<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
---------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________
Commission File Number 0-26138
--------------
Dendrite International, Inc.
----------------------------
(Exact name of registrant as specified in its Charter)
New Jersey 22-2786386
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
___________________________
1200 Mt. Kemble Avenue
Morristown, NJ 07960
201-425-1200
___________________________
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------------------
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter time period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
<PAGE>
The aggregate market value of the shares of the Common Stock held by
nonaffiliates of the registrant was approximately $89,554,596 based upon the
average bid and ask price of the Common Stock, which was $9.875 on March 14,
1997. The number of shares of Common Stock outstanding on that date was
11,261,131.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT DESCRIPTION 10-K PART
- ------------------------------------------------------------------------------ ----------------
<S> <C>
Pages 13 - 32 and the inside back cover of the Registrant's 1996 Annual Report I, II
to Shareholders.
Registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for the III
1997 fiscal year expected to be dated on or about April 18, 1997.
- -------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Dendrite International, Inc. ("Dendrite" or the "Company") succeeded in
1991 to a business co-founded in 1986 by the Company's President and Chief
Executive Officer and others. That business was organized to provide
comprehensive electronic territory management ("ETM") solutions to be used to
manage, coordinate and control the activities of large sales forces in complex
selling environments, primarily in the ethical pharmaceutical industry. Today,
the Company's solutions combine advanced software products with a wide range of
specialized support services including implementation services, technical and
hardware support services and sales force support services. The Company
develops, implements and services advanced ETM systems in the United States,
Canada, Western Europe, Japan, Australia, New Zealand, Hong Kong, and Brazil
through its own sales, support and technical personnel located in twelve offices
worldwide.
PRODUCTS AND SERVICES
The Company's ETM systems utilize proprietary software products coupled
with extensive system support services to provide its customers with the means
for more efficient management of their sales forces, sales and marketing
decision support tools, and operation and maintenance of the customers' sales
databases. As software products become more complex and as the sources and size
of data available increase, there is a parallel need for specialized services
and skills to support these products.
PHARMACEUTICAL INDUSTRY PRODUCTS
The Company currently offers to its pharmaceutical customers one core
software product, Series 6(TM), which can be configured to support four
functional areas: sales representative, account manager (for institutional and
managed care sales forces), area manager and home office sales manager. The
software is designed to be modular, thereby allowing the customer to select a
set of functions most appropriate to its business requirements.
Set forth below is a summary description of the principal functions for the
Series 6 product:
PRINCIPAL FUNCTIONS DESCRIPTION
-------------------------------- ------------------------------
Bids & Contracts/Development & Enables pharmaceutical companies to
Tracking administer and disseminate contract
information relating to managed care
organizations and other institutional
entities
Call Reporting & Sampling/Customer Provides sales representatives with
Records reporting tools and helps enable
pharmaceutical companies control costs
of complying with applicable
governmental regulations associated
with product sample distribution
Diary/Planner/Attendance Report Helps optimize sales representatives'
time management and coordinates sales
force activities among dispersed
sales personnel
Electronic Documents/Mail/ Enables communication between
Admin/Reports/Host Communications geographically dispersed business units
and facilitates coordination of and
communication with widely dispersed
sales personnel
Strategic Selling for Institutional Enables pharmaceutical companies' sales
Sales Teams/Pullthrough teams to plan and coordinate
institutional sales efforts and to
deploy appropriate resources
Sales & Activity Analysis/Target Addresses the individual representative
Analysis and manager requirements for review of
local market potential to construct
and execute optimal sales plans
3
<PAGE>
The Series 6 product can be configured to enable the customer to choose
appropriate functions to address its specific business requirements. New
functions which integrate fully with the existing configuration can be added
over time, therefore allowing the customer to acquire a system which evolves as
its business requirements change. A typical major pharmaceutical customer will
select a configuration depending on the structure of the customer's sales force,
the geographic region involved and the type of pharmaceutical sales data
available. Each function is offered with specific continuing support services.
The Company also has a significant installed base of Series 3(TM), Series
4(TM) and Series 5(TM) software products.
The Series 3 and Series 4 products are DOS-based products. Customers using
Series 4, and a remaining Series 3 customer, accounted for approximately 37% of
the sales representatives licensed to use the Company's systems at December 31,
1996. These products provide automated information concerning physician
customers, sales call records and distribution of samples, but do not have the
capability to model third-party territory-based prescription and sales data. An
upgrade of a customer's system requires extensive investment in hardware and
software and must be planned well in advance in order to minimize disruption of
sales and marketing activities. Currently many of Dendrite's customers have not
made the transition to the Company's more advanced Microsoft(R) Windows(R) based
Series 5 and Series 6 systems. Therefore, the Company continues to support users
of its older Series systems.
Customers with Series 3 or Series 4 systems may elect to upgrade to Series
6. The primary considerations for customers determining whether to upgrade
include the enhanced ability of Series 6 to address the customers' evolving
business needs, the significant cost of making the transition, and, to a lesser
extent, the desirability of moving to a Windows(TM) graphical user interface.
Although customers determining whether to make the upgrade may also consider
competitors' systems, in the Company's experience, the substantial additional
costs to be incurred in switching to a competitor's system, together with the
Company's existing relationship with a customer, tend to give the Company a
competitive advantage in such situations.
Customers using Series 5 and Series 6 systems accounted for approximately
63% of the sales representatives licensed to use the Company's pharmaceutical
ETM systems at December 31, 1996. These systems offer an enhanced user-friendly
graphical user interface through a Microsoft (R) Windows for Workgroups(TM) or
Windows95(R) environment. Series 5 and Series 6 exploit object oriented
programming technology to enhance the modular properties of these systems.
Series 5 and Series 6 software utilize territory-based (i.e. ZIP-code or other
local area) prescription sales data in providing performance analysis reports.
Series 5 software can be modified to allow presentation of physician-level
prescription sales data. Series 6 includes modules capable of analyzing both
territory-based and prescriber-level prescription sales data to permit priority
targeting of physicians and others who influence the pharmaceutical prescription
process.
Traditionally, the Company priced its pharmaceutical ETM systems solely on
a per-user basis. The Company has in the past offered, as an alternative to one-
time license fees, an arrangement known as a "capitation" agreement, which is a
long-term agreement (currently up to ten years), under which the customer
licenses Dendrite software and upgrades for an increasing preset annual charge.
One customer has executed a capitation agreement to date.
OTHER PRODUCTS
In May 1996, Dendrite acquired SRCI S.A. ("SRCI"), France's
largest provider of custom-designed ETM systems for the over-the-counter
pharmaceutical ("OTC") and consumer packaged goods ("CPG") markets.
4
<PAGE>
SRCI's core product, NOMAD'S(TM), has been translated into the English language
and the Company has commenced marketing it in the United States and United
Kingdom markets under the name ForceOne(TM). ForceOne contains some of the same
basic functionality as the Series 6 product as well as functionality
specifically created for the OTC and CPG industries. The Company presently
anticipates that the structure of its license and implementation fees for its
OTC and CPG customers will be similar to those for its ethical pharmaceutical
customers.
SERVICES
For the year ended December 31, 1996, service revenues represented 87% of
total Company revenues. The Company seeks to develop long-term strategic
relationships with its customers by providing value-added support in the
operation of installed software systems and assistance to the customer's
management in using the resulting information. To support this objective, the
Company offers a wide variety of specialized services from which customers can
choose, including implementation services, technical and hardware support
services and sales force support services. Most customers enter into agreements
covering technical support, software customization and support services and also
elect to have their databases operated and maintained on a central server
located at a local Dendrite data center facility. Virtually all customers sign
an extended maintenance agreement which covers, among other things, software
defect resolution.
The complexity and size of the sales data and market research databases
being integrated and manipulated by the Company's systems requires highly
specialized information systems skills. The creation of a customer's database
requires loading third party data onto a central server and encoding that data
with proprietary Dendrite data links. This encoding process allows the data to
be integrated into a functional sales-related database used by the Company's
systems. Dendrite performs these services initially for its customers to install
the system, then usually continues to provide the services to manage these tasks
over time. Many companies choose not to employ the information systems staff
needed to manage these large, complex databases and consider the option of
outsourcing these tasks to Dendrite as both economically and operationally
advantageous.
Set forth below is a summary description of the principal services offered
by Dendrite:
PRINCIPAL SERVICES DESCRIPTION
- ------------------ -----------
Implementation Services Project Management--planning the design and
implementation of the Dendrite system
Data Modeling--creation of the customer's specific
version of the Company's data model, which becomes
the Customer Requirements Definition
Customization--customization of software to meet the
Customer Requirements Definition for the software
components of the Dendrite system
Database Design--creation of the customer's
integrated database, including:
--loading and linking third party prescription
sales data, market research and other materials
--identifying geographic and/or functional (e.g.
formulary) segments
--allocating third party data by territory or
other functional segment
Mail Design--definition of e-mail structure to meet
the needs of the customer's organization
Laptop Preparation--loading data onto laptop
computers for training, testing and use
Training--training on use and capabilities of the
Dendrite system
5
<PAGE>
Technical and Hardware
Support Services Project Management--designing, structuring and
managing technical support for the Dendrite system
Customization--as required following implementation
to meet customer's needs
Maintenance of Database--continued support of the
customer's database, including:
--loading and linking new releases of third party
data purchased by the customer
--identifying new functional segments for data
analysis
Maintenance of Code--maintenance and updating of
customized code on customer computers
Hardware Support--maintenance of servers and laptops
including recapture of data on defective equipment
and replacement of defective equipment
Sales Force Support
Services Project Management--designing, organizing and
managing support for customer sales forces
Retraining--ongoing training on use and capabilities
of the system
Territory Realignment--assisting the customer in
planning and executing realignments of sales
territories or functional (e.g. formulary-based)
segments to allow more effective resource allocation
Support Services--providing all first line services
up to seven days a week for as many hours as
requested and in the language required
When a customer licenses Dendrite software, the Company typically
establishes a separate service group composed of both customer support and
technical support personnel who are generally dedicated to servicing only one or
two customers. The dedicated service group will usually be located at Dendrite's
facility in the country where a significant portion of the customer's sales
force is located. This allows the service group to provide assistance locally
using a common language with customer personnel. The Company provides services
under contract, typically a multi-year contract. In North America, the service
agreement is between the customer and Dendrite directly. Outside North America,
contracts are entered into between the local customer and the Company through
its local wholly-owned subsidiary or branch. Depending upon the size of the
customer and the scope of services to be performed, a Dendrite dedicated service
group may comprise between five and fifty persons. The relationships with its
pharmaceutical customers, which result from providing services to them, have led
to a growth in the range and scope of services provided to the customers and in
recent years have accounted for much of the increase in the Company's service-
related revenues.
As of December 31, 1996, substantially all of the Company's services
agreements were with its ethical pharmaceutical customers.
SYSTEM CONFIGURATION
Dendrite's ETM pharmaceutical system is configured to allow information
access and communication across geographically dispersed sales and marketing
personnel and regional and home offices. The core of the system configuration is
a central file server which stores the customer database and integrates and
controls all data flow from external points, including the remote databases of
the sales force and their management. Most of the servers used by Dendrite
customers are manufactured by IBM, Digital Equipment Corporation or Sun
Microsystems and run on UNIX(TM) or Windows NT(R) operating systems. Servers
are purchased or leased by Dendrite's customers
6
<PAGE>
or leased for them by Dendrite. Some smaller customers lease space on one of
seven Dendrite-owned servers located in various Dendrite offices worldwide.
Remote databases are stored on laptop computers used by sales representatives
in the field and updated periodically over telephone lines via modem. Regional
sales managers using personal computers may access the server via wide area
networks. Dendrite customers are responsible for selecting computer equipment
and for deciding when to upgrade or replace it.
Most laptop computers and all of the desktop personal computers which access
Dendrite's pharmaceutical ETM system support a DOS operating system, with the
Microsoft(R) Windows(TM) for Workgroups interface on the Company's newer
products. Data is managed in Series 4 using an Informix database server and a
flat-file Btrieve structure on the laptops. For laptops in Series 5 and Series 6
with Microsoft(R) Windows(TM) for Workgroups or Windows95, the Company has
currently chosen a PowerBuilder(TM) graphical user interface and a Sybase SQL
Anywhere(TM) relational database management system. Series 5 and Series 6
currently use an Oracle(TM) database server.
Dendrite's pharmaceutical ETM-system permits a pharmaceutical company's sales
representative to send the applicable customer's server information concerning
calls made and to receive information concerning upcoming calls and other sales
efforts to be made later by other sales personnel of that company who share
common or related customers. The server, in most cases located at one of
Dendrite's facilities, contains the customer's own database of sensitive sales
related information, which is maintained and operated for the customer by
Dendrite.
Dendrite's system is designed to provide information to those involved in
sales and sales management and also to a range of other functional areas within
each customer, including its senior management. For example, information
directly related to sales, such as travel and expense reports, may be provided
to the finance and personnel departments. Similarly, representatives in the
field can provide information concerning a physician that can assist managed
care sales personnel. These systems create the linkage which connects a
customer's sales and management functions with other business departments.
Dendrite's OTC and CPG ETM system is generally configured in a manner similar
to Dendrite's pharmaceutical ETM system. However, OTC and CPG sales
representatives may use computer hardware other than laptop and desktop
personal computers to access such ETM system, such as handheld or palmtop
computing devices.
ADDITIONAL INFORMATION
Certain additional information regarding the Company's business is found on
pages 10 - 11 of the Company's 1996 Annual Report to Shareholders. Such pages
are incorporated herein by reference.
MARKETING
CUSTOMERS
The following is a list of some of the Company's current pharmaceutical
customers (who either directly or through subsidiaries may be customers in one
or more countries served by the Company, not necessarily including the United
States):
Boehringer Ingelheim Pharmaceutical, Inc.
Allergan Boehringer Mannheim Corporation
Bayer A.G. Laboratorios Almirall, S.A.
7
<PAGE>
Bristol-Myers Squibb Company Pfizer Animal Health
Ciba-Geigy New Zealand, Ltd. Rhone-Poulenc Rorer Inc.
Glaxo Wellcome Sankyo/Parke Davis
Hoechst Marion Roussell
Johnson & Johnson 3M
Eli Lilly and Company
Leo Laboratories Servier S.A.
Merck Sharp & Dohme Novartis S.A.
Parke Davis
Pfizer Inc. Solvay Pharmaceuticals, Inc.
Zeneca Yakuhin, Inc.
Revenues from Pfizer Inc., Eli Lilly and Company and Johnson & Johnson, in the
aggregate, accounted for approximately 54% of the Company's revenues in the year
ended December 31, 1994. Revenues from Pfizer Inc., Eli Lilly and Company and
Rhone-Poulenc Rorer Inc. in the aggregate accounted for 56% and 58% of the
Company's revenues for the years ended December 31, 1995 and December 31, 1996,
respectively. Although the Company has separately licensed software to several
affiliates of these companies and provides services to them under separately
negotiated and executed contracts with local Dendrite subsidiaries and branches,
the loss of all or a significant part of the business of any of these customers
would have a material adverse affect on the Company.
In addition, since the Company acquired SRCI in May 1996, the
Company's consumer business division has entered into customer contracts in
France with the following companies: Kriter Brut de Brut, Lindt, Martini-
Bacardi, Moet & Chandon, Panzani, Segafredo, Urgo, Vania and Varta.
SALES AND MARKETING
The Company actively markets its ETM systems and services to major ethical
pharmaceutical, healthcare, OTC and CPG companies in the United States, Western
Europe and the Pacific Rim using regional and local sales and marketing
personnel operating out of Dendrite's offices. Sales presentations are typically
made to customer personnel in its management information services department and
in either its sales management or sales administration department.
Selection of an ETM system entails an extended decision-making process for the
customer because of the substantial costs and strategic implications associated
with acquiring the system. Senior levels of management are often involved in
this process, given the importance of the decision as well as the risks faced
by the customer should a system fail or not perform as expected. Depending upon
the size of the system and the associated computer hardware and software costs,
senior corporate management or even the board of directors of a client may make
the final decision to license a Dendrite system. Therefore, decisions to acquire
a Dendrite ETM system involve long selling cycles, typically 12 to 18
months for larger customers, although sometimes as long as 24 months, and
usually require lengthy periods of evaluation prior to full installation and
roll-out.
The Company uses a business process analysis to facilitate the marketing
process after obtaining information from a potential customer relating to its
market, its sales organization, its business plan and the identification of
significant costs and problems. Dendrite works with the potential customer to
identify needed product functionality, drawing upon the Company's available
modules and its experience with the applicable vertical market. If solutions are
not immediately available, Dendrite may offer a co-development partnership to
the potential customer in order to design product functionality to meet the
potential customer's needs. In this situation, Dendrite may not retain sole
ownership of the completed software solution.
The response of sales representative users of Dendrite systems is an important
aspect of the Company's on-going relationships with its customers and may
sometimes influence the decisions of those customers to license additional
modules and/or to contract for expanded support services. Dendrite endeavors to
address the concerns of sales personnel during the training portion of its
Implementation Services. In addition, the experience of customer
8
<PAGE>
additional modules and/or to contract for expanded support services. Dendrite
endeavors to address the concerns of sales personnel during the training portion
of its Implementation Services. In addition, the experience of customer sales
personnel with a Dendrite ETM system in actual use, together with interactions
with those personnel as part of the ongoing Sales Force Support Services,
provide positive reinforcement as to the ease of use and efficacy of Dendrite
ETM systems.
Independent consultants, including the consulting arms of a number of the
"Big 6" accounting firms and international consulting firms, are occasionally
retained to advise pharmaceutical and healthcare companies on their selection of
an ETM system. Dendrite believes that in a number of these situations
consultants have recommended Dendrite ETM systems to their clients, who
subsequently became customers of the Company. Dendrite does not reimburse
expenses or pay any commissions to such firms in such cases.
The Company believes that an important marketing opportunity is presented
by its relations with existing customers. Dendrite believes that its network of
American, European and Pacific Rim offices gives it the potential for expansion
of license and service revenues from existing customers in countries other than
the ones in which such customers currently have a Dendrite licensed ETM system.
In addition, many of Dendrite's ethical pharmaceutical customers also have OTC
operations which Dendrite believes gives it a competitive advantage when,
marketing its ETM system to such OTC operations.
Finally, the Company has entered into several joint marketing arrangements
whereby the Company and the applicable business partner have agreed to interface
with each other's products and/or services. Examples of these partners and their
respective products include: Proscape Technologies, Inc. (multimedia detailing
software); Presidio Inc. (clinical trial software); Epsilon Data Management,
Inc. (data warehousing and decision support software, analytical and data
scrubbing services and direct marketing programs).
COMPETITION
Globally, the current market for sales and marketing information management
systems is highly competitive. Many companies offer sales force automation and
ETM systems in the ethical pharmaceutical, OTC and CPG industries, although few
focus on the pharmaceutical industry. In addition to itself, the Company
believes that there are approximately ten companies which supply products
automating sales, marketing and customer service functions and specifically
target the pharmaceutical industry. Three of these companies are actively
selling in more than one country. The Company believes that most of its
competitors offer a variety of less customizable software products, which are
typically available more rapidly than Dendrite systems and often at a
substantially lower price. Sales force automation products differ greatly in
terms of functionality, flexibility and the type of hardware platform supported.
The Company estimates that in 1996 its ETM systems were licensed by
approximately 15% of sales representatives from the top 50 pharmaceutical
companies in the United States, Canada, Western Europe and the Pacific Rim.
Dendrite believes that potential competitors must incur significant expense and
product development time and must acquire a skilled technical staff in order to
develop an integrated, customizable solution for the problems presented by
complex multi-national selling environments.
The Company's products and services compete with others principally on the
basis of product flexibility and customization, platform configuration, name
recognition, global competence, service standards, breadth of customer base and
technical support and service. Management believes the Company's systems compete
favorably with respect to these factors, and that the Company is positioned to
maintain its market leadership position through innovative new product and
application developments and continued focus on support services. Some of the
Company's existing competitors, as well as a number of potential market
entrants, have larger technical staffs, larger marketing and sales organizations
and greater financial resources than the Company. Additionally, three of the
Company's competitors in the ethical pharmaceutical industry,
9
<PAGE>
own and control, either directly or through affiliated entities, some of the
proprietary data collection systems in some countries (including the United
States) that provide the prescription/sales data sold to the pharmaceutical
companies and which Dendrite's more recent ETM systems and related services are
designed to process. It may be possible for one or more of these competitors to
gain a competitive advantage in the pricing of its ETM systems for customers who
are interested in purchasing the data it or its affiliates collect. The Company
believes that competition will increase as new competitors enter the market to
supply ETM systems to the pharmaceutical industry and as existing competitors
expand their product lines. Dendrite also expects it may encounter additional
competition in the future from firms offering outsourcing of information
technology services and from vendors of software products providing specialized
applications not offered by the Company. The Company also faces potential
competition from its customers and potential customers, which might elect to
design and install or to operate their own sales force management systems.
RESEARCH AND DEVELOPMENT
The Company's Product Development Group is responsible for the
conceptualization, development and implementation of new products
internationally. This group is also responsible for enhancements for existing
products, and the design of technical training and technical procedures
including quality control for core systems and maintenance operations for
existing customer ETM systems. The Company expended $2.8, $3.8 and $8.7 million
on research and development in the years ended December 31, 1994, 1995 and 1996,
respectively. The significant increase in research and development spending in
1996, particularly in the fourth quarter, was attributable to, among other
things, the completion of certain new products by year end, including completing
ForceOne and adapting certain new software for the German market, as well as
integrating the Company's product and service support with the products of its
newest strategic partners. See "Sales and Marketing." Dendrite regularly issues
updated releases for its software modules and maintains a schedule of
anticipated releases.
The Company has capitalized certain costs related to the development of new
software products and the enhancement of existing software products consistent
with Statement of Financial Accounting Standards No. 86, ''Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed''.
Capitalized software development costs net of accumulated amortization were $2.0
and $2.6 million at December 31, 1995 and 1996, respectively.
PROPRIETARY RIGHTS
The Company relies on a combination of trade secret, copyright and trademark
laws; license agreements with customers containing confidentiality and other
contractual protections; confidentiality agreements with vendors and suppliers;
and agreements with each of its executive officers and technical employees
worldwide containing confidentiality and non-disclosure provisions to protect
proprietary intellectual property rights in the Dendrite software systems and
services. Existing United States copyright laws provide only limited protection
and even less protection may be available under foreign laws.
EMPLOYEES
As of December 31, 1996, Dendrite employed 668 employees, 329 in the United
States, 296 in Europe, 35 in the Pacific Rim and 8 in Latin America.
The Company believes that relations with its employees are good. The Company
believes that its future growth and success will depend upon its ability to
attract and retain skilled and motivated personnel.
CERTAIN CONSIDERATIONS
This Form 10-K and other documents of the Company and statements made by
members of management of the Company from time to time may contain forward-
looking statements that may be viewed as predicting future events or outcomes
with respect to the Company and its business. The predictions embodied in
10
<PAGE>
these statements will involve risks and uncertainties and, accordingly, the
Company's actual results may differ significantly from the results discussed or
implied in such forward-looking statements. Some important factors (but not the
only factors) that might cause such a difference include the following:
IMPACT ON COMPANY OF CHANGES IN ETHICAL DRUG MARKET
A majority of the Company's ETM systems are currently used in connection
with the marketing and sale of prescription-only drugs (''ethical
pharmaceutical products'' or ''ethical drugs''). The market currently serviced
by the Company is undergoing a number of significant changes, including (i)
consolidations and mergers which may reduce the number of existing and
potential customers of the Company and (ii) the increasing prescription of
generic drugs, in substitution for branded drugs, produced by manufacturers
which have not acquired a Dendrite ETM system. Both of these trends may reduce
the demand for the Company's pharmaceutical ETM products and services. The
trend toward the reclassification of formerly prescription-only drugs to
permit their over-the-counter sale, to the extent it adversely affects
pharmaceutical companies, may also have a negative impact on the Company and
its continued ability to increase revenues and profitability. The increasing
emphasis in the United States on the delivery of healthcare through managed
care organizations such as health maintenance organizations and preferred
provider organizations may also adversely affect the demand for the Company's
products and services, as may the current consolidation of the managed care
industry in the United States and other changes in healthcare delivery systems
occurring in other countries. The Company may also be materially affected by
legislative enactments which alter the structure of, or increase regulations
governing, the healthcare systems in any of the countries where Dendrite
customers and potential customers are located. There can be no assurance that
the Company can respond positively to all of these and other changes in the
marketplace and maintain profitability.
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY;
LENGTHY SALES AND IMPLEMENTATION CYCLE
The Company's quarterly revenues, expenses and operating results have
varied considerably in the past and are likely to vary from quarter to quarter
in the future. Fluctuations in the Company's revenues depend on a number of
factors, some of which are beyond the Company's control. These factors
include, among others, the timing of contracts, delays in customer acceptance
of the Company's software, the length of sales cycles, customer budget changes
and changes in pricing policy by the Company or its competitors. For
example, the Company incurred a net loss of $3.3 million in the fourth quarter
of 1996, which loss was attributable to, among other things, the delay of
certain new license purchases by an existing customer, the delay of an
existing client's upgrade decision, and the postponement of certain post-
production implementations for an existing client in seven country sites.
The Company establishes its expenditure levels for product development and
other operating expenses based in large part on its expected future revenues.
As a result, should revenues fall below expectations, operating results are
likely to be adversely and disproportionately affected because only a small
portion of the Company's expenses vary with its revenues.
In addition, the Company's quarterly license fees and service revenues may
vary due to seasonal and cyclical factors. The Company typically expects to
realize a greater percentage of its license fees and service revenues for the
year in the second half of the year than it does in the first half. Moreover,
selection of an ETM system often entails an extended decision-making process
for the customer because of the substantial costs and strategic implications
associated with acquiring the system. Senior levels of management are often
involved in this process, given the importance of the decision as well as the
risks faced by the customer should a system fail or not perform as expected.
Depending upon the size of the system and the associated computer hardware and
software costs, senior corporate management or even the board of directors of
a customer may make the final decision to license a Dendrite system.
Therefore, decisions to acquire a Dendrite system involve long selling cycles,
typically 12 to 18 months for larger customers, although sometimes as long as
24 months, and usually require lengthy periods of evaluation prior to full
installation and roll-out.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
11
<PAGE>
The market for ETM systems is characterized by rapid change and
improvements in computer hardware and software technology. The Company's
future success will depend in part on its ability to enhance its current
products, to introduce new products that keep pace with technological and
market developments and to address the increasingly sophisticated needs of its
customers. There can be no assurance that the Company will be successful in
developing and marketing in a timely manner product enhancements or new
products that respond to the technological advances by others, or that its
products will adequately and competitively address the needs of the changing
marketplace. The Company released its first Microsoft /(R)/ Windows /TM/ based
solution, Series 5, in late 1993, its second version, Series 6, in late 1994,
and is preparing subsequent versions to meet anticipated operating system
upgrades. Competition with respect to software products has been characterized
by shortening product cycles, and there can be no assurance that the Company
will not be adversely affected by this trend. If the product cycles for the
Company's systems prove to be shorter than management anticipates, the
Company's operating results could be adversely affected. In addition, in order
to remain competitive, the Company may be required to expend a greater
percentage of its revenues on product innovation and development than
historically has been the case. For example, the significant increase in
research and development spending in 1996, particularly in the fourth quarter
was attributable to, among other things, the completion of certain
new products by year end, including adapting certain new software for the
German market, as well as integrating the Company's product and service
support with the products of its newest strategic partners. In either
case, the Company's gross profit margins and results of operations could be
materially and adversely affected. In addition, products as complex as those
offered by the Company may contain undetected errors or failures when first
introduced or as new versions are released. Such errors have occurred in the
past and there can be no assurance that, despite testing by the Company,
errors will not be found in new products resulting in losses or delays which
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company currently offers software products designed for markets other
than the ethical pharmaceutical market, including the consumer packaged goods
vertical market. The selling environment in each market has characteristics
that are unique to it. There can be no assurance that the Company will be able
to achieve in other markets the success it has attained in the ethical
pharmaceutical market.
DEPENDENCE ON MAJOR CUSTOMERS
The Company has approximately 26 pharmaceutical customers (considering all
members of an affiliated group to be a single customer). The Company derived
approximately 54%, 56% and 58% of its revenues in the aggregate in the years
ended December 31, 1994, 1995 and 1996, respectively, from the three largest
pharmaceutical customers, two of which had been among the three largest
customers of the Company in terms of revenues in each of those periods. The
Company believes that the costs to its major customers of switching to an ETM
system offered by a competitor, or taking significant system management
functions in-house, would be substantial. There can be no assurance, however,
that such a change will not be undertaken by one or more customers with
respect to a Dendrite system or to all or some of the services offered by the
Company. If such change is made by one or more of the Company's major
customers, the Company's business, operating results and financial condition
could be materially and adversely affected.
RISKS FROM COMPETITION
Globally, the current market for sales and marketing information management
systems is highly competitive. Many companies offer sales force automation and
ETM systems, although few focus on the pharmaceutical industry. In addition to
Dendrite, the Company believes that there are approximately ten companies
which supply products automating sales, marketing and customer service
functions and specifically target the pharmaceutical industry. The Company
believes at least three of these companies are actively selling in more
than one country. In addition, the other vertical markets in which the Company
markets its products possess numerous vendors who market and sell sales force
automation and ETM systems. The Company believes that most of its competitors
offer a variety of less customizable software products, which are typically
available more rapidly than Dendrite systems and often at a substantially
lower price.
12
<PAGE>
In addition, competition will increase as new competitors enter the market to
supply ETM systems to the pharmaceutical industry and other vertical markets and
as existing competitors expand their product lines.
The Company expects it may encounter additional competition in the
future from firms offering outsourcing of information technology services, from
purveyors of software products providing specialized applications not offered by
the Company and from the development and/or operation of in-house system by
pharmaceutical companies. Many of the Company's competitors have longer
operating histories and significantly greater financial, technical, sales,
marketing and other resources than those of the Company. Some of the Company's
competitors are part of large corporate groups with significantly greater
resources and broader technology bases than those of the Company. For example,
Sales Technologies, Inc. is owned by Cognizant Corporation. There can be no
assurance that the Company will be able to compete successfully or that
competition will not have a material adverse effect on the Company's business,
operating results or financial condition.
RELIANCE ON COMPETITORS FOR MARKET DATA
Current market data on the sales of ethical pharmaceutical products is
an important element for the operation of Dendrite ETM systems, which the
Company's customers use to guide and organize their sales forces and marketing
efforts. There are currently few sources of such data in the United States,
Europe and the Pacific Rim. Three of the leading purveyors of such market
information in the United States or elsewhere compete with the Company either
directly or through affiliates in the market for ETM systems. Were these
purveyors of market information to require that pharmaceutical companies also
utilize their information management services (or those of their affiliates)
instead of the Company's, the Company's business, operating results and
financial condition would be materially and adversely affected.
INTERNATIONAL OPERATIONS
Currently, the Company's products are marketed in over 16 countries.
The United States, the United Kingdom and France are the Company's main markets.
Approximately 44%, 48% and 52% of the Company's total revenues were generated
outside the United States during the years ended December 31, 1994, 1995 and
1996, respectively. Services provided by Dendrite's foreign branches and
subsidiaries are billed in local currency. License fees for Dendrite products
are billed in U.S. dollars regardless of where they originate. The Company
expects the export segment of its business to grow and to continue to account
for a material part of its revenues. Licensing software in may foreign
countries is subject to risks inherent in international business activities.
Risks include general economic conditions in each such country, the effect of
applicable foreign tax structures, tariff and trade regulations, difficulties in
obtaining local license, the difficulty of managing an organization spread over
various jurisdictions, unexpected changes in regulatory environments, complying
with a variety of foreign laws and regulations and any adverse changes in the
political environments in any such countries. In addition, laws in foreign
countries may not always provide protection for the Company's proprietary rights
in its software products. Providing specialized system support services outside
the United States paid for in local currencies carries the additional risk of
currency fluctuation and may also affect the net income, if any, reported by the
Company. Operating results generated in local currencies are translated into
U.S. dollars at the average currency exchange rate in effect for each financial
reporting period.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the Company depends to a significant extent upon the
contributions of its executive officers, particularly its President and Chief
Executive Officer, John E. Bailye, and key sales, technical and customer service
personnel. The Company maintains a $3 million key man insurance policy on
Mr.Bailye, the proceeds of which are payable to the Company. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and managerial personnel. Competition for such
personnel is intense. The Company has at times experienced difficulty in
recruiting qualified personnel and there can be no assurance that the Company
will not experience such difficulties in the future. Any such difficulties could
adversely affect the Company's business, operating results and financial
condition.
13
<PAGE>
All of the Company's executive officers and technical employees and a
significant number of sales employees have entered into non-competition
agreements with the Company. The laws governing such non-competition
agreements vary in different jurisdictions and are evolving. The
enforceability of such agreements in any case will depend upon all of the
facts and circumstances, including the jurisdiction in which enforcement is
sought. In some cases these agreements might be unenforceable, a result that
could have a material adverse effect on the Company.
