, or other means,
and which is caused, directly or indirectly, by fire, flood,
earthquake, elements of nature or acts of God, acts
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-21-
<PAGE> 25
of war, terrorism, riots, civil disorders, rebellions or
revolutions in the United States, strikes, lockouts, or labor
difficulties, or any other similar cause beyond the reasonable
control of such Party (each, a "Force Majeure Event").
(b) If a Force Majeure Event occurs, the nonperforming Party will be
excused from any further performance or observance of the
obligation(s) so affected for as long as such circumstances
prevail and such Party continues to use commercially reasonable
efforts to recommence performance or observance whenever and to
whatever extent possible without delay. Any Party so delayed in
its performance will promptly notify the other by telephone and
describe at a reasonable level of detail the circumstances
causing such delay (to be confirmed in writing within [*] hours
after the inception of such delay).
(c) If any Force Majeure Event substantially prevents, hinders, or
delays performance of the Services necessary for the performance
of Customer's Critical Functions for more than [*] ([*])
consecutive days, then at Customer's option:
(i) [*]
(ii) Customer may terminate this Agreement as of a date
specified by Customer in a written notice of termination
to Vendor, and Customer will pay all fees due and
payable through the termination date. If Customer elects
such termination, Customer shall not be obligated to pay
any other termination or other fees, however described,
to Vendor, except fees for Services Transfer Assistance.
(d) Whenever a Force Majeure Event or a disaster causes Vendor to
allocate limited resources between or among Vendor's customers
and affiliates at the affected service locations, Customer shall
receive at least the same priority in respect of such allocation
as Vendor's other commercial customers receiving substantially
similar goods and services.
19. AUDITS
(a) Upon notice from Customer, Vendor shall provide, and shall cause
its subcontractors to provide, such auditors and inspectors as
Customer or any regulatory authority may reasonably designate in
such notice with reasonable
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-22-
<PAGE> 26
access (i) during normal business days and hours (except as may
be necessary to perform security audits) to the premises of
Vendor and its subcontractors and (ii) at any time at the
Service Locations for the purpose of performing audits or
inspections of the business of Customer (including Vendor's
delivery of any Services being provided in support of such
business being audited).
(b) As part of the Services, Vendor shall provide, and shall cause
its subcontractors to provide, such auditors and inspectors any
assistance that they may reasonably require; provided, however,
that to the extent such assistance exceeds [*] full days over
the course of any consecutive [*] period, Vendor shall charge
Customer, and Customer shall pay Vendor, fees for such
assistance at Vendor's then-current time and materials rates.
(c) If any audit by a regulatory authority having jurisdiction over
Customer or Vendor results in Customer or Vendor being notified
that Vendor or its subcontractors are not in compliance with any
requirement relating to the Services, Vendor shall, at its own
expense and within the period of time specified by such
regulatory authority, comply with such regulatory requirements.
(d) If any audit by an auditor designated by Customer results in
Customer or Vendor being notified that Vendor or its
subcontractors are not in compliance with any generally accepted
accounting principle or other reasonable audit requirement
relating to the Services, Vendor shall, within reason, at its
own expense and within a reasonable period of time, use its best
efforts to comply with such requirement.
(e) Upon notice from Customer, Vendor shall provide, and shall cause
its subcontractors to provide, Customer with access to such
records and documentation as may be reasonably necessary for
Customer to determine the accuracy of Vendor's charges to
Customer. If, as a result of such audit, it is determined that
Vendor has overcharged Customer or Customer has underpaid
Vendor, Customer shall notify Vendor of the amount of such
overcharge or underpayment. In the case of an overcharge, Vendor
shall promptly pay to Customer the amount of the overcharge, or
in the case of an underpayment, Customer shall promptly pay to
Vendor the amount of the underpayment.
(f) In the event any such audit by Customer or its agents reveals
an overcharge to Customer by Vendor of [*] more in any fee
category, Vendor shall reimburse Customer for the reasonable
cost of such audit.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-23-
<PAGE> 27
(g) Vendor shall, during the Term of this Agreement and until four
(4) years after termination of this Agreement, make available,
upon appropriate written request by a state or federal
governmental entity or its representatives, a copy of this
Agreement and such books, documents, records and data of Vendor
as are necessary to verify the nature and extent of the costs to
Customer for Services under this Agreement and the accuracy of
invoices for such services.
20. CONFIDENTIAL INFORMATION
(a) Vendor and Customer each acknowledge that the other Party
possesses and will continue to possess information, which has
commercial value in its business and is not in the public
domain, that has been created, discovered, developed by it or
provided to it by a third party, and in which property rights
have been assigned or otherwise conveyed to it. "Confidential
Information" means any and all proprietary business information
in the possession of the disclosing Party treated as secret by
the disclosing party (that is, it is the subject of efforts by
the disclosing Party or its Affiliates that are reasonable under
the circumstances to maintain its secrecy) that does not
constitute a Trade Secret (defined below), including, without
limitation, any and all proprietary information in the
possession of such Party of which the receiving Party becomes
aware as a result of its access to and presence at the other
Party's facilities. "Trade Secrets" means information related to
the services or business of the disclosing Party or its
Affiliates or of a third party which (i) derives economic value,
actual or potential, from not being generally known to or
readily ascertainable by other persons who can obtain economic
value from its disclosure or use; and (ii) is the subject of
efforts by the disclosing Party or its Affiliates that are
reasonable under the circumstances to maintain its secrecy,
including without limitation (A) marking any information reduced
to tangible form clearly and conspicuously with a legend
identifying its confidential or proprietary nature; (B)
identifying any oral presentation or communication as
confidential immediately before, during or after such oral
presentation or communication; or (C) otherwise, treating such
information as confidential or secret. Assuming the criteria in
sections (i) and (ii) above are met, Trade Secrets include, but
are not limited to, technical and nontechnical data, formulas,
patterns, compilations, computer programs and software, devices,
drawings, processes, methods, techniques, designs, programs,
financial plans, product plans, and lists of actual or potential
customers and suppliers. "Company Information" means
collectively the Confidential Information and Trade Secrets.
Company Information also includes information which has been
disclosed to either Party by a third party which such Party is
obligated to treat as confidential or secret.
-24-
<PAGE> 28
(b) Customer and Vendor will each refrain from disclosing, will hold
as confidential and will use the same level of care to prevent
disclosing to third parties, the Company Information of the
other Party as it employs to avoid disclosure, publication or
dissemination of its own information of a similar nature but in
no event less than a reasonable standard of care.
Notwithstanding the foregoing, the Parties may disclose Company
Information in the case of Customer, to members of the Customer
Group and in the case of both Parties, the authorized
contractors and subcontractors involved in providing and using
the Services under this Agreement where: (i) such disclosure is
necessary to permit the members of the Customer Group and the
contractor or subcontractor to perform its duties hereunder or
use the Services; (ii) members of the Customer Group and the
contractor or subcontractor agree in writing to observe the
confidentiality and restricted use and disclosure covenants and
standards of care set forth in this SECTION 20 and under which
the disclosing Party is a third party beneficiary for all
purposes; and (iii) the receiving Party making the disclosure
assumes full responsibility for the acts or omissions of its
contractor or subcontractor and in the case of Customer, the
members of the Customer Group, no less than if the acts or
omissions were those of the receiving Party.
(c) Neither Customer nor Vendor shall use the Company Information of
the other Party except in the case of Vendor and its
subcontractors, in connection with the performance of the
Services and as otherwise specifically permitted in this
Agreement, and in the case of Customer, its contractors and
other members of the Customer Group, as specifically permitted
in this Agreement and in connection with the use of the
Services. Vendor shall be responsible to ensure that its
subcontractors comply with this SECTION 20(c) and Customer shall
be responsible to ensure that the members of the Customer Group
and its subcontractors comply with this SECTION 20(c).
(d) Without limiting the generality of the foregoing, neither Party
will publicly disclose the terms of this Agreement, except to
the extent permitted by this SECTION 20 and to enforce the terms
of this Agreement, without the prior written consent of the
other. Furthermore, neither Vendor nor Customer will make any
use of the Company Information of the other Party except as
contemplated by this Agreement; acquire any right in or assert
any lien against the other Party's Company Information except as
contemplated by this Agreement; or refuse to promptly return,
provide a copy of or destroy such Company Information upon the
request of the disclosing Party.
(e) Notwithstanding any other provision of the Agreement, neither
Party will be restricted in using, in the development,
manufacturing and marketing of its products and services and in
its operations, any data processing, system
-25-
<PAGE> 29
operations, applications development or network management
ideas, concepts, know-how and techniques which are retained in
the minds of employees who have had access to the other Party's
Company Information (without reference to any physical or
electronic embodiment of such information), unless such use
shall infringe any of such Party's patent rights, copyrights or
mask works rights.
(f) Notwithstanding the foregoing, this SECTION 20 will not apply to
any information which Vendor or Customer can demonstrate was:
(i) at the time of disclosure to it, in the public domain; (ii)
after disclosure to it, published or otherwise becomes part of
the public domain through no fault of the receiving Party; (iii)
without a breach of duty owed to the disclosing Party, is in the
possession of the receiving Party at the time of disclosure to
it; (iv) received after disclosure to it from a third party who
had a lawful right to and, without a breach of duty owed to the
disclosing Party, did disclose such information to it; or (v)
independently developed by the receiving Party without reference
to Company Information of the disclosing Party. Further, either
Party may disclose the other Party's Company Information to the
extent required by law or order of a court or governmental
agency. However, the recipient of such Company Information must
give the other Party prompt notice and make a reasonable effort
to obtain a protective order or otherwise protect the
confidentiality of such information, all at the disclosing
party's cost and expense. It is understood that the receipt of
Company Information under this Agreement will not limit or
restrict assignment or reassignment of employees of Vendor and
the Customer Group within or between the respective Parties and
their Affiliates.
(g) The receiving Party will immediately notify the disclosing
Party, orally or in writing in the event of any disclosure,
loss, or use in violation of this Agreement.
(h) The covenants of confidentiality set forth herein (i) will apply
after the Effective Date to any Company Information disclosed to
the receiving Party before and after the Effective Date and (ii)
will continue and must be maintained from the Effective Date
through the termination of the relationship between the Parties
and (A) with respect to Trade Secrets, until such Trade Secrets
no longer qualify as trade secrets under applicable law; and (B)
with respect to Confidential Information for a period equal to
the shorter of two (2) years after termination of the Parties'
relationship under this Agreement or until such Confidential
Information no longer qualifies as confidential under applicable
law. Neither Party will be responsible for the security of the
Company Information of the other Party during transmission via
public communications facilities, except to the extent that such
breach of security is caused by the failure of such Party to
-26-
<PAGE> 30
perform its obligations under this Agreement or the negligent
acts or omissions of such Party, its contractors, subcontractors
or Affiliates.
(i) Vendor acknowledges and agrees that all Clinic Data is owned by
the respective Clinics, and Vendor shall act in the capacity of
the custodian of such data during the Term of this Agreement.
Clinic Data shall be considered Confidential Information for the
purposes of this Agreement, and Vendor shall observe all
obligations and duties under this Section 20 with respect to
such data. In addition, Vendor shall be responsible for
complying with all federal and state laws applicable to the
Clinic Data.
21. REPRESENTATIONS AND WARRANTIES
(a) Vendor warrants, represents and covenants that (i) it has, and
during the Term will have, and each of the subcontractors that
it will use to provide and perform the Services has and during
the Term will have, the necessary knowledge, skills, experience,
qualifications, rights and resources to provide and perform the
Services in accordance with this Agreement; and (ii) the
Services will be performed for Customer in a diligent,
workmanlike manner in accordance with industry standards
applicable to the performance of such services.
(b) Vendor warrants, represents and covenants that the Services will
be rendered by the Vendor in a manner consistent with good
commercial practices.
(c) Vendor warrants, represents and covenants that it will perform
its responsibilities under this Agreement in a manner that, to
the best of its knowledge, does not infringe, or constitute an
infringement or misappropriation of, any patent, trade secret,
copyright or other proprietary right of any third party.
(d) Each Party hereby represents and warrants that (i) it has all
requisite corporate power and authority to enter, and fully
perform pursuant to, into this Agreement; (ii) the execution,
delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
properly authorized by all requisite corporate action on its
part; and (iii) this Agreement has been duly executed and
delivered by such Party.
(e) Each Party agrees at its cost and expense to obtain all
necessary regulatory approvals applicable to its business, to
obtain any necessary permits for its business, and to comply in
all material respects with all laws and regulatory requirements
applicable to the performance of its obligations under this
Agreement.
-27-
<PAGE> 31
(f) Vendor represents and warrants that as of the Effective Date,
Vendor has not disclosed to any unauthorized party any
Confidential Information.
(g) RESERVED
(h) Customer represents and warrants that, as of the Effective Date
and to its knowledge, the Customer Owned Software does not
infringe any copyright, patent or trade secret right of any
third party.
(i) Vendor represents and warrants that, as of the Effective Date
and to its knowledge, the Vendor Owned Software does not
infringe any copyright, patent or trade secret right of any
third party.
(j) NEITHER PARTY MAKES ANY WARRANTIES NOT SET FORTH EXPRESSLY IN
THIS AGREEMENT AND EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
22. DISPUTE RESOLUTION
(a) The Parties agree that they shall attempt to resolve issues
concerning this Agreement at the operational level using
standard business practices, cooperative approaches and
unemotional behavior. Among other resolution strategies, the
Parties may elect to use a staff facilitator to speed resolution
of the issue. All disputes, controversies, or claims arising out
of or relating to this Agreement (including the Exhibits hereto)
that are not so resolved ("Disputes") shall be referred to the
Vendor Account Manager and the Customer Account Manager prior to
escalation to the Management Committee. The Vendor Account
Manager and the Customer Account Manager shall maintain a log of
all Disputes detailing the date, circumstances, possible
solutions, assignments arising from the resolution process,
resolution schedule and ultimate disposition of such Dispute. If
the Customer Account Manager and the Vendor Account Manager are
unable to resolve, or do not anticipate resolving, the Dispute
within fifteen (15) days after referral of the matter to them,
the parties shall submit the Dispute to the Management
Committee.
(b) In the event a Dispute is submitted to the Management Committee,
the Management Committee shall meet within seven (7) days (or at
such other time as the Parties may designate) for the purpose of
resolving the Dispute. The Management Committee shall consider
Disputes in the order of the materiality of such Disputes, or if
it is unclear as to the priority of materiality, in the order
such Disputes are brought before it. In the event the Management
Committee is unable to resolve a Dispute within thirty (30)
-28-
<PAGE> 32
days, the Management Committee shall submit the dispute to the
Senior Executives pursuant to SECTION 22(c).
(c) In the event that the Management Committee is not successful in
resolving a Dispute within thirty (30) days after submission,
the Management Committee shall submit the dispute to the Chief
Executive Officer of Vendor and the Chief Information Officer or
the Chief Financial Officer of Customer (the "Senior
Executives"). The Senior Executives shall meet as necessary (but
in any case, at least once per week) for the purpose of
resolving the Dispute. No Dispute under this Agreement shall be
the subject of arbitration or other formal proceedings between
Customer and Vendor before being considered by the Management
Committee and the Senior Executives, pursuant to this SECTION
22, except for an action to seek injunctive relief to stay a
breach of this Agreement.
(d) Disputes that are not resolved by the procedures set forth above
may be submitted by either Party to binding and final
arbitration according to the rules of the American Arbitration
Association. The arbitration shall be heard before a single
arbitrator to be chosen by mutual consent of the Parties within
thirty (30) days of the initiation of the arbitration by either
Party. The schedule and rules for the arbitration hearing shall
be as set by the arbitrator and the hearing shall be held in
Birmingham, Alabama. Each party shall bear its own costs of
conducting the hearing and shall be bound by the arbitrator's
decision. The costs of the arbitration shall be paid by the
party designated by the arbitrator. The arbitrator shall have
not less than ten (10) years experience in the information
technology industry, commercial software marketing, or
large-scale information technology project management. The
decision of the arbitrator is final and binding upon all
parties. Judgment upon the final arbitration decision may be
entered with any court having jurisdiction thereof. The
obligation to arbitrate if the preceding dispute resolution
steps fail is an essential provision of this Agreement and the
Parties both agree that such obligation is legally binding upon
them. In case of a violation of the obligation to arbitrate by
either Party, the other Party may bring an action to seek
enforcement of such obligation in any state or federal court of
appropriate jurisdiction.
(e) All negotiations under this SECTION 22 shall be confidential and
treated as compromise and settlement negotiations for purposes
of the state and federal rules of evidence.
(f) In the event of a Dispute between Customer and Vendor pursuant
to which Customer in good faith believes it is entitled to
withhold payment and during the pendency of the dispute
resolution process described in this Agreement, Vendor shall,
subject to the escrow of disputed amounts pursuant to this
Agreement, continue to provide the Services and Customer shall
continue to pay any undisputed amounts to Vendor. Customer
shall, upon request by
-29-
<PAGE> 33
Vendor, deposit any disputed amount in an interest bearing
escrow account. Upon resolution of the Dispute, the parties
shall allocate the money in the escrow account, plus any
interest earned on such money, according to the resolution of
such Dispute.
23. TERMINATION
(a) Termination Upon Payment Default by Customer. At Vendor's
option, this Agreement may be terminated by Vendor in the event
that the Customer shall fail to make any payment due to Vendor
under this Agreement except as provided in SECTION 9(k) or 23(d)
and shall fail to cure such payment default within [*] days
after Vendor's written notice to Customer detailing such payment
default.
(b) Termination Upon Event of Default by Vendor. Upon the occurrence
of an Event of Default (as defined below) and at any time
thereafter during the continuance of such Event of Default,
Customer may terminate this Agreement or any Services being
provided by Vendor under this Agreement by written notice given
to the Vendor, and pursue any legal remedies available to it
under law and this Agreement. The occurrence of any of the
following events with the passing of any applicable notice and
cure periods shall constitute an "Event of Default" under this
Agreement:
(i) Vendor fails to observe or perform any other material
obligation to be observed or performed by it hereunder,
and such failure shall continue for [*] days after
written notice of default from the Customer; or
(ii) Upon a Change of Control of Vendor or an announcement or
acknowledgement of a pending Change of Control of
Vendor, with [*] days notice to Vendor of such
termination; or
(iii) Vendor fails to provide the Critical Functions and
Vendor does not, within [*] hours after notice of such
failure from Customer, cure such failure or, if such
failure cannot be cured within such [*] hour period,
provide to Customer and implement a workaround for such
Critical Functions reasonably satisfactory to Customer;
or
(iv) Vendor shall admit in writing its inability to pay its
debts as they mature, or shall make an assignment for
the benefit of its or any of its creditors; or
(v) Proceedings in bankruptcy, or for reorganization of
Vendor or for the readjustment of any of its debts,
under the United States Bankruptcy Code, or under any
other laws, whether state or
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-30-
<PAGE> 34
federal, for the relief of debtors, now or hereafter
existing, shall be commenced by Vendor, or shall be
commenced against Vendor and shall not be discharged or
terminated within sixty (60) days of their commencement;
or
(vi) A receiver or trustee shall be appointed for Vendor or
for any substantial part of its assets, or any
proceedings shall be instituted for the dissolution or
the full or partial liquidation of Vendor, and such
receiver or trustee shall not be discharged within sixty
(60) days of his appointment, or such proceedings shall
not be discharged within sixty (60) days of their
commencement, or Vendor shall discontinue its business;
or
(vii) As determined by Customer, there exists a series of
non-material or persistent breaches by Vendor that in
the aggregate have a significant adverse impact on the
Services or upon the management of the Services; or
(viii) Vendor fails to meet any particular Service Level [*] or
more times in any [*] day period, or Vendor fails to
meet the Minimum Performance Levels set forth in EXHIBIT
H at any time.
(c) Additionally, Customer may terminate this Agreement as permitted
under SECTIONS 8(f) and 18(c)(ii).
(d) Termination for Convenience. Customer may terminate this
Agreement or the Clinic Services for convenience without
penalty, termination fee or other liability to Vendor, at any
time after December 31, 1999, upon thirty (30) days prior
written notice to Vendor. In addition, Customer may terminate
this Agreement or the Clinic Services for convenience prior to
December 31, 1999, but no earlier than October 31, 1999, upon
written notification of termination at any time during the Term
giving ninety (90) days notice to Vendor and payment of the
Convenience Termination Fee. Notwithstanding the foregoing,
Customer may terminate the Corporate Services or the Caremark
Services at any time for any reason without penalty, termination
fee or other liability to Vendor upon written notice to Vendor
giving ninety (90) days notice to Vendor.
24. LIMITED RIGHT TO CONTINUATION OF SERVICES.
Upon the termination of this Agreement for any reason, Vendor shall
provide the Services Transfer Assistance set forth in EXHIBIT N--SERVICES
TRANSFER ASSISTANCE for a period up to ninety (90) days after the date of
termination, and in accordance with the fee schedule set forth on EXHIBIT N. The
quality and level of performance of the Services during the termination process
shall not be degraded unless otherwise agreed to by the Parties.
-31-
<PAGE> 35
25. EXIT PLAN.
Upon the termination by Customer of this Agreement for an Event of
Default or under SECTION 8(f) or SECTION 18(c)(ii), Customer may, at its option,
purchase any of the Hardware and Software used to provide the Corporate Services
and/or Caremark Services at a price equal to then-current fair market value, but
not to exceed $[*].
26. INDEMNIFICATION.
(a) Customer shall indemnify, defend and hold harmless Vendor from
any liability or expenses (including reasonable attorneys' fees)
arising out of or relating to any claim by a third party that
the Customer Owned Software, as delivered by Customer and
otherwise unmodified and unchanged (unless and to the extent
such modification or change would not materially impact the
third party claim), infringes upon the proprietary rights of any
third party.
(b) Customer shall indemnify, defend and hold harmless Vendor from
any liability or expenses (including reasonable attorneys' fees)
arising out of or relating to any claim concerning (i) any
allegation of improper billing practices that occurred prior to
the Effective Date brought by the Health Care Financing
Administration or any other party, (ii) Customer's performance
prior to the Effective Date of services similar to the Services,
or (iii) any breach of the Third Party Agreements or any other
agreement related to either the Services or Service Locations,
accruing before the Effective Date of this Agreement.
(c) Customer shall indemnify, defend and hold harmless Vendor from
any liability or expenses (including reasonable attorneys' fees)
arising out of or relating to any claim brought by a third party
to the extent such claim is the result of actions taken by
Vendor after Vendor's written objection at the specific
direction of Customer in connection with Vendor's performance
under this Agreement or any amendment thereto.
(d) Vendor shall indemnify, defend and hold harmless Customer from
any liability or expenses (including reasonable attorneys' fees)
arising out of or relating to Vendor's use of the Software to
provide services to a third party (other than a member of the
Customer Group).
(e) Vendor shall indemnify, defend and hold harmless each member of
the Customer Group from any liability or expenses (including
reasonable attorneys' fees) arising out of or relating to any
claim by a third party that the Services, the Vendor Proprietary
Software, or any work performed by Vendor or its agents with
respect to the Software under this Agreement infringes upon the
proprietary rights of any third party. In the event of such
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-32-
<PAGE> 36
a claim by a third party, Vendor shall use commercially
reasonable best efforts to also provide Customer a
non-infringing work-around which is functionally equivalent to
the software, services or work in question, at no additional
cost to Customer.
(f) Vendor shall indemnify, defend and hold harmless each member of
the Customer Group from any liability or expenses (including
reasonable attorneys' fees) arising out of or relating to any
claim by a third party with respect to inadequacies in the
physical and data security control systems at the Service
Locations to the extent such systems are controlled or provided
by Vendor after the Effective Date of this Agreement.
(g) Vendor shall indemnify, defend and hold harmless each member of
the Customer Group from any liability or expenses (including
reasonable attorneys' fees) arising out of or relating to any
claim concerning (i) any allegation of improper billing
practices that occurred on or after the Effective Date brought
by the Health Care Financing Administration or any other party;
(ii) the performance of services by Vendor on or after the
Effective Date (including, without limitation, Vendor's breach
of Section 1(g) of this Agreement); or (iii) any breach of the
Third Party Agreements or any other agreement related to the
Services or the Service Locations, accruing on or after the
Effective Date of this Agreement.
(h) Customer shall indemnify, defend and hold harmless Vendor from
any liability or expenses (including reasonable attorneys' fees)
arising out of any act or omission by Customer under the lease
agreements covering Customer's locations in Glastonbury,
Connecticut, or Birmingham, Alabama, accruing, in each case,
before the Effective Date of this Agreement.
(i) Vendor shall indemnify, defend and hold harmless each member of
the Customer Group from any liability or expenses (including
reasonable attorneys' fees) arising out of any act or omission
by Vendor under the lease agreement assumed by Vendor for the
Glastonbury, Connecticut Service Location, or the sub-lease
agreement for the Birmingham, Alabama, Service Location,
accruing, in each case, on or after the Effective Date of this
Agreement.
(j) Each Party shall indemnify, defend and hold harmless the other
Party from any liability or expenses (including reasonable
attorneys' fees) arising out of or relating to any amounts
including taxes, interest, and penalties assessed against a
Party which are obligations of the other Party.
(i) Each Party shall indemnify, defend and hold harmless the other Party
from any costs and expenses (including reasonable attorneys fees)
incurred in connection with the enforcement of the other Party's
indemnity rights.
-33-
<PAGE> 37
(j) Procedure. If any third party shall notify a Party hereto (the
"Indemnified Party") with respect to any matter which may give
rise to a claim for indemnification against the other Party (the
"Indemnifying Party") under this SECTION 26, then the
Indemnified Party shall notify the Indemnifying Party in writing
thereof promptly; provided, however, that no delay on the part
of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party experiences any prejudice in the ability to
provide the indemnification required under this SECTION 26. If
the Indemnifying Party acknowledges that this Agreement applies
with respect to such claim, then the Indemnifying Party shall be
entitled to take control of the defense and investigation of the
claim. In the event any Indemnifying Party notifies the
Indemnified Party that it is assuming the defense thereof, (A)
the Indemnifying Party will defend the Indemnified Party against
the matter with counsel of the Indemnifying Party's choice
reasonably satisfactory to the Indemnified Party, (B) the
Indemnified Party may retain separate co-counsel at its sole
cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel
to the extent the Indemnified Party concludes reasonably that
the counsel the Indemnifying Party has selected has a conflict
of interest), (C) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect
to the matter without the written consent of the Indemnifying
Party which consent will not be withheld or delayed
unreasonably, and (D) the Indemnifying Party will not consent to
the entry of any judgment with respect to the matter, or enter
into any settlement which does not include a provision whereby
the plaintiff or claimant in the matter releases the Indemnified
Party from all liability with respect thereto, without the
written consent of the Indemnified Party, which consent will not
be withheld or delayed unreasonably.
27. REMEDIES.
(a) Unless specifically provided to the contrary in this Agreement,
neither party shall have any liability whether based on
contract, tort (including without limitation, negligence),
warranty, guarantee or any other legal or equitable grounds to
the other party for any damages other than Direct Damages.
(b) Neither Party shall have any liability to the other Party for
any damages arising out of or resulting from the performance and
non-performance of its obligations under this Agreement in
excess of [*] ($[*]) in the aggregate.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-34-
<PAGE> 38
(c) The limitations set forth in SECTIONS 27(a) - (c) are not
applicable to (i) the Parties' indemnification obligations for
third party claims under SECTION 26; (ii) losses covered by
insurance policies maintained by the Party liable for such
damages; or (iii) liability resulting from the gross negligence
or willful misconduct of a Party.
28. INSURANCE. During the Term, Vendor shall maintain the insurance coverages
required under EXHIBIT Q--INSURANCE of this Agreement and otherwise comply with
the requirements set forth on EXHIBIT Q.
29. MISCELLANEOUS.
(a) Headings. The Section headings herein are for reference purposes
only and shall not affect in any way the meaning or
interpretation of this Agreement.
(b) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party hereto
will assign its rights or delegate its obligations under this
Agreement without the express prior written consent of the other
party hereto except that Customer at its discretion may assign
this Agreement and any of its rights and obligations under this
Agreement pursuant to a merger, corporate reorganization or sale
of all or substantially all of its assets or stock.
(c) Governing Law. This Agreement shall be construed and governed by
the internal laws of the State of Alabama, without reference to
the choice of law principles thereof. Each party irrevocably
agrees that any legal action, suit, or proceeding brought by it
in any way arising out of the agreement must be brought solely
and exclusively in the federal district court (or in the absence
of federal jurisdiction, the appropriate state court) sitting in
Birmingham, Alabama and each party irrevocably accepts and
submits to the sole and exclusive jurisdiction of each of the
aforesaid courts in personam, generally and unconditionally with
respect to any action, suit, or proceeding brought by it or
against it by the other party.
(d) Notices. All communications or notices required or permitted by
this Agreement shall be sufficiently given for all purposes
hereunder if given in writing and delivered (i) personally, (ii)
by United States mail, return receipt requested, (iii) by
document overnight delivery service or (iv) by telecopy,
facsimile or other electronic transmission service, provided the
sender delivers a confirmation copy of such telecopy, facsimile
or other electronic transmission service within three (3)
business days thereafter. All notices delivered in accordance
with this Section shall be sent to the appropriate address or
number, as set forth below, or to such other address or to the
attention of such other person as the recipient party has
specified by prior written notice to the sending party, and
shall be effective upon its
-35-
<PAGE> 39
delivery to the addressee, as provided herein, either
personally, by mail or by electronic transmission, as the case
may be, or three (3) business days after it is sent or
dispatched, whichever occurs earlier.
(e) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of this Agreement.
(f) Amendments. This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment
is sought.
(g) Exhibits; Entire Agreement. The exhibits and other attachments
to this Agreement are hereby incorporated by reference and made
part hereof. This Agreement (including, without limitation, the
Regulated Services Agreement and each of the exhibits and
attachments to this Agreement) constitutes the entire
understanding of the parties with respect to the subject matter
hereof and there are no restrictions, promises, warranties,
covenants or undertakings other than those expressly set forth
or referred to herein. This Agreement supersedes all prior
negotiations, agreements and undertakings between the parties
with respect to such subject matter.
(h) No Third Party Beneficiaries. This Agreement is not intended to
and shall not be construed to give any person or entity, other
than the parties hereto, any interest, rights, or remedies
(including, without limitation, any third party beneficiary
rights) with respect to or in connection with this Agreement or
any agreements or provisions contemplated hereby.
(i) Relationship of Parties. Vendor, in furnishing services to
Customer under this Agreement, is acting only as an independent
contractor. Except where this Agreement expressly provides
otherwise, Vendor does not undertake by this Agreement or
otherwise to perform any obligations of Customer, whether
regulatory or contractual, or to assume any responsibility for
Customer's business or operations.
(j) Publicity; Trade Reference. Before using Customer or Customer's
name as a trade reference or for publicity, marketing,
advertising or otherwise, Vendor shall obtain Customer's prior
written consent, which shall not be unreasonably withheld.
Likewise, prior to the Customer using the Vendor or Vendor's
name as a trade reference or for publicity, marketing
advertising or otherwise, Customer shall obtain Vendor's prior
written consent, which shall not be unreasonably withheld.
However, either Party may include the other Party's name and a
factual description of the work
-36-
<PAGE> 40
performed under this Agreement on employee bulletin boards, in
its list of references and in the experience section of
proposals to third parties, in internal business planning
documents and in its annual report to stockholders, and whenever
required by reason of legal, accounting or regulatory
requirements.
(k) Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction shall be applied
against any party. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context
requires otherwise.
(l) Except as specifically set forth in this Agreement, all
consents, approvals, acceptances, or similar actions to be given
by either party under this Agreement shall not be unreasonably
withheld or delayed and each party shall make only reasonable
requests under this Agreement.
(m) During the Term and for a period of three (3) months after the
termination of this Agreement, except for the Affected
Employees, neither Party shall solicit any employee of the other
without the other Party's consent.
(n) Sections 5(c), 9(b), 10(a), 19(g), 20, 22, 24, 25, 26, 27 and 28
of this Agreement shall survive the termination or expiration of
this Agreement for any reason.
IN WITNESS WHEREOF, the parties have caused this Information Technology Services
Agreement to be executed in their names as of the date first above written.
MEDPARTNERS, INC. THE TRIZETTO GROUP, INC.
3000 Galleria Tower, Suite 1000 567 San Nicholas Drive, Suite 360
Birmingham, AL 35244 Newport Beach, CA 92660
By:_______________________________ By:______________________________________
(Authorized Signature) (Authorized Signature)
Name:_____________________________ Name:____________________________________
Title:____________________________ Title:___________________________________
Date:_____________________________ Date:____________________________________
-37-
<PAGE> 41
EXHIBIT A
GLOSSARY OF TERMS
ACCOUNT MANAGER Shall have the meaning set forth in SECTION
7(a).
ADDITIONAL SERVICES Shall have the meaning set forth in EXHIBIT
D.
AFFECTED EMPLOYEES Shall be those individuals listed on EXHIBIT
T.
AFFILIATES Shall mean any party controlling, controlled
by or under common control with another
party.
AGREEMENT Shall mean this Information Technology
Services Agreement.
ASR Shall have the meaning set forth in EXHIBIT
D.
BUSINESS UNIT ASSETS Shall have the meaning set forth in the
Business Unit Purchase Agreement attached as
EXHIBIT U.
BUSINESS UNIT ASSET PURCHASE PRICE Shall have the meaning set forth in SECTION
6.
CALENDAR Shall have the meaning set forth in EXHIBIT
B.
CAREMARK Shall be Caremark, Inc., a subsidiary of
MedPartners, Inc.
CAREMARK SERVICES Shall have the meaning set forth in EXHIBIT
B.
CHANGE CONTROL PROCESS Shall mean the change control process set
forth in EXHIBIT K.
CHANGE OF CONTROL Shall mean the transfer of the ownership or
control, directly or indirectly, of the
majority of the voting capital stock of
Vendor, from the persons or persons who hold
such control on the Effective Date to another
person or persons; provided, however, that a
Change of Control shall not include: (i) any
transfer of such stock by a stockholder of
Vendor to an immediate family member, (ii)
any transfer of such stock to any trust or
similar entity established for the benefit of
either (1) any stockholder of Vendor; or (2)
an immediate family member of any stockholder
of Vendor; or (iii) any initial public
offering of Vendor.
CLINIC DATA Shall be that portion of the Customer Data
which specifically relates to a Clinic or the
Clinics, including but not limited to medical
records and patient data.
CLINIC SERVICES Shall be that portion of the Services set
forth in EXHIBIT B to be provided to the
Clinics in accordance with the service matrix
set forth in EXHIBIT C.
CLINIC SERVICES PERIOD Shall be, for each Clinic, the period from
the Effective Date through such time as the
Clinic and Customer mutually agree that
Customer is no longer obligated to provide
the Clinic Services to the Clinic, including,
but not limited to, the period during the
Term before and after the date on which the
Clinic is disassociated from Customer.
CLINICS Shall be those clinics identified on EXHIBIT
C.
COMPANY INFORMATION Shall have the meaning set forth in SECTION
20(a).
CONFIDENTIAL INFORMATION Shall have the meaning set forth in SECTION
20(a).
CONVENIENCE TERMINATION FEE Shall be equal to the sum of $[*] per month
for the period
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Exhibit A
<PAGE> 42
between the date on which termination is
effective and December 31, 1999, prorated as
necessary for any portion of a month.
CORPORATE SERVICES Shall have the meaning set forth in EXHIBIT
B.
CRITICAL DISRUPTION Shall mean the failure of Vendor to provide
the Critical Functions for any period of
thirty six (36) consecutive hours.
CRITICAL FUNCTIONS Shall mean financial process support, Clinic
process support, communications services and
help desk services.
CUSTOMER Shall have the meaning set forth in the
introductory paragraph of the Agreement.
CUSTOMER DATA Shall have the meaning set forth in SECTION
13(a).
CUSTOMER GROUP Shall be MDM, Caremark, the Clinics
(including, without limitation, the
Management Company Clinics).
CUSTOMER OWNED SOFTWARE Shall have the meaning set forth in SECTION
14(b).
DIRECT DAMAGES Shall mean actual, direct damages incurred by
the claiming Party which include, by way of
example but without limitation, (i) costs of
recreating or reloading any Customer Data or
Clinic Data (ii) costs of implementing a
workaround in connection with a failure to
provide any or all of the Services; (iii)
costs of replacing lost or damaged equipment,
software and materials, (iv) costs and
expenses incurred by Customer to correct
errors in software maintenance and
enhancements provided as part of the Services
or any part thereof; (v) costs and expenses
incurred by Customer to procure the Services
from an alternate source, to the extent in
excess of Vendor's charges under this
Agreement, where permitted under this
Agreement, (vi) straight time, overtime, or
related expenses incurred by the Other Party,
including, overhead allocations of the other
Party for the employees, wages, and salaries
of additional employees, travel expenses,
overtime expenses, telecommunication charges,
and similar charges of the other Party, due
to a Party's breach of its obligations under
this Agreement; (vii) payments or penalties
imposed by a regulatory agency for failure to
comply with deadlines; (viii) the Service
Credits; and (ix) similar damages; provided,
however, "Direct Damages" shall not include
(A) loss of interest, profit or revenue of
the claiming Party or (B) incidental,
consequential, special or indirect damages
suffered by the claiming Party (except as to
the damages described in (A) and (B) are
included as a part of the Service Credits or
as otherwise provided for in this Agreement)
and shall not include punitive or exemplary
damages suffered by the claiming Party
arising from or related to this Agreement,
even if such Party has been advised of the
possibility of such losses or damages.
DISASTER RECOVERY PLAN Shall have the meaning set forth in SECTION
17.
DISPUTES Shall have the meaning set forth in SECTION
22(a).
EFFECTIVE DATE Shall be May 1, 1999.
EFFECTIVE LICENSE PURCHASE PRICE Shall have the meaning set forth in SECTION
9(i).
Exhibit A
<PAGE> 43
[*] [*]
EVENT OF DEFAULT Shall have the meaning set forth in SECTION
23(b).
FORCE MAJEURE EVENT Shall have the meaning set forth in SECTION
18(a).
