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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________
COMMISSION FILE NUMBER 0-27501
THE TRIZETTO GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0761159
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
567 SAN NICOLAS DRIVE, SUITE 360
NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 719-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 2000, 21,270,428 shares of the issuer's common stock were
outstanding.
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Form 10-Q
For the Quarter Ended March 31, 2000
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets - as of
March 31, 2000 (unaudited) and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities and Use of Proceeds 16
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE TRIZETTO GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,552 $ 18,849
Short-term investments 3,978 5,957
Accounts receivable, net 8,695 8,228
Prepaid expenses and other current assets 1,576 1,800
Income tax receivable 440 440
-------- --------
Total current assets 26,241 35,274
Property and equipment, net 10,938 10,797
Long-term investments 1,230 1,230
Other assets 349 265
Note receivable from related party 538 525
Goodwill and other intangible assets, net 23,153 20,327
-------- --------
Total assets $ 62,449 $ 68,418
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term note payable $ 337 $ 623
Capital lease obligations, current 1,232 1,234
Accounts payable 2,371 3,102
Accrued liabilities 8,439 9,172
Income taxes payable -- 22
Deferred revenue 294 241
-------- --------
Total current liabilities 12,673 14,394
Long-term notes payable 342 504
Capital lease obligations 1,983 2,223
Deferred revenue 32 --
-------- --------
Total liabilities 15,030 17,121
-------- --------
Stockholders' equity:
Common stock: 21 21
Additional paid-in capital 69,753 66,214
Notes receivable from stockholders (41) (41)
Deferred stock compensation (5,320) (5,784)
Accumulated deficit (16,994) (9,113)
-------- --------
Total stockholders' equity 47,419 51,297
-------- --------
Total liabilities and stockholders' equity $ 62,449 $ 68,418
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
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THE TRIZETTO GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
--------- --------
<S> <C> <C>
Revenues:
Recurring revenue $ 11,967 $ 1,421
Non-recurring revenue 5,750 2,832
-------- -------
Total revenues 17,717 4,253
-------- -------
Cost of revenues:
Recurring revenue 11,262 1,318
Non-recurring revenue 4,000 1,700
-------- -------
Total cost of revenues 15,262 3,018
-------- -------
Gross profit 2,455 1,235
-------- -------
Operating expenses:
Research and development 1,631 206
Selling, general and administrative 7,941 1,229
Amortization of deferred stock compensation 464 81
Write-off of acquired in-process technology 536 484
-------- -------
Total operating expenses 10,572 2,000
-------- -------
Loss from operations (8,117) (765)
Interest income 263 38
Interest expense 27 32
-------- -------
Loss before provision for income taxes (7,881) (759)
Provision for income taxes -- 30
-------- -------
Net loss $ (7,881) $ (789)
======== =======
Net loss per share:
Basic and diluted $ (0.42) $ (0.15)
======== =======
Shares used in computing net loss per share:
Basic and diluted 18,888 5,204
======== =======
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
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THE TRIZETTO GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,881) (801)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 126 --
Amortization of deferred stock compensation 464 80
Write-off of acquired in-process technology 536 484
Depreciation and amortization 2,728 223
Changes in operating assets and liabilities:
Accounts receivable (388) 227
Prepaid expenses and other current assets 280 15
Note receivable (13) --
Accounts payable (760) 320
Accrued liabilities (1,012) (245)
Deferred revenue 74 --
Other long-term assets (85) --
-------- -------
Net cash provided by (used in) operating activities (5,931) 303
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 1,979 --
Purchase of property and equipment and software licenses (1,111) (309)
Acquisitions, net of cash acquired (1,497) (1,334)
-------- -------
Net cash used in investing activities (629) (1,643)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, net (448) (32)
Principal payments on capital leases (329) (48)
Repayment of notes receivable -- 30
Proceeds from exercise of employee stock options 40 --
-------- -------
Net cash used in financing activities (737) (50)
-------- -------
Net decrease in cash and cash equivalents (7,297) (1,390)
Cash and cash equivalents, beginning of period 18,849 3,681
-------- -------
Cash and cash equivalents, end of period $ 11,552 $ 2,291
======== =======
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
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THE TRIZETTO GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
1. BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by The TriZetto Group, Inc. ("the Company") in accordance with
generally accepted accounting principles for interim financial information that
are consistent in all material respects with those applied in the Company's
Annual Report on Form 10K for the fiscal year ended December 31, 1999 and
pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000, or for any future period. The
financial statements and notes should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
March 30, 2000.
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THE TRIZETTO GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
2. COMPUTATION OF LOSS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net 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 loss) and the denominator (number of
shares) used in the basic and diluted EPS calculations (in thousands, except per
share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
BASIC AND DILUTED:
Net loss $ (7,881) $ (789)
-------- --------
Weighted average common shares outstanding 18,888 5,125
-------- --------
Net loss per share $ (0.42) $ (0.15)
-------- --------
ANTIDILUTIVE SECURITIES:
Preferred stock -- 4,545
Contingently issuable shares 535 --
Options to purchase common stock 3,479 1,423
Common stock subject to repurchase 1,699 4,484
Warrants -- 89
-------- --------
5,713 10,541
======== ========
</TABLE>
3. 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.
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THE TRIZETTO GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
4. SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------------
2000 1999
------ ------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION
Cash paid for interest 70 16
Cash paid for income taxes -- 33
NONCASH INVESTING AND FINANCING ACTIVITIES
Assets acquired through capital lease 87 --
Deferred stock compensation 464 80
Issuance of notes payable to acquire software
and software license
Common stock issued for Creative Business
Solutions -- 1,146
Notes payable issued for Creative Business
Solutions -- 270
Common stock issued for acquisition
of Healthcare Media Enterprises 3,500 --
</TABLE>
5. ACQUISITIONS
On January 11, 2000, the Company acquired all of the outstanding shares of
Healthcare Media Enterprises, Inc. ("HME"). HME's primary business focus is on
software development, especially relating to the Internet, web design, and
business to business portals. 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 $5.4 million consisted of cash in the amount of approximately $1.4
million, 87,359 shares of common stock with a value of $40.06 per share, assumed
liabilities of $191,000 and acquisition costs of approximately $316,000. Of the
total purchase price, $536,000 was allocated to in-process technology and the
remainder of the purchase price was allocated to assets acquired and liabilities
assumed. Of the 87,359 shares of common stock which have been issued in
connection with this acquisition, 17,472 shares of the common stock are being
held in escrow until the resolution of certain pre-acquisition contingencies.