To manage growth effectively, the Company must continue to strengthen its
operational, financial and management information systems, and expand, train
and manage its work force. There can be no assurance that the Company will be
able to do so on a timely basis. Failure to do so effectively and on a timely
basis could have a material adverse effect upon the Company's business,
operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secret, copyright and
trademark laws, non-disclosure and other contractual agreements, and technical
measures to protect its proprietary rights in its products. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
this technology. Further, there can be no assurance that such protective steps
will preclude competitors from developing products with features similar to
the Company's products. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. The
Company believes that its products and trademarks do not infringe upon the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future or that any such claims will not require the Company to enter into
royalty arrangements or result in costly litigation involving the imposition
of damages or injunctive relief against the Company, any of which could
materially and adversely affect the Company's business, operating results and
financial condition.
CONCENTRATION OF STOCK OWNERSHIP
The Company's present directors, executive officers and principal
stockholders beneficially own a significant portion of the Common Stock. As a
result, such persons are likely to have the practical ability to elect the
Board of Directors and to control voting on all matters requiring the approval
of the Company's stockholders. Accordingly, such persons will be able to
control the management of the Company and its affairs and business. Such
concentration of ownership may also have the effect of delaying, deferring or
preventing a change in control of the Company.
ITEM 2. PROPERTIES.
Dendrite leases a 101,500 square foot headquarters building in Morristown, New
Jersey and a 3,600 square foot warehouse in Morris Plains, New Jersey. The
Company also leases a total of 47,800 square feet in eleven (excluding) Morris
Plains locations in Australia, Belgium, Brazil, France, Germany, Italy, Japan,
New Zealand, Portugal, Spain and the United Kingdom for its full service sales
offices, customer support and data centers. The Company believes that existing
facilities are adequate for its current needs and that adequate space will be
available as needed.
File servers located at Dendrite facilities are maintained in a secured area
and are subject to regular audit and inspection by the customers. Except for the
Dendrite file servers on which customers rent space, most clients requires that
its file server be kept entirely separate from the file servers of all other
customers. All customers require that their databases be kept strictly separate
from the databases of all other customers.
ITEM 3. LEGAL PROCEEDINGS.
The Company is occasionally involved in litigation relating to personnel and
other claims arising in the ordinary course of business. Dendrite is not
currently engaged in any legal proceedings which are expected, individually or
in the aggregate, to have a materially adverse effect on the Company.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information regarding the market prices of the Company's common stock and
the market for that stock may be found on page 28 of the Company's 1996 Annual
Report to Shareholders, which page is incorporated herein by reference.
Additional information concerning dividends may be found on page 14 of the
Company's 1996 Annual Report to Shareholders, which page is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the Company is set forth on page 9 of the
Company's 1996 Annual Report to Shareholders, which page is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A discussion of the Company's financial condition, changes in financial
condition and results of operations is found on pages 10 - 14 of the Company's
1996 Annual Report to Shareholders. Such pages are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, together with the
report thereon of the independent public accountants, and the unaudited
"Selected Quarterly Operating Results" are set forth on pages 15 - 28 of the
Company's 1996 Annual Report to Shareholders, which pages are incorporated
herein by reference.
15
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
With the exception of the information incorporated by reference in Parts I and
II of this Form 10-K, the Company's 1996 Annual Report to Shareholders is not to
be deemed filed as part of this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and executive officers of the Company will be
set forth in the Registrant's Notice of Annual Meeting of Shareholders and Proxy
Statement, expected to be dated on or about April 18, 1997 (the "Proxy
Statement"), which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding the Company's compensation of its directors and
executive officers will be set forth in the Proxy Statement, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management will be set forth in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding transactions with the Company's directors and executive
officers will be set forth in the Proxy Statement, which information is
incorporated herein by reference.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
<TABLE>
<CAPTION>
PAGE IN ANNUAL
REPORT TO
SHAREHOLDERS
--------------
<S> <C>
Report of Independent Public Accountants...................... 27
Consolidated Balance Sheets................................... 15
Consolidated Statements of Operations......................... 16
Consolidated Statements of Redeemable Convertible
Preferred Stock and Stockholder' Equity (Deficit)............. 17
Consolidated Statements of Cash Flows......................... 18
Notes to Consolidated Financial Statements.................... 19 - 26
</TABLE>
2. Financial Statement Schedules:
None.
17
<PAGE>
3. Exhibits:
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated herein by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q filed with the
Commission June 30, 1996)
3.2 By-laws of the Company, as amended (incorporated herein by
reference to the Exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995, filed
with the Commission November 13, 1995)
4.1 Specimen of Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
4.2 Registration Rights Agreement dated October 2, 1991 between
the several purchasers named therein and the Company
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
4.3 Amendment to Registration Rights Agreement dated April 23,
1992 between the Company and the parties named therein as
shareholders of the Company (incorporated herein by
reference to Exhibit 4.3 of Amendment 1 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.1 Master License Agreement with Eli Lilly and Company dated
December 18, 1991 (incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.2 Software Maintenance Agreement with Eli Lilly and Company
dated December 18, 1991 (incorporated herein by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.3 Source Material Escrow Agreement with Eli Lilly and Company
dated December 18, 1991 (incorporated herein by reference to
Exhibit 10.3 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.4 Master Service Agreement with Eli Lilly and Company dated
December 18, 1991 (incorporated herein by reference to
Exhibit 10.4 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.5 Addenda to Master License Agreement with Eli Lilly and
Company dated June 1, 1993, June 17, 1993 and October 25,
1993, respectively (incorporated herein by reference to
Exhibit 10.5 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.6 Master Service Agreement with Eli Lilly and Company Limited
(New Zealand) dated February 15, 1995 (incorporated herein
by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.7 Host Computer Agreement with Eli Lilly and Company Limited
(New Zealand) dated February 15, 1995 (incorporated herein
by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.8 Master Service Agreement with Eli Lilly Italia, S.p.A. dated
January 17, 1994 (incorporated herein by reference to
Exhibit 10.8 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
18
<PAGE>
10.9 Software Maintenance Agreement with Eli Lilly Italia, S.p.A.
dated January 17, 1994 (incorporated herein by reference to
Exhibit 10.9 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.10 Customer Agreement with Lilly Industries Limited dated
September 24, 1990 (incorporated herein by reference to
Exhibit 10.10 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.11 Software Maintenance Agreement with Eli Lilly UK Ltd. dated
July 21, 1992 (incorporated herein by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.12 Source Material Escrow Agreement with Lilly Industries Ltd.
(incorporated herein by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.13 Master Service Agreement with Lilly Industries Ltd. dated
June 25, 1992 (incorporated herein by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.14 Master Software License Agreement with Lilly Deutschland
GmbH and Beiersdorf Lilly GmbH dated July 19, 1994
(incorporated herein by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.15 Master Software Maintenance Agreement with Lilly Deutschland
GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994
(incorporated herein by reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.16 Master Software Development Agreement with Lilly-Deutschland
GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994
(incorporated herein by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.17 Host Computer Agreement with Lilly Deutschland GmbH and
Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated
herein by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.18 Master Service Agreement with Lilly Deutschland GmbH and
Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated
herein by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.19 Customer Agreement with Johnson & Johnson dated July 16,
1990 (incorporated herein by reference to Exhibit 10.19 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.20 Master Host Computer Agreement with Johnson & Johnson dated
September 22, 1992 (incorporated herein by reference to
Exhibit 10.20 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.21 Master License Agreement with Johnson & Johnson dated
September 22, 1992 (incorporated herein by reference to
Exhibit 10.21 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.22 Master Software Maintenance Agreement with Johnson & Johnson
dated September 22, 1992 (incorporated herein by reference
to Exhibit 10.22 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
19
<PAGE>
10.23 Master Service Agreement with Johnson & Johnson
(incorporated herein by reference to Exhibit 10.23 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.24 Master Software Maintenance Agreement with Pfizer Inc. dated
December 29, 1994 (incorporated herein by reference to
Exhibit 10.24 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.25 Master Software License Agreement with Pfizer Inc. dated
December 29, 1994 (incorporated herein by reference to
Exhibit 10.25 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.26 Master Service Agreement with Pfizer Inc. dated December 29,
1994 (incorporated herein by reference to Exhibit 10.26 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.27 Source Material Escrow Agreement with Pfizer Inc. dated
March 10, 1995 (incorporated herein by reference to Exhibit
10.27 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.28 Host Computer Agreement with Pfizer Inc. dated September 26,
1994 (incorporated herein by reference to Exhibit 10.28 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.29 Master License Agreement with Pfizer Inc. dated August 17,
1992 (incorporated herein by reference to Exhibit 10.29 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.30 Master Service Agreement with Pfizer Canada, Inc. dated
April 22, 1994 (incorporated herein by reference to Exhibit
10.30 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.31 Master Service Agreement with Pfizer Chemical, K.K. (Japan)
dated June 15, 1992 (incorporated herein by reference to
Exhibit 10.31 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.32 Master License Agreement with Pfizer Pharmaceuticals, Inc.
(Japan) dated November 17, 1992 (incorporated herein by
reference to Exhibit 10.32 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.33 Services List with Pfizer Ltd. dated August 17, 1994
(incorporated herein by reference to Exhibit 10.33 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.34 Master Capitation Agreement with Rhone-Poulenc Rorer Inc.
dated July 29, 1994 (incorporated herein by reference to
Exhibit 10.34 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.35 Master Customer Support Service Agreement with Rhone-Poulenc
Rorer Inc., dated July 29, 1994 (incorporated herein by
reference to Exhibit 10.35 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.36 January 1992 Stock Plan (incorporated herein by reference to
Exhibit 10.36 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
20
<PAGE>
10.37 October 1992 Stock Option Plan for Senior Management
(incorporated herein by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.38 Indemnification Agreement of Paul A. Margolis dated as of
January 1, 1992 (incorporated herein by reference to Exhibit
10.38 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.39 Lease of 1200 Mount Kemble Avenue, Morristown, New Jersey
(incorporated herein by reference to Exhibit 10.40 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.40 Employment Agreement dated October 2, 1991 with John E.
Bailye, as amended (the "Bailye Employment Agreement")
(incorporated herein by reference to Exhibit 10.41 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.41 Credit Agreement with The Chase Manhattan Bank, N.A. dated
as of May 5, 1995 (incorporated herein by reference to
Exhibit 10.42 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.42 Master Software License Agreement with Pfizer Italiana SpA.
dated December 1994 (incorporated by reference to Exhibit
10.43 to the Company's Registration Statement on Form S-1,
filed with the Commission February 5, 1996)
10.43 Master Software License Agreement with Laboratorios Pfizer
Ltda. dated September 29, 1995 (incorporated herein by
reference to Exhibit 10.44 to the Company's Registration
Statement on Form S-1, filed with the Commission February 5,
1996)
10.44 Master Service Agreement with Pfizer Ltd. dated December 1,
1992, as extended by letters dated August 12, 1994 and April
14, 1995 (incorporated herein by reference to Exhibit 10.45
to the Company's Registration Statement on Form S-1, filed
with the Commission February 5, 1996)
10.45 Master Software Maintenance Agreement with Bristol-Myers
Squibb Company dated December 20, 1995 (incorporated herein
by reference to Exhibit 10.46 to the Company's Registration
Statement on Form S-1, filed with the Commission February 5,
1996)
10.46 Master Software License Agreement with Bristol-Myers Squibb
Company dated December 20, 1995 (incorporated herein by
reference to Exhibit 10.47 to the Company's Registration
Statement on Form S-1, filed with the Commission February 5,
1996)
10.47 Employment Agreement dated July 9, 1990 with John LaHaye
(incorporated herein by reference to Exhibit 10.48 to the
Company's Registration Statement on Form S-1, filed with the
Commission February 5, 1996)
10.48 Employment Agreement dated December 15, 1988 with Bruce
Savage (incorporated herein by reference to Exhibit 10.49 to
the Company's Registration Statement on Form S-1, filed with
the Commission February 5, 1996)
10.49 Employment Agreement dated October 1, 1991 with Teresa F.
Winslow (incorporated herein by reference to Exhibit 10.50
to the Company's Registration Statement on Form S-1, filed
with the Commission February 5, 1996)
21
<PAGE>
10.50 Employment Agreement dated June 8, 1988 with Charles
Warczakowski (incorporated herein by reference to Exhibit
10.51 to the Company's Registration Statement on Form S-1,
filed with the Commission February 5, 1996)
10.51 Employment Agreement dated January 22, 1996 with Christopher
J. French
10.52 Dendrite 401(k) Retirement Savings Plan
----- ---------------------------------------
13 The Company's 1996 Annual Report to Stockholders, certain
portions of which have been incorporated herein by reference
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule
99.5 Employment Agreement
(b) Reports on Form 8-K.
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DENDRITE INTERNATIONAL, INC.
Date: March 31, 1997 By: /s/ John E. Bailye
-------------------------------------
John E. Bailye
Chief Executive Officer and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Name Title Date
- ----- ----- ----
/s/ John E. Bailye Chief Executive Officer, __________
- --------------------------------
John E. Bailye President and Director
(Principal Executive Officer)
/s/ Charles C. Warczakowski Vice President, Finance __________
- --------------------------------
Charles C. Warczakowski and Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
/s/ John H. Martinson Director __________
- --------------------------------
John H. Martinson
/s/ Bernard M. Goldsmith Director __________
- --------------------------------
Bernard M. Goldsmith
/s/ Paul A. Margolis Director __________
- --------------------
Paul A. Margolis
23
<PAGE>
EXHIBIT INDEX
Exhibit
Exhibit No.
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated herein by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q filed with the
Commission June 30,1996)
3.2 By-laws of the Company, as amended (incorporated herein by
reference to the Exhibit to the Company's Quarterly Report
on Form 10-Q, for the quarter ended September 30, 1995)
4.1 Specimen of Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
4.2 Registration Rights Agreement dated October 2, 1991 between
the several purchasers named therein and the Company
(incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
4.3 Amendment to Registration Rights Agreement dated April 23,
1992 between the Company and the parties named therein as
shareholders of the Company (incorporated herein by
reference to Exhibit 4.3 of Amendment 1 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.1 Master License Agreement with Eli Lilly and Company dated
December 18, 1991 (incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.2 Software Maintenance Agreement with Eli Lilly and Company
dated December 18, 1991 (incorporated herein by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.3 Source Material Escrow Agreement with Eli Lilly and Company
dated December 18, 1991 (incorporated herein by reference to
Exhibit 10.3 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.4 Master Service Agreement with Eli Lilly and Company dated
December 18, 1991 (incorporated herein by reference to
Exhibit 10.4 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.5 Addenda to Master License Agreement with Eli Lilly and
Company dated June 1, 1993, June 17, 1993 and October 25,
1993, respectively (incorporated herein by reference to
Exhibit 10.5 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.6 Master Service Agreement with Eli Lilly and Company Limited
(New Zealand) dated February 15, 1995 (incorporated herein
by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.7 Host Computer Agreement with Eli Lilly and Company Limited
(New Zealand) dated February 15, 1995 (incorporated herein
by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.8 Master Service Agreement with Eli Lilly Italia, S.p.A. dated
January 17, 1994 (incorporated herein by reference to
Exhibit 10.8 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
10.9
Software Maintenance Agreement with Eli Lilly Italia, S.p.A.
dated January 17, 1994 (incorporated herein by reference to
Exhibit 10.9 to the Company's Registration Statement on Form
S-1, filed with the Commission May 17, 1995)
24
<PAGE>
Exhibit No. Exhibit
10.10 Customer Agreement with Lilly Industries Limited dated
September 24, 1990 (incorporated herein by reference to
Exhibit 10.10 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.11 Software Maintenance Agreement with Eli Lilly UK Ltd. dated
July 21, 1992 (incorporated herein by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.12 Source Material Escrow Agreement with Lilly Industries Ltd.
(incorporated herein by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.13 Master Service Agreement with Lilly Industries Ltd. dated
June 25, 1992 (incorporated herein by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.14 Master Software License Agreement with Lilly Deutschland
GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994
(incorporated herein by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.15 Master Software Maintenance Agreement with Lilly Deutschland
GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994
(incorporated herein b reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.16 Master Software Development Agreement with Lilly-Deutschland
GmbH and Beiersdorf-Lilly GmbH dated July 19, 1994
(incorporated herein by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.17 Host Computer Agreement with Lilly Deutschland GmbH and
Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated
herein by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.18 Master Service Agreement with Lilly Deutschland GmbH and
Beiersdorf-Lilly GmbH dated July 19, 1994 (incorporated
herein by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.19 Customer Agreement with Johnson & Johnson dated July 16,
1990 (incorporated herein by reference to Exhibit 10.19 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.20 Master Host Computer Agreement with Johnson & Johnson dated
September 22, 1992 (incorporated herein by reference to
Exhibit 10.20 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.21 Master License Agreement with Johnson & Johnson dated
September 22, 1992 (incorporated herein by reference to
Exhibit 10.21 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.22 Master Software Maintenance Agreement with Johnson & Johnson
dated September 22, 1992 (incorporated herein by reference
to Exhibit 10.22 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.23 Master Service Agreement with Johnson & Johnson
(incorporated herein by reference to Exhibit 10.23 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
25
<PAGE>
Exhibit No. Exhibit
10.24 Master Software Maintenance Agreement with Pfizer Inc. dated
December 29, 1994 (incorporated herein by reference to
Exhibit 10.24 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.25 Master Software License Agreement with Pfizer Inc. dated
December 29, 1994 (incorporated herein by reference to
Exhibit 10.25 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.26 Master Service Agreement with Pfizer Inc. dated December 29,
1994 (incorporated herein by reference to Exhibit 10.26 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.27 Source Material Escrow Agreement with Pfizer Inc. dated
March 10, 1995 (incorporated herein by reference to Exhibit
10.27 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.28 Host Computer Agreement with Pfizer Inc. dated September 26,
1994 (incorporated herein by reference to Exhibit 10.28 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.29 Master License Agreement with Pfizer Inc. dated August 17,
1992 (incorporated herein by reference to Exhibit 10.29 to
the Company's Registration Statement on Form S-1, filed with
the Commission May 17, 1995)
10.30 Master Service Agreement with Pfizer Canada, Inc. dated
April 22, 1994 (incorporated herein by reference to Exhibit
10.30 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.31 Master Service Agreement with Pfizer Chemical, K.K. (Japan)
dated June 15, 1992 (incorporated herein by reference to
Exhibit 10.31 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.32 Master License Agreement with Pfizer Pharmaceuticals, Inc.
(Japan) dated November 17, 1992 (incorporated herein by
reference to Exhibit 10.32 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.33 Services List with Pfizer Ltd. dated August 17, 1994
(incorporated herein by reference to Exhibit 10.33 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.34 Master Capitation Agreement with Rhone-Poulenc Rorer Inc.
dated July 29, 1994 (incorporated herein by reference to
Exhibit 10.34 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.35 Master Customer Support Service Agreement with Rhone-Poulenc
Rorer Inc., dated July 29, 1994 (incorporated herein by
reference to Exhibit 10.35 to the Company's Registration
Statement on Form S-1, filed with the Commission May 17,
1995)
10.36 January 1992 Stock Plan (incorporated herein by reference to
Exhibit 10.36 to the Company's Registration Statement on
Form S-1, filed with the Commission May 17, 1995)
10.37 October 1992 Stock Option Plan for Senior Management
(incorporated herein by reference to Exhibit 10.37 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
26
<PAGE>
Exhibit No. Exhibit
10.38 Indemnification Agreement of Paul A. Margolis dated as of
January 1, 1992 (incorporated herein by reference to Exhibit
10.38 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.39 Lease of 1200 Mount Kemble Avenue, Morristown, New Jersey
(incorporated herein by reference to Exhibit 10.40 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.40 Employment Agreement dated October 2, 1991 with John E.
Bailye, as amended (the ''Bailye Employment Agreement'')
(incorporated herein by reference to Exhibit 10.41 to the
Company's Registration Statement on Form S-1, filed with the
Commission May 17, 1995)
10.41 Credit Agreement with The Chase Manhattan Bank, N.A. dated
as of May 5, 1995 (incorporated by reference to Exhibit
10.42 to the Company's Registration Statement on Form S-1,
filed with the Commission May 17, 1995)
10.42 Master Software License Agreement with Pfizer Italiana SpA.
dated December 1994 (incorporated by reference to Exhibit
10.43 to the Company's Registration on Form S-1 filed with
the Commission February 5, 1996)
10.43 Master Software License Agreement with Laboratorios Pfizer
Ltda. dated September 29, 1995 (incorporated by reference to
Exhibit 10.44 to the Company's Registration on Form S-1
filed with the Commission February 5, 1996)
10.44 Master Service Agreement with Pfizer Ltd. dated December 1,
1992, as extended by letters dated August 12, 1994 and April
14, 1995 (incorporated by reference to Exhibit 10.45 to the
Company's Registration on Form S-1 filed with the Commission
February 5, 1996)
10.45 Master Software Maintenance Agreement with Bristol-Myers
Squibb Company dated December 20, 1995 (incorporated by
reference to Exhibit 10.46 to the Company's Registration on
Form S-1 filed with the Commission February 5, 1996)
10.46 Master Software License Agreement with Bristol-Myers Squibb
Company dated December 20, 1995 (incorporated by reference
to Exhibit 10.47 to the Company's Registration on Form S-1
filed with the Commission February 5, 1996)
10.47 Employment Agreement dated July 9, 1990 with John LaHaye
(incorporated herein by reference to Exhibit 10.48 to the
Company's Registration on Form S-1 filed with the Commission
February 5, 1996)
10.48 Employment Agreement dated December 15, 1988 with Bruce
Savage (incorporated by reference to Exhibit 10.49 to the
Company's Registration on Form S-1 filed with the Commission
February 5, 1996)
10.49 Employment Agreement dated October 1, 1991 with Teresa F.
Winslow (incorporated by reference to Exhibit 10.50 to the
Company's Registration on Form S-1 filed with the Commission
February 5, 1996)
10.50 Employment Agreement dated June 8, 1988 with Charles
Warczakowski (incorporated by reference to Exhibit 10.51 to
the Company's Registration on Form S-1 filed with the
Commission February 5, 1996)
27
<PAGE>
Exhibit No. Exhibit
10.51 Employment Agreement dated January 22, 1996 with Christopher
J. French
10.52 Dendrite 401(k) Retirement Savings Plan
13 The Company's 1995 Annual Report to Stockholders, certain
portions of which have been incorporated herein by reference
21. Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule
99.5 Employment Agreement
28
<PAGE>
Exhibit 10.51
[DENDRITE INTERNATIONAL, INC. LETTERHEAD APPEARS HERE]
EMPLOYMENT AGREEMENT
--------------------
This agreement made by and between DENDRITE International, Inc., a New
Jersey Corporation ("Dendrite") as of the 22nd day of January, 1996, having its
principal place of business at 1200 Mt. Kemble Avenue, Morristown, New Jersey
07960, and Christopher J. French ("Employee"), located at 601 East 20th Street,
Apt. 8E, New York, New York, 10010.
WHEREAS, Dendrite, its affiliates, and subsidiaries is the developer and
owner of what is referred to as Territory Management Systems and related
hardware and equipment;
WHEREAS, Employee is or desires to be employed by Dendrite and Dendrite
desires to employ Employee as Vice President, General Counsel, of Dendrite upon
the terms and conditions hereinafter set forth and Employee desires to accept
such employment; and;
WHEREAS, Dendrite is willing to provide certain confidential and
proprietary information to Employee for the limited purpose of enabling Employee
to carry out duties in connection with his/her employment by Dendrite.
RECITAL:
NOW, THEREFORE, it is agreed as follows:
1. TERM
----
The term of this Agreement and Employee's employment hereunder shall be one
(1) year. At the completion of one (1) year of service, the next paragraph
(2), Employment at Will will automatically become effective.
2. EMPLOYMENT AT WILL
------------------
Dendrite hereby employs the Employee as an at-will employee. This
employment may be terminated at any time for any reason by Dendrite or by
the Employee unless there is a separate written agreement setting forth a
specific term. As a matter of courtesy and fair business dealings, the
Employee, unless there is an emergency, will attempt to
<PAGE>
provide two (2) weeks notice to Dendrite before terminating his/her
employment in order to permit Dendrite an opportunity to replace him/her.
Dendrite will offer similar notice to the Employee in the event of his/her
termination if the termination is without cause. If the termination is with
cause as determined by Dendrite, Dendrite will not be required to give
notice of termination.
3. TERMINATION
-----------
Notwithstanding above, 1, either party shall have the right to terminate
this Agreement and Employee's employment hereunder for any reason
whatsoever, with or without Cause (as hereinafter defined), by providing
the other party hereto with two (2) weeks advance written notice of such
termination. In the event that Employee's employment hereunder is
terminated by Dendrite without Cause during the first year of employment,
Dendrite shall promptly pay to Employee (i) the pro-rata portion of his
annual base salary for the remaining term of this Agreement, to the extent
not previously paid, and (ii) an amount equal to the cash value of all
vacation time accrued and unused through the date of termination. For
purposes of this Agreement, the term "Cause" as used herein shall mean (i)
any gross misconduct on the part of Employee with respect to his duties
under this Agreement or (ii) final conviction of Employee by a court of
competent jurisdiction of an indictable offense which relates to Employee's
duties under this Agreement or which is likely to have a material adverse
effect on the business of Dendrite.
4. DUTIES/EMPLOYMENT
-----------------
Dendrite hereby employs Employee, and Employee hereby accepts such
employment, as Vice President, General Counsel, of Dendrite during the term
of this Agreement. The Employee shall perform those duties as may from time
to time be assigned to him/her and shall carry out any assignments related
to the company or its affiliate as directed. With the employee's agreement,
this may involve rendering services at various locations throughout the
world. The Employee shall devote his/her full time attention, energy,
knowledge, skill and best efforts solely and exclusively to the duties
assigned him/her which he/she shall faithfully and diligently perform. The
Employee shall report to Dendrite as may be required and will fully account
for all records, data, materials or other property belonging to Dendrite or
its customers of which he/she is given custody. Dendrite may, from time to
time, establish rules and regulations and the Employee shall from time to
time, establish rules and regulations and the Employee shall faithfully
observe these in the performance of his/her duties. Employee shall further
comply with all policies and directives of Dendrite.
5. COMPENSATION
------------
Dendrite shall pay the Employee for his/her services an initial starting
salary on a semi-monthly basis. For benefits calculation only, the
annualized amount is $195,000.
<PAGE>
If Employee dies during the term of this Agreement, Dendrite shall pay to
his estate all salary and vacation pay accrued and unpaid at the time of
Employee's death.
6. BENEFITS
--------
Dendrite shall provide the Employee:
A. Three weeks annualized vacation, earned at the rate of one and one-half
days for each month of service between February and November.
B. Reimbursement for all reasonable travel, entertainment and other
reasonable and necessary out-of-pocket expenses incurred by the
Employee in connection with the performance of his/her duties.
Reimbursement will be made upon the submission by the Employee of
appropriate documentation and verification of the expenses;
C. Other benefits to the same extent as may be provided to other employees
generally.
7. INFORMATION AND BUSINESS OPPORTUNITY
------------------------------------
During the term of his/her employment by Dendrite, the Employee may acquire
knowledge of (a) information that is relevant to the business of Dendrite
or its affiliates or (b) knowledge of business opportunities pertaining to
the business in which Dendrite or its affiliates are then presently
engaged. The Employee shall promptly disclose to Dendrite that information
or business opportunity but shall not disclose it to anyone else without
Dendrite's written consent.
8. DENDRITE CONFIDENTIAL INFORMATION
---------------------------------
It is anticipated that the Employee will, as a result of his/her employment
with Dendrite, acquire information which is proprietary and confidential to
Dendrite. This information includes, but is not limited to technical and
commercial information, customer lists, financial arrangements, competitive
status, pricing policies, knowledge of suppliers, technical capabilities,
discoveries, algorithms, concepts, software in any stage of development,
designs, drawings, specifications, techniques, models, data, technical
manuals, research and development materials, processes procedures, know-how
and other business affairs relating to Dendrite. Confidential information
also includes any and all technical information involving Dendrite's work.
The Employee will keep all such information confidential and will not
reveal it at any time without the express written consent of Dendrite. This
obligation is to continue in force after employment terminates for whatever
reason.
<PAGE>
9. CLIENT CONFIDENTIAL INFORMATION
-------------------------------
Dendrite may, from time to time, be furnished information and data which is
proprietary and confidential to its clients, customers or suppliers. The
Employee will not, at any time for any reason, reveal any information
provided by any of Dendrite's clients, customers or suppliers to anyone,
unless provided with prior written consent by Dendrite or by the client,
customer or supplier. This obligation is to continue in force after
employment terminates for whatever reason.
10. RETURN OF DATA
--------------
Upon termination of employment for any reason, the Employee shall return to
Dendrite all confidential information and material including but not
limited to all copies of any disks, notes, notebooks, blueprints, customer
lists and any and all other papers or material in any tangible media or
computer readable form belonging to Dendrite or to any of its customers,
clients or suppliers.
11. INVENTIONS
----------
All work performed by Employee and all materials, products, deliverables,
inventions, software, ideas, disclosures and improvements, whether patented
or unpatented, and copyrighted material made or conceived by Employee,
solely or jointly, in whole or in part, during the term of Employee's
employment by Dendrite which (i) relate to methods, apparatus, designs,
products, processes or devices sold, licensed, used or under development by
Dendrite, (ii) otherwise relate to or pertain to the present, proposed or
contemplated business, functions or operations of Dendrite, (iii) relate to
Dendrite actual or anticipated research or development, (iv) involve the
use of Dendrite's equipment, supplies or facilities, or (v) result from
access to any Dendrite assets, information, inventions or the like are
Confidential Information, are the property of Dendrite and shall be deemed
to be a work made for hire. To the extent that title to any of the
foregoing shall not, by operation of law, vest in Dendrite, all right,
title and interest therein are hereby irrevocably assigned to Dendrite.
Employee agrees to give Dendrite or any person or entity designated by
Dendrite reasonable assistance required to perfect its rights therein.
If the Employee conceives any idea, makes any discovery or invention within
one (1) year after the termination of employment with Dendrite that relate
to any matters pertaining to the business of Dendrite, it shall be deemed
that it was conceived while in the employ of Dendrite.
<PAGE>
12. RESTRICTION ON FUTURE EMPLOYMENT
--------------------------------
The Employee agrees that in the event employment with Dendrite is
terminated, for any reason, with or without cause, the Employee shall not
for one (1) year after termination of employment:
a) Perform services that compete with or render services to any
organization or entity which competes with Dendrite in any area of the
United States of America or elsewhere where Dendrite does business as
listed in Addendum 1. This list may be updated periodically after
consultation with employee;
b) Solicit any customers or potential customers of Dendrite with whom the
Employee had contact while employed by Dendrite or who was a customer of
Dendrite at any time during the two (2) years immediately before
terminations;
c) Request that any of Dendrite's customers or suppliers discontinue doing
business with it;
d) Knowingly take any action which would disparage Dendrite or be to its
disadvantage;
e) Attempt to solicit any employee or contractor of Dendrite to terminate
employment with Dendrite.
13. OUTSIDE CONTRACTING
-------------------
Employee shall not enter into any agreement to provide programming or other
services to any company, person or organization outside of his/her
employment by Dendrite which without the prior written express consent from
Dendrite, which is (i) with a competitor(s) of Dendrite at such time, or
(ii) shall substantially hamper or prohibit Employee from satisfactorily
carrying out all duties assigned to Employee by Dendrite.
14. AFTER-HOURS DEVELOPMENT
-----------------------
In the event that Employee shall develop any software which, pursuant to
Section 9 herein, is not the property of Dendrite, Dendrite shall have a
right of first refusal to publish and/or purchase the rights to such
software. Employee shall notify Dendrite of any such After-Hours
Development as soon as reasonably possible before or during the development
process including a description of the intended functions of the
After-Hours Development and the estimated date of completion.
<PAGE>
15. PRIOR EMPLOYMENT
----------------
Employee represents and warrants that Employee has not taken or otherwise
misappropriated and does not have in Employee's possession or control any
confidential and proprietary information belonging to any of Employee's
prior employers or connected with or derived from Employee's services to
prior employers. Employee represents and warrants that Employee has
returned to all prior employers any and all such confidential and
proprietary information. Employee further acknowledges, represents and
warrants that Dendrite has informed Employee that Employee is not to use or
cause the use of such confidential or proprietary information in any manner
whatsoever in connection with Employee's employment by Dendrite. Employee
agrees, represents and warrants that Employee will not use such
information. Employee shall indemnify and hold harmless Dendrite from any
and all claims arising from any breach of the representations and
warranties in this Section.
16. REMEDIES
--------
The parties agree that in the event the Employee breaches or threatens to
breach this Agreement, money damages may be an inadequate remedy for
Dendrite and that Dendrite will not have an adequate remedy at law. It is
understood, therefore, that in the event of a breach of this Agreement by
the Employee, Dendrite shall have the right to obtain from a court of
competent jurisdiction restraints or injunctions prohibiting the Employee
from breaching or threatening to breach this Agreement. In that event, the
parties agree that Dendrite will not be required to post bond or other
security. It is also agreed that any restraints or injunctions issued
against the Employee shall be in addition to any other remedies which
Dendrite may have available to it.
17. APPLICABLE LAW
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey
<PAGE>
18. NOTICES
-------
In the event any notice is required to be given under the terms of this
Agreement, it shall be delivered in the English language, in writing, as
follows:
If to the Employee: Christopher J. French
601 East 20th Street, Apt. 8E
New York, New York 10010
If to Dendrite: Dendrite International, Inc.
