TriZetto Group DEF 14A 2007
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
THE TRIZETTO GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
April 30, 2007
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2007 Annual Meeting of Stockholders of The TriZetto Group, Inc. on Friday, May 25, 2007, at 9:00 a.m., at the Hyatt Regency Newport Beach Hotel, 1107 Jamboree Road, Newport Beach, California 92660.
The Notice of Annual Meeting and Proxy Statement accompanying this letter describe the business to be conducted at the meeting and provide information about TriZetto. Also enclosed is a proxy/voting instruction card and TriZettos Annual Report to Stockholders for the fiscal year ended December 31, 2006.
Your vote is important. Whether or not you plan to attend the meeting, please complete, sign and return the enclosed proxy/voting instruction card promptly, or vote by telephone or over the Internet, if telephone or Internet voting is available to you. If you attend the meeting and prefer to vote in person, you may withdraw your proxy and vote your shares.
Jeffrey H. Margolis
Chairman of the Board and Chief Executive Officer
Notice of Annual Meeting of Stockholders
May 25, 2007
The 2007 Annual Meeting of Stockholders of The TriZetto Group, Inc. will be held at the Hyatt Regency Newport Beach Hotel, 1107 Jamboree Road, Newport Beach, California 92660, on Friday, May 25, 2007, at 9:00 a.m., for the following purposes:
Only stockholders of record at the close of business on April 5, 2007 will be entitled to vote at the annual meeting or any adjournment or postponement thereof.
The Annual Report to Stockholders of TriZetto for the fiscal year ended December 31, 2006 is being mailed concurrently with this Proxy Statement to all stockholders of record as of April 5, 2007. 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.
It is important that your shares be represented and voted at the meeting. You can vote your shares by completing and returning the proxy/voting instruction card sent to you. Most stockholders also can vote their shares over the Internet or by telephone. If Internet or telephone voting is available to you, instructions are printed on the voting instruction card sent to you. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying Proxy Statement.
By Order of the Board of Directors,
James J. Sullivan
Senior Vice President, General Counsel and
April 30, 2007
Newport Beach, California
The TriZetto Group, Inc. (TriZetto or the Company) offers a broad portfolio of healthcare information technology products and services that can be delivered individually or combined to create a comprehensive solution. The Company provides leading proprietary and third-party software products, outsourced services and strategic and implementation consulting to health plans and benefits administrators. Our corporate offices are located at 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660. Our telephone number is 949-719-2200, and our corporate website address is www.trizetto.com.
On or about April 30, 2007, we began mailing these proxy materials to all registered owners (sometimes called record holders) of TriZetto common stock at the close of business on April 5, 2007. We have sent this Proxy Statement to you because the Board of Directors of the Company is requesting your proxy to vote at the 2007 annual meeting and at any adjournment or postponement of such meeting. A copy of this Proxy Statement also has been sent to beneficial owners of TriZetto common stock whose shares were held in street-name by banks, brokers and other record holders at the close of business on April 5, 2007.
The Company will bear the entire cost of the solicitation of proxies. The Company also will reimburse banks, brokers, custodians, nominees, fiduciaries and others for their reasonable out-of-pocket expenses in forwarding proxy materials to the beneficial owners. Solicitation of proxies is expected to be made primarily by mail. However, our directors, officers and employees may communicate with stockholders, banks, brokers, and others by telephone, facsimile, e-mail or in person to request that proxies be furnished.
If you are a registered owner (meaning that your shares are registered in TriZettos records as being owned in your name), then you may vote on matters presented at our annual meeting in the following ways:
If you are a beneficial owner whose shares are held in street-name by a bank, broker or other record holder, please refer to your voting instruction card and other materials forwarded by such record holder for information on how to instruct the record holder to vote on your behalf. In addition to returning the instruction card by mail, you may be able to provide voting instructions by using the Internet or telephone. The Internet and telephone instructions provided by the record holder are designed to authenticate your identity, allow you to give your voting instructions, and to confirm that your voting instructions have been properly recorded. Please be aware that you may incur costs such as telephone and Internet access charges, for which you will be responsible, if you vote by telephone or over the Internet.
If you are a registered holder and vote by proxy, the individuals named on the enclosed proxy card will vote your shares in the way that you indicate. When completing the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the following:
If you do not indicate how your shares should be voted on a matter, the shares represented by your properly completed proxy will be voted as the Board of Directors recommends. If you choose to vote by mailing a proxy card, your proxy card must be filed with the Corporate Secretary of the Company prior to or at the commencement of the annual meeting.
Registered holders who vote by sending in a signed proxy will not be prevented from attending the annual meeting and voting in person. You have the right to revoke a proxy at any time before it is exercised by (a) executing and returning a later dated proxy, (b) giving written notice of revocation to TriZettos Corporate Secretary at 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660 or (c) attending the annual meeting and voting in person. In order to attend the annual meeting and vote in person, a beneficial holder whose shares are held in street name by a bank, broker or other record holder must follow the instructions provided by such record holder for voting in person at the meeting. The beneficial holder also must obtain from such record holder and present at the annual meeting a written proxy allowing the beneficial holder to vote the shares in person.
Record Date, Quorum and Voting Requirements
Only holders of record of TriZetto common stock at the close of business on April 5, 2007 will be eligible to vote at the annual meeting. As of the close of business on April 5, 2007, TriZetto had 45,236,397 shares of common stock outstanding. Each share of common stock is entitled to one vote.
A quorum of shares is necessary to hold a valid stockholders meeting. TriZettos bylaws provide that a majority of the shares entitled to vote, present in person or represented by proxy, will constitute a quorum at meetings of stockholders. Shares for which an abstention from voting is observed, as well as shares that a broker holds in street name and votes on some matters but not others (broker non-votes), will be counted for purposes of establishing a quorum. Broker non-votes occur when shares held by a broker for a beneficial owner are not voted with respect to a particular proposal because (a) the broker does not receive voting instructions from the beneficial owner and (b) the broker lacks discretionary authority to vote the shares. Banks and brokers cannot vote on their clients behalf on non-routine proposals.
Directors will be elected by a plurality of votes cast at the annual meeting. This means that the three nominees for director who receive the most votes will be elected. If you are present at the meeting but do not vote for a particular nominee, or if you have given a proxy and properly withheld authority to vote for a nominee, or if there are broker non-votes, the shares withheld or not voted will not be counted for purposes of the election of directors.
For each other item, the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the annual meeting is required for approval. If you are present at the meeting but do not vote on any of these proposals, or if you have given a proxy and abstain on any of these proposals, this will have the same effect as if you voted against the proposal. If there are broker non-votes on the issue, the shares not voted will have no effect on the outcome of the proposal.
Security Ownership of Management and Certain Beneficial Owners
The following table shows the number of shares of common stock beneficially owned as of March 31, 2007 by (a) each person (or group of affiliate persons) who is known by us to beneficially own 5% or more of our outstanding common stock, (b) each of our directors, (c) each of the named executive officers (as defined below) listed in the Summary Compensation Table and (d) all current directors and executive officers of the Company as a group. The information in the table is based upon information available to us as of April 19, 2007.
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 certain persons who own more than 10% 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 (the SEC). These reports are commonly referred to as Form 3, Form 4 and Form 5 reports. 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 furnished to us, or written representations that no annual Form 5 reports were required, we believe that all forms required under Section 16(a) of the Exchange Act applicable to our directors, executive officers and any persons holding 10% or more of our common stock were timely filed with respect to our fiscal year ended December 31, 2006.
ELECTION OF DIRECTORS
Our Board of Directors currently consists of seven directors, divided into three classes. Directors in each class serve a staggered term of three years. The term of the Class I directors, Paul F. LeFort and Jerry P. Widman, expires at the annual meeting of stockholders in 2009. The term of the Class II directors, Nancy H. Handel, Thomas B. Johnson and L. William Krause, expires at the annual meeting of stockholders in 2007. Ms. Handel was appointed to our Board of Directors effective April 25, 2007 to replace Lois A. Evans who resigned as a director effective April 24, 2007. The term of the Class III directors, Donald J. Lothrop and Jeffrey H. Margolis, expires at the annual meeting of stockholders in 2008.