GENERAL SERVICES Shall have the meaning set forth in EXHIBIT
B.
HARDWARE Shall have the meaning set forth in SECTION
15(b).
INITIAL TERM Shall have the meaning set forth in SECTION
3.
KEY EMPLOYEES Shall have the meaning set forth in SECTION
7(g).
LEASED HARDWARE Shall have the meaning set forth in SECTION
15(b).
MANAGEMENT COMMITTEE Shall have the meaning set forth in SECTION
7(f).
MANAGEMENT COMPANY Shall have the meaning set forth in SECTION
10(f).
MANAGEMENT COMPANY CLINICS Shall have the meaning set forth in SECTION
10(f).
MDM Shall be MedPartners, Inc.
MINIMUM PERFORMANCE LEVELS Shall have the meaning set forth in EXHIBIT
H.
MONTHLY SERVICES CHARGE Shall have the meaning set forth in EXHIBIT
J.
OWNED HARDWARE Shall have the meaning set forth in SECTION
15(b).
PARTIES Shall mean both Vendor and Customer.
PARTY Shall mean either Vendor or Customer.
PERFORMANCE RESULT Shall have the meaning set forth in EXHIBIT
I.
PERSONNEL PREMIUM Shall have the meaning set forth in SECTION
5(b).
PROBLEMS Shall have the meaning set forth in SECTION
2.1.6 of EXHIBIT B.
REGULATION Shall mean any law, rule or regulation of any
kind pertaining to delivery of healthcare
services, ancillary services or any other
matter.
RENEWAL TERM Shall have the meaning set forth in SECTION
3.
REPORTS Shall mean any report to be delivered by
Vendor under this Agreement.
RETAINED HARDWARE Shall have the meaning set forth in SECTION
15(b).
RETAINED SOFTWARE Shall have the meaning set forth in SECTION
14(b).
RETENTION BONUS Shall have the meaning set forth in SECTION
5(c).
RETENTION BONUS PAYMENT Shall have the meaning set forth in SECTION
5(b).
SENIOR EXECUTIVES Shall have the meaning set forth in SECTION
22(c).
SERVICE CREDITS Shall have the meaning set forth in EXHIBIT
I.
SERVICE LEVELS Shall be those service levels to be
maintained by Vendor as set forth in EXHIBIT
H.
SERVICE LOCATIONS Shall be the facilities in Birmingham,
Alabama and Glastonbury, Connecticut..
Exhibit A
<PAGE> 44
SERVICES Shall have the meaning set forth in SECTION
1(a).
SERVICE RESOURCES Shall mean those service relationships
described in Exhibit S.
SERVICES TRANSFER ASSISTANCE Shall be those services set forth in EXHIBIT
N.
SOFTWARE Shall have the meaning set forth in SECTION
14(b).
TERM Shall be the Initial Term plus any Renewal
Term.
THIRD PARTY AGREEMENTS Shall mean the license, lease and service
agreements between Customer and the
applicable third party in connection with
Retained Software, Retained Hardware,
Transferred Software and Leased Hardware.
TRADE SECRET Shall have the meaning set forth in SECTION
20(a).
TRANSFERRED SOFTWARE Shall have the meaning set forth in SECTION
14(b).
TRANSITION PLAN Shall have the meaning set forth in SECTION
4.
VENDOR Shall be The TriZetto Group, Inc.
VENDOR PROVIDED HARDWARE Shall have the meaning set forth in SECTION
15(b).
VENDOR PROVIDED SOFTWARE Shall have the meaning set forth in SECTION
14(b).
Exhibit A
<PAGE> 45
EXHIBIT B
DATA PROCESSING SERVICES
1. INTRODUCTION
This Exhibit B describes certain duties and responsibilities of Vendor
(the "Services") as well as certain duties and responsibilities of
Customer. The Services listed in this Exhibit B are in addition to
Vendor's other duties and obligations under the Agreement.
2. GENERAL SERVICES
Beginning on the Commencement Date, Vendor shall be responsible for the
operation, support and management of Customer's information technology
operations group operations in Birmingham, Alabama and Glastonbury,
Connecticut and Customer's business support groups for billing and
managed care in Glastonbury, Connecticut (collectively, the "IT
Operations Centers"), including without limitation, responsibility for
maintaining proper and adequate facilities, equipment and supplies and
establishing and maintaining an information technology operations
population and a business support group population for billing and
managed care, that in each case is properly trained and fully staffed
and that shall include necessary management and support staff. The
hours of operation shall be 24 hours per day, seven days per week.
Additionally, Vendor shall coordinate with Customer's various internal
and external service providers. Without limitation, the Services shall
include those functions, responsibilities and tasks set forth in this
Sections 2, 3, 4, 5 and 6 of this EXHIBIT B.
2.1 IT OPERATIONS CENTERS
This Section 2.1 of this Exhibit B describes the general IT Operations
support Vendor shall be responsible for providing as part of the
Services:
2.1.1 Operations
Vendor shall be responsible for daily job schedule execution,
monitoring, backup/recovery operations and facility and
equipment maintenance of all production and development
computing platforms within the IT Operations Centers. These
platforms include IBM - AIX and Windows based systems.
Vendor shall maintain and make available to Customer an
operations calendar (the "Calendar") at all times. Vendor
shall execute all backup/recovery tasks when scheduled in
accordance with the Calendar.
2.1.2 Systems Software
Vendor shall be responsible for system software implementation
and correction, patch management/change control, capacity
planning, performance tuning, and second level problem
resolution for all production systems, including, but not
limited to, IBM-AIX and Windows based systems.
Exhibit B
<PAGE> 46
2.1.3 Desktop
Vendor shall be responsible for the support of the Corporate
Common Office Environment. This includes support of Windows as
the standard desktop operating system, Microsoft's SMS or
other equal or better software product as the LAN software
distribution tool, Microsoft Exchange to provide e-mail
capabilities, Microsoft Internet Explorer as the standard web
browser, and TCP/IP connectivity.
2.1.4 Network
Vendor's responsibilities in connection with the network
infrastructure shall include monitoring of network components,
problem isolation and resolution, optimizing data traffic
performance, capacity planning, backup configuration and
administration. The current network configurations include
dial-up facilities, frame relay with fractional T-1 service,
and frame relay with redundant SONET service. The hardware
supported includes: Bay Network hubs and routers, Cisco
routers, Adtran CSU/DSU, and Ethernet LAN interfaces. Network
maintenance shall include routine disassociation tasks.
Vendor shall be responsible for the support of all network
software components including Bay RS Version 12.x for the Bay
Network Routers, Version 10.x for Cisco routers, and Netview
as the network management tool.
2.1.5 Security
Vendor shall be responsible for the execution of
Customer-defined security policies for all Customer computing
systems. Vendor shall provide first-level support and
administration of security changes and enhancements.
2.1.6 Problem Management
Vendor shall maintain a IT Operations Centers staff with
necessary ability and skills to meet all Service Levels.
In managing Service Level failures and other problems and
incidents arising in connection with or affecting Vendor's
provision of the Services (collectively, "Problems"), Vendor
shall at a minimum take the following actions:
(a) identify, record, track and correct issues impacting the
delivery of the Services;
(b) recognize recurring Problems;
(c) address procedural issues relating to Problem
management; and
(d) contain or reduce the impact of Problems that occur.
2.2 DATA RETENTION SERVICES
This Section 2.2 of this Exhibit B describes the data retention
services Vendor shall be responsible for providing as part of the
Services:
Exhibit B
-2-
<PAGE> 47
Vendor shall maintain all Customer Data and all Clinic Data in
appropriate storage media compliant with regulatory
requirements, during the Term and for a period of at least one
(1) year after the end of the Term. Vendor shall not remove or
destroy any Customer Data or Clinic Data during such retention
period.
2.3 REPORT GENERATION SERVICES
This Section 2.3 of this Exhibit B describes the report generation
services Vendor shall be responsible for providing as part of the
Services:
Vendor shall generate such reports as may be required under
any applicable law, rule or regulation, or a requirement of
any state or federal governmental regulator, or as may be
reasonably requested by Customer or Customer's auditors. Such
reports shall include, for example (but without limitation),
any reports required in response to requests received from any
representative of the Department of Health and Human Resources
or the Office of the Comptroller General of the United States
General Accounting Office.
2.4 DISASSOCIATION SERVICES
This Section 2.4 of this Exhibit B describes the Clinic disassociation
services Vendor shall be responsible for providing as part of the
Services:
Vendor will provide information technology support services
reasonably required by each Clinic in connection with its
disassociation from Customer, including but not limited to all
normal disassociation and transition services that were
provided by the Affected Employees prior to and as of the
Effective Date of the Agreement. These services may also
include, for example (but without limitation), support in
discontinuing ancillary services that had been provided by
Customer to the Clinic under an agreement between Customer and
the Clinic, assistance to Customer during clinic value
assessment and due diligence processes, and production of
tangible products such as data extracts in specified formats
using currently available media (i.e., tape drives, paper). An
example of such services for one such Clinic is set forth on
Schedule 3 to this EXHIBIT B.
2.5 CONVERSION SERVICES
This Section 2.5 of this Exhibit B describes the data conversion
services Vendor shall be responsible for providing as part of the
Services:
Vendor shall provide support services reasonably required by
any Clinic in converting from the information technology
platform provided at the Service Locations to a different
technology platform. These services will include, for example
(but without limitation), the removal of Clinic Data from the
Service Location platform, the discontinuation of other
Services provided under this Agreement to the Clinic, the
delivery of Clinic Data to the Clinic's new service provider
in a reasonably acceptable format and medium.
Exhibit B
-3-
<PAGE> 48
2.6 YEAR 2000 SERVICES
This Section 2.6 of this Exhibit B describes the year 2000 services
Vendor shall be responsible for providing as part of the Services:
Vendor shall test the software and hardware used by Vendor in
performing the Services (the "Tested Assets") in accordance
with the testing schedule attached hereto as Schedule 1 to
this Exhibit B. Should such testing reveal that any Tested
Asset is not year 2000 compliant (a "Non-Compliant Asset"),
Vendor shall notify Customer of such non-compliance. Where the
Non-Compliant Asset is not part of the Data Center Assets, as
defined below, Vendor also shall provide Customer with an
estimate of the costs of remediating the Non-Compliant Asset.
Unless Customer directs otherwise in response to such report,
Vendor shall remediate each Non-Compliant Data Center Asset to
ensure that the Non-Compliant Data Center Asset is made year
2000 compliant, and shall use its best efforts to remediate
Non-Compliant Assets that are not Data Center Assets, to
achieve year 2000 compliance. It is understood by Customer
that the limited time available prior to December 31, 1999
precludes the ability of Vendor to guarantee that any of the
Tested Assets that are not Data Center Assets can be made year
2000 compliant. Where the non-compliant status of a Tested
Asset that is not a Data Center Asset is discovered prior to
December 31, 1999, Customer shall bear the costs of
remediating such Non-Compliant Asset (provided that the
remediation services are the subject of an ASR and shall be
performed at Vendor's rates for Additional Services set forth
in Exhibit D). Vendor shall bear the costs of remediating any
Tested Asset which is a Data Center Asset. Further, Vendor
shall be responsible for the remediation costs of any Tested
Asset where the non-compliant status is discovered after
December 31, 1999.
For purposes of this Section 2.6 of this Exhibit B, Data
Center Assets shall mean elements in Exhibit M--Hardware
Rights and associated operating system and communications
software.
2.7 RESERVED
2.8 TRAINING SERVICES
This Section 2.8 of this Exhibit B describes the training services
Vendor shall be responsible for providing as part of the Services:
Customer shall be provided access to routine Computer Based
Training (CBT) courses.
2.9 END-OF-PERIOD REPORTING
This Section 2.9 of this Exhibit B describes the end-of-period
reporting services that Vendor shall be responsible for providing as
part of the Services:
Vendor shall be responsible for maintaining, supporting and
executing routine end-of-period (month, quarter, annual)
processes and reports.
Exhibit B
-4-
<PAGE> 49
2.10 APPLICATION SERVICES GROUP
This Section 2.10 of this Exhibit B describes the applications services
group services Vendor shall be responsible for providing as part of the
Services:
Vendor shall responsible for those tasks associated with
applications supported and described in the "Applications"
portion of Schedule 2 of this Exhibit B.
2.11 DESKTOP SERVICES
This Section 2.11 of this Exhibit B describes the desktop services
Vendor shall be responsible for providing as part of the Services:
Vendor shall responsible for those tasks associated with
desktop services described in the "Desktop" portion of
Schedule 2 of this Exhibit B.
2.12 HELP DESK SERVICES
This Section 2.12 of this Exhibit B describes the help desk services
Vendor shall be responsible for providing as part of the Services:
Vendor shall responsible for those tasks associated with help
desk services described in the "Help Desk Services" portion of
Schedule 2 of this Exhibit B.
2.13 SYSTEM SOFTWARE
This Section 2.13 of this Exhibit B describes the system software
services Vendor shall be responsible for providing as part of the
Services:
Vendor shall responsible for those tasks associated with the
systems support described in the "Technical Services" portion
of Schedule 2 of this Exhibit B.
2.14 INTERNET ACCESS
This Section 2.14 of this Exhibit B describes the Internet access
services Vendor shall be responsible for providing as part of the
Services:
Vendor shall responsible for those tasks associated with the
Internet services described in the "Internet Services" portion
of Schedule 2 of this Exhibit B.] In addition, Vendor shall be
responsible for providing access to the Internet at no
additional cost to Customer's California operations.
2.15 CUBS SOFTWARE
This Section 2.15 of this Exhibit B describes the CUBS application
services Vendor shall be responsible for providing as part of the
Services:
Vendor shall responsible for those tasks associated with the
CUBS application services described in the "CUBS" portion of
Schedule 2 of this Exhibit B. Vendor's obligation to perform
at no additional cost one thousand (1000) hours
Exhibit B
-5-
<PAGE> 50
of "Cubs Support" shall be applicable to new (i.e., arising
after the Effective Date of the Agreement) interface services
only.
2.16 HUBS AND ROUTERS
This Section 2.16 of this Exhibit B describes the hubs and router
services Vendor shall be responsible for providing as part of the
Services:
Vendor shall provide all services associated with maintaining
connectivity to and through existing hubs and routers for
locations existing as of the Effective Date.
3. CLINIC SERVICES
In addition to the services described in this Exhibit B and the
Agreement which are applicable to the Clinics, Vendor shall provide as
"Clinic Services" the Services which are identified on the service
matrix set forth on SCHEDULE C. Descriptions of the Services identified
on SCHEDULE C are attached as Schedule 2 to this Exhibit B.
4. CORPORATE SERVICES
Corporate Services shall be those Services set forth in the Agreement
and in Section 2 of this Exhibit B which are applicable to Customer, as
well as the "Business Services" portion of Schedule 2 of this Exhibit
B and those additional services which are identified on the service
matrix set forth on SCHEDULE C and described on Schedule 2 to this
Exhibit B.
5. CAREMARK SERVICES
Caremark Services shall be those Services set forth in the Agreement
and in Section 2 of this Exhibit B which are applicable to Caremark, as
well as the "Business Services" portion of Schedule 2 of this Exhibit B
and those additional services which are identified on the service
matrix set forth on SCHEDULE C and described on Schedule 2 to this
Exhibit B.
Exhibit B
-6-
<PAGE> 51
EXHIBIT B
[Schedules 1, 2 and 3 omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Securities Act of 1933, as amended. Schedule 1 contains reports regarding the
TriZetto's Year 2000 testing and compliance efforts. Schedule 2 contains
descriptions of TriZetto's services. Schedule 3 contains a list of TriZetto
employees. TriZetto hereby agrees to furnish supplementally a copy of these
omitted schedules as requested by the Securities and Exchange Commission.]
<PAGE> 52
EXHIBIT C
SERVICE MATRIX
[Schedule 1 omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Securities Act of 1933, as amended. Schedule 1 contains a table listing the
services TriZetto shall perform for each clinic assumed under this Agreement.
TriZetto hereby agrees to furnish supplementally a copy of these
omitted schedules as requested by the Securities and Exchange Commission.]
<PAGE> 53
EXHIBIT D
ADDITIONAL SERVICES
From time to time during the Term, Customer may request Vendor to
perform certain Additional Services at the rates set forth in Section II of this
EXHIBIT D (the "Additional Services"); provided, however, that Vendor and
Customer shall first execute an Additional Services Request ("ASR") applicable
to such Additional Services. ASR's will, in all cases, have a detailed
description of the work being requested, a firm estimate of cost and resource
usage, and other pertinent information required for its approval by Customer.
I. ADDITIONAL SERVICES
The Additional Services to be provided by Vendor at Customer's request
shall include the following (without limitation):
1. DISASSOCIATION SERVICES
Routine Clinic disassociation and transition services are provided as
part of the Services, as set forth in the Agreement and SECTION 2.4 of EXHIBIT
B. Additional Services will include (a) projects such as conversions and new
reports or extracts demanding a substantial amount of work (above forty (40)
hours per project); and (b) special requests from Clinics or a third party prior
to the close of any deal that requires a substantial amount of work (above forty
(40) hours per project).
2. SPECIAL REPORTING REQUESTS
Additional Services will include requests for new, non-standard
month-end reports.
3. DATA ENTRY SERVICES
Additional Services will include requests for data entry other than
routine file maintenance.
4. FINANCIAL SYSTEMS CONVERSIONS
Routine conversion services are provided as part of the Services, as
set forth in the Agreement and SECTION 2.5 of EXHIBIT B. Additional Services
will include major conversion services required to assist Clinics with the
design and implementation of an alternate support environment when the decision
to implement such new environment is made by Customer; provided, however, that
such services shall be billed to the applicable Clinic or to a third party, and
not to Customer.
5. CUSTOM INTERFACES AND EXTRACTS
Additional Services will include requests for custom interfaces and
extracts which demand a substantial amount of work (above forty (40) hours per
project) other than the CUBS interface work described in SECTION 2.15 of EXHIBIT
B.
<PAGE> 54
6. NETWORK SERVICES
Routine network services are provided as part of the Services, as set
forth in the Agreement and SECTION 2.1.4 of EXHIBIT B. Additional Services will
include (a) network re-engineering at the local Clinic level which demand more
than twenty-four (24) hours per project, (b) requests for new network technology
or services, (c) web site or Internet development services directly requested by
the Clinics, and (d) systems build-out at the local Clinic level.
7. TRAINING
Routine training services to Customer are provided as part of the
Services, as set forth in the Agreement and SECTION 2.8 of EXHIBIT B. Additional
Services will include training requests requiring classroom training or Clinic
on-site education.
8. MONTH-END SERVICES
Routine end of period (month, quarter, annual) services are provided as
part of the Services, as set forth in the Agreement and SECTION 2.9 of EXHIBIT
B. Additional Services include requests from Clinics to process, balance and
close non-Customer books and to generate and distribute associated reports.
9. HUBS AND ROUTERS
Routine hub and router services required to ensure connectivity to and
through existing Clinic locations are provided as part of the Services, as set
forth in the Agreement and SECTION 2.16 of EXHIBIT B. Additional Services
include services to establish connectivity to new Clinic locations.
10. CLINIC HARDWARE AND SOFTWARE
Additional Services include requests for installation, maintenance and
remediation of hardware and software at the location of any Clinic.
II. RATES
Vendor shall perform the Additional Services as described in this
Exhibit at the following rates:
<TABLE>
<CAPTION>
STAFF LEVEL HOURLY RATE ($)
- ----------- ---------------
<S> <C>
Documentation Specialist [*]
Installation Manager [*]
Account Manager [*]
Programming/Work Orders [*]
Technical Architect [*]
System Programmer [*]
Group Practice Consultant [*]
Managed Care Consultant [*]
Project Manager [*]
Management Consultant - VIO [*]
Strategic Consultant [*]
</TABLE>
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
<PAGE> 55
The rates set forth above may be increased on [*] by no more than [*] if
Vendor's cost of delivering such Additional Services has increased
proportionately.
Positions not specified above will be billed to Customer at no greater than [*]
margin above fully loaded cost [*].
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
<PAGE> 56
EXHIBIT E
TRANSITION PLAN
Vendor and Customer will execute the following Transition Plan to
ensure that the functions being transferred to Vendor from Customer do not
suffer performance downturns.
Transition Plan
The Transition Plan will be executed beginning on the Effective Date
and will be completed no later than July 1, 1999. The Transition Plan shall
include the following elements:
1. PREPARATION FOR TRANSITION OF AFFECTED EMPLOYEES
Vendor and Customer shall cooperate together in preparing for
the transition of Affected Employees to Vendor, including without limitation the
performance of the following tasks:
(a) Identification of Affected Employees
(b) Definition of organization going forward
(c) Development of predictable questions
(d) Pre-announcement of transition to staff; Question and
Answer sessions
(e) Resolution of key issues; and
(f) Preparation of employee transition packages.
2. COMPLETION OF CONTRACT ISSUES
Vendor and Customer shall cooperate together in resolving
open issues in connection with the Agreement, including without limitation the
performance of the following tasks:
(a) Execution of Agreement;
(b) Development of list of open items;
(c) Assignment of deadlines for open issue resolution;
(d) External announcement (if appropriate);
(e) Internal announcements; and
(f) Announcements to Clinics.
3. EXECUTION OF AFFECTED EMPLOYEE TRANSITION
Vendor shall perform the following tasks, without
limitation, in connection with transition of the Affected Employees to Vendor:
(a) Deliver employee transition packages; and
(b) Execute formal transition of Affected Employees.
4. ACTIVATION OF GOVERNING BODIES
Vendor and Customer shall cooperate together in activating
the appointment of the managers of the relationship between the Parties,
including without limitation the performance of the following tasks:
(a) Appointment of the Management Committee;
(b) Appointment of the Vendor Account Manager and Customer
Account Manager;
(c) Establishment of a meeting schedule; and
Exhibit E
<PAGE> 57
(d) Schedule and hold first Management Committee meeting.
5. DEFINITION OF REPORTING PACKAGE
Vendor shall create the Reports required under the Agreement,
including without limitation the performance of the following tasks:
(a) Definition of performance elements;
(b) Development of data collection processes;
(c) Development of reporting formats; and
(d) Assignment of reporting accountabilities.
6. DEVELOPMENT OF BILLING PROCESS
Vendor shall develop the billing process requirements,
including without limitation the performance of the following tasks:
(a) Establishment of the billing process;
(b) Development of appropriate financial system support
structure;
(c) Development of invoice timing, elements and format
(d) Development of first and second pro-formas; and
(e) Adjustment of above elements.
7. TRANSITION PROCESS MONITORING
Vendor and Customer shall cooperate together in monitoring
issues in connection with the transition of the Affected Employees to Vendor,
including without limitation the performance of the following tasks:
(a) Establishment of weekly monitoring meeting;
(b) Develop process for identifying issues;
(c) Develop resolutions, definitions and clarifications.
8. ACHIEVE "STEADY STATE"
Vendor and Customer shall cooperate together to achieve a
"steady state" for the performance of the Services, including without limitation
the performance of the following tasks:
(a) Development of measurements and goals;
(b) Definition of processes and procedures to achieve
steady state;
(c) Successfully resolve the first two performance
reporting periods;
(d) Successfully resolve the first two invoices;
(e) Sign-off on resolution of Agreement open-issue list;
(f) Poll user base/Customer on performance;
(g) Adjust relationship as necessary;
(h) Achieve steady state;
(i) Sign-off on transition.
9. ADDITIONAL CUSTOMER RESPONSIBILITIES
Additionally, Customer shall reasonably cooperate in providing
information required to facilitate the execution of the Transition Plan by
Vendor.
Exhibit E
<PAGE> 58
EXHIBIT F
BONUSES
Vendor shall pay Retention Bonuses to those Affected Employees eligible
to receive such bonuses under SECTION 5(c) of the Agreement in the amounts set
forth in a memorandum from Vendor to Customer.
Exhibit F
<PAGE> 59
EXHIBIT G
KEY EMPLOYEES
The following Affected Employees shall be considered Key Employees for
the purposes of this Agreement:
1. [*]
2. [*]
3. [*]
4. [*]
5. [*]
6. [*]
7. [*]
8. [*]
9. [*]
10. [*]
11. [*]
12. [*]
13. [*]
14. [*]
15. [*]
16. [*]
17. [*]
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
<PAGE> 60
EXHIBIT H
SERVICE LEVEL AGREEMENTS
I. SERVICE LEVELS
Vendor will provide the Services at the levels indicated in the
Agreement and in this Exhibit H (collectively, the "Service Levels").
A. HOST SYSTEM AVAILABILITY
1. Overall Availability. Vendor shall be responsible for ensuring the
host systems will be available not less than [*] of the time, [*]
hours a day, [*] days a week. Host system availability shall be
recorded by the Vendor through the use of an Availability Log. The
Availability Log will show the times from the recognition of a system
outage until the time the system has been restored. Host System
Availability is the primary service level and is not subordinate to
any other service categories.
2. Online Processing. Vendor shall be responsible for ensuring that the
[*] online systems will be available not less than [*] of the time,
[*]. Vendor will be permitted reasonable time (no more than [*]
elapsed from system available to system available) to effect
maintenance on equipment [*]. This activity will be planned and
communicated to Customer's Account Manager no less that [*] in advance
of projected downtime.
3. Batch Processing. Vendor shall be responsible for ensuring that all
production batch systems will be available not less than [*] of the
time during After Normal Business Hours ([*].) Vendor will be
permitted reasonable time (no more than [*] elapsed from system
available to system available) to effect maintenance on equipment one
Sunday per month. This activity will be planned and communicated to
Customer's Account Manager no less that [*] in advance of projected
downtime.
B. NETWORK AVAILABILITY.
1. Data Center Local Area Network. Vendor shall be responsible for
ensuring the Local Area Network within the Data Center is available
not less than [*] of the time, [*].
2. Wide Area Network. Vendor shall be responsible for ensuring the Wide
Area Network is available not less than [*] of the time, [*].
3. Dial-Up Connectivity. Vendor shall be responsible for ensuring dial-up
connectivity between the customer and the Data Center is available not
less than [*] of the time, [*].
4. Customer Local Area Network. Vendor shall have responsibility
supporting the customer local area network at the [*] and at clinics
normally supported through staff affected by this transaction. Vendor
shall ensure that the Local Area Networks included are available not
less than [*] of the time, [*].
C. HUMAN RESOURCE AVAILABILITY.
1. Emergency Support. Vendor shall be responsible for ensuring adequate
people resources are available to support [*] requests not less than
[*] of the time, [*].
2. Non-Emergency Support. Vendor shall be responsible for ensuring
adequate people resources are available to support non-Priority 1
request not less than [*] of the time, during Normal Business Hours
[*].
PRIORITY 1 requests are defined as those events associated with a key system
failure to a business function or location. This category is characterized by
the following:
- - Issues that keep The Client from operating their business
- - Have a large detrimental impact on the business
- - No alternative work around exists.
All other failures are categorized as non-emergency.
D. CUSTOMER SERVICE HELP DESK.
1. SERVICE REQUESTS. Vendor shall be responsible for ensuring that all
requests will be prioritized and addressed according to the
following priorities without limitation.
a) Priority 1: Urgent/Emergency. These events are of the most critical nature
and of the highest priority. This category is characterized by the following:
- Issues that keep The Client form operating their business
- Have a large detrimental impact on the business
- No alternative work around exists.
The technical support staff will work continuously, [*], until the
issue is resolved. Follow-up calls will be made every [*] until issue
is resolved.
b) Priority 2: High. These issues have a negative impact upon a large business
function. This category is characterized by the following:
- Issues that significantly impact the normal conduct of Client
business
- Temporary workaround is a reasonable option.
Vendor will make a best effort to resolve these issues within [*]
Updates to customer will be given [*].
c) Priority 3: Medium. These issues have narrow functional limitations and
situations that do not currently impair the customer's business activities.
These issues are characterized by the following:
- Impaired function is limited in scope but used daily
- Temporary workaround is a reasonable option.
- Vendor will meet to assign work priority.
d) Priority 4: Low. These issues involve functions within the system that do
not negatively impact daily operations. These issues are characterized by
the following:
- Issues that are cosmetic in nature
- Infrequent occurrence
- Intermittent function.
2. RESPONSE AND RESOLUTION TIMES. Based on the priority of the problem,
Vendor shall be responsible for ensuring that the following response and
resolution times are adhered to:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM RESOLUTION SERVICE LEVEL
PRIORITY RESPONSE TIME TIME TARGETS
<S> <C> <C> <C>
1-Urgent/Emergency [*] [*] [*]
2-High [*] [*] [*]
3-Medium [*] [*] [*]
4-Low [*] [*] [*]
</TABLE>
NOTE: ONE BUSINESS DAY = 7:00 A.M. CENTRAL TIME - 6:00 P.M.
CENTRAL TIME, OR 11 HOURS.
II. MINIMUM PERFORMANCE LEVEL
The Minimum Performance Level shall be [*] overall host system
availability (as described above in Section I.A.1 of this Exhibit H), measured
over the period of any [*].
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
EXHIBIT H
<PAGE> 61
EXHIBIT I
SERVICE CREDITS
I. SERVICE CREDITS
Vendor shall provide to Customer certain service credits ("Service
Credits") for breach of any of the Service Levels set forth in this EXHIBIT I.
Service Credits for each of the associated Service Levels will be totaled for
the month in which they are incurred (the "Measurement Month") and will be
deducted from the invoice for the month following the Measurement Month. Vendor
shall pay to Customer any Service Credits that have accumulated as of the
termination of this Agreement within [*] days after such date.
II. CALCULATION OF SERVICE CREDITS
Service Credits shall be calculated by first compiling the performance
data for each associated Service Level and calculating a [*] Month (the
"Performance Result"). Any negative deviation from the target percentage will
be calculated and a Service Credit will be calculated in accordance with the
following table for each of [*] that the Performance Result is less than the
target percentage.
<TABLE>
<CAPTION>
HIERARCHY SERVICE CREDIT
--------- --------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
III. SERVICE CREDIT GRACE PERIOD.
Vendor and Customer agree that no Service Credits shall be charged for Services
performed in [*].
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
<PAGE> 62
EXHIBIT J
PRICING SCHEDULE FOR SERVICES
This Exhibit J contains three elements, as follows:
I. Monthly Invoice Process
II. Ramp-down Calculations
- Schedule 1
- Schedule 2
III. Sample Monthly Invoice
I. MONTHLY INVOICE PROCESS
The following process will be followed in order to generate a monthly bill.
A FULL SERVICE PORTION
1 Identify the clinics that are anticipated to be serviced under
obligation from MedParnters and end of billing month.
2 Identify the clinics that are antiquated to be serviced under
obligation from MedParnters for a portion of the billing month.
3 Calculate the % of the month for which the clinics in #2 are
anticipated to be active.
4 Calculate the total "Ramp Down" charge for the clinics that are
anticipated to receive service during the billing month.
(see Schedule 1)
5 Pass total to step D.
B INFRASTRUCTURE PORTION
1 Identify the locations/departments that are anticipated to be serviced
under obligation from MedParnters at the end of the billing month.
2 Calculate the total "Ramp Down" charge for the clinics/departments that
are anticipated to receive service during the billing month. (see
Schedule 2)
3 IF #2 total is less than $[*], use $[*] as baseline payment until
contract termination.
4 Pass total to step D.
C SAP PORTION
1 Identify SAP active users that are anticipated to receive during the
billing month.
2 Calculate the total user cost by multiplying $[*] per user per month.
(see Schedule 2)
3 If #2 is less than $[*], use $[*] as baseline payment until contract
termination.
4 Pass total to step D.
D Sum A + B + C = Total Monthly Recurring Services Charges
E Multiply total Monthly Recurring Services Charges by [*]% to derive
monthly recurring invoice amount. Pass to step J.
F Calculate total of all approved ASR's to derive monthly ASR invoice
amount. Pass to step J.
G Calculate total Service Credits if after [*] days to derive monthly
Service Credit invoice amount. Pass to step J.
H Calculate any miscellaneous charges to credits to derive monthly
miscellaneous invoice amount. Pass to step J.
I Calculate difference between the amount actually earned for the prior
billing month and the amount invoiced for the prior billing month. If
the amount earned is higher than the amount billed, Vendor shall be due
the difference. If the amount earned is lower than the amount billed,
Customer shall be due the difference. Transfer this amount to step J.
J Sum E + F + G + H + I = Total Invoice Amount submitted for approval.
K All monthly invoices will be in the form of the "Sample Monthly
Invoice" attached to this Exhibit J.
<PAGE> 63
MEDPARTNERS - TRIZETTO OUTSOURCING FINANCIALS
RAMP DOWN CALCULATIONS
FULL SERVICE, INFRASTRUCTURE & SAP
[Schedule Ramp Down Calculations omitted pursuant to Regulation S-K,
Item 601(b)(2) of the Securities Act of 1933, as amended. This Schedule
contains calculations for computing certain ramp down values for full
service sites and physicians. TriZetto hereby agrees to furnish
supplementally a copy of these omitted schedules as requested by the
Securities and Exchange Commission.]
CONFIDENTIAL, COVER
<PAGE> 64
Exhibit K
EXHIBIT K
CHANGE CONTROL PROCESS
Within [*] days after the Effective Date and for the remainder of the Term, the
Parties shall define, establish, implement, document and maintain a change
control process for activities, processes, provisions and operations under this
Agreement and to evolve the Services (the "Change Control Process"). The
purposes and objectives of the Change Control Process are (i) to review each
request for a change to this Agreement and the Services to determine whether
such change is appropriate (a "Change Request"), (ii) to determine whether such
change is within the scope of the Services or constitutes an Additional Service,
(iii) to prioritize all Change Requests, (iv) to minimize the risk of exceeding
both time and cost estimates associated with the requested changes by
identifying, documenting, quantifying, controlling, managing and communicating
requested changes and their disposition and as applicable, implementation; and
(v) to identify the different roles, responsibilities and actions that shall be
assumed and taken by the Parties to define and implement the changes to the
Services and to this Agreement.
The Change Control Review Team, chaired by the Customer and Vendor Account
Managers or their respective designees, shall be the focal point for all Change
Requests and shall be responsible for promptly and diligently effecting the
activities set forth above in this Change Control Process with respect to each
Change Request.
The Change Control Process shall include, at a minimum:
(a) Changes to this Agreement and Services may be requested by
either Party. Since a change may affect the price, schedule or
other terms, both the Customer and Vendor Account Managers must
review and approve, in writing, each Change Request before any
Change Request is implemented.
(b) The Party proposing a Change Request will write a Change Request
Form ("CRF"), describing the change, the rationale for the
change and the anticipated effect that change will have, if
completed, or the anticipated impact it will have, if rejected,
on this Agreement and/or the Services.
(c) Customer's or Vendor's representative, as appropriate, will
review the proposed Change Request. If accepted, the CRF will be
submitted to the other Party for review. If rejected, the CRF
will be returned to the originator along with the reason for
rejection.
(d) Customer's and Vendor's representatives will weigh the merits of
the proposed Change Request and will decide whether further
study of the Change Request is in order. Approval of a CRF
proposed by Customer for further study constitutes authorization
by Customer for Vendor to proceed to investigate the CRF and
invoice Customer for such costs incurred by Vendor in such
activity. Approval of a CRF proposed by Vendor for further study
constitutes authorization by the Parties to further investigate
and study the Change Request without charge to Customer.
[*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
EXHIBIT K
<PAGE> 65
(e) Vendor will present the results of the study to the Customer
Account Manager detailing the technical merits, effects on
price, schedule, and impact on other terms, conditions and
modifications that will result from implementation of the
proposed Change Request. The Customer Account Manager shall then
either approve or reject the Change Request.
(f) Each approved Change Request will be implemented through a
written change authorization and this Agreement will be updated
to reflect the changes in scope, price or terms and conditions,
as appropriate.
EXHIBIT K
<PAGE> 66
EXHIBIT L
[Schedule 1 of Exhibit L omitted pursuant to Regulation S-K, Item 601(b)(2) of
The Securities Act of 1933, as amended. Schedule 1 identifies the software used
by TriZetto for the purposes of this Agreement. TriZetto hereby agrees to
furnish supplementally a copy of these omitted schedules as requested by the
Securities and Exchange Commission.]
<PAGE> 67
EXHIBIT M
HARDWARE RIGHTS
I. INTRODUCTION
This Exhibit M and the Schedules hereto describe the arrangements of
the Parties in connection with the Hardware.
II. OWNED HARDWARE
The hardware and equipment that are being transferred to Customer
pursuant to the Business Unit Asset Purchase Agreement (the "Owned Hardware")
are identified on Schedule 1 which is attached to this Exhibit M.
III. RETAINED HARDWARE; LEASED HARDWARE
This Section III of this Exhibit M describes the arrangements of the
Parties in connection with Hardware which is leased by Customer.
The following equipment, leased by Customer from DVI Financial
Services, account numbers [*] respectively, shall be considered "Leased
Hardware" for which Vendor shall assume (in accordance with the procedures
provided for in Section 15 of the Agreement) the applicable leases: [*].
In addition, the following equipment, leased by Customer from [*],
account number [*], shall be considered "Leased Hardware" for which Vendor shall
assume (in accordance with the procedures provided for in Section 15 of the
Agreement) the applicable lease: [*].
The Bay Networks equipment listed on Schedule 2 to this Exhibit M is
leased by Customer under a lease from [*], account number [*], which expires
[*]. For the period from the Effective Date until [*], such equipment shall be
"Retained Hardware" for which Customer shall be responsible for the lease
payments. Upon the expiration of such lease on [*], Vendor shall
either (1) purchase, at Vendor's expense, the equipment from [*], or (2) enter
into a separate lease or purchase agreement with [*] or a third party for such
equipment or equivalent or better equipment, under which Vendor shall be
responsible for the lease or purchase payments. In either case, the equipment
shall then become "Vendor Provided Hardware".
