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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q/A
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended March 31, 1997
-----------------------------
[_] 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
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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 offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days
y X n ____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Shares Outstanding at May 13, 1997
--------------------- -----------------------------------
Common Stock 11,142,631
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DENDRITE INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements (unaudited) PAGE NO.
--------
<S> <C>
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996................................ 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996...................................... 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996................................ 5
Notes to Consolidated Financial Statements.................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 7
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. Exhibits and Reports on Form 8-K............................................ 11
Signatures.................................................................. 11
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
-------- ---------
<S> <C> <C>
REVENUES:
License fees $ 1,094 $ 1,873
Services 15,548 12,351
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16,642 14,224
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COST OF REVENUES:
Cost of license fees 273 185
Cost of services 9,208 5,782
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9,481 5,967
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Gross margin 7,161 8,257
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OPERATING EXPENSES:
Selling, general and administrative 6,373 5,235
Research and development 1,270 1,520
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7,643 6,755
--------- ----------
Operating income (loss) (482) 1,502
INTEREST EXPENSE 5 3
OTHER EXPENSE (76) (237)
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Income (loss) before income taxes (411) 1,736
INCOME TAXES (Benefit) (145) 661
--------- ----------
NET INCOME (Loss) $ (266) $ 1,075
========= ==========
NET INCOME (Loss) PER SHARE $(.024) $0.10
========= ==========
SHARES USED IN COMPUTING
NET INCOME (Loss) PER SHARE 11,225 11,246
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DENDRITE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,053 $10,912
Short-term investments 7,329 8,421
Accounts receivable 23,105 18,732
Prepaid expenses and other 2,047 1,569
Prepaid income taxes 1,397 1,397
Deferred tax assets 1,457 1,457
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Total current assets 39,388 42,488
PROPERTY AND EQUIPMENT, net 3,242 3,391
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net 2,644 2,589
GOODWILL, net 704 747
------------ -----------
$45,978 $49,215
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 2,189 $ 3,344
Income taxes payable 436 584
Accrued compensation and benefits 2,081 2,446
Other accrued expenses 3,993 3,329
Deferred revenues 1,100 2,099
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Total current liabilities 9,799 11,802
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DEFERRED RENT 689 726
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DEFERRED TAXES 1,564 1,511
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STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
authorized, none issued - -
Common stock, no par value, 50,000,000 shares
authorized: 11,262,131 and 11,163,631 shares issued
and 11,142,631 and 11,163,631 outstanding 32,139 32,198
Retained earnings 4,392 4,658
Deferred compensation (1,063) (1,227)
Cumulative translation adjustments (367) (453)
Less Treasury Stock (1,175) -
------------ -----------
Total stockholders' equity 33,926 35,176
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$45,978 $49,215
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (266) $ 1,075
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 340 446
Changes in assets and liabilities:
Increase in accounts receivable (4,373) (560)
(Increase) decrease in prepaid expenses and other (478) 186
Increase (decrease) in accounts payable and accrued expenses (856) 774
Decrease in deferred rent (37) 143
Increase (decrease) in income taxes payable (148) (2,105)
Increase (decrease) in deferred revenues (999) 318
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Net cash provided by (used in) operating activities (6,817) 277
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INVESTING ACTIVITIES:
Purchases of short-term investments (535) (1,261)
Sales of short-term investments 1,627 2,206
Purchases of property and equipment (22) (72)
Additions to capitalized software development costs (181) (285)
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Net cash provided by (used in) investing activities 889 588
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FINANCING ACTIVITIES:
Issuance of Common Stock from stock
offering, net - 4,450
Purchase of Treasury Stock (1,175) -
Issuance of Common Stock 90 141
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Net cash provided used in financing activities (1,085) 4,591
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--------- ----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 154 (4)
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NET INCREASE/(DECREASE) IN CASH (6,859) 5,452
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,912 11,530
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,053 $16,982
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
DENDRITE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements as of March 31, 1997 and for
the three month period ended March 31, 1997 and 1996 are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation
of the financial position and operating results for the interim periods.
The consolidated financial statements should be read in conjunction with
the notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in this report on
Form 10-Q. Reference should be made to the Form 10-K as of and for the
year ended December 31, 1996 for Dendrite International, Inc. and
subsidiaries, the Company, for additional disclosures including a summary
of the Company's accounting policy.
In the opinion of management, the consolidated financial statements
contain all adjustments consisting of normal recurring accruals necessary
to present fairly the consolidated financial position of the Company for
the periods presented. The interim operating results of the Company may
not be indicative of operating results for the full year.
2. SALE OF COMMON STOCK
The Company consummated a public offering of its Common Stock which
closed on March 13, 1996. The Company offered and sold 300,000 shares of
Common Stock at a public offering price of $18.25 per share. The net
proceeds to the Company from the public offering, after payment of
offering expenses, were approximately $4,295,000. An additional 2,805,000
shares of Common Stock (including 405,000 shares purchased by the
underwriters upon the exercise in full of over-allotment options) were
offered and sold by certain stockholders of the Company. The Company did
not receive any proceeds from the sale of shares by selling stockholders.
3. NET INCOME (LOSS) PER SHARE COMPUTATION
Net income (loss) per share was calculated by dividing net income
(loss) by the weighted average number of common shares and dilutive common
share equivalents (computed using the treasury stock method) outstanding
during the period, except where anti-dilutive.
4. ACQUISITION OF SRCI
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 three months ended June 30, 1996. 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.
5. In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", which the Company is required to adopt for both
interim and annual periods ending after December 5, 1997. SFAS No. 128
simplifies the EPS calculation by replacing primary EPS with basic EPS.
