<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use by the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE TRIZETTO GROUP, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
[TRIZETTO LOGO]
June 7, 2000
Dear Fellow Stockholders:
On behalf of the Board of Directors, it is my pleasure to
invite you to TriZetto's 2000 Annual Meeting of Stockholders,
which will be held on Thursday, June 29, 2000, at the Marriott
Newport Beach Hotel, 900 Newport Center Drive, Newport Beach,
California.
Attached is the Notice of Meeting and the Proxy Statement,
which describes in detail the matters on which you are being
asked to vote. Also enclosed is TriZetto's Annual Report to
Stockholders, which discusses highlights of the year and
includes TriZetto's Annual Report on Form 10-K.
Whether you plan to attend the meeting or not, I encourage you
to promptly complete and return the enclosed proxy card so
that your shares will be represented and properly voted at the
meeting.
I look forward to seeing you at the meeting.
/s/ JEFFREY H. MARGOLIS
--------------------------------------------------------------
Jeffrey H. Margolis
Chief Executive Officer, President
and Chairman of the Board
<PAGE> 3
[TRIZETTO LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 29, 2000
The 2000 Annual Meeting of Stockholders of The TriZetto Group, Inc. will be
held at the Marriott Newport Beach Hotel, 900 Newport Center Drive, Newport
Beach, California 92660, on June 29, 2000, at 2:00 p.m., for the following
purposes:
(1) To elect one Class I director to serve for a three-year term
expiring at the 2003 Annual Meeting of Stockholders or until his
successor has been duly elected and qualified;
(2) To amend TriZetto's 1998 Stock Option Plan to increase the number
of shares issuable thereunder by 3,200,000 shares, bringing the
total number of shares available for issuance thereunder to
7,200,000;
(3) To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as independent auditors of TriZetto
for the fiscal year ending December 31, 2000; and
(4) To transact such other business properly brought before the
meeting.
Only stockholders of record at the close of business on May 30, 2000 will
be entitled to vote at the annual meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ JEFFREY H. MARGOLIS
-------------------------------------------
Jeffrey H. Margolis
Chief Executive Officer, President
and Chairman of the Board
June 7, 2000
EVEN IF YOU PLAN TO ATTEND THE MEETING PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD.
<PAGE> 4
[TRIZETTO LOGO]
PROXY STATEMENT
GENERAL INFORMATION
PROXY STATEMENT & SOLICITATION OF PROXIES
SOLICITATION BY BOARD. This proxy statement is being furnished in
connection with the solicitation of proxies by our Board for use at our 2000
Annual Meeting of Stockholders.
SOLICITATION EXPENSES. It is contemplated that this solicitation of proxies
will be made primarily by mail; however, if it should appear desirable to do so
in order to ensure adequate representation at the meeting, our directors,
officers and employees may communicate with stockholders, brokerage houses and
others by telephone, telegraph or in person to request that proxies be
furnished. We may reimburse banks, brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses in forwarding proxy materials to the
beneficial owners of the shares held by them. All expenses incurred in
connection with this solicitation shall be borne by us.
MAILING DATE. This proxy statement and the accompanying proxy card are
being mailed on or about June 7, 2000 to our stockholders of record as of the
close of business May 30, 2000, which is the record date for the determination
of stockholders entitled to receive notice of and to vote at the meeting.
SHARES OUTSTANDING. As of the record date, there were 21,331,193 shares of
common stock outstanding and entitled to vote. No shares of preferred stock were
outstanding. Each stockholder is entitled to one vote for each share of common
stock held as of the record date.
VOTING RIGHTS. A majority of shares entitled to vote represented in person
or by proxy will constitute a quorum at the meeting. Abstentions and broker
non-votes are each included in the determination of the number of shares present
and voting for the purpose of determining whether a quorum is present.
Abstentions will be treated as shares present and entitled to vote for purposes
of any matter requiring the affirmative vote of a majority or other proportion
of the shares present and entitled to vote. With respect to shares relating to
any proxy as to which a broker non-vote is indicated on a proposal, those shares
will not be considered present and entitled to vote with respect to any such
proposal. Abstentions or broker non-votes or other failures to vote will have no
effect in the election of directors, who will be elected by a plurality of the
affirmative votes cast. With respect to any matter brought before the meeting
requiring the affirmative vote of a majority or other proportion of the
outstanding shares, an abstention or broker non-vote will have the same effect
as a vote against the matter being voted upon.
VOTE REQUIRED. A quorum is required for the approval of any of the
proposals set forth herein. Directors are elected by a plurality of the votes
cast. The approval of any other proposal to be considered at the annual meeting
requires the affirmative vote of the holders of a majority of the shares present
at the annual meeting in person or by proxy.
VOTING OF PROXIES. A proxy, when executed and not so revoked, will be voted
in accordance with the instructions given in the proxy. If a choice is not
specified in the proxy, the proxy will be voted "FOR" the nominee for election
of director named in this proxy statement, "FOR" the amendment increasing the
number of shares available under the 1998 Plan and "FOR" the ratification of
PricewaterhouseCoopers LLP as our independent auditors.
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<PAGE> 5
REVOKING A PROXY. Stockholders who execute proxies retain the right to
revoke them at any time before they are voted. Any proxy may be revoked or
superseded by (a) executing a later dated proxy, (b) giving notice of revocation
to the Secretary, The TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360
Newport Beach, California 92660, in writing prior to or at the meeting, or (c)
attending the meeting and voting in person.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at our 2001 Annual
Meeting of Stockholders and presentation in our proxy statement for such meeting
should deliver the proposal to us at our principal place of business no later
than February 7, 2001 in order to be considered for inclusion in our proxy
statement relating to that meeting. Matters pertaining to proposals, including
the number and length thereof, eligibility of persons entitled to have such
proposals included and other aspects are regulated by the Securities Exchange
Act of 1934, Rules and Regulations of the Securities and Exchange Commission and
other laws and regulations to which interested persons should refer.