The acquisition of HME 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 $5.0 million, of which $536,000 was
allocated to acquired in-process technology, based upon an independent
appraisal, and was expensed in the quarter ended March 31, 2000, and $4.5
million was allocated to goodwill and intangible assets consisting of assembled
workforce, core technology and customer lists. As of the acquisition date, HME
was developing several enhancements to its proprietary software products. The
in-process and core technology was scheduled to be released by the third quarter
of 2000.
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THE TRIZETTO GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
In valuing HME's developed, in-process and core technologies, the Company
utilized the discounted cash flows method. The discounted cash flows method
includes an analysis of the completion costs, cash flows and risks associated
with achieving such cash flows. This income stream was tax effected and
discounted to its present value to estimate the value of the core and in-process
technologies. For purposes of this analysis, the Company used 20% and 25%
discount rates for the core and in-process technologies, respectively. These
discount rates are consistent with the risks inherent in achieving the projected
cash flows.
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):
Total current assets $ 336
Property, plant, equipment and other
noncurrent assets 88
Goodwill 3,532
Other intangible assets 922
Acquired in-process technology 536
------
Total purchase price $5,414
======
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of HME occurred on January 1,
1999, giving effect to an acquisition adjustment for amortization of goodwill
and other intangibles and the write-off of acquired in-process technology (in
thousands):
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
Net revenue $36,284 $17,717
Net loss $(9,588) $(7,881)
On March 28, 2000, the Company entered into an Agreement and Plan of
Reorganization with IMS Health Incorporated, a Delaware corporation, pursuant to
which IMS will merge with and into the Company. At the closing, the Company will
issue .4655 shares of the Company's Common Stock for each share of outstanding
common stock of IMS. On the date of signing, the transaction was valued at
approximately $8.6 billion. Consummation of the merger is subject to the
approval of each company's stockholders as well as various third parties and
federal agencies.
6. LINE OF CREDIT
In March 1999, we entered into a revolving line of credit with a financial
institution. In October 1999, we entered into a subsequent agreement which
increased the amount available under the line of credit. The total amount
available for borrowings under the line of credit is $3.0 million and expires in
November 2000. Borrowings under the line of credit bear interest at the bank's
prime rate plus 0.5%. 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 March
31, 2000, there were no outstanding borrowings on the line of credit. At March
31, 2000 we were not in compliance with certain covenants related to our line of
credit and a forbearance was granted by the bank.
In December 1999, we entered into a line of credit with a financial
institution. This line of credit was specifically established to finance
computer equipment purchases. The line of credit has a total capacity of $2.0
million and expires in December 2000. Borrowings under the lease line of credit
at March 31, 2000 totaled approximately $973,000, and are collateralized by
substantially all of our assets.
7. RECENT ACCOUNTING PRONOUNCEMENTS
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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which
outlines the basic criteria that must be met to recognize revenue and provides
guidance for presentation of revenue and for disclosure related to revenue
recognition policies in financial statements filed with the SEC. We believe that
adopting SAB 101 will not have a material impact on our financial position or
results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting
for Certain Transactions Involving Stock Compensation," which is an
interpretation of Accounting Principal Board No. 25. This interpretation
clarifies:
o the definition of employee for purposes of applying Opinion 25, which
deals with stock compensation issues;
o the criteria for determining whether a plan qualifies as a noncompensatory
plan;
o the accounting consequence of various modifications to the terms of a
previously fixed stock option or award; and
o the accounting for an exchange of stock compensation awards in a business
combination.
This interpretation is effective July 1, 2000, but certain conclusions in
this interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
interpretation are recognized on a prospective basis from July 1, 2000. The
adoption of FIN 44 does not have a material impact on our financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT
TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE
STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. IN SOME
CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY",
"WILL", "SHOULD", "FORECASTS", "EXPECTS", "PLANS", "ANTICIPATES", "BELIEVES",
"ESTIMATES", "PREDICTS", "POTENTIAL", OR "CONTINUE" OR THE NEGATIVE OF SUCH
TERMS AND OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS.
ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING THESE STATEMENTS,
YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED
BELOW UNDER THE CAPTION "RISK FACTORS." THESE FACTORS MAY CAUSE OUR ACTUAL
EVENTS TO DIFFER MATERIALLY FROM ANY FORWARD- LOOKING STATEMENT. WE DO NOT
UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT.
OVERVIEW
We are the leading application services provider of remotely hosted third
party and proprietary software applications and related services for use in the
healthcare industry. We host or deploy software applications from leading
software vendors, including Epic Systems, Inc., Medic Computer Systems, Inc.,
McKesson HBOC, Inc., Raintree Systems, Inc., InfoMedtrics, Inc., CTR Business
Systems, Inc., Penchart, and QCSI 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 and e-Business applications.
HealthWeb is designed to facilitate the exchange of information and to enable
e-commerce among all constituents of the healthcare industry. Through our
Transformation 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.
Our revenues are classified into two categories: recurring or multi-year
contractually based revenue, and revenue generated via non-recurring agreements.