Basic EPS is computed by dividing reported earnings available to common
stockholders by weighted average shares outstanding. Fully diluted EPS,
now called diluted EPS, is still required. Early application is
prohibited, although footnote disclosure of proforma EPS amounts computed
is required. The adoption of SFAS 128 would have no impact for the periods
presented.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
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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.
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, acquired 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.
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% and 42% of the Company's total revenues were
generated outside the United States during the periods ended March 31,
1996 and March 31, 1997 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 its foreign operations to
7
<PAGE>
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.
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.
Results of Operations
---------------------
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
REVENUES. Total revenues increased $2,418,000 or 17% from $14,224,000
in the three months ended March 31, 1996 to $16,642,000 in the three
months ended March 31, 1997 as a result of an increase in the installed
base of Dendrite systems, both from new and existing customers for
Dendrite Pharmaceutical and the acquisition of SRCI in May, 1996.
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 the sales cycless, customer budget
changes and changes in pricing policy by the Company or its competitors.
License fee revenues decreased to $1,094,000 in the three months
ended March 31, 1997 from $1,873,000 in the three months ended March 31,
1996. This decrease was primarily attributable to the recognition of
revenue related to one time license fees for a major worldwide client
during the period ending March 31, 1996. The Company typically expects to
realize a greater percentage of its license fee revenues for the year in
the last two quarters of the year with a lower percentage in the first two
quarters of the year.
Service revenues increased 26% from $12,351,000 in the three months
ended March 31, 1996 to $15,548,000 in the three months ended March 31,
1997. These quarterly increases in service revenues are primarily the
result of an increase in the Company's installed base of Dendrite systems
both from 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.
COST OF REVENUES. Cost of revenues increased 59% from $5,967,000 in
the three months ended March 31, 1996 to $9,481,000 in the three months
ended March 31, 1997 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 as a result of the delayed implementations
from the last quarter.
Cost of license fees represent the amortization of capitalized
software development costs. Cost of license fees increased from $185,000
in the three months ended March 31, 1996 to $273,000 in the three months
ended March 31, 1997. This increase was due to the amortization of
software development costs capitalized in 1996 which began to be
amortized in 1997.
Cost of services increased from $5,782,000 in the three months ended
March 31, 1996 to $9,208,000 in the three months ended March 31, 1997. As
a percentage of service revenues, cost of services increased from 47% of
service revenues for the three months ended March 31, 1996 to 59% of
service revenues for the three months ended March 31, 1997. 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.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A expenses increased
22% from $5,235,000 in the three months ended March 31, 1996 to $6,373,000
in the three months ended March 31, 1997. As a percentage of revenues,
SG&A expenses increased from 37% for the three months ended March 31, 1996
to 38% for the three months ended March 31, 1997. This increase was
primarily attributable to increased staff and, to a lesser extent, an
increase in facilities growth to support operations and sales.
RESEARCH AND DEVELOPMENT. Research and development expenses
decreased 16% from $1,520,000 in the three months ended March 31, 1996 to
$1,270,000 in the three months ended March 31, 1997, while decreasing to
8% as a percentage of revenues. The decrease in research and development
expenses in 1997 is attributed to the winding down of efforts required on
development of the Company's Series 6 software product.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax
rate was 35% for the three months ended March 31, 1997 as compared to a
provision of 39% for the three months ended March 31, 1996.
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 realizes a greater
percentage of its license fees and service revenues for the year 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 used in operating
activities was $6,817,000 during the three months ended March 31, 1997
compared to cash provided by operating activities of $277,000 during the
three months ended March 31, 1996. Cash used in operating activities for
the three months ended March 31, 1997 increased compared to the three
months ended March 31, 1997 primarily due to the net loss and an increase
in accounts receivable, decreases in accounts payable and deferred
revenue.
The Company had $889,000 of cash provided by investing activities
in the first three months of 1997 compared to $588,000 in the first three
months of 1996. The increase is primarily attributable to a reduction in
investment purchases during the quarter. The Company's net cash provided
by financing activities has been limited to the issuance of common stock
from the exercise of stock options issued under the Corporation's 1992
Stock Plan.
9
<PAGE>
The Company maintains a $5,000,000 revolving line of credit agreement
with 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. This covenant has the effect
of limiting the amount of cash dividends the Company may pay. At March
31, 1997 there were no borrowings outstanding under the agreement.
At March 31, 1997, the Company's working capital was approximately
$29,589,000. 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
the proceeds from the offering, available funds, anticipated cash flows
from operations and its line of credit will satisfy the Company's
projected working capital and capital expenditure requirements through at
least the next two years.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The Company is furnishing the following exhibit in connection
with this report:
10.1 Employment Agreement dated as of March 25, 1997 with
John E. Bailye.
(b) The Company did not file any Reports on Form 8-K during the
quarter for which this report is filed.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 16, 1996
DENDRITE INTERNATIONAL, INC.
(Registrant)
By: /s/ John E. Bailye
-------------------------------------
John E. Bailye, President and
Chief Executive Officer
By: /s/ Charles Warczakowski
------------------------------------
Charles Warczakowski, V. P. Finance and
Treasurer (Principal Financial Officer)
11
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
10.1 Employment Agreement dated as of March 25, 1997
with John E. Bailye
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
BETWEEN
JOHN E. BAILYE
AND
DENDRITE INTERNATIONAL, INC.