1200 Mt. Kemble Avenue
Morristown, New Jersey 07960
With a copy to: Norris, McLaughlin and Marcus
721 Route 202-206, P.O. Box 1018
Somerville, New Jersey 08876-1018
Attention: Pat Collins
19. NON-ASSIGNABILITY
-----------------
The Employee's rights or obligations under the terms of this Agreement or
of any other agreement with Dendrite may not be assigned. Any attempted
assignment will be void as to Dendrite. Dendrite may, however, assign its
rights to any affiliated or successor entity.
20. BINDING AGREEMENT
-----------------
This Agreement shall be binding upon and inure to the benefit of the
Employee's heirs and personal representatives and to the successors and
assigns of Dendrite.
21. INTEGRATION
-----------
This Agreement, together with any other written agreements between the
parties, represents the entire understanding of the parties. No
representations, oral or otherwise, with respect to the subject matter of
this Agreement have been made by either party.
22. WAIVER
------
This Agreement may not be modified or waived except by a writing signed by
both parties. No waiver by either party of any breach by the other shall be
considered a waiver of any subsequent breach of the Agreement.
<PAGE>
23. JURISDICTION
------------
The State of New Jersey shall have exclusive jurisdiction to entertain any
legal or equitable action with respect to this Agreement except that
Dendrite may institute suit against the Employee in any jurisdiction in
which the Employee may be at the time. In the event suit is instituted in
New Jersey, it is agreed that service of summons or other appropriate legal
process may be effected upon any party by delivering it to the address in
this Agreement specified for that party in Section 13.
IN WITNESS WHEREOF, the parties have signed this Agreement on this 22nd day of
January, 1996.
DENDRITE INTERNATIONAL, INC.
/s/ Christopher J. French
----------------------------
Signature
Christopher J. French
/s/ A. A. Simonelli
----------------------------
A. A. Simonelli
Vice President, Administration
<PAGE>
ADDENDUM 1
(See 12a of Employee Agreement)
COMPETITORS
-----------
NAME
- ----
Walsh
Sales Technologies
CorNet
TVF/Cegedim/ISS
NEC
Windsoft
Epsilon
Aurum
IMS
Pheonix
<PAGE>
Exhibit 10.52
DENDRITE 401(K) RETIREMENT SAVINGS PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
ARTICLE 1 - DEFINITIONS
<S> <C>
1.01 Account 1
1.02 Anniversary Date 2
1.03 Annuity Starting Date 2
1.04 Applicable Computation Period 2
1.05 Beneficiary 3
1.06 Board of Directors 3
1.07 Committee 3
1.08 Company 3
1.09 Compensation 3
1.10 Controlled or Affiliated Service Group 4
1.11 Disability 5
1.12 Effective Date/Supplemental Effective Date 5
1.13 Election Period 5
1.14 Employee/Eligible Employee/Leased Employee 5
1.15 Employer 6
1.16 Highly Compensated Employee/
Nonhighly Compensated Employee 6
1.17 Internal Revenue Code or Code 8
1.18 Participant 8
1.19 Plan 8
1.20 Plan Year 9
1.21 Protected Spouse 9
1.22 Qualified Annuity 9
1.23 Qualified Domestic Relations Order 9
1.24 Retirement 9
1.25 Retirement Dates 9
1.26 Service (Break-in-Service -
Year of Service - Hour of Employment) 10
1.27 Trust Agreement 11
1.28 Trustee 11
1.29 Trust Fund 11
1.30 Valuation Date 11
ARTICLE 2 - ELIGIBILITY AND PARTICIPATION
2.01 Eligibility for Participation 12
2.02 Change in Employment Status 12
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
ARTICLE 3 - CONTRIBUTIONS
<S> <C>
3.01 Elective Deferral Contributions 14
3.02 Reduction of Excess Elective
Deferral Contributions 14
3.03 Matching and Regular Contributions 14
3.04 Voluntary Contributions 17
3.05 Contribution Changes 17
3.06 Discontinuance of Contributions 17
3.07 Rollover Contributions from Other
Qualified Plans 18
3.08 Transfer of Assets from Other
Qualified Plans 19
3.09 Deposit of Contributions 19
3.10 Payment of Expenses 19
ARTICLE 4 - CONTRIBUTIONS LIMITATIONS
4.01 $7,000 Limitation on Elective
Deferral Contributions 20
4.02 Limitation on Elective Deferral, Matching
and/or Voluntary Contributions 20
4.03 Limitation on Allocations 24
ARTICLE 5 - MAINTENANCE OF ACCOUNTS, INVESTMENT FUNDS AND
VALUATION OF THE TRUST FUND
5.01 Maintenance of Accounts 29
5.02 Investment Election 29
5.03 Investment Funds 30
5.04 Valuation of Trust Fund 30
5.05 Allocation of Investment Earnings and
Expenses 30
ARTICLE 6 - BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT
6.01 Upon Retirement 31
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE NO.
<S> <C>
6.02 Upon Disability 31
6.03 Upon Death 31
6.04 Upon Other Termination of Employment 33
6.05 Reemployment and Repayment of Benefits 35
ARTICLE 7 - DISTRIBUTION OF BENEFITS
7.01 Claim Procedure For Benefits 36
7.02 Commencement of Benefits 36
7.03 Method and Form of Payment of Benefits 40
7.04 Spousal Consent Requirements With Respect
to Participant Elections 42
7.05 Disposition of Unclaimed Benefits 44
7.06 Non-Assignability 44
7.07 Substitute Payee 44
7.08 Satisfaction of Liability 44
7.09 Direct Rollover to Eligible Retirement Plans 44
7.10 Waiver of 30-Day Notice Requirement 45
ARTICLE 8 - ADMINISTRATION OF THE PLAN
8.01 Assignment of Administrative Authority 47
8.02 Organization and Operation of the Committee 47
8.03 Authority and Responsibility 48
8.04 Records and Reports 49
8.05 Required Information 49
8.06 Fiduciary Liability 49
8.07 Payment of Expenses 50
8.08 Indemnification 50
8.09 Qualified Domestic Relations Orders 50
ARTICLE 9 - AMENDMENT AND TERMINATION
9.01 Amendment 54
9.02 Termination 54
9.03 Vesting Upon Termination 55
9.04 Distribution of Benefits After Termination 55
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE NO.
<S> <C>
ARTICLE 10 - PARTICIPATING COMPANIES
10.01 Adoption by Other Entities 56
10.02 Alternative Provisions 56
10.03 Right to Withdraw (Plan Spinoff) 56
10.04 Procedure Upon Withdrawal 56
ARTICLE 11 - TOP-HEAVY PROVISIONS
11.01 Definition of Top-Heavy and Super Top-Heavy 58
11.02 Definition of Key Employee 59
11.03 Minimum Employer Contribution 60
11.04 Limitation of Allocations 61
ARTICLE 12 - WITHDRAWAL OF FUNDS DURING EMPLOYMENT
12.01 Withdrawals from Elective Deferral, Matching
and Regular Contribution Accounts 62
12.02 Withdrawals from Rollover, Transfer
and Voluntary Accounts 62
12.03 Withdrawals from Qualified Matching
Contribution and Qualified Nonelective
Contribution Accounts 62
12.04 Financial Hardship Rules 62
12.05 General Withdrawal Rules 63
ARTICLE 13 - LOANS
13.01 Amount of Loans and Terms of Repayment 65
ARTICLE 14 - GENERAL PROVISIONS
14.01 Exclusiveness of Benefits 68
14.02 Limitation of Rights 68
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE NO.
<S> <C>
14.03 Limitation of Liability and Legal Actions 68
14.04 Construction of Agreement 68
14.05 Title to Assets 69
14.06 Severability 69
14.07 Titles and Headings 69
14.08 Counterparts as Original 69
14.09 Merger of Plans 69
</TABLE>
<PAGE>
DENDRITE 401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF PURPOSE
Dendrite International, Inc. has had in effect since July 1, 1990 the Dendrite
Inc. 401(k) Profit Sharing Plan, established under the Standardized regional
Prototype Cash or Deferred Profit-Sharing Plan and Trust Sponsored by USF&G
Business Services, Inc., to which it made contributions for the purpose of
sharing its profits with its employees in order to provide for the accumulation
of funds for the benefit of eligible employees and their beneficiaries in the
manner and to the extent set forth in such plan.
The Dendrite 401(k) Retirement Savings Plan, hereinafter set forth, and its
related trust agreement, constitutes an amendment in its entirety to said plan
which is continued effective as of October 1, 1996 with respect to employees and
participants who had not yet retired, terminated employment or died as of such
date. The rights of anyone covered under the plan prior to October 1, 1996, who
retired, terminated employment or died before that date, shall be determined in
accordance with the terms and provisions of the plan in effect on the date of
such retirement, termination of employment or death, except as otherwise
specifically provided herein.
ARTICLE 1
DEFINITIONS
For purposes of the Plan, the following words and phrases shall have the
following meanings unless a different meaning is plainly required by the
context. Wherever used, the masculine pronoun shall include the feminine
pronoun and the feminine pronoun shall include the masculine and the singular
shall include the plural and the plural shall include the singular.
1.01 "ACCOUNT"
The interest of a Participant in the Trust Fund as represented by his
accounts as designated below.
(a) "ELECTIVE DEFERRAL CONTRIBUTION ACCOUNT" - Portion of Trust Fund
attributable to a Participant's Elective Deferral Contributions
in accordance with the provisions of Section 3.01 and the
provisions of the Plan in effect prior to the Supplemental
Effective Date.
(b) "MATCHING CONTRIBUTION ACCOUNT" - Portion of Trust Fund
attributable
1
<PAGE>
to the Company's
(i) Matching Contributions in accordance with the provisions of
Subsection 3.03(a) and with the provisions of the Plan in
effect prior to the Supplemental Effective Date; and
(ii) Additional Matching Contributions in accordance with the
provisions of Subsection 3.03(b).
(c) "REGULAR CONTRIBUTION ACCOUNT" - Portion of Trust Fund
attributable to the Company's Regular Contributions in accordance
with the provisions of Subsection 3.03(c) and the provisions of
the Plan in effect prior to the Supplemental Effective Date, and
Top-Heavy Contributions in accordance with Article 11 .
(d) "ROLLOVER ACCOUNT" - Portion of Trust Fund attributable to funds
rolled over from another qualified plan in accordance with
Section 3.07.
(e) "TRANSFER ACCOUNT" - Portion of Trust Fund attributable to the
Company's contributions during a Participant's participation
under another qualified plan and transferred in accordance with
the provisions of Section 3.08.
(f) "VOLUNTARY CONTRIBUTION ACCOUNT" - Portion of Trust Fund
attributable to a Participant's Voluntary Contributions in
accordance with the provisions of Section 3.04 and the provisions
of the Plan in effect prior to the Supplemental Effective Date.
(g) "QUALIFIED MATCHING CONTRIBUTION ACCOUNT" - Portion of Trust Fund
attributable to the Company's Qualified Matching Contributions in
accordance with the provisions of Subsection 3.03(b).
(h) "QUALIFIED NONELECTIVE CONTRIBUTION ACCOUNT" - Portion of Trust
Fund attributable to the Company's Qualified Nonelective
Contributions in accordance with the provisions of Subsection
3.03(d).
1.02 "ANNIVERSARY DATE"
Each January commencing January 1, 1991.
2
<PAGE>
1.03 "ANNUITY STARTING DATE"
The first day of the first period for which an amount is payable as an
annuity. If a benefit is not payable in the form of an annuity, the
first day on which all events have occurred which entitle the
Participant to such benefit.
1.04 "APPLICABLE COMPUTATION PERIOD"
An Eligible Employee's Applicable Computation Period shall be the 12-
month period beginning as of the date a person first completed an Hour
of Employment with an Employer and each anniversary thereof.
1.05 "BENEFICIARY"
The person designated to receive benefits payable under the Plan in
the event of death. In the event a Beneficiary is not designated, the
Participant's surviving spouse shall be deemed his Beneficiary or in
the absence of a surviving spouse, the benefits shall be paid to the
Participant's estate.
1.06 "BOARD OF DIRECTORS"
The Board of Directors of Dendrite International, Inc.
1.07 "COMMITTEE"
The persons appointed in accordance with Section 8.01 to administer
the Plan. In the absence of such designation, the Company shall serve
as the Committee and in such case all references herein to the
Committee shall be deemed a reference to the Company.
1.08 "COMPANY"
(a) Dendrite International, Inc. and any successor which shall
maintain this Plan; and
(b) any other business entity which duly adopts the Plan with the
approval of the Board of Directors.
3
<PAGE>
1.09 "COMPENSATION"
(a) Unless otherwise indicated, for purposes of Sections 3.01, 3.03
and 3.04, the amount described in Subsection (c), exclusive of
any (i) amount which is paid by the Employer but not by the
Company,(ii) amount paid by the Company for any period during
which the Participant's employment status did not meet the
requirements of Section 1.14; and (iii) amount paid before an
Eligible Employee was eligible to become a Participant in
accordance with Section 2.01. For purposes of Section 3.01, third
party insurance payments shall be excluded.
(b) For purposes of Section 4.03, the Participant's wages for the
Plan Year paid by the Employer of the type reported in box 10 of
Form W-2 (1991). Such wages shall include amounts within the
meaning of Section 3401(a) of the Code plus any other amounts
paid to the Participant by the Employer for which the Employer is
required to furnish a written statement under Section 6041(d) and
6051(a)(3) of the Code, determined without regard to any rules
that limit the amount required to be reported based on the nature
or location of the employment or services performed, exclusive of
(i) severance pay on a non payroll basis;
(ii) non-qualified deferred compensation payments;
(iii) any amounts paid or reimbursed by the Employer for moving
expenses which the Employer reasonably believes at the
time of such payment to be deductible by the Employee
under Section 217 of the Code;and
(iv) welfare benefits, fringe benefits (cash and non-cash),
reimbursements of other expense allowances, moving
expenses and deferred compensation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Employee taken into account under the Plan shall
not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with section
401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to
4
<PAGE>
any period, not exceeding 12 months, over which Compensation is
determined (determination period) beginning in such calendar year. If
a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the Code shall
mean the OBRA '93 annual compensation limit set forth in this
provision.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current
Plan Year, the compensation for that prior determination period is
subject to the OBRA '93 annual compensation limit in effect for that
prior determination period. For this purpose, for the determination
periods beginning before the first day of the first Plan Year
beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
1.10 "CONTROLLED OR AFFILIATED SERVICE GROUP"
(a) "CONTROLLED GROUP" - Any group of business entities under common
control, including but not limited to proprietorships and
partnerships, or a controlled group of corporations within the
meaning of Sections 414(b), (c) and (o) of the Code. For purposes
of Section 4.03, the phrase "more than 50%" is substituted for
the phrase "at least 80%" each place it appears in Section
1563(a)(1) of the Code.
(b) "AFFILIATED SERVICE GROUP" - Any group of business entities
within the meaning of Section 414(m) of the Code.
1.11 "DISABILITY"
Any physical or mental condition which may reasonably be expected to
be permanent and which renders the Participant incapable of continuing
as an Eligible Employee for his customary Hours of Employment.
1.12 "EFFECTIVE DATE"
July 1, 1990, the date as of which the Plan was established.
"SUPPLEMENTAL EFFECTIVE DATE"
5
<PAGE>
October 1, 1996, the last date as of which the Plan was amended in its
entirety.
1.13 "ELECTION PERIOD"
The period commencing 90 days before the Annuity Starting Date and
ending on such Annuity Starting Date.
1.14 "EMPLOYEE"
Any person in the employ of the Company.
Leased Employees shall be included as Employees unless (i) such
individual is covered by a money purchase pension plan providing (A) a
nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the employer pursuant to a salary
reduction agreement which are excludable from the Leased Employee's
gross income under Section 125, 402(a)(8), 403(h) or 403(b) of the
Code; (B) immediate participation; and (C) full and immediate vesting;
and (ii) Leased Employees do not constitute more than 20% of the
Employer's Nonhighly Compensated Employee workforce.
"ELIGIBLE EMPLOYEE"
An Employee for whom the Company is required to contribute Federal
Insurance Contributions Act taxes excluding persons who are Leased
Employees.
Notwithstanding the above, Leased Employees shall be included in the
definition of Eligible Employee if the requirements of Section
414(n)(2) of the Code require such inclusion in order to meet the plan
qualification requirements enumerated in Section 414(n) and then only
if the coverage requirements of Section 410(b) of the Code would
otherwise not be met.
"LEASED EMPLOYEE"
Any person (other than an Employee of the recipient) who pursuant to
an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the
recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period
of at least one year, and such services are of a type historically
performed by employees in the business field of the recipient
employer. Contributions or benefits provided a
6
<PAGE>
Leased Employee by the leasing organization which are attributable to
services performed for the recipient employer shall be treated as
provided by the recipient employer.
1.15 "EMPLOYER"
The Company and any other business entity in a Controlled or
Affiliated Service Group which includes the Company.
1.16 "HIGHLY COMPENSATED EMPLOYEE"
(a) An Employee who is a Highly Compensated Active Employee or a
Highly Compensated Former Employee.
(b) A Highly Compensated Active Employee is any Employee who performs
Service with the Employer during the Determination Year and is
described in either the Look-back Year Group or the Determination
Year Group or both such groups.
(i) The Look-back Year Group includes any Employee who (A) was
at any time during the Look-back Year a 5% owner, as
defined in Section 416(i)(1) of the Code; (B) received
Compensation from the Employer in excess of $75,000; (C)
received Compensation from the Employer in excess of
$50,000 and was in the Top-Paid Group, as defined in
Section 414(q) of the Code, of Employees for such Look-
back Year; or (D) was at any time an officer and received
Compensation greater than 50% of the maximum dollar
limitation under Section 415(b)(1)(A) of the Code.
The 415(b)(1)(A) limitation and the $75,000 and $50,000
thresholds set forth above shall be adjusted annually for
increases in the cost-of-living in accordance with Section
415(d) of the Code, effective as of January 1 of the
calendar year such increase is promulgated and applicable
to the Plan Year which begins with or within such calendar
year.
(ii) The Determination Year Group includes any Employee who (A)
was at any time during the Determination Year a 5% owner,
as defined in Section 416(i)(1) of the Code; or (B) is
both (1) described in Subparagraphs (i)(B), (i)(C) or
(i)(D) above substituting the Determination Year for the
Look-back Year; and (2) a member of the group consisting
of the 100
7
<PAGE>
Employees paid the greatest Compensation during
the Determination Year of reference.
(c) A Highly Compensated Former Employee for a Determination Year is
any former Employee who separated from Service prior to such
Determination Year and was a Highly Compensated Active Employee
for either the year in which such Employee separated from Service
or any Determination Year ending on or after such Employee's 55th
birthday.
(d) For purposes of this definition, the following shall be
applicable:
(i) The Determination Year is the applicable Plan Year for
which a determination is being made and the Look-back Year
is the 12-month period immediately preceding such Plan
Year.
(ii) If there are no officers as described above in either the
Determination Year or the Look-back Year, then the highest
paid officer of the Employer in each such year shall be
deemed a Highly Compensated Employee with respect to such
year.
(iii) The determination of Highly Compensated Employees,
including the determinations of the number and identity of
Employees in the Top-Paid Group, the top 100 Employees and
the number of Employees treated as officers shall be
governed by Section 414(q) of the Code and Treasury
Regulation 1.414(q)-1T.
(iv) The Compensation and contributions under the Plan of a
Highly Compensated Employee who is a 5% owner or in the
group consisting of the 10 Highly Compensated Employees
paid the greatest Compensation during any Determination
Year or Look-back Year shall be determined by aggregating
such amounts with the Compensation and contributions of
each other Employee who is the spouse, lineal ascendant or
descendant or spouse of a lineal ascendant or descendant
of such Highly Compensated Employee.
(e) The Company may make the following elections as provided for in
Treasury Regulation 1.414(q)-1T:
(i) the special rule for determining Highly Compensated Former
Employees who separated from Service before January 1,
1987 in accordance with Treasury Regulation 1.414(q)-1T,
8
<PAGE>
Q&A 4(d). However, once such an election is made it may
not be changed without the consent of the Commissioner;
(ii) the calendar year election for the Look-back Year in
accordance with Treasury Regulation 1.414(q)-lT, Q&A
14(b);
(iii) the modification on a consistent and uniform basis of the
permissible age and service exclusions in accordance with
Treasury Regulation 1.414(q)-1T, Q&A 9(b)(2);
(iv) the inclusion of employees covered under a collective
bargaining agreement in accordance with Treasury
Regulation 1.414(q)-1T, Q&A 9(b)(2);
(v) the inclusion of leased employees in determining the
highly compensated group in accordance with Treasury
Regulation 1.414(q)-1T, Q&A 7(b)(4); and
(vi) the transitional rule in accordance with Treasury
Regulation 1.414(q)-IT, Q&A 15.
"NONHIGHLY COMPENSATED EMPLOYEE"
An Employee who is not deemed to be a Highly Compensated Employee.
1.17 "INTERNAL REVENUE CODE" OR "CODE"
The Internal Revenue Code of 1986, and any amendments thereto.
1.18 "PARTICIPANT"
(a) An Eligible Employee who participates under the Plan in
accordance with Section 2.01.
(b) Each other Eligible Employee or former Eligible Employee for whom
an Account is maintained.
1.19 "PLAN"
The plan of the Company, as herein set forth and as from time to time
supplemented and amended, which Plan is intended to be a profit-
sharing plan for purposes of Sections 401 (a), 402, 412 and 417 of the
Code.
9
<PAGE>
1.20 "PLAN YEAR"
A period of 12 consecutive months commencing on the January 1, 1991
and each Anniversary Date thereof.
However, "Plan Year" prior to January 1, 1991, shall be a period of
six consecutive months commencing on the Effective Date and ending on
December 31, 1990.
1.21 "PROTECTED SPOUSE"
The spouse to whom the Participant had been legally married on the
earlier of the date of the Participant's death or the Participant's
Annuity Starting Date.
1.22 "QUALIFIED ANNUITY"
(a) in the case of a married Participant, an immediate annuity
payable for the life of the Participant with a survivorship
benefit payable to the Participant's spouse (on the Annuity
Starting Date) for life. Such survivorship benefit shall not be
less than 50% or greater than 100% of the benefit payable to the
Participant. In the absence of a specific election, 100% shall be
applicable.
(b) In the case of a Participant who is not married on his Annuity
Starting Date, an immediate annuity payable for the life of the
Participant. Upon the Participant's death, all benefits cease.
1.23 "QUALIFIED DOMESTIC RELATIONS ORDER"
A domestic relations order as defined in Section 8.09 in accordance
with Section 414(p) of the Code.
1.24 "RETIREMENT"
The termination of employment of a Participant on his Early, Normal or
Deferred Retirement Date.
1.25 "RETIREMENT DATES"
(a) "NORMAL RETIREMENT DATE" - The date on which the Participant
attains age 65.
10
<PAGE>
(b) "EARLY RETIREMENT DATE" - The first day of any month coincident
with or following the date on which the Participant attains age
55, provided he has completed five Years of Service as of such
date.
(c) "DEFERRED RETIREMENT DATE" - The first day of any month
subsequent to the Participant's Normal Retirement Date.
1.26 "SERVICE"
(a) All Hours of Employment with the Employer during an Applicable
Computation Period.
(b) "Break-in-Service" -An Applicable Computation Period during which
an Employee fails to receive credit for 501 Hours of Employment.
If an Employee is absent by reason of (i) the pregnancy of the
Employee, (ii) the birth of a child of the Employee, (iii) the
placement of a child with the Employee in connection with an
adoption of such child by such Employee, or (iv) caring for such
child immediately following such birth or placement, such
Employee will be credited with the number of Hours of Employment
which would normally have been credited but for such absence, or,
in any case in which the Committee is unable to determine such
hours normally credited, eight Hours of Employment per day. The
Hours of Employment required to be credited for such absence
shall not exceed 501.
Hours of Employment shall be credited for the Plan Year in which
the absence from work begins, only if credit is necessary to
prevent the Employee from incurring a Break-in-Service, or, in
any other case, in the immediately following Plan Year.
(c) "YEAR OF SERVICE" - An Applicable Computation Period during which
the Employee receives credit for at least 1,000 Hours of
Employment.
(d) "HOUR OF EMPLOYMENT"
(i) Each hour during an Applicable Computation Period for
which the person is directly or indirectly paid or
entitled to payment for the performance of duties or for
the period of time when no duties are performed,
irrespective of whether the employment relationship has
terminated, such as vacation, holiday, lay-off, jury duty
or approved Leave of Absence.
11
<PAGE>
As used herein and Section 3.03, Leave of Absence shall
mean a leave granted for pregnancy, Disability, illness,
death or any other family obligation or status; personal
or family hardship or special business circumstances;
educational purposes; and/or civic, charitable or
governmental services, provided that all Employees under
similar circumstances shall be treated in a similar
manner.
No more than 501 Hours of Employment are required to be
credited to an Employee on account of any single
continuous period during which the Employee performs no
duties (whether or not such period occurs in a single
computation period).
(ii) A person shall receive an Hour of Employment for each hour
for which back pay has been awarded or agreed to
irrespective of mitigation of damages, provided that each
such hour shall be credited to the Applicable Computation
Period to which it pertains, rather than the Applicable
Computation Period in which the award or agreement is
made, and further provided that no such award or agreement
shall have the effect of crediting an Hour of Employment
for any hour for which the person previously received
credit under (i) above.
(iii) Notwithstanding the foregoing, Hours of Employment shall
be computed and credited in accordance with Department of
Labor Regulation 2530.200b-2, Subparagraphs (b) and (c).
(iv) A person shall be credited with 95 Hours of Employment for
each semi-monthly payroll period for which he would have
been required to be credited with at least one Hour of
Employment.
(e) An Employee shall receive credit for the period of his employment
with another business entity to which he had been transferred by
the Company solely for purposes of determining his vested
interest in accordance with Section 6.04.
1.27 "TRUST AGREEMENT"
The instrument executed by the Company and the Trustee fixing the
rights and liabilities of each with respect to holding and
administering the Trust Fund, which instrument shall be incorporated
by reference into this Plan.
12
<PAGE>
1.28 "TRUSTEE"
The Trustee or any successor Trustee, appointed by the Board of
Directors, acting in accordance with the terms of the Trust Agreement.
1.29 "TRUST FUND"
All assets held by the Trustee for the purposes of the Plan in
accordance with the terms of the Trust Agreement.
1.30 "VALUATION DATE"
The last day of each March, June, September and December or such other
dates as the Committee may determine from time to time.
13
<PAGE>
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY FOR PARTICIPATION
(a) Each Eligible Employee on the Supplemental Effective Date who was
a Participant of the Plan shall continue as a Participant as of
the Supplemental Effective Date.
(b) For purposes of Elective Deferral contributions in accordance
with Section 3.01, each other Eligible Employee shall become a
Participant as of the Supplemental Effective Date or the January,
April, July or October 1 coincident with or next following the
later of the date his employment commenced or attains age 21.
(c) For all other purposes of the Plan, each other Eligible Employee
shall become a Participant as of the Supplemental Effective Date
or the January, April, July or October 1 coincident with or next
following the later of the date he completes one Year of Service
and he attains age 21.
(d) If a former Participant is reemployed, he shall be eligible to
resume his participation as of the date of his reemployment. Such
Participant may elect to comply with the provisions of Section
3.01 as of the date of his reemployment or any subsequent
January, April, July or October 1.
2.02 CHANGE IN EMPLOYMENT STATUS
(a) In the event a Participant ceases to be an Eligible Employee as
the result of becoming part of an excluded class, only
Compensation up to the date he ceased to be an Eligible Employee
shall be considered for purposes of contributions in accordance
with Article 3. Such Employee shall remain a Participant but
shall not be permitted to contribute in accordance with Article 3
or share in any Company contributions or forfeitures allocated in
accordance with Article 3 for the period beyond the date he
ceased to be an Eligible Employee.
In the event such Participant returns to an eligible class and
again becomes an Eligible Employee, he shall be permitted to
share in Company contributions or forfeitures allocated in
accordance with
14
<PAGE>
Article 3 as of the date he again became an Eligible Employee and
may elect to comply with the provisions of Section 3.01 as of
such date or any subsequent January, April, July, or October 1.
Only Compensation from the date he again became an Eligible
Employee shall be considered for purposes of such contributions.
(b) If a Person otherwise satisfied the eligibility requirements of
Section 2.01 and subsequently becomes an Eligible Employee, he
shall be eligible to become a Participant as of the date he
became an Eligible Employee and may elect to comply with the
provisions of Section 3.01 as of such date or any subsequent
January, April, July or October 1.
(c) In the event a collective bargaining agreement is entered into
between the Company and a representative for any class of
Employees in the employ of the Company subsequent to the
Supplemental Effective Date, eligibility for participation in the
Plan by such Employees who are not Participants shall not be
extended beyond the effective date of the collective bargaining
agreement unless the agreement extends participation in the Plan
to such Employees. The provisions of Subsection (a) shall apply
to those Employees who are currently Participants.
15
<PAGE>
ARTICLE 3
CONTRIBUTIONS
3.01 ELECTIVE DEFERRAL CONTRIBUTIONS
A Participant may, when first eligible or as of any subsequent
January, April, July or October 1 elect to save, through pay reduction
each payroll period, no less than 1 % nor more than 15%, in whole
percentages, of that portion of his Compensation attributable to such
payroll period, subject to the limitations on Elective Deferral
Contributions under Sections 4.01 and 4.02 and the limitations on
annual additions under Section 4.03.
Such contributions shall take the form of before tax contributions
(hereinafter known as "Elective Deferral Contributions") and shall be
deemed to be Company contributions for purposes of Section 414(h) of
the Code.
(a) An initial written election must be made by an Eligible Employee
and submitted to the Committee at least 30 days (or such other
period as the Committee may fix from time to time) prior to the
first date the Eligible Employee would be eligible to become a
Participant of the Plan in accordance with Section 2.01.
(b) An election, once made, shall remain in effect until subsequently
changed by the Eligible Employee in accordance with the
provisions of Section 3.05 or 3.06.
3.02 REDUCTION OF EXCESS ELECTIVE DEFERRAL CONTRIBUTIONS
If Elective Deferral Contributions under Section 3.01 are projected to
exceed the limitations of Sections 4.01 or 4.02 at any time during a
Plan Year, the Committee, in a good faith effort to comply with such
limitations, retains the right to reduce the rate of elective
deferrals made by Highly Compensated Employees. Such reduction shall
be made in the sole discretion of the Committee and for purposes of
Section 4.02 shall be accomplished by progressively reducing the
Elective Deferral Contributions of those Highly Compensated Employees
with the highest deferral percentage until the limitations are met.
Contributions made prior to the date of such reduction shall be deemed
to be made pro rata throughout the Plan Year of reference for purposes
of
16
<PAGE>
entitlement to a Matching Contribution under Section 3.03.
3.03 MATCHING AND REGULAR CONTRIBUTIONS
Subject to the limitations on annual additions under Section 4.03, the
Company shall contribute the following amounts:
(a) MATCHING CONTRIBUTIONS - 50% of that portion of the Participant's
Elective Deferral Contributions each payroll period which does
not exceed 6% of the Participant's Compensation for such payroll
period. Only Elective Deferral Contributions which are not
required to be restricted under Sections 3.02, 4.01 or 4.02 shall
be matched. No Matching Contribution will be provided in excess
of the limitations under Subsections 4.02(b) and (c).
(b) ADDITIONAL MATCHING CONTRIBUTIONS - For any Plan Year, the
Company may contribute such additional amounts as it shall
determine. Such Additional Matching Contributions shall be
allocated to Participants in the employ of the Company on the
last business day of such Plan Year in the same proportion that
the Elective Deferral Contributions of each such Participant for
such Plan Year bears to the aggregate Elective Deferral
Contributions of all Participants for such Plan Year, taking into
consideration only that portion of each Participant's Elective
Deferral Contributions which does not exceed 6% of such
Participant's Compensation for each payroll period during such
Plan Year.
QUALIFIED MATCHING CONTRIBUTIONS - For any Plan Year, the Company
may contribute such additional amounts as it shall determine.
Such Qualified Matching Contributions shall be allocated to those
Participants who are Nonhighly Compensated Employees in the
employ of the Company on the last business day of such Plan Year
in the same proportion that the Elective Deferral Contributions
of each such Participant for such Plan Year bears to the
aggregate Elective Deferral Contributions of all such
Participants for such Plan Year, taking into consideration only
that portion of each Participant's Elective Deferral
Contributions which does not exceed 6% of such Participant's
Compensation for each payroll period during such Plan Year.
Such contributions shall be subject to Treasury Regulation
1.401(k)- 1(g)(13).
17
<PAGE>
Notwithstanding the foregoing provision, a Participant otherwise
eligible shall share in such Additional or Qualified Matching
Contributions for the Plan Year of (i) his Retirement, Disability
or death, (ii) the commencement of a Leave of Absence authorized
by the Company or (iii) his transfer to another business entity
to which such Participant had been transferred by the Company,
even if the Participant is not in the employ of the Company on
the last business day of such Plan Year.