The Board of Directors proposes that Nancy H. Handel, Thomas B. Johnson and L. William Krause be elected at the 2007 annual meeting to serve as Class II directors for a three-year term expiring at the 2010 annual meeting. Unless you otherwise instruct, the enclosed proxy will be voted in favor of Nancy H. Handel, Thomas B. Johnson and L. William Krause, each of whom are currently Class II directors. If Ms. Handel, Mr. Johnson or Mr. Krause become unavailable to serve for any reason before the election, the enclosed proxy will be voted for the election of such substitute nominee or nominees, if any, as shall be designated by the Board of Directors. The Board has no reason to believe that Ms. Handel, Mr. Johnson or Mr. Krause will be unavailable to serve.
There are no family relationships among any of our directors or executive officers.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
NANCY H. HANDEL, THOMAS B. JOHNSON AND L. WILLIAM KRAUSE
The names and certain information concerning the nominee directors standing for election at the 2007 annual meeting and the other continuing members of our Board of Directors are set forth below. Each of the nominee directors has been nominated for election by the Companys Nominating and Corporate Governance Committee and Board of Directors.
Directors Standing for Election
Class II DirectorsFor a Term to Expire in 2010
Nancy H. Handel, 55, has been a director since April 2007. Ms. Handel was the Senior Vice President, Chief Financial Officer of Applied Materials, Inc., a supplier of equipment and services to the global semiconductor industry, from October 2004 through November 2006. From November 2006 to January 2007, Ms. Handel served as Senior Vice President, Finance at Applied Materials and assisted in the transition with their new Chief Financial Officer. She retired from Applied Materials in January 2007. From 1985 to October 2004, she served in various key financial leadership positions at Applied Materials, including four years as Deputy Chief Financial Officer, Corporate Controller and Principal Accounting Officer, and 13 years as Treasurer. Prior to joining Applied Materials, Ms. Handel held various financial management positions with Raychem Corporation, an electronics manufacturer, Crown Zellerbach Corporation, a paper manufacturing company, and two private early stage companies. Ms. Handel currently serves on the board of directors of one other public company: Broadcom Corporation. Ms. Handel received a B.S. in Economics from Purdue University and an M.B.A. from The Ohio State University, and is a graduate of the Stanford Executive Program.
Thomas B. Johnson, 68, has been a director since March 2003. From October 1995 until he retired in March 2001, Mr. Johnson served as an officer of CNA Financial Corporation and held such positions as Group Vice President of Provider Markets and Chairman and Chief Executive Officer of CNA Health Partners, Inc. From July 1964 to September 1995, Mr. Johnson held various positions with Deloitte & Touche, concluding with Partner, Management Consulting. During most of his 31-year career with Deloitte & Touche, Mr. Johnson provided management and financial consulting services to healthcare industry clients. He received his B.S. in Industrial Engineering from Northwestern University in 1962 and his M.B.A. in Accounting and Finance from the University of Chicago in 1964. Mr. Johnson received his Certified Public Accountant certificate from the State of Illinois in 1965.
L. William Krause, 64, has been a director since July 2005. Mr. Krause has been President of LWK Ventures, a private investment firm since 1991. In addition, Mr. Krause served as Chairman of the Board of Caspian Networks, Inc., an IP networking systems provider, from April 2002 to September 2006 and as Chief Executive Officer from April 2002 until June 2004. From September 2001 to February 2002, Mr. Krause was Chairman and Chief Executive Officer of Exodus Communications, Inc., which he guided through a Chapter 11 Bankruptcy to a sale of assets. He also served as President and Chief Executive Officer of 3Com Corporation, a global data networking company, from 1981 to 1990, and as its Chairman from 1987 to 1993, when he retired. Mr. Krause currently serves on the board of directors of four other public companies: Brocade Communications Systems, Inc., Core-Mark Holding Company, Inc., Packeteer, Inc. and Sybase, Inc. Mr. Krause received his B.S. in Electrical Engineering from The Citadel in 1963.
Directors Continuing in Office
Class I DirectorsTerms Expire in 2009
Paul F. LeFort, 66, 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 UnitedHealth Group Incorporated, a health and well being company. Mr. LeFort is currently performing independent consulting services to a variety of venture capital firms and healthcare-related technology organizations. 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. in Physics and Economics from Boston College in 1962.
Jerry P. Widman, 64, has been a director since March 2005. From 1982 to 2001, Mr. Widman served as the Chief Financial Officer of Ascension Health, a large U.S. not-for-profit multi-hospital system. Prior thereto, Mr. Widman was a management consultant with Ernst & Young LLP for twelve years. Mr. Widman currently serves on the board of directors of three other public companies: United Surgical Partners International, Cutera, Inc. and ArthroCare Corporation. Mr. Widman received a B.A. in Business from Case Western Reserve University in 1965, a J.D. from Cleveland State University in 1969, and an M.B.A. from the University of Denver in 1970. He received his attorneys license from the State of Ohio in 1970 and his Certified Public Accountant certification from the State of Ohio in 1982.
Class III DirectorsTerms Expire in 2008
Donald J. Lothrop, 47, has been a director since April 1998. Mr. Lothrop has been a Partner of New Vista Partners, LLC since November 2006, a General Partner of Delphi Management Partners II, L.P. since July 1994, a Managing Member of Delphi Management Partners III, L.L.C. since March 1995, a Managing Member of Delphi Management Partners IV, L.L.C. since October 1997 and a Managing Member of Delphi Management Partners V, L.L.C. since April 2000, all of which are venture capital firms. 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 industry. From 1989 to 1990, Mr. Lothrop worked at Bain & Company, Inc., a management
consulting firm. Mr. Lothrop currently serves on the board of directors of one other public company: Matria Healthcare, Inc. Mr. Lothrop received his B.S. in Accounting from Pennsylvania State University in 1981 and his M.B.A. from Harvard Business School in 1989.
Jeffrey H. Margolis, 43, is our co-founder and has served as our Chief Executive Officer and a Director since our inception in May 1997. He also served as President from May 1997 to November 2004. In August 1999, Mr. Margolis was named Chairman of the Board. From July 1994 to February 1997, Mr. Margolis served as Senior Vice President and Chief Information Officer of FHP International Corporation, a managed care organization. From November 1992 to June 1994, Mr. Margolis served as Vice President and Chief Information Officer of TakeCare, Inc., a managed care organization. From September 1989 to October 1992, Mr. Margolis held various executive positions, including Vice President and Chief Operating Officer of Comprecare, a managed care organization. From June 1984 to September 1989, Mr. Margolis served in various positions with Andersen Consulting (now known as Accenture), including his final position as Manager, Healthcare Consulting. Mr. Margolis received his B.S. in Business AdministrationManagement Information Systems from the University of Illinois at Urbana-Champaign in 1984. Mr. Margolis received a Certified Public Accountant certification from the State of Illinois in 1984 and from the State of Colorado in 1988.
Board of Directors
Our Board of Directors is responsible for supervision of the overall affairs of the Company. To assist in carrying out its duties, the Board has delegated authority to three committees, each of which is described below. During 2006, our Board held seven meetings (including telephonic meetings). Each incumbent director who served during this period attended at least 75% of the Board meetings and at least 75% of the committee meetings for the committees on which he or she was a committee member.
The Company does not have a policy with regard to Board members attendance at annual meetings of stockholders. Jeffrey H. Margolis, our Chairman and Chief Executive Officer, attended the 2006 annual meeting of stockholders held on May 22, 2006.
Each of the Companys directors is deemed to be an independent director as defined in the Nasdaq Listing Standards, except for Mr. Margolis, who serves as the Companys Chief Executive Officer. In determining independence, each year the Board considers whether directors have any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Typically, the independent directors meet in executive session, without any members of management present, in conjunction with each regularly scheduled Board meeting. Executive sessions may also be held in conjunction with special Board meetings. The Board met in executive session four times during 2006. The Lead Director or another independent director chairs these sessions.