On May 21, 1998 the Securities and Exchange Commission adopted an amendment
to Rule 14a-4, as promulgated under the Securities and Exchange Act of 1934, as
amended. The amendment governs our use of our discretionary proxy voting
authority with respect to a stockholder proposal, which is not addressed in our
proxy statement. The new amendment provides that if a proponent of a proposal
fails to notify us at least 45 days prior to the current year's anniversary of
the date of mailing of the prior year's proxy statement, then we will be allowed
to use our discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
We were not notified of any stockholder proposals to be addressed at our
2000 Annual Meeting of Stockholders. Because we were not provided notice of any
stockholder proposal to be included in our proxy statement within a reasonable
time before mailing, we will be allowed to use our voting authority if any
stockholder proposals are raised at the meeting.
If we do not receive any stockholder proposals for our 2001 Annual Meeting
before April 23, 2001, we will be able to use our voting authority as outlined
above.
OTHER MATTERS
Management is not aware of any other matters to come before the meeting. If
any other matter not mentioned in this proxy statement is brought before the
meeting, the proxy holders named in the enclosed Proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.
TRIZETTO CORPORATE OFFICE
Our corporate offices are located at 567 San Nicolas Drive, Suite 360,
Newport Beach, CA 92660.
ANNUAL REPORT
The Annual Report to Stockholders of TriZetto for the fiscal year ended
December 31, 1999 is being mailed concurrently with this proxy statement to all
stockholders of record as of May 30, 2000. The Annual Report is not to be
regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.
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<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTOR
Our Board currently consists of five directors, divided into three classes.
Each class is elected in alternating years and serves a term of three years. The
Class I director, Paul F. LeFort, shall serve until the annual meeting of
stockholders in 2000. The Class II directors, William E. Fisher and Peter D.
Mann, shall serve until the annual meeting of stockholders in 2001. The Class
III directors, Jeffrey H. Margolis and Donald J. Lothrop shall serve until the
annual meeting of stockholders in 2002.
Unless otherwise instructed, the enclosed proxy will be voted in favor of
Mr. LeFort as the Class I director. If Mr. LeFort becomes unavailable to serve
for any reason before the election, the enclosed proxy will be voted for the
election of such substitute nominee, if any, as shall be designated by the
Board. The Board has no reason to believe that Mr. LeFort will be unavailable to
serve.
The names and certain information concerning the nominee and the other
continuing members of our Board are set forth below.
CLASS I DIRECTOR NOMINEE
PAUL F. LEFORT, 59, has been a director since April 1999. From October
1995, until he retired in January 2000, Mr. LeFort served as the Chief
Information Officer for United HealthCare Corporation, a health and well being
company. Mr. LeFort is currently performing consulting services to United
HealthCare Corporation. 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.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF MR. LEFORT.
CONTINUING CLASS II DIRECTORS
PETER D. MANN, 33, has been a director since April 1998. In April 2000, Mr.
Mann joined Authoria, Inc., a provider of eWorkforce communication products, as
Vice President, Corporate Development. From January 1994 to March 2000, Mr. Mann
served in various positions with Fidelity Ventures, the venture capital arm of
Fidelity Investments, including his final position of Vice President, focusing
on investment opportunities in business services. From July 1998 to March 2000,
Mr. Mann also served as a Vice President of Fidelity Capital Associates, Inc.,
the general partner of Fidelity Ventures Limited. 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, 54, has been a director since March 1999. Mr. Fisher has
served as Chairman of Transaction Systems Architects, Inc. 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 West
Teleservices, Inc., a public company. Mr. Fisher received his B.S. degree from
Indiana State University and his M.B.A. degree from the University of Nebraska.
CONTINUING CLASS III DIRECTORS
JEFFREY H. MARGOLIS, 37, 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
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<PAGE> 7
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.
DONALD J. LOTHROP, 40, 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.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
Our Board held eleven meetings during the fiscal year ended December 31,
1999. Each incumbent director attended at least seventy-five percent of the
aggregate number of meetings of the Board and the number of meetings held by all
committees of the Board on which he served.
Our Board has an Audit Committee and a Compensation Committee. The Audit
Committee is currently comprised of two directors selected by our Board. The
members of the Audit Committee presently are Paul F. LeFort and William E.
Fisher. The Audit Committee is authorized to handle all matters which it deems
appropriate regarding our independent accountants and to otherwise communicate
and act upon matters relating to the review and audit of our books and records,
including the scope of the annual audit and the accounting methods and systems
to be utilized by us. In addition, the Audit Committee makes recommendations to
the Board with respect to the selection of our independent accountants. The
Audit Committee held two meetings during the fiscal year ended December 31,
1999.
The Compensation Committee is currently comprised of two directors selected
by our Board. The members of the Compensation Committee presently are Donald J.
Lothrop and Peter D. Mann. The functions of the Compensation Committee include
advising the Board on officer and employee compensation. The Board, based on
input from the Compensation Committee, establishes the annual compensation rates
for our executive officers. The Compensation Committee held three meetings
during the fiscal year ended December 31, 1999.
TriZetto does not have a nominating committee. Instead, the Board, as a
whole, identifies and screens candidates for membership on our Board.