(c) REGULAR CONTRIBUTIONS - Such amount as the Company shall
determine for each Plan Year, which, along with forfeitures,
shall be allocated to each Participant in the same proportion
that his Compensation bears to the aggregate Compensation of all
Participants for such Plan Year, provided the Participant is in
the employ of the Company on the last business day of such Plan
Year, which amount shall be credited at the end of the Plan Year.
Notwithstanding the foregoing provision, a Participant shall be
entitled to a share of the Company's Regular Contributions plus
forfeitures, if any, for the Plan Year of (i) his Retirement,
Disability or death, (ii), the commencement or end of a Leave of
Absence authorized by the Company or (iii) his transfer to
another business entity to which such Participant had been
transferred by the Company, even if the Participant is not in the
employ of the Company on the last business day of such Plan Year.
A Participant shall not share in the allocation of the Company's
Regular Contributions or forfeitures for any Plan Year during
which he terminated his employment for reasons other than
specified in (i), (ii) or (iii).
Notwithstanding the above, in the event the Plan fails to meet
the requirements of Section 401(a)(26) or 410(b) of the Code,
those Participants who are not in the employ of the Company on
the last business day of the Plan Year shall share in the
allocation of the Company's Regular Contribution to the extent
necessary by progressively including those Participants with the
greatest number of Months of Service to a minimum of four until
the requirements are met.
(d) QUALIFIED NONELECTIVE CONTRIBUTIONS - Such amount as the Company
shall determine for any Plan Year, which shall be allocated to
those Participants who are Nonhighly Compensated Employees in the
same
18
<PAGE>
proportion that his Compensation bears to the aggregate
Compensation of all such Participants for such Plan Year,
provided the Participant is in the employ of the Company on the
last business day of such Plan Year, which amount shall be
credited at the end of the Plan Year.
Such contributions shall be subject to Treasury Regulation
1.401(k)-1(g)(13).
Notwithstanding the foregoing provision, a Participant otherwise
eligible shall be entitled to a share of the Company's Qualified
Nonelective Contributions for the Plan Year of (i) his
Retirement, Disability or death, (ii) the commencement or end of
a Leave of Absence authorized by the Company or (iii) his
transfer to another business entity to which such Participant had
been transferred by the Company, even if the Participant is not
in the employ of the Company on the last business day of such
Plan Year.
A Participant shall not share in the allocation of the Company's
Qualified Nonelective Contributions for any Plan Year during
which he terminated his employment for reasons other than
specified in (i), (ii) or (iii).
3.04 VOLUNTARY CONTRIBUTIONS
(a) The Committee, solely at its discretion, may elect to provide
Participants with the option of making Voluntary aftertax
contributions for each Plan Year any amount from 2% to 10%, in
whole percentages, of Compensation.
(b) The Committee may also, solely at its discretion, permit such
Participants to contribute the difference between (i) 10% of such
Participant's Compensation while a Participant of the Plan and
(ii) the sum of all previous Voluntary Contributions actually
made by the Participant.
(c) All contributions under this Section shall be subject to the
limitations on Voluntary Contributions under Section 4.02 and the
limitations on annual additions under Section 4.03.
(d) The Committee shall promulgate such specific rules and
regulations as may be required with respect to the implementation
and operation of these provisions .
19
<PAGE>
3.05 CONTRIBUTION CHANGES
A Participant may, subject to the minimum and maximum percentages as
specified in Section 3.01, increase or reduce the percentage rate of
his Elective Deferral Contributions and/or, if applicable, his
Voluntary Contributions four times during a Plan Year, as of any
January, April, July or October 1 (or as of such other dates as the
Committee may fix from time to time), by written notification to the
Committee at least 15 days (or such other period as the Committee may
fix from time to time) prior to the effective date of such change.
3.06 DISCONTINUANCE OF CONTRIBUTIONS
(a) A Participant may discontinue his Elective Deferral Contributions
and/or, if applicable, his Voluntary Contributions at any time,
but limited to four times during a Plan Year, by written
notification to the Committee at least 15 days (or such other
period as the Committee may fix from time to time) prior to the
effective date of such discontinuance.
(b) A Participant may resume his Elective Deferral Contributions
and/or, if applicable, his Voluntary Contributions as of any
subsequent January, April, July or October 1 (or such other dates
as the Committee may fix from time to time) by written
notification to the Committee at least 15 days (or such other
period as the Committee may fix from time to time) prior to the
effective date of such resumption.
(c) The discontinuance of Elective Deferral Contributions will
automatically include a discontinuance of the Matching
Contributions. A discontinuance only of the Participant's
Voluntary Contributions will not affect contributions to the
Participant's other accounts.
3.07 ROLLOVER CONTRIBUTIONS FROM OTHER QUALIFIED PLANS
(a) Any Eligible Employee upon commencement of employment may make a
rollover contribution to the Trust Fund of all or any portion of
the entire amount (including money or any other property
acceptable to the Committee and Trustee) which is an eligible
rollover distribution, as defined in Section 402(c)(4) of the
Code and temporary Treasury Regulation 1.402(C)-2T, Q&A 3 and 4,
provided such rollover contribution is either (i) a direct
transfer from another qualified plan or (ii) received on or
before the 60th day immediately
20
<PAGE>
following the date the Employee received such distribution from a
qualified plan or conduit Individual Retirement Account or
Annuity.
Such Eligible Employee must complete and sign the Plan's rollover
request form and provide such evidence as is requested by the
Committee, including evidence supporting the satisfaction of the
remaining provisions of this Section.
(b) The distribution intended to be rolled over must be an eligible
rollover distribution from a
(i) qualified trust, as verified by written evidence from the
administrator of the distributing plan;
(ii) conduit IRA, as verified in writing by the custodian or
insurance company that the original distribution from the
qualified trust was an eligible rollover distribution; or
(iii) qualified trust as a direct rollover as provided for in
Section 402(c) of the Code.
(c) The Committee shall credit the fair market value of any rollover
contribution and investment earnings attributable thereto to the
Participant's Rollover Account. Such rollover contributions shall
not be considered annual additions for purposes of Section 4.03.
(d) An Eligible Employee who becomes a Participant by virtue of the
acceptance of such rollover contribution, but who is not
otherwise eligible for participation in accordance with Section
2.01, shall not be entitled to make contributions or share in any
Company contribution allocated in accordance with this Article 3
or Article 11.
(e) The Committee may promulgate specific rules and regulations
governing all aspects of this Section.
3.08 TRANSFER OF ASSETS FROM OTHER QUALIFIED PLANS
(a) The Committee may accept the direct transfer to the Trust Fund
from another qualified trust fund of those assets (including
money or any other property acceptable to the Committee and
Trustee) attributable to a Participant's participation in any
qualified plan to which such trust relates. Such transferred
amounts shall not be considered annual additions for purposes of
Section 4.03.
21
<PAGE>
(b) The amount transferred shall be credited to the Participant's
Accounts as determined by the Committee, taking into account the
applicable vesting schedules, amounts subject to special tax
treatment and withdrawal rules. Additional Transfer Accounts will
be established, if required, to accommodate these objectives.
(c) An Eligible Employee who becomes a Participant by virtue of a
transfer of assets, but who is not otherwise eligible for
participation in accordance with Section 2.01, shall not be
entitled to make contributions or share in any Company
contribution allocated in accordance with this Article 3 or
Article 11.
(d) The Committee may promulgate specific rules and regulations
governing all aspects of this Section but until promulgated, all
other provisions of the Plan shall be applicable based on the
Account to which such assets were transferred.
3.09 DEPOSIT OF CONTRIBUTIONS
The Company shall deposit the Elective Deferral Contributions and
Voluntary Contributions with the Trustee as soon as practicable (in no
event to exceed 90 days) following the date on which such amounts
would otherwise have been paid to the Participant. In no event shall
Voluntary Contributions be deposited later than 30 days after the end
of the Plan Year. All other Company contributions must be deposited by
the earlier of the end of the subsequent Plan Year or after the end of
the period described in Code Section 404(a)(6) applicable to the tax
year of the Company with or within which the Plan Year ends.
3.10 PAYMENT OF EXPENSES
In addition to its contributions, the Company may elect to pay all the
administrative expenses of the Plan and all fees and retainers of the
Plan's Trustee, accountant, counsel, consultant, administrator or
other specialist so long as the Plan or Trust Fund remains in effect.
If the Company does not pay all or part of such expenses, the Trustee
shall pay these expenses from the Trust Fund. All expenses relating
directly to the investments of the Trust Fund, including taxes,
brokerage commissions and registration charges, must be paid from the
Trust Fund.
22
<PAGE>
ARTICLE 4
CONTRIBUTION LIMITATIONS
4.01 $7,000 LIMITATION ON ELECTIVE DEFERRAL CONTRIBUTIONS
Each Participant's Elective Deferral Contributions under Section 3.01,
when added to any additional elective deferrals, as defined in Section
402(g) of the Code, under all other plans maintained by the Employer,
shall be limited to $7,000 during any calendar year, adjusted annually
for increases in the cost-of-living in accordance with Section 415(d)
of the Code, or such other maximum permitted under Section 402(g) of
the Code.
To the extent a Participant's Elective Deferral Contributions exceed
the above limitation the Employer will notify the Plan of such excess
and such amount will be designated as an excess deferral. Such excess
deferral will be distributed to such Participant with investment
experience no later than April 15 following the close of the calendar
year to which such excess relates. Such excess may be distributed
prior to the close of the calendar year of reference provided the
correcting distribution is made after the date on which the plan
received the excess deferral and is specifically designated as an
excess deferral.
Investment experience will be determined in accordance with the fourth
paragraph of Section 4.02(d) below.
4.02 LIMITATION ON ELECTIVE DEFERRAL, MATCHING AND/OR VOLUNTARY
CONTRIBUTIONS
(a) The Actual Deferral Percentage of Highly Compensated Employees in
the Testing Group for any Plan Year shall be limited to the
greater of
(i) the Actual Deferral Percentage for the Nonhighly
Compensated Employees in the Testing Group multiplied by
1.25; or
(ii) the Actual Deferral Percentage for the Nonhighly
Compensated Employees in the Testing Group multiplied by
2.00, provided, however, that the Actual Deferral
Percentage for the Highly Compensated Employees in the
Testing Group may not exceed the Actual Deferral
Percentage for such Nonhighly Compensated Employees by
more than two percentage points.
(b) The Actual Contribution Percentage of Highly Compensated
23
<PAGE>
Employees in the Testing Group for any Plan Year shall be limited
to the greater of
(i) the Actual Contribution Percentage for Nonhighly
Compensated Employees in the Testing Group multiplied by
1.25; or
(ii) the Actual Contribution Percentage for Nonhighly
Compensated Employees in the Testing Group multiplied by
2.00, provided, however, that the Actual Contribution
Percentage for the Highly Compensated Employees in the
Testing Group may not exceed the Actual Contribution
Percentage for such Nonhighly Compensated Employees by
more than two percentage points.
(c) If one or more Highly Compensated Employees are eligible for both
Elective Deferral Contributions and to receive Matching
Contributions or to make Voluntary Contributions, such
contributions shall be limited to the greater of (i) or (ii)
below. Notwithstanding the above, this Subsection (c) shall only
be applicable if both the Actual Deferral Percentage and the
Actual Contribution Percentage of the Highly Compensated
Employees exceeds 1.25 multiplied by the respective Nonhighly
Compensated Employee percentages.
(i) The sum of
(A) 1.25 times the greater of
(1) the Actual Deferral Percentage for the
Nonhighly Compensated Employees, or
(2) the Actual Contribution Percentage for the
Nonhighly Compensated Employees; and
(B) two plus the lesser of Subparagraph (1) or (2)
above, provided that such amount may not exceed 200%
of the lesser of Subparagraph (1) or (2).
(ii) The sum of
(A) 1.25 times the lesser of
(1) the Actual Deferral Percentage for the
Nonhighly Compensated Employees, or
24
<PAGE>
(2) the Actual Contribution Percentage for the
Nonhighly Compensated Employees; and
(B) two plus the greater of Subparagraph (1) or (2)
above, provided that such amount may not exceed 200%
of the greater of Subparagraph (1) or (2).
(d) To the extent the otherwise applicable Elective Deferral,
Voluntary and Matching Contributions for any Plan Year must be
limited due to the restrictions described in Subsections (a), (b)
and (c), such limitations shall be applied to the Highly
Compensated Employees' Elective Deferral, Matching and/or
Voluntary Contribution percentages, whichever applicable,
beginning with the highest of such percentages until the
limitations are met. [In satisfying the limited percentages
applicable to any individual Highly Compensated Employee,
reductions will first be made to Voluntary Contributions.
Additional reductions to satisfy Subsection (c) shall be applied
first to unmatched Elective Deferral Contributions, if any, and
then to matched Elective Deferral Contributions and Matching
Contributions proportionately.
Excess Elective Deferral, Voluntary and Matching Contributions
shall be allocated to Participants who are subject to the family
aggregation rules of Section 414(q)(6) of the Code in proportion
to their unadjusted deferrals and contributions.
Any excess Elective Deferral or Voluntary Contributions that
result from the above limitations shall be refunded to such
Highly Compensated Employees with investment experience, no later
than the last day of the Plan Year subsequent to the Plan Year to
which the excess relates. The limitation on Matching
Contributions is effected by limiting the otherwise applicable
Matching Contributions in accordance with Subsection 3.03(a).
Investment experience shall be the income or loss allocable to
the Participant's Elective Deferral Contribution Account or
Voluntary Contribution Account for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's excess
Elective Deferral or Voluntary Contributions for the year and the
denominator is the sum of (i) the Participant's Elective Deferral
Contribution Account or Voluntary Contribution Account balance as
of the beginning of the Plan Year and (ii) the Participant's
Elective Deferral or Voluntary Contributions for the Plan Year.
25
<PAGE>
(e) Definitions and Special Rules
(i) The Actual Deferral Percentage for the Highly Compensated
Employees and Nonhighly Compensated Employees for a Plan
Year shall be the average of the ratios (calculated
separately for each such Employee in the Testing Group) of
(A) the amount of contributions credited to the Elective
Deferral Contribution Account on behalf of each such
Employee in the Testing Group during such Plan Year,
to
(B) the Compensation of each such Employee in the Testing
Group for such Plan Year.
For purposes of the above, Qualified Matching
Contributions and Qualified Nonelective Contributions may
be taken into account in determining the Actual Deferral
Percentage for each Employee in the Testing Group for such
Plan Year provided such amounts comply with the provisions
of Treasury Regulation 1.401(k)-1(b).
Qualified Matching Contributions, Qualified Nonelective
Contributions and Elective Deferral Contributions included
in the calculation of the Actual Contribution Percentages
will not be included in the calculation of Actual Deferral
Percentages.
(ii) The Actual Contribution Percentage for the Highly
Compensated and Nonhighly Compensated Employees in the
Testing Group for a Plan Year shall be the average of the
ratios (calculated separately for each such Employee in
the Testing Group) of
(A) the amount of Matching and Voluntary Contributions
credited on behalf of each such Employee in the
Testing Group during such Plan Year, to
(B) the Compensation of each such Employee in the Testing
Group for such Plan Year.
For purposes of the above, Qualified Matching
Contributions, Qualified Nonelective Contributions and
Elective Deferral Contributions may be taken into account
in determining the
26
<PAGE>
Actual Contribution Percentage for each Employee in the
Testing Group for such Plan Year provided such amounts
comply with the provisions of Treasury Regulation 1.401
(m)-1(b).
Qualified Matching Contributions, Qualified Nonelective
Contributions and Elective Deferral Contributions included
in the calculation of the Actual Deferral Percentages will
not be included in the calculation of Actual Contribution
Percentages.
(iii) Testing Group shall mean the group of all Eligible
Employees eligible for participation in accordance with
Section 2.01.
(iv) All Eligible Employees in the Testing Group will be
included in determining the Actual Deferral Percentages
and/or the Actual Contribution Percentages, whichever is
applicable. The ratio averaged into the respective
percentages will be zero for any Eligible Employee in the
Testing Group if the otherwise applicable numerator is
zero.
(v) All such ratios and the average of such ratios shall be
calculated to the nearest one-hundredth of one percent.
(vi) The deferral percentage and/or contribution percentage for
a Plan Year for any Highly Compensated Employee who is
eligible to participate under two or more plans or
arrangements described in Section 401(a) or 401(k) of the
Code that are maintained by the Employer shall be
determined as if all contributions were made under a
single plan.
(vii) In the event that this Plan satisfies the requirements of
Section 401(k), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such Sections of
the Code only if aggregated with this Plan, deferral and
contribution percentages shall be determined as if all
such plans were a single plan. Any other plan may be
aggregated with this Plan at the discretion of the
Company. Plans may be aggregated in order to satisfy
Section 401(k) of the Code only if they have the same Plan
Year.
(viii) The ratio for any 5% owner, as defined in Section
416(i)(1) of the Code, and for any Highly Compensated
Employee in the
27
<PAGE>
group consisting of the 10 Highly Compensated Employees
paid the greatest Compensation shall be determined by
aggregating the Elective Deferral Contributions or
Matching and Voluntary Contributions and Compensation of
such individual with the respective amounts of each other
Eligible Employee who is a family member of such Highly
Compensated Employee.
Once the ratio for the family group is determined, the
individual ratios of the family members are not taken into
account.
For purposes of this paragraph, family member shall mean
the spouse, lineal ascendant or descendant or spouse of a
lineal ascendant or descendant of the Highly Compensated
Employee.
4.03 LIMITATION ON ALLOCATIONS
(a) The "annual addition" for any Participant shall not exceed the
amount determined hereunder. Annual addition shall mean the sum
of Employer contributions, Employee contributions and forfeitures
allocated on behalf of a Participant for a Plan Year, which is
defined to be the limitation year.
Annual additions shall also include excess deferrals, excess
contributions and excess aggregate contributions, other than
excess deferrals distributed in accordance with Treasury
Regulation 1.402(g)-1(e)(2) or (3).
The determination of the annual addition will be made as if all
defined contribution plans of the Employer were one plan and any
Participant contributions to defined benefit plans will be
treated as contributions to defined contribution plans. Annual
additions will be applied to the applicable Plan Year in
accordance with Section 1.415-6(b) of the Treasury Regulations.
For purposes of Subsection (b)(i), annual addition shall also
include amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Section 415(l) of the Code which
is part of a defined benefit plan maintained by the Employer and
amounts derived from contributions paid or accrued after December
31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a Key Employee (as defined in Section 11.02)
under a welfare benefit plan
28
<PAGE>
(as defined in Section 419A(d) of the Code) maintained by the
Employer.
(b) The annual addition for any Participant shall not exceed the
lesser of (i) or (ii) below:
(i) $30,000, or if greater, one-fourth of the defined benefit
dollar limitation set forth in Section 415(b)(1)(A) of the
Code as in effect for the limitation year.
In the event of a short Plan Year, the maximum dollar
limitation shall be divided by 12 and multiplied by the
number of months in the short Plan Year.
(ii) 25% of the Participant's Compensation.
(c) If a Participant also is or has been a participant in one or more
defined benefit plans of the Employer, whether or not terminated,
the projected annual benefit from such defined benefit plans
shall be reduced so that a "combined benefit factor" in excess of
1.0 shall not result. The combined benefit factor is the sum of
(i) the defined benefit factor and (ii) the defined contribution
factor where
(i) the defined benefit factor is a fraction
(A) the numerator of which is the Participant's projected
annual benefit under all defined benefit plans of the
Employer at the end of the limitation year of the
Plan, and
(B) the denominator of which is the lesser of
(1) 1.25 multiplied by the maximum allowable annual
benefit under Sections 415(b)(1)(A) and 415(d)
of the Code at the end of the limitation year of
the Plan, or
(2) 1.4 multiplied by the maximum allowable annual
benefit under Section 415(b)(1)(B) of the Code
at the end of the limitation year of the Plan,
and
(ii) the defined contribution factor is a fraction
29
<PAGE>
(A) the numerator of which is the sum of the annual
additions for such Participant under all defined
contribution plans of the Employer, whether or not
terminated, for all such years during which he was a
participant in such plans, and
(B) the denominator of which is the sum of the lesser of
the amounts determined in (1) or (2) for the current
year and each prior year during which the Participant
was employed by the Employer, regardless of whether
or not a plan was in existence during those years:
(1) 1.25 multiplied by the maximum dollar limitation
as defined in Subsection (b)(i), or
(2) 1.4 multiplied by the compensation limitation as
defined in Subsection (b)(ii).
(d) A Participant shall not be permitted to defer Compensation or
contribute amounts, nor shall he be entitled to an allocation of
any Employer contributions or forfeitures under any qualified
defined contribution plan which exceeds the limitations described
herein.
(e) The limitations on allocations to a Participant's Account will be
applied by limiting otherwise allocable amounts starting with the
latest allocations during the limitation year. To the extent more
than one type of addition is allocated as of any date, the
limitation will be applied in the following order:
(i) forfeitures;
(ii) Employer contributions under profit-sharing plans other
than matching contributions;
(iii) Employer contributions under money purchase plans other
than matching contributions;
(iv) Employer matching contributions under money purchase
plans.
(v) Employer matching contributions under profit-sharing
plans;
(vi) Employee contributions; and
30
<PAGE>
(vii) elective deferrals.
Amounts listed above which would have been added to a
Participant's Account based on an allocation method specified in
a Plan will be reallocated among the remaining Participants
eligible to share under the Plan.
Amounts listed above which would have been added to the
Participant's Account based on an individually defined
entitlement will reduce the Employer's contribution commitment.
Employee contributions and elective deferrals will be limited at
the time deposited and will not be permitted to the extent the
limits of this Section would be violated.
In the event annual additions on behalf of a Participant
participating in more than one plan of the same type during a
Plan Year are required to be limited under this Section, the
limitation shall be ratably apportioned among all such plans.
(f) Notwithstanding the above, if an excess allocation occurs as a
result of
(i) an allocation of forfeitures;
(ii) a reasonable error in determining a Participant's
Compensation;
(iii) a reasonable error in determining the amount of elective
deferrals that may be made under this Section; or
(iv) any other reason acceptable to the Internal Revenue
Service,
the resulting additions to the Participant's Account will be
reduced by first eliminating Employee contributions and elective
deferrals to the extent otherwise required to be refunded under
Sections 402(g), 401(k)(3) or 401(m)(2) of the Code. Any
additional reductions permitted under this Subsection will be
applied in the manner described in Subsection (e).
However, any amounts paid to the Trust for the limitation year
which are not allocated to other Participants will be held in a
suspense account, without investment earnings, and allocated and
reallocated in the following limitation year and, to the extent
necessary, each
31
<PAGE>
subsequent limitation year. Allocations from a suspense account
in a money purchase plan will be viewed as an allocation of
accrual requirement for the year in which the amount is
ultimately allocated.
In the event a plan is terminated, suspense accounts shall revert
to the Employer to the extent such accounts may not then be
allocated on behalf of any remaining eligible Participants.
(g) Notwithstanding any provision of the Plan to the contrary,
(i) the annual addition for any Plan Years beginning before
January 1, 1987 shall not be recomputed to include all
Employee contributions.
(ii) if the Employee was a Participant as of the first day of
the first limitation year beginning after December 31,
1986, in one or more defined benefit plans maintained by
the Employer which were in existence on May 6, 1986, the
denominator of the defined benefit fraction will not be
less than 125 percent of the sum of the annual benefits
under such plans which the Participant had accrued as of
the close of the last limitation year beginning before
January 1, 1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the
requirements of Section 415 of the Code for all limitation
years beginning before January 1, 1987.
(iii) if the Employee was a Participant as of the end of the
first day of the first limitation year beginning after
December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence
on May 6, 1986, the numerator of the defined contribution
fraction will be adjusted if the sum of this fraction and
the defined benefit fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, an
amount equal to the product of (A) the excess of the sum
of the fractions over 1.0 times (B) the denominator of the
defined contribution fraction, will be permanently
subtracted from the numerator of the defined contribution
fraction. The adjustment is calculated using the fractions
as they would be computed as of the end of the last
limitation year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of
the
32
<PAGE>
Plan made after May 5, 1986, but using the Code Section
415 limitation applicable to the first limitation year
beginning on or after January 1, 1987.
(iv) transitional rules provided in conjunction with
legislative changes and changes in the Plan's top-heavy status
will be applied in accordance with Internal Revenue Service
promulgations and legislative history.
33
<PAGE>
ARTICLE 5
MAINTENANCE OF ACCOUNTS, INVESTMENT FUNDS AND
VALUATION OF THE TRUST FUND
5.01 MAINTENANCE OF ACCOUNTS
The Committee shall establish and maintain a separate accounting in
the name of each Participant to which it shall credit all amounts
contributed in accordance with Articles 3 and 11.
5.02 INVESTMENT ELECTION
(a) INITIAL ELECTION - Each Participant shall designate one or more
of the investment funds established in accordance with Section
5.03 for the investment of his Account. The percentage elected
for investment in any one of the investment funds must be a
multiple of 5%, and the same percentage shall be applied equally
to each of the Participant's Accounts.
Such initial election may only be made as of January, April, July
or October 1. Contributions or transfers to the Participant's
Account (i) prior to such date or (ii) if no initial election is
made, shall automatically be invested in the Goldman Money Market
Trust Fund until the next January, April, July or October 1.
(b) SUBSEQUENT ELECTION - A Participant may, by written notice to the
Committee at least 15 days prior to the January, April, July or
October 1 as of which such election is to be effective, change
his investment fund election with respect to subsequent
contributions but, until changed, an investment fund election,
once made, shall remain in effect for all subsequent Plan Years.
(c) TRANSFER ELECTION - A Participant may by written notice to the
Committee at least 15 days prior to the January, April, July or
October 1 as of which such election is to be effective, elect a
change in investment funds applicable to his then existing
Accounts, provided such change (i) results in multiples of 5% in
any one investment fund; (ii) is applied to the ending balance
determined as of the applicable Valuation Date; and (iii) is
applicable equally to each of the Participant's Accounts. Such
change shall become effective within such period of time as may
be administratively required for the orderly
34
<PAGE>
liquidation of investments following the applicable Valuation
Date.
(d) The Committee may promulgate any additional rules and regulations
it deems necessary or appropriate to govern all aspects of this
Section.
5.03 INVESTMENT FUNDS
The Trust Fund shall be divided into such investment funds as
designated by the Committee and approved by the Trustee for the
investment of all Accounts, which shall be administered as a unit.
Until changed, the investment funds shall include, but not be limited
to, the following:
(a) Goldman Money Market Trust Fund
(b) Goldman Balanced Fund
(c) Goldman Growth & Income Fund
(d) Goldman Capital Growth Fund
(e) Goldman International Equity Fund
(f) Dendrite International, Inc. Common Stock Fund
5.04 VALUATION OF TRUST FUND
(a) The Trust Fund shall be valued by the Trustee as of each
Valuation Date on the basis of its fair market value.
(b) The Trust Fund may also be valued by the Trustee as of any
other date as the Committee may authorize for any reason the
Committee deems appropriate.
5.05 ALLOCATION OF INVESTMENT EARNINGS AND EXPENSES
On the basis of the valuation as of a Valuation Date, subject to the
provisions of Subsection 7.03(h), the Accounts of all Participants,
shall be (a) proportionately adjusted to reflect expenses in
accordance with Section 3.10 and investment earnings, other than those
credited to a specific Account; and (b) directly adjusted to reflect
all other applicable transactions during the Plan Year attributable to
such Accounts including, but not limited to, any contributions or
distributions.
35
<PAGE>
ARTICLE 6
BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT
6.01 UPON RETIREMENT
A Participant shall be 100% vested in his Account at all times after
first becoming eligible for Retirement.
A Participant shall be eligible to retire on his Early, Normal or
Deferred Retirement Date.
In the event a Participant does not retire on his Early or Normal
Retirement Date, he shall continue to be credited with contributions
in accordance with Articles 3 and 11 until his actual retirement.
6.02 UPON DISABILITY
(a) A Participant who incurs a Disability prior to termination of
employment shall be 100% vested in his Account.
(b) In determining the existence of a Participant's Disability, the
Committee may select a physician to examine such Participant and
render a medical opinion. The final determination shall be made
by the Committee on the basis of the evidence requested and made
available.
(c) If such Participant returns to the employ of the Company, he
shall resume his participation as of the date of his return. The
Participant's vested interest in that portion of his Account
attributable to Service from the date of his last reemployment
shall be determined in accordance with the provisions of Article
6, without regard to his prior Disability.
6.03 UPON DEATH
(a) A Participant who dies prior to termination of employment shall
be 100% vested in his Account.
(b) Upon the death of a Participant before his Annuity Starting Date,
the Participant's Protected Spouse shall be entitled to 100% of
such Participant's vested Account. If the Participant is not
survived by a
36
<PAGE>
Protected Spouse, the Participant's vested Account shall be
payable to his Beneficiary. Such vested Account shall take into
account any Participant loans made in accordance with Article 13.
Notwithstanding the above, subject to Subsection (c), such
Participant may waive the death benefit otherwise payable to the
Protected Spouse in favor of a different Beneficiary. Such waiver
must specify such other Beneficiary and include the written
acknowledgment and irrevocable consent of the Participant's
spouse and be witnessed by a Plan representative or a notary
public.
(c) Any waiver of death benefits to the Participant's Protected
Spouse with respect to 50% of any Account which includes funds
transferred without the required spousal consent, directly or
indirectly, to the Plan from a plan subject to Section 412 of the
Code, prior to termination of employment or the first day of the
Plan Year during which the Participant attains age 35 will be
null and void as of the earlier of such dates, but may be renewed
by executing a new waiver which meets the requirement of
Subsection (b).
In the event of the Participant's death on or subsequent to the
indicated dates and prior to the submission of a new waiver, the
Protected Spouse shall be entitled to 50% of any such Account.
The designation of a Beneficiary other than the Protected Spouse
to receive the balance of benefits payable remains valid after
the earlier of the dates described above.
Any waiver prior to the first day of the Plan Year during which
such Participant attains age 35 which is made by a Participant
whose employment was terminated but who is subsequently
reemployed is not revoked by this rule at any time but applies
solely to benefits accrued before the date of termination.
(d) The Committee shall provide to Participants within the Applicable
Period notice of the availability of any election which results
in a waiver of any death benefit payable to the Protected Spouse.
Such notice shall be in such terms and such manner as would be
comparable to the notice described in Subsection 7.04(e).
For purposes of this Subsection, the term Applicable Period
means, with respect to a Participant, whichever of the following
periods ends last:
37
<PAGE>
(i) The period beginning with the first day of the Plan Year
in which the Participant attains age 32 and ending with
the close of the Plan Year preceding the Plan Year in
which the Participant attains age 35.
(ii) A reasonable period ending after the individual becomes a
Participant.
(iii) A reasonable period ending after this Section first
applies to the Participant.
(iv) A reasonable period ending after separation from service
in the case of a Participant who separates before
attaining age 35.
A reasonable period ending after the events described in
Paragraphs (ii), (iii) and (iv) is the end of the two-year
period beginning one year prior to the date the applicable
event occurs, and ending one year after that date. In the
case of a Participant who separates from service before
the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year
prior to separation and ending one year after separation.
If such Participant thereafter returns to employment with
the Company, the Applicable Period for such Participant
shall be redetermined.
(e) Upon the death of a Participant after his Annuity Starting
Date, his Beneficiary shall be entitled to receive the
death benefit, if any, as determined by the provisions of
the benefit elected in accordance with Section 7.03.
(f) Each Participant, upon becoming eligible for participation
in the Plan, may designate a primary Beneficiary to
receive the benefits payable in the event of his death,
or, absent the applicability of a survivor annuity, may
designate a secondary Beneficiary to receive any benefits
payable in the event of the death of the primary
Beneficiary. If a Participant designates a primary
Beneficiary but not a secondary Beneficiary or if any such
secondary Beneficiary dies, the Beneficiary last in
receipt of or entitled to any benefit shall have the right
to designate a successor Beneficiary to receive any
benefits payable in the event of his death. In the absence
of any such designation, benefits payable upon the death
of the last living Beneficiary
38
<PAGE>
shall be paid in a lump sum to such Beneficiary's estate.
A Participant may change his Beneficiary designation at
any time. All Beneficiary designations and changes shall
be made on an appropriate form and filed with the
Committee. If the primary Beneficiary designated by the
Participant is anyone other than the Participant's
Protected Spouse, such designation must include the
written acknowledgment and consent of such spouse and be
witnessed by a Plan representative or a notary public, to
the extent required by law and the Committee. Such consent
will be limited to a specific alternate Beneficiary and
any change in such alternate Beneficiary will require a
new spousal consent.
6.04 UPON OTHER TERMINATION OF EMPLOYMENT
(a) Upon a Participant's termination of employment for reasons other
than Retirement, Disability or death, the following provisions
shall be applicable:
(i) Such Participant shall have a 100% vested interest in his
Elective Deferral Contribution, Voluntary Contribution,
Rollover, Transfer, Qualified Matching Contribution and
Qualified Nonelective Contribution Accounts.
(ii) Such Participant's vested interest in his Matching
Contribution and Regular Contribution Accounts shall,
subject to Subsection 6.05(a), be determined in accordance
with the following schedule on the basis of such
Participant's full Years of Service .