DATED AS OF MARCH 25, 1997
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of March 25, 1997, (the "Effective Date"),
between DENDRITE INTERNATIONAL, INC., a New Jersey corporation having an address
at 1200 Mount Kemble Avenue, Morristown, New Jersey 07960-6797 ("Dendrite") and
JOHN E. BAILYE, having an address at P.O. Box 694, Bernardsville, New Jersey
07924 ("Bailye").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Bailye and Dendrite have entered into an employment agreement,
dated October 2, 1991 (the "Prior Agreement"); and
WHEREAS, Bailye and Dendrite have agreed to certain amendments of the
Prior Agreement, which amendments are memorialized in a resolution of the
Dendrite Board of Directors adopted on October 18, 1995; and
WHEREAS, following the public offering of Dendrite common shares, both
Dendrite and Bailye desire to amend the Prior Agreement to contain provisions
which are more appropriate for the President and Chief Executive Officer of a
publicly traded corporation and to continue to employ Bailye as the President
and Chief Executive Officer of Dendrite upon the terms and conditions
hereinafter set forth, and Bailye desires to accept such employment;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. EMPLOYMENT. Dendrite hereby employs Bailye, and Bailye hereby accepts
----------
such employment, as President and Chief Executive Officer of Dendrite during the
term of this Agreement (the "Term", as defined below). Bailye will devote his
best efforts and full business time and attention to performing all duties
assigned or delegated to him by Dendrite's Board of Directors as required under
this Agreement.
<PAGE>
Bailye will observe and comply with such rules, regulations and policies as may
from time to time be determined by Dendrite's Board of Directors (the "Board").
Bailye will be employed at Dendrite's executive offices in Morristown, New
Jersey. Alternatively, Bailye may be employed by Dendrite in the borough of
Manhattan in New York or within thirty-five (35) miles of Morristown, so long as
such location is the executive office of Dendrite.
2. COMPENSATION.
------------
2.1 ANNUAL COMPENSATION. During the Term, Dendrite shall pay Bailye for
-------------------
his services hereunder a base salary at a rate of $425,000 per annum which base
salary will be increased each year in accordance with the provisions of Section
2.2 below. In the event that Bailye's employment hereunder is terminated on a
date which is other than on an anniversary date of this Agreement, Bailye shall
receive a pro-rata portion of his annual base salary for that portion of the
year for which he was employed, to the extent not previously paid.
2.2 ANNUAL INCREASES. During the Term, Bailye shall receive, effective on
----------------
December 31, 1997 and on December 31 of each year thereafter, an annual increase
in his annual base salary in an amount equal to the increase in the consumer
price index (All-Items portion, for all Urban Consumers (CPI-U), as published by
the U.S. Bureau of Labor Statistics) for the twelve-month period ending three
months prior to the applicable anniversary date of this Agreement. Without
limiting the foregoing provision, not less frequently than once every two (2)
years during the Term (but no more frequently than one (1) time in any year),
the compensation committee of the Board (the "Compensation Committee") will
review Bailye's annual base salary, in light of the actual and expected growth
or decline of Dendrite, for the purpose of evaluating an adjustment in Bailye's
annual base salary to be considered along with any CPI increase(s) to which
Bailye may otherwise be entitled.
-2-
<PAGE>
2.3 BONUSES. During the Term, Dendrite shall pay Bailye, in addition to
-------
his base salary, a bonus for each fiscal year of Dendrite, the amount of such
bonus to be determined by the Compensation Committee and it being envisaged that
such bonus shall not exceed fifty percent (50%) of Bailye's annual base salary
for such year. Each year, Dendrite shall determine and pay such bonus (if any)
to Bailye within thirty (30) days after Dendrite completes its audited financial
statements for the previous fiscal year, but in any event within ninety (90)
days after the end of such previous fiscal year.
3. TERM OF EMPLOYMENT.
------------------
3.1 TERM. Except as otherwise provided in this Section 3, the initial
----
term of this Agreement and Bailye's employment hereunder shall commence on the
Effective Date and continue through December 31, 1999 (the "Term"), and upon
December 31 of each year during the Term, the Term shall automatically be
continued for an additional year unless prior to such December 31, either party
shall have given written notice to the other that the Term will not be extended.
Once such notice is provided by either party, no further notice regarding not
extending the Term will be required. Notwithstanding the foregoing, upon a
"Change in Control" (as defined below) the remaining Term shall, if less than
two (2) years at such date, be extended automatically to continue for at least
two (2) years following such Change in Control.
3.2 TERMINATION. Notwithstanding Section 3.1 above, the Term, and
-----------
Bailye's employment hereunder, may terminate prior to the end thereof pursuant
to this Section 3.2 as set forth below, subject to the applicable provisions of
Section 4 of this Agreement with respect to severance payments.
(a) Either party shall have the right to terminate the Term and Bailye's
employment hereunder for any reason whatsoever, with or without Cause or Good
Reason (as hereinafter defined), by providing the other party hereto with
advance written notice of such termination as set forth in Section 8; provided,
--------
however, that any
- -------
-3-
<PAGE>
decision by Dendrite to terminate the Term and Bailye's employment hereunder
must be made by the Board.
Without limiting the generality of Section 3.2(a), the Board shall
have the right to terminate the Term and Bailye's employment hereunder for Cause
(as hereinafter defined) by giving written notice to Bailye. For purposes of
this Agreement, the term "Cause" as used herein shall mean (i) any gross
misconduct or gross neglect on the part of Bailye with respect to his duties
under this Agreement which gross misconduct or gross neglect has or is likely to
have a material adverse effect upon the business of Dendrite, provided, however,
that Bailye's good faith exercise of his business judgment in executing his
duties under this Agreement shall in no event constitute Cause hereunder, or
(ii) the indictment of Bailye for a felony which relates to Bailye's duties
under this Agreement or has or is likely to have a material adverse effect on
the business of Dendrite; provided, that, if Bailye ultimately is not
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convicted of, or does not plead guilty or nolo contendere to, such felony,
Bailye's termination of employment shall be treated retroactively as a
termination by the Company without Cause and he will be paid severance under
this Agreement. Following a Change in Control, Cause shall not exist unless and
until Dendrite has delivered to Bailye a copy of a resolution, duly adopted by
at least a majority of the Board then in office (not including Bailye) at a
meeting of the Board called and held for such purpose (after reasonable notice
to Bailye and after giving an opportunity for Bailye to be heard before the
Board), to the effect that in the opinion of the Board an event set forth in
clauses (i) or (ii) above has occurred and specifying the particulars thereof in
detail. Neither Bailye nor the Board shall be represented by legal counsel at
any such Board meeting.