Our Corporate Governance Guidelines (described in the following section) require the Board to designate a Lead Director when the Chairman of the Board also serves as Chief Executive Officer. The Board has designated Mr. LeFort as its Lead Director. Mr. LeFort is an independent director as defined in the Nasdaq Listing Standards. As Lead Director, Mr. LeForts duties include chairing executive sessions of the Board, conferring with the Companys Chief Executive Officer on Board meeting schedules, agendas and other matters, facilitating
the flow of information to the Board, participating in the evaluation of the Chief Executive Officer by the Companys Compensation Committee and the Board, and any other duties assigned by the Board from time to time. In the event of the incapacity or death of the Chairman of the Board, the Lead Director will assume a leadership role, pending a formal succession plan or appointment of an interim Chief Executive Officer.
Our Board of Directors is committed to effective corporate governance practices. We have adopted the Code of Business Conduct and Ethics (the Code of Ethics), which summarizes the basic principles and standards of conduct to guide all of our directors, officers and employees in our goal to achieve the highest business and personal ethical standards, as well as compliance with the laws and regulations that apply to our business. In October 2003, the Board adopted Corporate Governance Guidelines (the Guidelines) in an effort to continue to enhance and promote corporate governance and to promote the effective functioning and performance of the Board of Directors and its committees. All of the corporate governance documents, including the Code of Ethics, Guidelines and committee charters, are available on the Corporate Governance section of the Companys website, www.trizetto.com.
The Guidelines address a number of important issues such as:
Our Board of Directors and management have reviewed the provisions of the Sarbanes-Oxley Act of 2002, the related rules of the SEC, and Nasdaq Listing Standards regarding corporate governance policies and procedures. We believe that our Corporate Governance Guidelines and committee charters meet current requirements and reflect high standards of corporate governance.
Committees of the Board
The Board of Directors has three standing committees:
The Audit Committee of the Board is currently comprised of three directors selected by our Board. The current members of the Audit Committee are Thomas B. Johnson (Chairman), Paul F. LeFort and Jerry P. Widman. The Board has determined that Thomas B. Johnson is an audit committee financial expert as such term is defined in rules of the SEC, and that each member of the Audit Committee is financially literate as defined in the Nasdaq Listing Standards. Each member of the Audit Committee also is independent as independence for audit committee members is defined in the Nasdaq Listing Standards.
The Audit Committee acts pursuant to the written Audit Committee Charter approved by the Board of Directors. The current Audit Committee Charter is available on the Corporate Governance section of the TriZetto website, www.trizetto.com. Pursuant to its charter, the Audit Committee is authorized to handle all matters that it
deems appropriate regarding our independent registered public 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. The Audit Committee held nine meetings (including telephonic meetings) during 2006.
The Compensation Committee of the Board is currently comprised of four directors selected by our Board. The current members of the Compensation Committee are L. William Krause (Chairman), Paul F. LeFort, Jerry P. Widman and Nancy H. Handel. Lois A. Evans served as a member of the Compensation Committee during fiscal 2006 and until her resignation from the Board of Directors effective April 24, 2007. Ms. Handel was appointed to replace Ms. Evans on the Compensation Committee effective April 25, 2007. Each member of the Compensation Committee is an independent director as defined in the Nasdaq Listing Standards. The Compensation Committee acts pursuant to the written Compensation Committee Charter approved by the Board of Directors. The charter is available on the Corporate Governance section of the TriZetto website, www.trizetto.com. The responsibilities of the Compensation Committee include advising the Board on officer and employee compensation. The Compensation Committee establishes and reviews all compensation programs for our executive officers and other key employees. The Compensation Committee held 13 meetings (including telephonic meetings) during 2006. Additional information regarding the Compensation Committee is set forth below in the Compensation Discussion and Analysis section of this Proxy Statement.
The Nominating and Corporate Governance Committee (the Governance Committee) of the Board is currently comprised of two directors selected by our Board. The current members of the Governance Committee are Donald J. Lothrop (Chairman) and Nancy H. Handel. Lois A. Evans served as a member of the Governance Committee during fiscal 2006 and until her resignation from the Board of Directors effective April 24, 2007. Ms. Handel was appointed to replace Ms. Evans on the Governance Committee effective April 25, 2007. Each member of the Governance Committee is an independent director as defined in the Nasdaq Listing Standards. The Governance Committee acts pursuant to the written Nominating and Corporate Governance Committee Charter approved by the Board of Directors. The charter is available on the Corporate Governance section of the TriZetto website, www.trizetto.com. The functions of the Governance Committee include seeking, identifying and recommending candidates for election to the Board of Directors, evaluating the performance of the Board and Board committees, and assisting the Board in developing and overseeing the implementation of corporate governance guidelines and principles. The Governance Committee encourages directors to attend continuing education programs, including those sponsored or endorsed by Institutional Shareholder Services. TriZetto will reimburse each director for the reasonable costs associated with attending such programs. The Governance Committee held 5 meetings (including telephonic meetings) during 2006.
Members of the Board of Directors, management or stockholders may recommend director candidates. The Governance Committee also may use the services of an executive search firm to help identify and evaluate possible nominees for director. Stockholders may recommend nominees for membership on the Board to the Governance Committee by submitting the names and qualifications in writing to the Corporate Secretary of the Company at 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660. TriZettos bylaws specify certain time limitations, notice requirements and other procedures applicable to the submission of nominations before an annual meeting of stockholders, which are described in the section entitled Stockholder Proposals below. A stockholders recommendation of a qualified candidate that is made in accordance with these procedures will be subject to the same evaluation process as other nominees considered by the Governance Committee. No director nominations by stockholders have been received as of the date of this Proxy Statement.
In assessing each potential candidate, the Governance Committee will review the nominees experience, training, education, independence, understanding of the Companys or other related industries and such other factors the Committee determines appropriate in light of the current needs of the Board. Diversity of race, ethnicity, gender and age are factors in evaluating candidates for Board membership as are the needs of the Company and the range of talent and experience already represented on the Board. The Governance Committee will also take into account the ability and willingness of a candidate to devote the time and effort necessary to fulfill his or her responsibilities.
Information regarding the compensation of our directors is set forth below in the Compensation Discussion and Analysis section of this Proxy Statement.
Information regarding Jeffrey H. Margolis, our Chief Executive Officer, is set forth above under Class III Directors. The names and certain information concerning our other executive officers are set forth below.
Anthony Bellomo, 53, joined us in October 2000 as our Executive Vice President and Division President of HealtheWare, our application software unit. He held this position until he was named Executive Vice President of Enterprise Software in January 2004. In December 2006, Mr. Bellomo was given increased responsibilities and he now serves as our Executive Vice President, Product Management. From March 1994 to October 2000, Mr. Bellomo served as President of Erisco Managed Care Technologies, Inc. (Erisco), a managed care software development company that we acquired in October 2000. Prior to being named President of Erisco, Mr. Bellomo held various positions with Erisco since 1977. He received his B.S. in Systems Engineering from Polytechnic Institute of New York in 1975.
Kathleen Earley, 55, joined us in November 2004 as our President and Chief Operating Officer. Ms. Earley was with AT&T Corporation from 1995 through her retirement in September 2001. At AT&T, Ms. Earley served in various executive positions, concluding with Senior Vice President, Enterprise Marketing of AT&T and President of AT&Ts Data and Internet Services group. Prior to AT&T, Ms. Earley was with IBM Corporation for 17 years with management positions in sales, marketing, planning and strategy development. Ms. Earley currently serves on the board of directors of three public companies: Digital Realty Trust, Inc., Switch & Data Facilities Company, Inc. and Vignette Corporation. Ms. Earley received her B.A. in Accounting in 1975 and her M.B.A. in Finance in 1977, both from the University of California at Berkeley.