NUMBER OF YEARS PERCENTAGE OF ACCOUNT
Less than 1 full year 0%
1 full year 20%
2 full years 40%
3 full years 60%
4 full years 80%
39
<PAGE>
5 or more full years 100%
(b) The portion of a Participant's Account which is not vested shall
be forfeited on the earlier of the date on which the Participant
receives a distribution of his vested benefits or the date on
which such Participant incurs five consecutive Breaks-in-Service,
but in no event shall such forfeiture occur earlier than the
Anniversary Date next following the date on which the Participant
terminated employment. If a Participant does not have a vested
interest in his Account, he shall be deemed to have received an
immediate distribution as of the Anniversary Date next following
the date on which such Participant terminated employment.
That portion of the Participant's
(i) Matching Contribution Account which is not vested shall be
reallocated as an Additional Matching Contribution in
accordance with Subsection 3.03(a).
(ii) Regular Contribution Account which is not vested shall be
reallocated as in accordance with Subsection 3.03(c) and
Article 11.
(c) If a withdrawal in accordance with Article 12 is made when a
Participant has less than a 100% vested interest in his Matching
or Regular Contribution Accounts, a separate Matching and/or
Regular Contribution Account, whichever is applicable, will be
established for the Participant as of the time of the withdrawal.
At any relevant time the Participant's vested interest in such
separate account will be equal to an amount ("X") determined by
the formula:
X = P [AB + (R x D)] - (R x D)
For purposes of applying the formula, "P" is the vested
percentage at the relevant time, "AB" is the applicable account
balance at the relevant time, "D" is the amount of the withdrawal
and "R" is the ratio of the account balance at the relevant time
to the account balance after the withdrawal.
6.05 REEMPLOYMENT AND REPAYMENT OF BENEFITS
40
<PAGE>
(a) If a Participant is reemployed by the Employer prior to incurring
five consecutive Breaks-in-Service, the dollar amount which was
subject to forfeiture in accordance with Subsection 6.04(b) will
be restored to the Participant's Account if the Participant
repays the amount distributed, if any, from Elective Deferral
Contribution, Matching Contribution, Regular Contribution,
Qualified Matching Contribution and Qualified Nonelective
Contribution Accounts. Such amounts must be repaid to the Trust
Fund in a lump sum within five years from the date such
Participant resumes his employment with the Employer. If a
Participant who is deemed to receive a distribution pursuant to
Subsection 6.04(b) is reemployed by the Employer prior to
incurring five consecutive Breaks-in-Service, the dollar amount
which was subject to forfeiture in accordance with such
Subsection will be restored to the Participant's Account. The
funds required for the restoration of such Account may, as
determined by the Committee, be paid from forfeitures, Company
Regular Contributions, or investment gains of the Trust Fund
attributable to the Regular Contribution Accounts of all
Participants.
Such repaid amounts shall be credited to the Participant's
Accounts as determined by the Committee, taking into account the
applicable vesting schedules, amounts subject to special tax
treatment and withdrawal rules. Additional Accounts will be
established, if required, to accommodate these objectives.
Amounts repaid and restored in accordance with this Subsection
will not be treated as annual additions for purposes of Section
4.03.
(b) Notwithstanding the above, no restoration shall be made to a
Participant's Account and no repayment will be permitted with
respect to funds accumulated prior to reemployment in the case of
(i) any Participant who was fully vested, or
(ii) any Participant who is reemployed after incurring five
consecutive Breaks-in-Service.
41
<PAGE>
ARTICLE 7
DISTRIBUTION OF BENEFITS
7.01 CLAIM PROCEDURE FOR BENEFITS
(a) Any request for specific information with respect to benefits
under the Plan must be made to the Committee in writing by a
Participant or his Beneficiary. Oral communications will not be
recognized as a formal request or claim for benefits.
(b) The Committee shall provide adequate notice in writing to any
Participant or Beneficiary whose claim for benefits under the
Plan has been denied, (i) setting forth the specific reasons for
such denial; specific references to pertinent plan provisions; a
description of any material and information which had been
requested but not received by the Committee; and, (ii) advising
such Participant or Beneficiary that any appeal of such adverse
determination must be in writing to the Committee, within such
period of time designated by the Committee but, until changed,
not more than 60 days after receipt of such notification, and
must include a full description of the pertinent issues and basis
of claim.
(c) If the Participant or Beneficiary fails to appeal such action to
the Committee in writing within the prescribed period of time,
the Committee's adverse determination shall be final.
(d) If an appeal is filed with the Committee, the Participant or
Beneficiary shall submit such issues he feels are pertinent and
the Committee shall re-examine all facts, make a final
determination as to whether the denial of benefits is justified
under the circumstances, and advise the Participant or
Beneficiary in writing of its decision and the specific reasons
on which such decision was based, within 60 days of receipt of
such written request, unless special circumstances require a
reasonable extension of such 60-day period.
7.02 COMMENCEMENT OF BENEFITS
The following provisions shall be applicable for determining when
distribution of benefits shall be made. These provisions are intended
to conform to the requirements of Section 401(a)(9) of the Code,
including the minimum distribution incidental benefit proposed
Treasury Regulation 1.401(a)(9)-2,
42
<PAGE>
and shall be construed accordingly.
(a) Unless otherwise provided in Subsection (c), in the event of
termination of employment, benefits which total $3,500 or less
will commence as soon as administratively feasible following such
termination.
(b) Unless otherwise provided in this Section, in the event of
termination of employment, benefits which total more than $3,500
will commence as soon as administratively feasible following such
termination, provided that, if the Participant has not attained
his Normal Retirement Date, the Participant consents to such
distribution within his Election Period. If a Participant had
funds transferred without the required spousal consent, directly
or indirectly, from a plan subject to Code Section 412, any
distribution of benefits attributable to such transferred funds,
if more than $3,500, to the Protected Spouse as Beneficiary prior
to the date the Participant would have attained his Normal
Retirement Date will require the written acknowledgment and
irrevocable consent of such spouse within 90 days of the Annuity
Starting Date.
Notwithstanding the above, no consent to a distribution prior to
the date the Participant attained or would have attained his
Normal Retirement Date shall be valid until after written
notification of the right to defer is received by the Participant
or Protected Spouse, if applicable. The Committee shall provide
such written notification of the right to defer any benefit
payable no less than 30 days nor more than 90 days before the
Annuity Starting Date.
If a Participant does not consent to the distribution at the time
specified above and fails to elect deferral in accordance with
Subsection (d), benefits will commence as of the 60th day
following the last day of the Plan Year during which the
Participant's Normal Retirement Date occurs.
If the Participant's Protected Spouse as Beneficiary does not
consent to the distribution of a Participant's transferred funds
at the time specified above, and if such funds exceed $3,500,
benefits attributable to such transferred funds will commence as
of the 60th day following the last day of the Plan Year during
which the Participant's Normal Retirement Date would have
occurred.
(c) The amount of any benefit payable will be determined as of the
43
<PAGE>
Valuation Date preceding the date such benefit is processed,
adjusted to reflect intervening contributions and withdrawals but
not investment experience.
If the amount of any payment under this Section would adversely
affect the Trust Fund by forcing the premature liquidation of
assets, such payment may be delayed until the timely and orderly
liquidation of investments can be accomplished, but in no event
later than the 60th day following the last day of the Plan Year
during which occurs the latest of
(i) the date a Participant attains the earlier of his Normal
Retirement Date or age 65;
(ii) the tenth anniversary of the year during which the
Participant commenced participation in the Plan; or
(iii) the date the Participant terminates his employment.
If the amount of any payment under this Section would adversely
affect the Trust Fund by permitting former Participants to enter
into direct competition with the Company, such payment will be
delayed until the 60th day after the end of the Plan Year during
which the Participant's Normal Retirement Date occurs.
If the amount of any payment under this Section cannot be
ascertained by the applicable commencement date, payment shall be
made no later than 60 days after the earliest date on which the
amount of such payment can be ascertained.
(d) A Participant who terminates employment may elect that benefit
payments commence at a date later than specified in Subsection
(b) by submitting a signed, written statement describing the
benefit and the date on which the payment of such benefit shall
commence, provided such date is not later than the April 1
following the calendar year during which the Participant attains
age 70-12 or such later date as may be promulgated by the
internal Revenue Service.
(d) Effective for Plan Years beginning [after December 31, 1984 but]
before January 1, 1989, distribution of benefits to a 5% owner,
within the meaning of Section 416(i)(1)(B)(i) of the Code, must
commence not later than the April I following the calendar year
in which the Participant attains age 70-1/2, or such later date
as
44
<PAGE>
promulgated by the Internal Revenue Service, whether or not the
Participant terminates employment in that year and whether or not
the Participant applies for benefit payment.
Effective for Plan Years beginning after December 31, 1988,
distribution of benefits must commence not later than the April 1
following the calendar year in which the Participant attains age
70-1/2, or such later date as promulgated by the Internal Revenue
Service, whether or not the Participant terminates employment in
that year and whether or not the Participant applies for benefit
payment.
(e) Distribution of benefits must commence not later than the April 1
following the calendar year in which the Participant attains age
70-1/2, or such later date as promulgated by the Internal Revenue
Service, whether or not the Participant terminates employment in
that year and whether or not the Participant applies for benefit
payment.
The foregoing shall not apply to a Participant (i) who attains
age 70-1/2 before January 1, 1988 unless such Participant was or
becomes a 5% owner, within the meaning of Section 416(i)(1)(B)(i)
of the Code, at any time during the Plan Year ending with or
within the calendar year in which he attains age 66-1/2 or any
subsequent Plan Year, or (ii) who had made a valid election under
Section 242(b) of the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA) to commence his benefits at a later date.
(f) If the designated Beneficiary is,
(i) the Participant's spouse, such spouse may elect that benefit
payments commence at a date later than specified in
Subsection (b) by submitting a signed written statement
describing the benefit and the date on which the payment of
such benefit shall commence, provided such date is not later
than the latest of (A) December 31 of the calendar year in
which the Participant dies, (B) December 31 of the calendar
year during which the Participant would have attained age
70-1/2, or (C) such later date as may be promulgated by the
Internal Revenue Service.
If such spouse dies prior to the commencement of benefits,
and if the distribution of any death benefit payable to the
spouse's Beneficiary is made in a form that may extend
beyond the December 31 of the calendar year during which the
fifth
45
<PAGE>
anniversary of such spouse's death occurs, such distribution
must commence no later than the December 31 of the calendar
year immediately following the date of such spouse's death
or such later date as may be promulgated by the Internal
Revenue Service.
(ii) other than the Participant's spouse, and the death benefit
payable is made in a form that may extend beyond the
December 31 of the calendar year during which the fifth
anniversary of such Participant's death occurs, such
distribution must commence no later than the December 31 of
the calendar year immediately following the date of such
Participant's death or such later date as may be promulgated
by the Internal Revenue Service.
(g) If a Participant is in receipt of benefits from the Company's
insured long-term disability program, if applicable, payment of
the Participant's Elective Deferral Contribution, Matching
Contribution, Regular Contribution, Transfer, Qualified Matching
Contribution and Qualified Nonelective Contribution Accounts
shall be deferred to the first day of the month in which such
Participant is no longer eligible to receive such benefits or, if
earlier, the 60th day following the last day of the Plan Year
during which the Participant's Normal Retirement Date occurs,
provided the benefits payable under the long-term disability
program would otherwise be reduced by the benefits payable under
the Plan.
7.03 METHOD AND FORM OF PAYMENT OF BENEFITS
The following provisions shall be applicable for determining the
method and form of payment of all benefits. These provisions are
intended to conform to the requirements of Section 401(a)(9) of the
Code, including the minimum distribution incidental benefit proposed
Treasury Regulation 1.401(a)(9)-2, and shall be construed accordingly.
(a) Subject to Section 7.02, any benefit payable to a Participant who
has terminated employment or Beneficiary which in total is $3,500
or less will be distributed in a lump sum.
(b) Subject to Section 7.02, any benefit payable to a Participant who
has terminated employment which is more than $3,500 will be
distributed at the Participant's election as follows:
46
<PAGE>
(i) All or any portion of such amount may be distributed in a
lump sum, subject to the provisions below.
(ii) The balance, if any, may be used to purchase an immediate or
deferred annuity in accordance with the provisions of
Subsections (e), (f) and (g).
Unless otherwise provided in Subsection (g), in the absence of an
election by the Participant, benefits will be distributed in a
lump sum. If such benefits are deferred in accordance with
Section 7.02, the provisions of Subsection (h) will be
applicable.
(c) Subject to Section 7.02, if a Participant's benefits are required
to commence in accordance with Subsection 7.02(d) or (e), such
Participant shall make an irrevocable election as to the optional
form of payment. Such benefit shall reflect the Participant's
elections regarding Beneficiary and recalculation of life
expectancies in accordance with regulations under Code Section
401(a)(9). A Participant whose Account includes funds transferred
without the required spousal consent, directly or indirectly,
from a plan subject to Code Section 412, must elect to
recalculate life expectancies unless his spouse consents to waive
the Qualified Annuity. The options available will include the
options available under Subsection (f), with lifetime option
benefits determined using the rules provided by regulations under
Code Section 401(a)(9) and will be payable through the purchase
of an annuity contract. Upon subsequent termination of
employment, the optional form previously elected will remain in
effect. In lieu of the options available under Subsection (f),
the Participant may elect to have the value of his Account each
year payable in a lump sum or to have the minimum amount required
to be distributed each year under Code Section 401(a)(9) payable
directly from the Trust Fund with the remaining balance payable
in a lump sum upon termination of employment.
In the absence of an election by the Participant, the form of
payment shall irrevocably be the minimum amount required to be
distributed each year under Code Section 401(a)(9) payable
directly from the Trust Fund with the remaining balance payable
in a lump sum upon such Participant's termination of employment
and life expectancies shall not be recalculated. If the
Participant's Account includes funds transferred without the
required spousal consent, directly or indirectly, from a plan
subject to Code Section 412, the form of payment shall
irrevocably be a Qualified Annuity and life expectancies shall be
47
<PAGE>
recalculated.
(d) Subject to Section 7.02 and before the Participant's Annuity
Starting Date, any benefit payable to a Participant's Beneficiary
other than the Participant's Protected Spouse which is more than
$3,500 may be distributed in a lump sum or used to purchase an
immediate annuity in accordance with the provisions of
Subsections (e) and (f), as elected by the Participant while in
the employ of the Company. In the absence of such an election by
the Participant, or if the Participant's Protected Spouse is the
Beneficiary, such Beneficiary may make the election.
In the absence of an election by the Beneficiary, benefits will
be payable in a lump sum unless the Protected Spouse is the
Beneficiary and the Participant had funds transferred without the
required spousal consent, directly or indirectly, to the Plan
from a plan subject to Section 412 of the Code, in which case,
benefits will be payable to the Protected Spouse in the form of a
life annuity.
(e) Any benefit payable as an annuity will be distributed (i) by the
purchase of a nontransferable single premium annuity contract,
including an annuity purchased under a group annuity contract, on
behalf of a Participant or Beneficiary from an insurance company,
provided at least $3,500 is available for the purchase of the
annuity, or (ii) directly from the Trust Fund.
Any annuity contract purchased and distributed to a Participant
or Beneficiary shall comply with the requirement of this Plan.
In the absence of a requirement or an election indicating the
type of annuity preferred, a deferred annuity will be provided
upon the Participant's termination of employment unless the
Participant had attained his Normal Retirement Date, in which
event an immediate annuity shall be provided. If the payment of
benefits to a Participant is deferred in accordance with
Subsection 7.02(g), a deferred annuity will be provided on behalf
of such Participant.
(f) The annuity options available include the Life, Joint and 50% or
100% Survivor, 15 or 20 Year Certain and Continuous, and 10, 15
or 20 Year Certain Installments.
The election of the annuity option under the above provisions
shall be at the discretion of the Participant or his Beneficiary
provided that no
48
<PAGE>
method shall be permitted which would (i) result in the benefits
being payable over a period extending beyond the life of such
Participant or the lives of such Participant and his Beneficiary
or life expectancy of such Participant or the life expectancy of
such Participant and his Beneficiary; or (ii) distribute any
remaining balance, in the event of a Participant's death after
the commencement of his benefits, less rapidly than the method of
distribution in effect prior to his death.
In no event may the Participant or Beneficiary change any annuity
option subsequent to the Annuity Starting Date.
(g) Subject to Section 7.04,
(i) if a Participant elects to receive his benefits in the
form of a life annuity, such benefits shall be distributed
under a Qualified Annuity unless the Participant elects to
receive his retirement income under any other optional
form of distribution as made available to such
Participant.
(ii) if a Participant has had funds transferred without the
required spousal consent, directly or indirectly, from a
plan subject to Code Section 412 and the portion of the
Participant's Account attributable to such transferred
funds is more than $3,500, such funds will be distributed
in the form of a Qualified Annuity unless the Participant
elects to receive his retirement income under any other
optional form of distribution as made available to such
Participant.
(iii) the Participant shall have the right to elect, revoke or
change any election under this Subsection at any time
during his Election Period.
(h) Any benefits payable under this Article may be paid in cash,
securities, or such other assets of the Trust Fund as the
Committee may direct.
The distribution of a lump sum payment and/or annuity contract to
the Participant or his Beneficiary will constitute the complete
discharge of all obligations of the Plan.
49
<PAGE>
7.04 SPOUSAL CONSENT REQUIREMENTS WITH RESPECT TO PARTICIPANT ELECTIONS
(a) If a Participant is married and has elected to receive his
benefits in the form of a life annuity, any election by such
Participant to commence a benefit payment in a form other than a
Qualified Annuity at any time will require the written
acknowledgment and irrevocable consent of the Protected Spouse as
witnessed by a Plan representative or a notary public during the
Election Period.
(b) If a Participant is married and has had funds transferred without
the required spousal consent, directly or indirectly, to the Plan
from a plan subject to Section 412 of the Code, any election by
such Participant to commence a benefit payment in a form other
than a Qualified Annuity at any time, will require the written
acknowledgment and irrevocable consent of the Protected Spouse as
witnessed by a Plan representative or a notary public during the
Election Period.
Notwithstanding the above, if such transferred funds are
accounted for separately, the above consent requirement will only
apply to payments attributable to such funds and then only if the
value of such funds at the Annuity Starting Date exceeds $3,500.
(c) Any spousal consent will be limited to a specific alternate
Beneficiary and form of payment and any change in such
Beneficiary or form will require a new spousal consent.
(d) If it is established to the satisfaction of the Committee that
there is no spouse because the spouse cannot be located or such
other circumstances as may be promulgated by the Internal Revenue
Service or established by law, such consent will not be required.
Spousal consent may additionally be required at the Committee's
request.
(e) Notwithstanding the above, no consent to a distribution or
election of an optional form shall be valid until written
notification of the provisions of this Section and Subsection
7.03(g) is received by the Participant. The Committee shall
provide such written notification no less than 30 days nor more
than 90 days before the Annuity Starting Date.
Such notice shall contain a written explanation of
(i) the terms and conditions of a Qualified Annuity;
50
<PAGE>
(ii) the Participant's right to make and the effect of an
election to waive the Qualified Annuity form of benefit;
(iii) the rights of the Protected Spouse;
(iv) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Annuity; and
(v) a description of the optional forms available under
Subsection 7.03(f).
7.05 DISPOSITION OF UNCLAIMED BENEFITS
In the event that any check or notice with respect to the payment of
benefits under the Plan remains outstanding at the expiration of six
months from the date of mailing of such check to the last known
address of the payee, the Committee shall notify the Trustee to stop
payment of all such outstanding checks and to suspend the issuance of
any further checks, if any, to such payee. If, during the three-year
period (or such other period as specified in the Trust Agreement) from
the date of mailing of the first such check or of notice that a
benefit is due under the Plan, the Committee cannot establish contact
with the payee by taking such action as it deems appropriate and the
payee does not make contact with the Committee, the remaining benefits
shall be forfeited and used to reduce the Company's contributions in
accordance with Section 3.03. In the event the payee is located
subsequent to the date the benefits were forfeited, the dollar amount
of such benefits shall be restored in accordance with the provisions
of Article 6.
7.06 NON-ASSIGNABILITY
No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such action shall be void for all
purposes of the Plan. No benefit shall in any manner be subject to the
debts, contracts, liabilities, engagements or torts of any person, nor
shall it be subject to attachments or other legal process for or
against any person, except with respect to a Qualified Domestic
Relations Order and in such other instances and to such extent as may
be required by law and except as provided in Article 13.
7.07 SUBSTITUTE PAYEE
51
<PAGE>
If a Participant or Beneficiary entitled to receive any benefits
hereunder is in his minority or is, in the judgment of the Committee,
legally, physically, or mentally incapable of personally receiving and
receipting any distribution, the Committee may instruct the Trustee to
make distributions to his legally appointed guardian.
7.08 SATISFACTION OF LIABILITY
After all benefits have been distributed in full to a Participant or
to his Beneficiary, all liability to such Participant or to his
Beneficiary shall cease.
7.09 DIRECT ROLLOVER TO ELIGIBLE RETIREMENT PLANS
(a) Notwithstanding any provisions of the Plan to the contrary that
would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner
prescribed by the Committee, to have any portion of an Eligible
Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the Distributee in a Direct Rollover.
(B) DEFINITIONS
(I) ELIGIBLE ROLLOVER DISTRIBUTION
An Eligible Rollover Distribution is any distribution of all
or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution
does not include: (A) any distribution that is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint
life expectancies) of the Distributee and the Distributee's
designated Beneficiary, or for a specified period of ten
years of more; (B) any distribution to the extent such
distribution is required under Section 401 (a)(9) of the
Code; and (C) the portion of any distribution that is not
includable in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
Employer securities).
(II) ELIGIBLE RETIREMENT PLAN
An Eligible Retirement Plan is an individual retirement
account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of
the Code, an
52
<PAGE>
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401 (a) of the Code,
that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or
individual retirement annuity.
(III) DISTRIBUTEE
A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or
former spouse who is the alternate payee under a Qualified
Domestic Relations Order, are Distributees with regard to
the interest of the spouse or former spouse.
(IV) DIRECT ROLLOVER
A Direct Rollover is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
7.10 WAIVER OF 30 DAY NOTICE REQUIREMENT
Notwithstanding any provisions of the Plan to the contrary, if a
distribution is one to which Sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after
the notice required under Section 1.411(a)-11(c) of the Treasury
Regulations is given, provided that:
(a) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a particular
distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects
a distribution.
53
<PAGE>
ARTICLE 8
ADMINISTRATION OF THE PLAN
8.01 ASSIGNMENT OF ADMINISTRATIVE AUTHORITY
The Board of Directors shall appoint a Committee to administer the Plan.
The Committee may consist of directors, officers, Employees, or any other
individuals, who, upon acceptance of such appointment, shall serve at the
pleasure of the Board of Directors. Any member may resign by delivering
his written resignation to the Board of Directors and to the Committee.
Vacancies in the Committee arising from resignation, death or removal
shall be filled by the Board of Directors. The Board of Directors shall
also appoint the Trustee and may appoint an investment manager.
8.02 ORGANIZATION AND OPERATION OF THE COMMITTEE
(a) The Committee shall act, in carrying out its duties and
responsibilities, in the interest of the Participants and
Beneficiaries with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man, acting in a like
capacity and familiar with such matters, would use in the conduct of
an enterprise of like character and aims.
(b) The Committee shall act by a majority of its members unless unanimous
consent is required by the Plan or by unanimous approval of its
members if there are two or less members in office at the time. In
the event of a Committee deadlock, the Committee shall determine the
method for resolving such deadlock. If there are two or more
Committee members, no member shall act upon any question pertaining
solely to himself, and the other member or members shall make any
determination required by the Plan in respect thereof.
(c) The Committee may authorize any one or more of its members to execute
documents on behalf of the Committee and shall notify the Trustee in
writing of such action and the name or names of the member or members
so designated.
(d) The Committee may, by unanimous consent, delegate specific authority
and responsibilities to one or more of its members. The member or
members so designated shall be solely liable, jointly and severally,
for their acts or omissions with respect to such delegated authority
and responsibilities. Members not so designated, except as
<PAGE>
provided under Subsection 8.06(b), shall be relieved from liability
for any act or omission resulting from such delegation.
(e) The Committee shall endeavor not to engage in any prohibited
transactions, as specified in the Employee Retirement Income Security
Act of 1974, or any successor act. However, any member of the
Committee who is a Participant or Beneficiary shall not be precluded
from receiving benefits payable under the Plan.
8.03 AUTHORITY AND RESPONSIBILITY
The Committee and its delegates shall have full discretionary authority
and responsibility for administration of the Plan. Such authority and
responsibility shall include, but shall not be limited to, the following
areas.
(a) Appointment of qualified accountants, consultants, administrators,
counsel or other persons it deems necessary or advisable, who shall
serve the Committee as advisors only and shall not exercise any
discretionary authority, responsibility or control with respect to
the management or administration of the Plan.
Any action of the Committee on the basis of advice, opinion, reports,
etc. furnished by such qualified accountants, consultants,
administrators and counsel shall be the sole responsibility of the
Committee.
Members of the Committee shall not be precluded from serving the
Committee in any other capacity, provided any compensation paid for
such services is reasonable.
(b) Determination of eligibility to participate and all benefits, and
resolution of all questions arising from the administration,
interpretation and application of the Plan, including the
determination of the validity of any Qualified Domestic Relations
Order in accordance with Section 8.09.
(c) Notification to the Trustee of all benefits payable under the Plan
and the manner in which such benefits are to be paid.
(d) Adoption of forms and regulations for the administration of the Plan.
(e) Remedy of any inequity resulting from incorrect information received
or communicated, or of administrative error.
<PAGE>
(f) Assurance that its members, the Trustee and other persons who handle
funds or other property of the Trust Fund are bonded as required by
law.
(g) Settlement or compromise of any claims or debts arising from the
operation of the Plan and the commencement of any legal actions or
administrative proceeding.
(h) Direction to the Trustee as to specific investments which, under the
terms of the Trust Agreement, may be made only upon written direction
of the Committee or which are made in accordance with specific
provisions of the Plan, such as annuity or group investment
contracts, loans to Participants, or earmarked investments selected
by Participants.
(i) Action as agent for the service of legal process.
(j) Communication regarding the liquidity needs of the Plan so that
investment discretion can be exercised to effect specific objectives.
8.04 RECORDS AND REPORTS
(a) The Committee shall keep a record of its proceedings and acts and
shall keep books of account, records and other data necessary for the
proper administration of the Plan.
(b) The Committee shall make its records available for examination by the
Employer, or any Participant or Beneficiary during business hours at
the principal place of business of the Company. However, a
Participant or Beneficiary may examine only records pertaining
exclusively to himself and such other records specified by law.
(c) The Committee shall make available to any Participant or Beneficiary
any material required by law without cost. The Committee may, upon
written request by any Participant or Beneficiary, provide copies of
such material as it deems appropriate and shall furnish copies of
such material required by law. The Participant or Beneficiary may be
required to pay the reasonable cost as determined by the Committee of
preparing and furnishing such material or the cost as prescribed by
law.
56
<PAGE>
8.05 REQUIRED INFORMATION
The Company and Participants or Beneficiaries entitled to benefits shall
furnish forms, including but not limited to annuity applications, and any
information or evidence, as requested by the Committee for the proper
administration of the Plan. Failure on the part of any Participant or
Beneficiary to comply with such request within a reasonable period of time
shall be sufficient grounds for delay in the payment of benefits until the
information or evidence requested is received.
8.06 FIDUCIARY LIABILITY
(a) A member of the Committee who breaches the responsibilities,
obligations, or duties imposed by law shall be liable to the Plan for
any losses resulting from such breach.
(b) A member of the Committee shall be liable for a breach of fiduciary
responsibility by another Committee member or Trustee, with respect
to the Plan or Trust Fund, under the following circumstances.
(i) The member knowingly participates in or undertakes to conceal
an act or omission of another member of the Committee or
Trustee, with knowledge that the act or omission is such a
breach.
(ii) If the member's failure to comply with Subsection 8.02(a) has
enabled another member or Trustee to commit such a breach.
(iii) The member has knowledge of such a breach by another member or
Trustee and does not make reasonable efforts under the
circumstances to remedy the breach.
8.07 PAYMENT OF EXPENSES
Those members of the Committee who are full-time paid employees of the
Company shall serve without compensation. The expenses of the Committee,
including reasonable compensation as may be agreed upon in writing between
the Company and the Committee for members of the Committee who are not
full-time employees of the Company, shall be deemed administrative
expenses payable in accordance with Article 3.
57
<PAGE>
8.08 INDEMNIFICATION
The Company shall indemnify members of the Committee against personal
financial loss resulting from liability incurred in the administration of
the Plan, unless such liability and loss were caused by such individual's
gross negligence or willful misconduct.
8.09 QUALIFIED DOMESTIC RELATIONS ORDERS
(A) QUALIFIED DOMESTIC RELATIONS ORDER
(i) A Qualified Domestic Relations Order (hereinafter referred to as
"QDRO") is a Domestic Relations Order which creates or
recognizes the existence of an Alternate Payee's right to, or
assigns to an Alternate Payee the right to, receive all or a
portion of the benefits payable with respect to a Participant
under the Plan, and which the Committee has determined meets the
requirements of Paragraphs (ii) and (iii).
(ii) A Domestic Relations Order meets the requirements of a QDRO
only if the order clearly specifies
(A) the name and the last known mailing address (if any) of the
Participant and the name and mailing address of each
Alternate Payee covered by the order;
(B) the amount or percentage of the Participant's benefits to
be paid by the Plan to each such Alternate Payee, or the
manner in which such amount or percentage is to be
determined;
(C) the number of payments or period to which such order
applies; and
(D) that the order applies to this Plan.
(iii) A Domestic Relations Order meets the requirements of a QDRO only
if the order
(A) does not require the Plan to provide any type or form of
benefits, or any option, not otherwise provided under the
Plan;
58
<PAGE>
(B) does not require the Plan to provide increased benefits
(determined on the basis of actuarial value); and
(C) does not require the payment of benefits to an Alternate
Payee which are required to be paid to another Alternate
Payee under another Domestic Relations Order previously
determined to be a QDRO.
(iv) In the case of any payment before a Participant has separated
from service, a QDRO shall not be treated as failing to meet the
requirements of Paragraph (iii)(A) above solely because the
order requires the payment of benefits to an Alternate Payee
(A) on or after the date on which the Participant attains (or
would have attained) the Earliest Retirement Age;
(B) as if the Participant had retired on the date such payment
is to begin under such order; and
(C) in any form in which such benefits may be paid under the
Plan to the Participant (other than in the form of a joint
and survivor annuity with respect to the Alternate Payee
and his or her subsequent spouse).
(v) For purposes of Paragraph (iv), Earliest Retirement Age means
the earlier of
(A) the date on which the Participant is entitled to a
distribution under the Plan; or
(B) the later of (1) the date the Participant attains age 50 or
(2) the earliest date on which the Participant could begin
receiving benefits under the Plan if such Participant
separated from service.
Notwithstanding any provisions of the Plan to the contrary, for
purposes of Subparagraph (A) above, a distribution to an
Alternate Payee may be made prior to the date on which the
Participant is entitled to a distribution under Section 7.02 or
Article 12 if requested by the Alternate Payee to the extent
such distribution is permitted under the QDRO. Nothing in this
provision shall permit the Participant to receive a distribution
at a date otherwise not permitted under Section 7.02 or Article
59
<PAGE>
12 nor shall it permit the Alternate Payee to receive a form of
payment not permitted in Section 7.03.
(B) PROCEDURES
Upon receipt of a Domestic Relations Order, the Committee shall take, or
cause to be taken, the following actions:
(i) The Committee shall promptly notify the Participant, each Alternate
Payee covered by the order and each representative for these parties
of the receipt of the Domestic Relations Order. Such notice shall
include a copy of the order and these QDRO Procedures for
determining whether such order is a QDRO.
(ii) Once a Domestic Relations Order has been received (A) the affected
Participant will not be permitted to request a withdrawal or a loan
from the Plan and (B) no distributions will be made from the Plan to
the Participant upon a subsequent termination until after the
payment to the Alternate Payee has been determined, unless the
Committee determines the order not to be a QDRO.
(iii) Within a reasonable period after receipt of a Domestic Relations
Order, the Committee shall determine whether it is a QDRO and shall
notify the parties indicated in Paragraph (i) of such determination.
Such notice shall indicate whether the benefits payable to the
Alternate Payee in accordance with the QDRO are subject to a
previously existing QDRO.
(iv) Pending the Committee's determination of whether a Domestic
Relations Order is a QDRO, if payments are due to be paid to the
Participant, the Committee shall withhold payment and separately
account for the amounts otherwise payable to the Alternate Payee
during such period if the order is subsequently determined to be a
QDRO (hereinafter referred to as the "segregated amounts"). If,
within the 18-month period beginning with the date the first payment
would have been required to be made under the Domestic Relations
Order, the Committee determines the order to be a QDRO, the
Committee shall pay the segregated amounts, including any interest
thereon, to the person or persons entitled thereto. If, within such
18-month period, the Committee determines an order is not a QDRO or
the Committee fails to reach a decision, the
60
<PAGE>
Committee shall pay the segregated amounts to the Participant. If,
after the 18-month period, the Committee subsequently determines
that the order is a QDRO, the Committee shall pay benefits
subsequent to such determination in accordance with the order. If
action is taken in accordance with this Subsection (b), the Plan's
obligation to the Participant and each Alternate Payee shall be
discharged to the extent of any payment made pursuant to the QDRO.