Since inception, the relative percentage of recurring revenue has been
increasing. As we sign additional multi-year application services contracts, we
expect the relative percentage of recurring revenue to continue 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. Non-recurring revenue is billed on either a time and
materials or a fixed fee basis, and is recognized as the non-recurring 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
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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.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
REVENUES. Total revenues in the first quarter of 2000 increased $13.5
million, or 317%, to $17.7 million from $4.2 million for the same period in
1999. The majority of this increase was due to the overall growth in both
recurring revenue and non-recurring revenue throughout the three-month period
ended March 31, 2000. Additionally, the acquisition of Novalis Corporation in
November 1999, Finserv Health Care Systems in December 1999, and HME in January
2000 generated approximately $4.5 million, $1.0 million, and $454,000,
respectively, in incremental revenue in the first quarter of 2000.
Recurring revenue in the first quarter of 2000 increased $10.5 million, or
742%, to $12.0 million from $1.4 million for the same period in 1999. Of this
increase, $3.8 million was generated from the acquisitions of Novalis and
Finserv.
Non-recurring revenue in the first quarter of 2000 increased $2.9 million,
or 103%, to $5.8 million from $2.8 million for the same period in 1999. This
increase was due primarily to the acquisition of Novalis, Finserv and HME which
resulted in incremental non-recurring revenue of $2.1 million for the three
months ended March 31, 2000.
COST OF REVENUES. Cost of revenues for the three months ended March 31, 2000
increased $12.2 million, or 406%, to $15.3 million from $3.0 million for the
same period in 1999. This increase was due to the costs incurred to support the
overall expansion of our business, including our acquisition of Novalis
Corporation in November 1999, Finserv Health Care Systems in December 1999, and
HME in January 2000. As a percentage of total revenues, cost of revenues
approximated 86% in the first quarter of 2000 and 71% in the first quarter of
1999.
Cost of recurring revenue in the first quarter of 2000 increased $9.9
million, or 754%, to $11.3 million from $1.3 million for the same period in
1999. 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 acquisitions of
Novalis and Finserv. As a percentage of recurring revenue, cost of recurring
revenue approximated 94% in the first quarter of 2000 and 93% in the first
quarter of 1999.
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Cost of non-recurring revenue in the first quarter of 2000 increased $2.4
million, or 135%, to $4.0 million from $1.7 million for the same period in
1999. This increase was due to incremental costs required to support increasing
demand for our consulting services in the three months ended March 31, 2000.
Additionally, the acquisitions of Novalis, Finserv and HME incurred additional
costs. As a percentage of non-recurring revenue, cost of non-recurring revenue
approximated 70% in the first quarter of 2000 and 60% in the first quarter of
1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in the
first quarter of 2000 increased $1.4 million, or 693%, to $1.6 million from
$206,000 for the same period in 1999. The increase was primarily due to a
significant increase in the amount of resources engaged in the development of
our applications and services. 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 9% in the first quarter of 2000 and 5% in the
first quarter of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in the first quarter of 2000 increased $6.7 million, or
546%, to $7.9 million from $1.2 million for the same period in 1999. 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 45% in the first quarter of 2000 and 29% in the first
quarter of 1999.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Amortization of deferred stock
compensation increased $383,000 in the first quarter of 2000 to $464,000 from
$81,000 for the same period in 1999. This amount represents the allocated
portion of the difference between the deemed fair value of our common stock and
the exercise price of stock options granted by us to employees.
INTEREST INCOME. Interest income in the first quarter of 2000 increased
$225,000, or 592%, to $263,000 from $38,000 for the same period in 1999. The
increase was due to the increase in cash available for investing due to proceeds
received from our initial public offering in October 1999.
INTEREST EXPENSE. Interest expense in the first quarter of 2000 decreased
$5,000, or 17%, $27,000 from $32,000 for the same period in 1999. The decrease
was due to the pay down of notes payables and capital lease obligations.
PROVISION FOR (BENEFIT OF) INCOME TAXES. Provision for income tax for the
three months ended March 31, 2000 decreased $30,000, or 100%, to $0 from an
income tax provision of $30,000 for the same period in 1999.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception we have financed our operations primarily through a
combination of cash from operations, private financings and an initial public
offering of our common stock. As of March 31, 2000 we had approximately $16.8
million of cash, cash equivalents, short-term investments and long-term
investments.
Cash used in operating activities in the first quarter of 2000 was $5.9
million. Cash used during this period was primarily attributable to net losses
of $7.9 million, which was offset in part by depreciation and amortization,
amortization of deferred stock compensation, and write off of in-process
technology. These losses were principally related to increased research and
development expenses and sales, general and administrative expenses. In
addition, the losses were generated by the expansion of our infrastructure to
support growing demand of our recurring line of business.
Cash used in investing activities in the three months ended March 31, 2000
was $629,000. Cash used during this period was primarily the result of our
purchase of $1.1 million in property and equipment and software licenses and the
$1.5 million cash portion (net of cash acquired) of our acquisition of HME in
January 2000. These expenditures were partially offset by the sale of $2.0
million of our short-term investments.
Cash used in financing activities in the three months ended March 31, 2000
was $737,000. The cash used during this period was primarily the result of
principal payments on notes payable and capital lease obligations.
In March 1999, we entered into a revolving line of credit with a financial
institution. In October 1999, we entered into a subsequent agreement which
increased the amount available under the line of credit. The total amount
available for borrowings under the line of credit is $3.0 million and expires in
November 2000. Borrowings under the line of credit bear interest at the bank's
prime rate plus 0.5%. 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 March
31, 2000, there were no outstanding borrowings on the line of credit. At March
31, 2000 we were not in compliance with certain covenants related to our line of
credit and a forbearance was granted by the bank.
In December 1999, we entered into a line of credit with a financial
institution. This line of credit was specifically established to finance
computer equipment purchases. The line of credit has a total capacity of $2.0
million and expires in December 2000. Borrowings under the lease line of credit
at March 31, 2000 totaled approximately $973,000, and are collateralized by
substantially all of our assets.
We believe existing cash balances, cash generated from operations and future
borrowings under our line of credit will be sufficient to meet our working
capital and capital requirements for at least the next 12 months.