(c) The Term and Bailye's employment hereunder shall automatically
terminate in the event Bailye shall have become Disabled (as hereinafter
defined). For the purposes of this Agreement, the term "Disabled" as used
herein shall have the same
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<PAGE>
meaning as that term, or such substantially equivalent term, has in any group
long-term disability policy carried by Dendrite. If no such policy exists, the
term "Disabled" shall mean the occurrence of any physical or mental condition
which materially interferes with the performance of Bailye's customary duties in
his capacity as an employee where such disability has been in effect for a
period of six (6) months (excluding permitted vacation time), which need not be
consecutive, during any single twelve (12) month period.
(d) The Term and Bailye's employment hereunder shall automatically
terminate in the event of Bailye's death.
4. SEVERANCE. Upon Bailye's termination of employment for any reason,
---------
Bailye shall be entitled to receive, within fifteen (15) days following such
termination, any accrued but unpaid compensation (including accrued vacation)
and bonus pay with respect to past periods, and any benefits and payments
otherwise owed to him pursuant to the employee benefit plans and arrangements of
Dendrite. In addition, subject to Section 4(h), Bailye shall be entitled to the
applicable severance payments and benefits set forth in either Section 4(a) or
4(b).
(a) If, during the Term, Bailye's employment hereunder is terminated by
(i) by Dendrite for any reason other than Cause or Disability, or as a result of
Bailye's death, or (ii) by Bailye for Good Reason (as hereinafter defined), then
Bailye shall be entitled to receive severance payments in an aggregate amount
equal to the sum of (A) the annual rate of Bailye's base salary in effect as of
the date of termination (not taking into account any reductions which would
constitute Good Reason) and (B) the average of the total annual bonus
compensation earned by Bailye during the three (3) completed fiscal years of
Dendrite immediately preceding his date of termination, divided by (C) twelve
(12), and multiplied by (D) the number of full and fractional months remaining
in the Term as of Bailye's date of termination. The severance payments to be
paid to Bailye under this Section 4(a) shall be referred to herein as the
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<PAGE>
"Severance Payment". Bailye's Severance Payment shall be paid by Dendrite in
cash in consecutive equal monthly payments commencing no later than thirty (30)
days after the effective date of the termination of Bailye's employment for a
period through the remainder of the Term as of the date of termination. No
interest shall accrue or be payable on or with respect to any Severance Payment.
In the event of a termination of Bailye's employment described in this Section
4(a), Dendrite shall continue to provide, for a period through the remaining
Term (as of the date of termination), Bailye (and Bailye's dependents if
applicable) with the same level of medical, dental, accident, disability and
life insurance benefits upon substantially the same terms and conditions
(including cost of coverage, if any, to Bailye) as existed immediately prior to
the effective date of termination; provided, that, if Bailye is not eligible to
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continue to participate in Dendrite plans providing such benefits, Dendrite
shall otherwise provide such benefits on the same after-tax cost to Bailye and
benefit basis as if his continued participation had been permitted. To the
extent available, such continued benefits may be provided through continued
"COBRA" coverage pursuant to Section 601 et seq. of the Employee Retirement
-- ---
Income Security Act of 1974, as amended ("ERISA") at Dendrite's full expense.
Notwithstanding the foregoing, in the event Bailye becomes reemployed with
another employer and becomes eligible to receive welfare benefits from such
employer, any such welfare benefits provided by this Agreement shall cease.
(b) If, during the Term and within the two (2) year period following a
Change in Control (the "Change in Control Window Period"), Bailye's employment
hereunder is terminated (i) by Dendrite for any reason other than Cause or
Disability, or as a result of Bailye's death, or (ii) by Bailye for Good Reason,
then Bailye shall be entitled to receive severance payments in an aggregate
amount equal to three (3) times the sum of (A) the annual rate of Bailye's base
salary in effect as of the date of termination (not taking into account any
reductions which would constitute Good Reason) and (B) the highest annual bonus
compensation earned by Bailye during the three (3) completed fiscal years of
Dendrite immediately preceding the date of
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<PAGE>
termination. The severance payments to be paid to Bailye under this Section 4(b)
shall be referred to herein as the "Change in Control Severance Payment".
Bailye's Change in Control Severance Payment shall be paid by Dendrite in a lump
sum in cash within thirty (30) days following the relevant event specified in
clause (i) or (ii) above. In the event of a termination of employment described
in this Section 4(b), Dendrite shall continue to provide, for a period of three
(3) years following the date of termination, Bailye (and Bailye's dependents if
applicable) with the same level of medical, dental, accident, disability and
life insurance benefits upon substantially the same terms and conditions
(including cost of coverage, if any, to Bailye) as existed immediately prior to
the effective date of termination (or, if more favorable to Bailye, as such
benefits and terms and conditions existed immediately prior to the Change in
Control); provided, that, if Bailye is not eligible to continue to participate
-------- ----
in Dendrite plans providing such benefits, Dendrite shall otherwise provide such
benefits on the same after-tax cost to Bailye and benefit basis as if continued
participation had been permitted. To the extent available, such continued
benefits may be provided through continued COBRA coverage at Dendrite's full
expense. Notwithstanding the foregoing, in the event Bailye becomes reemployed
with another employer and becomes eligible to receive welfare benefits from such
employer, any such welfare benefits provided by this Agreement shall cease.