Patricia E. Gorman, 51, joined TriZetto in February 2003 as our Executive Vice President, Business Solutions. She served in this capacity until December 2006 when she was named Chief Information Officer. From August 2000 to February 2002, Ms. Gorman served as Executive Vice President of Corporate Operations for Time Warner Telecom. From June 1977 to July 2000, Ms. Gorman held various positions with AT&T Corporation. She received her B.S in Marketing from Fairleigh Dickinson University in 1977 and her M.B.A. from Seton Hall in 1986.
John G. Jordan, 55, joined us in October 2000 as Senior Vice President, Payer Sales. He served in this capacity until April 2004, when he was promoted to Senior Vice President, Sales. In December 2006, Mr. Jordan was named Senior Vice President, Sales and Account Management. From September 1985 to October 2000, Mr. Jordan served in various positions, including Senior Vice President of Sales and Marketing, with Erisco.
James C. Malone, 58, joined us as our Senior Vice President of Finance in January 2004. He was appointed Chief Financial Officer in March 2004 and promoted to Executive Vice President in January 2006. From January 1997 until he retired in January 2002, Mr. Malone served as Senior Vice President of Cognizant Corporation and IMS Health Incorporated, with his last role being Chief Financial Officer of IMS Health. Prior to 1997, Mr. Malone held various executive and management positions in finance for Dun & Bradstreet, Reuben H. Donnelley, Siemens AG and PriceWaterhouse. Mr. Malone received his B.S. in Accounting from St. Francis College in 1973. He received his Certified Public Accountant certification from the State of New York in 1975.
Alan M. Ross, 52, joined us in January 2006 as our Senior Vice President of Human Capital Management. From September 2001 through January 2006, Mr. Ross served as Managing Director of Strategic Insights, a
management advisory firm specializing in the managed healthcare and outsourcing industries. From August 1997 to August 2001, Mr. Ross served as Senior Vice President of Corporate Development for HealthPlan Services, an insurance services firm. From June 1981 to July 1997, Mr. Ross served in a variety of senior human resources positions with the Dun & Bradstreet Corporation, including the Chief Global Human Resources officer position with A. C. Nielsen. He received his B.S. in Political Science and Economics from the University of Connecticut in 1976 and his M.P.A. in Public Administration from the Maxwell School of Government at Syracuse University in 1977.
Daniel J. Spirek, 40, 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. In February 2000, Mr. Spirek was promoted to Executive Vice President of our Transformation Services Group. In July 2000, Mr. Spirek was promoted to Division President, Business Solutions, our hosting and consulting business. He held this position until January 2003 when he was named Division President, Transformation Services. In January 2004, Mr. Spirek was named Chief Solutions Officer. He assumed additional responsibilities as TriZettos Senior Vice President, Integrated Health Solutions in December 2006. 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 (now known as Accenture). Mr. Spirek received his B.S. degree in Information Management Systems from the University of Colorado in 1988.
James J. Sullivan, 49, joined TriZetto as our Vice President of Legal Affairs in August 2001 and was appointed General Counsel and Secretary in July 2002. He was promoted to Senior Vice President in July 2003. Before joining TriZetto, Mr. Sullivan ran a legal and consulting practice focused on general corporate and securities law for technology and emerging-growth companies. From March 1997 to June 2000, Mr. Sullivan was Senior Vice President, General Counsel and Secretary of Long Beach Financial Corporation and its wholly owned subsidiary, Long Beach Mortgage Company, a sub-prime mortgage lender. From July 1991 to March 1997, Mr. Sullivan served as Vice President and Legal Counsel of American Savings Bank, F.A. From October 1985 to July 1991, Mr. Sullivan was employed as an associate at the law firm of Gibson, Dunn & Crutcher LLP. Mr. Sullivan began his career with Arthur Young & Company, now Ernst & Young LLP, where he was employed as an accountant from 1980 to 1982. Mr. Sullivan received his B.A. in Business Administration from the University of Southern California in 1980 and his J.D. from Loyola Law School of Los Angeles in 1985. He received his Certified Public Accountant certification from the State of California in 1982.
Philip J. Tamminga, 50, joined TriZetto in August 2004 as our Executive Vice President of Professional Services. He served in this capacity until December 2006, when he was named Executive Vice President, Development and Professional Services. From June 1980 to July 2004, Mr. Tamminga was employed by Accenture (formerly known as Andersen Consulting), the last fourteen years as a partner. Mr. Tamminga was a founder of Accentures customer relationship management practice. From September 1994 through July 2004, Mr. Tamminga led Accentures global Siebel practice and alliance. He received his B.S. in Finance in 1979 and his M.B.A. in 1980, both from the University of Denver.
Mark M. Tomaino, 46, joined TriZetto in August 2003 as Vice President of Corporate Development. He was promoted to Senior Vice President of Corporate Development in January 2006. From November 1991 until joining TriZetto, Mr. Tomaino worked at Bausch & Lomb Incorporated in a variety of legal, strategy and business development roles focused on its medical device and pharmaceutical businesses. From September 1986 until November 1991, Mr. Tomaino was engaged as an attorney in private practice. Mr. Tomaino received his B.A. in Economics and English from the College of the Holy Cross in 1982, his J.D. from Albany Law School of Union University in 1985, and his M.B.A. from the Graduate School of Management at the University of California at Irvine in 2003.
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee of the Board of Directors (the Committee) has responsibility for approving, reviewing and monitoring the Companys executive compensation program. Throughout this Proxy Statement, the individuals who served as the Companys Chairman and Chief Executive Officer and the Chief Financial Officer during 2006, as well as the other individuals included in the Summary Compensation Table on page 21 of this Proxy Statement, are referred to as the named executive officers.
This Compensation Discussion and Analysis (CD&A) will focus on the following key topics:
Compensation Objectives and Philosophy
The principal objectives of the Companys executive compensation program are to attract, motivate, and retain talented executives who can deliver value for our stockholders, customers, and employees. The Committee has established the following compensation philosophies in support of these objectives:
The Compensation Committee
Roles and Responsibilities
The Committee operates under a written charter that was last reviewed and adopted by the Board of Directors on October 19, 2006 and is available for public inspection at our website, www.trizetto.com. The key responsibilities of the Committee include:
Paul F. LeFort, Lois A. Evans and L. William Krause were members of the Committee during fiscal 2006. Mr. LeFort served as the Chairman of the Committee during that time. Ms. Evans resigned from the Board of Directors effective April 24, 2007. Effective April 25, 2007, Nancy H. Handel was appointed to replace Ms. Evans on the Committee and Mr. Krause was appointed Chairman. Each member of the Committee qualifies as a Non-Employee Director under Rule 16b-3 of the Securities and Exchange Act of 1934, as amended, satisfies the requirements of an outside director for purposes of Section 162(m) of the Internal Revenue Code, and qualifies as an independent director under the listing requirements of the NASDAQ Global Select Market.
The Committee meets as often as necessary, but at least twice annually. In 2006, the Committee met 13 times. The Committees Chairman works with our Senior Vice President Human Capital Management to establish an annual calendar and an agenda for each meeting. The Committee evaluates and approves recommendations and proposals that are submitted, in writing, by our Senior Vice President Human Capital Management. The Committee utilizes the services of Mercer Human Resource Consulting to advise the Committee on appropriate and comparable practices. In matters related to CEO compensation, the Committee meets in executive session and reports its decisions to the Companys Senior Vice President, General Counsel and Secretary. Minutes are kept of each Committee meeting and the Committee reports its action and decisions at regularly scheduled Board meetings. The Committee also may act by unanimous written consent.
Advisors to the Committee
Mercer Human Resources Consulting (Mercer) serves as the independent advisor to the Committee and, upon request, participates at Committee meetings. Mercer provides the Committee with benchmark data and analysis comparing the compensation of our executives to executives holding similar positions at certain peer companies. Mercer also opines on the reasonableness and competitiveness of our executive compensation practices, and provides the Committee with independent analysis of the Companys performance versus that of a peer group. However, Mercer does not have any decision-making authority with respect to executive compensation decisions.
Mercer and its parent company, Marsh, Inc., (Marsh) provide certain benefits administration services to the Company. This relationship was disclosed to the Committee prior to its selection of an independent advisor, and the Committee determined that the Companys pre-existing relationship with Mercer and Marsh did not create an obstacle to Mercers ability to provide professional and independent counsel to the Committee with respect to executive compensation analysis.