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<PAGE> 14
RECENT ACCOUNTING PRONOUNCEMENTS
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.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which
outlines the basic criteria that must be met to recognize revenue and provides
guidance for presentation of revenue and for disclosure related to revenue
recognition policies in financial statements filed with the SEC. We believe that
adopting SAB 101 will not have a material impact on our financial position or
results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting
for Certain Transactions Involving Stock Compensation," which is an
interpretation of Accounting Principal Board No. 25. This interpretation
clarifies:
o the definition of employee for purposes of applying Opinion 25, which
deals with stock compensation issues;
o the criteria for determining whether a plan qualifies as a noncompensatory
plan;
o the accounting consequence of various modifications to the terms of a
previously fixed stock option or award; and
o the accounting for an exchange of stock compensation awards in a business
combination.
This interpretation is effective July 1, 2000, but certain conclusions in
this interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
interpretation are recognized on a prospective basis from July 1, 2000. The
adoption of FIN 44 does not have a material impact on our financial statements.
14
<PAGE> 15
ITEM 3. 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 March 31,
2000, we have not used derivative instruments or engaged in hedging activities.
The interest payable on our $3.0 million credit facility is variable, based
on the prime rate, and, therefore, affected by changes in market interest rates.
Although as of March 31, 2000, the amount outstanding on our credit facility was
zero, letters of credit approximating $319,000 had been written against the
credit facility. The line of credit expires in November 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.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this report, we are not a party to any legal proceedings, the adverse outcome
of which, in management's opinion, individually or in the aggregate, would have
a material adverse effect on our results of operations or financial position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On January 11, 2000, we issued 87,359 shares of our common stock to former
shareholders of Healthcare Media Enterprises, Inc. ("HME") pursuant to an
Agreement and Plan of Merger in exchange for all of the issued and outstanding
shares of capital stock of HME. 17,472 of these shares are being held in escrow
through January 11, 2001 to secure the indemnification obligations of the former
shareholders of HME.
We did not employ any underwriters, brokers or finders in connection with
the HME transaction.
The sale of the securities listed above was 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, as a transaction by an
issuer not involving a public offering. The recipients of securities in 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 transaction. All recipients had
adequate access to information about us through our filings with the SEC and
their relationships with us.
USE OF PROCEEDS
On October 7, 1999, we effected a registration statement with the SEC on
Form S-1, as amended, Registration No. 333-84533, whereby we registered shares
of our common stock. As of March 31, 2000, we have used a total of approximately
$19.2 million of the net proceeds from our initial public offering, of which
approximately $7.0 million was used for working capital and other general
corporate purposes, approximately $2.1 million was used to pay down debt,
approximately $2.5 million was used for the purchase of property and equipment
and approximately $7.6 million was used to acquire new businesses.
LIMITATIONS ON PAYMENTS OF DIVIDENDS
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 consent.
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 28, 2000, we entered into an Agreement and Plan of Reorganization with
IMS Health Incorporated, pursuant to which IMS will merge with and into TriZetto
and each issued and outstanding share of IMS's common stock, par value $.01 per
share will be converted into 0.4655 validly issued, fully paid and nonassessable
share of common stock of TriZetto, par value $.001 per share. In connection with
the proposed merger, TriZetto, its directors, executive officers and certain
other members of management and employees solicited proxies from certain holders
of an aggregate of approximately 51% of the outstanding common stock of
TriZetto. Such stockholders have entered into Voting Agreements with IMS to vote
in favor of the merger and the transactions contemplated thereby. Forms of the
Voting Agreements were included as exhibits to the Agreement and Plan of
Reorganization which was filed as Exhibit 2.1 to our Form 8-K filed with the SEC
on April 21, 2000. As of the date hereof, a special stockholders meeting to
approve the proposed merger has not been held.
ITEM 5. OTHER INFORMATION
Attached hereto as Exhibit 99.2 and incorporated by reference herein is the
press release dated April 18, 2000 in which we jointly announced with IMS that
IMS and Trizetto were in discussions regarding transaction alternatives.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as a part of this report:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Reorganization, dated as of March 28,
2000, between TriZetto and IMS Health Incorporated
(Incorporated by reference to Exhibit 2.1 of TriZetto's Form
8-K as filed with the Securities and Exchange Commission on
April 21, 2000, File No. 000-27501)
10.1 Form of Change of Control Agreement entered into by and
between TriZetto and certain executive officers of TriZetto
effective as of February 18, 2000
27.1 Financial Data Schedule
99.1 Press release, dated March 29, 2000, issued by IMS Health
Incorporated and TriZetto (Incorporated by reference to
Exhibit 99.1 of TriZetto's Form 8-K as filed with the
Securities and Exchange Commission on April 21, 2000, File
No. 000-27501)
99.2 Press release, dated April 18, 2000, issued by IMS Health
Incorporated and TriZetto.
(b) Reports on Form 8-K
On January 6, 2000, we filed a Form 8-K (Item 2) relating to our
acquisition of all of the issued and outstanding capital stock of
Finserv Health Care Systems, Inc. On March 6, 2000, we filed a Form
8-K/A containing financial statements of the business acquired and
proforma financial information relating to such transaction.
On February 14, 2000, we filed a Form 8-K/A containing financial
statements of the business acquired and proforma financial information
relating to our acquisition of all of the issued and outstanding capital
stock of Novalis Corporation, as previously reported on a Form 8-K filed
on December 14, 1999.
On April 21, 2000, we filed a Form 8-K (Item 5) announcing the Agreement
and Plan of Reorganization which we entered into with IMS Health
Incorporated effective March 28, 2000, pursuant to which IMS Health
Incorporated will merge with and into TriZetto.
There were no other items to be reported under Part II of this report.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRIZETTO GROUP, INC.