The Bay Networks equipment listed on Schedule 3 to this Exhibit M is
leased by Customer under a lease from [*], account number [*], which expires
[*]. For the period from the Effective Date until [*], such equipment shall be
"Retained Hardware" for which Customer shall be responsible for the lease
payments; provided, however, that Vendor shall reimburse Customer [*] for such
lease payments. Upon the expiration of such lease on [*], Vendor shall either
(1) purchase, at Vendor's expense, the equipment from [*], or (2) enter into a
separate lease or purchase agreement with [*] or another third party for such
equipment or equivalent or better equipment, under which Vendor shall be
responsible for the lease or purchase payments. In either case, the equipment
shall then become "Vendor Provided Hardware".
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 68
IV. VENDOR PROVIDED HARDWARE
Vendor will not provide any "Vendor Provided Hardware" as of the time
of the Effective Date.
<PAGE> 69
EXHIBIT M
SCHEDULE 1
[Schedule 1 of Exhibit M omitted pursuant to Regulation S-K, Item 601(b)(2) of
The Securities Act of 1933, as amended. Schedule 1 is a list of fixtures and
equipment from MedPartner's Glastonbury office. TriZetto hereby agrees to
furnish supplementally a copy of these omitted schedules as requested by the
Securities and Exchange Commission.]
<PAGE> 70
EXHIBIT N
SERVICES TRANSITION ASSISTANCE
I. OVERVIEW
Upon the termination or expiration of this Agreement, Vendor shall
provide at Customer's request the services described in this EXHIBIT N to assist
Customer in bringing the Services back in-house or transferring the Services to
another provider.
II. CONTINUED OPERATION
Vendor will continue to provide the Services in accordance with the terms and
conditions of the Agreement for a period of up to [*] days at Customer's request
after the termination or expiration of this Agreement.
III. DATA MANAGEMENT
Vendor shall return or transfer the Customer Data and the Clinic Data
at no cost in accordance with the Agreement and EXHIBIT B.
IV. TRANSITION SERVICES
Vendor shall provide any of the following additional transition
services requested by Customer at the rates set forth in EXHIBIT D:
1. Transition planning;
2. Current operation assessment;
3. Software inventory;
4. Hardware inventory;
5. Contract review;
6. Lease review;
7. Transition plan development; and
8. Coordination and implementation assistance.
[*] Confidential portions omitted
and filed separately with the
Securities and Exchange Commission.
Exhibit N
<PAGE> 71
EXHIBIT O
REPORTING TEMPLATES
[Schedule 1 of Exhibit O omitted pursuant to Regulation S-K, Item 601(b)(2) of
The Securities Act of 1933, as amended. Schedule 1 contains forms of reporting
templates. TriZetto hereby agrees to furnish supplementally a copy of these
omitted schedules as requested by the Securities and Exchange Commission.]
<PAGE> 72
EXHIBIT P
DISASTER RECOVERY PLAN
Vendor and Customer agree that the Disaster Recovery Plan to be
provided by Vendor to Customer under SECTION 17 of the Agreement shall include
each of the elements set forth in this EXHIBIT P, in detail reasonably
satisfactory to Customer:
I. REDUNDANT SERVICE CAPABILITY
The Disaster Recovery Plan shall include redundant service capability to
provide Services in the event of a disaster which would cause Vendor's physical
or system facilities to become inoperative. Such redundant service capability
will provide, at a minimum:
(a) Backup copies of all Customer Data delivered [*] to off-site, secured
storage area for use in the event of a disaster;
(b) The ability, in the event of a disaster that incapacitates Vendor's data
center operations, to completely recreate Services, with backed up data,
within [*] hours at a remote facility.
(c) Backup telecommunications services in place which will allow dial-in access
to the remote facility;
(d) Operation of the remote facility in conjunction with Vendor personnel to
recreate Services in conformance with the Standards set forth in this
Agreement.
(e) Customer may provide, at Customer's option and expense, qualified
individuals to assist Vendor, at Vendor's direction, in the event of a
disaster which causes Vendor's physical or system facilities to become
inoperative.
(f) Vendor will perform tests of its disaster recovery service capability at
least once during every six (6) month period, and will allow Customer to
participate, at Customer's option and expense and at Vendor's direction, in
such testing process. Vendor will provide Customer with the results of such
test.
II. EXECUTION
In the event of significant disruption to, or interruption of Services which
impairs Vendor's ability to provide the Services to Customer (including,
without limitation, Critical Disruptions), Vendor will initiate, in whole or
part, the specific sections of its disaster recovery plan associated with
restoring the interrupted capability. The plan shall provide for the
re-activation of service capability from a stand-by, hot production site [*].
Vendor currently subscribes to the [*] unit of [*], and is contracted to
utilize their [*] data center as the designated hot site for Vendor's [*]
platforms. Other data center or system platforms may be subscribed to alternate
[*] locations. Vendor's plan provides for the documentation of all current
information technology infrastructure, business unit impact analysis, disaster
activation steps, recovery activity and periodic plan testing.
A. PREPARATION/TESTING
The Disaster Recovery Plan will include the following elements:
1. SITE ASSESSMENT. For each data center, Vendor performs a disaster risk
assessment and hardware inventory to ensure that appropriate preventive
measures have been taken and that the environmental support systems at each
site appropriately minimize the potential for service outages. Vendor will
establish hardware maintenance contracts wherever they are deemed
appropriate to ensure risk exposure kept acceptable low.
2. INPUT FROM CUSTOMER. Vendor will meet with and request input from business
unit representatives to assess their tolerance and sensitivity to service
interruption. This assessment will be performed on an individual software
application basis and which may result in the initiation of application
specific recovery efforts that vary in scope or recovery timeframes. The
assessment deliverable will be an acceptance/acknowledgement of the specific
recovery timelines and any service level changes associated with the
disaster scenario.
3. PLATFORM SPECIFIC RECOVERY PLANS. Vendor will establish CPU
hardware/equipment recovery procedures for each in-scope processing
platform.
4. JOINT DISASTER RECOVERY COORDINATION TEAM. Vendor will establish a Disaster
Recovery Coordination Team (DRCT) with the Customer whose responsibility it
will be to participate in the evaluation of severe service degradations or
interruptions for scope/magnitude in order to ensure the most appropriate
service restoration plan is initiated.
5. SEMI-ANNUAL TEST. Vendor will perform [*] of its disaster recovery plan
including the verification of service capability from the hot site. Vendor
will allow Customer to participate, at Customer's option and expense and at
Vendor's direction, in such testing process. Vendor will provide Customer
with the results of such tests.
6. [*] TAPE BACKUPS. As documented elsewhere, system and data file backups are
taken daily and rotated to an offsite storage location by ARCUS data
security. Vendor will review the frequency and tape cycling activity, as
well as the pertinent regulatory archival requirements to ensure that all
potential data restoration needs can be met.
7. CONNECTIVITY CONTINGENCY PLAN. Vendor will network connectivity plans to
ensure redundant data circuits where necessary. Contracts [*] or other
carriers have been established to procure emergency network data circuits
from designated clinic sites to the pre-designated hot site(s).
B. DISASTER RECOVERY.
Vendor's disaster recovery plan includes the following steps.
1. DAMAGE ASSESSMENT. Upon notice of a major event seriously degrading or
disabling a data center, Vendor will convene the Disaster Recovery
Coordination Team to rapidly assess damage and determine whether to declare
a disaster and invoke efforts to move operations to the [*]. Key decision
criteria include:
a. [*]
b. [*]
c. [*]
d. [*]
2. INITIATION OF MOVE TO HOT SITE.
a. First alert notification, IT management
b. Notify business unit personnel
c. Activate [*] "Declared Disaster" notification
d. Notification to [*] security to release backup data tapes. [*] responds
within [*] minutes and activates [*].
3. MOVE KEY PERSONNEL TO HOT SITE. Also using [*] key personnel will move
immediately to the hot site to begin configuration of hot site.
4. ACTIVATION OF DATA CIRCUITS. Notify [*] or other affected carriers of
disaster plan initiation to temporarily re-home data circuits from clinic
sites to hot site.
5. INSTALLATION OF KEY APPLICATIONS. Using [*] re-installed hardware and
emergency vendor supplied equipment, Vendor installs appropriate processing
environmental on hosts.
6. CONFIGURATION OF SERVERS AND MAINFRAMES.
7. TESTING AT HOT SITE.
a. Data circuits, router-to-router
b. Application testing
c. Configuration testing
8. USER TESTING
a. Unit testing
b. Acceptance testing
9. GO-LIVE
a. Recover business functions
b. Recover administration functions
c. Report to Customer on service levels
10. PLAN FOR RESTORATION OF DATA CENTER
[*] Confidential portions omitted
and filed separately with the
Securities and Exchange Commission.
Exhibit P
<PAGE> 73
EXHIBIT Q
INSURANCE
During the Term of this Agreement Vendor shall maintain and keep in
force, at its own expense, the following minimum insurance coverages and minimum
limits set forth on this Insurance Exhibit and as otherwise mutually agreed to
between Customer and Vendor:
(a) workers' compensation insurance, with statutory limits as
required by the various laws and regulations applicable to the
employees of Vendor or any Vendor contractor or subcontractor;
(b) employees liability insurance, for employee bodily injuries and
deaths, with a limit of [*] each accident;
(c) comprehensive or commercial general liability insurance,
covering claims for bodily injury, death and property damage,
including premises and operations, independent contractors,
products, services and completed operations (as applicable to
the Services), personal injury, contractual, and broad-form
property damage liability coverages, in an amount not less than
[*];
(d) comprehensive automobile liability insurance, covering owned,
non-owned and hired vehicles, with limits as follows (1)
combined single limit of [*] for bodily injury, death and
property damage per occurrence; or (2) split liability limits of
(i) [*] for bodily injury per person; (ii) [*] for bodily injury
per occurrence; and (iii) [*] for property damage; and
(e) all-risk property insurance, on a replacement cost basis,
covering the real and personal property of Vendor which Vendor
is obligated to insure by this Agreement. Such real and personal
property may include buildings, equipment, furniture, fixtures
and supply inventory.
All such policies of insurance of Vendor and its contractors and subcontractors
shall provide that the same shall not be canceled nor the coverage modified nor
the limits changed without first giving thirty (30) days prior written notice
thereof to Customer. No such cancellation, modification or change shall affect
Vendor's obligation to maintain the insurance coverages required by this
Agreement. Except for workers' compensation insurance, Customer shall be named
as an additional insured and loss payee on all such required policies. Vendor
shall be responsible for payment of any and all deductibles from insured claims
under its policies of insurance.
The coverage afforded under any insurance policy obtained by Vendor pursuant to
this Agreement shall be primary coverage regardless of whether or not Customer
has similar coverage. Vendor and its contractors and subcontractors shall not
perform under this Agreement without the prerequisite insurance. Upon Customer's
request, Vendor shall provide Customer with certificates of such insurance
including renewals thereof. Unless previously agreed to in writing by Customer,
Vendor's contractors and subcontractors shall comply with the insurance
requirements herein.
Exhibit Q
[*] Confidential portions omitted
and filed separately with the
Securities and Exchange Commission.
<PAGE> 74
The minimum limits of coverage required by this Agreement may be satisfied by a
combination of primary and excess or umbrella insurance policies. If Vendor or
its contractors or subcontractors shall fail to comply with any of the insurance
requirements herein, upon written notice to Vendor by Customer and a ten (10)
day cure period, Customer may, without any obligation to do so, procure such
insurance and Vendor shall pay Customer the cost thereof. The maintenance of the
insurance coverages required under this Agreement shall in no way operate to
limit the liability of Vendor to Customer under the provisions of this
Agreement.
The parties do not intend to shift all risk of loss to insurance. The naming of
Customer as an additional insured or loss payee is not intended to be a
limitation of Vendor's liability and shall in no event be deemed to, or serve
to, limit Vendor's liability to Customer to available insurance coverage or to
the policy limits, nor to limit Customer's rights to exercise any and all
remedies available to Customer under contract, at law or in equity.
<PAGE> 75
EXHIBIT R
EXCLUDED EXPENSES
This EXHIBIT R sets forth the financial responsibility for the
following expenses, which the Parties acknowledge may not represent a complete
list of all expenses for which financial responsibility must be allocated. Where
Customer is to assume responsibility for the expense, the charges are not
included in the Monthly Services Charge and shall be payable by Customer or
reimbursable to Vendor as agreed to by the Parties.
A. Hubs and Routers: Lease and maintenance charges for hubs
and routers located at the Clinics will be the
responsibility of [*]; these costs will [*].
B. Telecommunications Costs: Telecommunications costs for both
voice and data will be appropriately allocated between [*].
These costs include frame relay, local and long distance
and data circuits. Charges for the Sonet Ring shall be
allocated between [*] based upon usage.
C. EDI Claim Submission: EDI Claim submission costs which are
currently passed through to the Clinics will [*]. These
costs include, but are not limited to, transmission and
statement charges.
D. Training: Training materials and other out-of-pocket
expenses not pertaining to the CBT courses (as described in
Section 2.8 of Exhibit B) shall be [*].
The Parties will cooperate in good faith to ensure that all expenses
are paid in a timely manner so as to avoid discontinuation of services. If
penalties or interest are incurred as a result of untimely payment of invoices,
the Party responsible for the delay shall be responsible for such penalties or
interest.
Where Vendor is to assume primary responsibility for the expense, the
Parties shall execute an Additional Services Request setting forth such
responsibility.
Exhibit R
<PAGE> 76
EXHIBIT S
SERVICE RESOURCES
[Schedule 1 omitted pursuant to Regulation S-K, Item 601(b)(2) of the Securities
Act of 1933, as amended. Schedule 1 contains a list of support service centers.
TriZetto hereby agrees to furnish supplementally a copy of these omitted
schedules as requested by the Securities and Exchange Commission.]
<PAGE> 77
EXHIBIT T
AFFECTED EMPLOYEES
The "Affected Employees" are those individuals listed below on this Exhibit T.
[*] [Confidential portions omitted from 3 consecutive pages.]
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 78
EXHIBIT U
BUSINESS UNIT ASSET PURCHASE AGREEMENT
This BUSINESS UNIT ASSET PURCHASE AGREEMENT ("Agreement") is entered into as of
May 1, 1999 (the "Effective Date"), by and between The Trizetto Group, Inc.
("Purchaser") and MedPartners, Inc. ("Seller").
RECITALS
WHEREAS, Purchaser and Seller are entering into an Information Technology
Services Agreement dated May 1, 1999 (the "Services Agreement");
WHEREAS, in connection with the Services Agreement, Seller has agreed to sell,
and Purchaser has agreed to purchase the Business Unit Assets (as set forth on
Schedule 1) on the Effective Date; and
WHEREAS, Seller desires to transfer and assign the Business Unit Assets and
Purchaser desires to accept the transfer and assignment thereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. In consideration of Purchaser's payment to Seller of [*]
(the "Purchase Price"), due upon execution of this
Agreement, Seller hereby irrevocably sells, transfers,
conveys, and assigns to Purchaser all of Seller's right,
title, and interest to the Business Unit Assets, TO HAVE
AND TO HOLD the same unto Purchaser, its successors, and
assigns, forever.
2. Purchaser hereby agrees to pay Seller the Purchase Price
in full upon execution of this Agreement, and hereby
accepts the sale, transfer, conveyance, and assignment
of the Business Unit Assets.
3. At any time or from time to time after the date hereof,
at Purchaser's request and without further
consideration, Seller shall execute such other
instruments of transfer, conveyance, assignment, and
confirmation, provide such materials and information and
take such other actions as may be reasonably necessary
in order more effectively to transfer, convey, and
assign to Purchaser, and confirm Purchaser's title to,
all of the Business Unit Assets, and, to the full extent
permitted by law, to put Purchaser in actual possession
and operating control of the Business Unit Assets and to
assist Purchaser in exercising all rights with respect
thereto.
4. Seller hereby warrants and represents that Vendor shall
receive good and rightful title in and to the Business
Unit Assets, free and clear of any liens, claims or
encumbrances, upon consummation of transfer contemplated
by Sections 1 and 2 of this Agreement.
1
[*] Confidential portions omitted
and filed separately with the
Securities and Exchange Commission.
<PAGE> 79
5. EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 4 OF THIS
AGREEMENT, ALL OF THE BUSINESS UNIT ASSETS BEING
TRANSFERRED FROM SELLER TO PURCHASER PURSUANT TO THIS
AGREEMENT ARE BEING TRANSFERRED AS IS, WHERE IS, AND IT IS
THE EXPLICIT INTENT OF EACH PARTY HERETO THAT SELLER IS NOT
MAKING ANY ADDITIONAL REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO ANY IMPLIED REPRESENTATION OR WARRANTY AS TO CONDITION,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE AS TO ANY OF THE BUSINESS UNIT ASSETS.
6. In addition to the Purchase Price, Purchaser shall pay
Seller [*], due upon execution of this Agreement, for
Seller's clinic client contact list.
7. This Agreement shall be construed and governed by the
internal laws of the State of Alabama, without reference to
the choice of law principles thereof. Each party
irrevocably agrees that any legal action, suit, or
proceeding brought by it in any way arising out of the
agreement must be brought solely and exclusively in the
federal district court (or in the absence of federal
jurisdiction, the appropriate state court) sitting in
Birmingham, Alabama and each party irrevocably accepts and
submits to the sole and exclusive jurisdiction of each of
the aforesaid courts in personam, generally and
unconditionally with respect to any action, suit, or
proceeding brought by it or against it by the other party.
IN WITNESS WHEREOF, the parties have caused this Business Unit Asset Purchase
Agreement to be executed in their names as of the Effective Date.
THE TRIZETTO GROUP, INC. MEDPARTNERS, INC.
567 San Nicholas Drive, Suite 360 3000 Galleria Tower, Suite 1000
Newport Beach, CA 92660 Birmingham, AL 35244
By: By:
------------------------------- ------------------------------------
(Authorized Signature) (Authorized Signature)
Name: Name:
----------------------------- ----------------------------------
Title: Title:
---------------------------- ---------------------------------
Date: Date:
---------------------------- ---------------------------------
[*] Confidential portions omitted
and filed separately with the
Securities and Exchange Commission.
2
<PAGE> 80
SCHEDULE 1
The items identified on the attachment to this Schedule 1 shall be the "Business
Unit Assets" for the purposes of this Agreement.
[Schedule 1 omitted pursuant to Regulation S-K, Item 601(b)(2) of the Securities
Act of 1933, as amended. Schedule 1 is a list of assets from MedPartners'
Glastonbury office. TriZetto hereby agrees to furnish supplementally a copy of
these omitted schedules as requested by the Securities and Exchange Commission.]
3
<PAGE> 1
EXHIBIT 10.9
ENGAGEMENT LETTERS AND PROJECT AGREEMENTS
<TABLE>
<CAPTION>
P.O. PROJECT DATE AMOUNT TAB
---- ------- ---- ------ ---
<S> <C> <C> <C> <C>
11570 16-May-97 1
11569 19-Jun-97 2
11568 20-Jun-97 3
01-Jul-97
11567 25-Jul-97 4
11566 28-Jul-97 5
11565 01-Aug-97 6
11564 05-Aug-97 7
11562 10-Aug-97 8
11563 10-Aug-97 9
12-Sep-97
01-Oct-97
11561 26-Nov-97 10
11560 03-Dec-97 11
11559 05-Dec-97 12
10-Dec-97 13
11931 27-Jan-98 14
12625 28-Jan-98 15
12624 28-Jan-98 16
11557 09-Feb-98 17
11933 02-Mar-98 18
11932 13-Apr-98 19
12445 05-May-98 20
05-May-98
05-May-98
05-May-98
05-May-98
12625B 27-May-98 21
20-Jul-98 22
16-Feb-99 23
04-Feb-99 24
01-Feb-99 25
04-Feb-99 26
04-Feb-99 27
04-Feb-99 28
28-Apr-99 29
27-Jun-99 30
07-Jun-99 31
10-Jun-99 32
</TABLE>
LETTERS OF INTENT AND MASTER AGREEMENTS-separate file
<TABLE>
<S> <C> <C>
27-Jan-98
11933 02-Mar-98 Superceded 5/21/99
28-Jul-98
01-Dec-98 Superceded 5/21/99
12445 04-Jan-99
</TABLE>
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 2
May 4, 1999
PROFESSIONAL SERVICES AGREEMENT
This Professional Services Agreement (the "Agreement") is made and entered into
this 1st day of January, 1999, by and between CCN Managed Care, Inc. a Delaware
corporation, of 5251 Viewridge Court, San Diego, CA 92123 (for itself and its
parent, subsidiary and affiliated corporations) hereinafter referred to as
"CCN", and The TriZetto(SM) Group, a Delaware corporation, of 567 San Nicolas
Drive, Suite 360, Newport Beach, California, 92660 hereinafter referred to as
"TriZetto".
WHEREAS, CCN and TriZetto currently are parties to a Consulting
Services Contract dated May 5, 1998;
WHEREAS, TriZetto is in the business of providing professional services
and;
WHEREAS, CCN desires to have TriZetto continue to perform such
services, for the benefit of CCN;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. PROFESSIONAL SERVICES
- ------------------------
1.1. Upon reasonable request from CCN from time to time, TriZetto shall
provide to CCN professional services, including but not limited to,
project planning, project management, systems integration, data
processing, software evaluation, software installation, computer
programming, management training and/or similar professional services,
under the terms, conditions and fees set forth in this Agreement, any
schedule or exhibit hereto, and any Project Agreement executed
hereunder (the "Services").
1.2. Definition of TriZetto's Services shall be submitted to CCN, in the
form of a proposed "Project Agreement", within a mutually agreed upon
time period from the initial verbal or written request for professional
services by CCN from TriZetto. Project Agreements
Page l of 23
<PAGE> 3
May 4, 1999
shall be submitted to a person designated by CCN to be its project
leader (the "CCN Project Leader") and will specify, at a minimum,
anticipated Project Agreement background, scope, approach, staffing,
schedule, deliverables, and costs. Once a final Project Agreement is
agreed to by CCN and executed by both parties, it will be considered
addendum to and will be governed by this Agreement.
1.3. Services will commence upon TriZetto's receipt of a verbal or written
request by authorized CCN personnel and will be governed by the terms
herein until such time as a final Project Agreement pertaining to the
requested effort has been executed by both parties, but no later than
thirty (30) days following commencement of Services by TriZetto.
TriZetto will provide CCN written notice of verbal requests for
Services within two (2) business days from the commencement of Services
to fulfill such verbal requests.
1.4. In the event that TriZetto wishes to use the services of a
subcontractor to supplement its Services to be performed under this
Agreement, TriZetto must seek approval by CCN in advance of any
Services to be performed by such individual(s). Any approved
subcontractors must be covered by TriZetto's liability insurance or the
subcontractor must furnish proof of individual liability insurance with
coverage amounts equal to that of TriZetto.
2. SERVICE CHARGES AND PAYMENT.
- -------------------------------
2.1. As compensation for Services provided by TriZetto pursuant to this
Agreement, CCN shall pay TriZetto on a monthly basis, in arrears, for
Services rendered and expenses incurred. The agreed upon hourly rates
are set forth in the Fee Schedule attached hereto as Exhibit A to this
Agreement. The fees shall remain firm through [*], thereafter, fees may
be subject to an [*] increase not to exceed [*]. The parties also agree
to discuss incentive payments and/or penalties for various Project
Agreements, the amount, timing and scope of which will be determined on
an individual Project Agreement basis as may be mutually agreed by the
parties.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 2 of 23
<PAGE> 4
May 4, 1999
2.2. At the beginning of each calendar month, TriZetto will provide CCN with
an invoice for Services provided in the prior month which shall specify
with sufficient detail the fees and expense amounts attributable to (i)
mutually agreed Project Agreements, and (ii) billings for such other
incremental services as are mutually agreed to by the parties in the
applicable Project Agreements. CCN shall pay the full amount of such
invoice within thirty (30) days of the date of receipt of such invoice.
On each invoice, TriZetto will (i) associate charges to CCN-defined
project codes or purchase orders, and (ii) estimate charges for the
subsequent month.
2.3. CCN shall also reimburse TriZetto for all reasonable travel and lodging
expenses incurred by TriZetto or any Contractor in the performance of
the Services. CCN shall also reimburse TriZetto for other reasonable
out-of-pocket expenses incurred by TriZetto in connection with the
performance of the Services. All such travel-related expenses will be
in accordance with CCN's current travel policy as provided to TriZetto.
2.4. TriZetto shall advise CCN in writing of any invoice remaining unpaid
for more than [*] from receipt of invoice upon which CCN shall have [*]
to remit payment to TriZetto. If CCN does not remit payment within said
[*] period, TriZetto shall have the right to charge CCN interest which
shall accrue at a rate of the lesser of [*] per month or the highest
rate allowed by law.
2.5. In the event of any dispute with regard to a portion of an invoice, (i)
the undisputed portion shall be paid as provided herein, and (ii) if
the dispute persists for more than sixty (60) days beyond the invoice
date of the disputed invoice and is resolved in favor of TriZetto, CCN
agrees to pay to TriZetto, in addition to the disputed amount, interest
on the disputed amount from the date of such invoice until the date
such disputed amount is actually paid at a rate equal to the lesser of
one (1.0%) percent per month or the highest rate allowed by law.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 3 of 23
<PAGE> 5
May 4, 1999
2.6. Fee Discounts For Time and Materials Projects
2.6.1 For time and materials projects performed and paid for during
calendar 1999 and subsequent years for which this Agreement will be in
effect, TriZetto will grant CCN the following discounts from TriZetto's
then-current published hourly rates set forth in the Fee Schedule
attached as Exhibit A.
A. [*] cumulatively paid to TriZetto to less than [*]
B. [*] to less than [*]
C. Over [*]
2.6.2 For the purposes of this Section, "Time and Materials" projects
shall be defined as those projects which are NOT (i) fixed fee projects
or (ii) projects the pricing of which are partially value-based,
benefits-based or results-contingent (i.e. level of payment based
partially on the extent to which targeted results, deliverables, or
benefits are achieved).
2.6.3 The cumulative calculation of fees paid to TriZetto for Time and
Materials projects for purposes of determining the applicable discount
level will be done based on gross fees beginning from the Effective
Date of this Agreement. An increased discount rate, once reached, will
apply to existing and future Professional Services arranged under this
Agreement, but not retroactively. In the event an increased discount
level is granted based on the parties' expectation that a particular
project will cause the cumulative payments to fall into a
higher-discount tier, but the project is later cancelled, then TriZetto
will recalculate the applicable rates and bill CCN accordingly.
2.6.4 Fees paid to TriZetto by CCN for the following products and
services will also be included in calculating the discount level
specified above: (i) TriZetto software products or Solution Enablement
Tools ("SET") (i.e., counted at gross license fees against the discount
levels specified above, notwithstanding any reduction in license fees
that may or may not be then applicable to such software or SET[s]),
(ii) projects performed under
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 4 of 23
<PAGE> 6
May 4, 1999
a fixed fee or partially value-based, benefits-based or
results-contingent based, (iii) outsourcing services provided by
TriZetto, or (iv) gross maintenance fees paid for TriZetto software
products or SET's. However, none of such discount levels will be
applicable to any of the four types of products or services specified
above.
2.6.5 Reimbursed expenses, or expenses for third party hardware,
software and/or related products and services procured for CCN by
TriZetto will neither impact the applicable cumulative rates discount
nor have such discounts applied to them. Fees for projects other than
Time and Materials projects will be as specified in the parties'
Project Agreements for such projects.
3. OWNERSHIP OF WORK PRODUCT AND RELATED MATERIALS
3.1. WORK PRODUCT.
3.1.1 TriZetto agrees that CCN shall own all rights, title and
interest, including but not limited to copyright, patent, trademarks,
trade secrets, and all other intellectual property rights in any
Original Work Product including all documentation, reports, notes, work
papers, and other written material developed and delivered to CCN,
including any creative works, directly arising out of or resulting from
the performance of Services and specifically developed by TriZetto for
the benefit of CCN as expressly provided in a Project Agreement by
TriZetto under this Agreement (the "Original Work Product").
3.1.2 TriZetto hereby agrees that the Original Work Product, if any, is
being delivered as "work for hire". If, for any reason, TriZetto is
ever held or deemed to be the owner of any intellectual property rights
set forth herein in the Original Work Product, then TriZetto hereby
irrevocably assigns to CCN all such rights, title and interest and
agrees to execute all documents reasonably necessary to implement and
confirm the letter and intent of this Section.
3.1.3 The Original Work Product is deemed to be CCN's Confidential
Information hereunder, and except as permitted herein, shall not be
used or disclosed by TriZetto except as set forth below in Section
3.1.4.
3.1.4 [*]
Page 5 of 23
<PAGE> 7
May 4,1999
[*]
3.1.5 Subject to the foregoing, it is understood that TriZetto shall be
free to use its general knowledge, skills and experience and any ideas,
concepts, know-how, and techniques related to the scope of TriZetto's
consulting and used in the course of providing the Services.
3.1.6 Any of the foregoing can be modified by terms of a Project
Agreement for the purposes of that Project Agreement.
4. NON-TRANSFERRED CCN PROPERTY. Except for property to which title or the
exclusive right to use is transferred to TriZetto as evidenced by a
bill of sale or comparable written instrument, no interest or
obligation (except the obligation to exercise reasonable care) is
conferred upon TriZetto regarding CCN's property beyond the limited
right to use such property in furtherance of this Agreement. All such
property remains in the care, custody and control of CCN.
5. LIMITATION OF LIABILITY.
5.1. Except as otherwise stipulated by a Project Agreement, the limit of
TriZetto's liability (whether in contract, tort, negligence, strict
liability in tort or by statute or otherwise) to CCN concerning
performance or non-performance by TriZetto, or in any manner related to
a Project Agreement, for any and all claims shall not exceed [*] the
aggregate amount of fees and expenses paid by CNN to TriZetto under the
Project Agreement to which the liability may be attributed, provided
however, such limitation shall not apply to gross negligence, willful
misconduct or a breach of TriZetto's intellectual property
representations herein. If requested by CCN, Project Agreements,
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 6 of 23
<PAGE> 8
May 4, 1999
which arrange for TriZetto to assume "outsourcing" responsibilities,
shall specifically define additional terms regarding limitation of
liability.
5.2. Except as otherwise stipulated by a Project Agreement, in no event
shall either party be liable for consequential, incidental or punitive
loss, damage or expenses (including lost profit or saving) even if it
has been advised of their possible existence. Any action by either
party must be brought within [*] after the cause of action arose. The
allocations of liability in this Section 5 represent the agreed and
bargained-for understanding of the parties and TriZetto's compensation
for the Services reflects such allocations.
6. CONFIDENTIAL INFORMATION.
6.1. During the course of this Agreement, CCN may provide TriZetto with
certain information deemed confidential or proprietary to CCN.
Likewise, TriZetto may also provide to CCN such information that it
deems confidential or proprietary. Such "Confidential Information" is
defined to include the identity of patients, the content of medical
records, financial and tax information, information regarding Medicare
and Medicaid claims submission and reimbursements, the object and
source codes and documentation for proprietary software, and such other
information to be disclosed that is confidential or proprietary
business information and delivered or disclosed pursuant to this
Agreement.
6.2. The party receiving the Confidential Information (the "Receiving
Party") from the party who owns or holds in confidence such
Confidential Information (the "Owning Party") may use the Confidential
Information solely for the purpose of performing its obligations or
enforcing its rights under this Agreement.
6.3. Each party shall take appropriate action, by instruction to or
agreement with its employees, agents and subcontractors, to maintain
the confidentiality of the Confidential Information. CCN may disclose
any Confidential Information on an as needed basis to its non-employee
fiduciaries, including without limitation CCN's attorneys, accountants,
auditors, controlling persons, officers, directors or trustees, without
TriZetto's prior consent. The Receiving Party shall promptly notify the
Owning
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 7 of 23
<PAGE> 9
May 4,1999
Party in the event that the Receiving Party learns of unauthorized
release of Confidential Information.
6.4. Except as may be permitted by this Agreement, TriZetto shall not use or
include CCN Confidential Information, nor any extrapolations or
normative versions thereof, in any database or other application or
program that TriZetto publishes or makes available to a third party or
otherwise use Confidential Information received from any member of CCN
for the purpose of developing information or statistical compilations
for use by third parties or for any other commercial exploitation or
enterprise without first obtaining CCN's specific written consent,
which consent CCN may withhold in the exercise of its sole discretion.
6.5. Unless otherwise agreed, the Receiving Party shall have no obligation
with respect to:
6.5.1. Confidential Information made available to the general public
without restriction by the owning party or by an authorized
third party;
6.5.2. Confidential Information rightfully known to the Receiving
party independently of disclosures by the Owning party under
this Agreement;
6.5.3. Confidential Information independently developed by the
Receiving Party; or
6.5.4. Confidential Information that the Receiving Party may be
required to disclose pursuant to subpoena or other lawful
process; provided, however, that the Receiving party notifies
the Owning Party in a timely manner to allow the Owning Party
to appear and protect its interests.
6.6. Upon the termination of this Agreement, each party shall (i)
immediately cease to use the other party's Confidential Information,
(ii) return to the other party or confirm destruction of such
Confidential Information and all copies thereof within ten (10) days of
the termination, and (iii) upon request, certify in writing to the
other party that it has complied with in its obligations set forth in
this Section 6, unless otherwise provided in this Agreement.
Page 8 of 23
<PAGE> 10
May 4,1999
6.7. The parties acknowledge that monetary remedies may be inadequate to
protect their rights with respect to Confidential Information and that,
in addition to legal remedies otherwise available, injunctive relief is
an appropriate judicial remedy to protect such rights.
6.8. TriZetto shall not use Confidential Information received from CCN for
the purpose of developing information or statistical compilation for
use by third parties or for any other commercial exploitation or
enterprise.
6.9. Each party agrees to provide reasonable assistance and cooperation upon
the reasonable request of the other party in connection with any
litigation against third parties to protect the requesting party's
Confidential Information, provided that the party seeking such
assistance and cooperation shall reimburse the other party for its
reasonable out-of-pocket expenses.
6.10 Unless otherwise specified, the Owning Party is administratively and
financially responsible for obtaining any consents necessary, if any,
for the Receiving Party to use each item of the Confidential
Information and, if appropriate, for transferring rights to the
Receiving Party that are necessary for the Receiving Party to use such
Confidential Information.
7. PROPRIETARY MATERIALS.
- -------------------------
7.1 SETS. In the course of performance of Services hereunder, TriZetto may
use (and will authorize CCN personnel to use in the performance of
CCN's responsibilities as may be mutually agreed upon in writing by the
parties in any Project Agreement) [*]. [*] are TriZetto Confidential
Information for purposes of Section 6. If TriZetto authorizes CCN to
retain any [*], CCN and such third parties as are engaged by CCN to
provide services in connection with its services and equipment may use
[*] such only for internal business purposes and may not use them for
the benefit of others. CCN will be responsible for maintaining
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 9 of 23
<PAGE> 11
May 4, 1999
and supporting the [*], which are made available solely as an
accommodation, at no charge and with no obligation to update or
maintain them. [*]
7.2 OTHER TRIZETTO PROPRIETARY INFORMATION. In the course of
performance hereunder, TriZetto may use products proprietary to it.
Such proprietary products are TriZetto Confidential Information as
defined in Section 6 and will be identified by TriZetto in writing. CCN
shall not have and shall not obtain any rights in such proprietary
products other than to use them or permit third parties engaged by CCN
to use them as authorized by TriZetto from time to time solely for
purposes set forth in any Project Agreement or pursuant to TriZetto's
standard license for such product(s) as may be entered into by CCN and
TriZetto.
7.3 CCN PROVIDED MATERIALS. In order to carry out its responsibilities
under this Agreement, TriZetto, may need to use certain software,
databases and data that are owned by or licensed to CCN ("CCN Provided
Materials"). CCN is responsible for obtaining any consents necessary
for TriZetto to use such CCN Provided Materials, and transfer rights to
TriZetto if appropriate. TriZetto will comply with any restriction on
its use of the CCN Provided Materials as set forth in any Project
Agreement.
8. WARRANTIES.
- --------------
8.1 TriZetto warrants to CCN that Services will be performed in a good and
workmanlike manner by personnel possessing competency which (a)
consistent with applicable industry standards, and (b) sufficient to
perform the Services properly.
8.2. YEAR 2000. Unless otherwise stated in a Project Agreement, TriZetto
warrants that all equipment and systems used to furnish Services
pursuant to this Agreement are Year 2000 Compliant or do not contain
components which process date information. TriZetto also warrants that
any software or [*] provided under the terms of any Project Agreement
will be Year 2000 Compliant. "Year 2000 Compliant" is defined to mean
the product/systems accurately and unambiguously processes (including,
but not limited to, compares, calculates, manipulates, sequences,
displays, and exchanges data with other
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 10 of 23
<PAGE> 12
May 4, 1999
systems) data containing time and/or dates prior to, at, and after the
year 2000 without error or interruption, and the product operates
properly and in conformance with applicable specifications, without any
detrimental effect on patient care or otherwise, continuously, before,
at, and after the year 2000.
8.3 WARRANTY OF TITLE. TriZetto warrants TriZetto's absolute right to sell
or license any software or [*] under the terms and conditions of any
Project Agreement, and, as long as CCN is not in default, warrants and
represents that CCN shall quietly and peacefully possess any software
or [*] provided hereunder subject to and in accordance with the
provisions of this Agreement and the applicable Project Agreement.
8.4 INTELLECTUAL PROPERTY WARRANTY. Licensor warrants that any software or
[*] licensed under any Project Agreement and CCN's use thereof in
accordance with appropriate documentation, shall not infringe or
violate the patent, trademark, copyright, trade secret or any other
intellectual property right of any entity not a party to this
Agreement.
8.5. VIRUS PROTECTION. TriZetto warrants and represents that it will use its
best efforts to ensure that, at the time any software or [*] are
delivered to CCN, no portion of the software or [*] or the media upon
which it is stored has any type of software routines or other element
which is designed to or capable of permitting any of the following: (1)
unauthorized access to or intrusion upon; (2) disabling of; (3) erasure
of; or (4) interference with any hardware, software, data or peripheral
equipment. In the event of a breach of this representation and
warranty, TriZetto shall compensate CCN for any and all harm, injury,
damages, costs, and expenses incurred by CCN by reason of the breach.