(v) In determining the segregated amount in accordance with Paragraph
(iv), the Participant's vested interest shall be prorated between
the Participant and Alternate Payee and the entire amount of any
nonvested interest or any outstanding Plan loans will be credited to
the Participant and not taken into consideration in making such
determination. Any future contributions or loan repayment will be
credited to the Participant and not the Alternate Payee.
(vi) Upon a determination by the Committee that a Domestic Relations
Order is a QDRO, the Committee shall arrange for benefits to be paid
to the Alternate Payee in accordance with such order and Sections
7.02 and 7.03 as if the Participant had terminated employment at
such time.
(vii) If benefits are not immediately distributable to the Alternate
Payee, such amount shall be separately accounted for until such time
as the distribution is made. Any amount subject to a QDRO will not
be available to the Participant under the Plan withdrawal provisions
nor will it be available as collateral for a Plan loan.
(viii) The Alternate Payee shall be treated as a Beneficiary for all
purposes of the Plan. The Alternate Payee will be eligible for the
same investment election option in accordance with Article 5 as the
Participant.
The foregoing provisions are effective for QDROs entered into on or after
January 1, 1 985, except that, in the case of a Domestic Relations Order entered
into before January 1, 1985, the Committee (i) may treat such order as a QDRO
even though such order fails to meet the requirements of Subsections (a)(ii) and
(iii) above, and (ii) must treat such order as a QDRO if benefits were being
paid pursuant to such order on January 1, 1 985.
61
<PAGE>
ARTICLE 9
AMENDMENT AND TERMINATION
9.01 AMENDMENT
(a) The Plan may be amended or otherwise modified by the Board of
Directors, or the Committee to the extent authorized in accordance
with Subsection (c). Copies of any such amendment or modification
shall be sent to the governing body of each Company. It shall be
deemed each Company consented to such amendment or modification
unless its governing body delivers written notice to the contrary to
the Board of Directors, the Committee and the Trustee within 30 days
of its receipt of such amendment or modification.
(b) No amendment or modification shall
(i) permit any part of the Trust Fund, other than such part as is
required to pay taxes, administrative expenses and expenses
incurred in effectuating such changes, to be used for or
diverted to purposes other than the exclusive benefit of the
Participants or Beneficiaries and/or persons entitled to
benefits under the Plan or permit any portion of the Trust Fund
to revert to or become the property of the Company;
(ii) have the effect of reducing the Account of any Participant as
of the date of such amendment or deprive any Participant or
Beneficiary of a benefit accrued and payable; or
(iii) eliminate any option which constitutes a valuable right
available to a Participant with respect to benefits previously
accrued to the extent the Participant satisfied, either before
or after the amendment, the conditions for the form of payment
except as otherwise permitted by applicable law and
regulations.
(c) The Committee may amend or modify the Plan in order to bring the
Plan into compliance with applicable law or regulations, provided
said amendment or modification does not have a material effect on the
estimated cost of maintaining the Plan and does not create a new
class of benefits or entitlements.
62
<PAGE>
9.02 TERMINATION
While the Plan and Trust Fund are intended to be permanent, they may be
terminated at the discretion of the Board of Directors. Written
notification of such action shall be given to each Company, the Trustee
and the Committee. Thereafter, no further contributions shall be made to
the Trust Fund.
9.03 VESTING UPON TERMINATION
Upon the complete discontinuance of Company contributions or the
termination or partial termination of the Plan and Trust Fund, the Account
of each affected Participant shall become fully vested and shall not be
reduced except
(a) for adjustments resulting from a valuation in accordance with Article
5, which valuation shall also reflect the expenses incurred for
administration of the Plan and/or Trust Fund after such
discontinuance or termination date, and all expenses incurred in
effectuating the complete discontinuance of Company contributions or
termination or partial termination of the Plan and Trust Fund, such
as the fees and retainers of the Plan's Trustee, accountant,
custodian, administrator, consultant, counsel and other specialists
if such expenses are not paid by the Company;
(b) for distributions of benefits by the Trustee to the Participant in
accordance with the Plan and at the written direction of the
Committee; and
(c) as provided in Section 14.01.
9.04 DISTRIBUTION OF BENEFITS AFTER TERMINATION
As soon as administratively feasible following the termination of the Plan
and Trust Fund, the Trustee, as authorized and directed by the Committee,
shall, provided there is no successor defined contribution plan within the
meaning of Section 401(k)(10)(A)(i) of the Code, distribute each Account,
after adjustment in accordance with Subsection 9.03(a), in a manner
consistent with the provisions of Article 7.
63
<PAGE>
ARTICLE 10
PARTICIPATING COMPANIES
10.01 ADOPTION BY OTHER ENTITIES
Any corporation or other business entity may, by resolution of its own
governing body, and with the approval of the Board of Directors, adopt the
Plan and thereby become a Company. Notwithstanding the adoption of the
Plan by other entities, the Plan will be administered as a single plan and
all Plan assets will be available to pay benefits to all Participants
under the Plan.
10.02 ALTERNATIVE PROVISIONS
No Company may adopt alternative provisions as to itself or its Employees.
Upon request of the governing body of a Company, the Board of Directors
may amend the Plan with respect to the Employees of such Company provided
that any change will only apply if any inequity resulting from such
changed Plan provisions is not found to be discriminatory on behalf of
Highly Compensated Employees.
10.03 RIGHT TO WITHDRAW (PLAN SPINOFF)
Each Company having adopted the Plan shall have the right as of the last
day of any month to withdraw from the Plan and/or Trust Agreement by
delivering to the Board of Directors, the Committee and the Trustee
written notification from its own governing body of such action and
setting forth the date as of which the withdrawal shall be effective. The
date specified in such written notice shall be deemed a Valuation Date.
10.04 PROCEDURE UPON WITHDRAWAL
(a) If a Company withdraws from the Plan and Trust Agreement as the
result of its adoption of a different plan, the Trustee shall
segregate the portion of the Trust Fund attributable to the Accounts
of Participants employed solely by such Company.
As soon as administratively feasible, the Trustee shall transfer the
segregated assets to the insurance carrier or fiduciary designated by
the Company as the agency through which the benefits of such
64
<PAGE>
successor plan are to be disbursed.
(b) If a Company withdraws from the Plan and Trust Agreement as the
result of its adoption of a resolution to terminate its participation in
the Plan and to distribute assets to its Employees who are Participants,
the Trustee shall segregate the portion of the Trust Fund attributable to
the Accounts of the Participants who are employed solely by such Company,
and the termination provisions of Section 9.03 and 9.04 shall apply with
respect to such segregated assets.
65
<PAGE>
ARTICLE 11
TOP-HEAVY PROVISIONS
11.01 DEFINITION OF TOP-HEAVY AND SUPER TOP-HEAVY
(a) The Plan will be Top-Heavy for a Plan Year if, as of the final
Valuation Date of the preceding Plan Year (or the final Valuation
Date of the current Plan Year, if such year is the first Plan Year),
hereinafter referred to as the Determination Date,
(i) the aggregate value of the Accounts of all Participants who are
Key Employees (as defined in Section 11.02) exceeds 60% of the
aggregate value of such Accounts of all Participants and the
Plan cannot be aggregated with any other plans which would
result in the formation of a non-Top-Heavy aggregation group of
plans; or
(ii) the Plan is required to be part of an aggregation group of
plans and the aggregation group is Top-Heavy. The group will be
deemed Top-Heavy if the aggregate value of all defined
contribution plan accounts and the value of all defined benefit
plan accrued benefits attributable to Key Employees exceeds 60%
of such values attributable to all participants of the
aggregated plans. Such benefit values and accounts shall be
aggregated using the Determination Dates of the individual
plans which fall within the same calendar year.
For purposes of this Section, aggregation group means all
plans, including terminated plans, maintained by the Employer
if maintained within the last five years ending on the
Determination Date, in which a Key Employee is a participant or
which enables any plan in which a Key Employee is a participant
to meet the requirements of Section 401 (a)(4) or Section 410
of the Code, as well as all other plans maintained by the
Employer, provided that inclusion of such other plans in the
aggregation group would not prevent the group of plans from
continuing to meet the requirements of such sections of the
Code.
(b) The Plan will be Super Top-Heavy for a Plan Year if the aggregate
value of all defined contribution plan accounts and the value of all
66
<PAGE>
defined benefit plan accrued benefits attributable to all
Participants who are Key Employees exceeds 90% of such values
attributable to all Participants in lieu of 60% as stated in
Subsection (a).
(c) For purposes of determining the aggregate value of the benefit values
and accounts under this Section, distributions, other than rollovers
or direct transfers to another qualified plan maintained by the
Employer or rollovers or direct transfers not initiated by the
Participant, made during the five-year period ending on the
Determination Date of the plan from which such distributions were
made, shall be included to the extent such distributions are not
otherwise reflected in the value of any accrued benefit under a
defined benefit plan as determined with respect to such plan's
Determination Date. Such aggregate value shall not include any (i)
assets rolled over or transferred at the initiation of the
Participant directly from a qualified plan maintained by a business
entity other than an Employer to the Plan, (ii) amounts attributable
to former Key Employees, (iii) amounts attributable to Participants
not employed during such five-year period, or (iv) amounts
attributable to deductible employee contributions under former
Section 219(e)(2) of the Code.
A Participant's accounts under any defined contribution plan as of
any Determination Date, other than the Determination Date which falls
within the first Plan Year, shall not include any Employer
contributions due and not yet paid as of the Determination Date, if
the plan under which the account is maintained is not subject to
Section 412 of the Code.
Accrued benefit values under defined benefit plans aggregated with
this Plan shall be determined, subject to the rules set forth in
Section 416(g)(4)(F)(ii) of the Code, as of the dates of the most
recent valuations preceding or coincident with such defined benefit
plans' Determination Dates, in accordance with the interest and
mortality rate assumptions specified in such defined benefit plans
for this purpose or, if not specified, shall be determined using an
interest rate of 5% and mortality rates in accordance with Group
Annuity Mortality Table for 1951 (Projection "C" to 1970, set back
five years for females). Such accrued benefit values shall be
determined under the method of accrual used for all plans of the
Employer or, if such method is not identical, as if such benefit
accrued under the fractional rule as described in Section 41 1
(b)(1)(C) of the Code.
67
<PAGE>
11.02 DEFINITION OF KEY EMPLOYEE
An Employee or a former Employee will be considered to be a Key Employee
for a Plan Year if, at any time during the Plan Year or the preceding four
Plan Years, he is an officer of the Employer earning more than 50% of the
maximum dollar limitation under Section 415(b)(1)(A) of the Code; one of
the 10 employees owning the largest interests (minimum 1/2%) in the
Employer earning more than the maximum dollar limitation under Section
415(c)(1)(A) of the Code; a 5% owner; or a 1% owner whose compensation
exceeds $150,000. This definition of Key Employee shall be governed by
Section 416 of the Code and Regulations thereunder. For purposes of this
definition, but only to the extent required by law, a Key Employee's
Beneficiary shall be treated as a Key Employee, and ownership percentages
shall be determined without regard to aggregation of entities under common
control within the meaning of Sections 414(b), (c) and (m) of the Code. In
no event shall more than 50 employees (or, if less, the greater of three
employees or 10 percent of the employees) be deemed officers for purposes
of this definition.
11.03 MINIMUM EMPLOYER CONTRIBUTION
(a) Unless otherwise provided in this Section, for any Plan Year in which
the Plan is determined to be Top-Heavy, the sum of the Company
contribution and forfeitures, if any, allocated to any non Key
Employee Participant in the employ of the Company on the last
business day of that Plan Year, shall not be less than an amount
which, in combination with all other such amounts allocated to him
under all other defined contribution plans maintained by the
Employer, is equal to the lesser of
(i) 3% of the Participant's Compensation or
(ii) the highest percentage of Compensation (net of amounts
contributed under a qualified salary reduction or similar
arrangement) at which contributions (including Employer
matching contributions and forfeitures) are allocated for the
Plan Year under the Plan and under any other defined
contribution plan required to be aggregated with the Plan on
behalf of any Key Employee, times the Participant's
Compensation.
(b) Any contributions made solely to comply with the provisions of this
Section shall be credited at the end of the Plan Year.
68
<PAGE>
(c) If any Participant is also covered by a defined benefit plan or plans
maintained by the Employer, then for each year the Plan is determined
to be Top-Heavy, 5% will be substituted in lieu of the 3% minimum
allocation under Paragraph (a)(i) for such Participant and Paragraph
(a)(ii) shall not be applicable, unless the Participant receives the
Top-Heavy defined benefit minimum under the defined benefit plan or
plans in accordance with Section 416(c)(1) of the Code,
notwithstanding any offset attributable to defined contribution
account balances, in which event no minimum contribution will be
required under the Plan.
(d) For purposes of this Section, only benefits derived from Employer
contributions under the Plan, or any other defined contribution plan
or plans are to be taken into account to determine whether the
minimum Employer contribution or benefit has been satisfied,
excluding matching contributions and any contributions attributable
to a salary reduction or similar arrangement, but including
contributions as defined in Treasury Regulation 1.401(k)-l(g)(13).
Such salary reduction contributions will be taken into account to
determine the Employer contribution made on behalf of any Key
Employee under Subsection 11.03(a)(ii), but not to determine whether
the minimum Employer contribution or benefit has been satisfied.
(e) An Eligible Employee who has not met the 1,000 Hours of Employment
requirement for eligibility in accordance with Article 2, shall not
be considered a Participant for purposes of this Section.
(f) An employee of a business entity which has not adopted the Plan shall
not be considered a Participant for purposes of this Section unless
also employed by the Company.
(g) An Eligible Employee who becomes a Participant by virtue of the
acceptance of a rollover contribution in accordance with Section 3.07
or a transfer of assets in accordance with Section 3.08 but who is
not otherwise eligible in accordance with Section 2.01, shall not be
entitled to share in any Company contribution allocated in accordance
with this Article.
11.04 LIMITATION OF ALLOCATIONS
For any Plan Year in which the Plan is determined to be Top-Heavy or Super
Top-Heavy, the reference to "1.25" in Item (1) of Paragraph (B) of
69
<PAGE>
Subsection 4.03(c) will be changed to read "1.0".
70
<PAGE>
ARTICLE 12
WITHDRAWAL OF FUNDS DURING EMPLOYMENT
12.01 WITHDRAWALS FROM ELECTIVE DEFERRAL, MATCHING AND REGULAR CONTRIBUTION
ACCOUNTS
Subject to the general withdrawal rules below, a Participant may withdraw
up to 100% of the vested portion of his Elective Deferral, Matching and
Regular Contribution Accounts (a) after attaining age 59-1/2 or (b) before
attaining age 59-1/2, provided such withdrawal meets the Financial
Hardship Rules below.
12.02 WITHDRAWALS FROM ROLLOVER, VOLUNTARY AND TRANSFER ACCOUNTS
Subject to the general withdrawal rules below, a Participant may elect to
withdraw up to 1 00% of his Rollover, Voluntary and Transfer Accounts.
12.03 WITHDRAWALS FROM QUALIFIED MATCHING CONTRIBUTION AND QUALIFIED
NONELECTIVE CONTRIBUTION ACCOUNTS
Subject to the general withdrawal rules below, a Participant who has
attained age 59-1/2 may withdraw up to 100% of his Qualified Matching
Contribution and Qualified Nonelective Contribution Accounts.
12.04 FINANCIAL HARDSHIP RULES
(a) For purposes of this Article, a Financial Hardship withdrawal may be
made only if it is on account of an immediate and heavy financial
need of the Participant and is necessary to satisfy such financial
need.
(b) The following needs shall be recognized as immediate and heavy
financial needs:
(i) medical expenses, as described in Section 213(d) of the Code,
previously incurred by the Participant, the Participant's
spouse or the Participant's dependents, or funds necessary for
these persons to obtain medical care described in Section
213(d) of the Code,
(ii) purchase of a principal residence for the Participant,
71
<PAGE>
(iii) tuition payments, related educational fees and room and board
expenses for the next 12 months of post-secondary education for
the Participant or the Participant's spouse, children or other
dependents,
(iv) the need to prevent eviction from or foreclosure on the
mortgage of the Participant's principal residence, and
(v) any other financial need as may be promulgated by the internal
Revenue Service, and
(c) The following requirements will be applicable:
(i) The Participant must have obtained all other distributions and
loans available under all plans maintained by the Employer.
(ii) Elective Deferral Contributions and any other Employee
contributions under all plans maintained by the Employer will
be suspended for 12 months following the receipt of the
Financial Hardship withdrawal. The Participant's Elective
Deferral Contributions under Section 3.01 will automatically be
resumed following the required period of suspension, unless the
Participant elects otherwise.
(iii) The limitation of Section 4.01 which is imposed on a
Participant's Elective Deferral Contributions for the calendar
year immediately following the calendar year of the Financial
Hardship withdrawal will be reduced by the amount of such
contributions and/or deferrals for the calendar year of such
withdrawal.
(e) The amount of such Financial Hardship withdrawal may not exceed the
amount required to meet the specified need plus any amounts necessary
to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the withdrawal. In addition,
the amount of such withdrawal from a Participant's Elective Deferral
Contribution Account shall be limited to the sum of the Participant's
Elective Deferral Contributions made.
(f) A Financial Hardship withdrawal from a Participant's Elective
Deferral Contribution Account will be available only after the total
amount available from all other Accounts has been withdrawn.
72
<PAGE>
12.05 GENERAL WITHDRAWAL RULES
Any withdrawal shall be subject to the following requirements:
(a) If a Participant elected to receive his benefits in the form of a
life annuity in accordance with the provisions of Sections 7.03 and
7.04 at any time, any withdrawal will be distributed under a
Qualified Annuity unless such Participant elects to receive such
withdrawal in a lump sum. All withdrawals will be considered separate
Annuity Starting Dates for purposes of Sections 7.02 and 7.04.
Spousal consent may additionally be required at the Committee's
request.
(b) Only two non-hardship withdrawals will be permitted during any Plan
Year.
(c) A written request for a withdrawal must be submitted to the Committee
at least 15 days prior to the withdrawal date. Withdrawals will be
taken from the investment funds proportionately, exclusive of the
Dendrite International, Inc. Common Stock Fund.
(d) A withdrawal may be requested as of the first day of any month, or at
such other dates as the Committee may fix from time to time,
providing that if the Participant's Account includes any investment
in a fund other than the Goldman Money Market Trust Fund, withdrawal
of such portion of the Participant's Account will be permitted only
if the market value of Trust Fund assets invested in such fund,
adjusted for contributions and payment activity has not declined and
there is no significant adverse economic effect on the Trust Fund. If
requested as of any date other than the day after a Valuation Date,
no investment earnings will be credited on the amount withdrawn for
the period from the last Valuation Date to the date specified for the
withdrawal.
(e) The minimum amount that may be withdrawn is $500 or the balance in
the Participant's Accounts from which a current withdrawal is
permitted, if less. The minimum amount limitation shall not apply in
the case of a hardship withdrawal.
(f) If a loan is outstanding at the time a withdrawal is requested, such
withdrawal shall be permitted only to the extent that the remaining
vested Account balance under the Plan will be at least 100% of the
outstanding loan balance as of the date of the withdrawal.
73
<PAGE>
ARTICLE 13
LOANS
13.01 AMOUNT OF LOANS AND TERMS OF REPAYMENT
The Committee shall promulgate any additional specific rules and
regulations governing all aspects of this Article as it deems necessary.
The following general rules shall serve as the basis for any specific
rules and regulations:
(a) Upon written application on forms provided by the Committee, the
Committee may grant a loan to a Participant who has completed one
year of Plan participation, except shareholder employees or owner
employees as referred to in Section 4975(d) of the Code.
(b) The minimum amount of any loan shall be $1,000.
(c) In no event shall a loan exceed the lesser of
(i) $50,000, reduced by the highest outstanding loan balance during
the one-year period ending on the day before the date on which
any new loan is to be granted, or
(ii) 50% of the amount to which the Participant is vested under this
Plan on the date the loan is granted.
(d) Each loan granted to a Participant must be repaid in full before any
subsequent loan is granted to such Participant.
(e) All loans issued under this Article shall be considered investments
of the Account of the Participant to whom the loan is granted and
shall be charged to the investment funds proportionately, exclusive
of the Dendrite International, Inc. Common Stock Fund.
The Participant's Accounts shall be charged in the following order:
Regular Contribution, Matching Contribution, Elective Deferral
Contribution, Transfer, Voluntary and Rollover Accounts.
If a loan is granted as of any date other than the day after a
Valuation Date, no investment earnings will be credited on the amount
of the loan for the period from the last Valuation Date to the date
the loan is
74
<PAGE>
granted.
Interest shall be charged thereon at a rate equal to the prime rate
reported in The Wall Street journal on the first day of the month
during which the loan application was made.
(f) Each loan shall be secured by the assignment of not more than 50% of
the Participant's vested Account balance on the date the loan is
granted, a promissory note executed by the Participant and such
additional collateral as the Committee shall require to assure
repayment of the loan and all interest payable thereon.
(g) Each loan shall be repaid by the Participant either through payroll
deductions or in such other manner as the Committee shall determine,
provided such payment schedule does not permit payment less
frequently than quarterly. All payment schedules shall be calculated
to amortize principal and interest in level payments over the period
of the loan as agreed to by the Committee and the Participant not to
exceed five years from the date of such loan. Notwithstanding the
foregoing in the event a loan is approved for the purchase of a
principal residence, the repayment requirement may not exceed 10
years.
Principal and interest payments shall be credited to the Account of
the Participant to whom the loan is granted and shall be invested in
accordance with the Participant's current investment election.
(h) Except as provided in Subsection (k), upon a Participant's
termination of employment for any reason, the entire unpaid balance
of the loan shall be due and payable.
(i) If a Participant should fail to make a payment when due, the entire
unpaid balance of the loan shall be in default and the Committee
shall take any one or more of the following steps, as it deems
necessary, to secure repayment of such loan:
(i) Deduct the amount of the outstanding indebtedness from the
Participant's Account, to the extent permitted and available
under law and in accordance with the terms of the Plan. Such
deduction will not occur until a distributable event occurs
under the terms of the Plan.
(ii) Instruct the Trustee to sell any property held as collateral
for
75
<PAGE>
such loan.
(iii) Take such other steps as may be required.
(j) Each loan will require that within the 90-day period before the
granting of the loan, the Participant and, if married, his spouse,
consent to such loan in writing and acknowledge the reduction in the
Participant's Account in the event the loan is in default.
(k) Any Participant who is a "party in interest" as defined in ERISA
Section 3(14) and who ceases to be an active Eligible Employee may be
eligible to borrow from the Plan under terms and conditions
reflecting valid differences between active Participants and other
Participants which would be considered in a normal commercial setting
such as the unavailability of payroll deductions for repayment. In
addition, there will be an annual fee for the administration of each
of such loans of $100. In no event will loans be unreasonably
withheld from any eligible applicant.
(l) No distribution from the Plan upon termination of employment for any
reason shall be made to any Participant or Beneficiary unless and
until all loans, including interest thereon, have been fully repaid.
(m) A nonrefundable processing fee of $75 shall be charged for each loan
processed.
76
<PAGE>
ARTICLE 14
GENERAL PROVISIONS
14.01 EXCLUSIVENESS OF BENEFITS
The Plan has been created for the exclusive benefit of the Participants
and their Beneficiaries. No part of the Trust Fund shall ever revert to
the Company nor shall such Trust Fund ever be used other than for the
exclusive benefit of the Participants and their Beneficiaries, except as
provided in Sections 3.10 and 9.03 and Subsection 4.03(d) provided,
however, that contributions made by the Company by mistake of fact or
which are not deductible under Section 404 of the Code, may be returned to
the Company within one year of the mistaken payment of the contribution or
the date of disallowance of the deduction, as the case may be. All
contributions made by the Company shall be conditional upon their
deductibility under Section 404 of the Code. No person shall have any
interest in or right to any part of the Trust Fund, or any equitable right
under the Trust Agreement, except to the extent expressly provided in the
Plan or Trust Agreement.
14.02 LIMITATION OF RIGHTS
Neither the establishment of the Plan, nor any modification thereof, nor
the creation of any fund, trust or account, nor the purchase of any
policy, nor the payment of any benefits shall be construed as giving any
Participant, Beneficiary, or any other person whomsoever, any legal or
equitable right against the Company, the Committee, or the Trustee, unless
such right shall be specifically provided for in the Plan or conferred by
affirmative action of the Committee or the Company in accordance with the
terms and provisions of the Plan; or as giving any Participant or any
other employee of the Company the right to be retained in the service of
the Company and all Participants and other employees shall remain subject
to discharge to the same extent as if the Plan had never been adopted.
14.03 LIMITATION OF LIABILITY AND LEGAL ACTIONS
In any action or proceeding involving the Trust Fund, or any part thereof,
or the administration thereof, the Company, the Committee, and the Trustee
shall be the only necessary parties. Any final judgment entered in any
such action or proceeding which is not appealed or appealable, shall be
binding and conclusive on the parties thereto, and all persons having or
claiming to have an interest in the Trust Fund or under the Plan.
77
<PAGE>
14.04 CONSTRUCTION OF AGREEMENT
The Plan shall be construed according to the laws of the State in which
the Company named under Article 1 has its principal place of business, and
all provisions hereof shall be administered according to, and its validity
shall be determined under, the laws of such State except where preempted
by Federal law.
14.05 TITLE TO ASSETS
No Participant, Beneficiary or any other person shall have any legal or
equitable right or interest in the funds set aside by the Company, or
otherwise received or held under the Plan, or in any assets of the Trust
Fund, except as expressly provided in the Plan, and no Participant,
Beneficiary or any other person shall be deemed to possess a right to any
assets except as herein provided.
14.06 SEVERABILITY
Should any provision of the Plan or any regulations adopted thereunder be
deemed or held to be unlawful or invalid for any reason, such fact shall
not adversely affect the other provisions or regulations unless such
invalidity shall render impossible or impractical the functioning of the
Plan and, in such case, the appropriate parties shall immediately adopt a
new provision or regulation to take the place of the one held illegal or
invalid.
14.07 TITLES AND HEADINGS
The titles and headings of the Sections in this instrument are for
convenience of reference only and, in the event of any conflict, the text
rather than such titles or headings shall control.
14.08 COUNTERPARTS AS ORIGINAL
The Plan has been prepared in counterparts, each of which so prepared
shall be construed an original.
14.09 MERGER OF PLANS
Upon the merger or consolidation of any other plan with this Plan or the
transfer of assets or liabilities from this Plan to any other plan, all
Participants of this Plan shall be entitled to a benefit immediately after
the
78
<PAGE>
merger, consolidation or transfer (if the merged, consolidated or
transferee plan had then been terminated) at least equal to the benefit
they would have been entitled to immediately prior to such merger,
consolidation or transfer (if the Plan had then terminated).
79
<PAGE>
EXHIBIT 13
DENDRITE
DENDRITE INTERNATIONAL, INC. 1996 ANNUAL REPORT
[ARTWORK APPEARS HERE]
<PAGE>
[PICTURE APPEARS HERE]
Dendrite
Dendrite International, Inc. provides comprehensive, enterprise-wide customer
management systems and supporting services which are used to manage, coordinate
and control the activities of large sales organizations in complex selling
environments. Each product series offers a suite of optional extended modules
which allow our customers to acquire a system tailored to their specific
requirements. Most customers pay a one-time software license fee and
simultaneously buy a three-to-five year support agreement. As our customers add
software modules, they typically also buy incremental supporting services. Given
our historically high customer retention rate, we enjoy not only recurring
revenues, but also tend to experience a compounding effect as our customer
relationships expand. Headquartered in Morristown, New Jersey, Dendrite employs
over 600 people in 12 offices around the world. In 1996, 52% of sales were
outside the United States. The Company is organized into two divisions
reflecting our specialized industry expertise.
<TABLE>
<CAPTION>
Financial Highlights
(In thousands, except per share data)
Year Ended December 31, 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues.......................................... $39,426 $54,122 $66,246
Operating income (loss)........................... 4,229 7,170 (2,044)
Net income (loss)................................. 2,327 4,694 (1,912)
Pro forma net income excluding non-recurring items 2,327 4,694 1,063
Net income (loss) per share....................... $ 0.24 $ .45 $ (.17)
Pro forma net income per share excluding
non-recurring items.............................. $ 0.24 $ .45 $ .09
Shares used in computing net income (loss) per
share............................................ 9,530 10,381 11,056
As of December 31, 1994 1995 1996
- ------------------------------------------------------------------------------
Working capital................................... $ 5,008 $28,655 30,432
Total assets...................................... 20,480 45,267 49,215
Stockholders' equity.............................. 1,695 32,310 35,176
</TABLE>
<PAGE>
[PICTURE APPEARS HERE]
Healthcare Division
Since our founding in 1986, we have primarily focused on the healthcare sector,
and today we are the largest provider of customer management systems to the
global pharmaceutical industry. Our target markets are the top 50 pharmaceutical
companies in the Americas, Europe, Australia and Japan. We believe our
Healthcare Division's leading market share can be attributed to several factors
that differentiate us from other vendors of sales force automation software.
While many vendors describe their products using the popular technology
buzzwords, at Dendrite we use our in-depth understanding of the ever-changing
global pharmaceuticals industry to develop comprehensive solutions to important
business problems. Many of our key personnel have previously held senior
management positions in major healthcare companies. Unlike some of our largest
competitors whose primary business is selling data, we are data independent and
are experts in integrating multiple data sources. We invest heavily in research
and development to continuously improve functionality, we partner and
collaborate with other talented companies to develop leading-edge capabilities,
and we provide unparalleled ongoing support and services to help our customers
realize the maximum return on their technology investment.
Consumer Business Division
In keeping with our objective of migrating the Dendrite business model to other
industries with similar characteristics, in 1996, we formed a Consumer Business
Division to serve the over-the-counter drug and cosmetics (OTC) and consumer
packaged goods (CPG) industries worldwide. As a result of working with the non-
pharmaceutical divisions of our healthcare customers, we realized that
CPG companies and OTC drug makers also must contend with extremely complex
selling environments. To launch our full-scale move into this new vertical
market, in May 1996, we acquired SRCI S.A., France's largest provider of sales
force management systems for the OTC and CPG markets. Our strategy in this
market is to create high value-added solutions based on an in-depth
understanding of merchandising and other critical elements of the business and
to provide tools that can be used by sales representatives to interact with all
levels of the retail chains from the individual stores all the way to the
national level. Also, we have the infrastructure in place to offer outstanding
training and ongoing support, which plays an important role in our strategy for
developing this vast market.
[PICTURE APPEARS HERE]
Enterprise-wide Customer
Management Solutions
Contract Management
Call Reporting and Sampling
Customer Management
Time Management
Dynamic Information on Exchange
Decision Support Tools
Team Selling
Sales and Activity Analysis
Sales Order Management
Implementation Services
Training
Project Management
Data Modeling
Customization
Database Design
Sales Staff/Home Office
E-Mail Integration
Hardware Preparation
Support Services
Project Management
Database Integration and
Cleansing
Hardware Support
Territory Realignment
Sales Force Support Services
Information Assets Management
<PAGE>
Year In Review
[GRAPH APPEARS HERE]
In 1996, we trained more users than any other year in our history...
Despite a disappointing fourth quarter, 1996 was a successful year in many
respects. We reported an increase in sales of 22% to $66.2 million. The $1.9
million net loss we reported for the year includes several non-recurring items
in the fourth quarter as well as a one-time charge related to the acquisition of
SRCI in the second quarter. Excluding these charges, our net profit for the year
would have been $1.1 million, or $0.09 per share, for the year.
After achieving record results through the first nine months, we experienced
several unanticipated events in the fourth quarter including the delay of new
license purchases by an existing customer, the delay of another client's upgrade
decision, and the postponement of certain implementations in seven different
countries for a customer. We are pleased to report that, at this writing, six
delayed implementation and support contracts have been secured and, while the
upgrade and expansion programs are still pending, we have announced 14 other new
contracts or letters of intent totaling more than $20 million over the next
three years. The past several months have been among the strongest in our
history in terms of new business and we believe we are back on track once again.
We have also taken steps to avoid this sort of problem in the future by altering
the terms of our contracts with customers and by making changes in our European
organization.
The successful aspects of 1996 included rolling out more users than any other
year in the past, completing a worldwide implementation for one customer, and
installing systems in the United Kingdom, France, Italy, Brazil and Belgium for
several others. In addition, we made significant progress toward our strategic
goals. Last year, we outlined several areas of focus and we'd like to present
the following highlights of our progress:
Migrating Our Business Model to New Markets
In May, we moved into a new vertical market with the acquisition of SRCI S.A.,
the largest provider of sales force management systems in France for the over-
the-counter drug and cosmetics (OTC) and consumer packaged goods (CPG)
industries. Based on the knowledge acquired through the implementation of over
100 sales force automation projects since 1988, SRCI has developed a standard
product called NOMAD's. It was introduced to the French market in the third
quarter of 1996 and it has been very well received, attracting a number of large
well-known companies to our client list.
2
<PAGE>
...and simultaneously boosted R&D spending in order to maintain our global
leadership.