(c)(i) Notwithstanding anything in this Agreement to the contrary, in the
event it shall be determined that any payment, award, benefit or distribution
(or any acceleration of any payment, award, benefit or distribution) by Dendrite
(or any of its affiliated entities) or any entity which effectuates a Change in
Control (or any of its affiliated entities) to or for the benefit of Bailye
(whether pursuant to the terms of this Agreement or otherwise) (the "Payments")
would be subject to the excise tax (the "Excise Tax") under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable
to Bailye under this Agreement shall be reduced (reducing first the Change in
Control Severance Payment, unless an alternative
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<PAGE>
method of reduction is elected by Bailye) to the maximum amount as will result
in no portion of the Payments being subject to such excise tax (the "Safe Harbor
Cap"). For purposes of reducing the Payments to the Safe Harbor Cap, only
amounts payable to Bailye under this Agreement (and no other Payments) shall be
reduced, unless consented to by Bailye.
(ii) All determinations required to be made under this Section 4(c)
shall be made by the public accounting firm that is retained by Dendrite as of
the date immediately prior to the Change in Control (the "Accounting Firm").
The Accounting Firm may rely upon appropriate experts in making its
determinations under this Section 4(c) including, without limitation, to value
the Restrictive Covenant under Section 7.3, and to determine whether any payment
under Section 7.3 would be subject to the Excise Tax. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control or refuses to perform the
determinations under this Section 4(c), Bailye may appoint another nationally
recognized public accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). If payments are reduced to the Safe Harbor Cap, the Accounting Firm
shall provide a reasonable opinion to Dendrite and Bailye that he is not
required to report any Excise Tax on his federal income tax return. All fees,
costs and expenses (including, but not limited to, the costs of retaining
experts) of the Accounting Firm shall be borne by Dendrite. The determination by
the Accounting Firm shall be binding upon Dendrite and Bailye (except as
provided in paragraph (iii) below).
(iii) If it is established pursuant to a final determination of a
court, an Internal Revenue Service (the "IRS") proceeding which has been finally
and conclusively resolved, or by mutual agreement of the parties hereto that
Payments have been made to, or provided for the benefit of, Bailye by Dendrite,
which are in excess of the limitations provided in this Section 4(c)
(hereinafter referred to as an "Excess
-8-
<PAGE>
Payment"), such Excess Payment shall be deemed for all purposes to be a loan to
Bailye made on the date Bailye received the Excess Payment and Bailye shall
repay the Excess Payment to Dendrite on demand, together with interest on the
Excess Payment at the "applicable federal rate" (as defined in Section 1274(d)
of the Code) from the date of Bailye's receipt of such Excess Payment until the
date of such repayment. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the determination, it is possible that
Payments which will not have been made by Dendrite should have been made (an
"Underpayment"), consistent with the calculations required to be made under this
Section 3(c). In the event that it is determined (A) by the Accounting Firm,
Dendrite (which shall include the position taken by Dendrite, alone or together
with its consolidated group, on its federal income tax return) or the IRS
pursuant to an IRS proceeding which has been finally and conclusively resolved
or (B) pursuant to a final determination of a court, that an Underpayment has
occurred, Dendrite shall pay an amount equal to such Underpayment to Bailye
within ten (10) days of such determination together with interest on such amount
at the applicable federal rate from the date such amount would have been paid to
Bailye until the date of payment.
(d) "Good Reason" for purposes of this Agreement means, without Bailye's
express written consent, the occurrence of any of the following events which is
not corrected within ten (10) days following notice of such event given by
Bailye to Dendrite:
(A) the assignment to Bailye of any duties or responsibilities
materially and adversely inconsistent with Bailye's position as President
and Chief Executive Officer of Dendrite (including any material diminution
of such duties or responsibilities) or (B) a material and adverse change
in Bailye's reporting responsibilities, titles or offices (other than
membership on the Board) with Dendrite;
-9-
<PAGE>
(B) (i) any material breach by Dendrite of Section 2 or 5 of this
Agreement, or (ii) the failure by Dendrite following a Change in Control
to continue in effect any material employee benefit plan, compensation
plan, welfare benefit plan or fringe benefit plan in which Bailye is
participating immediately prior to such Change in Control, unless (a)
Bailye is permitted to participate in other benefit plans providing Bailye
with substantially equivalent benefits (at substantially equivalent cost
to Bailye with respect to welfare benefit plans), (b) such failure is at
the written direction of Bailye or with Bailye's written consent or (c)
such failure is required by law;
(C) any requirement of Dendrite that Bailye (1) be based anywhere other
than the locations permitted pursuant to Section 1 hereof or (2) following
a Change in Control, travel on Dendrite business to an extent
substantially greater than the travel of Bailye prior to such Change in
Control; and
(D) the failure of Dendrite to obtain the assumption agreement from any
successor as contemplated in Section 11.1.