8.5 THE WARRANTIES HEREIN IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OF IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 11 of 23
<PAGE> 13
May 4, 1999
9. CCN'S RESPONSIBILITIES.
- --------------------------
9.1 CCN shall be responsible for its compliance with any laws and
regulations associated with any deliverables supplied by TriZetto
hereunder, any decision to act, or refrain from acting, upon said
deliverables, and ensuring that its instructions to TriZetto satisfy
CCN's policies and business requirements. TriZetto shall be entitled to
rely on all decisions and approvals of CCN related to this Agreement.
9.2 CCN agrees that TriZetto's performance is dependent on CCN's timely and
effective satisfaction of CCN Responsibilities and on CCN's timely
decisions and approvals. Accordingly, CCN acknowledges that any
material delay by CCN may result in TriZetto being released from an
obligation or scheduled deadline or in CCN having to pay extra fees for
TriZetto's agreement to meet a specific obligation or deadline despite
the delay.
10. INDEMNITY.
- --------------
10.1 Each party shall indemnify and hold harmless the other party and its
affiliates, directors, officers, employees and agents (collectively,
the "indemnitee") against any and all losses, liabilities, judgments,
awards and costs (including legal fees and expenses) arising out of or
related to any third-party claim for personal injury or property
damage, including any damages finally awarded attributable to such
claim and any reasonable expense incurred by indemnitee in assisting
indemnitor in defending against such claim, that arises out of any
action or inaction by the indemnitor or its employees or agents;
provided, however, that indemnitee gives indemnitor: (i) written notice
within a reasonable time after indemnitee is served with legal process
in an action asserting such claims, provided that the failure or delay
to notify indemnitor shall not relieve indemnitor from any liability
that it may have to indemnitee hereunder so long as the failure or
delay shall not have prejudiced the defense of such claim; (ii)
reasonable assistance in defending the claim; and (iii) sole authority
to defend or settle such claim. In the event indemnitor elects not to
defend any such claim, the indemnitee shall have the option but not the
duty to reasonably defend or settle the claim and indemnitor shall
indemnify indemnitee for such settlement or any damages finally awarded
against indemnitee attributable to such claim, reasonable costs and
expenses (including attorneys' fees), and interest on such recoverable
funds advanced.
Page 12 of 23
<PAGE> 14
May 4, 1999
10.2 Either party shall indemnify and hold the other party harmless from and
against any and all liability, losses, damages, causes of actions, and
expenses, including reasonable attorney's fees, associated with any
action or omission of the other party or the personnel under its
supervision which action or omission is not in compliance with such
party's obligations under this Agreement.
11. INTELLECTUAL PROPERTY INDEMNIFICATION.
- ------------------------------------------
11.1 TriZetto shall defend, indemnify and hold CCN, and the Enterprise
harmless from any loss, liability, damage, cost, or expense (including
reasonable attorney's fees and litigation costs), arising out of any
claims or suits that may be made or brought against CCN by reason of
the breach or alleged breach by TriZetto of the warranties or
representations contained herein, or by reason of any infringement or
alleged infringement of any patent, trademark, copyright or trade
secret right resulting from the Work Product and CCN's use thereof.
TriZetto shall have the sole right to conduct the defense of any such
claim or action and all negotiations for its settlement or compromise,
unless otherwise mutually agreed to in writing, or unless TriZetto
fails to assume its obligation to defend and CCN is required to do so
to protect its interests
11.2 If such infringement claim or action occurs, or in TriZetto's judgment
is likely to occur, TriZetto shall, at its option and expense, either:
(a) Procure for CCN the right to continue using the Work Product;
(b) Modify such Work Product to become non-infringing (provided
that such modifications does not adversely affect CCN's
intended use of Work Product) such that the modified Work
Product is not infringing and is equally suitable, compatible,
and functionally equivalent to the original Work Product at no
additional charge to CCN;
(c) If none of the foregoing alternatives is reasonably available
to TriZetto, upon prior written consent of CCN, CCN shall
return the Work Product to TriZetto and TriZetto shall refund
all moneys paid by CCN in respect of such Work Product.
Page 13 of 23
<PAGE> 15
May 4, 1999
12. INSURANCE.
- --------------
12.1 TriZetto shall maintain liability coverage for errors and omissions with
coverage of at least [*] per incident and [*] in the aggregate. CCN shall be
provided a copy of the certificate of insurance upon request. CCN shall be
promptly notified at least thirty (30) days prior to any cancellation of policy
or reduction of coverage below the required amounts specified in this section.
12.2 During the term of this Agreement, TriZetto shall also maintain at its own
expense, commercial liability insurance for bodily injury, death and property
loss and damage (including coverages for product liability, completed
operations, contractual liability and personal injury liability) covering
TriZetto for damages arising out of its performance under this Agreement, and
any negligent or otherwise wrongful acts or omissions by TriZetto or any
employee or agent of TriZetto, arising out of its performance under this
Agreement, with CCN listed as named additional insured. All policies of
insurance shall provide for coverage on an [*] basis in the minimum amount of
[*] per occurrence with an annual aggregate of [*]. If coverage is provided on a
claims made basis, TriZetto shall maintain, through the purchase of an [*]
reporting endorsement, or a [*] policy coverage for any occurrence taking place
relating to TriZetto's products and/or Services. Upon CCN's request, TriZetto
shall provide CCN with a copy of all such policies and certificates of insurance
satisfactory to CCN, evidencing TriZetto's insurance coverage.
13. INDEPENDENT CONTRACTOR STATUS.
- ----------------------------------
TriZetto agrees that it shall perform its duties under this Agreement as an
independent contractor. Contractors who perform Services on behalf of TriZetto
shall remain under the supervision, management and control of TriZetto and all
compensation of Contractors shall be the responsibility of TriZetto, including
any and all benefits which are required by law, including but not limited to the
provision of workers' compensation insurance, and federal and state payroll
taxes. This Agreement is not and shall not be considered to create an
employer/employee relationship, joint venture, or partnership of any kind, and
neither party shall represent to any third persons that any such relationship
exists. Each party to this Agreement is and shall remain professionally and
economically independent of the other, and neither party
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 14 of 23
<PAGE> 16
May 4, 1999
will have any authority to bind or commit the other party. Nothing in this
Agreement will be deemed or construed to create a joint venture, partnership or
agency relationship between the parties for any purpose. With respect to its own
personnel, each party is, accordingly, independently responsible for all
obligations incumbent upon an employer.
14. TRIZETTO PERSONNEL.
- -----------------------
TriZetto reserves the right to determine which of its personnel or
subcontractors shall be assigned to perform Services, and to replace or reassign
such personnel during the term hereof, provided, however, that it will, subject
to scheduling and staffing considerations, attempt to honor CCN's request for
specific individuals. CCN shall have the right to request that individual
TriZetto personnel cease the provision of Professional Services for any reason.
In such instances, TriZetto and CCN will exert best efforts to mutually agree to
a corrective course of action.
15. NON-SOLICITATION OF EMPLOYEES.
- ----------------------------------
Each party agrees that it shall not, during the term of any Project Agreement,
solicit, hire or retain as an independent contractor any of the other party's
employees or personnel of any job classification or rank who are assigned to the
project on either a full-time or part-time basis. However, this obligation shall
not apply if either (a) the particular individual has already terminated
employment with the other party prior to any solicitation by a party or (b) the
other party delivers its prior written express approval (i.e., after the
initiating party request such approval from the other party, before any
solicitation by the initiating party to the particular individual). For the
purposes of this Agreement, Employment shall mean any arrangement between two
parties which promises reimbursement to one party for provision of services on
behalf of the other.
16. WORK ENVIRONMENT.
- ---------------------
Except as otherwise stipulated by a Project Agreement, when TriZetto's
employees are physically assigned to work on CCN's premises, CCN shall provide
to TriZetto's employees a work environment consistent with the work environment
provided to CCN's employees, including reasonable work space, furniture,
supplies and equipment, to enable TriZetto to
Page 15 of 23
<PAGE> 17
May 4, 1999
perform its obligations under this and any Project Agreement executed hereunder.
In the event that CCN is unable to provide such a work environment, TriZetto
will provide the required space, furniture, supplies, equipment and
communications linkages (including but not limited to high-speed data lines and
video conferencing equipment), and shall be reimbursed by CCN under section 2.3
of this agreement based upon CCN's prior approval.
17. PUBLICITY.
- --------------
Neither party shall refer to the existence of this Agreement or disclose its
terms or use the name of the other party in any press release, advertising or
materials distributed to prospective or existing customers, without the prior
written consent of the other party. TriZetto shall have the right to disclose to
prospective customers the fact of this Agreement's existence and the general
scope of the Services to be provided hereunder. CCN agrees to serve as a
business reference for TriZetto provided that TriZetto remains in compliance
with its obligations under this Agreement.
18. ASSIGNMENT.
- ---------------
Unless otherwise expressly provided in this Agreement, neither party may assign
its rights or delegate its duties and obligations under this Agreement without
the prior written consent of the other party, which will not be unreasonably
withheld or delayed. Notwithstanding the foregoing, consent will not be required
if either party assigns its rights or delegates its duties and obligations under
this Agreement to a parent, to a subsidiary or affiliate in which either party
directly or indirectly has more than a fifty percent (50%) controlling interest,
or to an entity into which either party is merged or with which either party is
consolidated, or to the purchaser of all or substantially all the assets of
either party, unless such assignment or delegation would have a material impact
on the Services to be provided under this Agreement.
19. GOVERNING LAW.
- ------------------
This Agreement shall be construed according to, and the rights of the parties
shall be governed by, the laws of the State of California.
Page 16 of 23
<PAGE> 18
May 4, 1999
20. SEVERABILITY.
- -----------------
If any of the provisions of this Agreement shall be held to be illegal, invalid
or unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; provided,
however, that in the event such remaining provisions are inadequate to permit
each party to realize the material benefits for which it has bargained, the
parties shall in good faith negotiate mutually acceptable substitute provisions
which are valid, legal and enforceable and which most nearly provide for the
material benefits sought to be accomplished by the provision(s) held to be
illegal, invalid or unenforceable. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT
EACH AND EVERY PROVISION OF THIS AGREEMENT THAT PROVIDES FOR A LIMITATION OF
LIABILITY, DISCLAIMER OR WARRANTIES OR EXCLUSION OF DAMAGES IS INTENDED BY THE
PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE
ENFORCED AS SUCH. FURTHER, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT IN THE
EVENT THAT ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED ITS ESSENTIAL
PURPOSE, ALL LIMITATIONS OF LIABILITY AND EXCLUSIONS OF DAMAGES SET FORTH HEREIN
SHALL REMAIN IN EFFECT.
21. WAIVER OF BREACH.
- ---------------------
The waiver of either party of any one or more breach or defect in performance by
either party and its Contractors under this Agreement shall not be construed as
a waiver of any other or future breach or defect, and shall not stop either
party from requiring the specific performance of any obligations arising under
this Agreement.
22. AMENDMENT.
- --------------
This agreement may be amended, modified or supplemented only by a writing signed
by the parties to this Agreement. Such amendments, modifications or supplements
shall be deemed as much a part of this Agreement as if so incorporated herein
(e.g., Project Agreements).
Page 17 of 23
<PAGE> 19
May 4, 1999
23. ENTIRE AGREEMENT.
- ---------------------
This Agreement and its exhibits set forth the entire agreement between parties
hereto with regard to the subject matter hereof. No other agreements,
representations, or warranties have been made by either party to the other with
respect to the subject matter of this Agreement. The parties have, however,
previously entered into certain agreements and other binding documents with
respect to services and products and such agreements and documents remain in
full force and effect as separate contracts with respect to the subject
matter(s) thereof. This Agreement is not intended to modify or amend any such
other agreements or documents in any way. Notwithstanding anything to the
contrary provided herein, contrary or inconsistent terms in any specific Project
Agreement shall supersede and control the terms set forth herein.
24. FORCE MAJEURE.
- ------------------
Neither party hereto shall be liable for any failure or delay in performance of
its obligations hereunder by reason of any event or circumstance beyond its
reasonable control, including without limitation acts of God, war, riot, strike,
labor disturbance, fire, explosion, flood, or shortage or failure of suppliers;
provided, however, that a delay or failure in performance due to lack of
financial resources, or availability of skilled personnel not caused by acts of
God, war, riot, strike, labor disturbance, fire, explosion, flood, or shortage
or failure of suppliers shall not be considered a circumstance beyond the
reasonable control of the delaying or failing party.
25. TAXES.
- ----------
There shall be added to any charges payable by CCN under this Agreement amounts
equal to any and all applicable taxes, however designated, incurred as a result
of or otherwise in connection with this Agreement or the Services, including
without limitation state and local privilege, excise, sales, and use taxes and
any taxes or amounts in lieu thereof paid or payable by TriZetto, but excluding
taxes based upon the net income, personnel costs, or net worth of TriZetto.
Page 18 of 23
<PAGE> 20
May 4, 1999
26. TERM AND TERMINATION.
- -------------------------
26.1 The term of this Agreement commences on the Effective Date and shall
continue for a period of [*] thereafter.
26.2 This Agreement may be terminated by either party upon the other party's
failure to cure a material breach of this Agreement or a Project Agreement
issued under the terms of this Agreement. In the event either party defaults in
any obligation in this Agreement or Project Agreement, the other party shall
give written notice of such default, and, if the party in default has not cured
the default within thirty (30) days of the notice, the other party shall have
the right to terminate this Agreement.
26.3 Unless otherwise stated in a Project Agreement, this Agreement or any
particular Project Agreement may be terminated by CCN without cause with thirty
(30) days advance written notice to TriZetto.
26.4 Notwithstanding the foregoing or any provision of a Project Agreement to
the contrary, in the event that TriZetto, or TriZetto's parent company, if
applicable, is directly or indirectly acquired by or merged with, or assigns all
or substantially all of its assets to another entity without CCN's prior written
consent pursuant to Section 18 hereof, CCN shall have the option to immediately
terminate this Agreement and any or all Project Agreements executed hereunder
that are then effective subject to the wind-down provisions, if any, contained
in any such Project Agreements.
26.5 In the event of termination of this Agreement for any reason, CCN shall pay
TriZetto all accrued fees payable for Time and Materials Projects to TriZetto in
accordance for any Services rendered, and all approved expenses up to the
effective date of termination.
26.6 Unless otherwise stated in any Project Agreement, Project Agreements which
are deliverables based (i.e. any project which is NOT a Time and Materials
Project), which are uncompleted at the time the Agreement is terminated, shall
be partially paid based upon the amount of partial deliveries that have been
completed and are determined to be of value to and accepted by CCN.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 19 of 23
<PAGE> 21
May 4, 1999
26.7 Cancellation of a service requested by a Project Agreement to be performed
by TriZetto does not constitute termination of this Agreement.
26.8 Regardless of the reason for expiration or termination of this Agreement,
TriZetto will return to CCN all CCN Confidential Information in TriZetto's
possession promptly after notification of termination or upon CCN's request.
27. SURVIVAL.
Notwithstanding the provisions of Section 26 relating to Termination, Section 2
(Service Charges and Payment), Section 3 (Ownership of Work Product and Related
Materials), Section 5 (Limitation of Liability), Section 6 (Confidential
Information), Section 10 (Indemnity), Section 11 (Intellectual Property
Indemnity) Section 15 (Non-Solicitation of Employees), Section 17 (Publicity),
Section 18 (Warranties), Section 19 (Governing Law), Section 25 (Taxes), and
Section 28 (Dispute Resolution and Attorneys' Fees) survive the expiration or
termination of this Agreement (or any Schedule) for any reason.
28. DISPUTE RESOLUTION AND ATTORNEYS' FEES.
In the event of a dispute between the parties that cannot be resolved between
them, the parties shall submit their dispute to non-binding mediation prior to
initiating litigation. Selection of the mediator shall be by mutual agreement of
both parties. Each party shall bear their own costs and expenses of
participating in the mediation (including without limitation, attorneys' fees)
and each party shall bear one-half (1/2) of the costs and expenses of the
mediator. The matters discussed or revealed in the mediation session shall not
be revealed in any subsequent litigation, except as expressly provided in this
section. In the event the matter is not resolved in the mediation, suit may be
brought. In addition to recovering any damages or other relief awarded by the
court, the prevailing party may recover attorneys' fees, provided, however, any
award of attorneys' fees shall be limited as follows: (a) the award shall not
exceed the amount of monetary damages awarded to the prevailing party by the
court, and (b) no award shall be made if, prior to the initiation of the suit
(i.e., service of process upon the party-defendant), the party made an offer to
settle the dispute and the amount of monetary damages awarded in the court
proceeding was less than or equal to the settlement offer. Nothing in this
Section 23 shall be deemed to limit a party's access to the court system to
pursue a remedy which is limited to
Page 20 of 23
<PAGE> 22
May 4, 1999
injunctive relief.
29. BOOKS, RECORDS, AND COMPLIANCE.
29.1 Pursuant to the requirements of 42 CFR 420.300 et seq., TriZetto
agrees to make available to the Secretary of Health and Human Services ("HHS"),
the Comptroller General of the Government Accounting Office ("GAO") or their
authorized representatives, all contracts, books, documents and records relating
to the nature and extent of costs hereunder for a period of four (4) years after
the furnishing of Services hereunder for any and all Services furnished under
this Agreement. In addition, TriZetto hereby agrees to require by contract that
each subcontractor makes available to the HHS and GAO, or their authorized
representative, all contracts, books, documents and records relating to the
nature and extent of the costs thereunder for a period of four (4) years after
the furnishing of Services thereunder.
29.2 Unless this Agreement is exempted by the rules and regulations of
the Secretary of Labor issued pursuant to Section 204 of Executive Order 11246,
there is incorporated herein by reference paragraphs 1 through 7 of the contract
clause set forth in sections 202 of Executive Order 11246.
29.3 TriZetto shall, to the extent applicable, comply with the
provisions of the Immigration Reform and Control Act of 1996. Unless this
Agreement is exempted by the rules and regulation of the Secretary of Labor,
pursuant to Title 41 chapter 60 part 60-250 of the Code of Federal Regulations,
the affirmative action clause relating to an affirmative action for veterans
contained in 60-250.4(a) - (m) is incorporated by reference.
29.4 TriZetto agrees to comply at all times with the regulations issued
by the Department of Health and Human Services, published at 42 CFR 1001, and
which relate to TriZetto's obligation to report and disclose discounts, rebates
and other reductions to CCN for products purchased by CCN under this Agreement.
29.5 CCN shall have the right, at its expense, during normal business
hours and with reasonable advance notice, to review and photocopy TriZetto's
books and records that pertain
Page 21 of 23
<PAGE> 23
May 4, 1999
directly to the accounts of CCN, the fees payable to TriZetto under this
Agreement, or the goods and Services provided by TriZetto hereunder.
29.6 If TriZetto carries out the duties of this Agreement through a
subcontract worth $10,000 or more over a twelve month period with a related
organization, the subcontract will also contain a clause substantially identical
to the Sections 29.1, 29.2, 29.3, 29.4, and 29.5 to permit access by CCN, the
Secretary, the United States Comptroller General and their representatives to
the related organization's books and records.
29.7 CCN's rights under this Section shall survive for a period of four
(4) years after termination or expiration of this Agreement.
29.8 TriZetto represents and warrants that it has not been excluded
from participation in any Federal healthcare program as defined in 42 U.S.C.
Section 1320a-7b(f).
30. NOTICES.
Any notice or other communication given pursuant to this Agreement shall be in
writing and shall be effective or made (i) when delivered personally to the
party for whom intended, (ii) five (5) days following deposit of the same into
the United States mail (certified mail, return receipt requested, or first class
postage prepaid) to the address specified below, or (iii) two (2) business days
after delivery to an established national overnight delivery service (such as
Federal Express) when sent prepaid to the address specified below:
To CCN: CCN Managed Care, Inc.
5251 Viewridge Court
San Diego, CA 92123
Attn: Bob Neal
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, TN 37202
Attn: General Counsel
Page 22 of 23
<PAGE> 24
May 4, 1999
To TriZetto: The TriZetto Group, Inc.
567 San Nicolas Drive, Suite 360
Newport Beach, CA 92660
Attn:
Either party may designate a different address by notice to the other
given in accordance herewith.
31. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same document. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one such counterpart executed by the party
against whom enforcement of this Agreement is sought.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized representatives as of the date first set
forth above.
THE TRIZETTO GROUP CCN MANAGED CARE, INC.
By: /s/ Daniel J. Spirel By: /s/ RL Neal
-------------------------------- -------------------------------
Name: Daniel J. Spirel Name: Bob Neal
------------------------------ -----------------------------
Title: Vice President Title: Senior Vice President
---------------------------- Chief Information Officer
Date: 5/4/99 Date: 5/4/99
------------------------------ ------------------------------
Page 23 of 23
<PAGE> 25
The TriZetto Group
Exhibit A
1999 SMS Professional Services Rate Schedule
<TABLE>
<CAPTION>
Skill Code Skill Classification Day Hour
- ---------- -------------------- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
[*]
Hour
----
</TABLE>
[*]
Private and Confidential All Rates Subject to Change
The TriZetto Group, January 1999
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 10.14
[EPIC letterhead]
5301 Tokay Boulevard, Madison, WI 53711
STANDARD MULTI-DIRECTORY LICENSE AND
SUPPORT AGREEMENT
This Agreement is made between Epic Systems Corporation, a Wisconsin corporation
which is located at 5301 Tokay Boulevard, Madison, Wisconsin 53711 ("Epic"); and
the TriZetto Group, a Delaware corporation having its principal place of
business at 567 San Nicholas Drive, Ste. 360, Newport Beach, CA 92660 ("You").
Epic and You agree as follows:
1. DEFINITIONS
The definitions provided on Appendix A shall apply to this Agreement.
2. LICENSE
a. GENERAL. Epic hereby grants You a non-exclusive license to use
the Program Property during the term of this Agreement,
subject to the limitations set forth in the terms and
conditions of this Agreement and the Exhibits hereto.
b. LIMITATIONS. This license is limited as follows: (i) You are
licensed to use the licensed Program Property and third party
software in connection with the provisions of Service Bureau
Services only; (ii) You are not permitted to sell or grant
sublicenses; (iii) You will not permit Your Annual Volume to
exceed the Licensed Volume for any Item of Program Property
without first obtaining an upgraded license pursuant to
Section 6(c); (iv) You will not offer to sell or sell Service
Bureau Services which utilize the Program Property to entities
or organizations that employ, directly or indirectly, [*] or
more physicians without the express written consent of Epic;
and (v) You will use the Program Property in accordance with
other restrictions in this Agreement. The restriction in (iv)
above shall not apply to existing [*] who currently have
actual patient data processed utilizing the Program Property
and who become customers of Yours within [*] of the date of
this Agreement.
c. OWNERSHIP. The grant of this license does not confer on You
any right of ownership to any form of the Program
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-1-
<PAGE> 2
Property (whether Code or Documentation). All Program Property
remains the property of Epic.
d. SUBLICENSE FOR OPERATING ENVIRONMENT SOFTWARE. You agree to
obtain a sublicense to and the maintenance for the Operating
Environment software from [*] used in conjunction with the
Program Property through Epic at Epic's then standard fees for
such sublicense and maintenance. Epic believes that its
standard fees for such sublicenses and maintenance are
competitive with the fees for such sublicenses and maintenance
charged by [*]. The terms of the [*] attached hereto applies
and sets forth the terms of Your sublicense to the Operating
Environment Software. [*] prices are based on [*] being
licensed. The [*] may not be readily ascertainable until after
the installation process has begun. IF "TBD" is listed for the
[*] Operating Environment software on Exhibit 1(a), then the
number of [*] and associated license and maintenance fees will
be determined during the installation process and agreed to by
Change Order. To the extent legally possible, Epic will
transfer to You [*] issued by Epic and [*]. You will be
responsible for any charges associated with such transfers.
e. SUBLICENSE FOR OTHER THIRD PARTY SOFTWARE AND DATA. Except
where the price is specified as "TBD" on Exhibit 1(a), You are
granted a sublicense to the Other Third Party Software and
Data and You agree to pay the fees specified on Exhibit 1(a)
with respect to such items. The terms of the following addenda
attached hereto apply and set forth the terms of Your
sublicense to these items: for the [*] from [*]; for the [*]
software, the [*]; for the [*], the [*]; for the images from
the [*], the [*]; and for the [*], the [*]. Your use of the
Other Third Party Software and Data is also limited as set
forth on Exhibit 1(a) under "Additional Billing Information"
for each such item. In addition, Your license to use the Other
Third Party Software and Data is limited solely to use in
conjunction with Your licensed use of the Program Property. IF
"TBD" is listed for any of the Other Third Party Software and
Data, then such item may be added by Change Order during the
installation process. Once added, such item will be licensed
as if it were included under the Additional Billing
Information in Exhibit l(a) with the applicable fees and
limitations stated in the Change Order. If You are licensing
the [*] in this Agreement, You may obtain a license to future
versions and/or additional copies of the [*] by Change Order.
Once added, such item will be licensed as if it were included
under the Additional Billing Information in Exhibit 1(a) with
the applicable fees and limitations stated in the Change
Order. The licensing requirements for the [*] are subject to
change with future versions; such changes will be reflected in
the Change Order. [*]
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-2-
<PAGE> 3
[*]. You will be responsible for any charges associated with
such transfers.
f. ADDITION OF INTERFACES. The parties may determine that one or
more interfaces should be added as Program Property under this
Agreement. Interfaces may be added to this Agreement by an
amendment or by a Change Order executed by both parties. Upon
such execution, the specified interfaces will become Program
Property licensed under this Agreement with the additional
terms specified in the Change Order or amendment. [*]
3. DELIVERY
a. GENERAL. Items of Program Property listed an Exhibit 1(a) as
of the date of this Agreement are Items You are licensing
pursuant to a license [*]. These Items have been delivered to
You on the date of this Agreement. For any new Items of
Program Property, Epic will deliver the Code to You
substantially in accordance with the Implementation Schedule.
Epic will also deliver to You any Documentation published and
generally released by Epic to its customers for the Items of
Program Property licensed to You.
b. RESPONSIBILITY FOR SITE. You will be responsible for providing
proper hardware and establishing a suitable site for the
hardware, assuring proper operating methods and adequate
backup procedures, and implementing sufficient procedures and
checks to assure data security and accuracy in both input and
output and in the event of the need for restart or recovery
from malfunction.
c. VIRUSES AND TIME LOCKS. Except as provided in Section 4(g),
Epic agrees that Epic will not intentionally insert any
instructions, routines, devices key-locks, time-bombs or the
like into the Program Property to: (i) disrupt Your use of an
Item of Program Property, your network or Your other software
used with the Program Property or to which the Program
Property is linked; or (ii) destroy, damage or make data
inaccessible (except for file and purge routines necessary for
the routine functioning of the Program Property). Before
delivering any workstation Program Property to You, Epic will
first check the workstation Program Property code for viruses
using recently-released, commercially-available,
virus-detection software to the extent such software is
reasonably available to Epic. Epic believes there is currently
no software available for detecting viruses in [*]. Epic makes
no representations concerning viruses in any data or files
transmitted over the Internet, including, but not limited to
email and documents that are included as attachments to email.
4. INSTALLATION, TRAINING AND MARKETING
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-3-
<PAGE> 4
a. GENERAL. Epic will assist You in installing and implementing
the Program Property on Your Designated Platform and will
assist in training Your employees, all substantially in
accordance with the Implementation Schedule. The
Implementation Schedule will outline the expected schedule for
the implementation of the Program Property on Your Designated
Platform. You are responsible for many of the tasks that will
be outlined in the Implementation Schedule. Therefore, the
timing of Your actual implementation of the Program Property
may vary.
b. TRAINING. Standard training courses utilize test data, test
items, standard screens, and other mock parameters for
training, while customized courses utilize Your screens, a
subset of Your items and data, and other parameters more
similar to Your actual operations. Additional fees are
chargeable for preparation time for customized courses.
c. PROJECT MANAGER. In order to facilitate communication, You
will designate an individual to serve as project manager to
coordinate with Epic concerning installation and training
services.
d. RATES. Except as provided in Section 4(j), all installation,
implementation and training services provided by Epic to You
and Your Affiliates shall be at Epic's standard rate for such
services. Such rates are listed on Exhibit 4 and will not
increase during the [*] of this Agreement and will not be
increased more than once during each subsequent [*].
e. ACCESS TO SERVER. You will provide Epic with access to the
server(s) on which the Program Property is installed through a
dedicated, leased data circuit, ISDN line, or comparable
technology as agreed to by Epic, with a minimum guaranteed
bandwidth of at least 56 Kilobits per second between Epic and
You. The connection between Epic and the server(s) on which
the Program Property is installed will have a maximum latency
of 150 milliseconds. Collectively, the access technology
requirement and the connection requirement are the "Minimum
Access Requirements." Access may not be through analog modem
or the Internet, except that, if approved in advance in
writing by Epic, access may be accomplished through the use of
[*] which may utilize Internet infrastructure in the creation
of a secure connection. You will be responsible for all
necessary hardware and software and line costs on both ends,
including configuration. Epic may revise the Minimum Access
Requirements from time to time to ensure that access is still
adequate given changes in technology. Epic will notify You of
any such revisions to the Minimum Access Requirements. You
agree to upgrade the access technology and/or connection, at
Your sole cost, to meet the Minimum Access Requirements within
six (6) months of written notice from Epic to You of any such
change. You also grant to Epic the right of access to the
Program Property as reasonably needed by Epic for support and
to monitor and maintain efficient Program Property operations.
After the First Live Use of an Item of Program Property, it
shall be Your responsibility to grant access to Your server(s)
containing the Program Property or Your data
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-4-
<PAGE> 5
by Epic employees only as follows: Whenever access is
required, You will be responsible for verifying that the
applicable Epic employee may access Your server(s). Upon such
verification, You will provide the Epic employee with a
temporary password for use in accessing the server(s). After
consulting with Epic, You will reasonably determine the date
and time that the password will expire. In general, such
expiration should be scheduled to occur shortly after the
scheduled date and time of completion of the work requiring
such access.
f. OPERATING ENVIRONMENT, CHRONICLES AND SYSTEMS TRAINING AND
ASSISTANCE. Epic will provide You training and assistance
concerning the Operating Environment software and Epic's
Chronicles database system as provided in the Implementation
Schedule (including without limitation with respect to
journaling and typical backup procedures) at Epic's standard
hourly rate for such services. Such rates are listed on
Exhibit 4 and will not increase during the first [*] months of
this Agreement. Implementation and training assistance
concerning Your hardware and operating system should be
provided by the hardware and/or operating system vendor that
You select. Other training and assistance concerning Your
hardware and operating system or any assistance concerning
programming code developed by You to work in conjunction with
the Program Property or other services not directly related to
Epic's obligations hereunder will be provided as Epic
personnel are available at Epic's standard hourly rates for
such services. Such rates are listed on Exhibit 4 and will not
increase during the first twelve (12) months of this
Agreement.
g. [*]
h. [*]
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-5-
<PAGE> 6
(i) [*]
(ii) [*]
(iii) End User Training. The quality of training for
Affiliate End Users will play an important role in
the success of Your Affiliates' implementations.
Therefore, You and Epic agree that only Epic
certified trainers will be used to train Your Service
Bureau Affiliate End-Users.
i. MAINTAINING AN ACCEPTABLE CUSTOMER SATISFACTION RATING.
(i) General. You agree to maintain an "Acceptable
Customer Satisfaction Rating" for Your Service Bureau
Affiliates.
(ii) You will be considered to have maintained an
"Acceptable Customer Satisfaction Rating" if the
average of the Customer Satisfaction Ratings for Your
Service Bureau Affiliates is [*] or greater for each
twelve (12) month period commencing May 1.
(iii) Customer Satisfaction Rating. "Customer Satisfaction
Rating" means the average of the ratings by
representatives of Your Service Bureau Affiliates of
Your performance in marketing or providing services
to that Affiliate. Epic may provide customer
satisfaction surveys to representatives of Your
Service Bureau Affiliates. The surveys will measure
the Affiliates' satisfaction in various categories.
Responses to questions will be on the following
scale: [*]
(iv) You will have each of Your Service Bureau Affiliates
rate Your performance on the following schedule: [*]
after Date of First Live Use; [*] after Date of First
Live Use; and [*] after Date of First Live Use; and
[*] per year thereafter.
j. MARKETING ASSISTANCE. Epic will provide You with marketing
assistance, at Your expense, as set forth on Exhibit 4(j).
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-6-
<PAGE> 7
5. CUSTOMIZATION
a. GENERAL. You may request that Epic customize part of the
Program Property at any time more than three months after Your
First Live Use of the Program Property by using a Change
Order. Epic will furnish You with a written price quotation
for such customization on the Change Order. Your acceptance of
the Change Order within twenty (20) days will constitute an
agreement to pay the price specified therein. Payments for any
fixed-price customization will be [*]. Work on other
customizations will be invoiced as incurred.
b. RATES. Custom programming hourly rates will vary depending on
the services to be performed and the current rates are listed
on Exhibit 4 attached hereto. Such rates will not increase
during the first [*] of this Agreement and will not be
increased more than [*] during each subsequent [*]. Additional
charges apply for retrofits and rush Change Orders as
specified in the Change Order.
c. OWNERSHIP. Epic shall own all customized Code and customized
Documentation that Epic develops, and all copyrights, trade
secrets and other intellectual property rights with respect to
any customized Code or customized Documentation. [*]
d. WAIVER OF LICENSE FEE FOR [*] AND [*].
(i) [*]. If [*] is listed as an Item of Program Property
on Exhibit 1(a), the license fees for the [*] Item
are waived and You agree to provide to Epic and
Epic's [*] all report forms created using or for use
with [*] (except as provided below). Epic may make
such report formats available to any of its other
customers for their use either directly or through
the [*]. By licensing [*] and complying with this
provision, You will also have access to the reports
submitted by others to the [*] as they become
available. The [*] will be available on Epic's
customer website. You may designate report formats
that could give Your competitors a significant
competitive advantage as proprietary ("Proprietary
Report Formats") through a procedure to be determined
by Epic. You agree that no more than [*] of Your
total report formats will be so designated. Your
Proprietary Report Formats will not be distributed by
Epic except with [*]. Except as otherwise agreed by
Epic in writing, You hereby waive any copyrights,
trade secret rights and other proprietary rights that
You may have with respect to any Report Formats that
You provide to Epic (except those that You designate
as Proprietary Reports) and to any Report Formats
that You submit to the [*]. If You do not provide
Epic with the report formats as required by this
Section 6(d)(i), such failure shall be a breach of
this Agreement and the notice and cure periods
provided in Section 18(c) shall apply. The remedy for
such breach shall be that, upon written notice to
You, Epic may terminate Your access to the [*] and
reinstate the waived license fee for [*]. Such
reinstated fee shall
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-7-
<PAGE> 8
be due and payable by You to Epic immediately upon
such reinstatement. INITIAL HERE IF YOU AGREE TO THIS
FEE WAIVER PROVISION _________
(ii) [*]. If [*] is listed as an Item of Program Property
on Exhibit 1(a), the license fees for [*] are waived
and You agree to provide to Epic and [*] all [*]
created using or for use with the Program Property
(except as provided below). Epic may make such [*]
available to any of its other customers for their use
either directly or through the [*]. By licensing [*]
and complying with this provision, You will also have
access to the [*] submitted by others to the [*] as
it becomes available. The [*] will be available on
Epic's customer website. You may designate those
items of Your [*] that could give Your competitors a
significant competitive advantage as [*] through a
procedure to be determined by Epic. You agree that no
more than [*] will be so designated. Your [*] will
not be distributed by Epic except with Your [*] and
You are not required to submit it to the [*]. Except
as otherwise agreed by Epic in writing, You hereby
waive any copyrights, trade secret rights and other
proprietary rights that You may have with respect to
any [*] that You provide to Epic (except those that
You designate as Proprietary Reports) and to any [*]
that You submit to the [*]. If You do not provide
Epic with the [*] as required by this Section
6(b)(ii), such failure shall be a material breach of
this Agreement and the notice and cure periods
provided in Section 18(c) shall apply. However, the
remedy for such breach shall be that, upon written
notice to You, Epic may terminate Your access to the
[*] and reinstate the waived license fee for the [*].
Such reinstated fee shall be due and payable by You
to Epic immediately upon such reinstatement. INITIAL
HERE IF YOU AGREE TO THIS FEE WAIVER PROVISION
_________
(iii) DISCLAIMER AND WAIVER. YOU UNDERSTAND THAT REPORT
FORMATS, [*] AND ANY OTHER DATA, SOFTWARE OR OTHER
ITEMS MADE AVAILABLE THROUGH THE [*] ARE PROVIDED ON
AN "AS IS" BASIS, WITHOUT ANY WARRANTY OF ANY KIND
FROM EPIC OR ANY OTHER PARTY AND EPIC AND ALL
AUTHORS, CREATORS, DISTRIBUTORS AND OTHERS ASSOCIATED
IN ANY WAY WITH SUCH REPORT FORMATS, [*], DATA,
SOFTWARE OR OTHER ITEMS HEREBY DISCLAIM ANY
WARRANTIES WITH RESPECT THERETO, INCLUDING WITHOUT
LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. YOU HEREBY AGREE TO
WAIVE ANY CLAIMS YOU MAY HAVE AGAINST EPIC OR ANY
AUTHORS, CREATORS, DISTRIBUTORS OR OTHERS ASSOCIATED
WITH SUCH REPORT FORMATS, [*], DATA, SOFTWARE OR
OTHER ITEMS WITH RESPECT THERETO
e. RETROFITS. Customized Code will normally be made available to
You through Epic's standard Update release process unless
otherwise agreed to on the Change Order. Retrofits are
available only to the then current standard version of the
Program Property upon Epic's consent in the Change Order.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-8-
<PAGE> 9
6. PAYMENTS
a. SCHEDULE. For the license rights to the Program Property, You
will pay Epic the Total License Fee as described in Sections
6(b) through 6(i) inclusive, when you enter into this
Agreement.
b. LARGE CLINIC LICENSE FEE.