OTHER EXECUTIVE OFFICERS
Our other current executive officers are:
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 and
Chief Technical Officer, Connectivity Services Group. 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.
LAWRENCE BRIDGE, 39, joined us in November 1999 as our Senior Vice
President, Payor ASP Services. From July 1997 to November 1999, Mr. Bridge
served as President of Novalis Services Corporation, an application services
provider for managed-care and
4
<PAGE> 8
provider-based organizations, which we acquired in November 1999. From February
1997 to July 1997, Mr. Bridge served as a Regional Vice President for
PacifiCare, a managed care organization. From June 1996 to February 1997, Mr.
Bridge served as a Group President for FHP Healthcare, a managed care
organization. From July 1994 to June 1996, Mr. Bridge served as President of FHP
of Utah, a managed care organization. Mr. Bridge received his B.S. degree in
Finance and Marketing in 1982 and his M.B.A. degree in 1985, both from the
University of Utah.
DEBRA A. BRIGHTON, 45, joined us in January 1998 as our Vice President of
Applications Development. In December 1999, Ms. Brighton's title was changed to
Vice President, eApplications. 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.
CRAIG H. FOSTER, 50, joined us in August 1997 as our Director of Human
Resources. In May 2000, Mr. Foster was named as our Vice President, Human
Resources. From June 1989 to July 1997, Mr. Foster served as Corporate Director
of Human Resources of FHP Healthcare/PacifiCare, a managed care organization.
From May 1987 to June 1989, Mr. Foster served as Director of Human Resources of
ICN Pharmaceuticals, Inc. Prior to May 1987, Mr. Foster held various human
resources positions with Baxter Travenol, a medical device manufacturing
company. Mr. Foster received his B.A. degree in Biological Science from
California State University, Fullerton in 1975.
HARVEY GARTE, 50, joined us in June 1999 as Vice President, Corporate
Development. In October 1999, Mr. Garte was named as our Vice President,
Corporate Development and Investor Relations. 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, 44, 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.
D. BRIAN KARR, 34, 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. From February 1997 to July 1997, Mr. Karr served as Director of Finance
for Information Services for PacifiCare Health Systems, Inc., a managed care
organization. From October 1994 to February 1997, Mr. Karr served as Director of
Finance for Information Systems for FHP International Corporation, a managed
care organization. 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.
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<PAGE> 9
KERRY M. KEARNS, 50, joined us in January 1999 as our Senior Vice
President, Core Solutions. In December 1999, Mr. Kearns' title was changed to
Senior Vice President, ASP Providers. 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 served as our Vice President
of e-Commerce from June 1999 to December 1999. In January 2000, Ms. Knopf was
promoted to Senior Vice President, e-Business. 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.
CHRISTINE A. MILLER, 35, Vice President, Legal Affairs and Assistant
Secretary, joined us in January 2000. From March 1997 to January 2000, Ms.
Miller was a corporate associate with Stradling Yocca Carlson & Rauth, our
outside counsel. From October 1995 to February 1997, Ms. Miller was a corporate
associate with Keesal, Young & Logan. In Spring 1995, Ms. Miller completed an
internship with the Securities and Exchange Commission. Ms. Miller received her
B.S. in Business Administration in May 1987 and her Juris Doctorate in May 1995,
both from the University of Southern California. Ms. Miller is admitted to
practice law in the State of California and is a member of various bar
associations.
DANIEL J. SPIREK, 33, joined us in May 1997 as our Vice President,
Supplemental Management Services. From June 1999 to January 2000, Mr. Spirek
served as our Senior Vice President, Professional Services Group (now known as
Transformation Services). In February 2000, Mr. Spirek was promoted to Executive
Vice President, Transformation Services. 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.
MICHAEL J. SUNDERLAND, 45, 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.
There are no family relationships between any director, executive officer
or person nominated or chosen to be a director or executive officer.
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<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation earned during the two fiscal
years ended December 31, 1998 and 1999 by our Chief Executive Officer, and our
four other most highly compensated executive officers who were serving as
executive officers at December 31, 1999 and whose total salary and bonus during
such year exceeded $100,000 (collectively, the "Named Executive Officers").
Although the table does not reflect certain personal benefits, which in the
aggregate are less than the lower of $50,000 or 10% of each Named Executive
Officer's annual salary and bonus, Mr. Margolis' compensation includes $26,625
of loan forgiveness in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Jeffrey H. Margolis
Chairman of the Board, Chief 1999 $242,625 $175,000 --
Executive Officer and President 1998 $179,324 $100,000 300,000
Daniel J. Spirek
Executive Vice President, 1999 $191,826 $105,000 --
Transformation Services 1998 $160,417 $101,000 100,000
Michael J. Sunderland
Senior Vice President of Finance, 1999 $126,010 $90,000 130,000
Chief Financial Officer and Secretary 1998 -- -- --
Kerry M. Kearns
Senior Vice President, 1999 $150,000 $20,000 170,000
ASP Providers 1998 -- -- --
Shawn P. Bowen
Vice President and Chief Technical 1999 $127,952 $40,000 12,500
Officer, Connectivity Services Group 1998 $110,000 $20,000 12,500
</TABLE>
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OPTION GRANTS
The following table sets forth certain information concerning grants of
options to each of our Named Executive Officers during the fiscal year ended
December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
--------------------- ----------- ------------ --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey H. Margolis -- -- -- -- -- --
Daniel J. Spirek -- -- -- -- -- --
Michael J. Sunderland 130,000 5% $0.50 4/30/09 $1,840,807 $2,969,679
Kerry M. Kearns 140,000 5% $0.25 1/04/09 $2,017,407 $3,233,115
30,000 1% $2.60 6/28/09 $ 361,802 $ 622,310
Shawn P. Bowen 12,500 <1% $6.50 8/20/09 $ 102,001 $ 210,546
</TABLE>
The figures above represent options granted pursuant to our 1998 Stock
Option Plan. We granted options to purchase 2,619,950 shares of common stock in
1999. 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. The
options vest in 25% increments on each of the four annual anniversaries of the
date of grant. The options listed above expire 10 years from the date of grant.