(e) "Change in Control" means the occurrence of any one of the following
events:
(i) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Dendrite representing 33% or more of the combined voting power
of Dendrite's then outstanding securities eligible to vote for the election
of the Board (the "Dendrite Voting Securities"); provided, however, that the
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event described in this paragraph (i) shall not be deemed to be a Change in
Control by virtue of any of the following acquisitions: (A) by Dendrite or
any of its subsidiaries, (B) by any employee benefit plan sponsored
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<PAGE>
or maintained by Dendrite or any of its subsidiaries, (C) by any underwriter
temporarily holding securities pursuant to an offering of such securities,
(D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)),
(E) pursuant to any acquisition by Bailye or any group of persons including
Bailye or any entity controlled by Bailye or such group ("Bailye Holders"),
or (F) a transaction (other than one described in paragraph (iii) below) in
which Dendrite Voting Securities are acquired from Dendrite, if a majority of
the Board approves a resolution providing expressly that the acquisition
pursuant to this clause (F) does not constitute a Change in Control under
this paragraph (i);
(ii) individuals who, on March 25, 1997, constituted the Board (the
"Incumbent Directors") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to March 25,
1997, whose election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of Dendrite in which such
person is named as a nominee for director, without objection to such
nomination) shall be an Incumbent Director; provided, however, that no
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individual elected or nominated as a director of Dendrite initially as a
result of an actual or threatened election contest with respect to directors
or as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed
to be an Incumbent Director;
(iii) the consummation of a merger, consolidation, share exchange or
similar form of corporate reorganization (other than a transaction with
Bailye, any group of persons including Bailye or any entity controlled by
Bailye or such a group of persons) involving Dendrite or any of its
subsidiaries that
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<PAGE>
requires the approval of Dendrite's stockholders whether for such transaction
or the issuance of securities in connection with the transaction or
otherwise, (a "Business Combination"), unless immediately following such
Business Combination: (A) more than 50% of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation (the
"Parent Corporation"), is represented by Dendrite Voting Securities that were
outstanding immediately prior to the consummation of such Business
Combination (or, if applicable, is represented by shares into which such
Dendrite Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Dendrite Voting
Securities among the holders thereof immediately prior to the Business
Combination, (B) no person (other than the Bailye Holders or any employee
benefit plan sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner, directly or
indirectly, of 33% or more of the total voting power of the outstanding
voting securities eligible to elect directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation) and (C) at
least a majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the Board's approval of
the execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the criteria
specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
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<PAGE>
(iv) the stockholders of the Company approve a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of Dendrite shall not
be deemed to occur solely because any person acquires beneficial ownership of
more than 33% of Dendrite Voting Securities as a result of the acquisition of
Dendrite Voting Securities by Dendrite which, by reducing the number of Dendrite
Voting Securities outstanding, increases the percentage of shares beneficially
owned by such person; provided, that if a Change in Control of Dendrite would
-------- ----
occur as a result of such an acquisition by Dendrite (if not for the operation
of this sentence), and after Dendrite's acquisition such person becomes the
beneficial owner of additional Dendrite Voting Securities that increase the
percentage of outstanding Dendrite Voting Securities beneficially owned by such
person, then a Change in Control of Dendrite shall occur.
(f) In the event Dendrite provides Bailye with written notice that it is
not extending the Term under Section 3.1, the Compensation Committee shall
determine, in its sole discretion, the amount of any severance payments to be
made to Bailye, which amount shall be determined as of Bailye's date of
termination in accordance with what is usual and customary for companies of
comparable size operating in a similar industry as Dendrite as it exists as of
the effective date of Bailye's termination of employment and which is
appropriate for Bailye's employment position with Dendrite.
(g) Bailye shall not be entitled to receive any Severance Payment or
Change in Control Severance Payment in the event (i) the Term and the employment
of Bailye hereunder is terminated for Cause, (ii) Bailye voluntarily terminates
his employment (other than for Good Reason) or (iii) the Term and the employment
of Bailye hereunder is terminated by reason of his death, Disability or
mandatory retirement (under any retirement policy applicable to senior
executives instituted prior to a Change in Control).
(h) The making of any severance payments under Section 4(a), 4(b) or 4(f)
hereunder is conditioned upon the signing (and effectiveness) of a general
release by Bailye in the form attached hereto under which Bailye releases
Dendrite and its
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<PAGE>
affiliates together with their respective officers, directors, shareholders,
employees and agents from any and all claims he may have against them through
the date of such release. In the event that Bailye signs such a general release,
Dendrite shall sign a release in the form attached hereto pursuant to which it
releases Bailye from all claims that it and its affiliates may have against
Bailye that it has knowledge of as of the date of such release; provided,
--------
however, that such release of Bailye by Dendrite shall not apply to any claim
- -------
arising out of or as a result of any unlawful or fraudulent act by Bailye. In
the event Bailye breaches Section 7 of this Agreement, in addition to any other
remedies at law or in equity, Dendrite may cease any severance payments
otherwise due under Section 4(a), under Section 4(f) or under Section 4(b) (if
paid pursuant to Section 7(c)); provided, however, that a cessation of benefits
-------- -------
may in no event occur unless and until the Company has provided Bailye with
written notice that Bailye has breached Section 7 of this Agreement, Bailye has
not ceased such breach of Section 7 within ninety (90) days of such notice and
such cessation is approved by a majority of the Board. If a court or an
arbitration panel determines that Bailye did not breach Section 7, any payments
not made as a result of the application of this Section 4(h), plus interest on
such payments in an amount equal to the greater of 10% or the applicable federal
rate, shall be paid in a lump sum to Bailye as soon as practicable following
such determination. Nothing herein shall affect any of Bailye's obligations or
Dendrite's rights under this Agreement.
5. BENEFITS.
--------
5.1 GENERAL BENEFITS. During the Term, to the extent permitted by law,
----------------
Bailye shall be eligible for any employee benefits generally available to the
other United States executives of Dendrite, including, but not limited to,
retirement plans, life, health and disability insurance programs and deferred
compensation programs comparable to those generally provided to other executives
of Dendrite from time to time; provided, that Bailye's participation in any
employee benefit or program
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<PAGE>
(other than benefits or programs extended to all United States employees of
Dendrite) shall require the approval of the Compensation Committee.
5.2 BENEFICIARIES. If Bailye dies during the Term (or while certain
-------------
amounts would be payable to Bailye had Bailye continued to live), Dendrite shall
pay to his named beneficiary, or in the event Bailye has not named a beneficiary
or his named beneficiary is deceased, his estate, all salary and bonus accrued
and unpaid at the date of Bailye's death, and any Severance Payment, Change in
Control Severance Payment or payments under Section 4(c) otherwise due hereunder
at the time such payments would otherwise be due.