(i) General. You acknowledge and agree that the customers
that You intend to provide Service Bureau Services to
are ambulatory care clinics which employ fewer than
[*] ("Large Clinic").
(ii) Large Clinic Fee. As provided in Section 2(b)(ii)
above, You agree that you will not offer to sell or
sell Service Bureau Services that utilize the Program
Property to any customer which employs [*] without
the [*]. Should [*] agree to pay Epic a [*] to be
agreed to in advance by Epic and This provision shall
not apply to existing MedPartners Affiliates who
currently have actual patient data processed using
the Program Property and who become customers of
Yours.
c. INCREASING THE LICENSED VOLUME. Exhibit 1(a) limits Your use
of each Item of Program Property to the Licensed Volume. If
You wish to increase the Licensed Volume, You should notify
Epic. This increase will become effective upon receipt of Your
payment of the additional license fee due for the greater
Licensed Volume. [*]
d. FEE FOR ADDITIONAL DIRECTORIES. [*].
e. THIRD PARTY LICENSE FEES. [*].
f. OUT-OF-POCKET EXPENSES. All travel, telephone for computer
connections, messenger and shipping costs, media charges,
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-9-
<PAGE> 10
and other out-of-pocket expenses sustained by Epic for
installation, maintenance, error-correction, consultation, or
instructions in the Program Property will be billed to You
separately as incurred, with payment due upon receipt of
invoice. Travel shall not be initiated by Epic without Your
prior written approval.
g. PAYMENT DATE; INTEREST. You will pay all funds due to Epic by
the later of: (i) 45 days after the invoice date; (ii) the
payment date specified in the invoice; or (iii) the date such
payment is due as otherwise specified in this Agreement. If
You owe Epic any balance after the date specified in the
preceding sentence, then such balance will accrue interest
until paid at the rate of the lesser of one percent (1%) per
month or the maximum rate allowed by law. All payments shall
be applied first to accrued and unpaid interest charges and
then to other amounts due to Epic under this Agreement, as
determined in Epic's sole discretion. You agree that if any
amounts that You owe to Epic remain unpaid more than sixty
(60) days after such amounts are due to Epic, Epic may, in its
sole discretion and with written notice to You, suspend the
performance of Epic's installation, training, customization
and/or maintenance services under this Agreement until such
amounts are paid in full. In addition, if You fail to make any
payment specified in this Agreement when due, You will have
Materially Breached this Agreement if such payment remains
unpaid for a period of sixty (60) days or more after written
notice of default from Epic to You.
h. PAYMENTS BEFORE FIRST LIVE USE. You agree that You will begin
First Live Use of each Item only if at such time there are no
amounts due to Epic under this Agreement that are unpaid and
You agree that Epic will not enable an Item of Program
Property for live, production use by You if You are not
current with Your payments to Epic.
i. MAINTENANCE FEE. [*]
7. MAINTENANCE
a. GENERAL. [*] The Maintenance Program has three components:
(1) Epic will provide You with consultation and assistance
concerning the Program Property by telephone as specified in
Section 7(b); (2) Epic will provide You with Updates as
provided in Section 7(c); and (3) Epic will use its best
efforts to correct any errors or defects in the Program
Property as provided in Section 7(d). [*]
b. CONSULTATION AND ASSISTANCE. Epic will provide consultation
and assistance to You by telephone concerning the operation of
the Program Property. Such consultation and assistance will be
available during and after Epic's
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-10-
<PAGE> 11
regular business hours (24 hours per day, 7 days per week) as
provided in Exhibit 7 hereto.
c. UPDATES. Epic will make all Updates available to You. You are
responsible for the installation of all Updates.
d. ERROR CORRECTION.
(i) Epic will use its best efforts to correct or provide
a Reasonable Workaround for any Program Error. Epic
will use reasonable efforts to respond to requests
concerning error correction during the Maintenance
Program within the periods set forth in Exhibit 8.
(ii) Epic's responsibility with respect to any Non-Program
Property Error shall be limited to providing
assistance and advice to enable You to determine
appropriate remedial action to be taken by You or
others. Epic shall charge You for any associated
consulting time for any Non-Program Property Error at
Epic's rates listed in Exhibit 4 attached hereto.
Such rates will not increase during the first twelve
(12) months of this Agreement and will not be
increased more than once during each subsequent
twelve (12) month period.
e. MAINTENANCE REQUESTS. You will perform first line consultation
and assistance to Your Affiliates concerning the operation of
the Program Property. You will, from time to time during the
term hereof, designate one or more of Your employees, who
shall be trained, knowledgeable, and Certified by Epic in the
Program Property, to be responsible for contacting Epic
concerning requests for service under the Maintenance Program.
From time to time You may designate additional or replacement
employees for this purpose. Epic may charge You at its then
standard rates for any direct requests for Maintenance
Program services that are not made through these designated
employees.
f. MAINTENANCE PROGRAM.
(i) General. By execution of this Agreement, You have
also contracted for the Maintenance Program for each
Item of Program Property currently in use to process
actual patient data for production purposes. For
Items of Program Property included on Exhibit 1(a) as
of the date of this Agreement, the Maintenance
Program begins on the date of this Agreement. Epic
acknowledges that not all items in Exhibit 1(a) are
in use to process actual patient data for production
purposes, and that during the first year of this
Agreement, the Items of Program Property subject to
the Maintenance Program will be adjusted quarterly,
upward or downward, to reflect the actual level of
usage of Each Item of Program Property by You. You
will provide Epic with reports regarding Your actual
level of use of Program Property each quarter. If
Your actual level of usage of any Licensed Volume of
any Item of Program Property drops below your highest
level of usage of that Item of Program Property, the
difference in volume shall be considered as [*].
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-11-
<PAGE> 12
[*]
For Items of Program Property subsequently licensed
under this Agreement, the Maintenance Program for
such Item commences at the end of the Warranty Period
for that Item. [*]
(ii) [*]
(iii) Staying Current.
A. You will install and use: (1) the Current
Version of each Item of Program Property;
(2) the most current version of the
operating system supported by such version
for Your Designated Platform, and (3) the
most current version of the [*] software,
the SQL Module and, if applicable, the most
current version of the [*] Software and the
[*] supported by such version of the Program
Property for Your Designated Platform, all
subject to a transition period of [*] the
release of the newer version to You, and in
the case of Program Property set forth in
Exhibit l(a), no less than a [*] transition
period will be allowed for the Program
Property version currently being used to
process actual patient data, regardless of
version. If You are using the Superseded
Version of any Item of Program Property
during the [*] transition period, Epic's
obligations under this Section 7 concerning
the correction of any errors or defects in
the Superseded Version shall be limited
solely to the minimal maintenance necessary
to keep the Superseded Version operating in
the same manner that it had prior to the
release of the Current Version. Once the
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-12-
<PAGE> 13
Current Version is released to You, Epic
will not provide any customization services
with respect to the Superseded Version. If
You do not remain current within the
transition periods as described above, you
have Materially Breached this Agreement.
B. If You are more than 90 days delinquent on
any payment due to Epic, You agree that Epic
may, in its sole discretion, suspend its
performance of the maintenance services set
forth in Sections 7(a) - (d) until such time
as You have become current in Your payments
to Epic.
(v) Epic agrees that it will make the Maintenance Program
available for all Items of Program Property for at
least five years after the date of this Agreement.
Thereafter, Epic may terminate the Maintenance
Program for any Item a by providing You with notice
of such termination at least one year prior to the
effective date of the termination.
(vi) [*]
g. THIRD PARTY SOFTWARE MAINTENANCE. The maintenance programs for
the [*] software, the [*] module and the [*] software begin
[*] after delivery of such software to You. The maintenance
programs for the [*] software and the [*] software and data
begin when You first begin the Maintenance Program for any
Program Property. You will contact Epic with respect to any
consultation or assistance requests relating to any of this
third-party software. During the maintenance period for any
of this third-party software, Epic will respond to such
inquiries by either consulting with and assisting You
directly, if possible, or by contacting the owners/publishers
of the applicable third party software to obtain any
additional consultation or assistance that is necessary. You
must participate in the software maintenance programs for all
of this software during any period that You are participating
in the Maintenance Program.
8. WARRANTY
a. GENERAL. THERE IS NO WARRANTY FOR ITEMS OF PROGRAM PROPERTY
THAT ARE SET FORTH ON EXHIBIT 1(a) AS OF THE DATE OF THIS
AGREEMENT BECAUSE THE WARRANTY PERIOD FOR SUCH ITEMS OCCURRED
DURING THE TERM OF THE MEDPARTNERS' LICENSE AND HAS NOW
EXPIRED. For Items of Program Property subsequently licensed
under this Agreement, Epic warrants that if, during the
Warranty Period, You notify Epic (in the manner specified in
Section 20) that an Item of Program Property contains a
Substantive Program Error, and such notice specifically refers
to this Section and describes each Substantive Program Error,
then Epic will either correct such Substantive Program Error
or provide a Reasonable Workaround for such Substantive
Program Error as provided in Section 8(b). Epic also will use
its best efforts to correct
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-13-
<PAGE> 14
any Program Errors other than Substantive Program Errors that
You report to Epic during the Warranty Period.
b. CURE PERIODS. Epic shall have an initial cure period of
forty-five days after the end of the Warranty Period, if any,
to correct or provide a Reasonable Workaround for any
Substantive Program Error that is properly and timely reported
to Epic. You shall have until [*] after the [*] period to
notify Epic of either: (i) any remaining Substantive Program
Errors in such Item which You properly and timely reported to
Epic; or (ii) any new Substantive Program Errors in such Item
arising out of a correction or Reasonable Workaround completed
during the [*] period. Such notice shall be provided in the
manner specified in Section 20, shall specifically refer to
this Section and shall describe each Substantive Program
Error. Epic shall then have an additional cure period of [*]
after such notification to correct or provide a Reasonable
Workaround for any Substantive Program Errors.
c. RESPONSES TO WARRANTY SERVICE REQUESTS. Epic will use
reasonable efforts to respond to requests for warranty service
within the periods set forth in Exhibit 8.
d. CUSTOMIZED CODE. If You select the fixed price and warranty
option on the applicable Change Order, Epic also provides a
warranty with respect to Substantive Program Errors in
customized code provided under that Change Order. Such
warranty shall have the same provisions as Sections 8(a) and
8(b), except that the warranty period shall be the thirty-day
period after delivery of such customized code to You.
e. ACKNOWLEDGMENT. You acknowledge that the Program Property was
designed to operate in a certain manner to produce a defined
result as described in the Documentation for the Program
Property and if You would like the Program Property to operate
in a different manner or to achieve a different result, such
differences do not represent Program Errors or design defects.
You understand that Epic does not warrant that the Program
Property is free from error, or that the Program Property will
always run in an uninterrupted fashion, and that, due to the
complex nature of computer software, certain errors may be
virtually impossible to reproduce or correct.
f. CORRECTION OF PROGRAM ERRORS AFTER WARRANTY PERIOD. After the
Warranty Period or if there is no Warranty Period for an Item
(i.e., for those Items of Program Property set forth on
Exhibit l(a) as of the date of this Agreement) the correction
of Program Errors (other than those for which You properly and
timely notified Epic pursuant to Sections 8(a) and (b)) will
be governed by the terms of the Maintenance Program as
provided in Section 7 rather than the warranty specified in
this Section 8.
g. LIMITATIONS. In no event shall Epic bear any responsibility
for any errors or damages caused by or resulting from defects
in the hardware, input errors, changes to the Program Property
made by You, or combinations of the Program Property with
software not provided by Epic. Any modifications of the
Program Property by anyone other than Epic shall relieve Epic
of any and all obligations under this Section 8.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-14-
<PAGE> 15
h. EXCLUSIVE REMEDY. Your sole and exclusive remedy for a breach
of any warranty under Sections 8(a), (b) and (d) or for a
rejection under Section 9(b) in which the Substantive Program
Error has not been cured shall be to terminate Your license to
that Item (or that customized Code) by so notifying Epic in
the manner provided in Section 20 within thirty days after the
last cure period for that Item. Upon such termination, You
will receive a refund of the entire license fee You paid to
Epic with respect to such Item.
i. YEAR 2000 WARRANTY. Epic hereby warrants that the Program
Property licensed under the Agreement will process dates and
date-related data without any material error arising from the
transition to the year 2000 or the use of dates beyond
December 31, 1999, provided that the dates or date-related
data are properly entered by You and Your end users in
accordance with Documentation provided by Epic ("Year 2000
Program Error"). For such purposes, processing of data means
any calculating, comparing or sequencing of dates or
date-related data (including but not limited to date data
century recognition, calculations that accommodate same
century and multi-century formulas and date values) to the
extent the Program Property can perform such operations with
the applicable dates or date-related data for other dates
prior to January 1, 2000. You will notify Epic in writing as
provided in Section 20 of the Agreement concerning any Year
2000 Program Error and will specifically refer to this Section
8(i) of this Amendment or state that You are making a Year
2000 warranty claim. Epic shall have a cure period of thirty
(30) days after the receipt of the notice from You to correct
any reported Year 2000 Program Errors for which it has been
properly notified. If You have made any changes to the source
Code of the Program Property, Epic shall have no obligation to
retrofit any release that corrects a Year 2000 Program Error
to work with such changes. The warranty provided under this
Section 8(i) shall expire on January 1, 2001.
j. NO OTHER WARRANTY. THE ABOVE EXPRESS LIMITED WARRANTY IS
EXCLUSIVE AND ANY AND ALL OTHER WARRANTIES, WHETHER EXPRESSED
OR IMPLIED, ARE HEREBY DISCLAIMED, INCLUDING WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. You
acknowledge that no employee of Epic or any other party is
authorized to make any representations or warranty not in this
Agreement.
9. TESTING AND ACCEPTANCE
a. GENERAL. As is the case with very complex computer software,
the Program Property is likely to contain some errors. Both
Epic and You must test for errors both in the Program Property
as delivered and in any Updates. You are responsible for all
final testing of the Program Property, including any
customized Code. You should also instruct Your employees and
End Users using the Program Property to be vigilant in
identifying Program Errors and in reporting any Program Errors
detected to Epic both during the Warranty Period and
thereafter. Any procedures, rules or guidelines for medical
treatment incorporated into or provided with EpicCare or any
other Items of the Program
-15-
<PAGE> 16
Property are provided as examples only, and You must test and
validate that any such procedures, rules, or guidelines are
both medically correct and in accordance with Your
requirements and procedures.
b. REJECTION. Except for Items of Program Property set forth on
Exhibit 1(a) as of the date of this Agreement (which are
irrevocably accepted by You on the date of this Agreement),
You may reject any Item of Program Property, but only if it
contains a Substantive Program Error, by giving Epic explicit
written notice of such rejection before the earlier of the end
of the Warranty Period for that Item of Program Property or
fifteen months after the date the Code for that Item is
delivered to You. Any notice of rejection must be provided to
Epic in accordance with Section 20, contain a specific
reference to this Section 9(b), and describe each Substantive
Program Error for which You are rejecting the Program
Property. The same cure periods specified in Section 8(b)
shall also apply to a cure under this Section 9(b); however,
notice of a Substantive Program Error shall constitute a
rejection only if the notice specifically states that it is a
rejection and refers to this Section 9(b). If an Item of
Program Property is properly rejected and the Substantive
Program Error is not cured within the applicable cure periods,
then You shall have the remedy specified in Section 8(h) for a
refund of Your license fee. If an Item of Program Property is
not properly and timely rejected as specified in this Section
9(b), then that Item of Program Property shall be deemed to
have been irrevocably accepted by You. Upon actual or deemed
acceptance of an Item of Program Property, Epic shall continue
to provide maintenance services with respect to any Program
Errors as provided in Section 7 during the term of the
Maintenance Program.
10. LIMITATIONS OF LIABILITY
a. GENERAL. YOU AGREE THAT NEITHER PARTY WILL BE LIABLE TO THE
OTHER FOR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OR
LOST PROFITS OR REVENUES RESULTING FROM OR IN ANY WAY RELATED
TO THIS AGREEMENT, ANY BREACH OR TERMINATION OF THIS AGREEMENT
OR OPERATION OF THE PROGRAM PROPERTY, INCLUDING CLAIMS BASED
ON THE NEGLIGENCE OR BREACH OF WARRANTY OF EPIC, OR EITHER
PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER, WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY HEREIN. UNDER NO CIRCUMSTANCES SHALL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY REASON FOR ANY AMOUNT IN
EXCESS OF THE AGGREGATE LICENSE FEES AND TRANSFER FEES PAID BY
YOU TO EPIC HEREUNDER PRIOR TO THE DATE OF THE CLAIM.
b. FORCE MAJEURE. No liability shall result to You or Epic from
delay in performance or nonperformance caused by circumstances
beyond the reasonable control of You or Epic
-16-
<PAGE> 17
including, but not limited to, acts of God, fire, war,
embargo, any law or governmental regulations or labor dispute,
and the period of performance shall be deemed extended to
reflect such delay as agreed upon by the parties hereto.
c. TIMING OF ACTIONS. You shall not commence any action before an
arbitrator or arbitrators (if this Agreement provides for
arbitration) or in a court of law regarding or in any way
related to any Item of the Program Property more than [*] from
the date of First Live Use of that Item of the Program
Property. The immediately preceding sentence does not apply to
disputes involving the Maintenance Program or other continuing
services by Epic or to claims brought under Section 16(a). The
initial [*] limitation does not apply to any Update,
customization or other new Code that is subsequently added to
the Program Property; instead, a new [*] limitation period
shall apply to such new Code beginning on the date of First
Live Use of such Update, customization or other new Code.
11. CERTAIN LICENSEE COVENANTS
a. GENERAL. You will not, and will not permit Your employees or
agents, or any other person or party, to do any of the
following:
(i) Copy or duplicate by any means the Program Property
or any part thereof, except as follows: (1) You may
create additional Directories by notifying Epic and
paying additional fees as provided in Section 6(d),
Exhibit 1(b) and the definition of Directory in
Appendix A; (2) You may make copies of the Code to
the extent such copies are required for backup,
recovery, or system redundancy to ensure availability
of the system to You; (3) You may copy Workstation
Code onto any number of Your workstations for
authorized End-Users; and (4) You may modify and
reproduce the Documentation and disseminate the
Documentation to authorized End-Users of the Program
Property to the extent appropriate;
(ii) Reverse engineer any of the Program Property or any
part thereof,
(iii) Use the Program Property or any part thereof, other
than the Workstation Code, on any computer other than
the Designated Platform except for disaster recovery,
except with Epic's prior written consent; or
(iv) Remove the Epic copyright notice screen from any copy
of the Program Property or otherwise modify the
Program Property so that Epic's copyright notice is
not displayed to each user upon logon.
b. COPYRIGHT NOTICE ON PERMITTED COPIES. To the extent reasonably
practical, You further agree to affix and maintain the
copyright notice of Epic and on all permitted backup or
multiple use copies made of the Program Property.
c. TRADE SECRETS. You understand and agree that Epic's Program
Property contains trade secrets of Epic protected by operation
of law and this Agreement. Consistent with that understanding
and to protect the rights of Epic, You will, subject to the
provisions of Section 14,
(i) Maintain in confidence any information You acquire as
to the functioning or operation of the Program
Property,
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-17-
<PAGE> 18
and will only use such information to carry out the
purposes of this Agreement;
(ii) Limit access to the Program Property to those of Your
employees, other End-Users, and Service Bureau
Clients who must have access to the Program Property
in order to make proper use of the same in connection
with Your operations;
(iii) Store all copies of the Program Property in a secure
place;
(iv) Either: (1) require any person given access to the
Program Property to execute a written agreement
(which may be Your standard employee agreement if it
applies these protections to the Program Property)
requiring non-disclosure of Epic's trade secrets in
the Program Property, and limiting the use of such
information to uses within the scope of the
employee's duties; or (2) inform all of such persons
that You are obligated to keep Epic's trade secrets
in the Program Property confidential and that it is
Your policy to keep all such information
confidential.
(v) You will notify Epic promptly and fully in writing of
any person, corporation or other entity that You know
has copied or obtained possession of or access to any
of the Program Property without authorization from
Epic.
Notwithstanding the foregoing, nothing in this Section 11c
shall be construed as preventing You from providing Service
Bureau Services for Your Customers using the Program Property
and Documentation licensed under this Agreement.
d. COVENANTS ESSENTIAL TO AGREEMENT. You agree and understand
that the covenants of Section 11 are essential to the
Agreement and that violation of any part of this Section is a
material breach of the Agreement.
12. YOUR CONFIDENTIAL INFORMATION
Epic will not disclose to any individual, entity, or other third party
any of Your Confidential Information, except: (a) as required by law or
court order; as confirmed by written opinion of Epic's legal counsel,
or (b) with Your prior written consent.
13. RESTRICTIONS ON TRANSFER
a. GENERAL. During the first 18 months of this Agreement You will
not assign, transfer, sublicense or timeshare this Agreement
or any licenses granted hereunder to or with any third party,
including Your parent, subsidiary, or affiliate, if any.
Thereafter, You may not assign, transfer, sublicense or
timeshare this Agreement or any licenses granted hereunder to
any third party, except that with the prior written approval
of Epic, which approval shall not be unreasonably withheld,
You may assign and/or transfer this Agreement in its entirety
to a third party in conjunction with the transfer by sale or
merger of substantially all of Your Assets to a successor
organization if the successor organization accepts in writing
an assignment of this Agreement and agrees to be bound by all
of its terms and conditions. For example purposes only, both
Parties agree that it would be "reasonable" for Epic to not
permit assignment of this Agreement to a competitor of Epic or
to an entity in poor financial condition or an entity with a
poor reputation in the industry. Nothing in this
-18-
<PAGE> 19
Section 13(a) shall be construed as preventing You from
providing Service Bureau Services for Your customers using the
Epic Software and Documentation licensed under this Agreement.
b. ASSIGNMENT BY EPIC. Epic may, upon giving You prior written
notice, assign some or all of its rights and obligations under
this Agreement to any Affiliated Company. Epic also may, upon
giving You prior written notice, assign all of its rights and
obligations under this Agreement pursuant to a complete
assignment in conjunction with the transfer by sale or merger
of substantially all of Epic's assets to a successor
organization if the successor organization accepts in writing
an assignment of this Agreement and agrees to be bound by all
of its terms. In either event, Epic will remain liable for
Epic's obligations under this Agreement if the Affiliated
Company or successor organization fails to satisfy such
obligations.
14. USE OF PROGRAM PROPERTY BY AFFILIATES
a. GENERAL. You may provide any Affiliate with access to and the
right to use the Program Property, subject to the following
terms and conditions:
(i) To preserve Epic's trade secrets from competitors,
You and Your Affiliates will not knowingly allow
access to any individual or entity outside of Your
company, which licenses or sells software Service
Bureau Services to health care facilities (or any
other potential competitor of Epic) without Epic's
prior written consent.
(ii) You will provide access to Affiliates, including
employees, only to the extent such access is
consistent with the requirements of Section
11(c)(ii).
(iii) You will grant access to a non-employee Affiliate
only as an end-user. You will not give any
non-employee Affiliate access to any source or object
code of the Program Property other than Workstation
Code.
(iv) Any rights of End Users will be subject to all of the
restrictions, limitations and conditions provided in
this Agreement. You will have the same responsibility
to Epic for the actions and omissions of any End User
as You would have if they were Your actions or
omissions.
b. (i) For purposes of construing the terms and conditions
imposed by this Agreement, all End-Users shall be
[*]. For example, but without limitation: (1) all
Volume with regard to You or any End User shall be
[*]; (2) no additional copies of the Program
Property shall be provided to any End Users (except
applicable to Workstation Code); (3) all
maintenance, training, installation, support,
requests for customization and the like will be
conducted through the responsible employees
designated by You to contact Epic; and (4) You will
be responsible for all payments to be made to Epic
with regard to the activities of any End User,
including without limitation any increases in
license fees or maintenance fees attributable to the
End User's Volume and any services provided by Epic
directly or indirectly to any End User.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-19-
<PAGE> 20
(ii) Except as specifically provided herein, any
termination of this Agreement or any license granted
in this Agreement shall also terminate the
corresponding rights of any End User.
c. USE OF EXHIBIT 1(a) LICENSES
The Volumes of Program Property licensed hereunder and listed
in Exhibit 1(a) can be used to provide Service Bureau Services
to the following customers:
(i) Current MedPartner Affiliates wherever located;
(ii) Any other customer as long as You [*]. In such
circumstance at least [*] of the Annual Patient
Visits for such customer must be purchased from Epic
pursuant to Section 6(c) above.
15. TRADE-IN
a. CHANGE IN DESIGNATED PLATFORM WITH [*]. If You elect to change
the Designated Platform to a new processor that is (i) [*] and
(ii) [*], then You may transfer the Program Property to the
new processor without charge if You provide at least thirty
(30) days written notice to Epic prior to the transfer.
b. CHANGE IN DESIGNATED PLATFORM [*]. If You elect to change the
Designated Platform processor manufacturer or operating system
or the publisher of the Operating Environment software, [*],
then Epic will license such product to You without an
additional license fee.
c. CONVERSION ASSISTANCE. You will pay Epic for any time spent by
Epic personnel in connection with any implementation,
consultation or conversion associated with any change of
processor, operating system or Operating Environment software
publisher, all at Epic's then standard hourly rates.
16. INDEMNIFICATIONS
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-20-
<PAGE> 21
a. INTELLECTUAL PROPERTY INDEMNIFICATION. Epic agrees to defend
or settle, and to indemnify and to hold Your Indemnitees
harmless from, any Claim brought against any of Your
Indemnitees to the extent that: (1) it is based on a Claim of
infringement of any U.S. copyright; (2) it is based in whole
on all or part of the Program Property in the form supplied to
You by Epic; and (3) Your Indemnitees promptly notify Epic in
writing of the Claim, promptly provide Epic with the
information reasonably required for the defense of the same,
and grant to Epic exclusive control over its defense and
settlement. If such a Claim is brought by a third party, Epic
may, at its sole option and expense, either:
(i) procure the right for You to continue to use the
infringing Item Program Property;
(ii) modify or replace the infringing Item of Program
Property or such portion thereof as is appropriate as
long as such modified or replaced software has
substantially similar or better capabilities;
or if Epic determines that neither of the foregoing is
commercially practicable,
(iii) terminate Your license to the infringing Item of
Program Property. Upon such termination and the
return of such Item to Epic, Epic will repay to You
the license fee You paid to Epic for such Item less
depreciation calculated on a straight line basis over
a ten year period from the date of execution of this
Agreement.
This Section 16(a) states the entire liability and obligation
of Epic to Your Indemnities with respect to infringement of
any intellectual property rights.
b. INDEMNIFICATION IF EPICCARE LICENSED. If EpicCare is licensed
under the terms of this Agreement, then You agree to defend or
settle, and to indemnify and to hold the Epic Indemnitees
harmless from, any Claim by or on behalf of any [*], or by or
on behalf of any other third party or person claiming damage
by virtue of a familial or financial relationship with such a
patient, which is brought against any [*], including Claims
based on [*], which may arise out of the operation of the
copies of the Program Property licensed to You under this
Agreement, if the claim is not of the type covered by Section
16(a). The preceding sentence does not apply to the payment of
damages for claims in which the court finds that the injury at
issue was caused solely as a result of [*].
17. TAXES
All taxes arising out of the license or use of the Program Property,
including sales taxes, use taxes, personal property taxes, including
any assessments or taxes imposed by foreign governments, but excluding
any taxes on Epic's income, shall be Your responsibility. If Epic is
required to pay any such taxes or penalties or interest relating
thereto, You shall promptly pay to Epic an amount equal to any such
amounts actually paid or required to be collected or paid by Epic. If
You are exempt from paying applicable sales or use taxes, then Your tax
exemption number(s) for all relevant jurisdictions is (are):
_____________________________________________. If You are not exempt
from paying applicable sales or use taxes, then Your sales/use tax
identification number(s) for all relevant
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-21-
<PAGE> 22
jurisdictions (are) [to be provided]______________________________
_________________________________.
18. TERM AND TERMINATION
a. GENERAL. The Initial Term of this Agreement will be for a
three (3) year period commencing on May 1, 1999 and ending on
April 30, 2002. If You (i) are not in default under any
provision of the Agreement or (ii) are not in Material Breach
of the Agreement, the Agreement will automatically renew for
additional one (1) year terms unless written notice of Intent
Not to Renew is given by one party to the other party at least
one hundred fifty (150) days prior to the end of the then
current term. There is no limit on the number of times this
Agreement may be renewed.
b. EFFECT OF TERMINATION OF AGREEMENT. Upon termination of this
Agreement for any reason and by any party, all rights and
licenses granted to use the Program Property or to offer to
sell or sell Service Bureau Services that utilize the Program
Property, or to use any other Epic intellectual property, such
as the Epic name, Epic Logos, Epic Trademark and/or Service
Marks for any purpose shall terminate. However, You may
continue to provide then existing customers with Service
Bureau services that utilize the Program Property to the same
extent provided on the date of termination of this Agreement.
c. TERMINATION UPON BANKRUPTCY, INSOLVENCY AND THE LIKE. Subject
to applicable bankruptcy and insolvency laws, if either party
(i) ceases the active conduct of business; (ii) becomes
subject to any bankruptcy or insolvency proceeding under
federal or state statute; (iii) becomes insolvent or subject
to direct control by a trustee, receiver, or similar
authority; or (iv) has wound up or liquidated its business,
voluntarily or otherwise, the other party may, at its sole
option, terminate this Agreement immediately.
d. TERMINATION UPON MATERIAL BREACH; CURE PERIODS. This Agreement
may not be terminated upon a Material Breach of this Agreement
unless the other party (the "Notifying Party") first provides
written notice of such breach to the first party (the "Curing
Party") as provided herein and the breach has not been cured
within sixty (60) days after the Curing Party receives such
notice. The notice shall be provided in the manner specified
in Section 20, shall reference this Section 18(d), and shall
describe each Material Breach of the Agreement in sufficient
detail to permit the Curing Party to cure the breach. Neither
party may claim a Material Breach of this Agreement until the
foregoing periods have expired. Termination and cure periods
with respect to the provisions of Sections 8 and 9 shall be
covered under such Sections and not under this Section 18(e).
e. EFFECT OF TERMINATION. If this Agreement or the license to any
Item of Program Property is terminated for any reason, then
You will return all copies of the Program Property (including
the Code and the Documentation) to Epic, or destroy such
copies and certify to Epic that such actions have occurred,
within thirty (30) days of the effective date of termination
or termination of providing Service Bureau Services utilizing
Program Property to Your then existing
-22-
<PAGE> 23
customers, whichever occurs first. In the event of termination
of this Agreement for any reason, You shall remain liable to
Epic for all fees and service charges accrued prior to such
termination.
f. SURVIVAL. The provisions of Sections 6, 8(g), (h) and (j),
10-14, 16, 17, 18, 19 and 21 shall survive termination or
expiration of this Agreement.
19. SOURCE CODE
a. DELIVERY AND USE. Epic will provide You with a complete copy
of the source Code for all of the Program Property. You agree
that You will use the source Code only for Your internal
maintenance of the Program. Notwithstanding any other
provisions of this Agreement, if You make changes to the
source Code, then all of Epic's warranty, support, and
maintenance obligations shall cease. You agree that You will
not modify the source Code in any way that will affect the
Program Property's ability to count Your Volume or the
accuracy of such counts.
b. UNLICENSED SOFTWARE. Epic's various items of software are
integrated for the benefit of Epic's customers. For Your and
Epic's convenience, Epic may provide You with object and/or
source code for items of software that are not licensed under
this Agreement. In such event, Epic will normally deactivate
the object and source code for the unlicensed items. You agree
that You will not modify the source code of such items or of
any of the Program Property in a manner that would allow You
or anyone else to use the unlicensed object or source code.
You agree not to use such unlicensed source or object code.
You also agree not to copy such unlicensed source or object
code other than as is incidental and necessary for any
properly licensed copying of the licensed Program Property. In
addition, although such code is not Program Property under
this Agreement, the non-Program Property Code will also be
subject to the restrictions on the use, confidentiality,
safekeeping and copying of Program Property under Section 11
of this Agreement.
20. NOTICE
a. GENERAL. No notice required to be provided in this Agreement
shall be effective unless it is in writing; is delivered to
the other party by either reputable overnight courier, U.S.
mail by registered, certified or overnight delivery service,
with all postage prepaid and return receipt requested, or by
personal delivery; and is addressed to:
If to Epic:
Judith R. Faulkner
President
Epic Systems Corporation
5301 Tokay Boulevard
Madison, WI 53711
or to such other address as Epic may designate by written notice to
You; and
If to You:
Jeffrey H. Margolis
President
-23-
<PAGE> 24
The TriZetto Group
567 San Nicolas Drive
Suite 360
Newport Beach, CA 92660
or to such other address as You may designate by written notice to
Epic.
b. INVOICES. Invoices should be sent to:
Accounts Payable
The TriZetto Group
567 San Nicolas Drive
Suite 360
Newport Beach, CA 92660
or to such other address as You may designate by written notice to
Epic.
21. MISCELLANEOUS
a. GOVERNING LAW, FORUM AND JURISDICTION. The validity,
construction and enforcement of this Agreement shall be
determined in accordance with the laws of Wisconsin, without
reference to its conflicts of laws principles, and any action
(whether by arbitration or in court) arising under this
Agreement shall be brought exclusively in Wisconsin. You
consent to the personal jurisdiction of the state and federal
courts located in Wisconsin.
b. SEVERABILITY. The provisions of this Agreement shall be
considered as severable, so that the invalidity or
unenforceability of any provisions will not affect the
validity or enforceability of the remaining provisions;
provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to
either party.
c. NO WAIVER. The failure of either party to require the
performance of any item or obligation of this Agreement, or
the waiver by either party of any breach of this Agreement
shall not act as a bar to subsequent enforcement of such term
or obligation or be deemed a waiver of any subsequent breach.
d. PURCHASE ORDERS. Your purchase orders will be accepted by Epic
for accounting convenience only. No terms or conditions
contained in any purchase order shall amend this Agreement or
shall otherwise constitute an agreement between the parties.
e. ENTIRE AGREEMENT. This Agreement and the schedules and
exhibits herein, is the entire agreement between the parties
with regard to the subject matter of this Agreement and
supersedes and incorporates all prior or contemporaneous
representations, understandings or agreements, and may not be
modified or amended except by an agreement in writing signed
between the parties hereto. Each party represents that the
individual signing below on behalf of the party has the
authorization to bind the party indicated to this Agreement.
f. SUBCONTRACTING. Epic may subcontract services to be performed
under this Agreement to one or more subcontractors. No
subcontractor will begin working on any project or task until
You have first agreed in writing (on a
-24-
<PAGE> 25
change order form, by letter or otherwise) to the proposed
subcontractor and the specific project or tasks to be
subcontracted. Epic will be responsible to You for the work
performed by the subcontractor to the same extent that Epic
would be if it were Epic's own work. All other provisions of
this Agreement shall apply to the work of the subcontractor in
the same manner and to the same extent as if the work were
performed by Epic hereunder. All source code, object code and
associated documentation provided to You by the subcontractor
pursuant to this Agreement shall be owned by Epic and subject
to all applicable confidentiality and use restrictions as if
such code or documentation had been provided by Epic. Epic may
provide the subcontractor with a copy of those sections of
this Agreement with which the Subcontractor must comply. If
the Subcontractor needs access to Your confidential
information to perform the subcontracted services, Epic may
provide such access if the Subcontractor first agrees in
writing to comply with all confidentiality provisions
contained in this Agreement that apply to such information.
g. RESTRICTION ON OFFERS OF EMPLOYMENT. Before either party
directly or indirectly offers employment to, or discusses the
terms of prospective employment (such as salary and benefits)
with any person who is currently employed by the other party,
such party will first contact the management of the other
party (Your CIO or equivalent and Epic's president) to inform
the other party about such possibility.
h. INCORPORATION OF APPENDICES AND EXHIBITS. All appendices and
exhibits attached to this Agreement are incorporated into and
form a part of this Agreement.
i. HEADINGS. Headings contained in this Agreement are for
reference purposes only and shall not affect in any way the
meaning and interpretation of this Agreement.
j. SITE VISITS. From time to time a prospective customer for one
or more Items of Epic Program Property may contact You
concerning a visit to Your site for a demonstration of Epic
Program Property. Epic desires to participate in such
demonstrations and to arrange for such demonstrations to occur
in an appropriate place, time and manner agreed to by You.
Therefore, You agree to conduct any "site visits" related to
demonstrations of Epic's Program Property for potential Epic
customers only with Epic's prior approval.
k. PROVIDER ASSISTANCE TO EPIC. From time to time Epic may ask
Your providers to assist Epic with certain development
projects. Epic will pay Your providers for such assistance.
You agree to consider such requests in good faith and to allow
Your providers to so assist Epic unless such assistance
-25-
<PAGE> 26
to Epic would place an unreasonable burden upon Your
operations.
l. NOTICE OF INTENT TO USE. Prior to entering into any Service
Bureau Agreement with a new customer or the addition of a new
application to the service provided to an existing customer
which includes the provision of services that will utilize the
Licensed Program Property, You will notify Epic, in a manner
to be agreed to by Epic and You, of the name and address of
the customer, the Items of Licensed Program Property to be
utilized in providing the services to the customer, and the
anticipated volume levels for each Item of Licensed Program
Property. You will not finalize any such new or expanded
agreement without the written consent of Epic. Epic shall
withhold such consent if You are in Material Breach of this
Agreement or are more than sixty (60) days past due in the
payment of any amounts due to Epic pursuant to this Agreement.
[*].