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 the initial public offering price of $9 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.
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<PAGE> 12
OPTION EXERCISES
No options were exercised by any of the Named Executive Officers during the
year ended December 31, 1999. The following table sets forth the fiscal year end
options values for all options held by our Named Executive Officers. The values
for "in the money" options represent the positive spread between the exercise
prices of existing stock options and the price of our common stock on December
31, 1999 ($46.625 per share).
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey H. Margolis 75,000 225,000 $3,476,250 $10,428,750
Daniel J. Spirek 25,000 75,000 $1,159,375 $ 3,478,125
Michael J. Sunderland -- 130,000 -- $ 5,996,250
Kerry M. Kearns -- 170,000 -- $ 7,813,250
Shawn P. Bowen 3,125 21,875 $ 144,922 $ 936,328
</TABLE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
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. Currently, Mr. Margolis' current annual salary is
$275,000. Mr. Margolis is entitled to participate in a bonus plan as recommended
by our compensation committee and approved by the Board. 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.
We have entered into Change in Control Agreements with certain of our
executive officers. These agreements provide for severance and other benefits
if, following a Change in Control of TriZetto, the executive's employment
terminates in a way adverse to the executive. If the executive's employment ends
within one to three years following a Change in Control (term varies among
executives) either because we terminate the executive without cause or because
the executive resigns under circumstances constituting "good reason," the
executive will be entitled to:
o bi-weekly salary through the end of the employment period;
o medical, dental and life insurance coverage through the end of the
employment period;
o outplacement services consistent with our outplacement policy, if any;
9
<PAGE> 13
o payment on the last day of the employment period in an amount equal to
the sum of the additional contributions that would have been allocated
to the executive's 401(k) account, if any, if the executive had
remained employed through the end of the employment period;
o payment within 30 days of the date of termination of all accrued
vacation, holiday and personal leave days as of the date of
termination;
o payment of any unpaid incentive compensation the executive earned
through the date of termination in accordance with the terms of any
applicable incentive compensation plan;
o unvested options held by executives with Change in Control Agreements
will accelerate, unless such acceleration would trigger the "golden
parachute" excise tax imposed by the U.S. Internal Revenue Code. In
such case, the options will continue to vest as if the executive
officer remained employed by us.
A "Change in Control" is defined in the agreement to occur if (a) a person
becomes the beneficial owner of 50% or more of the combined voting power of our
securities, (b) a majority of the Board changes without the specified approval
of incumbent directors, (c) we merge with another entity in a way that
substantially changes the ownership of existing stockholders, or (d) our
stockholders approve a complete liquidation or dissolution. "Change in Control"
is also deemed to have occurred if an executive's employment with us is
terminated prior to the Change in Control and it is demonstrated that (a) such
termination was at the request of a third party who has taken steps to
effectuate the Change in Control; or (b) such termination arose in connection
with or anticipation of the Change in Control.
DIRECTORS' FEES
Our directors do not receive any payments for their services on the Board,
but they are reimbursed for various expenses incurred in connection with
attendance at Board meetings. In connection with their election to our Board,
Mr. LeFort and Mr. Fisher each received options to purchase 10,000 shares of our
common stock.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information as of April 30, 2000 regarding the
beneficial ownership of our common stock by (a) any person who was known by us
to own more than five percent of our voting securities, (b) all directors and
nominees, (c) each of the Named Executive Officers identified in the Summary
Compensation Table, and (d) all current directors and executive officers as a
group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL % OF
OWNERS(1) OWNERSHIP(2) CLASS
------------------------------ ----------- -----
<S> <C> <C>
Raymond D. Croghan(3) 3,132,681 15%
275 South Main St., Ste. 105
Longmont, CO 80501
Delphi Ventures IV, L.P. 2,736,014 13%
Delphi BioInvestments IV, L.P.
3000 Sand Hill Road
Building One, Suite 135
Menlo Park, CA 94025
Fidelity Ventures Limited 1,289,336 6%
82 Devonshire St., R25C
Boston, MA 02109-3614
Fidelity Investors Limited 1,289,336 6%
Partnership
Fidelity Investors II Limited
Partnership
82 Devonshire St., R25C
Boston, MA 02109-3614
Jeffrey H. Margolis(4) 2,735,000 13%
Donald J. Lothrop(5) 2,736,014 13%
Peter D. Mann(6) 0 0%
William E. Fisher(7) 422,595 2%
Paul F. LeFort(8) 60,000 <1%
Daniel J. Spirek(9) 330,000 2%
Michael J. Sunderland(10) 37,500 <1%
Kerry M. Kearns(11) 45,500 <1%
Shawn Bowen(12) 256,250 1%
All executive officers and 7,309,659 34%
directors as a group (17
persons)(13)
</TABLE>
(1) Unless otherwise indicated, the business address of such stockholder is c/o
The TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360, Newport Beach,
California 92660.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange
10
<PAGE> 14
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock subject to options, warrants and
convertible notes currently exercisable or convertible, or exercisable or
convertible within 60 days of April 30, 2000, are deemed outstanding for
computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially
owned by them.