In 2006, the Company paid the following fees to Marsh and its affiliates, including Mercer:
Management Involvement in Compensation Decisions
We do not have any specific policies that would prevent members of the management team from participating in the executive compensation decision-making process. Our Senior Vice President Human Capital Management is typically asked by the Committee to present compensation proposals and, in that regard, generally attends Committee meetings. In addition, our Chief Executive Officer and our President and Chief Operating Officer occasionally participate in Committee discussions at the request of the Committee. However, members of the management team do not generally participate in actual executive compensation decisions.
In making compensation decisions, the Committee utilizes a benchmarking process to evaluate each element of our executive compensation program. In 2006, the Committee engaged Mercer to identify the compensation paid to executives holding equivalent positions or having similar responsibilities as our named executive officers within a peer group consisting of the following companies:
These companies may change from time to time. The Committee also uses general compensation surveys sponsored by nationally recognized compensation consulting firms to assist in making compensation decisions.
We generally utilize peer group and survey data to analyze our current and proposed executive compensation relative to the 50th and 75th percentiles of this benchmark data. While we utilize these studies for reference purposes, and to ensure competitiveness and reasonableness, we do not exclusively rely on benchmarking to establish compensation levels. Variations in the actual compensation set by the Committee may occur as dictated by the experience level of the executive, the executives performance, and various market factors.
Executive Compensation Components
For 2006, the principal components of compensation for the named executive officers were:
We do not have any formal policies which dictate the amount to be paid with respect to each element, nor do we have any policies which dictate the proportion of the various elements. We also do not have any formal policies for allocating between cash and non-cash compensation or short-term and long-term compensation. Instead, we rely on the judgment of the Committee, input and feedback from our executive team, the advice of Mercer, and a review and analysis of compensation paid by our peer group companies.
The Company provides executives with base salaries to compensate them for services rendered during the year. Base salaries provide a basic level of compensation and are necessary to recruit and retain executives. Base salaries for our named executive officers are reviewed and approved by the Committee annually or upon significant changes in responsibilities. The Committee considers the following factors during its review process:
Chairman and Chief Executive Officer. Annual base salary adjustments for our Chairman and Chief Executive Officer are based on the overall annual salary budget guidelines for our Company as well as on an evaluation of his performance using the KPMS assessment process. The KPMS assessment process provides a method by which we are able to objectively evaluate his performance based upon a number of pre-established goals and objectives. The Chairman and Chief Executive Officers actual performance is reviewed and compared to the goals and objectives by the Committee and a total score is awarded for the fiscal year. His base salary is then adjusted to reflect the cumulative KPMS score, subject to the discretion of the Committee and other factors such as our overall financial health and performance.
Other Executive Officers. Annual base salary adjustments for our executive officers other than our Chairman and Chief Executive Officer are based primarily on a review of market and peer data provided by outside compensation consultants as well as on an internal equity review of each executives salary relative to other executives with comparable roles and performance. Our Chairman and Chief Executive Officer also exercises some influence with respect to the final base salary amounts to be paid to the executive officers after consideration of the above factors and consultation with the Committee. The KPMS scores achieved by each executive officer are one additional factor used to assess each of the executive officers salaries.
In March 2006, the Committee considered each of the above factors in approving base salary increases for our named executive officers, including our Chairman and Chief Executive Officer. These increases are reflected in the base salaries reported in column (c) of the Summary Compensation Table on page 21 of this Proxy Statement.
Annual Cash Incentive Compensation
We pay annual cash incentive compensation to our executive officers under our Cash Bonus Plan. The Cash Bonus Plan is a performance-based incentive plan that rewards executives for achieving certain performance goals determined by the Committee each plan year. Other performance criteria may also be established by the Committee in its sole discretion for the Chairman and Chief Executive Officer. Company objectives may include financial performance metrics such as revenue, EBITDA, adjusted EBITDA, net income, earnings per share, free cash flow and revenue growth, as well as financial objectives applicable to business units within the Company.
The following table sets forth the applicable performance targets and various payout levels for 2006:
Performance between the threshold and the target, and between the target and the maximum, is calculated via interpolation. No annual cash bonuses are paid if the Company does not achieve at least the threshold targets.
Each named executive officer has an annual cash bonus opportunity that is established as a percentage of his or her base salary. For the Chairman and Chief Executive Officer and the President and Chief Operating Officer, the threshold bonus opportunity in 2006 was 50% of base salary, the target bonus opportunity was 100% of base salary, and the maximum bonus opportunity was 135% of base salary. For all other named executive officers, the threshold bonus opportunity was 38% of base salary, the target bonus opportunity was 75% of base salary, and the maximum bonus opportunity was 101% of base salary. The following table sets forth the threshold, target and maximum bonus payment opportunities in 2006 for each of the named executive officers:
At the end of each year, the Chairman and Chief Executive Officer recommends the amount of cash awards for each executive officer, other than his own, to the Committee. The Committee determines the amount of the cash award for the Chairman and Chief Executive Officer and each of the other named executive officers. The recommendations and award amounts are determined by multiplying the percentage of the potential award earned (which is determined by the level of achievement of specified goals) by the participants targeted percentage of base salary that may be earned as a bonus. In addition, the actual award may be discretionarily increased or decreased based upon the achievement of the participants personal objectives. The Cash Bonus Plan utilizes a funded pool approach whereby the bonus pool is funded by overall corporate results and then allocated based upon each business units revenue and contribution margin results.
In 2006, the Company exceeded 100% of the Consolidated Revenue, Earnings Per Share and Free Cash Flow targets established in the Cash Bonus Plan. Pursuant to the terms of the Cash Bonus Plan, the total bonus pool funded in 2006 for all participants was $17,014,445. The amount of cash incentive compensation earned by our named executive officers in 2006 is set forth in the Non-Equity Incentive Plan Compensation of the Summary Compensation Table on page 21 of this Proxy Statement. We paid these amounts in March 2007.
Long-Term Incentive Compensation
In 2006, the Companys long term incentive compensation was awarded by the Committee pursuant to our stockholder-approved 1998 Long-Term Incentive Plan (the LTIP). The LTIP is designed to motivate executives to achieve long-term goals designed to create stockholder value and reward them to the extent they achieve such goals. The long-term incentive awards in 2006 for the named executive officers included two basic components: non-qualified stock option grants and restricted stock grants. Historically, we have granted our stock-based awards during the first quarter of each fiscal year. All grants of non-qualified stock options and restricted stock are initially proposed by management and then approved by the Committee. Management generally does not have any discretion regarding the timing or amount of any grants of options or restricted stock. However, following approval of the grant by the Committee, management is responsible for the administration of the agreements under which the options and restricted stock are granted.
Non-Qualified Stock Options. In 2006, we awarded 94,000 stock options to the named executive officers, as further described in the Grants of Plan-Based Awards table on page 23 of this Proxy Statement. We also awarded a total of 535,150 stock options to 63 other employees in 2006. The number of stock options granted to an executive is based upon the executives position and level of responsibility using comparable positions at the
peer group. In accordance with the terms of the LTIP, the option exercise price for all stock options is equal to the closing price of our common stock on the date of grant. We do not issue discounted stock options or permit the repricing of previously issued options. Stock options have a ten-year term and generally vest ratably over either a three-year or four-year period. We utilize the Black-Scholes option pricing model for valuing stock option awards.
We believe that stock options are an important element of total executive compensation because stock options:
Restricted Stock. In 2006, we awarded 85,000 shares of restricted common stock to the named executive officers, as further described in the Grants of Plan-Based Awards table on page 23 of this Proxy Statement. We also awarded a total of 184,710 shares of restricted stock to 27 other employees in 2006. As with stock options, the number of shares of restricted stock awarded to an executive is based upon the executives position and level of responsibility using comparable positions at the peer group.