An example of the latter would be a prestigious, small
start-up or pilot, of a large organization.
m. QUARTERLY REPORTS. Within thirty (30) days of the end of
calendar quarter, or such other period of time agreed to by
Epic and You, You will provide Epic with a written report, in
a form agreed to by the parties, showing Your actual usage of
each Item of Licensed Program Property during the said
calendar quarter. You will also provide Epic with any other
information reasonably required by Epic to monitor your
compliance with this Agreement.
n. AUDIT. Epic may, at its own expense, upon written notice to
You and during mutually agreed upon times, by itself or
through a recognized independent accounting firm, reasonably
acceptable to You, audit Your Volume, as well as the use and
location of Epic's Program Property. Representatives of any
accounting firm retained by Epic shall execute a mutually
agreed upon confidentiality agreement and shall abide by Your
reasonable security regulations while on Your premises. If
Your Volume is found to exceed the Licensed Volume, then Epic
will invoice You for the then current license fee applicable
to Your Volume. Furthermore, if Your Volume is more than [*]
greater than Your Licensed Volume, then You will pay Epic its
reasonable expenses for such audit.
o. ACCESS TO BOOKS AND RECORDS. Epic and You agree to make
available upon the written request of the Secretary of Health
and Human Services or the Comptroller General, or their
representatives, this Agreement and such books, documents and
records as may be necessary to verify the nature and extent of
the costs of the services rendered hereunder to the full
extent required by the Health Care Financing Administration
implementing Section 952 of the Omnibus Reconciliation Act
of 1980, codified at 42 U.S.C. Section 1395x(v)(1)(l), or by
any other applicable federal or state authority.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-26-
<PAGE> 27
THIS AGREEMENT HAS BEEN ENTERED INTO AS OF THE EXECUTION DATE INDICATED BY YOUR
SIGNATURE BELOW.
EPIC SYSTEMS CORPORATION TRIZETTO GROUP, INC.
By: /s/ Kerry M. Kearns
By: /s/ Judith R. Faulkner -------------------------------
-------------------------------
Name: Kerry M. Kearns
Name: Judith R. Faulkner ------------------------------
------------------------------
Title: Senior Vice President
Title: President -----------------------------
-----------------------------
Date: 5-21-99
Date: 5-25-99 ------------------------------
------------------------------
-27-
<PAGE> 28
APPENDIX A
DEFINITIONS
1. "Affiliate" means any person or entity with whom You have a business or
employee relationship and includes those entities for which You provide
Service Bureau Services using the Epic Software and Documentation
licensed under this Agreement. "Affiliates" shall not include
businesses that provide outsourcing or facility management services
unless Epic agrees in writing that such entities may become Your
Affiliate.
2. "Affiliated Companies" means an entity that (a) directly or indirectly
owns or controls at least fifty percent of the applicable party, or (b)
is at least fifty percent owned or controlled, directly or indirectly,
by the applicable party or an entity described in clause (a).
3. "Annual Volume" means:
(a) for all Items other than Tapestry and its modules, the
aggregate Volume for an Item of Program Property during the
twelve-month period beginning on the date of this Agreement
and for each succeeding twelve-month period thereafter
(whether or not You have increased the Licensed Volume); and
(b) for Tapestry and its modules, Annual Volume is the number of
members (see Exhibit 6) as of the last anniversary of the date
of this Agreement (or as of the date of this Agreement until
its first anniversary).
4. "Change Order" means the form attached to this Agreement as Exhibit 3
or such appropriate substitute form designated by Epic.
5. "Claims" shall include without limitation all claims, demands, actions,
liabilities, losses, damages and expenses including, without
limitation, settlement costs, and reasonable attorney's fees.
6. "Clinical Support Materials" shall mean the following types of data and
forms: SmartForms, SmartSets, SmartText, SmartPhrases, BestPractices
Pathways, BestPractices Decision Support Rules, Selection Lists,
Flowsheets, Handouts and Letter forms, After Visit Summary forms,
Preference Lists, and similar such data and forms that become available
using the Program Property.
7. "Code" means the object code and source code of the Program Property,
including all Updates and other modifications to the Program Property
provided by Epic to You pursuant to this Agreement.
-1-
<PAGE> 29
8. "[*]" means the [*] that is further identified on Exhibit 1(a) hereto.
9. "Current Version" means the most recently released version of the
particular Item for use on Your Designated Platform or any interim
version released since the last major version. Major versions are
typically released approximately once per year. Interim releases
currently are typically released once every three to four months. If
You are operating the most recent major version or a subsequent interim
version, then You will be deemed to be operating the Current Version.
10. "Designated Platform" means the make and model of the processor and its
operating system specified on Exhibit 1(a) hereto, it does not refer to
a specific processor designated by serial number.
11. "Directory" means and includes both: (i) each separate copy of the
server Code of the Program Property used to process actual patient
data; and (ii) each actual patient data base exceeding one that is
processed by the same server Code copy of Program Property. For
example, if You use three separate copies of the server Code of the
Program Property to process actual patient data, two of those copies
process only one patient data base each and one of those copies
processes two patient data bases, then You would be using four
Directories. You will notify Epic that You are creating an additional
Directory at least thirty days before the date such Directory is
created.
12. "Documentation" means any instructions, manuals or other materials
relating to the installation, operation or Code of the Program Property
that is provided by Epic to You pursuant to this Agreement.
13. "ECI" means the Employment Cost Index for Total Compensation (not
seasonally adjusted), Private Industry Workers, White-collar
occupations excluding sales, June 1989 = 100, compiled by the U.S.
Department of Labor, Bureau of Labor Statistics. The most recently
published ECI prior to the date of this Agreement shall be the base for
measuring any changes in the ECI, unless otherwise specified in this
Agreement. If publication of the ECI is discontinued, Epic may, in its
sole reasonable discretion, substitute a similar cost index for use for
the purposes that the ECI is used in this Agreement.
14. "End User" means any Affiliate granted access to or the right to use
the Program Property pursuant to Section 14.
15. "First Live Use" of a Major Item of Program Property occurs when You
first use such Item to process actual patient data for production
purposes. "First Live Use" of an Optional Item of Program Property
occurs upon the earlier of when You first use such Item to process
actual patient data for production purposes or the date of First Live
Use of a Major Item with which such Optional Item may be used by You if
the Optional Item is installed and available for use with the Major
Item.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
-2-
<PAGE> 30
16. "Implementation Schedule" means the implementation schedule for Items
of Program Property other than those set forth on Exhibit 1(a) as of
the date of this Agreement.
17. "Indemnitees" means the applicable party hereto, its affiliated
companies, all employees, officers and directors of the applicable
party and its affiliated companies, and, for Your Indemnitees, all End
Users. Thus, "Your Indemnitees" means You and each of these persons or
entities who are related to You, and "Epic Indemnitees" means Epic and
each of these persons or entities who are related to Epic.
18. "Item" means each individual line item of Program Property specified on
Exhibit 1(a). An Update is not a new Item, but shall be deemed to be
the same Item as the earlier version of Program Property upon which the
Update is based.
19. "Licensed Volume" means the limitation(s) on Your Annual Volume for
each Item as initially specified in Exhibit 1(a) and increased pursuant
to Section 6(c). You represent to Epic that You reasonably calculated
Your expected Annual Volume for each Item based on Your current
operations as if each Item were fully implemented and that such
expected Annual Volume does not exceed the initial Licensed Volume for
such Item as provided in Exhibit 1(a).
20. "Major Item" shall mean any of the following Items of Program Property:
EpicCare, Cadence, Resolute, Tapestry, Outpatient Registration,
EPIcenter, or Cohort.
21. "Maintenance Program" means the program of maintenance and support
available to You from Epic under the terms specified in Section 7.
22. "Non-Program Property Error" means any apparent or real defect, error,
or other anomaly relating to the operation of the Program Property that
is reasonably determined by Epic, after reasonable inquiry and
investigation, either not to have originated from the Program Property
(such as incorrect use of the Program Property or Your hardware; input
errors; or errors or defects originating in Your hardware, Your
communications equipment, the operating systems, the Operating
Environment software, the [*], the [*], the Programming Points Code
developed by You, or in any application software other than the Program
Property) or to have resulted from modifications of the Program
Property by anyone other than Epic. As used herein, "incorrect use of
the Program Property" means data processing procedures used by You that
do not substantially comply with the procedures described in the
Documentation associated with the Program Property.
23. "Operating Environment" shall mean the software published by [*] which
is identified on Exhibit 1(a) hereto and which shall be either the
current version of [*] products. With Epic's and [*] consent, You may
also be able to license [*] product directly from [*], since Epic does
not currently offer a sublicense to this product.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
-3-
<PAGE> 31
24. "Optional Item" shall mean any Item of Program Property other than a
Major Item.
25. "Other Third Party Software and Data" shall mean the software and data
specified in the "Additional Billing Information" section of Exhibit 1
(a) other than the Operating Environment.
26. "Program Error" means an error or defect in the Code which results in
the failure of the Program Property to operate or to produce output on
the Designated Platform in substantial conformity to descriptions of
such operation or output in the Documentation for the Program Property.
27. "Programming Points Code" means software code (other than the Code)
that is developed to be executable at places in the Code that are
designed to permit the execution of external code.
28. "Program Property" means each of the following with respect to each
computer program listed as an Item of Program Property on Exhibit 1
(a): the computer program object and source code, the Documentation,
and all Updates and other modifications to the object or source code
that are provided by Epic to You pursuant to this Agreement.
29. "Reasonable Workaround" means a workaround of a Program Error that does
not materially decrease the general utility of the Program Property.
30. [*]
31. "Substantive Program Error" means any Program Error that materially and
adversely affects Your operations.
32. "Superseded Version" means the second most recent version of an Item
released to You that is intended for use on Your Designated Platform.
33. "Total License Fee" means the sum of the license fees for the Program
Property listed in Exhibit 1(a).
34. "Update" means a release or version of the Program Property containing
functional enhancements, extensions, error corrections or fixes if such
release or version is intended for use on the Designated Platform and
is generally made available free of charge (other than charges for
media, handling and installation and services) to Epic's customers who
are then participating in Epic's Maintenance Service Program. An Update
will include the Code and its associated Documentation.
35. "Volume" means the actual level of use by You of an Item of Program
Property determined as provided in Exhibit 6 (e.g.,
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-4-
<PAGE> 32
according to patient visits or members, depending upon the Item) and
Section 14(b(i)(1).
36. "Warranty Period" means, for each Item of the Program Property (other
than Items of Program Property set forth on Exhibit 1(a) as of the
date of this Agreement, for which there is no warranty), the ninety-day
period beginning on the date of the First Live Use of such Item.
37. "Workstation Code" means components of the object Code, if any, which
are designed to operate on personal computers for the purpose of
accessing the object Code on Your server(s).
38. "Your Confidential Information" means, except as provided below, all
confidential patient data stored using the Program Property, Your
confidential information concerning Your business strategies, and Your
confidential financial information. "Your Confidential Information"
shall exclude, without limitation, any information that: (a) is now or
hereafter becomes publicly known through no act or failure on the part
of Epic and without breach of this Agreement; (b) is known by Epic on a
nonconfidential basis at the time of the receipt of such information;
or (c) relates to the identity of Program Property modules that have
been licensed by You, the types and configuration of hardware or
operating systems on which the Program Property operates for You, or
the identity of any software or hardware systems with which the Program
Property interfaces for You.
-5-
<PAGE> 33
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1(a) List of All Licensed Program Property, Additional Billing
Information, and Applicable Limitations
1(b) Fees for Additional Directories
1(c) Maintenance Fees and Good Maintenance Program
3 Change Order Form (for requesting Customization)
4 Epic's Current Standard Hourly Rates
4(j) Marketing Assistance Packages
6 Definition of "Volume"
7 Epic's Support Policies
8 Epic's Service Response Times
Addendum [*] Addendum: Terms of [*] Sublicense
Addendum [*] Addendum: Terms of [*]
Addendum [*] Addendum
Addendum Distinct Addendum
Addendum Diagnostic Data Addendum
Addendum Illustration Addendum
</TABLE>
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
<PAGE> 34
EXHIBIT 1(a)
The Program Property shall include the following listed items of standard or
customized programs on the following specifically listed Designated Processor,
for one production copy (unless otherwise provided), and for the limitations on
use indicated:
<TABLE>
<CAPTION>
INITIAL
PROGRAM PROPERTY MTNC. COMMENTS
<S> <C> <C>
A. CADENCE ENTERPRISE APPOINTMENT See Licensed for [*]
SCHEDULING SYSTEM Exhibit
1(c)
Additional Cadence-Related Items
B. Advanced, Ancillary Scheduling Features See Licensed for [*]
Exhibit
1(c)
C. Chart Tracking See Licensed for [*]
Exhibit
1(c)
D. RESOLUTE PATIENT ACCOUNTING SYSTEM See Licensed for [*]
Exhibit
1(c)
E. TAPESTRY MANAGED CARE SYSTEM See Licensed for [*]
Exhibit
1(c)
Tapestry Modules
F. Referral Authorization See Licensed for [*]
Exhibit
1(c)
G. Claims Adjudication See Licensed for [*]
Exhibit
1(c)
H. Capitation Payment See Licensed for [*]
Exhibit
1(c)
I. Case Management/Concurrent Review See Licensed for [*]
(Tapestry UM) Exhibit
1(c)
J. EPICCARE ELECTRONIC MEDICAL RECORDS See Licensed for [*]
SYSTEM Exhibit
1(c)
K. EPICCARE ORDERS/RESULTS SYSTEM See Licensed for [*]
Exhibit
1(c)
</TABLE>
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 35
<TABLE>
<CAPTION>
ADDITIONAL ITEMS
<S> <C> <C>
L. Analyst Ad Hoc Report Generators and See Licensed for [*]
Statistics Exhibit
1 (c)
M. Clarity Enterprise Reporting* See Licensed for [*]
Exhibit
1 (c)
N. Bridges EDI Developer's License See Licensed for [*]
Exhibit
1 (c)
O. Advantage See Licensed for [*]
Exhibit
1 (c)
P. Epic Standard Outgoing Lab Orders (HL7) [*] Licensed for [*] annual patient visits for the formerly
per known [*] directory; maintenance will begin on go-live
month
Q. Epic Standard Incoming Lab Results (HL7) [*] Licensed for [*] annual patient visits for the formerly known
per [*] directory; maintenance will begin on the effective date
month of the agreement
Program Property Transfer Fee [*]
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
Additional Billing Information - Description Mtnc.
(not Program Property) (US $) Comments
<S> <C> <C>
Requested Enhancements [*] [*] Maintenance starts on the [*] of the agreement
Interface Customizations [*] [*] Maintenance starts on the [*] of the agreement
Requested Enhancements [*] [*] Maintenance starts on the [*] of the agreement
[*] TBD
[*] TBD [*] concurrent user run-time license.
Licensed with Analyst.
[*] TBD Licensed for [*]
[*] [*] Site License for [*]
</TABLE>
LIMITATIONS
THE LICENSED VOLUME FOR EACH ITEM IS SPECIFIED IN THE COMMENTS SECTION.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 36
EXHIBIT 1(b)
EPIC SYSTEMS CORPORATION
LICENSE FEES FOR ADDITIONAL DIRECTORIES
Epic is to be notified 30 days prior to the creation of any new directory using
the attached election form. If Epic installation services are desired, such
request is to be made at least 60 days before any such assistance is required.
I. LICENSE FEE PRICE
If all of the following are true, then you may purchase an additional
directory as an extension of the existing visit volume.
o All [*] are the responsibility of the client; and
o There is [*] and
o There is [*]
Epic shall determine, in its judgment based upon the above factors, which
pricing calculation shall apply. The factors listed above are intended as
guidelines -- if in Epic's judgment, [*] then Epic will apply [*] prices
to the new directory.
The current fee for an additional Directory is [*] or part thereof in the
Licensed Volume attributable to the additional Directory (the "Additional
Directory License Fee"). Epic may, upon [*] notice to You [*]. Additional
Directory License Fees will be applied to all [*] other than the [*] with
the [*] for any item of [*] (e.g., if the [*] attributable to one [*] for
[*] and the [*] attributable to the second [*] for [*] would be the [*].
The Additional Directory License Fee is due and payable [*] of the
additional Directory and [*]. As the [*] to an [*] the [*] for that [*]
will be [*] in the [*] and any [*] when the [*].
When You add a Directory, Your [*] must be [*] from the additional
Directory [*]. Additional license fees due for such an upgrade in Your [*]
will be due and payable [*] at the time [*] of the additional Directory and
[*].
II. INSTALLATION CHARGE FOR ADDITIONAL DIRECTORIES
The standard hourly rate schedule for installation services for additional
directories is described in Exhibit 4.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-1-
<PAGE> 37
ELECTION TO ADD NEW DIRECTORY
EPIC SYSTEMS CORPORATION
Pursuant to its License Agreement with Epic Systems Corporation ("Epic"), You
hereby elect to add an additional Directory as follows:
Name of Affiliate
Location
Software Applications Name Expected Annual
Volume
Pricing (check one): ________ Aggregate with Licensee (Extension Sale Pricing)
________ Separately priced (requires separate agreement
between You and Epic)
Epic Installation Assistance Requested: _______ Yes _______ No
Approximate Date Directory is anticipated to go live: _________________________
Authorized Licensee Signature:_________________________
Print Name: _________________________
Title: _________________________
Date: _________________________
-2-
<PAGE> 38
EXHIBIT 1 (c)
MAINTENANCE FEES/GOOD MAINTENANCE PROGRAM
(MULTI-DIRECTORY)
1. GENERAL.
Your total annual maintenance fees for Items of Program Property set forth
on Exhibit 1(a) as of the date of this Agreement will be calculated as
provided in Schedule 1 to this Exhibit 1(c). Maintenance fees are due [*]
in advance. You and Epic agree to negotiate in good faith to determine the
maintenance fees for Epic products that You add as Items of Program
Property.
Your initial monthly maintenance fee for any customized Code is equal to
the [*] for the [*] multiplied by the [*] provided in Epic's quotation on
the applicable Change Order (i.e., [*]). If a quotation is not completed or
the maintenance fee is left blank, then the rate is Your initial [*]
maintenance fee for interfaces will be determined at the time that You add
the interface.
II. ADJUSTMENTS.
The annual maintenance fees will remain at the initial rates for a time
period of [*] months from the execution of this Agreement. After that
period, Epic may change the maintenance fees from time to time. During the
first [*] years of this Agreement, the total amount of any increases in
maintenance fees [*] for any Item shall not exceed the [*] per year.
III. [*] MAINTENANCE CHARGES [*].
If You have [*] then You will be charged [*] for [*]. The [*] for each [*]
is based on [*] and the amount is derived from the table below.
[*]
IV. THE [*] PROGRAM.
A. GOALS.
The [*] has several goals:
o Encourage you to [*] to your users
o Reduce your [*]
o Reduce Epic's [*]
B. REQUIREMENTS OVERVIEW
You agree that You will:
o Have all [*] and all other [*] communicated by [*] for [*] for
which they are calling;
o Maintain a [*] for [*];
o Have a [*] for [*];
o Have appropriate [*] and appropriate [*];
o [*] to Epic's [*] within [*] from [*] it is made generally
available;
o Participate in a [*]; and
o Participate in [*] and an [*] every year;
o [*] your [*] and your [*] with [*] and the [*];
o Stay up to date on the payment of invoices.
More details on these requirements are provided in Sections C - K
below.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-1-
<PAGE> 39
C. [*]
Only [*] who are [*] can contact Epic with questions about [*].
In addition, your [*] must utilize [*] and maintain a [*] and of [*] to
help them see if the answer [*] before they contact Epic.
After a question is answered by Epic, the [*] involved will [*].
If you have multiple sites in multiple cities, you may have [*] at any of
[*] except for [*] who must be [*].
[*]
To be [*] need to
o take the [*] to be a [*] and get a [*].
o keep [*] the appropriate [*] at the [*] or by [*] during the year
which cover [*]. Each year, Epic will publish the [*]. It is not
expected that [*] will be required.
o Systems staff may be [*] to take [*] and obtain [*] from [*] in
addition to the above.
D. [*]
You must [*] a detailed [*] which [*]. The [*] shall contain all [*] for
the ongoing [*] whether assigned to You or to Epic. You must [*] with [*]
regarding the [*].
E. [*]
Each [*] must have [*]. You must have [*] following [*]. You must provide
Epic with access to the server(s) on which the Program Property is
installed through a [*] as agreed to by Epic, with a minimum guaranteed
bandwidth of at least [*] per second between Epic and You. The connection
between Epic and the server(s) on which the Program Property is installed
will have a maximum latency of [*]. Collectively, the access technology
requirement and the connection requirement are the "Minimum Access
Requirements." [*]. You will be responsible for [*], including [*]. Epic
may revise the Minimum Access Requirements from time to time to ensure
that access is still adequate given changes in technology. Epic will
notify You of any such revisions to the Minimum Access Requirements. You
agree to [*] cost, to meet the Minimum Access Requirements within [*] of
written notice from Epic to You of any such change.
F. [*]
You must have the [*] installed and working well, and you must have [*]
appropriate for the [*].
G. STAYING CURRENT
You must have [*] no later than [*] after [*] is first [*].
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-2-
<PAGE> 40
H. [*]
Your [*] for [*] will [*] to meet with [*]. At least [*] for each [*] will
participate. This trip is separate from the [*] so that the focus can be
on [*]. In alternate years, Epic's technical staff will visit some of your
user sites to [*] and to give [*]. At least [*] for each Application area,
Topic area, and Foundation area will [*] on these trips. You will cover
[*] expenses for up to [*] per trip and Epic will cover the [*].
I. [*]
The [*] encourages regular [*] and a [*]. Your [*] will visit Epic every
other year. Executive staff includes the senior management of your
organization for business [*], technical [*], and clinical [*] for all
regions using the software. [*] will visit [*] every other year.
[*] from your organization will have [*] with [*] during the [*] and [*].
J. [*]
You will allow [*] to have up to [*] per year for every [*] or part
thereof you have licensed. [*] will be conducted only at your and our
mutual convenience.
K. [*]
You will provide to [*] all [*] created using or for use with [*] (except
as provided below) and all of your [*] created using or for use with the
[*] means the following types of data and forms: [*] may make these [*]
and [*] to any of [*] for their use either [*] or through the [*]. You may
designate [*] and [*] that could give [*] through a procedure to be
determined by [*] if no more than [*] of Your total [*] and [*] are so
designated. These [*] will [*] except with [*] and You are not required to
[*]. Except as otherwise agreed by Epic in writing, You hereby waive any
[*] that you may have with respect to any [*] and [*] that You provide to
[*] (except those that [*] as specified above) and to any [*] that You
submit to the [*].
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-3-
<PAGE> 41
SCHEDULE 1
TO EXHIBIT 1(c)
EPIC APPLICATION MAINTENANCE FOR OUTSOURCING
MARCH 1999
Use the table below to determine Your maintenance payment to Epic for each
service bureau Affiliate of Yours. The annual maintenance payment per such
Affiliate is determined per "maintained" provider at that service bureau
Affiliate. A "maintained" provider is one who is actually setup to use EpicCare,
or whose volume (patient visits or members, as applicable) is counted for
purposes of Cadence, Resolute or Tapestry. Providers include physicians, nurse
practitioners, physicians' assistants, ophthalmologists, podiatrists, midwives,
and the like.
Maintenance for an optional module package is charged when one or more of the
Items of Program Property in that package is being used. The charge is the same
whether You use one or more of the Items of Program Property from a specific
module package.
Annual Maintenance is based upon "maintained" provider, whether employed,
affiliated, contracted, or sub-contracted. Providers can be counted in multiple
ways, including but not limited to the following: listings in the provider
directory and/or master files, names associated as the provider for a patient
encounter, having a template in scheduling for seeing patients, and assignment
as a PCP. Epic may dial into the systems at regular intervals to measure
provider counts.
<TABLE>
<CAPTION>
No. of Providers Annual Maintenance - Main Apps Annual Maintenance-Optional Module Packages
- ---------------- ------------------------------ -------------------------------------------
<S> <C> <C>
[*]
</TABLE>
(1) Includes [*]
(2) Includes [*]
(3) Includes [*]
(4) Bridges [*]
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 42
EXHIBIT 4
EPIC HOURLY RATES
<TABLE>
<CAPTION>
Person Providing Services Hourly Billing Hourly Billing
Rate Rate
(at Epic) (On Site)
<S> <C> <C>
Installation and Application Coordinators [*] [*]
Application Training Staff [*] [*]
Programmer [*] [*]
Documentation Staff [*] [*]
Interface & Conversion Customization, Training & Support Staff [*] [*]
M Installation, Training & Support Staff (if not purchased through Epic) [*] [*]
Hardware & Systems Installation, Training, and Support Staff [*] [*]
Physician Staff [*] [*]
</TABLE>
Services provided outside regular business hours are [*] the above rates [*].
Travel time outside of the United States and Canada will be billed at [*] of the
on-site rate.
For training at Epic, you will not be charged hourly, but by the number of
persons attending the training per day as provided below.
CHARGES FOR TRAINING AT EPIC
<TABLE>
<CAPTION>
Charge Per Person Attending Training Per Day
First [*] of Your Next [*] of Your Your Additional
Trainees For a Trainees For a Trainees for a
Type of Training Session Session Session
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Application, Administrator and $[*] $[*] $[*]
Other Training at Epic (Except
System Manager/Work Station
Training)
System Manager/ Work Station $[*] $[*] $[*]
Training
</TABLE>
All prices on this Exhibit 4 are subject to change [*], except that prices are
firm for [*] from contract date.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-1-
<PAGE> 43
EXHIBIT 4(j)
MARKETING ASSISTANCE
Epic will provide You with the following sales and marketing assistance for the
prices indicated. You must notify Epic in writing of Your election prior to
arranging for marketing assistance services. Fees for any marketing assistance
are due before service is provided.
MARKETING AND SALES PACKAGE
- - [*] of Epic assisted demos (by up to [*] Epic employees per demo as staff
are available). Prices at [*] per day per Epic employee.
- - [*] assisted response reviews for Request for Proposals, as Epic staff is
available.
- - [*] copies of all Epic marketing literature at Epic cost.
- - Inclusion of TriZetto's name and description of service on Epic's Web.
- - Assistance in building a PowerPoint presentation.
- - Training for [*] TriZetto staff on demoing Epic Software at Epic's hourly
rates.
- - Allow TriZetto staff to participate in Epic UGM and Advisory Councils, at
Epic standard rates.
- - Use of Epic name, logos, trademarks, and service marks, subject to prior
written approval by Epic, in connection with sales and marketing materials
developed, produced and used by TriZetto.
- - All out of pocket costs including travel in the package are not included.
Epic will assist TriZetto with the Medic client sales demos as requested,
and include the trips in the PACKAGE.
- - Access to the Epic Website for questions about the products.
- - Sales technique packets on how to sell our systems, when available.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 44
EXHIBIT 6
DEFINITION OF A "VOLUME" BY ITEM OF PROGRAM PROPERTY
"Volume" is defined differently for different Items of Program Property. Except
as otherwise noted below, "Volume" is determined according to the number of
"Patient Visits" relating to such Item. For such purposes, "Patient Visit" is
defined by Item of Program Property as follows:
o With respect to the [*], "Patient Visit" is a [*] between one or more
[*] and a patient that results in the [*]. Such encounters shall be
counted as a [*]. Encounters with persons other than [*] shall not be
counted if each such encounter is [*] directly resulting from a [*]
so that there is no more than [*] for each counted [*] otherwise such
encounters shall be counted as [*].
o With respect to the [*] a "Patient Visit" is a [*] except that [*]
for the [*] are counted as [*].
o With respect to [*] a "Patient Visit" is any patient visit that [*]
plus any occurrence of a charge for a patient using [*]. If the [*]
is not licensed under this agreement, then Patient Visit [*].
o With respect to the [*] "Patient Visits" will be determined according
to the [*]. The "Patient Visits" [*] will be based on the Patient
Visits used by the first [*]. You have licensed in the following list
[*].
o With respect to the [*] Volume is based on both "Patient Visits" and
"Additional Active Patient Records" as defined below. A "Patient
Visit" for [*] is any [*] or the [*] is licensed [*] then Your Volume
for [*] is determined exclusively using the [*].
The "Volume" for certain applications is based in whole or in part on
"Additional Active Patient Records." For such purposes, "Additional Active
Patient Records" is defined as follows:
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-1-
<PAGE> 45
o With respect to the [*] an "Additional Active Patient Record" is any
[*] and not accessed by the [*] during any given one year tracking
period. [*].
o With respect to the [*] an "Additional Active Patient Record" is any
[*] shall include [*] shall not be included in the [*].
The "Volume" for the [*] is based solely on [*].
The "Volume" for the [*] and the [*] is based on the total number of [*] are
the total number of [*] that are [*].
The "Volume" for the [*] is based on Patient Days. A "Patient Day" [*] and any
visits by a patient to one of [*] all to the extent that the [*] has been used
[*] to such [*]. A minimum of [*] is used.
Certain Items are licensed based on user level. When this is applicable, these
Items are indicated on Exhibit 1(a).
With respect to other Items of Program Property, Epic will determine which of
the above counts is appropriate or whether an alternative means of determining
Volume is appropriate.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-2-
<PAGE> 46
EXHIBIT 7
EPIC SYSTEMS CORPORATION
SUPPORT POLICIES
Telephone consultation and assistance support will be available to You at any
time, 24 hours per day and 7 days per week as provided below.
REGULAR BUSINESS HOURS
Our regular business hours are 8 a.m. to 5:30 p.m., Monday through Friday,
Central Time, excluding holidays (currently New Year's Day, Good Friday,
Memorial Day, July 4, Labor Day, Thanksgiving, Christmas Eve, Christmas, and New
Year's Eve.). During our regular business hours, telephone consultation and
assistance concerning the Program Property under the Maintenance Program will be
provided at no additional charge.
EXTENDED DAILY SUPPORT
Extended hours are 7 a.m. to 8 a.m., and 5:30 p.m. to 8:00 p.m., Central Time
Monday through Friday, holidays excluded, for urgent problems. There will be an
operator at Epic to answer your calls. There is no additional charge for this
support.
AFTER HOURS SUPPORT
For urgent problems after 8:00 p.m. or before 7:00 a.m. Central Time, or on
holidays you can dial support directly at [*]. Or, you can access urgent support
through our regular phone number by dialing "0" when you hear the message.
(There will be a 10 second delay.)
During the Maintenance Program, consultation and assistance concerning any
Program Errors at any time will be provided by Epic without any additional
charge as provided in your Agreement.
If you request consultation and assistance after 8:00 p.m. or before 7:00 a.m.
Central Time or on a holiday or weekend, and such consultation and assistance is
not with respect to a Program Error, then there is an additional charge for this
service as follows:
PLANNED AFTER HOURS SUPPORT
You can schedule support for an evening, weekend, or holiday. The charge is
[*] the hourly rate for the task, with a $[*].
UNPLANNED AFTER HOURS SUPPORT
A signed authorization (fax, Change Order, etc.) is required. Please fax it
before you call. If you have a Standing Purchase Order with Epic, the
charge is [*] the hourly rate for the task, with a $[*]. Without a Standing
Purchase Order, the charge is twice the hourly rate for the task, with a
$[*].
24 HOUR SUBSCRIPTION SERVICE POLICY
A seven days a week, 24 hours a day service is available at standard hourly
rate plus a base fee (based on number of software systems, number of
sites/directories, and size of installation). Please contact Epic for
details.
These prices are available only to customers on standard maintenance.
Epic reserves the right to change these policies and prices without notice.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Page 1
<PAGE> 47
EXHIBIT 8
SERVICE RESPONSE TIMES
1. Epic will use reasonable efforts to acknowledge errors identified by
Licensee and provide workarounds or corrections according to the following
schedule as measured from Epic's receipt of the request and in accordance
with the priority level of the Error, as set forth below.
LEVEL OF PRIORITY:
Level 1 Critical: The problem renders the Program Property unusable at one
or more Data Centers or Medical Centers or severely impacts normal
processing at any such Data Center or Medical Center or the problem
threatens the integrity of clinical data.
Level 2 Serious but not Critical: The problem affects a portion of the
Program Property at one or more Data Centers or Medical Centers and makes
that portion of the Program Property unusable.
Level 3 Not Serious: The problem is of minor nature and does not
substantially affect the use of the Program Property at one or more Data
Centers or Medical Centers.
RESPONSE TIMES: *
Level 1: Acknowledgment of the problem within one (1) hour and initiation
of action immediately thereafter.
Level 2: Acknowledgment of the problem within four (4) hours and initiation
of action within same day.
Level 3: Acknowledgment of the problem within one (1) business day.
* The response times set forth above are for service requests made during
Epic's regular business hours. For service requested at other times, the
anticipated response times shall be tripled; however, Epic shall make
reasonable effort to provide response within one hour for Level 1 problems.
The response times are determined from the earlier of the time that (i)
Licensee receives a tracking number from Epic that is assigned specifically
to that service request; or (ii) Epic's answering service answers
Licensee's call after Epic's regular business hours and Licensee clearly
informs the answering service that the call is a request for after-hours
support service. Messages left in Epic's voice mail system shall not
constitute service requests for purposes of this response time policy.
2. Epic will use reasonable efforts to provide a workaround or correction
within one (1) day for any Level 1 problems and within four (4) days for
any Level 2 problem. For Level 3 problems, Epic and Licensee shall mutually
agree on an appropriate response time for providing a workaround or
correction, including providing the correction in a later release of the
Software.
3. Licensee may escalate any unresolved problem to the responsible Epic
product manager or to Epic's President, at Licensee's sole discretion.
-1-
<PAGE> 48
[*] SOFTWARE ADDENDUM
STANDARD ADDENDUM - [*]
A part of the software supplied to Licensee by Epic consists of the software
(either M or Cache, as applicable) from [*]. The following terms and conditions
apply to the sublicense of the Sublicensed Software from Epic to Licensee, as
required and authorized by [*].
1. REPRESENTATION OR WARRANTIES OF [*]
EXCEPT AS EXPRESSLY PROVIDED HEREIN, [*] DOES NOT MAKE AND SHALL NOT BE
DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS
TO THE CONDITION, MERCHANTABILITY, TITLE, DESIGN, OPERATION OR FITNESS FOR
A PARTICULAR PURPOSE OF THE SUBLICENSED SOFTWARE OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESSED OR IMPLIED, WITH RESPECT
TO THE SUBLICENSED SOFTWARE.
a. [*] hereby represents and warrants as follows:
(i) [*] has (a) valid title to the Sublicensed Software, free of all
liens, encumbrances, restrictions and claims of others, (b) the
right to license the same to Epic, and (c) the right to license
Epic to grant sublicenses of the type granted to User by Epic.
(ii) Any Sublicensed Software services performed hereunder or under
any Sublicensed Software maintenance agreement between [*] and
Epic shall be performed by highly skilled personnel qualified to
perform such services and such services shall be performed in a
professional and workmanlike manner in accordance with the then
prevailing standards of the computer services industry.
(iii) The Sublicensed Software and its use do not and will not
violate or infringe upon any currently issued United States
patent or any copyright, trade secret or other property right
(whether conferred by statute, code, common law, or otherwise) of
any other person or entity that is valid or enforceable in the
United States or in any country in which Epic now maintains or
hereafter maintains any office, property or data processing
services.
(iv) The Sublicensed Software, as delivered by [*], is free from
defects in manufacturing and materials and shall operate
substantially in the conformance with the Applicable
Specifications relating to such Sublicensed Software until thirty
(30) days after the later of (a) initial delivery of the
Sublicensed Software to User, and (b) the date when Epic Program
Property is first in live operation by User (the "Software
Warranty Period").
b. During the Software Warranty Period, [*] shall promptly provide,
through Epic and at no charge to User, corrections, modifications or
additions to the Sublicensed Software in the event that Epic notifies
[*] in writing of any substantive errors in the Sublicensed Software.
User shall assist Epic and, upon request, [*], in identifying the
circumstances in which any such substantive errors are discovered and,
if requested by Epic or [*], shall document the existence of the same.
In no event shall [*] have any responsibility to correct any data base
errors or errors or damages caused by or arising out of the hardware
defects or input errors or resulting
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
-1-
<PAGE> 49
from changes to or modifications of the Sublicensed Software made by
Epic or User without the express written approval of [*].
c. All warranty claims or other claims pursuant to this section shall be
made to [*] through Epic.
d. The foregoing representations and warranties are by [*] only. Epic
makes no representations or warranties pursuant to, and Epic shall
have no liability arising out of, this section.
2. INDEMNIFICATION OF INTERSYSTEMS
a. [*] shall, and hereby agrees to, indemnify, defend, and hold harmless
User and its officers, employees, agents, and representatives, from
and against any and all claims, actions damages, liabilities, costs,
and expenses (including, without limitation, reasonable attorneys'
fees and expenses arising out of the defense of any claim, whether
proven or not) arising from or based upon a breach by [*] of any of
its representations or warranties in Section 1(a) hereunder,
including, without limitations, any claim or allegation that the
Sublicensed Software (or any component or part thereof) infringes upon
or violates any patent, copyright, trade secret, or other proprietary
right referenced in Section 1(a)(iii) above.
b. (i) The indemnities specified in Section 2(a) above shall not apply
to a specific claim, action, or allegation unless User shall have
provided written notice of such claim, action, or allegation to
[*] as soon as practicable, and shall have granted [*] full
opportunity to control the response thereto and the defense
thereof, including without limitation any agreement relating to
the settlement thereof, provided, however, that user shall have
the right to monitor, at its own expense, [*] defense of any such
claim, action, or allegation and, if necessary, to preclude a
default judgment or other loss of rights, to file pleadings on
its behalf in the event [*] fails to fulfill its obligation to
defend User pursuant to this Section 2.
(ii) In the case of a claim based on a breach of the representation
and warranty contained in Section 1(a)(iii) above, the indemnity
specified in Section 2(a) shall not apply to any claim, action,
or allegation (or any judgment or order related thereto) based
upon: (a) the use by User of the Sublicensed Software in
combination with other hardware or software not supplied by [*],
where the use of the Sublicensed Software alone is not claimed or
alleged to be an infringement; (b) the modification or alteration
of the Sublicensed Software in a manner that is not approved by
[*]; or (c) the failure by User to implement a release or
engineer change order for the Sublicensed Software issued by [*]
(which release or change order does not preclude the Sublicensed
Software from meeting the standards specified in Section 1(b))
c. In the event that the Sublicensed Software (or any component or part
thereof) becomes the subject of any claim, action, or allegation of
the type specified in Section 1(a)(iii), [*] shall promptly use all
reasonable efforts at its expense: (a) to procure for User the right
to continue using the Sublicensed Software (or applicable component or
part thereof); or (b) if such continued use cannot be so procured, to
modify it to become non-infringing; or (c) if such modification cannot
be so implemented, to provide substitute hardware, software, or other
products, components or parts of similar capability acceptable to and
approved by User, which approval shall not be unreasonably withheld or
delayed.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
-2-
<PAGE> 50
d. THE FOREGOING STATES THE ENTIRE OBLIGATION OF [*] WITH RESPECT TO THE
INFRINGEMENT OF PATENTS, COPYRIGHTS, AND OTHER PROPRIETARY RIGHTS.
e. The foregoing indemnification is by [*] only. Epic makes no
indemnification pursuant to, and Epic shall have no liability arising
out of, this section.