5.3 VACATION. Bailye shall be entitled to four (4) weeks vacation per
--------
contract year during the Term. Unused vacation time shall be accumulated
annually up to an additional eight (8) weeks and any portion of any such unused
vacation time may be used in whole or in part in one or more future years.
Accumulated vacation time in excess of eight (8) weeks shall be forfeited by
Bailye without payment by Dendrite.
6. BUSINESS EXPENSES. The parties acknowledge that Bailye will incur,
-----------------
from time to time, for the benefit of Dendrite and in furtherance of Dendrite's
business, various expenses including, for example, home and automobile telephone
for use in the business, entertainment and promotion expenses, and similar
business expenses. Dendrite agrees that with respect to such expenses
reasonably incurred during the Term it shall either pay such expenses directly,
advance sums to Bailye to be used for payment of such expenses, or promptly
reimburse Bailye for such expenses incurred by him, in each case upon the
presentation of appropriate documentation with respect thereto. Without
limiting the generality of any of the foregoing, Dendrite shall pay, on behalf
of Bailye, all
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<PAGE>
membership dues and fees and all other costs associated with Bailye's
participation in the Young Presidents Organization (including, without
limitation, participation in seminars, educational programs, conventions and
other functions of the organization). In addition, Dendrite shall pay, on behalf
of Bailye, all membership dues and fees and all other costs associated with
Bailye's participation (including, without limitation, participation in
seminars, educational programs, conventions and other functions of the
organization) in other organizations, which, in Bailye's reasonable belief,
membership or participation therein are appropriate as part of Bailye's
continuing education and management development; provided, however, that all
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reimbursable expenses associated with membership and participation in such other
organizations shall be subject to a budget approved in advance by the Board on
an annual basis.
7. RESTRICTIVE COVENANT.
--------------------
7.1 GENERAL. Subject to the provisions of Section 7.3 below, during the
-------
Term, and for a period of two (2) years following any voluntary termination by
Bailye of his employment hereunder (other than a termination for Good Reason) or
any termination of Bailye's employment hereunder by Dendrite for Cause, Bailye
shall not directly or indirectly, as a proprietor, partner, shareholder,
officer, director, employee or in any other capacity, or for his own benefit, or
for or with any person, firm, corporation or other business entity: (i) engage
in any state of the United States of America, or any foreign country, where
Dendrite or any of its affiliates is conducting business as of the effective
date of termination of Bailye's employment (or in which Dendrite can establish
at the time of Bailye's termination of employment it will likely conduct
business within one (1) year following the effective date of Bailye's
termination), in any venture or activity in competition with the business or
businesses conducted by Dendrite or any of its affiliates; (ii) solicit for any
venture or activity in competition with the business or businesses conducted by
Dendrite or its affiliates any customers of Dendrite or any of its affiliates
existing as of the effective date of termination of Bailye's employment, or
within the year prior to such effective date, or request, directly or
indirectly, that any such customers of Dendrite or any of its affiliates curtail
or cancel their business then being conducted with Dendrite or any of its
affiliates; or (iii) induce or actively attempt to influence any employee of
Dendrite or
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<PAGE>
any of its affiliates employed as of the effective date of termination of
Bailye's employment, or within six (6) months prior to such effective date, to
terminate his or her employment with Dendrite or such affiliate. The covenants
and obligations of Dendrite under this Section 7.1 shall be hereinafter
collectively referred to as Bailye's "Restrictive Covenant". For purposes of
this Section 7.1, the term "affiliates" shall mean only those corporations or
entities which are controlled by Dendrite. For purposes of this Section 7.1 "the
business or businesses conducted by Dendrite or any of its affiliates" means
Electronic Territory Management Systems used to manage, coordinate and control
the activities of large sales forces and complex selling environments and/or
sales productivity tools of the type and nature marketed by Dendrite or any of
its affiliates (and support services related thereto) as of the effective
date of Bailye's termination of employment (or which Dendrite can at the time of
Bailye's termination of employment establish it will likely market within one
(1) year following the effective date of Bailye's termination). Notwithstanding
the foregoing, Bailye may invest in stocks, bonds or other securities of any
venture or entity in connection with the business or businesses conducted by
Dendrite or any of its affiliates if (1) such stocks, bonds, or other securities
are listed on any national or regional securities exchange or have been
registered under Section 12(g) of the Exchange Act and (2) his investment does
not exceed, in the case of any class of the capital stock, two percent (2%) of
the issued and outstanding shares, or, in the case of other securities, two
percent (2%) of the aggregate principal amount thereof issued and outstanding.
7.2 INVOLUNTARY TERMINATION. Subject to the provisions of Section 7.3
-----------------------
below, in the event that Dendrite terminates Bailye's employment hereunder
without Cause (or Dendrite elects not to extend Bailye's employment) or Bailye
terminates his employment for Good Reason, the Restrictive Covenant described in
Section 7.1 of this Agreement shall apply for a period of six (6) months
following Bailye's date of termination of employment.
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<PAGE>
7.3 NON-APPLICABILITY FOLLOWING CHANGE IN CONTROL. The Restrictive
---------------------------------------------
Covenant in this Section 7 shall not apply following the termination of Bailye's
employment for any reason during the Change in Control Window Period.
Notwithstanding the foregoing, Bailye may, in his sole discretion, elect to be
subject to the Restrictive Covenant in this Section 7 for a six (6) month to one
(1) year period following the termination of his employment, during the Change
in Control Window Period, by Dendrite for any reason other than Cause or
Disability or by Bailye for Good Reason. Subject to Section 4(c), in
consideration for the Restrictive Covenant applying to Bailye under this Section
7.3, the Company shall pay to Bailye an amount equal to the Change in Control
Severance Payment and/or the value of the continued benefit coverage under
Section 4(b), if any, that was not paid or was not provided to Bailye pursuant
to the application of Section 4(c). Such payment shall be made in consecutive
equal monthly installments during the period of the Restrictive Covenant.