(3) 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.
(4) 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 and Mr.
Margolis disclaims beneficial ownership in 150,000 of such shares. Includes
options for 550,000 shares of common stock granted by Mr. Croghan to Mr.
Margolis, which are immediately exercisable. Also includes Mr. Margolis'
options for 125,000 shares of common stock, which are exercisable within 60
days of April 30, 2000.
(5) 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 ownership
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.
(6) Mr. Mann has previously reported and disclaimed beneficial ownership of
1,289,336 shares held by Fidelity Ventures Limited in connection with his
position as Vice President of the general partner of Fidelity Ventures. As
of April 2000, Mr. Mann no longer holds any position with any Fidelity
entity and is no longer required to report such shares.
(7) Includes options for 10,000 shares of common stock which are exercisable
within 60 days of April 30, 2000. 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.
(8) Includes options for 10,000 shares of common stock, which are exercisable
within 60 days of April 30, 2000.
(9) Includes options for 5,000 shares of common stock, which are exercisable
within 60 days of April 30, 2000.
(10) Includes options for 32,500 shares of common stock, which are exercisable
within 60 days of April 30, 2000. On May 1, 2000, Mr. Sunderland exercised
his option to purchase 32,500 shares of common stock.
(11) Includes options for 7,500 shares of common stock, which are exercisable
within 60 days of April 30, 2000.
(12) Includes options for 6,250 shares of common stock, which are exercisable
within 60 days of April 30, 2000.
(13) Includes options for 303,750 shares of common stock, which are exercisable
within 60 days of April 30, 2000.
REPORT OF THE COMPENSATION COMMITTEE
The following report is submitted by the Compensation Committee with
respect to the executive compensation policies established by the Compensation
Committee for the fiscal year ended December 31, 1999. The Compensation
Committee determines the annual salary, bonus and other benefits, including
incentive compensation awards, of our executive officers and key employees and
recommends new employee benefit plans and changes to existing plans to the
Board. The salary of Mr. Margolis is determined in accordance with his
Employment Agreement (see "Employment and Severance Agreements," above).
During the year ended December 31, 1999, our Board, based upon the
recommendations of the Compensation Committee, established the levels of
compensation for our executive officers.
COMPENSATION POLICIES AND OBJECTIVES. Our executive compensation policy is
designed to attract and retain exceptional executives by offering compensation
for superior performance that is highly competitive with other well-managed
organizations. The Compensation Committee measures executive performance on an
individual and corporate basis. There are three components to our executive
compensation program, and each is consistent with the stated philosophy as
follows:
11
<PAGE> 15
Base Salary. Base salaries for executives and other key employees are
determined by individual financial and non-financial performance, position in
salary range and general economic conditions of TriZetto. For purposes of
administering base pay, all executive positions are evaluated and placed in
appropriate salary grades. Salary range midpoint levels are reviewed on an
annual basis to ensure competitiveness with a peer group of comparable
companies. In recommending salaries for executive officers, the Compensation
Committee (i) reviews the historical performance of the executives, and (ii)
formally reviews specific information provided by its accountants and other
consultants, as necessary, with respect to the competitiveness of salaries paid
to our executives.
Annual Bonus. Annual bonuses for executives and other key employees are
tied directly to our financial performance as well as individual performance.
The purpose of annual cash bonuses are to reward executives for achievements of
corporate, financial and operational goals. Annual cash bonuses are intended to
reward the achievement of outstanding performance. When certain objective and
subjective performance goals are not met, annual bonuses would be reduced or not
paid. The bonuses paid in fiscal year 1999 were based upon our financial
performance and each individual's performance during the year.
Long-Term Incentives. The purpose of these plans is to create an
opportunity for executives and other key employees to share in the enhancement
of stockholder value through stock options. The overall goal of this component
of pay is to create a strong link between our management and our stockholders
through management stock ownership and the achievement of specific corporate
financial measures that result in the appreciation of our share price. Stock
options are awarded and in some instances, vesting is accelerated, if our goals
and individual goals are achieved or exceeded. The Compensation Committee
generally has followed the practice of granting options on terms which provide
that the options become exercisable in cumulative annual installments over a
four year period. The Compensation Committee believes that this feature not only
provides an employee retention factor but also makes longer term growth in share
prices important for those receiving options.
FISCAL YEAR 1999 COMPENSATION. We are required to disclose our policy
regarding qualifying executive compensation deductibility under Section 162(m)
of the Internal Revenue Code of 1986, as amended, which provides that, for
purposes of the regular income tax and the alternative minimum tax, the
otherwise allowable deduction for compensation paid or accrued with respect to a
covered employee of a public corporation is limited to no more than $1 million
per year. It is not expected that the compensation to be paid to any of our
executive officers for fiscal 2000 will exceed the $1 million limit per officer.
Our 1998 Stock Option Plan is structured so that any compensation deemed paid to
an executive officer upon exercise of an outstanding option under the plan, with
an exercise price equal to the fair market value of the option shares on the
grant date, will qualify as performance-based compensation that will not be
subject to the $1 million limitation.
Respectfully submitted,
Donald J. Lothrop
Peter D. Mann
Notwithstanding anything to the contrary set forth in our previous filings under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, that might incorporate future filings, including this proxy
statement, in whole or in part, the foregoing Report and the performance graph
on page 12 shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of the following two non-employee
directors: 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 or our Compensation
Committee.