[CHART APPEARS HERE]
Research and Development Expenditures ($ in thousands)
We are using the SRCI acquisition as a springboard for expanding into the OTC
and CPG markets worldwide. Toward that end, we have established a new Consumer
Business Division, headed by Howard Hirsch, an experienced consumer products
executive. Mr. Hirsch's team is focusing initially on the U.S. and U.K. and,
during the third quarter, the system developed by SRCI was translated into
English and adapted for local market characteristics. This system, marketed
under the name ForceOne(TM), is also getting an excellent reception from
potential U.S. and U.K. customers. We consider our service and support
capabilities a key competitive advantage in this market, but the proportion of
service revenues to total revenues is unlikely to reach as high a ratio as in
the pharmaceuticals area because of the inherent differences in the two business
sectors.
Expanding Existing Relationships
New business success was particularly strong in Europe during 1996. We added
representatives in new geographic areas for three of our existing clients. In
addition, two customers expanded the number of representatives using our system
in Australia and New Zealand and a U.S. pharmaceutical giant announced the
addition of a new sales force that would bring the number of Dendrite users to
more than 3,000 at that company alone. This is the largest single sales force
serviced by Dendrite.
Product Enhancements
Series 6 version 2.0 was released in September, right on schedule. This new
version of our core product includes enhancements to each component system. In
particular, improvements to the Account Manager system enhance the customer's
ability to deal with the evolving managed care environment.
With the introduction of Series 6.2, we also added new automated database
synchronization and network connectivity capabilities, which solves an important
problem for field users by enabling them to tap into the same facilities that
are available to the rest of the corporation and to harness the power of the
Internet/intranet. These tools also provide automated on-line synchronization
within a single communications session, eliminating the need for field users to
enter and exit applications sequentially.
Strategic Relationships
To augment our own research and development efforts, we have entered into
several business relationships with companies that are leaders in their
respective fields. These collaborative efforts have resulted in major
enhancements to our total product offering and opportunities to penetrate new
segments of the market.
3
<PAGE>
[PICTURE APPEARS HERE]
We begin a new year with a feature-rich portfolio of software products and...
In 1996, we entered into an agreement with ProScape Technologies, Inc., a
leading provider of sales force effectiveness software, to integrate their sales
presentation and computer-based detailing tools with our Series 6 applications.
ProScape's software, called SalesPRO, is a powerful set of multimedia
presentation tools for individual and group audiences that can be easily
customized and tailored to physicians' particular interests, even while a sales
call is in progress. This represents a significant advantage over "canned"
multimedia presentations. By integrating SalesPRO with Series 6, we allow sales
representatives to plan and measure their total selling effort, to use data from
prior presentations to more accurately direct future content, and to measure and
redirect selling time to reflect the interests of each doctor as recorded by the
use of the multimedia tools previously.
We are working with Presidio Systems, Inc., to provide comprehensive solutions
and services for automating clinical trial reporting. Presidio provides an
integrated suite of software products that significantly improves automation of
clinical trial design, data acquisition, cleansing and review. Dendrite, in
turn, enables a complete solution by offering hardware and software
configuration, training of trialists, user help desk support and data center
management services. Together, we recently began our first implementation of an
integrated solution for a large multinational pharmaceutical company for a group
of clinical researchers, doctors and other users in both Europe and the United
States.
In the fourth quarter, we announced the introduction of a palmtop Wireless
Hospital Rep system, which we jointly developed with PenVision Information
Systems, Inc., a technological leader in creating applications for palm-based
systems for mobile workers. The hospital rep product runs on the Microsoft
Windows CE operating system, a new platform for hand-held PCs. It is the first
customer management system to be developed for the Windows CE platform. Hospital
reps operate in especially complex selling environments that require interaction
on a daily basis with many different decision-makers and decision-influencers,
with a limited opportunity to plan and prepare in advance. These conditions
require capabilities that transcend the typical laptop system which communicates
with the host computer over standard phone lines. Using a wireless modem, the
small, lightweight unit provides continuous remote access to the entire Dendrite
information system and can download appropriate amounts of data from the host
computer and store it on the palmtop device. The system also enables customer
signature capture for sample distribution and receipt recording.
4
<PAGE>
Early in 1997, we reached a teaming agreement with Epsilon, a subsidiary of
American Express Corporation and a leading provider of database marketing
services, to integrate Series 6 with Epsilon's high performance data
warehousing, information asset management and campaign management
capabilities. Some of the benefits our customers will realize include: better
database integrity; more rapid update cycle and quicker access to vital
information; powerful, yet easy-to-use analytical tools; and the ability to
design, measure and refine highly-targeted direct marketing programs.
More Flexibility
In response to customer feedback, we are offering tools that provide more
flexibility to instantly adapt systems to changes in the marketplace while
maintaining all the benefits of a customized system with access to full support
services. Using our new data management and system editor tools, the customer's
home office can, if it chooses, match, merge, or validate data themselves and
can use the system editor to make modifications to reflect changes such as
product, sample size, and price without involving Dendrite.
When designing Series 6 version 2.0, our team paid particular attention to ease
of integration so that many of the new features can be made available to current
Window-based customers without necessitating a full upgrade. Marketed as "Add-
Ins", some of the functionality that we are making available separately include
the Wireless Hospital Rep system, and the Exception Panel, a tool to help
representatives focus on areas that require immediate attention.
...several alliances that enhance our total solution and create new
opportunities.
5
<PAGE>
[PICTURE APPEARS HERE]
Our palmtop-based Hospital Rep system is at the forefront of a much broader move
toward increased functionality coupled with better portability.
Moving Forward
Opportunities
Our achievements in 1996 leave us well-positioned for the balance of the decade.
We have a feature-rich portfolio of software products using the latest
technology, and we have formed important strategic alliances that augment and
enhance our own capabilities. Here's how we see our mission from here:
CPG Market Development--We believe our entrance into this market is timely. Thus
far, no software vendor has developed a strong global presence in this market,
and we have the opportunity to occupy that position. While the individual field
forces are smaller than in the pharmaceutical industry, the large number of
consumer packaged goods companies makes this a very attractive market. As many
of these companies are global organizations, we are well-positioned to provide
multinational implementation and ongoing support by building on our existing
infrastructure of offices and people around the world.
New Pharmaceutical Customers--About 40% of our potential target market remains
unautomated or is served by internally-developed customer management systems. We
believe that the accelerating pace of change, growing complexity, and highly
competitive nature of the global pharmaceuticals market will eventually force
many of these companies to seek new solutions of the type that Dendrite products
provide.
Geographic Expansion--Our penetration of most of our current customers accounts
remains relatively modest, both in terms of modules implemented and the number
of countries served. We are excited about the prospects for certain developing
markets such as those in Latin America.
Upgrade Potential--Many of our customers are using DOS-based Dendrite systems
and are candidates for upgrading to our Series 6 Windows-based system. The
significant enhancements we've recently made to Series 6 are intended to spur
upgrade decisions, particularly in the United States where dealing in a managed
care environment is a growing challenge. However, we note that customer upgrade
decisions seem to be taking more time to complete now than in prior years.
More Modules and Add-Ins--Some of our customers who have recently cleared the
initial hurdles of installation and training may purchase additional modules.
With the availability of multiple Add-Ins, we also anticipate interest from
customers with earlier versions of our Windows-based systems who are attracted
by the opportunity to add one function at a time.
6
<PAGE>
Leveraging Our Infrastructure Investment--With twelve offices around the globe,
we have the infrastructure in place to serve customers in most major countries.
We believe that this will be a significant competitive advantage as we pursue
the global CPG market. Also, by pursuing strategic alliances, we have the
opportunity to extend our service and support capabilities into areas of our
existing markets where we would not otherwise have a presence.
Challenges
In order to realize our maximum potential for growth and profitability, we
recognize that there are a host of challenges that we must meet. Some of them
are typical of any rapidly growing organization and others are specific to our
type of business. Some of the main areas of focus for the coming years include:
Research and Development--We believe that the Dendrite Hospital Rep system is at
the forefront of a much broader move toward increased functionality coupled with
better portability that will characterize our business for years to come. We
must continue to anticipate the future needs of our customers and devote the
appropriate research and development resources to technology and process
improvements ahead of demand in order to maintain our leadership position.
Recruiting--In order to achieve the same degree of success in the CPG market
that we have enjoyed in pharmaceuticals, we must recruit people who have an in-
depth understanding of the business issues in that marketplace. Without this
capability, we become just another software vendor instead of an organization
that is geared toward solving major business problems related to the sales and
marketing function in the CPG industry.
Sales and Marketing--We are witnessing much greater awareness of the potential
benefits of sales force automation in the world at large with a commensurate
increase in the number of software vendors in the market. It is becoming more
difficult for customers to sort out the various vendors claims, and it will
continue to be our challenge to differentiate ourselves from the pack. At the
very least, the proliferation of competitors will continue to support the
customers' use of consultants to help in the software decision, which is one of
the reasons we find the sales cycle lengthening.
[PICTURE APPEARS HERE]
We are extending our expertise in handling complex selling environments to the
vast consumer packaged goods market.
7
<PAGE>
Through strategic partnering we have added exciting new multimedia presentation
tools to our products.
[PICTURE APPEARS HERE]
Training--With some companies considering massive deployments in several
countries at the same time, we must have the ability to train large numbers of
users efficiently and cost-effectively in order to shorten the implementation
cycle. We must also continue our development of new tools to augment the
classroom training and minimize the amount of time that representatives are out
of the field.
Customer Service--As we grow, our base of users represents an increasingly
diverse group in terms of the systems they are using and the level of
familiarity and sophistication they have achieved. We must take steps to ensure
that we are supplying a uniformly high level of support and service to all
users. To this end, we are continuing to refine and implement throughout the
world the concept of service level agreements with each customer. This sets the
mutually agreed standard for providing key service components and allows
Dendrite to measure and report against an objective standard regularly.
Strategic Partnering--It is important to recognize that we can't hope to be
equally good at everything and we must continue to seek business alliances with
appropriate organizations for our mutual benefit in an increasingly complex
market.
All of us at Dendrite look forward with great enthusiasm to the challenges we
face and to the opportunities--the ones we've already created as well as the new
ones we're working on now.
8
<PAGE>
Selected Financial Data Dendrite International, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License fees................ $ 8,234 $ 4,814 $ 6,917 $ 6,042 $ 8,774
Services.................... 15,066 22,578 32,509 48,080 57,472
-------------------------------------------------
23,300 27,392 39,426 54,122 66,246
-------------------------------------------------
Cost of Revenues:
Cost of license fees........ 599 1,296 1,450 712 832
Cost of services............ 8,149 9,930 14,509 21,144 29,631
-------------------------------------------------
8,748 11,226 15,959 21,856 30,463
-------------------------------------------------
Gross margin.............. 14,552 16,166 23,467 32,266 35,783
-------------------------------------------------
Operating Expenses:
Selling, general and
administrative............. 10,649 12,035 16,392 21,252 26,440
Research and development.... 1,556 2,560 2,846 3,844 8,747
Write-off of in-process
research and development... -- -- -- -- 2,640
-------------------------------------------------
12,205 14,595 19,238 25,096 37,827
-------------------------------------------------
Operating income (loss)... 2,347 1,571 4,229 7,170 (2,044)
Interest expense.............. 15 37 74 15 12
Other expense (income)........ (78) 65 250 (526) (788)
-------------------------------------------------
Income (loss) before
income taxes and
extraordinary item....... 2,410 1,469 3,905 7,681 (1,268)
Income taxes.................. 1,535 778 1,578 2,987 644
-------------------------------------------------
Income (loss) before
extraordinary item....... 875 691 2,327 4,694 (1,912)
Extraordinary Item-Tax
benefit from utilization of
net operating loss
carryforward. 286 -- -- -- --
-------------------------------------------------
Net income (loss)............. $ 1,161 $ 691 $ 2,327 $ 4,694 $(1,912)
=================================================
Net income (loss)
per share(1)................. $ .24 $ .45 $ (.17)
=============================
Shares used in computing net
income (loss)per share(1).... 9,530 10,381 11,056
============================
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital.................. $ 1,202 $ 2,861 $ 5,008 $28,655 $30,432
Total assets..................... 11,204 11,666 20,480 45,267 49,215
Capital lease obligations, less
current portion................. 41 39 33 -- --
Redeemable Series A convertible
preferred stock................. 6,914 6,945 6,976 -- --
Stockholders' equity (deficit)... (1,506) (711) 1,695 32,310 35,176
(1) Computed on the basis described in Note 1 of "Notes to Consolidated
Financial Statements".
</TABLE>
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company succeeded in 1991 to a business co-founded in 1986 by the
Company's current President and Chief Executive Officer to provide
comprehensive Electronic Territory Management ("ETM") solutions to be used
to manage, coordinate and control the activities of large sales forces in
complex selling environments, primarily in the ethical pharmaceutical
industry. Today, the Company's solutions combine advanced software products
with a wide range of specialized support services including implementation
services, technical and hardware support services and sales force support
services. The Company develops, implements and services advanced ETM systems
in the United States, Canada, Western Europe, Japan, Australia, New Zealand,
Hong Kong, and Brazil through its own sales, support and technical personnel
located in twelve offices worldwide.
The Company generates revenues from two sources: fees from support services
and license fees. Service revenues, which account for a substantial majority
of the Company's revenues, consist of fees from a wide variety of contracted
services which the Company makes available to its customers, generally under
multi-year contracts. Implementation fees are generated from services
provided to design and implement the ETM solution for the customer.
Technical and hardware support fees are derived from services related to the
operation of the customer's file server and from the provision of ongoing
technical and customer service support including customization of the
software following implementation. Sales force support fees are derived from
organizing and managing support for the customer's sales force.
License fees are charged by the Company for use of its proprietary computer
software. Customers generally pay one-time perpetual license fees based upon
the number of users, territory covered and the number of functions in the
particular system licensed by the customer. The Company recognizes one-time
license fees as revenue using the percentage of completion method over a
period of time that commences on the date of delivery of the software to the
licensee and ends on the date that initial customization, as defined in each
contract, is complete. For license contracts that contain customer
acceptance provisions, revenue is not recognized until such time as the
acceptance provisions are satisfied. To date there have been no instances in
which customer acceptance provisions have led to nonpayment of license fees.
Additional license fees are payable when customers agree to license
additional functions or enhancements, acquire an upgraded version of the
Company's software and/or when the maximum number of users or initial
geographic coverage is exceeded. The Company has, in the past, made
available an alternative license fee arrangement known as a "capitation"
agreement under which the customer licenses Dendrite software and upgrades
for an increasing preset annual charge over a specified term (currently up
to 10 years). The fee in these cases encompasses all users in all geographic
regions, and covers all maintenance fees and upgrades. One customer has
executed a capitation agreement to date. All license fees, domestic and
export, are included under the heading "License Fees--United States" in Note
10 of "Notes to Consolidated Financial Statements".
Currently, the Company's products are marketed in over 16 countries. The
United States, the United Kingdom and France are the Company's main markets.
Approximately 44%, 48% and 52% of the Company's total revenues were
generated outside the United States during the years ended December 31,
1994, 1995, and 1996, respectively. Services provided by Dendrite's foreign
branches and subsidiaries are billed in local currency. License fees for
Dendrite products are billed in U.S. dollars regardless of where they
originate. Foreign license fees are shown as United States export revenues
in Note 10 of "Notes to Consolidated Financial Statements". The Company
expects its foreign operations to grow and to continue to account for a
material part of its revenues. Operating results generated in local
currencies are translated into United States dollars at the average exchange
rate in effect for the reporting period.
10
<PAGE>
Dendrite International, Inc. and Subsidiaries
The Company markets its products and services to customer personnel in their
management information services department and in either their sales
management or sales administration department. However, senior management or
even the board of directors of a customer may be involved due to the costs
involved. The Company believes that its customers and potential customers
may make detailed financial analyses of these costs and the expected
benefits to them of licensing a Dendrite ETM system, although the results of
such analyses generally are not disclosed to the Company.
The Company's operating profits by geographic segments are shown in Note 10
of "Notes to Consolidated Financial Statements". The geographic operating
profits are primarily affected by the utilization of technical and support
personnel to support service revenues, start-up costs associated with
opening new operations and the ability to increase service revenues faster
than the growth in selling, general and administrative expenses. In
addition, operating profits in the United States are affected by the
fluctuation in total license fees since all license fees are included in
United States operating profits.
Results of Operations
The following table sets forth certain line items in the Company's
consolidated statements of operations as a percentage of total revenues for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
-----------------------
<S> <C> <C> <C>
Revenues:
License fees................................................................. 18% 11% 13%
Services..................................................................... 82 89 87
---------------------
100 100 100
---------------------
Costs of Revenues:
Cost of license fees......................................................... 4 1 1
Cost of services............................................................. 37 39 45
---------------------
41 40 46
---------------------
Gross margin............................................................... 59 60 54
---------------------
Operating Expenses:
Selling, general and administrative.......................................... 41 40 40
Write-off in-process research and development................................ -- -- 4
Research and development..................................................... 7 7 13
---------------------
48 47 57
---------------------
Operating income (loss).................................................... 11 13 (3)
Other expense (income)......................................................... 1 (1) (1)
---------------------
Income (loss) before income taxes.......................................... 10 14 (2)
Income taxes................................................................... 4 5 1
---------------------
Net income (loss).............................................................. 6% 9% (3)%
=====================
</TABLE>
Years Ended December 31, 1995 and 1996
Revenues. Total revenues increased $12,124,000 or 22% from $54,122,000 in
1995 to $66,246,000 in 1996 as a result of an increase in the installed base
of Dendrite systems, both from new and existing customers, for Dendrite's
pharmaceutical customers and the acquisition of SRCI S.A. in May 1996.
11
<PAGE>
License fee revenues increased from $6,042,000 in 1995 to $8,774,000 in
1996. This increase was primarily attributable to several large contracts
completed during the year. Included in 1995 and 1996 revenues are license
fees from a multi-year capitation agreement. Of 1995 and 1996 license fees,
74% and 80%, respectively, were derived from Series 5 and Series 6 products.
Service revenues increased 20% from $48,080,000 in 1995 to $57,472,000 in
1996 as a result of an increase in the Company's installed base of Dendrite
systems and implementation services provided to new and existing customers
and, to a lesser extent, the increased marketing of services to SRCI S.A.'s
customers into the consumer packaged goods market. Service revenues as a
percentage of the Company's total revenues decreased from 89% in 1995 to 87%
in 1996. This percentage decrease was primarily attributable to a deferral
from 1996 to 1997 of a major customer implementation in seven countries and
to higher license fees in 1996.
Revenues from Pfizer Inc., Eli Lilly and Company and Rhone-Poulenc Rorer
Inc. in the aggregate accounted for approximately 58% of the Company's
revenues for the year ended December 31, 1996 and approximately 56% of the
Company's revenues for the year ended December 31, 1995.
Cost of Revenues. Cost of revenues increased 39% from $21,856,000 in 1995 to
$30,463,000 in 1996 primarily due to an increase in the number of service
representatives and technical staff and, to a lesser extent, an increase in
associated support costs. This support cost increase was related to the
increase in service revenues, incremental costs incurred related to the
hiring of personnel for the seven customer delayed implementations and the
higher costs associated with utilizing independent contractors.
Cost of license fees increased slightly from $712,000 in 1995 to $832,000 in
1996. In 1996, the cost of license fees represents the amortization of
capitalized costs of $739,000 and third party vendor license fees of
$93,000. In 1995, cost of license fees include amortization of capitalized
software costs of $410,000 and third party software vendor license fees of
$302,000.
Cost of services increased from $21,144,000 in 1995 to $29,631,000 in 1996.
As a percentage of service revenues, cost of services increased from 44% of
service revenues for the year ended December 31, 1995 to 52% of service
revenues for the year ended December 31, 1996. This increase was
attributable to hiring personnel for training, customer service and
technical support for the seven customer delayed implementations discussed
above, and to higher costs associated with retaining a significant number of
independent contractors to complete client deliverables.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
24% from $21,252,000 in 1995 to $26,440,000 in 1996. As a percentage of
revenues, SG&A expenses remained constant at 40% for the year ended December
31, 1996 in comparison to the year ended December 31, 1995. The increase in
1996 was primarily attributable to costs associated with restructuring the
Company's European service delivery organization and the amortization of
goodwill associated with the SRCI acquisition.
Acquisition of SRCI. On May 1, 1996, the Company acquired 100% of the
capital stock of SRCI S.A., a French company for 16,350,000 French Francs,
equivalent to U.S. $3,198,000 and transaction costs of $302,000. The
acquisition has been accounted for using the purchase method of accounting,
whereby the purchase price is allocated to the assets and liabilities of
SRCI based on their fair market values at the acquisition date. The excess
of the purchase price over the fair value of the net assets acquired was
assigned to identifiable intangibles. The Company assigned $2,640,000 to in-
process research and development and such amount was written off in the
accompanying statement of operations. The Company also recorded $860,000 as
goodwill. SRCI's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition.
Research and Development. Research and development expenses increased 128%
from $3,844,000 in 1995 to $8,747,000 in 1996. As a percentage of revenues,
research and development expenses increased from 7% for the year ended
December 31, 1995 to 13% for the year ended December 31, 1996. The increase
in research and development expenses in 1996 was attributable to creating
country specific product for the German market, to provide new products for
several joint ventures announced during the year and completion of the
ForceOne product for Dendrite's consumer business division.
12
<PAGE>
Dendrite International, Inc. and Subsidiaries
Other Income Expense. Other income/expense increased from $526,000 of income
in 1995 to $788,000 of income in 1996. This change was primarily due to
interest income earned on investments from proceeds of the initial public
offering.
Provision for Income Taxes. The effective tax expense of 51% for the year
ended December 31, 1996 was primarily the result of the writeoff of in-
process research and development resulting from the acquisition of SRCI S.A.
in May 1996. The effective tax rate for the year ended December 31, 1995 was
39%.
Years Ended December 31, 1994 and 1995
Revenues. Total revenues increased $14,696,000 or 37% from $39,426,000 in
1994 to $54,122,000 in 1995 as a result of an increase in the installed base
of Dendrite systems, both from new customers and existing customers.
License fee revenues decreased from $6,917,000 in 1994 to $6,042,000 in
1995. This decrease was primarily attributable to timing of contracts,
delays in customer acceptance of the Company's software and customer budget
changes. Included in 1994 and 1995 revenues are license fees from multi-year
capitation agreements, which the Company began to make available to
customers in 1994. Under this type of agreement, the customer licenses
software and upgrades for an increasing preset annual charge. Also included
in 1995 license fees are revenues of $362,000 that relate to third party
software included in the Company's Windows(TM)-based Series 5 and Series 6
installed product. Of 1994 and 1995 license fees, 54% and 74%, respectively,
were derived from Series 5 and Series 6 products.
Service revenues increased 48% from $32,509,000 in 1994 to $48,080,000 in
1995 as a result of an increase in the Company's installed base of Dendrite
systems and implementation services for new and existing customers. Service
revenues as a percentage of the Company's total revenues increased from 82%
in 1994 to 89% in 1995. This percentage increase was primarily attributable
to increases in the Company's installed base and implementation services and
lower license fee revenues in 1995.
Revenues from Pfizer Inc., Eli Lilly and Company and Johnson & Johnson in
the aggregate accounted for approximately 54% for the year ended December
31, 1994, and from Pfizer Inc., Eli Lilly and Company and Rhone-Poulenc
Rorer Inc. in the aggregate accounted for approximately 56% of the Company's
revenues for the year ended December 31, 1995.
Cost of Revenues. Cost of revenues increased 37% from $15,959,000 in 1994 to
$21,856,000 in 1995 primarily due to an increase in the number of service
representatives and technical staff and, to a lesser extent, an increase in
associated support costs. This increase was directly related to the increase
in service revenues.
Cost of license fees decreased from $1,450,000 in 1994 to $712,000 in 1995.
This decrease was primarily a result of the acquired application software
costs becoming fully amortized by the end of 1994 partially offset by costs
incurred in 1995 for third party software vendor license fees. In 1995, cost
of license fees include amortization of capitalized software costs of
$410,000 and third party software vendor license fees of $302,000. In 1994,
cost of license fees include the amortization of capitalized software of
$473,000 and amortization of acquired application software costs of
$977,000.
Cost of services increased from $14,509,000 in 1994 to $21,144,000 in 1995.
As a percentage of service revenues, cost of services decreased from 45% of
service revenues for the year ended December 31, 1994 to 44% of service
revenues for the year ended December 31, 1995 due to improved efficiency of
certain support teams in the United States partially offset by increases in
support costs in three startup/developing overseas offices.
Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased
30% from $16,392,000 in 1994 to $21,252,000 in 1995. The increase in 1995
was primarily attributable to increased staff and, to a lesser extent, an
increase in facilities growth to support operations and sales. As a
percentage of revenues, SG&A expenses decreased from 41% for the year ended
December 31, 1994 to 40% for the year ended December 31, 1995. This decrease
was primarily due to service revenues increasing faster than the growth in
SG&A expense.
Research and Development. Research and development expenses increased 35%
from $2,846,000 in 1994 to $3,844,000 in 1995. As a percentage of revenues,
research and development expenses remained constant at 7% for the year ended
December 31, 1995, in comparison to the year ended December 31, 1994. The
increase in research and development expenses in 1995 was attributable to
increased staff and resources required to continue development
13
<PAGE>
of updates and upgrades for the Company's Series 6 software product and for
the development of prototypes for the next series of products,
Other Income Expense. Other income/expense changed from $250,000 of expense
in 1994 to $526,000 of income in 1995. This change was primarily due to
interest income earned on investments from proceeds of the initial public
offering.
Provision for Income Taxes. The effective tax rate was 39% for the year
ended December 31, 1995 which was relatively constant as compared to the
effective tax rate of 40% for the year ended December 31, 1994.
Variability of Quarterly Results
Fluctuations in the Company's quarterly revenues depend on a number of
factors, some of which are beyond the Company's control. These factors
include, among others, the timing of contracts, delays in customer
acceptance of the Company's software, the length of the sales cycle,
customer budget changes and changes in the pricing policy by the Company or
its competitors. The Company establishes its expenditure levels for product
development and other operating expenses based in large part on its expected
future revenues. As a result, should revenues fall below expectations,
operating results are likely to be adversely and disproportionately affected
because only a small portion of the Company's expenses vary with its
revenues. In addition, the Company's quarterly revenues from software
license fees and related income may vary due to seasonal and cyclical
factors. The Company typically expects to realize a greater percentage of
its license fees and service revenues in the second half of the year with a
lower percentage in the first half. However, the interplay between this
seasonal pattern and the long selling cycles for the Company's products
means that actual results may vary from this expectation for a given year.
In the future, to the extent the percentage of revenue from service revenues
from existing customers of the Company continues to increase, seasonal and
cyclical trends in the Company's revenues may be reduced.
Liquidity and Capital Resources
The Company has historically financed its operations primarily through cash
generated by operations. Net cash utilized by operating activities was
$2,764,000 for the year ended December 31, 1996 compared to cash provided of
$2,015,000 during the year ended December 31, 1995. The decrease in cash
provided by operating activities in 1996 compared to 1995 is due primarily
to the decrease in income and decreases in taxes payable and deferred
revenues, the increase in prepaid taxes partially offset by increases in
accounts payable and accrued expenses.
The Company utilized $2,499,000 from cash investing activities in 1996
compared to the utilization of $13,338,000 in cash from investing activities
in 1995. In 1996, cash utilized in investing activities included $2,965,000
for the purchase of SRCI S.A. In 1995, the cash utilized was primarily
attributable to the purchases of short-term investments from the net
proceeds the Company received upon the closing of its initial public
offering.
The Company maintains a $5,000,000 revolving line of credit agreement with
The Chase Manhattan Bank, N.A. The agreement provides for borrowings up to
$1,000,000 in local currencies directly by the Company or certain of its
overseas subsidiaries and is available to finance working capital needs and
possible future acquisitions. The $5,000,000 line of credit is secured by
substantially all of the Company's assets. The $5,000,000 line of credit
agreement requires the Company to maintain a minimum consolidated net worth,
among other covenants, measured quarterly, which is equal to the Company's
net worth as of December 31, 1994 plus 50% of net income earned after
December 31, 1994 and plus the net proceeds of any stock offering. This
covenant has the effect of limiting the amount of cash dividends the Company
may pay. At December 31, 1996, 1995 and 1994, there were no borrowings
outstanding under the agreement.
At December 31, 1996, the Company's working capital was approximately
$30,432,000. The Company has no significant capital spending or purchasing
commitments other than normal purchase commitments and commitments under
facility and capital leases. The Company believes that available funds,
anticipated cash flows from operations and its line of credit will satisfy
the Company's projected working capital and capital expenditure
requirements, exclusive of cash required for possible acquisitions of
businesses, products and technologies, through at least the next two years.
14
<PAGE>
Dendrite International, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
1995 1996
-----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................ $11,530 $10,912
Short-term investments................................... 10,955 8,421
Accounts receivable...................................... 14,699 18,732
Prepaid expenses and other............................... 1,292 1,569
Prepaid taxes............................................ -- 1,397
Deferred tax asset....................................... 1,157 1,203
-----------------
Total current assets................................. 39,633 42,234
Property and equipment, net................................ 3,602 3,391
Deferred taxes............................................. -- 254
Goodwill, net.............................................. -- 747
Capitalized software development costs, net................ 2,032 2,589
-----------------
$45,267 $49,215
=================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable......................................... $ 1,002 $ 3,344
Income taxes payable..................................... 2,528 584
Accrued compensation and benefits........................ 2,174 2,446
Other accrued expenses................................... 2,102 3,329
Deferred revenues........................................ 3,172 2,099
-----------------
Total current liabilities............................ 10,978 11,802
-----------------
Deferred rent.............................................. 464 726
-----------------
Deferred taxes............................................. 1,515 1,511
-----------------
Commitments and contingencies (Note 8)
Stockholders' Equity:
Preferred stock, no par value, 10,000,000 shares
authorized, none issued................................. -- --
Common stock, no par value, 50,000,000 shares
authorized; 10,675,581 and
11,163,631 shares issued and outstanding................ 26,809 32,198
Retained earnings........................................ 6,570 4,658
Deferred compensation.................................... (502) (1,227)
Unrealized gain on short-term investments................ 14 --
Cumulative translation adjustment........................ (581) (453)
-----------------
Total stockholders' equity........................... 32,310 35,176
-----------------
$45,267 $49,215
=================
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
Dendrite International, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------
<S> <C> <C> <C>
Revenues:
License fees................................................................... $ 6,917 $ 6,042 $ 8,774
Services....................................................................... 32,509 48,080 57,472
---------------------------
39,426 54,122 66,246
---------------------------
Costs of revenues:
Cost of license fees........................................................... 1,450 712 832
Cost of services............................................................... 14,509 21,144 29,631
---------------------------
15,959 21,856 30,463
---------------------------
Gross margin................................................................. 23,467 32,266 35,783
---------------------------
Operating expenses:
Selling, general and administrative............................................ 16,392 21,252 26,440
Research and development....................................................... 2,846 3,844 8,747
Write-off of in-process research and development............................... -- -- 2,640
---------------------------
19,238 25,096 37,827
---------------------------
Operating income (loss)...................................................... 4,229 7,170 (2,044)
Interest expense................................................................. 74 15 12
Other expense (income)........................................................... 250 (526) (788)
---------------------------
Income (loss) before income taxes............................................ 3,905 7,681 (1,268)
Income taxes..................................................................... 1,578 2,987 644
---------------------------
Net income (loss)................................................................ $ 2,327 $ 4,694 $(1,912)
===========================
Net income (loss) per share...................................................... $ .24 $ .45 $ (0.17)
===========================
Shares used in computing net income (loss) per share............................. 9,530 10,381 11,056
===========================
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE>
Dendrite International, Inc. and Subsidiaries
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)
(in thousands)
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
-----------------------------------------------------------------------------------------
Redeemable Unrealized
Series A Holding Total
Convertible Common Stock Retained Gain on Cumulative Stockholders'
Preferred ----------------- Earnings Deferred Short-Term Translation Equity
Stock Shares Amount (Deficit) Compensation Investments Adjustment (Deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... $ 6,945 3,297 $ 56 $ (404) $ (49) $ -- $(314) $ (711)
Issuance of common stock..... -- 147 376 -- (84) -- -- 292
Amortization of deferred
compensation................ -- -- -- -- 9 -- -- 9
Currency translation
adjustment.................. -- -- -- -- -- -- (191) (191)
Accretion of redemption
premium on preferred
stock....................... 31 -- -- (31) -- -- -- (31)
Net income................... -- -- -- 2,327 -- -- -- 2,327
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994..... 6,976 3,444 432 1,892 (124) -- (505) 1,695
Issuance of common stock..... -- 151 747 -- (425) -- -- 322
Amortization of deferred
compensation................ -- -- -- -- 47 -- -- 47
Purchase and retirement of
common stock... ............ -- (26) (132) -- -- -- -- (132)
Currency translation
adjustment.................. -- -- -- -- -- -- (76) (76)
Unrealized gain on
short-term investments...... -- -- -- -- -- 14 -- 14
Accretion of redemption
premium on preferred
stock....................... 16 -- -- (16) -- -- -- (16)
Mandatory conversion of
Redeemable Series A
Convertible Preferred
Stock into common stock..... (6,992) 5,607 6,992 -- -- -- -- 6,992
Issuance of common stock
from consummation of
initial public offering, net
of offering costs........... -- 1,500 18,770 -- -- -- -- 18,770
Net income................... -- -- -- 4,694 -- -- -- 4,694
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995..... -- 10,676 26,809 6,570 (502) 14 (581) 32,310
Issuance of common stock..... -- 188 1,094 -- (838) -- -- 256
Amortization of deferred
compensation................ -- -- -- -- 113 -- -- 113
Currency translation
adjustment.................. -- -- -- -- -- -- 128 128
Realization of gain on
short-term investments...... -- -- -- -- -- (14) -- (14)
Issuance of common stock
from consummation of
initial public offering, net
of offering costs........... -- 300 4,295 -- -- -- -- 4,295
Net loss..................... -- -- -- (1,912) -- -- -- (1,912)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996..... $ -- 11,164 $32,198 $ 4,658 $(1,227) $ -- $(453) $35,176
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
Dendrite International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................................................. $ 2,327 $ 4,694 $(1,912)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 2,300 1,525 2,037
Deferred income taxes (benefit)............................................... 118 (277) (304)
Write-off of in-process research and development.............................. -- -- 2,640
Changes in assets and liabilities, net of effect from acquisition:
Increase in accounts receivable............................................. (3,242) (4,885) (3,193)
(Increase) decrease in prepaid expenses and other........................... (904) 607 (253)
Increase in prepaid income taxes............................................ -- -- (1,397)
Increase (decrease) in accounts payable and accrued expenses................ 2,837 (1,219) 2,461
Increase in deferred rent................................................... 124 340 262
Increase (decrease) in income taxes payable................................. 638 1,445 (1,931)
Increase (decrease) in deferred revenues.................................... 2,154 (215) (1,174)
------------------------------
Net cash provided by (used in) operating activities...................... 6,352 2,015 (2,764)
------------------------------
Investing activities:
Purchases of short-term investments................................................ -- (15,148) (8,271)
Sales of short-term investments.................................................... -- 4,193 10,805
Purchase of SRCI, net of cash acquired............................................. -- -- (2,965)
Purchases of property and equipment................................................ (2,107) (1,534) (772)
Additions to capitalized software development costs................................ (800) (849) (1,296)
------------------------------
Net cash used in investing activities.................................... (2,907) (13,338) (2,499)
------------------------------
Financing activities:
Principal payments on short-term borrowings........................................ (209) -- --
Payments on capital lease obligations.............................................. (23) (80) --
Issuance of common stock from consummation of initial public offerings,
net of offerings costs........................................................... -- 18,770 4,295
Issuance of common stock........................................................... 292 322 256
------------------------------
Net cash provided by financing activities................................ 60 19,012 4,551
------------------------------
Effect of foreign exchange rate changes on cash...................................... (298) (69) 94
------------------------------
Net increase (decrease) in cash...................................................... 3,207 7,620 (618)
Cash and cash equivalents, beginning of year......................................... 703 3,910 11,530
------------------------------
Cash and cash equivalents, end of year............................................... $ 3,910 $ 11,530 $10,912
==============================
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
Notes to Consolidated Financial Statements
1. The Company and Summary of Significant Accounting Policies:
The Company
Dendrite International, Inc. and Subsidiaries (the "Company") provides
comprehensive Electronic Territory Management solutions used to manage,
coordinate and control the activities of large sales forces in complex
selling environments, primarily within the ethical pharmaceutical industry.