7.4 REMEDIES. In addition to any other remedies set forth herein or which
--------
Dendrite may have at law or at equity, in view of the difficulty of determining
the amount of damages which may result to Dendrite from a violation by Bailye of
the Restrictive Covenant set forth herein, and of the likelihood of irreparable
harm to Dendrite as a result of such violation, Bailye acknowledges that
Dendrite shall be entitled to such relief at law or in equity as determined by
an appropriate judicial tribunal, including, but not limited to, injunctive
relief. In any event, if this Restrictive Covenant, or any part thereof, is
found to be unreasonable and unenforceable, the Court so holding may reduce the
territory described and/or the period of time involved to the extent necessary
to render the revised Restrictive Covenant enforceable by the Court and so to
effectuate the reasonable expectations of the parties.
8. NOTICE; DATE OF TERMINATION. For purposes of this Agreement, all
---------------------------
notices and other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given when delivered or five (5)
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days after deposit in the United States mail, certified and return receipt
requested, postage prepaid, addressed as follows:
If to Bailye:
P.O. Box 694
Bernardsville, New Jersey 07924
If to Dendrite:
1200 Mount Kemble Avenue
Morristown, New Jersey 07960-6797
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Bailye's date of termination by Dendrite or
Bailye, as the case may be, to the other, shall (i) indicate the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Bailye's employment under the provision so
indicated and (iii) specify the termination date (which date shall be not less
than thirty (30) nor more than sixty (60) days after the giving of such notice).
The failure by Bailye or Dendrite to set forth in such notice any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of Bailye or Dendrite hereunder or preclude Bailye or Dendrite
from asserting such fact or circumstance in enforcing Bailye's or Dendrite's
rights hereunder.
(c) "Date of termination" means (i) the effective date on which Bailye's
employment by Dendrite terminates as specified in a prior written notice by
Dendrite or Bailye, as the case may be, to the other, delivered pursuant to this
Section 8 or (ii) if Bailye's employment terminates by death, the date of
Bailye's death.
-19-
<PAGE>
9. FULL SETTLEMENT; RESOLUTION OF DISPUTES. Dendrite's obligation to make
---------------------------------------
any payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which Dendrite may have
against Bailye or others. In no event shall Bailye be obligated to seek other
employment or take other action by way of mitigation of the amounts payable to
Bailye under any of the provisions of this Agreement and, except as provided
specifically in Sections 4(a) and 4(b), such amounts shall not be reduced
whether or not Bailye obtains other employment. Except for any dispute or
controversy relating to Section 7 of this Agreement, any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in New Jersey by three (3) arbitrators in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. Dendrite
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 9. Dendrite shall also reimburse Bailye,
for all reasonable legal fees and expenses incurred in connection with any
contest or dispute with respect to this Agreement; provided, that such fees and
-------- ----
expenses shall only be paid by Dendrite in the event that Bailye is successful
with respect to a majority of his claims in such contest or dispute.
10. EMPLOYMENT WITH SUBSIDIARIES. Employment with Dendrite for purposes of
----------------------------
this Agreement shall include employment with any of its subsidiaries.
11. MISCELLANEOUS.
-------------
11.1 ASSIGNMENT PROHIBITED. This Agreement and the rights and the
---------------------
obligations hereunder may not be assigned by either party hereto, without the
prior written consent of the other party hereto; provided, however, that this
Agreement shall be assigned by Dendrite in connection with any Business
Combination that does not constitute a Non-Qualifying Transaction, and Dendrite
agrees that it will cause any
-20-
<PAGE>
successor or transferee in such a transaction to assume unconditionally this
Agreement by written agreement.
11.2 AMENDMENTS. No amendments or additions to this Agreement shall be
----------
binding unless in writing and signed by both parties, except as herein otherwise
provided.
11.3 GOVERNING LAW. This Agreement shall be governed in all respects by
-----------
the laws of the State of New Jersey.
11.4 PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
------------------
included solely for convenience and shall not affect or be used in connection
with the interpretation of this Agreement.
11.5 INVALID CLAUSE. The invalidity of any clause contained herein shall
--------------
not render any other provisions invalid and the balance as the Agreement shall
be binding or the party hereto to the extent permitted by law.
11.6 SURVIVAL. The rights, obligations and covenants of the parties under
--------
Sections 4, 7, 9 and 11.3 above, and any and all accrued but unpaid monetary
obligations of Dendrite, shall survive any termination of the Term, this
Agreement or of Bailye's employment hereunder.
11.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
----------------
understanding between the parties hereto with regard to the subject matter
hereof, except for any written non-disclosure agreements with Dendrite by
which Bailye may be bound, and supersedes the terms and provisions of the Prior
Agreement.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DENDRITE INTERNATIONAL, INC.
By:
-----------------------------
---------------------------------
JOHN E. BAILYE
-22-
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 4,053 16,982
<SECURITIES> 7,329 10,010
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<CURRENT-ASSETS> 39,388 44,514
<PP&E> 3,242 3,413
<DEPRECIATION> 297 261
<TOTAL-ASSETS> 45,978 50,073
<CURRENT-LIABILITIES> 9,799 9,965
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0 0
0 0
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<OTHER-SE> 1,786 6,465
<TOTAL-LIABILITY-AND-EQUITY> 45,978 50,073
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<OTHER-EXPENSES> 7,643 6,755
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<INTEREST-EXPENSE> 5 3
<INCOME-PRETAX> (411) 1,736
<INCOME-TAX> 145 661
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<NET-INCOME> (266) 1,075
<EPS-PRIMARY> (.024) .10
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