3. LIMITATION OF LIABILITY
Except as specifically set forth in Sections 1 and 2 above, [*] shall have
no liability of any kind to the User, whether direct or indirect, for any
loss or damage suffered by the User or its employees, agents or
representatives, or customers or patients using the facilities or retaining
the services of the User, as a result of or arising out of the Sublicensed
Software.
The liability of [*] for any loss or damage directly or indirectly suffered
by User as a result of any defects in the Sublicensed Software or any acts
of omission of [*] or its officers, employees, agents, or representatives
hereunder shall in no event exceed any amount equal to the license fees
paid or owed to [*] by Epic in respect of the Sublicensed Software and/or
services on account of which User has suffered loss or damage. The
foregoing shall not apply to claims of property damage or bodily injury or
those claims based on the willful misconduct of InterSystems.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN NO EVENT SHALL [*] BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES BASED UPON BREACH
OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT TORT, OR ANY OTHER
LEGAL THEORY EVEN IF [*] HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. SUCH DAMAGES SHALL INCLUDE, WITHOUT LIMITATION, LOSS OF PROFITS,
LOSS OF SAVINGS OR REVENUE, LOSS OF USE OF THE LICENSED SOFTWARE OR ANY
ASSOCIATED EQUIPMENT OR SOFTWARE, COST OF CAPITAL, COST OF ANY SUBSTITUTE
EQUIPMENT, FACILITIES OR SERVICES, DOWNTIME, THE CLAIMS OF THIRD PARTIES
(INCLUDING, WITHOUT LIMITATION, CUSTOMERS OR OTHER PERSONS USING THE
FACILITIES OF THE USER), AND PROPERTY DAMAGE.
4. PROPRIETARY RIGHTS AND CONFIDENTIALITY
a. The Sublicensed Software and related materials (including, without
limitation, the System Documentation) are and shall remain, the sole
property of [*] or one or more of its affiliates. No right to print or
copy, in whole or in part, any such Sublicensed Software, System
Documentation or related materials is granted hereunder except as
herein expressly provided.
b. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE USER AGREES NOT TO
(i) DECOMPILE, DISASSEMBLE OR REVERSE ENGINEER THE LICENSED SOFTWARE
OR (ii) USE OR DISCLOSE OR DIVULGE TO OTHERS ANY DATA OR INFORMATION
RELATING TO THE LICENSED SOFTWARE AND/OR THE TECHNOLOGY, IDEAS,
CONCEPTS, KNOW-HOW AND TECHNIQUES EMBODIED THEREIN.
c. The obligations of confidentiality and non-use described in Section
4(b) above shall not be deemed to include disclosure or other use of
such data or information to the extent that the User can prove the
same is or becomes publicly known within the public domain (other than
by acts attributable to the User or any of its officers, agents,
shareholders of
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-3-
<PAGE> 51
privately-held companies, employees or representatives). Information
shall not be deemed to be in the public domain by reason of the
general licensing and other commercial disposition of the Sublicensed
Software by [*] in the ordinary course of its business. The existence
of a copyright notice shall not cause, or be deemed or construed as
causing, the Sublicensed Software or System Documentation to be
published copyright work or to be in the public domain.
d. Nothing contained in this Section shall prohibit the User or any of
its officers, agents, shareholders, employees or representatives from:
(i) using his or its general technical skills when not otherwise
inconsistent with the terms hereof; or
(ii) disclosing data or information pursuant to any enforceable
administrative or judicial order, provided, however, that the
User first notifies [*] of the entry or existence of such order
and of the User's intention to comply with its terms. Data or
information shall not be deemed to be in the public domain solely
by reason of any such order.
e. The User further agrees:
(i) except for back-up security purposes, not to copy, reproduce or
duplicate, or allow to be copied, reproduced or duplicated, in
whole or in part, the Sublicensed Software, System Documentation
or any related materials without the prior written consent of
InterSystems;
(ii) not to provide or otherwise make available any Sublicensed
Software, System Documentation or related materials in any form
to any other Person or organization, without the prior written
consent of InterSystems; and
(iii) that it will take appropriate action with its officers, agents,
shareholders, employees or representatives, by instruction,
agreement or otherwise, to satisfy its obligations under this
Agreement with respect to use, copying, modification, and
protection and security of the Sublicensed Software, System
Documentation and related materials. Without limiting the
generality of the foregoing, the Customer shall in any event
denote the same degree of care to protecting the Sublicensed
Software and System Documentation as it devotes to the
protection of its own confidential and proprietary information.
f. In the event of any breach or threatening breach of the provisions of
this Section, [*] shall, in addition to all other rights and remedies
available to it at law or in equity, be entitled to a temporary or
permanent decree or order restraining and enjoining such breach and
the User shall not plead in defense thereto that there would be an
adequate remedy at law, it being hereby expressly acknowledged and
understood that damages at law will be an inadequate remedy in the
event of such a breach or threatened breach.
g. If, having complied with the foregoing provisions of this Section, the
User has actual notice of any unauthorized possession, use or
knowledge of any part of the Sublicensed Software or physical
embodiment thereof, or of the System Documentation any other
information made available pursuant to this Agreement by anyone else
other than Persons authorized by this Agreement to have such
possession, use or knowledge, the User agrees to notify [*]
promptly of the circumstances surrounding such unauthorized
possession, use or knowledge.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-4-
<PAGE> 52
h. The User shall not remove or destroy any proprietary markings or
proprietary legends placed upon or contained within the Sublicensed
Software or any related materials or System Documentation in the
User's possession.
i. Subject to other restrictions contained herein, User shall have the
right to grant access to the Sublicensed Software to others to the
same extent that User has the right to grant access to Epic's Program
Property under User's license agreement with Epic.
5. DEFINITIONS
For the purposes of this Addendum only, the following definitions apply to
the capitalized terms as follows.
"Affiliate" means, as to a specified Person, any entity controlling,
controlled by or under common control with such Person. For purposes of
this definition the term "control" shall mean the power to control the
operations and policies of such Entity, whether by ownership of voting
stock or other securities or interests, by contract or otherwise.
"Sublicensed Software" means the computer programs (which, unless otherwise
determined by [*] in its sole discretion, shall be in Object Code version
only) licensed by [*] through Epic to the Customer hereunder, which are
more fully identified as [*] software in Exhibit 1(a) to the Epic Standard
License Agreement of which this is a part, together with any Enhancements
and related items which InterSystems may announce while the Agreement is in
effect.
"System Documentation" means the documentation, reference manuals, user
guides and other standard visually readable materials relating to the
Sublicensed Software furnished by [*] to the VAR (Epic) and licensed by
Epic to the Licensee hereunder.
"User" means the Licensee in the Epic License and Support Agreement to
which this is a part.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
-5-
<PAGE> 53
[*] ADDENDUM
This is a software license granted by [*], with its mailing address at [*]. The
[*] (SOFTWARE) is licensed to you as the end user; it is not sold. The SOFTWARE
is subject to the following license terms and conditions.
1. LICENSE
1.1 COPYRIGHT
The SOFTWARE is copyrighted material. Once you have paid the required
license fee, you may use the SOFTWARE for as long as you do not
violate the copyright and if you follow these simple rules.
1.2 MAXIMUM NUMBER OF USERS
You may use the SOFTWARE on any computer or computer network for which
it is designed so long as no more than the specified number of user(s)
(see comments in Exhibit 1(a) to the main license agreement with Epic)
use it at any one time. If you increase the number of users as
indicated above, you must upgrade your license to the appropriate
number of users or pay for additional copies of the SOFTWARE.
1.3 BACKUP COPIES
You may make no more than three (3) copies of the SOFTWARE for backup
purposes and all such copies, together with the original, must be kept
in your possession or control.
1.4 MODIFICATIONS
You may not make any changes or modifications to the Licensed
SOFTWARE, and you may not decompose, disassemble, or otherwise reverse
engineer the SOFTWARE. You may not rent or lease it to others.
1.5 BREACH OF THIS AGREEMENT
In the event you breach this license agreement, [*] may at its sole
option in addition to other remedies terminate your right to use the
SOFTWARE.
2. USING COMPILED QUERY ROUTINES
2.1 QUERY ROUTINES
Compiled Query Routines that are generated by the [*] compiler may
be used, given away or sold without additional license or fees.
3. LIMITED WARRANTY
3.1 DISTRIBUTION MEDIA AND DOCUMENTATION
[*] warrants the physical distribution media (diskettes, tape, etc.)
and physical documentation shipped with the SOFTWARE to be free of
defects in materials and workmanship for a period of 60 days from the
purchase date. If [*] receives notification within the warranty period
of defects in materials or workmanship, and such notification is
determined to be correct, [*] will replace the defective distribution
media or documentation.
3.2 PRODUCT RETURNS
DO NOT RETURN ANY PRODUCT UNTIL YOU HAVE CALLED THE [*] CUSTOMER
SERVICE DEPARTMENT AND OBTAINED AUTHORIZATION FOR SUCH RETURN.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
<PAGE> 54
3.3 BREACH OF THIS LIMITED WARRANTY
The entire and exclusive liability and remedy for breach of this
Limited Warranty shall be limited to replacement of defective
distribution media or documentation and shall not include or extend
any claim for or right to recover any damages, including but not
limited to, loss of profit, data or use of the SOFTWARE, or special,
incidental or consequential damages or other similar damage claims,
even if [*] has been specifically advised of the possibility of such
damages. In no event will [*] liability for any damages to you or
any other person ever exceed the lower of suggested list price or
actual price paid for the license to use the SOFTWARE, regardless of
any form of claim.
3.4 YOUR LEGAL RIGHTS
This limited warranty gives you specific legal rights; you may have
others which vary from state to state. Some states do not allow the
exclusion of incidental or consequential damages, or the limitation on
how long an implied warranty lasts, so some of the above may not apply
to you.
3.5 NO OTHER WARRANTIES
[*] SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
4. GOVERNING LAW AND GENERAL PROVISIONS
4.1 STATE OF VIRGINIA
This license and Limited Warranty shall be construed, interpreted and
governed by the laws of the State of Virginia and any action hereunder
shall be brought only in Virginia. If any provision is found void,
invalid or unenforceable it will not affect the validity of the
balance of this license and Limited Warranty which shall remain valid
and enforceable according to its terms. If any remedy hereunder is
determined to have failed of its essential purpose, all limitations of
liability and exclusion of damages set forth herein shall remain in
full force and effect. This License and Limited Warranty may only be
modified in writing signed by you and a specifically authorized
representative of [*].
4.2 RESTRICTED RIGHTS LEGEND
Use, duplication or disclosure by the U.S. Government of the computer
software and documentation in this package shall be subject to the
restricted rights under DFARS 52.227-7013 applicable to commercial
computer software. All rights not specifically granted in this
statement are reserved by [*].
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 55
[*] ADDENDUM
The following provisions apply to the license to the [*] Corporation object code
version of [*] Software") licensed under the Agreement.
1. If there is a limitation on the number of copies specified in Exhibit 1(a)
of the Agreement, then You may not make any additional copies of the [*]
Software and may use only the number of copies stated in Exhibit 1 (a). If
Exhibit 1(a) states that you have a site license, then You may use an
unlimited number of copies of the [*] Software for a single Directory, but
only in conjunction with Your licensed use of Program Property. In either
case, this is a run-time license only.
2. You shall not grant any sublicenses to the [*] Software to any other party
and You shall not sell or otherwise transfer any copies to any other party.
3. The [*] Software remains the proprietary property of [*] Corporation. You
shall not reverse engineer, disassemble, or decompile the [*] Software. You
shall comply with all United States export or technology transfer
restrictions at all times in connection with the [*] Software.
4. DISCLAIMER OF WARRANTY: THE [*] SOFTWARE (INCLUDING WITHOUT LIMITATION ANY
DOCUMENTATION RELATED TO THE [*] SOFTWARE) IS BEING PROVIDED AND IN EACH CASE
SHALL BE PROVIDED TO YOU STRICTLY "AS IS" WITHOUT WARRANTY OF ANY KIND. NO
WARRANTY OF ANY KIND IS BEING PROVIDED OR WILL BE PROVIDED TO YOU OR ANY THIRD
PARTY. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE [*] SOFTWARE IS
HEREBY EXPRESSLY ASSUMED BY YOU. EPIC AND [*] CORPORATION EACH HEREBY DISCLAIM
ANY AND ALL WARRANTIES OF ANY KIND OR NATURE PERTAINING OR RELATING TO THE [*]
SOFTWARE OR ANY PART THEREOF, WHETHER EXPRESS OR IMPLIED OR WRITTEN OR ORAL,
INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission
<PAGE> 1
EXHIBIT 10.15
[MEDIC COMPUTER SYSTEMS LOGO]
This MASTER SOFTWARE LICENSE AND MAINTENANCE AGREEMENT ("Agreement") is made
this 1st day of May 1999, between Medic Computer Systems, Inc., having its
principal offices at 8601 Six Forks Road, Suite 300, Raleigh, North Carolina
27615 ("Medic") and The TriZetto Group Inc., having its principal office at 567
San Nicolas Drive, Suite 360, Newport Beach, California, 92660. ("Client").
1. LICENSE.
In accordance with the terms herein, Medic grants to Client, and Client accepts
from Medic, a perpetual, nonexclusive and nontransferable license to use the
software and related documentation described on the Purchase Schedule attached
hereto (the "Software") for the number of users as set forth on the Purchase
Schedule. All modifications, enhancements and updates to the Software provided
by Medic shall become part of the Software and subject to the terms and
conditions herein.
The Software shall be used only for Client's internal business needs and shall
be installed on a Central Processing Unit ("CPU") installed at the above
address; provided that Client may use the Software in combination with a
different CPU upon the payment of an additional license fee. Client shall not
permit any third party to use the Software or grant a sublicense for the use of
the Software, or allow access to the licensed Software through terminals located
outside Client's business premises.
In the event that Client should hereafter combine with any other entity or
person, Client shall promptly notify Medic of such combination and that portion
of the combined entity or person previously unlicensed to use the Software
shall be licensed to use the Software only upon the payment of an additional
license fee.
2. COPIES.
The license granted herein includes the right to copy the object code only in
non-printed, machine readable form in whole or in part as necessary for
Client's own business use, including the making of back-up copies. In order to
protect Medic's trade secret and copyrights in the Software, Client agrees to
reproduce and incorporate Medic's trade secret or copyright notice in any
allowed copies, compilations, modifications or partial copies. Client may
obtain additional copies from Medic at Medic's standard prices then in effect.
Violation of any provision of this paragraph shall be the basis for immediate
termination of this Agreement.
3. PRICE AND PAYMENT.
Client shall pay Medic an initial payment of [*] of the Total Purchase Price as
set forth in the Purchase Schedule upon execution of this Agreement and
the remaining [*] of the Total Purchase Price upon installation of the
Software. In addition to the license fee, Client shall pay all transportation
charges and all taxes (including, but not limited to sales, use, privilege, ad
valorem or excise taxes, but excluding all income taxes payable by Medic),
however designated, levied or based on amounts payable to Medic under this
Agreement. All payments hereunder shall be made in United States Dollars. All
other payments shall be due and payable within thirty (30) days of date of
invoice. On any invoice not paid within thirty (30) days, Client shall pay a
service charge accruing thereafter until the date of payment equal to the lesser
of (i) the rate of one and one-half percent (1.5%) per month, or (ii) the
maximum lawful interest rate applicable. On noncredit sales, shipment shall be,
at Medic's election, either cash with order, C.O.D. or other normal commercial
means. All collection costs shall be borne by Client, including reasonable
attorney's fees, in the event Medic commences litigation upon default by Client
of its obligation under this Agreement.
In the event that Client is leasing, the Total Purchase Price shall be due and
payable upon installation of the Software and the delivery and acceptance
receipt of the leasing company must be signed upon Software installation.
4. TITLE TO SOFTWARE AND CONFIDENTIALITY.
The Software, any modifications thereto, all programs developed hereunder, and
all copies thereof are proprietary to Medic (or to the third parties under
whose license Medic may distribute the Software) and title thereto remains in
Medic or in such third party. All applicable rights to patents, copyrights,
trademarks and trade secrets in the Software or any modifications made at
Client's request are and shall remain in Medic or in such third party. Client
shall not reverse assemble or decompile in whole or in part the Software.
Client shall not sell, license, transfer, publish, disclose, display or
otherwise make available the Software or copies thereof to others. Client agrees
to secure and protect the Software, documentation and copies thereof in a
manner consistent with the maintenance of Medic's rights therein and to take
appropriate action by instruction or agreement with its employees or consultants
who are permitted access to the Software to satisfy its obligations hereunder.
Violation of any provision of this paragraph shall be the basis for immediate
termination of this Agreement. The obligations set forth in this paragraph
shall survive the cancellation of this agreement. Liability for breach of this
clause shall not be limited to the dollar value of the contract.
Each party agrees that it shall not disclose to any third party the terms and
conditions of this Agreement or any information concerning the customers, trade
secrets, methods, processes or procedures or any other confidential, financial,
or business information of the other party which it learns during the course of
its performance of this Agreement, without the prior written consent of such
other party. This obligation shall survive the cancellation or other termination
of this Agreement.
5. TRAINING.
Medic will furnish Client with the number of training and implementation hours
identified on the Purchase Schedule attached
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
1
<PAGE> 2
hereto. Client shall be responsible for training key personnel and new staff
additions on proper use of the Software.
6. MAINTENANCE.
(a) Medic agrees, upon Client's request and payment of the applicable
maintenance fees, to provide the following maintenance support and services for
the Software: 1-800 Help Desk Support 8:00 A.M. - 9:00 P.M. Eastern Time,
Monday through Friday, Medic recognized holidays excluded; and Beeper service
9:00 A.M. - 6:00 P.M. ET Saturday and Sunday for emergency calls only. Beeper
service outside these hours and nonemergency calls are billable at Medic's then
prevailing rates.
(b) Helpdesk Support is defined as telephone support for Medic's Software.
This service ranges from simple application questions to in-depth technical
assistance. Help Desk Services does not provide unlimited training via phone
support. Examples of the in-depth services provided are rebuilding corrupted
data files and troubleshooting Medic equipment i.e. terminals and printers.
Network Support Services are not included in standard Help Desk Support, but
may be contracted for separately. If a hardware problem is diagnosed and cannot
be resolved over the phone, Medic Help Desk Support Staff will communicate the
problem to our Field Engineering Dispatcher who, if Client is covered by Medic
Hardware Maintenance, will contact Hardware Support for service.
(c) Medic shall use commercially reasonable efforts to provide periodic
Software releases that include enhancements, state and national insurance
changes and corrections to the Software, as applicable.
(d) Medic shall not be responsible for maintaining Client- or
third-party-modified portions of the Software or portions of the Software
affected by such modifications. Corrections for difficulties or defects
traceable to the Client's or a third party's errors or system changes may be
billed to Client at Medic's then standard time and material charges. Medic
shall be responsible for maintaining only the current and next most current
release of the Software.
7. CLIENT'S RESPONSIBILITIES.
In the event that Client requests maintenance services pursuant to Paragraph 7
herein,
(a) Client shall backup, without errors, its financial and medical data on a
daily basis per documentation and follow all standard practices and procedures
in accordance with the Software documentation when operating the computer
system, regardless of the Software, including the performance of all remedial
and corrective actions prior to seeking assistance from Medic.
(b) Client shall maintain hardware equipment on which the Software is
installed in good working order whether under Medic, third party or time and
material maintenance. If hardware is not covered under formal maintenance,
Client must maintain adequate maintenance logs to document on-going hardware
maintenance and service.
(c) Client shall identify and provide a "key" individual contact, who has been
trained by Medic staff, to act as a liaison between Client and Medic.
(d) Client shall provide Medic access to the Software via a support modem over
a dedicated, data quality telephone line. Such access shall allow Medic, from
time to time, to conduct an audit of the Software. As required by Medic, Client
shall provide Medic with sufficient documentation, information, assistance,
support and test time on Client's computer system, to duplicate the problem,
certify that the problem is with the Software, and certify that the problem has
been corrected.
(e) Client shall take all necessary steps to ensure that no virus is loaded on
the system running the Software from any outside source. Virus diagnosis and
removal services are not covered by Software maintenance and are billable at
the then prevailing rates.
(f) Client shall install all updates within thirty (30) days of receipt from
Medic thereby maintaining the system on Medic's most recent release.
8. CHARGES FOR MAINTENANCE SUPPORT AND TERM.
(a) The charges for software maintenance are those identified in the attached
Purchase Schedule. All invoices shall be due and payable in full thirty (30)
days from the date of such invoice. All invoices past due shall bear interest
thereafter until the date of payment at a rate equal to the lesser of (i) the
rate of one and one-half percent (1.5%) per month, or (ii) the maximum lawful
interest rate applicable. All charges are subject to change at any time after
the end of the initial one (1) year term. Appropriate taxes will be added to
the charges as necessary and applicable. If Client goes over sixty (60) days
without payment, Client's account will be put on support hold. No company
services, including EDI services, will be provided until account is brought
current. If Client elects not to purchase software maintenance or Client
discontinues maintenance and then subsequently elects to obtain maintenance,
maintenance will be available for the normal fee plus a one-time fee equal to
all missed maintenance fees and a one time charge of $[*], provided Medic can
bring Client up to the current release.
(b) The initial term of this Agreement shall be one year. All charges are
subject to change at any time after the end of the initial one (1) year term.
Thereafter, the term of this Agreement shall be automatically extended for
successive one year periods until terminated by either party upon prior written
notice to the other, which notice shall be given at least ninety (90) days
prior to the end of the applicable term. Maintenance for any additional options
or applications installed shall commence pursuant to this Agreement upon
installation of such software and upon payment of the applicable maintenance
fee shown on the Purchase Schedule, as such Schedule may be modified from time
to time.
9. CHARGES FOR EDI SERVICES AND TERM.
The charges for EDI services are those identified in the attached Purchase
Schedule. All invoices shall be due and payable in full thirty (30) days from
the date of such invoice. Medic will provide FastServices as outlined in the
attached Purchase Schedule for as long as the Client elects to utilize this
service. Either party may terminate FastServices by giving the other thirty
(30) days written notice prior to termination. Medic reserves the right to
terminate FastServices if an account is over sixty (60) days past due.
- - FastClaim
MEDIC shall not be responsible for any errors or omissions in any Claims
received from Client or transmitted to Payers. MEDIC shall not be responsible
for any unauthorized or other improper transmission by or on behalf of any Payee
or any other person and Payers shall be responsible to verify the authenticity
of each Claim.
Record Keeping and Transmission Verification
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
2
<PAGE> 3
CLIENT SHALL MAINTAIN A PERMANENT, COMPLETE, AND ACCURATE RECORD OF ALL CLAIMS
TRANSMITTED THROUGH THE MEDIC FASTCLAIM SYSTEM, INCLUDING THE NUMBER OF CLAIMS
PER TRANSMISSION AND THE TOTAL DOLLAR AMOUNT OF EACH TRANSMISSION. ALL SUCH
RECORDS SHALL BE RETAINED AND PRESERVED FOR AT LEAST EIGHTEEN (18) MONTHS FROM
THE DATE OF TRANSMISSION AND SHALL BE SUBJECT TO INSPECTION, COPYING, AND AUDIT
BY MEDIC AT ALL REASONABLE TIMES. IT IS ALSO THE RESPONSIBILITY OF CLIENT TO
REVIEW EACH TRANSMISSION REPORT SENT TO CLIENT BY MEDIC AND TO IMMEDIATELY
NOTIFY MEDIC OF ANY ERROR, OMISSION, OR OTHER DISCREPANCY BETWEEN THE REPORT AND
THE ACTUAL CLAIMS TRANSMITTED.
- - FastReceipt
Client agrees to reimburse Medic for any insufficient or returned checks that
appear in the FastReceipt process
- - FastBill
Client acknowledges that Medic is using the USPS FastForward Move update on
Client's records and Client agrees to comply with the USPS regulations. All
forward results would be utilized for the sole purpose of updating preexisting
addresses.
10. DATA CONVERSION.
Medic to use commercially reasonable efforts to convert data (if possible)
including patient demographics and associated balance forwards, only as
identified in the attached Purchase Schedule. Where a conversion is desired,
Client agrees to provide the contact person and the telephone number of its
current computer system vendor, and is responsible (through its vendor) for
providing to Medic all necessary and specified tapes, diskettes, and/or file
components and documentation necessary to perform an electronic conversion. All
costs associated with the electronic conversion (i.e. media, freight, current
vendor costs, readable data format, data conversion lab) are the responsibility
of Client. A conversion implementation schedule will be developed and mutually
agreed upon by Medic and Client.
11. INDEMNITY.
Medic at its own expense will defend and hold Client harmless from any claim
asserted against Client to the extent that it is based on a claim that any
Software used within the scope of this Agreement infringes any patents,
copyrights, license or other property right of a third party. Client shall
promptly notify Medic in writing of such claim. Medic shall have the right to
control the defense of all such claims, lawsuits and other proceedings. In no
event shall Client settle any such claim, lawsuit or proceeding without Medic's
prior written approval. In all events, Client shall have the right to
participate in the defense of any such suit or proceeding through counsel of
its own choosing. If, as a result of any claim of infringement against any
patent, copyright, license or other property right, Medic or Client is enjoined
from using the Software, or if Medic believes that the Software is likely to
become the subject of a claim of infringement, Medic at its option and expense
may (i) procure the right for Client to continue to use the Software, (ii)
replace or modify the Software so as to make it noninfringing, with similar
functionality, or (iii) discontinue the license granted herein and refund to
Client the license fees paid hereunder. The foregoing states the entire
liability of Medic with respect to infringement of any copyrights or patents by
the Software or any parts thereof. This indemnity shall not apply if the
infringement is caused in whole or in part by Software changes made by Client
or other non-Medic personnel.
12. WARRANTY AND DISCLAIMER OF WARRANTIES.
(a) Medic represents that for a period of ninety (90) days from the
installation of the Software, the Software will (i) conform, as to all
substantial operational features, to Medic's documentation provided with the
Software when installed and properly used in the operating environment
specified in such documentation and (ii) be free of defects under normal use
which substantially affect system performance. Medic does not represent that
the functions contained in the Software will meet Client's requirements or
that the operation of the Software will be uninterrupted or error free.
(b) The Client must notify Medic in writing, within ninety (90) days from
the date of installation of the Software of its claim of any such defect. If
the Software is found defective by Medic, Medic's sole obligation under this
warranty is to remedy such defect.
(c) With respect to maintenance services provided, Client agrees that
Medic's obligations under this Agreement are to use commercially reasonable
efforts to diagnose errors or malfunctions in the system, and to advise Client
of possible corrective measures.
(d) THE ABOVE IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY
MEDIC. MEDIC MAKES AND CLIENT RECEIVES NO OTHER WARRANTY, EXPRESS OR IMPLIED
AND THERE ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. EXCEPT FOR CLAIMS BROUGHT UNDER PARAGRAPH 11, MEDIC
SHALL HAVE NO LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, OR
INCIDENTAL DAMAGES OR FOR ANY DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE,
DATA OR PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE USE
OR PERFORMANCE OF THE SOFTWARE, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. IN NO EVENT SHALL MEDIC BE LIABLE IN THE AGGREGATE FOR ANY
CLAIMS OR DAMAGES IN AN AMOUNT EXCEEDING THE AMOUNT PAID BY CLIENT FOR THE
SOFTWARE LICENSE SET FORTH IN THE ATTACHED PURCHASE SCHEDULE.
(e) The warranty shall not apply if modifications to the Software made by
Client are the cause of any operational difficulties experienced. If
difficulties or defects are traceable to Client's errors or systems changes,
any repairs or corrections made by Medic may, at Medic's discretion, be billed
at Medic's then prevailing time and materials charges.
(f) Medic warrants that the Medic PM version 7.0.X, dated 12/15/97 or
later has been programmed to be year 2000 compatible, in addition IBM warrants
that AIX version 4.3.1 has been programmed to be year 2000 compatible.
Additionally, Client shall be entitled to any warranties which are afforded
Medic through its third party relationships.
Medic has defined "Y2K Compatible" as meaning that Medic applications (i) will
completely and accurately address, present, produce, store and calculate data
involving dates from, into and between the twentieth and twenty-first
centuries, which includes the years 1999 and 2000 and any leap year
calculations, and will not produce abnormally ending or incorrect results
involving such dates as used in any forward or regression date based function;
and (ii) will support both two and four digit years to be displayed where
<PAGE> 4
appropriate and will perform calculations which involve a four digit year field.
13. CANCELLATION.
If Client fails to pay any amount due hereunder or otherwise commits a breach
hereof, and persists in such failure for ten (10) days after receiving written
notice thereof from Medic, Medic may cancel this Agreement and declare any
unpaid amounts owed hereunder immediately due and payable. Thereupon Client
shall immediately return the Software and related documentation and all copies
thereof to Medic. Cancellation of the license granted hereunder shall be in
addition to and not in lieu of any other remedies available to Medic.
14. SOURCE CODE ESCROW.
A current version of the Software source code and all necessary documentation
has been put into escrow with the law firm of Wyrick Robbins Yates & Ponton LLC
in Raleigh, North Carolina. Source code is eligible for release in the event
Medic liquidates or shall be declared bankrupt. If Client receives source code
under the above circumstances, such source code shall be deemed to be Software
and subject to the term and conditions herein. The source code is to be used
solely for Client's maintenance of the Software.
15. HIRING OF EMPLOYEES.
During the term of the Agreement and for one year thereafter, Client will not,
without the prior written consent of Medic, offer employment to, employ or
subcontract work to any person employed then or within the preceding twelve
months by Medic. If this provision is violated, client agrees to pay as
damages, an amount equal to one times the annual compensation of the employee
or subcontractor to Medic.
16. GENERAL.
(a) The terms of this agreement will take precedence over the terms of any
present or future order from Client for any license or services hereunder. This
Agreement is a master software license and maintenance agreement. It is
contemplated that additional software may be licensed hereunder by supplementing
the Purchase Schedule attached hereto with later dated schedules upon agreement
by both parties hereto. Notwithstanding any revision of the Purchase Schedule,
this Agreement shall continue in full force and effect and shall govern all such
later dated schedules and transactions as if such schedules were part of this
Agreement on the date this Agreement was executed. Client agrees that the
installation of future software from Medic is conclusive evidence of its
agreement that the license for such software provided is governed by the terms
of this Agreement.
(b) Client shall, notwithstanding any assistance from Medic, bear the sole
risk and responsibility for 1) the selection of the Software to achieve the
Client's intended use; 2) proper use of the Software; 3) its satisfaction with
the results achieved through operation of the Software; and 4) any
modifications made to the Software by Client.
(c) If Software is lost or damaged during shipment from Medic, Medic shall
replace such Software at no additional charge to Client. If Software is lost or
destroyed while in the possession of the Client, Medic shall replace such
Software, upon Client's request, at Medic's then prevailing replacement charges.
(d) Each party acknowledges that it has read this Agreement, understands it,
and agrees to be bound by its terms, and further agrees that this Agreement
along with the Hardware Equipment and Maintenance Agreement and the Purchase
Schedule attached hereto is complete and exclusive statement of the Agreement
between the parties with respect to the license of the Software or otherwise
relating thereto, which supersedes all prior proposals, understandings and all
other agreements, oral and written. This Agreement may not be modified or
altered except by a written instrument duly executed by both parties.
(e) Neither party hereto shall be liable or deemed in default for any delay or
failure in performance hereunder resulting from any cause beyond its reasonable
control.
(f) This Agreement, and any action arising out of or related to it, shall be
governed by and construed in accordance with the laws of the State of North
Carolina. In the event that any action or proceeding is brought in connection
with this Agreement, the prevailing party shall be entitled to recover its
costs and reasonable attorneys' fees.
(g) If any provision of this Agreement shall be held to be invalid or
otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired.
(h) This Agreement shall be binding upon and for the benefit only of the
parties hereto and their respective successors and permitted assigns. Client
may assign this Agreement and any of its rights, duties or obligations
hereunder only with the prior written consent of Medic. Transfer of Client's
rights and obligations under this Agreement will require an additional
Software license fee paid to Medic unless otherwise specified.
(i) The waiver or failure of Medic to exercise in any respects any right
provided for herein shall not be deemed a waiver of any further right
hereunder.
(j) All communications or notices permitted or required to be given or served
under this Agreement shall be in writing, shall be addressed to the parties at
the appropriate party's address as set forth below, and shall be deemed to have
been duly given or served if delivered in person or deposited in the United
States mail, certified mail, return receipt requested.
(k) Any dispute or claim arising out of, or in connection with, this Agreement
shall be finally settled by binding arbitration in Raleigh, North Carolina, in
accordance with N.C. Gen. Stat. Section 1-567.1 et seq. (the "Uniform
Arbitration Act") and the then-current rules and procedures of the American
Arbitration Association by one (1) arbitrator appointed by the American
Arbitration Association. The arbitrator shall apply the law of the State of
North Carolina, without reference to rules of conflict of law or statutory rules
of arbitration, to the merits of any dispute or claim. Judgment on the award
rendered by the arbitrator may be entered in any North Carolina court of
competent jurisdiction. The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrator shall have no
authority to award punitive or exemplary damages against any party.
APPROVAL
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representative.
Approved By: Approved By:
MEDIC COMPUTER SYSTEMS, INC. CLIENT
By: /s/ M.K. O'Leary By: /s/ Kerry M. Kearns
---------------------------- ----------------------
Signature Signature
Name: /s/ M.K. O'Leary Name: /s/ Kerry M. Kearns
------------------------- --------------------
Printed Printed
Title: CEO Title: Senior VP
------------------------ --------------------
Date: 5/3/99 Date: 5/3/99
------------------------ --------------------
5
<PAGE> 6
SOFTWARE LICENSE AND MAINTENANCE AGREEMENT ADDENDUM
This Software License and Maintenance Agreement Addendum is entered
into this 1st day of May, 1999, by and between Medic Computer Systems, Inc.
("Medic") and The TriZetto Group Inc. ("TriZetto"), to supplement and modify the
terms and conditions of the Software License and Maintenance Agreement
("Agreement") being executed concurrently herewith and to which this Addendum is
attached and incorporated by reference, as if fully set forth in such Agreement.
WITNESSETH:
WHEREAS, the parties intend to supplement and modify their Agreement to
the extent provided for herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and as set forth in the parties' Agreement, Medic and TriZetto do
hereby agree as follows:
1. [*]
2. [*]
3. Terms of payment are outlined as follows:
Initial payment due to execute Agreement is [*] of total investment or $[*].
Additional [*] payments each in the amount of [*] are due at the beginning
of each month following completion of the Agreement until total investment,
$[*] is paid in full. The first of the installment payments shall be made
on [*].
4. Set forth on Exhibit A hereto are Sections from the Agreement, which are
hereby amended to reflect the changes thereon and except as expressly
indicated on Exhibit A hereto, all other Sections of the Agreement shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the date
first written above.
MEDIC COMPUTER SYSTEMS, INC. THE TRIZETTO GROUP
By: /s/ M. K. O'Leary By: /s/ Kerry M. Kearns
--------------------------- ----------------------------
Its: CEO Its: SVP
--------------------------- ----------------------------
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 7
EXHIBIT A
Revised TERMS OF AGREEMENT
1. Revised Section 1:
License.
In accordance with the terms herein, Medic grants to Client, and Client accepts
from Medic, a perpetual, nonexclusive and nontransferable license to use the
software and related documentation described on the Purchase Schedule attached
hereto (the "Software") for the number of users, and Medic companies as set
forth on the Purchase Schedule. All modifications, enhancements and updates to
the Software provided by Medic shall become part of the Software and subject to
the terms and conditions herein.
The Software shall be used only (i) for Client's internal business needs and
(ii) for Client's use on behalf of third parties in connection with Client's
provision of application support services to such third parties on a contract or
outsource basis, and shall be installed on no more than 6 Central Processing
Units ("CPUs"); provided that Client may transfer the Software to different CPUs
upon notification to Medic; provided that Client may be required to pay an
additional license fee in the event that Client installs the Software on more
than 6 CPUs, with the amount of such additional license fee to be determined by
Client and Medic after good faith negotiations. Client shall not permit any
third party to use the Software or grant a sublicense for the use of the
Software; or allow access to the licensed Software through terminals located
outside of premises controlled by or operated by or on behalf of Client or for
Customers of Client. Nothing in this section is intended to precluded Client's
ability to offer remote access to its customers for application services.
2. Revised Section 2:
Copies.
The license granted herein includes the right to copy the object code only in
non-printed, machine readable form in whole or in part as necessary for Client's
use as contemplated in Section 1 above, including the making of back-up copies.
In order to protect Medic's trade secret and copyrights in the Software, Client
agrees to reproduce and incorporate Medic's trade secret or copyright notice in
any allowed copies, compilations, modifications or partial copies. Client may
obtain additional copies from Medic at prices to be agreed to by Client and
Medic after good faith negotiations. Violation of any provision of this
paragraph shall be the basis for immediate termination of this Agreement.
3. Revised Section 3:
Price and Payment.
<PAGE> 8
Client shall pay Medic an initial payment of $[*] from the Total Purchase Price
as set forth in the Purchase Schedule upon execution of this Agreement and the
remaining $[*] of the Total Purchase Price shall be paid in [*] installments of
$[*] thereafter (the first installment being due on [*]), until paid in full. In
addition to the license fee, Client shall pay all transportation charges and all
taxes (including, but not limited to, sales, use, privilege, ad valorem or
excise taxes, but excluding all income taxes payable by or attributable to
Medic), however designated, levied or based on amounts payable to Medic under
this Agreement. All payments hereunder shall be made in United States Dollars.