The Company's solutions combine proprietary software products with extensive
system support services.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Dendrite
International, Inc. and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. Pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation," substantially all assets and liabilities of the
Company's wholly owned subsidiaries are translated at their respective
period-end currency exchange rates and revenues and expenses are translated
at average currency exchange rates for the period. The resulting translation
adjustments are accumulated in a separate component of stockholders' equity.
All foreign currency transaction gains and losses are included in other
expense (income) on the accompanying statements of operations and are
immaterial in each year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes one-time license fees as revenue using the
percentage-of-completion method over a period of time that commences on the
date of delivery of the software to the licensee and ends on the date that
initial customization, as defined in each contract, is completed.
Recognition of one-time license fee revenue in contracts with customer
acceptance provisions does not commence until such time as the acceptance
provisions are satisfied. Revenues from initial customization are recognized
using the percentage-of-completion method, regardless of whether the
contract contains customer acceptance provisions since such services are
stated separately, priced on a time-and-materials basis and are due to the
Company regardless of whether the license contract is accepted. The
Company's software licensing agreements provide for a warranty period
(typically 90 days). The portion of the license fee associated with the
warranty period is unbundled from the license fee and is recognized ratably
over the warranty period.
The Company recognizes license fees from capitation agreements ratably over
the term of the agreements. Capitation agreements provide customers with
unlimited use of the licensed software and entitle them to future upgrades
and enhancements of the licensed software that may become available during
the term of the agreement.
The Company recognizes license fees from certain third-party software
embedded into the product as the Company becomes obligated to pay them. The
cost of third-party software is included in cost of license fees in the
accompanying statements of operations. For the years ended December 31, 1995
and 1996, the Company recorded $362,000 and $112,000 respectively, of
license fees and $302,000 and $93,000, respectively, of cost of license fees
relating to third-party software.
Revenues from services are recognized as the services are performed.
Revenues from customer maintenance, support and data server rental
agreements are recognized ratably over the agreements.
Services are generally provided under multiyear contracts. The contracts
specify the payment terms, which are generally over the term of the contract
and generally provide for termination in the event of breach, as defined in
the contract.
19
<PAGE>
Deferred Revenues
Deferred revenues represent amounts collected from or invoiced to customers
in excess of revenues recognized. Such amounts are recognized as revenue
when the related significant performance obligations have been satisfied.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental Cash Flow Information
For the years ended December 31, 1994, and 1995, the Company paid interest
of $33,000, and $10,000 respectively. For the years ended December 31, 1994,
1995 and 1996, the Company paid income taxes of $620,000, $1,432,000 and
$4,346,000, respectively.
The following table lists noncash assets that were acquired and liabilities
that were assumed as a result of the acquisition discussed in Note 2:
<TABLE>
<S> <C>
Noncash assets:
Accounts receivable......................................... $ 823,000
Prepaid expenses............................................ 31,000
Property and equipment...................................... 91,000
Goodwill.................................................... 860,000
----------
1,805,000
Assumed liabilities:
Accounts payable............................................ (488,000)
Accrued compensation and benefits........................... (250,000)
Other accrued expenses...................................... (613,000)
Deferred revenues........................................... (129,000)
----------
Net noncash assets acquired............................... 325,000
Write-off of in-process research and development.............. 2,640,000
----------
Cash paid, net of cash acquired........................... $2,965,000
==========
</TABLE>
Short-Term Investments
Effective January 1, 1995, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of debt and equity securities at the time of
purchase and reevaluates such designation as of each balance sheet date. The
Company invests in highly rated corporate bonds and municipal bonds. At
December 31, 1995 and 1996, all marketable securities have been classified
as available-for-sale. Available-for-sale securities are carried at fair
value, based on quoted market prices, with unrealized gains and losses, net
of tax, reported as a separate component of stockholders' equity. Realized
gains and losses, computed using specific identification, and declines in
value determined to be permanent are recognized in the statement of
operations.
Property and Equipment
Fixed assets are stated at cost. Depreciation and amortization are provided
generally on the straight-line basis over the estimated useful lives of the
respective assets, which range from 3 to 15 years. Leasehold improvements
are amortized using the straight-line method over the estimated useful lives
of the assets or the lease terms, whichever are shorter. Maintenance,
repairs and minor replacements are charged to expense as incurred.
Capitalized Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes
certain costs related to the development of new software products or the
enhancement of existing software products for sale or license. These costs
are capitalized from the point in time that technological feasibility has
been established, as evidenced by a working model or a detailed working
program design, to the
20
<PAGE>
Dendrite International, Inc. and Subsidiaries
point in time that the product is available for general release to
customers. Capitalized software development costs are amortized on a product
by product basis over the greater of the ratio of current revenues to total
anticipated revenues or on a straight-line basis over the estimated economic
lives of the products (no longer than four years), beginning with the
release to the customer. Research and development costs incurred prior to
establishing technological feasibility and costs incurred subsequent to
general product release to customers are charged to expense as incurred. The
Company continually evaluates whether events or circumstances have occurred
that indicate that the remaining useful life of the capitalized software
development costs should be revised or that the remaining balance of such
assets may not be recoverable. As of December 31, 1996, management believes
that no revisions to the remaining useful life or write-down of capitalized
development costs is required.
Capitalized software development costs are net of accumulated amortization
of $1,202,000 and $1,941,000 at December 31, 1995 and 1996, respectively.
The Company capitalized software development costs of $800,000, $849,000 and
$1,296,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Amortization expense for the years ended December 31, 1994,
1995 and 1996, was $473,000, $410,000 and $739,000, respectively, and is
included in cost of license fees in the accompanying statement of
operations.
Intangible Assets
Intangible assets (primarily acquired applications software) had been
amortized on a straight-line basis. These assets were fully amortized at
December 31, 1994. Amortization expense for the year ended December 31,
1994, was $977,000 and is included in cost of license fees in the
accompanying statement of operations.
Goodwill of $860,000 is being amortized on a straight-line basis over five
years (see Note 2). Amortization expense for the year ended December 31,
1996, was $113,000.
Impairment of Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets, including property and equipment, and
goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets, the Company evaluates the
probability that future undiscounted net cash flows, without interest
charges, will be less than the carrying amount of the assets. Impairment is
measured at fair value.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using
enacted tax rates that are expected to be in effect when the differences
reverse.
At December 31, 1996, there were approximately $4,308,000 of accumulated
undistributed earnings of subsidiaries outside the United States that are
considered to be reinvested indefinitely. If such earnings were remitted to
the Company, applicable U.S. federal income and foreign withholding taxes
may be partially offset by foreign tax credits.
Major Customers
The Company derived revenues of approximately 28%, 14% and 12% from Pfizer,
Inc., Eli Lilly and Company, and Johnson & Johnson, respectively, for the
year ended December 31, 1994. The Company derived revenues of approximately
31%, 14% and 11% from Pfizer, Inc., Rhone-Poulenc Rorer, Inc. and Eli Lilly
and Company, respectively, for the year ended December 31, 1995. The Company
derived revenues of approximately 36%, 14% and 8% from Pfizer, Inc. Rhone-
Poulenc Rorer, Inc. and Eli Lilly and Company, respectively, for the year
ended December 31, 1996.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances and trade receivables.
The Company invests its excess cash with large banks. The Company's customer
base principally comprises companies within the ethical pharmaceutical
industry. The Company does not require collateral from its customers.
21
<PAGE>
Net Income (Loss) Per Share
Net income (loss) per share was calculated by dividing net income (loss) by
the weighted average number of common shares outstanding for the respective
periods adjusted for the diluted effect of common stock equivalents, which
consists of stock options using the treasury stock method. For 1994 and
1995, the calculation of the shares used in computing net income per share
also includes 5,607,000 shares of Series A Convertible Preferred Stock,
which converted into 5,607,000 shares of Common Stock upon the consummation
of the initial public offering, as if they were converted to Common Stock on
their original date of issuance.
2. Acquisition:
On May 1, 1996, the Company acquired 100% of the capital stock of SRCI, S.A.
(SRCI) for approximately $3,198,000 and transaction costs of $302,000. The
purchase was accounted for under the purchase method of accounting, whereby
the purchase price is allocated to the assets acquired and liabilities
assumed of SRCI based on their fair market values at the acquisition date.
The excess of purchase price over the fair value of net assets acquired was
assigned to identifiable intangibles. The Company assigned $2,640,000 to in-
process research and development and such amount was written-off in the
accompanying statement of operations. The Company also recorded $860,000 as
goodwill. SRCI's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition.
3. Property and Equipment:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1995 1996
<S> <C> <C>
Computer hardware and other equipment............ $ 3,504,000 $ 4,039,000
Furniture and fixtures........................... 1,465,000 1,724,000
Leasehold improvements........................... 670,000 743,000
-------------------------
5,639,000 6,506,000
Less--Accumulated depreciation and amortization.. (2,037,000) (3,115,000)
-------------------------
$ 3,602,000 $ 3,391,000
=========================
</TABLE>
4. Revolving Line of Credit:
The Company has a $5,000,000 revolving line of credit agreement with a bank
which provides for borrowings up to $1,000,000 in local currencies directly
with the Company's overseas subsidiaries and is available to finance working
capital needs and possible future acquisitions. The line of credit is
secured by substantially all of the Company's assets and requires, among
other covenants, that the Company maintain a minimum net worth, measured
quarterly, which is equal to the Company's net worth as of December 31,
1994, plus 50% of the Company's net income earned after December 31, 1994,
and plus the net proceeds of any stock offerings. This covenant has the
effect of limiting the amount of cash dividends the Company may pay. As of
December 31, 1996, approximately $1,391,000 was available for the payment of
dividends under this covenant.
5. Income Taxes:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1994 1995 1996
------------------------------------
<S> <C> <C> <C>
Domestic............................ $1,908,000 $7,195,000 $(1,211,000)
Foreign............................. 1,997,000 486,000 (57,000)
------------------------------------
$3,905,000 $7,681,000 $(1,268,000)
====================================
</TABLE>
22
<PAGE>
Dendrite International, Inc. and Subsidiaries
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1994 1995 1996
-------------------------------------
<S> <C> <C> <C>
Current Provision:
Federal......................... $ 456,000 $2,191,000 $ 575,000
State........................... -- -- --
Foreign......................... 1,004,000 1,073,000 373,000
-------------------------------------
1,460,000 3,264,000 948,000
-------------------------------------
Deferred Provision (Benefit):
Federal......................... 144,000 44,000 (149,000)
State........................... 158,000 542,000 102,000
Foreign......................... (184,000) (863,000) (257,000)
-------------------------------------
118,000 (277,000) (304,000)
-------------------------------------
$1,578,000 $2,987,000 $ 644,000
=====================================
</TABLE>
The reconciliation of the statutory Federal income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1994 1995 1996
-------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate.............. 34.0% 34.0% (34.0)%
Impact of foreign subsidiaries
subject to higher tax rates............. 3.6 0.2 0.2
Impact of enacted change in German
tax rates on deferred tax assets........ -- -- 4.6
State income taxes, net of federal
tax benefit............................. 2.7 4.3 (5.0)
Nondeductible expenses.................. 0.6 0.4 3.8
Write-off of in-process research and
development............................. -- -- 81.1
Tax credits utilized.................... (0.5) -- --
-------------------------------------
40.4% 38.9% 50.7%
=====================================
</TABLE>
The tax effect of temporary differences as established in accordance with SFAS
No. 109 that give rise to deferred income taxes is as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
1995 1996
-----------------------------
<S> <C> <C>
Gross deferred tax asset:
Depreciation and amortization................... $ 225,000 $ 4,000
Foreign net operating loss...................... 1,069,000 1,549,000
Accruals and revenues not currently deductible.. 219,000 365,000
Other........................................... 115,000 242,000
-----------------------------
$ 1,628,000 $ 2,160,000
-----------------------------
Gross deferred tax liability:
Capitalized software development costs.......... $ (791,000) $ (971,000)
Other.......................... (1,195,000) (1,243,000)
-----------------------------
$(1,986,000) $(2,214,000)
=============================
</TABLE>
The Company has recorded a deferred tax asset of $1,549,000 reflecting the
benefit of approximately $3,893,000 in foreign loss carryforwards, which expire
in varying amounts between 1999 and 2000. Realization is dependent on generating
sufficient foreign taxable income prior to the expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
23
<PAGE>
6. Equity Plans:
The Company has two stock option plans that provide for the granting of
options, the awarding of stock and the purchase of stock. As of December 31,
1996, 1,600,000 shares of Common Stock have been reserved for issuance under
these plans, of which 541,673 shares were available for future grants.
Stock Option Plans
Options granted under the two stock option plans generally vest over a four-
year period and are exercisable over a period not to exceed ten years both
as determined by the Board of Directors. Incentive stock options are granted
at fair value, as determined by the Board of Directors and prior to the
initial public offering supported by an independent appraisal. Nonqualified
options are granted at exercise prices determined by the Board of Directors.
Subsequent to the initial public offering, incentive stock options and
nonqualified options are granted at fair value, based upon the price of the
stock as quoted by the Nasdaq National Market.
Information with respect to the options under the two stock option plans is
as follows:
<TABLE>
<CAPTION>
Exercise Price Aggregate
Shares Per Share Proceeds
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31,1993 525,000 $ .625-$ 1.00 $ 401,250
Granted 274,500 $ 2.70 -$ 2.95 778,650
Exercised (52,500) $ .625-$ 1.00 (33,750)
Canceled (107,500) $ .625-$ 2.70 (80,375)
---------------------------------------
Outstanding December 31, 1994 639,500 $ .625-$ 2.95 1,065,775
Granted 64,000 $10.00 -$19.25 927,000
Exercised (88,750) $ 0.625-$ 2.70 (80,438)
Canceled (30,000) $ 2.70 (81,000)
---------------------------------------
Outstanding December 31, 1995 584,750 $ .625-$19.25 1,831,337
Granted 224,000 $16.312-$31.50 5,711,726
Exercised (184,250) $ .625-$10.00 (256,138)
Canceled (58,750) $ 2.70-$31.50 (1,021,855)
---------------------------------------
Outstanding December 31, 1996 565,750 $ .625-$31.50 $ 6,265,070
=======================================
</TABLE>
At December 31, 1996, there were 209,625 options exercisable at $.625-$19.25
per share. The aggregate exercise price of these options was $391,938 as of
December 31, 1996.
The Company adopted the disclosure requirement of SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for the Company's December 31, 1996
financial statements. The Company applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, compensation cost has been computed for the stock option plans
based on the intrinsic value of the stock option at the date of grant, which
represents the difference between the exercise price and the fair value of
the Company's stock. As the exercise price of the stock options equaled the
fair value of the Company's stock at the date of option issuance, no
compensation cost has been recorded in the accompanying statements of
operations. Had compensation cost for the two option plans been determined
consistent with SFAS No. 123, the Company's net income (loss) and net income
(loss) per share would have been adjusted to the following pro forma
amounts:
Year Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996
--------------------------
<S> <C> <C>
Net income (loss): As reported...... $4,694,000 $(1,912,000)
Pro forma........ $4,597,000 $(2,404,000)
Net income (loss) per share: As reported...... $ .45 $ (.17)
Pro forma........ $ .44 $ (.22)
</TABLE>
24
<PAGE>
Dendrite International, Inc. and Subsidiaries
Because the SFAS No. 123 method of accounting is not required to be applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. The weighted average fair value of options granted was $9.81 and
$17.33 for the years ended December 31, 1995 and 1996, respectively.
Information with respect to the options outstanding under the two stock
option plans at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Weighted Weighted Average
Exercise Price Average Remaining
Period Issued Shares Per Share Exercise Price Contractual Life
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prior to January 1, 1995... 340,250 $ .625-$ 2.95 $ 2.03 7.2
During 1995................ 24,500 $10.00 -$19.25 $12.58 8.5
During 1996................ 201,000 $16.31 -$31.50 $26.17 9.5
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used
for grants in 1995 and 1996: risk-free interest rates ranging from 5.4% to
6.9% based on the rate in effect on the date of grant; no expected dividend
yield; expected lives of 6.0 years for the options; and expected volatility
of 70%.
Employee Stock Purchase Plan
The Company maintained an Employee Stock Purchase Plan that allowed full-
time employees with two years of service the opportunity to purchase shares
of the Company's common stock at fair value on dates determined by the Board
of Directors, up to a maximum of 10% of their eligible compensation or
$20,000, whichever was less. This plan was terminated immediately prior to
the consummation of the initial public offering.
Anniversary Stock Plan
The Company grants 200 shares of the Company's common stock to all employees
in July following their fifth anniversary of employment. The cost of the
anniversary stock plan is accrued over the employment period of the
employees.
7. Savings Plans:
The Company maintains Employee Savings Plans (the "Plans") that cover
substantially all of its full-time U.S. and U.K. employees. All eligible
employees may elect to contribute a portion of their wages to the Plans,
subject to certain limitations. In addition, the Company contributes to the
Plans at the rate of 50% of the employee's contributions up to a maximum of
3% of the employee's salary. The Company's contributions to the Plans were
$138,000, $197,000 and $222,000 in the years ended December 31, 1994, 1995
and 1996, respectively.
The Company also maintains a noncontributory pension plan that covers
substantially all of its full-time Japanese employees. All contributions to
this pension plan are made by the Company in accordance with prescribed
statutory requirements. The Company's contributions to the Plan were
$27,000, $40,000 and $56,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
8. Commitments and Contingencies:
The Company leases office facilities and equipment under various operating
leases with remaining noncancelable lease terms generally in excess of one
year. Rent expense was $2,257,000, $3,849,000 and $3,709,000 in 1994, 1995
and 1996, respectively. Future minimum rental payments at December 31, 1996,
on these leases are as follows:
<TABLE>
<S> <C>
1997............................................................ $3,805,000
1998............................................................ 3,425,000
1999............................................................ 2,725,000
2000............................................................ 575,000
2001............................................................ 429,000
2002 and thereafter............................................. 752,000
-----------
$11,711,000
===========
</TABLE>
From time to time the Company is involved in certain legal actions arising
in the ordinary course of business. In the Company's opinion, the outcome of
such actions will not have a material adverse effect on the Company's
financial
25
<PAGE>
position or results of operations.
9. Related-Party Transactions:
The Company paid approximately $93,000, $126,000 and $78,000 in the years
ended December 31, 1994, 1995 and 1996, respectively, to an entity owned
by the President and Chief Executive Officer of the Company for rental and
usage of an aircraft.
The Company paid approximately $183,000, $666,000 and $184,000 in the
years ended December 31, 1994, 1995 and 1996, respectively, to a law firm
of which one of the former directors of the Company is a member.
10. Geographic Segment Data:
The Company operates in one business segment. The following table presents
information about the Company's operations by geographic area:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
1994 1995 1996
-----------------------------------------
<S> <C> <C> <C>
Revenues:
License fees:
United States
Domestic................... $ 3,228,000 $ 1,197,000 $ 1,896,000
Export
Europe.................... 3,115,000 3,800,000 5,650,000
Japan..................... 568,000 591,000 419,000
Other Foreign............. 6,000 454,000 809,000
-----------------------------------------
6,917,000 6,042,000 8,774,000
-----------------------------------------
Services:
United States............... 18,819,000 26,843,000 29,747,000
Europe...................... 9,318,000 15,764,000 22,719,000
Japan....................... 4,102,000 4,780,000 3,086,000
Other Foreign............... 270,000 693,000 1,920,000
-----------------------------------------
32,509,000 48,080,000 57,472,000
-----------------------------------------
$39,426,000 $54,122,000 $66,246,000
=========================================
Operating income (loss):
United States................ $ 2,263,000 $ 6,692,000 $(1,940,000)
Europe....................... 1,071,000 (566,000) (752,000)
Japan........................ 830,000 866,000 301,000
Other Foreign................ 65,000 178,000 347,000
-----------------------------------------
$ 4,229,000 $ 7,170,000 $(2,044,000)
=========================================
Identifiable assets:
United States................ $12,858,000 $35,583,000 $35,911,000
Europe....................... 5,727,000 7,859,000 10,802,000
Japan........................ 1,717,000 1,474,000 1,453,000
Other Foreign................ 178,000 351,000 1,049,000
-----------------------------------------
$20,480,000 $45,267,000 $49,215,000
=========================================
</TABLE>
26
<PAGE>
Report of Independent Public Accountants
Dendrite International, Inc. and Subsidiaries
To Dendrite International, Inc.:
We have audited the accompanying consolidated balance sheets of Dendrite
International, Inc. (a New Jersey corporation) and Subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dendrite International,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 7, 1997
<PAGE>
Selected Quarterly Operating Results
Dendrite International, Inc. and Subsidiaries
The following table sets forth certain unaudited consolidated statement of
operations data expressed in dollars for the eight most recently ended
fiscal quarters. This data has been derived from unaudited consolidated
financial statements of the Company that, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation in accordance with generally accepted
accounting principles. The Company's results of operations for a particular
quarter are not necessarily indicative of the results of operations for any
future period. The Company's quarterly results have varied considerably in
the past and are likely to vary from quarter to quarter in the future.
<TABLE>
<CAPTION>
Quarters Ended
- ---------------------------------------------------------------------------------------------------------------------
1995 1996
-------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
-------------------------------------------------------------------------------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
License fees $ 1,030 $ 1,312 $ 1,275 $ 2,425 $ 1,873 $ 2,241 $ 3,532 $ 1,128
Services 10,143 11,290 13,107 13,540 12,351 15,019 15,065 15,037
------------------------------------------------------------------------------
11,173 12,602 14,382 15,965 14,224 17,260 18,597 16,165
------------------------------------------------------------------------------
Costs of Revenues:
Cost of license fees 126 88 107 391 185 184 185 278
Cost of services 4,667 4,991 5,678 5,808 5,782 7,011 7,112 9,727
------------------------------------------------------------------------------
4,793 5,079 5,785 6,199 5,967 7,195 7,297 10,005
------------------------------------------------------------------------------
Gross margin 6,380 7,523 8,597 9,766 8,257 10,065 11,300 6,160
------------------------------------------------------------------------------
Operating Expenses:
Selling, general, and
administrative 5,112 5,000 5,001 6,139 5,235 6,764 6,817 7,624
Write-off of in-process
Research and
development -- -- -- -- -- 2,640 -- --
Research and development 833 1,131 1,413 467 1,520 1,480 2,115 3,632
------------------------------------------------------------------------------
5,945 6,131 6,414 6,606 6,755 10,884 8,932 11,256
------------------------------------------------------------------------------
Operating income (loss) 435 1,392 2,183 3,160 1,502 (819) 2,368 (5,096)
Interest expense -- 5 5 5 3 3 3 3
Other expense (income) (28) (147) (176) (175) (237) (176) (386) 11
------------------------------------------------------------------------------
Income (loss) before
income taxes (benefit) 463 1,534 2,354 3,330 1,736 (646) 2,751 (5,110)
Income taxes (benefit) 185 615 925 1,262 661 765 1,066 (1,847)
------------------------------------------------------------------------------
Net income (loss) $ 278 $ 919 $ 1,429 $ 2,068 $ 1,075 $(1,411) $ 1,685 $(3,263)
------------------------------------------------------------------------------
Pro forma net income
(loss) per share $.03 $.10 $.13 $.19 $.10 $(.13) $.15 $(.29)
==============================================================================
Shares used in computing
pro forma net income
(loss) per share 9,621 9,610 11,088 11,134 11,246 11,121 11,489 11,159
==============================================================================
</TABLE>
Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter market and
prices are quoted on the Nasdaq National Market under the symbol "DRTE". The
following table sets forth, for the periods indicated, the high and low sale
prices for the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
Quarter Ended March 31, 1996.............................. $ 22.50 $16.125
Quarter Ended June 30, 1996............................... 34.50 22.50
Quarter Ended September 30, 1996.......................... 34.00 22.50
Quarter Ended December 31, 1996........................... 30.375 7.875
</TABLE>
As of March 14, 1997, there were 95 holders of record of Common Stock. The
Company has never paid cash dividends on the Common Stock and has no present
plans to do so.
<PAGE>
Corporate Information Dendrite International, Inc. and Subsidiaries
Board of Directors
John E. Bailye
Chairman, President and
Chief Executive Officer
Dendrite International, Inc.
Bernard M. Goldsmith
Managing Director
The Update Group
Paul A. Margolis
President
Longworth Management Company, Inc.
John H. Martinson
Managing Partner
Edison Venture Fund
Executive Officers
John E. Bailye
Chairman, President and
Chief Executive Officer
R. Bruce Savage
Executive Vice President and
Chief Operating Officer
Jean LaHaie
Senior Vice President
Teresa Winslow
Senior Vice President
Charles Warczakowski
Vice President, Finance;
Assistant Secretary and Treasurer
Christopher J. French
Vice President
General Counsel; and Secretary
Corporate Headquarters/America
1200 Mount Kemble Avenue
Morristown, NJ 07960-6797
United States of America
(201) 425-1200
Worldwide Offices
Consumer Business Division
Dendrite France S.A.
1 Place Charles de Gaulle
Immeuble Central-Bat. A
78180 Montigny-le-Bretonneux
France
Health Care Division
Dendrite France S.A.
1 Place Charles de Gaulle
Immeuble Central-Bat. A
78180 Montigny-le-Bretonneux
France
Dendrite U.K. Ltd.
Forum One
Station Road
Theale, Berkshire RG7 4RA
United Kingdom
Dendrite Espana
Balmes, 114
08008 Barcelona
Spain
Dendrite Belgium
rue de l'Etuve 52
1000 Brussels
Belgium
Dendrite Deutschland GmbH
Europarc
Heinrich-Hertz-Strasse 6
50170 Kerpen
Germany
Dendrite Italia S.r.l.
Via Melchiorre
Gioia N. 168
20125 Milan
Italy
Dendrite Japan K.K.
Koike Koraibashi Bldg.
1-3-4 Koraibashi, Chuo-ku
Osaka 541
Japan
Dendrite Brazil Ltda.
Rua do Rocio,
291-2o Andar - Cj. 21
Vila Olimpia - Sao Paulo-SP 04552-000
Brazil
Dendrite PTY Ltd.
Suite 504, 4 Help Street
Chatswood, NSW 2067
Australia
Dendrite New Zealand Ltd.
Elders House, 3rd Floor
60 Khyber Pass Road
Auckland 1
New Zealand
Stock Listing
NASDAQ National Market System
Symbol: DRTE
Form 10-K
Copies of the Company's 1996 annual report on Form 10-K, as filed with the
Securities and Exchange Commission, are available without charge upon written
request to Charles Warczakowski, Vice President, Finance; Assistant Secretary
and Treasurer, Dendrite International, Inc., 1200 Mount Kemble Avenue,
Morristown, NJ 07960-6797
Transfer Agent and Registrar
Continental Stock Transfer &
Trust Company
2 Broadway
New York, New York 10004
(212) 504-4000
Information Requests
To receive faxed information such as earnings announcements, press releases and
other general information, please call Dendrite's On-Line Information Retrieval
System at (800) 331-1217.
Inquiries from the investment community should be directed to Charles
Warczakowski, Vice President, Finance at (201) 425-1200.
If you have questions concerning stock certificates, change of address, or other
registered shareholder account matters, please contact Dendrite's transfer agent
and registrar.
Annual Meeting of Shareholders
Dendrite Headquarters
1200 Mount Kemble Avenue
Morristown, New Jersey on
Tuesday, May 20, 1997 at 10:00 a.m.
local time.
<PAGE>
[LOGO OF DENDRITE INTERNATIONAL, INC. APPEARS HERE]
1200 Mount Kemble Avenue
Morristown, NJ 07960-6797 USA
(201) 425-1200
<PAGE>
EXHIBIT 21
List of Subsidiaries of Registrant
1. Dendrite Delaware, Inc., a Delaware corporation
2. Dendrite Corporate Services, Inc., a New Jersey corporation
3. Dendrite UK Ltd., organized under the laws of the United Kingdom
4. Dendrite Japan K.K., organized under the laws of Japan
5. Dendrite Pty. Ltd., organized under the laws of Australia
6. Dendrite (New Zealand) Ltd., organized under the laws of New Zealand
7. Dendrite Netherlands, B.V., organized under the laws of the Netherlands
8. Dendrite France, S.A., organized under the laws of France
9. Dendrite Italia, S.r.l., organized under the laws of Italy
10. Dendrite (Deutschland) GmbH, organized under the laws of Germany
11. Dendrite Brasil Ltda. organized under the laws of Brazil
12. Dendrite Financial Services, Inc., a Delaware corporation
13. Dendrite Holdings Inc., a Delaware corporation
14. Dendrite Portugal, organized under the laws of Portugal
15. SRCI S.A, organized under the laws of France
29
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in Dendrite International, Inc.'s Form 10-K, into the Company's
previously filed Form S-8 Registration Statement (File No.333-14363) filed with
the Securities and Exchange Commission on October 18, 1996, and Form S-8
Registration Statement (File No.333-19141) filed with the Securities and
Exchange Commission on January 2, 1997.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 10,912 11,530
<SECURITIES> 8,421 10,955
<RECEIVABLES> 18,732 14,699
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,234 39,633
<PP&E> 3,391 3,602
<DEPRECIATION> 1,807 1,769
<TOTAL-ASSETS> 49,215 45,267
<CURRENT-LIABILITIES> 11,802 10,978
<BONDS> 0 0
0 0
0 0
<COMMON> 32,198 26,809
<OTHER-SE> 2,978 5,501
<TOTAL-LIABILITY-AND-EQUITY> 49,215 45,267
<SALES> 0 0
<TOTAL-REVENUES> 66,246 54,122
<CGS> 0 0
<TOTAL-COSTS> 30,463 21,856
<OTHER-EXPENSES> 37,827 25,096
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12 15
<INCOME-PRETAX> (1,268) 7,681
<INCOME-TAX> 644 2,987
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,912) 4,694
<EPS-PRIMARY> (.17) .45
<EPS-DILUTED> (.17) .45
</TABLE>
