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PART III
ITEM 11 - EXECUTIVE COMPENSATION The following table sets forth compensation earned during the three fiscal years ended December 31, 1998, 1999 and 2000 by our Chief Executive Officer, and our four other most highly compensated executive officers who were serving as executive officers at December 31, 2000 and whose total salary and bonus during such year exceeded $100,000 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Although the table does not reflect certain personal benefits, which in the aggregate are less than the lower of $50,000 or 10% of each Named Executive Officer's annual salary and bonus, Mr. Margolis' compensation includes $26,625 of loan forgiveness in 1999 and $28,250 of loan forgiveness in 2000. Mr. Bellomo joined us in October 2000. The figure set forth above reflects the salary earned from October to December 31, 2000. On October 2, 2000, Mr. Bellomo was granted 92,562 shares of restricted stock, based upon a closing price of $15.125. The year-end value of these shares was $1,544,628, based upon a closing price of $16.6875 on December 29, 2000. One-sixth of the shares of restricted stock will vest on each of the three year anniversaries of the grant date if Mr. Bellomo is performing continued service for TriZetto or any of its subsidiaries on such dates. An additional one-sixth of the shares will vest on each of December 31, 2001, 2002 and 2003 if Mr. Bellomo is performing continued service for TriZetto or any of its subsidiaries on such dates and Erisco meets certain revenue and operating income goals for the prior year. If we pay dividends on our common stock, Mr. Bellomo will be entitled to receive corresponding dividends on his shares of restricted stock. OPTION GRANTS The following table sets forth certain information concerning grants of options to each of our Named Executive Officers during the fiscal year ended December 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The figures above represent options granted pursuant to our 1998 Stock Option Plan. We granted options to purchase 2,386,375 shares of common stock in 2000. All of the option grants to our Named Executive Officers were granted at an exercise price equal to or greater than the fair market value of the common stock on the date of grant, as determined by our Board. The options granted to Mr. Margolis and Mr. Spirek in February 2000 vest in February 2007, but may be accelerated to vest in 25% increments on each of the four annual anniversaries of the date of grant if certain performance goals are attained. The other options listed above vest in 25% increments on each of the four annual anniversaries of the date of grant. The potential realizable value represents amounts, net of exercise price before taxes that may be realized upon exercise of the options immediately prior to the expiration of their terms assuming appreciation of 5% and 10% over the option term. The 5% and 10% are calculated based on rules promulgated by the SEC and do not reflect our estimate of future stock price growth. The actual value realized may be greater or less than the potential realizable value set forth in the table. OPTION EXERCISES The following table sets forth the fiscal year end options values for all options held by our Named Executive Officers. The values for "in the money" options represent the positive spread between the exercise prices of existing stock options and the price of our common stock on December 29, 2000 ($16.6875 per share). OPTION EXERCISES IN LAST FISCAL YEAR AND
DIRECTOR COMPENSATION Our directors do not receive any payments for their services on the Board, but they are reimbursed for various expenses incurred in connection with attendance at Board meetings. In connection with their election to our Board, Mr. LeFort and Mr. Fisher each received options to purchase 10,000 shares of our common stock. In connection with their election to our Board, Mr. Johnson and Mr. Sipf each received options to purchase 15,000 shares of our common stock. Each of our directors is eligible to receive stock option grants under our 1998 Stock Option Plan. EMPLOYMENT AND SEVERANCE AGREEMENTS We have an employment contract with Jeffrey H. Margolis. We do not have any other employment contracts with our named executive officers. Mr. Margolis' three year employment agreement dated April 30, 1998, provides for an annual base salary of $192,000 per year, which is to be reviewed annually by the Board. Mr. Margolis' current annual salary is $295,000. Mr. Margolis is entitled to participate in a bonus plan as recommended by our compensation committee and approved by the Board. Mr. Margolis may participate in all employee benefit plans or programs generally available to our employees, and we will pay or reimburse Mr. Margolis for all reasonable and necessary out-of-pocket expenses he incurs in the performance of his duties. We loaned Mr. Margolis $100,000 and agreed to forgive $25,000 of the principal amount, along with any accrued but unpaid interest on such forgiven amount, on each anniversary of the employment agreement if Mr. Margolis remains an employee. We granted this loan as a means of providing additional compensation to Mr. Margolis, while also providing incentive for his continued employment. If Mr. Margolis is terminated without cause or he voluntarily terminates for good reason, he is entitled to severance pay in the amount equal to his then current annual base salary. We have entered into Change in Control Agreements with certain of our officers. These agreements provide for severance and other benefits if, following a Change in Control of TriZetto, the executive's employment terminates in a way adverse to the executive. If the executive's employment ends within one to three years following a Change in Control (term varies among executives) either because we terminate the executive without cause or because the executive resigns under circumstances constituting "good reason," the executive will be entitled to:
A "Change in Control" is defined in the agreement to occur if (a) a person becomes the beneficial owner of 50% or more of the combined voting power of our securities, (b) a majority of the Board changes without the specified approval of incumbent directors, (c) we merge with another entity in a way that substantially changes the ownership of existing stockholders, or (d) our stockholders approve a complete liquidation or dissolution. "Change in Control" is also deemed to have occurred if an executive's employment with us is terminated prior to the Change in Control and it is demonstrated that (a) such termination was at the request of a third party who has taken steps to effectuate the Change in Control; or (b) such termination arose in connection with or anticipation of the Change in Control. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee consists of the following two non-employee directors: Paul F. LeFort and Donald J. Lothrop. No executive officer serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or our Compensation Committee. Peter D. Mann, one of our former directors, served on the compensation committee until October 2000.
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