The restricted stock awarded in 2006 was service-based and vests ratably over a two-year period for the Chairman and Chief Executive Officer and vests ratably over a four-year period for each of the other named executive officers.
We believe that restricted stock awards are an important element of total executive compensation because they:
In 2007, we introduced performance-based restricted stock awards, which cliff vest in 2010 only if the Company achieves certain performance targets between 2007 and 2009, to replace a portion of our traditional service-based restricted stock awards. We believe these performance-based shares further align our executive compensation program with the interests of our stockholders.
Perquisites and Other Benefits
Perquisites. Pursuant to the terms of the Amended and Restated Employment Agreement, effective January 1, 2006, with our Chairman and Chief Executive Officer, we provide Mr. Margolis with up to 25 hours of personal use of the Companys owned or leased aircraft each year. The incremental expense associated with this perquisite in 2006 is $63,439, and is set forth in the All Other Compensation column of the Summary Compensation Table on page 21 of this Proxy Statement. This is the only perquisite received by Mr. Margolis in 2006. No other named executives received any perquisites in 2006.
Other Benefits. We provide our executives with various retirement and savings programs, health and welfare programs, and other employee benefits which are generally available on the same cost-sharing basis to all of our employees. These benefits include:
Pension Plans. We do not currently administer any pension plans for the benefit of our named executive officers or other members of management.
Non-Qualified Deferred Compensation. In addition to the above benefits, certain key executives, including all of the named executive officers, are eligible to participate in our Executive Deferred Compensation Plan (the EDCP). The EDCP is an unfunded deferred compensation plan established and maintained for the purpose of providing key management employees with the opportunity to defer the receipt of compensation and to accumulate earnings on such deferrals on a tax-deferred basis. Each participant in the EDCP may elect to defer, for any calendar year, up to 75% of his or her base salary and 100% of any commissions or bonuses earned during such calendar year. Participant accounts may be credited with a 50% Company match on up to 6% of the participants total compensation less any Company contribution made to the 401(k) plan on behalf of such participant. This match is discretionary and determined annually by the Committee. Company contributions vest after three years of service with the Company. Additional information regarding the EDCP is set forth in the Non-Qualified Deferred Compensation table on page 26 of this Proxy Statement.
Tax and Accounting Consequences
Deductibility of Executive Compensation
Under Section 162(m) of the Internal Revenue Code, executive compensation in excess of $1 million paid to a chief executive officer or other person among the four other highest compensated officers is generally not deductible for purposes of corporate federal income taxes. However, qualified performance-based compensation, within the meaning of Section 162(m) of the Internal Revenue Code and applicable regulations, remains deductible. The Committee intends to continue reliance on performance-based compensation programs, consistent with sound executive compensation policy. The Committees policy has been to seek to cause executive incentive compensation to qualify as performance-based in order to preserve its deductibility for federal income tax purposes to the extent possible, without sacrificing flexibility in designing appropriate compensation programs.
Accounting for Stock-Based Compensation
We account for stock-based payments in accordance with the requirements of FASB Statement 123(R) (FAS 123(R)).
We have an employment agreement with our Chairman and Chief Executive Officer, Jeffrey H. Margolis. We do not have employment agreements with any of our other named executive officers.
Mr. Margolis most recent employment agreement became effective on January 1, 2006. Under the agreement, Mr. Margolis was entitled to an annual base salary of $546,021. As an incentive to stay with the Company, Mr. Margolis received a retention incentive payment of $44,228 on each of January 1, 2006 and 2007. He will receive an additional retention incentive payment in the amount of $44,228 on January 1, 2008, so long
as he is an active employee on such date. Under the agreement, Mr. Margolis is eligible for annual bonus compensation in an amount to be determined by the Committee. The agreement provides that, if all of the Companys and Mr. Margolis individual performance objectives are met, the bonus will be equal to Mr. Margolis annual base salary for the year for which the bonus is paid. Any bonus awarded may be greater or less than Mr. Margolis annual base salary, depending on whether the Companys and Mr. Margolis performance exceeds or falls short of the established objectives. Mr. Margolis employment agreement also provides him with up to 25 hours of personal use of the Companys owned or leased aircraft for the calendar years ending December 31, 2006, 2007 and 2008. TriZetto pays or reimburses Mr. Margolis for all reasonable and necessary out-of-pocket expenses he incurs in the performance of his duties. Mr. Margolis is entitled to participate in all of the Companys employee benefit plans and programs to the same extent generally available to the Companys executives, with the exception of the Companys Employee Stock Purchase Plan (ESPP). As a greater than 5% owner of the Companys outstanding common stock during 2006, Mr. Margolis was ineligible to participate in the ESPP.
Change of Control Agreements
We have entered into Change of Control (as defined below) agreements with certain of our executive officers, including each of the named executive officers. In addition, Mr. Margolis employment agreement contains certain Change of Control provisions. These agreements provide for severance and other benefits if, following a Change of Control of TriZetto, the executives employment terminates in a way adverse to the executive. Additional information regarding the Change of Control agreements and the Change of Control provisions of Mr. Margolis employment agreement is set forth on page 28 of this Proxy Statement.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
The Compensation Committee
Paul F. LeFort, Chairman
Lois A. Evans
L. William Krause
Notwithstanding any statement in any of our filings with the SEC that might incorporate part or all of any future filings with the SEC by reference, including this Proxy Statement, the foregoing Compensation Committee Report is not incorporated by reference into any such filings.
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation of our Chairman and Chief Executive Officer, our Chief Financial Officer, and our three other most highly compensated executive officers for the year ended December 31, 2006.
GRANTS OF PLAN-BASED AWARDS
The table below provides information about equity and non-equity awards granted to the named executive officers in 2006.
Vesting of 2006 Plan-Based Awards
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides information on the holdings of stock options and restricted stock by the named executive officers at December 31, 2006.
OPTION EXERCISES AND STOCK VESTED
The following table sets forth information regarding stock options exercised by the named executive officers and the vesting of stock awards held by the named executive officers in 2006.
Stock Award Vesting Detail
NON-QUALIFIED DEFERRED COMPENSATION
The Executive Deferred Compensation Plan (the EDCP) is an unfunded deferred compensation plan established and maintained for the purpose of providing key management employees with the opportunity to defer the receipt of compensation and to accumulate earnings on such deferrals on a tax-deferred basis. Each participant in the EDCP may elect to defer, for any calendar year, up to 75% of his or her base salary and 100% of any commissions or bonuses earned during such calendar year. Each participant is allowed to make a hypothetical allocation of the amounts credited to his or her account among investment options/indices that the Company makes available from time to time. Each account is credited at least annually with notational earnings equal to the aggregate weighted-average return on the investment options/indices selected by the participant, less applicable expenses. Participant accounts may also be credited with a 50% Company match on up to 6% of the participants total compensation less any Company contribution made to the 401(k) plan on behalf of such participant. This match is discretionary and determined annually by the Committee. Company contributions vest after three years of service with the Company. The following table sets forth information relating to the EDCP for the year ended December 31, 2006.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The table below reflects the amount of compensation that would become payable to each of the named executive officers under existing plans and arrangements if the named executive officers employment had terminated on December 31, 2006, given their compensation as of that date and, as applicable, based on the closing price of our common stock on December 29, 2006, which was the last trading day of 2006. These benefits are in addition to benefits available prior to the occurrence of any termination of employment, including then exercisable stock options, vested restricted stock and vested amounts contributed or credited under the Executive Deferred Compensation Plan, as well as benefits generally available to all salaried employees, such as the payout of accrued time off. The actual amounts that would be paid upon a named executive officers termination of employment can only be determined at the time of such executives termination. Due to a number of factors which affect the nature and amount of any benefits provided upon the events discussed below, the actual amounts paid or distributed may be significantly higher or lower than reported below. Summaries of the various plans and arrangements that we have entered into with the named executive officers relating to payments upon termination or change in control transactions are set forth below the table.