Date: May 15, 2000 By: /s/ MICHAEL J. SUNDERLAND
---------------------------------
Michael J. Sunderland
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated as of March 28,
2000, between TriZetto and IMS Health Incorporated
(Incorporated by reference to Exhibit 2.1 of TriZetto's Form
8-K as filed with the Securities and Exchange Commission on
April 21, 2000, File No. 000-27501)
10.1 Form of Change of Control Agreement entered into by and
between TriZetto and certain executive officers of TriZetto
effective as of February 18, 2000
27.1 Financial Data Schedule
99.1 Press release, dated March 29, 2000, issued by IMS Health
Incorporated and TriZetto (Incorporated by reference to
Exhibit 99.1 of TriZetto's Form 8-K as filed with the
Securities and Exchange Commission on April 21, 2000, File
No. 000-27501)
99.2 Press release, dated April 18, 2000, issued by IMS Health
Incorporated and TriZetto.
</TABLE>
<PAGE> 1
Exhibit 10.1
CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT is entered into by and between The
TriZetto Group, Inc. (the "Company") and ______________ (the "Executive"), as of
this 18th day of February 2000. For purposes of this Agreement, employment with
the Company shall include employment with any of the Company's Affiliates.
Capitalized terms not otherwise defined shall have the meanings set forth in
Section 10 below.
RECITALS
Whereas, the Company's Board of Directors (the "Board") has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control of
the Company.
Now therefore, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
AGREEMENT
1) EMPLOYMENT PERIOD.
a) The Company hereby agrees to continue to employ the Executive,
and the Executive hereby agrees to remain employed by the
Company, subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and
ending on the _____ anniversary of such Effective Date (the
"Employment Period").
b) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will" and, subject to Section
10(i) hereof, prior to the Effective Date, the Executive's
employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the
Effective Date, in which case the Executive may have no
further rights under this Agreement.
2) TERMS OF EMPLOYMENT.
a) POSITION AND DUTIES.
i) During the Employment Period, the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties and
responsibilities shall be at least commensurate in
all material respects with the most significant of
those held, exercised and assigned at any time during
the 120-day period immediately preceding the
Effective Date.
ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the
Executive is entitled, the
<PAGE> 2
Executive agrees to devote reasonable attention and
time during normal business hours to the business and
affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the
Employment Period, it shall not be a violation of
this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage
personal investments, so long as such activities do
not significantly interfere with the performance of
the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. To the
extent that the Executive prior to the Effective Date
has conducted any such activities prior to the
Effective Date, the continued conduct of such
activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective
Date shall not be deemed to interfere with the
performance of the Executive's responsibilities to
the Company.
b) COMPENSATION.
i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the
highest monthly base salary paid or payable,
including any base salary which has been earned but
deferred, to the Executive by the Company and its
Affiliates in respect of the twelve month period
immediately preceding the month in which the
Effective Date occurs. During the Employment Period,
the Annual Base Salary shall be reviewed no more than
twelve months after the last salary increase awarded
to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual
Base Salary shall not serve to limit or reduce any
other obligation to the Executive under this
Agreement. Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so
increased.
ii) OTHER BENEFITS. During the Employment Period, the
Executive shall be entitled to participate in all
incentive, savings, retirement, welfare benefit,
vacation and sick leave plans, practices, policies
and programs applicable generally to other peer
executives of the Company and its Affiliates.
3) TERMINATION OF EMPLOYMENT.
a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the
Employment Period, it may give the Executive written notice in
accordance with Section 11(b) of this
2
<PAGE> 3
Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability
Effective Date"); provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time
performance of the Executive's duties.
b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for "Cause" based upon any of the
following occurrences:
i) The willful and continued failure of the Executive to
perform substantially the Executive's duties with the
Company or its Affiliates (other than any such
failure resulting from incapacity due to physical or
mental illness), after a written demand for
substantial performance is delivered to the Executive
by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in
which the Board or Chief Executive Officer believes
that the Executive has not substantially performed
the Executive's duties; or
ii) The willful engaging by the Executive in illegal
conduct or gross misconduct that is materially and
demonstrably injurious to the Company.
For purposes of this subsection, no act or failure to act, on
the part of the Executive, shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's
action or omission was in the best interests of the Company.
Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or other senior
officer of the Company or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the Board at a meeting of the
Board called and held for such purpose (after reasonable
notice is given to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board,
the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
c) GOOD REASON. The Executive may terminate the Executive's
employment for Good Reason.
i) "Good Reason" shall mean any of the following
occurrences:
3
<PAGE> 4
(1) The assignment to the Executive of any
duties inconsistent in any material respect
with the Executive's position (including
status, offices, titles and reporting
requirements), authority, duties or
responsibilities as contemplated by Section
2(a) of this Agreement, or any other action
by the Company which results in material
diminution in such position, authority,
duties or responsibilities;
(2) Any failure by the Company to comply with
any of the provisions of Section 2(b) of
this Agreement, other than an isolated
insubstantial and inadvertent failure not
occurring in bad faith and which is remedied
by the Company promptly after receipt of
notice thereof given by the Executive;
(3) Any purported termination by the Company of
the Executive's employment otherwise than as
expressly permitted by this Agreement;
(4) Any failure by the Company to comply with
and satisfy Section 9(c) of this Agreement;
or
(5) The required move of the Executive's
principal place of employment outside of
[Newport Beach, California/ ___________].
ii) Any claim or controversy arising out of or relating
to any determination of Good Reason made by the
Executive shall be settled by arbitration in Orange
County, California, in accordance with the following:
(1) Each party shall appoint its own arbitrator
and the two arbitrators shall choose a
third, impartial arbitrator as umpire before
the date set for the hearing. If a party
fails to appoint its arbitrator within 30
days after having either received or given
the notice requesting arbitration, the other
shall appoint the second arbitrator. If the
two arbitrators fail to appoint the umpire
within 30 days after their appointments,
either party may apply to the Orange County
Superior Court of the State of California to
appoint an impartial umpire. The umpire
shall promptly notify all parties to the
arbitration of his selection.