All other payments shall be due and payable within thirty (30) days of date of
invoice. On any invoice not paid within thirty (30) days, Client shall pay a
service charge accruing thereafter until the date of payment equal to the lesser
of (i) the rate of one and one-half percent (1.5%) per month, or (ii) the
maximum lawful interest rate applicable. On noncredit sales, shipment shall be,
at Medic's election, either cash with order, C.O.D. or other normal commercial
means. All collection costs shall be borne by Client, including reasonable
attorneys' fees, in the event Medic commences litigation upon default by Client
of its obligations to pay any amounts owing to Medic under this Agreement.
4. Revised Section 4:
Title to Software and Confidentiality.
The Software, any modifications thereto, all programs developed hereunder, and
all copies thereof are proprietary to Medic (or to the third parties under whose
license Medic may distribute the Software) and title thereto remains in Medic or
in such third party. All applicable rights to patents, copyrights, trademarks
and trade secrets in the Software or any modifications made at Client's request
are and shall remain in Medic or in such third party. Client shall not reverse
assemble or decompile in whole or in part the Software. Client shall not sell,
license, transfer, publish, disclose, display or otherwise make available the
Software or copies thereof to others, except for individuals who may be agents,
independent contractors and/or consultants of Client who perform installation,
integration and/or support services on behalf of Client and who shall agree to
be bound by the provisions set forth in this Section 4. Client agrees to secure
and protect the Software, documentation and copies thereof in a manner
consistent with the maintenance of Medic's rights therein and to take
appropriate action by instruction or agreement with its employees, agents,
independent contractors or consultants who are permitted access to the Software
to satisfy its obligations hereunder. Violation of any provision of this
paragraph shall be the basis for immediate termination of this Agreement. The
obligations set forth in this paragraph shall survive the cancellation of this
Agreement. Liability for breach of this clause shall not be limited to the
dollar value of the contract.
Each party agrees that it shall not disclose to any third party the terms and
conditions of this Agreement or any information concerning the customers, trade
secrets, methods, processes or procedures or any other confidential, financial,
or business information of the other party which it learns during the course of
its performance of this Agreement, without the prior written consent of such
other party. This obligation shall survive the cancellation or other termination
of this Agreement.
5. Revised Sections 7(b), 7(d), 7(e) and 7(f):
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 9
(b) Client shall maintain hardware equipment on which the Software is installed
in good working order whether under Medic, third party or time and material
maintenance. If hardware is not covered under formal maintenance, Client must
maintain reasonably adequate maintenance logs to document on-going hardware
maintenance and service.
(d) Client shall provide Medic access to the Software via a support modem over a
dedicated, data quality telephone line. Such access shall allow Medic, from time
to time, to conduct an audit of the Software. As reasonably required by Medic,
Client shall provide Medic with sufficient documentation, information,
assistance, support and test time on Client's computer system, to duplicate the
problem, certify that the problem is with the Software, and certify that the
problem has been corrected.
(e) Client shall take all necessary steps to reasonably ensure that no virus is
loaded on the system running the Software from any outside source. Virus
diagnosis and removal services are not covered by Software maintenance and are
billable at the then prevailing rates.
(f) Client shall install all updates within one hundred twenty (120) days of
receipt from Medic thereby maintaining the system on Medic's most recent
release.
6. Revised Section 8(b):
((b) The licenses granted pursuant to section 1 of this Exhibit A are perpetual,
however, as it relates to section 8 of The Master Software and Maintenance
Agreement, the initial term of this Agreement shall be one year. All charges are
subject to change at any time after the end of the initial one (1) year term,
provided that Medic shall not increase any charges by more than the percentage
increase in the then current CPI as compared to the prior year, plus two percent
(2%). Thereafter, the term of this Agreement shall be automatically extended for
successive one year periods until terminated by either party upon prior written
notice to the other, which notice shall be given at least ninety (90) days prior
to the end of the applicable term. Maintenance for any additional options or
applications installed shall commence pursuant to this Agreement upon
installation of such software and upon payment of the applicable maintenance fee
shown on the Purchase Schedule, as such Schedule may be modified in a writing
signed by Medic and Client from time to time.
7. Revised Section 9:
Charges for EDI Services and Term.
The charges for EDI services are those identified in the attached Purchase
Schedule. All invoices shall be due and payable in full thirty (30) days from
the date of such invoice. Medic will provide FastServices as outlined in the
attached Purchase Schedule for as long as the Client elects to utilize this
service. Either party may terminate FastServices by giving the other thirty (30)
days written notice prior to termination. Medic reserves the right to terminate
FastServices if an account is over sixty (60) days past due.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 10
FastClaim
MEDIC shall not be responsible for any errors or omissions in any Claims
received from Client or transmitted to Payers. MEDIC shall not be responsible
for any unauthorized or other improper transmission by or on behalf of any Payee
or any other person and Payers shall be responsible to verify the authenticity
of each Claim.
Record Keeping and Transmission Verification
CLIENT SHALL MAINTAIN A PERMANENT, COMPLETE, AND ACCURATE RECORD OF ALL CLAIMS
TRANSMITTED THROUGH THE MEDIC FASTCLAIM SYSTEM, INCLUDING THE NUMBER OF CLAIMS
PER TRANSMISSION AND THE TOTAL DOLLAR AMOUNT OF EACH TRANSMISSION. ALL SUCH
RECORDS SHALL BE RETAINED AND PRESERVED FOR AT LEAST EIGHTEEN (18) MONTHS FROM
THE DATE OF TRANSMISSION AND SHALL BE SUBJECT TO INSPECTION, COPYING, AND AUDIT
BY MEDIC AT REASONABLE TIMES UPON REASONABLE PRIOR WRITTEN NOTICE. IT IS ALSO
THE RESPONSIBILITY OF CLIENT TO REVIEW EACH TRANSMISSION REPORT SENT TO CLIENT
BY MEDIC AND TO NOTIFY MEDIC OF ANY ERROR, OMISSION, OR OTHER DISCREPANCY
BETWEEN THE REPORT AND THE ACTUAL CLAIMS TRANSMITTED AS SOON AS REASONABLY
PRACTICABLE AFTER RECEIPT OF SUCH REPORT.
FastReceipt
Client agrees to reimburse Medic for any insufficient or returned checks that
appear in the FastReceipt process.
FastBill
Client acknowledges that Medic is using the USPS FastForward Move update on
Client's records and Client agrees to comply with the USPS regulations. All
forward results would be utilized for the sole purpose of updating preexisting
addresses.
8. Revised Section 11:
Indemnity.
Medic at its own expense will defend and hold Client harmless from any claim
asserted against Client to the extent that it is based on a claim that any
Software used within the scope of this Agreement infringes any patents,
copyrights, license or other property right of a third party. Client shall
promptly notify Medic in writing of such claim; provided that the failure to
give such prompt notice shall not affect Medic's obligations hereunder except to
the extent, and solely to the extent, Medic is prejudiced thereby. Medic shall
have the right to control the defense of all such claims, lawsuits and other
proceedings. In no event shall Client settle any such claim, lawsuit or
proceeding without Medic's prior written approval. In all events, Client shall
have the right to participate in the defense of any such suit or proceeding
through counsel of its own choosing. If, as a result of any claim of
infringement against any patent, copyright, license or other property right,
Medic or Client is enjoined from using the Software, or if Medic believes that
the Software is likely to become the subject of a claim of infringement, Medic
at its option and expense may (i) procure the right
<PAGE> 11
for Client to continue to use the Software, (ii) replace or modify the Software
so as to make it noninfringing, with similar functionality, or (iii) discontinue
the license granted herein and refund to Client the license fees paid hereunder.
The foregoing states the entire liability of Medic with respect to infringement
of any copyrights or patents by the Software or any parts thereof. This
indemnity shall not apply to the extent, and solely to the extent, the
infringement is caused in whole or in part by Software changes made by Client or
other non-Medic personnel.
9. Revised Section 12:
Warranty and Disclaimer of Warranties.
(a) Medic represents that for a period of ninety (90) days from the installation
of the Software, the Software will (i) conform, as to all substantial
operational features, to Medic's documentation provided with the Software when
installed and properly used in the operating environment specified in such
documentation and (ii) be free of defects under normal use which adversely
affect system performance. Medic does not represent that the functions contained
in the Software will meet Client's requirements or that the operation of the
Software will be uninterrupted or error free.
(b) The Client must notify Medic in writing, within ninety (90) days from the
date of execution of this Agreement of its claim of any such defect. If the
Software is found defective by Medic in Medic's reasonable judgment, Medic's
sole obligation under this warranty is to remedy such defect
(c) With respect to maintenance services provided, Client agrees that Medic's
obligations under this Agreement are to use commercially reasonable efforts to
diagnose errors or malfunctions in the system, and to advise Client of possible
corrective measures.
(d) THE ABOVE IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY MEDIC.
MEDIC MAKES AND CLIENT RECEIVES NO OTHER WARRANTY, EXPRESS OR IMPLIED AND THERE
ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. EXCEPT FOR CLAIMS BROUGHT UNDER PARAGRAPH 11, MEDIC SHALL
HAVE NO LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL
DAMAGES OR FOR ANY DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE, DATA OR
PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE USE OR
PERFORMANCE OF THE SOFTWARE, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. IN NO EVENT SHALL MEDIC BE LIABLE IN THE AGGREGATE FOR ANY CLAIMS
OR DAMAGES IN AN AMOUNT EXCEEDING THE AMOUNT PAID BY CLIENT FOR THE SOFTWARE
LICENSE SET FORTH IN THE ATTACHED PURCHASE SCHEDULE.
(e) This warranty shall not apply if modifications to the Software made by
Client are the cause of any operational difficulties experienced. If
difficulties or defects are traceable to Client's errors or systems changes, any
repairs or corrections made by Medic may, at Medic's discretion, be billed at
Medic's then prevailing time and materials charges.
<PAGE> 12
(f) Medic warrants that the Medic PM version 7.0.X, dated 12/15/97 or later has
been programmed to be Y2K Compatible (as defined below), in addition IBM
warrants that AIX version 4.3.1 has been programmed to be Y2K Compatible.
Additionally, Client shall be entitled to any warranties which are afforded
Medic through its third party relationships.
Medic has defined "Y2K Compatible" as meaning that Medic applications (i) will
completely and accurately address, present, produce, store and calculate data
involving dates from, into and between the twentieth and twenty-first centuries,
which includes the years 1999 and 2000 and any leap year calculations, and will
not produce abnormally ending or incorrect results involving such dates as used
in any forward or regression date based function; and (ii) will support both two
and four digit years to be displayed where appropriate and will perform
calculations which involve a four digit year field.
10. Revised Section 13:
Cancellation.
If Client fails to pay any amount due hereunder or otherwise commits a
material-breach hereof, and persists in such failure for [*] days after
receiving written notice thereof from Medic, Medic may cancel this Agreement and
declare any unpaid amounts owed hereunder immediately due and payable. Thereupon
Client shall immediately return the Software and related documentation and all
copies thereof to Medic. Cancellation of the license granted hereunder shall be
in addition to and not in lieu of any other remedies available to Medic.
11. Revised Section 14:
Source Code Escrow.
A current version of the Software source code and all necessary documentation
has been put into escrow with the law firm of Wyrick Robbins Yates & Pouton LLC
in Raleigh North Carolina. Source code is eligible for release in the event
Medic liquidates or shall be declared bankrupt. If Client receives source code
under the above circumstances, such source code shall be deemed to be Software
and subject to the term and conditions herein. The source code is to be used
solely for Client's maintenance of the Software.
12. Revised Section 15:
Hiring of Employees.
During the term of the Agreement and for one year thereafter, neither party
will, without the prior written consent of the other, offer employment to (other
than general employment advertising), employ or subcontract work to any person
employed then or within the preceding twelve months by the other party. If this
provision is violated, the violating party agrees to pay as damages, an amount
equal to one times the annual compensation of the employee or subcontractor to
the other party.
<PAGE> 13
13. Revised Section 16(a), 16(d) and 16(h):
General.
(a) To the extent modified by the addendum attached hereto, the terms of this
agreement will take precedence over the terms of any present or future order
from Client for any license or services hereunder. This Agreement is a master
software license and maintenance agreement. It is contemplated that additional
software may be licensed hereunder by supplementing the Purchase Schedule
attached hereto with later dated schedules upon agreement by both parties
hereto. Notwithstanding any revision of the Purchase Schedule, this Agreement
shall continue in full force and effect and shall govern all such later dated
schedules and transactions as if such schedules were part of this Agreement on
the date this Agreement was executed. Client agrees that the installation of
future software from Medic is conclusive evidence of its agreement that the
license for such software provided is governed by the terms of this Agreement.
(d) Each party acknowledges that it has read this Agreement, understands it, and
agrees to be bound by its terms, and further agrees that this Agreement, to the
extent modified by the addendum attached hereto, and the Purchase Schedule
attached hereto is the complete and exclusive statement of the Agreement between
the parties with respect to the license of the Software or otherwise relating
thereto, which supersedes all prior proposals, understandings and all other
agreements, oral and written. This Agreement may not be modified or altered
except by a written instrument duly executed by both parties.
(h) This Agreement shall be binding upon and for the benefit only of the parties
hereto and their respective successors and permitted assigns. Client may assign
this Agreement and any of its rights, duties or obligations hereunder only with
the prior written consent of Medic, such consent shall not be unreasonably
withheld. Transfer of Client's rights and obligations under this Agreement will
require an additional Software license fee paid to Medic unless otherwise
specified.
<PAGE> 14
TriZetto Purchase Schedule 5/3/99
<TABLE>
<CAPTION>
S/W DISCOUNTED
ITEM # DESCRIPTION QUANTITY UNIT PRICE PRICE DISCOUNT TOTAL PRICE MAINT S/W MAINT
- ------ ----------- -------- ---------- ----- -------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MEDIC SOFTWARE & SERVICES [*] [*] [*] [*] [*] [*] [*]
900016 BASE SOFTWARE LICENSE (NO USERS)
FOR RS6000
9000x [*]Medic PM User licenses
213501 Cobol Runtime
9301X AutoChart Text-based
90296 Medic Companies *
9332X Autochart Companies
9423TR Train the Trainer (1st Student)
[*]
</TABLE>
Reference library of documentation includes the following:
Operator's Manual, Manager's Manual, MEDIC Training Manual,
Instructor's Manual, Hardware Manuals, Operating System Manuals,
Troubleshooting Manuals, Videos of Selected Classes, Training Data
Bases, CBT's, Daily Routines Multimedia CD-ROM (future), and
unlimited observation of a MEDIC Trainer "in action" at a MEDIC
Training Center (if space is available). This highly specialized
training requires that the student has completed basic +Medic PM
training and is familiar with how to use all standard ????
TOTAL DISCOUNTED LICENSING FEES [*]
Discounted Annual S/W Maintenance [*]
Savings from [*] discount [*]
Prices valid for 30 days. Quote based on entire configuration.
Charges for EDI Services are as detailed in the three (3) pages
attached to this Purchase Schedule.
* = See the attached list of Medic Companies.
Medic Computers, Inc Confidential
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
1
<PAGE> 15
TriZetto Purchase Schedule 5/3/99
MONTHLY SOFTWARE MAINTENANCE.
The first 90 days of usage are at no charge. Maintenance includes the following:
1. Unlimited Use of Toll-Free support Hotline
2. All future upgrades and updates to the +Medic system
3. All federally or state-mandated insurance revisions
4. Use of Medic's Toll-Free User Bulletin Board
5. Monthly support newsletter (tips & software update news)
6. Access to Medic's user section on our website.
TERMS:
[*] of total payment upon contract signature $[*]
The [*] additional [*] payments of [*] post contract signing until total
investment of $[*] is paid in full. Payments are subject to applicable taxation.
ACCEPTED:
/s/ Kerry M. Kearns 5/3/99
- ------------------------------------- --------------
Authorized Customer Signature Date
/s/ M. K. O'Leary 5/3/99
- ------------------------------------- --------------
Authorized Medic Computers Date
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
Medic Computers, Inc Confidential
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
2
<PAGE> 16
<TABLE>
<CAPTION>
PRACTICE NAME PROVIDERS USERS CPU PRACTICE PHONE # Location
------------- --------- ----- --- ---------------- --------
<S> <C> <C> <C> <C> <C>
[*]
</TABLE>
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 17
Amid pressures for cost containment, a growing need for more accurate
information as well as improved access to data, healthcare providers and
practice administrators are driving to move to EDI. Today, there is rapid
adoption of EDI in healthcare, as providers nationwide recognize the value of
electronic communications and are anxious to reap the rewards of moving from a
paper-based system to an electronic platform.
Medic's EDI Network Solutions generate tangible savings by:
[CHECK MARK] Dramatically reducing paperwork and follow-up calls;
[CHECK MARK] Promoting office efficiency and increasing productivity;
[CHECK MARK] Lowering administrative expenses and costs for postage and
paper forms;
[CHECK MARK] Streamlining billing and speeding up payments;
[CHECK MARK] Automating claim filing, assuring faster reimbursement, and
improving cash flow;
[CHECK MARK] Minimizing errors;
With Medic's EDI Network Solutions, your practice can be more responsive not
only to patient needs but also to the expectations of employers, insurers and
other payers.
[CHECK MARK] Verify eligibility for services, benefit information, and plan
enrollment or disenrollment;
[CHECK MARK] Customize patient communications;
[CHECK MARK] Document claims and encounters;
[CHECK MARK] Speed referrals and authorizations;
[CHECK MARK] Streamline coordination of benefits;
With the passage of the Health Insurance Portability and Accountability Act of
1996 (HIPAA), there will be increased market receptivity for EDI. This
legislation encourages the use of EDI as a means of reducing expense for
administration of healthcare information processing. Medic's EDI Network
Solutions will keep your practice in compliance with the EDI standards of the
American National Standards Institute (ANSI) or transaction standards as defined
by HIPAA. With government and private sectors encouraging providers to make the
move to EDI, Medic's EDI Network Solutions will position your practice for
success.
EDI Network Solutions Deliver a Full Range of Electronic Business Services:
FASTCLAIM(R) - provides faster processing and payment of insurance claims
through electronic filing.
FASTNOTES - provides instant access to information
contained in the FastClaim(R) reports.
FASTELIGIBILITY - offers on-line insurance eligibility and benefit data
verification.
FASTREMIT(TM) - collects insurance explanation of benefits reports
electronically, allowing automatic payment posting to patient accounts.
FASTBILL(R) - eliminates the need for the practice to print and mail billing
statements.
FASTRECEIPT(R) - eliminates the labor-intensive process of posting payments to
patient accounts.
FASTCOLLECT - provides a fast and easy way to send letters directly to patients
with past-due accounts.
FASTREMINDER - reduces the time and money spent by the practice on patient
reminders.
FASTCALL - provides practices with an automated service which places reminder
phone calls to patients concerning appointments.
<PAGE> 18
<TABLE>
================================================================================
================================================================================
<S> <C> <C> <C>
Electronic Claims $[*] Paper Claims $[*]
================================================================================
</TABLE>
NOTE: PAPERCLAIMS pricing includes the billing form, outgoing envelopes, and
postage.
<TABLE>
<CAPTION>
================================================================================
================================================================================
NUMBER OF PAGES PER MONTH PRICE PER PAGE
- --------------------------------------------------------------------------------
<S> <C>
Less Than [*] $[*]
[*] to [*] [*]
[*] to [*] [*]
[*] to [*] [*]
More Than [*] [*]
================================================================================
</TABLE>
NOTE: FASTBILL pricing includes billing form, outgoing envelop, return envelope,
and postage. For billing purposes, all transactions of FASTREMINDER,
FASTCOLLECT, and FASTBILL will be combined to give the best volume
discounts possible.
<TABLE>
<CAPTION>
================================================================================
================================================================================
NUMBER OF MAIL RECEIPTS PER MONTH PRICE PER RECEIPT
- --------------------------------------------------------------------------------
<S> <C>
Less Than [*] $[*]
More Than [*] [*]
- --------------------------------------------------------------------------------
</TABLE>
NOTE: In addition to the standard receipt fee, MasterCard and Visa transactions
will be processed for 1.95% of the transaction, plus a $0.20 processing
fee.
<TABLE>
<CAPTION>
================================================================================
================================================================================
NUMBER OF MEMOS PER MONTH PRICE PER MEMO
- --------------------------------------------------------------------------------
<S> <C>
Less Than [*] $[*]
[*] to [*] [*]
[*] to [*] [*]
[*] to [*] [*]
More Than [*] [*]
================================================================================
</TABLE>
NOTE: FASTCOLLECT pricing includes the form, outgoing envelope, return envelope,
and postage. For billing purposes, all transactions of FASTREMINDER,
FASTCOLLECT, and FASTBILL will be combined to give the best volume
discounts possible.
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 19
<TABLE>
<CAPTION>
================================================================================
================================================================================
NUMBER OF PAGES PER MONTH PRICE PER PAGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less Than [*]
[*] to [*] [*]
[*] to [*] [*]
[*] to [*] [*]
More Than [*] [*]
================================================================================
NOTE: FASTREMINDER pricing includes the reminder form, outgoing envelope,
and postage. For billing purposes, all transactions of FASTREMINDER
FASTCOLLECT, and FASTBILL will be combined to give the best volume
discounts possible.
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
================================================================================
NUMBER OF ELIGIBILITY PER MONTH PRICE PER REQUEST
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less Than [*] [*]
[*] to [*] [*]
More Than [*] [*]
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
================================================================================
NUMBER OF COMPANIES PRICE PER COMPANY PER
MONTH
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] [*]
[*] to [*] [*]
More than [*] [*]
- --------------------------------------------------------------------------------
</TABLE>
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 20
[MEDIC COMPUTER SYSTEMS LOGO]
CLIENT # _____________________
SALESPERSON __________________
SOFTWARE LICENSE AND MAINTENANCE AGREEMENT ADDENDUM # 2
This Software License and Maintenance Agreement Addendum # 2 ("Addendum")
is entered into this _ day of June, 1999, by and between Medic Computer Systems,
Inc. ("Medic") and The TriZetto Group Inc. ("TriZetto"), to supplement and
modify the terms and conditions of the Software License and Maintenance
Agreement ("Agreement") to which this Addendum is attached and incorporated by
reference, as if fully set forth in such Agreement.
WITNESSETH:
WHEREAS, the parties intend to supplement and modify their Agreement by
deleting the parties' Software License and Maintenance Agreement Addendum, dated
May 1, 1999, and replacing it in its entirety with this Addendum.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and as set forth in the parties' Agreement, Medic and TriZetto do hereby agree
as follows:
1. In the event that any of the physician practices originally
licensed under this Agreement fail or cease to use the services of
TriZetto hereunder and become retired practices, then upon the
payment by TriZetto of an additional license fee equal to [*] of
the proportionate fee originally paid under this Agreement for the
same retired practices, then TriZetto shall be entitled to
reallocate those respective licenses, as many times as is
necessary, to any replacement physician practices.
2. TriZetto's terms of payment are outlined as follows: Initial
payment due to execute Agreement is [*] total investment or $[*].
Thereafter, an additional [*] payments, each in the amount of
$[*], are due at the beginning of each month following the
execution of the Agreement until the total investment of $[*] is
paid in full. The first of the [*] installment payments shall be
made on [*].
3. That TriZetto shall be required to pay Medic Software maintenance
fees in accordance with the attached Purchase Schedule.
Notwithstanding this prior statement, TriZetto shall only be
required initially to pay Medic Software maintenance fees on the
+Medic PM User licenses in said Purchase Schedule [*] upon the
expiration of the [*] for these +Medic PM User licenses. Upon the
expiration of the [*], TriZetto shall pay Medic's then prevailing
Software maintenance rate less a [*] for each additional +Medic PM
user which is given access to TriZetto's System. In the event that
any clinic which is a sublicensee of +Medic PM User License
terminates its relationship with TriZetto, TriZetto
PAGE 1
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 21
will immediately notify Medic. Upon receipt of the notification of
this termination, [*]. TriZetto will immediately notify Medic [*].
4. Set forth on Exhibit A hereto are Sections from the Agreement,
which are hereby amended to reflect the changes thereon and,
except as expressly indicated on Exhibit A hereto, all other
Sections of the Agreement shall remain unchanged and in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the
date first written above.
MEDIC COMPUTER SYSTEMS, INC. THE TRIZETTO GROUP
By: /s/ [ILLEGIBLE] By: /s/ Kerry M. Kearns 6-24-99
------------------------ ---------------------------
Its: CFO Its: Senior Vice President
----------------------- --------------------------
Page 2
[*] Confidential portions omitted and filed separately with the Securities and
Exchange Commission.
<PAGE> 22
EXHIBIT A
REVISED TERMS OF AGREEMENT
1. Revised Section 1:
License.
In accordance with the terms herein, Medic grants to Client, and Client accepts
from Medic, a perpetual, nonexclusive and nontransferable license to use the
software and related documentation described on the Purchase Schedule attached
hereto (the "Software") for the number of users, and Medic companies as set
forth on the Purchase Schedule. All modifications, enhancements and updates to
the Software provided by Medic shall become part of the Software and subject to
the terms and conditions herein.
The Software shall be used only (i) for Client's internal business needs and
(ii) for Client's use on behalf of third parties in connection with Client's
provision of [*] to such third parties on a [*] basis, and shall be installed on
no more than [*] Central Processing Units ("CPUs"); provided that Client may
transfer the Software to different CPUs upon notification to Medic; provided
that Client may be required to pay an additional license fee in the event that
Client installs the Software on more than [*] CPUs, with the amount of such
additional license fee to be determined by Client and Medic after good faith
negotiations. Client shall not permit any third party to use the Software or
grant a sublicense for the use of the Software; or allow access to the licensed
Software through terminals located outside of premises controlled by or operated
by or on behalf of Client or for Customers of Client. [*]
2. Revised Section 2:
Copies.
The license granted herein includes the right to copy the object code only in
non-printed, machine readable form in whole or in part as necessary for Client's
use as contemplated in Section 1 above, including the making of back-up copies.
In order to protect Medic's trade secret and copyrights in the Software, Client
agrees to reproduce and incorporate Medic's trade secret or copyright notice in
any allowed copies, compilations, modifications or partial copies. Client may
obtain additional copies from Medic at prices to be agreed to by Client and
Medic after good faith negotiations. Violation of any provision of this
paragraph shall be the basis for immediate termination of this Agreement.
3. Revised Section 3:
Price and Payment.
<PAGE> 23
(b) Client shall maintain hardware equipment on which the Software is installed
in good working order whether under Medic, third party or time and material
maintenance. If hardware is not covered under formal maintenance, Client must
maintain reasonably adequate maintenance logs to document on-going hardware
maintenance and service.
(d) Client shall provide Medic access to the Software via a support modem over a
dedicated, data quality telephone line. Such access shall allow Medic, from time
to time, to conduct an audit of the Software. As reasonably required by Medic,
Client shall provide Medic with sufficient documentation, information,
assistance, support and test time on Client's computer system, to duplicate the
problem, certify that the problem is with the Software, and certify that the
problem has been corrected.
(e) Client shall take all necessary steps to reasonably ensure that no virus is
loaded on the system running the Software from any outside source. Virus
diagnosis and removal services are not covered by Software maintenance and are
billable at the then prevailing rates.
(f) Client shall install all updates within one hundred twenty (120) days of
receipt from Medic thereby maintaining the system on Medic's most recent
release.
6. Revised Section 8(b):
((b) The licenses granted pursuant to section 1 of this Exhibit A are perpetual,
however, as it relates to section 8 of The Master Software and Maintenance
Agreement, the initial term of this Agreement shall be one (1) year. All charges
are subject to change at any time after the end of the initial one (1) year
term, provided that Medic shall not increase any charges by more than the
percentage increase in the then current CPI as compared to the prior year plus
two percent (2%). Thereafter, the term of this Agreement shall be automatically
extended for successive one year periods until terminated by either party upon
prior written notice to the other, which notice shall be given at least ninety
(90) days prior to the end of the applicable term. Maintenance for any
additional options or applications installed shall commence pursuant to this
Agreement upon installation of such software and upon payment of the applicable
maintenance fee shown on the Purchase Schedule, as such Schedule may be modified
in a writing signed by Medic and Client from time to time.
7. Revised Section 9:
Charges for EDI Services and Term.
The charges for EDI services are those identified in the attached Purchase
Schedule. All invoices shall be due and payable in full thirty (30) days from
the date of such invoice. Medic will provide FastServices as outlined in the
attached Purchase Schedule for as long as the Client elects to utilize this
service. Either party may terminate FastServices by giving the other thirty (30)
days written notice prior to termination. Medic reserves the right to terminate
FastServices if an account is over sixty (60) days past due.
FastClaim
<PAGE> 24
MEDIC shall not be responsible for any error or omissions in any Claims received
from Client or transmitted to Payers. MEDIC shall not be responsible for any
unauthorized or other improper transmission by or on behalf of any Payee or any
other person and Payers shall be responsible to verify the authenticity of each
Claim.
Record Keeping and Transmission Verification
CLIENT SHALL MAINTAIN A PERMANENT, COMPLETE, AND ACCURATE RECORD OF ALL CLAIMS
TRANSMITTED THROUGH THE MEDIC FASTCLAIM SYSTEM, INCLUDING THE NUMBER OF CLAIMS
PER TRANSMISSION AND THE TOTAL DOLLAR AMOUNT OF EACH TRANSMISSION. ALL SUCH
RECORDS SHALL BE RETAINED AND PRESERVED FOR AT LEAST EIGHTEEN (18) MONTHS FROM
THE DATE OF TRANSMISSION AND SHALL BE SUBJECT TO INSPECTION, COPYING, AND AUDIT
BY MEDIC AT REASONABLE TIMES UPON REASONABLE PRIOR WRITTEN NOTICE. IT IS ALSO
THE RESPONSIBILITY OF CLIENT TO REVIEW EACH TRANSMISSION REPORT SENT TO CLIENT
BY MEDIC AND TO NOTIFY MEDIC OF ANY ERROR, OMISSION, OR OTHER DISCREPANCY
BETWEEN THE REPORT AND THE ACTUAL CLAIMS TRANSMITTED AS SOON AS REASONABLY
PRACTICABLE AFTER RECEIPT OF SUCH REPORT.
FastReceipt
Client agrees to reimburse Medic for any insufficient or returned checks that
appear in the FastReceipt process
FastBill
Client acknowledges that Medic is using the USPS FastForward Move update on
Client's records and Client agrees to comply with the USPS regulations. All
forward results would be utilized for the sole purpose of updating preexisting
addresses.
8. Revised Section 11:
Indemnity.
Medic at its own expense will defend and hold Client harmless from any claim
asserted against Client to the extent that it is based on a claim that any
Software used within the scope of this Agreement infringes any patents,
copyrights, license or other property right of a third party. Client shall
promptly notify Medic in writing of such claim; provided that the failure to
give such prompt notice shall not affect Medic's obligations hereunder except to
the extent, and solely to the extent, Medic is prejudiced thereby. Medic shall
have the right to control the defense of all such claims, lawsuits and other
proceedings. In no event shall Client settle any such claim, lawsuit or
proceeding without Medic's prior written approval. In all events, Client shall
have the right to participate in the defense of any such suit or proceeding
through counsel of its own choosing. If, as a result of any claim of
infringement against any patent, copyright, license or other property right,
Medic or Client is enjoined from using the Software, or if Medic believes that
the Software is likely to become the subject of a claim of infringement, Medic
at its option and expense may (i) procure the right
<PAGE> 25
for Client to continue to use the Software, (ii) replace or modify the Software
so as to make it noninfringing, with similar functionality, or (iii) discontinue
the license granted herein and refund to Client the license fees paid hereunder.
The foregoing states the entire liability of Medic with respect to infringement
of any copyrights or patents by the Software or any parts thereof. This
indemnity shall not apply to the extent, and solely to the extent, the
infringement is caused in whole or in part by Software changes made by Client or
other non-Medic personnel.
9. Revised Section 12:
Warranty and Disclaimer of Warranties.
(a) Medic represents that for a period of ninety (90) days from the installation
of the Software, the Software will (i) conform, as to all substantial
operational features, to Medic's documentation provided with the Software when
installed and properly used in the operating environment specified in such
documentation and (ii) be free of defects under normal use which adversely
affect system performance. Medic does not represent that the functions contained
in the Software will meet Client's requirements or that the operation of the
Software will be uninterrupted or error free.
(b) The Client must notify Medic in writing, within ninety (90) days from the
date of execution of this Agreement of its claim of any such defect. If the
Software is found defective by Medic in Medic's reasonable judgment, Medic's
sole obligation under this warranty is to remedy such defect
(c) With respect to maintenance services provided, Client agrees that Medic's
obligations under this Agreement are to use commercially reasonable efforts to
diagnose errors or malfunctions in the system, and to advise Client of possible
corrective measures.
(d) THE ABOVE IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY MEDIC.
MEDIC MAKES AND CLIENT RECEIVES NO OTHER WARRANTY, EXPRESS OR IMPLIED AND THERE
ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. EXCEPT FOR CLAIMS BROUGHT UNDER PARAGRAPH 11, MEDIC SHALL
HAVE NO LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL
DAMAGES OR FOR ANY DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE, DATA OR
PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE USE OR
PERFORMANCE OF THE SOFTWARE, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. IN NO EVENT SHALL MEDIC BE LIABLE IN THE AGGREGATE FOR ANY CLAIMS
OR DAMAGES IN AN AMOUNT EXCEEDING THE AMOUNT PAID BY CLIENT FOR THE SOFTWARE
LICENSE SET FORTH IN THE ATTACHED PURCHASE SCHEDULE.
(e) This warranty shall not apply if modifications to the Software made by
Client are the cause of any operational difficulties experienced. If
difficulties or defects are traceable to Client's errors or systems changes, any
repairs or corrections made by Medic may, at Medic's discretion, be billed at
Medic's then prevailing time and materials charges.
<PAGE> 26
(f) Medic warrants that the Medic PM version 7.0.X, dated 12/15/97 or later has
been programmed to be Y2K Compatible (as defined below), in addition IBM
warrants that AIX version 4.3.1 has been programmed to be Y2K Compatible.
Additionally, Client shall be entitled to any warranties which are afforded
Medic through its third party relationships.
Medic has defined "Y2K Compatible" as meaning that Medic applications (i) will
completely and accurately address, present, produce, store and calculate data
involving dates from, into and between the twentieth and twenty-first centuries,
which includes the years 1999 and 2000 and any leap year calculations, and will
not produce abnormally ending or incorrect results involving such dates as used
in any forward or regression date based function; and (ii) will support both two
and four digit years to be displayed where appropriate and will perform
calculations which involve a four digit year field.
10. Revised Section 13:
Cancellation.
If Client fails to pay any amount due hereunder or otherwise commits a
material breach hereof, and persists in such failure for [*] days after
receiving written notice thereof from Medic, Medic may cancel this Agreement and
declare any unpaid amounts owed hereunder immediately due and payable. Thereupon
Client shall immediately return the Software and related documentation and all
copies thereof to Medic. Cancellation of the license granted hereunder shall be
in addition to and not in lieu of any other remedies available to Medic.
11. Revised Section 14:
Source Code Escrow.
A current version of the Software source code and all necessary
documentation has been put into escrow with the law firm of Wyrick Robbins Yates
& Ponton LLC in Raleigh North Carolina. Source code is eligible for release in
the event Medic liquidates or shall be declared bankrupt. If Client receives
source code under the above circumstances, such source code shall be deemed to
be Software and subject to the term and conditions herein. The source code is to
be used solely for Client's maintenance of the Software.
12. Revised Section 15:
Hiring of Employees.
During the term of the Agreement and for one year thereafter, neither party
will, without the prior written consent of the other, offer employment to (other
than general employment advertising), employ or subcontract work to any person
employed then or within the preceding twelve months by the other party. If this
provision is violated, the violating party agrees to pay as damages, an amount
equal to one times the annual compensation of the employee or subcontractor to
the other party.
<PAGE> 27
13. Revised Section 16(a), 16(d) and 16(h):
General.
(a) To the extent modified by the addendum attached hereto, the terms of this
agreement will take precedence over the terms of any present or future order
from Client for any license or services hereunder. This Agreement is a master
software license and maintenance agreement. It is contemplated that additional
software may be licensed hereunder by supplementing the Purchase Schedule
attached hereto with later dated schedules upon agreement by both parties
hereto. Notwithstanding any revision of the Purchase Schedule, this Agreement
shall continue in full force and effect and shall govern all such later dated
schedules and transactions as if such schedules were part of this Agreement on
the date this Agreement was executed. Client agrees that the installation of
future software from Medic is conclusive evidence of its agreement that the
license for such software provided is governed by the terms of this Agreement.
(d) Each party acknowledges that it has read this Agreement, understands it, and
agrees to be bound by its terms, and further agrees that this Agreement, to the
extent modified by the addendum attached hereto, and the Purchase Schedule
attached hereto is the complete and exclusive statement of the Agreement between
the parties with respect to the license of the Software or otherwise relating
thereto, which supersedes all prior proposals, understandings and all other
agreements, oral and written. This Agreement may not be modified or altered
except by a written instrument duly executed by both parties.
(h) This Agreement shall be binding upon and for the benefit only of the parties
hereto and their respective successors and permitted assigns. Client may assign
this Agreement and any of its rights, duties or obligations hereunder only with
the prior written consent of Medic, such consent shall not be unreasonably
withheld. Transfer of Client's rights and obligations under this Agreement will
require an additional Software license fee paid to Medic unless otherwise
specified.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Amendment
No. 4 to Form S-1 of our reports dated September 7, 1999 relating to the
financial statements and financial statement schedule of The Trizetto Group,
Inc. and its subsidiaries, the report dated September 7, 1999 relating to the
financial statements of Croghan & Associates, Inc. and the report dated July 30,
1999 relating to the financial statements of Creative Business Solutions, Inc.
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, California
October 2, 1999