Change of Control Agreements
Change of Control Provisions of Mr. Margolis Employment Agreement
Mr. Margolis employment agreement may be terminated by either the Company or Mr. Margolis without cause by providing ninety (90) days written notice of such termination. If Mr. Margolis is terminated without cause or if he voluntarily terminates for good reason, he would be entitled to continue to receive his then current annual base salary for two years following termination, medical and dental coverage for two years following termination, and payment in full of any unpaid retention payments. If Mr. Margolis employment is terminated due to death or disability, he would be entitled to a severance payment in the amount of one-half of his then current annual base salary.
Change of Control Agreements with Other Executive Officers
We have entered into Change of Control Agreements with certain of our officers, including each of the named executive officers. These agreements provide for severance and other benefits if, following a Change of Control of TriZetto, the executives employment terminates in a way which is adverse to the executive. If the executives employment ends within one to three years following a Change of Control (this term varies among the 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:
For purposes of the Change of Control Agreements referenced above, a Change of Control shall be deemed 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 of Control is also deemed to have occurred if an executives employment with us is terminated prior to the Change of Control and it is demonstrated that (y) such termination was at the request of a third party who has taken steps to effectuate the Change of Control or (z) such termination arose in connection with or anticipation of the Change of Control.
The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board of Directors. In setting director compensation, the Company considers the significant amount of time that Directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of the Board.
Jeffrey H. Margolis, the Companys Chairman and Chief Executive Officer, is not included in this table as he is an employee of the Company and thus receives no additional compensation for his services as a Director. The compensation received by Mr. Margolis as an employee of the Company is shown in the Summary Compensation Table on page 21 of this Proxy Statement.
For the fiscal year ended December 31, 2006, members of the Board who are not employees of the Company are entitled to receive an annual cash retainer of $40,000. Our Lead Director, Mr. LeFort, receives an additional retainer of $10,000. Committee chairs and members receive additional annual retainers as well. Retainers for the Committees members are as follows: Audit Committee Chair$25,000; Compensation Committee or Nominating and Corporate Governance Committee Chair$15,000; Audit Committee member (non-Chair)$15,000; Compensation Committee or Nominating and Corporate Governance Committee member (non-Chair)$10,000.
Stock Option Awards
Each non-employee Director receives an annual stock option grant. On March 6, 2006, each non-employee Director received a grant of 10,000 options, with the exception of Mr. LeFort, our Lead Director, who received a grant of 12,500 options, at the closing price of the Companys Common Stock on the date of the grant ($16.81). Options received by Directors vest ratably over a two-year period.
Director Summary Compensation Table
The table below summarizes the compensation paid by the Company to non-employee Directors for the fiscal year ended December 31, 2006.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information, as of December 31, 2006, relating to our equity compensation plans:
Not included in the above table are individual grants of restricted common stock made by us to employees and non-employees between 2000 and 2004 prior to stockholder approval of the LTIP. These shares were granted in connection with acquisitions, as a special bonus for extraordinary performance, to encourage continued service by certain employees and non-employees, and as an inducement for executive officers to join our company. These restricted stock grants, which aggregate 624,115 shares of outstanding common stock as of December 31, 2006, were approved by the Board of Directors, but not by the stockholders, of the Company and are each evidenced by a restricted stock agreement between us and each grantee. In accordance with the terms of the restricted stock agreement entered into with each grantee, the shares are issued and held by us, subject to the completion of the vesting provisions. As of December 31, 2006, certificates for a total of 75,000 shares of restricted common stock are held by us and such shares are subject to forfeiture and cancellation upon the termination of employment of the grantee. These shares vest in four equal annual installments, as long as the grantee continues to provide service to us or one of our subsidiaries as of the date of vesting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2006, the members of the Compensation Committee of the Board of Directors were Lois A. Evans, Paul F. LeFort and L. William Krause, none of whom ever served as an officer of TriZetto or any of its subsidiaries. None of the members were involved during 2006 in a relationship requiring disclosure as an interlocking director or under Item 404 of Regulation S-K. Ms. Evans resigned from the Board of Directors effective April 24, 2007. Nancy H. Handel was appointed to replace Ms. Evans on the Compensation Committee effective April 25, 2007. Ms. Handel is not involved in a relationship requiring disclosure as an interlocking director or under Item 404 of Regulation S-K.
TRANSACTIONS WITH RELATED PERSONS
During fiscal year 2006, there were no transactions between us and any related persons that require disclosure hereunder. The Company recognizes that transactions between the Company and any of its Directors or executives, or their immediate family members, can present potential or actual conflicts of interest and create the appearance that Company decisions are based on considerations other than the best interests of the Company and its stockholders. Accordingly, as a general matter, it is the Companys preference to avoid such related person transactions. Nevertheless, the Company recognizes that there are situations where such transactions may be in, or may not be inconsistent with, the best interests of the Company and its stockholders, including situations where the Company may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources or when the Company provides products or services to related persons on an arms length basis on terms comparable to those provided to an unrelated third party.
The Company has adopted a formal written policy that requires the Audit Committee to review and, if appropriate, approve or ratify any related person transactions. Pursuant to this policy, the Audit Committee will review any transaction in which the Company is or will be a participant and the amount involved exceeds $10,000, and in which any of the Companys Directors, executive officers or greater than 5% stockholders had, has or will have a direct or indirect material interest. The Audit Committee will only approve or ratify those transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as determined by the Audit Committee in good faith. A copy of the Companys Policy and Procedures with Respect to Related Person Transactions is available on our website at www.trizetto.com.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The Audit Committee of the Board has appointed Ernst & Young LLP (E&Y) as the Companys independent registered public accountants for the year ending December 31, 2007. Although approval by our stockholders of this appointment is not required by law, the Audit Committee is submitting this matter for ratification as a corporate governance practice. If the stockholders do not ratify the appointment of E&Y, the Audit Committee will reconsider the appointment. Even if the selection is ratified, the Audit Committee, in its sole discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders. One or more representatives of E&Y are expected to be present at the annual meeting. They will be available to answer appropriate questions and will be free to make statements during the meeting.
THE AUDIT COMMITTEE RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2007
Report of the Audit Committee
The Audit Committee of the Board is comprised of three independent directors selected by the Companys Board of Directors. The current members of the Audit Committee are Thomas B. Johnson (Chairman), Paul F. LeFort and Jerry P. Widman.
Ernst & Young LLP (E&Y) served as the Companys independent registered public accountants for the year ended December 31, 2006. E&Y has been the Companys independent registered public accountants since August 7, 2001.
Among its functions, the Audit Committee reviews the Companys financial reporting process on behalf of the Board, although management has the primary responsibility for the financial statements and the reporting process. The independent registered public accountants are responsible for expressing an opinion on the conformity of the Companys audited financial statements with United States generally accepted accounting principles.
The Audit Committee has reviewed and discussed the annual audited financial statements with management and the independent registered public accountants. The Audit Committee also examined with the independent registered public accountants the matters required to be discussed by the Statement of Auditing Standards No. 61, and reviewed the results of the independent public accountants examination of the consolidated financial statements.
E&Y also has confirmed to the Company that it is in compliance with the rules, standards and policies of the Independence Standards Board and the SEC governing auditor independence. The Audit Committee received and discussed with E&Y its written disclosures in the form of a letter as required by Independence Standards Board Standard No. 1. The Audit Committee has considered whether the provision of non-audit services by the Companys independent registered public accountants is compatible with the auditors independence.
Based on the reviews and discussions referred to above, and the guidelines specified by the Audit Committee Charter, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the SEC.
The Audit Committee
Thomas B. Johnson, Chairman
Paul F. LeFort
Jerry P. Widman
Independent Registered Public Accountants
E&Y served as TriZettos independent registered public accountants for the years ended December 31, 2006 and 2005. In addition to rendering audit services during 2006 and 2005, E&Y performed various audit-related services for the Company. The Audit Committee has concluded that the provision of these services by E&Y is compatible with maintaining its independence.
Audit Fees. Audit fees of E&Y during the 2006 and 2005 fiscal years were associated with the annual audit of our consolidated financial statements, reviews of our quarterly reports filed with the SEC, the audit of the effectiveness of the Companys internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and fees related to other regulatory filings. Audit fees for 2006 and 2005 were approximately $1,655,000 and $1,344,000, respectively.