12
<PAGE> 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our directors and executive officers, and persons who
own more than ten percent of a registered class of our equity securities, to
file reports of ownership of, and transactions in, our securities with the
Securities and Exchange Commission. Such directors, executive officers and 10%
stockholders are also required to furnish us with copies of all Section 16(a)
forms they file.
Based solely upon our review of the copies of Forms 3, 4 and 5 and
amendments thereto furnished to us, or written representations that no annual
Form 5 reports were required, we believe that all filing requirements under
Section 16(a) of the Exchange Act applicable to its directors, officers and any
persons holding ten percent or more of our common stock were made with respect
to our fiscal year ended December 31, 1999.
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.
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.
AGGREGATE
NUMBER PURCHASE
PURCHASER OF SHARES PRICE
------------------------------ --------- ---------
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
-------------
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 and
the Fidelity entities agreed to vote their shares to elect a designee of the
Delphi entities.
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 each of April 30, 1999 and April 30, 2000, and shall forgive an
additional $25,000 and the related interest on each of the next two
anniversaries of Mr. Margolis' employment agreement, so long as Mr. Margolis
remains our employee. The 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.
13
<PAGE> 17
GARTE & ASSOCIATES, INC. In 1999, we entered into an agreement with Garte &
Associates, Inc. pursuant to which we would pay Garte & Associates, Inc. an
investment banking fee for certain acquisitions. In 1999, we paid a total of
$256,000 to Garte & Associates, Inc. in connection with our acquisitions of
Novalis Corporation and Finserv Health Care Systems, Inc. in late 1999. Harvey
Garte, our Vice President of Corporate Development and Investor Relations, is
the sole stockholder of Garte & Associates, Inc.
FUTURE TRANSACTIONS. Any future transactions between us and our officers,
directors or affiliates will either be on terms no less favorable to us than
could be obtained from third parties, will be subject to approval by a majority
of our outside directors or will be consistent with policies approved by a
majority of such outside directors.
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative stockholder return
on our common stock with the cumulative total return of (i) the Nasdaq Market
Index, (ii) Media General Financial Services Industry Group Index 825 --
Healthcare Information Services, and (iii) Media General Financial Services
Industry Group Index 852 -- Internet Software and Services, for the period that
commenced October 8, 1999, the date on which our common stock was first publicly
traded on the Nasdaq National Market, and ended on December 31, 1999. The
performance graph is not necessarily an indicator of future price performance.
The graph assumes the reinvestment of all dividends. This information has been
provided to TriZetto by Media General Financial Services.
COMPARE CUMULATIVE TOTAL RETURN
AMONG THE TRIZETTO GROUP, INC.,
NASDAQ MARKET INDEX AND MG GROUP INDEXES
<TABLE>
<CAPTION>
10/08/99 10/31/99 11/30/99 12/31/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
The Trizetto Group, Inc. 100.00 111.11 238.89 518.06
MG Healthcare Info Services Index 100.00 89.63 109.96 130.67
Nasdaq Market Index 100.00 107.74 120.49 147.32
MG Internet Software & Services Index 100.00 104.02 133.52 168.80
</TABLE>
14
<PAGE> 18
PROPOSAL TWO
AMENDMENT TO THE 1998 STOCK OPTION PLAN
The purpose of the 1998 Stock Option Plan is to provide participants with
incentives, which will encourage them to acquire a proprietary interest in, and
continue to provide services to, TriZetto. The 1998 Plan is not subject to any
of the provisions of the Employee Retirement Income Security Act of 1974 and is
not a qualified deferred compensation plan under Section 401(a) of the Code.
The Board adopted and our stockholders originally approved the 1998 Plan on
May 19, 1998. Our 1998 Plan was amended by our Board on January 22, 1999, May
21, 1999 and June 28, 1999. A majority of our stockholders approved these
amendments on June 28, 1999. Our 1998 Plan provides for awards of incentive
stock options and nonqualified stock options. A total of 4,000,000 shares of
common stock has been reserved for issuance under our 1998 Plan as of June 28,
1999. As of April 30, 2000, a total of 301,709 shares had been exercised and
3,394,947 shares were subject to outstanding options, leaving only 303,344
shares available for grant under the 1998 Plan.
Subject to approval by our stockholders, the Board amended the 1998 Plan on
February 17, 2000 to increase the authorized number of shares of common stock
issuable thereunder by 3,200,000 shares and to reserve the additional shares for
issuance under the 1998 Plan, bringing the total number of shares of common
stock subject to the 1998 Plan to 7,200,000.
Approval of the amendments to the 1998 Plan will require the affirmative
vote of the holders of a majority of the outstanding shares of common stock
present or represented at the annual meeting of stockholders and entitled to
vote thereat. Proxies solicited by management for which no specific direction is
included will be voted FOR the amendment of the 1998 Plan to add 3,200,000
shares of common stock to the pool of shares reserved for issuance thereunder.
THE BOARD RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1998 PLAN.
The principal features of the 1998 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1998 Plan itself.
Copies of the 1998 Plan can be obtained by writing to the Secretary, The
TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360, Newport Beach,
California 92660.
1998 PLAN TERMS
INCENTIVE OPTIONS. Our employees (including employees of any of our
subsidiaries) as may be determined by the Board, who qualify for incentive stock
options under the applicable provisions of the Internal Revenue Code, will be
eligible for selection to receive incentive options under the 1998 Plan. An
employee who has been granted an incentive option may, if otherwise eligible, be
granted an additional incentive option or options and receive nonqualified
options if the Board so determines. No incentive stock options may be granted to
an optionee under the 1998 Plan if the aggregate fair market value (determined
on the date of grant) of the stock with respect to which incentive stock options
first become exercisable by such optionee in any calendar year under the 1998
Plan exceeds $100,000.