(2) The arbitration shall be conducted pursuant
to the provisions of the California Code of
Civil Procedure, including the rules
pertaining to discovery.
(3) Within a reasonable time after completion of
the arbitration, the arbitrators shall
prepare a written opinion, a copy of which
shall be delivered to each party.
4
<PAGE> 5
(4) The parties shall share equally the expenses
of arbitration, including the arbitrator's
fee, provided however, that the arbitrators,
in their discretion, may award costs to the
prevailing party.
d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this
Agreement.
4) OBLIGATIONS OF THE COMPANY OR EXECUTIVE UPON TERMINATION.
a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH, OR DISABILITY. If
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, Death or
Disability, or the Executive shall terminate for Good Reason,
such termination, for purposes of this Section 4(a), shall
constitute separation from, and cessation of duties for, the
Company as of the Date of Termination. Under such
circumstances, the Company shall pay to the Executive the
following payments and benefits:
i) Bi-weekly salary continuation at the Executive's
Annual Base Salary as if the Executive had remained
employed through the end of the Employment Period;
ii) Medical and dental coverage continuation as if the
Executive had remained employed through the end of
the Employment Period at the Executive's benefit
level as of the Date of Termination;
iii) Life insurance coverage continuation, through the end
of the Employment Period at the Executive's benefit
level as of the Date of Termination;
iv) Outplacement services consistent with the Company's
outplacement policy, if any, for a person at the
Executive's job classification or position;
v) A payment on the last day of the Employment Period in
an amount equal to the sum of (A) 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;
vi) Payment within 30 days of the Date of Termination of
all accrued vacation, holiday and personal leave days
as of the Date of Termination; and
vii) Payment of any unpaid incentive compensation that
Executive earned through the date of Termination in
accordance with the terms of any applicable incentive
compensation plan.
5
<PAGE> 6
The Company reserves the right to deduct from any applicable sum those
amounts required by law. Any money owed to the Company by Executive may
be deducted from the amounts payable pursuant to this Section 5(a). All
accruals of vacation, holiday and personal leave shall end on the Date
of Termination. The payments called for in this Section 5(a) shall be
in lieu of and discharge any obligations of the Company to Executive
for compensation, accrued vacation, accrued personal leave days,
accrued holidays, incentive compensation, car allowances, or any other
expectations or remuneration or benefit on the part of the Executive.
b) DEATH. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of accrued obligations and the timely payment
or provision of other benefits under any plan, program, policy
or practice of TriZetto in accordance with the terms of such
plan, program, policy or practice (the "Other Benefits").
Accrued obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination.
c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of
accrued obligations and the timely payment or provision of
Other Benefits. Accrued obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
d) CAUSE, OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay
to the Executive (i) his or her Annual Base Salary through the
Date of Termination, (ii) the amount of any compensation
previously deferred by the Executive, and (iii) Other
Benefits, in each case to the extent unpaid. If the Executive
voluntarily terminates employment during the Employment
Period, except a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive,
other than for accrued obligations and the timely payment or
provision of Other Benefits. In such case, all accrued
obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
e) ACCELERATION OF OPTIONS. The Board has determined that a
Change of Control as defined herein will constitute a Change
in Control Event for purposes of Section 3.3.2 of the
Company's 1998 Plan. Therefore, if the Executive's employment
is terminated other than voluntarily, for Cause, Death or
Disability prior to the end of the Employment Period, then,
subject to Section 5 of this Agreement, all of the Executive's
outstanding options granted under the 1998 Plan which have not
otherwise become exercisable shall become immediately
exercisable on the Date of Termination, and all substantial
risks of forfeiture and restrictions on
6
<PAGE> 7
transfer relating to any of the Executive's shares of
restricted stock issued pursuant to the 1998 Plan shall be
terminated on the Date of Termination. For purposes of this
provision, any termination of the Executive's employment other
than voluntarily, or for Cause, Death or Disability shall be
deemed to be a termination for the convenience of the Board;
accordingly, any options granted to the Executive which are or
become exercisable as of the Date of Termination shall
terminate 90 days after the Date of Termination.
f) DUTY TO COOPERATE. During the Employment Period and
thereafter, Executive agrees to cooperate with and assist the
Company, upon reasonable notice, in the defense of any
litigation or governmental investigation arising from events
that occurred while Executive was employed by the Company.
Such cooperation and assistance shall include, but not be
limited to, the Executive's full participation in locating,
producing, collecting, analyzing and preparing documents and
other informational materials; in preparing for and
participating in depositions, hearings and trials; and in
responding to document production requests, interrogatories,
and other discovery. If it becomes necessary for Executive to
testify in any judicial or other administrative proceedings,
the Company shall reimburse Executive for any reasonable
travel expenses (including transportation, food and lodging),
which are incurred (or are to be incurred) in connection with
such testimony (including preparation therefore). The Company
shall not be required to pay Executive any additional
consideration, including but not limited to, consulting or
witness fees, in connection with any cooperation, assistance
or testimony required of or provided by Executive pursuant to
this Agreement. In addition, from the Date of Termination to
the end of the Employment Period, the Executive shall devote a
reasonable amount of time cooperating with and assisting the
Company in maintaining and improving its relationships with
its customers.
5) CERTAIN REDUCTIONS OF PAYMENTS BY THE COMPANY.
a) The payments (including for this purpose the value of the
acceleration described in Section 4(e) or elsewhere) made to
the Executive hereunder shall be subject to the provisions of
3.3.4 of the 1998 Plan.
b) All determinations required to be made under this Section 5 as
to whether a Payment or benefit would be deductible by the
Company shall be made by the Company's independent auditors
(the "Accounting Firm") which shall provide detailed
supporting information both to the Company and the Executive
within 30 business days following the Date of Termination or
such earlier time as is requested by the Company. The
Accounting Firm shall make a determination as to whether a
Disqualification would occur at least 10 days prior to a
Change of Control. Any such determination by the Accounting
Firm shall be binding upon the Company and the Executive.
c) In the event that any option which is outstanding on the
Executive's Date of Termination has not become exercisable
because of the application of
7
<PAGE> 8
this Section 5, such option shall become exercisable in such
manner and such times as the option would have become
exercisable if the Executive had not terminated employment,
and the portion of any such option which becomes exercisable
pursuant to this Section 5(c) shall remain exercisable until
the earlier of the date which is 90 days following the date on
which the option first becomes exercisable or the original
expiration date of the option.
6) NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or its Affiliates
and for which the Executive may qualify, nor, subject to Section 1(b),
shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or
its Affiliates. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or
any of its Affiliates at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7) FULL SETTLEMENT. Except as stated herein, the Company's obligation to
make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event shall
the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not Executive obtains other employment.
8) CONFIDENTIAL INFORMATION. The Executive shall continue to be bound by
the Intellectual Property and Technical Information Agreement.
Following termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any confidential information to anyone other
than the Company and its Affiliates or others designated by the
Company.
9) SUCCESSORS.
a) This Agreement is personal to the Executive and may not be
assigned by the Executive without the prior written consent of
the Company, except by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and
be enforceable by the Executive's legal representatives.
b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
c) The Company will require any successor (whether direct or
indirect, by reason of purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to assume
8
<PAGE> 9
expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
10) CERTAIN DEFINITIONS.
a) "AFFILIATES" shall mean any company controlled by, controlling
or under common control with the Company.
b) "BUSINESS COMBINATION" shall mean any reorganization, merger
or consolidation or sale or other disposition of all or
substantially all of the assets of the Company.
c) "CHANGE OF CONTROL" shall mean any of the following
occurrences:
i) The acquisition whether by Business Combination,
tender offer, or otherwise, of any individual, entity
or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or
more of either: (A) the then outstanding shares of
common stock of the Company (the "Outstanding Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Voting Securities"). For purposes of
this Agreement, the following acquisitions of
Outstanding Common Stock or Outstanding Voting
Securities shall not constitute a Change in Control:
(A) any acquisition by the Company, (B) any
acquisition by any employee benefit plan or related
trust sponsored or maintained by the Company or any
corporation controlled by the Company, or (C) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (1), (2) and
(3) of subsection (iii) below.
ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
iii) Consummation of a Business Combination, unless
following such Business Combination, each of the
following conditions are met:
9
<PAGE> 10
(1) All or substantially all of the individuals
and entities who are the beneficial owners,
respectively, of the Outstanding Common
Stock and Outstanding Voting Securities
immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than 50% of, respectively,
the then outstanding shares of common stock
and the combined voting power of the then
outstanding voting securities entitled to
vote generally in the election of directors,
as the case may be, of the corporation
resulting from such Business Combination
(including, without limitation, a
corporation which as a result of such
transaction owns the Company or all or
substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
Outstanding Common Stock and Outstanding
Voting Securities, as the case may be;
(2) No Person (excluding any employee benefit
plan or related trust of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, 50% or more of, respectively,
the then outstanding shares of common stock
of the corporation resulting from such
Business Combination or the combined voting
power of the then outstanding voting
securities of such corporation except to the
extent that such ownership existed prior to
the Business Combination;
(3) At least a majority of the members of the
Board of Directors of the corporation
resulting from such Business Combination
were members of the Incumbent Board at the
time of the execution of the initial
agreement, or of the action of the Board,
providing for such Business Combination.
iv) Approval of the stockholders of the Company of a
complete liquidation or dissolution of the Company.
d) "CHANGE OF CONTROL PERIOD" shall mean the period commencing on
the date hereof and ending on the second anniversary of the
date hereof.
e) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
f) "COMPANY" shall mean The TriZetto Group, Inc. and its
Affiliates. In addition to the foregoing definition, Company
shall also include any successor to the Company's business
and/or assets which assumes and agrees to perform this
Agreement by operation of law or otherwise.
g) "DATE OF TERMINATION" shall mean:
10
<PAGE> 11
i) if the Executive's employment is terminated by the
Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as
the case may be; or
ii) if the Executive's employment is terminated by the
Company other than for Cause or Disability, the Date
of Termination shall be the date on which the Company
notifies the Executive of such termination; or
iii) if the Executive's employment is terminated by reason
of Death or Disability, the Date of Termination shall
be the date of Death or the Disability Effective
Date, as the case may be.
h) "DISABILITY" shall mean the absence of Executive from the
Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to
mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its
insurers and reasonably acceptable to the Executive or the
Executive's legal representative.
i) "EFFECTIVE DATE" shall mean the first date during the Change
of Control Period on which a Change of Control occurs.
Notwithstanding anything in this Agreement, if a Change of
Control occurs and if the Executive's employment with the
Company is terminated prior to the date on which the Change of
Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably
calculated to effect a Change of Control, or (ii) otherwise
arose in connection with or anticipation of a Change of
Control, then for all purposes of this Agreement, the
Effective Date shall mean the date immediately prior to the
date of such termination.
j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
k) "NOTICE OF TERMINATION" shall mean a written notice which:
i) indicates the specific termination provision in this
Agreement relied upon;
ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment
under the provision so indicated; provided, however,
that the failure to set forth such information shall
not waive any right of the Executive or the Company
hereunder, or preclude either party from asserting
such fact or circumstance in enforcing their
respective rights hereunder; and
11
<PAGE> 12
iii) if the Date of Termination is other than the date of
receipt of such notice, specifies the termination
date, which shall not be more than 30 days after the
giving of such notice.
l) "1998 PLAN" shall mean the Company's 1998 Stock Incentive
Plan, as amended.
11) MISCELLANEOUS PROVISIONS.
a) GOVERNING LAW. Except for the determination of "Good Reason"
pursuant to Section 3(c)(ii), this Agreement will be governed
by, and construed and enforced in accordance with the laws of
the State of Delaware as applied to contracts that are
executed and performed in Delaware, without regard to the
principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in Orange County, California, for
the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper.
Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
b) NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified; (b) when sent
by confirmed facsimile if sent during normal business hours of
the recipient, if not, then on the next business day; (c) five
days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) two days
after deposit with a nationally recognized overnight courier,
specifying two day delivery, with written verification of
receipt. All communications shall be sent to the parties at
the following addresses or facsimile numbers specified below
(or at such other address or facsimile number for a party as
shall be designated by ten days advance written notice to the
other parties hereto):
If to TriZetto:
The TriZetto Group, Inc.
567 San Nicolas Drive, Suite 360
Newport Beach, California 92660
Attn: Jeffrey H. Margolis
Ph: (949) 718-4940
Fax: (949) 718-4944
E-mail: [email protected]
12
<PAGE> 13
If to Executive:
____________________________
____________________________
____________________________
Ph: ___________________
Fax: ___________________
E-mail: ___________________
c) AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto, or their
respective successors and legal representatives.
d) 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.
e) 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.
f) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings
(other than the Executive's Intellectual Property and
Technical Information Agreement and Stock Option Agreement)
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.
g) WITHHOLDINGS. The Company may withhold from any amounts
payable hereunder, such Federal, state, local or foreign taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
h) 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. This Agreement shall
become effective when
13
<PAGE> 14
counterparts have been signed by each of the parties and
delivered by facsimile or other means to the other party.
i) FAILURE OR INDULGENCE NOT WAIVER. 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 obligation 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.
IN WITNESS WHEREOF, the parties have caused this Change of Control
Agreement to be executed as of the date first written above.
THE TRIZETTO GROUP, INC
By: ____________________________
Name: ____________________________
Title: ____________________________
EXECUTIVE
By: ____________________________
Name: ____________________________
Title: ____________________________
14
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,552
<SECURITIES> 3,978
<RECEIVABLES> 9,418
<ALLOWANCES> (723)
<INVENTORY> 0
<CURRENT-ASSETS> 26,241
<PP&E> 13,279
<DEPRECIATION> (2,341)
<TOTAL-ASSETS> 62,449
<CURRENT-LIABILITIES> 12,673
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 47,398
<TOTAL-LIABILITY-AND-EQUITY> 62,449
<SALES> 0
<TOTAL-REVENUES> 17,717
<CGS> 0
<TOTAL-COSTS> 15,262
<OTHER-EXPENSES> 10,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (7,881)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,881)
<EPS-BASIC> (0.42)
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<PAGE> 1
Exhibit 99.2
[IMS HEALTH LOGO] [TRIZETTO LOGO]
News
For Immediate Release
Contact: Michael Gury Jodi Amendola
IMS HEALTH Communications TriZetto Communications
(203) 222-4230 (480) 657-9966
Jack Walsh Ethan Denkensohn
IMS HEALTH Investor Relations TriZetto Investor Relations
(203) 222-4250 (212) 213-0006
IMS HEALTH AND TRIZETTO IN DISCUSSIONS REGARDING
TRANSACTION ALTERNATIVES
WESTPORT, CT, April 18, 2000 - IMS HEALTH (NYSE:RX) and The TriZetto Group, Inc.
(NASDAQ:TZIX) today jointly announced that they are in discussions regarding
transaction structure options. In a pro-active move designed to be responsive to
shareholders, the two companies are evaluating potential alternatives. TriZetto
is a leading provider of vertical, Internet-enabled application services and
business portals to the healthcare industry. IMS HEALTH is the world's leading
provider of information solutions to the pharmaceutical and healthcare
industries.
There can be no assurance that any development or definitive agreement
will materialize as a result of these discussions. IMS HEALTH and TriZetto do
not expect to make any further announcements about alternatives unless and until
a definitive agreement is reached.
# # #
April 18, 2000
This press release may contain forward-looking information (statements that are
not historical facts and relate to future performance) that involves risks and
uncertainties. The forward-looking statements
<PAGE> 2
are made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements may include
statements about future net revenues, profits, and financial results, the market
for TriZetto's services, future service offerings, client and partner
relationships, and TriZetto's operational capabilities. Actual results may
differ materially from those stated in any forward-looking statements based on a
number of factors, including the effectiveness of TriZetto's implementation of
its business plan, the market's acceptance of TriZetto's services, risks
associated with management of growth, reliance on third parties to supply key
components of TriZetto's services, attraction and retention of employees,
variability of quarterly operating results, including the effects of the client
purchasing patterns due to Year 2000 issues, competitive factors, risks
associated with acquisitions, changes in demand for third party products or
solutions, which form the basis of TriZetto's service offerings, and risks
associated with rapidly changing technology, as well as the risks identified in
TriZetto's SEC filings, including information under the heading of risk factors
in its Form S-1 filed in October 1999.
This press release includes statements which may constitute forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Although IMS HEALTH believes the expectations
contained in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove correct. This information may
involve risks and uncertainties that could cause actual results of IMS HEALTH to
differ materially from the forward-looking statements. Factors which could cause
or contribute to such differences include, but are not limited to (i) the risks
associated with operating on a global basis, including fluctuations in the value
of foreign currencies relative to the U.S. dollar, and the ability to
successfully hedge such risks, (ii) to the extent IMS HEALTH seeks growth
through acquisitions and joint ventures, the ability to identify, consummate and
integrate acquisitions and ventures on satisfactory terms, (iii) the ability to
develop new or advanced technologies and systems for its businesses on time and
on a cost-effective basis, (iv) regulatory, legislative and enforcement
initiatives, particularly in the areas of medical privacy and tax, and (v)
deterioration in economic conditions, particularly in the pharmaceutical,
healthcare or other industries in which IMS HEALTH's customers operate.
Additional information on factors that may affect the business and financial
results of the Company can be found in filings of the Company made from time to
time with the Securities and Exchange Commission.