Audit-Related Fees. Audit-related fees of E&Y during the 2006 and 2005 fiscal years were associated with due diligence in connection with acquisitions, accounting consultation and advice, and audits of our employee benefit plan financial statements. Audit-related fees for 2006 and 2005 were approximately $241,000 and $367,000, respectively.
Tax Fees. We incurred no tax-related fees for services in 2006 or 2005.
All Other Fees. We incurred no fees for other professional services in 2006 or 2005.
Audit and Non-Audit Services Pre-Approval Policy
In May 2003, the Companys Audit Committee adopted The TriZetto Group, Inc. Audit and Non-Audit Services Pre-Approval Policy (the Pre-Approval Policy). The Pre-Approval Policy provides that TriZettos Audit Committee will pre-approve all audit and permissible non-audit services provided by our independent registered public accountants, either through specific approval of the Audit Committee or pursuant to pre-approved policies and procedures established by the Audit Committee. These services may include audit services, audit-related services, tax services and other services performed by our independent registered public accountants. The Audit Committee requires the independent registered public accountants and management to report on the actual fees charged for each category of service at regularly scheduled Audit Committee meetings throughout the year.
The Pre-Approval Policy provides that the engagement terms and fees of the annual audit must be specifically approved by the Audit Committee. The Pre-Approval Policy also pre-approves certain audit-related services, provided that the total fees for each such service do not exceed the limit specified by the Audit Committee. The Pre-Approval Policy allows the Chairman of the Audit Committee to increase any of these limits related to any one project by up to $50,000. The Audit Committee Chairman must report on any such increase at the next Audit Committee meeting.
Since the adoption of the Pre-Approval Policy in May 2003, all audit and non-audit services provided by the independent registered public accountants have been pre-approved.
We know of no matters, other than those referred to in this Proxy Statement, that will be presented at the annual meeting. If, however, any other appropriate business should properly be presented at the meeting, the persons named in the enclosed form of proxy will have discretion to vote on those matters for you.
Multiple Stockholders Having the Same Address
If you and other residents at your mailing address own shares of TriZetto common stock in street name, your broker or bank may have sent you a notice that your household will receive only one annual report and proxy statement for each company in which you hold stock through that broker or bank. This practice of sending only one copy of proxy materials is known as householding and benefits both you and TriZetto. It reduces the volume of duplicate information received at your household and helps reduce TriZettos printing and postage costs. If you did not respond that you did not want to participate in householding, you were deemed to have consented to the process. Your bank or broker will send one copy of our annual report and Proxy Statement to your address. Each stockholder will continue to receive a separate proxy card or voting instruction form.
If your shares are held through a broker or bank, you may revoke your consent to householding at any time by calling 1-800-542-1061. Please have ready your voting instruction form for each account you wish to revoke your consent. If you are a stockholder of record, you may revoke your consent to householding by sending your written request to the Corporate Secretary, The TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660 or by calling us at 949-719-2200. The revocation of your consent to householding will be effective 30 days following its receipt. In any event, if you did not receive an individual copy of this Proxy Statement or our annual report, we will send a copy to you if you address your request to the Corporate Secretary of TriZetto at the address or phone number above. If you share your address with another stockholder and the household is receiving multiple sets of the annual report and Proxy Statement, you may request delivery of a single set of materials by contacting your bank or broker, if you are a beneficial owner, or TriZetto at the address or phone number above, if you are a registered stockholder.
Communications with the Board and its Committees
Any stockholder may communicate with the Companys Board of Directors, or any of its committees, by directing correspondence to the Board, or any committee thereof, c/o the Corporate Secretary, The TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660. Alternatively, the stockholder may send an e-mail to a mailbox established by the Company. The mailbox address is BoardofDirectors@trizetto.com. The Companys Corporate Secretary will receive any such letters or e-mail and forward it to the Chairman of the Governance Committee or to any individual director or directors to whom the communication is directed.
Under SEC rules, if a stockholder wants us to include a proposal in our Proxy Statement (and form of proxy) for presentation at our 2008 annual meeting of stockholders, the proposal must be received by us, marked to the attention of TriZettos Corporate Secretary, at our corporate offices by January 1, 2008. 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 Rule 14a-8 under the Securities Exchange Act of 1934, as amended.
Under our bylaws, nominations of persons for election to the Board of Directors of the Company and the proposal of business to be considered at an annual meeting of stockholders may be made by any stockholder of the Company who (i) is a stockholder of record at the time such stockholder gives the required notice described
below, (ii) is entitled to vote at the annual meeting and (iii) complies with the notice procedures described below. For nominations or business proposals to be properly brought by a stockholder before an annual stockholders meeting, the stockholder must give timely notice thereof in writing to the Corporate Secretary of the Company, at 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660, no later than the close of business on the 120th calendar day before the first anniversary of the date the Companys proxy statement was released to stockholders in connection with the preceding years annual meeting; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous years proxy statement, the proposal must be received by the Company no later than the close of business on the 10th day following the day on which notice of the annual meeting date is first mailed or publicly announced. For nominations or a business proposal to be properly brought by a stockholder before the 2008 annual meeting of stockholders, written notice thereof must be received by the Companys Corporate Secretary no later than January 1, 2008, assuming that the date of such meeting is within 30 days of May 25, 2008. The notice must set forth (a) as to each proposed director nominee, all information with respect to such nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or that is otherwise required pursuant to the federal securities laws, (b) as to any other business, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and (c) as to the stockholder giving notice and the beneficial owner, if any, the name and address of such stockholder, as they appear on our books, and of such beneficial owner, and the class and number of shares of our common stock which are owned beneficially and of record by such stockholder and such beneficial owner.
Under Rule 14a-4 promulgated under the Securities and Exchange Act of 1934, as amended, we will be allowed to use our discretionary voting authority under proxies solicited by us to vote on any proposal that is raised at the 2007 annual meeting, without any discussion of the matter in the proxy statement. If we do not receive any stockholder proposals for our 2008 annual meeting before March 16, 2008, we will be able to use our discretionary voting authority at the 2008 annual meeting.
Incorporation by Reference
The following document is incorporated by reference in this Proxy Statement: 2006 Annual Report on Form 10-K filed with the SEC on March 16, 2007.
The Corporation will provide, without charge, to each person to whom a proxy statement is delivered, upon written or oral request of such person and by first class mail or other equally prompt means within one business day of receipt of such request, a copy of any and all of the information that has been incorporated by reference in this Proxy Statement (not including exhibits to the information that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that the Proxy Statement incorporates). Such a request should be directed to the Corporate Secretary, The TriZetto Group, Inc., 567 San Nicolas Drive, Suite 360, Newport Beach, California 92660 or by calling us at 949-719-2200.
THE TRIZETTO GROUP, INC.
Proxy Solicited by the Board of Directors
Annual Meeting of Stockholders May 25, 2007
The undersigned hereby nominates, constitutes and appoints Jeffrey H. Margolis and James C. Malone, and each of them individually, the attorney, agent and proxy of the undersigned, with full power of substitution, to vote all of the stock of THE TRIZETTO GROUP, INC. that the undersigned is entitled to represent and vote at the 2007 Annual Meeting of Stockholders of THE TRIZETTO GROUP, INC. to be held at the Hyatt Regency Newport Beach Hotel, 1107 Jamboree Road, Newport Beach, California, on Friday, May 25, 2007, at 9:00 a.m., and at any and all adjournments or postponements thereof, as fully as if the undersigned were present and voting at the meeting, as shown on the reverse side of this proxy.
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 DIRECTORS NAMED ON THE REVERSE SIDE OF THIS PROXY AND FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2007.
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.
IMPORTANT PLEASE SIGN AND DATE OTHER SIDE AND RETURN PROMPTLY
(continued and to be signed on the reverse side)
(continued from other side)
THE BOARD OF DIRECTORS HAS PROPOSED AND RECOMMENDS
A VOTE FOR ITEMS 1 AND 2.