NONQUALIFIED OPTIONS. Our directors and employees, consultants, business
associates or others with important business relationships with us will be
eligible to receive nonqualified options under the 1998 Plan. An individual who
has been granted a nonqualified option may, if otherwise eligible, be granted an
incentive option or an additional nonqualified option or options if the Board so
determines.
In no event may any individual be granted options under the 1998 Plan
pursuant to which the aggregate number of shares that may be acquired thereunder
during any calendar year exceeds 100,000 shares. As of April 30, 2000,
approximately 413 persons were participating in the 1998 Plan.
ADMINISTRATION. The 1998 Plan may be administered by either the Board or a
committee appointed by the Board (the "Committee"). The Board has delegated
administration of the 1998 Plan to the Compensation Committee, which is
15
<PAGE> 19
comprised of two non-employee directors, both of whom are eligible to
participate in the 1998 Plan. Subject to the provisions of the 1998 Plan, the
Committee has full authority to implement, administer and make all
determinations necessary under the 1998 Plan.
EXERCISE PRICES AND EXERCISABILITY. The exercise price of incentive stock
options must at least be equal to the fair market value of a share of common
stock on the date the option is granted (110% for optionees who own at least 10%
of the outstanding common stock). Nonqualified options shall have an exercise
price of not less than 85% of the fair market value of a share of common stock
on the date such option is granted. The exercise price of all options granted
under the 1998 Plan to non-employee directors shall be 100% of the fair market
value of the common stock on the date of grant. Payment of the exercise price
may be made in cash, by delivery of shares of our common stock or, potentially,
through the delivery of a promissory note. The Compensation Committee has the
authority to determine the time or times at which options granted under the 1998
Plan become exercisable, provided that options must expire no later than ten
years from the date of grant (five years with respect to optionees who own at
least 10% of the outstanding common stock).
TRANSFERABILITY. Options are nontransferable, other than upon death by will
and the laws of descent and distribution, and generally may be exercised only by
an employee while employed by us or within thirty days after termination of
employment (one year for termination resulting from death or disability).
AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the 1998 Plan in such respects as the Board may deem advisable;
provided, however, that no such alteration, amendment, suspension or termination
shall be made that would substantially affect or impair the rights of any person
under any incentive option or nonqualified option theretofore granted to such
person without his or her consent. Unless previously terminated by the Board,
the 1998 Plan will terminate on May 19, 2008.
BENEFITS. If our proposed acquisition of ERISCO Managed Care Technologies,
Inc. is completed, options to purchase approximately 1,200,000 shares will be
granted to ERISCO employees. We have not determined how the other additional
options will be allocated among participants. Therefore, the benefits or amounts
that have been received or will be received by any participant under the 1998
Plan cannot be determined.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF 1998 PLAN
The following is a summary of certain federal income tax consequences of
participation in the 1998 Plan. The summary should not be relied upon as being a
complete statement of all possible federal income tax consequences. Federal tax
laws are complex and subject to change. Participation in the 1998 Plan may also
have consequences under state and local tax laws, which vary from the federal
tax consequences described below. For such reasons, we recommend that each
participant consult his or her personal tax advisor to determine the specific
tax consequences applicable to him or her.
INCENTIVE OPTIONS. No taxable income will be recognized by an optionee
under the 1998 Plan upon either the grant or the exercise of an incentive
option. Instead, a taxable event will occur upon the sale or other disposition
of the shares acquired upon exercise of an incentive option, and the tax
treatment of the gain or loss realized will depend upon how long the shares were
held before their sale or disposition. As discussed below, the exercise of an
incentive option also may result in items of "tax preference" for purposes of
the "alternative minimum tax."
If a sale or other disposition of the shares received upon the exercise of
an incentive option occurs more than (i) one year after the date of exercise of
the option and (ii) two years after the date of grant of the option, the holder
will recognize long-term capital gain or loss at the time of sale equal to the
full amount of the difference between the proceeds realized and the exercise
price paid. However, a sale, exchange, gift or other transfer of legal title of
such stock before the expiration of either the one-year or two-year period
described above will constitute a "disqualifying disposition." A disqualifying
disposition involving a sale or
16
<PAGE> 20
exchange will result in ordinary income to the optionee in an amount equal to
the lesser of (i) the fair market value of the stock on the date of exercise
minus the exercise price, or (ii) the amount realized on disposition minus the
exercise price. If the amount realized in a disqualifying disposition exceeds
the fair market value of the stock on the date of exercise, the gain realized,
in excess of the amount taxed as ordinary income as indicated above, will be
taxed as capital gain. A disqualifying disposition as a result of a gift will
result in ordinary income to the optionee in an amount equal to the difference
between the exercise price and the fair market value of the stock on the date of
exercise. Any loss realized upon a disqualifying disposition will be treated as
a capital loss. Capital gains and losses resulting from disqualifying
dispositions will be treated as long-term or short-term depending upon whether
the shares were held for more or less than the applicable statutory holding
period (which is currently more than one year for long-term capital gains). We
will be entitled to a tax deduction in an amount equal to the ordinary income
recognized by the optionee as a result of the disqualifying disposition.
If legal title to any shares acquired upon exercise of an incentive option
is transferred by sale, gift or exchange, such transfer will be treated as a
disposition for purposes of determining whether a "disqualifying disposition"
has occurred. However, certain transfers will not be treated as dispositions for
such purposes, such as transfers to an estate or by inheritance upon an
optionee's death, a mere pledge or hypothecation, or a transfer into the name of
the optionee and another person as joint tenants.
Section 55 of the Code imposes an "alternative minimum tax" on an
individual's income to the extent the amount of the alternative minimum tax
exceeds the individual's regular tax for the year. For purposes of computing the
alternative minimum tax, the excess of the fair market value (on the date of
exercise) of the shares received upon the exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. If the shares are sold in the same year that the
option is exercised, the regular tax treatment and the alternative tax treatment
will be the same. If the shares are sold during a year subsequent to that in
which the option was exercised, the basis of the stock acquired will equal its
fair market value on the date of exercise for purposes of computing alternative
minimum taxable income in the year of sale.
An optionee who is subject to the alternative minimum tax in the year of
exercise of an incentive option may claim as a credit against the optionee's
regular tax liability in future years, the amount of alternative minimum tax
paid that is attributable to the exercise of the incentive option. This credit
is available in the first year following the year of exercise in which the
optionee has a regular tax liability.
NONQUALIFIED OPTIONS. No taxable income is recognized by an optionee upon
the grant of a nonqualified option. However, upon exercise the optionee will
recognize ordinary income in the amount by which the fair market value of the
shares purchased exceeds, on the date of exercise, the exercise price paid for
such shares. The income recognized by an optionee who is an employee will be
subject to income tax withholding. The optionee will be required to make a
direct payment to us for the tax withholding obligation at the time of the
exercise. We will be entitled to a tax deduction equal to the amount of ordinary
income recognized by the optionee, provided certain reporting requirements are
satisfied.
If the exercise price of a nonqualified option is paid by the optionee in
cash, the tax basis of the shares acquired will be equal to the cash paid plus
the amount of income recognized by the optionee as a result of such exercise. If
the exercise price is paid by delivering shares of our common stock already
owned by the optionee or by a combination of cash and already-owned shares,
there will be no current taxable gain or loss recognized by the optionee on the
already-owned shares exchanged (however, the optionee will nevertheless
recognize ordinary income to the extent that the fair market value of the shares
purchased on the date of exercise exceeds the price paid, as described above).
The new shares received by the optionee equal in number to the old shares
exchanged will have the same tax basis and holding period as the optionee's
basis and holding period in the old shares. The balance of the shares received
will have a tax basis equal to any cash paid by the
17
<PAGE> 21
optionee plus the amount of income recognized by the optionee as a result of
such exercise, and will have a holding period commencing with the date of
exercise.
If the exercise price of a nonqualified option is paid by the optionee
using a portion of the common stock acquired on exercise of the option (through
a cashless exercise), then the optionee will recognize ordinary income as
described above on both the shares actually received as well as the shares used
to pay the exercise price. The shares actually received by the optionee will
have a tax basis equal to the exercise price of the shares plus the amount of
income recognized by the optionee as to those shares and a holding period
commencing on the date of exercise.
Upon the sale or disposition of shares acquired pursuant to the exercise of
a nonqualified option, the difference between the proceeds realized and the
optionee's basis in the shares will be a capital gain or loss and will be
treated as long-term or short-term capital gain or loss if the shares have been
held for more than the applicable statutory holding period (which is currently
more than one year for long-term capital gains).
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected PricewaterhouseCoopers LLP, independent auditors, to
audit our financial statements for the fiscal year ending December 31, 2000. THE
BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" RATIFICATION OF SUCH
APPOINTMENT. In the event of a negative vote on such ratification, the Board
will reconsider its selection.
PricewaterhouseCoopers LLP has audited our financial statements annually
since its fiscal year ended December 31, 1997. Its representatives are expected
to be present at the meeting, will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to appropriate
questions.
18
<PAGE> 22
PROXY
THE TRIZETTO GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 29, 2000
The undersigned hereby nominates, constitutes and appoints Jeffrey H.
Margolis and Michael J. Sunderland, and each of them individually, the attorney,
agent and proxy of the undersigned, with full power of substitution, to vote all
stock of THE TRIZETTO GROUP, INC. which the undersigned is entitled to represent
and vote at the 2000 Annual Meeting of Stockholders of TriZetto to be held at
the Marriott Newport Beach Hotel, 900 Newport Center Drive, Newport Beach,
California 92660 on June 29, 2000, at 2:00 p.m., and at any and all adjournments
or postponements thereof, as fully as if the undersigned were present and voting
at the meeting, as follows:
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1, 2 AND 3
1. Election of Director:
<TABLE>
<S> <C>
[ ] FOR [ ] WITHHOLD AUTHORITY
the nominee listed below to vote for the nominee listed below
</TABLE>
Election of the following nominee as director: Paul F. LeFort
2. Amendment of TriZetto's 1998 Stock Option Plan to increase the number of
shares subject thereto by 3,200,000 for a total of 7,200,000 shares of
common stock:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of PricewaterhouseCoopers LLP as independent auditors:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, on such other business as may properly come before
the meeting or any adjournment thereof.
IMPORTANT -- PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
<PAGE> 23
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE DIRECTOR NAMED ON THE REVERSE SIDE OF THIS PROXY, "FOR"
AMENDMENT INCREASING THE NUMBER OF SHARES AVAILABLE UNDER THE 1998 STOCK OPTION
PLAN AND "FOR" RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
AUDITORS.
Date , 2000
-------------------------
(Signature of
stockholder)
Please sign your name
exactly as it appears
hereon. Executors,
administrators,
guardians, officers of
corporations and others
signing in a fiduciary
capacity should state
their full titles as
such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN
AND RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
